UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark one)
XX ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
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1934 (Fee required)
For the fiscal year ended October 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File Number: 0-19708
PHOENIX RESOURCES TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1034982
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(State of incorporation) (IRS Employer ID Number)
5565 Shady Lane Circle, Brainerd, MN 56401
(Address of principal executive offices)
(218) 828-0415
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act
Title of each class Name of each exchange on which registered
Common Stock NASDAQ EXCHANGE
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Securities registered pursuant to Section 12 (g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES _ NO X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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. ___
State issuer's revenues for its most recent year. $0.00
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: July 9, 1998: 27,000,000
Transitional Small Business Disclosure Format (check one): YES NO X
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TABLE OF CONTENTS
ITEM NUMBER PAGE
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PART 1
1. Description of Business 2
2. Description of Property 8
3. Legal Proceedings 9
4. Submission of matters to a Vote of Shareholders 10
PART 11
5. Market for Company's Common Stock
and Related Stockholder Matters 11
6. Management's Discussion and Analysis
or Plan of Operation 13
7. Index to Financial Statements 18
8. Changes In and Disagreements with Accountants on 18
Accounting and Financial Disclosure
PART III
9. Directors, Executive Officers and Control Persons;
Compliance with Section 16(b) of the Exchange Act. 19
10. Executive Compensation 19
11. Security Ownership of Certain Beneficial
Owners and Management 20
12. Certain Relationships and Related Transactions 20
13. Exhibits and Reports on Form 8-K 23
Signatures 24
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Caution Regarding Forward-Looking Information
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This annual report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate",
"believe", "estimate", "expect" and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
ITEM I - DESCRIPTION OF BUSINESS
General
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Phoenix Resources Technologies, Inc. ("Phoenix" or "Company") formerly named
Hughes Resources, Inc., was originally organized in the State of Colorado
("Firma, Inc.") as a corporation organized to take advantage of unspecified
business opportunities in 1986. On June 3, 1991, its subsidiary pursuant to a
reorganization agreement, Firma, Inc. merged with Hughes Wood Products, Inc.,
("HWP"), a Texas Corporation, principally owned by Mr. James E. Hughes, Sr.,
whereby Hughes Resources, Inc. became the named successor and parent corporation
and HWP became a wholly owned subsidiary.
From 1991 until August 12, 1996 the Company was in the business of logging,
milling, and testing wood products in Eastern Texas and Western Louisiana
through its subsidiaries. In 1996, the HWP business was resold to Mr. James E.
Hughes, Sr. as a part of settlement of a suit commenced by the Company against
Mr. Hughes.( See item 3 hereunder.)
In 1995 the Company acquired certain oil and gas wells located in Louisiana from
Jade Petroleum, Inc..It also acquired oil and gas wells in West Virginia from719
Corporation, HAH Petroleum, Inc. and Top Drilling Corporation. This business was
resold to the sellers on August 13, 1996. (See item 6 hereunder.)
(2) Additional Pipelines Acquired in West Virginia
On January 17, 1996 the Board of Directors of the Company approved the
acquisition of three pipeline systems located in West Virginia. This gas
gathering system is in excess of 56 miles of pipe varying in circumference from
2" to 8" and is located in Pleasant and Richie counties. As these pipelines are
in the same area as present pipelines owned by the Company, it was felt that
this acquisition would not only increase the competitive position of the Company
but lower the transportation costs for transporting a portion of the Company's
gas to market.
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The acquisition cost was $1,750,000.00 payable with 2,250,000 shares of stock
issued ppursuant to Regulation S of the US Securities & Exchange Commission, and
the assumption of $150,000.00 of debt. This debt is evidenced by note payable on
March 1996, bearing no interest.
The pipelines were owned by a Canadian Corporation by the name of 487016 B.C.,
Ltd. The stock issued pursuant to Regulation S was subject to an agreement not
to market the stock for a period of one year was in place. No Officer or
Director of the Company owns or is an officer or director of 487016 B.C., Ltd.
(3) Sale of Hughes Wood Products and Houston Woodtech, Inc., and
settlement of suit involving James R. Hughes, Sr.
On January 22, 1996, at a Special Meeting of the Board of Directors, James E.
Hughes, Chairman of the Board of Directors of the Company tendered his
resignation as a Director and as Chairman of the Board. The resignation was
accepted by the Board. James R. Ray, who was at that time President and Chief
Executive Officer of the Company was then elected as Chairman of the Board.
Subsequent thereto, the Company had acquired on January 31, 1996, from James R.
Hughes, 56 producing oil and gas wells. These properties had been acquired from
Mr. Hughes in a transaction to sell a Pole Mill located in Quincy, LA and the
office building and airplane and office equipment associated therewith. Mr.
Hughes had assumed certain liabilities associated with the properties sold to
him and had further agreed to return approximately 400,000 shares of the
Company's common stock to the Company.
The above transaction was never consummated by Hughes and consequently the Board
of Directors authorized the filing of a lawsuit against Mr. Hughes, certain
employees of Hughes and the Certified Public Accounting firm representing Hughes
in the transaction. This matter was settled on August 12, 1996 with the
Agreement that Phoenix would retain 46 of the producing wells, receive a
promissory note from Mr. Hughes in the amount of $1,000,000.00, collateralized
as agreed to by the parties, and would sell to Hughes the entire Wood Products
division of the Company known as Hughes Wood Products, Inc. ("HWP") and Houston
Woodtech, Inc. ("HWI"), a wholly owned subsidiary of HWP.
Phoenix had returned the stock of HWP, subject to the performance by Phoenix of
certain guarantees relating to the obligations owed to Agriculture Production
Credit Association ("AgPCA"). Hughes agreed to execute a liabilities undertaking
whereby he agreed to assume and pay all obligations and indebtedness of HWP or
HWI owing to AgPCA and Phoenix was to deliver the stock of WHP and HWI. This
note, in original principal amount of $3,551,000.00 was dated September 10,
1993, signed by Hughes Wood Products (now Phoenix Resources Technologies, Inc.),
Hughes Wood Products, Inc. and Houston Woodtech, Inc. and was related to the
business of Hughes Wood Products, Inc. and Houston Woodtech, Inc.
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(4) License Agreement for Water Production/Generation System.
On March 12, 1996 the Company entered into an Exclusive License Agreement with
J.J. Reidy & Co., Inc. (the "Licensee"), a Massachusetts Corporation, relating
to United States Patents Numbered 5,106,512,, 5,149,446, 5,203,989 and 5,366,705
relating to a Water Production/Generation System ("Licensed Property").
Licensee is a marketing firm with proprietary method(s) in which to market
products and was desirous of obtaining the exclusive right and license to make,
use and sell Water Production/Generation Systems products and component parts
therefore.
The term of the License was for the period of the life of the last expiring
Licensed Property. Licensee was to pay a Royalty of five percent (5%)of the
Gross sales, payable monthly following the signing of the License Agreement. In
addition an Advance Royalty payment of $37,500.00 was payable upon the signing
of the License Agreement, and a second payment of $37,500.00 was due and payable
on or before March 25, 1996. These payments were considered as in effect an
Annual Minimum Royalty and were credited to future Royalty payments that became
due.
(5) Sale of Drilling Sites and Turnkey Drilling Agreement
On July 29, 1996, pursuant to Board of Director action, taken on July 26, 1996,
the Company entered into an Agreement to convey Oil and Gas Drill Sites and
Turnkey Drilling Contract with respect to the West, Virginia properties with
Erin Oil Exploration, Inc., a Texas Corporation ("Erin").
The purpose of this Agreement was to consider drilling up to 500 wells on the
West Virginia property of the Company. The Company agreed to sell up to 500 well
drill sites at a price of $2,000.00 per site. Phoenix was to do turnkey drilling
at a cost of $250,000.00 per well, subject to the usual and normal escalation's
after the first year of drilling. The Agreement called for Erin to pick three
sites and thereafter to pick an additional 125 drilling sites (including the
first three drill sites). Erin also agreed that in the event it purchased the
first 250 drill sites, that it would commit to purchase additional 250 sites.
Erin gave Phoenix its Promissory Note in the amount of $500,000.00 to cover the
purchase of these additional drill sites, bearing interest at the rate of 5% per
annum and payable within 180 days from the date of the Agreement.
(6) Sale of West Virginia Properties.
On August 13, 1996 Mr. Warren Haught, a member of the Board of Directors, made
an offer to the Company to repurchase the oil and gas properties he had sold to
the Company over the last five years. Mr. Haught had become disenchanted with
Phoenix during the Court proceeding with Mr. Hughes, and the settlement of that
matter and Phoenix's failure to acquire additional to increase the number of oil
and gas wells in the West Virginia area. IN settlement of this dispute, the
Company agreed to convey to 719 Corporation, HAH Petroleum, Inc. and Top
Drilling Corporation the properties that the Company had acquired from them. As
further consideration Mr. Haught caused to be surrendered to the Company
1,000,000 shares of Class C Preferred stock and 1,000,000 shares of Class D
Preferred stock in the Company, and Mr. Haught resigned as a Director of
Phoenix.
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(7) Stock Distributions.
During 1996, the Company issued 750,000 shares of unregistered restricted common
stock to Pacific Corporate Equities, LLP, an unrelated third party in settlement
of a $225,000.00 debt owed to it.
Also in fiscal 1996 the Company issued an aggregate of 3,870,000 shares of
common stock registered pursuant to a prior year filing on Form S-8. These
transactions were valued at $0.10 per share, or an aggregate of $387,000 which
approximated the fair market value of services provided for legal and financial
consulting.
PERIOD FROM OCTOBER 31, 1996 TO OCTOBER 31, 1997
(8) Judgment by Agriculture Production Credit Association against Phoenix.
On December 31, 1996 an interlocutory Default Judgement was entered against
Phoenix, in the District Court, 11th Judicial District, Smith County Texas by
Agriculture Production Credit Association ("AgPCA") in the principal amount of
$3,045,140.35, together with pre-judgement interest from October 1, 1996 to date
of Judgement. The entire unpaid principal and interest as of date of Judgement
was $3,177,300.74 together with Attorney fees on $58,747.00.
This Judgement was also entered in Wood County Circuit Court, Parkersberg, W. VA
on March 17, 1997, in the principal amount of $3,236,048.24 and also filed in
the District Court, County of Arapaho, State of Colorado on September 26, 1997
in the principal amount of $3,236,047.74.
This debt is one that the Company was indemnified from by Hughes Wood Products,
Inc. in the sale of Hughes Wood Products, Inc. and Houston Woodtech, Inc. to
James R. Hughes, Sr. in 1966. However in the later part of 1996 Hughes Wood
Products, Inc. ("HWP") filed for bankruptcy in the United States Bankruptcy
Court for the Eastern Division of Texas, Beaumont Division. On May 22, 1997 the
Court approved HWP Third Amended Plan of Reorganization. The AgPCA debt of
$3,189,068.00, together with interest and other fees and expenses and attorney
fees, was allowed as a Class 4 Secured Claim in the principal amount of
$3,189,068.74, and constituted a lien on the Debtors property as set out in the
Loan document.
From that time to May 1998, AgPCA has reduced the amount of the debt through
foreclosures on HWP and HWI properties to approximately $1,100,000.00. AgPCA is
in the process of pursuing Guarantors of the debt, including MVP Holdings, Inc.,
which assumed the debt in a transaction as set out hereafter.
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(9) Acquisition of controlling Interest in Rocky Mountain Crystal
Waters, Inc.
On the 31st of January, 1997 Phoenix acquired controlling shares of Rocky
Mountain Crystal Water, Inc. ("RMCW") in a stock for stock exchange wherein
Phoenix issued 6,000,000 shares of Class B Preferred stock, convertible into
60,000,000 shares of Phoenix common stock at the option of RMCW. RMCW
transferred to Phoenix 6,000,000 shares of RMCW.
RMCW owed the rights to produce water from the aquifer located in Ten Sleep,
Wyoming and had a pilot plant in Ten Sleep for the production and distribution
of the spring water.
On the next day the Board of Directors of Phoenix consisting of James R. Ray and
George W. Smith resigned and a new Board of Directors was appointed, consisting
of Michael Puhr, Lorina Liang and Allen Wen Jen Lan.
(10) Sale of all Oil and Gas Operating Interests to MVP Holdings, Inc.
On March 10, 1997, Phoenix entered into an Agreement with MVP Holdings, Inc.
("MVP"), a Nevada corporation. The Agreement essentially called for Phoenix to
sell to MVP all of its operating assets excepting the RMCW operation. The
properties being sold consisted of the West Virginia Oil and Gas Properties,
including the pipeline systems known as Broad Run Pipeline, HPC Pipeline and
Panther Pipeline and the rights -of-way associated with these pipelines; the
Louisiana Oil and Gas Properties and miscellaneous other properties and assets
owned by Phoenix, including all accounts receivable and payables incurred in the
operation of the Oil and Gas properties, inventories of Oil and Gas and
Assignment of the Erin Oil Co. Contract to drill wells; note receivable from
James R. Hughes and note receivable from Erin Oil; right title and interests in
all Watermaker and Watermaker projects.
The purchase price for these properties was $14,000,000.00 payable by issuance
of 4,000,000 shares of the common stock of MVP, a Public Corporation. The stock
price at the time of sale was approximately $3.50 per share and was considered
to be substantially equal to the purchase price of $14,000,000.00. The Agreement
also provided that if the market price of the shares falls below $3.50 and
remains there for a period of 90 days, Phoenix would be entitled to receive
additional shares of MVP needed to keep the value of such shares equal to
$14,000,000.00. NO additional shares were issued pursuant to this Agreement, and
the stock was distributed to shareholders of the Company in 1998.
MVP also agreed to indemnify and hold Phoenix harmless from all liabilities that
currently existed at the time of the transaction, including the AgPCA Judgement
and any IRS claims arising out of the operation of HWP and HWI, that may be
made.
On April 9, 1997, the above Agreement was modified to give MVP the right of
first refusal and a right to repurchase the shares issued to Phoenix in the
event that Phoenix desired to sell said shares.
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(11) Garnishee Judgment against Phoenix.
On March 20, 1997, the Company was named as a Garnishee in the settlement of a
Judgement rendered against James R. Ray, the Company's former President and
Chief Executive Officer. The Judgement placed against the Company by the
Superior Court of the State of Arizona, Maricopa County, was in the amount of
$266,205.91 plus interest at 10% per annum, and is unpaid.
(12) Divestiture of Rocky Mountain Crystal Waters, Inc. and settlement of
claims against Phoenix.
On September 20, 1997 Phoenix Board of Directors determined that it was in the
best interests of the Company to rescind the acquisition of RMCW. RMCW was not
performing up to expectations and RMCW was making a claim that Phoenix was
unable to properly fund the operation of RMCW due to the suppression of books
and records of Phoenix; loss of financing due to the inability of Phoenix to
produce audits or accurate in-house financial statements; loss of revenue by
RMCW by reason of the above. RMCW also claimed business interruption due to
actions of Phoenix and addition that Phoenix failed to disclose liabilities in
excess of five million dollars, consisting of AgPCA note and possible
liabilities to the IRS.
RMCW had threatened to commence suit against Phoenix based on the foregoing.
(13) Adoption of New Business Plan and Actions Relating thereto.
To remedy this situation, and to get Phoenix back as a full reporting company,
the Board determined that specific actions were required which had the
possibility of returning value to the shareholder of Phoenix. In conjunction
therewith the Board of Directors on September 20, 1997 entered into an Agreement
with M. D. Price, Jr., acting as Escrow Agent ("Price"), whereby the Board
authorized the issuance of fifteen million shares of restricted common stock to
Price. Price agreed to seek and obtain a suitable merger or acquisition
agreement with an on-going privately owned business; engage a qualified public
accounting firm to audit the corporate financial records; validate the
corporation's corporate status and facilitate the filing of all delinquent
reports with the U. S. Securities and Exchange Commission. At the time of the
stock being issued to the Escrow Agent the Company's stock was trading at
approximately $0.04 per share. Due to the restricted nature of the stock the
value for the Subscription Agreement was determined to be $0.016 per share or
$240,000.00 fair value. The Subscription Agreement is to be settled upon the
successful completion of a merger or acquisition with an on-going private
business.
As the next step, the Board of Directors, consisting of Michael Puhr, Lorina
Liang and Allen Wen Jen Lan, on September 22, 1997 appointed a new Board of
Directors consisting of William C. Nichols, Robert Eckman and Paula Nichols. The
old Board members then resigned.
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Concurrently therewith, the Company entered into an Agreement with RMCW which
essentially reversed the acquisition of RMCW on January 31, 1997. RMCW returned
the 6,000,000 shares of Class B Preferred stock and Phoenix returned the
6,000,000 shares of common stock of RMCW. All liabilities of Phoenix relating to
the operation of RMCW were assumed by RMCW and RMCW indemnified Phoenix with
respect to these liabilities.
In settlement of RMCW claim against Phoenix, Phoenix agreed to transfer to RMCW
the stock of MVP Holdings, Inc. and the right to any increases of MVP stock
under that Agreement, and subject to MVP's right of first refusal. MVP exercised
the right of first refusal, and in connection therewith reissued the 4,000,000
shares to Phoenix with the Agreement that Phoenix would distribute the shares to
its shareholders. This was done on September 22, 1997, and the record date for
determining shareholders entitled to receive the MVP stock was set as October 1,
1997. The stock was distributed shortly thereafter to Phoenix shareholders.
Following the above actions, Phoenix had no assets and undetermined liabilities.
All known liabilities were assumed by MVP in its transaction with Phoenix, and
the AgPCA and IRS claim were also subject to an indemnity from HWP, and was a
part of AgPCA lien granted by the Bankruptcy Court and had been substantially
reduced by foreclosure on properties and assets of HWP.
(14) Stock Distributions.
During fiscal year 1997 the Company issued an aggregate of 950,112 shares of
common stock registered pursuant to a prior year filing on Form S-8. These
transactions were valued at $0.10 per share or an aggregate of $95,000 which was
the approximate fair value of the stock issued and the services provided for
legal and financial consulting services.
(16) Business Inactivity.
Since September 1997, the Company has not conducted any business. It is in the
process of attempting to settle any outstanding liabilities; bring the financial
information current and file any and all necessary reports with the Securities &
Exchange Commission. In addition, the Board of Directors has been searching for
and evaluating potential merger or acquisition prospects for combination with a
private Company or Group.
EMPLOYEES
The Company had no other employees in 1996 and 1997.
ITEM 2 - PROPERTIES.
Executive and Administrative Offices
The only nominal office facility of the Company is being furnished by
Mr. William Nichols, the Company's President, at no cost to the Company.
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Registrant's Office
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The Registrant offices are located at 5565 Shady Lane Circle, N. W., Brainerd,
Minnesota 56401. The Registrant's phone number is 218-829-5127. The Registrant's
corporate President is currently providing this facility (consisting primarily
of file space) at no cost to the Registrant. It is anticipated, that upon
consummation of the acquisition of a business opportunity, that the Registrant
may incur one or more leases for office facilities.
In the event of a consummation of a merger or acquisition with a suitable
candidate, it is highly probable that the Registrant's principal offices will be
relocated to the existing offices of the merger or acquisition candidate.
Further, the Registrant may also have offices at such other places both within
and without the State of Nevada and/or Minnesota as the Board of Directors may
from time to time determine or the future business, subsequent to the
consummation of a merger or acquisition, of the Registrant may require.
All corporate records are currently being maintained in the office of the
Registrant's counsel at 15945 Quality Trail North, Scandia, Minnesota 55073. It
is anticipated that all reasonably predictable future shareholder meetings will
take place in Minnesota.
Oil and Gas Properties
The Drilling equipment and including, trailers, trucks, automobiles,
forklift, backhoe, compressors, drilling rigs and related equipment all was
resold to Warren Haught as a part of the repurchase by his Companies of the
drilling sites previously sold to Phoenix by his Companies. The 59 Louisiana
well sites and the three pipeline properties were sold to MVP, together with the
West Virginia properties.
Milling and Processing Properties
In the settlement of the suit with James E. Hughes, all of the
property, equipment and related items were sold back to Mr. Hughes in that
transaction.
The Registrant has no assets and no properties as of July 7, 1998.
ITEM 3 - LEGAL PROCEEDINGS
Agriculture Production Credit Association obtained an Interlocutory
Default Judgement against the Company on December 31, 1996. The Note which was
the basis for the Judgement was signed by Hughes Resources, Inc., Hughes Wood
Products, Inc. and Houston Woodtech, Inc. and was in the original amount of
$3,236,047.70 (principal amount plus interest and attorney fees). This claim was
included in the Bankruptcy proceedings of Hughes Wood Products, Inc. To date
AgPCA has reduced this claim to approximately $1,100,000.00 by foreclosure on
Hughes Wood Products and Houston Woodtech, Inc. MVP Holdings, Inc. also
indemnified the Company at the time of the sale of the properties to it.
Currently negotiations are in process to settle the balance of this claim.
Phoenix is still a primary obligor on the Note and if the indemnities are
determined to be insufficient, Phoenix would still be liable for the balance of
the debt.
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The Company is also a Judgement debtor on a Judgement in the amount of
$266,205.91 together with interest from March 20, 1997 at the rate of 10% per
annum taken by Clark C. Nichols. No payments have been made on this obligation.
If current negotiation to bring in a Private Company/Group to combine with the
Company are successful, it is management opinion that this debt can be
successfully settled as a part of such transaction.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no submissions of any matters to a vote of security holders
during the fourth quarter of 1995, the fiscal year 1996 and 1997 and to date in
the fiscal year 1998.
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Part 11
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
DESCRITPION OF SECURITIES
General
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The Registrant's Articles of Incorporation, as amended, authorize the issuance
of 100,000,000 shares of Common Stock of $0.001 par value per share, with
27,000,000 shares currently issued and outstanding, and 50,000,000 shares of
Series A - 5.0% annual dividend, non-cumulative, Convertible into 1,000,000
shares of common stock after March 29, 2000 with 200,000 shares currently issued
and outstanding.
The Registrants common stock, until April 24, 1996, was publicly traded on the
National Association of Securities Dealers, Inc. Automated Quotation System
under the symbol "PRTI", within the NASDAQ Small Cap Market. In addition, the
Registrants common stock was crosslisted and traded under the symbol of "HRS",
on the Boston Stock Exchange until May 20, 1996, at which time it was
deregistered by the Exchange. The Registrants common stock which is registered
pursuant to Section 12(g) of the Securities Exchange Act, was removed from
listing and trading was suspended from the NASDAQ Stock Market and the Boston
Stock Exchange due to the Companies delinquency in filing its annual report and
in preparing and submitting LAS application forms with NASDAQ to list additional
securities issued in connection with its financing and acquisition activities
during the fiscal year 1996. However, the Registrant intends to reapply for
listing it's registered common stock on the NASDAQ Electronic Bulletin Board,
upon the filing of and becoming current with its annual and periodic filing
requirements. The range of high and low bid quotations for the Company's common
stock as provided by the Electronic Bulletin Board and NASDAQ for the past two
years is provided below. These over the counter market quotation reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual transactions.
Common Stock
Each outstanding share of common stock is fully paid and non-assessable, and the
holders thereof are entitled to one vote per share at all meeting of
shareholders. All shares are equal to each other with regard to liquidation
rights and dividends. The Articles of Incorporation of the Registrant do not
include preemptive rights to purchase any additional shares of common stock and
do not provide for cumulative voting in the election of directors. In the event
of liquidation, dissolution or winding up of the Registrant, holders of common
stock will be entitled to receive on a pro rata basis all of the assets of the
Registrant after satisfaction of all liabilities, subject to the rights of
holders of Preferred stock.
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Preferred Stock
There is currently authorized 50,000,000 shares of Series A Preferred Stock, of
par value of $0.001 per share, convertible into 1,000,000 shares of common stock
after March 29, 2000, with a 5.0 % annual, non-cumulative dividend. There are
200,000 shares issued and outstanding.
The designations and the powers, preferences and rights, qualifications,
limitations or restrictions of the Preferred Stock shall be established in
accordance with the Nevada Corporation Code by the Board of Directors.
Additionally, the establishment of different series of Preferred Stock and
variations in the relative rights and preferences shall be established
accordingly.
Except of such voting powers with respect to the elections of directors or other
matters as may be stated in the resolutions of the Board of Directors creating
any series of Preferred Stock, the holders of any such series shall have no
voting power whatsoever.
Dividends
Holders of the common stock are entitled to share equally in dividends when, as
and if declared by the Board of Directors of the Registrant, out of funds
legally available therefore. No dividend has been paid on common stock since
inception, and none is contemplated in the foreseeable future.
Transfer Agent
The Registrant's Transfer Agent is Signature Stock Transfer, Inc. located at
14675 Midway Road, Suite 221, Dallas, Texas 75244.
Recent Sales of Unregistered Securities
On or about September 1997, the Company, in an effort to seek and obtain a
suitable merger or Acquisition agreement with an on-going privately owned
business, issued 15,000,000 shares of unregistered, restricted common stock into
the Escrow Account of M. D. Price, Jr., the Company's corporate attorney under a
Subscription Agreement. The attorney is responsible for securing the Company's
book and records, validating the Company's financial statements, facilitate the
filing of all delinquent reports with the US Securities and Exchange Commission
and evaluate the potential private companies for either merger or acquisition.
This transaction was valued at $240,000.00. The Stock Subscription Agreement
will be settled upon the successful merger with or acquisition of a suitable
private company.
The Registrant's common stock, until April 24, 1996, was publicly traded on the
National Association of Securities Dealers, Inc. Automated Quotation System
under the symbol "PRTI", within the NASDAQ Small Cap Market. In addition, the
Registrants common stock was cross listed and traded under the symbol of "HRS",
on the Boston Stock Exchange until May 20, 1996, at which time it was
deregistered by the Exchange. The Registrants common stock which is registered
pursuant to Section 12(g) of the Securities Exchange Act, was removed from
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listing and trading was suspended from the NASDAQ Stock Market and the Boston
Stock Exchange due to the Companies delinquency in filing its annual report and
in preparing and submitting LAS application forms with NASDAQ to list additional
securities issued in connection with its financing and acquisition activities
during the fiscal year 1996. However, the Registrant intends to reapply for
listing it's registered common stock on the NASDAQ Electronic Bulletin Board,
upon the filing of and becoming current with its annual and periodic filing
requirements. The range of high and low bid quotations for the Company's common
stock as provided by the Electronic Bulletin Board and NASDQ for the past two
years is provided below. These over the counter market quotation reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual transactions.
Stock Distributions
During 1997, the Company issued 750,000 shares of unregistered restricted common
stock in settlement of a $225,000.00 debt owed to said shareholder
ITEM 6 - MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The current management group intends to actively to seek, investigate and, if
warranted, acquire an interest in one or more business opportunities or
ventures. As of the date hereof, the Registrant has divested itself of all
operating assets and has no business opportunities or ventures under
contemplation for acquisition but proposes to investigate potential
opportunities in the form of investors or entrepreneurs with a concept which has
not yet been placed in operation, or in the form of firms which are developing
companies in need of limited additional funds for expansion into new products or
services, and which are seeking to develop a new product or service. The
Registrant may also seek out established businesses which may be experiencing
financial or operational difficulties and are in need of the limited additional
capital the Registrant could provide. The Registrant anticipates that it will
seek to merge with an existing business. After the merger, the surviving entity
will be the Registrant (Phoenix Resources Technologies, Inc.); however,
management from the acquired entity will in all likelihood operate the
Registrant. There is, however, a remote possibility that the Registrant may seek
to acquire and operate an ongoing business, in which case the existing
management might be retained. Due to the absence of capital available for
investment by the Registrant, the types of businesses seeking to be acquired by
the Registrant will no doubt be smaller and higher risks of businesses. In all
likelihood, a business opportunity will involve the acquisition of or merger
with a corporation which does not need additional cash but which desires to
establish a public trading market for its Common Stock. Accordingly, the
Registrant's ability to acquire any business of substance may be extremely
limited.
During September 1995, the Registrant experienced a change in control due a
change in management and the issuance of 15,000,0000 shares of common stock of
the Registrant to M. D. Price, Jr., Escrow Account.. It is the intent of the
current majority shareholder and management to continue seeking a suitable
situation for merger or acquisition. Further, the Registrant is dependent upon
management and/or significant shareholders to provide sufficient working capital
to preserve the integrity of the corporate entity during this phase. It is the
intent of management and significant shareholders to provide sufficient working
capital necessary to support and preserve the integrity of the corporate entity.
13
<PAGE>
The Registrant does not propose to restrict its search for investment
opportunities to any particular industry or geographical location and may,
therefore, engage in essentially any business, anywhere, to the extent of its
limited resources.
It is anticipated that business opportunities will be available to the
Registrant and sought by the Registrant from various sources, throughout the
United States and Canada, including its Officers and Directors, professional
advisors such as attorneys, accountants, securities broker(s)/dealer(s), venture
capitalists, members of the financial community, other businesses and others who
may present solicited and unsolicited proposals. The Registrant also anticipates
soliciting proposals through financial periodicals and newspapers. The reason
for this approach is to attract the most favorable business opportunities and
ventures available. Management believes that business opportunities and ventures
will become available to it following the effective date of this Registration
Statement, due to a number of factors, including, among others: a) Management's
willingness to enter into unproven, speculative ventures; b) Management's
contacts and acquaintances; and, c) the Registrant's flexibility with respect to
the manner in which it may structure potential financing and/or acquisitions.
However, there is no assurance that the Registrant will be able to structure or
finance and/or acquire any business opportunity or venture.
Operation of the Registrant
- ---------------------------
The Registrant intends to search throughout the United States and Canada for a
merger/acquisition candidate, however, because of the lack of capital, the
Registrant believes that the merger/acquisition candidate will be conducting
business within a limited geographical area. In the event of a consummation of a
merger or acquisition with a suitable candidate, it is highly probable that the
Registrant's principal offices will be relocated to the existing office of the
merger or acquisition candidate. Further the Registrant may also have offices at
such other places as the Board of Directors may from time to time determine or
the future business, subsequent to the consummation of a merger or acquisition
of the Registrant may require. to the consummation of a merger or acquisition,
of the Registrant may require.
At the present time, all corporate records will be maintained at 15945 Quality
Trail North, Scandia, Minnesota 55073 and it is anticipated that all reasonably
predictable future shareholder meetings will take place in Minnesota.
The Officers and Directors will personally seek acquisition/merger candidates
and/or orally contact individuals or broker(s)/dealer(s) and advise them of the
availability of the Registrant as an acquisition candidate. The Officers will
review material furnished them by the proposed merger/acquisition candidate and
decide if a merger/acquisition is in the best interests of the Registrant and
its shareholders. The proposed merger/acquisition will then be submitted to all
the Registrant's shareholders.
The Registrant may also employ outside consultants, however, no such consultants
will be engaged until a merger/acquisition candidate has been targeted by the
Registrant. Management believes that it is impossible to consider the specific
criteria that will be used to hire consultants; however, several of the criteria
may include the consultant's relevant experience, the services to be provided,
the term of service required by the Registrant. In prior situations, management
has not used any specific outside consultants and cannot predict the probability
that management will recommend any specific consultant(s) for future use. As of
July 1, 1998, the Registrant has not had any discussions with or executed
agreements with any outside consultants.
Other than disclosed herein, there are no other plans for accomplishing the
business purpose of the Registrant.
Selection of Opportunities
- --------------------------
The analysis of new business opportunities will be undertaken by or under the
supervision of the Officers and Directors of the Registrant, none of whom is a
professional business analyst or has any previous training or experience in
14
<PAGE>
business analysis. Inasmuch as the Registrant will have no funds available to it
in its search for business opportunities and ventures, the Registrant will not
be able to expend significant funds on a complete and exhaustive investigation
of such business or opportunity. The Registrant will, however, investigate, to
the extent believed reasonable by Management, such potential business
opportunities or ventures.
As a part of the Registrant's investigation, the Officers and Directors will
meet personally with management and key personnel of the firm sponsoring the
business opportunity, may visit and inspect plants and facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures, to the extent of the Registrant's limited financial resources and
management and technical expertise.
Prior to making a decision to recommend to shareholders participation in a
business opportunity or venture, the Registrant will generally request that it
be provided with written materials regarding the business opportunity containing
such items as a description of products, services and company history;
management resumes; financial information; available projections with related
assumptions upon which the projections were based; evidence of existing patents,
trademarks or service marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between the
prospective entity and its affiliates during relevant periods; a description of
present and required facilities; an analysis of risks and competitive
conditions; and, other information deemed relevant.
It is anticipated that the investigation of specific business opportunities and
the negotiation, drafting, and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and costs for accountants, attorneys and others. If a decision is made
not to participate in a specific business opportunity, the costs theretofore
incurred in the related investigation would not be recoverable. Furthermore,
even if an agreement is reached for the participation in a specific business
opportunity, the failure to consummate that transaction may result in the loss
to the Registrant of the costs incurred.
The Registrant will have unlimited flexibility in seeking, analyzing, and
participating in business opportunities. In its efforts, the Registrant will
consider the following kinds of factors:
a) Potential for growth, indicated by new technology, anticipated
market expansion or new products;
b) Competitive position as compared to other firms engaged in
similar activities;
c) Strength of the merger/acquisition candidate's management;
d) Capital requirements and anticipated availability of required
funds from future operations, through the sale of additional securities, through
joint ventures or similar arrangements or from other sources; and
e) Other relevant factors.
Potentially available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. Potential investors must recognize that due to
the Registrant's limited capital available for investigation and management's
limited experience in business analysis, the Registrant may not discover or
adequately evaluate adverse facts about the opportunity to be acquired.
15
<PAGE>
The Registrant has not had any substantive conversations and is not currently
engaged in substantive discussions related to a proposed merger or acquisition
and, further, is unable to predict when it may identify or participate in a
business opportunity. It expects, however, that the analysis of specific
proposals and the selection of a business opportunity may take several months or
more.
As of July 1, 1998, management has not identified any entity in which a current
officer, director or significant shareholder has a direct or indirect ownership
interest as a potential merger or acquisition candidate. Existing corporate
policy is silent to this situation; however, it is the intent of management to
seek candidates in which current directors, officers and/or significant
shareholders do not have direct or indirect ownership interests.
Further, the consummation of a merger or acquisition transaction may or may not
involve the sale of shares of common stock currently held by members of
management, directors or significant shareholders. The terms and conditions
related to any potential sale of these shares may or may not be made available
to other minority or non-controlling existing shareholders of the Registrant.
Prior to the consummation of any merger or acquisition, the Registrant will
request the approval of the existing shareholders. Accordingly, all shareholders
will be provided with the pertinent information related to the proposed merger
or acquisition, including audited financial statements, concerning the proposed
target company of the merger or acquisition.
Additionally, the Registrant will be subject to all disclosure and reporting
requirements of The Securities and Exchange Commission, including, but not
limited to, the filing of a Form 8-K Current Report for the disclosure of any
pending merger or acquisition and the dissemination of audited financial
statements of the merger or acquisition candidate upon consummation.
Form of Acquisition
- -------------------
The manner in which the Registrant participates in an opportunity will depend
upon the nature of the opportunity, the respective needs and desires of the
Registrant and the promoters of the opportunity, and the relative negotiating
strength of the Registrant and such promoters. The exact form or structure of
the Registrant's participation in a business opportunity or venture will be
dependent upon the needs of the particular situation. The Registrant's
participation may be structured as an asset purchase, a lease, a license, a
joint venture, a partnership, a merger or the acquisition of securities.
As set forth above, the Registrant may acquire its participation in a business
opportunity through the issuance of Common Stock or other securities in the
Registrant. Although the terms of any such transaction cannot be predicted, it
should be noted that, in certain circumstances, the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1976, as amended, may depend
upon the issuance to the shareholders of the acquired company of at least 80.0%
of the Common Stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other "tax free" provisions provided under the Internal
Revenue Code, all prior shareholders may, in such circumstances, retain 20.0% or
less of the total issued and outstanding Common Stock. If such a transaction
were available to the Registrant, it will be necessary to obtain shareholder
approval to effectuate a reverse stock split or to authorize additional shares
of Common Stock prior to completing such acquisition. This could result in
substantial additional dilution to the equity of those who were shareholders of
the Registrant prior to such reorganization. Further, extreme caution should be
exercised by any investor relying upon any tax benefits in light of any existing
tax laws or any proposed changes thereto. It is possible that no tax benefits
will exist at all. Prospective investors, if any, should consult their own
legal, financial and other business advisors.
In conjunction with a merger with or acquisition of a privately-owned company,
there exists a probability that a change in control will occur upon the
consummation of the merger or acquisition. In order to make such a transaction
16
<PAGE>
feasible, it is highly probable that management will offer a controlling
interest in the Registrant to any identified merger or acquisition candidate.
The present management and the current shareholders of the Registrant may not
have control of a majority of the voting shares of the Registrant following a
reorganization transaction. As part of such a transaction, all or a majority of
the Registrant's Directors may resign and new Directors may be appointed without
any vote by shareholders.
Present shareholders have not agreed to vote their respective shares of Common
Stock in accordance with the vote of the majority of all non-affiliated future
shareholders of the Registrant with respect to any business combination.
Anti-takeover Provisions
- ------------------------
The Nevada General Corporation Law (NGCL) contains certain provisions that may
make the acquisition of control of the Registrant by the means of a tender
offer, open market purchase, proxy fight or other method more difficult. The
NGCL contains provisions restricting the ability of a corporation to engage in
business combinations with an interested stockholder. In general, except under
certain circumstances, business combinations with interested shareholders are
not permitted for a period of five years following the date such shareholder
became an interested shareholder. The NGCL defines an interested shareholder,
generally, as a person who owns 10.0% or more of the outstanding shares of the
corporation's voting stock.
In addition, the NGCL generally disallows the exercise of voting rights with
respect to "control shares" of an "issuing corporation" held by an "acquiring
person", unless such voting rights are conferred by a majority vote of the
disinterested shareholders. "Control shares" are the voting shares of an issuing
corporation acquired in connection with the acquisition of a "controlling
interest". "Controlling interest" is defined in terms of threshold levels of
voting share ownership, which thresholds, whenever each may be crossed, trigger
application of the voting bar with respect to the shares newly acquired.
The NGCL also permits Directors to resist a change or potential change in
control of the corporation if the Directors determine that the change or
potential change is opposed to or not in the best interest of the corporation.
Prior to any business combination for which shareholder approval is required,
the Registrant intends to provide its shareholders complete disclosure
documentation concerning the business opportunity or target company and its
business. Such disclosure will in all likelihood be in the form or a proxy
statement which will be distributed to shareholders within the time prescribed
by the NGCL prior to any shareholder's meeting.
Not an "Investment Advisor"
- --------------------------
The Registrant is not an "investment advisor" under the Federal Investment
Advisers Act of 1940, which classification would involve a number of negative
considerations. Accordingly, the Registrant will not furnish or distribute
advise, counsel, publications, writings, analysis or reports to anyone relating
to the purchase or sale of any securities within the language, meaning and
intent of Section 2(a)(11) of the Investment Advisers Act of 1940, 15USC
80b2(a)(11).
Not an "Investment Company"
- --------------------------
The Registrant may become involved in a business opportunity through purchasing
or exchanging the securities of such business. The Registrant does not intend,
however, to engage primarily in such activities and is not registered as an
"investment company" under the Federal Investment Company Act of 1940. The
Registrant believes such registration is not required.
17
<PAGE>
The Registrant must conduct its activities so as to avoid becoming inadvertently
classified as a transient "investment company" under the Federal Investment
Company Act of 1940, which classification would affect the Registrant adversely
in a number of respects. Section 3(a) of the Investment Company Act provides the
definition of an "investment company" which excludes an entity which does not
engage primarily in the business of investing, reinvesting or trading in
securities, or which does not engage in the business of investing, owning,
holding or trading "investment securities" (defined as "all securities other
than United States government securities or securities of majority-owned
subsidiaries") the value of which exceeds forty (40.0%) of the value of its
total assets (excluding government securities, cash or cash items). The
Registrant intends to implement its business plan in a manner which will result
in the availability of this exemption from the definition of "investment
company". The Registrant proposes to engage solely in seeking an interest in one
or more business opportunities or ventures.
Effective January 14, 1981, the U. S. Securities and Exchange Commission adopted
Rule 3a-2 which deems that an issuer is not engaged in the business of
investing, reinvesting, owning, holding or trading in securities for purposes of
Section 3(a)(1), cited above, if, during a period of time not exceeding one
year, the issuer has a bona fide intent to be engaged primarily, or as soon as
reasonably possible (in any event by the termination of a one year period of
time), in a business other that of investing, reinvesting, owning, holding or
trading in securities and such intent is evidenced by the Registrant's business
activities and appropriate resolution of the Registrant's Board of Directors
duly adopted and duly recorded in the minute book of the Registrant. The Rule
3a-2 "safe harbor" may not be relied on more than a single time. The Registrant
expects to have invested or committed all, or substantially all, of the proceeds
of this public offering in the investigation and/or acquisition of a business
opportunity acquisition within a year after completion of the offering and
thereafter to not encounter the possibility of being classified as a transient
investment company.
ITEM 7 - INDEX TO FINANCIAL STATEMENT
The required accompanying financial statements begin on page F-1 of this
document.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Accounting firm of Smith, Dance & Co., the independent auditors of the
Company, were dismissed effective as of October , 1996. During the fiscal years
ended October 31, 1995 and 1994 and the interim period subsequent to October 31,
1995, there have been no disagreements with Smith, Dance & Co. on any matter of
events. Smith, Dance & Co.'s report on the financial statements for the fiscal
year ended October 31, 1995 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principals.
The Company engaged the accounting firm of S. W. Hatfield & Associates as
independent auditors for the Company, effective as of March 1, 1998 for the
fiscal years ended October 31, 1996 and 1997 and for subsequent periods. The
engagement of S. W. Hatfield & Associates was approved by the Company's Board of
Directors. During the fiscal years ended October 31, 1996 and 1997 and the
interim period subsequent to October 31, 1997 and prior to March 1, 1998, there
were no consultants with S. W. Hatfield & Associates on any matter of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial condition.
18
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PART 111
ITEM 9- OFFICERS AND DIRECTORS
The officers and directors of Registrant are as follows:
Name Age Position
William C. Nichols 30 President and Chairman, Director
Paula Nichols 32 Secretary and Treasurer, Director
Robert Eckman Director
During the year 1996, the officers and directors were as follows:
James E. Hughes, Sr. Chairman of the Board of Directors
(Resigned 1/22/96)
James R. Ray President and Chief Executive
Officer
(Chairman of Board until 2/1/97)
George W. Smith Director, Secretary (until 2/1/97)
Warren Haught Director, President of Energy
Division Unit (until 8/13/96).
On January 31, 1997 the above Officers and Directors resigned and the following
persons were elected as Officers and Directors who held that position until
September 22, 1997 when the current Board of Directors and Officers were
elected.
Michael Puhr President and Director
Lorina Liang Director
Allen Wen Jen Lan Director
ITEM 10 EXECUTIVE COMPENSATION
None of the Registrants current officers or directors receives or has received
any salary from Registrant during the preceding five years. The Registrant does
not anticipate entering into Employment agreements with any of its officers or
directors in the near future. Directors do not receive compensation for their
services as directors and are not reimbursed for expenses incurred in attending
board meeting.
19
<PAGE>
During the years 1996, 1997 and 1998 Registrant paid the following salaries to
its officers:
Name 1996 1997 1998
---- ---- ---- ----
James R. Ray $36,000 -0- -0-
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Number of
Name Shares owned Percent
- ------------------------------ ------------ -------
M. D. Price, Jr., Escrow Agent
15945 Quality Trail North
Scandia, MN 55073 15,000,000 55.55%
George W. Smith 2,500 .00009%
James E. Hughes, Sr. 283,642 .0105%
Hughes Wood Products, Inc. 24,469(1) .009%
James R. Ray 454,610 (2)
- --------------------
(1) The 24,469 shares of common stock held in name of Hughes Wood Products,
Inc., a Company that is controlled by James E. Hughes, Sr. As such, Mr. Hughes,
by virtue of his control over Hughes Wood Products, Inc., has a beneficial
ownership interest in these shares.
(2) Mr. Ray disposed of these shares in May, 1997.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sale of Hughes Wood Products and Houston Woodtech, Inc., and settlement of suit
involving James R. Hughes, Sr.
On January 22, 1996 James E. Hughes, SR., Chairman of the Board of Directors and
owner, directly or indirectly, of 308,111 shares of the Company's common stock,
resigned as Chairman and as a Director. On January 31, 1996, the Company entered
into a transaction with Mr. Hughes whereby the Company would acquire 56
producing oil and gas wells and sell to Mr. Hughes Pole Mill located in Quincy,
LA and the office building and airplane and office equipment associated
therewith. The above transaction was never consummated by Hughes and
consequently the Board of Directors authorized the filing of a lawsuit against
Mr. Hughes, certain employees of Hughes and the Certified Public Accounting firm
representing Hughes in the transaction. This matter was settled on August 12,
1996 with the Agreement that Phoenix would retain 46 of the producing wells,
receive a promissory note from Mr. Hughes in the amount of $1,000,000.00,
collateralized as agreed to by the parties, and would sell to Hughes the entire
Wood Products division of the Company known as Hughes Wood Products, Inc.
("HWP") and Houston Woodtech, Inc. ("HWI"), a wholly owned subsidiary of HWP.
20
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Phoenix had returned the stock of HWP, subject to the performance by Phoenix of
certain guarantees relating to the obligations owed to Agriculture Production
Credit Association ("AgPCA"). Hughes agreed to execute a liabilities undertaking
whereby he agreed to assume and pay all obligations and indebtedness of HWP or
HWI owing to AgPCA and Phoenix was to deliver the stock of WHP and HWI. This
note, in original principal amount of $3,551,000.00 was dated September 10,
1993, signed by Hughes Wood Products (now Phoenix Resources Technologies, Inc.),
Hughes Wood Products, Inc. and Houston Woodtech, Inc. and was related to the
business of Hughes Wood Products, Inc. and Houston Woodtech, Inc.
Sale of West Virginia Properties.
On August 13, 1996 Mr. Warren Haught, a member of the Board of Directors, made
an offer to the Company to repurchase the oil and gas properties he had sold to
the Company over the last five years. Mr. Haught had become disenchanted with
Phoenix during the Court proceeding with Mr. Hughes, and the settlement of that
matter and Phoenix's failure to acquire additional to increase the number of oil
and gas wells in the West Virginia area. IN settlement of this dispute, the
Company agreed to convey to 719 Corporation, HAH Petroleum, Inc. and Top
Drilling Corporation the properties that the Company had acquired from them. As
further consideration Mr. Haught caused to be surrendered to the Company
1,000,000 shares of Class C Preferred stock and 1,000,000 shares of Class D
Preferred stock in the Company, constituting his total holdings in the Company,
and Mr. Haught resigned as a Director of Phoenix.
Sales Of Assets To MVP Holdings, Inc.
At the time of the bulk sale of assets to MVP Holdings, Inc., no officer or
director of Phoenix was an officer or shareholder of MVP, and no officer or
director of MVP was an officer or shareholder of director of Phoenix. Subsequent
to the sale, James R. Ray became an officer and director of MVP on June 5, 1997
and became a shareholder of MVP in July 1997.
Divestiture of Rocky Mountain Crystal Waters, Inc. and settlement of claims
against Phoenix.
On September 20, 1997 Phoenix Board of Directors determined that it was in the
best interests of the Company to rescind the acquisition of RMCW. RMCW was not
performing up to expectations and RMCW was making a claim that Phoenix was
unable to properly fund the operation of RMCW due to the suppression of books
and records of Phoenix; loss of financing due to the inability of Phoenix to
produce audited or accurate internally-prepared financial statements and loss of
revenue by RMCW by reason of the above. RMCW also claimed business interruption
due to actions of Phoenix and, additionally, that Phoenix failed to disclose
liabilities in excess of five million dollars, consisting of the AgPCA note and
potential liabilities to the Internal Revenue Service.
RMCW had threatened to commence suit against Phoenix based on the foregoing.
21
<PAGE>
The Board of Directors, consisting of Michael Puhr, Lorina Liang and Allen Wen
Jen Lan, on September 22, 1997 appointed a new Board of Directors consisting of
William C. Nichols, Robert Eckman and Paula Nichols. The old Board members then
resigned.
Concurrently therewith the Company entered into an Agreement with RMCW which
essentially reversed the acquisition of RMCW on January 31, 1997. RMCW returned
the 6,000,000 shares of Class B Preferred stock and Phoenix returned the
6,000,000 shares of common stock of RMCW. All liabilities of Phoenix relating to
the operation of RMCW were assumed by RMCW and RMCW indemnified Phoenix with
respect to these liabilities. Michael Puhr was a major shareholder in RMCW. In
settlement of RMCW claim against Phoenix, Phoenix agreed to transfer to RMCW the
stock of MVP Holdings, Inc. and the right to any increases of MVP stock under
that Agreement, and subject to MVP's right of first refusal. MVP exercised the
right of first refusal, and in connection therewith reissued the 4,000,000
shares to Phoenix with the Agreement that Phoenix would distribute the shares to
its shareholders. This was done on September 22, 1997, and the record date for
determining shareholders entitled to receive the MVP stock was set as October 1,
1997. The stock was distributed shortly thereafter to Phoenix shareholders
22
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 10-KSB
(a) The following documents are filed as exhibits to this 10-KSB:
Page F-1 - Item 7; Financial Statement for the periods November 1, 1995 to
October 31, 1997
Page F-2 - Item 7; Financial Statements for the period November 1, 1993 to
October 31, 1995.
Exhibit 10.1 - Item 1, (3); Agreement for Purchase and Sale of Stock between
Phoenix and James E. Hughes, Sr., dated August 12, 1996.*
Exhibit 10.1 - (a) Security Agreement for Pledge of Instruments, dated August
12, 1996 between Phoenix and James E. Hughes, Sr.*
Exhibit 10.1 - (b) Non-Negotiable Promissory Note executed by James E. Hughes,
Sr. for $1,000,000 in favor of Phoenix.
Exhibit 10.2 - Item 1, (4); Exclusive License Agreement between J. J. Reidy &
Co., Inc. and Phoenix, dated March 12, 1996.*
Exhibit 10.3 - Item 1, (5); Agreement to Convey Oil and Gas Drill Sites and
Turnkey Drilling Contract, dated July 24, 1996 between Phoenix and Erin Oil
Exploration, Inc., and accompanying exhibits to Agreement.*
Exhibit 10.4 - Item 1, (6); Settlement Agreement and Mutual Release of All
Claims between Phoenix and 710 Corporation, HAH Petroleum, Inc. and Top Drilling
Corporation, dated August 13, 1996.*
(b) Reports on Form 8-K: None
23
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHONEIX RESOURCES TECHNOLOGIES, INC.
By /s/ William C. Nichols Date: July __, 1998
-----------------------------------------
William C. Nichols
Its President
By /s/ Paula Nichols Date: July __, 1998
-----------------------------------------
Paula Nichols
Member of the Board of Directors
24
<PAGE>
S. W. HATFIELD + ASSOCIATES
certified public accountants
Members: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Phoenix Resources Technologies, Inc.
We have audited the accompanying balance sheets of Phoenix Resources
Technologies, Inc. (a Nevada corporation) as of October 31, 1997 and 1996 and
the related statements of operations, changes in stockholders' equity and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Resources Technologies,
Inc. as of October 31, 1997 and 1996 and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has no viable operations or significant assets
and is dependent upon significant shareholders to provide sufficient working
capital to maintain the integrity of the corporate entity. These circumstances
create substantial doubt about the Company's ability to continue as a going
concern and are discussed in Note A. The financial statements do not contain any
adjustments that might result from the outcome of these uncertainties.
S. W. HATFIELD + ASSOCIATES
Dallas, Texas
March 18, 1998
Use our past to assist your future sm
P. O. Box 820392 o Dallas, Texas 75382-0392 o 214-342-9635
9236 Church Road, Suite 1040 o Dallas, Texas 75231 o 800-244-0639
214-342-9601 (fax) o [email protected] (e-mail)
F-1
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<TABLE>
<CAPTION>
PHOENIX RESOURCES TECHNOLOGIES, INC.
BALANCE SHEETS
October 31, 1997 and 1996
ASSETS
1997 1996
------------ ------------
<S> <C>
Current assets
Cash on hand and in bank $ -- $ 37,500
Net current assets of discontinued operations -- 1,794,623
------------ ------------
Total current assets -- 1,832,123
------------ ------------
Other assets
Net other assets of discontinued operations -- 8,749,073
------------ ------------
TOTAL ASSETS $ -- $ 10,581,196
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Judgment garnishment payable $ 266,691 $ --
Net current liabilities of discontinued operations -- 233,705
Total current liabilities 266,691 233,705
------------ ------------
Long-term liabilities
Net other liabilities of discontinued operations -- --
------------ ------------
Total liabilities 266,691 233,705
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred stock - $0.001 par value
50,000,000 shares authorized
Series A - 5.0% annual dividend, non-
cumulative. Convertible into 1,000,000
shares of common stock after March 29,
2000. 200,000 shares issued and outstanding 200 200
Common stock - $0.001 par value
100,000,000 shares authorized 27,000,000
and 11,049,888 shares issued and outstanding, respectively 27,000 11,050
Additional paid-in capital 13,312,212 12,993,151
Accumulated deficit (12,632,703) (1,923,510)
------------ ------------
706,709 11,080,891
Stock subscription receivable (240,000) --
Treasury stock - at cost (560,000 shares) (733,400) (733,400)
------------ ------------
Total stockholders' equity (266,691) 10,347,491
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -- $ 10,581,196
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
PHOENIX RESOURCES TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Years ended October 31, 1997 and 1996
1997 1996
------------ ------------
<S> <C>
Net revenues $ -- $ --
Operating expenses
General and administrative expenses 202,703 669,895
------------ ------------
Total operating expenses 202,703 669,895
------------ ------------
Loss from operations (202,703) (669,895)
Other (expense) income
Garnishment on judgment entered against Company (251,206) --
Interest expense on judgment garnishment (15,485) --
------------ ------------
Loss from continuing operations before income taxes (469,394) (669,895)
Income tax benefit (expense) -- --
------------ ------------
Loss from continuing operations (469,394) (669,895)
------------ ------------
Discontinued operations, net of income taxes
Income (Loss) from discontinued operations,
net of income taxes of $-0- and $-0-, respectively
Wood products division -- 144,276
West Virginia oil & gas division -- 131,066
Oil & gas pipeline division 29,566 --
Impairment of marketable securities held to maturity -- (1,976,562)
Income (Loss) on disposition, net of income
taxes of $-0- and $-0-, respectively
Wood products division -- 618,186
West Virginia oil & gas division -- 1,504,586
------------ ------------
Income (loss) from discontinued operations 29,566 421,552
------------ ------------
Net Loss $ (439,828) $ (248,343)
============ ============
(Loss) Earnings per weighted-average
share of common stock outstanding
From continuing operations $ (0.03) $ (0.08)
From discontinued operations -- 0.05
------------ ------------
Total loss per share $ (0.03) $ (0.03)
============ ============
Weighted-average number of common shares outstanding 13,173,231 8,534,260
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PHOENIX RESOURCES TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended October 31, 1997 and 1996
Additional
Preferred Stock Common stock paid-in
--------------- ------------
Shares Amount Shares Amount capital
------------ ------------ ------------ ------------ ------------
<S> <C> <C>
Balances at November 1, 1995 2,200,000 $ 2,200 4,179,888 $ 4,180 $ 18,786,021
Common stock issued for
Exchange of shareholder debt -- -- 750,000 750 224,250
Acquisition of pipeline systems -- -- 2,250,000 2,250 1,597,750
Fees and expenses under Form
S-8 consulting services plan -- -- 3,870,000 3,870 383,130
Reversal of acquisition of
drilling rig and West
Virginia oil & gas wells (2,000,000) (2,000) -- -- (7,998,000)
Dividends paid on
preferred stock -- -- -- -- --
Net loss for the year -- -- -- -- --
------------ -------- ------------ ------------ ------------
Balances at October 31, 1996 200,000 200 11,049,888 11,050 12,993,151
Common stock issued for fees
and expenses under Form S-8
consulting services plan -- -- 950,112 950 94,061
Common stock issued into
escrow to facilitate a merger
with or acquisition of a
qualified business candidate -- -- 15,000,000 15,000 225,000
Distribution of common stock
of MVP Holdings, Inc. to
Phoenix Resources Tech-
ologies, Inc. shareholders -- -- -- -- --
Net loss for the year -- -- -- -- --
------------ -------- ------------ ------------ ------------
Balances at October 31, 1997 200,000 $ 200 27,000,000 $ 27,000 $ 13,312,212
============ ======== ============ ============ ============
Stock subscription agreement
and Treasury stock Accumulated
------------------
Shares Amount deficit Total
------------ ------------ ------------ ------------
Balances at November 1, 1995 560,000 $ (733,400) $ (1,660,167) $ 16,398,834
Common stock issued for
Exchange of shareholder debt -- -- -- 225,000
Acquisition of pipeline systems -- -- -- 1,600,000
Fees and expenses under Form
S-8 consulting services plan -- -- -- 387,000
Reversal of acquisition of
drilling rig and West
Virginia oil & gas wells -- -- -- (8,000,000)
Dividends paid on
preferred stock -- -- (15,000) (15,000)
Net loss for the year -- -- (248,343) (248,343)
------------ ------------ ------------ ------------
Balances at October 31, 1996 560,000 (733,400) (1,923,510) 10,347,491
Common stock issued for fees
and expenses under Form S-8
consulting services plan -- -- -- 95,011
Common stock issued into
escrow to facilitate a merger
with or acquisition of a
qualified business candidate 15,000,000 (240,000) -- --
Distribution of common stock
of MVP Holdings, Inc. to
Phoenix Resources Tech-
ologies, Inc. shareholders -- -- (10,269,365) (10,269,365)
Net loss for the year -- -- (439,828) (439,828)
------------ ------------ ------------ ------------
Balances at October 31, 1997 15,560,000 $ (973,400) $ (12,632,703) (266,691)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PHOENIX RESOURCES TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Years ended October 31, 1997 and 1996
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss for the year $ (439,828) $ (248,343)
Adjustments to reconcile net loss to net
cash provided by operating activities
Common stock issued for various fees and expenses 95,011 387,000
Impairment of marketable securities prior to disposition -- 1,976,562
(Income) Loss on disposition of discontinued operations -- (1,504,586)
Increase in judgment garnishment payable 266,691 --
Change in net assets and liabilities of discontinued operations 40,626 (599,788)
----------- -----------
Net cash provided by (used in) operating activities (37,500) 10,845
----------- -----------
Cash flows from investing activities -- --
----------- -----------
Cash flows from financing activities
Payment of dividends on preferred stock -- (15,000)
----------- -----------
Net cash provided by (used in) financing activities -- (15,000)
----------- -----------
INCREASE (DECREASE) IN CASH (37,500) (4,155)
Cash at beginning of year 37,500 41,655
----------- -----------
Cash at end of year $ -- $ 37,500
=========== ===========
Supplemental disclosure of interest and income taxes paid
Interest paid for the period $ -- $ --
=========== ===========
Income taxes paid for the period $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Phoenix Resources Technologies, Inc. (Company) was originally incorporated in
1986 as Firma, Inc. under the laws of the State of Colorado as a corporation
organized to take advantage of unspecified business opportunities. In 1991, in
accordance with a reorganization agreement, the Company acquired 100% of the
issued and outstanding stock of Hughes Wood Products, Inc., a privately-owned
Texas corporation, and changed its corporate name to Hughes Resources, Inc.
Hughes Wood Products, Inc. became a wholly-owned subsidiary of the Company.
Pursuant to a plan of merger and reorganization, the Company, as a Colorado
corporation, merged into Hughes Resources, Inc., a Nevada corporation, on June
27, 1995. The purpose of this merger was to redomicile the Company from Colorado
to Nevada. The Nevada corporation had been formed solely for this reorganization
purpose and had no assets, liabilities or operations prior to the merger. The
Articles of Incorporation of the surviving Nevada corporation were amended to
increase the authorized number of common shares to 100,000,000 with a par value
of $0.001 each and to increase the authorized number of preferred shares to
50,000,000 with a par value of $0.001 per share.
In May 1995, the Company acquired oil & gas wells located in the State of
Louisiana from an entity domiciled in the British Virgin Islands for
approximately 825,100 shares of the Company's common stock issued pursuant to
Regulation S of the US Securities and Exchange Commission and approximately
200,000 shares of Series A Preferred Stock. These assets were disposed of by the
Company in a block asset transfer during the year ended October 31, 1997.
In July 1995, the Company acquired approximately 330 oil & gas producing
properties located in the State of West Virginia and related equipment and real
estate for the issuance of approximately 1,000,000 shares of Series C Preferred
Stock and 1,000,000 shares of Series D Preferred Stock. In August 1996, the
original seller, and member of the Company's Board of Directors, made an offer
to repurchase these properties at terms identical to the initial sale. This
offer was accepted by the Company and the issued and outstanding shares of
Series C and Series D Preferred Stock were returned to the Company and canceled.
In January 1996, the Company entered into a transaction to acquire 56 producing
oil & gas wells from the former sole shareholder of Hughes Wood Products, Inc.
and former officer of the Company in a transaction to sell a Pole Mill located
in DeQuincy, Louisiana back to the former officer. As a part of this
transaction, the former officer was to assume certain liabilities of the Company
and return approximately 400,000 shares of common stock to the Company. This
transaction was not completed and the Company filed a lawsuit against the former
officer and the former officer's certified public accounting firm seeking
damages and alleging acts that would allow the assessment of treble damages
against the defendants. This litigation was settled in May 1996 with the
agreement that the Company would retain the 56 producing oil & gas wells,
receive a $1,000,000 promissory note from the former officer and would sell the
entire wood products division (Hughes Wood Products, Inc.) to the former
officer. Additionally, the former officer would assume all debt and other
liabilities attributable to this division and indemnified the Company against
all debts arising from the sale of these assets to the former officer.
In January 1996, the Company acquired three pipeline systems in West Virginia
from an unrelated Canadian corporation for the issuance of 2,250,000 shares of
the Company's common stock issued pursuant to Regulation S of the US Securities
and Exchange Commission and the assumption of a related $100,000 debt associated
with the pipeline properties. These properties were disposed of by the Company
in a block asset transfer during the year ended October 31, 1997.
F-6
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS - Continued
In January 1997, the Company exchanged 6,000,000 shares of Class "B" Preferred
Stock for 6,000,000 shares of common stock of Rocky Mountain Crystal Water, Inc.
Rocky Mountain Crystal Water, Inc. owned the rights to produce water from the
acquifer located in Ten Sleep, Wyoming. Various disputes arose between the
selling parties and the Company and this transaction was rescinded in September
1997. Due to the nature and timing of the disputes, the Company experienced no
financial impact from this transaction between January and September 1997.
In March 1997, the Company exchanged all of its assets and liabilities with MVP
Holdings, Inc., an unrelated entity, for approximately 4,000,000 shares of MVP
Holdings, Inc. common stock with a street value of approximately $3.50 per share
or $14,000,000 in total. The Company valued this transaction at the historical
values of the assets given and liabilities assumed by MVP Holdings, Inc. and no
gain or loss was recognized in this transaction.
In October 1997, the Company distributed 100.0% of its holdings in MVP Holdings,
Inc. to its shareholders as a property distribution. Concurrent with this
action, the Company ceased to have any assets, liabilities or operations and
became totally dependent upon management and/or significant shareholders to
provide sufficient working capital to preserve the integrity of the corporate
entity at this time. It is the intent of management and significant shareholders
to provide sufficient working capital necessary to support and preserve the
integrity of the corporate entity.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the
Company's cash management policies.
2. Income taxes
The Company utilizes the asset and liability method of accounting for
income taxes. At October 31, 1997 and 1996, the deferred tax asset and
deferred tax liability accounts, as recorded when material, are entirely
the result of temporary differences. Temporary differences represent
differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily the allowance for doubtful
accounts, accumulated depreciation and certain liability items. A 100%
valuation allowance was provided against deferred tax assets, where
applicable.
F-7
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
2. Income taxes
Due to the liquidation and/or disposition of all of the Company's assets,
liabilities and operations as of October 31, 1997, the Company will have
no available net operating loss carryforwards available for use in future
years.
3. Earnings (loss) per share
Earnings (loss) per share are computed by dividing net income (loss) by
the weighted-average number of shares issued and outstanding during the
reporting period. As of October 31, 1997 and 1996, the Company had no
warrants, options or other equity issues which might be considered
dilutive in nature to the weighted-average number of shares outstanding
calculation.
NOTE C - DISCONTINUED OPERATIONS
On August 12, 1996, the Company sold its wood products division, also known as
Hughes Wood Products, Inc., back to Mr. James E. Hughes, Sr., the former sole
shareholder of Hughes Wood Products, Inc. for a $1,000,000 promissory note and
the assumption of all liabilities associated with Hughes Wood Products, Inc.
On August 22, 1996, the Company and the former owners of various oil & gas
properties and assets located in West Virginia rescinded this transaction with
the return of 1,000,000 shares each of the Company's Series C and Series D
Preferred Stock. These properties were originally acquired in July 1995.
On March 10, 1997, the Company sold all remaining assets to MVP Holdings, Inc.
in exchange for 4,000,000 shares of MVP Holdings, Inc. restricted, unregistered
common stock issued pursuant to Rule 144 of the US Securities and Exchange
Commission and the assumption of all liabilities, known and unknown, of the
Company. The shares received by the Company had a street value of approximately
$3.50 per share or an aggregate approximate $14,000,000. This transaction was
valued by the Company at approximately $10,300,000, which approximates the net
book value of the assets transferred less the value of the liabilities assumed.
In October 1997, the Company distributed 100.0% of its holdings in MVP Holdings,
Inc. to its shareholders as a property distribution.
Summarized results of operations for Hughes Wood Products,
Inc. for Fiscal 1997 and 1996 are as follows:
1997 1996
-------- --------
Net sales $ - $753,668
======= =======
Operating income $ - $144,276
======= =======
Income upon disposition of discontinued operations $ - $618,186
======= =======
Summarized results of operations for all oil & gas
operations for Fiscal 1997 and 1996 are as follows:
1997 1996
-------- ----------
Net sales $103,825 $1,047,000
======= =========
Operating income $ 29,566 $ 131,066
======= =========
Income upon disposition of discontinued operations $ - $1,504,586
======= =========
F-8
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - COMMON STOCK TRANSACTIONS
During Fiscal 1996, the Company acquired three pipeline systems from an entity
controlled by a former officer of the Company. The total price of this
acquisition was approximately $1,750,000, paid in 2,250,000 shares of the
Company's common stock issued pursuant to Regulation S of the US Securities and
Exchange Commission and the assumption of $150,000 in debt. The debt was
originally due on March 15, 1996.
During Fiscal 1996, the Company issued 750,000 shares of unregistered,
restricted common stock to a shareholder in settlement of $225,000 in debt
payable to the shareholder.
During Fiscal 1996, the Company issued an aggregate 3,870,000 shares of common
stock registered pursuant to a prior year filing on Form S-8. These transactions
were valued at $0.10 per share, or an aggregate $387,000, which approximates the
fair value of the stock issued and the fair value of the services provided for
legal and financial consulting services.
During Fiscal 1997, the Company issued an aggregate 950,112 shares of common
stock registered pursuant to a prior year filing on Form S-8. These transactions
were valued at $0.10 per share, or an aggregate $95,011, which approximates the
fair value of the stock issued and the fair value of the services provided for
legal and financial consulting services.
In August 1996, due to non-performance on the part of the Company, the Fiscal
1995 acquisition of certain oil and gas properties and related assets located in
West Virginia was rescind. This transaction caused the return and retirement of
100.0% of the issued and outstanding Series C and Series D Preferred Stock of
the Company.
In September 1997, the Company, in an effort to seek and obtain a suitable
merger or acquisition agreement with an on-going privately owned business,
issued 15,000,000 shares of unregistered, restricted common stock into the
escrow account of the Company's corporate attorney under a subscription
agreement. The attorney is responsible for securing the Company's books and
records, validating the Company's corporate status, procuring the services of a
qualified independent certified accounting firm to audit the Company's financial
statements, facilitate the filing of all delinquent reports with the US
Securities and Exchange Commission and evaluate potential private companies for
either merger or acquisition. The Company's common stock had an estimated market
trading price of approximately $0.04 per share on the date of the issuance of
these shares. Due to the restricted nature of the shares issued into escrow, the
Stock Subscription Agreement was valued at approximately $0.016 per share, or
approximately $240,000 in total, as the "fair value" of this transaction. The
Stock Subscription Agreement will be settled upon the successful merger with or
acquisition of a suitable private company.
NOTE E - DISTRIBUTIONS
In March 1997, the Company exchanged all of its assets to an unrelated entity in
exchange for 4,000,000 shares of the acquiring company's common stock and the
assumption of all known and unknown liabilities. The street value of the stock
issued to the Company was approximately $3.50 per share at closing. This
transaction was valued by the Company at approximately $10,300,000, which
approximates the net book value of the assets transferred less the value of the
liabilities assumed. In October 1997, the Company distributed 100.0% of its
holdings in MVP Holdings, Inc. to its shareholders as a property distribution.
F-9
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - LITIGATION
The Company was a co-maker on a loan payable to Agriculture Production Credit
Association (AG-PCA) along with its former subsidiary, Hughes Wood Products,
Inc. and Houston Woodtech, Inc. On March 17, 1997, AG- PCA foreclosed on the
underlying assets collateralizing the loan and was subsequently granted an
approximate $3,236,048 judgment collectively against the Company, Hughes Wood
Products, Inc. and Houston Woodtech, Inc. As of October 31, 1997, approximately
$1,800,000 remains unsatisfied on the collective judgment against all named
parties, including the Company.
In the March 1997 sale of the Company's assets to and assumption of liabilities
by MVP Holdings, Inc., the Company was specifically indemnified in the sale
document as follows: "The Purchaser [MVP] will guarantee seller [Company] that
all debts of any kind including but not limited to amounts owed to the United
States Treasury Department, the State of Texas, Agricultural Production Credit
Association and or Community Bank, N. A., incurred or owed by the Phoenix
Resources Technologies, Inc. as of the closing date except the specific debts to
be retained by Seller under this agreement will be paid on a timely basis."
Accordingly, the Company is vigorously pursuing all avenues available to it in
order to cancel this judgment and anticipates no material financial impact as a
result of this action.
On March 20, 1997, the Company was named as the Garnishee in the settlement of a
judgment rendered against Mr. James R. Ray, the Company's former president and
chief executive officer. The garnishment placed against the Company by the
Superior Court of the State of Arizona, Maricopa County, was in the amount of
$266,205.91, plus interest at 10.0% per annum until paid in full. The Company
has accrued this garnishment as a current liability and has accrued the
requisite interest on the unpaid balance through October 31, 1997 in the
accompanying financial statements.
F-10
<PAGE>
SMITH, DANCE & COMPANY
Certified Public Accountants
433 East Las Colinas Boulavard, Suite 1290
Irving, Texas 75039
Phone 214-556- 1190 Fax 214-556-2311
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Phoenix Resources Technologies,
Inc. (formerly Hughes Resources, Inc.):
We have audited the accompanying consolidated balance street ofPhoenix Resources
Technologies, Inc. (formerly Hughes Resources, Inc.) and its subsidiaries as of
October 31, 1995, end the related consolidated statement of operations, cash
flows end changesin shareholders equity for the year then ended. These financial
statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements teased on our audit. We
did not audit the financial statements of Hughes Wood Products, Inc. and its
subsidiary Houston Woodtech, Inc., (wholly-owned subsidiaries of Phoenix
Resources Technologies, Inc.), which statements reflecttotal assets of $
12,734,172 as of October 31,1995 and total revenues of $26,270,937 for the year
then ended. Those statements were audited by other auditors whose report was
dual dated January 5, 1996 and April 26, 1996 and included an explanatory
paragraph which raised substantial doubt about the entities ability to continue
as a going concern, has been furnished to us, and our opinion, insofar as it
relates to the amounts of Hughes Wood Products, Inc. and its subsidiary, is
based solely on the report of the other auditors. The financial statements of
Phoenix Resources Technologies, Inc. and its subsidiaries for the years ended
October 31, 1994 and 1993, respectively were audited by other auditors, whose
report was dated January 5,1995, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of the other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of Phoenix Resources,
Inc., and subsidiaries at October 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended October31, 1995, 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 shown in the accompanying
consolidated financial statements, the Company incurred a significant net loss
for the year ended October 31, 1995. As discussed in Notes 7 and 15 to the
financial statements, the Company was not in compliance with certain terms of
its long-term debt agreements at October 31, 1995. As the result of covenant
violations, the holder of such debt may, after notice and expiration of
applicable grace periods, declare the entire amount of such indebtedness due and
payable immediately. Managements plans to restructure its long-term debt are
also discussed in Note 15. These conditions raise substantial doubt about its
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result from the outcome ofthis uncertainty.
SMITH DANCE & COMPANY
F-11
<PAGE>
Irving, Texas
June 7, 1996 except for the Supplemental Information on Oil
and Gas Producing Activities (unaudited) as to which the date is August 8, 1996
F-12
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1995 and 1994
ASSETS
1995 1994
--------- ---------
CURRENT ASSETS
Cash and cash equivalents (note 1) 41,655 40,233
Trade receivables (less allowance for doubtful
accounts ($392,693 for 1995 and $85,357
for 1995) (notes 1 and 2) 1,477,069 2,900,121
Marketable securities (notes 1 and 16) 2,250,000
Inventories (notes 1 and 3) 2,347,592 2,665,382
Timber deeds (note 1 and 4) 639,699 808,877
Prepaid expenses 211,183 221,290
Notes receivable (note 2) - 609,690
Deferred income taxes (notes 1 and 10) 206,509 118,644
------------- ------------
Total current assets 7,173,707 7,364,237
PROPERTY, PLANT AND EQUIPMENT
(less accumulated depreciation of
$4,359,096 for 1995 and $4,127,691
for 1994) (notes 1 and 6) 18,425,155 6,273,257
LONG TERM RECEIVABLES
Advances to stockholders and
employees (notes 5 and 11) 386,651 279,427
OTHER ASSETS 381,804 220,747
------------- ------------
$ 26,367,317 $ 14,137,668
============= ============
The accompanying notes are an integral part of these statements
F-13
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
October 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS EQUITY
1995 1994
---------- ----------
CURRENT LIABILITIES:
Cash overdraft $ 379,657 $ -
Notes payable and current maturities
of long-term debt (note 7) 4,935,631 2,484,580
Obligations under capital
lease, current (note 8) 69,964 -
Accounts payable 2,150,205 1,675,975
Shareholder loans (notes 5 and 11) 146,071 -
Payroll tax liabilities (note 11) 618,060 -
Customer deposits 24,804 73,942
Accrued expenses (note 9) 367,208 312,605
---------------- ---------------
Total current liabilities 8,691,601 4,547,102
---------------- ---------------
LONG-TERM DEBT, less current maturities (note 7) 584,285 3,533,630
OBLIGATIONS UNDER CAPITAL LEASES, less
current portion (note 8) 304,107 102,062
---------------- ---------------
Total long-term debt 888,392 3,635,692
DEFERRED INCOME TAXES 388,491 209,783
STOCKHOLDERS EQUITY
Preferred stock, par value
$.001 per share, authorized
50,000,000 shares, 2,200,000 shares
issued and outstanding (notes 17 and 18)
- Series A, 5% annual dividend, non-cumulative
convertible into 1,000,000 shares of common
stock after March 29, 2000. 200,000 shares
issued and outstanding. 200 -
- Series C, no dividend, convertible into
5,000,000 shares of common stock after August
1, 1996. 1,000,000 shares issued and
outstanding. 1,000 -
- Series D, 4% dividend, non-cumulative,
callable within one year ending August 1, 1996,
convertible into 5,000,OOO
shares of common stock after August 1, 1996,
1,000,000
shares issued and outstanding. 1,000 -
Common stock, par value $.001 per share, authorized
100,000,000 shares, issued
4,235,891 shares, outstanding 4,179,891 shares
in 1995 and
4,749,657 in 1994. (note 18) 4,180 5,310
Capital in excess of par (note 18) 18,786,021 4,595,539
Treasury stock, 56,000 shares (733,400) (733,400)
Retained earnings (deficit) (note 18) (1,660,167) 1,877,642
--------------- ---------------
16,398,834 5,745,091
---------------- ---------------
Total liabilities and stockholders equity $ 26,367,317 $ 14,137,668
================ ===============
F-14
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Three year period
ended October 31, 1995, 1994, 1993
1995 1994 1993
------------ ------------ ------------
Net sales $ 26,462,748 $ 28,029,628 $ 29,216,939
Cost of sales 23,921,487 24,332,472 26,226,315
------------ ------------ ------------
Gross profit 2,541,261 3,697,156 2,990,624
Operating expenses 4,743,117 3,117,290 2,469,899
------------ ------------ ------------
Operating income (2,201,856) 579,866 520,725
Other income and expenses
Inventory loss due to market decline (217,754) - -
Gain on disposition of assets, net 63,316 22,618 5,533
Other income 56,325 66,077 56,426
Interest expense (587,041) (413,508) (259,925)
Other expenses (39,959) (21,291) (19,594)
----------- ------------ -----------
Income (loss) before income taxes
and extraordinary item (2,926,969) 233,762 303,165
Provision (benefit) for income taxes
(notes 1 and 10) 90,841 115,071 109,906
------------ ------------ -----------
Income (loss) before extraordinary
item (3,017,810) 118,691 193,259
Extraordinary items (net of income
tax benefit for 1995 of $0 and
1994 of $79,344) (520,000) (154,022) -
------------ ------------ -----------
Net income or (loss) $ (3,537,810) $ (35,331) $ 193,259
============ ============ ===========
The accompanying notes are an integral part of these statments
F-15
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Continued)
Three year period ended October 31, 1995, 1994, 1993
Earnings (loss) per share and common stock equivalents (notes 5 and 11):
Income (loss) per weighted
average shares of common
stock outstanding
Primary
From operations $ (1.78) $ 0.24 $ 0.40
From extraordinary Items (0.31) (0.31) -
------------ ----------- -----------
Total primary earnings
per share $ (2.08) $ (0.07) $ 0.40
============ =========== ===========
Fully-diluted
From operations $ (2.08) $ 0.24 $ 0.40
From extraordinary Items (0.31) (0.31) -
------------ ------------ -----------
Total fully-diluted earnings
per share $ (2.08) $ (0.07) $ 0.40
============ ============ ===========
Weighted average number of common
shares outstanding:
Primary (1 for 10 reverse
split adjusted) 1,697,206 497,966 483,148
============ ============ ===========
Fully-diluted (1 for 10
reverse split adjusted) 1,697,206 497,966 483,148
============ ============ ===========
The accompanying notes are an integral part of these statments
F-16
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years ended October 31, 1995, 1994, 1993
Common Stock
----------------------- Capital in
Shares Amount excess of par
---------- ---------- -------------
Balance at October 31, 1992 5,309,657 $ 53,097 $ 4,547,752
Net income for the year ended
October 31, 1993 - - -
---------- ---------- ------------
Balance at October 31, 1993 5,309,657 53,097 4,547,752
Net Loss for the year ended
October 31, 1994 - - -
Purchase of treasury stock - - -
---------- ---------- ------------
Balance at October 31, 1994 5,309,657 53,097 4,547,752
Net loss for the year ended
October 31, 1995 - - -
Effect of 1 for 10 reverse stock
split (4,778,691) - -
Effect of change in par value from
$.01 per share to $.001 per share - (52,566) 52,566
Issuance of common stock for
purchase of Louisiana
properties 825,100 825 2,638,815
Issuance of common stock for
U. S. Refining stock 2,200,000 2,200 2,237,800
Issuance of preferred series A stock
for Louisiana properties - - 999,800
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells - - 4,999,000
Issuance of preferred series D stock
for drilling rig and W. Virginia - - 2,999,000
wells
Issuance of S-8 stock for services 623,825 624 311,288
---------- ---------- ------------
Balance at October 31, 1995 4,179,891 $ 4,180 $ 18,786,021
========== ========== ============
The accompanying notes are an integral part of these statments
F-17
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Continued)
Years ended October 31, 1995, 1994, 1993
Preferred Stock Treasury Stock
---------------------- ---------------------
Shares Amount Shares Amount
---------- ---------- -------- -----------
Balance at October 31, 1992 - $ - 100,000 $ (255,000)
Net income for the year ended
October 31, 1993 - - - -
---------- ---------- -------- ----------
Balance at October 31, 1993 - - 100,000 (255,000)
Net Loss for the year ended
October 31, 1994 - - - -
Purchase of treasury stock - - 460,000 (478,400)
---------- ---------- ---------- ----------
Balance at October 31, 1994 - - 560,000 (733,400)
Net loss for the year ended
October 31, 1995 - - - -
Effect of 1 for 10 reverse stock
split - - - -
Effect of change in par value from
$.01 per share to $.001 per share - - - -
Issuance of common stock for
purchase of Louisiana
properties - - - -
Issuance of common stock for
U. S. Refining stock - - - -
Issuance of preferred series A stock
for Louisiana properties 200,000 200 - -
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells 1,000,000 1,000 - -
Issuance of preferred series
D stock for drilling rig
and W. Virginia wells 1,000,000 1,000 - -
Issuance of S-8 stock for services ---------- ---------- --------- ----------
Balance at October 31, 1995 2,200,000 $ 2,200 560,000 $ (733,400)
========== ========== ========= ==========
The accompanying notes are an integral part of these statments
F-18
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Continued)
Years ended October 31, 1995, 1994, 1993
Retained
Earnings Total
------------ ------------
Balance at October 31, 1992 $ 1,719,714 $ 6,065,563
Net income for the year ended
October 31, 1993 193,259 193,259
------------ ------------
Balance at October 31, 1993 1,912,973 6,258,822
Net Loss for the year ended
October 31, 1994 (35,331) (35,331)
Purchase of treasury stock _ (478,400)
------------ -------------
Balance at October 31, 1994 1,877,642 5,745,091
Net loss for the year ended
October 31, 1995 (3,537,810) (3,537,810)
Effect of 1 for 10 reverse stock
split - -
Effect of change in par value from
$.01 per share to $.001 per share - -
Issuance of common stock for
purchase of Louisiana
properties - 2,639,640
Issuance of common stock for
U. S. Refining stock - 2,240,000
Issuance of preferred series A stock
for Louisiana properties - 1,000,000
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells - 5,000,000
Issuance of preferred series D stock
for drilling rig and W. Virginia
wells - 3,000,000
Issuance of S-8 stock for services - 1 311,913
------------ -------------
Balance at October 31, 1995 $(1,660,167) $ 16,398,834
============ =============
The accompanying notes are an integral part of these statments
F-19
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three-Year Period Ended October 31, 1995
1995 1994 1993
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $(3,537,810) $ (35,331) $ 193,259
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 979,865 725,047 786,766
Deferred income taxes (benefit) 90,841 35,727 109,906
Stock exchanged for services 311,914 - -
Provision for doubtful accounts 522,026 (66,297) 32,913
Extraordinary item 520,000 - -
Inventory loss due to market decline 217,754 - -
(Gain) loss on disposition of property
and equipment 50,794 (22,618) (5,533)
Net increase (decrease) in operating
assets and liabilities:
Trade accounts receivable 990,716 (239,223) (893,676)
Inventories and timber deeds 269,214 (135,569) (90,854)
Prepaid expenses 10,107 (97,865) 40,640
Other assets (161,057) - -
Accounts payable 474,230 579,423 439,224
Accrued expenses and other
liabilities 672,663 - -
------------ ---------- -----------
Net cash provided by operating activities 1,411,257 743,294 612,645
------------ ---------- -----------
Cash flows from investing activities:
Advances to stockholders and employees (3,775,332) (1,899,327) (1,553,192)
Payments from stockholders and employees 3,814,179 1,450,604 1,601,472
Proceeds from sale of property, plant
and equipment 205,609 65,500 -
Loan originations - (520,000) -
Others (10,000) (58,229) (196,797)
Acquisition of property, plant and
equipment (1,748,526) (1,485,555) (1,260,322)
------------ ---------- -----------
Net cash used in investing activities (1,514,070) (2,447,007) (1,408,839)
------------ ---------- -----------
Cash flow from financing activities:
Net change in bank overdraft 379,657 - -
Customer deposits (49,138) (80,903) 154,845
Proceeds from borrowings 529,874 2,548,299 4,215,935
Principal payments on borrowings and
capital leases (756,158) (733,928) (3,489,732)
Purchase of treasury stock - (478,400) -
------------ ---------- -----------
Net cash provided by financing activities 104,235 1,255,068 881,048
------------ ---------- -----------
Net increase (decrease) in cash 1,422 (448,645) 84,854
Cash and cash equivalents at beginning of year 40,233 488,878 404,024
------------ ---------- -----------
Cash and cash equivalents at end of year $ 41,655 $ 40,233 $ 488,878
============ ========== ===========
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 660,147 $ 391,028 $ 275,699
Income tax - - -
The accompanying notes are an integral part of these statments
F-20
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Three-Year Period Ended December 31, 1995
1995 1994 1993
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Exchange of receivable from James E.
Hughes for land $ - $ 433,630 $ -
========== ========== ==========
Acquisition of Louisiana properties
for common stock and preferred
Series A stock $ 3,639,640 $ - $ -
========== ========== ===========
Acquisition of US Refining stock for
common stock and notes payable $ 2,240,000 $ - $ -
========== ========== ==========
Acquisition of drilling rig and
W. Virginia wells for preferred
series C and D stock $ 8,000,000 $ - $ -
========== ========== ==========
Issuance of S-8 stock for services $ 311,914 $ - $ -
========== ========== ==========
Change in par value of common stock $ 52,566 $ - $ -
========== ========== ==========
Acquisition of marketable securities
in exchange for U.S. Refining stock
and assumption of related notes
payable $ 2,250,000 $ - $ -
========== ========== ==========
Assumption of corporate debt by
corporate officer $ 713,772 $ - $ -
========== ========== ==========
Acquisition of heavy equipment
under capital leases $ 284,704 $ 126,836 $ -
========== ========== ==========
Write-off of fully depreciated
property, plant and equipment $ 598,830 $ - $ -
========== ========== ==========
The accompanying notes are an integral part of these statments
F-21
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Phoenix Resources Technologies, Inc. and its subsidiaries (the Company), own and
operate a saw mill, pole mill, wood treating facilities, and hardwood mill in
Texas and Louisiana as well as oil and gas wells and oil and gas drilling
equipment. The Company operates in a cyclical industry group. Demand and prices
exhibit large variances from period to period. Management has attempted to
mitigate these variations by adopting specialized product lines that are less
susceptible to industry cycles, although the Company, during this fiscal year,
depended on one customer for 17% of its sales. Commercial graded materials are
manufactured from the sawmill for use in construction of barns, sheds,
bulkheads, bridges, trusses and decking. This market mix has proven more stable
than the housing market for dimension lumber such as 2 x 4 and 2 x 6. The pole
mill supplies debarked logs to a limited number of customers as well as pine
chips to domestic paper manufacturers. In addition, the pole mill manufactures
poles which are treated in the Companys pole treating facility in San Antonio,
Texas and are largely sold pursuant to a Mexican contract. Logging operations
provide major industry customers with delivered logs. The Houston wood treating
facility is a wholesaler of all types of wood products to a variety of vendors
involved in everything from home improvements to heavy construction. As with
many essential agricultural businesses, prices for standing timber vary from
time to time from changes in supply and demand rather than inflation. During
this fiscal year, the demand for timber escalated, while the supply remained
constant, thereby increasing the cost of the Companys raw material quite
substantially.
During 1995 the Company has attempted to diversify its operations by committing
a significant portion of its assets to the oil and gas industry.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -
The consolidated financial statements include the accounts of Phoenix Resources
Technologies, Inc. and its wholly-owned subsidiaries Hughes Wood Products, Inc.
and Houston Woodtech, Inc. All significant intercompany accounts and
transactions have been eliminated.
Accounting estimates -
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Cash and cash equivalents -
For purposes of reporting the statement of cash flow, the Company considers all
cash accounts, which are not subject to withdrawal restrictions or penalties,
and all highly liquid debt instruments purchased with a maturity of three months
or less, to be cash equivalents
F-22
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for doubtful accounts -
The Company uses the allowance method to account for uncollectible accounts
receivable. The allowance for doubtful accounts is based upon prior experience
and managements analysis of collectibility.
Revenue recognition -
Sales of commercial products are recognized when shipped or delivered to the
consumer.
Inventories -
The Company values its inventories generally at the lower of cost (first-in,
first-out) or market. Lumber and wood products are valued using a full
absorption procedure using standard cost techniques. The standards are reviewed
and adjusted annually. Inventoried costs include material, direct labor, and
production overhead. Cost for the logs inventory generally represents average
current purchase cost.
During the current year, the saw milling segment did not provide the return and
benefit that was expected and market prices at year end were below cost.
Accordingly, at October 31, 1995, inventory for the saw milling segment has been
written down to estimated net realizable value, and results of operations
include a corresponding charge of $217,754 for 1995 and $0 for 1994.
Timber deeds -
Timber deeds represent standing timber purchased and are stated at cost less the
depletion of the timber cut. The costs of timber deeds are allocated as costs of
sales at rates based on average cost of estimated recoverable timber in each
tract.
Oil and gas properties -
Oil and gas properties are accounted for on the full cost method of accounting.
All costs associated with acquisition, exploration and development of oil and
gas reserves, including directly related overhead costs, are capitalized.
Investments -
Effective January 1, 1994 the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (FAS 115). In accordance with FAS 115, the Companys debt and equity
securities are considered as either held-to-maturity or available-for-sale.
Held-to-maturity securities represent those securities that the Company has both
the positive intent and ability to hold to maturity and are carried at amortized
cost. Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity, are not actively traded and are carried
at fair value. Unrealized gains and losses on these securities are excluded from
earnings and are reported as a separate component of stockholders equity, net of
applicable taxes, until realized.
F-23
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and equipment -
Property and equipment is stated at cost less accumulated depreciation. When
equipment is retired, its cost and the related accumulated depreciation are
eliminated from the respective accounts, and gain or losses arising from the
disposition are reflected as income or expense. Depreciation is computed by the
straight-line method over the following estimated useful lives:
Years
Buildings 5-35
Machinery and equipment:
General 5-10
Rolling stock 3- 5
Furniture 5-10
Leasehold improvements 5-10
Depletion -
Depreciation and depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas producing
properties, except mineral interests, are expensed using the unit-of-production
method by individual fields as the proved developed reserves are produced.
Depletion expenses for capitalized costs of proved mineral interest are
recognized using the unit-of-production method by individual fields as the
related proved reserves are produced. Periodic valuation provisions for
impairment of capitalized costs of unproved mineral interests are expensed.
Income taxes -
Deferred income taxes are accounted for by the asset and liability method under
SFAS No. 109. The deferred tax assets and liabilities result from the
differences between the financial statement and tax return basis of these assets
and liabilities. Most of the differences in the asset and liability basis arise
principally from the use of accelerated methods of depreciation, the specific
charge-off method of accounting for bad debts and net operating loss
carryforwards.
Accrued workers compensation claims -
Estimates for unpaid claims, claims incurred but not reported and unpaid claims
adjustment expenses are provided by the third party administrator based upon the
nature of the injury, industry trends and experience. Management evaluates these
estimates for reasonableness.
Basis of Presentation -
Certain financial statement items in prior years have been reclassified to
conform to the current years format.
F-24
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - TRADE AND NOTES RECEIVABLE
Following is a summary of trade receivables at October 31, 1995 and 1994:
1995 1994
--------- ---------
Trade receivables - Sawmill $ 191,417 $ 489,782
Pole Mill 491,155 436,606
Logging 141,795 154,274
Wood preserving 404,831 413,315
Wood preserving - export 223,207 976,166
Advances to contractors 417,357 515,335
------------ -------------
$1,869,762 2,985,478
Less: Allowance for doubtful accounts 392,693 85,357
------------ -------------
$1,477,069 $2,900,121
============ =============
As of October 31, 1995 and 1994, trade receivables were pledged as security for
a letter of credit. (Notes 7 and 16)
Following is a summary of notes receivable at October 31, 1995 and 1994. The two
major notes were deemed uncollectible during the current year and were expensed
as an extraordinary expense. (Note 19)
1995 1994
--------- ---------
7.5% note receivable from
Iniciativas Turisticas Del
Pacifico, S.A. (a Costa Rica
corporation); balance due on
June 10, 1995 - $ 320,000
10% note receivable from Charles G. Masters; interest only due quarterly
beginning January 31, 1995; balance
due on October 31, 1995 - 200,000
Others - 89,690
--------------- -------------
- $ 609,690
=============== =============
F-25
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories at October 31, 1995 and 1994 consist of:
1995 1994
--------- ---------
Raw material - logs $ - $ 341,953
Lumber and wood products 2,344,938 2,082,874
Chemicals 220,409 240,555
Reduction of lumber and wood products
to market (217,755) -
----------- -----------
$2,347,592 $2,665,382
=========== ===========
Certain inventories are pledged to secure loans.(Notes 7 and 16)
NOTE 4 - TIMBER DEEDS
The amount of timber deeds as of October 31, 1995 and 1994 represents the
standing timber purchased at cost less the depletion of timber cost as follows:
1995 1994
--------- ---------
Original Cost 1,358,624 $ 1,465,768
Less: Depletion (718,925) (656,891)
------------ -----------
Net $ 639,699 $ 808,877
============ ===========
Certain timber deeds had expiration dates beyond twelve months from the balance
sheet date; however, all were classified as current assets because it was
anticipated that a majority of the timber would be cut within the next operation
cycle of the business.
NOTE 5 - ADVANCES TO AND FROM STOCKHOLDER AND EMPLOYEES
Following is a summary of these receivables at October 31, 1995 and 1994:
1995 1994
--------- ---------
Net to James E. Hughes, Sr. $ 347,422 $ 242,252
Loans to employees 39,229 37,175
------------- -------------
$ 386,651 $ 279,427
=========== ===========
Advances to shareholder bear interest at 8% per annum and are payable upon
demand by the Company. It is not anticipated that these amounts will be
collected within the next year, therefore, they have been classified as
noncurrent.
Advances from shareholder at October 31, 1995 total $146,071 represent net cash
advances made to the Company and is non interest bearing.
F-26
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
Major classes of property and equipment as of October 31, 1995 and 1994 are
shown below:
1995 1994
------------ ------------
Land $ 1,392,603 $ 1,347,603
Buildings 933,479 456,132
Machinery and equipment 12,209,125 8,008,484
Furniture and fixtures 259,269 256,124
Leasehold improvements 178,091 176,578
Construction in progress 10,134 29,191
Property held under capital leases 411,540 126,836
Oil and gas properties 7,539,640 -
------------- -------------
22,933,881 10,400,948
Less:
Accumulated depreciation (4,508,726) (4,127,691)
------------- -------------
$ 18,425,155 $ 6,273,257
============= =============
Reflected in the accompanying statements of operations is depreciation expense
of $979,865 for 1995 and $725,047 for 1994.
Certain property and equipment are pledged to secure loans as further explained
in Notes 7 and 16.
<TABLE>
<CAPTION>
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debts as of October 31, 1995 and 1994 consisted of
the following:
1995 1994
---- ----
<S> <C> <C>
Notes payable:
Community Bank; Jasper, Texas; Advances on line of credit
effective July 29, 1994 in the amount Of $1,500,000. The
obligation is due July 29, 1995 with interest at 9.25%; secured
by accounts receivable and inventory and a personal guarantee
by James E. Hughes, Sr. ( Note 16) $1,499,715 $1,499,715
Advances on line of credit from First National Bank of Newton
effective June 28, 1994 in the amount of $300,000. This
obligation is due on demand; with interest at Bank Prime plus 2%,
note written in the name
of James E. Hughes, Sr. - 156,891
F-27
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT - Continued
Insurance policy financing arrangements, due on July 1,
1996, bearing interest at 11.5% 62,467 117,818
First National Bank; Newton, Texas; Note payable in the
original amount of $300,000, executed on October 1, 1991,
due on November 7, 1994, bearing interest at 9%, secured by
timber deeds and a personal guarantee
by James E. Hughes, Sr. - 180,040
Obligations callable by creditor: AG-PCA, Agriculture
Production Credit Associates; Tyler, Texas; note dated
September 30, 1993 in original amount of $3,551,000; payable
in monthly installments of $42,151 including interest at
8.45%; amortizing over 120 months; secured by all property
and equipment
and a personal guaranty by James E. Hughes, Sr. 3,052,114 3,284,994
All other installment notes due: Various finance companies
and banks; monthly installments in the aggregate amount of
$41,432; interest rates ranging from 6.75% to 11.9%;
maturing from December 25, 1995 through May 1, 2000; secured
by various equipment 905,620 778,752
------------- ------------
Total notes payable and long-term
debt 5,519,916 6,018,210
Less: Short-term notes payable and
current maturities (4,935,631) (2,484,580)
-------------- -------------
Long-term debt less notes payable and
current maturities $ 584,285 $ 3,533,630
============== ============
</TABLE>
F-28
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT - Continued
Annual maturities on long-term debt for the next five years are as follows:
October 31
----------
1996 $4,935,631
1997 260,593
1998 160,658
1999 76,852
2000 86,182
The loan with AG-PCA is actually in the name of Hughes Resources, Inc.; Hughes
Wood Products and Houston Woodtech, Inc. (Note 15) The loan agreement with
AG-PCA contains various covenants pertaining to maintenance of certain financial
ratios, reporting requirements, and other restrictions. At October 31, 1995, the
Company was in breach of various covenant requirements. Under the terms of the
agreement, the bank may call the loan if the Company is in violation of any of
the restrictive covenants. As of January 5, 1996, the bank has not waived the
requirements, and accordingly, the entire amount of the note, $3,052,114, has
been included in the current liabilities. (Notes 15 and 16)
Interest expense of $587,041 was incurred during 1995 and approximately $413,508
for 1994.
NOTE 8 - LEASES
The Company is the lessee of heavy equipment under capital leases expiring in
2000. The assets and liabilities under the capital leases are now recorded at
the lower of the present value of the minimum lease payments or the fair value
of the assets. The assets are depreciated over the lower of the related lease
terms or the estimated productive lives. Depreciation of the assets under the
capital leases are included in depreciation expense.
Following is a summary of assets held under capital leases:
1995 1994
-------- ---------
Heavy equipment $ 411,540 $ 126,836
========= =========
F-29
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES - Continued
Minimum future lease payments under capital leases as of October 31, 1995 for
each of the next five years are:
Year Ending Capitalized
October 31 Leases
---------- -----------
1996 $ 106,148
1997 106,148
1998 106,148
1999 106,148
2000 44,680
----------
Total minimum lease payments $ 469,272
Less: amount representing interest (95,201)
----------
Present value of net minimum
lease payments $ 374,071
Less current maturities (69,964)
----------
Long term lease obligations $ 304,107
==========
Interest rates on capitalized leases are imputed based on the lower of company's
incremental borrowing rate at the inception of the lease or the lessor's
implicit rate of return.
NOTE 9 - ACCRUED EXPENSES
Accrued expenses at October 31, 1995 and 1994 are summarized below:
1995 1994
-------- --------
Salaries $ - $ 16,730
Interest 27,995 36,991
Other 40,785 54,264
Taxes, other than income taxes 124,977 79,356
Rent 11,667 11,669
Insurance 161,784 113,595
--------- --------
$367,208 $312,605
========= ========
F-30
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES
Income tax expense (benefit) is comprised of the following components:
1995 1994 1993
----------- ----------- -----------
Current tax expense $ - $ - $ -
Deferred tax expense 90,841 115,071 5,989
Benefits from operating
loss carryforward (1,083,715) - 103,917
----------- ----------- -----------
(992,874) 115,071 109,906
Valuation allowance 1,083,715 - -
----------- ----------- -----------
$ 90,841 $ 115,071 $ 109,906
=========== =========== ===========
Reconciliation of the U.S. Statutory federal income tax rate of 34% to the
effective tax rates is as follows:
1995 1994 1993
---- ---- ----
Statutory tax rate (34%) 34% 34%
State taxes - - -
Non-deductible expenses 3 15 2
----- ----- -----
Effective tax rate (31%) 49% 36%
===== ===== =====
The Company's effective income tax rate is higher than what would be expected if
the federal statutory rate were applied to income from continuing operations
primarily because of expenses deductible for financial reporting purposes that
are not deductible for tax purposes.
Deferred tax assets (liabilities) result from the differences between financial
statement and tax return basis of certain assets and liabilities. Most of the
differences in the asset and liability basis arise from the use of accelerated
methods of depreciation, the specific charge-off method of accounting for bad
debts, and the net operating loss carryforward for income tax purposes. The
principal sources of these timing differences and the tax effects are as
follows:
1995 1994 1993
---- ---- ----
Current asset:
Excess of book over tax
bad debt allowance $206,509 $ 29,022 $ 51,562
Deferred expenses for
tax purposes - 89,622 -
-------- -------- --------
$206,509 $118,644 $ 51,562
======== ======== ========
F-31
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES - Continued
Noncurrent asset (liability):
Benefit of NOL
carryforward $ 1,083,715 $ 90,862 $ 78,111
Excess of tax over book
accumulated depreciation (388,491) (300,645) (185,088)
----------- ----------- -----------
695,224 (209,783) (106,977)
Valuation allowance (1,083,715) - -
----------- ----------- -----------
$ (388,491) $ (209,783) $ (106,977)
=========== =========== ===========
The Company has available at October 31, 1995, unused net operating loss
carryforwards that may provide future tax benefits. However, since doubt exists
as to the actual future benefit to be realized, an allowance has been made and
no deferred tax asset, relating to the net operating loss carryforward, has been
reported in these financial statements.
The Company and its subsidiaries file a consolidated federal income tax return.
The income tax liability for the year is apportioned among the consolidated
group based upon Regulation 1.1552-1(a)(1) of the Internal Revenue Code. Under
the method prescribed by this regulation, the tax liability is apportioned to
each company based upon the ratio of its taxable income (loss) to that of the
consolidated taxable income (loss) of the group.
Since a consolidated tax return is filed, no adjustment for undistributed
subsidiary earnings need be made for deferred income taxes, because intercompany
profits are eliminated in computing the consolidated tax liability.
NOTE 11- RELATED PARTY TRANSACTIONS
During the years ended October 31, 1995, 1994 and 1993 the Company contracted
with J.R. Hughes Company, Inc. for contract hauling of wood products. J.R.
Hughes Company, Inc. is owned by James Hughes, Jr., an officer and director of
Hughes Wood Products, Inc. Total amounts paid during the year ended October 31,
1995 was $264,605; for 1994 $253,037 and for 1993 $189,576.
The Company believes that its arrangement with J.R. Hughes Company, Inc. are at
least as favorable to the Company as could have been obtained from third
parties.
In 1994, the Company purchased 460,000 shares of its own common stock owned by
James E. Hughes, Sr. at $1.04 per share.
In 1994, James E. Hughes, Sr. sold commercial property and timber land to the
Company. The purchase price of $433,630 was applied to reduce his obligation to
the Company.
Substantially all of the Company's assets are secured as collateral for a loan
obtained by James E. Hughes, Sr. in the amount of $362,628. In addition,
substantially all of the assets of James E. Hughes, Sr. are secured as
collateral for a loan obtained by the Company in the amount of $1,499,715.
In the current year, James E. Hughes, Sr. agreed to pay a portion of Hughes Wood
Products, Inc.'s payroll tax liability. The Company, however, is still
responsible for payment until the obligation is paid in full. The amount owed of
$618,060 is included on the balance sheet as of October 31, 1995.
F-32
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11- RELATED PARTY TRANSACTIONS - Continued
During the 1995, 1994 and 1993, salaries of $12,000 were paid to each of the
spouses of James Hughes, Sr. and James Hughes, Jr. They were also provided
company vehicles.
Additional related party transactions are disclosed in Notes 5, 16 and 17.
NOTE 12 - INDUSTRY SEGMENT INFORMATION
During the current fiscal year, the Company and its subsidiary were engaged in
eight different business segments: saw milling, pole milling, logging, wood
preserving - lumber, wood preserving - poles, hardwood, oil and gas production
and oil and gas drilling. (Note 16)
The saw milling segment is primarily engaged in producing finished timbers and
lumber from logs. The by-products of such operations include wood chips,
shavings and sawdust.
The pole milling segment is primarily engaged in producing poles for use
primarily as supports of high power transmission lines. As a by-product of this
segment, it manufactures small and/or undesirable raw wood products into wood
chips used in the manufacture of paper.
Operations in the logging segment include cutting timber for saw logs, utility
poles, export logs, pulpwood and for chip mill use.
The wood preserving - lumber segment, which was begun in October 1990 with the
formation of the wholly-owned subsidiary, is primarily engaged in treating
lumber with chemicals to protect against the elements, fire and insects.
The wood preserving - poles segment is engaged in the treating of poles with
chemicals to protect against the elements, fire and insects. The resulting
products are mostly used for utility purposes for telecommunications in Mexico.
The exporting segment which was organized as a separate division in 1993 was
engaged in the exporting of scaled and debarked logs.
The hardwood segment is engaged in planing high grade hardwood lumber. The
resulting products are mostly used by furniture manufacturers.
The oil and gas production segment was originally purchased in February of 1995
and additional wells were added in July of 1995. The major business is the
production and sales of oil and gas from existing wells.
The oil and gas drilling business was purchased during July of 1995. The
principle activities of this business will be the drilling of oil and gas wells,
either for the Company's own account, or for outside companies. No business was
conducted during the current year in the drilling segment.
F-33
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
The following tables illustrate net sales, operating income (loss) and other
financial information by industry segment for the year ended October 31, 1995.
The companies operate only in the continental United States.
1995 1994 1993
---- ---- ----
Net sales:
Saw milling $ 5,897,585 $ 5,874,370 $ 5,605,588
Pole milling 5,734,676 4,550,484 4,591,131
Logging 5,502,520 6,635,257 7,150,412
Wood preserving 7,380,225 7,832,885 7,250,701
lumber
Wood preserving 1,507,715 - -
poles
Exporting - other - 3,136,632 4,619,107
Hardwood 248,216 - -
Oil and gas drilling - - -
Oil and gas production 191,811 - -
----------- ----------- -----------
Total net sales $26,462,748 $28,029,628 $29,216,939
=========== =========== ===========
Operating income (loss):
Saw milling $ (494,431) $ 216,486 $ 355,831
Pole milling 346,387 675,053 88,100
Logging 211,259 706,799 795,331
Wood preserving - lumber 130,221 517,095 268,427
Wood preserving - other (69,146) - -
Exporting - other - - 196,403
Hardwood (105,979) - -
Oil and gas production (6,560) (1,535,567) (1,183,367)
Oil and gas drilling (26,285) - -
Corporate (2,187,322) - -
------------- ----------- ------------
Total operating (loss) $ (2,201,856) $ 579,866 $ 520,725
============= =========== ============
F-34
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
Identifiable assets:
Saw milling $ 3,462,494 $ 4,609,199 $ 4,110,016
Pole milling 2,966,533 2,291,256 1,893,685
Logging 1,772,720 1,699,929 1,537,726
Wood preserving - lumber 1,833,200 3,504,072 3,443,471
Wood preserving - poles 697,699 - -
Exporting - other - - 51,155
Hardwood 570,553 - -
Oil and gas production 10,979,272 - -
Oil and gas drilling 800,000 - -
Corporate 3,284,846 2,033,212 1,199,649
----------- ----------- -----------
Total assets $26,367,317 $14,137,668 $12,235,702
=========== =========== ===========
Depreciation and amortization:
Saw milling $ 267,489 285,539 228,898
Pole milling 273,186 211,892 342,249
Logging 57,231 38,031 41,491
Wood preserving - lumber 100,439 147,042 140,562
Wood preserving -- poles 58,207 - -
Exporting - other - - -
Hardwood 1,086 - -
Oil and gas production 122,844 - -
Oil and gas drilling 26,785 - -
Corporate 72,598 42,543 33,566
----------- ----------- -----------
Total depreciation and
amortization $ 979,865 $ 725,047 $ 786,766
=========== =========== ===========
Additions to property and equipment:
Saw milling $ 122,882 $ 399,363 $ 471,369
Pole milling 393,822 704,173 244,966
Logging 316,297 33,930 23,492
Wood preserving - lumber 93,261 83,031 488,378
Wood preserving -- 18,554 - -
Exporting - other - - -
Hardwood 475,668 - -
Oil and gas production 10,979,272 - -
Oil and gas drilling 800,000 - -
Oil refinery - - -
Corporate 188,410 265,058 50,611
----------- ----------- ----------
Total addition to property and
equipment $13,388,166 $ 1,485,555 $ 1,278,816
=========== =========== ==========
F-35
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
The Company sells a substantial portion of its product to one customer. During
the current year, sales to that customer aggregated $4,616,769, which represents
17.45% of net sales. During 1994, one customer accounted for 23% and a second
for 11% and during 1993 one customer accounted for 22%.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries entered into various operating leases for
facilities and equipment. The Houston property, on which the plant is located,
is leased at an annual rental of $35,000, which expires in June 1998. The
Company has an option to purchase the facility during the term of the lease for
$162,000.
The kiln and boiler facility in Bon Wier, Texas is leased for an 84 month period
at $11,616 per month, commencing September 30, 1991, with an option to purchase
the facility at termination of the lease for its then fair market value.
Also, certain transportation and other equipment are leased for 36 and 48 month
periods with total payments of $1,954 per month. All leases contain an option to
purchase at the termination of the leases for an amount which approximates the
estimated fair market value at that time.
The corporate office in Scottsdale, Arizona was leased for a period of 3 years,
in June of 1995 for an annual lease amount of $19,392 for the first year and
$19,998 for the second and third years.
The following is a schedule of the annual future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of October 31, 1995:
Year Ending
October 31
-----------
1996 $217,485
1997 213,064
1998 185,231
1999 108,384
--------
Total future minimum rental payments $724,164
========
Total rent expense for all operating leases, except those with terms of a month
or less that were not renewed, as of October 31, 1995 was $343,558; 1994 was
$342,912 and 1993 was $280,256.
The Company is heavily reliant upon sub-contractors to extract timber from the
forest. Advances are made to these sub-contractors to help finance their
activities until the cut timber is sold. The estimated net realizable value of
the advances outstanding at October 31, 1995, in the amount of $83,525 ($417,357
less an allowance of $333,832) are reflected in the accompanying financial
statements. These advances are secured by equipment owned by the sub-contractor.
Management monitors the fair market value of the equipment compared to the
outstanding advances for adequacy of collateral coverage.
F-36
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES - Continued
During 1993, the Company became partially self-funded for worker's compensation
insurance purposes. The Company's obligation (self-retention portion) under this
policy is $250,000 per occurrence for accidental medical expense claims. Claims
up to $100,000 in excess of the Company's obligation ($250,000) are covered by
external medical and health insurance. Claims in excess of $350,000 up to a
specific excess limit of $10,000,000 (inclusive of the retentions) are covered
by insurance. The Company contracts with a third-party to administer the
self-funded portion of worker's compensation. The third-party Administrator
maintains a trust fund on behalf of the Company. Claims made against the Company
are disbursed from this trust fund. The trust fund is replenished by the Company
through disbursements from the operating account when it is deemed necessary. In
accordance with state requirements, the Company has obtained a $250,000
irrevocable letter of credit in favor of the Louisiana Department of Employment
and Training, Office of Worker's Compensation. This letter of credit is secured
by trade receivables. There were no outstanding draws against the letter of
credit at October 31, 1995. Claims paid during 1995 totaled $913 and for 1994,
$32,913. Accrued expenses include $124,748 for 1995 and $110,500 for 1994 for
estimated claims incurred during the year but not paid..
Substantially all of the Company's assets are secured as collateral for loans
obtained by James E. Hughes, Sr. and Hughes Resources, Inc. in the amounts of
$362,628 and $3,052,114, respectively.
On August 10, 1995, the Company acquired oil drilling equipment, real estate and
oil and gas wells in exchange for preferred stock, series C and series D. Under
the terms of the agreement, the Company was to redeem the series D stock for
$3,000,000 by no later than January 31, 1996 or control of the Company and all
of its assets would revert to the seller via conversion of the preferred series
D stock into approximately 5,000,000 shares of common stock. The redemption was
to be accomplished by obtaining financing sufficient to pay all of the existing
debt and to redeem the preferred series D stock. Additionally, the series D
stock carries a dividend rate of 4% which is to accrue from the date of
issuance. The Company has not been successful in obtaining the necessary
financing or in redeeming the preferred series D stock as of the report date nor
have the preferred stockholders exercised their conversion rights.
The real estate purchased was subject to a judgement totaling $45,625 which
would entitle the holder of the judgement to the first proceeds from any sale of
the property.
NOTE 14 - EMPLOYEE BENEFIT PLANS
On February 1, 1994, the Company adopted a IRC 401(k) plan covering
substantially all eligible employees. Under the provisions of the plan, eligible
employees may defer up to 18% of their compensation; subject to Internal Revenue
Service limits. The Company contributed a matching ten cents on every dollar
contributed on the first three percent (3%) of employee compensation. Employees
must complete one year of service and attain age 21 before they are eligible to
participate. Participants may enter the plan on May 1, or November 1 immediately
following the completion of the age and service requirement. The Company
contributed $2,866 to the plan during 1995 and $3,011 during 1994.
NOTE 15 - UNCERTAINTIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
company as a going concern. However, the Company has sustained a substantial
operating loss in the current year and the Company has used substantial amounts
of working capital in its operations. In addition, at October 31, 1995, current
liabilities exceed current assets by $1,517,894.
F-37
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - UNCERTAINTIES - Continued
In view of these matters, realization of a major portion of assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's ability to meet
its financial requirements, and the success of its future operations. Management
is attempting to sell the two wood treating facilities and, if necessary, the
saw mill in order to liquidate the debts with AG-PCA and Community Bank. The oil
refinery was sold to liquidate the debt with Universal Pacific Reinsurance LTD.
Management intends to retain the logging, pole mill and the hardwood operations.
NOTE 16 - SUBSEQUENT EVENTS
As described in Note 7, the note payable to Community Bank became due on July
29,1995 and remained unpaid at October 31, 1995. However, on December 15, 1995,
the Bank renewed the loan for the same amount. The loan will mature on December
15, 1996, and will bear interest at 10.75% with monthly payments of $60,000 to
begin in July 1996.
On August 15, 1995, the Company purchased a refinery in exchange for $3,000,000
in a note payable and 2,200,000 shares of restricted common stock. This
acquisition included a provision whereby a related party had the option to
purchase the refinery within ninety days of the transaction at a price to be
determined later. In October 1995, the related party exercised the option and
purchased the refinery by assuming the 3,000,000 note and tendering marketable
securities of Stratford Acquisitions Corp. (a public company) which had a value
of $2,250,000 on the date of transfer. As of May 31, 1996, the value of the
stock had dropped to approximately $1,406,250.
On January 17, 1996, the Board of Directors approved the acquisition of three
pipeline systems. The total price of the acquisition was $1,750,000, payable in
2,250,000 shares of reg S stock and the assumption of $150,000 in debt. This
note did not bear interest and was due on March 15, 1996.
Effective January 31, 1996, the Company executed an agreement with James Hughes,
Sr. for the purchase and sale of stock of Hughes Wood Products, Inc. to Mr.
Hughes. Both parties are in dispute over the terms and conditions of the
agreement, as well as, the specific performance required by the contract.
However, all parties have indicated their desire to negotiate a settlement.
NOTE 17 - MERGERS AND ACQUISITIONS
During the current fiscal year, the company made several significant
acquisitions of both assets and corporate stock as summarized below:
On February 28, 1995 the Company acquired oil & gas reserves in Louisiana from a
related party in exchange for 825,100 shares of Rule 144 restricted common stock
and 200,000 shares of preferred series A stock. The transaction was valued at
the related party's basis and effectively passed control of the Company to a new
shareholder. The properties acquired were originally owned by a corporation
owned entirely by the former controlling shareholder of the Company but were
sold to the acquiring shareholder in a non-preferential transaction. The
subsequent purchase by the Company was for the same amount that was paid to the
former shareholder by the new controlling shareholder.
F-38
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - MERGERS AND ACQUISITIONS - Continued
On July 10, 1995 the Company purchased approximately 300 oil and gas wells in
West Virginia, and the related equipment in exchange for 500,000 shares of
series C preferred stock and 666,667 shares of series D preferred stock. The
transaction was valued at $5,000,000.
On July 10, 1995 the Company acquired from a corporation related to the seller
in the paragraph immediately above, oil and gas drilling equipment along with
valid and existing contracts for the drilling of oil and gas wells in West
Virginia. The company issued 500,000 shares of series C preferred stock and
333,333 shares of series D preferred stock. The transaction was valued at
$3,000,000.
Both the W. Virginia oil wells and the drilling equipment were subject to an
agreement that the class D preferred stock was to be redeemed for $3,000,000 on
or before January 31, 1996 or the Company would relinquish control the Company
and all of assets to the prior owners of the wells and drilling equipment. After
one year from the date of issuance, each share of series D stock is convertible
to five shares of common stock (Note 13).
On August 14, 1995 the Company acquired all of the issued and outstanding stock
of U. S. Refining, Inc. which owned all of the land, building and assets of an
oil refinery in Egan, Louisiana, in exchange for 2,200,000 shares of Rule 144
restricted common stock and a 60 day $3,000,000 note. This transaction was
valued at $5,240,000. The corporation was sold to James Hughes, Sr. prior to the
end of the fiscal year(Note 16) and was inactive for the entire fiscal year.
Pursuant to a plan of merger, Hughes Resources, Inc. (a Colorado Corporation)
was merged into Hughes Resources Corporation (a Nevada Corporation) effective
June 27, 1995. The purpose of the merger was to redomicile the corporation from
Colorado to Nevada. The Nevada corporation had been formed solely for this
purpose and had no assets or liabilities prior to the merger. The articles of
incorporation of the surviving corporation were amended to increase the
authorized number of common shares to 100,000,000 with a par value of $.001
each, and to increase the authorized number of preferred shares to 50,000,000
with a par value of $.001 per share.
NOTE 18 - STOCKHOLDER'S EQUITY
The total number of shares of all classes of authorized capital stock is
150,000,000 shares, of which 50,000,000 shares shall be Preferred Stock, $.001
par value per share and 100,000,000 shares of Common Stock, $.001 par value per
share. For purposes of presenting earnings per share, the weighted average
shares outstanding have been retroactively restated to the earliest period
presented.
Preferred stock -
The designations and the powers, preferences and rights, qualifications,
limitations or restriction of the Preferred Stock shall be established in
accordance with the Nevada Corporation Code by the Board of Directors.
Additionally, the establishment of different series of Preferred Stock and
variations in the relative rights and preferences shall be established
accordingly.
Except for such voting powers with respect to the election of directors or other
matters as may be stated in the resolutions of the Board of Directors creating
any series of Preferred Stock, the holders of any such series shall have no
voting power whatsoever.
F-39
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - STOCKHOLDER'S EQUITY - Continued
Common stock -
The holders of Common Stock shall have and possess all rights as shareholders of
the corporation, including such rights as may be granted by the Articles of
Incorporation, except as such rights may be limited by the preferences,
privileges, voting powers, restrictions and limitations of the Preferred Stock.
Subject to preferential dividend rights, if any, of the holders of Preferred
Stock, dividends upon the Common Stock may be declared by the Board of Directors
and paid out of any funds legally available therefore at such times and in such
amounts as the Board of Directors shall determine. In accordance with the loan
covenants, the payment of dividends are restricted. Dividends cannot be paid
without the prior written consent of Agriculture Production Credit Association.
Common stock purchase warrant -
In February, 1992, the Company completed a public offering by which 966,000
units were sold on a firm-commitment basis. Each unit consisted of two shares of
common stock, one Class A redeemable common stock purchase warrant and one Class
B redeemable common stock purchase warrant. Each Class A warrant is exercisable
to purchase one share of common stock for $5.00 per share through March 9, 1994,
and each Class B warrant is exercisable to purchase one share of common stock
for $7.00 per share through the same date. Such warrants expired at the close of
business March 9, 1995.
Stock option plan -
In July 1992, the Board of Directors adopted a plan by which each director of
the Company on July 31 of any year who is not also an employee will be granted
an option to purchase 2,000 shares of the Company's common stock, based on the
average bid and asked price (as reported by NASDAQ) during the month of July.
The options, when granted, will be exercisable for five years. No stock options
or stock appreciation rights were granted to any person pursuant to the Plan
during the year ended October 31, 1995. Options to purchase 10,000 shares each
are outstanding as of October 31, 1995 to James E. Hughes, Sr. and to James E.
Hughes, Jr. based on the average of bid and asked price on October 31, 1994 of
$.80 per share.
Additional options were granted to Charles Masters, exercisable at $1.00 per
share. During the current fiscal year, Mr. Masters resigned and the stock
options now are considered expired.
F-40
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - EXTRAORDINARY ITEMS
The extraordinary items are described as follows, net of taxes:
1995 1994
-------- --------
Write down of notes receivable that were
unrelated to the business enterprises $520,000 $ --
Loss contingency accrual on the settlement
of a lawsuit in December 1994 -- 99,000
Loss from a joint venture terminated in
December 1994 -- 55,022
-------- --------
$520,000 $154,022
======== ========
NOTE 20 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share of common stock were computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
period in the amount of 1,697,206 for 1995, 497,966 for 1994 and 483,148 for
1993 (after adjustment for a 1 for 10 reverse stock split).
F-41
<PAGE>
In accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities"(SFAS 69), this section
provides supplemental information on oil and gas exploration and producing
activities of the company in six separate tables. The first three tables provide
historical cost information pertaining to costs incurred in exploration,
property acquisitions and development; capitalized costs; and results of
operations. Tables IV through VI present information on the company's estimated
net proved reserve quantities, standardized measure of estimated discounted
future net cash flows related to proved reserves, and changes in estimated
discounted future net cash flows. During the current fiscal year, the company
acquired its first oil and gas properties; accordingly no oil and gas
information is shown for prior years.
TABLE I - COSTS INCURRED IN EXPLORATION, PROPERTY ACQUISITIONS AND DEVELOPMENT
YEAR ENDED OCTOBER 1995
Exploration
Wells -
Geological and geophysical -
Rentals and other -
Total exploration -
Property acquisitions (2)
Proved (3) $9,979,272
Unproved -
Total property acquisitions 9,979,272
Development -
TOTAL COSTS INCURRED $9,979,272
YEAR ENDED OCTOBER 1994 Not applicable
YEAR ENDED OCTOBER 1993 Not applicable
TABLE II - CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
AT OCTOBER 31, 1995
Unproved properties -
Proved properties and related -
producing assets $9,979,272
Support equipment -
Deferred exploratory wells -
Other uncompleted projects -
Gross capitalized costs 9,979,272
TABLE II - CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES -
Continued
Unproved properties valuation -
Proved producing properties -
Depreciation and depletion 122,824
Future abandonment and restoration -
Support equipment depreciation -
Accumulated provisions 122,824
NET CAPITALIZED COSTS $9,856,448
AT OCTOBER 31, 1994 Not Applicable
AT OCTOBER 31, 1993 Not Applicable
F-42
<PAGE>
TABLE III - RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
The company's results of operations from oil and gas producing activities
for the years 1995, 1994 and 1993 are shown below.
Net income from exploration and production activities reflects income taxes
computed on an effective rate basis. In accordance with SFAS 69, income taxes
below are based on statutory tax rates, reflecting allowable deductions and tax
credits, as well as estimated net operating loss carryforwards. Results for 1993
and 1994 are not shown since no oil and gas properties were owned prior to the
current year. Results reported for 1995 do no include an allocation of corporate
overhead. Interest expense is excluded from the results reported below.
YEAR ENDED OCTOBER 31, 1995
Revenues from net production
Sales 191,813
Transfers -
Total 191,813
Production expenses (75,026)
Proved producing properties depreciation,
depletion and abandonment provision (122,824)
Exploration expenses -
Unproved properties valuation- -
Results before income taxes (6,037)
Income tax expense -
RESULTS OF PRODUCING OPERATIONS $(6,037)
YEAR ENDED OCTOBER 31, 1994 Not Applicable
YEAR ENDED OCTOBER 31, 1993 Not Applicable
TABLE III - RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
- - -Continued
PER-UNIT AVERAGE SALES PRICE
AND PRODUCTION COST
YEAR ENDED OCTOBER 31, 1995 Average sales prices
Liquids, per barrel $17.13
Natural gas, per thousand cubic feet 1.62
Average production costs, per barrel (1) 4.07
YEAR ENDED OCTOBER 31, 1994 Average sales prices
Liquids, per barrel -
Natural gas, per thousand cubic feet -
Average production costs, per barrel -
YEAR ENDED OCTOBER 31, 1993 Average sales prices
Liquids, per barrel -
Natural gas, per thousand cubic feet -
Average production costs, per barrel -
Average sales price for liquids ($/Bbl)
OCTOBER 1995 $17.13
October 1994 -
October 1993 -
Average sales price for natural gas ($/MCF)
OCTOBER 1995 $1.62
October 1994 -
October 1993 -
(1) Natural gas converted to crude oil equivalent gas barrels at a rate of
6 MCF per barrel.
F-43
<PAGE>
TABLE IV - RESERVE QUANTITIES INFORMATION
The company's estimated net proved underground oil and gas reserves and
changes thereto for the years 1995, 1994 and 1993 are shown in the following
table. Proved reserves are estimated by independent reservoir engineers. These
proved reserve estimates are reviewed annually by the corporation to ensure that
rigorous professional standards and the reserves definitions prescribed by the
Securities and Exchange Commission are consistently applied throughout the
company.
Proved reserves are the estimated quantities that geologic and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Due to
the inherent uncertainties and the limited nature of reservoir data, estimates
of underground reserves are subject to change over time as additional
information becomes available.
Proved reserves do not include additional quantities recoverable beyond the
term of the lease or contract unless renewal is reasonably certain, or that may
result from extensions of currently proved areas, or from application of
secondary or tertiary recovery processes not yet tested and determined to be
economic.
Proved developed reserves are the quantities expected to be recovered
through existing wells with existing equipment and operating methods.
"Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements and royalty obligations in effect at the time of the
estimate.
TABLE IV - RESERVE QUANTITIES INFORMATION - Continued
NET PROVED RESERVES OF CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
OIL GAS
RESERVES RESERVES
(BARRELS) (MCF)
RESERVES AT
NOVEMBER 1, 1992 Not Applicable
RESERVES AT
OCTOBER 31, 1993 Not Applicable
RESERVES AT
OCTOBER 31, 1994 Not Applicable Changes attributable to:
Revisions - -
Improved recovery - -
Extensions
and discoveries - -
Purchases(l) 3,030,119 31,493,546
Sales (2) - -
Production (1,760) (100,061)
RESERVES AT
OCTOBER 31, 1995 3,028,359 31,393,485
Developed reserves
At November 1, 1992 - -
At October 31, 1993 - -
At October 31, 1994 - -
AT OCTOBER 31, 1995 9,961,472 214,324
F-44
<PAGE>
TABLE V - STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED
TO PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows, related to
the above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved reserves
based on year-end cost indices, assuming continuation of year-end economic
conditions. Estimated future income taxes are assumed to be nonexistent due to
the amount of the net operating loss available and the going concern issues
outlined in Note 15. Discounted future net cash flows are calculated using 10
percent midperiod
TABLE V - STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED
TO PROVED OIL AND GAS RESERVES - Continued
discount factors. This discounting requires a year-by-year estimate of when
the future expenditures will be incurred and when the reserves will be produced.
The information provided does not represent management's estimate of the
companys expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as new
information becomes available. Moreover, probable and possible reserves, which
may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS 69 requires assumptions as to the
timing and amount of future development and production costs. The calculations
are made as of December 31 each year and should not be relied upon as an
indication of the company's future cash flows or value of its oil and gas
reserves.
AT OCTOBER 31, 1995
Future cash inflows from production ...............................$ 89,635,909
Future production and development costs ...........................(24,977,020)
Future income taxes ............................................... --
Undiscounted future net cash flows ..................................64,658,889
10 percent midyear annual discount for
timing of estimated cash flows ..................................(38,595,072)
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOW $26,063,817
AT OCTOBER 31, 1994 Not Applicable
AT OCTOBER 31, 1993 Not Applicable
F-45
<PAGE>
<TABLE>
<CAPTION>
TABLE VI - CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED RESERVES
<S> <C> <C> <C>
1995 1994 1993
PRESENT VALUE AT NOVEMBER 1 ........................................ -- -- --
Sales and transfers of oil and gas
produced, net of production costs .............................. $ (194,813) -- --
Development costs incurred ......................................... -- -- --
Purchases of reserves .............................................. 26,225,630 -- --
Sales of reserves .................................................. -- -- --
Extensions, discoveries and improved
recovery, less related costs .................................... -- -- --
Revisions of previous quantity estimates ............................ --
- -- --
Net changes in prices, development
and production costs ........................................... -- -- --
Accretion of discount ............................................... -- -- --
Net change in income tax ............................................ --
- -- --
Net change for the year ........................................... 26,063,817 -- --
PRESENT VALUE AT OCTOBER 31 ........................................ $ 26,063,817 -- --
</TABLE>
TABLE VI - CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS FROM PROVED RESERVES - Continued
The changes in present values between years, which can be significant,
reflect changes in estimated proved reserve quantities and prices and
assumptions used in forecasting production volumes and costs. Changes in the
timing of production are included with Revisions of previous quantity estimates
above.
F-46
EXHIBIT 10.1
ITEM 1,(3)
AGREEMENT FOR PURCHASE AND SALE OF STOCK BETWEEN PHOENIX
RESOURCES TECHNOLOGIES, INC. AND JAMES E. HUGHES, SR.
DATED August 12, 1996
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT FOR THE PURCHASE AND SALE OF STOCK (the
"Agreement") dated the 12th day of August 1996, is hereby Made and entered into
by and between PHOENIX RESOURCES TECHNOLOGIES, INC. (hereafter the "Seller") a
Nevada corporation, formerly known as HUGHES RESOURCES, INC., and JAMES E.
HUGHES, SR. (hereafter the "Buyer"), an individual, which parties covenant and
agree as follows:
WHEREAS, on January 31. 1996, the Seller executed and delivered to the
Buyer the Agreement for Purchase and Sale of Stock (the "Original Purchase
Agreement"), whereby the Seller agreed to sell and the Buyer agreed to purchase
one hundred percent (100%) of the outstanding capital stock, both common and
preferred (hereafter referred to as the "HWP Shares"), of Hughes Wood Products.
Inc. ("HWP"), and
WHEREAS, as a part of the Original Purchase Agreement, the Seller
agreed that if it was unable to (a) pay off and liquidate, within sixty (60)
days, the obligations and indebtedness to Agriculture Production Credit
Association ('AgPCA") and Community Bank ("Bank") (such indebtedness and
obligations to AgPCA and the Bank being hereafter referred to collectively as
the "HWP Indebtedness") on certain properties of HWP to be retained by the
Seller under the terms of the Original Purchase Agreement (hereafter the
"Retained Properties"), or (b) substitute collateral therefor within thirty (30)
days therefrom so as to release the remaining assets of HWP and the personal
guarantee of the Buyer from liability on the HWP Indebtedness, it would give up
any and all rights, title, and interest in and to the Retained Assets and in the
stock (the "HWI Shares") of Houston Woodtech. Inc ("HWI"), a Texas corporation
wholly owned by HWP, and title to such Retained Assets and the HWI Shares would,
without need for further action by the parties, vest in the Buyer, and
WHEREAS, despite the intent of the parties in the Original Purchase
Agreement to transfer and convey the Retained Assets to the Seller, no such
transfers, conveyances, assignments, or other disposition of such Retained
Assets was ever made or consummated, and
WHEREAS, the Seller failed to pay off or liquidate the HWP Indebtedness
and failed to substitute collateral therefor within the time required by, and in
accordance with, the terms and conditions of the Original Purchase Agreement,
and
WHEREAS, as a result thereof, the Buyer, in accordance with the terms
and conditions of the Original Purchase Agreement, took possession and control
of the Retained Assets and the HWJ Shares and has used the Retained Assets and
has operated and transacted business for and on behalf of HWP and HWI since that
time, and
WHEREAS, the parties now desire to (a) amend, modify, and ratify such
Original Purchase Agreement so as to more accurately and specifically
memorialize and reflect the terms, conditions, and provision of the agreements
of the parties and (b) acknowledge, confirm, and ratify the acts, conduct, and
decisions of the Buyer in connection with his use and management of the Retained
Assets, the operations of the business of HWP and HWI, and the transactions
related thereto.
NOW THEREFORE, in consideration of the mutual promises, covenants,
releases, and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
1
<PAGE>
parties, intending to be legally bound hereby do hereby covenant and agree as
follows:
1. Purchase and Sale of HWP Shares. Upon the terms and subject to the
conditions set forth in this
2. Agreement, and upon the representations and warranties made herein by
the Seller hereunder, the Seller, on the Closing Date (as such term is
hereinafter defined) hereby agrees to sell, assign, transfer and
deliver to Buyer, and Buyer will purchase and acquire from the Seller,
any and all of the issued and outstanding HWP Shares, both common and
preferred. The exact number of shares of the HWP Shares to being sold
by the Seller hereunder is One Thousand (1000) common shares, $1.00
par value per share, and Two (2) preferred shares, $1,000.00 par value
per share.
2 Purchase and Sale of HWI Shares. Upon the terms and subject to the
conditions set forth in this Agreement, and upon the representations and
warranties made herein by the Seller hereunder, the Seller, on the Closing Date
(as such term is hereinafter defined), hereby agrees to sell, assign, transfer
and deliver to Buyer, and Buyer will purchase and acquire from the Seller, any
and all of the issued and outstanding HWJ Shares, both common and preferred. The
exact number of shares of the HWI Shares to being sold by the Seller hereunder
is _________ common shares, $_____ par value per share
3 Purchase Price. Upon the terms and subject to the conditions set forth in
this Agreement, in reliance upon the representations, warranties, covenants and
agreements of the Seller contained herein, and in consideration for the sale,
conveyance, assignment, transfer and delivery of the HWP Shares and the HWJ
Shares, Buyer agrees to pay to the Seller an aggregate purchase price (the
"Purchase Price") as follows:
(a) Transfer of Oil Properties. The Buyer hereby agrees to sell, transfer,
assign, and convey to Seller any and all right, title, and interest in
and to the Forty-Nine (49) oil wells (hereafter referred to as the
"Oil Properties") located in West Virginia, which Oil Properties are
more specifically described in Exhibit "A" attached hereto, which
Exhibit is incorporated herein by reference for all purposes.
(b) Assumption of A~PCA Indebtedness. The Buyer hereby agrees to execute
and deliver to the Seller, at the closing, a liabilities undertaking
in the form of Exhibit "B" attached hereto, which Exhibit is hereby
incorporated by reference herein for all purposes, assuming and
agreeing to pay any and all obligations and indebtedness of HWP and/or
HWI owing to AgPCA (hereafter referred to as the "AgPCA Indebtedness")
In addition, the Seller hereby transfers, assigns, and conveys to the
Buyer any and all rights, title, and/or interest in and to any
privileges, benefits, or other rights associated with the AgPCA
Indebtedness In connection with the assumption of the AgPCA
Indebtedness, the Seller hereby agrees to execute and deliver any and
all agreements, assignments, assumptions, or other documents or
instruments which may be necessary to authorize and/or allow the
assumption of such obligations by the Buyer and to transfer to the
Buyer any rights and benefits appurtenant thereto.
(c) Buyer's Promissory Note. The Buyer hereby agrees to execute and
deliver to the Seller his non-negotiable promissory note (hereafter
the "Buyer's Note") in the aggregate principal amount of One Million
Dollars and No/100 (51.000.000 00), in the form attached hereto as
Exhibit "C", which Exhibit is hereby incorporated by reference herein
for all purposes Such Buyer's Note shall bear interest at the rate of
six percent (6%) per annum and shall specifically provide that such
Buyer's Note shall not be negotiable by the Seller and shall contain
specific provisions that neither the Buyer nor any officer, director,
or shareholder of HWP or HWI shall have any individual or personal
2
<PAGE>
liability or obligation for the repayment of the indebtedness due
under such Note, and that the sole remedy for the payment and
enforcement of the Buyer's Note shall be to foreclose the Seller's
security interest in the collateral pledged to the Seller under the
terms of the Security Agreement described below Such Buyer's Note
shall not be assignable or transferable to any third party without the
prior written consent of the Buyer.
(d) Security Agreement; Collateral for Buyer's Note. In order to secure
the payment of the Buyer's Note, the Buyer hereby agrees to execute
and deliver to the Seller his Security Agreement for Pledge of
Instrument and Pledge Agreement (the "Security Agreement") granting to
the Seller a security interest in and pledging such property as the
parties shall hereafter, by separate agreement, mutually agree. Such
Security Agreement shall provide that neither the Buyer nor any
officer, director, or shareholder of HWP or HWJ shall have any
individual or personal liability or obligations under the Security
Agreement, and that the sole remedy for the payment and enforcement of
the Buyer's Note shall be to foreclose the Seller's security interest
in the collateral pledged to the Seller under the terms thereof.
Further such Security Agreement shall provide that the Seller, as the
secured party thereunder, will not at any time bring any action, suit,
or proceeding against the Buyer, HWP, HWI, or any of the officers,
directors, or shareholders thereof, to recover a money judgment for
any sum due under the terms of the Buyer's Note. In addition such
Security Agreement shall provide that the Seller hereby waives any
right to any deficiency judgment on said Buyer's Note and agrees to
look solely to the collateral for the satisfaction of any and all
claims asserted in connection with the payment or enforcement of the
Buyer's Note
(c) Delivery of Stock Certificates. At Closing, the Seller hereby agrees
to deliver to the Buyer any and all certificates evidencing the exact
number of the HWP Shares and the HWI Shares owned by the Seller or
HWP, but not less than one hundred percent (100%) of such outstanding
shares, such HWP Shares and HWI Shares shall be in a form ready for
transfer and duly endorsed to the Buyer. In addition, the Seller, at
the Closing, and from time to time thereafter as may be required,
hereby agrees to execute and deliver to the Buyer such other stock
powers, agreements. Documents, and instruments, and take such other
actions, as the Buyer, in his discretion, may deem necessary, in order
to more fully vest in the Buyer and perfect his title to (a) any and
all right, title, and interest in and to One Hundred Percent (100%) of
the HWP Shares and the HWI Shares and (b) any and all other right,
title, and interest, or claim or demand of any kind which the Seller
may have in. to, or upon any of the properties, assets, or business of
HWP and HWI. In the event that the Seller are unable to locate or
deliver the certificate or certificates representing the HWP Shares
and the HWI Shares, then the Seller hereby agrees to execute and
deliver to HWP, HWJ, and/or the Buyer, such affidavit(s) of lost
certificates as may be necessary to authorize and allow the boards of
directors of HWP and HWI to cancel any lost certificates and authorize
the reissuance thereof in accordance with the terms, conditions, and
provisions of this Agreement.
4 Closing. The closing of the purchase and sale of the HWP Shares and the
HWI Shares provided herein (the "Closing") will be on August 12. 1996. Such date
and time of Closing is herein referred to as the "Closing Date". The parties
hereby agree that the effective date of the transactions evidenced by this
Agreement shall will be April 30, 1996 (the "Effective Date").
5. Representations and Warranties of Seller and Joining Parties. The Seller
hereby represents and warrants to Buyer as follows
3
<PAGE>
(a) Existence. Good Standing; Corporate Authority; Compliance With Law.
The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation. The
Seller, HWP and HWI are duly licensed or qualified to do business as
foreign corporations and are in good standing under the laws of any
other jurisdiction in which the character of the property owned or
leased by them therein or in which the transaction of their business
makes such qualification necessary. The Seller, HWP, and HWI have all
requisite corporate power and authority to own their property and
carry on their business as now conducted. The Seller, HWP and HWI are
not in default with respect to any order of any court, governmental
authority or arbitration board or tribunal to which they are a party
or is subject, and the Seller, HWP, and HWI are not in violation of
any laws, ordinances, governmental rules or regulations to which they
are subject. The Seller, HWP, and HWI have obtained all licenses,
permits and other authorizations and have taken all action required by
applicable law or governmental regulation in connection with their
business as now conducted.
(b) Capitalization. HWP has authorized capital stock consisting solely of
Two Hundred Thousand (200,000) shares of common stock, $1.00 par value
per share, of which One Thousand (1,000) shares and no more are
presently issued and outstanding. HWI has authorized capital stock
consisting solely of ____ shares of common stock, $ par value per
share, of which ____________ shares and no more are presently issued
and outstanding Except for rights granted pursuant to this Agreement,
there are no outstanding rights, warrants, options, subscriptions,
agreements or commitments giving any one any right to require HWP or
HWI to sell or issue any capital stock or other securities.
(c) Jurisdictions. Schedule 5(c) contains a list of all jurisdictions in
which the HWP and HWI are presently licensed or qualified to do
business. The Seller. HWP and HWI have complied in all material
respects with all applicable laws of each such jurisdiction and all
applicable rules and regulations of each regulatory agency therein.
HWP and HWJ have not been denied admission to conduct any type of
business in any jurisdiction in which they are not presently admitted
as set forth in such Schedule 5(c), have not had their license or
qualification to conduct business in any jurisdiction revoked or
suspended and has not been involved in any proceeding to revoke or
suspend a license or qualification.
(d) Records. The corporate minute books of HWP and HWJ shall be delivered
to Buyer at the Closing and will contain true and complete copies of
the articles of incorporation and by-laws, as amended to the Closing
Date, the minutes of all meetings of directors and shareholders and
certificates reflecting all actions taken by the directors or
shareholders without a meeting from the date of incorporation of HWP
and HWI to the Closing Date.
(e) Officers and Directors, Bank Accounts; Powers of Attorney; Insurance.
The officers and directors of HWP and HWI are as set forth in Schedule
5(e)-i Schedule 5(e)-2 sets forth (I) the name of each bank, savings
institution or other person with which HWP and/or HWI had or has an
account or safe deposit box and the names and identification of all
persons authorized to draw thereon or to have access thereto, (ii) the
names of all persons, if any, holding powers of attorney from the
Seller (with respect to the business or operations of HWP or HWI),
HWP, and/or HWJ and a summary statement of the terms thereof, and
(iii) a list of all insurance policies owned by HWP and/or HWI,
together with a brief statement of the coverage thereof.
(f) Financial Statements. The financial statements and books and records
of HWP and HWI fully and fairly set forth the financial condition and
4
<PAGE>
operations of HWP and HWI as of the dates indicated therein, and the
results of HWP's and HWI's operations for the periods indicated, and
have been prepared in accordance with generally accepted accounting
principles consistently applied, except as otherwise stated therein.
Undisclosed Liabilities. HWP and HWI do not have any liabilities or
obligations whatsoever, either accrued, absolute, contingent or
otherwise, which are not reflected or provided for in its financial
statements except those specifically described in the Schedules hereto
(g) Absence of Certain Changes or Events. Prior to the Effective Date
hereof, HWP and HWI have not.
(1) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the
ordinary course of business and consistent with past practice,
none of which is materially adverse, and except in connection
with this Agreement and the transactions contemplated hereby;
(2) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or
contingent), other than in the ordinary course of business and
consistent with past practice;
(3) mortgaged, pledged or subjected to any lien, security interest or
other encumbrance any of its assets or properties (other than
mechanic's. materialman's and similar statutory liens arising in
the ordinary course of business and purchase money security
interests arising as a matter of law between the date of delivery
and payment);
(4) transferred, leased or otherwise disposed of any of their assets
or properties except for a fair consideration in the ordinary
course of business and consistent with past practice or, except
in the ordinary course of business and consistent with past
practice, acquired any assets or properties;
(5) canceled or compromised any debt or claim, except in the ordinary
course of business and consistent with past practice.
(6) waived or released any rights of material value;
(7) transferred or granted any rights under any concessions, leases,
licenses, agreements, patents, inventions, trademarks, trade
names, service marks or copyrights or with respect to any
know-how;
(8) made or granted any wage or salary increase applicable to any
group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into
any material transaction of any other nature with, any officer or
employee.
(9) entered into any transaction, contract or commitment not in the
ordinary course of business and this Agreement and the
transactions contemplated hereby;
5
<PAGE>
(10) suffered any casualty loss or damage (whether or not such Toss or
damage shall have been covered by insurance) which affects in any
material respect its ability to conduct business; or
(11) declared any dividends or bonuses, or authorized or affected any
amendment or restatement of its articles of incorporation or
by-laws or taken any steps looking toward dissolution or
liquidation
Between the date of this Agreement and the Closing Date, the
Seller will not do or attempt to do, on behalf of HWP and/or HWI,
any of the things listed in subparagraphs (1) through (11) above
(h) Taxes. HWP and HWI have (I) duly and timely filed or caused to be
filed all federal, state, local and foreign tax returns
(including, without limitation, consolidated and/or combined tax
returns) required to be filed by it prior to the date of this
Agreement which relate to their business or with respect to which
HWP or HWI, or their assets or properties, are liable or
otherwise in any way subject, (ii) paid or fully accrued for all
taxes shown to be due and payable on such returns (which taxes
are all the taxes due and payable under the laws and regulations
pursuant to which such returns were filed), and
(i) properly accrued for all such taxes accrued in respect of HWP
and/or HWI or the assets and properties of thereof for periods
subsequent to the periods covered by such returns. No deficiency
in payment of taxes for any period has been asserted by any
taxing body and remains unsettled at the date of this Agreement.
Copies of all federal and state income (or franchise) tax returns
of HWP and HWI have been made available for inspection by Buyer..
(j) Title to Shares. The HWP Shares and the HWI Shares are duly
authorized, validly issued, fully paid and nonassessable and are
owned by the Seller free and clear of all liens, encumbrances,
Charges, assessments and adverse claims. The HWP Shares and the
HWI Shares are subject to no restrictions with respect to
transferability to Buyer in accordance with the terms of this
Agreement. Upon transfer of the HWP Shares and the HWI Shares by
the Seller, the Buyer will. as a result, receive good and
marketable title to all of such Shares, free and clear of all
liens, encumbrances, charges, assessments, restrictions and
adverse claims
(k) Title to Property and Assets. HWP and HWI have good and
marketable title to all of the properties and assets used by them
in the conduct of their business (including, without limitation.
the properties and assets reflected in its balance sheets except
an>' thereof since disposed of for value in the ordinary course
of business), and none of such properties or assets is, except as
disclosed in said balance sheets or the Schedules hereto, subject
to a contract of sale not in the ordinary course of business or
to security interests, mortgages, encumbrances, liens or charges
of any kind or character.
(l) Real Estate. Schedule 5(1) contains a list of all real property
owned by HWP and HWJ or in which HWP or HWI have a leasehold or
other interest and of any lien, charge or encumbrance thereupon.
Such Schedule also contains a description identifying all such
real property and the significant rental terms (including rents,
termination dates and renewal conditions). The improvements upon
such properties and use thereof by HWP or HWI conform to all
applicable lease restrictions zoning and other local ordinances
(m) List of Contracts and Other Data. Schedule 5(m) sets forth the
following
6
<PAGE>
(1) (I) all computer software, patents and registrations for
trademarks, trade names, service marks and copyrights which
are unexpired as of the date hereof and are used in
connection with the operation of HWP's and HWI's business,
all applications pending on said date for patents or for
trademark, trade name, service mark or copyright
registrations, and all other proprietary rights, owned or
held by HWP or HWI and which are reasonably necessary to. or
primarily used in connection with, their business, and (ii)
all licenses granted by or to HWP or HWI and any and all
other agreements to which they are a party and which relate,
in whole or in part, to any items of the categories
mentioned in (I) above or to other proprietary rights which
are reasonably necessary to, or used in connection with,
HWP's and HWI's business;
(2) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus
plans. profit-sharing plans, deferred compensation
agreements, employee pension or retirement plans, employee
stock purchase and stock option plans, group life insurance,
hospitalization insurance or other plans or arrangements
providing for benefits to employees of HWP and/or HWI;
(3) All contracts, understandings and commitments (including.
without limitation. mortgages, indentures and loan
agreements) to which either HWP or HWI is a party, or to
which HWP or HWJ or any of their assets or properties is
subject, and which are not specifically referred to above;
(4) The names and current annual compensation rates of all
employees of HWP and HWI; and
(5) All customer backlog which is represented by firm purchase
orders, identifying the customers, products and purchase
prices
True and complete copies of all documents and complete
descriptions of all oral understandings, if any, referred to
above have been provided or made available to Buyer and its
counsel
(n) No Breach or Default. Neither HWP nor HWJ is in default under any
contract to which it is a party or by which it is bound, nor has any
event occurred which, after the giving of notice or the passage of
time or both, would constitute a default under any such contract. The
Seller has no reason to believe that the parties to such contracts
will not fulfill their obligations under such contracts in all
material respects or are threatened with insolvency.
(0) Labor Controversies. Neither HWP nor HWI is a party to any collective
bargaining agreement. There are not any controversies between HWP or
HWJ and any of their employees which might reasonably be expected to
materially adversely affect the conduct of their business, or any
unresolved labor union grievances or unfair labor practice or labor
arbitration proceedings pending or, to the knowledge of the Seller,
threatened relating to HWP's and HWI's business and, to the knowledge
of the Seller, there are not any organizational efforts presently
being made or threatened involving any of HWP's or HWI's employees.
Neither the Seller, HWP, nor HWI have received notice of any claim
that HWP or HWI have not complied with any laws relating to the
employment of labor, including any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security
and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that HWP and/or HWI may be
7
<PAGE>
liable for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing.
(p) Litigation. Except as set forth in Schedule 5(p), there are no
actions, suits or proceedings with respect to HWP or HWI involving
claims by or against such entitles pending or, to the knowledge of the
Seller, threatened against HWP and HWI, at law or in equity, or before
or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality. To the knowledge
of the Seller, no basis for any action, suit or proceeding exists, and
there are no orders, judgments, injunctions or decrees of any court or
governmental agency with respect to which HWP or HWI have been named
or is a party which apply, in whole or in part, to the business of HWP
or HWI, the assets or properties thereof, or the HWP Shares or the HWI
Shares, or which would result in any material adverse change in the
business or prospects of HWP or HWI.
(q) ERISA. Neither HWP nor HWJ has engaged in any transaction with respect
to any employee benefit plan (a "Plan" as defined in Section 3(3) of
ERIS, maintained by HWP or HWJ in connection with which it could be
subjected to either a civil penalty assessed pursuant to Section
502(I) of ERISA or a tax imposed by Section 4975 of the Internal
Revenue Code of 1986, as amended. No material liability to the Pension
Benefit Guaranty Corporation (the "PBGC"), other than annual premium
payments, has been or is expected by the Seller to be incurred b>' HWP
or HWI with respect to any Plan. There has been no reportable event
(within the meaning of Section 4043(b) of ERISA), which at the time of
such event required notification within thirty (30) days to the PBGC,
with respect to any Plan. There has been no other reportable event
with respect to any Plan which could result in a material liability to
Buyer or HWP or HWI as a result thereof. There has been no event or
condition which presents a material risk of termination of any such
Plan by the PBGC. Neither HWP nor HWI is now, nor has ever been, under
any obligation to make any payments or contributions to any
Multi-employer Plan (as that term is used under Section 3(37) of
ERISA, and such entities do not have any accrued liability under
Section 4201 of ERISA for any complete or partial withdrawal from a
Multi-employer Plan. Full payment has been made of all amounts which
HWP or HWI is required under the terms of each Plan to have paid as
contributions to such Plan as of the last day of the most recent
fiscal year of such Plan ended prior to the date hereof, and no
accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Internal Revenue Code of 1986, as amended), whether
or not waived, exists. Schedule 5(q) also contains a complete and
accurate list of each employee benefit plan and related trust subject
to ERISA to which HWP or HWI is a party or contributes. Each such Plan
and related trust complies in all material respects in form and
operation with the requirements of ERISA and any other applicable
statutes, orders, governmental rules and regulations. All reports and
other filings with respect to such Plans required by statute or
regulation have been filed. HWP and HWI do not now have, nor have they
ever previously formed, maintained or terminated, a defined benefit
plan HWP and HWI do not have a defined contribution plan (purchase
money or target benefit) for which there is an accrued benefit.
(r) No Brokers. Neither the Sellers, HWP, nor HWI has entered into any
contract, arrangement or understanding with any person or firm which
may result in the obligation of Buyer. HWP. and HWI to pay any
finder's fees, brokerage or agent's commissions or other like payments
8
<PAGE>
in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, and the Seller
is aware of any claim or basis for any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
(s) Validity and Effect of Agreements. This Agreement constitutes, and all
agreements and documents contemplated hereby when executed and
delivered pursuant hereto for value received will constitute, the
valid and legally binding obligations of the Seller enforceable in
accordance with their terms, subject as to enforcement to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles. The consummation of the transactions contemplated hereby
does not require the consent of any third party not obtained, will not
result in the material breach of any term or provision of, or
constitute a default under, any order, judgment, injunction, decree,
indenture, mortgage, lease, lien, other agreement or instrument to
which the Seller, HWP, or HWJ is a party or by which any of them is
bound, and will not violate or conflict with any provision of the
by-laws or articles of incorporation of the Seller, HWP. or HWI.
(t) No Misrepresentation or Omission. No representation or warranty by the
Seller as set forth herein or in any other paragraph or provision of
this Agreement, or in any certificate or other document furnished or
to be furnished by the Seller pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit
to state a material fact necessary to make the statements contained
therein not misleading or will omit to state a material fact necessary
in order to provide Buyer with accurate information as to HWP and HWI.
6. Representations and Warranties of Buyer. The Buyer hereby represents and
warrants to the Seller as follows;
(a) Authority. Buyer has all requisite power and authority to enter into
this Agreement and to take all actions required by this Agreement.
(b) Validity and Effect of Agreements. This Agreement constitutes, and all
agreements and documents contemplated hereby when executed and
delivered pursuant hereto for value received will constitute, the
valid and legally binding obligations of the Buyer, enforceable in
accordance with their terms, subject as to enforcement to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles. The consummation of the transactions contemplated hereby
does not require the consent of any third party not obtained, will not
result in the material breach of any term or provision of, or
constitute a default under, any order, judgment, injunction, decree,
indenture,. Mortgage, lease, lien, other agreement or instrument to
which Buyer is a party or b> which he is bound.
7 Indemnification by Seller
(a) Upon the terms set forth herein, and with respect to any act,
event, incident, occurrence or claim which occurred prior to the date hereof,
the Seller hereby covenants and agrees to indemnify and hold the Buyer, HWP, and
HWI harmless against, and will reimburse said parties (or HWP or HWI at Buyer's
request) on demand for any claim, payment, loss, cost, damage, injury, harm, or
expense (including attorneys fees and reasonable costs of investigation incurred
9
<PAGE>
in defending against such claim) made or incurred by Buyer. HWP, or HWI at any
time after the Closing Date, including any aforementioned claim that results
from any omission, misrepresentation, breach of warranty, or nonfulfillment of
any term, provision, covenant or agreement on the part of the Seller contained
in this Agreement, or from any misrepresentation in, or omission from, any
agreement, document, certificate or other instrument furnished or to be
furnished to Buyer pursuant to this Agreement.
(b) Conditions of Indemnification. With respect to any actual or
potential claim, any written demand, the commencement of any action, or the
occurrence of any other event which involves any matter or related series of
matters (a "Claim") against which a party hereto is indemnified (the
"Indemnified Party") by the other party (the "Indemnifying Party") under the
provisions hereof;
(1) Promptly after the Indemnified Party first receives written
documents pertaining to the Claim, or if such Claim does not
involve a third party Claim, promptly after the Indemnified
Party first has actual knowledge of such Claim, the
Indemnified Party shall give notice to the Indemnifying Party
of such Claim in reasonable detail and stating the amount
involved, if known, together with copies of any such written
documents. The Indemnifying Party shall have Ten (10) days
from the personal delivery or mailing of the Claim notice (the
"Notice Period") to notify the indemnified Party (I) whether
or not it disputes its liability to the Indemnified Party
hereunder with respect to such Claim, and (ii) notwithstanding
any such dispute, whether or not it desires, at its sole cost
and expense, to defend the Indemnified Party against such
Claim.
(2) If the Indemnifying Party disputes its liability with respect
to such Claim or the amount thereof (whether or not the
Indemnifying Party desires to defend the Indemnified Party
against such Claim as provided below), such dispute shall be
resolved in accordance with subparagraph (7) below. Pending
the resolution of any dispute by the Indemnifying Party of its
liability with respect to any Claim, such Claim shall not be
settled without the prior written consent of the Indemnified
Party
(3) If the Indemnifying Party desires to defend the Indemnified
Party against the Claim, then the Indemnifying Party shall
have the right, at its sole cost, expense and ultimate
liability regardless of the outcome, and through counsel of
its choice, to litigate, defend, settle or otherwise attempt
to resolve such Claim, except that the Indemnified Party may
elect, at any time and at the Indemnified Party's sole cost,
expense and ultimate liability, regardless of the outcome, and
through counsel of its choice, to litigate, defend. settle or
otherwise attempt to resolve such Claim. If the Indemnified
Party so elects (for reasons other than the Indemnifying
Party's failure or refusal to provide a defense to such
Claim), then the Indemnifying Party shall have no obligation
to indemnify the Indemnified Party with respect to such Claim,
but such disposition will be without prejudice to any other
right the Indemnified Party may have to indemnification under
subparagraph (2) or (3) above, regardless of the outcome of
such Claim. In any event, Buyer and the Seller shall fully
cooperate with each other and their respective counsel in
connection with any such litigation, defense, settlement or
other attempted resolution.
(4) If the Indemnifying Party elects not to defend the Indemnified
Party against such Claim, whether by not giving the
Indemnified Party timely notice as provided above or
otherwise, then the amount of any such Claim or, if the same
be defended by the Indemnifying Party, then that portion
thereof as to which such defense is unsuccessful, in each
case, shall be conclusively deemed to be a liability of the
Indemnifying Party hereunder, unless the Indemnifying Party
shall have disputed its liability to the Indemnified Party
hereunder as provided above, in which event such dispute shall
be resolved as provided in subparagraph (7) below.
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(5) In the event an Indemnified Party should have a Claim against
the Indemnifying Party hereunder that does not involve a Claim
being asserted against or sought to be collected from it by a
third party, the Indemnified Party shall promptly send a
notice with respect to such Claim to the Indemnifying Party.
If the Indemnifying Party disputes its liability with respect
to such Claim, such dispute shall be resolved in accordance
with subparagraph (7) hereof, if the Indemnifying Party does
not notify the Indemnified Party within the Notice Period that
it disputes such Claim, the amount of such Claim shall be
conclusively deemed a liability of the Indemnifying Party
hereunder.
(6) Upon the determination of the liability for indemnification as
provided herein, the appropriate party shall pay to the other,
as the case may be, within Ten (10) days after such
determination, the amount of any claim for indemnification
made hereunder. In the event that the Indemnified Party is not
paid in full for any such claim pursuant to the foregoing
provisions promptly after the other party's obligation to
indemnify has been determined in accordance herewith, it shall
have the right, notwithstanding any other rights that it may
have against any other person or corporation, to setoff the
unpaid amount of any such Claim against any amounts owed by it
under this Agreement or any other agreements entered into
pursuant to this Agreement. Upon the payment in full of any
claim, either by setoff or otherwise, the entity making
payment shall be subrogated to the rights of the Indemnified
Party against any person, firm or corporation with respect to
the subject matter of such Claim
(7) All disputes under this Paragraph 7(b)(7) shall be settled by
arbitration in Dallas, Texas, pursuant to the Commercial
Arbitration Rules of the American Arbitration Association.
Arbitration may be commenced at any time by any party hereto
giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this
subparagraph (7). Within Ten (10) days after the date of that
written notice initiating arbitration, the Buyer and the
Seller shall have each selected a single arbitrator and
notified the other of the identity of their selections. The
two selected arbitrators shall together select the third
arbitrator within the next ten-day period. Any award rendered
by the arbitrators shall be conclusive and binding upon the
parties hereto; provided, however, that any such award shall
be accompanied by a written opinion of the arbitrators giving
the reasons for the award This provision for arbitration shall
be specifically enforceable by the parties and the decision of
the arbitrators in accordance herewith shall be final and
binding and there shall be no right to appeal therefrom Each
party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared; provided,
however, that if in the opinion of the arbitrators any claim
for indemnification or any defense or objection thereto was
unreason-able, the arbitrators may assess, as part of his
award, all or any part of the arbitration expenses of the
other party (including reasonable attorneys' fees and fees of
the arbitrators) against the party raising such unreasonable
claim defense or objection.
(8) To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at
the time of such dispute mutually agree to submit such dispute
to arbitration, any party may commence a civil action in a
court of appropriate jurisdiction to solve disputes hereunder.
Nothing contained in this subparagraph (8) shall prevent the
parties from settling any dispute by mutual agreement at any
time
(9) The indemnification rights of the parties hereunder are
independent of and in addition to such rights and remedies as
the parties may have at law or in equity or otherwise for any
misrepresentation breach of warranty or failure to fulfill any
11
<PAGE>
agreement or covenant hereunder on the part of any party
hereto including without limitation the right to seek specific
performance rescission or restitution none of which rights or
remedies shall be affected or diminished hereby.
8. Releases by Buyer. In consideration for the promises payments covenants
and agreements set forth herein, the Buyer for himself and for and on behalf of
his employees agents, accountants, attorneys heirs, estates, legal
representatives, heirs, estates, and assigns, either individually, singularly or
jointly, whether named herein or not, do hereby forever release, acquit and
discharge the Seller and its employees, officers, directors, shareholders,
agents, assigns, insurers, bonding companies, affiliates, subsidiaries, parent
companies, legal representatives, accountants, and attorneys, either
individually, singularly or jointly, whether named herein or not, all and each
of them, of and from, without limitation, any and all actions or causes of
action, claims, demands, debts, damages, expenses, compensation, attorneys fees,
loss or detriment of any character whatsoever whether past, present or future,
whether known or unknown, in contract or tort, statutory or at common law,
arising out of the Original Purchase Agreement, any previous transaction between
the parties for the purchase and/or sale of the HWP Shares, the HWI Shares, and
other transactions relating thereto, occurring or existing at an>' time prior to
the effective date of this Agreement, which were or might have been asserted by
any of them in any claim or action, based upon any act, event, omission or
relationship by or between such parties, whether or not the same has actually
been sued upon, asserted, or alleged.
9. Releases by Seller. In consideration for the promises, payments,
covenants, and agreements set forth herein, the Seller, for itself, and for and
on behalf of any and all of its officers, directors, shareholders, agents.
assigns, insurers, bonding companies, affiliates, Subsidiaries, parent
companies, legal representatives. accountants. and attorneys, either
individually, singularly or jointly, whether named herein or not, do hereby
forever release. acquit and discharge the Buyer. HWP, HWI, and any and all of
their respective officers, directors, shareholders, agents, insurers, bonding
companies, affiliates, subsidiaries, parent companies, attorneys, accountants,
estates, legal representatives, heirs, estates, and assigns, either
individually, singularly or jointly, whether named herein or not, and hereby
agree to indemnify and hold them harmless, all and each of them, of and from,
without limitation, any and all actions or causes of action, claims, demands,
debts, damages, expenses, compensation, attorneys fees, loss or detriment of any
character whatsoever whether past, present or future, whether known or unknown,
in contract or tort, statutory or at common law, arising out of the Original
Purchase Agreement, any' previous transaction between the parties for the
purchase and/or sale of the HWP Shares the HWJ Shares, and other transactions
relating thereto, occurring or existing at any time prior to the effective date
of this Agreement, which were or might have been asserted by any of them in any
claim or action, based upon any act, event, omission or relationship by or
between such parties, whether or not the same has actually been sued upon,
asserted, or alleged.
10. Survival of Obligations. Notwithstanding the provisions of Paragraphs 8
and 9 above, nothing contained herein shall be interpreted or construed to
release, discharge, and/or otherwise affect the duties, Obligations, agreements,
promises, Covenants, and/or liabilities of the Seller under this Agreement and
an y documents, instruments, or documents executed in connection herewith.
11. Taxes and Expenses. The Seller hereby covenants and agrees to assume
and pay all federal income taxes on the transfer to Buyer of the HWP Shares and
the HWI Shares hereunder. The Seller shall be responsible for and shall pay all
costs, liabilities and other obligations incurred by the Seller in connection
with the performance of and compliance with all transactions, agreements and
conditions contained in this Agreement to be performed or complied with by the
Seller, including legal and accounting fees.
12
<PAGE>
12. Buyer's Conditions of Closing. The obligation of Buyer to purchase the
HWP Shares and HWI Shares and to consummate the transactions hereunder shall be
subject to and conditioned upon the satisfaction at the Closing of each of the
following conditions;
(a) All representations and warranties of the Seller contained in this
Agreement and the Schedules hereto shall be true and correct at and as
of the Closing Date, the Seller shall have performed all agreements
and covenants and satisfied all conditions on their part to be
performed or satisfied by the Closing Date pursuant to the terms of
this Agreement, and Buyer shall have received a certificate of such
parties dated the Closing Date to such effect.
(b) The Seller shall have delivered to Buyer a Certificate of title
appropriate authority of the State of Nevada certifying as of a date
reasonably close to the Closing Date that the Seller has filed all
required reports, paid all required fees and taxes and is, as of such
date, in good standing and authorized to transact business as a
corporation;
(c) Ray and such other officers and directors of HWP and HWI as the Buyer
may require shall have delivered the written resignations, effective
on the Closing Date.
(d) The Seller shall have delivered to Buyer the certificates and other
instruments representing all of the HWP Shares and the HWI Shares,
duly endorsed for transfer or accompanied by appropriate stock powers
(in either case executed in blank or in favor of Buyer with the
execution thereof guaranteed by a bank or trust company), together
with all other documents necessary or appropriate to validly transfer
the HWP Shares and HWJ Shares to Buyer free and clear of all security
interests, Liens, encumbrances and adverse claims. In the event that
the HWP Shares and the HWI Shares cannot be found or located, the
Seller shall have executed and delivered any affidavits of lost
certificates as may be necessary for the issuance of new certificates.
(e) Any necessary approvals required under all loan agreements, indentures
or other debt documents of the Seller HWP, or HWI, and
(f) The Seller shall, at its own cost and expense, obtain a fairness
opinion from independent corporate counsel that the transactions
contemplated by this Agreement are fair to the Seller
13. Seller's Conditions of Closing. The obligations of the Seller to sell
the HWP Shares and HWI Shares and to consummate the transactions hereunder shall
be subject to and conditioned upon the satisfaction at the Closing of each of
the following conditions.
(a) All representations and warranties of Buyer contained in this
Agreement shall be true and correct at and as of the Closing Date and
Buyer shall have performed all agreements and covenants and satisfied
all conditions on its part to be performed or satisfied by the Closing
Date pursuant to the terms of this Agreement.
(b) The Buyer shall have effected payment of the Purchase Price and. in
connection therewith, shall have executed and delivered the Buyer's
Note and the Security Agreement to the Seller in the form attached
hereto as Exhibit
13
<PAGE>
(c) The Buyer shall have executed and delivered to the Seller the
Liabilities Undertaking in the form attached hereto as Exhibit "B".
14. Superseding Agreement. The parties hereby acknowledge and agree that
this Agreement has been prepared, executed and delivered in amendment and
modification of the Original Purchase Agreement and is intended by the parties
to be the controlling agreement as to the rights, duties, and responsibilities
of the parties regarding the transactions made the subject thereof. The parties
specifically acknowledge that they have negotiated the terms and condition of
this Agreement with the expectation that any revisions, changes, deletions or
additional terms that may be set forth herein are intended by the parties as
such and that, in the vent that any conflict arises in the construction or
interpretation of the terms and/or provisions of this Agreement and the Original
Purchase Agreement, this Agreement shall govern and control.
15. Cooperation. The Seller agrees to cooperate with and assist the Buyer
in consummating the terms and conditions of this Agreement. The parties further
hereby agrees to execute and deliver such instruments. Assignments, or other
documents as may be reasonably necessary to effectuate and/or evidence the terms
of this Agreement.
16. Voluntariness; Advice of Counsel. This Agreement is fully and
voluntarily entered into by the parties hereto, and each of them, on the advice
of their counsel and have not relied upon the advice and/or direction of any
other party, Each party hereto states that they have read this Agreement,
obtained advice of counsel, understands all of its terms, and executes it
voluntarily and of their own free will and accord with the full knowledge and
understanding of its legal significance and consequences.
17. Notification of Parties All notices requests, demands and other
communications provided for hereunder shall be sent or communicated in writing
by certified mail, return receipt requested, courier, telex or tested telex,
telegram or cable (confirmed, in the case of a telex, telegram or cable, by a
letter delivered personally or dispatched by first class mail within twenty-four
(24) hours of the dispatch of such telex, telegram or cable), or facsimile
transmission telephonically confirmed, shall be mailed or sent or delivered to
the parties at their last known address. Any party may, by notice as provided
above, designate in writing a different address for the sending of notices. Any
such notice shall be effective as of the date of receipt by the receiving party.
18. Terms Contractual. It is expressly understood and agreed by all parties
that the terms hereof are contractual and not merely recitals, and that the
agreements contained herein and the consideration transferred are for the
purposes described herein, and to compromise doubtful and disputed claims, avoid
litigation and buy peace.
19. Entire Agreement; Merger. This Agreement, together with any and all
documents. instruments and agreements which may be executed in connection
herewith, embodies the entire agreement and understanding among the parties
hereto and supersedes all prior negotiations, agreements and understandings
relating to the subject matter hereof There exists no other agreements or
understandings between the parties, explicit or implicit. with respect to the
subject matter hereof. Each party acknowledges that it has expressly bargained
for a prohibition of any implied or oral amendments or modifications of any
kind, nature or character. Each party acknowledges and agrees that this
Agreement is fully integrated and not in need of parole evidence in order to
reflect the intentions of the parties, and that the parties intend the literal
words of this Agreement to govern the transactions described herein, and for all
prior negotiations, drafts and other extraneous communications to have no
significance or evidentiary effect whatsoever.
14
<PAGE>
20. Survival. All of the terms, conditions, warranties and representations
contained in this Agreement shall survive, in accordance with their terms,
delivery by Buyer of the consideration to be given by it hereunder and delivery
by the Shareholders of the consideration to be given by them hereunder, and
shall survive the execution hereof and the Closing hereunder.
21. Benefit. Each of the parties to this Agreement understand and agree
that this Agreement shall be binding upon and inure to the benefit of the
parties hereto as well as their respective employees, officers, directors,
shareholders, agents, affiliates, subsidiaries, parent companies, legal
representatives, accountants, attorneys, heirs, estates, legal representatives,
and assigns.
22. Waiver. The failure of either party to insist in any one or more
instances upon performance of any term or condition of this Agreement or any
applicable contracts hereunder shall not be construed as a waiver of its future
performance or rights thereunder. The obligations of either party with respect
to such term, covenant, or condition shall continue in force and effect.
23. Modification of Agreement. The parties further acknowledge and agree
that no waiver, amendment, modification, supplement, termination or other change
to this Agreement shall be effective unless the same shall be in writing and
signed by the party against whom such waiver or other modification is sought to
be enforced.
24. Severability. In the event any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not in any
manner affect the remaining provisions hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provisions had never
been contained herein.
25. Governing Law. This Agreement and the other agreements executed in
connection herewith shall be enforced construed, and interpreted pursuant to the
laws of the State of Texas. This Agreement shall be performable by the parties
hereto in Newton County Texas.
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<PAGE>
26. Headings. Headings and captions are included solely for convenience of
reference and if there is any conflict between captions and the text of this
Agreement, the text shall control.
27. Counterparts. This Agreement may be executed in two (2) or more
counterparts each of which shall be deeme+d an original for all purposes but all
of which together shall constitute the same agreement.
28. Merger of Documents. This Agreement and all agreements and documents
contemplated hereby constitute one agreement and are interdependent upon each
other in all respects.
29. Incorporation of Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by this reference incorporated herein and made a part hereof
for all purposes as if fully set forth herein.
IN WITNESS WHEREOF the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set forth.
SELLER:
PHOENIX RESOURCES TECHNOLOGIES, INC.
By /s/ James R. Ray
-------------------
Name: James R. Ray
Title: President
BUYER:
/s/ James E. Hughes, Sr.
------------------------
James E. Hughes
16
EXHIBIT 10.1 (a)
ITEM 1.(3)
SECURITY AGREEMENT FOR PLEDGE OF INSTRUMENTS
<PAGE>
SECURITY AGREEMENT FOR PLEDGE OF INSTRUMENT
THIS SECURITY AGREENIENT FOR PLEDGE OF INSTRUMENT (hereafter the
"Agreement") is entered into effective as of the 12th day of August, 1996, by
JAMES E. HUGHES, SR. (hereafter referred to as the "Debtor"), an individual
residing in Newton County, Texas, in favor of PHOENIX RESOURCES TECHNOLOGIES,
INC. (hereafter referred to as the "Secured Party"), to wit:
WHEREAS, the Debtor is indebted to the Secured Parry in the amount of One
Million and NO/100 Dollars ($l,000,000.00) plus interest thereon pursuant to
that one Promissory Note (such note, together with any and all renewals,
extensions and/or rearrangements thereof is hereafter referred to as the "Note")
dated August 12, 1996, executed by the Debtor in connection with that one
certain Agreement for Purchase and Sale of Stock (the "Purchase Agreement")
between the Debtor and the Secured Parry dated August 12, 1996;
WHEREAS, the Debtor and the Secured Parry desire to have Debtor grant the
Secured Party a security interest in certain collateral as security for Debtor's
repayment of all Indebtedness to the Secured Party;
WHEREAS, the grant by Debtor to the Secured Parry of the security interests
in the collateral described below is a condition to the execution by the Secured
Parry of the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the panties hereto agree as follows.
1. Indebtedness Secured. The security interest granted hereby is to secure
the payment and performance of any and all indebtedness, obligations, and
liabilities incurred by the Debtor to the Secured Parry pursuant to the terms
and provisions of the Note (hereafter referred to as the "Indebtedness").
2. Security Interest. To secure the payment of the Indebtedness, the Debtor
hereby creates and grants to the Secured Parry a security interest in the
following collateral:
Renewal Promissory Note dated August 12, 1996 in the Original
Principal Amount of One Million and NO/100 Dollars ($1,O0O,OOO.OO)
from Southwest Holdings, Inc. to James E. Hughes, Sr.;
together with all moneys, payments, proceeds and benefits attributable or
accruing to such property including, but not limited to, all payment of
principal and accrued interest, and any other properties or benefits to which
the Debtor is or may hereafter become entitled to receive on account of such
property, and in the event that the Debtor shall receive any of such, the Debtor
shall hold the same as trustee for Secured Party and will immediately deliver
the same to Secured Party to be held hereunder in the same manner as the
1
<PAGE>
property specifically described above is held hereunder. All of the property in
which Secured Party is hereby granted a security interest shall herein sometimes
be called the "Collateral"
3. Warranty and Representation of Debtor. The Debtor hereby warrants,
covenants and agrees that (a) the Collateral is free and clear of any security
interest (other than the security interest herein granted), liens, restrictions
or encumbrances and the Debtor has the full right and power to transfer the
Collateral to the Secured Panty free and clear thereof and to enter into and
carry out this Agreement; (0) the Debtor will not sell or offer to sell or
otherwise transfer or encumber the Collateral or any interest therein without
the prior written consent of Secured Party; and (c) the security interest
granted hereby shall in no way be affected by any indulgence or indulgences,
extension or extensions, change or changes in the form, evidence, maturity, rate
of interest or otherwise of any of the Indebtedness, nor by want of presentment,
notice, protest, suit or indulgence upon any of the Indebtedness nor shall any
release of, or failure to perfect the security interest or lien in, any security
for or, of any of the parties liable for. the payment of the Indebtedness in any
manner affect or impair this pledge, and the same shall continue in full force
and effect in accordance with the terms hereof until the Indebtedness have been
fully satisfied.
4. Events of Default. The occurrence of any of the following events or
shall constitute an "Event of Default":
(a) Default in the payment or performance of any liability or obligation
of the Debtor to Secured Party including, without limitation, default
in the payment of the Indebtedness when due or declared due;
(0) The occurrence of any event or condition which constitutes an Event of
Default under the Note; or
(c) The levy of any attachment, execution, garnishment or other process
against all or any part of the Collateral in connection with any lien,
debt, judgment, assessment or obligation of the Debtor, or the levy of
any such process against any other property of Debtor which would tend
to have a material adverse effect upon the Debtor's ability to perform
its obligations to Secured Party.
5. Remedies of Secured Party
(a) Subject to the provision set forth in subparagraph (b) below, upon the
happening of any Event of Default specified herein, and at any time thereafter,
at the option of the holder thereof, all or any part of the Indebtedness shall
become immediately due and payable upon the failure of the Debtor, after thirty
(30) days written notice, to cure any Event of Default, and Secured Parry shall
have and may exercise with reference to the Collateral and Indebtedness any and
all of the rights and remedies of a secured party under the Uniform Commercial
Code as then in effect in the State of Texas, and as otherwise granted herein or
under any other applicable law or under any other agreements executed by the
2
<PAGE>
Debtor, all of which rights and remedies shall be cumulative. Any holder of the
Indebtedness may be the purchaser of all or any part of the Collateral so sold
at any public sale (or if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely distributed
standard price quotations, at any private sale and thereafter hold the same
absolutely, free from any right or claim or right of whatever kind. Upon any
such sale, Secured Party shall have the right to deliver, indorse, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely, free from any claim or
right of whatever kind. The Secured Party shall give the Debtor ten (1) days
written notice of its intention to make any such public or private sale. Such
notice, in the case of a public sale, shall state the time and place fixed for
such sale. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Secured Party may fix in
the notice of such sale. The Secured Party shall not be obligated to make any
such sale pursuant to any such notice. The Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by Secured Party
until the purchase price is paid by the purchaser thereof, but Secured Party
shall not incur any liability due to any failure of such purchaser to take up
and pay for the Collateral so sold and, upon such failure, such Collateral may
again be sold upon like notice.
b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREENIENT OR THE NOTE TO
THE CONTRARY, NEITHER THE MAKER NOR ANY OFFICER, DIRECTOR, OR SHAREHOLDER OF
HOUSTON WOOD PRODUCTS, INC. OR HOUSTON WOODTECH, INC. SHALL HAVE ANY INDIVIDUAL
OR PERSONAL OBLIGATION OR LIABILITY FOR REPAYNIENT OF ANY AMOUNTS DUE UNDER THE
TERMS OF THE NOTE. AS SUCH, THE HOLDERS OF THIS AGREENIENT AND THE NOTE HEREBY
AGREE THAT THEY WILL NOT AT ANY TIME BRING ANY ACTION, SUIT, OR PROCEEDING
AGAINST THE MAKER, OR ANY OF THE OFFICERS, DIRECTORS, AND/OR SHAREHOLDERS OF HWP
AND/OR HWI, TO RECOVER A MONEY JUDGMENT FOR ANY SUM DUE HEREUNDER; PROVIDED,
HOWEVER, THAT THE HOLDERS MAY BRING AN ACTION, IF NECESSARY, TO FORECLOSE OR
ENFORCE ANY SECURITY INTEREST OR LIEN UNDER THIS AGREEMENT. IN THE EVENT AN
ACTION IS BROUGHT TO FORECLOSE ANY SUCH SECURITY INTEREST OR LIEN, THE HOLDER OF
THE NOTE, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, BY THE ACCEPTANCE OF THE
RIGHTS UNDER THIS AGREEMENT AND THE NOTE, HEREBY WAIVES ANY RIGHT TO A
DEFICIENCY JUDGMENT AND AGREES TO LOOK SOLELY TO THE COLLATERAL FOR THE
SATISFACTION OF ANY AND ALL AMOUNTS DUE HEREUNDER OR ANY CLAIMS ASSERTED IN SUCH
FORECLOSURE OR ENFORCEMENT ACTION.
6. Waiver. No delay or omission on the part of either party in exercising
any rights hereunder shall operate as a waiver of any such right or any other
right. A waiver on any one or more occasions shall not be construed as a bar to
or waiver of any right or remedy on any future occasion.
3
<PAGE>
7. Compliance with Applicable Laws. It is the intention of the parties
hereto to comply with applicable usury Laws; accordingly, it is agreed that
notwithstanding any provision to the contrary in this Agreement, or in any of
the instruments or documents evidencing the Indebtedness or otherwise relating
thereto, no such provision shall require the payment or permit the collection of
interest in excess of the maximum permitted by such laws. If any excess of
interest in such respect is provided for or shall be adjudicated to be so
provided for, in this Security Agreement, or in any of the instruments or
documents evidencing the Indebtedness or otherwise relating thereto, then in
such event (1) the provisions of paragraph shall govern and control, (2) neither
Debtor nor its successors or assigns or any other party liable for the payment
of me Indebtedness, shall he obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount permitted by such laws, (3)
any such excess which may have been collected shall be, at the option of the
holder or holders of the Indebtedness, either applied as a credit against the
then unpaid principal amount thereof or refunded, as applicable, to the Maker
thereof or Debtor and (4) the effective rate of interest shall be automatically
subject to reduction to the maximum lawful rate allowed to be lawfully
contracted for under applicable usury laws as now or hereafter construed by the
courts having jurisdiction.
8. Cooperation. The parties hereby agree to cooperate with and assist each
other in consummating the terms and conditions of this Agreement. The parties
further hereby agree to execute and deliver such instruments, assignments, or
other documents as may be reasonably necessary to effectuate and/or evidence the
terms of this Agreement.
9. Voluntariness; Advice of Counsel. This Agreement is fully and
voluntarily entered into by the parties hereto, and each of them, on the advice
of their counsel and have not relied upon the advice and/or direction of any
other party. Each party hereto states that they have read this Agreement,
obtained advice of counsel, understands all of its terms, and executes it
voluntarily and of their own free will and accord with the full knowledge and
understanding of its legal significance and consequences.
10. Notification of Parties. All notices, requests, demands and other
communications provided for hereunder shall be sent or communicated in writing
by certified mail, return receipt requested, courier, telex or tested telex,
telegram or cable (confirmed, in the case of a telex, telegram or cable, by a
letter delivered personally or dispatched by first class mail within twenty-four
(24) hours of the dispatch of such telex, telegram or
4
<PAGE>
cable), or facsimile transmission telephonically confirmed, shall be mailed or
sent or delivered to the parties at their last known address. Any party may, by
notice as provided above, designate in writing a different address for the
sending of notices. Any such notice shall be effective as of the date of receipt
by the receiving party.
11. Entire Agreement: Merger. This Agreement, together with any and all
documents, instruments and agreements which may be executed in connection
herewith, embodies the entire agreement and understanding among the parties
hereto and supersedes all prior negotiations, agreements and understandings
relating to the subject matter hereof. There exists no other agreements or
understandings between the parties, explicit or implicit, with respect to the
subject matter hereof. Each party acknowledges that it has expressly bargained
for a prohibition of any implied or oral amendments or modifications of any
kind, nature or character. Each party acknowledges and agrees that this
Agreement is fully integrated and not in need of parol evidence in order to
reflect the intentions of the parties, and that the parties intend the literal
words of this Agreement to govern the transactions described herein, and for all
prior negotiations, drafts and other extraneous communications to have no
significance or evidentiary effect whatsoever.
12. Benefit. Each of the parties to this Agreement understand and agree
that this Agreement shall be binding upon and inure to the benefit of the
parties hereto as well as their respective employees, officers, directors
shareholders, agents, affiliates, subsidiaries, parent companies, legal
representatives, accountants, attorneys, heirs, estates, legal representatives,
and assigns.
13. Waiver. The failure of either party to insist in any one or more
instances upon performance of any term or condition of this Agreement or any
applicable contracts hereunder shall not be construed as a waiver of its future
performance or rights thereunder. The obligations of either parry with respect
to such term, covenant, or condition shall continue in force and effect.
14. Modification of Agreement. The parties further acknowledge and agree
that no waiver, amendment, modification, supplement, termination or other change
to this Agreement shall be effective unless the same shall be in writing and
signed by the party against whom such waiver or other modification is sought to
be enforced.
15. Severability. In the event any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not in any
manner affect the remaining provisions hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
5
<PAGE>
16. Merger of Documents. This Agreement and all agreements and documents
contemplated hereby constitute one agreement and are interdependent upon each
other in all respects.
17. Governing Law. This Agreement and the other agreements executed in
connection herewith shall be enforced, construed, and interpreted pursuant to
the laws of the State of Texas. This Agreement shall be performable in Newton
County, Texas.
18. Headings. Headings and captions are included solely for convenience of
reference and if there is any conflict between captions and the text of this
Agreement, the text shall control.
19. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original for all purposes, but
all of which together shall constitute the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year set forth above.
DEBTOR:
/s/ James E. Hughes, Sr.
------------------------
JAMES E. HUGHES, SR.
SECURED PARTY:
PHOENIX RESOURCES TECHNOLOGIES, INC.
By /s/ James R. Ray
- -------------------------
Name: James R. Ray
Title: President
6
<PAGE>
COUNTY OF {} RICHIE
STATE OF {} WEST VIRGINIA
ASSIGNMENT
This Agreement of Assignment is made the 31st day of January, 1996, by and
between James E. Hughes, an individual, and a resident of the State of Texas,
with offices at Newton Texas and Hughes Resources, Inc a Nevada Corporation,
with offices at 8283 N. Hayden suite 128, Scottsdale, AZ. 85258.
For in consideration of the mutual covenants and conditions stated herein and
the consideration, the sufficiency of such is hereby acknowledged and agreed to
by both Assignor and Assignee, they agree as follows:
The assignor hereby assigns, transfers and sets over to the assignee, all its
right, title and interest in the oil and as wells on attached Exhibit A, and all
equipment necessary to operate the w ells appurtenant thereto and the lease on
the Properties listed in attached Exhibit A and made a part hereof as though
fully set for the herein and subject only to the existing agreement of
operation.
Assignee has thirty days to Provide a proper and valid bond acceptable by the
State of West Virginia and transfer all wells listed in Exhibit "A" of this
agreement at the expense of the Assignee.
Executed and delivered as of the 31st day of January, 1996.
By /s/ James E. Hughes
----------------------
Assignor
By /s/ James R. Ray
----------------------
Assignee
7
<PAGE>
State of Texas
County of Newton
On the 31st day of January 1996, James E Hughes Sr. personally came before me
and, being duly sworn, did state that he is the person described in the above
document and that he signed the above document in my presence.
Notary Public, for the County of Newton
State of Texas /s/ La Juana Renfro
-------------------
My commission expires 7/2/97
------
(Seal)
State of Texas
County of Newton
On the 31st day of January 1996, James R. Ray personally came before me and
being duly sworn, did state that he is the person described in the above
document and that he signed the above document in my presence
Notary Public, for the county of Newton
State of Texas /s/ La Juana Renfro
My Commission expires 7/2/97
------
(Seal)
8
<PAGE>
Well Permit No.
- ---- ----------
Cunningham #1 85 5234
Hodge #1 85 5393
Byrd #1 85 5591
Corbin 85 5611
Gardner #1 85 5720
A Nichols #1 85 5735
A Pifer 85 5844
F Pifer #1 85 5845
S Bird #1 85 5902
Devereaux #1 85 5956
Wince #6 85 6114
Templeton #4 85 6150
Berdine #1 85 6238
Abicht 85 6281
Robertson 85 6309
Jonson 85 6367
Kibbee 85 6414
Fleming #1 85 6500
Russell 85 6538
Kibbee/Sanders 85 6552
Sohofield 85 6596
Robinson #1 85 6653
R. Greg #1 85 6720
Henthorne 85 6872
Carmichael 85 6928
R. Gregg #2 85 7122
Fleming #2 85 7131
Grayham 85 7228
Goodnight 85 7239
<PAGE>
COUNTY OF {} PLEASANT
STATE OF {} WEST VIRGINIA
ASSIGNMENT
This Agreement of Assignment is made the 3lst day of January, 1996, by and
between James E. Hughes, an individual, and a resident of the State of Texas,
with offices at Newton Texas and Hughes Resources, Inc a Nevada Corporation,
with offices at 8283 N. Hayden suite 128, Scottsdale, AZ. 85258.
For in consideration of the mutual covenants and conditions stated herein and
the consideration, the sufficiency of such is hereby acknowledged and agreed to
by both Assignor and Assignee, they agree as follows:
The assignor hereby assigns, transfers and sets over to the assignee, all its
right, title and interest in the oil and gas wells on attached Exhibit A, and
all equipment necessary to operate the wells appurtenant thereto and the lease
on the properties listed in at attached Exhibit A and made a part hereof as
though fully set for the herein and subject only to the existing agreement of
operation.
Assignee has thirty days to provide a proper and valid bond acceptable by the
State of West Virginia and transfer all wells listed in Exhibit 'A" of this
agreement at the expense of the Assignee.
Executed and delivered as of the 31st day of January, 1996.
By /s/ James E. Hughes
-------------------
Assignor
By /s/ James R. Ray
-------------------
Asignee
<PAGE>
State of Texas
County of Newton
On the 31st day of January 1996, James E. Hughes Sr. personally came before me
and, being duly sworn, did state that he is the person described in the above
document and that he signed the above document in my presence
Notary Public, for the count of Newton
State of Texas /s/ La Juana Renfro
My commission expires 7/2/97
(Seal)
<PAGE>
State of Texas
County of Newton
On the 31st day of January 1996, James R. R came before me and being duly sworn,
did state he is the person described in the above document and the above
document in my presence
Notary Public, for the County of Newton
State of Texas /s/ La Juana Renfro
My Commission expires 7/2/97
(Seal
<PAGE>
Exhibit A
Pleasants County
Well Permit No.
---- ---------
Powell #l 73 1260
Scadden #1 73 1298
Roby #1 73 1381
Varner #1 73 1384
Austin /Adams #1 73 1404
Austin /Adams #2 73 1405
H Nichols #1 73 1427
Peter #1 73 1449
Waugh #1 73 1467
Abicht #1 73 1481
Mullenix #1 73 1493
White #1 73 1501
Severns #1 73 1585
Severn #S-l 73 1714
Plum #5-i 73 1863
Severn #5-1 73 1869
Barnhant #S-l 73 1870
J Greggs #1 73 1872
Templeton #2 73 1878
Templeton ~3 73 1916
EXHIBIT 10.1(b)
ITEM 1,(3)
NON-NEGOTIABLE PROMISSORY NOTE
EXECUTED BY JAMES E. HUGHES, SR. FOR
$1,000,000 IN FAVOR OF PHOENIX RESOURCES TECHNOLOGIES, INC.
<PAGE>
$1,000,000.00 August 12, 1996
FOR VALUE RECEIVED, the undersigned JAMES E. HUGHES, SR. (hereafter
referred to as the "Maker"), an individual residing in Newton County, Texas,
promises to pay to the order of PHOENIX RESOURCES TECHNOLOGIES, INC. (hereafter
referred to as the "Payee"), a Nevada corporation, the sum of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00), together with interest on the principal hereof
from the date hereof until paid, at the rate of six percent (6%) per annum (but
in no event to exceed the maximum lawful rate of interest permitted by
applicable usury laws).
The principal of this Note and all accrued interest is and shall be due and
payable in a single installment on December 31,1996.
Maker may prepay this Note in whole or in part at any time without being
required to pay any penalty or premium for such privilege. Such prepayment shall
be accomplished by the delivery of written notice to the Payee of his intent to
deliver and indorse the collateral pledged as security for this Note to the
Payee in full and final satisfaction of this Note. All prepayments hereunder,
whether designated as payments of principal or interest, shall be applied first
to accrued and unpaid interest and then installments of principal in the inverse
order of their stated maturity.
Maker and any and all sureties, guarantors and endorsers of this Note and
all other parties now or hereafter liable hereon, severally waive grace, demand,
presentment for payment, protest, notice of any kind (including, but not limited
to, notice of protest, notice of intention to accelerate and notice of
acceleration) and diligence in collecting and bringing suit against any party
hereto, and agree (a) to all extensions and partial payments, with or without
notice, before or after maturity, (1,)to any substitution, exchange or release
of any security now or hereafter given for this Note, (c) to the release of any
party primarily or secondarily liable hereon, and (d) that it will not be
necessary for Payee, in order to enforce payment of this Note, to first
institute or exhaust Payee's remedies against Maker or any other party liable t
therefor or against any security for this Note.
It is the intention of the parties hereto to comply with applicable usury
laws (now or hereafter enacted); accordingly, notwithstanding any provision to
the contrary in this Note, or in any of the documents securing payment hereof or
otherwise relating hereto, in no event shall this Note or such documents require
the payment or permit the collection of interest in excess of the maximum amount
permitted by such laws. If any such excess of interest is contracted for,
charged, taken, reserved or received under this Note or under the terms of any
of the documents securing payment hereof or otherwise relating hereto, or in the
event the maturity of the indebtedness evidenced by this Note is accelerated in
whole or in part, or in the event that all or part of the principal or interest
of this Note shall be prepaid, so that under any of such circumstances the
amount of interest contracted for, charged, taken, reserved or received under
this Note or under any of the instruments securing payment hereof or otherwise
relating hereto, on the amount of principal actually outstanding from time to
time under this Note shall exceed the maximum amount of interest permitted by
applicable usury laws, now or hereafter enacted, then in any such event (1) the
provisions of this paragraph shall govern and control, (ii) any such excess
which may have been collected at final maturity of said indebtedness either
shall be applied as a credit against the then unpaid principal amount hereof or
1
<PAGE>
refunded to Maker, at Payee's option, and (lii) upon such final maturity, the
effective rate of interest shall be automatically reduced to the maximum lawful
rate allowed under applicable usury laws as now or hereafter construed by the
courts having jurisdiction thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved or
received under this Note or under such other documents which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate, shall
be made, to the extent permitted by law, by amortizing, prorating, allocating
and spreading in equal parts during the period of the full stated term of the
loan evidenced hereby, all interest at any time contracted for, charged, taken,
reserved or received from Maker or otherwise by Payee in connection with such
indebtedness.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE APPLICABLE LAWS OF
THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA. THIS NOTE SHALL
BE PERFORMABLE IN NEWTON COUNTY, TEXAS, WHICH COUNTY SHALL BE THE PROPER PLACE
OF VENUE TO ENFORCE PAYMENT OF THIS NOTE. MAKER IRREVOCABLY AGREES THAT THE
STATE DISTRICT COURTS OF NEWTON COUNTY, TEXAS, OR UNITED STATES DISTRICT COURT
LOCATED THEREIN, SHALL BE THE EXCLUSIVE COURTS FOR ANY LEGAL PROCEEDINGS ARISING
OUT OF OR IN CONNECTION WITH THIS NOTE.
To the extent that the interest rate laws of the State of Texas are
applicable to this Note and unless changed in accordance with law, the
applicable interest rate ceiling is the indicated (weekly) ceiling determined in
accordance with Article 5069-l.04(a)(l) of the Texas Revised Civil Statutes, as
amended, or to any successor to such statute.
Maker represents and warrants to Payee and to all other owners and holders
of any indebtedness evidenced hereby that all obligations evidenced by this Note
are for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms are
used or defined in Texas Revised Civil Statutes, Article 5069-1.04, Texas Credit
Code and Regulation Z promulgated by the Board of Governors of the Federal
Reserve System and under Titles I and V of the Consumer Credit Protection Act.
This Note is issued pursuant to that one certain Agreement for Purchase and
Sale of Stock (the Purchase Agreement), dated August 12, 1996, by and between
the Maker and Payee and is secured by that certain Security Agreement for Pledge
of Instrument (the "Security Agreement") of even date herewith by and among
Maker and Payee. Reference is made to the Security Agreement for certain
provisions relating to the acceleration of maturity hereof upon the occurrence
of certain events specified therein and for all other pertinent purposes.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS NOTE TO THE CONTRARY, NEITHER
THE MAKER NOR ANY OFFICER, DIRECTOR, OR SHARE-HOLDER OF HOUSTON WOOD PRODUCTS
(HWP) OR HOUSTON WOODTECH, INC. (HWI) SHALL HAVE ANY INDIVIDUAL OR PERSONAL
OBLIGATION OR LIABILITY FOR REPAYMENT OF ANY AMOUNTS DUE UNDER THE TERMS OF THIS
NOTE. AS SUCH, THE HOLDERS OF THIS NOTE AND THE SECURITY AGREEMENT SECURING THE
SAME HEREBY AGREE THAT THEY WILL NOT AT ANY TIME BRING ANY ACTION, SUIT, OR
PROCEEDING AGAINST THE MAKER, OR ANY OF THE OFFICERS, DIRECTORS, AND/OR
SHAREHOLDERS OF HWP AND/OR HWI, TO RECOVER A MONEY JUDGMENT FOR ANY SUM DUE
HEREUNDER; PROVIDED, HOWEVER, THAT THE HOLDERS MAY BRING AN ACTION, IF
2
<PAGE>
NECESSARY, TO FORECLOSE OR ENFORCE ANY SECURITY INTEREST OR LIEN UNDER THE
SECURITY AGREEMENT. IN THE EVENT AN ACTION IS BROUGHT TO FORECLOSE ANY SUCH
SECURITY INTEREST OR LIEN, THE HOLDER OF THIS NOTE, FOR ITSELF, ITS SUCCESSORS
AND ASSIGNS, BY THE ACCEPTANCE OF THIS NOTE AND THE RIGHTS UNDER THE SECURYFY
AGREEMENT SECURING THE SAME, HEREBY WAIVES ANY RIGHT TO A DEFICIENCY JUDGMENT
AND AGREES TO LOOK SOLELY TO THE COLLATERAL FOR THE SATISFACTION OF ANY AND ALL
AMOUNTS DUE HEREUNDER OR ANY CLAIMS ASSERTED IN SUCH FORECLOSURE OR ENFORCEMENT
ACTION.
This Note shall not be sold, conveyed, assigned or otherwise transferred by
the Payee without the prior written consent of the Maker.
MAKER:
JAMES E. HUGHES, SR.
3
EXHIBIT 10.2
ITEM 1,(4)
EXCLUSIVE LICENSE AGREEMENT BETWEEN
J.J.REIDY & CO., INC. AND PHOENIX RESOURCES TECHNOLOGIES, INC.
DATED MARCH 12, 1996
<PAGE>
EXCLUSIVE LICENSE AGREEMENT
This Agreement, made and entered this 12th day of March, 1996 by and between
J.J. Reidy & Co., Inc., a Massachusetts Corporation whose principal address is
1260 Main Street, Holden, Massachusetts 01520-1020, hereinafter referred to as
"LICENSOR" and Phoenix Resources Technologies, Inc., a Nevada corporation whose
principal address is 8283 North Hayden Road, Suite 128, Scottsdale, Arizona
85258, hereinafter referred to as "LICENSEE".
WITNESSETH:
WHEREAS, LICENSOR represents and warrants that it has the entire right, title,
and interest in and to United States Patents numbered 5,106,512, 5,149,446,
5,203,989 and 5,366,705 relating to a Water Production/Generation System and any
patents to issue on any continuation or division thereof and any new patents
granted to LICENSOR relating to the Water Production/Generation System
(hereinafter collectively referred to as "LICENSED PATENTS"), and that LICENSOR
has the right to grant the licenses under the LICENSED PATENTS as specified
hereinafter; and
WHEREAS, LICENSEE represents that it is a marketing firm with proprietary
method(s) in which to exploit products and will employ any and all such means,
proprietary or generally known, in which to perpetuate LICENSOR'S LICENSED
PROPERTY with the conditions set hereinafter; and
WHEREAS, LICENSEE is desirous of obtaining an exclusive right and license to
make, use, and sell Water Production/Generation System products, and component
parts therefore, falling under the scope of any LICENSED PATENT (hereinafter
referred to as "LICENSED PROPERTY"); and
WHEREAS, LICENSOR is willing to grant such right and license to LICENSEE under
the conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants, promises and
undertakings contained herein, together with other good and valuable
consideration, the receipt and sufficiency of which is hereby reciprocally
acknowledged, the undersigned parties agree as follows:
EXCLUSIVE LICENSE AGREEMENT
PAGE 1 of 15
RAY'S INITIALS /S/ JRR REIDY'S INITIALS /S/ JSR
<PAGE>
1. GRANT OF LICENSE: LICENSOR hereby grants to LICENSEE for the term of this
Agreement, an exclusive right and license to make, use, and sell LICENSED
PROPERTY according to the provisions set forth hereinafter with the full right
and privilege to alter, change, and/or modify the contents and peripheral
materials associated with LICENSED PROPERTY with the conditions set forth
herein, and the right to sublicense sale and distribution of LICENSED PROPERTY
according to the provisions and the conditions set forth hereinafter.
2. TERM OF LICENSE: The term of this Agreement shall commence upon the date of
execution of this Agreement and shall remain binding and continue for the life
of the last expiring LICENSED PATENT unless terminated sooner as provided
herein.
3. OWNERSHIP OF LICENSED PROPERTY: This license Agreement is not a sale or lease
of LICENSED PROPERTY from LICENSOR and the full title, rights and interest shall
remain in the name of LICENSOR unless otherwise expressed herein and upon
written mutual consent of both parties.
4. ROYALTIES AND PAYMENTS:
4.1 LICENSEE agrees to pay a royalty to LICENSOR for the
exclusive License Agreement in the amount of FIVE PERCENT
(5.0%) of the gross sales by Phoenix Resources Technologies,
Inc. and/or any sublicensees. Gross sales shall be defined as
"the total of invoiced sales and the fair market value of
licensed property transferred without invoice of LICENSED
PROPERTY without deduction". Royalty payments shall be payable
at the beginning of each month following the date of this
Agreement.
An Advanced Royalty Payment shall be paid to LICENSOR each
calendar year starting with the first payment to be remitted
upon the joint signing of this Agreement and all subsequent
payments paid on the anniversary date of this Agreement
payable to J.J. Reidy & Co., Inc. in the total sum of
Seventy-five Thousand Dollars and No/100 ($75,000.00). The
exclusive right and license to Phoenix Resources Technologies,
Inc. shall be renewed, without increase, each year upon this
advanced royalty payment. Each Advanced Royalty payment is to
be considered in effect an Annual Minimum Royalty and may be
credited toward royalties due for no longer than the
subsequent 24 months.
4.2 LICENSEE agrees that in no event will the LICENSED
PROPERTY be broken-up and sold in component parts, without the
express written consent of LICENSOR.
EXCLUSIVE LICENSE AGREEMENT
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4.3 Royalty payments shall commence on the date executed
hereinabove and shall be considered due and payable to
LICENSOR within 30 days following the anniversary date of each
calendar month following the contract execution date as stated
above.
4.4 Each royalty payment will be accompanied by a report
detailing the following:
4.4.1 The total sum of gross sales of each type
of LICENSED PROPERTY sold and/or transferred
during the month;
4.4.2 The total gross receipts collected from
sales during the month;
4.4.3 The manufacturer Purchase Order and/or
Invoice revealing the number of component parts
ordered and received;
4.4.4 Inventory itemization and the change and
flow of inventory during the month.
4.5 "Each type of LICENSED PROPERTY' shall be defined
according to the cubic feet per minute of processed air by
each unit and/or by name designated by the management of
Phoenix Resources Technologies Inc.
4.6 If additional product(s) or service(s) are added to
enhance the LICENSED PROPERTY value and results in increased
sales revenue, then this increase in sales revenue figure
shall be included in the determination of royalty payment(s)
due LICENSOR.
5. SUBLICENSE CONTRACTS:
5.1 Licensee shall have the right to sublicense the LICENSED
PROPERTY to third parties it deems creditable and trustworthy
to sell and/or distribute LICENSED PROPERTY in various
designated territories and/or regions.
5.2 Both parties agree that the Definition of Sublicense shall
mean, "the right granted by LICENSEE to a third party to
distribute and sell LICENSED PROPERTY in accordance with the
provisions and conditions provided herein."
EXCLUSIVE LICENSE AGREEMENT
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16
5.3 LICENSEE shall determine the cost and fees of any and all
sublicenses sold, which costs and fees shall be its sole
property.
5.4 LICENSEE retains the right to waive, finance, and/or
accept partial payment (down payment) of any and all
sublicense fees.
5.5 LICENSEE agrees that all sublicense contracts are to
encompass and embrace the parameters of this Licensing
Agreement as not to violate any provision contained herein
in whole or in part.
6. DURATION/TERM/MAINTENANCE OF EXCLUSIVITY:
6.1 The license granted herein is exclusive and shall remain
exclusive until the third anniversary of the EFFECTIVE DATE
written above.
6.2 Subsequent to the third anniversary of the EFFECTIVE DATE
written above, this license Agreement may be terminated by
LICENSOR, upon written notice to the other if the Advanced
Royalty Payment is not paid according to the provisions of
paragraph four point one (4.1) above to the LICENSOR. Such
notice shall be deliverable by either party to the other
within 30 days of the delivery by LICENSEE to LICENSOR of the
last royalty report specified in Section 1.0 and section 4.0
above, hereby creating this option to terminate exclusivity.
6.3 LICENSEE agrees to put forth its best efforts to sell
LICENSED PROPERTY during the period of exclusivity of the
licenses granted herein.
7. RECORDS AND INSPECTION:
7.1 LICENSEE agrees during the life of the LICENSED PATENTS
(Attached hereto) LICENSEE shall keep accurate records showing
the quantity of goods manufactured by and/or for LICENSEE
under this Agreement and supporting documentation of all
sales, which records shall be open to inspection by LICENSOR's
accountant during reasonable business hours. The records
available for inspection by LICENSOR's accountant shall
include records of each particular LICENSED PROPERTY type
manufactured and sold to determine the royalty payment.
EXCLUSIVE LICENSE AGREEMENT
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7.2 LICENSEE shall reduce all sublicenses granted herein to
written Agreements which shall include a Provision providing
for the maintenance of records by the sublicensee as
hereinabove provided and permitting LICENSOR's accountant to
inspect said records during reasonable business hours.
7.3 LICENSEE shall provide a yearly audit of the books in
regards to LICENSOR's royalty payments which shall be
conducted by a Certified Public Accountant in accordance with
generally accepted accounting principles and delivered for
inspection to LICENSOR.
7.3.1 If LICENSOR so desires an audit conducted before
the year-end audit scheduled, LICENSOR has the right
to conduct such an audit at LICENSOR's own expense.
8. TRANSFER OF CUSTODY, KNOW~HOW AND TECHNICAL ASSISTANCE:
8.1 LICENSOR agrees to provide all information in its
possession to assist LICENSEE to manufacture or have
manufactured LICENSED PROPERTY. LICENSOR shall transfer to the
care and custody of LICENSEE within 30 days from the execution
of this Agreement, all information in its possession
pertaining to the LICENSED PROPERTY, and all information
material and pertaining to the manufacture, adaptation or
modification thereof which may or may not effect marketing
campaigns and the sales thereof consisting of, for example,
but not limited to:
8.1.1 Design Data-All engineering, film, disks, camera
work, negatives, layouts, registration mark copy for
reproduction and reprint, logos, type fonts, etc.
8.1.2 Process Specifications -All details, processes,
steps and procedures concerning, but not limited to,
care of product, storage, the do's and don'ts, print
specifications, packaging specifications, etc.
8.1.3 Test Data - All test data material and the
results thereof.
8.1.4 Commercial Operation Data - manufacturer costs,
volume discounts, minimum order levels, maximum order
levels, turn-around production time, shipping costs
and requirements, etc.
EXCLUSIVE LICENSE AGREEMENT
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8.1.6 Mold specifications and box specifications.
8.1.7 Endorsement Grant - granting the permission to
LICENSEE the use of any and all previous endorsements
with the permission of the endorser.
8.1.8 Patent Documentation - Patent registration
documentation and related materials to understand
parameters of patent for infringement purposes and to
convey to legal counsel.
8.1.9 Trademark Registration - Trademark registration
material in its possession in order to make
application for amendment(s).
8.2 LICENSOR shall also make available in a timely fashion,
all improvements relating to the LICENSED PROPERTY, including
changes, and modifications and specifications, methods and
materials, during the term of this Agreement.
9. TERMINATION OR REVOCATION OF LICENSE:
9.1 This Agreement and the rights and licenses granted herein
shall wholly cease and terminate prior to the termination of
the license as described in Section 2.0 and 6.0 hereinabove
upon the occurrence of any of the following events:
9.1.1 Any material breach by either party of the terms
of this Agreement, provided the non-breaching party is
the one seeking the termination and gives the other
party written notice of intention to terminate, which
shall state the fault or breach upon which the party
relies. The termination shall become effective thirty
(30) days following receipt of the notice given
pursuant to Section 46 herein by the party against
whom the termination is sought, if such default or
breach is not rectified to the reasonable satisfaction
of the parties within that time; or
9.1.2 If the LICENSOR does not receive the first
Advanced Royalty Payment referred to in paragraph four
point one (4.1) at the time of the 3oint approval and
signing of this Agreement.
EXCLUSIVE LICENSE AGREEMENT
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9.1.3 This Agreement shall terminate upon the
insolvency and/or criminal conviction of either party
unless otherwise agreed to in writing.
9.1.4 Upon termination, LICENSOR shall have the first
right of approval to purchase LICENSEE's inventory for
cost payable within thirty (30) days of written offer.
Written offer must be accepted within thirty (30) days
of written offer. Written offer must be accepted
within thirty (30) days of delivery of offer. In no
event shall LICENSEE sell existing inventory after a
period of six (6) months after termination notice.
9.1.5 The mutual consent of the parties expressed in
writing.
10. EFFECT OF TERMINATION OR REVOCATION:
10.1 The termination of this Agreement shall not release
LICENSEE from the obligation to pay LICENSOR any accrued sums
owed to LICENSOR, or from fulfilling any other accrued
obligation. Additionally, such termination shall be without
prejudice to any right or remedy which either party may have,
or believes it has, against the other party.
10.2 The termination of this Agreement as a result of the
provisions and conditions provided herein, and/or the breach
thereof, or an uncontrolled act of Cod, government, laws, etc.
which prohibit the fulfillment of this Agreement shall not
bind the LICENSEE to fulfill projected sales figures or the
payment of projected royalties.
10.3 In no case shall LICENSEE have any claims for repayment
or offset of any sum or sums which shall have been paid as
required under the terms of this Agreement.
10.4 Upon termination, each party will retain proprietary
property(s) and the complete rights, title, and interest of
any and all proprietary property, information, and material
introduced.
10.5 Upon termination and revocation of License Agreement,
each party will properly return, in a timely fashion, any and
all proprietary property to the owner of that property in the
same manner and condition received in relation to 10.4 above.
EXCLUSIVE LICENSE AGREEMENT
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10.6 Upon termination and revocation of License Agreement,
LICENSOR has the right to purchase from LICENSEE any items not
considered LICENSED PROPERTY, such as, but not limited to,
changes in the LICENSED PROPERTY name, Trademark or Trade
name, Universal Product Codes, marketing material changes,
alterations, and/or modifications duly registered, etc. at a
fair market price.
11. CONTRACT RENEWAL:
11.1 The License Agreement will automatically renew itself at
the maturity of the third anniversary conditioned upon the
fulfillment and completion of Section 6.0 by LICENSEE
providing sufficient documentation of such. Ml other
arrangements must be of mutual consent of the parties
expressed in writing.
11.2 Upon renewal of License Agreement, no fees shall be
assessed or monies transferred for the right to renew this
License Agreement above the amount specified in Section 4,
paragraph four point one (4.1) hereinabove.
12. SUBLICENSE CONTRACTS: LICENSEE shall provide and deliver sublicense
contracts to LICENSOR as a matter of record.
13. SUBLICENSE PROPERTY: All sublicense contracts shall be considered
proprietary and confidential and shall remain the property of LICENSEE and/or
the introducing party.
14. PRODUCT ENDORSEMENTS:
14.1 LICENSOR agrees to acknowledge by letter the right of
LICENSEE to use prior endorsements at the discretion of
LICENSEE in an appropriate manner of marketing with the
consent of the endorser.
14.2 LICENSEE shall seek endorsements, including celebrity
endorsements, that LICENSEE deems qualified to represent
LICENSED PROPERTY, and such endorsements obtained by LICENSEE
shall remain the property of LICENSEE.
15. LICENSEE OBJECTWE AND MAR~NG:
15.1 LICENSEE's overall objective is to establish and maintain
the awareness and exposure of LICENSED PROPERTY to enhance
sales and future growth.
EXCLUSIVE LICENSE AGREEMENT
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15.2 LICENSEE will maintain the image and integrity of
LICENSED PROPERTY for the duration if this License Agreement.
No marketing campaign shall be undertaken which falls to
project good moral and ethical values. This specifically
includes the advertisements or endorsements from alcohol,
tobacco or other companies which fail to reflect the highest
of moral standards.
15.3 LICENSEE hereby commits the resources and puts forth
best efforts in accomplishing, completing, and fulfillment of
the promises contained herein.
15.4 LICENSEE shall have the right to create commercial
production (radio, television, print) and other means in which
to fulfill License Agreement.
15.5 LICENSEE will create a long-term public relations
strategy in which to achieve awareness, sales, and growth.
16. PRODUCT NAME: LICENSEE retains the right to change the LICENSED PRODUCT's
name with the consent of LICENSOR.
17. DESIGN PACKAGING: LICENSEE shall hereby have the right to alter, change, add
or remove any item, color, format, or material in design packaging with the
expressed consent of LICENSOR.
18. COPYRIGHT USAGE:
18.1 LICENSOR hereby grants the right to LICENSEE the use of
any and all, in whole or in part, copyright materials related
to LICENSED PROPERTY.
18.2 LICENSEE shall file all copyright documentation and
provide LICENSOR with copies of such filing(s).
19. TRADEMARK REGISTRATION - U.S. FOREIGN: LICENSEE shall make application and
pay filing fees in registering changes to trademark and/or trade name
registration.
EXCLUSIVE LICENSE AGREEMENT
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20.1 LICENSEE shall make application for foreign trademark
and/or trade name registration and pay all fees necessary and
will make and forward copies to LICENSOR.
20.2 LICENSEE shall retain the full rights, title, and
interest in any and all trademark(s) and trade name(s)
registration in foreign countries.
20.3 LICENSOR shall make application for any foreign patents
desired by LICENSEE, at LICENSEE's expense. LICENSOR has the
option to separately make application for any foreign patent
at LICENSOR's own expense.
21. GRANT OF TRADEMARK USAGE LICENSE: LICENSOR hereby grants the exclusive
license to LICENSEE to use any and all trademarks regarding LICENSED PROPERTY
under the conditions contained herein.
22. GRANT OF TRADE NAME USAGE LICENSE: LICENSOR hereby grants the exclusive
license to use such trade names, symbols or logos associated with LICENSED
PROPERTY.
23. TRADEMARK QUALITY CONTROL:
23.1 LICENSOR has the right to approve LICENSED PROPERTY sold
bearing the trademark licensed herein for conformance with
agreed quality standards.
23.2 LICENSEE shall supply LICENSOR a specimen of the goods
sold under the mark once per year.
23.3 Before implementing changes in the goods sold under the
mark, LICENSEE shall provide LICENSOR a specimen of the
changes.
23.4 If LICENSOR does not ob3ect to the specimen within two
weeks, goods conforming to the specimen are deemed approved.
24. PRODUCT AND MATERIAL ADDITIONS:
24.1 LICENSEE shall have the right to make an addition(s) to
LICENSED PROPERTY with the consent of LICENSOR for appeal
and/or added value.
EXCLUSIVE LICENSE AGREEMENT
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24.2 LICENSOR shall retain all rights, title, and interest to
any additional product(s), or material addition(s) made to
LICENSED PROPERTY.
25. ASSEMBLY: LICENSEE has the right and responsibility to assemble or have
assembled LICENSED PROPERTY.
26. UNIVERSAL PRODUCT CODE: LICENSEE shall make application to obtain a UPC code
for LICENSED PROPERTY.
27. LICENSE PARAMETER: LICENSOR agrees that exclusive License Agreement is not
bound or limited to any country, state or province.
28. MAINTENANCE OF PATENT(s): LICENSOR hereby agrees to maintain the above
referenced patents in good standing.
29. PRODUCT LIABILITY INSURANCE: LICENSEE shall, during the entire term of this
Agreement maintain a minimum policy of $1,000,000.00 (One Million Dollars) in
product liability insurance covering LICENSED PROPERTY sold by LICENSEE or any
of its sublicenses. J.J. Reidy & Co., Inc. shall be named "additionally insured"
thereon with respect to any claims made against LICENSOR as a result of
LICENSEE's or any of its sublicensee's sales of LICENSED PROPERTY. LICENSEE
shall provide LICENSOR a copy of such insurance policy within thirty (30) days
of execution of its marketing opening date of sales. LICENSEE shall also
indemnify and hold harmless J.J. Reidy & Co., Inc., its employees, directors,
officers, and shareholders as to any claims, lawsuits, threatened litigation or
judgments rendered, relating to the LICENSED PROPERTY sold by LICENSEE or any of
its sublicensees.
30. TRADE SECRETS: Both parties acknowledge and agree that the other party
possesses trade secrets that are proprietary property and constitute a valuable
trade secret. Both parties agree not to disclose or make available to third
parties the information, processes, methods, etc. or any portion thereof that is
considered trade secrets without the prior written approval of the other party.
31. CUSTOMER PROPERTY: LICENSEE shall retain the full rights, title, and
interest in any and all customer names and sublicensee names sold and/or
generated as a result of the marketing and promotion effort.
EXCLUSIVE LICENSE AGREEMENT
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32.1 In the event infringement is discovered and/or litigation
commences with respect to any claim of infringement of
LICENSOR's LICENSED PROPERTY, LICENSEE has the responsibility
to pursue any and all litigation to protect the marketing
effort. LICENSOR shall have the option to participate in such
claim in proportion to the expense LICENSEE bears, i.e. 50% of
litigation expenses = 50% of the claim/settlement. In the
event LICENSOR exercises this option to participate, LICENSOR
shall be entitled to retain an equal percentage amount, in
relation to the percentage amount of expenses incurred, of the
receipts from such settlement, judgment, compromise or
arbitration.
32.2 In the event infringement is discovered and LICENSEE does
not act upon settlement of infringement or litigation in a
reasonable amount of time as not to effect the marketing
campaign, sales and/or growth, then LICENSOR shall have the
right to pursue the infringing party for damages, and retain
the proceeds.
33. SETTLEMENT OF OTHER CLAIMS: LICENSOR shall be entitled to retain the
proceeds of any and all settlements, judgments, compromises or arbitration of
existing claims it has against any third parties.
34. USE RESTRICTIONS: LICENSEE agrees not to use LICENSED PROPERTY in any
illegal, fraudulent, or deceptive manner to damage the good name and/or standing
of the LICENSED PROPERTY.
35. TRANSFER RESTRICTIONS/ASSIGNABILITY/SALE: Any party may assign and/or sell
this Agreement, or any right or obligation under this Agreement, to any third
party without the written consent of the other party hereto, any such assignment
and/or sale shall be made in accordance with the provisions herein. If LICENSEE
sells or assigns this Agreement, LICENSOR will receive from LICENSEE ten percent
(10%) of the assignment/sale price.
36. FIRST RIGHT OF REFUSAL: LICENSOR agrees to grant LICENSEE first right of
refusal on any contemplated assignment/sale of the above referenced patent(s)
during the term of this Agreement.
LICENSEE agrees to grant LICENSOR the first right of refusal on any contemplated
assignment/sale of this Agreement during the term of this Agreement.
EXCLUSIVE LICENSE AGREEMENT
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37. UPDATE: LICENSOR agrees to forward and/or transfer any and all updates that
pertain to the LICENSED PROPERTY including, but not limited to, information
regarding marketing, competition, regulations, processes, specifications, etc.
38. MARKET RETENTION: LICENSEE shall retain full rights, title, and interest to
markets created as a result of a marketing campaign implemented pursuant to this
Agreement.
39. WAWERS: No action taken pursuant to this Agreement, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant, or agreement contained herein. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any other or subsequent breach. The
waiver by any party of any of the conditions precedent to its respective
obligations under this Agreement shall not preclude it from seeking redress for
breach of this Agreement.
40. BENEFITS: Except as expressly provided in this Agreement, nothing in this
Agreement, expressed or implied, is intended to or shall confer on any person
other than the parties hereto any rights, remedies, obligation, or liability
under or by reason of this Agreement.
41. CONSTRUCTIONIJURISDICTION: Inasmuch as the transactions which may arise or
occur between the parties and/or their principals may cross boundaries of
national jurisdiction, this Agreement shall be construed and interpreted in
accordance with the laws of the United States of America and the State of
Massachusetts.
42. ARBITRATION: Both parties agree that any claim, dispute or other differences
between them shall be exclusively resolved by binding arbitration pursuant to
the Commercial Arbitration Rules of the American Arbitration Association. All
arbitration proceedings are to be held in a city of mutual choice. In the event
of arbitration between the parties with respect to disputes arising under this
Agreement or the subject matter hereof, the prevailing party shall be entitled
to recover from the other party all attorney's fees and other costs directly
related to the arbitration proceeding (including those relating to appeals)
incurred by such prevailing party.
43. SEVERABILITY: Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
EXCLUSIVE LICENSE AGREEMENT
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44.1 LICENSOR agrees not to compete in sales directly,
indirectly, or in any capacity unless authorized by LICENSEE
during the term of this License Agreement.
44.2 LICENSOR agrees not to directly or indirectly cause or
have caused competition, the sale or transfer of any trade
secrets and/or information that would cause harm, potential or
otherwise, to LICENSEE for the duration of this Agreement.
45. NOTIFICATION: Any notice hereunder must be in writing and may be personally
delivered or may be given by registered letter and shall be deemed to have been
given when such registered letter, properly addressed to the addressee indicated
above, is mailed return receipt requested, and receipt acknowledged. Either
party hereto may at any time by thirty (30) days notice to the other, designate
any other address in place of those above given.
46. TAX RESPONSIBILITY: Each party to this Agreement is responsible for their
own taxes, tax consequences, and the payment of any Federal, State or local
taxes thereof.
47. EMPLOYEE STATUS: It is understood and agreed by both parties that neither
party is an employee of the other.
48. FURTHER DOCUMENTS: Each of the parties hereto agrees to execute and deliver
all such documents and to do any and all acts matters and things as may be
necessary or proper in order to carry out the intended purposes of this
Agreement.
49. PRIOR AGREEMENTS: This Agreement shall supersede and replace any and all
prior License Agreements entered into between the parties hereto related to the
subject matter hereof and any such prior Agreements shall be, and they are
hereby, cancelled
50. EFFECTWE DATE: The effective date of this Agreement shall be upon the
acceptance and execution thereof by both parties.
51. ENTIRE AGREEMENT: This instrument contains the entire Agreement between the
LICENSOR and LICENSEE containing 15 pages and 1 "Attachment A" and no
modification hereof shall be binding on the parties unless it is in writing and
signed by a duly authorized officer of the parties to be bound.
EXCLUSIVE LICENSE AGREEMENT
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52. DOCUMENT ORIGINALS: This document is considered as an original, binding and
enforceable Agreement, whether executed in original, binding counterparts or
facsimile.
53. AUTHORITY: All parties warrant that they have the requisite authority and
capacity to execute this Agreement and that its terms and provisions constitute
valid and legally enforceable rights and obligations against the parties, their
successors, administrators, etc.
IN WITNESS WHEREOF, the parties have affixed their names, signatures, and seals,
by their executive officers thereto duly authorized, on the day and year first
above written.
IN BEHALF OF LICENSEE: IN BEHALF OF LICENSOR
Phoenix Resources Technologies, Inc. J.J. REIDY & CO., INC.
By /s/ James R Ray, President By /s/ James J. Reidy, President
----------------------------- ------------------------------
Corporate Seal Corporate Seal
Subscribed and sworn to before me Subscriber and sworn to before me
this 12th day of March, 1996. this 12, day of March, 1996
/s/ Melissa J. Hausmann /s/ Melissa J. Hausmann
- -------------------------------- ---------------------------------
Notary Public Notary Public
My commission expires: May 19, 1996 My commission expires: May 19, 1996
EXCLUSIVE LICENSE AGREEMENT
PAGE 15 of 15
15
<PAGE>
ATTACHMENT "A"
Consulting Agreement
This Attachment is an integral part of this LICENSING AGREEMENT between Phoenix
Resources Technologies, Inc. of Scottsdale, Arizona and J. J. Reidy & Co.. Inc,
of Holden, Massachusetts, USA.
WHEREAS Phoenix Resources Technologies, Inc., hereinafter referred to as
LICENSEE, desires the skill and services of James J. Reidy, hereinafter referred
to as LICENSOR as he is the principal officer of the LICENSOR, it is hereby
agreed.
1. James J. Reidy, (LICENSOR) agrees to put forth his best efforts and skills to
assist LICENSEE in the development, production, marketing, and ongoing research
and development of products known generally as Water Production/Generation
System.
2. LICENSEE, in return for the services described in paragraph one (1) above
agrees to pay Six Thousand, Two Hundred and Fifty Dollars ($6,250 00) per month,
plus reasonable inflationary increases each year, to James J. Reidy on the
fifteenth (15th) day of each month beginning on the 15th day of ~ 1996. In
addition Phoenix Resources Technologies, Inc will provide James - J. Reidy
reasonable and adequate R&D expenses as required and agreed.
3. James J Reidy agrees to put forth his best effort for the duration of this
License Agreement.
4. This Agreement can be canceled at any time by mutual agreement of both
parties, acknowledged in writing by both parties, and with thirty (30) days
notice.
5. In the event a disagreement arises between these parties, it is agreed that a
settlement shall be decided by arbitration as described in paragraph 42 of the
LICENSING AGREEMENT attached
IN WITNESS WHEREOF, the parties have affixed their names, signatures, and seals,
by their executive officers thereto duly authorized, if appropriate, on the day
and year notarized below.
IN BEHALF OF LICENSEE: IN BEHALF OF LICENSOR
Phoenix Resources Technologies, Inc. James J. Reidy
By /s/ James R. Ray, President /s/ James J. Reidy
--------------------------- -------------
Corporate Seal
Subscribed and sworn to before me Subscribed and sworn to before me
this 12th day of March, 1996. this 12th day of March, 1996
/s/ Melissa J. Hausmann /s/ Melissa J. Hausmann
- --------------------------------- ---------------------------------
Notary Public Notary Public
SEAL SEAL
My commission May 19, 1996 My commission expires May 19, 1996
16
EXHIBIT 10.3
ITEM 1, (5)
AGREEMENT TO CONVEY OIL AND GAS DRILL SITES AND TUNRKEY DRILLING
CONTRACT DATED JULY 24, 1996 BETWEEN
ERIN OIL EXPLORATION, INC., AND
PHOENIX RESOURCES TECHNOLOGIES, INC.
1
<PAGE>
AGREEMENT TO CONVEY OIL AND GAS DRILL SITES
AND TURNKEY DRILLING CONTRACT
THIS AGPEEMENT is made this 20th day of July, 1996, by and between
PHOENIX RESOURCES TECHNOLOGIES, INC., a Nevada corporation (hereinafter referred
to as "Phoenix") and ERIN OIL EXPLOPATION, INC., a Texas corporation hereinafter
referred to as "Erin")
WHEREAS, Phoenix is the lessee of oil and gas drill sites located in
the State of West Virginia, and all easements and rights of way available for
access to said drill sites (hereinafter collectively referred to as the "Drill
Sites"), and
WHEREAS, Phoenix desires to assign the Drill Sites to Erin and to
perform turnkey drilling services in connection therewith, upon the terms
hereinafter set forth, and
WHEREAS, Erin desires to purchase some or all of the Drill Sites and to
contract with Phoenix to perform turnkey drilling services as hereinafter
provided,
NOW, THEREFORE, in consideration of the foregoing and the following
mutual covenants and agreements, the parties hereto do hereby agree as follows
1. Sale of the Drill Sites Phoenix will sell up to 500 of the Drill
Sites to Erin at a purchase price of $2,000 per Drill Site.
(a) Three Drill Sites to be sold by Phoenix to Erin will be
selected from the list of Drill Sites attached hereto as Exhibit "A" and
incorporated herein by reference for all purposes in order to assist Erin in the
evaluation of the proposed Drill Sites, Phoenix shall furnish to Erin, within 10
days after the date of this Agreement, geological reports as well as geological
and offset production data m order to allow Erin to evaluate the proposed Drill
Sites in addition, Phoenix shall furnish marketing data and legal drill site
descriptions, including lease royalty burdens. The proposed three Drill Sites
may be accepted or rejected by Erin However, if Erin has not responded within 30
days of receipt of such geological and other data required to be furnished
pursuant to this paragraph, any of the Drill Sites not responded to will be
considered accepted by Erin If Erin rejects any such proposed Drill Site, an
additional proposed Drill Site shall be presented by Phoenix, and the same
acceptance or rejection procedures shall apply with respect thereto as described
above
(b) Erin shall fund the drilling of one of the wells within
20 days after the acceptance of three Drill Sites. The funding of the second and
third wells of the first group of three wells will be furnished within a
reasonable time after the funding of the first well. After such three wells have
been drilled, Erin will make a decision whether or not it wants to buy any
additional Drill Sites. If Erin elects not to buy any additional Drill Sites,
there will be no payment for the first three Drill Sites, in which event Erin
will own the three Drill Sites without the payment of any money. Phoenix will
execute whatever documents may be necessary to convey the three Drill Sites to
Erin
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(c) If Erin elects to purchase additional Drill Sites, after
the first three wells are drilled, Phoenix shall present a list of additional
Drill Sites to Erin, from which Erin will select additional Drill Sites. Erin
shall then pay Phoenix the sum of $250,000 for 125 Drill Sites, which Drill
Sites will include the first three Drill Sites purchased, and Phoenix will drill
wells on six more Drill Sites. After the six additional wells have been drilled,
Erin will purchase an additional 125 Drill Sites and pay Phoenix an additional
sum of $250,000 for such additional 125 Drill Sites After the payment of the
second $250,000, Erin shall decide within a period of 90 days after such payment
whether or not to purchase additional Drill Sites. If Erin elects not to
purchase additional Drill Sites, then it will have no further obligation to do
so Consequently, for the $500,000 paid by Erin to Phoenix, Erin will have
purchased 250 Drill Sites. If Erin elects to purchase additional Drill Sites,
then it will be obligated to purchase an additional 250 Drill Sites from a list
of additional Drill Sites to be presented by Phoenix to Erin Payment for such
additional 250 Drill Sites in the amount of $500,000 shall be evidenced by
Erin's promissory note due and payable within six months after Erin makes such
election to buy such 250 additional Drill Sites (hereinafter referred to as the
"Note9') A copy of the Note is attached hereto as Exhibit "B" and incorporated
herein by reference for all purposes.
(d) Any additional Drill Sites to be sold to Erin hereunder
shall be presented and evaluated and accepted or rejected in the same manner as
pertains to the first three Drill Sites to be presented to Erin. Future finding
for the drilling of wells will be on a schedule agreed to by the parties, but
such schedule must at least need the minimum requirement to drill 125 wells
within 60 months from the date of this Agreement as set forth below.
Notwithstanding anything herein contained to the contrary, Erin shall have no
obligation to purchase any of the Drill Sites, except in strict conformity with
all of the terms of this Agreement.
2. Wells to be Drilled. Erin agrees to drill at least 125 wells on the
Drill Sites within 60 months from the date of this Agreement. After the drilling
of such 125 wells, Erin shall have no further obligation to Phoenix with respect
to the drilling of any additional wells upon the Drill Sites. Each of the first
nine wells to be drilled by Phoenix will be considered drilled when, with
respect to each such well, a Well Operator's Report of Well Work ('1'orm WR-35)
is filed with the State of West Virginia Department of Energy, Division of Oil
and Gas.
3. Turnkey Price for Drilling and Completion. All of the wells to be
drilled by Phoenix under this Agreement shall be drilled through the Devonian
Shale Formation and will have a turnkey cost of $250,000, subject to the usual
and customary escalations after the first year of drilling activities, no matter
how deep an individual well is drilled. Phoenix guarantees that the work on each
well will be performed at the turnkey price. Prior to the commencement of any
drilling activities, Erin will provide to Phoenix the finds necessary for the
drilling and completion of each well. If Phoenix determines after a well has
been drilled to casing point and logged through the target formation that the
well does not warrant further completion work, Phoenix shall thereupon cease
work on the well and will assume all responsibility to plug and abandon it, and
all interest and right in any such well and the corresponding Drill Site shall
revert to. Phoenix in such event, Phoenix agrees to credit Erin with $40,000 on
any such well not so completed and apply that credit to the next well to be
commenced pursuant the terms of this Agreement.
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If Phoenix determines that a well must be cased, perforated and
fractured in order to be properly evaluated, but thereafter a decision is made
by Erin not to produce or further complete the wells Phoenix shall thereupon
cease work on the well and shall assume all responsibility to plug and abandon
same In such event there shall be no reduction or credit in the contract price
for future wells. However, the Drill Site and all pipe located thereon shall
continued to be owned by Erin.
Erin agrees that certain decisions, such as to set and cement pipe
after a well has been drilled to total depth and logged, must be made within a
short time Phoenix, agrees to notify Erin when total depth will be reached. Such
notice may be made by telephone, telegraph or fax machine. Erin has the
obligation to have a representative present to make decisions for Erin, but in
the event no representative is present when such decisions need to be made, Erin
hereby authorizes Phoenix to make such decisions on its behalf that event, Erin
agrees to accept the decisions made by Phoenix as if made by Erin.
4 Drilling and Completion Phoenix shall begin operations for the
drilling and completion of the wells to be drilled upon the Drill Sites within a
reasonable time after receiving payment therefor from Erin as aforesaid, such
time not to exceed 10 days from receipt of payment and receipt of a drilling
permit from all required regulatory authorities, unless otherwise agreed to in
writing by Erin Any such wells shall be drilled with due diligence and in a
workmanlike manner to the contract depth. Phoenix, at its own expenses, may
select other contractors to finish completion and related well services,
including the completion of any of the wells. Phoenix shall furnish or contract
for all equipment, labor and materials for the drilling and completion of each
well and to perform the following operations on a turnkey basis.
(a) Survey and plat the drilling locations, obtain a drilling
permit from the State of West Virginia Department of Energy, Division of Oil and
Gas, and supply any bond needed for that purpose.
(b) Obtain all necessary rights-of-way for drilling,
completion and operation of the wells, including rights-of-way for gas or oil
gathering lines (limited to 2,500 feet).
(c) Perform all site preparation and road work necessary for
the orderly drilling and completion of the wells, and move all equipment and
materials in and out.
(d) Furnish set and cement casing, if a completion attempt is
to be made by Phoenix.
(e) Complete the wells in a manner capable of providing for
the running of production casing to the target formation.
(f) Pay for all surface or crop damages, if any, to
respective landowners.
(g) Dig all pits necessary in completing the wells, and upon
the abandonment of the wells as dry holes or completions producers, back fill
pits and restore the surface to as near as normal as possible.
(h) Furnish all logs and tests that a reasonably prudent
operator would make to determine whether completion attempts should be made.
(i) If a decision to complete a well has been made, furnish or
contract for all materials, equipment and services to complete the same and
perform all other work necessary to connect such wells to gas transmission lines
and/or tank batteries.
(j) Furnish all treating chemicals, materials and equipment
necessary 10 stimulate the wells in accordance with standard oil field practice
for completing the wells.
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(k) Phoenix warrants that it will employ usual and customary
methods and material in the completion of the wells, but it is agreed that
Phoenix shall not be responsible for failure in completion due to natural or
mechanical causes that do not result from the gross negligence of Phoenix.
(l) This Agreement provides for completion, including fracture
in the initial attempted completion and in the event that a completion attempt
in one or more of these formations is not successful, or if said formations are
unproductive or become unproductive at any lime after completion, Phoenix shall
have no responsibility to attempt completion in another formation or zone.
(m) In the event that any of said wells is not completed as a
commercial producer of oil or gas, Phoenix will assume all responsibility of
having the wells plugged and abandoned in compliance with all applicable laws
and regulations.
(n) Phoenix shall carry such workmen's compensation liability
insurance as may be required by the laws of the State of West Virginia In
addition, Phoenix shall carry, with respect to its operations hereunder
comprehensive general liability insurance, comprehensive automobile liability
insurance, and excess liability insurance. Phoenix shall cause Erin to be named
as an additional insured with respect to said comprehensive general liability,
comprehensive automobile liability and excess liability insurance coverages.
(o) Equipment to be furnished by Phoenix shall include rigs,
tools, surface casing, 4 1/2" production casing, cement, separators, meters,
storage tanks, and such valves, connections, tubing, pumping unit, plunger lift,
and such other equipment and services as necessary and that would be required by
a reasonably prudent operator to produce and market oil and gas Phoenix may use
equipment from its own inventory or may purchase equipment as necessary However,
all equipment shall be new or refurbished to operate under the prevailing
conditions and for the purposes intended Provided, however, notwithstanding
anything herein contained to the contrary, all casing shall be purchased new for
the use in any wells to be drilled hereunder.
(p) In conducting all operations contemplated under the terms
of this Agreement, Phoenix shall comply with all applicable statutes, rules and
regulations enacted or promulgated by the State of West Virginia, or other
applicable jurisdictions wherein such operations are conducted, including any
applicable statutes, rules and regulations of the United States of America or
any administrative agency thereof.
5. Operating Agreement. Upon completion of any wells drilled and
completed by Phoenix hereunder which produce oil and/or gas in paying
quantities, Phoenix shall be employed as the operator of all such wells under an
Operating Agreement in the form attached hereto as Exhibit "C" and incorporated
herein by reference for all purposes (hereinafter referred to as the "Operating
Agreement").
6. Representations Covenants and Warranties of Phoenix. Phoenix
represents and covenants and warrants to Erin that:
(a) Phoenix has good and indefeasible title to the Drill
Sites.
(b) Phoenix owns 100 percent of the working interest with
respect to each of the Drill Sites, and not less than an ~0 percent net revenue
interest per Drill Site. in that regard, the working interest with respect to
each of the Drill Sites is subject only to the landowners' royalties and certain
overriding royalties (including, but not limited to, any farmout royalties and
other burdens with respect to each of the Drill Sites), all of which shall not
exceed 20 percent of the gross production from each of the Drill Sites.
(c) Each of the Drill Sites has the smaller of 20 acres
surrounding same or the minimum spacing as required by any governmental
authority charged with the responsibility to determine spacing requirements.
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(d) Upon the assignment of any of the Drill Sites to Erin,
Phoenix shall, within 10 days of any such assignment file for record any such
assignment in the proper state or county office.
(e) The rights and interests to be conveyed to Erin shall be
free and clear of all liens, charges, and encumbrances, except as may be
otherwise permitted hereunder.
(f) Phoenix has the right to make the transfer and conveyance
of the Drill Sites contemplated by this Agreement.
(g) No default or defaults now exist or have been declared
under the Drill Sites.
(h) The Drill Sites are now in good standing and in fill force
and effect and give to Phoenix all of the rights described therein.
(i) The Drill Sites are in compliance with the terms,
conditions, and requirements of all applicable federal, state, and local laws,
ordinances, and regulations concerning hazardous substances. Sites, any wells to
be drilled thereon, or any land associated therewith, or any other property
pertaining to the Drill Sites or the well to be located thereon, as a result of
Phoenix's obligations and activities pertaining to this Agreement. Phoenix shall
timely pay all subcontractors, materialmen and laborers involved in the drilling
and completion of any of the wells to be located upon the Drill Sites and shall
permit no mechanics' and materialmen's liens to be filed by any person with
respect to such wells arising out of or related to the performance by Phoenix of
its obligations under this Agreement. In the event that any such liens might be
filed, Phoenix shall cause same to be immediately released.
7. Pending or Threatened Environmental Proceedings As of the date of
this Agreement
(a) Phoenix is not aware of any pending or threatened proceedings,
including lawsuits, arbitrations, and administrative hearings, instituted by a
private party or by a governmental entity concerning any hazardous substance
alleged to be or to have been present, contained, used, manufactured, handled,
created, stored, treated, discharged, released, or buried on the Drill Sites or
transported to or from the Drill Sites, except as shown on Exhibit "D" attached
hereto and incorporated herein by reference for all purposes
Phoenix has not been contacted, and has no reason to believe that any
contact will be made, by any representative of a federal, state, or local
governmental agency concerning any matter having to do with a hazardous
substance on the Drill Sites, including, but not limited to, the presence,
containment, use, manufacture, handling, creation, storage, treatment,
discharge, release, or burial on the Drill Sites or the transportation to or
from the Drill Sites, except as shown on Exhibit "D" attached hereto.
8. Prior Environmental Proceedings. At no time during the period that
Phoenix has owned the Drill Sites, and 10 the best of Phoenix's knowledge, at no
earlier time, were any agreements, stipulations, or settlements of any kind
entered into between the owners of the Drill Sites and any private or public
entity relating to any hazardous substance on the Drill Sites, including, but
not limited to, the presence, containment, use, manufacture handling, creation,
storage, treatment, discharge, release, or burial on the Drill Sites or the
transportation to or from the Drill Sites of any hazardous substance, except as
shown on Exhibit "D' attached hereto.
9. Construction under CERCLA. It is the intent of the parties that this
Agreement shall be construed as an agreement made pursuant to Section 9607(e) of
Title 42 of the United States Code.
10. Indemnification for Environmental Matters by Phoenix. With respect
to each of the Drill Sites conveyed to Erin pursuant to the terms of this
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Agreement, and for the time period before the conveyance of any such Drill Site
to Erin, Phoenix shall indemnify, defend, and hold Erin harmless against all
claims, damages, and liabilities of whatever nature under the Comprehensive
Environmental Response Compensation and Liability Act, Sections 9601 et seq. of
Title 42 of the United States Code, including but not limited to the following:
(a) All fees incurred in defending any action or proceeding brought by
a public or private entity and arising from the presence, containment, use,
manufacture, handling, creation, storage, treatment, discharge, release, or
burial on the Drill Sites or the transportation to or from the Drill Sites of
any hazardous substance The fees for which Phoenix shall be responsible under
this subparagraph shall include, but shall not be limited to, the fees charged
by (i) attorneys, (ii) environmental consultants, (iii) engineers, (iv)
surveyors, and (v) expert witnesses,
(b) Any diminution in the value of the Drill Sites attributable to i) the
breach or failure of any warranty or representation made by Phoenix in this
Agreement, or (ii) any cleanup, detoxification, remediation, or other type of
response action taken with respect to any hazardous substance on or under the
Drill Sites regardless of whether or not that action was mandated by the
federal, state, or local government and relating to a period prior to the date
hereof.
The indemnification described in this paragraph shall be effective when
and only when the Drill Sites have been transferred from Phoenix to Erin If the
transfer of the Drill Sites does not occur, the indemnification described in
this paragraph shall have no force or effect.
11. Indemnification for Drilling Activities and as Operator. Phoenix
shall hold harmless and indemnify Erin, its officers, directors, shareholders,
employees, attorneys, agents, successors and assigns, or any other person at
interest therewith, from and against any and all damages, claims, or any other
form of compensation, demands, debts, expenses, including court costs or
attorney's fees, dues, liens liabilities, cause or causes of action, whether
statutory, in contract, express or implied, either at law or in equity,
including quantum meruit, or in tort, which anyone may hereafter claim to hold,
for, on account of, or growing out of, related to or concerning, whether
directly or indirectly, proximately or remotely, the Drill Sites or the
activities of Phoenix under this Agreement or as operator under the Operating
Agreement Phoenix shall further hold harmless and indemnify Erin, its officers,
directors, shareholders, employees, attorneys, agents, successors and assigns,
or any other person at interest therewith, from and against any and all damages,
claims, or any other form of compensation, demands, debts, expenses, including
court costs or attorney's fees, dues, liens liabilities, cause or causes of
action, whether statutory, in contract, express or implied, either at law or in
equity, including quantum meruit, or in tort, which anyone (including but not
limited to, any third-party with respect to the drilling or operating of any of
the wells on the Drill Sites even though not directly related to Phoenix's acts
and conduct in the actual drilling and completion of any of such wells) may
hereafter claim to hold, for, on account of, or growing out of, related to or
concerning, whether directly or indirectly, proximately or remotely, the Drill
Sites or the activities of Phoenix under this Agreement or as operator under the
Operating Agreement.
12. Limitation With Respect 10 Disclosed Matters. Notwithstanding any
other provision of this Agreement, Phoenix shall have no obligation whatsoever
to the Erin under Paragraph 10 for any matter with respect to which a written
disclosure was made by the Phoenix either prior to or contemporaneously with the
execution of this Agreement.
13. Definition of Hazardous Substance. For purposes of this Agreement,
the term "hazardous substance" shall be interpreted to mean:
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(a) Any substance, product, waste, or other material of any nature that
is or becomes listed, regulated, or addressed under one or more of the
following.
(i) The Comprehensive Environmental Response, Compensation, and
Liability Act, referred to as "CERCLA," in Sections 9601 et seq. of Title 42 of
the United States Code.
(ii) The Hazardous Materials Transportation Act, in Sections 801 et
seq. of Title 49 of the United States Code.
(iii) The Resource Conservation and Recovery Act, referred to as
"RCRA," in Setions 6901 et seq. of Title 42 of the United States Code.
(iv) The Hazardous Substances Act, referred to as "HSA," in
Sections 1261 et seq. of Title 15 of the United States Code.
(v) Any other federal or state law or local ordinance or other rule
concerning hazardous toxic or dangerous substances, wastes, or materials.
(b) Any substance, product, waste, or other material that may give rise
to liability under any of the laws designated in subparagraph (a) of this
paragraph or under any other statutory or common law tort theory.
(c) Crude oil products, including petroleum.
(d) Asbestos.
14. Authorization. Phoenix and Erin each warrant and represent that.
(a) It is a corporation duly organized, qualified, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) It is duly qualified to do business, and is in good standing
under the laws of each jurisdiction where the operation of its business or die
ownership of its properties makes such qualification necessary.
(c) It has all requisite corporate power and authority to own and
operate its properties and to carry on its business where now conducted
(d) It has fill power and authority to execute, deliver and
perform this Agreement, and every term, provision and condition of it, to be
performed or observed by said corporation. necessary for the authorization,
execution, delivery and performance of this Agreement has been duly taken.
The officers of said corporation executing and delivering this Agreement duly
and properly hold their indicated offices and are filly authorized to make such
execution and delivery.
15. Independent Contractor Status. The parties acknowledge that Phoenix
is an independent contractor, and is not an agent, partner, joint venturer, or
employee of Erin Accordingly, Phoenix shall have right to operate its business
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by such means and methods as it chooses, including the right to select and
engage its own employees or subcontractor as it considers necessary or
desirable. All persons in the employ of or under contract to Phoenix shall be
Phoenix's employees or agents exclusively and shall be subject solely to
Phoenix's direction, control and responsibility, and Erin shall have no right to
direct or control such persons as to the manner in which their functions are
performed, nor shall such employees or agents of Phoenix be deemed to be agents,
employees or subcontractors of Erin for any purpose whatsoever, and Erin shall
have no duty, liability or responsibility of any kind to or for the acts of or
omissions of such agents, employees, or subcontractors of Phoenix.
16. Survival of Warranties. All representations and warranties made by
the parties in this Agreement or in any agreement, document, statement or
certificate furnished hereunder or in connection with the negotiation, execution
and performance of this Agreement shall survive the execution of this Agreement,
and any instrument delivered as described herein for a period of one year after
the date hereof, all covenants shall survive for a period of five years after
the date hereof Notwithstanding any investigation conducted before or after the
date hereof or the decision of any party to execute this Agreement, each party
shall be entitled to rely upon the representations, covenants, warranties and
agreements set forth herein and therein.
17. Expenses. The parties hereto shall pay their own expenses
incurred in connection with the negotiation and consummation of the transactions
contemplated by this Agreement All transfer and documentary taxes (and, to the
extent permitted by law, sales taxes) incidental to the transfer of the Drill
Sites shall be borne by Erin.
18. Other Responsibilities. The parties acknowledge that neither party
is under exclusive contract to the other and that they may enter into contracts
with other companies, but that such work will not prevent Phoenix from
performing its duties to Erin in a proper and timely manner.
19. Attorney's Fees. In the event that it should become necessary
for any party entitled hereunder to bring suit against any other party to this
Agreement for enforcement of the covenants herein contained, the parties hereby
covenant and agree that the party who is found to be in violation of said
covenants shall also be liable for all reasonable attorney's fees and costs of
court incurred by the other parties hereto.
20. Benefit. All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto, and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
21. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and delivered personally or sent by
registered or certified United States mail, return receipt requested with
postage prepaid, if to Phoenix, addressed to Mr. James R Ray at P.O Box 6036,
Scottsdale, Arizona 85261. and if to Erin, addressed to Mr. Billy M Knollenberg
at 616 FM 1960 West, Suite 222, Houston, Texas 77090 Any party hereto may change
its address upon 10 days' written notice to any other party hereto.
22. Construction. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise in addition, the pronouns used in this Agreement shall be understood
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and construed to apply whether the party referred to is an individual,
partnership, joint venture, corporation or an individual or individuals doing
business under a firm or trade name, and the masculine, feminine and neuter
pronouns shall each include the other and may be used interchangeably with the
same meaning.
23. Waiver. No course of dealing on the part of any party hereto
or its agents, or any failure or delay by any such party with respect to
exercising any right, power or privilege of such party under this Agreement or
any instrument referred to herein shall operate as a waiver thereof, and any
single or partial exercise of any such right, power or privilege shall not
preclude any later exercise thereof or any exercise of any other right, power or
privilege hereunder or thereunder.
24. Cumulative Rights. The rights and remedies of any party under this
Agreement and the instruments executed or to be executed in connection herewith,
or any of them, shall be cumulative and the exercise or partial exercise of any
such right or remedy shall not preclude the exercise of any other right or
remedy.
25. Invalidity. In the event any one or more of the provisions
contained in this Agreement or in any instrument referred to herein or executed
in connection herewith shall, for any reason, be held to be in'aalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall riot affect the other provisions of this Agreement or any such other
instrument.
26. Time of the Essence. Time is of the essence of this Agreement.
27. Headings. The headings used in this Agreement are for
convenience and reference only and in no way define, limit, simplify or describe
the scope or intent of this Agreement, and in no way effect or constitute a part
of this Agreement.
28. Assignment. Notwithstanding anything herein contained to the
contrary, this Agreement may not be assigned by Erin without the prior written
consent of Phoenix, which consent shall not be unreasonably withheld. Any
request for an assignment of this Agreement by Erin shall give Phoenix no less
than 10 days to respond to the request for such assignment In the event of any
such assignment, Erin shall be deemed to be released from any and all
obligations under this Agreement, the Note, the Operating Agreement, or any
other agreement executed in connection therewith. Otherwise, this Agreement may
not be assigned by any party hereto without the prior written consent of the
other parties hereto,
29. Excusable Delay. None of the parties hereto shall be obligated to
perform and none shall be deemed to be in default hereunder, if the performance
of a non-monetary obligation is prevented by the occurrence of any of the
following, other than as the result of the financial inability of the party
obligated to perform acts of God, strikes, lock-outs, other industrial
disturbances, acts of a public enemy, wars or war-like action (whether actual,
impending or expected and whether de jure or de facto), arrest or oilier
restraint of governmental (civil or military) blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, hurricanes, storms,
floods, washouts, sink holes, civil disturbances, explosions, breakage or
accident to equipment or machinery, confiscation or seizure by any government of
public authority, nuclear reaction or radiation, radioactive contamination or
other causes, whether of the kind herein enumerated, or otherwise, that are not
reasonably within the control of the party claiming the right to delay
performance on account of such occurrence.
30. No Third-Party Beneficiary. Any agreement to pay an amount and any
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assumption of liability herein contained, express or implied, shall be only for
the benefit of the undersigned parties and their respective successors and
permitted assigns (as herein expressly permitted), and such agreements and
assumptions shall not inure to the benefit of the obligees or any other party,
whomsoever, it being the intention of the parties hereto that no one shall be or
be deemed to be a third-party beneficiary of this Agreement.
31. Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument
32. Law Governing. This Agreement shall be construed and governed
by the laws ofthe State of West Virginia.
33. Perfection of Title. The parties hereto shall do all other acts
and things that may be reasonably necessary or proper, frilly or more frilly, to
evidence, complete or perfect this Agreement, and to carry out the intent of
this Agreement.
34. Entire Agreement. This instrument contains the entire
Agreement of the parties and may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension, or discharge is sought.
IN WHITNESS WHEREOF, the parties have executed this Agreement on the date first
written above.
PHOENIX PESOURCES TECHNOLOGIES, INC
By /s/ James R Ray
- --------------------------------
James R Ray, President
ERIN OIIL EXPLORATION, INC.
By /s/ Billy M. Knollenberg
- --------------------------------
Billy M. Knolleriberg, President
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Attachments:
Exhibit "A" - The Drill Sites
Exhibit "B" - The Note
Exhibit "C" - The Operating Agreement
Exhibit "D" - The Exceptions
11
EXHIBTI 10.4
ITEM 1, (6)
SETTLEMENT AGREEMENT AND MUTUTAL RELEASE OF ALL CLAIMS
BETWEEN
PHOENIX RESOURCES TECHNOLOGIES, INC. AND 710 CORPORATION,
HAH PETROLEUM, INC., AND TOP DRILLING CORPORATION
DATED AUGUST 13, 1996
<PAGE>
SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS
-----------------------------------------------------
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS, made this 13th day
of August, 1996, by and between 710 CORPORATION, HAH PETROLEUM, INC and TOP
DRJLLING CORPORATION, hereinafter sometimes referred to as parties of the first
part; and PHOENIX RESOURCES TECHNOLOGIES, INC., formerly HUGHES RESOURCES. INC
hereinafter sometimes referred to as parties of the second part.
RECITALS
1 The parties hereby agree that all Oil and Gas Leases, personal property.
equipment and real estate which were assigned by the parties of the first part
to the parties of the second part during the past five years shall be reassigned
by the parties of the second part to the parties of the first part
2 The parties have now resolved their differences and have agreed to settle and
compromise all matters in dispute between them on the terms and conditions as
set forth herein.
AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS
710 CORPORATION. HAM PETROLEUM. INC and TOP DRILLING CORPORATION. parties of the
first part, and PHOENIX RESOURCES TECHNOLOGIES, INC. formerly HUGHES RESOURCES,
INC., parties of the second part jointly and severally, agree to be legally
bound hereby as follows;
1. The parties of the second part hereby release all claims, causes of
action, promissory notes, contracts and another evidence of debt or
liability in regard to any and all previous contracts between the parties
of the first part and the parties of the second part.
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2. For and in consideration as provided for hereinabove and of the mutual
promises exchanged herein, 710 CORPORATION, HAM PETROLEUM, INC and TOP DRILLING
CORPORATION and PHOENIX RESOURCES TECHNOLOGIES, INC., formerly HUGHES RESOURCES,
INC., have released, acquitted and discharged, and by these presents do hereby
forever release, acquit and discharge, each, the other and the heirs, successors
and assigns of each and all other persons, firms or corporations whatsoever, of
and from any and all liability. claims. actions, causes of action, damages or
demands, of every kind and character, in any manner, from any activity which
occurred on or before the 13th day of August, 1996, whether arising directly or
indirectly from any transactions between 710 CORPORATION, HAH PETROLEUM. INC.
and TOP DRILLING CORPORATION, parties of the first part, and PHOENIX RESOURCES
TECHNOLOGIES, INC., formerly HUGHES RESOURCES. INC. parties of the second part.
3. It is further expressly understood and agreed that this settlement is a
compromise of disputed claims and that the consideration given in exchange
therefore shall not in any way be construed as an admission of liability,
negligence or fault of any kind to the other, or to any person, firm or
corporation whatsoever, and that all such liability, negligence or fault is
hereby expressly denied.
4. This agreement shall be executed in multiple counterparts, each of which
shall be considered as an original.
5. This agreement shall be binding upon, and shall inure to the benefit of the
parties hereto, their heirs, successors and assigns.
WITNESSETH the execution hereof all as of the date and year hereinabove written.
710 CORPORATION
By /s/ Ira M. Haught
--------------------
Its President
HAH PETROLEUM, INC.
By /s/ Robin J. Cook
--------------------
Its President
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<PAGE>
TOP DRILLING CORPORATION
By /s/ John P. Cook
------------------------
Its President
PHOENIX RESOURCES TECHOLOGIES. INC.
Formerly HUGHES RESOURCE, INC.
By /s/ James R. Ray
------------------------
Its President
STATE OF WEST VIRGINIA,
COUNTY OF RITCHIE, TO-WIT
The foregoing instrument was acknowledged before me this 15th day of
August, 1996, by Ira M. Haught President of 710 Corporation, on behalf of
said corporation.
My commission expires: February 6, 2001
/s/ Roberta A. Montgomery
-------------------------
Notary Public
(Seal)
STATE OF WEST VIRGINIA.
COUNTY OF RITCHIE, TO-WIT
The foregoing instrument was acknowledged before me this 15th day of
August. 1996 by Robin J. Cook, President of HAH Petroleum, Inc., on behalf
of said corporation.
My commission expires: May 21, 2006
/s/ John P. Cook
--------------------------
Notary Public
(Seal)
STATE OF WEST VIRGINIA,
COUNTY OF RITCHIE. TO-WIT.
The foregoing instrument was acknowledged before me this 15th day of
August, 1996 by John P. Cook, President of Top Drilling Corporation, on
behalf of said corporation.
My commission expires: February 6, 2001
/s/ Roberta A. Montogery
---------------------------
Notary Public
(Seal)
3
<PAGE>
STATE OF ARIZONA
COUNTY OF MARICOPA, TO-WIT
The foregoing instrument was acknowledged before me this 20th day of
August, 1996, by James R. Ray, President of Phoenix Resources Technologies,
Inc., formerly Hughes Resources, Inc., on behalf of said corporation.
My commission expires May 17, 199
/s/ Zoe Rudnicki
---------------------------
Notary Public
(Seal)
4
