EXHIBIT 99.1
Petition of the Company
against Billy Knollenberg,
et al., Case No. 98-28403
NO. 98-028403
-------------------
NATIONAL EQUITIES HOLDINGS INC. : IN THE DISTRICT CIVIL COURT
:
VS. :
:
BRADLEY KNOLLENBERG, : OF HARRIS COUNTY, T E X A S
ERIN OIL EXPLORATION INC., :
GULF MINERALS EXPLORATION, :
BILLY KNOLLENBERG, AND :
DORIS KNOLLENBERG : 295th JUDICIAL DISTRICT
: -----
PLAINTIFF'S ORIGINAL PETITION
TO THE HONORABLE JUDGE OF SAID COURT:
National Equities Holdings Inc., Plaintiff herein, files this its
Plaintiff's Original Petition against and complaining of Erin Oil Exploration
Inc., Gulf Minerals Exploration, also known as Knollenberg Gulf Minerals Family
Limited Partnership, Billy Knollenberg, Bradley Knollenberg, and Doris
Knollenberg. Defendants, and for cause of action would show the Court as
follows:
I. PARTIES, JURISDICTION, AND VENUE.
1. National Equities Holdings Inc. (hereinafter referred to only as
"NEHI"), is a corporation, duly formed and existing under the laws of the State
of Delaware, having its principal place of business in Houston, Harris County,
Texas.
2. Erin Oil Exploration Inc. ("Erin"), is a Texas corporation, existing
under the laws of the State of Texas, having its principal place of business in
Spring, Harris County, Texas. Erin may be served with process herein by serving
Billy M. Knollenberg, its President, at 21818 North I-45, Spring, Texas 77373,
or at 616 FM 1960 West, Suite 222, Houston, Texas 77090, or wherever else he may
be found. Alternatively, Erin may be served by serving its Registered Agent, as
named in
the public records filed with the Texas Secretary of State, H. Dawson French, at
Two Energy Square, Suite 800, Dallas, Texas 75206. Gulf Minerals Exploration,
also known as Knollenberg Gulf Minerals Family Limited Partnership, ("Gulf
Minerals") is alleged upon information and belief to be a limited partnership
existing under the laws of Texas, having its principal place of business in
Spring, Harris County, Texas. Gulf Minerals may be served with process herein by
serving Billy M. Knollenberg, its Registered Agent, as named in the public
records filed with the Texas Secretary of State, at 21818 North I- 45, Spring,
Texas 77373, or at 616 FM 1960 West, Suite 222, Houston, Texas 77090, or
wherever else he may be found. Also upon information and belief, Knollenberg LLC
is alleged to be the General Partner of Gulf Minerals and, according to the
public records filed with the Texas Secretary of State, Billy M. Knollenberg is
alleged to be the General Partner of Knollenberg LLC, and Gulf Minerals may also
be served, if necessary, through Knollenberg LLC by serving Billy M. Knollenberg
as its General Partner. Billy Knollenberg ("Knollenberg"), Bradley Knollenberg,
and Doris Knollenberg are individuals residing in or around Spring, Harris
County, Texas. All aforementioned Defendants may be served with citation at
21818 North Freeway, Spring, Texas 77373, or at 616 FM 1960 West, Suite 222,
Houston, Texas 77090, or at such other place as they may be found. Any and all
Defendants may be served by any person and means authorized by Rules 103 and
106, Texas rules of Civil Procedure. Alternatively, in the unlikely event that
Erin or Gulf Minerals cannot be served as provided hereinabove, then they may be
served through the Texas Secretary of State.
3. All parties to this cause are residents of or domiciled in Harris County,
Texas, and the transaction or transactions upon which this cause is based were
made and performed here. Accordingly, this Court has jurisdiction over the
parties and subject matter of this cause, and venue
-2-
is proper in this County.
4. This cause is brought under the statutes, laws, including common law, and
principles of equity of the State of Texas. Any claims which NEHI might have
against these Defendants under the statutes and laws of the United States of
America, and the rules and regulations promulgated by one or more federal
agencies, boards, or commissions, are expressly excluded from this cause.
II. BACKGROUND FACTS.
5. National Equities Holdings Inc. originally was formed under another name
by filing original and/or amended articles of incorporation with the Secretary
of State of Delaware. NEHI is authorized by such articles to issue 49,000,000
shares of common stock at $.001 par value.
6. For a period of time during the existence of NEHI, Billy Knollenberg has
been active in the business and financial affairs of the corporation. He has
been, and still is, a significant shareholder, an officer, and a Director. Until
February 1998, Billy Knollenberg was in de facto control of the corporation and
used it for his, and his family's and other business ventures in which he was
involved, personal gain and benefit. During this time, Knollenberg controlled
the Board of Directors and ran this public corporation as if it were a privately
held company. In November 1997, new shareholders by the name of Jack Chance,
George Sutherland, Steve McLoughlin, and Feroze Viavara were admitted to the
Board of Directors and then became managing officers of the corporation.
7. Beginning in November 1997, however, when Jack Chance, George Sutherland,
Steve McLoughlin, and Feroze Variava were admitted to the Board of Directors and
then became
- ------------
1
NEHI, however, reserves the right to bring a seperate action under federal law
in a court of competent jurisdiction within the federal judicial system.
-3-
managing officers of the corporation, Billy Knollenberg's absolute control over
the Board of Directors began to decline, and the new Directors began to learn
just how and to what extent he had abused his office and breached his fiduciary
duties to the corporation and mismanaged the business and financial affairs of
the corporation. All the while, however, Knollenberg continued to misrepresent
important facts and mislead the new Directors to the detriment of the
corporation and all its shareholders. Although internal discovery is ongoing and
by no means completed, the new officers have identified various abuses committed
by Knollenberg and his family members, including Doris Knollenberg, his wife,
and their son, Brad Knollenberg (sometimes hereinafter referred to jointly as
"the Knollenberg Family").
8. Among other things, the Knollenberg Family issued or caused the corporation
to issue to themselves, and to Erin and Gulf Minerals, shares of stock in NEHI
without paying any or adequate consideration for such shares. This is in
violation of Delaware Law, the Law which governs the affairs of the corporation
and the conduct of its Directors and officers. Only a full audit or accounting
by a disinterested and qualified public accountant or auditor can reveal the
extent of these wrongs. The corporation, however, seeks to cancel any and all
invalidly issues shares.
9. Furthermore, while he was in control of the corporation's Board,
Knollenberg improperly caused the corporation to assume liability for over
$2,700,000 in debentures previously issued by his private corporation, Erin Oil
& Exploration. There was no or inadequate consideration for the transaction,
however, and it, too, should be set aside and cancelled; alternatively, it
should be rescinded because of Knollenberg's fraud against NEHI.
10. Further still, shares of stock in NEHI were issued to the Knollenberg
Family members for less than par value or for an unreasonably low and thus
insufficient consideration in violation of
-4-
Sections 152 and 153 of the Delaware Corporation Statutes. More specifically,
Plaintiff will show that Defendants were issued stock in return for certain oil
and gas reserves valued at below par value or well below reasonable
consideration for the stock. Knollenberg and others, including his Family,
induced this transaction through certain misrepresentations and fraud as to the
value of the oil and gas reserves. As stated, such shares should be cancelled.
11. Only after being in office a reasonable amount of time did present
officers of the Plaintiff discover or deduce information, including from the
books and records of the corporation, indicating that Knollenberg, the
Knollenberg Family, Erin, and Gulf Minerals own or possess shares of stock in
the corporation which were obtained at below par value or well below reasonable
consideration for the stock in violation of Sections 152 and 153 of the Delaware
Corporation Statutes. Again, as stated, such shares should be cancelled.
12. NEHI now has reason to believe that Knollenberg and his Family Members and
the businesses they control, Erin and Gulf Minerals, are selling the stock to
third persons who may or may not become holders in due course or bonafide
purchasers. Additionally, they are selling the stock for less than its value,
thus watering the stock to the detriment of all shareholders. Defendants are
selling stock wrongfully issued to them as described elsewhere herein. Unless
restrained and enjoined, they will continue to sell stock in violation of their
duties and in violation of the law, and Plaintiff will have no adequate remedy
at law to recover stock from bonafide purchasers. This has harmed Plaintiff and
its shareholders, and will continue to do so. Accordingly, Plaintiff requests a
temporary restraining order without notice, and a temporary and permanent
injunction.
13. Additionally, on February 26, 1998, current management of NEHI met with
Knollenberg for the purpose of attempting in good faith to resolve certain
outstanding issues or
-5-
differences among them as to the business of the corporation. In doing so,
current management relied upon information provided to them by Knollenberg, as
well as relying upon the advice and counsel of Daniel Kirshbaum, the
corporation's legal counsel for regulatory issues. In particular, they
reasonably expected that Daniel Kirshbaum would render proper advice and
competent professional representation to them, as managing officers of the
corporation and to the corporation itself. As a result of that meeting, a
written agreement dated February 26, 1998, was signed. Among other things, the
written agreement purported to reassign liability for the Erin debentures to
Erin and to make Doris Knollenberg and Brad Knollenberg Directors of the
corporation. Daniel Kirshbaum was also named as some sort of advisory director.
The entire meeting, however, and any actions taken therein or as a result
thereof, is invalid. No notice was given to the shareholders of the corporation
and the shareholders have not approved the new directors. Furthermore, the Erin
debentures should never have been the liability of the corporation in the first
place, so anything the corporation "gave" or "exchanged" in consideration for a
release or reassignment of the debentures was done without any consideration and
should be cancelled or set aside. The corporation has advised Knollenberg,
Kirshbaum, and others that the bogus agreement is void.
14. As a result of an ongoing dispute between current management and the
Knollenbergs, the corporation has been unable to make and file appropriate, and
accurate, financial disclosures to its shareholders and to the public. Current
management cannot sign financial disclosures for a period which preexists their
active involvement with the corporation unless they are assured of the accuracy
thereof. Current management now has reason to question the independent judgment
and loyalty of at least Daniel Kirshbaum, if not others, and will not be able to
make or file required disclosures and reports until the accuracy thereof is
assured.
-6-
15. As stated hereinabove, NEHI is continuing to conduct a thorough internal
audit of the self-dealing business and other actions committed by Knollenberg,
as well as members of his Family, against the best interests of the corporation
and its shareholders. This includes replacing Daniel Kirshbaum and possibly the
corporation's present auditing firm, as well. A thorough audit, however, must
include discovery of the Defendants, and others, under the Texas Rules of Civil
Procedure. Once such is concluded, or as intervening circumstances mandate, the
corporation will amend this Petition to join and all other persons or entities
who should be named as Defendants and any and all other causes of action under
Texas law which may properly be brought before this Texas District Court.
16. In addition to the cancellation of shares fraudulently issued to
Knollenberg and the other Defendants, or which were issued in violation of
Delaware Law, NEHI hereby sues all Defendants for wrongful conversion, breach of
fiduciary duty, and it seeks a full accounting from the Defendants for all
monies and assets of the corporation they wrongfully converted and/or usurped,
as well as a judgment for damages as may be proved. Additionally, Knollenberg
has shown himself to be unfit to hold the trusted and fiduciary position as
Director of a public corporation, and he should be removed.
III. INJUNCTIVE RELIEF AND EXPEDITED DISCOVERY.
17. Plaintiff will further show that it has no adequate remedy at law to
correct the unlawful issuance of the shares made the subject of this suit. The
relative positions of its shareholders have been reduced and altered by the
issuance of certain shares to Defendants, whose ownership interest in Plaintiff
corporation has been acquired without proper consideration. Further, the
financial standing of National Equities Holdings Inc. does not reflect a true
picture of the assets and capital
-7-
accounts of Plaintiff as long as Defendants hold shares issued for less than
the consideration prescribed by law. National Equities Holdings Inc. was and
is at all times ready, willing, and able to return to Defendants the oil and
gas reserves, as well as to do equity in all respects.
WHEREFORE, PREMISES CONSIDERED, National Equities Holdings Inc. prays
that the Defendants be served with process and ordered to appear and answer
herein; that, thereafter, a temporary restraining order be issued without notice
to Defendants, restraining Defendants, or their agents, servants, and employees,
from directly or indirectly selling stock issued by National Equities Holdings
Inc. until further order by this Court; that a hearing be set and, following a
hearing, that a temporary injunction be issued, after notice to Defendants and
an evidentiary hearing, enjoining Defendants, their agents, servants, and
employees, directly or indirectly from selling stock issued by National Equities
Holdings Inc. during the pendency of this action; that the temporary injunction
be made final following the trial of this cause; that, upon trial hereof, the
Court render its decree canceling National Equities Holdings Inc.'s shares found
to have been improperly issued to Defendants, thereby cancelling and rescinding
the issuance of such shares and declaring that Defendants have no rights or
privileges, now or hereafter, with regard to such shares; that NEHI be awarded
all damages, including prejudgment interest, and attorneys fees and costs
herein; that, if necessary to effectuate his removal, Billy Knollenberg be
removed as a Director of the corporation; and that it have such other and
further relief, both general and special, at law or in equity, to which it may
show itself justly entitled.
-8-
Respectfully submitted,
GREENBERG, PEDEN,
SIEGMYER & OSHMAN, P.C.
By:_________________________________
MICHAEL B. LEE
State Bar No. 12129500
ROGER B. GREENBERG
State Bar No. 08390000
12 Greenway Plaza 10th Floor
Houston, Texas 77046
(713) 627-2720
(713) 627-7057 FAX
ATTORNEYS FOR
NATIONAL EQUITIES HOLDINGS INC.