U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers
Under Section 12(b) or (g) of
the Securities Exchange Act of 1934
POST EFFECTIVE AMENDMENT NO. 1
SAN FABIAN RESOURCES, INC.
(Name of Small Business Issuer)
Delaware 13-4069962
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
c/o Herbert Maxwell
1501 Broadway, Suite 1807, new York, New York 10036
(Address of Principal Executive Offices including Zip Code)
(212) 768-2383
(Issuer's Telephone Number)
Securities to be Registered Under Section 12(b) of the Act: None
Securities to be Registered Under
Section 12(g) of the Act: Common Stock, $.0001 Par Value
(Title of Class)
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TABLE OF CONTENTS
PART 1
ITEM 1. DESCRIPTION OF BUSINESS........................................ 3
History and Organization.......................................... 3
Proposed Business................................................. 3
Risk Factors...................................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION........................................ 10
General Business Plan............................................. 10
Structure of Acquisition.......................................... 13
No Dividends...................................................... 14
Employees......................................................... 14
Competition....................................................... 14
Liquidity and Capital Resources................................... 14
ITEM 3. DESCRIPTION OF PROPERTY........................................ 15
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT....................................... 15
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTER
AND CONTROL PERSONS......................................... 16
ITEM 6. EXECUTIVE COMPENSATION......................................... 18
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 18
ITEM 8. DESCRIPTION OF SECURITIES...................................... 18
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS...................... 19
ITEM 2. LEGAL PROCEEDINGS.............................................. 20
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS................................................. 20
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................ 20
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 21
PART F/S
FINANCIAL STATEMENTS....................................................... 21
PART III
ITEMS 1&2 INDEX TO AND DESCRIPTION OF EXHIBITS.......................... 35
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
History And Organization
San Fabian Resources, Inc. (the "Company"), organized under the laws of the
State of Delaware on May 16, 1997. The Company was organized for the purposes of
creating a corporate vehicle to locate and acquire an operating business entity
which management believes is a suitable acquisition candidate (a "target
company").
The Company, in 1997, unsuccessfully attempted to acquire mineral resource
properties. In connection therewith the Company incurred approximately $20,000
of expenses, which consisted primarily of legal fees and disbursements due to
Maitland & Company, the Company's Canadian counsel; through a settlement
arrangement the Company converted this debt to a convertible debenture due July
14, 2003. Such convertible debenture was converted into 2,213,400 shares of the
Company's Common Stock on October 4, 1999. The Company subsequently effected a
10 for 1 stock split on October 27, 1999. See "Plan of Operations."
The Company will not restrict its search for a target company to any
specific business, industry or geographical location. The Company does not
currently engage in any business activities that provide any cash flow. The
costs of identifying, investigating, and analyzing business combinations will be
paid with money in the Company's treasury or loaned by management.
Although the Company was under no obligation to do so, it has voluntarily
filed this registration statement because it believes that it can better
facilitate its business goals if it were a "reporting issuer" under the
Securities Exchange Act of 1934 (the "Exchange Act").
The Company's proposed business activities, as described herein, classify
the Company as a "blank check" or "blind pool" company.
Proposed Business
The Company will seek to locate an acquire a target company which in the
opinion of the Company's management (sometimes referred to as the "Management")
offers long term growth potential. The Company will not restrict its search to
any specific business, industry or geographical location. The Company may seek
to acquire a target company which has just commenced operations, or which works
to avail itself of the benefits of being a "reporting issuer" in order to
facilitate capital formation to expand into new products or market.
There are certain perceived benefits to being a reporting company with a
class of publicly-traded securities. These are commonly thought to include the
following:
* the ability to use registered securities to make acquisitions of
assets or businesses;
* increased visibility in the financial community;
* the facilitation of borrowing from financial institutions;
* improved trading efficiency;
* shareholder liquidity;
* greater ease in subsequently raising capital;
* compensation of key employees through stock options;
* enhanced corporate image;
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* a presence in the United States capital market.
A target company, if any, which may be interested in a business combination
with the Company may include the following:
* a company for which a primary purpose of becoming public is the use of
its securities for the acquisition of assets or businesses;
* a company which is unable to find an underwriter of its securities or
is unable to find an underwriter of securities on terms acceptable to
it;
* a company which wishes to become public with less dilution of its
common stock than would occur upon an underwriting;
* a company which believes that it will be able obtain investment
capital on more favorable terms after it has become public;
* a foreign company which may wish an initial entry into the United
States securities market;
* a special situation company, such as a company seeking a public market
to satisfy redemption requirements under a qualified Employee Stock
Option Plan;
* a company seeking one or more of the other perceived benefits of
becoming a public company.
There is no assurances that the Company will be able to effect an
acquisition of a target company. In addition, at this time, no specifics as to
an acquisition or as to the nature of the target company can be provided.
Risk Factors
The Company's business is subject to numerous risk factors, including the
following:
Anticipated Change in Control and Management.
Upon the successful completion of the acquisition of a target company, the
Company anticipates that it will have to issue to the target company or its
shareholders some authorized but unissued common stock which, when issued will
comprise a majority of the Company's then issued and outstanding shares of
common stock. Therefore, the Company anticipates that upon the closing of the
acquisition of a target company, the Company will no longer be controlled by the
current shareholders. In addition, existing management and directors may resign.
The Company cannot give any assurance that the experience or qualifications of
new management, as it relates to either in the operation of the Company's
activities or in the operation of the business, assets or property being
acquired, will be adequate for such purposes.
Conflict of Interest - Management's Fiduciary Duties.
A conflict of interest may arise between management's personal financial
benefit and management's fiduciary duty to shareholders.
The Company's director and officer is or may become, in their individual
capacities, officers, directors, controlling shareholders and/or partners of
other entities engaged in a variety of businesses. Mr. Maxwell is engaged in
other business activities. Accordingly, the amount of time
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each will devote to the Company's business will only be about five (5) to ten
(10) hours per month. There exists potential conflicts of interest including
allocation of time between the Company and its representatives other business
interests.
Experience of Management; Consultants.
Although Management has general business experience, it has limited
experience in effecting business combinations and may not have any significant
experience in acquiring or operating certain business interests that the company
might choose to acquire. Management does not have, nor does it presently intend
to enter into, any contracts or agreements with any consultants or advisors with
respect to its proposed business activities. Consequently, Management has not
established the criteria that will be used to hire independent consultants
regarding their experience, the services to be provided, the term of service,
etc., and no assurance can be made that the Company will be able to obtain such
assistance on acceptable terms.
Potential Future Rule 144 Sales.
Of the 50,000,000 shares of the Company's Common Stock authorized, there
are presently issued and outstanding 27,744,000; all are "restricted securities"
as that term is defined under the Securities Act of 1933 (the "Securities Act"),
and in the future may be sold in compliance with Rule 144 of the Act, or
pursuant to a Registration Statement filed under the Act. Rule 144 provides, in
essence, that a person holding restricted securities for a period of 1 year may
sell those securities in unsolicited brokerage transactions of in transactions
with a market maker, in an amount equal to 1% of our outstanding common stock
every 3 months. Additionally, Rule 144 requires that an issuer of securities
make available if the issuer satisfies the reporting requirements of Sections 13
or 15(d) of the Exchange Act and of Rule 15c2-11 thereunder. Rule 144 also
permits, under certain circumstances, that sale of shares by a person who is not
an affiliate of ours and who has satisfied a 2 two year holding period without
any quantity limitation and whether or not there is adequate current public
information available. Investors should be aware that sales under Rule 144, or
pursuant to a registration statement filed under the Securities Act, may have a
depressive effect on the market price of our common stock in any market that may
develop for such shares.
Possible Issuance of Additional Shares.
The Company's Certificate of Incorporation, authorizes the issuance of
50,000,000 shares of common stock. The Company's Board of Directors has the
power to issue any or all of such additional shares without stockholder approval
for such consideration as it deems. Management presently anticipates that it may
choose to issue a substantial but as yet undetermined amount of the Company's
shares in connection with the acquisition of a target business.
Risks of Leverage.
There are currently no limitations relating to the Company's ability to
borrow funds to increase the amount of capital available to it to effect a
business combination or otherwise finance the operations of any acquired
business. The amount and nature of any borrowings by the Company will depend on
numerous factors, including the Company's capital requirements, the Company's
perceived ability to meet debt services on any such borrowings, and
then-prevailing conditions in the financial, if required or otherwise sought,
will be available on terms deemed to be commercially acceptable and
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in the best interest of the Company's inability to borrow funds required to
effect or facilitate a business combination, or to provide funds for an
additional infusion of capital into an acquired business, may have a material
adverse affect on the Company's financial condition and future prospects.
Additionally, to the extent that debt financing ultimately proves to be
available, any borrowings may subject the Company to various risks traditionally
associated with incurring of indebtedness, including:
if the Company's operating revenues after the acquisition were to be
insufficient to pay debt service, there would be a risk of default and
foreclosure on our assets.
if a loan agreement containing covenants is breached without a waiver or
renegotiation of the terms of that covenant, then the lender could have the
right to accelerate the payment of the indebtedness even if the Company has
made all principal and interest payments when due.
if the interest rate on a loan fluctuated or the loan was payable on
demand, the Company would bear the risk of variations in the interest rate
or demand for payment.
if the terms of a loan did not provide for amortization prior to maturity
of the full amount borrowed and the "balloon" payment could not be
refinanced at maturity on acceptable terms, we might be required to seek
additional financing and, to the extent that additional financing is not
available on acceptable terms, to liquidate the Company's assets.
Possible Need for Additional Financing.
The Company cannot ascertain with any degree of certainty the capital
requirements for an particular acquired business inasmuch as the Company has not
yet identified any acquisition candidates. If the target company requires
additional financing, such additional financing (which, among other forms, could
be derived from the public or private offering of securities or from the
acquisition of debt through conventional bank financing), may not be available,
due to, among other things, the target company not having sufficient:
o credit or operating history;
o income stream;
o profit level;
o asset base eligible to be collateralized; or
o market for its securities.
Since no specific business has been targeted for acquisition, it is not
possible to predict the specific reasons why conventional private or public
financing or conventional bank financing might not become available. Although
there are no agreements between the Company and any of its officers and/or
directors pursuant to which we may borrow and such officers and/or directors are
obligated to lend the Company monies, there are no restrictions on our right to
borrow money from officers and directors. No stockholder approval is required in
connection with any such loan.
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Penny Stock Rules.
Under Rule 15g-9, a broker or dealer may not sell a "penny stock" (as
defined in Rule 3a51- 1) to or effect the purchase of a penny stock by any
person unless:
(1) such sale or purchase is exempt from Rule 15g-9; or
(2) prior to the transaction the broker or dealer has (a) approved the
person's account for transaction in penny stocks in accordance with
Rule 15g-9 and (b) received from the person a written agreement to the
transaction setting forth the identity and quantity of the penny stock
to be purchased.
The United States Securities and Exchange Commission (the "Commission")
adopted regulations that generally define a penny stock to be any equity
security other than a security excluded from such definition by Rule 3a51-1.
Such exemptions include, but are not limited to (a) an equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operations for at least three years; (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years; or (iii) average revenue of at least
$6,000,000 for the preceding three years; (b) except for purposes of Section
7(b) of the Exchange Act and Rule 419, any security that has a price of $5.00 or
more; (c) and a security that is authorized or approved for authorization upon
notice of issuance for quotation on the National Association of Securities
("NASD") Dealers Automated Quotation System ("NASDAQ").
It is likely that the Company's common stock will be subject to the
regulations on penny stocks; consequently, the market liquidity for our common
stock may be adversely affected by such regulations. This, in turn, will affect
shareholders ability to sell his shares following the completion of an
acquisition.
There is no current trading market for shares (the "Shares") the Company's
common stock and there can be no assurance that a trading market will develop,
or, if such a trading market does develop, that it will be sustained. The
Shares, to the extent that a market develops for the Shares at all, will likely
appear in what is customarily known as the "pink sheets" or on the NASD
over-the-counter Bulletin Board (the "OTCBB"), which may limit the marketability
and liquidity of the Shares. A trading market will develop, if at all, only
after the acquisition of a target company.
To date, neither the Company nor anyone acting on behalf of the Company has
taken any affirmative steps to request or encourage any broker/dealer to act as
a market maker for our common stock. The Company has had no discussions or
understandings, with any "market makers" regarding the participation of any such
market maker in the future trading market, if any, in the Company's common
stock. Management expects that discussions in this area will ultimately be
initiated by the management in office after completion of the acquisition of a
target company.
Risks Associated with Operations in Foreign Countries.
The Company's business plan is to seek to acquire a target company.
Management's discretion is unrestricted, and the Company may participate in any
business whatsoever that may in the opinion of Management meet the Company's
business objectives. The Company may acquire a business outside the United
States. The Company has not limited the scope of its search to a
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particular region or country. Accordingly, if the Company acquires a business
located, or operating in a foreign jurisdiction, the Company's operations may be
adversely affected to the extent of the existence of unstable economic, social
and/or political conditions in such foreign regions and countries.
No Operating History or Revenue and Minimal Assets.
The Company has had no operating history nor any revenues or earnings from
operations. The Company has no significant assets or financial resources. The
Company will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. This may result in the Company incurring a net operating loss which
will increase continuously until the Company can consummate a business
combination with a target company. There is no assurance that the Company can
identify such a target company and consummate such a business combination.
Speculative Nature of the Company's Proposed Operations.
The success of the Company's proposed plan of operation will depend to a
great extent on the operations, financial condition and management of the
identified target company. While management will prefer business combinations
with entities having established operating histories, there can be no assurance
that the Company will be successful in locating candidates meeting such
criteria. In the event the Company completes a business combination, of which
there can be no assurance, the success of the Company's operations will be
dependent upon management of the target company and numerous other factors
beyond the Company's control.
Scarcity of and Competition for Business Opportunities and Combinations.
The Company is and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A large
number of established and well-financed entities, including venture capital
firms, are active in mergers and acquisitions of companies which may be merger
or acquisition target candidates for the Company. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will also
compete with numerous other small public companies in seeking merger or
acquisition candidates.
No Agreement for Acquisition of a Target Company Combination.
The Company has no current arrangement, agreement or understanding with
respect to engaging in a merger with or acquisition of a specific business
entity. There can be no assurance that the Company will be successful in
identifying and evaluating suitable business opportunities or in concluding a
business combination. Management has not identified any particular industry or
specific business within an industry for evaluation by the Company. There is no
assurance that the Company will be able to negotiate a business combination on
terms favorable to the Company. The Company has not established a specific
length of operating history or a specified level of earnings, assets, net worth
or other criteria which it will require a target company to have achieved, or
without which the Company would not consider a business combination with such
business entity. Accordingly, the
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Company may enter into a business combination with a business entity having no
significant operating history, losses, limited or no potential for immediate
earnings, limited assets, negative net worth or other negative characteristics.
Reporting Requirements May Delay or Preclude Acquisition.
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires companies subject thereto to provide certain information about
significant acquisitions including certified financial statements for the
company acquired covering one or two years, depending on the relative size of
the acquisition. The time and additional costs that may be incurred by some
target companies to prepare such financial statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by the
Company. Acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable.
Lack of Market Research or Marketing Organization.
The Company has neither conducted, nor have others made available to it,
market research indicating that demand exists for the transactions contemplated
by the Company. Even in the event demand exists for a merger or acquisition of
the type contemplated by the Company, there is no assurance the Company will be
successful in completing any such business combination.
Lack of Diversification.
The Company's proposed operations, even if successful, will in all
likelihood result in the Company engaging in a business combination with only
one business entity. Consequently, the Company's activities will be limited to
those engaged in by the business entity which the Company merges with or
acquires. The Company's inability to diversify its activities into a number of
areas may subject the Company to economic fluctuations within a particular
business or industry and therefore increase the risks associated with the
Company's operations.
Regulation under Investment Company Act.
Although the Company will be subject to regulation under the Exchange Act,
management believes the Company will not be subject to regulation under the
Investment Company Act of 1940, insofar as the Company will not be engaged in
the business of investing or trading in securities. In the event the Company
engages in business combinations which result in the Company holding passive
investment interests in a number of entities, the Company could be subject to
regulation under the Investment Company Act of 1940. In such event, the Company
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. The Company has obtained no
formal determination from the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act could subject the Company to material
adverse consequences.
Probable Change In Control and Management.
A business combination involving the issuance of the Company's common stock
will, in all likelihood, result in shareholders of a target company obtaining a
controlling interest in the Company.
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Any such business combination may require shareholders of the Company to sell or
transfer all or a portion of the Company's common stock held by them. The
resulting change in control of the Company will likely result in removal of the
present officer and director of the Company and a corresponding reduction in or
elimination of his participation in the future affairs of the Company.
Taxation.
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination the Company may undertake. Currently,
such transactions may be structured so as to result in tax-free treatment to
both companies, pursuant to various federal and state tax provisions. The
Company intends to structure any business combination so as to minimize the
federal and state tax consequences to both the Company and the target company;
however, there can be no assurance that such business combination will meet the
statutory requirements of a tax-free reorganization or that the parties will
obtain the intended tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition of both federal and
state taxes which may have an adverse effect on both parties to the transaction.
Year 2000 Risks.
Many existing computer programs use only two digits to identify a year in
such program's date field. These programs were designed and developed without
consideration of the impact of the change in the century for which four digits
will be required to accurately report the date. If not corrected, many computer
applications could fail or create erroneous results by or following the year
2000 ("Year 2000 Problem"). Many of the computer programs containing such date
language problems have not been corrected by the companies or governments
operating such programs. It is impossible to predict what computer programs will
be effected, the impact any such computer disruption will have on other
industries or commerce or the severity or duration of a computer disruption.
The Company does not have operations and does not maintain computer
systems. Before the Company enters into any business combination, it may inquire
as to the status of any target company's Year 2000 Problem, the steps such
target company has taken or intends to take to correct any such problem and the
probable impact on such target company of any computer disruption. However,
there can be no assurance that the Company will not acquire a target company
that has an uncorrected Year 2000 Problem or that any planned Year 2000 Problem
corrections will be sufficient. The extent of the Year 2000 Problem of a target
company may be impossible to ascertain and any impact on the Company will likely
be impossible to predict.
ITEM 2. MANAGEMENT'S DISCUSSION ANALYSIS OR PLAN OF OPERATION
General Business Plan
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire a target company which desires to seek the perceived
advantages of a corporation which has a class of securities registered under the
Exchange Act.
Management anticipates seeking out a target company through solicitation.
Such solicitation may include newspaper or magazine advertisements, mailings and
other distributions to law firms,
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accounting firms, investment bankers, financial advisors and similar persons,
the use of one or more World Wide Web sites and similar methods. No estimate can
be made as to the number of persons who will be contacted or solicited.
Management may engage in such solicitation directly or may employ one or more
other entities to conduct or assist in such solicitation. Management and its
affiliates pay referral fees to consultants and others who refer target
businesses for mergers into public companies in which management and its
affiliates have an interest. Payments are made if a business combination occurs,
and may consist of cash or a portion of the stock in the Company retained by
management and its affiliates, or both.
The Company will not restrict its search to any specific business,
industry, or geographical location and the Company may participate in a business
venture of virtually any kind or nature. Management anticipates that it will be
able to participate in only one potential business venture because the Company
has nominal assets and limited financial resources. Please refer to "PART
F/S-"FINANCIAL STATEMENTS." This lack of diversification should be considered a
substantial risk to the shareholders of the Company because it will not permit
the Company to offset potential losses from one venture against gains from
another.
The Company may seek a business opportunity with entities which have
recently commenced operations, or which wish to utilize the public marketplace
in order to raise additional capital in order to expand into new products or
markets, to develop a new product or service, or for other corporate purposes.
The Company may acquire assets and establish wholly-owned subsidiaries in
various businesses or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Management believes
(but has not conducted any research to confirm) that there are business entities
seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, increasing the opportunity
to use securities for acquisitions, providing liquidity for shareholders and
other factors. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
difficult and complex.
The Company has, and will continue to have, no capital with which to
provide the owners of business entities with any cash or other assets. However,
management believes the Company will be able to offer owners of acquisition
candidates the opportunity to acquire a controlling ownership interest in a
public company without incurring the cost and time required to conduct an
initial public offering. Management has not conducted market research and is not
aware of statistical data to support the perceived benefits of a merger or
acquisition transaction for the owners of a business opportunity.
The analysis of new business opportunities will be undertaken by, or under
the supervision of, the officer and director of the Company, who is not a
professional business analyst. In analyzing prospective business opportunities,
management may consider such matters as the available technical, financial and
managerial resources; working capital and other financial requirements; history
of operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development, or exploration; specific risk factors not now
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foreseeable but which then may be anticipated to impact the proposed activities
of the Company; the potential for growth or expansion; the potential for profit;
the perceived public recognition or acceptance of products, services, or trades;
name identification; and other relevant factors.
This discussion of the proposed criteria is not meant to be restrictive of
the Company's virtually unlimited discretion to search for and enter into
potential business opportunities.
The Exchange Act requires that any merger or acquisition candidate comply
with certain reporting requirements, which include providing audited financial
statements to be included in the reporting filings made under the Exchange Act.
The Company will not acquire or merge with any company for which audited
financial statements cannot be obtained at or within a reasonable period of time
after closing of the proposed transaction.
The Company may enter into a business combination with a business entity
that desires to establish a public trading market for its shares. A target
company may attempt to avoid what it deems to be adverse consequences of
undertaking its own public offering by seeking a business combination with the
Company. Such consequences may include, but are not limited to, time delays of
the registration process, significant expenses to be incurred in such an
offering, loss of voting control to public shareholders or the inability to
obtain an underwriter or to obtain an underwriter on satisfactory terms.
The Company will not restrict its search for any specific kind of business
entities, but may acquire a venture which is in its preliminary or development
stage, which is already in operation, or in essentially any stage of its
business life. It is impossible to predict at this time the status of any
business in which the Company may become engaged, in that such business may need
to seek additional capital, may desire to have its shares publicly traded, or
may seek other perceived advantages which the Company may offer.
Management of the Company, which in all likelihood will not be experienced
in matters relating to the business of a target company, will rely upon its own
efforts in accomplishing the business purposes of the Company. Outside
consultants or advisors may be utilized by the Company to assist in the search
for qualified target companies. If the Company does retain such an outside
consultant or advisor, any cash fee earned by such person will need to be
assumed by the target company, as the Company has limited cash assets with which
to pay such obligation. No such consultant or advisor has been retained.
Following a business combination the Company may benefit from the services
of others in regard to accounting, legal services, underwriting and corporate
public relations. If requested by a target company, management may recommend one
or more underwriters, financial advisors, accountants, public relations firms or
other consultants to provide such services.
A potential target company may have an agreement with a consultant or
advisor providing that services of the consultant or advisor be continued after
any business combination. Additionally, a target company may be presented to the
Company only on the condition that the services of a consultant or advisor be
continued after a merger or acquisition. Such preexisting agreements of target
companies for the continuation of the services of attorneys, accountants,
advisors or consultants could be a factor in the selection of a target company.
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Structure of Acquisition
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, reorganization, joint
venture, or licensing agreement with a target company. It may also acquire stock
or assets of a target company. Upon consummation of a an acquisition, it is
likely that the present management and shareholders of the Company will no
longer be in control of the Company. In addition, it is likely that the
Company's officers and directors will, as part of the terms of the acquisition
transaction, resign and be replaced by one or more new officers and directors.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of its transaction, the Company may agree to register all or
a part of such securities immediately after the transaction is consummated or at
specified times thereafter. If such registration occurs, of which there can be
no assurance, it will be undertaken by the surviving entity after the Company
has entered into an agreement for a business combination or has consummated a
business combination and the Company is no longer considered a blank check
company. The issuance of additional securities and their potential sale into any
trading market which may develop in the Company's securities may depress the
market value of the Company's securities in the future if such a market
develops, of which there is no assurance.
While the terms of a business transaction to which the Company may be a
party cannot be predicted, it is expected that the parties to the business
transaction will desire to avoid the creation of a taxable event and thereby
structure the acquisition in a "tax-free" reorganization under Sections 351 or
368 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to any merger or acquisition negotiations with a target
company, management expects to focus on the percentage of the Company which
target company shareholders would acquire in exchange for their shareholdings in
the target company. Depending upon, among other things, the target company's
assets and liabilities, the Company's shareholders will in all likelihood hold a
substantially lesser percentage ownership interest in the Company following any
merger with or acquisition of a target company. The percentage of ownership may
be subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's shareholders at such time.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties thereto, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing and will
include miscellaneous other terms..
The Company will not acquire or merge with any entity which cannot provide
audited financial statements at or within a reasonable period of time after
closing of the proposed transaction. The Company is subject to all of the
reporting requirements included in the Exchange Act. Included in these
requirements is the duty of the Company to file audited financial statements as
part of or within 60 days following its Form 8-K to be filed with the Securities
and Exchange Commission upon consummation of a merger or acquisition, as well as
the Company's audited financial statements
13
<PAGE>
included in its annual report on Form 10-K (or 10-KSB, as applicable). If such
audited financial statements are not available at closing, or within time
parameters necessary to insure the Company's compliance with the requirements of
the Exchange Act, or if the audited financial statements provided do not conform
to the representations made by the target company, the closing documents may
provide that the proposed transaction will be voidable at the discretion of the
present management of the Company.
No Dividends
The Company has not paid any dividends on its common stock; nor does the
Company intend to declare and pay dividends prior to the consummation of an
acquisition. The payment of dividends after any acquisition will be within the
discretion of the Company's then Board of Directors.
Employees
The Company presently has no employees. The Company has one officer and
director. Mr. Maxwell is engaged in other business activities, and the amount of
time he will devote to the Company's business will only be between five (5) and
ten (10) hours per month. Upon completion of the public offering, it is
anticipated that management will devote such time to our affairs each month as
may be necessary to carry on our business plans.
Competition
The Company will remain an insignificant participant among the firms which
engage in the acquisition of business opportunities. There are many established
venture capital and financial concerns which have significantly greater
financial and personnel resources and technical expertise than the Company. In
view of the Company's combined extremely limited financial resources and limited
management availability, the Company will continue to be at a significant
competitive disadvantage compared to the Company's competitors.
Liquidity And Capital Resources
The Company has limited working capital and a deficit. The ability of the
Company to continue as a going concern is dependent upon its ability to obtain
adequate financing to reach profitable levels of operation. It is not possible
to predict whether financing efforts will be successful or if the Company will
attain profitable levels of operations. Mr. Maxwell has agreed to loan the
Company, on an as needed basis, up to $10,000 through the earlier of December
31, 2000 or the consummation of a business acquisition. The Company anticipates
that such amounts will be (a) sufficient for payment of the Company's operating
expenses through December 31, 2000 and (b) repaid upon completion of the
acquisition of a target business.
On July 14, 1997 the Company issued a 5% Convertible Debenture in the
amount of $20,000US due July 14, 2003 in partial settlement of outstanding legal
fees due to Maitland & Company a Canadian law firm which performed legal
services for the Company in connection with its unsuccessful efforts to acquire
mineral resource properties. The Company also issued 60,000 shares of its common
stock to Maitland & Company in settlement of its claims. The debenture bore
interest at 5% per annum payable on the maturity date.
14
<PAGE>
The principal and accrued and unpaid interest therein (collectively, the
"Debenture Indebtedness) was convertible in whole or in part converted into
shares of the Company's common stock on the basis of $.01 per share.
By Amending Agreement dated September 29, 1999 between the Company and
Maitland & Company, the terms of the conversion of the Convertible Debenture
were modified so as to make the Convertible Debenture convertible at any time
during its term upon 5 days prior written notice from the Holder. Since the
Convertible Debenture was convertible into 2,213,400 shares of the Company's
Common Stock, Maitland & Company became a beneficial owner of such shares and an
affiliate of the Company. Immediately thereafter, Maitland & Company delivered a
notice to the Company notifying the Company of its election to convert all of
the Debenture Indebtedness in total of $22,134 into 2,213,400 shares of the
Company's Common Stock (approximately 81% of the Company's outstanding Common
Stock). The conversion on October 4, 1999 resulted in a change of control of the
Company.
ITEM 3. DESCRIPTION OF PROPERTY
The Company has no properties and at this time has no agreements to acquire
any properties. The Company is presently using at no cost, the office of its
President, Herbert Maxwell, 1501 Broadway, Suite 1807, New York, New York 10036,
at its office. Such arrangement is expected to continue until completion of the
acquisition of a target company. See "Part I-Item 7. Certain Relationships and
Related Transactions."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common Stock, all
directors individually and all directors and officers of the Company as a group.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
================================================================================
SHARES OF COMMON APPROXIMATE
NAME AND ADDRESS OF STOCK BENEFICIALLY PERCENTAGE
BENEFICIAL OWNED(1) OWNED
OWNER
- --------------------------------------------------------------------------------
Herbert Maxwell(2) 10,000 *
1501 Broadway, Suite 1807
New York, New York 10036
- --------------------------------------------------------------------------------
Joseph Sierchio(3) 2,500,000 9%
150 East 58th Street
25th Floor
New York, NY 10155
- --------------------------------------------------------------------------------
Stephen A. Albert(3) 2,500,000 9%
150 East 58th Street
25th Floor
New York, NY 10155
- --------------------------------------------------------------------------------
Maitland & Company(4) 22,734,000 82%
700-625 Howe St.
Vancouver, B.C. V2C 2T6
- --------------------------------------------------------------------------------
Officers and Directors as a Group (1 person) 10,000 *
================================================================================
15
<PAGE>
* Less than 1%
(1) The numbers of Shares set forth herein reflect a 10 for 1 stock split
effected by the Company on October 27, 1999.
(2) Mr. Maxwell owns less than 1% of the Company's issued and outstanding
shares.
(3) Each of Messrs. Sierchio and Albert are principals of the law firm Sierchio
& Albert, P.C., counsel to the Company. There is no agreement or
understanding among and between Messrs. Sierchio and Albert or any other
person regarding the sale, transfer or other disposition of these shares.
Accordingly, each of Messrs. Sierchio and Albert disclaim any beneficial
interests in the others shares.
(4) Maitland & Company is a law firm based in Vancouver Canada.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below is the name of each of the directors and officers of the
Company, all positions and offices with the Company held, the period during
which such person has never served as such, and the business experience during
at least the last five years:
Name Age Positions and Offices Held
Herbert Maxwell 76 President and Director (Since October 27, 1999)
Herbert Maxwell became sole officer and director of the Company on November
19, 1999 following the resignation of Michael L. Seifert*. Mr. Maxwell has been
independent businessman for the past five years and has been a consultant for
troubled companies and a principal in investment groups for the past two
decades. Mr. Maxwell has also served as a director and officer (and was a
principal stockholder) of four publicly held companies, which although not
engaged in blank check offerings nevertheless consummated acquisitions of the
type described in this Prospectus. These include:
(1) Zachary Ventures, Inc. was organized in December, 1993. It conducted an
offering pursuant to Rule 419 which offering was concluded in March 1994.
Zachary Ventures, Inc. did not effect a Business Combination pursuant to
Rule 419 and in June, 1996 returned the deposited proceeds to the investors
as required by such Rule. Zachary Ventures has been dissolved and is no
longer in business.
(2) C.S. Primo Corp. was organized in 1986 initially as an inactive publicly
held corporation pursuing a business acquisition. Mr. Maxwell became a
principal stockholder and a director of C.S. Primo Corp. on or about June
3, 1988. On or about March 4, 1991, C.S. Primo Corp. acquired approximately
98% of the issued and outstanding common stock of Dynasty World Express,
Inc. in exchange for approximately 90% of C.S. Primo Corp.'s common stock;
since then, C.S. Primo Corp. has changed its name to Phoenix Information
Systems Corp. and its common stock trades on the over-the-counter market.
Mr. Maxwell served as a director from June, 1988 to March, 1991.
- ----------
* Mr. Seifert served as the Company's sole director and officer from October 27,
1999 through November 19, 1999. Prior to Mr. Seifert's appointment, Mr. Joseph
Sierchio served as the Company's sole director and officer from inception
through October 26, 1999.
Although there was no agreement or understanding as to resignation of Mr.
Sierchio, following the conversion of a Convertible Debenture on October 4,
1999, Mr. Joseph Sierchio the then sole officer, director and controlling person
of the Company resigned as an officer and director effective October 27, 1999
and Mr. Michael Seifert was appointed to replace Mr. Sierchio.
On November 19, 1999, Mr. Seifert resigned as an officer and director of
the Company and Mr. Herbert Maxwell was appointed to replace Mr. Seifert.
16
<PAGE>
(3) Lewis Resources, Inc. was organized in 1987, initially through a stock
dividend distribution, as an inactive publicly held corporation pursuing a
business acquisition. Mr. Maxwell was one of the initial stockholders and
directors of Lewis Resources, Inc. On September 28, 1993, Lewis Resources,
Inc. acquired from Lema Investments Ltd. All of the outstanding shares of
Gallium Arsenide Industries Ltd., a development stage Israeli company.
Since then, Lewis Resources, Inc. has changed its name to Israel
Semiconductor Corporation and its common stock trades on the
over-the-counter market. Mr. Maxwell served as a director from its
formation through September, 1993.
(4) Lewison Enterprises Inc. was organized in 1988 initially, through a stock
dividend distribution, as an inactive publicly held corporation pursuing a
business acquisition. MR. Maxwell was one of the initial stockholders and
directors of Lewison Enterprises Inc. In July, 1993 the Lewison Enterprises
Inc. issued 8,000,000 shares of common stock to the stockholders of Omega
Development Corp. ("Omega") in exchange for all of the issued and
outstanding shares of common stock of Omega. Since then, Lewison
Enterprises Inc. has changed its name to Omega Development, Inc. To date,
no trading market has developed for shares of its common stock. Mr. Maxwell
has been a director since its formation.
Except for Omega Development, Inc., Mr. Maxwell is no longer a principal
stockholder, director or officer of any of the foregoing corporations. Except as
set forth above, Mr. Maxwell does not presently serve as a director of any
public company. He is an active investor and writes a newsletter on the New York
Theater.
There were and there are no agreements or understandings for Mr. Sierchio
or Mr. Seifert to resign at the request of another person and the above-named
officer and director is not acting on behalf of nor will act at the direction of
any other person other than the Company's shareholders.
Conflicts of Interest.
The Company's officer and director and expects to organize other companies
of a similar nature and with a similar purpose as the Company. Consequently,
there are potential inherent conflicts of interest in acting as an officer and
director of the Company. Insofar as the officer and director is engaged in other
business activities, he will devote only a minor amount of time to the Company's
affairs. The Company does not have a right of first refusal pertaining to
opportunities that come to management's attention insofar as such opportunities
may relate to the Company's proposed business operations.
A conflict may arise in the event that another blank check and/or blind
pool company (a "blind pool company") with which management is affiliated is
formed and actively seeks a target company. It is anticipated that target
companies will be located for the Company and other blind pool companies in
chronological order of the date of formation of such blind pool companies or by
lot. However, any blank check companies that may be formed may differ from the
Company in certain items such as place of incorporation, number of shares and
shareholders, working capital, types of authorized securities, or other items.
It may be that a target company may be more suitable for or may prefer a certain
blind pool company formed after the Company. In such case, a business
combination might be negotiated on behalf of the more suitable or preferred
blind pool company regardless of date of formation or choice by lot. Mr. Maxwell
will be responsible for seeking, evaluating, negotiating and consummating a
business combination with a target company which may result in terms providing
benefits to Mr. Maxwell.
The Company may agree to pay finder's fees, as appropriate and allowed, to
unaffiliated persons who may bring a target company to the Company where that
reference results in a business combination. No finder's fee of any kind will be
paid by the Company to management or promoters of the Company or to their
affiliates. No loans of any type have, or will be, made by the Company to
management or promoters of the Company or to any of their associates or
affiliates.
Management has not adopted policies involving possible conflicts of
interest.
There are no binding guidelines or procedures for resolving potential
conflicts of interest. Failure by Management to resolve conflicts of interest in
favor of the Company could result in liability of Management to the Company.
However, any attempt by shareholders to enforce a liability of Management to the
Company would most likely be prohibitively expensive and time consuming.
Investment Company Act of 1940.
Although the Company will be subject to regulation under the Securities Act
of 1933 (the "Securities Act") and the Exchange Act, management believes the
Company will not be subject to regulation under the Investment Company Act of
1940 insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities the Company could be subject to regulation under the Investment Company
Act of 1940. In such event, the Company would be required to register as an
investment company and could be expected to incur significant registration and
compliance costs. The Company has not obtained a formal determination from the
Commission as to the status of the Company under the Investment Company Act of
1940. Any violation of such Investment Company Act would subject the Company to
material adverse consequences.
17
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
The Company's sole officer and director does not receive any compensation
for his services rendered to the Company, has not received such compensation in
the past, and is not accruing any compensation pursuant to any agreement with
the Company.
No retirement, pension, profit sharing, stock option or insurance programs
or other similar programs have been adopted by the Company for the benefit of
its employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has no properties and at this time has no agreements to acquire
any properties. The Company is presently using as its office, at no cost, the
office of its President, Herbert Maxwell, 1501 Broadway, Suite 1807, New York,
New York 10036. Such arrangement is expected to continue until completion of the
acquisition of a target company.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue fifty million (50,000,000) shares of
common stock, $.0001 par value per share, of which 27,744,000 shares were issued
and outstanding as of the date of this Registration Statement (giving effect to
a 10 for 1 stock split of the Company's Common Stock on October 27, 1999). Each
outstanding share of common stock entitles the holder to one vote, either in
person or by proxy, on all matters that may be voted upon by the owners thereof
at meetings of the stockholders.
The holders of common stock (i) have equal rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of the
Company available for distribution to holders of common stock upon liquidation,
dissolution or winding up of the affairs of the Company; (iii) do not have
preemptive, subscription or conversion rights, and (iv) are entitled to one
non-cumulative vote per share on all matters on which stockholders may vote at
all meetings of stockholders.
Reports to Stockholders.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements as soon as practicable after the end of
each fiscal year. Our fiscal year ends on December 31. In addition, we intend to
issue unaudited interim reports and financial statements on a quarterly basis.
Dividends.
The Company has not declared any dividends since inception, and has no
present intention of paying any cash dividends on its common stock in the
foreseeable future. The payment by the Company of dividends, if any, in the
future, rests within the discretion of our Board of Directors and will depend,
among other things, upon our earnings, capital requirements and financial
condition, as well as other relevant factors.
18
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
There is no trading market for the Company's Common Stock at present and
there has been no trading market to date. There is no assurance that a trading
market will ever develop or, if such a market does develop, that it will
continue. If a trading market develops, if at all, it will develop only after
the acquisition of a target company.
The National Securities Market Improvement Act of 1996 limited the
authority of states to impose restrictions upon sales of securities made
pursuant to Sections 4(1) and 4(3) of the Securities Act, of companies which
file reports under Sections 13 or 15(d) of the Exchange Act. The Company files
such reports. As a result, sales of the Company's common stock in the secondary
trading market by the holders thereof may be made pursuant to Section 4(1)of the
Securities Act (sales other than by an issuer, underwriter or broker).
The Commission has adopted Rule 15g-9 which establishes the definition of a
"penny stock," for purposes relevant to the Company, as any equity security that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require: (i) that a broker or
dealer approve a person's account for transactions in penny stocks and (ii) the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in penny
stocks, the broker or dealer must (i) obtain financial information and
investment experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable for that person
and that person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form, (i) sets forth the basis on which the broker
or dealer made the suitability determination and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading, and about commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
If, after a merger or acquisition, the Company does not meet the
qualifications for listing on the Nasdaq Stock Market Inc.'s SmallCap Market
("NASDAQ_SCM"), the Company's securities may be traded on the OTCBB. The OTCBB
market differs from national and regional stock exchanges in that it (1) is not
sited in a single location but operates through communication of bids, offers
and confirmations between broker-dealers and (2) securities admitted to
quotation are offered by one or more broker-dealers rather than the "specialist"
common to stock exchanges. The Company may seek to have its securities quoted on
the OTCBB or may offer its securities in what are commonly referred to as the
"pink sheets" of the National Quotation Bureau, Inc.
19
<PAGE>
In order to qualify for listing on the NASDAQ-SCM, a company must have at
least (i) net tangible assets of $4,000,000 or market capitalization of
$50,000,000 or net income for two of the last three years of $750,000; (ii)
public float of 1,000,000 shares with a market value of $5,000,000; (iii) a bid
price of $4.00; (iv) three market makers; (v) 300 shareholders and (vi) an
operating history of one year or, if less than one year, $50,000,000 in market
capitalization. For continued listing on the Nasdaq SmallCap Market, a company
must have at least (i) net tangible assets of $2,000,000 or market
capitalization of $35,000,000 or net income for two of the last three years of
$500,000; (ii) a public float of 500,000 shares with a market value of
$1,000,000; (iii) a bid price of $1.00; (iv) two market makers; and (v) 300
shareholders.
If the Company is unable initially to satisfy the requirements for
quotation on the NASDAQ-SCM or becomes unable to satisfy the requirements for
continued quotation thereon, and trading, if any, is conducted in the OTCBB, a
shareholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities.
Holders. There are only 18 holders of the Company's Common Stock. The
issued and outstanding shares of the Company's Common Stock were issued in
accordance with the exemptions from registration afforded by Sections 3(b) and
4(2) of the Securities Act.
Dividends. The Company has not paid any dividends to date, and has no plans
to do so in the immediate future.
ITEM 2. LEGAL PROCEEDINGS.
There is no litigation pending or threatened by or against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed accountants since its formation and there are
no disagreements with the findings of its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has sold securities which were not registered as follows:
(1) 250,000 shares to each of Messrs Sierchio & Albert for cash consideration
of $500.00.
(2) 60,000 shares to Maitland & Company in partial settlement of outstanding
invoices for legal services rendered.
(3) 2,213,400 shares to Maitland & Company upon the conversion by Maitland &
Company on October 4, 1999 of a Convertible Debenture in the original
principal amount of $20,000 issued by the Company.
(4) On November 19, 1999, the Company issued 10,000 shares to Herbert Maxwell
in consideration of the payment of $10.00.
The Company believes that all of these securities were issued in
transactions except from the registration requirements of the Securities Act by
virtue of Section 4(2) thereof.
The Company effected a 10 for 1 Stock Split on October 27, 1999.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents,
against expenses incurred in any action, suitor proceeding. The Certificate of
20
<PAGE>
Incorporation and the By-laws of the Company provide for indemnification of
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
The General Corporation Law of the State of Delaware provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation contains such a provision.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
PART F/S
FINANCIAL STATEMENTS
Index
Page
----
Auditors Report Dated May 17, 1999............................................22
Audited Balance Sheets as at April 30, 1999 and 1998..........................23
Audited Statement of Loss for the year ended
April 30, 1999 and 1998.....................................................24
Audited Statement of Cash Flow for the Year Ended
April 30, 1999 and 1998.....................................................25
Notes to Financial Statements.................................................26
Audited Statement of Shareholders Equity......................................28
Unadited Balance Sheets as at April 30, 1999 and 1998.........................29
Unaudited Statement of loss for the four month period ended
August 30, 1999.............................................................30
Unaudited Statement of Cash Flow for the four month period ended
August 30, 1999.............................................................31
Notes to Unauidted Financial Statements.......................................32
Unaudited Statement of Shareholder's Equity...................................34
21
<PAGE>
Russell & Co.
AUDITORS' REPORT TO THE DIRECTORS OF:
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
We have audited the balance sheet of San Fabian Resources Inc. as at April 30,
1999 and April 30, 1998 and the statements of loss and shareholders' equity
(deficit) and cash flows for the year ended April 30, 1999 and from the date of
incorporation, May 19, 1997, to April 30, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
s
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at April 30, 1999 and April
30, 1998 and the results of its operations and its cash flows for the year ended
April 30, 1999 and from the date of incorporation, May 19, 1997, to April 30,
1998 in accordance with accounting principles generally accepted in the United
States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's negative working capital and deficit raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not contain any adjustments that might result from the
outcome of this uncertainty.
/s/Russel & Co.
Chartered Accountant
West Vancouver, B.C.
Canada.
June 30, 1999
415 Gordon Ave., West Vancouver, B.C., V7T 1P4
Telephone: (604) 913-0405 - Fax: (604) 913-0406
22
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Balance Sheet
as at April 30, 1999 and April 30, 1998
(U.S. DOLLARS)
1999 1998
Assets
Current assets
- --------------------------------------------------------------------------------
Cash and bank $ 47 $ 47
Total Assets $ 47 $ 47
===============================================================================
Liabilities
Current liabilities
Accounts payable $ 535 $ 114
Accrued interest 797 --
Convertible Debenture 20,000 --
- -------------------------------------------------------------------------------
Total Liabilities 21,332 114
Shareholders' equity (deficit)
Authorized:
50,000,000 common shares with a par value of $.001 each
Issued and outstanding
560,000 common shares with a par value of $0.001
at April 30, 1999 and 500,000 at April 30, 1998 1,100 500
- -------------------------------------------------------------------------------
1,100 500
Accumulated Deficit (22,385) (567)
- -------------------------------------------------------------------------------
(21,285) (67)
- -------------------------------------------------------------------------------
$ 47 $ 47
===============================================================================
CONTINUING OPERATIONS (NOTE 1)
23
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Loss
Year ended April 30, 1999
and from the date of incorporation, May 19, 1997 to April 30, 1998
(U.S. DOLLARS)
1999 1998
Expenses
Legal $ 20,891 $ --
Interest and bank charges 797 --
- -------------------------------------------------------------------------------
Filing fees 130 567
Net earnings (loss) for the period $(21,818) (567)
===============================================================================
Basic and diluted loss per share $(0.0398) $(0.0018)
- -------------------------------------------------------------------------------
Weighted average shares Outstanding 547,671 311,428
- -------------------------------------------------------------------------------
24
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Cash Flow
Year ended April 30, 1999
and from the date of incorporation, May 19, 1997 to April 30, 1998
(U.S. DOLLARS)
1999 1998
Cash provided by (used in)
Operations
Net Loss for period $(21,818) $ (567)
- -------------------------------------------------------------------------------
(21,818) (567)
Net change in non-cash working capital balances
Accounts payable 421 114
Accrued interest 797
--
Convertible Debenture 20,000 --
- --------------------------------------------------------------------------------
Net cash used in operating activities (600) (453)
Financing
Issuance of capital stock 600 500
- -------------------------------------------------------------------------------
Net cash generated by financing activities 600 500
- -------------------------------------------------------------------------------
Cash for period -- 47
Cash, beginning of period 47 --
- --------------------------------------------------------------------------------
Cash, end of period $ 47 $ 47
===============================================================================
25
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Notes to Financial Statements
Year ended April 30, 1999 and April 30, 1998
(U.S. DOLLARS)
1. Continuing operations
San Fabian Resources Inc. was incorporated on May 19, 1997 in Delaware,
U.S.A.
The Company has negative working capital and a deficit. The ability for the
Company to continue as a going concern is dependent upon its ability to
obtain adequate financing to reach profitable levels of operations. It is
not possible to predict whether financing efforts will be successful or if
the Company will attain profitable levels of operations.
2. Summary of significant accounting policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and reflect the
following significant accounting principles:
a. Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
b. Earnings (loss) per common share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (SFAS 128), which established new
standards for computing and presenting earnings per share effective for
fiscal years ending after December 15, 1997. With SFAS 128, primary
earnings per share is replaced by basic earnings per share, which is
computed by dividing income available to common shareholders by the
weighted average number of shares outstanding for the period. In addition,
SFAS 128 requires the presentation of diluted earnings per share, which
includes the potential dilution that could occur if dilutive securities
were exercised or converted into common stock. The computation of diluted
EPS does not assume the conversion or exercise of securities if their
effect is anti-dilutive. Common equivalent shares consist of the common
shares issuable upon the conversion of the convertible loan notes and
special warrants (using the if-converted method) and incremental shares
issuable upon the exercise of stock options and share purchase warrants (
using the treasury stock method).
c. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and
highly liquid investments with an original maturity of three months or
less.
26
<PAGE>
3. Convertible debenture
On July 14, 1998 the Company issued a 5% Convertible Debenture in the
amount of $20,000U.S. due July 14, 2003 in partial settlement of
outstanding legal fees. The debenture principle bears interest at 5% per
annum and the accrued interest and the principle shall be convertible, in
part or in whole on the basis of 1 share for every $0.01U.S. of debt, at
the holder's option by giving the Company (a) 90 days prior written notice
of its intention to implement the conversion privilege and (b) a Notice of
Conversion within 30 days following the expiration of the aforesaid 90 day
period.
4. Related party transactions
At April 30, 1999, members of Maitland & Company, Canadian legal counsel
owned 52,500 shares of the Company's common stock.
5. Income taxes
The Company has net operating losses which may give rise to future tax
benefits of approximately $21,818 and $567 of April 30, 1999 and April 30,
1998 respectively. To the extent not used, net operating loss carryforwards
expire in varying amounts beginning in the year 2013. Income taxes are
accounted for in accordance with Statement of Financial Accounting
Standards No.109 (SFAS 109). Under this method, deferred income taxes are
determined based on differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end, and are
measured based on enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. No provision for income taxes is included in the
statement due to its immaterial amount.
27
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Shareholders' Equity (Deficit)
Year ended April 30, 1999
and from the date of incorporation, May 19, 1997 to April 30, 1998
(U.S. DOLLARS)
Common shares Total
Accumulated Shareholders'
Shares Amount (Deficit) Equity
- -------------------------------------------------------------------------------
(Deficit)
Issued on incorporation 500,000 $ 500 -- $ 500
Net loss -- -- (567) (567)
- -------------------------------------------------------------------------------
Balance at April 30, 1998 500,000 500 (567) (67)
Settlement of debt 60,000 600 -- 600
Net loss -- -- (21,818) (21,818)
- -------------------------------------------------------------------------------
Balance at April 30, 1999 560,000 $ 1,100 $(22,385) $(21,285)
===============================================================================
28
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Unaudited
Balance Sheet
as at August 30, 1999 and August 30, 1998
(U.S. DOLLARS)
1999 1998
Assets
Current assets
Cash and bank $ 47 $ 47
- -------------------------------------------------------------------------------
Total Assets $ 47 $ 47
================================================================================
Liabilities
Current liabilities
Accounts payable $ 1,535 $ 114
Accrued interest 838 --
Convertible Debenture 20,000 --
- -------------------------------------------------------------------------------
Total Liabilities 22,373 114
- -------------------------------------------------------------------------------
Shareholders' equity (deficit)
Authorized:
50,000,000 common shares with a par value of $.001 each
Issued and outstanding
560,000 common shares with a par value of $0.001
at August 30, 1999 and 500,000 at August 30, 1998 1,100 500
- -------------------------------------------------------------------------------
1,100 500
- -------------------------------------------------------------------------------
Accumulated Deficit (24,426) (567)
- -------------------------------------------------------------------------------
(23,326) (67)
- -------------------------------------------------------------------------------
$ 47 $ 47
================================================================================
CONTINUING OPERATIONS (NOTE 1)
29
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Unaudited
Statement of Loss
Four Month Period ended August 30, 1999
(U.S. DOLLARS)
1999
Expenses
Legal $ 0
Interest and bank charges 41
Filing fees 100
- --------------------------------------------------------------------------------
Net earnings (loss) for the period $ (1,041)
================================================================================
Basic and diluted loss per share $ (0.0019)
- --------------------------------------------------------------------------------
Weighted average shares Outstanding 547,671
- --------------------------------------------------------------------------------
30
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Unaudited
Statement of Cash Flow
Four Month Period ended August 30, 1999
(U.S. DOLLARS)
1999
Cash provided by (used in)
Operations
Net Loss for period $(21,818)
- --------------------------------------------------------------------------------
Net change in non-cash working capital balances
Accounts payable 1,421
Accrued interest 838
Convertible Debenture 20,000
- --------------------------------------------------------------------------------
Net cash used in operating activities (600)
Financing
Issuance of capital stock 600
- --------------------------------------------------------------------------------
Net cash generated by financing activities 600
- --------------------------------------------------------------------------------
Change in cash for period --
Cash, beginning of period 47
- --------------------------------------------------------------------------------
Cash, end of period $ 47
================================================================================
31
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Notes to Unaudited Financial Statements
For the Four Month Period ended August 30, 1999
(U.S. DOLLARS)
1. Continuing operations
San Fabian Resources Inc. was incorporated on May 19, 1997 in Delaware,
U.S.A.
The Company has negative working capital and a deficit. The ability for the
Company to continue as a going concern is dependent upon its ability to
obtain adequate financing to reach profitable levels of operations. It is
not possible to predict whether financing efforts will be successful or if
the Company will attain profitable levels of operations.
2. Summary of significant accounting policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and reflect the
following significant accounting principles:
a. Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
b. Earnings (loss) per common share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (SFAS 128), which established
new standards for computing and presenting earnings per share
effective for fiscal years ending after December 15, 1997. With SFAS
128, primary earnings per share is replaced by basic earnings per
share, which is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding for
the period. In addition, SFAS 128 requires the presentation of diluted
earnings per share, which includes the potential dilution that could
occur if dilutive securities were exercised or converted into common
stock. The computation of diluted EPS does not assume the conversion
or exercise of securities if their effect is anti-dilutive. Common
equivalent shares consist of the common shares issuable upon the
conversion of the convertible loan notes and special warrants (using
the if-converted method) and incremental shares issuable upon the
exercise of stock options and share purchase warrants ( using the
treasury stock method).
c. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks
and highly liquid investments with an original maturity of three
months or less.
32
<PAGE>
3. Convertible debenture
On July 14, 1998 the Company issued a 5% Convertible Debenture in the
amount of $20,000U.S. due July 14, 2003 in partial settlement of
outstanding legal fees. The debenture principle bears interest at 5% per
annum and the accrued interest and the principle shall be convertible, in
part or in whole on the basis of 1 share for every $0.01U.S. of debt, at
the holder's option by giving the Company (a) 90 days prior written notice
of its intention to implement the conversion privilege and (b) a Notice of
Conversion within 30 days following the expiration of the aforesaid 90 day
period.
4. Related party transactions
At August 30, 1999, members of Maitland & Company, Canadian legal counsel
owned 52,500 shares of the Company's common stock.
5. Income taxes
The Company has net operating losses which may give rise to future tax
benefits of approximately $22,859 and $567 of August 30, 1999 and August
30, 1998 respectively. To the extent not used, net operating loss
carryforwards expire in varying amounts beginning in the year 2013. Income
taxes are accounted for in accordance with Statement of Financial
Accounting Standards No.109 (SFAS 109). Under this method, deferred income
taxes are determined based on differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year end, and
are measured based on enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. No provision for income taxes is included in the
statement due to its immaterial amount.
33
<PAGE>
SAN FABIAN RESOURCES INC.
(A Delaware Corporation)
(A development stage company)
Statement of Shareholders' Equity (Deficit)
Year ended April 30, 1999
and from the date of incorporation, May 19, 1997 to April 30, 1998
(U.S. DOLLARS)
<TABLE>
<CAPTION>
Total
Common shares Accumulated Shareholders'
Shares Amount (Deficit) Equity (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issued on incorporation 500,000 $ 500 -- $ 500
Balance at April 30, 1999 560,000 1,000 (22,385) (21,285)
Net loss -- -- (1,041) (1,041)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at August 30, 1999 560,000 $ 1,100 $(24,426) $(23,326)
============================================================================================================================
</TABLE>
34
<PAGE>
PART III
ITEM 1 & 2 INDEX TO AND DESCRIPTION OF EXHIBITS
Exhibit
3(i)(1) Certificate of Incorporation*
3(i)(2) Certificate of Amendment of Certificate of Incorporation
3(i)(3) Certificate of Correction of Certificate of Amendment of the
Certificate of Incorporation
3(ii) By-laws*
4(i) Debenture dated July 14, 1997
4(ii) Amendment to Debenture dated September 29, 1999
- ----------
* Previously Filed
35
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form 10SB and has duly caused this
Registration Statement to be signed on its behalf by the undersigned hereunto
duly authorized in the City of New York, on the 7th day of December, 1999.
SAN FABIAN RESOURCES, INC.
(Registrant)
By: /s/Herbert Maxwell
----------------------
Herbert Maxwell, President and Director
36
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SAN FABIAN RESOURCES, INC.
It is hereby certified that:
1. The name of the corporation (herein referred to as the "corporation")
is:
SAN FABIAN RESOURCES, INC.
2. The corporation's Certificate of Incorporation was filed with the Office
of the Secretary of State on May 16, 1997.
3. The Certificate of Incorporation of the corporation is hereby amended by
striking out Article FOURTH thereof and by substituting in lieu of said Article
the following new Article:
"FOURTH:
(1) The total number of shares of stock which the Corporation shall have
authority to issue is 50,000,000 shares, consisting of 50,000,000 shares of
Common Stock, $.0001 par value per share ("Common Stock").
(2) Upon the amendments herein certified becoming effective and without
further action on the part of the Corporation or its stockholders, each of the
currently outstanding shares of Common Stock shall be automatically converted
and split into 10 shares of Common Stock with the result that the Corporation
shall have 20,780,875 shares of issued and outstanding Common Stock. Upon the
amendments herein certified becoming effective, each certificate representing
shares of Common Stock theretofore issued and outstanding shall be deemed to
represent a number of shares of Common Stock equal to the number of shares of
Common Stock formerly represented by such certificate multiplied by 10 shares
and such shares shall be deemed duly authorized, validly issued, fully paid and
non-assessable; and the holder of record of each such certificate shall be
entitled to receive a new certificate, upon the surrender of the existing
certificate, representing a number of shares of Common Stock equal to the number
of shares of Common Stock formerly represented by such certificate multiplied by
10.
4. The amendment of the Certificate of Incorporation herein certified was
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware. Written consent has been given in
accordance with Section 228(d) of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
corporation, has hereunto signed his name and affirms that the statements made
herein are true under the penalties of perjury, this 26th day of October, 1999.
SAN FABIAN RESOURCES, INC.
BY: /s/ Joseph Sierchio
-----------------------
Joseph Sierchio
President
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF
SAN FABIAN RESOURCES, INC.
1. The present name of the corporation (herein referred to as the
"corporation") is:
SAN FABIAN RESOURCES, INC.
2. The corporation's Certificate of Incorporation was filed with the Office of
the Secretary of State on May 16, 1997 and a Certificate of Amendment of
the Certificate of Incorporation was filed with the Office of the Secretary
of State on October 27, 1999.
3. The aforementioned Certificate of Amendment amended Article FOURTH of the
Certificate of Incorporation by changing the par value of the Common Stock
and setting forth the requisite provisions to effect a conversion and split
of the outstanding shares of the corporation's Common Stock. The
Certificate of Amendment was defective as it set forth an incorrect number
of shares of issued and outstanding Common Stock which would result after
the conversion and split of the outstanding shares of the corporation's
Common Stock.
4. Article FOURTH of the Certificate of Incorporation is therefore hereby
corrected by deleting from the first sentence of Subsection 2 thereof the
phrase "with the result that the Corporation shall have 20,780,875 shares
of issued and outstanding Common Stock".
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
corporation, has hereunto signed his name and affirms that the statements made
herein are true under the penalties of perjury, this 18th day of November, 1999.
SAN FABIAN RESOURCES, INC.
BY: /s/ Michael Seifert
-----------------------
Michael Seifert
President
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION, THE SECURITIES COMMISSION OF ANY STATE OR UNDER APPLICABLE CANADIAN
SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND APPLICABLE
CANADIAN SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE AND CANADIAN SECURITIES LAWS. NEITHER THIS DEBENTURE NOR THE
SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE MAY BE OFFERED OR SOLD TO
PERSONS THE HOLDER HAS REASON TO BELIEVE ARE CANADIAN RESIDENTS EXCEPT PURSUANT
TO PROSPECTUS EXEMPTIONS UNDER CANADIAN SECURITIES LAW.
No. 1 U.S. $20,000
SAN FABIAN RESOURCES INC.
5% CONVERTIBLE DEBENTURE DUE JULY 14, 2003
THIS DEBENTURE is one of a series of duly authorized issued debentures of
San Fabian Resources Inc., a company organized under the laws of United States
and having a principal place of business at 41 East 57th Street, 39th Floor New
York, New York (the "Company"), designated as its 5% Convertible Debentures, due
July 14, 2003 (the "Debentures"), in an aggregate principal amount of $30,000.
All references herein to "dollars" or "$" shall be to U.S. dollars (U.S.$)
unless otherwise specified.
FOR VALUE RECEIVED, the Company promises to pay to Maitland & Company, or
registered assigns (the "Holder"), the principal sum of Twenty thousand Dollars
($20,000), on or prior to July 14, 2003 or such earlier date as the Debentures
are required to be repaid as provided hereunder (the "Maturity Date") and to pay
interest to the Holder on the principal sum at the rate of 5% per annum, payable
upon conversion as provided hereunder, or on the Maturity Date if not earlier
converted. Interest shall accrue daily commencing on the Original Issue Date (as
defined in Section 6) until payment in full of the principal sum, together with
all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall be calculated on the basis of a 360-day
year and for the actual number of days elapsed. Interest hereunder will be paid
to the Person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 12% per annum from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that interest due hereunder
may, at the Company's option, be paid in shares of the Common Stock (as defined
in Section 6) calculated based upon the Conversion Price (as defined below).
<PAGE>
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same but shall not be issuable in denominations of less
than integral multiplies of Fifty Dollars ($50) unless such amount represents
the full principal balance of Debentures outstanding to such Holder. No service
charge will be made for such registration of transfer or exchange.
Section 2. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
Section 3. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(a) any default in the payment of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the Conversion Date or the Maturity Date or by acceleration or
otherwise);
(b) the Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of this
Debenture and such failure or breach shall not have been remedied within 20
days after the date on which notice of such failure or breach shall have
been given;
(c) the Company or any of its subsidiaries shall commence, or there
shall be commenced against the Company or any such subsidiary a case under
any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or
any subsidiary thereof or there is commenced against the Company or any
subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order of
relief or other order approving
-2-
<PAGE>
any such case or proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or the Company shall fail
to pay, or shall state that it is unable to pay, or shall be unable to pay,
its debts generally as they become due; or the Company or any subsidiary
thereof shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing; or
(d) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity or shall
dispose of all or substantially all of its assets in one or more
transactions;
If during the time that any portion of this Debenture remains outstanding, any
Event of Default occurs and is continuing, and in every such case, then the
Holder may, by notice to the Company, declare the full principal amount of this
Debenture, together with all accrued but unpaid interest and other amounts owing
hereunder, to the date of acceleration, to be, whereupon the same shall become,
immediately due and payable in cash (notwithstanding anything herein contained
to the contrary) without presentment, demand, protest or other notice of any
kind, all of which are waived by the Company, notwithstanding anything herein
contained to the contrary, and the Holder may immediately and without expiration
of any grace period (except as provided above) enforce any and all of its rights
and remedies hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and annulled by Holder at any time prior
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) This Debenture and any accrued and unpaid interest on the outstanding
principal balance shall be convertible (the "Conversion Privilege") into shares
of the Common Stock at the option of the Holder in whole or in part at any time
and from time to time one (1) year after the Original Issue Date, and prior to
the close of business on the Maturity Date provided that the following procedure
is followed:
(i) the Holder gives the Company 75 days prior written notice in the
form of the implementation notice attached hereto as Exhibit A (the
"Implementation Notice") indicating that the Holder desires to effect the
Conversion Privilege; and
(ii) following the expiration of the aforesaid 75 day notice period
and within 30 days thereafter, the Holder delivers to the Company the
Debentures (or such portions thereof) to be converted together with the
form of
-3-
<PAGE>
conversion notice attached hereto as Exhibit B (the "Conversion Notice") to
the Company. Each Conversion Notice shall specify the principal amount of
Debentures(and accrued and unpaid interest) to be converted (which may not
be less than the lesser of $250 or such principal amount of Debentures then
held by the Holder) and the date on which such conversion is to be effected
which date must be within the 30 day period.(the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date the Conversion Notice is deemed delivered hereunder. If
the Holder is converting less than all of the principal(and accrued and
unpaid interest) amount represented by the Debenture(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such conversion to
the extent permissible hereunder and shall promptly deliver to such Holder
(in the manner and within the time set forth in Section 5(b)) a new
Debenture for such principal amount as has not been converted. The number
of shares of Common Stock as shall be issuable upon a conversion hereunder
shall be determined by dividing the principal amount of, plus accrued but
unpaid interest on, this Debenture to be converted by the Conversion Price
(as defined below).If a Conversion Notice is not received within the time
frame specified, the procedures with respect to the Implementation Notice
must again be followed if the Conversion Privilege is to be effected.
(b) (i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be $0.01per share.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of
shares of the Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification. In any case in which an adjustment under this Section
4(b)(ii) is required to be made effective as of the record date for a
specified event, if a Conversion Notice is delivered after such record date
and prior to the occurrence of the event, the Company may elect to defer
until the occurrence of such event (provided, that if such event does not
occur, then such additional shares shall not be issued) issuing to the
Holder the shares of Common Stock, if any, in respect thereof over and
above the number of shares of Common Stock issuable upon such conversion on
the basis of the Initial Conversion Price prior to adjustment, provided
that the Company shall have delivered to the Holder a due bill or other
appropriate instrument reasonably acceptable to the Holder evidencing the
Holder's right to
-4-
<PAGE>
receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
(iii) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall
have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid interest
and any other amounts then owing hereunder in respect of this Debenture
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled or (B)
require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable thereon,
at a price determined in accordance with Section 5(a). The entire repayment
price shall be paid in cash. This provision shall similarly apply to
successive reclassifications or share exchanges.
(iv) Whenever the Conversion Price is adjusted pursuant to Section
4(b)(ii) the Company shall promptly mail to each Holder of Debentures a
notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(v) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
-5-
<PAGE>
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 30-day period commencing
the date of such notice to the effective date of the event triggering such
notice.
(c) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall be
issuable (taking into account the adjustments and restrictions of Section 4(b))
upon the conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of the
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and subject to affiliation
rules, be freely tradeable.
(d) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
-6-
<PAGE>
(e) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
**, attention President, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (New
York time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (New York time) on any date and
earlier than 11:59 p.m. (New York time) on such date, (iii) four days after
deposit in the United States or Canadian mails, (iv) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (v) upon actual receipt by the party to whom such notice is required to be
given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon ten (10)
Trading Days notice to the Holders of applicable Debentures (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to $2.00
per share. Any such prepayment by the Company shall be free of any claim of
subordination. Commencing one year following the Original Issue Date, the
Holders shall have the right to tender, and the Company shall honour, Conversion
Notices delivered prior to the expiration of the tenth Trading Day after receipt
by the Holders of an Optional Prepayment Notice for such Debentures. The entire
prepayment price shall be paid in cash.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
Minnesota are authorized or required by law or other government action to close.
-7-
<PAGE>
"Common Stock" means the Company's common stock, no par value, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Trigger Date" shall mean, (i) with respect to an Event of Default caused
by an event described in Section 3(a), the date the payment of principal or
interest at issue was due, (ii) with respect to an Event of Default caused by an
event described in Section 3(b), the date specified in any other provision of
this Debenture that require prepayment of the outstanding principal amount of
this Debenture as a result of an event so contemplated, if not, the date such
event becomes an Event of Default pursuant to Section 3(b), and (iii) with
respect to an Event of Default caused by an event described in Section 3(c),
(d), and (e), the date such event becomes an Event of Default pursuant to such
Sections.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof in such number as
required hereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct obligation of the Company. This Debenture ranks pari passu
with all other Debentures now or hereafter issued under the terms set forth
herein. The Company may only voluntarily prepay the outstanding principal amount
on the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but
-8-
<PAGE>
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. If any repayment of principal under this Debenture shall be
required or permitted and elected hereunder prior to July 14, 2002, (a) the
Company shall deliver the proper repayment price therefor into an escrow account
designated by and for the benefit of the Holder, which shall be held by an
escrow agent designated by such Holder and reasonably acceptable to the Company,
and (b) the Holder shall deliver to such escrow agent this Debenture (or such
principal amount hereof which is subject to such repayment). Upon receipt of the
proper repayment price and this Debenture (or such principal amount hereof which
is subject to such repayment), the escrow agent shall be instructed to deliver
such Debenture (or such principal amount hereof which is subject to such
repayment) and the repayment price in the manner directed by the Holders and the
Company.
Section 11. This Debenture shall be governed by and construed in accordance
with the laws of the province of British Columbia, without giving effect to
conflicts of laws thereof.
Section 12. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 14. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the appropriate calendar
month)
Section 15. The Holder may with the written consent of the Company assign
all or a portion of it's interest in the Debentures.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
San Fabian Resources Inc..
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
-10-
<PAGE>
EXHIBIT A
NOTICE OF IMPLEMENTATION
(To be Executed by the Registered Holder
in order to effectuate the conversion privilege of the Debenture)
By this notice the undersigned hereby elects to effectuate the conversion
privilege as defined in the Debenture to convert on a date being within 30 days
following the 75th day following the date of receipt by San Fabian Resources
Inc.(the "Company") of this notice of implementation all or a portion of
Debenture No. __ into shares of Common Stock, no par value (the "Common Stock")
of the Company.
______________________
Date of Notice
______________________
Signature
______________________
Name
______________________
Address
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert on the aforementioned date that portion
of Debenture No. ____ as detailed below into shares of Common Stock, no par
value (the "Common Stock") of San Fabian Resources Ltd (the "Company") according
to the conditions hereof. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
______________________________________________
Date of Notice
______________________________________________
Date of Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
$1.00 per share
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
-2-
Amendment of certain terms of the Convertible Debenture issued on July 14,
1997 (the "Agreement") between San Fabian Resources Inc. (the "Company") in
favour of Maitland & Company (the "Holder")
TO WIT:
Notwithstanding Section 4 of the Agreement the parties hereto agree to amend the
conversion rights of the Debenture to the effect that commencing September 29,
1999 the Holder may convert all or a portion of the Debenture plus and accrued
interest into common stock of the Company by giving the Company 5 days prior
written notice in the form of the implementation notice attached as Schedule A
to the Debenture. All other terms of the Debenture shall remain the same.
Dated this 29th day of September, 1999
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San Fabian Resources Inc.
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Maitland & Company
