HAWKS INDUSTRIES, INC.
913 Foster Road
Casper, Wyoming 82601
NOTICE OF SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [June 19, 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.
Subsequent to the Agreement, on April 17, 2000, the Company's Board of
Directors declared a 7.5% stock dividend for all shareholders of record on May
1, 2000. The dividend required an adjustment to the number of shares to be
delivered to the Buyer which increased the number of shares to be disbursed to
6, 718, 750 and the right to buy shares to 15,453,125. The total number of
shares subject to the agreement is now 22,171,875. The total consideration for
the private placement did not change and therefore, the adjusted price per share
is now $1.49. References throughout the proxy materials will be made on
adjusted numbers which result from the stock dividend.
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
<PAGE>
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.
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
Special Meeting in lieu of the 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 Special Meeting in lieu of 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 [June 19, 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 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 [May 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>
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 Special Meeting in lieu of the
Annual Meeting of the Shareholders of the Company. It is anticipated that these
proxy materials will be mailed to Shareholders on or about [May 12, 2000].
Holders of shares of the Common Stock of the Company of record at the
close of business [May 10, 2000], will be entitled to vote at the Special
Meeting in lieu of the Annual Meeting of Shareholders to be held on [June 19,
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 December 31,
1999and 1997 and for the Periods from Inception (January 31, 1997) to December
31, 1999 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, 1999 its reports on Form 8-K
reporting events of June 9, 1999 and June 10, 1999, and amendments thereto, and
all other reports filed since December 31, 1999, 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 418,863 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 [May 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, April 1, 2000 was
1,426,208.
The following table shows the beneficial ownership of the shares of the
Company as of the close of business on April 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 124,623 (a) (c) 8.7
913 Foster Road
Casper, Wyoming 82601
James E. Meador, Jr. 129,586 (b) (c) 9.1
913 Foster Road
Casper, Wyoming 82601
Anne D. Zimmerman 164,655 11.5
Revocable Trust
400 E. 1st St.
Casper, Wyoming 82601
All Officers and Directors and 418,863 29.3
5% Shareholders as Group (three
in number)
<FN>
(a) Included are 12,420 shares allocated in the Company's Employee Stock
Ownership Plan-Trust.
(b) Included are 12,502 and 2,678 shares allocated to Mr. Meador and his spouse
respectively in the Company's Employee Stock Ownership Plan-Trust.
(c) Included are 1,801 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
<PAGE>
stock in the Company if the proposed Redemption of Shares is approved by the
shareholders of the Company at the Special Meeting in lieu of 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 Special Meeting in lieu of 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 215
James E. Meador, Jr. October, 1998 1,075
March, 1999 2,150
Anne D. Zimmerman February 1998 164,655
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.
<PAGE>
The following information is furnished as of April 1, 2000, with respect
to the nominee and the other Directors whose terms in office will continue after
the meeting.
<TABLE>
<CAPTION>
Principal Occupation Year Since Share of
During the Last Five Years which Common 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 2,204 .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 8.7
Director May 12, 1993; 124,623 (a) (c)
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 129,586 (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 9 .0
Director June 30, 1994;
Land Manager of Brown
Operating, Inc. since
1984.
<FN>
(a)Included are 12,420 shares allocated in the Company's Employee Stock
Ownership Plan-Trust.
(b)Included are 15,179 shares allocated to Mr. Meador and his spouse in the
Company's Employee Stock Ownership Plan-Trust.
(c)Included are 1,801 shares Mr. Meador and Mr. Hinchey own through H & M
Properties.
</TABLE>
<PAGE>
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
$60,000 and to all executive officers as a group.
Executive Compensation
<TABLE>
<CAPTION>
Annual compensation Long term compensation
Awards Payout
Name and principal Year Salary Bonus Other annual Restricted Securities LTIP All
position ($) ($) Compensation Stock Under-Lying payouts other
($) 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 1999 104,000 -0- (a, b) -0- -0- -0- -0-
President and Director 1998 80,000 -0- (a, b) -0- -0- -0- -0-
of Hawks Industries, 1997 87,800 -0- (a, b) -0- -0- -0- -0-
Inc. Vice President of
Western Environmental
Services & Testing, Inc.
James E. Meador, Jr. 1999 103,000 -0- (a, b) -0- -0- -0- -0-
Vice President and 1998 80,000 -0- (a, b) -0- -0- -0- -0-
Director of Hawks 1997 87,800 -0- (a, b,) -0- -0- -0- -0-
Industries, Inc.,
President of Western
Environmental Services &
Testing, Inc.
Joseph J. McQuade 1998 37,320 -0- (a) -0- -0- -0- -0-
President, CEO and 1997 98,280 -0- (a) -0- -0- -0- -0-
Director of Hawks
Industries.
All Executive Officers 1999 207,000 -0- -0- -0- -0- -0-
as a Group (Two in 1998 160,000 -0- -0- -0- -0- -0-
number) 1997 273,880 -0- -0- -0- -0- -0-
<FN>
(a) Messers. Hinchey, Meador and McQuade received other compensation valued at
less than 10% of the compensation reported in this table.
(b) 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>
<PAGE>
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.
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 $3,672 and $4,667.
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
2,688 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 Buyers originally offered to acquire the Company
shares at the NASDAQ trading price which was approximately $0.90 per share. The
Board of Directors rejected that offer and demanded the book value per share at
the time, which was $1.60 prior to the stock dividend. The Buyers agreed to the
Directors' price per share demand. 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. The
Company's management and Directors did not receive or consider any other
business opportunities or offer other than from the Buyers.
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 Special Meeting in lieu of the 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.
<PAGE>
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
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 issuance of
additional shares otherwise than a stock split or stock dividend will have a
dilutive effect on shareholder ownership of the Company and as a result, reduce
the percentage ownership of the shareholder. 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 6,718,750
Proposal 2
Shares to be issued if all options are exercised in 15,453,125
Private Placement described in Proposal 2
Shares authorized but not issued 22,828,125*
-----------
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 approximately $1.49
per share for at least 6,718,750 shares of common stock yielding the Company a
consideration of $10,000,000. The Agreement was amended on September 23, 1999,
October 15, 1999, January 31, 2000, and April 17, 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 15,453,125 shares at the same price. The maximum consideration
to be received by the Company will be $33,000,000 if all 22,171,875 shares are
purchased for approximately $1.49 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 $10,200,000 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 $850,000. 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.
<PAGE>
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
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 December 31, 1999, North Star had spent $5,371,564 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
<PAGE>
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%
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 Canadian
Venture Exchange.
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. North Star's president is Harold J. Noyes,
who received a Ph.D. degree in geology and geochemistry from the Massachusetts
Institute of Technology in 1978 and has over 20 years of experience in domestic
and international exploration and mining, including more than five years as
chief geologist for the Doyon before joining North Star. North Star's vice
president, exploration, is Bruce A. Bouley, who received a Ph.D. degree in
geology from the University of Western Ontario in 1978 and has more than 20
years of experience as an exploration manager and geologist, including over the
past five years in addition to his one and one half years with North Star, over
three years with BHP Minerals as its manager of North and Central America
exploration and slightly less than a year as an independent supplier of
consulting exploration services to the mineral industry in Latin America,
Alaska, and Nevada.
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.
<TABLE>
<CAPTION>
North Star Exploration, Inc.
Selected Financial Information
As of and for periods ended: 12/31/97 12/31/98 12/31/99
-------- -------- --------
<S> <C> <C> <C>
Operating revenues $ -0- $ -0- $ -0-
Income (Loss) (795,878 ) (2,975,786 ) (4,755,263)
Total Assets 273,765 529,390 1,010,925
Debt to Affiliate 1,015,367 3,879,155 8,643, 112
Affiliate Cash Dividend -0- -0- -0-
</TABLE>
<PAGE>
Zeus Consolidated Holdings, Inc.
Selected Financial Information
<TABLE>
<CAPTION>
As for the period ended: December 31, 1999
<S> <C>
Operating revenues $ 16, 013
Income (loss) (170,084)
Total assets 17,358
Debt to affiliates 157,903
Cash dividends -0-
</TABLE>
Comparative Table
<TABLE>
<CAPTION>
Zeus
----
Consolidated
------------
Hawks Industries, Inc. North Star Exploration, Inc. Holdings, Inc.
---------------------- ---------------------------- --------------
<S> <C> <C> <C> <C> <C>
12/31/98 12/31/99 12/31/98 12/31/99 12/31/99
-------- -------- -------- -------- --------
(i) Book value per share $1.60 $1.75 $-0- $(0.43) $ 0.77
(ii) Cash dividends -0- -0- -0- -0- -0-
(iii) Income (loss) per (0.11) 0.17 (0.15) (0.24) (7.56)
share
</TABLE>
North Star Management's Discussion and
Analysis of Financial Condition and
Results of Operations
North Star is still in the exploration 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 $2,378,156
for 1998 and to $2,943,925. The increases were 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
$435,385 for 1998 and to $1,331,720 for 1999. The increase in 1999 was caused
partly by professional fees incurred in the third and fourth quarters and the
additional administrative expenses incurred in connection with managing
operations and dealing with contemplated transactions.
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 to $446,331 for 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 to $4,751,484 for
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.
All of the funding for North Star to date has been provided by Equistar
Consolidated Holdings, LLC ("Equistar"). Equistar has advanced $8,643,112 as of
December 31, 1999 to cover cash used in operations since inception of $7,723,160
and cash used in investing activities of $899,520. Investments of $650,000 were
made to acquire leasehold interests and $249,520 was used to acquire equipment.
Equistar has committed to fund the operations of North Star through March 31,
2001 unless other financing is secured prior to that time. Such funding by
Equistar will be unnecessary if Proposal 2 is adopted for in that event such
funding will be furnished by the Company, which will use for that purpose, to
the extent required, $4,500,000 of the cash consideration that will be received
<PAGE>
by the Company. With respect to a portion of North Star's properties, funding
may be furnished by International Bravo Resource Corporation ("Bravo") to the
extent it exercises its option, if the letter of intent ripens into a binding
agreement. Apart from the possibilities of the Bravo transaction, it does not
appear that North Star will have any other internal source of liquidity within
the next twelve months.
The following table summarizes the borrowings that have been made by North
Star from Equistar from inception through December 31, 1999. The indebtedness
bears simple interest at the rate of 7 percent per annum, payable at maturity
along with the principal on March 31, 2001. North Star's indebtedness to
Equistar is the debt obligation of North Star that will be assigned to the
Company (in whole or in part, depending on whether the minimum or maximum number
of shares are purchased) if Proposal 2 is approved.
<TABLE>
<CAPTION>
Date Principal Interest Total for Period
<S> <C> <C> <C>
Jan-Jun 1997 $ 327,500.00 $ 3,125.04 $ 330,625.04
Jul-Dec 1997 661,102.08 19,698.53 680,800.61
Jan-Jun 1998 1,066,050.00 50,161.25 1,116,211.25
Jul-Dec 1998 1,635,155.00 102,302.00 1,737,457.00
Jan-Jun 1999 2,772,835.00 176,251.69 2,949,086.69
Jul-Dec 1999 2,180,470.00 270,084.58 2,450,554.58
Total, inception
To 12/31/99 $ 8,643,112.08 $ 621,623.09 $ 9,264,735.17
</TABLE>
Zeus Consolidated Holdings, Inc.
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
The Company's revenues from operations in 1999 were limited to a non-cash
item of $16,013, which consisted of the 150,000 shares of stock of Bravo that
were delivered as the first installment under the letter option agreement, as
amended (the "Letter Option Agreement") referred to in Note 1 to the Financial
Statements. It appears that the absence of any source of cash operating revenue
will continue during 2000, except possibly for Bravo's obligation to reimburse
the Company for certain minimum assessment work and claims maintenance
expenditures estimated in the Leter Option Agreement at $41,600. However,
Bravo's obligation to make such payment is conditioned upon Bravo's receipt of
funds from its "September 1999 financing" which the Company is informed had not
yet been commenced at April 1, 2000.
It appears that, if Bravo decides to maintain its option rights in full,
two additional installments payable in Bravo stock will have to be paid to the
Company during 2000, each for the same number of shares as the first
installment, one (subject to approval of the Canadian Venture Exchange) upon the
filing and acceptance of Zeus' 1999 assessment work, which filing and acceptance
has been accomplished, and the other on or before December 31, 2000. However,
if Bravo decides not to maintain all its option rights, some or all of such
payments will not have to be made. Moreover, the shares of Bravo stock issuable
to the Company pursuant to the Letter Option Agreement will be subject to
holding period and other restrictions under the British Columbia securities laws
and Canadian Venture Exchange rules and, therefore, not immediately be freely
salable.
It is anticipated that funds necessary to explore and develop the
properties will be expended by Bravo as part of the minimum expenditures it is
required to make in order to preserve its option rights, and that those
expenditures will include future minimum assessment work and claims maintenance.
Should the last mentioned items fail to be paid by Bravo, it will be necessary
for the Company to obtain the necessary funds elsewhere in order to preserve its
mineral rights. In the absence of any other source, it is anticipated that such
funds will be obtainable, at least through March 31, 2001, from Equistar.
Equistar has advanced funds to the Company in the past and has stated that it
intends to continue to provide financial assistance to the Company to enable it
to carry on its operations through at least March 31, 2001, unless the Company
becomes able to finance its operations internally or from other sources prior to
said date.
<PAGE>
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
Purchaser Shares the Company Consideration
- --------- ------ ----------- -------------
<S> <C> <C> <C>
Universal Equities
Consolidated, LLC 3,359,375 43.20531% $ 5,000,000
David H. Peipers 1,679,688 21.60265% 2,500,000
The Cornerhouse Limited
Partnership 1,007,812 12.96159% 1,500,000
The Winsome Limited
Partnership 671,875 8.64106% 1,000,000
Total 6,718,750 86.41061% $ 10,000,000
</TABLE>
Maximum Amount of Shares
Allowed to be Purchased
Under the Agreement
<TABLE>
<CAPTION>
Percentage
Number of Ownership of
Purchaser Shares the Company Consideration
- --------- ------ ----------- -------------
<S> <C> <C> <C>
Universal Equities
Consolidated, LLC 11,085,938 47.72558% $ 16,500,000
David H. Peipers 5,542,969 23.86279% 8,250,000
The Cornerhouse Limited
Partnership 3,325,781 14.31767% 4,950,000
The Winsome Limited
Partnership 2,217,187 9.54512% 3,300,000
Total 22,171,875 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 most of
which is 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. A
decision has not yet been made as to the form of the transaction by which such
funds will be made available to North Star. It is contemplated that the Company
<PAGE>
will receive for the funds indebtedness or shares of North Star, or a
combination of the two, or some other form of interest in North Star, that will
constitute fair consideration to the Company. The form of the transaction will
depend in part on whether the maximum number of shares are purchased, in which
event North Star will become a more than 80 percent owned subsidiary of the
Company.
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 following graph shows the intended use of the cash portion of the
consideration that will be received if Proposal 2 is approved:
INTENDED USE OF CASH PROCEEDS
<TABLE>
<CAPTION>
Expenditure Amount Percent
----------- ------ -------
<S> <C> <C>
North Star Exploration $ 4,500,000.00 90%
Oil and Gas Development 500,00.00 10%
Total Expenditures 5,000,000.00 100%
</TABLE>
The non-cash portion of the consideration, which will consist of
indebtedness of North Star if the minimum number of shares is purchased, and of
indebtedness of North Star and shares of North Star and Zeus if the maximum
number of shares is purchased, will in either event be retained as an investment
by the Company.
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, 1999 had a net operating loss ("NOL")
carryforward of $8,523,148. 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. The loss of
the NOL carryforward would result in the Company loosing the ability to offset
as much as $8,520,000 in future earnings and therefore the Company would pay the
tax on those potential future earnings as required by the Internal Revenue
Service.
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.
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.
<PAGE>
The private placement described above is subject to the Company's
Shareholder approval at its Special Meeting in lieu of the 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. The audited financial statements as of
December 31, 1999 and 1998 and for the period from inception (January 31, 1997)
to December 31, 1999 for North Star Exploration are presented as Exhibit G. The
audited financial statements as of December 31, 1999 and for the period of
inception (March 1, 1999) through December 31, 1999 for Zeus Holding company are
presented as Exhibit H.
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 to assure the Buyers of the
continued control in the event that the Company of the Buyers should sell shares
of common stock of the Company to other parties, publicly or privately, in the
future (although at the present time no such plans have been made) 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 1 of the Hawks Industries, Inc. and
Subsidiaries Notes to Pro Forma Condensed Consolidated Financial Statements, and
include all the common stock in Western Environmental Services and Testing, Inc
which owns a 15,100' building in Natrona, County, Wyoming, all common stock in
Central Wyoming Properties, Inc. which sole asset is 33.7 acres of undeveloped
land east of Casper, Wyoming, all the Company's W.E.R.C preferred stock, and
overriding royalties. 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 building, 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.
<PAGE>
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 Special Meeting in lieu of the Annual Meeting. A majority of
the voting shareholders casting votes in favor of the Proposal will be required
for its approval.
Pro Forma condensed consolidated financial statements reflecting the
Environmental Testing and Management segment are presented as Exhibit C.
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 D.
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 E.
Unaudited financial statements for Western Environmental Services &
Testing, Inc. as of December 31, 1999 and 1998 and for the periods ending
December 31, 1999, 1998, and 1997 are presented as Exhibit F.
Dissenters' Rights
Shareholders are 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 to preserve their dissenter's rights. If the
shareholder does not give notice or votes in favor of the proposal, they will
lose their dissenter's rights under the statute. The fair value of the
dissenter's shares will be established by a court appointed appraiser if the
Company and dissenter cannot agree on the fair value of the shares. 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 result in 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).
<PAGE>
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;
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.
Under the laws of both Nevada and Wyoming, minority shareholders have a
right to dissent from certain kinds of transactions, including most mergers,
consolidations and sales by a corporation of substantially all of its assets,
and to receive payment of fair value of their shares if they choose to do so and
comply with the prescribed procedural requirements.
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 Special Meeting in lieu of the 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 Special Meeting in lieu of 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 Special Meeting in lieu of the
Annual Meeting of Shareholders.
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before this
Special Meeting in lieu of the 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.
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, 1999, which has been filed with the United States Securities and
Exchange Commission;
2. 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.
EXHIBITS
EXHIBIT INDEX
A. Resolution for Authorized Share Amendment Articles of Incorporation
B. Article 13 Dissenters' Rights
C. Pro Forma Condensed Consolidated Financial Statements Reflecting the
Environmental Testing and Management Segment Discontinued Operations
D. Pro Forma Condensed Consolidated Financial Statements reflecting the
Redemption of Principal Shareholders' Stock with Corporate Assets and the
Minimum Pro Forma Private Placement of Common Stock
E. Pro forma Condensed as adjusted Consolidated Financial Statements
reflecting the Redemption of Principal Shareholders' Stock with Corporate
Assets and the Maximum Private Pro Forma Placement of Common Stock
F. Unaudited financial statements for Western Environmental Services &
Testing, Inc. as of December 31, 1999 and 1998 and for the periods ending
December 31, 1999, 1998 and 1997
G. Audited financial statements as of December 31, 1999 and for the period
from inception (January 31, 1997) to December 31, 1999 for North Star
Exploration
H. Audited financial statements as of December 31, 1999 and 1998 and for the
periods ending December 31, 1999 and for the period from Inception (March
1, 1999) through December 31, 1999 for Zeus Holding Company
I. Unaudited financial statements as of December 31, 1999 and 1998 and for the
periods ending December 31, 1999, 1998, and 1997 for the overriding royalty
interests of Hawks Industries, Inc.
<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.
(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
<PAGE>
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.
(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
<PAGE>
(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 REFLECTING THE
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
The accompanying pro forma condensed consolidated financial statements
illustrate the effect of reporting the environmental testing and management
segment as discontinued operations. As required by the U.S. Securities and
Exchange Commission, Division of Corporation Finance, Accounting Disclosure
Rules and Practices, the statements reflect pro forma presentation for all
periods.
In addition, after the close of business on April 17, 2000, the Hawks Board of
Directors declared a 7 1/2% stock dividend payable to stockholders of record on
May 1, 2000. The shareholders' equity of Hawks as of December 31, 1999, included
in the Company's Form 10K for the year ended December 31, 1999, and incorporated
herein by reference, has been restated on a pro forma basis in this Exhibit C to
reflect such stock dividend. The number of shares outstanding at December 31,
1999 of 1,351,513 has been adjusted by 7 1/2 % to 1,452,876 shares on a pro
forma basis. In addition, an adjustment has been made to the shareholders'
equity to reflect the capitalization of earnings in the amount of $295,000 based
on the closing price on April 17, 2000 of $3.125 per share (calculated as
101,363 shares times $3.125 divided by 1.075%).
The stock dividend has been reflected in the following manner:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Stock
Hawks Dividend Hawks
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Shareholder's Equity
Common stock, par value $ 13,000 $ 1,000 $ 14,000
Capital in excess of par value 3,046,000 294,000 3,340,000
Retained deficit (673,000 ) (295,000 ) (968,000 )
Treasury stock (24,000 ) (24,000 )
$ 2,362,000 $ 2,362,000
Shares outstanding 1,351,513 101,363 1,452,876
Treasury shares 24,808 1,861 26,669
</TABLE>
Earnings per share calculations in the accompanying pro forma financial
statements reflect the additional shares outstanding for all periods presented.
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Unaudited)
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 23,000 $ 15,000
Accounts receivable 18,000 31,000
Short-term investments - 2,000
Other current assets 19,000 13,000
Total current assets 60,000 61,000
PROPERTY AND EQUIPMENT, net
(successful efforts method) 631,000 826,000
INVESTMENTS AND OTHER ASSETS
Note receivable 29,000 35,000
Land investment 196,000 196,000
Available for sale investment 100,000 100,000
Other assets 35,000 57,000
Net assets from discontinued operations 1,465,000 1,036,000
1,825,000 1,424,000
$ 2,516,000 $ 2,311,000
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 65,000 $ 65,000
Current maturities of long-term debt 10,000 15,000
Accounts payable 47,000 52,000
Accrued liabilities 32,000 24,000
Total current liabilities 154,000 156,000
CONTINGENT LIABILITY - -
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, $.01 par value; authorized 997,000 shares; no
shares issued - -
Common stock, $.01 par value; authorized 5,000,000 shares;
shares issued 1,452,876 in 1999 and 1,351,513 in 1998 14,000 13,000
Capital in excess of par value of common stock 3,340,000 3,046,000
Retained deficit (968,000 ) (897,000 )
Less common stock held in treasury at cost; 26,669 and 6,175
shares in 1999 and 1998, respectively (24,000 ) (7,000 )
2,362,000 2,155,000
$ 2,516,000 $ 2,311,000
<FN>
See Notes to Pro Forma Financial Statements.
</TABLE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Oil and gas $ 169,000 $ 236,000 $ 322,000
Gain on sale of assets - - 12,000
169,000 236,000 334,000
Operating expenses:
Oil and gas 44,000 53,000 139,000
Depreciation, depletion and amortization 196,000 90,000 132,000
General and administrative 12,000 20,000 24,000
252,000 163,000 295,000
Operating income (loss) (83,000 ) 73,000 39,000
Other income (expense):
Other income 7,000 17,000 32,000
Interest income 3,000 13,000 10,000
Interest expense (5,000 ) (14,000 ) (26,000 )
Sale of buildings - 48,000 -
Income (loss) before taxes (78,000 ) 137,000 55,000
Provision for taxes:
Current - - -
Deferred - - (11,000 )
- - (11,000 )
Income (loss) from continuing operations (78,000 ) 137,000 44,000
Income (loss) from operations of environmental testing
and services segment to be disposed of 302,000 13,000 (319,000 )
Net income (loss) $ 224,000 $ 150,000 $ (275,000 )
Weighted average number of
common shares outstanding 1,415,956 1,452,814 1,452,510
Earnings (loss) per share
Income (loss) from continuing operations $ (.06 ) $ .09 $ .03
Income (loss) from discontinued operations
.22 .01 (.22 )
Net income (loss) $ .16 $ .10 $ (.19 )
<FN>
See Notes to Pro Forma Financial Statements.
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(Unaudited)
Capital in Accumulated Common Stock
Common Stock Issued Excess of Earnings Held in Treasury
------------------- ----------------
Shares Amount Par Value (Deficit) Shares Amount
------ ------ --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,339,443 13,000 $ 3,007,000 (772,000 ) - -
Stock issued to Employee
Stock Ownership Plan Trust 11,967 - 39,000 - - -
Net loss - - - (275,000 ) - -
Balance, December 31, 1997 1,351,410 13,000 3,046,000 (1,047,000 ) - -
Purchase of treasury stock - - - - 6,175 7,000
Additional shares issued
in 20 for 1 reverse split 103 - - - -
Net income - - - 150,000 - -
Balance, December 31, 1998 1,351,513 13,000 3,046,000 (897,000 ) 6,175 7,000
Purchase of treasury stock - - 60,000 59,000
Sale of treasury stock - - (10,000 (10,000 )
Transfer to ESOP - - (31,367) (32,000 )
Net income - - 224,000 - -
Stock dividend 101,363 1,000 294,000 (295,000 ) 1,861 -
Balance, December 31, 1999 1,452,876 $14,000 $ 3,340,000 $ (968,000 ) 26,669 24,000
<FN>
See Notes to Pro Forma Financial Statements.
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ (78,000) $ 137,000 $ 44,000
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in) operating
activities
Depreciation, depletion and amortization 101,000 85,000 126,000
Deferred tax adjustment - - 11,000
Net gain on sale of assets - (48,000) (12,000)
Impairment of non-producing oil and gas
property 95,000 5,000 6,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 13,000 9,000 (2,000)
(Increase) decrease in other current assets (6,000) (7,000) 3,000
Decrease in accounts payable and
accrued expenses 3,000 (100,000) (113,000)
Net cash flows provided by continuing operating activities 128,000 81,000 63,000
Cash flow from investing activities:
Purchases of property and equipment - - (76,000)
Proceeds from sale of properties - 258,000 16,000
(Increase) decrease in other assets 22,000 (20,000) -
Decrease in land investment - 6,000 -
Decrease in note receivable 6,000 3,000 4,000
Decrease in short-term investments 2,000 3,000 363,000
Net cash provided by continuing investing activities 30,000 250,000 307,000
Cash flows from financing activities:
Purchases of treasury stock (60,000) (7,000) -
Sale of treasury stock 43,000 - -
Proceeds from debt obligations incurred - 65,000 -
Reduction of debt obligations (5,000) (260,000) (194,000)
Other (128,000) (122,000) (214,000)
Net cash used in continuing financing activities (150,000) (324,000) (408,000)
Increase (decrease) in cash and cash equivalents 8,000 7,000 (38,000)
Cash and cash equivalents at beginning of year 15,000 8,000 46,000
Cash and cash equivalents at end of year $ 23,000 $ 15,000 $ 8,000
<FN>
See Notes to Pro Forma Financial Statements.
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
(Unaudited)
The pro forma adjustments for the discontinuance of the Environmental Testing
and Services segment are as follows:
Reclassify the net assets of the segment, including corporate buildings,
certificate of deposit, and related notes payable as of December 31, as
follows:
1999 1998
ASSETS
Cash $ 5,000 $ 45,000
Accounts receivable 637,000 394,000
Short-term investments 200,000 200,000
Costs on uncompleted
contracts in excess of
related billings 9,000 15,000
Other current assets 48,000 51,000
Property and equipment, net 1,041,000 877,000
Other assets 226,000 200,000
Total Assets $ 2,166,000 $ 1,782,000
LIABILITIES
Notes payable $ 218,000 $ 138,000
Current maturities of
long-term debt 62,000 113,000
Accounts payable 125,000 143,000
Accrued liabilities 17,000 12,000
Long-Term debt 279,000 340,000
Total Liabilities 701,000 746,000
Net Assets of
Discontinued Operations $ 1,465,000 $ 1,036,000
See Notes to Proforma Financial Statements.
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ENVIRONMENTAL TESTING AND MANAGEMENT SEGMENT
DISCONTINUED OPERATIONS
(Unaudited)
A reconcilation of net income (loss) from Exhibit F Western Environmental
Services & Testing, Inc. and Exhibit C pro forma net income (loss) from
discontinued operations for the years ended December 31, follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income (loss) per Exhibit F $ 431,000 $ 214,000 $ (75,000)
Depreciation attributable to buildings &
equipment (5,000) (11,000) (19,000)
Interest income from certificates of deposit 10,000 10,000 10,000
Interest expense on building loans (18,000) (20,000) (20,000)
Allocation of general and administrative expenses (116,000) (180,000) (215,000)
Net income (loss) per Exhibit C $ 302,000 $ 13,000 $ (319,000)
</TABLE>
<PAGE>
EXHIBIT "D"
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS REFLECTING THE 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 December 31, 1999 is based on the historical
balance sheet of the Company as of that date after considering the pro forma at
Exhibit C for the discontinuance of the environmental testing business, and
assumes the redemption and minimum private placement transactions took place on
that date. The condensed consolidated statements of operations for the year
ended December 31, 1999 are based on the historical statements of the Company
for that period assuming the transaction took place on January 1, 1999.
The pro forma condensed financial statements reflect the redemption of 384,438
shares of common stock from certain shareholders of the Company in exchange for
certain of the corporate assets and liabilities, as described in Note 1 of the
accompanying notes, and the minimum purchase of 6,718,750 shares of common stock
for $5,000,000 cash and the transfer of a $5,000,000 advance made to North Star
by the Buyers.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the transactions. The net assets to be used in the
redemption could increase or 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. included in this filing at Exhibit F.
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
December 31, 1999
Redemption
and
Historical, Minimum Minimum
Adjusted for Capital Capital
ASSETS Discontinued Redemption Redemption Infusion Infusion
Operations Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- --------- ----------- -----
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 23,000 $ 23,000 $ 5,000,000 (3) $ 5,023,000
Accounts
receivable 18,000 18,000 18,000
Other current
assets 19,000 19,000 19,000
Total current
assets 60,000 60,000 5,060,000
PROPERTY AND
EQUIPMENT, net 631,000 (101,000 )(1) 530,000 530,000
INVESTMENTS
AND OTHER
ASSETS
Note receivable 29,000 29,000 29,000
Land investment 196,000 (196,000 )(1) - -
Available for sale
investments 100,000 (100,000 )(1) - -
Other assets 35,000 35,000 35,000
Net assets from
discontinued
operations 1,465,000 (1,465,000 )(1) - -
1,825,000 64,000 64,000
$ 2,516,000 $ 654,000 $ 5,654,000
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES
Notes payable $ 65,000 $ 65,000 $ 65,000
Current maturities
on long-term debt 10,000 10,000 10,000
Accounts payable 47,000 47,000 47,000
Accrued liabilities 32,000 32,000 32,000
Total current
liabilities 154,000 154,000 154,000
SHAREHOLDERS'
EQUITY
Capital stock:
Preferred stock - - -
Common stock 14,000 14,000 67,000 (3) 81,000
Capital in excess
of par value on
common stock 3,340,000 3,340,000 9,933,000 (3) 13,273,000
Retained deficit (968,000 ) (1,290,000 )(1) (2,258,000) (2,258,000 )
Debt payment
obligation - - (5,000,000 (3) (5,000,000 )
Treasury stock (24,000 ) (572,000 )(1) (596,000) (596,000 )
2,362,000 500,000 5,500,000
$ 2,516,000 $ 654,000 $ 5,654,000
<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, 1999
Redemp-
Minimum tion and
Historical, Redemp- Capital Minimum
Adjusted for tion Redemp- Infusion Capital
Discontinued Adjust- tion Pro Adjust- Infusion
Operations ments Forma ments Pro Forma
---------- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue 169,000 (61,000) (2) 108,000 108,000
Operating
expenses 252,000 (108,000) (2) 144,000 144,000
Operating income
(loss) (83,000) (36,000) (36,000)
Other income
(expense) 5,000 5,000 5,000
Income (loss)
before income
taxes (78,000) (31,000) (31,000)
Provision for taxes - - -
Net income (loss) (78,000) (31,000) (31,000)
Weighted average
number of
common shares
outstanding 1,415,956 (384,438) (1) 1,031,518 6,718,750 (4) 7,750,268
Earnings (loss) per
common share (.06) (0.03) *
<FN>
* Less than $.01 per share loss.
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 384,438 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 December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Redemption of 384,438 shares for:
<S> <C>
(a) All assets of W.E.S.T., Inc.
Cash $ 5,000
Accounts receivable 637,000
Costs on uncompleted contracts in excess
of related billings 9,000
Other current assets 48,000
Property and equipment, net 786,000
Other assets 31,000
Investment in excess of underlying equity
from consolidation 195,000
Assume all liabilities of W.E.S.T., Inc.
Notes payable (218,000)
Current maturities of long-term debt (62,000)
Accounts payable (125,000)
Accrued liabilities (17,000)
Long-term debt (107,000)
(b) Certificate of deposit security on W.E.S.T., Inc. loans 200,000
(c) Buildings
Property and equipment, net 255,000
Less associated debt - long-term (172,000)
Assets classified as discontinued operations of environmental
testing and management segment 1,465,000
(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 transfer of all overriding royalties 101,000
Net assets and liabilities transferred in redemption of common
stock $ 1,862,000
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
(g) The fair value of the 384,438 shares of Hawks redeemed
was $1.49 per share resulting in a loss on the exchange
of approximately $1,290,000, calculated as follows:
Shares received (Treasury shares)
(384,438 * $1.49) 572,000
Net assets exchanged per above (1,862,000 )
Loss on exchange $ (1,290,000 )
</TABLE>
The loss on the exchange relates to the value being given to the redeemed
shareholders for settlement of goodwill, employment agreements and release of
liabilities and is not an indication of a SFAS No. 121 impairment.
(2)To remove operating revenues and costs associated with the oil and gas
overriding royalties as those assets have been included in the redemption
discussed in Note (1) above. Unaudited financial statements related to these
operations are presented at Exhibit I.
(3)To reflect the injection of capital per the Minimum Private Placement of
Capital Stock by the Buyers. Buyers are contributing $5,000,000 in cash and
$5,000,000 of an advance that North Star owes to them for 6,718,750 shares
of Hawks Industries, Inc. $.01 par value, common stock with a value of $1.49
per share. The $5,000,000 advance to North Star will be paid by North Star
to Hawks out of any cash generated from operations or the sale of leasehold
interests, if necessary. Upon completion of the maximum capital infusion in
Exhibit E, this advance becomes an inter-company account which eliminates in
consolidation.
<TABLE>
<CAPTION>
<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 $1.49 fair value, the components of
Shareholders' Equity are as follows:
<TABLE>
<CAPTION>
<S> <C>
Common stock $ 67,000
Capital in excess of par value on common stock 9,933,000
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 6,718,750 shares issued upon acceptance of the Minimum Private
Placement of Capital Stock.
<PAGE>
EXHIBIT "E"
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS REFLECTING THE
REDEMPTION OF PRINCIPAL SHAREHOLDERS' STOCK WITH CORPORATE ASSETS AND THE
MAXIMUM PRO FORMA 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 December 31, 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 statements at Exhibit D, 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 Buyers to the Company, results in the consolidation of North Star with the
Company and reverse acquisition accounting. The pro forma financial statements
at Exhibit D reflect the issuance of 6,718,750 shares of common stock at $1.49
per share to the Buyers for consideration of $10,000,000. The following pro
forma financial statements give the Buyers the right to buy an additional
15,453,125 shares of common stock of Hawks at $1.49 per share for additional
consideration of $23,000,000.
The consideration paid is anticipated to include common stock of North Star
valued at $16,950,000, common stock of Zeus consolidated Holdings, Inc.
("Zeus"), a sister company of North Star, valued at $850,000 and the right to an
additional $5,200,000 of advances to North Star by the Buyers. Upon completion
of these transactions, Hawks will own 16,950,000 shares of North Star, or 89.45%
of the outstanding voting common stock of North Star and 21,250 shares of Zeus
or 85% of the voting common stock of Zeus. At the same time, the Buyers will
become owners of 22,171,875 shares of Hawks (6,718,750 shares for $10,000,000 as
reflected in Exhibit D and 15,453,125 for $23,000,000 as reflected in Exhibit
E), or 95.45% of the voting common stock of Hawks.
Consequently, the following pro forma financial statements begin with North Star
and Zeus historical financial statements adjusted for the acquisition of Hawks
after the previously described Redemption and Minimum Capital Infusion
The old shareholders of Hawks will own 4.55% of the outstanding common stock of
Hawks when all transactions are completed. The fair value of that investment,
based on the $33,000,000 of consideration given for the 95.45% interest in Hawks
by the Buyers is equal to $1,573,000. Because of the reverse acquisition
accounting, the difference between the net book value of Hawks at December 31,
1999 of $548,000 and the above fair value of $1,573,000 is recorded as a
purchase adjustment of $1,025,000, of which, $900,000 has been allocated to
Property and Equipment and the remaining $125,000 to Goodwill.
The condensed consolidated balance sheet as of December 31, 1999 assumes the
transaction occurred on December 31, 1999. The condensed consolidated statements
of operations assume the transactions took place on January 1, 1999.
After all of the transactions are completed, the effective ownership of North
Star, the surviving entity for accounting purposes, will be as follows:
<TABLE>
<S> <C>
Purchasing Group 85.38%
Old Hawks shareholders 4.07%
Doyon 10.55%
100.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, 1999
Hawks Redemption
Redemption and Maximum
and Minimum Maximum Capital
Capital Capital Infusion
North Star Zeus Infusion Infusion Pro Forma
Historical Historical Pro Forma Adjustments As Adjusted
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 20,432 $ 6,065 $ 5,023,000 $ 910,776 (5) $ 5,960,273
Accounts receivable 133,414 - 18,000 (133,414 )(7) 18,000
Other current assets 778 - 19,000 - 19,778
Property & equipment, net 206,301 - 530,000 900,000 (6) 1,636,301
Lease acquisition 650,000 - - - 650,000
Note receivable - - 29,000 - 29,000
Goodwill - - - 125,000 (6) 125,000
Other - 11,293 35,000 - 46,293
Total assets $ 1,010,925 $ 17,358 $ 5,654,000 $ 1,802,362 $ 8,484,645
LIABILITIES AND SHAREHOLDERS'
EQUITY
Notes payable $ - $ - $ 75,000 $ - $ 75,000
Advances from affiliate 8,643,112 157,903 - (5,000,000 )(6) -
(133,414 )(7)
(3,667,601 )(5)
Accounts payable 256,694 32,459 47,000 - (7) 336,153
Accrued liabilities 633,267 - 32,000 (621,623 )(5) 43,644
Total liabilities 9,533,073 190,362 154,000 (9,422,638 ) 454,797
Common shares 1,000 1,800 81,000 (3,000 )(7) 235,800
155,000 (6)
Capital in excess of par
value on common stock - - 13,273,000 (2,258,000 )(8) 17,088,000
5,200,000 (5)
1,025,000 (6)
(155,000 )(6)
3,000 (7)
Retained deficit (8,523,148 ) (174,804 ) (2,258,000 ) 2,258,000 (8) (8,697,952 )
Debt obligation receivable - - (5,000,000 ) 5,000,000 (6) -
Treasury stock - - (596,000 ) - (596,000 )
Total shareholders' equity (8,522,148 ) (173,004 ) 5,500,000 11,225,000 8,029,848
Total liabilities and
shareholders' equity $ 1,010,925 $ 17,358 $ 5,654,000 $ 1,802,362 $ 8,484,645
<FN>
See Notes to Pro Forma As Adjusted 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, 1999
Hawks Redemption
Redemption and Maximum
and Minimum Maximum Capital
Capital Capital Infusion
North Star Zeus Infusion Infusion Pro Forma
Historical Historical Pro Forma Adjustments As Adjusted
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue $ - $ 16,013 $ 108,000 $ - $ 124,013
Operating expenses 4,755,263 186,097 144,000 102,500 (9) 5,187,860
Operating loss (4,755,263 ) (170,084 (36,000 (102,500 (5,063,847)
Other income 3,779 - 5,000 - 8,779
Loss before income
taxes (4,751,484 ) (170,084 (31,000 (102,500 (5,055,068)
Provision for taxes - - - - -
Net loss $ (4,751,484 )$ (170,084 $ (31,000 $ (102,500 $ (5,055,068)
Weighted average number of
common shares
outstanding 7,750,268 15,453,125 (10) 23,203,393
Operating loss per common
share $ * $ (0.22)
<FN>
* Less than $.01 per share loss.
See Notes to Pro Forma As Adjusted 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
$5,200,000, which is expected to be incurred prior to this transaction and which
will be contributed to Hawks by the Purchasing Group. As of December 31, 1999,
$4,289,224 of the anticipated cash contribution is eliminated in consolidation
against the remaining North Star and Zeus advance account of $3,667,601 and
accrued interest of $621,623.
(6)To record the increase in fair value from the transaction of $1,025,000,
which has been allocated $900,000 to oil and gas properties and $125,000 to
goodwill, and to adjust the par value of the combined entity to reflect the
issuance of 15,453,125 additional shares of common stock to the North Star
shareholder group.
(7)To eliminate the 1,000 shares of North Star common stock outstanding as the
shares of Hawks are the surviving shares. This entry also eliminates the
2,000 shares of common stock of Zeus outstanding because of consolidation
and the intercompany accounts between North Star and Zeus of $133,414.
(8) To eliminate the retained deficit of Hawks of $2,258,000 because North Star
is the survivor for accounting purposes.
(9)To record estimated depletion of oil and gas properties and amortization of
goodwill related to the fair value adjustment using the estimated productive
lives of the properties. The fair value of the oil and gas properties is
supported by the discounted future net cash flows disclosed in Note 11
below.
(10) To adjust the weighted average number of common shares outstanding to
reflect the issuance of the additional 15,453,125 shares of Hawks.
(11) Supplemental disclosure of reserve and standardized measures for remaining
oil and gas properties as of December 31, 1999:
<TABLE>
<CAPTION>
RESERVE QUANTITY INFORMATION
( All Reserves are in the United States)
1999
----
Bbls MCF
---- ---
<S> <C> <C>
Proved developed
and undeveloped reserves
Beginning of year 58,100 1,075,300
Production (4,300) (28,500)
End of year 53,800 1,046,800
Proved developed reserves: 27,700 216,000
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW AND CHANGES THEREIN
RELATED TO PROVED OIL AND GAS RESERVES
(All Reserves are in the United States)
Standardized Measure is as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Future cash flows $ 2,760,000
Future production and development cost (778,000 )
Future income taxes, net of NOL carryforwards -
Future net cash flows 1,982,000
10% annual discount rate (595,000 )
Discounted future net cash flows $ 1,387,000
The following are the principal sources of change
in the standardized measure of discounted
future net cash flows:
Balance, beginning of the year $ 1,561,000
Sales, net of production cost (78,000 )
Net changes and production costs (252,000 )
Accretion of discount 156,000
Balance, end of year $ 1,387,000
</TABLE>
Average Sales Price and Production Costs
- ----------------------------------------
<TABLE>
<CAPTION>
1999
----
<S> <C>
Average sales price per bbl $14.10
Average sales price per MCF 1.96
Average production cost per
net equivalent bbl* 3.30
<FN>
* Natural gas has been converted into equivalent bbls using a conversion ratio
of 6:1.
</TABLE>
<PAGE>
EXHIBIT "F"
WESTERN ENVIRONMENTAL
SERVICES & TESTING, INC.
FINANCIAL STATEMENTS
(Unaudited)
AS OF DECEMBER 31, 1999 AND 1998
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
BALANCE SHEETS
December 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 5,000 $ 45,000
Accounts receivable 400,000 394,000
Account receivable from affiliates 237,000 -
Prepaid expenses 39,000 34,000
Costs on uncompleted contracts in excess of billings 9,000 15,000
Other currents assets 9,000 17,000
Total current assets 699,000 505,000
PROPERTY AND EQUIPMENT, net (at cost) 786,000 617,000
OTHER ASSETS 31,000 5,000
$ 1,516,000 $ 1,127,000
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABIITIES
Notes payable $ 218,000 $ 138,000
Current maturities of long-term debt 62,000 113,000
Accounts payable 125,000 143,000
Accrued liabilities 17,000 12,000
Total current liabilities 422,000 406,000
LONG-TERM DEBT 107,000 158,000
PAYABLE TO PARENT COMPANY 242,000 249,000
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 744,000 313,000
745,000 314,000
$ 1,516,000 $ 1,127,000
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years ended December 31, 1999, 1998 and 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Environmental testing and management $ 2,499,000 $ 2,211,000 $ 1,792,000
Gain (loss) on sale of assets 86,000 (2,000) 5,000
2,585,000 2,209,000 1,797,000
Operating expenses:
Cost of sales 1,623,000 1,367,000 1,259,000
General and administrative 525,000 490,000 486,000
Depreciation and amortization 120,000 106,000 103,000
2,268,000 1,963,000 1,848,000
Operating income (loss) 317,000 246,000 (51,000)
Other income (expense):
Interest expense (36,000 (36,000) (26,000)
Other income 150,000 4,000 2,000
Net income (loss) before taxes 431,000 214,000 (75,000)
Provision for taxes
Current - - -
Deferred - - -
Net income (loss) 431,000 214,000 (75,000)
Retained Earnings at beginning of period 313,000 99,000 174,000
Retained Earnings at end of period $ 744,000 $ 313,000 $ 99,000
<FN>
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31,1999, 1998 and 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from operations $ 431,000 $ 214,000 $ (75,000)
Adjustment to reconciles net loss to net
cash provided:
Depreciation and amortization 120,000 106,000 103,000
(Gain) loss on sale of assets (86,000) 2,000 (5,000)
Changes in operating assets and
liabilities:
Increase in accounts receivable (6,000) (117,000) (18,000)
(Increase) decrease in costs in
excess of billings, prepaid
expenses and other current assets 9,000 3,000 53,000
(Decrease) increase in accounts payable and
accrued expenses (13,000) 30,000 (83,000)
Net cash flow provided by (used in)
operating activities 455,000 238,000 (25,000)
Cash flows from investing activities:
Purchase of property and equipment (294,000) (212,000) (30,000)
Proceeds from sale of properties 91,000 8,000 16,000
Increase in other assets (26,000) - -
Loans from affiliates (244,000) (12,000) 9,000
Net cash flow used in operating activities (473,000) (216,000) (5,000)
Cash flows from financing activities:
Proceeds from debt obligations incurred 142,000 137,000 200,000
Reduction of debt obligations (164,000) (136,000) (149,000)
Net cash flow provided by (used in) financing
activities (22,000) 1,000 51,000
Increase (Decrease) in cash and cash equivalents (40,000) 23,000 21,000
Cash and cash equivalents at beginning of year 45,000 22,000 1,000
Cash and cash equivalents at end of period $ 5,000 $ 45,000 $ 22,000
<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 public although most clients are industrial
entities. Fees for services are 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 accounting policies follow:
a. Cash and Cash Equivalents- For purposes of the statement of cash
flows, the company onsiders all highly liquid debt instruments
purchased with maturity of three months or less o 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 is 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 December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Engineering Equipment $ 851,000 $ 737,000
Lab Equipment 213,000 457,000
Automotive Equipment 207,000 200,000
Buildings 72,000 -
Furniture and fixtures 247,000 199,000
Leasehold Improvements 64,000 59,000
Other Equipment 63,000 63,000
1,717,000 1,715,000
Less Accumulated Depreciation 931,000 1,098,000
$ 786,000 $ 617,000
</TABLE>
<PAGE>
WESTERN ENVIRONMENTAL SERVICES & TESTING, INC.
NOTES TO FINANICAL STATEMENTS
(Unaudited)
3. Notes Payable, Long-Term Debt and Pledge Assets
Notes payable at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving line of credit $200,000, interest at 6.46%,
maturing February 19, 2000, collateralized by
certificate of deposit held by parent Company $ 145,000 $ 138,000
Short term note payable to bank, interest at 9.25%,
maturing March 16, 2000, collateralized by buildings 73,000 -
$ 218,000 $ 138,000
</TABLE>
Long-Term debt at December 31, 1999 and 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 $ 50,000 $ 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 119,000 157,000
Note payable Wyoming Industrial Development
Corporation, interest at 6.96%, payable $4,475 per
month including interest. - 77,000
169,000 271,000
Less Current Maturities 62,000 113,000
$ 107,000 $ 158,000
</TABLE>
Aggregate maturities of long-term debt consisted of the following:
<TABLE>
<S> <C>
2000 62,000
2001 67,000
2002 40,000
$ 169,000
</TABLE>
<PAGE>
EXHIBIT "G"
NORTH STAR EXPLORATION, INC.
(An Exploration Stage Corporation)
Financial Statements
As Of December 31, 1999 And 1998 And For
The Period From Inception (January 31, 1997)
Through December 31, 1999
Together With Report Of Independent Public Accountants
<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, 1999 and
1998, and the related statements of operations, shareholders' deficit, and cash
flows for the years then ended and for the period from inception (January 31,
1997) through December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, and for the period from inception (January 31,
1997) through December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
/s/ARTHUR ANDERSEN LLP
Denver, Colorado,
February 24, 2000.
<PAGE>
NORTH STAR EXPLORATION, INC.
----------------------------
(An Exploration Stage Corporation)
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
------------
1998 1999
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,936 $ 20,432
Accounts receivable _ affiliates 45,188 133,414
Other receivables 3,728 778
Total current assets 59,852 154,624
Lease acquisition costs 400,000 650,000
Equipment, net of accumulated depreciation
of $10,937 and $44,219, respectively 69,538 206,301
Total assets $ 529,390 $ 1,010,925
LIABILITIES AND SHAREHOLDERS' DEFICIT
LIABILITIES:
Advances from affiliate $ 3,689,807 $ 8,643,112
Accounts payable 420,899 256,694
Accrued interest 175,287 621,623
Accrued liabilities 14,061 11,644
Total current liabilities 4,300,054 9,533,073
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' DEFICIT:
Common stock; no par value; 20,000,000 shares
authorized, issued and outstanding 1,000 1,000
Accumulated deficit (3,771,664 ) (8,523,148 )
Total shareholders' deficit (3,770,664 ) (8,522,148 )
Total liabilities and shareholders' deficit $ 529,390 $ 1,010,925
<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
Inception
(January 31,
1997)
Year Ended Through
December 31, December 31,
1998 1999 1999
<S> <C> <C> <C>
COSTS AND EXPENSES:
Exploration $ 2,378,156 $ 2,943,925 $ 6,023,815
General and administrative 435,385 1,331,720 1,837,270
Depreciation 9,782 33,282 44,219
Interest expense 152,463 446,336 621,623
Total costs and expenses 2,975,786 4,755,263 8,526,927
OTHER INCOME - 3,779 3,779
NET LOSS $ (2,975,786 )$ (4,751,484 )$ (8,523,148 )
<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)
STATEMENTS OF CASH FLOWS
------------------------
Period From
Inception
(January 31,
1997)
Year Ended To
December 31, December 31,
1998 1999 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (2,975,786 )$ (4,751,484 )$ (8,523,148 )
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation 9,782 33,282 44,219
Increase (decrease) in accounts payable 367,623 (164,205 ) 256,694
Increase in accrued interest 152,463 446,336 621,623
Increase (decrease) in accrued liabilities 10,120 (2,417 ) 11,644
(Increase) decrease in accounts
receivable - affiliates (7,580 ) (88,226 ) (133,414 )
(Increase) decrease in other receivables (3,728 ) 2,950 (778 )
Net cash used in operating activities (2,447,106 ) (4,523,764 ) (7,723,160 )
CASH FLOWS FROM INVESTING
ACTIVITIES:
Lease acquisition costs (200,000 ) (250,000 ) (650,000 )
Purchase of equipment (56,652 ) (170,045 ) (249,520 )
Net cash used in investing activities (256,652 ) (420,045 ) (899,520 )
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances from affiliate 2,701,205 4,953,305 8,643,112
Net cash provided by financing
activities 2,701,205 4,953,305 8,643,112
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALAENTS (2,553 ) 9,496 20,432
CASH AND CASH EQUIVALENTS,
at beginning of period 13,489 10,936 -
CASH AND CASH EQUIVALENTS,
at end of period $ 10,936 $ 20,432 $ 20,432
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES:
Issuance of common stock for promissory
notes $ - $ - $ 900
Issuance of common stock to Doyon in
connection with lease acquisition
agreement $ - $ - $ 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, 1999
-------------------------
Common Stock Accumulated
Shares Amount Deficit Total
<S> <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 - - (4,751,484 ) (4,751,484 )
BALANCE, December 31, 1999 20,000,000 $ 1,000 $ (8,523,148 )$ (8,522,148 )
<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, 1999 AND 1998
--------------------------
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. As of December 31, 1999, North Star had
spent approximately $5.4 million of the $9 million required to be spent over the
life of the Agreement.
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 smelter returns or
a specified percentage of net profits, until payback, and the larger of an
increased percentage royalty of net smelter 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 December 31, 1999. However, the Company has since received a
waiver from Doyon regarding these variances through June 30, 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 2000.
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 influence the Company's decisions whether to develop mineral
prospects and 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, even if the merger contemplated
in Note 6 is completed, through March 31, 2001, unless other financing is
secured prior to that date.
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.
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.
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.
<PAGE>
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 on 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 ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" 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.
Income Taxes
- ------------
The Company follows the provisions of SFAS 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 due to the short-term maturities of these assets and
liabilities.
Reclassifications
- -----------------
Certain amounts in prior years have been reclassified to conform to the current
year presentation.
3. INCOME TAXES:
-------------
The components of deferred taxes follow:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,362,005 $ 3,043,247
Tax basis over book - 160,269
Deferred tax liability:
Book basis over tax (3,332) -
Net deferred tax asset 1,358,673 3,203,516
Valuation allowance (1,358,673) (3,203,516)
$ - $ -
</TABLE>
<PAGE>
At December 31, 1999, the Company had net operating loss carryforwards ("NOL")
to offset future income for federal income tax purposes of approximately
$8,115,000.
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 December 31, 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
December 31, 1999, represent $1,300,000 and $2,300,000 for 2000 and 2001,
respectively.
Future Lease Commitments
- ------------------------
The Company has certain operating leases for office space and equipment with
terms ranging from three to seven years.
The minimum future payments under the terms of the operating leases are as
follows:
Years ending December 31,
2000 $ 227,561
2001 227,561
2002 216,572
2003 207,820
2004 205,892
Thereafter 274,522
------------
$1,359,928
=========
The Company recorded expenses related to these operating leases of $233,269 and
$66,013 during 1999 and 1998, respectively.
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.
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:
---------------------------
Accounts Receivable _ Affiliates
- --------------------------------
In 1999, the Company advanced funds totaling $129,635 to Zeus Consolidated
Holdings, Inc. ("Zeus"). The advanced funds bear interest at 7% per annum and
are due in 2000. At December 31, 1999 accrued interest totaled $3,779. North
Star and Zeus have common ownership.
<PAGE>
Advance From Affiliate
- ----------------------
Advances from Equistar accrue interest at 7% per annum with all amounts
outstanding maturing on October 31, 2000, subject to the funding commitment
discussed in Note 1. The Company owed $8,643,112 and $3,689,807 in principal
and $621,623 and $175,287 in accrued interest to Equistar as of December 31,
1999 and December 31, 1998, respectively.
Management Fee
- --------------
Beginning in 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 $420,000 which is included in
the accompanying statements of operations as of December 31, 1999.
6. CONTROLLING INTEREST IN
-----------------------
PUBLICLY TRADED COMPANY:
-----------------------
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.
7. LETTER OF INTENT WITH INTERNATIONAL BRAVO
-----------------------------------------
RESOURCE CORPORATION
--------------------
On July 5, 1999, North Star 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 a 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.
8. SUBSEQUENT EVENT:
-----------------
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%.
<PAGE>
EXHIBIT "H"
-----------
ZEUS CONSOLIDATED HOLDINGS, INC.
(An Exploration Stage Corporation)
Consolidated Financial Statements
As Of December 31, 1999 And For
The Period From Inception (March 1, 1999)
Through December 31, 1999
Together With Report Of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Zeus Consolidated Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of ZEUS CONSOLIDATED
HOLDINGS, INC. (a Nevada corporation in the exploration stage) and subsidiary as
of December 31, 1999 and the related statement of operations, shareholders'
deficit, and cash flows for the period from inception (March 1, 1999) through
December 31, 1999. 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 audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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 Zeus Consolidated Holdings,
Inc. and subsidiary as of December 31, 1999 and the results of their operations
and their cash flows for the period from inception (March 1, 1999) through
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/S/ ARTHUR ANDERSEN LLP
Denver, Colorado,
April 10, 2000.
<PAGE>
ZEUS CONSOLIDATED HOLDINGS, INC.
--------------------------------
(An Exploration Stage Corporation)
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1999
-----------------------
ASSETS
------
CASH AND CASH EQUIVALENTS $ 6,065
-----------
Total current assets 6,065
-----------
INVESTMENT IN INTERNATIONAL BRAVO RESOURCE
CORPORATION 11,293
-----------
Total assets $ 17,358
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 32,459
Advances from North Star 129,635
Advances from Equistar 24,300
Accrued interest payable 3,968
-----------
Total current liabilities 190,362
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' DEFICIT:
Common stock; no par value; 25,000 shares
authorized; 22,500 shares issued and
outstanding 1,800
Accumulated other comprehensive loss (4,720)
Accumulated deficit (170,084)
-----------
Total shareholders' deficit (173,004)
-----------
Total liabilities and shareholders'
deficit $ 17,358
=========
The accompanying notes to financial statements
are an integral part of this balance sheet.
<PAGE>
ZEUS CONSOLIDATED HOLDINGS, INC.
--------------------------------
(An Exploration Stage Corporation)
STATEMENT OF OPERATIONS
-----------------------
PERIOD FROM INCEPTION (MARCH 1, 1999)
-------------------------------------
THROUGH DECEMBER 31, 1999
-------------------------
REVENUES:
Option payments (Note 1) $ 16,013
COSTS AND EXPENSES:
Exploration 103,573
General and administrative 78,556
Interest expense 3,968
-----------
NET LOSS (170,084)
Unrealized loss on available-for-sale
securities (4,840)
Change in cumulative translation
adjustment 120
-----------
COMPREHENSIVE LOSS $(174,804)
========
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
ZEUS CONSOLIDATED HOLDINGS, INC.
--------------------------------
(An Exploration Stage Corporation)
STATEMENT OF CASH FLOWS
-----------------------
PERIOD FROM INCEPTION (MARCH 1, 1999)
-------------------------------------
THROUGH DECEMBER 31, 1999
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(170,084)
Adjustments to reconcile net loss to net cash
used in operating activities-
Increase in accounts payable 32,459
Increase in accrued interest 3,968
Increase in non-cash option revenue (16,013)
------------
Net cash used in operating activities (149,670)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from North Star 129,635
Advances from Equistar 24,300
Issuance of common stock 1,800
------------
Net cash provided by
financing activities 155,735
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,065
CASH AND CASH EQUIVALENTS,
at beginning of period -
------------
CASH AND CASH EQUIVALENTS, at end of year $ 6,065
===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Purchase of investment in International Bravo
Resources Corporation $ 16,013
==========
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
ZEUS CONSOLIDATED HOLDINGS, INC.
--------------------------------
(An Exploration Stage Corporation)
STATEMENT OF SHAREHOLDERS' DEFICIT
----------------------------------
FOR THE PERIOD FROM INCEPTION (MARCH 1, 1999)
---------------------------------------------
THROUGH DECEMBER 31, 1999
-------------------------
Accumulated
Other
Common Stock Comprehensive
Shares Amount Income (Loss) Deficit Total
<S> <C> <C> <C> <C> <C>
INCEPTION, March 1, 1999 - $ - $ - $ - $ -
Issuance of common stock 22,500 1,800 - - 1,800
Change in cumulative
translation adjusment - - 120 - 120
Unrealized loss on available-
for-sale securities - - (4,840) - (4,840)
Net loss - - - (170,084) (170,084)
BALANCE,
December 31, 1999 22,500 $ 1,800 $ (4,720) $ (170,084) $ (173,004)
<FN>
The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
<PAGE>
ZEUS CONSOLIDATED HOLDINGS, INC.
(An Exploration Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
--------------------------------------------
AND BASIS OF PRESENTATION:
--------------------------
Organization and Description of the Business
- --------------------------------------------
Zeus Consolidated Holdings, Inc., a Nevada corporation (the "Company" or "Zeus")
is a private corporation formed on March 1, 1999 for the purpose of exploring
and developing properties, in which it holds mineral rights, in the State of
Alaska. The three mineral properties in the exploration and development stage
of which Zeus has been primarily involved in are known as the Divide, Central
and West Pogo properties. Exploration and development of these properties is
provided for in a letter agreement with International Bravo Resource Corporation
("Bravo"), a publicly owned British Columbia corporation, the shares of which
are traded on the Canadian Venture Exchange. The letter agreement gives Bravo
the right to elect to acquire a 51% interest in each of the three properties for
a consideration of (1) the issuance by Bravo to Zeus, in accordance with a
specified schedule, of 200,000 shares of Bravo common stock for each of the
properties in which it elects to acquire such interest and (2) the incurring by
Bravo, in accordance with a specified schedule, of expenditures for maintenance,
exploration and development totaling 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 property, so that, if Bravo elects to exercise its rights with
respect to all three properties, the total consideration under the terms of the
agreement will be 600,000 shares of Bravo common stock and $5 million of
expenditures by Bravo. An initial installment of 150,000 shares was issued to
Zeus by Bravo on September 29, 1999, which was recorded by the Company at its
fair market value on that date.
It is further provided that each of the properties as to which Bravo completes
the required transfer of shares and expenditures will become the subject of a
joint venture, or be transferred to a new limited liability company, in which
the initial interests of the parties will be 51 percent for Bravo and 49 percent
for Zeus, both subject to 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.
Business Risks
- --------------
The Company is currently exploring for minerals and has yet to generate any
revenues from mineral exploration since inception and there can be no assurance
that revenues will be generated during fiscal 2000.
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 funding agreements with Equistar Consolidated Holdings LLC
("Equistar") and North Star Exploration, Inc. ("North Star"). North Star and
Zeus share substantially common ownership. 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.
<PAGE>
North Star and Equistar have funded the operations of the Company since
inception and the Company's ability to continue as a going concern is dependent
upon the continued support of Equistar or upon obtaining an alternate source of
financing. Equistar is committed to fully fund the operations of the Company
until 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.
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.
Mineral Rights
- --------------
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.
Costs such as organization, training and pre-feasibility expenses incurred
during the start-up phase of a project will be expensed as incurred.
Income Taxes
- ------------
The Company follows the provisions of SFAS 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
and advances from affiliates approximate their estimated fair values due to the
short-term maturities of these assets and liabilities.
<PAGE>
3. INCOME TAXES:
-------------
The components of deferred taxes follow:
December 31,
1999
-------------
Deferred tax assets:
Net operating loss carryforwards $ 59,529
----------
Net deferred tax asset 59,529
Valuation allowance (59,529)
----------
$ -
===========
At December 31, 1999, the Company had net operating loss carryforwards ("NOL")
to offset future income for federal income tax purposes of approximately
$170,084.
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:
------------------------------
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.
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:
---------------------------
Advances from North Star accrue interest at 7% per annum and are due in 2000.
The Company owed $129,635 in principal and $3,779 in accrued interest to North
Star as of December 31, 1999.
Advances from Equistar accrue interest at 7% per annum and are due in 2000. The
Company owed $24,300 in principal and $189 in accrued interest to Equistar as of
December 31, 1999.
<PAGE>
EXHIBIT "I"
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
FINANCIAL STATEMENTS
(Unaudited)
AS OF DECEMBER 31, 1999 AND 1998
AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Oil and gas property $ 202,000 $ 283,000
Less accumulated depletion 101,000 87,000
NET ASSETS $ 101,000 $ 196,000
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 61,000 $ 107,000 $ 87,000
Expenses:
Production costs 10,000 16,000 10,000
Depletion expense and impairment 95,000 19,000 22,000
Allocated corporate overhead 3,000 4,000 5,000
108,000 39,000 37,000
(47,000 ) 68,000 50,000
Income tax - - -
Net income (loss) (47,000 ) 68,000 50,000
Net assets, beginning of year 196,000 215,000 237,000
Dividends to Parent Company (48,000 ) (87,000 ) (72,000)
Net assets, end of year $ 101,000 $ 196,000 $ 215,000
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Unaudited)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (47,000 ) $ 68,000 $ 50,000
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities
Depletion 14,000 19,000 22,000
Impairment of oil and gas property 81,000 - -
Net cash flows provided by operating 48,000 87,000 72,000
activities
Cash flow from investing activities - - -
Cash flow from financing activities
Dividends to Parent Company (48,000 ) (87,000 ) (72,000)
Net cash flows used in financing activities (48,000 ) (87,000 ) (72,000)
Change in cash - - -
Cash beginning of year - - -
Cash end of year $ - $ - $ -
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The financial statements present only the oil and gas revenue and expenses and
allocated corporate overhead from the overriding royalties interest in oil and
gas properties owned by Hawks Industries, Inc (The "Company"). In 1992, the
Company de-emphasized its oil and gas activities. The overriding royalties are
being held as an investment and require a minimum amount of corporate overhead
to manage.
1. Summary of Significant Accounting Policies follow:
Property and equipment:
The Company uses the successful efforts method of accounting for oil and gas
producing activities as prescribed by Statement of Financial Accounting
Standards (SFAS) Statement No. 19, "Financial Accounting and Reporting by Oil
and Gas Producing Companies". Under this method, the costs of unsuccessful
exploratory wells and delay rentals are expensed as incurred. Lease acquisition
costs and costs of drilling and equipping productive exploratory and all
development wells are capitalized. Depreciation and depletion of producing
properties and equipment is computed by the unit-of-production method using
Company estimates of unrecovered proved producing oil and gas reserves.
Unamortized capital costs of proved oil and gas properties at a field level are
reduced to fair value if the sum of expected undiscounted future cash flows is
less than net book value. In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
fair value is determined by discounting expected future cash flows from proved
reserves using 10% and 15% discount rates commensurate with the risks involved.
2. Impairment of Producing Properties
For the year ended December 31, 1999, the Company recorded an impairment of its
producing oil and gas properties in the amount of $81,000. The impairment was
recorded to depreciation, depletion and amortization expense. Using a Company
authorized reserve study, the Company determined the fair value of the
properties using discounted future estimated cash flows.
<PAGE>
HAWKS INDUSTRIES, INC.
OVERRIDING ROYALTIES
SUPPLEMENTARY INFORMATION
DISCLOSURES OF OIL AND GAS PRODUCING ACTIVITIES
(Unaudited)
Disclosures of Oil and Gas Producing Activities
- -----------------------------------------------
In accordance with FASB Statement No. 69 "Disclosure About Oil and Gas
Activities", the Company presents estimates of oil and gas reserves in order to
assist the reader in making an evaluation of the Company's reserves. Inherent
in the reserve evaluation process are numerous risks associated with attempting
to quantify unknown volumes and unknown costs. The reader is reminded therefore
that the following information is not presented as actual, but rather as
estimates of future expectations. The following reserve information was based on
year-end prices. The reader is reminded that oil and gas prices have fluctuated
since year-end and management foresees further fluctuation, both up and down.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(All Activities are in the United States)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Proved oil and gas properties $ 202,000 $ 283,000 $ 283,000
Accumulated depreciation, depletion
and amortization, and valuation
allowances 101,000 87,000 68,000
Net Capitalized costs $ 101,000 $ 196,000 $ 215,000
</TABLE>
Cost incurred in oil and gas acquisition, exploration, and development
- --------------------------------------------------------------------------------
activities
- ----------
The Company had no acquisition, exploration or development costs because its oil
and gas interests represent only overriding royalty interests.
Change in reserves
The Company has not had reserve (1) reports prepared since 1991, because of the
cost to prepare and oil and gas sales being a minor amount on the Company's
Statements of Operations. When required to prepare a reserve report to present
information as required by FASB 69, the Company authorized a reserve study at
the end of 1999.
(1) The reserves were determined by an independent consulting geoloist as of
December 31, 1999.
<PAGE>
RESERVE QUANTITY INFORMATION
( All Reserves are in the United States)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Bbls MCF Bbls MCF Bbls MCF
<S> <C> <C> <C> <C> <C> <C>
Proved developed
and undeveloped reserves
Beginning of year 6,800 134,700 8,800 169,700 9,900 198,000
Production (1,000) (19,500) (2,000) (35,000) (1,100) (28,300)
End of year 5,800 115,200 6,800 134,700 8,800 169,700
Proved developed reserves: 5,800 85,000 6,800 104,700 8,800 139,700
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW AND CHANGES THEREIN
RELATED TO PROVED OIL AND GAS RESERVES
(All Reserves are in the United States)
Standardized Measure is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Future cash flows $ 358,000 $ 403,000 $ 570,000
Future production and development cost (58,000) (60,000) (64,000)
Future Income taxes, net of NOL carryforwards - - -
Future net cash flows 300,000 343,000 506,000
10% annual discount rate (90,000) (103,000) (152,000)
Discounted future net cash flows $ 210,000 $ 240,000 $ 354,000
The following are the principal sources of change
in the standardized measure of discounted
future net cash flows:
Balance, beginning of the year $ 240,000 $ 354,000 $ 293,000
Sales, net of production cost (51,000) (91,000) (48,000)
Net Changes in process and production costs (3,000) (58,000) 80,000
Accretion of discount 24,000 35,000 29,000
Balance, end of year $ 210,000 $ 240,000 $ 354,000
</TABLE>
Average Sales Price and Production Costs
- ----------------------------------------
The following table reflects information concerning each of the last three
fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average sales price per bbl $14.50 $9.90 $22.00
Average sales price per MCF 2.38 2.49 2.22
Average production cost per
net equivalent bbl* 2.35 2.04 1.72
<FN>
* Natural gas has been converted into equivalent bbls using a conversion ratio
of 6:1.
</TABLE>
<PAGE>
