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As Filed with the Securities and Exchange Commission on May 8, 1997
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
MERCRISTO DEVELOPMENTS, INC.
(Formerly [email protected] Inc., formerly MAC Systems Inc.)
DELAWARE 98-0166912
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
240 Argyle Avenue,
Ottawa, Ontario, Canada K2P 1B9
(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code is (613)-230-9803,(800)-565-
6671
COPIES TO:
JEFFREY H. BOWEN, ESQ.
HARTER, SECREST & EMERY
700 MIDTOWN TOWER
ROCHESTER, NEW YORK 14604
(716) 232-6500
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
---- ----
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(Title of Class)
______________________________________________________________________________
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TABLE OF CONTENTS
ITEM PAGE NO.
1. BUSINESS............................................................ 1
2. FINANCIAL INFORMATION............................................... 13
3. PROPERTIES.......................................................... 18
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................... 19
5. DIRECTORS AND EXECUTIVE OFFICERS.................................... 20
6. EXECUTIVE COMPENSATION.............................................. 22
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 23
8. LEGAL PROCEEDINGS................................................... 24
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.............................. 25
10. RECENT SALES OF UNREGISTERED SECURITIES............................. 27
11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED............. 28
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS........................... 29
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................... 30
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................. 32
15. FINANCIAL STATEMENTS AND EXHIBITS................................... 33
SIGNATURE PAGE.......................................................... 34
INDEX TO EXHIBITS....................................................... 35
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ITEM 1. BUSINESS
GENERAL ORGANIZATIONAL HISTORY OF THE COMPANY
---------------------------------------------
The Company was incorporated in the State of Delaware on January 4, 1996 as
MAC Systems Inc. ("MAC") and was initially capitalized with the issuance of
4,090,448 shares of common stock. On or about January 19, 1996, approximately
90% of the 4,090,448 then outstanding shares of common stock of the Company was
acquired by Janmur Investments Inc. ("Janmur") on behalf of 84133 Investments
Inc. ("84133"), both Janmur and 84133 being owned by a non-citizen and non-
resident of the United States. Prior officers and directors of MAC were replaced
by persons who had no past relationships with the stockholders, and prior
directors and officers of MAC. On January 22, 1996, MAC effected a 20-for-1
reverse split which resulted in 204,719 shares of common stock being
outstanding, with approximately 10% continuing to be held by the original
stockholders of MAC.
On or about February 4, 1996, in exchange for 6,000,000 shares of legended
common stock of MAC, 84133 transferred to MAC all of the outstanding shares of
common stock of 84133's wholly-owned subsidiary, ComputerLink Online Inc.
("ComputerLink"), at exactly the same cash value for which 84133 acquired
ComputerLink from the unrelated original founders of ComputerLink on January 1,
1996. ComputerLink, a private Canadian corporation providing Internet access,
software, and World Wide Web services thereby became a wholly-owned subsidiary
of MAC. The original founders of ComputerLink, in recognition of their
technical experience and familiarity with ComputerLink's operations, were
retained under management contracts as the senior executive management team and
members of the Board of Directors of MAC. In March 1996, MAC changed its name
to Internet @ iDirect.com Inc. ("Internet") to reflect more accurately the
consolidated operations of MAC and ComputerLink. In June 1996, in exchange for
1,000,000 shares of legended common stock of Internet, Internet acquired Tucows
Ltd. ("Tucows"), one of the world's top 5 providers of World Wide Web services,
from 84133.
By agreements executed January 15, 1997, Internet and 84133 rescinded the
transactions pursuant to which the Company acquired ComputerLink and Tucows.
Contemporaneously with this rescission transaction, all ComputerLink affiliates
resigned from Internet's Board of Directors and any offices that they may have
held with Internet. There are no ongoing relationships or affiliations between
the Company and ComputerLink, Tucows and their shareholders, directors, officers
and management. As the acquisition transactions were rescinded, so were the
issuances of the 7,000,000 shares of the Company's Common Stock. As a result of
these rescission transactions, the Company had no operations and no operating
assets.
THE COMPANY - MERCRISTO DEVELOPMENTS, INC.
------------------------------------------
On or about January 27, 1997, David G. Edwards, principal shareholder and
owner of 622291 Ontario Limited ("622291"), a private Canadian company with
diversified financial investment/operational interests located in Ottawa,
Ontario, Canada, purchased 200,000 shares of the Company's Common Stock from
Janmur, and acquired management control of the Company. By Board of Directors
and stockholder action on February 10, 1997, Mr. Edwards, his wife and his
brother
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became the Company's Directors and officers. The new stockholders, officers and
Directors have no past relationship with the Company's prior management.
The Company changed its name from Internet @ iDirect.com Inc. to Mercristo
Developments, Inc. on February 10, 1997.
Effective January 31, 1997, David G. Edwards effected a reorganization of
622291 pursuant to which operations of 622291 other than the Blue Moon Farms
breeding and care operations and operations of 622291's wholly-owned subsidiary,
Edwards Arabians Inc., were spun off from 622291. Simultaneous with the U.S.
Securities and Exchange Commission's declaration of effectiveness of the
Company's Registration Statement on Form 10 and the acceptance of the Company's
application to NASDAQ to have its Common Stock listed for trading on the NASDAQ
SmallCap Market, 622291 will become a wholly-owned subsidiary of a newly-formed
Canadian holding company known as Egyptian Arabians Inc. and will acquire title
to certain real property at 240 Argyle Avenue, Ottawa, Canada. The Company has
recently closed in escrow, and simultaneous with the declaration of
effectiveness of the Company's Registration Statement on Form 10 and the
acceptance of the Company's application to NASDAQ to have its Common Stock
listed for trading on the NASDAQ SmallCap Market, Egyptian Arabians Inc. will
become a wholly-owned subsidiary of the Company pursuant to the terms and
conditions of an Agreement and Plan of Reorganization by and among the Company,
Egyptian Arabians Inc. and Egyptian Arabians' sole stockholder. In
consideration of the acquisition of Egyptian Arabians, the Company will issue to
RESI Corp., the sole stockholder of Egyptian Arabians, 8,450,000 shares of the
Company's Common Stock. All of the transactions pursuant to which 622291
becomes a wholly-owned subsidiary of Egyptian Arabians and Egyptian Arabians, in
turn, becomes a wholly-owned subsidiary of the Company have been closed in
escrow with the only conditions to closing being the declaration of
effectiveness of the Company's Registration Statement on Form 10 and the
acceptance of the Company's application to NASDAQ to have its Common Stock
listed for trading on the NASDAQ SmallCap Market.
The Company has an authorized capitalization of 100,000,000 shares of
Common Stock, par value of $.001 US, of which 16,560,519 shares of common stock
are issued and outstanding. See "Security Ownership of Certain Beneficial Owners
and Management," "Recent Sales of Unregistered Securities" and "Description of
Registrant's Securities to be Registered."
Unless otherwise indicated herein, the information set forth herein assumes
the closing of the transactions contemplated by the Agreement and Plan of
Reorganization, and all references to the "Registrant" or the "Company" herein
include Mercristo Developments, Inc., the Company's wholly-owned subsidiary,
Egyptian Arabians Inc., and the direct and indirect wholly-owned subsidiaries of
Egyptian Arabians Inc., 622291 Ontario Limited and Edwards Arabians Inc.,
respectively.
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CORPORATE STRUCTURE
-------------------
The Company's corporate structure is as follows:
Company:
a Delaware Corporation Mercristo Developments, Inc.
Canadian Subsidiary:
an Ontario Corporation Egyptian Arabians Inc.
Original Holding Company:
Includes Blue Moon Farms 622291 Ontario Limited
operations, and the corporate
offices at 240 Argyle Avenue,
Ottawa
Marketing & Sales,
100% Subsidiary Edwards Arabians Inc.
OVERVIEW - COMPANY'S OPERATIONS
-------------------------------
Management believes that the Company, through its wholly-owned subsidiary,
Egyptian Arabians Inc., is the world's second largest private breeder of
Straight Egyptian Arabian horses. Straight Egyptian Arabian horses are the
finest and rarest of Arabian horses in the world. Out of an estimated 100
million world general horse population, approximately 6,000 are Straight
Egyptian Arabian horses.
North America is the world's foremost repository of these highly prized and
rare creatures. Egyptian Arabians Inc. is one of five large Canadian farms which
are solely dedicated to the breeding of Straight Egyptian Arabian horses. Each
of these five farms is independently owned and operates strictly on an arms
length basis from one another. The five farms utilize and access semen from a
major international organization which currently controls the largest collection
of senior, world class Straight Egyptian Arabian stallions available today. In
addition, subsidiaries of Egyptian Arabians Inc. have previously purchased semen
from other senior stallions which are owned by other independent North American
breeders of Straight Egyptian Arabian horses.
Egyptian Arabians Inc. is managing the second largest private breeding
facility for Straight Egyptian Arabian horses in the world, with more than 325
Straight Egyptian Arabian horses under its care and management with
approximately 95 mares which will produce foals in 1997. There are a total of
125 mares which are eligible and will be bred in 1997 as well. As a result of
the 1997 foaling and breeding activities, it is expected that by the summer of
1998 Egyptian Arabians Inc. will provide care
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and management for approximately 380 Straight Egyptian Arabian mares and fillies
at its present facilities.
The Company operates through two subsidiaries of its main Canadian
subsidiary - Egyptian Arabians Inc. The two subsidiaries are:
(a) 622291 Ontario Limited, an Ontario company, located in Addison, Ontario.
The Company's Blue Moon Farms operations reside within 622291. Blue Moon
Farms is the farm operating facility for the breeding and care of the
Straight Egyptian Arabian horses tenanted there.
(b) Edwards Arabians Inc., an Ontario company, with its head office located
at 240 Argyle Avenue, Ottawa, Ontario. Edwards Arabians Inc. is the
marketing and sales arm for the Company's Straight Egyptian Arabian
horse business.
The Company, since the inception of its equine business in 1991, has
enjoyed strong revenue growth, solid operating margins, and high levels of
profitability. See "Financial Information" and "Financial Statements".
Management anticipates continued revenue growth. Except for commercial mortgages
on its 240 Argyle Avenue, Ottawa, Ontario corporate headquarters, and the Blue
Moon Farms facilities, it has no institutional debt or commercial lines of
credit.
In the past five years, the Company has generated revenue principally by
(a) selling Straight Egyptian Arabian horses to investment limited partnerships
and to individual clients and (b) operating the breeding and care facilities at
Blue Moon Farms for the Straight Egyptian Arabian horse assets of the limited
partnerships and other individual owners.
These limited partnerships center around shared ownership by individual
clients of world class Straight Egyptian Arabian horses, and utilize various
Canadian legislation that exists in the area of farm-loss write-offs,
registered savings plans deductions through share ownership in private client
owned Canadian corporations, income splitting, and the deductibility of loan
servicing interest on investments loans. Additionally, individual clients have
also purchased Straight Egyptian Arabian mares in order to take advantage of
their breeding potential and the premium prices commanded by Straight Egyptian
Arabian horse fillies borne by these mares over an average 15 years breeding
life.
At the Company's Blue Moon Farms facilities, leading edge techniques for
artificial insemination, pregnancy care, foaling care, medical care and
training, coupled with a work force of approximately 30 highly trained staff and
management, have contributed to the Company's profitability. Continued growth in
revenues, tightly engineered cost optimization, and top quality Straight
Egyptian Arabian horse breeding rates exceeding 85% (compared to the worldwide
industry average of approximately 65% - 70%) have allowed the Company to become
what management believes is the world's second largest private breeder of
Straight Egyptian Arabian horses in the short span of five years since its
inception in year end 1991.
The Company is currently negotiating a participation agreement in an
extensive R&D program with one of North America's leading equine research
centers - Guelph University, Guelph, Ontario. This three-year research program
will investigate one of the leading causes of death among new born foals. The
Company hopes that its sponsorship of this program will provide it with access
to technology that
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will reduce the death rate of new born foals and thereby improve the Company's
prospects for greater volumes of annual foal production.
The Blue Moon Farms operation employs approximately 25 staff members and
has several local veterinarians on 24 hour call . The entire Straight Egyptian
Arabian horse breeding and care system is continuously and carefully monitored,
electronically and physically, to ensure maximum productivity of Straight
Egyptian Arabian foalings. Leading edge medical and electronic equipment and
highly trained staff, enable minimization of costs and optimization of Straight
Egyptian Arabian horse production output.
It is the Company's objective to become the world's largest private breeder
of Straight Egyptian Arabian horses. Management intends to do this through both
external growth through acquisitions, primarily in the United States, and
internal growth through increased revenue generation and profitability. It has
its executive, financial, and marketing offices at 240 Argyle Avenue in Ottawa,
Canada, and operates its breeding and equine care facilities at and adjacent to
its Blue Moon Farms location in Addison, Ontario, Canada covering 220 acres,
currently housing over 325 Straight Egyptian Arabian horses.
COMPANY'S MISSION AND STRATEGY
------------------------------
The Company, currently believed by management to be the world's second
largest private breeder of Straight Egyptian Arabian horses, has a primary
mission to profitably carry on the business of breeding, raising, showing,
exhibiting, and selling Straight Egyptian Arabian horses for the purpose of
supporting external and internal growth and returning value to the Company's
stockholders. The Company's ultimate goal is to become the largest private
breeder of Straight Egyptian Arabian horses in the world. To accomplish this
goal, the Company has made major investments in re-engineering the Straight
Egyptian Arabian horse breeding and care operations at the Company's Blue Moon
Farms facilities, in Addison, Ontario, using the most advanced technologies for
breeding, maternity care and monitoring, physical security, safety, and medical
care.
SHORT-TERM AND MEDIUM-TERM STRATEGIES
-------------------------------------
The Company's strategy is to improve the Company's position in the
Straight-Egyptian Arabian marketplace. In the short term, the Company intends to
pursue the following core strategies:
Complete the re-engineering and modernization of the Company's facilities
at Blue Moon Farms.
Identify potential acquisition targets of North American Straight-Egyptian
Arabian horse breeders.
Establish North American market awareness of the Company and its business.
Establish market awareness of the Company and its business in select
international markets.
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In the medium term, the Company intends to pursue the additional following
strategies:
Fuel external growth by U.S. acquisitions of Straight-Egyptian Arabian
horse breeders whose operations will be compatible with those of the
Company.
Establish a Straight Egyptian Arabian horse export market from North
America to select international markets.
Create a niche lifestyle awareness in North America as to the benefits,
both social and economic, of participation in the ownership of Straight-
Egyptian Arabian horses.
Although the Company intends to grow through external acquisitions, the
Company has no understanding or agreements to make any specific acquisition at
this time. In any event, the terms and conditions of any such acquisition would
be subject solely to management's discretion.
THE ARABIAN HORSE
-----------------
The Arabian horse has the distinction of being the oldest living breed of
horse. "Equus Arabicus", one of the four original species of horse, has been
identified in modern times as the Arabian horse. While other breeds disappeared
or mixed with different breeds, the Arabian remained essentially the same.
Although the first recorded history of the Arabian horse was 3,000 years ago,
some archaeologists believe the breed existed as long as 40,000 years ago.
Raised originally in Arabia and adjacent countries and noted for its
intelligence, grace and stamina, Arabians have the longest bloodline record of
any horse breed and have been bred by the Bedouins in the Near East for three
millennia, primarily for use in war because of their endurance. Tomb paintings
indicated that Egyptians raised Arabian horses as early as 1580 BC. The Muslim
conquests of the sixth and seventh centuries introduced Arabian horses to Europe
and many parts of Asia.
Many of the Arabian horse's characteristics (such as stamina, hardiness and
agility) were developed due to the careful breeding practices and harsh
lifestyle of the desert Bedouin tribes. The natural culling that occurred
because of the strenuous life in the desert was enhanced by careful breeding
practices of owners. Because of these breeding practices the Arabian horse is
considered to be the most prepotent of all breeds of horses, for its ability in
passing on its characteristics to foals.
For thousands of years, owners bred Arabian horses to own more stock and to
pick up the famous Arabian qualities. In fact, the Arabian horse is the genetic
predecessor of every light horse breed in existence today. Arabians have been
bred with other horses to produce new breeds, including thoroughbreds,
standardbreds, quarter horses, lippizaners and national show horses.
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STRAIGHT EGYPTIAN ARABIAN HORSES
--------------------------------
Straight Egyptian Arabian horses have become the most sought after horses
in the world. For type, exquisite beauty, fiery personality and sheer courage
no horse comes close to the Straight Egyptian Arabian horses. Straight Egyptian
Arabians, which account for approximately 1.0% of all purebred Arabian horses,
trace their heritage exclusively to the Arabians which were bred in, or whose
bloodline was used as part of, the established breeding programs in Egypt,
referred to below. Many Arabian horses in North America and Europe today are
Egyptian-related in recognition of the superior qualities of the Straight
Egyptian Arabian.
Straight Egyptian Arabians are considered by breeders to be very prepotent
in passing their characteristics on to their foals because of their intense line
breeding. The Straight Egyptian Arabian is known for its elegant features. Its
dished head, large eyes, arched neck and high tail carriage justify its
reputation as the most beautiful of all breeds. Straight Egyptian Arabian horses
have a body which is shorter than other breeds, usually a rib and one vertebrae
less than a Thoroughbred and two vertebrae in the tail. Colourings are primarily
grey, bay and chestnut.
The Straight Egyptian Arabian horse's natural physical characteristics have
contributed to its outstanding performance in today's equine activities. The
short, dished head and wide flaring nostrils allow for maximum oxygen intake.
The arched neck keeps the windpipe defined and clear to carry air to the lungs.
Through careful breeding, strong resilient legs, free of most lameness problems,
are more common than in other breeds. Such qualities give the Straight Egyptian
Arabian horse superior athleticism and versatility.
INTERNATIONAL MARKETS
---------------------
Straight Egyptian Arabian horses have become the most coveted of Arabians,
and markets have opened up in many parts of the world to meet the demand for
these rare and exceptional creatures. Out of the general Arabian horse
population of 1 million, and a general world horse population of an estimated
100 million, only approximately 6,000 horses are registered Straight Egyptian
Arabians. This exclusivity has helped to support the market value of these
horses. See "BUSINESS - The Industry."
Outside of North America, countries with well developed markets and
businesses leading in the breeding and growth of the Straight Egyptian Arabian
horse industry include: Sweden, Norway, Germany, Netherlands, Belgium, Spain,
Portugal, France, Switzerland, Austria, Hungary, Russia, Poland, Morocco, Egypt,
South Africa, Australia, Argentina, Chile, Uruguay, and Brazil.
NORTH AMERICAN MARKETS
----------------------
Arabian horses made their debut in North America during the 1893 Chicago
World's Fair, where Bedouins exhibited 29 horses. The breed gradually grew, but
it was not until the 1940's that the Arabian horses gained widespread popularity
through the advent of horse shows. Some of the best Arabian horses bred
throughout the world have been exported to North American breeders over the last
40 years. North American breeders have achieved a reputation as leaders in the
preservation, through selective breeding, of purebred Arabian bloodlines.
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After countless centuries, and only in the last 30 to 40 years, North
America has achieved the undisputed status as the world guardian and protector
of Straight Egyptian Arabian horses in terms of both quality and quantity. The
Company's operations in this North American and International context, have
established the Company as the second largest private (non-governmental) breeder
in the world. Only the Egyptian agricultural organization, sponsored by the
Egyptian government, is larger.
North American interest in Straight Egyptian Arabian horses has soared
after major wins in the show ring, and consequently as a better understanding
was achieved of the pure, refined type and elegance for which these horses were
prepotently line-bred. The Pyramid Society was formed in the United States to
ensure the strictly controlled perpetuation of this rare genetic pool, and to
provide valuable outcross bloodlines to other Arabian breeders.
Several countries maintain their own registration systems for Arabian
horses. Registration of Arabians in North America began in 1908, although
Arabian horses were imported occasionally to North America during the 18th and
19th centuries. Up to the end of December 1991, all Arabian horses owned in
Canada could be registered with either or both the Arabian horse Registry of
America, Inc. (the "AHRA") or the Canadian Arabian horse Registry (the "CAHR").
Effective January 1992, all Canadian Arabian horses must be registered only with
the CAHR as, at the request of the CAHR, the AHRA has ceased to offer its
registration services to Canadian owners for foals born in Canada. A breeder
usually registers a foal within six months of its birth. The CAHR rules limit
registration to one foal per year per mare. Effective January 1, 1991, all foals
must be blood-typed as they approach breeding age. The CAHR also maintains
records of the blood-type of every Arabian breeding stallion. The particular
markings of the horse, including hair whorl location, are recorded on the
Certificate of Registration.
Since the AHRA does not register specific bloodlines, the Pyramid Society
was formed to establish standards for and act as a record keeper of Straight
Egyptian genealogy. An extensive reference handbook of Straight Egyptian Arabian
horses is published every four years by the Pyramid Society. The latest
reference handbook was published in 1994. The Pyramid Society also holds an
annual World Egyptian Event in Lexington, Kentucky. The Egyptian Event includes
a stallion exhibition, lectures, halter, performance and futurity competitions
for Straight Egyptian Arabian horses and Egyptian-related horses. Horses which
are nominated en utero to compete at a future date, usually for a period of
three years after nomination, participate in various futurity competitions.
Canadian breeders of Straight Egyptian Arabian horses consider it desirable
that their horses be registered with the CAHR and be confirmed by the Pyramid
Society to be Straight Egyptians to ensure recognition and adequate protection
of the bloodline. Breeders also seek membership with the International Arabian
horse Association located in Westminster, Colorado. This association organizes
and operates various Arabian horse shows throughout the year and prescribes
ethical standards to be followed by its members.
THE INDUSTRY
------------
The major criteria for determining the value of Straight Egyptian Arabian
horses are substantially similar to those utilized to determine the value of
race horses: pedigree, performance in competition, and the ability to produce
marketable foals. The owner of a Straight Egyptian Arabian horse need not bear
the costs of training for, or risk the many health hazards involved with, racing
in
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order to derive value. The show arena is equivalent to the race track for a
racehorse since the Straight Egyptian Arabian accumulates honors by winning show
competitions as opposed to winning races. However, professional Arabian and
Straight Egyptian Arabian horse racing is rapidly becoming quite popular.
Straight Egyptian Arabian horses have become increasingly popular in the
last three decades in North America and interest has increased following not
only major competitive wins by such horses in the show ring, but also a growing
public appreciation of the refinement and elegance of the Straight Egyptian. For
example, at the Canadian National Arabian Show held in August 1989, three
Straight Egyptian stallions and one Egyptian-related stallion finished in the
top ten in the Open Stallion Class with one obtaining National Champion Stallion
honours and the other two obtaining Reserve National Champion Stallion honours.
At the United States National Arabian Show in October 1990, two Straight
Egyptian stallions and one Egyptian-related stallion finished in the top ten in
the Open Stallion Class, with one obtaining National Champion Stallion honours.
At the United States National Arabian Show in October 1991, three Straight
Egyptian stallions finished in the top ten in the Open Stallion Class, with one
obtaining National Champion Stallion honours. At the 1994 United States National
Arabian Show, a Straight Egyptian stallion was Reserve National Champion in
halter and two Straight Egyptian Arabian stallions won Top Ten National Futurity
Honours, including the Cabreah International stallion, Imperial Saturn. At the
1995 United States National Arabian Show, one Straight Egyptian stallion placed
in the top ten.
Arabians are considered to be the one of the fastest growing breeds of all
of the major light horse breeds on the North American continent. The American
Horse Council of Washington, D.C. has published registration figures indicating
that the number of Arabian foals registered in North America has increased from
1,610 in 1960 to 24,578 in 1988, which is approximately four times the rate of
growth of the total number of registrations during these years for the major
North American light horse breeds. Purebred Arabian horse registrations have
declined, however, from their highest levels in the mid-1980's to approximately
13,000 registrations in each of 1994 and 1995.
Arabians are generally sold either by private agreement or at public
auction, often by a sales agent.
Due to their rarity and aesthetic qualities, Straight Egyptian Arabian
horse foals will normally fetch considerably higher prices than Egyptian-related
foals. Also, a filly is usually much more valuable than a colt because of her
potential value for breeding. In general, the percentage of live foals born in a
group of mares confirmed by a veterinarian as "checked to be in foal" is
normally approximately 90% and the usual ratio of colts to fillies is one to
one. Generally, breeders evaluate a breeding program on the basis of the number
of foals one may expect to be produced by a mare, the reproductive capabilities
of fillies so produced and the anticipated selling price of each foal. The
anticipated breeding life of an Arabian mare under good management conditions is
approximately 15 years. Because the gestation period for horses is eleven
months, a mare can carry only one foal a year, assuming that a breeder is
utilizing only a direct breeding program for his mares.
The rarity of Arabians is preserved by the CAHR rules providing for only
one foal per year per mare. Subsequent to the 1990 breeding season, the CAHR
rules permit the transportation of semen for artificial insemination and the
storage of semen. To reduce the risk associated with breeding, some breeders
have in recent years employed embryo transfers and artificial insemination.
Unlike the
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thoroughbred horse, industry permits immediate artificial insemination and
embryo transfers, thus reducing the risk of injury to the stallions and
breeding, carrying and delivery risks for the mares.
COMPANY'S PRIMARY SOURCES OF REVENUES AND INCOME
------------------------------------------------
The Company's primary sources of revenue are:
(a) Sales of Straight Egyptian Arabian horses to various limited
partnerships, offered by Edwards Securities Inc. ("ESI"), acting as
the General Partner. ESI is a corporation incorporated under the laws
of Ontario and licensed by the Ontario Securities Commission to
create, promote, and sell securities. David G. Edwards is indirectly
the sole controlling shareholder, Director, and president of ESI. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(b) Sales of Straight Egyptian Arabian horses to individual owners.
(c) Sales of Straight Egyptian Arabian horses to other breeders.
(d) Services related to the breeding and care of Straight Egyptian Arabian
horses for the limited partnerships, and for other individuals who
choose to utilize the Company's services.
See "FINANCIAL INFORMATION - Management's Discussion and Analysis."
In order to maximize the net income that results from these revenue-
generating sources, the Company increases margins by optimizing the use of in-
house re-engineered processes, which are designed to achieve the maximum
breeding rates and foaling rates in the shortest time frames and to minimize the
costs related to the breeding and care services provided by the Company at its
Blue Moon farm facilities.
The Company has established specialized facilities at its Blue Moon Farms
location, which literally "customizes" the facilities and procedures used at
every stage of the Straight Egyptian Arabian horse's productive life. For
example, pregnant Straight Egyptian Arabian mares move through a staged sequence
and live in different facilities as their pregnancy progresses. At the final
stages, the pregnant Straight Egyptian Arabian mare has moved into facilities
adjacent to the birthing centre and breeding laboratories, so that expert help
is at hand. Here, the Straight Egyptian Arabian mare is internally monitored,
remotely electronically and by wireless alert systems, 24 hours a day, including
up to the precise moment that her "water breaks". Use of in-house expertise and
state of the art equipment makes the above possible while cutting industry
standard costs substantially.
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COMPETITION
-----------
Competition is very limited, given the infancy of the modern Straight
Egyptian Arabian horse business. There are only a handful of operators who are
willing and able to structure and run the Straight Egyptian Arabian horse
breeding business like any other high-technology business, using state-of-the-
art management and production-line techniques.
The Company believes that, by applying to the Straight Egyptian Arabian
horse business all the techniques and tools applied to any other high technology
business, it has become the world's second largest private breeder. The focus
has been to achieve a world class quality product (top bred Straight Egyptian
Arabian mares), with the highest productivity rates (successful births of
Straight Egyptian Arabian fillies), and lowest defects rate (failed
inseminations and aborted pregnancies). This combined with Mr. Edwards'
successful track record, via ESI, in successfully packaging and marketing the
Straight Egyptian Arabian horse product into affordable investment units which
clients could buy, has given the Company a competitive advantage.
The North American and international markets are so large and in such an
embryonic growth stage, that there is room for any number of companies engaged
in the same business as the Company. However, the Company intends to become the
world's largest private breeder of Straight Egyptian Arabian horses through
acquisitions and internal growth, and to continue to set the standards for
Straight Egyptian Arabian horse production and care. Its competitive edge is to
keep doing before others, what it has pioneered to date over its five year life.
RISK FACTORS
------------
The major risk factors that could directly impact the Company's business
are as follows:
. Future, potential infestation of the Company's Straight Egyptian
Arabian horses by a yet unknown but assumed deadly equine illness. The
Straight Egyptian Arabian horses that are boarded at the Company's
Blue Moon Farms facility are fully insured by Lloyds of London, and
their immediate value would be recoverable. However, to rebuild the
Straight Egyptian Arabian horse herd would take time and, in the
interim, ongoing revenue streams from sales of horses would be
curtailed, as sales to the limited partnerships and individual
purchasers would be interrupted.
. Future, potential unplanned death or departure of key personnel,
specifically David G. Edwards, Patricia L. Edwards, Kenneth A.
Edwards, and Stephane Robillard, would adversely impact the business
in the near-term. There can be no assurance that the Company would be
able to replace any of these individuals. Furthermore, the Company
does not carry key man insurance on any of these individuals. See
"DIRECTORS AND EXECUTIVE OFFICERS."
. Future, potential, unanticipated changes in governmental tax laws and
tax rulings on individual client's affairs disallowing the farming tax
status and associated investment
11
<PAGE>
costs/losses deductions for clients of the limited partnerships that
purchase the horses from the Company and the deductibility of Straight
Egyptian Arabian horse investment interest expense. These changes
could make investing by individual clients in the limited partnerships
less attractive, and could adversely impact the demand for the
Company's horses.
. Termination of the Company's close association with its four
associated Canadian farms could temporarily hamper, in the near-term,
the Company's sales. Specifically, if Egyptian Arabians Inc. was ever
unable to access semen from senior Straight Egyptian Arabian stallions
owned by its current major supplier, it would have to make
arrangements to purchase semen from other sources. Semen would then
have to be purchased from the owners of other world class senior
stallions and any unplanned changes in the supply of semen would be
viewed as disruptive but only temporary.
. A sudden, unforeseen, glut in production of quality Straight Egyptian
Arabian horses into the North American markets would drive unit prices
down and thus adversely affect gross revenues and net margins.
. There has been no public market for the Company's Common Stock. There
can be no assurance that an active public market will develop or be
sustained or that the market price of the Common Stock will not
decline below that which is originally quoted by any broker-dealer.
Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of litigation
or changes in earnings estimates by analysts could cause the market
price of the Company's Common Stock to fluctuate substantially. These
fluctuations, as well as general economic, political and market
conditions such as recessions, international instabilities or military
conflicts, may materially and adversely affect the market price of the
Company's Common Stock.
12
<PAGE>
ITEM 2. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- ------------------------------------
Year Ended January 31,
--------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS DATA
REVENUES
Farm $ 1,844,777 $1,359,411 $1,170,748 $ 755,755 $ 195,041
Horses 7,193,258 4,972,268 3,008,893 2,588,228 1,473,231
Interest and Other 228,930 260,119 316,111 374,329 91,511
----------- ---------- ---------- ----------- ----------
Total Revenues $ 9,266,965 $6,591,798 $4,495,752 $ 3,718,312 $1,759,783
----------- ---------- ---------- ----------- ----------
COSTS AND EXPENSES
Farm 829,609 836,444 691,790 362,109 230,097
Horses 7,021,527 5,096,700 2,979,873 2,422,143 1,370,180
Marketing and Sales 53,385 83,163 13,255 19,070 38,841
General and Administrative 335,563 293,925 261,557 130,589 145,117
Depreciation and Amortization 92,715 89,185 81,409 69,028 14,203
Interest Expense 64,907 73,244 78,156 35,396 8,063
----------- ---------- ---------- ----------- ----------
Total Costs and Expenses $ 8,397,706 $6,472,661 $4,106,040 $ 3,038,335 $1,806,501
----------- ---------- ---------- ----------- ----------
Income (Loss) before Taxes $ 869,259 $ 119,137 $ 389,712 $ 679,977 $ (46,718)
Provision for Income Taxes 365,874 53,926 160,571 284,415 6,785
----------- ---------- ---------- ----------- ----------
Income (Loss) from Continuing
Operations $ 503,385 $ 65,211 $ 229,141 $ 395,562 $ (53,503)
=========== ========== ========== =========== ==========
Income (Loss) per Common Share
from Continuing Operations $0.03 $0.01 $0.03 $0.04 $(0.01)
=========== ========== ========== =========== ==========
Weighted Average Number of
Common Shares Outstanding/1/ 15,144,415 8,523,226 8,450,000 8,450,000 8,450,000
=========== ========== ========== =========== ==========
<CAPTION>
January 31,
-----------
1997 1996 1995 1994 1993
----------- ---------- ---------- ----------- ----------
PRO FORMA CONSOLIDATED BALANCE
SHEET DATA
Working Capital $ 458,665 $ (629,198) $ (411,587) $(1,208,502) $ (881,467)
Total Assets 8,442,408 7,706,183 8,182,599 5,714,718 6,106,439
Long-Term Debt, less current
portion 627,917 595,913 630,796 165,550 102,414
Stockholders' Equity $ 2,410,729 $1,986,180 $1,839,090 $ 1,634,498 $1,238,936
</TABLE>
- ---------------------------
/1/For purposes of this table, 8,450,000 shares of Common Stock to be issued to
Resi Corp. in exchange for the shares of Egyptian Arabians Inc. pursuant to the
proposed Plan of Reorganization are treated as outstanding for all periods
presented.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Since the inception of the Company's Canadian operations in 1991, the Company
has generated revenue primarily by selling Straight Egyptian Arabian horses to
investment limited partnerships and individual investors and by operating the
breeding and care facilities at its Blue Moon Farms facilities. Revenues
generated by these two activities have remained fairly constant as a percentage
of the Company's overall revenues, with sales representing approximately 78% and
management fees for the breeding and care of the horses representing
approximately 20%. The Company has increased sales primarily as a result of
increased levels of investing activities promoted by Edwards Securities Inc.
which, in turn, results in a greater number of horses being boarded at the
Company's Blue Moon Farms facilities. Sales to limited partnerships have
traditionally accounted for approximately 50% of the Company's sales while the
balance consists of sales to other farms and individual owners. Revenues from
the Company's Blue Moon Farms operations, as those operations relate to the care
and maintenance of the horses boarded there, are generated almost entirely (98%)
from services rendered to the various limited partnerships that purchase
Straight Egyptian Arabians from the Company. The Company continues to believe
that the markets outside of Canada represent significant opportunities for the
Company. Management intends to allocate greater resources on expanding sales
channels and establishing marketing alliances in non-Canadian and international
markets.
The Company recognizes the need to continue to apply technology in a manner that
will increase its operating margins. In furtherance of those goals, the Company
expects to allocate a greater percentage of its overall revenues to research and
development and sales and marketing activities over the next several years.
The following discussion and analysis of the Company's financial condition and
results of operations focuses on the Company's continuing operations and does
not include any discussion or analysis with respect to the Company's
discontinued operations.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages which
the selected items in the Company's Consolidated Statements of Operations bear
to total revenues:
<TABLE>
<CAPTION>
Year Ended January 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUES
Farm 19.9% 20.6% 26.0%
Horses 77.6% 75.4% 67.0%
Interest and Other 2.5% 4.0% 7.0%
Total Revenues 100.0% 100.0% 100.0%
----- ----- -----
COSTS AND EXPENSES
Farm 9.0% 12.7% 15.4%
Horses 75.8% 77.3% 66.3%
Marketing and Sales 0.6% 1.3% 0.3%
General and Administrative 3.6% 4.5% 5.8%
Depreciation and Amortization 1.0% 1.3% 1.8%
Interest Expense 0.7% 1.1% 1.7%
----- ----- -----
Total Costs and Expenses 90.7% 98.2% 91.3%
----- ----- -----
Income Before Taxes 9.3% 1.8% 8.7%
Provision for Income Taxes 3.9% 0.8% 3.6%
----- ----- -----
Income from Continuing Operations 5.4% 1.0% 5.1%
===== ===== =====
</TABLE>
YEAR ENDED JANUARY 31, 1997 ("1996 OPERATING YEAR") COMPARED WITH YEAR ENDED
JANUARY 31, 1996 ("1995 OPERATING YEAR")
REVENUES. Total revenues for the 1996 Operating Year increased by $2,675,167
(40.6%) to $9,266,965 from $6,591,798 for the 1995 Operating Year. Revenues
from breeding and care of horses accounted for $485,366, and the sale of horses
accounted for $2,220,990 of the increase in total revenues during the 1996
Operating Year. The increase in revenues was primarily attributed to the
increased level of investment in Straight Egyptian Arabian horses and the
corresponding increase in the Company's foaling and breeding activities. These
increases were offset, in part, by a decrease in interest and other revenue.
Interest income and other revenues decreased by $31,189 during the 1996
Operating Year as a result of the continued decline in the use of the Company's
resources to support secondary financing of the investment partnerships.
COSTS AND EXPENSES. Total costs and expenses for the 1996 Operating Year
increased by $1,925,045 (29.7%) to $8,397,706 from $6,472,661 for the 1995
Operating Year. Nonetheless,
15
<PAGE>
as a percentage of total revenues, costs and expenses decreased to 90.7% in the
1996 Operating Year from 98.2 in the 1995 Operating Year. In the 1996 Operating
Year, the Company was beset by several unusual and non-recurring events which
contributed to the increase in overall costs and expenses. The Company lost an
average of one horse each month during the year due to various causes of death
and replacement costs for those horses approximated $300,000. In addition,
normal veterinary costs quadrupled due to prolonged illnesses with the Company's
colts and fillies. Despite the occurrence of these events, the Company was able
to tightly control its other operating expenses.
MARKETING AND SALES. Marketing and sales expenses for the 1996 Operating Year
decreased by $29,778 (35.8%) to $53,385 from $83,163 in the 1995 Operating Year.
Marketing and sales expenses as a percentage of total revenues were .6% in the
1996 Operating Year as compared to 1.3% in the 1995 the 1995 Operating Year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the 1996
Operating Year increased by $41,638 (14.2%) to $335,563 from $293,925 in the
1995 Operating Year. As a percentage of total revenues, general and
administrative expenses were 3.6% in the 1996 Operating Year as compared to 4.5%
in the 1995 Operating Year.
INCOME TAXES. The provision for income taxes for the 1996 Operating Year is
based upon an effective foreign and Canadian tax rate of 42.1% as compared with
a rate of 45.3 in the 1995 Operating Year. The primary reason for the decrease
in the effective tax rate was the effect of the Canadian Provincial tax incurred
in the 1995 Operating Year.
YEAR ENDED JANUARY 31, 1996 ("1995 OPERATING YEAR") COMPARED WITH YEAR ENDED
JANUARY 31, 1995 ("1994 OPERATING YEAR")
REVENUES. Total revenues for the 1995 Operating Year increased by $2,096,046
(46.6%) to $6,591,798 from $4,495,752 for the 1994 Operating Year. Revenues
from breeding and care of horses accounted for $188,663 and the sale of horses
accounted for $1,963,375 of the increase in total revenues during the 1995
Operating Year. The increase in revenues was primarily attributed to the
increases in the foaling and breeding activities generated by increased
investment demand for Straight Egyptian Arabian horses. These increases were
offset, in part, by a decrease in interest and other revenue. Interest income
and other revenues declined by $55,992 during the 1995 Operating Year as the
Company reduced the extent to which it would support secondary financing of the
investment partnerships.
COSTS AND EXPENSES. Total costs and expenses for the 1995 Operating Year
increased by $2,366,621 (58.1%) to $6,472,661 from $4,106,040 for the 1994
Operating Year. As a percentage of total revenues, costs and expenses increased
to 98.2% in the 1995 Operating Year from 91.3% in the 1994 Operating Year. The
increases in the costs and expenses as a percentage of sales were primarily
attributable to an unusually large horse purchase in December 1995 in connection
with investment partnership demand for horses to take advantage of favorable tax
situations, cost associated with the rollover of six investment partnerships and
the replacement of certain horses for some of those partnerships and the
incurrence of higher than normal insurance replacement costs.
16
<PAGE>
MARKETING AND SALES. Marketing and sales expenses for the 1995 Operating Year
increased by $69,908 (527.4%) to $83,163 from $13,255 in the 1994 Operating
Year. Marketing and sales expenses as a percentage of total revenues were 1.3%
in the 1995 Operating Year as compared to .3% in the 1994 Operating Year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the 1995
Operating Year increased by $32,368 (12.4%) to $293,925 from $261,557 in the
1994 Operating Year. As a percentage of total revenues, general and
administrative expenses were 4.5% in the 1995 Operating Year as compared to 5.8%
in the 1994 Operating Year.
INCOME TAXES. The provision for income taxes for the 1995 Operating Year is
based upon an effective foreign and Canadian tax rate of 45.3% as compared with
a rate of 41.2% in the 1994 Operating Year. The primary reason for the increase
in the effective tax rate was the effect of the Canadian Provincial tax incurred
in the 1995 Operating Year.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company's primary source of liquidity included cash and
cash equivalents of $39,462 and open trade credit with vendors of $2,977,875.
The Company has not borrowed any moneys from financial institutions for working
capital needs with the exception of its commercial mortgages on the construction
and improvements to its facilities. The Company improved its working capital
during the 1996 Operating Year by $1,087,863 to $458,665 at January 31, 1997
from a negative $629,198 working capital at January 31, 1996.
COMPANY'S FINANCING REQUIREMENTS
- --------------------------------
The Company has no current need for any externally generated financing to fund
its continued operations or to fund continued internal growth. As the Financial
Statements show, the Company's business has been profitable, is self-financing,
and does not depend on any institutional debt or commercial lines of credit
(except for commercial mortgages on the Company's properties).
17
<PAGE>
ITEM 3. PROPERTIES
The Company's principal properties consist of its owned corporate offices
in Ottawa, Ontario and its operating farm facilities in Addison, Ontario.
The Company owns its corporate offices at 240 Argyle Avenue, Ottawa, which
offices are encumbered by mortgages with Sun Life Trust Company and a private
mortgagee having a total outstanding indebtedness of approximately $328,000 as
of January 31, 1997. These facilities house the operations of Edwards Arabians,
a wholly-owned subsidiary of 622291, which is a Canadian subsidiary of the
Company's subsidiary Egyptian Arabians Inc. The Company's operations with
respect to marketing and sales, finance and accounting, as well as its executive
offices, are located within this facility.
The Company's farm operating facilities are located at Addison, Ontario and
come under the Blue Moon Farms umbrella of 622291. These facilities cover
approximately 220 acres of land, of which 130 acres, including buildings, are
owned by the Company and encumbered by a mortgage with the Business Development
Bank of Canada having a total outstanding indebtedness of $356,000 as of January
31, 1997, and the remaining 90 acres are adjacent leased farm land.
The Blue Moon Farms facilities include over 50,000 square feet of building
space, covering buildings for vehicles and equipment, the reception center,
lodge, meeting facilities for sales staff, brokers, potential investors,
agricultural and equine specialists, farm administration offices, farm hospital,
quarantine center, breeding center, reproductive and R&D laboratories, R&D
barns, main and subsidiary barns with 62 stalls, "in-utero" stalls, foaling
stalls, nursery center, training ring, run-in buildings, food storage
facilities, exhibition facilities and exercise facilities. The entire complex is
protected by high voltage, low amperage electrical fencing. The Blue Moon Farms
operations are staffed 24 hours a day with three shifts of trained personnel,
and protected from fire hazard by advanced sensor and extinguishing systems.
18
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock with respect to (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of the Company's Directors and executive
officers, and (iii) all Directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned.
Name and Address Shares Beneficially Owned
-------------------------
of Beneficial Owner Number Percentage (1)
- ------------------- --------------------------- --------------
<TABLE>
<CAPTION>
<S> <C> <C>
David G. Edwards, 8,650,000 shares(2) 52.23%
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
Patricia L. Edwards, None -
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
Kenneth A. Edwards None -
Director, Officer
240 Argyle Avenue,
Ottawa, Ontario K2P 1B9
All Directors and executive 8,650,000 52.23%
officers as a group
(3 persons)
</TABLE>
- -------------------------------------------------------------------------
(1) Based on 16,560,519 shares of Common Stock issued and outstanding, which
assumes the consummation of the transactions described under "BUSINESS - The
Company-Mercristo Developments, Inc."
(2) Includes 8,450,000 shares of Common Stock owned of record by Resi Corp., a
Canadian company of which Mr. Edwards is the sole shareholder and Director,
and over which Mr. Edwards has voting and investment power.
19
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the Directors, executive officers and certain
other key employees of the Company is set forth below:
Name Age Position
- ---- --- --------
David G. Edwards 49 President;
Chief Financial Officer,
Vice-President (Marketing & Sales);
Director.
Patricia L. Edwards 49 Secretary - Treasurer;
Vice-President (Administration); Director.
Kenneth A. Edwards 50 Vice-President (Operations); Director.
Stephane Robillard 25 Breeding Manager
Tina E. Onstein 26 Farm Manager
David G. Edwards, the Company's President, is a 1971 graduate in Business
Administration and Marketing. He has 26 years of experience in the Ottawa area
as a financial planner, and securities broker licensed by the Ontario Securities
Commission, and as Chairman, President and CEO and director of the ESI Group of
companies ("ESI Group"), providing a full range of non-banking investment
services.
The ESI Group includes ESI Financial Planners Inc., ESI Sheltered
Investments Corporation, Edwards Securities Inc., ESI Mortgage Brokers Inc.,
Argyle Insurance Brokers Inc., ESI Investment Funds Ltd., and until recently the
Company's Canadian equine Straight Egyptian Arabian horse subsidiaries: 622291
(including Blue Moon Farms operations), and Edwards Arabians.
Patricia L. Edwards, the Company's Secretary - Treasurer, is the wife of
David G. Edwards. She has had many years of experience in various departments of
the Canadian federal and provincial governments such as Transportation,
Communications, Finance, Treasury Board, and lastly the Deputy Prime Minister's
Office in Ottawa. She is a registered Insurance Broker and President of Argyle
Insurance Brokers, one of the companies in the ESI Group. Argyle Insurance
concentrates on managing the insurance policies (from Lloyds of London) for
several large Canadian equine breeding operations, including the Company's
operations, covering multi-million dollar herds of Straight Egyptian Arabian
horses. In addition, Argyle Insurance provides insurance for the boating and
marine industry throughout Eastern Ontario.
20
<PAGE>
As Vice President (Administration) for the Company, she is responsible for
supervising the strictly controlled Straight Egyptian Arabian horse blood-
typing, accurate registration, documentation, liasing with registries in both
the United States and Canada, coordinating the presentation of the Company's
Straight Egyptian Arabian horses at premier shows across North America, and
public and investor relations.
Kenneth A. Edwards, the brother of David G. Edwards, has had 32 years of
extensive experience in all aspects of the Canadian construction business,
starting as a licensed electrician, establishing an electrical contracting
business, and finally establishing several full service construction companies.
In 1989, he joined the ESI Group and managed ESI Developments, completing real
estate projects covering commercial office, retail, and industrial projects for
local governments.
As Vice President (Operations), he has been responsible for all
construction and property development and management at the Company's Blue Moon
Farms facility at Addison, Ontario since its purchase in September 1992. He has
been instrumental in constructing one of the world's premier equine breeding and
care facility at the Company's Addison location, and continues to oversee all
the re-engineering and leading edge improvements in the Company's breeding and
care operations.
Stephane Robillard, the Company's Breeding Manager, has had 8 years of
experience in the Straight Egyptian Arabian horse breeding area starting at one
of the Company's five Canadian associate farms, where he managed all day to day
operations for 50 Straight Egyptian Arabian horses. He was hired as Breeding
Manager when the Company's Blue Moon Farms facility opened in 1992. He has
successfully completed Straight Egyptian Arabian horse specialized training and
education programs at CABREAH International Farms in Texas, Equine Science
Program at Colorado State University, Select Breeders Southwest Inc. in Texas,
Kemptville College, and private training at the Haines Institute.
Mr. Robillard is primarily responsible for all aspects of the Company's
mission-critical Straight Egyptian Arabian horse breeding operations. He manages
a staff of 12, and through the use of leading edge artificial insemination
techniques, foaling management and monitoring processes has consistently
achieved a conception and delivery rate of over 85% versus the industry average
of 65% - 70%. Management believes that this performance leads most farms
worldwide and has helped make the Company what management believes is the
world's second largest private breeder in the short span of five years.
Tina E. Onstein, the Company's Farm Manger, has had, since early childhood,
significant experience in the equine care business in Europe and Canada. She has
won many awards in show competition and trained extensively at facilities in
Europe and North America. She is responsible for all farm-management activities
at the Company's Blue Moon Farms facility at Addison.
The Company's Restated Certificate of Incorporation and By-laws provide for
limitation of the liability of Directors to the Company and its stockholders,
and for indemnification of Directors, officers, employees and agents of the
Company, respectively, to the maximum extent permitted by the Delaware General
Corporation Law. See "INDEMNIFICATION OF DIRECTORS AND OFFICERS."
21
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Management expects that, commencing February 1, 1997 and through the fiscal
year ending January 31, 1998, none of the officers or directors of the Company
will receive cash and cash equivalent remuneration in excess of $60,000. For the
salaries paid by the Company during its three most recent fiscal years ended
January 31, 1997, see Summary Compensation Table as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name Operating Annual Long-Term All Other
& Position Year Compensation Compensation Compensation
- ------------------------------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
David G. Edwards 1996 None None None
President, 1995 None None None
Chief Financial Officer, 1994 None None None
Vice President (Marketing & Sales)
Director
Patricia L. Edwards 1996 $29,700 None None
Secretary - Treasurer, 1995 $29,100 None None
Vice President (Admin.) 1994 $28,400 None None
Director
Kenneth A. Edwards 1996 $44,500 None None
Vice President (Operations) 1995 $43,700 None None
Director 1994 $42,600 None None
</TABLE>
No employee of the Company has a written employment contract with the
Company.
All of the officers and Directors are reimbursed for out-of-pocket expenses
incurred in connection with the Company's business. So long as the expenses that
are incurred in connection with the Company's business are reasonable in amount
and accounted for to the satisfaction of the Board of Directors, there is no set
limitation on the amount of expenses which may be incurred.
At the present time, the Company has no retirement, pension, profit sharing,
or similar programs for the benefit of its employees. The Company expects to
adopt a stock option plan pursuant to which options can be granted to key
employees, officers, directors and consultants of the Company. There are
currently no issued or outstanding options, warrants or rights granted to any
Director or officer or employee of the Company.
22
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted under Item 1 "BUSINESS", one of the Company's primary sources of
revenue is the sale of Straight Egyptian Arabian horses to various limited
partnerships offered by Edwards Securities Inc. ("ESI"), which also acts as
General Partner of those limited partnerships. ESI is an Ontario corporation of
which David G. Edwards is a Director and President and of which he is indirectly
the sole controlling shareholder. As General Partner of the limited
partnerships, ESI is entitled to participate in the profits and losses of each
partnership. Generally, ESI's participation percentage is 1.5% of assets under
administration. In addition, ESI receives a 10% marketing commission as
compensation in connection with its services as the promoter of the various
limited partnerships.
Since 1990, Mr. Edwards has operated under regulatory approval from the
Ontario Securities Commission and Revenue Canada, to develop and deliver, to
over 1,000 individual clients, a total of 54 equine-based limited partnerships.
All of the eligible horses owned by each of the 54 equine-based limited
partnerships have been subsequently managed, cared for and bred at the Company's
Blue Moon Farms facilities.
The Company's revenues from the sale of Straight Egyptian Arabian horses to
the limited partnerships developed by ESI are supplemented by the subsequent
breeding and care of the Straight Egyptian Arabian horses at the Company's Blue
Moon Farms facilities. The Company enters into management agreements with each
of the limited partnerships pursuant to which the Company, through its Blue Moon
Farms operations, oversees the continual management, care and breeding of the
horses owned by the limited partnerships. Approximately 98% of the Company's
revenues from the care and maintenance of the horses boarded at the Company's
Blue Moon Farms facilities is generated from services rendered to these limited
partnerships.
Resi Corp. ("Resi"), all of the issued and outstanding shares of Common
Stock of which are owned by David G. Edwards, owes approximately $600,000 to
622291 as of January 31, 1997. The amount of this debt represents advances that
622291 made to Resi to underwrite operating cash flow shortfalls of Resi. Resi
and 622291 have agreed that the aggregate amount of such advances, including any
that may be made in the future, will not exceed $1,000,000 and will bear
interest at Canadian prime. There is no set repayment schedule, but all unpaid
principal and interest will be due and payable on January 31, 2002. Resi has
the ability to prepay at any time without penalty.
The Company purchases its insurance through Argyle Insurance Brokers, one
of the companies in the ESI Group. Management believes that the terms and
conditions of these insurance purchases are no less favorable to the Company
than would have been obtained from unaffiliated third parties.
Except as reported elsewhere herein, there are no transactions or series of
transactions since the beginning of the Company's last fiscal year or any
currently proposed transaction or series of similar transactions to which the
Company or any of its subsidiaries was or is to be
23
<PAGE>
a party in which the amount involved exceeded $60,000 and in which any of the
---
following persons had or will have a direct or indirect material interest:
Directors, officers, employees, owners of 5% or more of the Company's
outstanding securities, promoters, family members.
There is no indebtedness owed by any of the Company's officers, Directors,
or employees to the Company.
ITEM 8. LEGAL PROCEEDINGS
Neither the Company, nor any of its direct and indirect subsidiaries, is a
party to any material pending legal proceedings, nor is any of them a party to
any routine litigation incidental to the business.
24
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
------------------
As of date hereof, there is no established public trading market for the
Company's Common Stock, the only class of equity securities that the Company has
authorized and issued and outstanding. The Company has filed an application to
be listed on the NASDAQ SmallCap Market concurrent with this filing.
HOLDERS
-------
There are approximately 343 stockholders of record of the Common Stock of
the Company as of April 15, 1997 per the records of the Company's transfer
agent, Olde Monmouth Stock Transfer Company of Atlantic Highlands, New Jersey.
DIVIDENDS
---------
The Company has not declared or paid dividends on its Common Stock during
the existence of the Company and its direct and indirect subsidiaries or
predecessor companies.
The Company intends to declare and pay dividends in the future, subject to
the Company achieving certain net income levels as established by the Company's
Board of Directors. The actual dividend policy applied at the discretion of the
Board of Directors will depend on a number of factors including future earnings,
working capital requirements, and the cashflow of the Company.
OUTSTANDING STOCK
-----------------
The Company currently has outstanding 16,560,519 shares of Common Stock of
which:
(1) 8,450,000 shares were issued in connection with the Agreement and Plan
of Reorganization pursuant to which Egyptian Arabians Inc. became a
wholly-owned subsidiary of the Company. The holders of these shares
will be entitled to resell them only pursuant to a registration
statement under the Securities Act of 1933, as amended (the
"Securities Act") or an applicable exemption from registration
thereunder such as an exemption provided by Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted
securities" for at least one year may, under certain circumstances,
resell in any three-month period such
25
<PAGE>
number of shares as does not exceed the greater of one percent of the
then-outstanding shares or the average weekly trading volume during
the four calendar weeks prior to such resale. Rule 144 also permits,
under certain circumstances, the resale of shares without any quantity
limitation by a person who has satisfied a three-year holding period
and who is not, and has not been for the preceding three months, an
affiliate of the Company. In addition, holding periods of successive
non-affiliated owners are aggregated for purposes of determining
compliance with these one- and three-year holding period requirements.
In addition, the Securities and Exchange Commission has proposed
changes to Rule 144 with respect to the volume limitations of Rule
144.
(2) 204,719 shares of Common Stock are freely transferable and may be
resold without further registration under the Securities Act, as such
shares were issued in compliance with Rule 504 promulgated under
Securities Act and are not "restricted" securities.
(3) 4,240,000 shares of Common Stock were previously issued to non-U.S.
residents in a transaction exempt from the registration requirements
of the Securities Act in reliance on Regulation S. The holders of
these shares will be entitled to resell them only pursuant to a
registration statement under the Securities Act or an applicable
exemption from registration thereunder such as that provided by Rule
144. As these shares were issued in January of 1996, holders of these
shares will be entitled to sell them in compliance with Rule 144 once
the Company has been subject to the reporting requirements of the
Exchange Act for a period of 90 days.
(4) 3,665,800 shares of Common Stock previously issued are subject to the
provisions of Rule 701. Under Rule 701 of the Securities Act, certain
persons who are issued shares of Common Stock pursuant to employee
benefit plans or consulting or advisory contracts relating to
compensation prior to the Company's registration of its Common Stock
are entitled to sell such shares 90 days after the effective date of
that registration in reliance on Rule 144, without compliance with the
public information, volume limitation or notice provisions of Rule
144.
The availability of shares for sale or actual sales under Rule 144 may have
an adverse effect on the market price of the Company's Common Stock. Sales under
Rule 144 also could impair the Company's ability to market additional equity
securities.
Although the Company is unable to predict when or to what extent any such
securities will be sold or otherwise, the public sale of large blocks of the
Company's Common Stock could have a significant effect upon the market price of
the Common Stock and upon the Company's ability to sell additional securities
publicly.
26
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since January 4, 1996, the date of its incorporation, the Company has sold
the following securities which were not registered under the Securities Act:
On or about January 4, 1996, as part of the initial capitalization of the
Company, 204,719 shares of Common Stock were issued in consideration of the
organization expenses of forming the Company, which organization expenses
had a value of $4,090. This number of shares reflects the reverse split
effective January 26,1996.
On or about January 26, 1996, 4,240,000 shares of the Company's Common
Stock were sold for cash at their par value $0.001 per share, an aggregate
of $4,240, to non-U.S. residents in a transaction exempt from the
registration requirements of the Securities Act in accordance with Rule 904
of Regulation S promulgated under the Securities Act.
On or about June 21, 1996, the Company issued an aggregate of 3,665,800
shares of Common Stock to six consultants and an accountant for services
valued at an aggregate of $733,160.
Contemporaneous with the declaration of effectiveness of this Registration
Statement, the Company will issue 8,450,000 shares to Resi Corp. as the
consideration for the transaction pursuant to which Egyptian Arabians Inc.
will become a wholly-owned subsidiary of the Company.
The issuances of the securities described above were made in reliance on
exemptions from the registration requirements of the Securities Act provided by
Section 4(2) of the Securities Act, or by Rules 504, 904 and 701 or by
Regulation D promulgated by the Securities and Exchange Commission pursuant to
the Securities Act.
27
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
GENERAL.
The Company's authorized capitalization is 100,000,000 shares of Common
Stock, $.001 par value per share, of which 16,560,519 shares are currently
issued and outstanding. Holders of shares of Common Stock are entitled to one
vote per share on matters to be voted upon by the stockholders, to receive
dividends when and if declared by the Board of Directors of the Company, and to
share ratably in the assets of the Company legally available for distribution to
stockholders in the event of liquidation or dissolution of the Company.
The Common Stock has no preemptive rights and no subscription, redemption
or conversion privileges, nor does it have cumulative voting rights, which mean
that the holders of more than one-half of the shares voting for the election of
Directors can elect all of the Directors. All of the outstanding shares are
fully paid and not liable for further call or assessment. There are no
outstanding warrants or options for the purchase of any shares of the Company's
Common Stock.
Olde Monmouth Stock Transfer Company, Inc. at 77 Memorial Parkway, Suite
101, Atlantic Highlands, New Jersey 07716 is the Registrar and Transfer Agent
for the Company's Common Stock.
Certain provisions of the Delaware General Corporation Law ("Delaware Law")
and of the Company's Certificate of Incorporation and By-laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price of shares held by stockholders.
DELAWARE ANTI-TAKEOVER LAW. The Company, as a Delaware corporation, is
subject to the provisions of Delaware Law, including Section 203. In general,
Section 203 prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of transaction in which such person became an interested stockholder
unless: (i) prior to such date, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder; or (ii) upon becoming an interested
stockholder, the stockholder then owned at least 85% of the voting stock, as
defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and holders of at least
66 2/3% of the corporation's outstanding voting stock, excluding shares owned by
the interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15% or
more of the corporation's voting stock. Although Section 203
28
<PAGE>
permits a corporation to elect not to be governed by its provisions, the Company
to date has not made this election.
SPECIAL MEETINGS OF STOCKHOLDERS. The Company's By-laws provide that
special meetings of stockholders may be called only by the President, by request
of a majority of the Board of Directors, or by the Secretary upon the written
request of the holders of not less than 25% of the shares of stock outstanding
and entitled to vote at the meeting. These provisions may make it more
difficult for stockholders to take action opposed by the Board of Directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws as amended (the "By-laws") provide for limitation of
the liability of the Directors to the Company and its stockholders and for
indemnification of Directors, officers, employees and agents of the Company,
respectively, to the maximum extent permitted by the Delaware General
Corporation Law ("Delaware Law").
The Certificate of Incorporation provides that the Directors are not liable
to the Company or its stockholders for monetary damages for breaches of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law; (iii) for dividend payments or stock repurchases in
violation of Delaware Law; (iv) for any transaction from which the Director
derived any improper personal benefit.
The By-laws include provisions by which the Company will indemnify its
officers and Directors and other persons against expenses, judgments, fines and
amounts paid in settlement with respect to threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
the Company as officers, Directors or in other capacities, except in relation to
matters with respect to which such persons shall be determined not to have acted
in good faith, lawfully or in the best interests of the Company. With respect to
matters to which the Company's officers, Directors, employees, agents or other
representatives are determined to be liable for misconduct or negligence in the
performance of their duties, the By-laws provide for indemnification only to the
extent that the Company determines that such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company.
29
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MERCRISTO DEVELOPMENTS, INC.
(A DELAWARE CORPORATION)
and
622291 ONTARIO LTD.
OTTAWA, ONTARIO - CANADA
______________
HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL REPORTS
at
JANUARY 31, 1997
30
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A DELAWARE CORPORATION)
and
622291 ONTARIO LTD.
OTTAWA, ONTARIO - CANADA
______________
TABLE OF CONTENTS
Independent Auditors' and Accountants' Reports......................... F-1
Historical and Pro Forma Consolidated Balance Sheets at
January 31, 1997 and 1996.............................................. F-3
Historical and Pro Forma Consolidated Statements of
Changes in Stockholders' Equity for the Years Ended
January 31, 1997, 1996 and 1995........................................ F-5
Historical and Pro Forma Consolidated Statements of
Operations for the Years Ended January 31, 1997, 1996 and 1995......... F-7
Historical and Pro Forma Consolidated Statements of Cash Flows
for the Years Ended January 31, 1997, 1996 and 1995.................... F-9
Notes to the Financial Statements...................................... F-11
31
<PAGE>
INDEPENDENT AUDITORS' AND ACCOUNTANTS' REPORTS
To the Board of Directors
and Stockholders
Mercristo Developments, Inc.
(A Delaware Corporation) and
622291 Ontario Ltd.
Ottawa, Ontario - Canada
We have audited the accompanying historical balance sheets of Mercristo
Developments, Inc. and 622291 Ontario Ltd. as of January 31, 1997 and 1996, and
the related historical statements of changes in stockholders' equity, operations
and cash flows for each of the three years in the period ended January 31, 1997.
These financial statements are the responsibility of the companies' management.
Our responsibility is to express an opinion on these 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 historical financial statements referred to above
present fairly, in all material respects, the financial position of Mercristo
Developments, Inc. and 622291 Ontario Ltd. as of January 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended January 31, 1997, in conformity with generally accepted
accounting principles.
We have also examined the pro forma adjustments reflecting the proposed
purchase business combination described in Note A and the application of those
adjustments to the historical amounts in the accompanying pro forma
consolidated balance sheets of Mercristo Developments, Inc. as of January 31,
1997 and 1996, and the related consolidated statements of changes in
stockholders' equity, operations and cash flows for each of the three years in
the period ended January 31, 1997. Our examination was made in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the proposed purchase business combination occurred at the earliest date
presented. The pro forma financial information is not necessarily indicative of
the results of operations of the combined Company
F-1
<PAGE>
that would have occurred had the acquisition actually occurred at February 1,
1994 nor are they necessarily indicative of future operating results.
In our opinion, the accompanying pro forma consolidated financial
statements of Mercristo Developments, Inc. as of January 31, 1997 and 1996, and
for each of the three years in the period ended January 31, 1997 give
appropriate effect to the pro forma adjustments necessary to reflect the
proposed purchase business combination as described in Note A and the pro forma
column reflects the proper application of those adjustments to the historical
financial statements.
/s/ Rotenberg & Company LLP
Rochester, New York
April 11, 1997
F-2
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A Delaware Corporation) and
622291 ONTARIO LTD.
Ottawa, Ontario - Canada
BALANCE SHEETS AS OF JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
Historical
-------------------------------
Mercristo 622291 Pro Forma Pro
Developments Ontario Ltd. Adjustments Forma
1997 1997 Consolidated 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets
- ------------------------------------
Cash and Cash Equivalents $ --- $ 39,462 $ --- $ 39,462
Accounts Receivable --- 2,797,618 --- 2,797,618
Inventories --- 686,810 --- 686,810
Prepaid Expenses --- 13,044 --- 13,044
-------------------------------------------------------------------
Total Current Assets $ $3,536,934 $ $3,536,934
Due from Partnership --- 1,485,275 --- 1,485,275
Due from Related Companies --- 629,800 (157,995) 471,805
Property and Equipment - Net of --- 1,006,066 387,154 1,393,220
Accumulated Depreciation
Organizational Expense - Net of 3,204 --- --- 3,204
Accumulated Amortization
Goodwill - Net of Amortization --- --- 1,551,970 1,551,970
-------------------------------------------------------------------
Total Assets $ 3,204 $6,658,075 $1,781,129 $8,442,408
------------ ===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- ------------------------------------
Accounts Payable and Accrued $ 2,575 $3,019,622 $ --- $3,022,197
Expenses
Income Taxes Payable --- --- --- ---
Current Portion of Long Term Debt 37,189 18,883 56,072
-------------------------------------------------------------------
Total Current Liabilities $ 2,575 $3,056,811 $ 18,883 $3,078,269
Deferred Revenue --- 1,744,962 --- 1,744,962
Long Term Debt --- 319,208 308,709 627,917
Deferred Income Taxes --- 616,851 (36,320) 580,531
-------------------------------------------------------------------
Total Liabilities $ 2,575 $5,737,832 $ 291,272 $6,031,679
- -------------------------------------------------------------------------------------------------------
Stockholders' Equity
- ------------------------------------
Common Stock: $ 8,110 $ 2,212 $ 6,238 $ 16,560
$.001 Par; 20,000,000 Shares
Authorized, 16,560,519 Shares
Issued and Outstanding
Additional Paid in Capital 733,380 --- 1,590,429 2,323,809
Retained Earnings (Deficit) (740,861) 903,532 (105,479) 57,192
Foreign Currency Translation --- 14,499 (1,331) 13,168
Adjustment
-------------------------------------------------------------------
Total Stockholders' Equity $ 629 $ 920,243 $1,489,857 $2,410,729
- -------------------------------------------------------------------------------------------------------
Total Liabilities and
- ------------------------------------
Stockholders' Equity $ 3,204 $6,658,075 $1,781,129 $8,442,408
- ------------------------------------===================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Historical
- ------------------------------
Mercristo 622291 Pro Forma Pro Forma
Developments Ontario Ltd. Adjustments Consolidated
1996 1996 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
$ --- $ 175,557 $ --- $ 175,557
--- 1,153,193 --- 1,153,193
--- 464,528 --- 464,528
--- 4,369 --- 4,369
- ------------------------------------------------------------
$ --- $1,797,647 $ --- $1,797,647
--- 2,711,824 --- 2,711,824
--- 415,224 (111,723) 303,501
--- 908,624 386,650 1,295,274
4,022 --- --- 4,022
--- --- 1,593,915 1,593,915
- ------------------------------------------------------------
$ 4,022 $5,833,319 $1,868,842 $7,706,183
============================================================
$ --- $2,364,773 $ --- $2,364,773
--- 11,564 --- 11,564
___ 24,289 26,219 50,508
- ------------------------------------------------------------
$ ___ $2,400,626 $ 26,219 $2,426,845
--- 2,525,203 --- 2,525,203
___ 281,716 314,197 595,913
___ 195,212 (23,170) 172,042
- ------------------------------------------------------------
$ ___ $5,402,757 $ 317,246 $5,720,003
- ------------------------------------------------------------
$ 204 $ 2,212 $ 6,238 $ 8,654
3,886 --- 1,590,429 1,594,315
(68) 422,246 (44,566) 377,612
--- 6,104 (505) 5,599
- ------------------------------------------------------------
$ 4,022 $ 430,562 $1,551,596 $1,986,180
- ------------------------------------------------------------
$ 4,022 $5,833,319 $1,868,842 $7,706,183
============================================================
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-4
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A Delaware Corporation) and
622291 ONTARIO LTD.
Ottawa, Ontario - Canada
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE
YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Shares Mercristo 622291
Developments Ontario Ltd.
1997 1997
-------------------------------------------
Preferred Stock - No Par;
- -------------------------------------------------
Issued at January 31:
<S> <C> <C> <C>
First - Unlimited Shares Authorized 20,000 $ --- $ 1
Second - Unlimited Shares Authorized 380,000 --- 1,911
Third - Unlimited Shares Authorized 10,000 --- 75
Common Stock - No Par;
- -------------------------------------------------
1,000 Shares Authorized; Issued at January 31:
Class A, Non-Voting 180 --- 135
Class B, Voting at 7 Votes Per Share 40 --- 30
Class C, Voting at 6 Votes Per Share 40 --- 30
Class D, Voting at 5 Votes Per Share 40 --- 30
-------------------------------
Total Capital Stock $ --- $ 2,212
Pro Forma Adjustments --- (2,212)
-------------------------------
Pro Forma Consolidated Balance - January 31 $ --- $ ---
===============================
Common Stock - $.001 Par Value;
- -------------------------------------------------
20,000,000 Shares Authorized; Issued:
Balance - February 1 204,719 $ 204 $ ---
Issuance of Shares in Connection with:
Initial Capitalization --- --- ---
20 for 1 Reverse Split --- --- ---
Adjustment for Fractional Shares --- --- ---
Private Placement - Reg S 4,240,000 4,240 ---
Compensation - Rule 701 3,665,800 3,666 ---
-------------------------------------------
Balance - January 31 8,110,519 $ 8,110 $ ---
Pro Forma Adjustments 8,450,000 8,450 ---
-------------------------------------------
Pro Forma Consolidated Balance - January 31 16,560,519 $ 16,560 $ ---
===========================================
Additional Paid in Capital
- -------------------------------------------------
Balance - February 1, $ 3,886 $ ---
Changes Due to:
Initial Capitalization --- ---
20 for 1 Reverse Split --- ---
Adjustment for Fractional Shares --- ---
Private Placement - Reg S --- ---
Compensation - Rule 701 729,494 ---
-------------------------------
Balance - January 31 $ 733,380 $ ---
Pro Forma Adjustments 1,590,429 ---
-------------------------------
Pro Forma Consolidated Balance - January 31 $2,323,809 $ ---
===============================
Retained Earnings (Deficit)
- -------------------------------------------------
Balance - February 1 $ (68) $ 422,246
Net Income (Loss) (740,793) 565,166
Dividends --- (83,880)
-------------------------------
Balance - January 31 $ (740,861) $ 903,532
Pro Forma Adjustments 798,053 (903,532)
-------------------------------
Pro Forma Consolidated Balance - January 31 $ 57,192 $ ---
===============================
Foreign Currency Translation Adjustment
- -------------------------------------------------
Balance - February 1 $ --- $ 6,104
Translation Adjustment During the Year --- 8,395
-------------------------------
Balance - January 31 --- $ 14,499
Pro Forma Adjustments 13,168 (14,499)
-------------------------------
Pro Forma Consolidated Balance - January 31 $ 13,168 $ ---
===============================
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Shares Mercristo 622291 Shares Mercristo 622291
Developments Ontario Ltd. Developments Ontario Ltd.
1996 1996 1995 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20,000 $ --- $ 1 20,000 $ --- $ 1
380,000 --- 1,911 380,000 --- 1,911
10,000 --- 75 10,000 --- 75
180 --- 135 180 --- 135
40 --- 30 40 --- 30
40 --- 30 40 --- 30
40 --- 30 40 --- 30
------------------------------- ------------------------------
$ --- $ 2,212 $ --- $ 2,212
--- (2,212) --- (2,212)
------------------------------- ------------------------------
$ --- $ --- $ --- $ ---
=============================== ==============================
--- $ --- $ --- --- $ --- $ ---
4,090,448 4,090 --- --- --- ---
(3,885,925) (3,886) --- --- --- ---
196 --- --- --- --- ---
--- --- --- --- --- ---
--- --- --- --- --- ---
- --------------------------------------------------------------------------------------
204,719 $ 204 $ --- --- $ --- $ ---
8,450,000 8,450 --- 8,450,000 8,450 ---
- --------------------------------------------------------------------------------------
8,654,719 $ 8,654 $ --- 8,450,000 $ 8,450 $ ---
======================================================================================
$ --- $ --- $ --- $ ---
--- --- --- ---
3,886 --- --- ---
--- --- --- ---
--- --- --- ---
--- --- --- ---
------------------------------- ------------------------------
$ 3,886 $ --- $ --- $ ---
1,590,429 --- 1,590,429 ---
------------------------------- ------------------------------
$1,594,315 $ --- $ 1,590,429 $ ---
=============================== ==============================
$ --- $ 303,798 $ --- $ 23,612
(68) 128,641 --- 291,483
--- (10,193) --- (11,297)
------------------------------- ------------------------------
$ (68) $ 422,246 $ --- $ 303,798
377,680 (422,246) 229,141 (303,798)
------------------------------- ------------------------------
$ 377,612 $ --- $ 229,141 $ ---
=============================== ==============================
377,612
$ --- $ 11,070 $ --- $ 12,007
--- (4,966) --- (937)
------------------------------- ------------------------------
$ --- $ 6,104 $ --- $ 11,070
5,599 (6,104) 11,070 (11,070)
------------------------------- ------------------------------
$ 5,599 $ --- $ 11,070 $ ---
=============================== ==============================
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-6
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A DELAWARE CORPORATION) and
622291 ONTARIO LTD.
Ottawa, Ontario - Canada
STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Historical
-------------------------------
Mercristo 622291 Pro Forma Pro Forma
Developments Ontario Ltd. Adjustments Consolidated
1997 1997 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
- ------------------------------------
Farm $ --- $1,844,777 $ --- $ 1,844,777
Horses --- 7,193,258 --- 7,193,258
Interest --- 224,564 --- 224,564
Other --- 4,366 --- 4,366
-------------------------------------------------------------
Total Revenues $ --- $9,266,965 $ --- $ 9,266,965
-------------------------------------------------------------
Costs and Expenses
- ------------------------------------
Farm $ --- $ 829,609 $ --- $ 829,609
Horses --- 7,021,527 --- 7,021,527
Marketing and Sales --- 53,385 --- 53,385
General and Administrative 50 335,513 --- 335,563
Depreciation and Amortization 818 42,915 48,982 92,715
Interest Expense --- 40,277 24,630 64,907
-------------------------------------------------------------
Costs and Expenses $ 868 $8,323,226 $ 73,612 $ 8,397,706
-------------------------------------------------------------
Income (Loss) Before Provision for $ (868) $ 943,739 $(73,612) $ 869,259
Taxes
Provision for Taxes $ --- 378,573 (12,699) 365,874
- ------------------------------------
-------------------------------------------------------------
Income (Loss) from Continuing $ (868) $ 565,166 $(60,913) $ 503,385
Operations
Loss from Discontinued Operations (739,925) --- --- (739,925)
- ------------------------------------
-------------------------------------------------------------
Net Income (Loss) $(740,793) $ 565,166 $(60,913) $ (236,540)
=============================================================
Pro Forma Weighted Average
Number of Common Shares Outstanding 15,144,415
================
Pro Forma Income Per Common
Share from Continuing Operations $0.03
================
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Historical Historical
- ------------------------------ ------------------------------
Mercristo 622291 Pro Forma Pro Forma Mercristo 622291 Pro Forma Pro Forma
Developments Ontario Ltd. Adjustments Consolidated Developments Ontario Ltd. Adjustments Consolidated
1996 1996 1996 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ --- $1,359,411 $ --- $1,359,411 $ --- $1,170,748 $ --- $1,170,748
--- 4,972,268 --- 4,972,268 --- 3,008,893 --- 3,008,893
--- 258,254 --- 258,254 --- 310,567 --- 310,567
--- 1,865 --- 1,865 --- 5,544 --- 5,544
- ------------------------------------------------------------------------------------------------------------------------
$ --- $6,591,798 $ --- $6,591,798 $ --- $4,495,752 $ --- $4,495,752
- ------------------------------------------------------------------------------------------------------------------------
$ --- $ 836,444 $ --- $ 836,444 $ --- $ 691,790 $ --- $ 691,790
--- 5,096,700 --- 5,096,700 --- 2,979,873 --- 2,979,873
--- 83,163 --- 83,163 --- 13,255 --- 13,255
--- 293,925 --- 293,925 --- 261,557 --- 261,557
68 40,270 48,847 89,185 --- 32,728 48,681 81,409
--- 47,940 25,304 73,244 --- 52,414 25,742 78,156
- ------------------------------------------------------------------------------------------------------------------------
$ 68 $6,398,442 $ 74,151 $6,472,661 $ --- $4,031,617 $ 74,423 $4,106,040
- ------------------------------------------------------------------------------------------------------------------------
$ (68) $ 193,356 $(74,151) $ 119,137 $ --- $ 464,135 $(74,423) $ 389,712
--- 64,715 (10,789) 53,926 --- 172,652 (12,081) 160,571
- ------------------------------------------------------------------------------------------------------------------------
$ (68) $ 128,641 $(63,362) $ 65,211 $ --- $ 291,483 $(62,342) $ 229,141
--- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------
$ (68) $ 128,641 $(63,362) $ 65,211 $ --- $ 291,483 $(62,342) $ 229,141
========================================================================================================================
8,523,226 8,450,000
================ ================
$0.01 $0.03
================ ================
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-8
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A DELAWARE CORPORATION) and
622291 ONTARIO LTD.
Ottawa, Ontario - Canada
STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Historical
--------------------------------
Mercristo 622291 Pro Forma Pro Forma
Developments Ontario Ltd. Adjustments Consolidated
1997 1997 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Activities
- --------------------------------------------------
Net Income (Loss) $(740,793) $ 565,166 $(60,913) $ (236,540)
Non-Cash Adjustments:
Stock Issued for Compensation for Services 737,400 --- --- 737,400
Depreciation/Amortization 818 42,915 48,982 92,715
Deferred Revenue --- (829,490) --- (829,490)
Deferred Income Taxes --- 378,573 (12,699) 365,874
Changes:
Accounts Receivable --- (1,333,185) --- (1,333,185)
Inventory --- (213,223) --- (213,223)
Prepaid Expenses --- (2,227) --- (2,227)
Accounts Payable 2,525 319,980 --- 322,505
Income Taxes Payable 50 (18,154) --- (18,104)
--------------------------------------------------------------
Net Cash Flows from Operating Activities $ --- $(1,089,645) $(24,630) $(1,114,275)
--------------------------------------------------------------
Investing Activities
- --------------------------------------------------
Acquisition of Fixed Assets $ --- $ (122,637) $ --- $ (122,637)
Due from Partnership --- 1,279,437 --- 1,279,437
Due to/from Related Companies --- (167,219) 24,630 (142,589)
--------------------------------------------------------------
Net Cash Flows from Investing Activities $ --- $ 989,581 $ 24,630 $ 1,014,211
--------------------------------------------------------------
Financing Activities
- --------------------------------------------------
Dividends $ --- $ (83,880) $ --- $ (83,880)
Increase in Long-Term Debt --- 126,191 --- 126,191
Decrease in Long-Term Debt --- (81,768) --- (81,768)
--------------------------------------------------------------
Net Cash Flows from Financing Activities $ --- $ (39,457) $ --- $ (39,457)
--------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash $ --- $ 3,426 $ --- $ 3,426
Equivalents
--------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents $ --- $ (136,095) $ --- $ (136,095)
Cash and Cash Equivalents - Beginning of Year --- 175,557 --- 175,557
--------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ --- $ 39,462 $ --- $ 39,462
==============================================================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Historical Historical
- ------------------------------ --------------------------------
Mercristo 622291 Pro Forma Pro Forma Mercristo 622291 Pro Forma Pro Forma
Developments Ontario Ltd. Adjustments Consolidated Developments Ontario Ltd. Adjustments Consolidated
1996 1996 1996 1995 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (68) $ 128,641 $(63,362) $ 65,211 $ --- $ 291,483 $(62,342) $ 229,141
--- --- --- --- --- --- --- ---
68 40,270 48,847 89,185 --- 32,728 48,681 81,409
--- (472,860) --- (472,860) --- (69,866) --- (69,866)
--- --- (10,789) (10,789) --- 172,652 (12,081) 160,571
--- 526,367 --- 526,367 --- (1,070,012) --- (1,070,012)
8,737 8,737 --- (272,335) --- (272,335)
(2,184) (2,184) --- (2,132) --- (2,132)
(254,056) (254,056) --- 653,483 --- 653,483
--- (12,046) --- (12,046) --- (8,706) --- (8,706)
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ (37,131) $(25,304) $ (62,435) $ --- $ (272,705) $(25,742) $ (298,447)
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $(302,495) $ --- $(302,495) $ --- $ (149,793) $ --- $ (149,793)
--- 425,876 --- 425,876 --- 269,429 --- 269,429
--- 16,114 25,304 41,418 --- 69,212 25,742 94,954
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ 139,495 $ 25,304 $ 164,799 $ --- $ 188,848 $ 25,742 $ 214,590
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ (10,193) $ --- $ (10,193) $ --- $ (11,297) $ --- $ (11,297)
--- (24,289) --- (24,289) --- 166,001 --- 166,001
--- --- --- --- --- --- --- ---
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ (34,482) $ --- $ (34,482) $ --- $ 154,704 $ --- $ 154,704
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ 2,601 $ --- $ 2,601 $ --- $ (2,022) $ --- $ (2,022)
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ 70,483 $ --- $ 70,483 $ --- $ 68,825 $ --- $ 68,825
--- 105,074 --- 105,074 --- 36,249 --- 36,249
- ---------------------------------------------------------------------------------------------------------------------------
$ --- $ 175,557 $ --- $ 175,557 $ --- $ 105,074 $ --- $ 105,074
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement and
should be read in conjunction therewith.
F-10
<PAGE>
MERCRISTO DEVELOPMENTS, INC.
(A DELAWARE CORPORATION)
and
622291 ONTARIO LTD.
Ottawa, Ontario - Canada
NOTES TO FINANCIAL STATEMENTS
Note A - Summary of Transaction
- -------------------------------
The pro forma consolidated financial statements reflect the proposed
Plan of Reorganization as of January 31, 1997 pursuant to which Egyptian
Arabians Inc. (including directly and indirectly its wholly-owned
subsidiaries 622291 Ontario Ltd. and Edwards Arabians Inc.) will become a
wholly-owned subsidiary of the Company. The business combination is
accounted for using the purchase method of accounting whereby the Company
acquired all of the outstanding common stock of Egyptian Arabians Inc. in
exchange for 8,450,000 shares of the Company's common stock. Goodwill of
$1,551,970 is recorded on the acquisition and amortized over 40 years.
The pro forma adjustments also include the purchase of a building in
April 1997 which is used as corporate offices in Ottawa, Ontario, Canada.
The pro forma financial statements reflect the acquisition as though the
building had been acquired as of February 1, 1994.
All references to the "Company" herein include Mercristo Developments,
Inc., Egyptian Arabians Inc., and its direct and indirect, wholly-owned
subsidiaries 622291 Ontario Ltd. and Edwards Arabians Inc., individually
or collectively.
Note B - Management's Assumptions
- ---------------------------------
The pro forma consolidated balance sheets assume that all of the
entities existed and were combined as of January 31, 1997 and 1996. The
pro forma consolidated statements of operations and cash flows for the
years ended January 31, 1997, 1996 and 1995 reflect the acquisition as
though it had occurred at February 1, 1994.
The pro forma financial information is not necessarily indicative of the
results of operations of the combined Company that would have occurred had
the acquisition actually occurred at February 1, 1994 nor are they
necessarily indicative of future operating results.
Note C - Nature of Operations and Summary of Significant Accounting Policies
- ----------------------------------------------------------------------------
Mercristo Developments, Inc.
----------------------------
The Company was formed on January 4, 1996 as MAC Systems Inc. under the
laws of the State of Delaware and began investigating the potential
acquisition of another company doing business in the Internet service
business. In February 1996, the Company acquired in exchange for
6,000,000 shares of its common stock, ComputerLink Online Inc., a private
Canadian corporation providing Internet access, software, and World Wide
Web services. In March 1996, the Company changed its name to Internet @
iDirect.com Inc.. In June 1996, the Company acquired in exchange for
1,000,000 shares of its common stock Tucows Ltd., a provider of World Wide
Web services. The acquisitions were rescinded on January 15, 1997. As a
result of the rescission of these transactions, the Company had no
operations and
F-11
<PAGE>
no operating assets as of January 31, 1997. The Company changed its name
to Mercristo Developments, Inc. on February 10, 1997. In April 1997, the
Company increased its authorized shares of Common Stock from 20,000,000
shares to 100,000,000 shares.
622291 Ontario Ltd.
-------------------
622291 Ontario Ltd. is a private Canadian corporation with diversified
financial investment and operational interests located in Ottawa, Ontario,
Canada. Effective January 31, 1997, a reorganization was effected
pursuant to which all operations of 622291 other than the Blue Moon Farms
breeding and care operations and its wholly-owned subsidiary, Edwards
Arabians Inc., were spun off from 622291 and 622291 became a wholly-owned
subsidiary for a newly formed Canadian corporation named Egyptians
Arabians Inc. Egyptian Arabians Inc. is a holding company with no assets
or operations. The reorganized company is primarily involved in the
breeding and care of Straight Egyptian Arabian horses. Accordingly, the
accompanying historical financial statements of 622291 Ontario Ltd. have
been restated to reflect the financial position, results of operations and
cash flows for all years presented as if the reorganization had occurred
at the beginning of the earliest period presented. All significant
intercompany transactions have been eliminated.
Segment Data, Geographic Information and Significant Customers
--------------------------------------------------------------
The Company operates in one industry segment and generates revenues
primarily in Canada. For all years presented, approximately 50% of the
sales of horses are to investment partnerships and 50% to other breeders
and individuals. Approximately 98% of the revenues from care and breeding
of horses are from investment partnerships and 2% from individuals. The
Company has been purchasing and selling the majority of its horses from
and to a non-related horse farm. However, the economic dependence on the
use of this horse farm has been lessening since the Company has begun
purchasing and selling horses to other non-related horse farms.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the 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.
Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially expose the Company to
significant concentrations of credit risk consist principally of bank
deposits and accounts receivable. Cash is placed primarily in high
quality short-term interest bearing financial instruments. The company
performs ongoing credit evaluations of its customers' financial condition
and the accounts receivable are secured by the horses.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less.
Receivables
-----------
Receivables from horse sales and breeding and care services are based on
contracted prices. The Company evaluates the collectibility of all
receivables at year-end. Amounts considered uncollectible or doubtful of
collection are written off when such determination is made.
F-12
<PAGE>
Inventories
- -----------
Horse inventories are stated at the lower of cost (specific
identification) or market. Costs of raised horses include proportionate
costs of breeding plus the costs of maintenance to maturity. Purchased
horses are carried at purchase cost plus costs of maintenance to maturity.
Property, Equipment and Depreciation
------------------------------------
Property and equipment are stated at cost, less accumulated depreciation
computed on the declining balance method over the estimated useful lives
as follows:
Buildings 25 Years
Machinery and Equipment 5 Years
Automobiles and Trucks 3 - 5 Years
Furniture and Fixtures 5 Years
Renewals and improvements are charged to property accounts. Costs of
maintenance and repairs that do not improve or extend asset lives are
charged to expense. The cost of property and equipment retired or
otherwise disposed of and the related accumulated depreciation are removed
from the accounts.
Long-Lived Assets
-----------------
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment losses
on assets to be held and used are recognized based on the fair value of
the asset and long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
Deferred Revenues
-----------------
Deferred revenues represent amounts received in advance from investment
partnerships for horse care services such as boarding, feeding and
breeding to be rendered over several years. The deferred revenues are
recognized as earned and included in income as the services are rendered.
Income Taxes
------------
The Company accounts for income taxes using the asset and liability
approach which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year in
which the temporary differences are expected to reverse and gives
immediate effect to changes in income tax rates upon enactment. Deferred
tax assets are recognized, net of any valuation allowance, for temporary
differences and net operating loss and tax credit carry-forwards.
Deferred income tax expense represents the change in net deferred asset
and liability balances.
Foreign Currency Translation
----------------------------
Assets and liabilities of the Company's foreign operations are generally
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of
stockholders' equity. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as
incurred.
F-13
<PAGE>
Note D - Discontinued Operations
- --------------------------------
In January 1997, the Company rescinded the acquisition of ComputerLink
Online Inc. and Tucows Ltd. The costs incurred by the Company in
connection with these rescinded transactions are reflected as discontinued
operations in the Company's Statement of Operations.
Note E - Accounts Receivable
- ----------------------------
Accounts receivable consisted of the following at January 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C> <C>
Due from Investors $ 875,924 $ 828,443
Partnerships 1,752,090 3,036,574
Horses 1,366,129 ---
Breeding 288,750 ---
------------------------
Total Accounts Receivable $4,282,893 $3,865,017
Less: Amounts - Due Within One Year 2,797,618 1,153,193
----- ------------------------
Amounts - Due After One Year $1,485,275 $2,711,824
========================
</TABLE>
The amounts due from the partnerships represent secondary financing
supplied by Edwards Arabians Inc. to allow the partnerships to prepay
horse purchases and board and care for those horses. Interest rates
ranging from 8.5% to 10.5% are charged to the partnerships. There are no
fixed terms of repayment. The loans are collateralized by the horses
purchased by the partnerships. The amounts owed by the partnerships will
be collected at the date all horses have been sold and the corporations in
which the partnerships are transferred to wind up. The anticipated wind-
up dates vary between partnerships but are generally 3 to 5 years.
Note F - Due From Related Companies
- -----------------------------------
The amounts due from related companies are non-interest bearing advances
and have no fixed repayment schedule as of the date of the financial
statements. The terms of related company loans are being renegotiated.
Note G - Property and Equipment
- -------------------------------
Property and equipment consisted of the following at January 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C> <C>
Land and Office Building $ 408,265 $ 400,455
Farmland and Buildings 1,091,882 957,093
Machinery and Equipment 62,127 51,727
Automobiles and Trucks 2,876 5,643
Furniture and Fixtures 5,779 5,668
------------------------
Total Property and Equipment $1,570,929 $1,420,586
Less: Amounts - Accumulated Depreciation 177,709 125,312
----- ------------------------
Net Property and Equipment $1,393,220 $1,295,274
========================
</TABLE>
F-14
<PAGE>
Depreciation expense for the years ended January 31, 1997, 1996 and 1995
was $49,952, $47,172 and $39,464 respectively.
Note H - Accounts Payable and Accrued Expenses
- ----------------------------------------------
Accounts payable and accrued expenses consisted of the following at
January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C> <C>
Horses $2,977,875 $2,246,913
Other 44,322 117,860
------------------------
Total Accounts Payable and Accrued Expenses $3,022,197 $2,364,773
========================
</TABLE>
F-15
<PAGE>
Note I - Long Term Debt
- -----------------------
Long term debt consisted of the following at January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C> <C>
Mortgage payable on farmland and buildings bearing $356,397 $255,038
interest at 0.70% above the Canadian FBDB's floating
base rate (7.45% at January 31, 1997), with month
principal payments of $3,100 plus interest, expiring in
2006.
Second mortgage payable on farmland and buildings ___ 50,967
bearing interest at 17.15% with monthly interest
payments only.
Mortgage payable on office building bearing interest 264,496 278,527
at a one-year variable rate (currently 6.20% through
October 1, 1997) with monthly payments of $3,043,
maturing October 1, 2006
Second mortgage payable on office building bearing 63,096 61,889
interest at 12% with monthly interest payments only -------- --------
of $630 maturing June 1, 1998
Total 683,989 646,421
Less: Current Portion 56,072 50,508
---- -------- --------
Long Term Portion $627,917 $595,913
======== ========
</TABLE>
As of January 31, 1997, the aggregate maturities of long term debt are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $122,193
1999 60,496
2000 61,982
2001 63,564
2002 65,246
Thereafter 254,436
--------
Total Long Term Debt $627,917
========
</TABLE>
F-16
<PAGE>
Note J - Income Taxes
- ---------------------
The provision for income taxes from continuing operations for the years
ended January 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
-----------------------------
Current income taxes payable $ --- $ --- $ ---
Federal --- --- ---
State --- --- ---
Canadian --- 11,564 ---
-----------------------------
Total Current Provision $ --- $ 11,564 $ ---
Deferred provision
Canadian 365,874 42,362 160,571
-----------------------------
Total Provision $365,874 $53,926 $160,571
=============================
The provision for Canadian deferred taxes is attributable primarily to
the use of the cash basis of accounting for tax reporting purposes.
Note K - Other Matters
- ----------------------
The Canadian income tax authorities are presently reviewing the farming
tax status and associated investment losses for some of the individuals in
limited investment partnerships which previously purchased horses from the
company. Denial of some of these losses by the tax authorities might make
investing in the limited partnership less attractive and could adversely
impact the demand for the company's horses. Should an adverse condition
result from this, management would work vigorously to restructure the
limited partnerships in accordance with any revisions to the tax code
and/or would seek other sources for the sale of its horses.
The Canadian sales tax authorities are currently reviewing certain input
tax credits claimed by some of the limited partnerships and the
corporations that acquired partnership assets in roll-up transactions
which allowed the Company to offset the sales tax it collected against the
sales tax paid by those entities. Management is of the opinion that the
outcome of this review is presently not determinable but that it is
unlikely that an adverse decision would have a material effect on the
Company's financial position.
F-17
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
32
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Supplementary Data
See Item 13.
(b) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Reorganization by and among Mercristo
Developments, Inc., Egyptian Arabians Inc. and Resi Corp.
2.2 Agreements relating to the Reorganization of 622291 Ontario Limited
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated By-laws
10.1 Mortgage from E.S.I. Holdings Limited to Michael Nurse
10.2 Mortgage from E.S.I. Holdings Limited to Sun Life Trust Company
10.3 Loan Agreement from 622291 Ontario Limited to Business Development
Bank of Canada
10.4 Lease between Peter Vanderkloet and Edwards Arabians Inc.
10.4.1 Addendum to Lease between Peter Vanderkloet and Edwards Arabians
Inc.
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of Mercristo Developments, Inc.
27 Financial Data Schedule
33
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Company has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized
MERCRISTO DEVELOPMENTS, INC.
----------------------------
(Company)
Date: April 30, 1997 By: /s/ David G. Edwards
--------------------------
DAVID G. EDWARDS, President
34
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Reorganization by and among Mercristo
Developments, Inc., Egyptian Arabians Inc. and Resi Corp.
2.2 Agreements relating to the Reorganization of 622291 Ontario Limited
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated By-laws
* 10.1 Mortgage from E.S.I. Holdings Limited to Michael Nurse
* 10.2 Mortgage from E.S.I. Holdings Limited to Sun Life Trust Company
* 10.3 Loan Agreement from 622291 Ontario Limited to Business Development
Bank of Canada
* 10.4 Lease between Peter Vanderkloet and Edwards Arabians Inc.
* 10.4.1 Addendum to Lease between Peter Vanderkloet and Edwards Arabians
Inc.
11 Statement re Computation of Per Share Earnings (Contained in
Financial Statements)
* 21 Subsidiaries of Mercristo Developments, Inc.
* 27 Financial Data Schedule
- ----------------
* To be filed by amendment.
35
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered into
as of this 30th day of April, 1997, by and among MERCRISTO DEVELOPMENTS, INC., a
Delaware corporation ("MDI"), EGYPTIAN ARABIANS INC., an Ontario corporation
("EAI") and RESI CORP., an Ontario corporation ("RESI").
WITNESSETH:
WHEREAS, RESI owns, or will own, all of the issued and outstanding shares of
Common Stock of EAI (the "EAI Shares"); and
WHEREAS, MDI desires to acquire the EAI Shares solely in exchange for
8,450,000 authorized and unissued shares of Common Stock of MDI, $.001 par value
per share (the "MDI Shares"), which at the time of the exchange will represent
51.3% of the issued and outstanding shares of Common Stock of MDI (the
"Reorganization").
NOW, THEREFORE, in consideration of the premises, covenants,
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
TERMS OF THE REORGANIZATION
1.1 THE EXCHANGE OF SHARES. On the Closing Date, RESI shall deliver duly
issued stock certificates representing the EAI Shares to MDI, which certificates
shall be delivered free and clear of all liens, security interests, and
restrictions. The EAI Shares shall be duly and validly issued and fully paid
and non-assessable. Simultaneously with the delivery of the EAI Shares, MDI
will issue and deliver to RESI stock certificates representing the MDI Shares,
which certificates shall be delivered free and clear of all liens, security
interests, and restrictions (other than the standard Securities Act legend which
will appear on all such certificates). The MDI Shares shall be duly and validly
issued and fully paid and non-assessable.
1.2 CLOSING. The closing of the transactions contemplated hereby
("Closing") shall occur within ten days of the date on which MDI's Registration
Statement on Form 10 is declared effective by the United States Securities and
Exchange Commission (the "SEC") at the offices of Harter, Secrest & Emery or at
a time or place mutually agreed to by the parties (the "Closing Date").
1.3 VOTING RIGHTS; DIVIDENDS. The MDI Shares issued to RESI pursuant to
this Agreement shall have the same rights and privileges as those shares of
MDI's Common Stock currently issued and outstanding, including without
limitation voting and dividend rights, and such shares shall not be subject to
call by MDI.
<PAGE>
1.4 MDI STOCK. Each MDI Share which is outstanding immediately prior to
the Reorganization shall continue to remain outstanding.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MDI
MDI hereby represents and warrants to EAI and RESI as follows:
2.1 ORGANIZATION AND QUALIFICATION. MDI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
MDI has all requisite corporate power and authority to carry on its business as
it is now being conducted and to own or lease its properties and assets. MDI is
duly qualified or licensed to do business as a foreign corporation in good
standing in every jurisdiction where the failure to be so qualified or licensed
would have a material adverse effect on MDI taken as a whole. MDI has
heretofore delivered to EAI and RESI complete and correct copies of its
Certificate of Incorporation and By-laws, each as amended and currently in
effect.
2.2 CAPITALIZATION. The authorized capital stock of MDI consists of
100,000,000 shares of Common Stock, $.001 par value per share. As of the date
hereof, 8,110,519 shares of Common Stock are issued and outstanding. No shares
of Common Stock are held as treasury shares. The issued and outstanding shares
of Common Stock are validly issued, fully paid and non-assessable. MDI has
previously delivered to EAI and RESI true, correct and complete copies of its
stock record books, which stock record books accurately reflect the record and
beneficial ownership of the issued and outstanding shares of MDI Stock. There
is no outstanding option, warrant, right, call, subscription or other agreement
or commitment which (a) calls for the issuance, sale, pledge or other
disposition of any shares of Common Stock of MDI or any securities convertible
or exchangeable into, or other rights to acquire, any shares of Common Stock of
MDI, (b) obligates MDI to grant, offer or enter into any of the foregoing, or
(c) relates to the voting, transfer or control of such Common Stock, securities
or rights.
2.3 SUBSIDIARIES. MDI has no subsidiaries, nor does MDI own, directly or
indirectly, any of the outstanding capital stock or securities convertible into
capital stock of any corporation or have any direct or indirect equity or
ownership interest in any partnership, joint venture or other business
enterprise.
2.4 AUTHORIZATION. MDI has all requisite corporate power to enter into this
Agreement and to carry out its obligations hereunder. Subject to the approval
by the stockholders of MDI of this Agreement and the transactions contemplated
hereby, (a) the execution and delivery of this Agreement and the due
consummation by MDI of the transactions contemplated hereby, have been duly and
validly authorized by all necessary
- 2 -
<PAGE>
corporate action on the part of MDI, and (b) this Agreement constitutes (and
each other document and instrument contemplated by this Agreement, when executed
and delivered in accordance with the provisions hereof, will constitute) a valid
and legally binding agreement of MDI enforceable in accordance with its terms,
except (i) as such enforcement may be limited by bankruptcy, reorganization,
insolvency or other laws and court decisions relating to or affecting the
enforcement of creditors' rights generally (including but not limited to
statutory or other law regarding fraudulent transfers), and (ii) as to the
availability of specific performance or other equitable remedies.
2.5 NO CONFLICTS. Except as disclosed on Schedule 2.5 attached hereto, the
execution, delivery and performance of this Agreement by MDI, and consummation
of the transactions contemplated hereby:
(a) will not constitute a conflict with, breach or violation of or
default (or an event which with notice or lapse of time or both would become a
default) under:
(i) either MDI's Certificate of Incorporation or By-laws, each
as amended to date, or
(ii) any agreement, instrument, license, franchise or permit to
which MDI is subject or by which MDI is bound, or
(iii) any order, writ, injunction or decree to which MDI is
subject or by which MDI is bound, or
(iv) to the best of MDI's knowledge, any law, rule or regulation
to which MDI is subject;
(b) will not result in or give rise to an adverse claim against any MDI
Shares; or
(c) will not result in the creation of any lien, claim, charge or
encumbrance on the properties or assets of MDI (other than resulting from this
Agreement).
2.6 FINANCIAL STATEMENTS. The books and records of MDI are complete and
correct in all material respects, have been maintained in accordance with sound
business practices, and fully and fairly reflect all of the transactions of MDI.
MDI has previously delivered to representatives of EAI true and complete copies
of the audited balance sheet of MDI as at January 31, 1997 and the related
statements of operations and cash flows and changes in stockholders' equity for
the annual period ended on such date, in each case accompanied by the report of
Rotenberg & Company, certified public accountants (collectively "MDI Financial
Statements"). The MDI Financial Statements have been derived from the
accounting books and records of MDI, fairly present the financial position,
results of
- 3 -
<PAGE>
operations, stockholders' equity and changes in financial position of MDI as at
the dates and for the periods indicated and have been prepared in accordance
with generally-accepted accounting principles consistently applied.
2.7 LACK OF OPERATIONS. MDI is a shell company with no operations and has
no assets or liabilities other than those disclosed in the MDI Financial
Statements.
2.8 COMPLIANCE WITH LAWS.
(a) MDI is not acting, or permitting to exist a condition which is, in
contravention or violation of any applicable law, regulation, ordinance, order,
injunction or decree, or any other requirement of any governmental body, court
or self-regulatory authority, nor has MDI failed to remedy any such previously-
existing violation, which could have a material adverse effect on MDI. No
assertion of any such violation or noncompliance has been received by MDI. MDI
shall comply with all applicable securities laws both prior and subsequent to
the Closing Date.
(b) Neither MDI nor any officer, director or employee of MDI has been
the subject of any disciplinary proceeding or order of any governmental
authority or self-regulatory authority arising under securities laws and
regulations and no such disciplinary proceeding or order is pending or, to the
best of MDI's knowledge, contemplated; and neither MDI nor any officer, director
or employer of MDI has been permanently enjoined by any order, judgment or
decree of any court, governmental authority or self-regulatory authority from
engaging in or continuing any conduct or practice in connection with any
activity or in connection with the purchase or sale of any security.
2.9 CONTRACTS. MDI is not a party to nor bound by any oral or written
contract, commitment or arrangement that is material to MDI.
2.10 LITIGATION. There is no legal, equitable, administrative or
arbitration action, suit, proceeding or known investigation pending or, to MDI's
best knowledge, threatened against or affecting MDI or any of its assets which,
if adversely determined, could adversely affect the business, the operations or
properties, or the condition, financial or otherwise, of MDI or the ability of
MDI to consummate the transactions contemplated hereby. There is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against MDI and,
to MDI's best knowledge, there is no basis for any action, suit, proceeding or
investigation against MDI. No such action, suit, proceeding, known
investigation, judgment, decree, injunction, rule or order arises out of the
employment of labor, equal employment opportunity, occupational health and
safety, economic stabilization or environmental protection. To the best of
MDI's knowledge, MDI is not in default with respect to any order, injunction or
decree of any court or governmental department, commission, board or agency, and
no such
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order, injunction or decree is now in effect which restrains the operations or
the use of the properties of MDI.
2.11 BROKERS AND FINDERS. Neither MDI nor any officer, director or
employee of MDI has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
2.12 CONFLICTS OF INTEREST. Except as set forth on Schedule 2.12 attached
hereto, MDI is not a party to any contract with any officer, director or 5% (or
greater) stockholder of MDI, any relative of any of the foregoing, or any entity
controlling, controlled by or under common control with any of the foregoing.
2.13 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES. No
representation or warranty made by MDI in this Agreement and no statement
contained in any document, instrument, Schedule or Exhibit referenced herein
prepared by MDI and to be delivered by MDI 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, in the light of the
circumstances in which they are made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EAI AND RESI
EAI, for itself and on behalf of its subsidiaries, 622291 Ontario Inc.
("622291") and Edwards Arabians Inc. ("Edwards"), and RESI hereby jointly and
severally represent and warrant to MDI as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each of EAI, 622291 and Edwards is a
corporation duly organized, validly existing and in good standing under the laws
of the Province of Ontario, Canada. Each of EAI, 622291 and Edwards has all
requisite corporate power and authority to carry on its business as it is now
being conducted and to own or lease its properties and assets. Each of EAI,
622291 and Edwards is duly qualified or licensed to do business as an extra-
provincial foreign corporation in good standing in every jurisdiction where the
nature of its business or the location or character of its owned or leased
property requires it to be so qualified or licensed. Each of EAI, 622291 and
Edwards has heretofore delivered to MDI complete and correct copies of its
Certificate of Incorporation and By-laws, each as amended and currently in
effect.
3.2 CAPITALIZATION. The authorized capital stock of EAI consists of an
unlimited number of First Preferred Shares, Second Preferred Shares, Third
Preferred Shares and Common Shares, all as more particularly described in EAI's
Certificate of Incorporation. After giving effect to the reorganization of
622291, to be completed prior to or
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contemporaneously with the Closing Date, 1,000 shares of EAI Common Stock will
be issued and outstanding, all of which will be owned by RESI, and no shares of
any class of Preferred Stock will be issued or outstanding. No shares of Common
Stock or Preferred Stock are held as treasury shares. The shares of EAI Common
Stock to be issued to RESI will be validly issued, fully paid and non-
assessable. EAI has previously delivered to MDI true, correct and complete
copies of its shareholders' ledger, which stock record books accurately reflect
the record and beneficial ownership of the issued and outstanding shares of EAI
Common Stock. There is no outstanding option, warrant, right, call,
subscription or other agreement or commitment which (a) calls for the issuance,
sale, pledge or other disposition of any shares of capital stock of EAI or any
securities convertible or exchangeable into, or other rights to acquire, any
shares of capital stock of EAI, (b) obligates EAI to grant, offer or enter into
any of the foregoing, or (c) relates to the voting, transfer or control of such
capital stock, securities or rights. All of the issued and outstanding shares
of capital stock of 622291, after giving effect to the reorganization of 622291,
will be owned by EAI, and all of the issued and outstanding shares of capital
stock of Edwards are and will be owned by 622291.
3.3 SUBSIDIARIES. Except for 622291 and Edwards, EAI has no subsidiaries,
nor does EAI own, directly or indirectly, any of the outstanding capital stock
or securities convertible into capital stock of any corporation or have any
direct or indirect equity or ownership interest in any partnership, joint
venture or other business enterprise.
3.4 AUTHORIZATION. Each of EAI and RESI has all requisite corporate power
to enter into this Agreement and to carry out its respective obligations
hereunder. The execution and delivery of this Agreement and the due
consummation by EAI and RESI of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
each of EAI and RESI, and this Agreement constitutes (and each other document
and instrument contemplated by this Agreement, when executed and delivered in
accordance with the provisions hereof, will constitute) a valid and legally
binding agreement of EAI and RESI, enforceable in accordance with its terms,
except (i) as such enforcement may be limited by bankruptcy, reorganization,
insolvency or other laws and court decisions relating to or affecting the
enforcement of creditors' rights generally (including but not limited to
statutory or other law regarding fraudulent transfers), and (ii) as to the
availability of specific performance or other equitable remedies.
3.5 NO CONFLICTS. Except as disclosed on Schedule 3.5 attached hereto, the
execution, delivery and performance of this Agreement by EAI and RESI, and the
consummation of the transactions contemplated hereby:
(a) will not constitute a conflict with, breach or violation of or
default (or an event which with notice or lapse of time or both would become a
default) under: (i) either EAI's or RESI's Certificate of Incorporation or By-
laws, each as amended to date, or (ii) any agreement, instrument, license,
franchise or permit to which EAI, 622291, Edwards or RESI
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is subject or by which EAI, 622291, Edwards or RESI is bound, or (iii) any
order, writ, injunction or decree to which EAI, 622291, Edwards or RESI is
subject or by which EAI, 622291, Edwards or RESI is bound, or (iv) to the best
of EAI's knowledge, any law, rule or regulation to which EAI, 622291, Edwards or
RESI is subject;
(b) will not result in or give rise to an adverse claim against any EAI
Shares; or
(c) will not result in the creation of any lien, claim, charge or
encumbrance on the properties or assets of EAI, 622291, Edwards or RESI (other
than resulting from this Agreement).
3.6 CONSENTS AND APPROVALS. Neither EAI nor RESI is required to submit any
notice, report or other filing to or obtain any consent or approval from any
governmental authority or third party in connection with the execution and
delivery by EAI and RESI of this Agreement or the consummation of the
transactions contemplated hereby.
3.7 FINANCIAL STATEMENTS. The books and records of 622291 and Edwards are
complete and correct in all material respects, have been maintained in
accordance with sound business practices, and fully and fairly reflect all of
the transactions of 622291 and Edwards. EAI has previously delivered to MDI
true and complete copies of the audited consolidated balance sheets of 622291
and its subsidiaries as at January 31, 1997, 1996, 1995, 1994 and 1993, and the
related statements of operations and cash flows and changes in stockholders'
equity for the annual periods ended on such dates, in each case accompanied by
the reports of Mario Dumas, Chartered Accountant (collectively the "EAI
Financial Statements"). The EAI Financial Statements have been derived from the
accounting books and records of 622291 and its consolidated subsidiaries, fairly
present the financial position, results of operations, stockholders' equity and
changes in financial position of 622291 and its consolidated subsidiaries as at
the dates and for the periods indicated and have been prepared in accordance
with generally accepted accounting principles and 622291's historical accounting
practices and principles, consistently applied.
3.8 RECEIVABLES. The accounts receivable of 622291 reflected in the EAI
Financial Statements as of January 31, 1997 are valid and created in the
ordinary course of business, except as set forth in the allowance for bad debts
in such EAI Financial Statements.
3.9 AMOUNTS DUE. The amounts due from partnerships and amounts due from
related parties as reflected in the EAI Financial Statements as of January 31,
1997 are, to the best of EAI's knowledge, collectible in the ordinary course of
business.
3.10 UNDISCLOSED LIABILITIES. To the best of EAI's knowledge, except for
liabilities incurred in the ordinary course of business subsequent to January
31, 1997, neither 622291 nor Edwards has any liability, obligation or expense
(whether due or to become due, known
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or unknown, absolute, contingent or otherwise), including but not limited to
liabilities for taxes, other than (a) those liabilities fully and adequately
reflected or reserved against in the EAI Financial Statements and not paid or
discharged after the date thereof, or (b) those liabilities listed or described
on Schedule 3.10 attached hereto. Except as set forth on Schedule 3.10, to the
best of EAI's knowledge, neither 622291 nor Edwards has any obligation
(absolute, contingent or otherwise) to provide funds on behalf of, or to
guarantee or assume any debt, liability or obligation of any other corporation,
partnership, association, joint venture, individual or other person.
3.11 REAL PROPERTY.
(a) Attached hereto as Schedule 3.11(a) is a complete list or
description of all real property (the "Real Property") which is owned by 622291.
To the best of EAI's knowledge, 622291 has good and marketable title to the Real
Property owned by it, free and clear of liens, charges and encumbrances, except,
in each case, as otherwise specified in Schedule 3.11(a). To the best of EAI's
knowledge, 622291 is not in violation of any applicable zoning regulation,
ordinance or other law, order, regulation or requirement relating to the Real
Property or any operations conducted thereon.
(b) No proceedings for the taking of any of the Real Property by eminent
domain by any governmental authority are pending or, to the best of EAI's
knowledge, threatened.
(c) Attached hereto as Schedule 3.11(c) is a list of each lease of real
property (including amendments thereto) to which either 622291 or Edwards is a
party. There are no contractual obligations, agreements in principle or present
plans for either 622291 or Edwards to enter into new leases of real property or
to renew or amend existing leases of real property prior to the Closing Date.
3.12 ENVIRONMENTAL MATTERS. To the best of EAI's knowledge without
performing or causing to be performed any independent examination thereof,
except as disclosed on Schedule 3.12 attached hereto, (a) there has been no
release of any hazardous substance by 622291 or Edwards at or from any of the
Real Property or facilities owned or used by either 622291 or Edwards (b) there
has been no disposal of any hazardous substance by 622291 or Edwards at or on
any of the Real Property or facilities owned or used by either 622291 or Edwards
(c) neither 622291 nor Edwards has placed any hazardous substances in or on any
of the Real Property or facilities owned or used by either 622291 or Edwards (d)
neither 622291 nor Edwards has generated, treated or stored any hazardous
substances at or on any Real Property or facilities which it owns or uses, (e)
there has been no disposal or arrangement for disposal of hazardous substances
by either on any property not now owned or leased by either 622291 or Edwards,
and (f) neither 622291 nor Edwards has placed any underground storage tanks at
the Real Property or facilities owned or used by 622291 or Edwards.
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3.13 PERSONAL PROPERTY.
(a) Each of 622291 and Edwards has the unconditional right to use all
properties, assets and rights set forth on the EAI Financial Statements and all
other properties, assets and rights owned or used by them, except for (i)
limitations imposed by the terms of the applicable lease, in the case of leased
property, (ii) defects in title, mortgages, liens, security interests, charges
and encumbrances disclosed in Schedule 3.13, and (iii) such restrictions on use
as do not materially impair the value of such properties, assets and rights or
the business of 622291 or Edwards ("Permitted Liens"). Each of 622291 and
Edwards has good and marketable title to all of the tangible personal
properties, assets and rights owned by it, free and clear of all mortgages,
liens, security interests, charges and encumbrances, except for Permitted Liens.
(b) All leases, subleases and other agreements under which each of
622291 and Edwards is lessee or lessor of any property, real or personal, are in
full force and effect and constitute legal, valid and binding obligations of the
respective parties thereto enforceable in accordance with their respective terms
(except as such enforcement may be limited by bankruptcy, reorganization,
insolvency or other laws and court decisions relating to or affecting the
enforcement of creditors' rights generally, including but not limited to
statutory or other law regarding fraudulent transfers, and except as to the
availability of specific performance or other equitable remedies), and grant the
leasehold estates they purport to grant free and clear of all mortgage, liens,
security interest, charges or encumbrances whatsoever, except for Permitted
Liens. There is not, under any of such instruments, any claimed default or any
event of default or event which with notice or lapse of time or both would
constitute an event of default.
(c) Except as disclosed on Schedule 3.13, all machinery, equipment and
other tangible personal property owned or used by each of 622291 and Edwards is
free from any material defect and is capable of being used in the ordinary and
usual course of business as presently conducted by each of 622291 and Edwards.
3.14 INSURANCE. Schedule 3.14 contains a complete list of all policies of
insurance and fidelity and surety bonds now in force with respect to each of
622291 and Edwards and their respective Directors, officers and employees
(including the expiration date, premium amount and coverage under each such
policy and bond), and a complete list of all pending claims in excess of $5,000
under any of such policies or bonds. To the best of EAI's knowledge, each of
622291 and Edwards has complied in all material respects with the terms,
obligations and provisions of each such policy and bond.
3.15 COMPLIANCE WITH LAWS.
(a) All material permits, licenses, operating certificates, orders or
approvals of any federal, state, local or foreign governmental agency or self-
regulatory authority
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(hereinafter collectively, "permits") currently held by each of 622291 and
Edwards or their officers, Directors, agents, or employees, as the case may be,
with respect to the assets, properties or business of 622291 and Edwards, are in
full force and effect. Such permits constitute all of the permits necessary to
(i) the ownership or use of the properties and assets of each of 622291 and
Edwards, (ii) the conduct of the businesses of each of 622291 and Edwards, and
(iii) the conduct of activities (as presently conducted) by the officers,
Directors, agents and employees (as the case may be) of each of 622291 and
Edwards, and the failure to obtain which could have a material adverse effect
upon EAI and its subsidiaries taken as a whole. To the best of EAI's knowledge,
all material permits with respect to the assets, properties or business of each
of 622291 and Edwards, are in full force and effect. To the best of EAI's
knowledge, no material violations are or have been recorded in respect of, and
no threat of revocation has been received with respect to, the foregoing permits
of 622291 and Edwards.
(b) Neither 622291 nor Edwards is acting, or permitting to exist a
condition which is in contravention or violation of any applicable law,
regulation, ordinance, order, injunction or decree, or any other requirement of
any governmental body, court or self-regulatory authority, nor has 622291 or
Edwards, to the best of EAI's knowledge, failed to remedy any such previously
existing violation, which could have a material adverse effect on the business
of EAI and its subsidiaries taken as a whole. No assertion of any such
violation or noncompliance has been received by either 622291 or Edwards.
(c) Except as disclosed on Schedule 3.15(c) attached hereto, neither
622291 nor Edwards nor any officer, Director or employee of 622291 or Edwards
has been the subject of any disciplinary proceeding or order of any governmental
authority or self-regulatory authority arising under securities laws and
regulations and no such disciplinary proceeding or order is pending or, to the
best of EAI's knowledge, contemplated; and neither 622291 nor Edwards nor any
officer, Director or employee of 622291 or Edwards has been permanently enjoined
by any order, judgment or decree of any court, governmental authority or self-
regulatory authority from engaging in or continuing any conduct or practice in
connection with any activity or in connection with the purchase or sale of any
security.
(d) Neither 622291 nor Edwards has failed to file any report or return
which is or may be required by law, rule, regulation or policy of any
governmental authority or self-regulatory authority, or failed to pay any dues,
fees or charges which are due or have been assessed against it in respect of
membership or registration with any governmental authority or self-regulatory
authority, which failure could have a material adverse effect upon 622291 or
Edwards.
3.16 TAXES. All federal, provincial and local tax returns, reports and
declarations (hereinafter collectively, "returns") required to be filed in
connection with the properties, assets, operations, income, expenses, net worth
and franchises (hereinafter the "business") of 622291 and Edwards have been
timely filed, and such returns are true, correct and complete;
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and all taxes and governmental charges (including, without limitation, any
interest and penalties) due pursuant to such returns or otherwise due, levied or
assessed with respect to the businesses of 622291 and Edwards have been paid,
other than taxes or charges which (a) are not yet due, or if due, are not yet
delinquent, (b) are being contested in good faith, or (c) have not been finally
determined and, in each case, for which adequate reserves have been established
in the EAI Financial Statements in accordance with generally accepted accounting
principles, consistently applied. There is no agreement for the extension of
the time of any assessment of any tax with respect to the business of 622291 or
Edwards, and there are no audits of any tax return of 622291 or Edwards
currently in progress. There are no claims or proceedings pending with respect
to the business of 622291 or Edwards, for past-due taxes, and, to the best of
EAI's knowledge, no such claims or proceedings are threatened. Neither 622291
nor Edwards has received any notice of any tax lien with respect to its business
having been filed in any jurisdiction. The income tax returns of each of 622291
and Edwards have never been audited.
3.17 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 31, 1997, other
than changes in the ordinary course of business, there has been no material
adverse change in the business, results of operations, assets, financial
condition or prospects or in the manner of conducting the business of 622291 or
Edwards, or, to the best of EAI's knowledge, no fact or condition exists, is
contemplated or is threatened that might cause such a change in the future.
3.18 LITIGATION. There is no litigation, proceeding or governmental or
self-regulatory authority investigation pending, or any judgment, order,
injunction or decree outstanding, against or related to 622291 or Edwards or any
officer, Director or employee of 622291 or Edwards or, to the best of EAI's
knowledge, any partner, agent or employee of 622291 or Edwards, which if
determined adversely would materially and adversely affect 622291 or Edwards,
nor to the best of EAI's knowledge: (i) is any such litigation, proceeding or
investigation threatened, or (ii) does any specific basis for any such
litigation, proceeding or investigation exist.
3.19 BROKERS AND FINDERS. Neither 622291 nor Edwards nor any officer,
Director or employee of 622291 or Edwards has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby.
3.20 CONTRACTS. Except as set forth in Schedule 3.20 attached hereto,
neither 622291 nor Edwards is a party to nor bound by any oral or written
contract, commitment or arrangement (a "Contract") which is:
(a) for the employment of any officer or individual employee (not
including registered representatives);
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(b) with any labor union;
(c) in the nature of a (i) confidentiality agreement, (ii) royalty,
(iii) license, or (iv) an agreement for the acquisition of intangible property
rights that is material to the conduct of the business of 622291 or Edwards, or
(v) any other agreement that is material to the conduct of the business of
622291 or Edwards;
(d) in the nature of a non-competition agreement which in any way
restricts the right of 622291 or Edwards to conduct business;
(e) in the nature of a management or consulting agreement (other than
financial or consulting agreements entered into in the ordinary course of
business);
(f) not performable within one calendar year; or
(g) not in the ordinary course of business.
Except as disclosed on Schedule 3.20, each Contract to which 622291 or Edwards
is a party is valid, binding and in full force and effect, and is enforceable in
accordance with its terms, except (i) as such enforcement may be limited by
bankruptcy, reorganization, insolvency or other laws and court decisions
relating to or affecting the enforcement of creditors' rights generally
(including but not limited to statutory or other law regarding fraudulent
transfers), and (ii) as to the availability of specific performance or other
equitable remedies. Each of 622291 and Edwards has been paid in full or accrued
all amounts due under each such Contract, has satisfied in full or provided for
all of its liabilities and obligations thereunder and, to the best of EAI's
knowledge, each of 622291 and Edwards is not in default under any such Contract,
nor is any other party thereto in default thereunder. Neither 622291 nor
Edwards is a party to or bound by any Contract which materially and adversely
affects the business, operations or financial condition of EAI and its
subsidiaries taken as a whole.
3.21 LABOR. Except as disclosed on Schedule 3.21 attached hereto, each of
622291 and Edwards has complied in all material respects with all applicable
federal, provincial and local laws and ordinances relating to the employment of
labor, including the provisions thereof relating to wages, hours, employee
benefit plans and the payment of applicable taxes, and is not liable for any
arrears of wages or any tax relating thereto (except for currently accrued and
unpaid wages and except for currently accrued withholding, payroll, unemployment
and other applicable taxes, payment of which is not overdue) or penalties for
failure to comply with any of the foregoing, and has received no notice to the
contrary from any governmental agency. There have not been any disputes between
622291 or Edwards and their respective employees which have involved organized
labor strikes or work stoppages, proceedings before any court or agency alleging
any unfair labor practice, wage-hour violation, unlawful discrimination in
employment practices or other violation of labor law, or any grievance or
arbitration proceedings at any time since December 31, 1993.
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3.22 INTANGIBLE PROPERTY. Except as set forth on Schedule 3.22 attached
hereto, each of 622291 and Edwards owns, or has valid, binding and enforceable
rights to use, any and all patents, trademarks, trade names, service marks,
service names, copyrights, applications therefor ("Intangible Property") used or
held for use in connection with its business, in each case free and clear of any
lien, security interest, charge or encumbrance, subject to no interference and
without any known conflict with the rights of others. Schedule 3.22 sets forth
a complete list of all such Intangible Property owned by or licensed to 622291
or Edwards where any such Intangible Property has been registered or filed with
the United States Patent or Trademark Office or the corresponding office of any
other jurisdictions. Neither 622291 or Edwards has infringed, misappropriated,
misused or been charged with (or, to the best of EAI's knowledge, been
threatened to be charged with), and neither 622291 nor Edwards has received any
notice with respect to, infringement, misappropriation or misuse of any
Intangible Property owned or claimed by another. Except as disclosed on
Schedule 3.22, neither 622291 nor Edwards has granted any outstanding licenses
or other rights, or obligated itself to grant licenses or other rights in or to
any of the Intangible Property owned, used by or licensed to 622291 or Edwards.
3.23 DIRECTORS, OFFICERS AND KEY EMPLOYEES. Schedule 3.23 sets forth the
names, addresses and salaries of the officers and Directors of 622291 and
Edwards and other key employees of 622291 and Edwards. Except as set forth on
Schedule 3.23, none of the persons listed thereon has received any wage or
salary increase or bonus since January 31, 1997 and there has not been any
accrual for or commitment or agreement by 622291 or Edwards to pay the same.
3.24 CONFLICTS OF INTEREST. Except as set forth on Schedule 3.24 attached
hereto, neither 622291 or Edwards is a party to any contract with any officer,
Director or 5% (or greater) shareholder of 622291 or Edwards, any relative of
any of the foregoing, or any entity controlling, controlled by or under common
control with any of the foregoing.
3.25 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES. No
representation or warranty made by EAI and RESI in this Agreement and no
statement contained in any document, instrument, Schedule or Exhibit referenced
herein prepared by EAI and to be delivered by EAI 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, in the light of the
circumstances in which they are made, not misleading.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 MDI COVENANTS BETWEEN SIGNING AND THE CLOSING DATE. During the period
commencing on the date hereof and continuing until the Closing Date, MDI
covenants and
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agrees that it will not issue any shares of its Common Stock, amend its
Certificate of Incorporation or By-laws except as contemplated hereby or enter
into any transaction the effect of which would be to dilute the ownership
interest in MDI to be received by RESI upon the consummation of the transactions
contemplated hereby.
4.2 EAI COVENANTS BETWEEN SIGNING AND THE CLOSING DATE. During the period
commencing on the date hereof and continuing until the Closing Date, EAI for
itself and on behalf of 622291 and Edwards, covenants and agrees as follows:
(a) 622291 and Edwards each shall conduct their businesses in, and only
in, the regular and ordinary course in substantially the same manner as
heretofore conducted, use their best efforts to preserve and protect their
businesses, rights, properties and assets, and, to the extent consistent with
such businesses, use their best efforts to preserve intact their present
business organizations, keep available the services of their present officers
and employees and preserve their relationships with customers, suppliers and
others having business dealings with them to the end that their good will and
business shall be unimpaired at the Closing Date. Without limiting the
generality of the foregoing, neither EAI, 62291 nor Edwards shall (without the
prior written consent of MDI):
(i) issue any shares of capital stock, except as contemplated in
connection with the reorganization of 622291 and capitalization of EAI;
(ii) amend its Certificate of Incorporation or By-laws;
(iii) adjust, split, combine or reclassify any shares of capital
stock;
(iv) make, declare or pay any dividend or make any other distribution
on, or directly or indirectly issue, redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock;
(v) except as otherwise provided herein, grant any stock appreciation
rights, stock options or other rights to share in the equity value of EAI, 62291
or Edwards;
(vi) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets, or cancel, release or assign any indebtedness to it or
any claims held by it, except transactions in the ordinary course of its
business;
(vii) except for transactions in the ordinary course of its business,
make any material investment, either by purchase of stock or securities, loans,
contributions to capital, property transfers, or purchase of assets, of any
other person, corporation, partnership or other entity;
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(viii) enter into any contract unrelated to employment with any
present or former shareholders, directors, officers, employees or consultants
involving the expenditure of more than $10,000 as to any one contract or
commitment or $50,000 in the aggregate as to all such contracts or commitments;
(ix) pay any pension or retirement allowance not required by any
existing plan or agreement to any employee, or become a party to, amend or
commit itself to any pension, retirement, profit-sharing or welfare plan or
agreement, or any other fringe benefit plan or arrangement, with or for the
benefit of any employee;
(x) increase the compensation of any executive officer or enter into
any employment agreements, understandings or arrangements with any other persons
which, in the aggregate, involve expenditures of more than $100,000;
(xi) agree to, or make any commitment to, take any of the actions
prohibited by this Section 4.2(a).
4.3 MUTUAL COVENANTS BETWEEN SIGNING AND CLOSING DATE.
(a) Each of MDI and EAI covenants and agrees to use its best efforts to
comply promptly with (and furnish information to the other parties in connection
with) any and all requirements that federal or state law may impose on it or
them, as the case may be, with respect to the Reorganization, including but not
limited to MDI's filing with the SEC a Registration Statement on Form 10.
(b) Each of MDI and EAI, covenants and agrees to afford to the other and
to the other's accountants, counsel and other representatives, full access,
during normal business hours during the period prior to the Closing Date or the
earlier termination of this Agreement, to all of the properties, books,
contracts, commitments and records (including the working papers of the
independent auditors in connection with their audits or other services
performed) of MDI or EAI (including 622291 and Edwards) as the case may be, and,
during such period, MDI and EAI each shall furnish promptly to the other (i) a
copy of each report, schedule and other document filed or received by any MDI
and EAI, as the case may be, during such period pursuant to the requirements of
applicable securities laws, and (ii) all other information concerning the
business, properties and personnel of MDI or EAI, as the case may be, as the
other may reasonably request. Such investigation shall not affect the
representations and warranties of MDI, EAI or RESI contained or provided for
herein.
(c) MDI and EAI each covenants and agrees to advise the other promptly,
both orally and in writing, of any change in the business, results of
operations, financial condition, assets, liabilities or prospects of MDI or EAI
(including 622291 and Edwards), as the case may be, that is or may be materially
adverse to the other.
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<PAGE>
(d) MDI and EAI each covenants and agrees that if any action, suit,
proceeding or investigation of any nature is commenced against either of them or
their subsidiaries, whether before or after the Closing Date, it shall cooperate
with the other and shall use its best efforts to defend against the same and
respond thereto.
4.4 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by EAI or
622291.
4.5 COMMUNICATIONS. From and after the date hereof, except as required by
law, neither MDI and EAI (including 622291 and Edwards), will, with respect to
the transactions contemplated hereby, issue any press release or make any public
statements or mail any communications or letters without the prior approval of
the other party and its counsel.
4.6 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the
Reorganization and this Agreement, including but not limited to, using its best
efforts to obtain all necessary waivers, consents, authorizations and approvals
of or exemptions by any governmental authority, self-regulatory authority or
third party, and effecting all necessary registrations and filings. In case any
time after the Closing Date any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and Directors of
MDI or EAI (including 622291 and Edwards), as the case may be, shall take all
necessary action.
4.7 CLOSING CONDITIONS. MDI and EAI will use their best efforts to cause
the conditions set forth in Article V to occur; PROVIDED, HOWEVER, that this
provision shall not require any party to waive any condition.
4.8 INTERIM UNAUDITED BALANCE SHEETS. EAI shall deliver or cause to be
delivered to MDI, not later than the 30th day of each succeeding calendar month,
unaudited balance sheets as at the end of each calendar month subsequent to
January 31, 1997, and preceding the calendar month in which the Closing Date
occurs.
ARTICLE V
CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF EAI TO PROCEED WITH THE REORGANIZATION.
Notwithstanding any other provision of this Agreement, each of the following
shall be a condition to the obligation of EAI to consummate the Reorganization:
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<PAGE>
(a) All of the representations and warranties made by MDI herein shall
have been true as of the date of this Agreement and shall be true as of the
Closing Date as though made on and as of the Closing Date, it being understood
that all representations and warranties made by MDI herein, if specifically
stated to be as of the date hereof, shall also be deemed to be made as of the
Closing Date;
(b) MDI shall have performed every obligation and complied with each
agreement, covenant and condition required by this Agreement to be performed or
complied with by it prior to or at the Closing Date, and MDI shall have
delivered to EAI a certificate dated the Closing Date and signed by its
President and its Secretary, certifying to the effect set forth in this Section
5.1(b) and in Section 5.1(a);
(c) EAI shall have received the following documents from MDI, all of
which shall be in a form and substance reasonably acceptable to EAI:
(i) a certified copy of the resolutions adopted by MDI's Board of
Directors approving this Agreement and the transactions contemplated hereby and
thereby;
(ii) a certified copy of the resolutions adopted by the MDI's
stockholders approving the transactions contemplated hereby;
(iii) a certificate of incumbency executed by the Secretary of MDI
indicating the current officers and Directors of MDI;
(iv) certificate of good standing of MDI, from the Secretary of State
of Delaware, dated not more than ten (10) days prior to the Closing Date;
(v) such other certificates, documents or instruments as EAI may
reasonably require.
(d) No material adverse change shall have occurred in the business,
results of operations, assets, financial condition, or prospect of MDI,
including any judgment, decree, injunction, ruling or order rendered in
connection with any pending litigation involving MDI which, in the opinion of
EAI, if not successfully appealed would result in such a material adverse
change; and
(e) EAI shall have received such other certificates, documents and
instruments as it shall have reasonably required.
5.2 CONDITIONS TO OBLIGATIONS OF MDI. Notwithstanding any other provisions
of this Agreement, each of the following shall be a condition to the obligation
of MDI to consummate the Reorganization:
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<PAGE>
(a) All of the representations and warranties made by EAI, for itself
and on behalf of 622291 and Edwards, and RESI herein shall have been true as of
the date of this Agreement and shall be true as of the Closing Date as though
made on and as of the Closing Date, it being understood that all representations
and warranties made by EAI, for itself and on behalf of 622291 and Edwards, and
RESI herein, if specifically stated to be as of the date hereof, shall also be
deemed to be made as of the Closing Date;
(b) EAI, for itself and on behalf of 622291 and Edwards, and RESI shall
each have performed every obligation and complied with each agreement, covenant
or condition required by this Agreement to be performed or complied with by them
prior to or at the Closing Date, and EAI shall have delivered to MDI a
certificate dated the Closing Date and signed by its President and its Secretary
certifying to the effect set forth in this Section 5.2(b) and in Section 5.2(a);
(c) MDI shall have received the following documents from EAI, all of
which shall be in a form and substance acceptable to MDI:
(i) a certified copy of the resolutions adopted by the Board of
Directors of EAI and RESI approving this Agreement and the transactions
contemplated hereby and thereby;
(ii) certified copies of the resolution adopted by RESI as the sole
shareholder of EAI approving the transactions contemplated hereby;
(iii) a certificate of incumbency executed by the Secretary EAI
indicating the current officers and directors of EAI, 622291 and Edwards;
(iv) certificates of good standing for RESI, 622291 and Edwards from
the appropriate authorities, dated not more than ten (10) days prior to the
Closing Date; and
(v) such other certificates, documents or instruments as MDI or its
counsel may reasonably require.
(d) MDI shall have received copies of consents of all third parties
necessary for EAI, RESI, 622291 and Edwards to execute, deliver and perform this
Agreement, and consents of all third parties having material business
relationships with EAI, 622291 and Edwards if consent to or approval of
transactions of the nature herein contemplated is or may be required in order to
prevent a material adverse change in such business relationship, including but
not limited to the acceleration of indebtedness by a lender or a declaration of
default by a landlord;
(e) All permits, approvals and consents which MDI deems reasonably
necessary in connection with the Reorganization shall have been obtained;
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<PAGE>
(f) No material adverse change shall have occurred in the business,
results of operations, assets, financial condition, or prospects of EAI, 622291
and Edwards, including any judgment, decree, injunction, ruling or order
rendered in connection with any pending litigation involving EAI, 622291 or
Edwards which, in the opinion of MDI, if not successfully appealed would result
in such a material adverse change; and
(g) MDI shall have received such other certificates, documents and
instruments as it shall have reasonably requested.
5.3 MUTUAL CONDITIONS. Each of the following shall be a condition to the
obligations of each of the parties to consummate the Reorganization:
(a) Prior to the Closing Date, no preliminary or permanent injunction or
other order by any federal or state court or other agency or body which prevents
the consummation of the Reorganization shall have been issued and remain in
effect, and there shall not have been instituted to be pending any action or
proceeding by any appropriate federal, provincial, state government or
governmental agency or instrumentality or court or any other person or entity
(i) challenging or seeking to restrain or prohibit the consummation of the
Reorganization or seeking material damages in connection with the
Reorganization; (ii) seeking to prohibit MDI's ownership or operation of all or
a material portion of EAI's, or 62291's or Edwards' business or assets;
(b) Prior to the Closing Date, there shall not have been any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Reorganization by any appropriate federal,
provincial or state government or governmental agency or instrumentality or
court which would (i) prohibit MDI's ownership or operation of all or a material
portion of EAI's, or 62291's or Edwards' business or assets, (ii) render any
party unable to consummate the Reorganization or (iii) make such consummation
illegal;
(c) Prior to the Closing Date, MDI shall have had its Registration
Statement on Form 10 declared effective by the SEC and shall have had its Common
Stock accepted for listing and trading on the NASDAQ SmallCap Market.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual consent of the Boards of Directors of MDI and EAI; or
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<PAGE>
(b) by MDI or EAI if the Reorganization shall not have been consummated
on or before September 30, 1997; or
(c) by MDI by notice to EAI if there has been a material breach by EAI
or RESI of the representations and warranties of EAI and RESI set forth herein;
or
(d) by MDI by notice to EAI if any of the conditions set forth in
Sections 5.2 or 5.3 have not been fulfilled at or prior to the Closing.
(e) by EAI by notice to MDI if there has been a material breach by MDI
of the representations and warranties of MDI set forth herein; or
(f) by EAI by notice to MDI if any of the conditions set forth in
Sections 5.1 or 5.3 have not been fulfilled at or prior to Closing.
6.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either MDI or EAI as provided above, this Agreement shall forthwith become void
and, except for a willful breach, fraud or a breach of the various
representations, warranties and covenants contained herein, there shall be no
liability hereunder on the part of MDI, EAI, RESI or their respective officers
or Directors.
6.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
time. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
6.4 WAIVER. At any time prior to the Closing Date, the parties hereto, by
action taken by their respective Boards of Directors, may (a) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties of the
other parties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements of the other parties or
satisfaction of any of the conditions to its obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
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<PAGE>
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties agree that the
representations and warranties in this Agreement or in any exhibit, disclosure
schedule, certificate or other instrument delivered pursuant to this Agreement
shall survive the consummation of the Reorganization on the Closing Date for a
period of three years subsequent to the Closing Date and shall be effective
regardless of any investigation which may have been or may be made at the time
by or on behalf of the party to whom such representations and warranties are
made. In the event that a fact or matter is discovered which the discovering
party determines to be a breach of a representation or warranty, it shall
promptly notify the other parties hereto in writing.
7.2 INDEMNIFICATION BY MDI.
(a) MDI shall be responsible for and hereby indemnifies EAI and RESI and
holds them and their respective agents, successors and assigns harmless, at all
times from and after the Closing Date of the Reorganization from, against and in
respect of:
(i) all losses, damages and deficiencies resulting from any failure or
breach of any representation or warranty, or any breach or non-fulfillment of
any covenant or agreement, of MDI made in this Agreement; and
(ii) all actions, suits, proceedings, claims, demands, assessments,
judgments, fines, penalties, amounts paid in settlement costs and expenses
(including reasonable attorneys' fees and expenses) incident to any of the
foregoing.
(b) EAI and RESI shall give notice to MDI of any demand for
indemnification under this Section 7.2, stating in reasonable detail the nature
thereof. If any such demand arises out of a claim made against EAI and RESI by
any person or entity not a party to this Agreement or affiliated with a party to
this Agreement, such notice shall also state whether EAI or RESI disputes the
claim and intends to defend against it. If EAI or RESI shall defend against the
claim, MDI shall cooperate with them in such defense, shall make available to
them all records and other materials reasonably required by them in such
defense, and shall have the right to participate in such defense, but EAI and
RESI shall at all times control such defense. If EAI or RESI do not intend to
defend against the claim, then within fifteen (15) days after their notice is
given, MDI shall, either (i) make payment in full of the claim, (ii) compromise
and make payment of the compromised claim, or (iii) notify EAI and RESI that it
disputes the claim and intends to defend against it. If MDI shall defend
against the claim, EAI and RESI shall cooperate with MDI in such defense, shall
make available to MDI all records and other materials reasonably required by MDI
in such
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<PAGE>
defense, and shall have the right to participate in such defense, but MDI shall
at all times control such defense.
7.3 INDEMNIFICATION BY EAI .
(a) EAI shall be responsible for and hereby indemnifies MDI and holds it
and its agents, successors and assigns harmless, at all times from and after the
Closing Date of the Reorganization from, against and in respect of:
(i) all losses, damages and deficiencies resulting from any failure or
breach of any representation or warranty, or any breach or non-fulfillment of
any covenant or agreement, of EAI or RESI made in this Agreement; and
(ii) all actions, suits, proceedings, claims, demands, assessments,
judgments, fines, penalties, amounts paid in settlement costs and expenses
(including reasonable attorneys' fees and expenses) incident to any of the
foregoing.
(b) MDI shall give notice to EAI and RESI of any demand for
indemnification under this Section 7.3, stating in reasonable detail the nature
thereof. If any such demand arises out of a claim made against MDI by any
person or entity not a party to this Agreement or affiliated with a party to
this Agreement, such notice shall also state whether MDI disputes the claim and
intends to defend against it. If MDI shall defend against the claim, EAI and
RESI shall cooperate with MDI in such defense, shall make available to MDI all
records and other materials reasonably required by MDI in such defense, and
shall have the right to participate in such defense, but MDI shall at all times
control such defense. If MDI does not intend to defend against the claim, then
within fifteen (15) days after notice is given, EAI shall either (i) make
payment in full of the claim, (ii) compromise and make payment of the
compromised claim, or (iii) notify MDI that it disputes the claim and intends to
defend against it. If EAI shall defend against the claim, MDI shall cooperate
with EAI in such defense, shall make available to EAI all records and other
materials reasonably required by EAI in such defense, and shall have the right
to participate in such defense, but EAI shall at all times control such defense.
For the purposes of this Section 7.3, MDI shall have the right to enforce its
indemnification rights against EAI, RESI, 622291 or Edwards.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or when mailed by
registered or certified mail (return receipt requested and postage prepaid) to
the addresses which the parties provide
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<PAGE>
each in accordance with the provisions of this Section 8.1 (or at such other
address for a party as shall be specified by like notice).
8.2 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware, in all respects, including validity, interpretation and
effect.
8.3 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.4 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect to the maximum extent permitted by law and shall in no
way be affected, impaired or invalidated.
8.5 MISCELLANEOUS. This Agreement (including the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
prior agreements and understanding, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof; (b) is not intended to
confer upon any third parties any rights or remedies hereunder; (c) shall not be
assigned by operation of law or otherwise; and (e) may be executed in
counterparts which together shall constitute a single agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first-above written.
EGYPTIAN ARABIANS INC.
By: /s/ David Edwards
---------------------------------
Its: President
RESI CORP.
By: /s/ David Edwards
---------------------------------
Its: President
MERCRISTO DEVELOPMENTS, INC.
By: /s/ David Edwards
---------------------------------
Its: President
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<PAGE>
THIS AGREEMENT made as of the 30th day of April, 1997, is made
BETWEEN
MERCRISTO DEVELOPMENTS, INC.
(hereinafter called "MDI")
AND
EGYPTIAN ARABIANS INC.
(hereinafter called "EAI")
AND
RESI CORP.
(hereinafter called "RESI")
WHEREAS it is intended that pursuant to an agreement of purchase and sale dated
as of April 10, 1997 between E.S.I. Holdings Limited ("Holdings") and E.S.I.
Securities Inc. ("Securities"), Holdings will agree to sell and Securities will
agree to purchase certain land known municipally as 240 Argyle Avenue, Ottawa,
Ontario (the "Land") on the terms and conditions as set out in the agreement of
purchase and sale (the "Securities Transaction");
AND WHEREAS it is intended that pursuant to an agreement of purchase and sale
dated as of April 10, 1997 between Securities and 622291 Ontario Limited
("622291"), Securities will agree to sell and 622291 will agree to purchase the
Land on the terms and conditions as set out in the agreement of purchase and
sale (the "622291 Transaction");
AND WHEREAS it is intended that the Securities Transaction and the 622291
Transaction shall take place prior to (i) the sale of shares in the capital
stock of 622291 from David Edwards, Patricia Edwards and The Edwards Children's
Trust to RESI and from RESI to EAI (the "Edwards Reorganization") and (ii) the
sale of shares in the capital stock of EAI from RESI to MDI pursuant to an
Agreement and Plan of Reorganization dated as of April 30, 1997 among MDI, EAI
and RESI (the "Mercristo Transaction");
AND WHEREAS it is intended that the Mercristo Transaction shall close in escrow
pending fulfillment of the following conditions: acceptance of the common shares
in the capital stock of MDI for trading on NASDAQ; registration of MDI Common
Stock with the Securities
<PAGE>
Exchange Commission; and any other conditions as may be agreed to between the
parties (the "Escrow Conditions:);
AND WHEREAS it is intended that the Securities Transaction, the 622291
Transaction, the Edwards Reorganization and the Mercristo Transaction are
interrelated and that the parties intend that no Transaction shall be finally
completed unless all Transactions are finally completed;
NOW THEREFORE in consideration of the premises and of the covenants contained
herein, the sum of $1 paid by each of the parties to the other parties hereto
and other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged), the parties hereto agree as follows:
1. The Mercristo Transaction shall close in escrow effective April 30, 1997,
pending satisfaction of the parties that the Escrow Conditions will be
fulfilled. Until such time, it is the intention of the parties that all
documentation and payments relating to the Mercristo Transaction shall not be
delivered to the other parties entitled thereto but shall remain in the
possession of the attorneys for MDI, Harter, Secrest & Emery (the "Escrow
Agent"). The parties agree that if they are satisfied that the Escrow
Conditions will be fulfilled, they shall provide a joint written direction to
the Escrow Agent that all documentation and payments relating to the Mercristo
Transaction shall be delivered to the parties entitled thereto so that the
escrow shall be lifted and the Mercristo Transaction shall be finally closed.
The parties agree that if they are not satisfied that the Escrow Conditions will
be fulfilled, they shall provide a joint written direction to the Escrow Agent
that all documentation and payments relating to the Mercristo Transaction be
returned to the parties who executed the same so that the Mercristo Transaction
shall be null and void. Until such time as the written direction to the Escrow
Agent shall be made, RESI shall not be deemed to have delivered any shares of
EAI to MDI and MDI shall not be deemed to have issued any shares of MDI to RESI.
2. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and the parties
agree to provide such further documents or instructions required by the other
parties as may be necessary to effect the purpose of this Agreement and carry
out its provisions, whether prior to or after closing.
3. This Agreement will be governed by the laws of the State of Delaware.
4. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
5. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their successors and assigns.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this agreement.
MERCRISTO DEVELOPMENTS, INC.
/s/ David Edwards
--------------------------------
Name: David Edwards
Title: President
EGYPTIAN ARABIANS, INC.
/s/ David Edwards
--------------------------------
Name: David Edwards
Title: President
RESI CORP.
/s/ David Edwards
--------------------------------
Name: David Edwards
Title: President
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<PAGE>
EXHIBIT 2.2
THIS AGREEMENT made as of the 10th day of April, 1997 is made
BETWEEN
DAVID EDWARDS, PATRICIA EDWARDS AND THE EDWARDS CHILDREN'S TRUST
(hereinafter collectively called the "Edwards")
AND
RESI CORP.
(hereinafter called "Resi")
AND
EGYPTIAN ARABIANS INC.
(hereinafter called "Egyptian")
WHEREAS it is intended that pursuant to agreements of purchase and sale dated as
of April 10, 1997 between each of the Edwards and Resi, Edwards will agree to
sell and Resi will agree to purchase certain shares in the capital stock of
622291 Ontario Limited (the "622291 Shares") on the terms and conditions as set
out in the agreements of purchase and sale, copies of which are attached hereto
as Schedule "A" (the "Resi Transaction");
AND WHEREAS it is intended that pursuant to an agreement of purchase and sale
dated as of April 10, 1997 between Resi and Egyptian, Resi will agree to sell
and Egyptian will agree to purchase the 622291 Shares in consideration of the
issuance of l,000 common shares in the capital stock of Egyptian (the "Egyptian
Shares") to Resi and on such other terms and conditions as set out in the
agreement of purchase and sale, a copy of which is attached hereto as Schedule
"B" (the "Egyptian Transaction");
AND WHEREAS it is intended that Resi will agree to sell and Mercristo
Developments Inc. will agree to purchase the Egyptian Shares in consideration of
the issuance of 8,450,000 common shares in the capital stock of Mercristo
Developments Inc. to Resi (the "Mercristo Transaction");
AND WHEREAS it is intended that the Mercristo Transaction shall close in escrow
pending fulfillment of the following conditions: acceptance of the common
shares in the capital stock of Mercristo Developments Inc. for trading on
NASDAQ; registration of Mercristo
<PAGE>
Developments Inc. with the Securities Exchange Commission; and any other
conditions as may be agreed to between the parties (the "Escrow Conditions");
AND WHEREAS it is intended that the Resi Transaction, the Egyptian Transaction
and the Mercristo Transaction are interrelated and that the parties intend that
no Transaction shall be finally completed unless all Transactions are finally
completed;
NOW THEREFORE in consideration of the premises and of the covenants contained
herein, the sum of $1 paid by each of the parties to the other parties hereto
and other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged), the parties hereto agree as follows:
1. The Resi Transaction and the Egyptian Transaction shall close in escrow on
April 10, 1997, pending satisfaction of the parties that the Escrow Conditions
will be fulfilled. Until such time, it is the intention of the parties that all
documentation and payments relating to the Resi Transaction and the Egyptian
Transaction shall not be delivered to the other parties entitled thereto but
shall remain in the possession of the solicitors for the parties, Gowling
Strathy & Henderson (the "Escrow Agent"). The parties agree that if they are
satisfied that the Escrow Conditions will be fulfilled, they shall provide a
joint written direction to the Escrow Agent that all documentation and payments
relating to the Resi Transaction and the Egyptian Transaction shall be delivered
to the parties entitled thereto so that the escrow shall be lifted and the
Transactions shall be finally closed. The parties agree that if they are not
satisfied that the Escrow Conditions will be fulfilled, they shall provide a
joint written direction to the Escrow Agent that all documentation and payments
relating to the Resi Transaction and the Egyptian Transaction be returned to the
parties who executed the same so that the Transactions shall be null and void.
Until such time as the written direction to the Escrow Agent shall be made, the
Edwards shall continue to be treated as owning the 622291 Shares but, if the
escrow is lifted and the Transactions are finally closed, the Edwards shall be
treated as owning the 622291 Shares in trust for Egyptian during the period of
escrow.
2. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and the parties
hereto agree to provide such further documents or instructions required by the
other partes as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
3. This Agreement will be governed by the laws of the Province of Ontario.
4. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
5. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective heirs, executors, administrators, successors and
assigns.
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<PAGE>
In Witness Whereof the parties hereto have executed this agreement.
Signed in the presence of
/s/ S. Murphy /s/ David Edwards
- -------------------- --------------------
DAVID EDWARDS
/s/ S. Murphy /s/ P. Edwards
- -------------------- ---------------------
PATRICIA EDWARDS
THE EDWARDS CHILDREN'S TRUST
/s/ S. Murphy /s/ David Edwards
- -------------------- ------------------
DAVID EDWARDS, Trustee
/s/ S. Murphy /s/ P. Edwards
- -------------------- --------------------
PATRICIA EDWARDS, Trustee
RESI CORP.
/s/ David Edwards
--------------------
Name: David Edwards
Title: President
EGYPTIAN ARABIANS INC.
/s/ David Edwards
------------------
Name: David Edwards
Title: President
- 3 -
<PAGE>
Schedule "A"
- 4 -
<PAGE>
MEMORANDUM OF AGREEMENT made as of this 10th day of April, 1997
BETWEEN:
DAVID EDWARDS
(herein called the "Vendor")
OF THE FIRST PART,
AND:
RESI CORP.
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of the shares in the capital stock of 622291
Ontario Limited more particularly described in Schedule "A" hereto (herein
called the "Shares").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all his right, title and interest in and to the Shares to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Shares for a total
consideration of $1,520,000 payable by the issuance of a promissory note by the
Purchaser in favour of the Vendor as set out in Schedule "B" hereto. The Vendor
and the Purchaser agree that the consideration shall be allocated among the
Shares in accordance with the allocation set out in Schedule "A" hereto.
2. The Vendor hereby covenants, represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) he is the registered and beneficial owner of the said Share; and
(b) on the date of closing he will be a resident of Canada.
3. The closing date of this Agreement shall be the date hereof.
- 5 -
<PAGE>
4. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
5. This Agreement will be governed by the laws of the Province of Ontario.
6. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective heirs, executors, administrators successors and
assigns.
In Witness Whereof the Vendor has hereunto affixed his hand and seal on his
own behalf and the Purchaser has hereunto affixed its corporate seal under the
hand of its proper officer in that behalf, as of the day and year first above
written.
/s/ S. Murphy /s/ David Edwards
- -------------------------------- ---------------------------------
Witness as to the signature of DAVID EDWARDS
David Edwards
RESI CORP.
per: /s/ David Edwards c/s
--------------------------
Name: David Edwards
Title: President
- 6 -
<PAGE>
Schedule "A"
The following shares in the capital stock of 622291 Ontario Limited:
<TABLE>
<CAPTION>
Shares Allocation of consideration
- ------ ---------------------------
<S> <C>
40 Class B $ 0
20,000 First Preferred $ 200,000
152,000 Second Preferred $1,320,000
100 Third Preferred $ 0
</TABLE>
- 7 -
<PAGE>
Schedule "B"
DEMAND PROMISSORY NOTE
FOR VALUE RECEIVED, Resi Corp. (the "Debtor") hereby unconditionally
promises to pay to or to the order of David Edwards (the "Creditor"), on April
l, 2007, at Ottawa, Ontario the sum of $1,520,000 and to pay interest from the
date of this Promissory Note on the said sum or the amount from time to time
remaining unpaid at the rate per annum described below, calculated and payable
on the 1st day of April in each year, both before and after demand, default and
judgment and to pay on demand interest on overdue interest at the rate described
below compounded on each date for the payment of interest on this Promissory
Note before and after judgment.
The interest rate per annum shall be such rate as may be chosen by the
Creditor in the absolute discretion of the Creditor based upon the financial
performance of the Debtor in the immediately preceding year but shall not exceed
the rate prescribed by Revenue Canada on overdue income taxes and other arrears
for the second calendar quarter in any particular year. For greater certainty,
the interest rate in effect for the period commencing the date of this
Promissory Note to March 31, 1998 shall not exceed 7% per annum which is the
rate prescribed by Revenue Canada on overdue income taxes and other arrears for
the second calendar quarter of 1997.
The principal of and interest on this Promissory Note shall be paid in
Canadian dollars without set-off or counterclaim.
The principal, or any portion thereof, of this Promissory Note may be paid
at the option of the Debtor without notice or penalty at any time or from time
to time.
The Debtor waives presentment, protest and notice of any kind in the
enforcement of this Promissory Note.
DATED at Ottawa, Ontario this 10th day of April, 1997.
RESI CORP.
per: c/s
------------------------
Name: David Edwards
Title: President
- 8 -
<PAGE>
MEMORANDUM OF AGREEMENT made as of this 10th day of April, 1997
BETWEEN:
PATRICIA EDWARDS
(herein called the "Vendor")
OF THE FIRST PART,
AND:
RESI CORP.
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of the shares in the capital stock of 622291
Ontario Limited more particularly described in Schedule "A" hereto (herein
called the "Shares").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all her right, title and interest in and to the Shares to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Shares for a total
consideration of $660,000 payable by the issuance of a promissory note by the
Purchaser in favour of the Vendor as set out in Schedule "B" hereto. The Vendor
and the Purchaser agree that the consideration shall be allocated among the
Shares in accordance with the allocation set out in Schedule "A" hereto.
2. The Vendor hereby covenants, represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) she is the registered and beneficial owner of the said Share; and
- 9 -
<PAGE>
(b) on the date of closing she will be a resident of Canada.
3. The closing date of this Agreement shall be the date hereof.
4. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
5. This Agreement will be governed by the laws of the Province of Ontario.
6. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective heirs, executors, administrators successors and
assigns.
In Witness Whereof the Vendor has hereunto affixed her hand and seal on her
own behalf and the Purchaser has hereunto affixed its corporate seal under the
hand of its proper officer in that behalf, as of the day and year first above
written.
/s/ S. Murphy /s/ P. Edwards
- -------------------------------- -------------------------------
Witness as to the signature of PATRICIA EDWARDS
Patricia Edwards
RESI CORP.
per: /s/ David Edwards c/s
---------------------------
Name: David Edwards
Title: President
- 10 -
<PAGE>
Schedule "A"
The following shares in the capital stock of 622291 Ontario Limited:
Shares Allocation of consideration
- ------ ---------------------------
20 Class A $0
76,000 First Preferred $660,000
- 11 -
<PAGE>
Schedule "B"
DEMAND PROMISSORY NOTE
FOR VALUE RECEIVED, Resi Corp. (the "Debtor") hereby unconditionally
promises to pay to or to the order of Patricia Edwards (the "Creditor"), on
April 1, 2007, at Ottawa, Ontario the sum of $660,000 and to pay interest from
the date of this Promissory Note on the said sum or the amount from time to time
remaining unpaid at the rate per annum described below, calculated and payable
on the 1st day of April in each year, both before and after demand, default and
judgment and to pay on demand interest on overdue interest at the rate described
below compounded on each date for the payment of interest on this Promissory
Note before and after judgment.
The interest rate per annum shall be such rate as may be chosen by the
Creditor in the absolute discretion of the Creditor based upon the financial
performance of the Debtor in the immediately preceding year but shall not exceed
the rate prescribed by Revenue Canada on overdue income taxes and other arrears
for the second calendar quarter in any particular year. For greater certainty,
the interest rate in effect for the period commencing the date of this
Promissory Note to March 31, 1998 shall not exceed 7% per annum which is the
rate prescribed by Revenue Canada on overdue income taxes and other arrears for
the second calendar quarter of 1997.
The principal of and interest on this Promissory Note shall be paid in
Canadian dollars without set-off or counterclaim.
The principal, or any portion thereof, of this Promissory Note may be paid
at the option of the Debtor without notice or penalty at any time or from time
to time.
The Debtor waives presentment, protest and notice of any kind in the
enforcement of this Promissory Note.
DATED at Ottawa, Ontario this 10th day of April, 1997.
RESI CORP.
per: c/s
------------------------
Name: David Edwards
Title: President
- 12 -
<PAGE>
MEMORANDUM OF AGREEMENT made as of this 10th day of April, 1997
BETWEEN:
THE EDWARDS CHILDREN'S TRUST, BY ITS TRUSTEES DAVID EDWARDS AND
PATRICIA EDWARDS
(herein called the "Vendor")
OF THE FIRST PART,
AND:
RESI CORP.
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of the shares in the capital stock of 622291
Ontario Limited more particularly described in Schedule "A" hereto (herein
called the "Shares").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all its right, title and interest in and to the Shares to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Shares for a total
consideration of $1,320,000 payable by the issuance of a promissory note by the
Purchaser in favour of the Vendor as set out in Schedule "B" hereto. The Vendor
and the Purchaser agree that the consideration shall be allocated among the
Shares in accordance with the allocation set out in Schedule "A" hereto.
2. The Vendor hereby covenants. represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) it is the registered and beneficial owner of the said Share; and
(b) on the date of closing it will be a resident of Canada.
- 13 -
<PAGE>
3. The closing date of this Agreement shall be the date hereof.
4. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
5. This Agreement will be governed by the laws of the Province of Ontario.
6. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective heirs, executors, administrators successors and
assigns.
In Witness Whereof each of the Trustees of the Vendor has hereunto affixed
his or her hand and seal on his or her own behalf and the Vendor, and the
Purchaser has hereunto affixed its corporate seal under the hand of its proper
officer in that behalf, as of the day and year first above written.
THE EDWARDS CHILDREN'S TRUST
/s/ S. Murphy /s/ David Edwards
- -------------------------------- ------------------------------
Witness as to the signature of DAVID EDWARDS, Trustee
David Edwards
/s/ S. Murphy /s/ P. Edwards
- -------------------------------- ------------------------------
Witness as to the signature of PATRICIA EDWARDS, Trustee
Patricia Edwards
RESI CORP.
per: /s/ David Edwards c/s
-----------------------
Name: David Edwards
Title: President
- 14 -
<PAGE>
Schedule "A"
The following shares in the capital stock of 622291 Ontario Limited:
Shares Allocation of Consideration
- ------ ---------------------------
40 Class C $ 0
152,000 Second Preferred $1,320,000
- 15 -
<PAGE>
Schedule "B"
DEMAND PROMISSORY NOTE
FOR VALUE RECEIVED, Resi Corp. (the "Debtor") hereby unconditionally
promises to pay to or to the order of The Edwards Children's Trust (the
"Creditor"), on April 1, 2007, at Ottawa, Ontario the sum of $1,320,000 and to
pay interest from the date of this Promissory Note on the said sum or the amount
from time to time remaining unpaid at the rate per annum described below,
calculated and payable on the 1st day of April in each year, both before and
after demand, default and judgment and to pay on demand interest on overdue
interest at the rate described below compounded on each date for the payment of
interest on this Promissory Note before and after judgment.
The interest rate per annum shall be such rate as may be chosen by the
Creditor in the absolute discretion of the Creditor based upon the financial
performance of the Debtor in the immediately preceding year but shall not exceed
the rate prescribed by Revenue Canada on overdue income taxes and other arrears
for the second calendar quarter in any particular year. For greater certainty,
the interest rate in effect for the period commencing the date of this
Promissory Note to March 31, 1998 shall not exceed 7% per annum which is the
rate prescribed by Revenue Canada on overdue income taxes and other arrears for
the second calendar quarter of 1997.
The principal of and interest on this Promissory Note shall be paid in
Canadian dollars without set-off or counterclaim.
The principal, or any portion thereof, of this Promissory Note may be paid
at the option of the Debtor without notice or penalty at any time or from time
to time.
The Debtor waives presentment, protest and notice of any kind in the
enforcement of this Promissory Note.
DATED at Ottawa, Ontario this 10th day of April, 1997.
RESI CORP.
per: c/s
------------------------
Name: David Edwards
Title: President
- 16 -
<PAGE>
Schedule "B"
- 17 -
<PAGE>
MEMORANDUM OF AGREEMENT made as of this 10th day of April, 1997
BETWEEN:
RESI CORP.
(herein called the "Vendor")
OF THE FIRST PART,
AND:
EGYPTIAN ARABIANS INC.
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of the shares in the capital stock of 622291
Ontario Limited more particularly described in Schedule "A" hereto (herein
called the "Shares").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all its right, title and interest in and to the Shares to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Shares for a total
consideration of $3,500,000 payable by the allotment and issue to the Vendor of
1,000 Common Shares in the capital stock of the Purchaser, which Common Shares
shall be issued with an aggregate stated capital of $3,500,000. The Vendor and
the Purchaser agree that the consideration shall be allocated among the Assets
in accordance with the allocation set out in Schedule "A" hereto.
2. The Vendor hereby covenants, represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) it is the registered and beneficial owner of the said Shares; and
(b) on the date of closing it will be a resident of Canada.
- 18 -
<PAGE>
3. The closing date of this Agreement shall be the date hereof.
4. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
5. This Agreement will be governed by the laws of the Province of Ontario.
6. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective successors and assigns.
In Witness Whereof each of the Vendor and the Purchaser has hereunto affixed
its corporate seal under the hand of its proper officer in that behalf as of the
day and year first above Written.
RESI CORP.
per: /s/ David Edwards c/s
------------------------
Name: David Edwards
Title: President
EGYPTIAN ARABIANS INC.
per: /s/ David Edwards c/s
------------------------
Name: David Edwards
Title: President
- 19 -
<PAGE>
Schedule "A"
The following shares in the capital stock of 622291 Ontario Limited:
<TABLE>
<CAPTION>
Shares Allocation of Consideration
- ------ ---------------------------
<S> <C>
20 Class A $ 0
40 Class B $ 0
40 Class C $ 0
20,000 First Preferred $ 200,000
380,000 Second Preferred $3,300,000
100 Third Preferred $ 0
</TABLE>
- 20 -
<PAGE>
THIS AGREEMENT made as of the 10th day of April, 1997, is made
BETWEEN
E.S.I. HOLDINGS LIMITED
(hereinafter called "Holdings")
AND
E.S.I. SECURITIES INC.
(hereinafter called "Securities")
AND
622291 ONTARIO LIMITED
(hereinafter called "622291")
WHEREAS it is intended that pursuant to an agreement of purchase and sale dated
as of April 10, 1997 between Holdings and Securities, Holdings will agree to
sell and Securities will agree to purchase certain land known municipally as 240
Argyle Avenue, Ottawa, Ontario (the "Land") on the terms and conditions as set
out in the agreement of purchase and sale, a copy of which is attached hereto as
Schedule "A" (the "Securities Transaction");
AND WHEREAS it is intended that pursuant to an agreement of purchase and sale
dated as of April 10, 1997 between Securities and 622291, Securities will agree
to sell and 622291 will agree to purchase the Land on the terms and conditions
as set out in the agreement of purchase and sale, a copy of which is attached
hereto as Schedule "B" (the "622291 Transaction");
AND WHEREAS it is intended that the Securities Transaction and the 622291
Transaction shall take place prior to (i) the sale of shares in the capital
stock of 622291 from David Edwards, Patricia Edwards and The Edwards Children's
Trust to Resi Corp. and from Resi Corp. to Egyptian Arabians Inc. (the "Edwards
Reorganization") and (ii) the sale of shares in the capital stock of Egyptian
Arabians Inc. from Resi Corp. to Mercristo Developments Inc. (the "Mercristo
Transaction");
AND WHEREAS it is intended that the Mercristo Transaction shall close in escrow
pending fulfillment of the following conditions: acceptance of the common
shares in the capital stock of Mercristo Developments Inc. for trading on
NASDAQ; registration of Mercristo Developments Inc. with the Securities Exchange
Commission; and any other conditions as may be agreed to between the parties
(the "Escrow Conditions");
<PAGE>
AND WHEREAS it is intended that the Securities Transaction, the 622291
Transaction, the Edwards Reorganization and the Mercristo Transaction are
interrelated and that the parties intend that no Transaction shall be finally
completed unless all Transactions are finally completed;
NOW THEREFORE in consideration of the premises and of the covenants contained
herein, the sum of $1 paid by each of the parties to the other parties hereto
and other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged), the parties hereto agree as follows:
1. The Securities Transaction and the 622291 Transaction shall close in escrow
on April 10, 1997, pending satisfaction of the parties that the Escrow
Conditions will be fulfilled. Until such time, it is the intention of the
parties that all documentation and payments relating to the Securities
Transaction and the 622291 Transaction shall not be delivered to the other
parties entitled thereto but shall remain in the possession of the solicitors
for the parties, Gowling Strathy & Henderson (the "Escrow Agent"). The parties
agree that if they are satisfied that the Escrow Conditions will be fulfilled,
they shall provide a joint written direction to the Escrow Agent that all
documentation and payments relating to the Securities Transaction and the 622291
Transaction shall be delivered to the parties entitled thereto so that the
escrow shall be lifted and the Transactions shall be finally closed. The
parties agree that if they are not satisfied that the Escrow Conditions will be
fulfilled, they shall provide a joint written direction to the Escrow Agent that
all documentation and payments relating to the Securities Transaction and the
622191 Transaction be returned to the parties who executed the same so that the
Transactions shall be null and void. Until such time as the written direction
to the Escrow Agent shall be made, Holdings shall continue to be treated as
owning the Land but, if the escrow is lifted and the Transactions are finally
closed, Holdings shall be treated as owning the Land in trust for 622291 during
the period of escrow.
2. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and the parties
hereto agree to provide such further documents or instructions required by the
other parties as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
3. This Agreement will be governed by the laws of the Province of Ontario.
4. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
5. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their successors and assigns.
- 2 -
<PAGE>
In Witness Whereof the parties hereto have executed this agreement.
E.S.I. HOLDINGS LIMITED
/s/ David Edwards
------------------------------------
Name: David Edwards
Title: President
EDWARDS SECURITIES INC.
/s/ David Frederick Johnson
------------------------------------
Name: David Frederick Johnson
Title: President
622291 ONTARIO LIMITED
/s/ David Edwards
------------------------------------
Name: David Edwards
Title: President
- 3 -
<PAGE>
Schedule "A"
- 4 -
<PAGE>
MEMORANDUM OF AGREEMENT made this 10th day of April, 1997.
BETWEEN:
E.S.I. HOLDINGS LIMITED
(herein called the "Vendor")
OF THE FIRST PART,
AND:
EDWARDS SECURITIES INC.
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of certain assets more particularly
described in Schedule "A" hereto (herein called the "Assets").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Assets for a price that represents the current fair market value
of such Assets.
AND WHEREAS the parties intend that subsection 85(1) of the Income Tax Act
(Canada) shall apply to the transfer of the said Assets by the Vendor to the
Purchaser, as is more fully set out in this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all its right, title and interest in and to the Assets to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever,
except for those specifically assumed by the Purchaser as described herein. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Assets of the Vendor
for a total consideration of $550,000, payable as to the sum of $436,850 by the
assumption of the mortgages more particularly described in Schedule "B" hereto
and, as to the sum of $113,150 by the allotment and issue to the Vendor of
113,150 First Preferred Shares in the capital stock of the Purchaser (having a
redemption value of $1 per share), which First Preferred Shares shall be issued
with an aggregate stated capital of $113,150. The Vendor and the Purchaser
agree that the consideration shall be allocated among the Assets in accordance
with the allocation set out in Schedule "A" hereto.
- 5 -
<PAGE>
2. The Vendor hereby covenants, represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) it is the registered and beneficial owner of the said Assets; and
(b) on the date of closing it will be a resident of Canada.
3. The parties intend that subsection 85(1) of the Income Tax Act (Canada)
shall apply to the transfer of the Assets and consequently the Vendor and
Purchaser agree to elect that the said Assets are transferred for purposes of
the said Act as set out in Schedule "C" hereto.
4. The parties agree to execute and file all necessary documents to give effect
to the election referred to in paragraph 3 hereof on or before December 31,
1997.
5. It being the intention of the parties hereto that the purchase price herein
provided for shall be the fair market value at the date of this Agreement of the
Assets herein being purchased and sold, the Vendor and Purchaser agree that if a
different value is determined or assumed, upon assessment or reassessment of
either the Vendor or Purchaser under the Income Tax Act (Canada) or upon
agreement with officials of Revenue Canada, Taxation or upon agreement between
the Vendor and Purchaser (with or without agreement of officials of Revenue
Canada, Taxation) then the value so determined or assumed, either after
objection or appeal or by agreement with officials of Revenue Canada, Taxation
or by agreement between the Vendor and Purchaser (with or without agreement of
officials of Revenue Canada, Taxation), shall be deemed to be the value assigned
to the Assets under the Agreement, and the purchase price shall be adjusted
accordingly and retroactively, nunc pro tunc, to the date of the Agreement. The
Vendor and Purchaser further agree to pay such additional sum or to refund such
part of the consideration paid herein as the circumstances may require. The
provisions of this paragraph shall apply to the securities issued by the
Purchaser in consideration for the sale of the Assets to the Purchaser. For
greater certainty, for purposes of paragraph 5 and paragraph 6 of this Agreement
the parties hereto further agree that if Revenue Canada, Taxation invokes the
use of Section 85(1)(e.2) and if as a result a different value or adjusted cost
base is determined or assumed, upon assessment or reassessment, or upon
agreement with officials of Revenue Canada, Taxation, then the provisions set
out in paragraph 5 and paragraph 6 of this Agreement shall apply as the
circumstances may require.
6. The parties hereto further agree that if a different cost amount than the
amount set out in Schedule "C" of this Agreement is determined or assumed upon
assessment or reassessment of either the Vendor or Purchaser under the Income
Tax Act (Canada) or upon agreement with officials of Revenue Canada, Taxation or
upon agreement between the Vendor and Purchaser (with or without agreement of
officials of Revenue Canada, Taxation) then the cost amount so determined or
assumed, either after objection or appeal or by agreement with officials of
Revenue Canada, Taxation or by agreement between the Vendor and Purchaser (with
or without agreement of officials of Revenue Canada, Taxation), shall be deemed
to be the cost amount assigned to the Assets under this Agreement, and the
allocation of the consideration given for the Assets shall be adjusted
accordingly and retroactively, nunc
- 6 -
<PAGE>
pro tunc, to the date of the Agreement. The Vendor and Purchaser further agree
to pay such additional sum or refund such part of the consideration paid herein
as the circumstances may require.
7. The closing date of this Agreement shall be the date hereof.
8. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
9. This Agreement will be governed by the laws of the Province of Ontario.
10. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
11. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective successors and assigns.
In Witness Whereof each of the Vendor and the Purchaser has hereunto affixed
its corporate seal under the hand of its proper officer in that behalf, the day
and year first above written.
E.S.I. HOLDINGS LIMITED
per: /s/ David Edwards c/s
-----------------------------
Name: David Edwards
Title: President
EDWARDS SECURITIES INC.
per: /s/ David Frederick Johnson c/s
-----------------------------
Name: David Frederick Johnson
Title: President
- 7 -
<PAGE>
Schedule "A"
Assets
Land, and the building located thereon, known municipally as 240 Argyle Avenue,
Ottawa, Ontario and more particularly described as Lot 14, south side of Argyle
Avenue, Registered Plan 30 in the City of Ottawa, in the Regional Municipality
of Ottawa-Carleton, Registry Office for the Land Registry Division of Ottawa
Carleton (No. 4).
Allocation of consideration:
Land $313,000
Building $237,000
- 8 -
<PAGE>
Schedule "B"
Mortgages
A mortgage in favour of Counsel Trust Company in the principal amount of
$450,000 registered as Instrument No. N455401 on September 6, 1988, which
mortgage was assigned to Sun Life (the "Sun Life Mortgage"). The current balance
outstanding on the mortgage is $351,850.
A mortgage in favour of Michael Nurse in the principal amount of $85,000
registered as Instrument No. N741420 on May 17, 1996 (the "Nurse Mortgage").
The current balance outstanding on the mortgage is $85,000.
- 9 -
<PAGE>
Schedule "C"
<TABLE>
<CAPTION>
Assets Adjusted Estimated Elected Consideration Received Therefor
Cost Base to Fair Market Transfer Price
the Vendor Value for Tax
Purposes**
Mortgages Share Consideration Stated
Assumed Capital of
Shares
Received
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land described in Schedule $191,000 $313,000 $199,850 The Sun Life 113,150 First $113,150
"A" hereto Mortgage Preferred Shares in
$351,850 the capital stock
Building described in $237,000 $237,000 $237,000 of the Purchaser
Schedule "A" hereto The Nurse
Mortgage $85,00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* undepreciated capital cost
** subject to paragraphs 5 and 6 of this Agreement
- 10 -
<PAGE>
Schedule "B"
- 11 -
<PAGE>
MEMORANDUM OF AGREEMENT made this 10th day of April, 1997.
BETWEEN:
EDWARDS SECURITIES INC.
(herein called the "Vendor")
OF THE FIRST PART,
AND:
622291 ONTARIO LIMITED
(herein called the "Purchaser")
OF THE SECOND PART.
WHEREAS the Vendor is the owner of certain assets more particularly
described in Schedule "A" hereto (herein called the "Assets").
AND WHEREAS the Vendor desires to sell to the Purchaser and the Purchaser
desires to purchase from the Vendor all of the Vendor's right, title and
interest in the Assets for a price that represents the current fair market value
of such Assets.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Subject to the terms and conditions herein contained, the Vendor agrees to
sell, assign, deliver and convey, or cause to be sold, assigned, delivered and
conveyed, all its right, title and interest in and to the Assets to the
Purchaser free and clear of all claims, liens and encumbrances whatsoever,
except for those specifically assumed by the Purchaser as described herein. The
Purchaser, in specific reliance on each and every representation and warranty of
the Vendor herein contained, agrees to purchase the said Assets of the Vendor
for a total consideration of $550,000, payable as to the sum of $436,850 by the
assumption of the mortgages more particularly described in Schedule "B" hereto
and, as to the sum of $113,150 by cash. The Vendor and the Purchaser agree that
the consideration shall be allocated among the Assets in accordance with the
allocation set out in Schedule "A" hereto.
2. The Vendor hereby covenants, represents and warrants with and to the
Purchaser that as at the date of this Agreement:
(a) it is the registered and beneficial owner of the said Assets; and
(b) on the date of closing it will be a resident of Canada.
- 12 -
<PAGE>
3. The closing date of this Agreement shall be the date hereof.
4. The parties hereto agree that each shall with reasonable diligence proceed
to take all action to do all things and provide reasonable assurances as may be
required to consummate the transaction contemplated herein, and both parties
hereto agree to provide such further documents or instructions required by the
other party as may be necessary to effect the purpose of this Agreement and
carry out its provisions, whether prior to or after closing.
5. This Agreement will be governed by the laws of the Province of Ontario.
6. This Agreement represents the entire understanding of the parties and no
modifications thereof or additions thereto will be binding unless in writing,
having direct reference to this Agreement and executed by all the parties.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their respective successors and assigns.
In Witness Whereof each of the Vendor and the Purchaser has hereunto affixed
its corporate seal under the hand of its proper officer in that behalf, the day
and year first above written.
EDWARDS SECURITIES INC.
per: /s David Frederick Johnson c/s
------------------------------
Name: David Frederick Johnson
Title: President
622291 ONTARIO LIMITED
per: /s/ David Edwards c/s
------------------------------
Name: David Edwards
Title: President
- 13 -
<PAGE>
Schedule "A"
Assets
Land, and the building located thereon, known municipally as 240 Argyle Avenue,
Ottawa, Ontario and more particularly described as Lot 14, south side of Argyle
Avenue, Registered Plan 30 in the City of Ottawa, in the Regional Municipality
of Ottawa-Carleton, Registry Office for the Land Registry Division of Ottawa
Carleton (No. 4).
Allocation of consideration:
Land $313,000
Building $237,000
- 14 -
<PAGE>
Schedule "B"
Mortgages
A mortgage in favour of Counsel Trust Company in the principal amount of
$450,000 registered as Instrument No. N455401 on September 6, 1988, which
mortgage was assigned to Sun Life (the "Sun Life Mortgage"). The current balance
outstanding on the mortgage is $351,850.
A mortgage in favour of Michael Nurse in the principal amount of $85,000
registered as Instrument No. N741420 on May 17, 1996 (the "Nurse Mortgage").
The current balance outstanding on the mortgage is $85,000.
- 15 -
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
MERCRISTO DEVELOPMENTS, INC.
It is hereby certified that:
I. The present name of the Corporation (hereinafter called the "Corporation")
is Mercristo Developments, Inc. and the date of filing of the original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was the 4th day of January, 1996.
II. The Certificate of Incorporation of the Corporation is hereby amended as
follows:
a. Article "FOURTH" is amended to increase the total authorized capital
stock of the Corporation from 20,000,000 common shares with a par value of $.001
per share to 100,000,000 common shares with a par value of $.001 per share.
b. Article "EIGHTH" is amended to eliminate director liability.
III. The provisions of the Certificate of Incorporation of the Corporation as
heretofore amended and herein amended, are hereby restated and integrated into a
single instrument which is hereinafter set forth, and which is entitled
"Certificate of Incorporation of Mercristo Developments, Inc." without any
further amendment other than the amendments herein certified and without any
discrepancy between the provisions of the Certificate of Incorporation as
heretofore amended and the provisions of the said single instrument hereinafter
set forth.
IV. The amendment and the restatement of the Certificate of Incorporation herein
certified has been duly adopted by the holders of a majority of shares of the
Corporation's common stock at a special meeting of stockholders held on April
28, 1997, in accordance with the provisions of Section 211, Section 222, Section
242 and Section 245 of the General Corporation Law of the State of Delaware.
V. The capital of the Corporation will not be reduced by reason of any
amendment herein certified.
VI. The effective date of the Restated Certificate of Incorporation and of the
amendments herein certified shall be the date of the filing thereof by the
Secretary of State of the State of Delaware.
VII. The Certificate of Incorporation of the Corporation as amended and
restated herein, shall upon the effective date of this Restated Certificate of
Incorporation, read as follows:
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MERCRISTO DEVELOPMENTS, INC.
FIRST: The name of this Corporation is Mercristo Developments, Inc.
SECOND: The Corporation's registered office in the State of Delaware is to
be located at 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The Registered Agent in charge thereof is The Corporation Trust
Company.
THIRD: The nature of the business and, the objects and purposes proposed to
be transacted, promoted and carried on are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The amount of total authorized capital stock of the Corporation is
divided into 100,000,000 shares of Common Stock with a par value of $.001 per
share.
FIFTH: In furtherance of and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws.
SIXTH: The business and affairs of the Corporation shall be managed by the
Board of Directors, and the directors need not be elected by ballot unless
otherwise required by the By-Laws.
SEVENTH: The Corporation reserves the right to amend and repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein conferred
are granted subject to this reservation.
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or to its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of the director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
I, the undersigned, being the President of the Corporation, for the purpose
of restating the Certificate of Incorporation for the Corporation, do hereby
declare and certify that this is my act and deed and the facts herein stated are
true and, accordingly, I have hereunder set my hand this 28th day of April,
1997.
<PAGE>
/s/ David G. Edwards
-----------------------------------
David G. Edwards, President
Attested to:
/s/ P. Edwards
- ------------------------------------
Patricia L. Edwards, Secretary
<PAGE>
EXHIBIT 3.2
Certified to be a true and correct copy of
the Restated By-laws of the Corporation,
adopted by the Corporation's Board of
Directors and approved by the Corporation's
stockholders on April 28, 1997.
/s/ P. Edwards
-------------------------------------------
Patricia L. Edwards, Secretary
RESTATED BY-LAWS
OF
MERCRISTO DEVELOPMENTS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I: MEETING OF STOCKHOLDERS.......................................... 4
SECTION 1.1 Annual Meeting...................................... 4
SECTION 1.2 Special Meetings.................................... 4
SECTION 1.3 Place of Meetings................................... 4
SECTION 1.4 Notice of Meetings.................................. 5
SECTION 1.5 Record Dates........................................ 5
SECTION 1.6 Quorum.............................................. 5
SECTION 1.7 Voting.............................................. 6
SECTION 1.8 Proxies............................................. 6
SECTION 1.9 Conduct of Meetings................................. 6
SECTION 1.10 Action Without a Meeting............................ 6
ARTICLE II: BOARD OF DIRECTORS.............................................. 6
SECTION 2.1 Election and Powers................................. 6
SECTION 2.2 Number.............................................. 7
SECTION 2.3 Vacancies........................................... 7
SECTION 2.4 Removal............................................. 7
SECTION 2.5 Meetings............................................ 7
SECTION 2.6 Place of Meetings................................... 7
SECTION 2.7 Notice of Meeting................................... 7
SECTION 2.8 Waiver of Notice.................................... 8
SECTION 2.9 Quorum.............................................. 8
SECTION 2.10 Action Without a Meeting............................ 8
SECTION 2.11 Personal Attendance by Conference
Communication Equipment............................. 8
SECTION 2.12 Compensation........................................ 8
SECTION 2.13 Executive Committee and Other Committees............ 8
ARTICLE III: OFFICERS....................................................... 9
SECTION 3.1 Corporate Officers; Election........................ 9
SECTION 3.2 Assistant and Subordinate Officers.................. 9
SECTION 3.3 Removal of Corporate Officers....................... 9
SECTION 3.4 Compensation........................................ 10
SECTION 3.5 Chairman of the Board............................... 10
SECTION 3.6 President........................................... 10
SECTION 3.7 Vice Presidents..................................... 10
SECTION 3.8 Secretary........................................... 10
SECTION 3.9 Treasurer........................................... 10
<PAGE>
ARTICLE IV: SHARE CERTIFICATES.............................................. 11
SECTION 4.1 Form and Signatures................................. 11
SECTION 4.2 Transfer of Shares.................................. 11
SECTION 4.3 Mutilated, Lost, Stolen or Destroyed Certificates... 12
SECTION 4.4 Stock Ledgers....................................... 12
SECTION 4.5 Transfer Agents and Registrars...................... 12
ARTICLE V: INDEMNIFICATION.................................................. 12
SECTION 5.1 Right to Indemnification............................ 12
SECTION 5.2 Right of Indemnitee to Bring Suit................... 13
SECTION 5.3 Non-Exclusivity of Rights........................... 14
SECTION 5.4 Insurance........................................... 14
SECTION 5.5 Indemnification of Employees and Agents of the
Corporation......................................... 14
ARTICLE VI: FINANCES........................................................ 14
SECTION 6.1 Dividends........................................... 14
SECTION 6.2 Reserves............................................ 14
SECTION 6.3 Bills, Notes, Etc................................... 14
ARTICLE VII: AMENDMENTS..................................................... 15
SECTION 7.1 Power to Amend...................................... 15
SECTION 7.2 Notice of Amendment Affecting Election of Directors. 15
ARTICLE VIII: IN GENERAL.................................................... 15
SECTION 8.1 Gender.............................................. 15
SECTION 8.2 Headings............................................ 15
3
<PAGE>
ARTICLE I
---------
MEETING OF STOCKHOLDERS
-----------------------
SECTION 1.1 Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation shall be held on such date and hour as may be fixed by the Board of
Directors and named in the call, for the election of directors and for the
transaction of such business as may properly be brought before such meeting.
SECTION 1.2 Special Meetings. Special meetings of the stockholders of the
----------------
Corporation may be held at any time in the interval between annual meetings.
Special meetings may be called by the President, or by request of a majority of
the Board of Directors, or by the Secretary upon the written request of the
holders of not less than 25 percent of the shares of stock outstanding and
entitled to vote at the meeting, which written request shall state the purpose
or purposes of the meeting and the matters proposed to be acted on thereat. In
the event that a special meeting of stockholders is called by the Secretary upon
such written request, such requesting stockholders shall pay the reasonably
estimated costs of preparing and mailing notices of such meeting. Nothing
contained herein shall limit the right and power of directors and stockholders
to require a special meeting for the election of directors pursuant to the
provisions of the Delaware General Corporation Law, as the same may from time to
time be amended.
SECTION 1.3 Place of Meetings. Annual and special meetings of the
-----------------
stockholders of the Corporation shall be held at the principal office of the
Corporation or at such other place within or without the State of Delaware as
the Board of Directors may from time to time determine.
SECTION 1.4 Notice of Meetings. Written or printed notice of the time and
------------------
place and purpose or purposes of all meetings of the stockholders shall be given
personally, or by mail or facsimile transmission, not less than 10 days nor more
than 50 days before the day fixed for the meeting, to each stockholder entitled
to vote at said meeting, and such notice shall indicate that it is being issued
by or at the direction of the person or persons calling the meeting. Such
notice shall also be given to any stockholder who, by reason of any action
proposed at such meeting, would be entitled to have his stock appraised if such
action were taken, and such notice shall specify the proposed action and state
the fact that if the action is taken the dissenting stockholder shall have
appraisal rights. Such notice shall be given to each stockholder by leaving the
same with him or at his residence or usual place of business or by mailing it,
postage prepaid and addressed to him at his address as it appears on the books
of the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which event it shall be mailed to the address designated in
such request. Notices of every annual and
4
<PAGE>
special meeting shall state the place, day, hour and purpose or purposes of such
meeting and, in case of any special meeting, no business shall be acted upon
which has not been stated in the notice of the meeting. Notice of any meeting,
as provided for by this Section, is not required to be given to any stockholder
who submits a signed waiver of notice, in person or by proxy, whether before or
after the meeting. The attendance of any stockholder at a meeting, in person or
by proxy, without protesting prior to the conclusion of the meeting his lack of
notice of such meeting, shall constitute a waiver of notice by him. No notice
of an adjourned meeting of stockholders need be given unless the Board of
Directors fixes a new record date for the adjourned meeting.
SECTION 1.5 Record Dates. For the purpose of determining the stockholders
------------
entitled to notice of or to vote at a stockholders' meeting or any adjournment
thereof, the Board of Directors may fix a date of record which shall not be more
than 50 days nor less than ten days before said meeting date. For the purpose
of determining stockholders entitled to express consent to or dissent from any
proposal without a meeting, or for determining stockholders entitled to receive
payment of a dividend or the allotment of any rights, or for any other action,
the Board of Directors may fix a date of record which shall not be more than 50
days prior to such action.
SECTION 1.6 Quorum. At all meetings of stockholders, except as otherwise
------
provided by law, there shall be present in person or represented by proxy
stockholders owning a majority in number of the shares of the Corporation issued
and outstanding and entitled to vote thereat, in order to constitute a quorum;
but if there be no quorum, the holders of such shares so present or represented
may by majority vote adjourn the meeting from time to time, but not for a period
of over 30 days at any one time, without notice other than by announcement at
the meeting, until a quorum shall attend. At any such adjournment of the
meeting which a quorum shall attend, any business may be transacted which might
have been transacted at the meeting as originally called. When a quorum is once
present, it is not broken by the subsequent withdrawal of any stockholder.
SECTION 1.7 Voting. At all meetings of the stockholders, each stockholder
------
entitled to vote thereat may vote in person or by proxy, and shall have one vote
for each share standing in his name on the books of the Corporation, unless
otherwise provided in the Certificate of Incorporation or any amendments
thereto. Shares standing in the name of another corporation of any type or kind
may be voted by such officer(s), agent(s) or proxy as the by-laws of such other
corporation may provide or, in the absence of such provision, as the Board of
Directors of such other corporation may determine. Upon demand of the stock
holders holding in the aggregate 10 percent of the shares, present in person or
by proxy and entitled to vote, voting shall be by ballot. A plurality of the
votes cast shall be sufficient to elect directors, and a majority of votes cast
shall be sufficient to take any other corporate action, except as otherwise
provided by law, the Certificate of Incorporation or the By-laws.
5
<PAGE>
SECTION 1.8 Proxies. Every proxy shall be in writing, subscribed by the
-------
stock holder or his duly authorized attorney and dated. No proxy which is dated
more than eleven months before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name a longer period for which
it is to remain in force.
SECTION 1.9 Conduct of Meetings. Meetings of the stockholders shall be
-------------------
presided over by the Chairman of the Board of Directors, if any, or in his
absence, by the President of the Corporation, or in the absence of both of them,
by an Executive Vice President, if any, or in the absence of all such officers,
by a Chairman to be chosen at the Meeting. The Secretary of the Corporation
shall act as Secretary of the Meeting, if present.
SECTION 1.10 Action Without a Meeting. Whenever stockholders are required
------------------------
or permitted to take any action by vote, such action may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all outstanding shares entitled to vote thereon. Such written
consent shall have the same effect as a unanimous vote of stockholders entitled
to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
------------------
SECTION 2.1 Election and Powers. Except as may otherwise be provided by the
-------------------
Certificate of Incorporation, the Board of Directors shall have the management
and control of the affairs and business of the Corporation. The directors shall
be elected by the stock holders at each annual meeting of stockholders and each
director shall serve until his successor is elected or appointed and qualified,
unless his directorship be theretofore vacated by resignation, death, removal or
otherwise.
SECTION 2.2 Number. The number of directors constituting the entire Board
------
of Directors shall be such number, not less than one nor more than ten, as shall
be designated by resolution of the Board of Directors adopted prior to the
election of directors at the annual meeting of stockholders. In the absence of
such resolution the number of directors to be elected at such annual meeting
shall be the number last fixed by the Board of Directors. Any Board action
designating a change in the number of directors shall require a vote of a
majority of the entire Board. The "entire Board" as used in this Article shall
mean the total number of directors which the Corporation would have if there
were no vacancies.
SECTION 2.3 Vacancies. Vacancies in the Board of Directors (including any
---------
resulting from an increase in the number of directors) created for any reason
except the removal of a director or directors by the stockholders, may be filled
by vote of the Board of Directors. If, however, the number of directors then in
office is less than a quorum, vacancies may be filled by a vote of a majority of
the directors then in office. Successor
6
<PAGE>
directors elected under this Section shall hold office for the unexpired portion
of the term of the director whose place is vacant. In the event of an increase
in the number of directors, additional directors elected under this Section
shall hold office until their successors have been duly elected or appointed and
qualified.
SECTION 2.4 Removal. At any meeting of the stockholders duly called, any
-------
director may, by vote of the holders of a majority of the shares entitled to
vote in the election of directors, be removed from office, with or without
cause, and another may be elected by such stockholders in the place of the
person so removed, to serve for the remainder of the term.
SECTION 2.5 Meetings. Regular meetings of the Board of Directors shall be
--------
held at such times as the directors may from time to time determine. Special
meetings of the Board of Directors shall be held at any time, upon call from the
Chairman of the Board, the President, or at least one-third of the directors.
SECTION 2.6 Place of Meetings. Regular and special meetings of the Board of
-----------------
Directors shall be held at the principal office of the Corporation or at such
other place, within or without the State of Delaware, as the Board of Directors
may from time to time determine.
SECTION 2.7 Notice of Meeting. Written notice of the date, time and place
-----------------
of every regular and special meeting shall be given to each director by
delivering the same to him personally or sending the same to him by mail
facsimile transmission or leaving the same at his residence or usual place of
business, at least one day before the meeting, or shall be mailed to each
Director, postage prepaid and addressed to him at the last known post office
address according to the records of the Corporation, at least three days before
the meeting. No notice of any adjourned meeting of the Board of Directors need
be given other than by announcement at the meeting, subject to the provisions of
Section 2.9 of this Article.
SECTION 2.8 Waiver of Notice. Notice of a meeting need not be given to any
----------------
director who submits a signed written waiver thereof whether before, during or
after the meeting nor to any director who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
SECTION 2.9 Quorum. A majority of the entire Board of Directors shall be
------
necessary to constitute a quorum for the transaction of any item of business at
each meeting of the Board of Directors; but if at any meeting there be less than
a quorum present, a majority of those present may adjourn the meeting from time
to time without notice other than by announcement at the meeting, until a quorum
shall attend. At any such adjournment at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
7
<PAGE>
SECTION 2.10 Action Without a Meeting. Any action required or permitted to
------------------------
be taken by the Board of Directors or any committee thereof at a duly held
meeting may be taken without a meeting if all members of the Board of Directors
or the committee consent in writing to the adoption of a resolution authorizing
the action. Such resolution and the written consents thereto by the members of
the Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or the committee.
SECTION 2.11 Personal Attendance by Conference Communication Equipment.
---------------------------------------------------------
Any one or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
SECTION 2.12 Compensation. Directors as such shall not receive any stated
------------
compensation for their services, but by resolution of the Board of Directors a
fixed sum and expenses of attendance may be allowed for attendance at each
special or regular meeting thereof. Nothing in this Section shall be construed
to preclude a Director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 2.13 Executive Committee and Other Committees. The Board of
----------------------------------------
Directors may, in its discretion, by an affirmative vote of a majority of the
entire Board, appoint an Executive Committee, or any other committee, to consist
of such number of directors (subject to the restrictions contained in Section 2
of this Article) as the Board of Directors may from time to time determine. The
Executive Committee shall have and may exercise between meetings of the Board of
Directors all the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and other committees shall have those
powers conferred upon them by the Board of Directors, except that no committee
shall have power in reference to: (a) amending the Certificate of
Incorporation; (b) adopting an agreement of merger or consolidation; (c)
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (d) recom mending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution; or (e) amending the By-laws of the Corporation; and (f) unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence of any member of the Executive
Committee or of any other committee, the members thereof present at any meeting
may appoint a member of the Board of Directors previously designated by the
Board of Directors as a committee alternate to act in place of such absent
member. The Board of Directors shall have the power at any time to change the
membership of any committee, to fill vacancies in it, or to dissolve it. The
Executive Committee and any other committee may make rules for the conduct of
its business, and may appoint such committees and assistants as may from time to
time be necessary, unless the Board of Directors shall
8
<PAGE>
provide otherwise. A majority of the members of the Executive Committee and of
any other committee shall constitute a quorum.
ARTICLE III
-----------
OFFICERS
--------
SECTION 3.1 Corporate Officers; Election. The Board of Directors (or the
----------------------------
Executive Committee) shall elect a President and a Secretary of the Corporation,
and may elect a Chairman of the Board and such other officers as it may from
time to time determine. The Chairman of the Board or (if there be no Chairman
of the Board) the President shall be the President of the Corporation. Each
officer shall have such authority to act on behalf of the Corporation as is
provided by these By-laws or by the Board of Directors. Each officer shall
serve at the pleasure of the Board of Directors or until his successor shall
have been duly elected or appointed and qualifies, or until his earlier death,
resignation or removal in the manner provided by Section 3 of this Article. Any
two offices may be held by the same person. When all of the stock of the
Corporation is owned by one natural person, such person may hold all or any
combination of offices. Any vacancies in such offices shall be filled in the
same manner.
SECTION 3.2 Assistant and Subordinate Officers. The Board of Directors (or
----------------------------------
the Executive Committee) may elect one or more Assistant Treasurers, one or more
Assistant Secretaries and such other subordinate officers as it may deem proper
from time to time, who shall hold office at the pleasure of the Board of
Directors (or the Executive Committee). Each such subordinate officer shall
have such authority to act on behalf of the Corporation as is provided by the
Board of Directors.
SECTION 3.3 Removal of Corporate Officers. Any officer may be removed with
-----------------------------
or without cause by a vote of the majority of the entire Board of Directors of
the Corporation then in office at a meeting called for that purpose (or, except
in the case of a officer elected by the Board of Directors, by the Executive
Committee) whenever in its judgment the best interests of the Corporation may be
served thereby.
SECTION 3.4 Compensation. Unless otherwise determined by the Board of
------------
Directors, the compensation of all officers shall be fixed in accordance with
the compensation policies of the Corporation in effect from time to time.
SECTION 3.5 Chairman of the Board. The Chairman of the Board, if there be
---------------------
one, shall be the President of the Corporation and shall, subject to the
direction of the Board of Directors (or the Executive Committee), have the
general management of the affairs of the Corporation. The Chairman of the Board
shall also preside at all meetings of the stockholders and of the Board of
Directors.
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SECTION 3.6 President. The President shall be the Chief Operating Officer
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of the Corporation and shall, subject to the direction of the Chairman of the
Board and the Board of Directors (or the Executive Committee), have the general
management of the business operations of the Corporation. If there be no
Chairman of the Board, or in his absence or inability to act, the President
shall be the President of the Corporation and shall perform all the duties of
the Chairman of the Board, subject, however, to the control of the Board of
Directors (or the Executive Committee).
SECTION 3.7 Vice Presidents. Any one or more of the Vice Presidents may be
---------------
designated by the Board of Directors (or the Executive Committee) as an
Executive Vice President. At the request of the Chairman of the Board or the
President, or in the Presi dent's absence or during his disability, the
Executive Vice President shall perform the duties and exercise the functions of
the President. If there be no Executive Vice President, or if there be more
than one, the Board of Directors (or the Executive Committee) may determine
which one or more of the Vice Presidents shall perform any of such duties or
exercise any of such functions; if such determination is not made by the Board
of Directors (or the Executive Committee), the President may make such
determination; otherwise, any of the Vice Presidents may perform any of such
duties or exercise any of such functions. Each Vice President shall have such
other powers and duties as may be properly designated by the Board of Directors
(or the Executive Committee) and the President.
SECTION 3.8 Secretary. The Secretary shall keep full minutes of all
---------
meetings of the stockholders and of the Board of Directors in books provided for
that purpose. He shall see that all notices are duly given in accordance with
the provisions of the By-laws or as required by law. He shall be the custodian
of the records and of the seal of the Corporation. He shall affix the corporate
seal to all documents the execution of which on behalf of the Corporation, under
the seal, is duly authorized by the Board of Directors (or the Executive
Committee), and when so affixed may attest the same. The Secretary shall have
such other powers and duties as may be properly designated by the Board of
Directors (or the Executive Committee) and the President.
SECTION 3.9 Treasurer. The Treasurer shall keep correct and complete books
---------
and records of account for the Corporation. Subject to the control and
supervision of the Board of Directors (or the Executive Committee) and the
President, or such other corporate officer as the President may designate, he
shall establish and execute programs for the provision of the capital required
by the Corporation, including negotiating the procurement of capital and
maintaining adequate sources for the Corporation's current borrowings from
lending institutions. He shall maintain banking arrangements to receive, have
custody of and disburse the Corporation's moneys and securities. He shall
invest the Corporation's funds as required, establish and coordinate policies
for investment in pension and other similar trusts, and provide insurance
coverage as required. He shall direct the granting of credit and the collection
of accounts due the Corporation, including the supervision of special
arrangements for financing sales, such as time payments and leasing plans. The
Treasurer shall have such
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other powers and duties as may be properly designated by the Board of Directors
(or the Executive Committee) and the President.
ARTICLE IV
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SHARE CERTIFICATES
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SECTION 4.1 Form and Signatures. The interest of each stockholder of the
-------------------
Corporation shall be evidenced by certificates for shares in such form not
inconsistent with law or the Certificate of Incorporation, and any amendments
thereof, as the Board of Directors may from time to time prescribe. The share
certificates shall be signed by the President or a Vice President, and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
sealed with the seal of the Corporation, and countersigned and registered in
such manner, if any, as the Board of Directors may by resolutions prescribe.
Where any share certificate is countersigned by a transfer agent or registered
by a registrar, other than the Corporation itself or its employee, the
signatures of any such President, Vice President, Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer, and such corporate seal, may be
facsimiles engraved or printed. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before the share certificate is issued, such certificate may be
issued by the Corporation with the same effect as if such person had not ceased
to be such officer.
SECTION 4.2 Transfer of Shares. The shares of the Corporation shall be
------------------
transferred on the books of the Corporation by the registered holder thereof, in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with a proper assignment and powers of transfer
endorsed thereon or attached thereto, duly signed by the person appearing by the
certificate to be the owner of the shares represented thereby, with such proof
of the authenticity of the signature as the Corporation, or its agents, may
reasonably require. Such certificate shall have affixed thereto all stock
transfer stamps required by law. The Board of Directors shall have power and
authority to make all such other rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the Corporation.
SECTION 4.3 Mutilated, Lost, Stolen or Destroyed Certificates. The holder
-------------------------------------------------
of any certificates representing shares of the Corporation shall immediately
notify the Corporation of any mutilation, loss, theft or destruction thereof,
and the Board of Directors may, in its discretion, cause one or more new
certificates, for the same number of shares in the aggregate, to be issued to
such holder upon the surrender of the mutilated certificate, or in case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction and the deposit of indemnity by way of bond or otherwise in
such form and amount and with such sureties or securities as the Board of
Directors may require to indemnify the Corporation and transfer agent and
registrar, if any, against loss or liability by
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reason of the issuance of such new certificates; but the Board of Directors may,
in its discretion, refuse to issue such new certificates save upon the order of
some court having jurisdiction in such matters.
SECTION 4.4 Stock Ledgers. The stock ledgers of the Corporation containing
-------------
the names and addresses of the stockholders and the number of shares
respectively held by them shall be maintained at the principal office of the
Corporation, or if there be a transfer agent, at the office of such transfer
agent, as the Board of Directors shall determine.
SECTION 4.5 Transfer Agents and Registrars. The Corporation may have one or
------------------------------
more transfer agents and one or more registrars of its stock or of any class or
classes of its shares whose respective duties the Board of Directors may from
time to time determine.
ARTICLE V
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INDEMNIFICATION
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SECTION 5.1 Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he is or
was a director or officer of the Corporation, or as a director or officer of the
Corporation he is or was serving at the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan (hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to by a director, officer, employee or agent and shall
inure the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that, except as provided in Section 2 of this Article with
- -------- -------
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending
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any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
-------- -------
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of any undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Article or otherwise.
SECTION 5.2 Right of Indemnitee to Bring Suit. If a claim under Section 1
---------------------------------
of this Article is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
Corporation, to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of any undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit brought by the indemnitee to enforce a right
to indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. In any suit by the Corporation to recover an
advance ment of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
SECTION 5.3 Non-Exclusivity of Rights. The rights to indemnification and to
-------------------------
the advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Certificate of
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Incorporation, these By-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 5.4 Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or of another corporation, partnership, joint venture, trust or
other enterprise, against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5.5 Indemnification of Employees and Agents of the Corporation.
----------------------------------------------------------
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provision of this Article with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
ARTICLE VI
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FINANCES
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SECTION 6.1 Dividends. Subject to law and to the provisions of the
---------
Certificate of Incorporation, and any amendments thereof, the Board of Directors
may declare dividends on the stock of the Corporation, payable upon such dates
as the Board of Directors may designate.
SECTION 6.2 Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the Corporation available for dividends such sum or
sums, as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall deem conducive to the
interests of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
SECTION 6.3 Bills, Notes, Etc. All checks or demands for money and notes or
------------------
other instruments evidencing indebtedness or obligations of the Corporation
shall be made in the name of the Corporation and shall be signed by such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate.
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ARTICLE VII
-----------
AMENDMENTS
----------
SECTION 7.1 Power to Amend. The Board of Directors shall have the power
--------------
to adopt, amend or repeal the By-laws of the Corporation by a majority vote of
the entire Board of Directors at any meeting. However, any By-laws adopted by
the Board of Directors may be amended or repealed at any meeting of stockholders
by a majority of the votes cast at such meeting by the holders of shares
entitled to vote thereon.
SECTION 7.2 Notice of Amendment Affecting Election of Directors. If any By-
---------------------------------------------------
law regulating an impending election of directors is adopted, amended or
repealed by the Board of Directors, there shall be set forth in the notice of
the next meeting of stockholders for the election of directors the By-law so
adopted, amended or repealed, together with a concise statement of the changes
made.
ARTICLE VIII
------------
IN GENERAL
----------
SECTION 8.1 Gender. Wherever used in these By-laws, the masculine pronoun
------
shall include the feminine and the neuter, as appropriate in the context.
SECTION 8.2 Headings. The Article and Section headings of these By-laws are
--------
for convenience of reference only and do not form a part hereof and do not in
any way modify, interpret or construe the intention expressed hereby.
* * * * *
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