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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
Commission File Number: 0-19471
PAN ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 91-1632888
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19239 Aurora Avenue North
Shoreline, WA 98133-3930
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (206) 546-9660
--------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
There was no revenue for the fiscal year ended December 31, 1995.
As of December 31, 1995, the aggregate number of shares of Common Stock held by
non-affiliates was 868,865 shares. For purposes of this disclosure, shares of
Common Stock held by persons who hold more than 10% of the outstanding shares of
Common Stock and shares held by officers and directors of the registrant have
been excluded because these persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes. Since there was no established market for the registrant's Common
Stock, the registrant cannot estimate the market value for such shares. See Item
5.
As of December 31, 1995, the aggregate number of shares outstanding of the
registrant's Common Stock was 1,126,809.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote Security Holders 11
PART II
Item 5. Market of the Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7. Financial Statements 13
Item 8. Changes in and disagreements with Accountants on
Accounting and Financial Matters 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners and
Management 16
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits 18
</TABLE>
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PART I
ITEM 1. BUSINESS
General
PAN Environmental Corporation, a Delaware corporation (the "Company"),
up until December 31, 1994, supervised the operations of businesses engaged in
the reclamation, remediation, and recycling of industrial waste materials and
by-products. The Company provided its operating companies with accounting,
planning, budgeting and other administrative services. The Company also provided
technical environmental management support to each of its operating companies.
The Company had acted as a holding company, with all daily operations
and revenue generation occurring at the operating subsidiary level. The Company
employed two persons and had offices in Seattle, Washington.
The Company undertook a comprehensive program of business restructuring
and debt reduction due to the failure of equity financing efforts undertaken in
1994. The Company completed the divestiture of all of its subsidiaries in
January 1995 and undertook the acquisition of Glengarry Investment Fund Company
with real estate holdings, which it thought it had completed in November 1994,
but which ultimately never was concluded.
Divestiture of Subsidiaries
Advantage Parking Lot Service, Inc. ("Advantage"), a subsidiary engaged
in the manufacture and sale of asphalt-based slurry sealants since 1986, was
sold to its principal officer, Ronald Williams, effective January 2, 1995. Mr.
Williams was the founder and principal shareholder of Advantage prior to its
March 1993 acquisition by the Company. The terms of the agreement with Williams
included a write-off by the Company of $166,000 advanced to Advantage by the
Company and a return to the Company's treasury of 183,722 shares of the
Company's common stock held by Williams. Advantage operated a slurry sealer
manufacturing plant in Fontana, California and in 1993 and 1994 completed a
major plant expansion subject to a large amount of encumbering debt. When the
Company lost its financing with Credit Lyonnais in 1994, it could not finance
nor bond any of Advantage's projects and therefore the subsidiary became a
burden to the Company. Advantage ceased operations immediately upon being
reacquired by Ronald Williams.
MRR Construction Services, Inc. ("MRR") performed environmental
construction management and construction activities, as well as soil remediation
activities, throughout Southern California, throughout 1993. When the Company
lost its financing with Credit Lyonnais in 1994, it could not finance nor bond
any of MRR's projects and therefore the subsidiary became a burden to the
Company.
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MRR was sold to Roaul Wheeler, in exchange for forgiveness of a $50,000 advance
owed by the Company to MRR. During 1994, MRR became embroiled in significant
litigation on a project in Cerritos, California. As a result of this litigation,
and a lack of working capital, MRR suspended its operations in the third quarter
of 1994, and had not resumed operations prior to its divestiture by the Company.
Northwest Specialties, Inc. ("Northwest") had reclaimed timber and
commodity metals, primarily from obsolete railroad telecommunications and
signaling systems in the Midwest, Rocky Mountain and Eastern regions of the
United States, since 1993. Northwest operated on active and inactive railroad
right-of-ways, extracting utility poles, wire and other metal salvage. The
poles, other timber products, wire and other metals were then sorted, graded,
and processed for resale. Northwest completed approximately 65% of an 800 mile
project in North Dakota for Canadian Pacific Railroad and had several projects
under contract for large regional and short line railroads. Northwest had
significantly reduced the seasonality of its work during the past year by
expanding its reclamation activities into regions with less severe winter
weather conditions. Northwest employed nine persons. When the Company lost its
financing with Credit Lyonnais in 1994, it could not finance nor bond any of
Northwest's projects and therefore the subsidiary became a burden to the
Company. Northwest was sold back to Orland Howard in exchange for the
forgiveness by Northwest of a contingent liability to the Company to finance
operations of Northwest, estimated to be approximately $300,000.
Attempted Acquisition of Glengarry Investment Fund Company
The Company undertook to acquire the stock of Glengarry Investment Fund
Company on September 30, 1994. The Company purported to enter into the
acquisition and issued 1,003,334 shares of Class A Series Preferred Stock on
that date. Subsequent to that date, as a result of investigations undertaken by
the Company, it came to light that the signatory signing on behalf of a 40%
shareholder of Glengarry was not authorized to sign on the shareholder's behalf.
In subsequent negotiations, that shareholder declined to agree to the exchange
of its share holdings in Glengarry for Class A Series Preferred shares of the
company. As a result of subsequent negotiations, the agreement was amended and
ratified by the remaining shareholders of Glengarry. On March 3, 1995, the
Company thought it had completed the acquisition of a 60% interest in Glengarry
in exchange for 620,000 shares of its Class A Series Preferred stock; however,
Glengarry subsequently voided the acquisition in its entirety, and all Preferred
shares issued were cancelled. Glengarry is a real estate company, organized in
May 1993 to own and develop residential and commercial income properties and
vacant land.
Attempted Acquisition of Oil and Gas Properties
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In November and December 1995, the Company attempted to acquire oil and
gas properties in a business combination agreement with Maximum Resources, Inc.
("Maximum"), a Vancouver Stock Exchange company, and two other companies, NP
Energy Corporation ("NP"), a U. S. over the counter electronic bulletin board
(OTCBB) company, and Polaris Equities, Inc. ("Polaris"), a U. S. private
company.
The form of business combination agreement would have taken the
following form: each of the above three oil and gas companies would set up a
U.S. subsidiary into which they would vend in selected oil and gas properties.
These three subsidiaries would then be acquired in a reverse takeover
transaction wherein the Company would issue 4,000,000 new restricted Rule 144
common shares each to Maximum, NP and Polaris in exchange for acquiring one
hundred percent (100%) of the issued and outstanding common shares of their
three U. S. subsidiaries.
Since the Company did not have the necessary funds to do its
accounting, audits, 10-Q's, 10-K's and legal work, Maximum, NP and Polaris
agreed to advance the necessary funds to complete the work. In March and April
1996, Maximum, NP and Polaris defaulted on their obligations to advance the
necessary funds and the proposed business combination agreement was never
consummated.
Adoption of 1994 Stock Option Plan
In August 1994, the shareholders of the Company adopted the 1994 Stock
Option Plan, canceling and superseding all prior stock option plans. The Plan
permits the Compensation and Stock Option Committee to issue options for up to
3,500,000 shares of the common stock at various prices for purposes of
compensation for services rendered by officers, employees, directors and
consultants to the Company and its subsidiaries. As of December 31, 1994, the
Company had issued 3,102,000 options, including 100,000 at $0.001 per share and
3,002,000 at $0.55 per share. The Plan generally provided for these options to
be exercisable for a period of ten years from the date of grant.
Settlement Agreement and Cancellation of 1994 Stock Option Plan
This Plan was cancelled in 1995. Thereafter the Board of Directors
authorized issuance of 720,000 Rule 144 restricted shares to be issued,
effective January 2, 1996, pursuant to a December 5, 1995 Settlement Agreement,
pro rata to the participants in the Stock Option Plan in exchange for the
participants giving up all right, title and interest in any accrued salary,
accrued employee benefits, whether separate or under an employee benefit plan,
accrued commissions or fees, reimbursements, stock options, contracts,
agreements or any other relationship due from or with the Company.
Financing Plans
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As a result of its divestitures, the Company has substantially reduced
its overall debt load and its operating expenses, a primary impediment to any
financing activities. The Company has focused its attention during 1995 upon the
acquisition of a company or companies which have sufficient capital for their
current operations, so as to improve its business prospects before returning
actively to the equity markets. During 1995, the Company was unable to locate or
consummate any suitable acquisitions.
The Company will continue to seek, investigate, and, if warranted,
acquire an interest in a business opportunity. The Company does not propose to
restrict its search for a business opportunity to any particular industry or
geographical area and may therefore engage in essentially any business in any
industry. Business opportunities available to the Company may be in the form of
companies which have recently commenced operations or with established
operations, which desire to establish a public trading market for their common
stock. Because of rapid technological advances being made in certain industries
and shortages of available capital, management believes that there are numerous
business entities seeking the benefits of a publicly-traded corporation. The
perceived benefits of a publicly-traded corporation may include facilitating or
improving the terms upon which additional equity financing may be sought,
providing liquidity for the needs of principal shareholders, creating a means
for providing incentive stock options or similar benefits to key employees and
other factors.
The selection of a business opportunity in which to participate is
complex and extremely risky and may be made on management's analysis of the
quality of the other company's management and personnel, the anticipated
acceptability of new products or services, the merit of technological changes,
and numerous other factors which are difficult to analyze through the
application of any objective criteria. Consequently, the Company's potential
success is heavily dependent on the Company's management, which will have
virtually unlimited discretion in searching for and entering into an acquisition
of an interest in a business opportunity. There is no assurance that the Company
will be able to identify and acquire any business opportunity which will
ultimately prove to be beneficial to the Company and its shareholders. It is
anticipated that business opportunities will be available to the Company from
various sources, including its officers and directors, professional advisors
such as attorneys and accountants, securities broker-dealers, venture
capitalists, members of the financial community, and others who may present
unsolicited proposals.
In implementing a structure for a particular business acquisition, the
Company is likely to become party to a merger or other business reorganization
with another corporation. Generally, when a public company combines with an
existing private company, the transaction is accomplished through a
reorganization in which the companies merge or the shareholders of the public
company ultimately receive a minority interest in the combined companies. As a
result, if a transaction of this nature were consummated, it is likely that the
present management and shareholders of the Company will not be in control of the
Company. In addition, a
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majority or all of the Company's directors are likely to, as part of the terms
of the acquisition transaction, resign and be replaced by new directors without
a vote of the Company's shareholders. Furthermore, the board of directors acting
without shareholder approval, has authority to issue any part or all of the
authorized but unissued common stock of the Company.
Consequently, the current business of the Company is to provide a
mechanism to take advantage of business opportunities which management believes
may arise from time to time. On occasion, the Company enters into discussions
with the principals of potential opportunity companies. The Company recently
entered into preliminary discussions with an existing private business involved
in providing wholesale services on the Internet. If these discussions result in
an agreement, of which there is no assurance, it is anticipated that the
acquisition would be structured as discussed in the preceding paragraph, and
that the shareholders of the Company would receive a minority interest in the
combined companies.
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-KSB CONTAIN FORWARD-LOOKING STATEMENTS WHICH MAY INVOLVE RISKS AND
UNCERTAINTIES OR DEAL WITH POTENTIAL FUTURE CIRCUMSTANCES AND DEVELOPMENTS. THE
COMPANY'S ACTUAL RESULTS OR FUTURE EXPERIENCE MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS OR POTENTIAL DEVELOPMENTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
THE COMPANY HAS ATTEMPTED TO IDENTIFY CERTAIN OF THE FACTORS THAT IT CURRENTLY
BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO DIFFER FROM ITS
CURRENT EXPECTATIONS REGARDING THE RELEVANT MATTER OR SUBJECT AREA. FACTORS THAT
MIGHT CAUSE THIS DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS
DISCUSSED IN THIS BUSINESS SECTION INCLUDING "ADDITIONAL RISK FACTORS AFFECTING
FUTURE PERFORMANCE" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS."
ADDITIONAL RISK FACTORS AFFECTING FUTURE PERFORMANCE
Absence of Revenue-Producing Operations
The Company has produced no revenues during the last fiscal year and is
seeking to acquire an interest in a business opportunity. If a business
combination is consummated, the Company will be subject to all the risks of the
acquired business, which may be a start-up or developmental-stage corporation.
Any purchase of securities of the Company during this stage of its development
must be seen as speculative, along with the placing of funds at a high risk in
an undetermined or start-up venture with all of the unforeseen costs, expenses,
problems and difficulties to which the future business may be subject.
No Assurance of Acquisition or of Profitability
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There can be no assurance that the Company will be able to acquire or
enter into a business opportunity, or, if a business acquisition is consummated,
that the business can be operated profitably or develop into a successful
business. Profitability will depend on many factors, including the success of
the Company's marketing program, the control of expense levels and the success
of the Company's business activities.
Dependence upon Inexperienced, Part-time Management
The Company's management has had limited experience in seeking,
investigating or acquiring interests in business opportunities. The selection of
a business opportunity in which to participate is complex and extremely risky
and will be made on management's analysis of the quality of the other company's
management and personnel, the anticipated acceptability of new products or
services, the merit of technological changes, and numerous other factors which
are difficult to analyze through the application of any objective criteria. The
Company's potential success and its shareholders are dependent on the Company's
management, which will have virtually unlimited discretion in searching for and
entering into an acquisition of an interest in a business opportunity.
Additionally, the directors of the Company may be involved in other business
activities which compete for their time, and will devote only such time as they
deem necessary to manage the business of the Company.
Lack of Opportunity for Shareholders to Evaluate Details of Acquisition
The proposed business acquisition transaction is expected to be
accomplished through a reorganization in which the companies merge or the
shareholders of the Company ultimately receive a minority interest in the
combined companies. The board of directors acting without shareholder approval,
has authority to issue any part or all of the authorized but unissued common
stock of the Company. As a result, shareholders will be unable to evaluate for
themselves the economic merit of the investments that the Company may make.
Loss of Control of Company by Shareholders
The Company may elect to acquire an interest in a business opportunity
through a business reorganization involving the issuance by the Company of
additional shares of common stock. Although shareholder approval would be
required to authorize additional shares, the board of directors, acting without
shareholder approval has authority to issue any part or all of the authorized
but unissued stock of the Company. It is likely that shares representing a
majority of the issued and outstanding common stock of the Company will be
issued to the shareholders of the business to be acquired. If issued, the
percentage of ownership of the Company by present shareholders will be reduced,
and existing
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shareholders will not be in control of the Company.
Lack of Continuity of Management
A majority or all of the Company's officers and directors are likely
to, as part of the terms of the acquisition transaction, resign and be replaced
by new directors without a vote of the Company's shareholders. Accordingly,
shareholders will be relying not only on the present management of the Company,
but also on the successors who may be designated and appointed by present
management.
Impracticality of Exhaustive Investigation
The lack of Company funds and of full-time management will likely make
it impracticable to conduct a complete and exhaustive investigation and analysis
of a business opportunity before the Company has committed its resources.
Management's decisions will likely be made without detailed feasibility studies,
independent analyses, and market surveys, which would be desirable if the
Company had funds available.
Lack of Diversification
The limited resources of the Company make it unlikely that the Company
will be able to acquire an interest in more than one business opportunity.
Accordingly, the Company will be subject to the risks associated with lack of
diversification. Shareholders in the Company should understand that the success
or failure of any business opportunity acquired by the Company will have a
substantial effect on the Company.
Financial Statement Reporting Requirements
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act") and is required to file
certain information about significant acquisitions, including audited financial
statements for the company acquired for one or two year periods, depending on
the size of the acquisition. Consequently, acquisition prospects that are unable
to obtain the required audited financial information may not be appropriate for
the Company as long as the Company is subject to the Exchange Act, and
management will be limited in its selection of a business opportunity.
Possible Need for Future Financing
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Even if a business combination or acquisition is successfully
completed, there can be no assurance that the working capital of the Company, if
any, will be sufficient to successfully implement the Company's business plan or
meet its financing requirements. In addition, the Company may experience rapid
growth after commencing its new operations and may require additional funds to
expand its operations or enlarge its organization. There can be no assurance
that additional financing will be available when needed or on terms favorable to
the Company. Subsequent financing may further reduce the percentage of ownership
of the Company held by present shareholders.
No Present Market for Securities
There is presently a limited market for the Company's securities.
Although the Company intends, if possible, to establish a more active trading
market on the NASD Electronic Bulletin Board, there can be no assurance that an
active trading market for the Company's securities will be developed or
maintained, or that shares of the Company's common stock may be resold at any
price.
ITEM 2. PROPERTIES
The Company had no assets nor any property.
ITEM 3. LEGAL PROCEEDINGS
Kenneth Williams and Robert Bickel, claiming to be consultants to the
Company, sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default judgments of
$121,809 and $122,709 respectively. The Company will seek to have such judgments
vacated or set aside.
The Company has been notified of a threatened legal proceeding against
the company in the amount of $53,000 for non-payment of rent and legal fees and
expenses to its former landlord, which was also its legal counsel. No litigation
was started during 1995.
A shareholder of the Company sued the Company in March 1995 for a
default of the company's share repurchase agreement and obtained a default
judgment against the Company of $200,909. The Company is attempting to work out
a settlement of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
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No matters were submitted to the shareholders during 1995.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established trading market for shares of the company's
Common Stock. Although the Company's Common Stock is quoted on the OTC Bulletin
Board from time to time, such quotations are limited, sporadic and often
volatile. Accordingly, shareholders may find it difficult to dispose of, or to
obtain accurate quotations as to the price of the Common Stock. In addition, the
Common Stock is subject to "penny stock" rules that impose restrictive sales
practice and market making requirements on broker-dealers who sell and/or make a
market in the Common Stock. This may affect the willingness of broker-dealers to
sell and/or make a market in the Common Stock as well as the ability of
shareholders to sell the Common Stock in the secondary market. The following
table sets forth the quarterly high and low bid prices for the Company's Common
Stock during 1994 and 1995. Quotations set forth below reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions. As of December 31, 1995 there were approximately 325
holders of record of the Company's Common Stock.
<TABLE>
<CAPTION>
Quarter Year High Low
------- ---- ---- ---
<S> <C> <C> <C>
Jan-Mar 1994 10.125 0.188
Apr-Jun 1994 11.250 1.500
Jul-Sep 1994 3.531 0.375
Oct-Dec 1994 0.563 0.125
Jan-Mar 1995 0.313 0.188
Apr-Jun 1995 0.313 0.125
Jul-Sep 1995 0.281 0.125
Oct-Dec 1995 0.125 0.094
</TABLE>
Dividends
No dividends on Common Stock of the company have been paid and no such
payment is anticipated in the foreseeable future.
Recent Sales of Unregistered Securities; Use of Proceeds from Sales of
Unregistered Securities
1995
On November 1, 1995, the Company sold 28,000 shares of its Common Stock
for aggregate cash consideration of $7,000. The issuance of these shares
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was deemed exempt from the registration provision of the Securities Act in
reliance upon Section 4(2) of the Securities Act, as a transaction by an issuer
not involving a public offering.
On December 1, 1995 the Company issued 22,000 shares of its Common
Stock for services rendered at a deemed value of $11,000 to Valhalla Financial
Group, L.L.C. The services rendered were for consulting fees incident to the
Company's proposed acquisition of oil and gas properties. The issuance of these
shares was deemed exempt from the registration provision of the Securities Act
in reliance upon Section 4(2) of the Securities Act, as a transaction by an
issuer not involving a public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated results of operations for the year ending December 31,
1995 reflect an operating loss of $851,180 as compared to a loss of $574,811 for
the year ending December 31, 1994. Included in the $851,180 loss were the losses
recorded due to the divestiture of the three subsidiary companies in the amount
of $324,563. Also included in the $851,180 loss was the default by the Company
in a share repurchase agreement with a stockholder of the Company resulting in a
default judgment in the amount of $200,909. In addition, Kenneth Williams and
Robert Bickel sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default judgments
against the Company in the amounts of $121,809 and $122,709 respectively, which
is also included in the $851,180 loss.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and incorporated herein by this reference are
consolidated audited financial statements for the year ending December 31, 1995.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Terrence J. Dunne, CPA, Suite 900 Washington Trust Building, West 717
Sprague, Spokane, Washington 99204 retained in 1993 as auditor of this
corporation chose not to continue as the Company's auditor for 1994 and
succeeding years. The former accountant's report for the fiscal year ended
December 31, 1993 contained a qualification in which the auditor expressed
uncertainty about the Company's ability to continue as a going concern.
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Registrant has no disagreements and has never had any disagreements
with Mr. Dunne or any other auditor about how to treat any aspect of any audit
or financial statement.
William L. Butcher, CPA, P. O. Box 1035, Lynnwood, Washington 98046-
1035, has been retained recently as auditor for the corporation for 1994 and
succeeding years.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C>
Jerry Cornwell 58 President, Chief Executive Officer and Director
Roaul L. Wheeler 68 Secretary, Treasurer and Director
</TABLE>
Officers are appointed by and serve at the pleasure of the Board of
Directors. There are no family relationships between any director or officer of
the Company, nor are there any arrangements or understandings between any
director or officer and any other person pursuant to which such director or
officer was elected to serve.
Jerry Cornwell was President and Chief Executive Officer of the Company
from January 1993 until March 15, 1995 when Dennis Brewer was appointed
President and Chief Executive Officer. Mr. Cornwell reassumed his position as
President and Chief Executive Officer on June 19, 1995 when Dennis Brewer
resigned. For the prior ten years, he was principal of Corn-Mill Enterprises, a
business investment advisory firm. Mr. Cornwell was previously President and
Chief Executive Officer of J. A. Cornwell, Inc., a land reclamation and
irrigation development firm, from 1975 to 1983.
Roaul L. Wheeler has served as Director and Secretary of the Company
since March 1994. Mr. Wheeler also assumed the duties of Treasurer in February
1995 upon the resignation of Ronald E. Williams. Previously, Mr. Wheeler served
as Vice President of Phoenix Construction Services, Inc., a privately held
construction management firm operating in Southern California. Prior to that,
Mr. Wheeler was an asphalt sealing and paving contractor for more than twenty
years.
Compliance with Section 16(a) of the Exchange Act
Based solely on review of the copies of the forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that Ronald E. Williams
failed to file 1 monthly report covering 1 transaction on Form 4, but did report
the transactions on his 1997 year end report on Form 5.
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ITEM 10. EXECUTIVE COMPENSATION
No executive officer's salary and bonus exceeded $10,000 during any of
the company's last three fiscal years.
Stock Options
The Chief Executive Officer was granted options for 540,909 shares at
$0.55 per share during the year ended December 31, 1994. The incoming President
and Chief Executive Officer (formerly Chief Operating Officer) was granted
options for 340,909 shares exercisable at $0.55 per share during the year ended
December 31, 1994. Four corporate directors received options to acquire a total
of 734,731 shares at $0.55 per share during the year ended December 31, 1994. Of
those, 219,060 were canceled as a result of the agreement divesting Advantage.
In addition, the Company has granted options on 150,000 shares at $0.55 per
share to former employees. All of the above stock options expire in August 2004.
All such stock options were cancelled in 1995 pursuant to the December 5, 1995
Settlement Agreement.
Thereafter the Board of Directors authorized issuance of 720,000 rule
144 restricted shares to be issued, effective January 2, 1996 pursuant to a
December 5, 1995 Settlement Agreement, pro rata to the participants in the Stock
Option Plan in exchange for the principals of PAN giving up all right, title and
interest in any accrued salary, accrued employee benefits, whether separate or
under an employee benefit plan, accrued commissions or fees, reimbursements,
stock options, contracts, agreements or any other relationship due from or with
the Company.
Executive Compensation Agreement
The Company had no obligations under any executive compensation
agreements as of December 31, 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1995, the beneficial
ownership of Common Stock of all directors of the Company, all directors and
officers of the Company as a group, and each person who is known to the Company
to own beneficially more than 5% of the Company's Common Stock.
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<TABLE>
<CAPTION>
Name and Address Amount / Nature Percent
of Beneficial Owner of Ownership (1) of Class
- ------------------- ------------ --------
<S> <C> <C>
Jerry Cornwell -0- -0-
14424 SE 78th Way
Newcastle, WA 98059
Orland L. Howard 145,055 12.87%
P. O. Box 206A
Rochert, MN 56578
Roaul L. Wheeler 112,889 10.02%
P. O. Box 1423
Chino, CA 91708
Stephen M. Roake IRA 166,666 14.79%
10650 Riviera Place NW
Seattle, WA 98125
All officers and directors
as a group (10) 112,889 10.02%
</TABLE>
(1) Pursuant to applicable rules of the Securities and Exchange Commission,
"beneficial ownership" as used in this table means the sole or shared power to
vote shares (voting power) or the sole or shared power to dispose of shares
(investment power). Unless otherwise indicated, the named individual has sole
voting and investment power with respect to the shares shown as beneficially
owned. In addition, a person is deemed the beneficial owner of those securities
not outstanding which are subject to options, warrants, rights or conversion
privileges if that person has the right to acquire beneficial ownership within
sixty days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 2, 1995, Advantage was divested to a Director of the
Company, pursuant to a divestiture agreement between the Company and Mr. Ronald
Williams. The agreement provided for, among other things, the exchange of all
Mr. Williams' interest in common shares of the company totaling 183,722 shares.
Effective January 2, 1995, MRR was divested to a Director of the
Company, pursuant to an agreement between the Company and Mr. Roaul Wheeler. The
agreement provided for, among other things, the exchange of all the Company's
interest in common shares of MRR in exchange for forgiveness of a debt by the
Company to MRR in the amount of $50,000.
17
<PAGE> 18
Effective January 2, 1995 Northwest was divested to a Director of the
Company pursuant to an agreement between the Company and Mr. Orland Howard. The
agreement provided for, among other things, the exchange of all the Company's
interest in common shares of Northwest in exchange for forgiveness of a
contingent liability to finance operations of Northwest.
ITEM 13. EXHIBITS
The following documents are filed as part of this report:
(1) Exhibits.
The exhibits required to be filed by this report are listed in the
Exhibit Index on the pages 19 and 20.
(2) Audited Financial Statements for the years ended December 31, 1995,
December 31, 1994, and December 31, 1993 (Eleven Months).
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Plan of Reorganization and Merger of Aster Development Enterprises
Ltd. into PAN Environmental Services, Inc. Reference is made to
Exhibit 1 of the Company's 8-K filed on March 25, 1993 which is
incorporated herein by reference.
2.2 Plan of Reorganization between PAN Environmental Services,
Inc. and Northwest Specialties, Inc., a Minnesota corporation,
Advantage parking Lot Service, Inc., a California corporation,
and MRR Construction Services, Inc., a California corporation.
Reference is made to Exhibit 2 of the Company's 8-K filed on
March 25, 1993 which is incorporated herein by reference.
2.3 Divestiture Agreement between Pan Environmental Corporation and
Northwest Specialties, Inc.
2.4 Divestiture Agreement between Pan Environmental Corporation and
Advantage Parking Lot Service, Inc.
2.5 Divestiture Agreement between Pan Environmental Corporation and
MRR Construction Services, Inc.
3.1 Articles of Incorporation of Aster Development Enterprises.
Reference is made to Exhibit 3.1 of the Company's January 31,
1993 10-K which is incorporated herein by reference.
3.2 Articles of Incorporation of Pan Environmental Services, Inc.
Reference is made to Exhibit 3.2 of the Company's January 31,
1993 10-K and to Exhibit 3.1 of the Company's December 31,
1993 10-K which are incorporated herein by reference.
3.3 Fiscal year change from January 31, 1993 to December 31, 1993.
Reference is made to the Company's form 8-K filed March 2, 1994
which is incorporated herein by reference.
3.4 Restated Certificate of Incorporation of P.A.N. Environmental
Services Corporation changing name to PAN Environmental
Corporation filed with the State of Delaware on February 22,
1994. Reference is made to Exhibit 3.2 of the Company's Form
8-K filed March 2, 1994 which is incorporated herein by
reference.
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
3.5 Bylaws of P.A.N. Environmental Services Corporation. Reference
is made to Exhibit 3.2 of the Company's January 31, 1993 10-K
and to Exhibit 3.2 of the Company's December 31, 1993 10-K
which are incorporated herein by reference.
3.6 Amended and Restated Bylaws of PAN Environmental Corporation.
Reference is made to Exhibit 3.4 of the Company's Form 8-K
filed March 2, 1994 which is incorporated herein by reference.
10.1 The 1994 Employee Benefit Stock Plan. Reference is made to Exhibit
10.1 of the Company's December 31, 1994 10-K which is
incorporated herein by reference.
10.2 The December 7, 1995 Settlement Agreement.
10.3 The December 7, 1995 Settlement and Option Agreement with
Stephen M. Roake IRA, a shareholder of the Company.
16.1 Consent of previous auditor, Terrence J. Dunne, CPA.
27 Financial Data Schedule
</TABLE>
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K Report for the Year ended December 31, 1995, has been signed
below by the following persons on behalf of the Registrant and in the capacity
and on the date indicated.
December 31, 1997
PAN ENVIRONMENTAL CORPORATION
A DELAWARE CORPORATION
by
/s/ Jerry Cornwell /s/ Jerry Cornwell
- -------------------------------- -------------------------------
Jerry Cornwell Jerry Cornwell
Agent on behalf of the Company President, CEO
/s/ Roaul L. Wheeler /s/ Jerry Cornwell
- -------------------------------- ------------------------------
Roaul L. Wheeler Jerry Cornwell, Director
Secretary/Treasurer
/s/ Roaul L. Wheeler
-------------------------------
Roaul L. Wheeler, Director
21
<PAGE> 22
PAN ENVIRONMENTAL CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993
<PAGE> 23
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report 1
Statement of Financial Position at
December 31, 1995, December 31, 1994,
and December 31, 1993 (Eleven Months) 2-3
Statement of Operations for the Years Ended
December 31, 1995, December 31, 1994,
and December 31, 1993 (Eleven Months) 4
Statement of Changes in Stockholders' Equity the Years Ended
December 31, 1995, December 31, 1994, and December 31, 1993
(Eleven Months) 5
Statement of Cash Flows for the Years Ended
December 31, 1995, December 31, 1994, and
December 31, 1993 (Eleven Months) 6
Notes to Consolidated Financial Statements 7-9
</TABLE>
<PAGE> 24
[WILLIAM L. BUTCHER, CPA P.S. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors of
PAN Environmental Corporation
I have audited the accompanying consolidated statement of financial position of
PAN Environmental Corporation (formerly known as Aster Development Enterprises,
Ltd.) and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PAN
Environmental Corporation and the consolidated results of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1995,
December 31, 1994, and December 31, 1993 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As is shown in the
consolidated financial statements, the Company has incurred continued operating
losses and has a working capital deficiency. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans regarding those matters are described in note 7 to the financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/s/ WILLIAM L. BUTCHER
- --------------------------------------
WILLIAM L. BUTCHER, CPA P.S.
Everett, Washington
January 6, 1998
<PAGE> 25
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF FINANCIAL POSITION AT
DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993
ASSETS
<TABLE>
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
----------- ----------- -------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $-0- $ 682 $ -0-
Accounts receivable, net of allowance
for doubtful accounts of $34,353 and
$25,808, respectively -0- 244,917 198,121
Inventory -0- 8,149 15,499
Employee advances -0- 23,577 350
Notes receivable -0- 200 -0-
Deferred and prepaid expenses -0- 15,011 10,032
---- --------- ---------
Total current assets -0- 292,536 224,002
PROPERTY, PLANT AND EQUIPMENT
Land -0- 110,499 110,499
Plant and equipment -0- 916,913 774,302
Less accumulated depreciation -0- (499,093) (486,897)
---- --------- ---------
Net property, plant and equipment -0- 528,319 397,904
OTHER ASSETS
Loan fees, net of accumulated
amortization -0- 3,621 4,457
Deposits -0- 7,996 8,381
Deferred interest on lease -0- 5,980 -0-
---- --------- ---------
Total other assets -0- (17,597) 12,838
---- --------- ---------
TOTAL ASSETS $-0- $ 838,452 $ 634,744
==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 26
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF FINANCIAL POSITION AT
DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 6) $ 505,752 $ 838,383 $ 382,884
Bank overdraft -0- 11,677 65,924
Accrued wages 58,000 243,118 96,335
Accrued interest -0- 10,783 748
Taxes payable 10,092 153,944 80,689
Judgment payable (Note 6) 200,909 -0- -0-
Equipment contracts payable -0- -0- 3,629
Loans from officer (Note 4) 84,218 180,470 30,707
Notes payable (Note 5) 17,800 30,000 34,162
Current portion of
long-term debt -0- 77,590 34,790
Suspense -0- 1,771 -0-
----------- ----------- -----------
Total current liabilities 876,771 1,545,965 729,868
----------- ----------- -----------
LONG-TERM DEBT, Net of current
portion -0- 145,214 182,792
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
50,000,000 shares authorized; 3,789,427 shares issued
and outstanding at
December 31, 1993, 1,263,142 issued and outstanding
at December 31, 1994,
and 1,126,809 issued and outstanding
at December 31, 1995 1,127 1,263 3,790
Additional paid-in capital 485,019 642,497 639,970
Accumulated deficit (1,362,917) (1,496,487) (921,676)
Total stockholders' equity (876,771) (852,727) (277,916)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $-0- $ 838,452 $ 634,744
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 27
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993 (Eleven Months)
<TABLE>
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
----------- ------------- -----------
<S> <C> <C> <C>
REVENUE $ -0- $ 1,163,120 $ 904,007
COST OF SALES -0- 996,392 786,501
----------- ----------- ---------
GROSS PROFIT (LOSS) -0- 166,728 117,506
----------- ----------- ---------
OPERATING EXPENSES
Salaries and wages (68,152) 185,514 249,348
Professional fees 142,969 63,626 59,333
Depreciation and amortization -0- 42,428 37,589
Dues and subscriptions 2,950 -0- -0-
Interest (6,959) 46,357 51,968
Travel 3,007 119,442 74,832
Bad debts -0- 83,374 25,360
Bank charges (200) -0- -0-
Insurance -0- 26,109 20,757
Taxes and licenses -0- 39,343 35,941
Rent 6,586 39,724 23,456
Repairs and maintenance -0- 18,969 29,795
Utilities 489 62,132 36,943
Office -0- 19,029 16,269
Postage and delivery 501 -0- -0-
Consulting commissions -0- 23,383 20,064
Miscellaneous -0- 2,539 2,339
----------- ----------- ---------
Total operating expenses 81,191 771,969 683,994
----------- ----------- ---------
(LOSS) FROM OPERATIONS (81,191) (605,241) (566,488)
----------- ----------- ---------
OTHER INCOME
Recovery of bad debts -0- -0- 106,009
Forgiveness of accrued interest -0- -0- 16,011
Gain on sale of equipment -0- 30,354 8,493
Interest income -0- 76 3,679
Miscellaneous income -0- -0- 16,692
----------- ----------- ---------
Total other income -0- 30,430 150,884
----------- ----------- ---------
OTHER EXPENSE (Note 6) 769,989 -0- -0-
PROVISION FOR INCOME TAX
NET INCOME (LOSS) $ (851,180) $ (574,811) $(415,604)
=========== =========== =========
NET INCOME (LOSS) PER SHARE $ (.653) $ (.455) $ (.096)
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 28
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1995, DECEMBER 31, 1994 and DECEMBER 31, 1993 (Eleven Months)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accum.
Shares Amount Capital Deficit Totals
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balances at January 31, 1993 2,124,627 2,125 487,365 (898,569) (409,079)
Corporate Reorganization
of three private companies
into a common public parent
company 2,650,000 2,650 (340,520) 392,497 54,627
Additional capital cash
contributions by shareholders 70,000 70,000
Conversion of loan payable
to capital 82,340 82,340
Common stock issued for cash
at $1 per share 339,800 340 339,460 339,800
Common stock returned from
shareholders of subsidiaries (1,325,000) (1,325) 1,325
Net (loss) for the year
ended December 31, 1993 (415,604) (415,604)
---------- -------- -------- ---------- --------
Balances at December 31, 1993 3,789,427 3,790 639,970 (921,676) (277,916)
Reverse stock split of one
for three on June 8, 1994 (2,526,285) (2,527) 2,527
Net (loss) for the year
ended December 31, 1994 (574,811) (574,811)
---------- -------- -------- ---------- --------
Balances at December 31, 1994 1,263,142 1,263 642,497 (1,496,487) (852,727)
Divestiture of three sub-
sidiaries on January 2, 1995 (186,433) (186) (175,428) 984,750 809,136
Common stock issued for
cash at $0.25 per share 28,000 28 6,972 7,000
Common stock issued for
services at $0.50 per share 22,000 22 10,978 11,000
Net (loss) for the year
ended December 31, 1995 (851,180) (851,180)
---------- -------- -------- ---------- --------
Balances at December 31, 1995 1,126,809 1,127 485,019 (1,362,917) (876,771)
---------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 29
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, DECEMBER 31, 1994, and DECEMBER 31, 1993 (Eleven Months)
<TABLE>
<CAPTION>
December 31 December 31 December 31
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (851,180) $(574,811) $(415,604)
Add (deduct) items not requiring use of cash
Depreciation and amortization (499,093) 12,196 60,325
Forgiveness of accrued interest -0- -0- (16,011)
Gain on sale of equipment -0- -0- (1,493)
Forgiveness of debt -0- -0- -0-
Bad debts--employee advances -0- -0- -0-
(Increase) decrease in accounts receivable 244,917 (46,796) (193,413)
(Increase) decrease in inventories 8,149 7,350 (5,173)
(Increase) in advances to employees 23,577 (23,227) (350)
(Increase) in deferred and prepaid expenses 15,011 (4,979) (10,032)
Increase (decrease) in accounts payable (332,631) 455,499 180,264
(Decrease) in customer deposits -0- -0- -0-
Increase in taxes payable, accrued wages,
and accrued interest (339,753) 230,073 120,557
----------- --------- ---------
Net cash provided (used) from
operating activities (1,731,003) 55,305 (280,930)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment 1,027,412 (142,611) (124,035)
Increase in other assets 9,601 (5,144) -0-
Increase in notes receivable 200 (200) -0-
Increase in deposits 7,996 385 (5,103)
Divestiture of subsidiaries 809,322 -0- -0-
----------- --------- ---------
Net cash used from
investing activities 1,854,531 (147,570) (129,138)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock (136) -0- 339,800
Capital contribution from shareholders 17,950 -0- 70,000
Loans from officers (96,252) 149,763 -0-
Proceeds from loans and notes payable -0- 5,222 34,868
Judgment payable 200,909 -0- -0-
Payments on loans and notes payable (235,004) (7,791) (41,127)
----------- --------- ---------
Net cash provided (used) from
financing activities (112,533) 147,194 403,541
----------- --------- ---------
NET (DECREASE) IN CASH 10,995 54,929 (6,527)
CASH BALANCE AT BEGINNING OF YEAR (10,995) (65,924) (59,397)
----------- --------- ---------
CASH BALANCE AT END OF YEAR $-0- $ (10,995) $ (65,924)
=========== ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES
Issuance of common stock for services $-0- $-0- $-0-
=========== ========= =========
Conversion of loan payable to capital $-0- $-0- $ 82,340
=========== ========= =========
INTEREST PAID IN CASH $-0- $-0- $ 67,231
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 30
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING
The Company was organized as Jilly Bear & Company, Inc., under the laws
of the State of Delaware on February 13, 1986, for the primary purpose
of merchandising a line of plush soft sculpture teddy bears, penguins,
ducks and related motif items. The Company closed its retail store,
liquidated its remaining inventory and ceased operations in March,
1988. On June 30, 1991, Nutec Transmission, Ltd., and Jilly Bear merged
into a resulting Texas corporation. Aster Development Enterprises,
Ltd., was organized as a private Texas corporation on August 6, 1992.
Following the rescission of the merger between Nutec and Jilly Bear on
June 1, 1992, Aster Development became the successor of Jilly Bear and
the vehicle for the continued corporate existence in Delaware of the
former Jilly Bear. Aster Development had been inactive from June 1,
1992, until March, 1993.
On March 4, 1993, the name of the Company was changed from Aster
Development Enterprises, Ltd., to PAN Environmental Corporation and the
Company acquired all of the outstanding common stock of Northwest
Specialities, Inc., a Minnesota corporation; Advantage Parking Lot
Service, Inc., a California corporation; and MRR construction Services,
Inc., a California corporation. The Company issued a total of 2,650,000
shares of common stock for the acquisition of these three corporations
in a reorganization accounted for as a reverse acquisition, whereby the
shareholders of a privately owned corporation or corporations obtained
controlling ownership interest in a previously inactive or dormant
public "shell" corporation. On October 11, 1993, the directors of PAN
Environmental Corporation and its three affiliated companies agreed to
reduce by 50% the number of shares of common stock which was originally
issued for the acquisition. The net result of the shares of common
stock issued in the business combination was 1,325,000 shares. PAN
Environmental Corporation changed its fiscal year from January 31st to
December 31st and reincorporated in the State of Delaware.
PAN Environmental Corporation (PAN) was in the business of acquiring
and supervising the operations of businesses engaged in the
reclamation, remediation and recycling of industrial waste materials
and by-products. PAN provided its affiliated operating companies with
financing and management services including accounting, planning,
budgeting, computer information systems, human resources management,
contract bonding and liability insurance. The Company also provided
technical environmental management support to its operating companies.
PAN's principal offices are in Shoreline, Washington.
Advantage Parking Lot Service, Inc. (incorporated in the State of
California on February 19, 1986) was engaged in the manufacturing and
sale of asphalt-based slurry sealants. Advantage applied the slurry
sealants to asphalt surfaces, primarily parking lots. Advantage also
had a tank cleaning operation which decontaminated portable commercial
lubricant tanks. The slurry-sealer manufacturing plant is located in
Fontana, California. Advantage had ten employees.
Northwest Specialties, Inc. (incorporated in 1993) reclaimed timber
(poles, ties, etc.) and commodity metals, primarily from obsolete
railroad telecommunications and signaling systems. The Company operated
in the Midwest and Rocky Mountain regions of the United States, and
worked on active and inactive railroad right-of-ways. The poles, other
wood products, and wiring were then sorted, graded and processed for
resale.
MRR Construction Services, Inc. (incorporated in 1992, but inactive
until 1993) performed environmental construction management and related
construction activities, as well as soil remediation, in Southern
California. The Company employed its president and a project
manager/super-intendent. The majority of the contract work was
performed by subcontractors. Daily administrative support work was
provided by personnel at Advantage Parking Lot Services, Inc.
-7-
<PAGE> 31
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING - continued
Pan divested itself of its three subsidiaries, Advantage Parking Lot
Service, Inc., Northwest Specialties, Inc. and MRR Construction
Services, Inc., effective January 2, 1995.
In November and December 1995, the Company attempted to acquire oil and
gas properties in a business combination agreement with Maximum
Resources, Inc., a Vancouver Stock Exchange company, and two other
companies, NP Energy Corporation, a U. S. over the counter electronic
bulletin board (OTCBB) company, and Polaris Equities, Inc., a U. S.
private company.
The form of business combination agreement would have taken the
following form: each of the above three oil and gas companies would set
up a U. S. subsidiary into which they would vend in selected oil and
gas properties. These three subsidiaries would then be acquired in a
reverse takeover transaction wherein the Company would issue 4,000,000
new restricted Rule 144 common shares each to Maximum, NP and Polaris
in exchange for acquiring one hundred percent (100%) of the issued and
outstanding common shares of their three U. S. subsidiaries.
Since the Company did not have the necessary funds to do its
accounting, audits, 10-Q's, 10-K's and legal work, Maximum, NP and
Polaris agreed to advance the necessary funds to complete the work. In
March and April 1996, Maximum, NP and Polaris defaulted on their
obligations to advance the necessary funds and the proposed business
combination agreements were never consummated.
The statements of operations, changes in stockholders' equity and cash
flows for the eleven month period ended December 31, 1993 and the year
ended December 31, 1994 included the financial statements of PAN
Environmental Corporation, Advantage Parking Lot Services, Inc.,
Northwest Specialities, Inc., and MRR Construction Services, Inc. The
statement of financial position at December 31, 1993 and December 31,
1994 included the balance sheets of PAN Environmental Corporation,
Northwest Specialties, Inc., MRR Construction Services, Inc. and
Advantage Parking Lot Service, Inc. The financial statements at
December 31, 1995 include only the financial statements of PAN
Environmental Corporation with no subsidiaries.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Inventories were recorded at the lower of cost or market on a first-in,
first out basis.
Plant and equipment items were recorded at cost and were depreciated on
a straight-line basis over their estimated useful lives.
Earnings (loss) per share were calculated on the number of shares
outstanding at the end of the year.
NOTE 3 - LOANS FROM OFFICERS
An officer of the Company has loaned the Company various amounts on a
short-term demand basis, which had a balance due of $84,218 as of March
31, 1995
NOTE 4 - NOTES PAYABLE
The Company owed a balance of $17,800 to Bristol Ltd., an investor in
the Company.
NOTE 5 - LONG-TERM DEBT
The Company had a long-term contract payable for the construction of a
batch plant for the production of various asphalt slurries. The
original balance of the contract payable was $31,620 and monthly
payments were $510.
-8-
<PAGE> 32
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT - continued
On March 27, 1989, Advantage Parking Lot Services, Inc. borrowed
$300,000 from Frontier Bank in La Palma, California, under a Small
Business Administration guaranty. The loan required a monthly payment
of $4,524 including interest at two and three-fourths percent above the
low New York prime rate as published in the Money Rate Section of the
West Coast Edition of the Wall Street Journal. The loan was scheduled
to be paid in full in March 1999 and was collateralized by a first lien
on land and improvements owned by the Company and located at 14388
Santa Ana Avenue, Fontana, California, plus all equipment, furniture
and fixtures, accounts receivable and inventory.
NOTE 6 - OTHER EXPENSE
The Company incurred other expenses as a result of recording losses due
to the divestiture of its three subsidiary companies in the amount of
$324,563. The Company also defaulted in a share repurchase agreement
with a stockholder of the Company, resulting in a default judgment in
the amount of $200,909. In addition, Kenneth Williams and Robert Bickel
sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default
judgments against the Company in the amounts of $121,809 and $122,709
respectively.
NOTE 7 - GOING CONCERN
Because of a deficiency in working capital and significant operating
losses, there is doubt about the ability of the Company to continue in
existence unless additional working capital is obtained. The Company
currently has plans to raise sufficient working capital through equity
financing and through the acquisition of companies having sufficient
assets and cash flow to enable the Company to be self- sufficient and
profitable.
NOTE 8 - SALES OF STOCK
The Company issued 28,000 shares for $7,000 in cash contributions and
22,000 shares for $11,000 in services rendered to the Company.
NOTE 9 - STOCK OPTION PLAN
Three corporate officers have options to acquire a total of 1,325,000
shares of common stock at $2.00 per share. In addition, the Company has
allocated and plans to issue common stock options to employees totaling
250,000 shares and exercisable at $1.00 per share. All of the above
stock options expired on December 31, 1994 and were not exercised.
The Company has existing agreements to issue 2,350,000 shares of common
stock to corporate officers, directors and corporate consultants for
services provided and to other parties who made capital contributions.
The agreements provide for the issuance of these shares upon receipt by
the Company of aggregate equity financing in the amount of $4,000,000
or more. The agreements provide for the issuance of shares as follows:
<TABLE>
<S> <C>
Corporate officers and directors 750,000
Corporate consultants for services 500,000
Other parties for capital contributions 1,100,000
Total 2,350,000
</TABLE>
All capital contributions were made prior to the March 4, 1993 plan of
reorganization. All shares issued under these agreements are subject to
Rule 144 of the Securities and Exchange Commission with respect to the
holding period by the shareholder along with other restrictions.
-9-
<PAGE> 33
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
All agreements and stock options in Note 8 above were cancelled
pursuant to a Settlement Agreement entered into in December 1995.
Pan divested itself of all three subsidiaries in January 1995 pursuant
to various agreements with the principals of those companies, and will
seek new acquisitions together with equity financing.
-10-
<PAGE> 1
EXHIBIT 2.3
DIVESTITURE AGREEMENT
DATE: January 2, 1995
PARTIES: 1. Northwest Specialties, Inc. ("Northwest")
P. O. Box 206A
Rochert, MN 56578
2. Orland L. Howard ("Howard")
P. O. Box 206A
Rochert, MN 56578
3. PAN Environmental Corporation ("PAN")
14424 SE 78th Way
Renton, WA 98059
SUBJECT: Divestiture - Resale of Subsidiary Company Northwest by Parent
Company PAN to Howard
RECITALS:
WHEREAS, on March 4, 1993 PAN acquired 100,000 shares, or one hundred
percent, of the issued and outstanding stock of Northwest, and
WHEREAS, PAN wishes to divest itself of Northwest as a subsidiary by
reconveying the 100,000 shares of Northwest stock back to Howard, and
WHEREAS, PAN desires to be released from its obligation to finance
Northwest's operations, and
WHEREAS, PAN will allow Howard to keep the 145,055 shares of PAN held by
Howard from the original acquisition of Northwest by PAN,
NOW, THEREFORE, for the mutual considerations contained herein, the
parties agree as follows:
1. PAN agrees to reconvey the 100,000 shares of Northwest back to Howard.
2. Northwest agrees to release PAN from its obligations to finance
Northwest's operations.
<PAGE> 2
3. PAN agrees to allow Howard to keep his 145,055 shares of PAN.
EXECUTED this 2nd day of January, 1995.
NORTHWEST SPECIALTIES, INC. ORLAND L. HOWARD
By /s/ ORLAND L. HOWARD /s/ ORLAND L. HOWARD
---------------------------------- ---------------------------------------
Orland L. Howard, President
PAN ENVIRONMENTAL CORPORATION
By /s/ JERRY CORNWELL
----------------------------------
Jerry Cornwell, President
<PAGE> 1
EXHIBIT 2.4
DIVESTITURE AGREEMENT
DATE: January 2, 1995
PARTIES: 1. Advantage Parking Lot Service, Inc. ("Advantage")
14388 Santa Ana Avenue
Fontana, CA 92335
2. Ronald E. Williams
14388 Santa Ana Avenue
Fontana, CA 92335
3. PAN Environmental Corporation ("PAN")
14424 SE 78th Way
Renton, WA 98059
SUBJECT: Divestiture - Resale of Subsidiary Company Advantage by Parent
Company PAN to Williams
RECITALS:
WHEREAS, on March 4, 1993 PAN acquired 3,000 shares, or one hundred
percent, of the issued and outstanding stock of Advantage, and
WHEREAS, PAN wishes to divest itself of Advantage as a subsidiary by
reconveying the 3,000 shares of Advantage stock back to Williams, and
WHEREAS, in exchange for Williams returning the 183,722 shares of PAN to
PAN's treasury, PAN will agree to write off the $166,000 advanced by PAN to
Advantage, and
NOW, THEREFORE, for the mutual considerations contained herein, the
parties agree as follows:
1. PAN agrees to reconvey the 3,000 shares of Advantage back to Williams.
2. PAN agrees to write of and forgive the $166,000 debt owed by Advantage to
PAN.
3. Williams agrees to reconvey the 183,722 shares of PAN back to PAN's
treasury.
DIVESTITURE AGREEMENT
ADVANTAGE/WILLIAMS/PAN
Page 1 of 2
<PAGE> 2
EXECUTED this 2nd day of January, 1995.
ADVANTAGE PARKING LOT
SERVICE, INC. RONALD E. WILLIAMS
By /s/ RONALD E. WILLIAMS /s/ RONALD E. WILLIAMS
---------------------------------- ---------------------------------------
Ronald E. Williams, President
PAN ENVIRONMENTAL CORPORATION
By /s/ JERRY CORNWELL
----------------------------------
Jerry Cornwell, President
<PAGE> 1
EXHIBIT 2.5
DIVESTITURE AGREEMENT
DATE: January 2, 1995
PARTIES: 1. MRR Construction Services, Inc. ("MRR")
P.O. Box 1423
Chino, CA 91708
2. Roaul L. Wheeler ("Wheeler")
P.O. Box 1423
Chino, CA 91708
3. PAN Environmental Corporation ("PAN")
14424 SE 78th Way
Renton, WA 98059
SUBJECT: Divestiture -- Resale of Subsidiary Company MRR by Parent Company
PAN to Wheeler
RECITALS:
WHEREAS, on March 4, 1993 PAN acquired 3,000 shares, or one hundred
percent, of the issued and outstanding stock of MRR, and
WHEREAS, PAN wishes to divest itself of MRR as a subsidiary by
reconveying the 3,000 shares of MRR stock back to Wheeler, and
WHEREAS, PAN desires to be forgiven from its obligation to repay a
$50,000 advance owed by PAN to MRR, and
WHEREAS, PAN will allow Wheeler to keep the 112,889 shares of PAN held
by Wheeler from the original acquisition of MRR by PAN,
NOW, THEREFORE, for the mutual considerations contained herein, the
parties agree as follows:
1. PAN agrees to reconvey the 3,000 shares of MRR back to Wheeler.
<PAGE> 2
2. MRR agrees to forgive the repayment of the $50,000 advance from MRR to PAN.
3. PAN agrees to allow Wheeler to keep his 112,889 shares of PAN.
EXECUTED this 2nd day of January, 1995.
MRR CONSTRUCTION SERVICES, INC. ROAUL L. WHEELER
By /s/ ROAUL L. WHEELER President
---------------------------------- ---------------------------------------
Roaul L. Wheeler, President
PAN ENVIRONMENTAL CORPORATION
By /s/ JERRY CORNWELL
----------------------------------
Jerry Cornwell, President
<PAGE> 1
EXHIBIT 10.2
SETTLEMENT AGREEMENT
This Settlement Agreement is made this 7th day of December, 1995, by and between
the following parties:
Parties:
PAN Environmental principals:
a) Ray Barner
b) Steven M. Waters
c) Jerry Cornwell
d) Dennis Brewer
e) John Young
f) George White
g) Mike Kaluza
h) Roaul L. Wheeler
i) Orland Howard
j) Curtis Howard
k) HJS Financial Services
l) Kartar Resources, Ltd.
m) Bristol, Ltd.
All hereafter referred to an "PAN Principals."
c/o PAN Environmental Corporation
1424 SE 78th Way
Renton, WA 98059
Attn: Jerry Cornwell, President
PAN Environmental Corporation ("PAN")
1424 S.E. 78th Way
Renton, WA 98059
Attn: Douglas P. Chysik, President
Maximum Resources, Inc. ("Maximum")
P.O. Box 10349
Vancouver, B.C. Canada V7Y 1G5
Attn: Clifford M. Johnston, Managing Member
Jerry M. Durkis, Managing Member
Valhalla Financial Group, L.L.C. ("Valhalla")
6912 - 220th Street, S.W., Suite #102
Mountlake Terrace, WA 98043
Whereas, Maximum through its proposed U.S. subsidiary, is willing to acquire
PAN on a reverse takeover, provided that at the time of takeover, PAN is clean
and has no litigation, threatened or pending, no outstanding stock options, no
outstanding employee benefit plans nor any outstanding debts of any kind, actual
or contingent, and
Whereas, subsequent to the acquisitions, Maximum intends to conduct an
extensive investor and corporate awareness relations campaign to market-makers,
broker-dealers, existing investors and prospective investors, and
page 1 of 5
<PAGE> 2
WHEREAS, Valhalla has a consulting agreement with Maximum to obtain agreements
from the appropriate parties to ensure that PAN is clean and has no threatened
or pending litigation, no outstanding stock options, no employee benefit plans,
nor outstanding debts of any kind, actual or contingent, and
WHEREAS, PAN is a U.S. 12(g) reporting public company, and
WHEREAS, PAN currently owes Stephen M. Roake (Roake) and Republic Bank
C.F.B.O., Stephen M. Roake I.R.A. (Roake IRA) a judgment of $200,910.10
obtained March 10, 1995 which bears judgment interest at the rate of 25 percent
per annum as a result of PAN defaulting on a $161,250 stock purchase agreement
for 150,000 post split shares (450,000 shares pre-split), and
WHEREAS, PAN, excluding its debt to Stephen M. Roake, currently owes taxes and
accounts payable owing of approximately U.S. $175,000.00, and
WHEREAS, Roake and Roake IRA also still own 150,000 post-split shares and have
granted an option to Valhalla for U.S. $1.50 per share, the proceeds of which
are to liquidate PAN's debt to Roake and Roake IRA which is agreed to be
$225,000, and
WHEREAS, Raoul L. Wheeler ("Wheeler") owns 112,889 post-split shares and has
granted an option to Valhalla for U.S. $0.50 per share, and
WHEREAS, Orland Howard ("Howard") owns 145,055 post-split shares and has
granted an option to Valhalla for U.S. $0.50 per share, and
WHEREAS, Valhalla will use its best efforts to sell the stock underlying the
above three stock options at a high enough price to liquidate the Roake/Roake
IRA debt owed by PAN and to liquidate the taxes payable, notes payable,
accounts payable debts owed by PAN, and
WHEREAS, PAN is not current in its compliance disclosures with Security and
Exchange Commission, and
WHEREAS, PAN had intentions of obtaining a listing on NASDAQ's small cap
listing service; however, due to the failure of Credit Lyonnaise to conclude
its several million dollar financing agreement with PAN, the market for PAN's
stock collapsed and PAN became insolvent, and
WHEREAS, the PAN principals are owed various accrued salaries, fees,
commissions and remunerations by PAN and have various agreements with PAN for
stock options, employee benefits, mergers and acquisitions among other things.
NOW, THEREFORE, for the mutual considerations contained herein, the parties
agree as follows:
AGREEMENT
1) Pan principals agree to accept and Maximum agrees to cause to be issued by
PAN 800,000 shares (this figure to be reduced by certain itemized events:
accounting, audits, tax returns, litigations, SEC compliance work, debt
arbitration, etc., performed or contracted for by Valhalla or Maximum and
has currently been reduced by 80,000 shares ($40,000 @ $0.50 per share) for
such services to effectuate this potential reverse merger transaction) of
PAN restricted common stock to PAN principals on a pro rata basis as to PAN
schedule of stock option grants as of March 20, 1995 as in Schedule A, to
be issued in these pro rata allotments over 4 month period as defined in
Schedule B.
page 2 of 5
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
Shares to be issued estimated
Stock Option at 720,000 shares
Name Grants Percentage (800,000 - 80,000 reduction)
---- ------------ ---------- -----------------------------
<S> <C> <C> <C>
Mr. Ray Barner 200,000 5.9426 42,787
Mr. Steven M. Waters 81,818 2.4310 17,503
Mr. Jerry Cornwell 564,242 16.7652 120,709
Mr. Dennis Brewer 514,242 15.2796 110,013
Mr. John Young 150,000 4.4569 32,090
Mr. George White 100,000 2.9713 21,393
Mr. Mike Kaluza 50,000 1.4856 10,696
Mr. Roaul Wheeler 172,283 5.1190 36,857
Mr. Orland Howard 276,722 8.2222 59,200
Mr. Curtis Howard 45,000 1.3372 9,628
HJS Financial Services 427,909 12.7144 91,544
Kartar Resources, Ltd. 300,000 8.9138 64,179
Bristol, Ltd. 483,334 14.3612 103,401
--------- ------- -------
Total: 3,365,550 100.00 720,000
</TABLE>
SCHEDULE B
Schedule A's restricted common stock to be issued in these pro rata allotments
evenly (25% per month) over a four month period, with the first disbursement
beginning at the effective date of the reverse takeover.
In the event that Maximum or Valhalla on behalf of Maximum subsequently finds
itself defending itself from non-disclosure events or situation originating
from previous corporate actions of PAN prior to the reverse takeover then
Maximum on post reverse takeover basis shall reserve the right to again prorate
down the base 720,000 common share aggregate amount in the amount of two shares
for each $1.00 spent.
2. In exchange for the shares in Paragraph 1 above, PAN principals agree to
give to give up all right, title and interest in any accrued salary,
accrued employee benefits, whether separate or under an employee benefit
plan, accrued commission or fees, accrued reimbursements, stock options,
contracts, agreements or any other relationship due from or with PAN.
3. PAN principals have reviewed the three stock option agreements attached
hereto, the excess proceeds from which are the only source of funds from
which to pay PAN creditors and agree to use their best efforts to promote
PAN to broker-dealers, market makers, existing shareholders and other
investors.
4. In addition to the three stock option agreements in 3 above, PAN
principals agree to grant an option to Valhalla to purchase their PAN
shares, if any, for U.S. $0.50 per share, it being understood that all
creditors must be paid and the excess proceeds from such option agreements
are the only source to do so.
page 3 of 5
<PAGE> 4
5. PAN principals agree to hold Maximum and/or Maximum's proposed U.S.
subsidiary harmless from any creditor of PAN attempting to collect from
Maximum or from Maximum's proposed U.S. subsidiary including debt, specific
performance, attorney fees and costs and to reimburse Maximum or Maximum's
proposed U.S. subsidiary for any attorney's fees, legal costs, or other
expenses involved in Maximum's or Maximum's proposed U.S. subsidiary's
legal defense against any such attempt by PAN creditors.
6. Notices. Any notices required or permitted to be given hereunder shall be
sufficient if mailed, postage prepaid, to the respective parties at the
addresses set forth above.
7. Construction. This agreement shall be construed and interpreted in
accordance with the laws of the State of Washington.
8. Default. In the event of any default hereunder, the non-defaulting party
shall be entitled to reimbursement of all costs including reasonable
attorneys fees, incurred in enforcing this agreement, whether with or
without suit and the venue of such action may be King County, Washington.
9. Further Assurances. At any time, and from time to time, after the execution
hereof, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry
out the intent and purposes of this Agreement.
10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same agreement.
11. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the respective parties and their heirs, successors and assigns.
12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of Washington.
In Witness Whereof, the parties have executed this agreement to be effective as
of the day and year first above written.
PAN Environmental principals:
a) Ray Barner ____________________________
b) Steven M. Waters ____________________________
c) Jerry Cornwell ____________________________
d) Dennis Brewer ____________________________
e) John Young ____________________________
f) George White ____________________________
g) Mike Kaluza ____________________________
h) Roaul L. Wheeler ____________________________
page 4 of 5
<PAGE> 5
i) Orland Howard
--------------------------------------
j) Curtis Howard /s/ CURTIS C. HOWARD
--------------------------------------
k) HJS Financial Services
--------------------------------------
l) Kartar Resources, Ltd.
--------------------------------------
m) Bristol, Ltd.
--------------------------------------
Pan Environmental Corporation
- ---------------------------------------
Jerry Cornwell, President
Maximum Resources, Inc.
- ---------------------------------------
Douglas P. Chysik, President
Valhalla Financial Group, L.L.C. ("Valhalla")
- ---------------------------------------
Clifford M. Johnston, Managing Member
- ---------------------------------------
Jerry M. Durkis, Managing Member
page 5 of 5
<PAGE> 1
EXHIBIT 10.3
SETTLEMENT AND OPTION AGREEMENT
Date: December 7, 1995
PARTIES:
Attn.: Jerry Cornwell, President & C.E.O.
PAN Environmental Corporation (PAN)
14424 S.E. 78th Way
Renton, WA 98059
Attn.: Stephen M. Roake
Republic Bank C.F.B.O., Stephen M. Roake I.R.A.
and Stephen M. Roake (Roake)
10650 Riviera Place, N.E.
Seattle, WA 98125
Attn.: Douglas P. Chysik, President
Maximum Resources, Inc. (Maximum)
P.O. Box 10349
Vancouver, B.C. Canada V7Y 1G5
Attn.: Clifford M. Johnston, Managing Member
Jerry M. Durkis, Managing Member
Valhalla Financial Group, L.L.C.
6912 - 220th Street, SW, Suite 102
Mountlake Terrace, WA 98043
RECITALS
WHEREAS, PAN is a U.S. 12(g) reporting public company, and
WHEREAS, Maximum through its proposed U.S. subsidiary, is willing to acquire
PAN on a reverse takeover, provided that at the time of takeover, PAN is clean
and has no litigation, threatened or pending, no outstanding stock options, no
outstanding employee benefit plans nor any outstanding debts of any kind, actual
or contingent, and
WHEREAS, Valhalla has a consulting agreement with Maximum to obtain agreements
from the appropriate parties to ensure that PAN is clean and has no threatened
or pending litigation, no outstanding stock options, no employee benefit plans,
nor outstanding debts of any kind, actual or contingent, and
WHEREAS, Roake purchased 166,666 shares of PAN on Dec. 28, 1993, and 333,334
shares of PAN on Jan. 11, 1994 for a total of 500,000 shares of PAN, and
WHEREAS, PAN and Jerry Cornwell (Cornwell) executed an agreement on January 11,
1994, to purchase 450,000 shares of PAN from Roake for U.S. $161,250 payable in
full on or before June 28, 1994, and
WHEREAS, Roake retained title to the 450,000 shares of PAN as collateral for the
loan, however at the time of the due date for the loan the market for the stock
had collapsed and the shares could not be sold, and
WHEREAS, when Roake did not receive payment when due, Roake sued PAN and
Cornwell, and was granted a default judgment for U.S. $161,250 principal, U.S.
$38,988.85 interest plus attorney's of U.S.
<PAGE> 2
$500.00 for a total judgment of $200,909.10 which was to bear interest from the
date of judgment at the rate of 25% per annum until paid, and
WHEREAS, Maximum through its proposed U.S. subsidiary, is willing to acquire
PAN on a reverse takeover, provided that at the time of takeover, PAN is clean
and has no litigation nor any debts.
NOW, THEREFORE, For the mutual consideration and promises contained herein, the
parties agree as follows:
AGREEMENT
1. Maximum through its proposed U.S. subsidiary agrees to acquire PAN on a
reverse takeover through PAN's issuance of 8,000,000 common shares to
Maximum, provided that PAN (a) brings its accounting up to date through
12-31-95; (b) files all necessary 10-Ks, 10-Qs and any other SEC
compliance reports due through 12-31-95; (c) pays off the U.S.
$225,000 PAN debt to Roake using the U.S. $1.50 option for 150,000
shares created by this agreement; (d) pays off the U.S. $175,000 in PAN
debts to general creditors using the U.S. $0.50 option for 257,000
shares created by an option agreement with two directors of PAN; and
(e) secures an agreement with all principals, officers, directors and
other affiliates and associates of PAN to accept 800,000 - 80,000 (to
pay for approximately $40,000 in expenses advanced by Maximum of its
assigns @ U.S. $0.50 per share) equaling 720,000 shares in full
satisfaction of any right, title and interest in accrued salaries,
accrued fees, accrued expense reimbursements, employee benefit plans,
stock options and any other claims against PAN.
2. In consideration of Maximum's undertakings in and in consideration of
this option agreement for 150,000 shares @ U.S. $1.50 per share to
Valhalla which serves as a consultant to Maximum, Roake agrees to
cancel his debt against PAN and upon closing of the Agreement and Plan
of Business Combination between PAN and Maximum through Maximum's
proposed U.S. subsidiary to execute and file all necessary
satisfactions of his judgment against PAN together with the
cancellation of his previous agreements and promissory note with and
from PAN (satisfactions and cancellations attached as Exhibit A).
3. Roake agrees to transfer his 150,000 PAN shares into an escrow under
the I.R.A.'s name set up by his attorney firm Robben, Blauert, Rahles
and Roheback which would serve as escrow agent upon terms and
conditions mutually acceptable to Roake and Valhalla.
4. The escrow agreement (attached as Exhibit B) will provide that the
shares will be placed for sale at a minimum of U.S. $2.00 per share
licensed U.S. or Canada broker/dealer with instructions to remit all
proceeds to the escrow agent. The escrow agent will then remit U.S.
$1.50 per share to Roake up to a maximum of U.S. $225,000 with any
excess over U.S. $1.50 to be remitted to Valhalla provided that all
funds payable to Valhalla will stay in escrow until the full U.S.
$225,000 has been paid to Roake.
5. The escrow agreement also shall provide that Roake shall vote all
shares under his control in favor of the Agreement and Plan of Business
Combination between PAN and Maximum.
6. Maximum agrees to use its best efforts to institute an investor
relations campaign to in obtain a sale price for each share of at least
U.S. $2.00 per share. Upon mutual agreement by Roake and Valhalla, the
stock may be sold for less than U.S. $2.00 per share pursuant to a
mutually agreed strategy.
7. Responsibility of Escrow Agent. The Escrow Agent has made no
representations or warranties in connection with this transaction and
has not been involved in the negotiation of the terms of this agreement
or any matters relative thereto. The Escrow Agent has no liability
hereunder to either party other than to hold the stock and to deliver
it under the terms thereof and to deliver any funds received to Roake
and Maximum or its assignee upon payment. The Escrow Agent may resign
at any time by tendering the stock to a court of competent jurisdiction
or to any successor escrow agent upon by all parties hereto. Each party
hereto agrees to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities
<PAGE> 3
arising in any way out of this transaction including the obligation to
defend any legal action brought which in any way arises out of or is
related to this Escrow.
8. Notices. Any notices required or permitted to be given hereunder shall
be sufficient is mailed, postage prepaid, to the respective parties at
the addresses set forth above.
9. Construction. This agreement shall be construed and interpreted in
accordance with the laws of the State of Washington.
10. Default. In the event of any default hereunder, the non-defaulting
party shall be entitled to reimbursement of all costs including
reasonable attorneys fees, incurred in enforcing this agreement, whether
with or without suit and the venue of such action may be King County,
Washington.
11. Further Assurances. At any time, and from time to time, after the
execution hereof, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party
to confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same agreement.
13. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the respective parties and their heirs, successors and
assigns.
14. This Agreement shall be construed and interpreted in accordance with the
laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as
of the day and year first above written
<TABLE>
<CAPTION>
<S> <S>
PAN Environmental Corporation Stephen M. Roake, individually
/s/ JERRY CORNWELL /s/ STEPHEN M. ROAKE
- --------------------------------- --------------------------------
Jerry Cornwell, President & C.E.O. Stephen M. Roake
Maximum Resources, Inc. Republic Bank C.F.B.O.,
Stephen M. Roake, I.R.A.
/s/ STEPHEN M. ROAKE
- --------------------------------- --------------------------------
Douglas P. Chysik, President Stephen M. Roake
Valhalla Financial Group, L.L.C.
/s/ CLIFFORD M. JOHNSTON
- ---------------------------------
Clifford M. Johnston
- ---------------------------------
Jerry M. Durkis
</TABLE>
<PAGE> 4
ADDENDUM TO AGREEMENTS DATED
DECEMBER 7, 1995 and DECEMBER 1, 1997
1. It is hereby agreed that all funds received from the initial sale of PAN
Environmental stock controlled by TCKTS, L.L.C. dba Bristol Media, Ltd.,
Jerry Cornwell and Clifford M. Johnston, Managing Members, or its
representatives shall go first to pay off Roake's $95,000 interest and
$225,000 principal before any other obligations are paid, with the
exception of the $75,000 settlement payments in paragraph 2 below.
2. TCKTS, L.L.C. dba Bristol Media, Ltd., through Douglas Millard, Escrow
Agent, agrees to retire Roake's $95,000 interest payment and an estimated
$75,000 of settlement payments to retire debt on a pro-rata basis from the
initial sale of 450,000 shares of PAN common stock issued to cover PAN's
debt before Bristol Media, Ltd. receives any of the excess proceeds above
Bristol's exercise price of $0.50 per share.
3. It is also agreed that Clifford M. Johnston, Jerry Cornwell, and Bristol
Media, Ltd. will provide the additional funds required to bring PAN into
compliance as a reporting company through 1997 if Roake (Commerce Bank)
contributes $15,000.
DATED this 19th day of December 1997.
STEPHEN M. ROAKE TCKTS, L.L.C.
STEPHEN M. ROAKE, IRA dba BRISTOL MEDIA, LTD.
By /s/ STEPHEN M. ROAKE By /s/ CLIFFORD M. JOHNSTON
- ----------------------------- -----------------------------
Stephen M. Roake Clifford M. Johnston
Managing Member
CLIFFORD M. JOHNSTON JERRY CORNWELL
/s/ CLIFFORD M. JOHNSTON /s/ JERRY CORNWELL
- ----------------------------- -----------------------------
Clifford M. Johnston, Jerry Cornwell,
individually individually
<PAGE> 5
VALHALLA FINANCIAL GROUP, L.L.C.
19239 Aurora Avenue North
Shoreline, WA 98133-3930
Tel (206)546-9660 Fax (206)533-1156
December 1, 1997
Stephen M. Roake PAN Environmental Corporation
Stephen M. Roake, I.R.A. c/o Jerry Cornwell
10650 Riviera Place NE 19239 Aurora Avenue North
Seattle, WA 98125 Shoreline, WA 98133
RE: Extension of Settlement and Option Agreement dated December 7, 1995 and
Joint Escrow Instructions dated December 7, 1995 (copies attached) and
additional proposals
Dear Steve:
PAN Environmental Corporation has proven to be a very difficult company to
clean up and resurrect.
Maximum Resources, Inc. pulled out of the deal because of time delays and its
lack of resources to adequately finance the PAN project.
Valhalla Financial Group, L.L.C. has continued to work for PAN to locate
a suitable merger candidate, however, this has proved to be a difficult task as
PAN has a considerable amount of debt to clean up and a substantial amount of
accounting to do in order to obtain certified audits for 1994, 1995, 1996 and
1997.
In addition, we estimate that PAN will require $40-50,000 cash for
transfer agent fees, accounting fees, certified audit fees, legal fees and
other similar business expenses between now and December 31, 1997, which is our
target date to complete the work of bringing PAN into compliance as a reporting
company, so that we can complete the merger we are working on in the first week
of January 1998.
Accordingly, we propose that you consider the following proposal:
1. That you extend the subject Settlement and Option Agreements to
December 31, 1998.
2. That you, for your part in assisting us in generating immediate cash to
complete all tasks to bring PAN into compliance by December 31, 1997,
contribute $15,000.00 in exchange for new issue Rule 144 common shares at
$0.25 per share, or 60,000 shares.
3. That PAN, through its escrow agent, Douglas Millard, will assign to a
separate escrow 189,805 of the 450,000 common shares that it had authorized
for issuance to cover PAN's debt. PAN and/or Millard will negotiate with
PAN's creditors to settle out debt as cheaply as possible and will only
sell enough stock to cover such settlements and will return any stock
remaining to PAN's treasury. A portion of PAN's debt is the accrued
interest on your judgment from March 12, 1996 to March 12, 1998 (the
interest from March 12, 1995 to March 12, 1996 having been covered by the
Settlement and Option
<PAGE> 6
Stephen M. Roake
December 1, 1997
Page 2 of 2
Agreement dated December 7, 1995). This two-year amount of accrued
interest is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
$161,250.00 $39,659.10
Principal Amount Interest, Attorney
@25% per annum Fees and Costs
@ 18% per annum
---------------- ------------------
March 12, 1996 to March 12, 1997 $40,312.50 $ 7,138.64
March 12, 1997 to March 12, 1998 40,312.50 7,138.64
---------- ----------
Total $80,625.00 $14,277.28
TOTAL INTEREST $94,902.28
----------
</TABLE>
Unlike PAN's other creditors where PAN and Millard are going to
negotiate settlements, PAN intends to fully pay the above accrued
interest through this separate agreement.
4. The terms and conditions of the separate escrow agreement to be set up
will be as follows: That we form a separate escrow to pay off the
$94,902.28 with 189,805 common shares of PAN assigned to the separate
escrow by PAN and Douglas Millard and that TCKTS, L.L.C. dba Bristol
Media, Ltd. ("Bristol") be granted an option at $0.50 per share on the
escrow shares, good until December 31, 1998. Bristol will be handling
investor relations duties for PAN and this option will serve as an
additional incentive to Bristol to get this debt paid off as soon as
possible. If Bristol does not exercise its option by December 31, 1998,
all such shares will become the sole and separate property of Stephen M.
Roake/Stephen M. Roake, I.R.A. (The judgment will not accrue any
additional interest until December 31, 1998, the expiration of the
option agreement to Bristol.)
If you agree to this proposal, please sign and date below:
Sincerely,
VALHALLA FINANCIAL GROUP, L.L.C.
Clifford M. Johnston, Managing Member
<TABLE>
<CAPTION>
<S> <C>
AGREED: AGREED:
STEPHEN M. ROAKE PAN ENVIRONMENTAL
STEPHEN M. ROAKE, I.R.A. CORPORATION
- ---------------------------------- ----------------------------------
Jerry Cornwell, President
</TABLE>
<PAGE> 1
EXHIBIT 16.1
[TERRENCE J. DUNNE, MBA, MST LETTERHEAD]
Certified Public Accountant
January 21, 1998
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
I have read the statements made by PAN Environmental Corporation, which I
understand will be filed with the Commission pursuant to Part II, Item 8 of Form
10-KSB as part of the company's Form 10-KSB for the fiscal years ended December
31, 1994, 1995, 1996 and 1997, and in the subsequent reports under the
Securities and Exchange Act of 1934, as amended. I agree with the statement
concerning my firm in the Form 10-KSB.
Sincerely,
/s/ TERRENCE J. DUNNE
- --------------------------------
Terrence J. Dunne
Certified Public Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMMARY FINANCIAL INFORMATION EXTRACTED FROM 1995 FORM
10KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 876,771
<BONDS> 0
0
0
<COMMON> 1,127
<OTHER-SE> 485,019
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (851,180)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,959)
<INCOME-PRETAX> (851,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (81,191)
<DISCONTINUED> (324,563)
<EXTRAORDINARY> (445,427)
<CHANGES> 0
<NET-INCOME> (851,180)
<EPS-PRIMARY> (.653)
<EPS-DILUTED> (.653)
</TABLE>
