EXHIBIT 99.2
Petition of the Company
against Billy Knollenberg,
et al., Case No. 98-28403
NO. 98-028403
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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
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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
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NEHI, however, reserves the right to bring a seperate action under federal law
in a court of competent jurisdiction within the federal judicial system.
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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
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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
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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.
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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
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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.
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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.