<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NOS. 33-99126
33-99126-01
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
XAVIER MINES LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ONTARIO, CANADA 1311 76-0490009
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
XAVIER CORPORATION
[NAME TO BE CHANGED TO XAVIER MERGER CORPORATION]
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311 76-0490009
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
1600 SMITH STREET, SUITE 4700
HOUSTON, TEXAS 77002
(713) 652-5111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
EACH REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CHRIS A. DITTMAR
1600 SMITH STREET, SUITE 4700
HOUSTON, TEXAS 77002
(713) 652-5111
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE FOR EACH REGISTRANT)
---------------
with a copy to:
SETH R. MOLAY, P.C.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201-4618
TELEPHONE: (214) 969-2800
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock of Xavier
Mines Limited
("Mines"), par value
$0.0001 per Share..... 64,894,554 $0.72 $46,724,079 $16,112
- -------------------------------------------------------------------------------------------------
Warrants and Options of
Mines to purchase
Common Stock.......... 72,393,022 $0.0001 $7,240 $3
- -------------------------------------------------------------------------------------------------
Common Stock of Mines
issuable upon exercise
of Warrants and
Options(2)............ 72,393,022 $1.47 $106,417,742 $36,058
- -------------------------------------------------------------------------------------------------
Common Stock of Xavier
Merger Corporation
("New Xavier"), par
value $0.0001 per
Share................. 16,223,693 $2.88 $46,724,079 $16,112
- -------------------------------------------------------------------------------------------------
Warrants and Options of
New Xavier to purchase
Common Stock.......... 72,393,022 $0.0001 $7,240 $3
- -------------------------------------------------------------------------------------------------
Common Stock of New
Xavier issuable upon
exercise of Warrants
and Options of Mines.. 18,098,256 $5.88 $106,417,742 $36,058
- -------------------------------------------------------------------------------------------------
Total.................. $104,346
==================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457.
(2) Reflects weighted average exercise price under outstanding warrants and
options.
(3) Filing fees of $86,291 were paid with previous filings of this
Registration Statement.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
==============================================================================
<PAGE>
XAVIER MINES LIMITED
XAVIER MERGER CORPORATION
----------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------- ------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus................................. Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................................................... Inside Front and Outside Back Cover Pages;
Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.......................................... Exchange Rate Data; Summary; General
Proxy Information; Capitalization; Selected
Financial Data; Risk Factors; Management;
Principal Shareholders
4. Terms of the Transaction............................................... Exchange Rate Data; Summary;
Domestication and Merger; Effect of
Domestication and Merger on Shareholder
Rights; Dissent Rights of Xavier
Shareholders; Description of Xavier-
Delaware Securities; Canadian and United
States Income Tax Considerations
5. Pro Forma Financial Information........................................ *
6. Material Contracts with the Company Being
Acquired............................................................... *
7. Additional Information Required for Reoffering by Persons and Parties
Deemed to be Underwriters.............................................. *
8. Interests of Named Experts and Counsel................................. *
9. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities............................................................ *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registration........................... *
11. Incorporation of Certain Information by Reference...................... *
12. Information with Respect to S-2 or S-3 Registration.................... *
13. Incorporation of Certain Information by Reference...................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------- ------------------------
<S> <C>
14. Information with Respect to Registrants Other Than S-2 or S-3
Registrants............................................................ Exchange Rate Data; Summary; Price
Range of Common Shares; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Risk Factors; Management;
Certain Transactions; Principal
Shareholders; Description of Xavier-
Delaware Securities
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.............................. *
16. Information with Respect to S-2 or S-3 Companies....................... *
17. Information with Respect to Companies Other Than S-2 or S-3 Companies... Price Range of Common Shares; Exchange
Rate Data; Summary; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Risk Factors; Management;
Certain Transactions; Principal
Shareholders; Description of Xavier-
Delaware Securities
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Parties, Consents or Authorizations Are to be Solicited.... Available Information; Exchange Rate Data;
Summary; General Proxy Information;
Election of Directors; Appointment of
Auditors; Enactment of By-Laws; Articles
of Amendment; Domestication and Merger;
Dissent Rights of Xavier Shareholders;
Management; Certain Transactions;
Principal Shareholders; Shareholder
Proposals; Other Business at Special
Meeting; Approval of Proxy
19. Information if Proxies, Consents or Authorizations Are Not to be
Solicited or in an Exchange Offer....................................... *
</TABLE>
___________
*Not applicable
<PAGE>
XAVIER MINES LIMITED
1600 SMITH STREET, SUITE 4700
HOUSTON, TEXAS 77002
Dear Shareholders:
Your approval is requested for the following transactions which Xavier
Mines Limited (the "Company" or "Xavier-Canada") is proposing to its
shareholders in addition to the annual business which is to be conducted at
the shareholders meeting:
SHARE CONSOLIDATION. The Board of Directors will ask shareholders to pass as
a special resolution, with or without variation subject to requisite
regulatory approval, including without limitation the approval of the Alberta
Stock Exchange (the "ASX"), authorizing and approving the filing of Articles
of Amendment consolidating the issued and outstanding common shares ("Common
Shares") in its capital on the basis of one post-consolidation common share (a
"Post-Consolidation Common Share") for each four pre-consolidation common
shares ("Pre-Consolidation Common Shares") and changing the name of the
Company to Xavier Corporation as required by Ontario Securities Commission
Policy No. 5.2 (which relates to natural resource issuers that are reporting
issuers in the Province of Ontario whose common shares are not listed and
posted for trading on The Toronto Stock Exchange) (collectively, the
"Consolidation").
The Board of Directors believes that the Consolidation is in the best
interests of the shareholders because over the long term the Company will have
greater flexibility with respect to future equity financings which will be
necessary to develop the Company's properties and the Consolidation will
facilitate acquisitions by the Company for equity consideration. Furthermore,
in connection with the proposed listing of the Common Shares on the Nasdaq
National Market (as discussed in the Circular and Proxy Statement/Prospectus
(the "Prospectus") accompanying this letter), it is necessary for the Common
Shares to trade at a price over US$3.00 per share. If such resolution is
approved, it is currently anticipated that the Articles of Amendment effecting
the Consolidation will be filed regardless of whether the Domestication and
Merger are effected and shareholders will be required to surrender their
current certificates representing Pre-Consolidation Common Shares in exchange
for certificates representing Post-Consolidation Common Shares. Appropriate
transmittal forms will be sent to shareholders for this purpose. Prior to a
share certificate being surrendered, such share certificate will represent
whole shares of the Company on a post-consolidated basis, being in an amount
equal to one-fourth of the amount represented on the original share
certificate.
DOMESTICATION. The Board of Directors will submit a proposal to domesticate
the Company from a corporation existing under the laws of the Province of
Ontario to a corporation existing under the laws of the State of Delaware,
United States of America (the "Domestication"). If approved by at least two-
thirds of the votes cast by holders of the Common Shares represented in person
or by proxy at the meeting, the Domestication will result in a change in the
Company's jurisdiction of incorporation from the Province of Ontario to the
State of Delaware and will also result in the adoption of a new certificate of
incorporation for the Company, which will govern the Company under Delaware
law. If approved by the Shareholders and subject to requisite regulatory
approval, it is anticipated that the Domestication will become effective on or
about June 28, 1996.
MERGER. If the Domestication is approved and becomes effective, the
shareholders of the Company, after it has been domesticated in Delaware, will
be asked to approve by written consent the merger (the "Merger") of the
Company with and into its wholly-owned subsidiary, Xavier Merger Corporation
("Xavier-Delaware") pursuant to the laws of the State of Delaware. Such
written consent will be executed pursuant to proxies solicited hereby (the
"Consent"). Accordingly, no shareholder meeting will be held with respect to
the Merger proposal. If the Merger is completed, holders of Common Shares
will receive one share of Common Stock, US$0.0001 par value per share, of
Xavier-Delaware ("Xavier-Delaware Common Stock") for each Common Share held
immediately prior to the Merger. In addition, all options and warrants of
Xavier-Canada outstanding immediately prior to the Merger will become
obligations of Xavier-Delaware upon consummation
<PAGE>
of the Merger. If approved by the shareholders of Xavier-Canada pursuant to
the Consent, it is anticipated that the Merger will also become effective on
or about June 28, 1996, or as soon as practicable after the completion of
the Domestication.
The Board of Directors has reserved the right to terminate or abandon the
Consolidation, Domestication and/or the Merger at any time prior to the
effectiveness of each, notwithstanding shareholder approval, if the Board of
Directors determines for any reason that the consummation of the
Consolidation, Domestication and/or the Merger would be inadvisable or not in
the best interests of the Company or its shareholders.
For a summary of the principal income tax consequences of the
Consolidation, Domestication and Merger to United States shareholders and
warrantholders, Canadian shareholders and warrantholders, and the Company, see
"Canadian and United States Income Tax Considerations" contained in the
Prospectus.
1996 LONG TERM INCENTIVE PLAN. The Board of Directors will submit the 1996
Long Term Incentive Plan (the "1996 Incentive Plan") for shareholder approval.
If approved by at least a majority of the votes cast by holders of the Common
Shares represented in person or by proxy at the meeting, this plan provides
for the offer of up to an aggregate of 1,500,000 Common Shares to certain
current and future key employees, officers, consultants and non-employee
directors of the Company, thereby giving them a favorable opportunity to
become holders of Common Shares, a stake in the growth and prosperity of the
Company and encouraging them to continue their involvement with the Company.
THE ONLY WAY A HOLDER OF COMMON SHARES CAN EXPRESS HIS APPROVAL OF THE
MERGER IS BY EXECUTING THE PROXY AUTHORIZING THE PERSONS NAMED THEREIN TO
APPROVE THE MERGER BY MEANS OF THE CONSENT. THE FAILURE TO GRANT A PROXY OR
THE WITHHOLDING OF AUTHORITY TO EXECUTE THE CONSENT HAS THE SAME EFFECT AS A
VOTE "AGAINST" THE MERGER. FURTHERMORE, A PROXY AUTHORIZING THE EXECUTION OF
THE CONSENT IS VALID ONLY IF THE PERSON EXECUTING THE PROXY REMAINS A HOLDER
OF RECORD OF THE SHARES REPRESENTED THEREBY AT THE TIME THE DOMESTICATION
BECOMES EFFECTIVE AND THE CONSENT IS EXECUTED. THEREFORE, IF YOU WISH TO HAVE
YOUR SHARES REPRESENTED IN THE APPROVAL OF THE MERGER, WE URGE YOU NOT TO SELL
OR TRANSFER ANY SHARES PRIOR TO THE EFFECTIVENESS OF THE DOMESTICATION.
IF THE MERGER IS COMPLETED, SHAREHOLDERS WILL BE REQUIRED TO SURRENDER
THEIR CURRENT CERTIFICATES REPRESENTING COMMON SHARES IN EXCHANGE FOR
CERTIFICATES REPRESENTING THE APPROPRIATE NUMBER OF SHARES OF XAVIER-DELAWARE
COMMON STOCK. IF THE MERGER IS NOT COMPLETED AND THE CONSOLIDATION IS, THEN
SHAREHOLDERS WILL BE REQUIRED TO SURRENDER THEIR CURRENT CERTIFICATES
REPRESENTING PRE-CONSOLIDATION COMMON SHARES IN EXCHANGE FOR CERTIFICATES
REPRESENTING THE APPROPRIATE NUMBER OF POST-CONSOLIDATION COMMON SHARES.
Appropriate transmittal forms will be sent to shareholders for these purposes.
After the Consolidation and the Merger occur but before a stock certificate
for Pre-Consolidation Common Shares is surrendered, such certificate will
represent Post-Consolidation Common Shares and whole shares of Xavier-Delaware
Common Stock in an amount equal to the number of Post-Consolidation Common
Shares (deemed to be represented) (or formerly represented) thereby,
respectively. If both the Consolidation and Merger occur, only one exchange
will be required. If the Domestication occurs but the Merger does not, every
holder of Common Shares will be required to surrender the certificate
representing such shares in order for such certificates to be replaced with
new Delaware certificates of Xavier-Canada.
THE PROSPECTUS PROVIDES A DETAILED DESCRIPTION OF THE CONSOLIDATION,
DOMESTICATION, MERGER AND 1996 INCENTIVE PLAN AND OTHER INFORMATION TO ASSIST
YOU IN CONSIDERING THE MATTERS TO BE VOTED ON. WE URGE YOU TO REVIEW THIS
INFORMATION CAREFULLY AND, IF YOU REQUIRE ASSISTANCE, TO CONSULT WITH YOUR
FINANCIAL, INCOME TAX OR OTHER PROFESSIONAL ADVISORS.
<PAGE>
FOR THE REASONS SET FORTH IN THE PROSPECTUS, YOUR OFFICERS AND DIRECTORS
UNANIMOUSLY BELIEVE THAT THE PROPOSED CONSOLIDATION, DOMESTICATION AND MERGER
AND THE ADOPTION OF THE 1996 INCENTIVE PLAN ARE IN THE BEST INTERESTS OF THE
COMPANY AND ALL OF ITS SHAREHOLDERS. WE THEREFORE STRONGLY URGE YOU TO VOTE
"FOR" THE CONSOLIDATION, DOMESTICATION, MERGER AND 1996 INCENTIVE PLAN.
Very truly yours,
/s/ CHRIS A. DITTMAR
-----------------------
Chris A. Dittmar
Chairman of the Board,
Chief Executive Officer
and President
<PAGE>
XAVIER MINES LIMITED
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TAKE NOTICE THAT an Annual and Special Meeting (the "Meeting") of the
shareholders of XAVIER MINES LIMITED (the "Company") will be held at the
offices of the Company, 1600 Smith Street, Houston, Texas, on June 24, 1996,
at the hour of 10:00 A.M. (Central Standard Time), for the following purposes:
a. To receive and consider the annual report of management to the
shareholders and the consolidated financial statements of the Company
for the year ended December 31, 1995 and the report of the auditors
thereon;
b. To elect directors of the Company for the ensuing year;
c. To appoint BDO Seidman, LLP, as auditors of the Company for the current
year and to authorize the directors to fix their remuneration;
d. To consider and if thought fit pass, with or without variation, a
special resolution, subject to requisite regulatory approval, including
without limitation, the approval of the Alberta Stock Exchange (the
"ASX"), authorizing and approving an amendment to the Articles of the
Company to consolidate the Company's issued and outstanding common
shares on the basis of one post-consolidation common share for each four
pre-consolidation common shares in the capital of the Company and
changing the name of the Company to Xavier Corporation as required by
Ontario Securities Commission Policy No. 5.2 (the "Consolidation").
e. To consider and if thought fit pass, with or without
variation, subject to the requisite regulatory approval, including
without limitation, approval of the ASX, a special resolution: (i)
authorizing the Company to become domesticated as a corporation existing
under the laws of the State of Delaware in accordance with the Delaware
General Corporation Law (the "Domestication") and (ii) approving the
adoption of a new Certificate of Incorporation to govern the Company
once it is domesticated and existing under the laws of the State of
Delaware. A copy of the Certificate of Incorporation, which is attached
to the Circular and Proxy Statement/Prospectus (the "Prospectus")
accompanying this notice, will be effective upon the filing of the
Certificate of Domestication with the Secretary of State of Delaware and
will replace the Articles of the Company at such time; and
f. To consider and if thought fit to pass, with or without variation,
subject to requisite regulatory approval, a resolution authorizing and
approving the Company's 1996 Long Term Incentive Plan.
g. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
FOR FULL INFORMATION, THIS NOTICE MUST BE READ IN CONJUNCTION WITH THE
PROSPECTUS.
Shareholders registered as holders of the Company's Common Shares, without
par value (the "Common Shares"), who are now deemed to hold such shares as of
the close of business on May 15, 1996, are entitled to Notice of the
Meeting. Shareholders of record who are holders of Common Shares as of the
close of business on May 15, 1996 are entitled to vote on all matters to be
considered at the Meeting, except that if such person transfers his or her
shares after said date and the transferee, at least 48 hours prior to the
Meeting, produces properly endorsed share certificates to the secretary or
transfer agent of the Company, or otherwise establishes ownership of the
shares, the transferee may vote those shares. The transfer register will not
be closed at any time prior to the Meeting.
<PAGE>
The Board of Directors has by resolution fixed the close of business on the
second business day preceding the day of the Meeting (excluding Saturdays,
Sundays and holidays) and any adjournments thereof as the time before which
proxies to be used or acted upon at the Meeting or any adjournments thereof
shall be deposited with the Company or its transfer agent.
A Shareholder who dissents in respect of items (d) or (e) above is entitled
to be paid the fair value of its Common Shares as set forth in the Prospectus.
Text describing the procedure to be followed by dissenting shareholders is
set out in the Prospectus under the heading "Dissent Rights of Xavier
Shareholders" and the text of the special resolutions to be submitted to the
Meeting is set out in Exhibits A (with respect to the Consolidation) and B
(with respect to the Domestication) to the Prospectus.
A Reporting Package pursuant to National Policy No. 31 is set out as
Exhibit C to the Prospectus.
Dated at Toronto, Ontario May 15, 1996.
By order of the Board of Directors
/s/ Irene Sheytman
________________________
Secretary
Shareholders who are unable to attend the Meeting in person are requested
to date and sign the enclosed form of proxy and to return it to the Company's
Transfer Agent, The R-M Trust Company, 393 University Avenue, Toronto,
Ontario, M5G 1E6, by not later than the close of business on June 20,
1996.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, THE ONLY WAY IN WHICH
YOU CAN EXPRESS YOUR APPROVAL OF THE MERGER IS BY EXECUTING THE PROXY
AUTHORIZING THE PERSONS NAMED THEREIN TO APPROVE THE MERGER IN A WRITTEN
CONSENT IN LIEU OF A SPECIAL SHAREHOLDERS MEETING (THE "CONSENT"). THE
FAILURE TO GRANT A PROXY OR THE WITHHOLDING OF AUTHORITY TO EXECUTE THE
CONSENT HAS THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER. THEREFORE, PLEASE
COMPLETE THE ENCLOSED FORM OF PROXY FOR THE CONSENT AND FORWARD IT TO THE
COMPANY AS INDICATED IN THE PRECEDING PARAGRAPH.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with +
+ the Securities and Exchange Commission. These securities may not be sold +
+ nor may offers to buy be accepted prior to the time the registration +
+ statement becomes effective. This prospectus shall not constitute an +
+ offer to sell or the solicitation of an offer to buy nor shall there be +
+ any sale of these securities in any State in which such offer, +
+ solicitation or sale would be unlawful prior to registration or +
+ qualification under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED MAY 13, 1996, SUBJECT TO COMPLETION
XAVIER MINES LIMITED
XAVIER MERGER CORPORATION
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 24, 1996
------------------
PROSPECTUS FOR 64,894,554 SHARES OF COMMON STOCK,
71,543,022 WARRANTS AND 850,000 OPTIONS OF
XAVIER MINES LIMITED
AND FOR
16,223,639 SHARES OF COMMON STOCK,
71,543,022 WARRANTS AND 850,000 OPTIONS OF
XAVIER MERGER CORPORATION
---------------------
THIS CIRCULAR AND PROXY STATEMENT/PROSPECTUS (THIS "PROSPECTUS") IS BEING
FURNISHED AS A MANAGEMENT PROXY CIRCULAR IN CONNECTION WITH THE SOLICITATION
BY THE BOARD OF DIRECTORS AND MANAGEMENT OF XAVIER MINES LIMITED ("XAVIER-
CANADA") OF PROXIES FOR USE AT THE ANNUAL AND SPECIAL MEETING OF COMMON
SHAREHOLDERS (THE "MEETING") OR ANY ADJOURNMENT(S) THEREOF. THE MEETING WILL
BE HELD ON JUNE 24, 1996 AT THE TIME, PLACE AND FOR THE PURPOSES SET FORTH
IN THE NOTICE OF MEETING.
This Prospectus constitutes the Prospectus of Xavier-Canada under the
United States Securities Act of 1933, as amended (the "Securities Act"), with
respect to (i) 64,894,554 Common Shares (the "Common Shares"), (ii) 71,543,022
warrants ("Xavier-Canada Warrants"), (iii) 850,000 options ("Xavier-Canada
Options") of Xavier-Canada and (iv) 72,393,022 Common Shares issuable upon the
exercise of the Xavier-Canada Warrants and the Xavier-Canada Options, to be
issued to or held by holders of shares in the capital, warrants and options,
as applicable, of Xavier-Canada as a result of its domestication from the
Province of Ontario to the State of Delaware. This Prospectus also
constitutes the Prospectus of Xavier Merger Corporation ("Xavier-Delaware"
and, together with Xavier-Canada, the "Xavier Companies"), a Delaware
corporation and a wholly-owned subsidiary of Xavier-Canada, under the
Securities Act with respect to (i) 16,223,639 shares of Common Stock, par
value US$0.0001 per share ("Xavier-Delaware Common Stock") of Xavier-Delaware,
(ii) 71,543,022 warrants ("Xavier-Delaware Warrants") of Xavier-Delaware,
(iii) 850,000 options ("Xavier-Delaware Options") of Xavier-Delaware, and (iv)
18,098,256 shares of Xavier-Delaware Common Stock issuable upon the exercise
of the Xavier-Delaware Warrants and the Xavier-Delaware Options, of Xavier-
Delaware to be issued to or held by holders of Common Shares, Xavier-Canada
Warrants and Xavier-Canada Options, as applicable, as a result of the merger
of Xavier-Canada with and into Xavier-Delaware. To effect such merger,
Xavier-Canada first will be domesticated (the "Domestication") as a
corporation organized under the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), and then will be merged (the "Merger") with
and into Xavier-Delaware. See "Domestication and Merger."
Prior to the Domestication and the Merger, the Company intends to effect a
consolidation of the Common Shares on the basis of one post-consolidation
common share ("Post-Consolidation Common Share") for each four pre-
consolidation common shares ("Pre-Consolidation Common Shares") and change
Xavier-Canada's name to Xavier Corporation as required by Ontario Securities
Commission Policy No. 5.2 (which relates to natural resource issuers that are
reporting issuers in the Province of Ontario whose common shares are not
listed and posted for trading on The Toronto Stock Exchange) (collectively,
the "Consolidation").
At the Meeting holders of Common Shares will also be asked to vote on the
approval and adoption of the Company's 1996 Long Term Incentive Plan (the
"1996 Incentive Plan").
In connection with the Merger, Xavier-Delaware has applied for listing of
its common stock on the Nasdaq National Market. In case the Domestication
occurs but the Merger does not, Xavier-Canada has applied for listing of the
Common Shares on the Nasdaq National Market. See "Risk Factors--Risks
Relating to Ownership of Company Securities and this Offering--Nasdaq National
Market Listing."
Subject to certain conditions and applicable law, holders of at least
66-2/3% of the Common Shares voting in person or by proxy at the Meeting must
approve the Consolidation and the Domestication and holders of greater than
50% of the Common Shares voting in person or by proxy at the Meeting must
approve the 1996 Incentive Plan. Subsequent to the Domestication, approval by
a majority of the outstanding Common Shares by means of a written consent,
executed pursuant to proxies solicited hereby (the "Consent") and by the Board
of Directors, is required to authorize the Merger. If the Domestication and/or
the Merger are each approved and become effective, all holders of Common
Shares, except those who have properly exercised their dissenter's rights
under applicable law, will be deemed to be stockholders of Xavier-Delaware as
of the date when the certificate of ownership and merger has been properly
executed and duly filed with the Secretary of State of Delaware (the
"Effective Date"). See "Dissent Rights of Xavier Shareholders." If the
Domestication occurs but the Merger does not, Xavier-Canada will be continued
as a Delaware corporation. The Board of Directors of Xavier-Canada has
reserved the right to terminate or abandon the Consolidation, Domestication
and/or the Merger at any time prior to the effectiveness of each,
notwithstanding shareholder approval, if the Board determines for any reason
that the consummation of the Consolidation, Domestication and/or Merger would
be inadvisable or not in the best interests of the Company or its
shareholders. See "Domestication and Merger" and "Canadian and United States
Income Tax Consequences."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 12.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CIRCULAR AND PROXY STATEMENT/PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Circular and Proxy Statement/Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
The Xavier Companies have filed with the United States Securities and
Exchange Commission (the "Commission") a Registration Statement (which term
shall include any amendment thereto) on Form S-4 under the Securities Act, for
the registration of the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which
are omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Xavier Companies and such securities,
reference is hereby made to the Registration Statement, including the exhibits
and schedules thereto. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or
other document filed with the Commission as an exhibit to the Registration
Statement, reference is hereby made to the exhibit for a more complete
description of the matter involved, and each statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and
the exhibits and schedules thereto filed by the Xavier Companies with the
Commission may be inspected at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549.
As a result of the issuance of securities contemplated hereby, Xavier-
Canada, prior to the Merger, and Xavier-Delaware, after the Merger, will be
subject to the periodic reporting and other information requirements of the
United States Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As long as either company is subject to such periodic reporting and
information requirements, it will file with the Commission all reports, proxy
statements and other information required thereby, which may be inspected at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material may be obtained by mail from the
Public Reference Branch of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
Xavier-Canada's Common Shares are posted and listed for trading on the
Alberta Stock Exchange ("ASX"). Upon completion of the Consolidation,
Domestication and/or the Merger, the Common Shares or the Xavier-Delaware
Common Stock, as the case may be, will continue to be listed on the ASX
subject to the satisfaction of certain conditions imposed by the ASX. In
addition, the Company has applied for listing of Common Shares and the Xavier-
Delaware Common Stock on the Nasdaq National Market. See "Risk Factors--Risks
Relating to Ownership of Company Securities and this Offering--Nasdaq National
Market Listing."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE INCLUDED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EITHER XAVIER COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER WITHIN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS MAKES REFERENCE TO CERTAIN DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM ROBERT PARSONS, CHIEF FINANCIAL OFFICER, 1600 SMITH STREET, SUITE
4700, HOUSTON, TEXAS 77002 (713/652-5111). TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 19, 1996.
---------------------
The date on which this Prospectus was first mailed to shareholders was on
or about May 17, 1996.
(i)
<PAGE>
EXCHANGE RATE DATA
Unless otherwise indicated, currency amounts referred to herein are stated
in Canadian dollars. The following table sets forth certain exchange rates
based on the Comerica Bank spot exchange rates for United States dollars. The
average exchange rate, expressed in US dollars, for the Canadian dollar for
each of the five years ended December 31, 1995 and the exchange rate at the
end of each such period were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
(US$ per CDN$1.00)
<S> <C> <C> <C> <C> <C>
Average for period.. .8728 .8276 .7753 .7321 .7291
End of period....... .8654 .7876 .7527 .7122 .7329
</TABLE>
On April 15, 1996, the noon buying rate for Canadian dollars as reported by
Comerica Bank was US$0.7373 for every CDN$1.00.
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION........................ (i)
EXCHANGE RATE DATA........................... (ii)
SUMMARY...................................... 1
RISK FACTORS................................. 12
Risks Relating to the Company.............. 14
Risks of Russian Operations................ 12
Risks Relating to Ownership of Company
Securities and this Offering.............. 18
GENERAL PROXY INFORMATION.................... 20
Solicitation of Proxies.................... 20
Appointment and Revocation of Proxies...... 20
Voting of Shares Represented by
Management Proxies........................ 21
Voting Shares and Record Date.............. 22
Statement of Executive Compensation........ 22
Election of Directors...................... 22
Appointment of Auditors.................... 23
THE CONSOLIDATION............................ 23
DOMESTICATION AND MERGER..................... 25
The Domestication.......................... 25
The Merger................................. 25
Conditions to Domestication and Merger;
Shareholder Approvals..................... 26
Proceedings before Governmental
Authorities............................... 27
Principal Reasons for the Domestication
and Merger................................ 28
EFFECT OF DOMESTICATION ON
SHAREHOLDER RIGHTS.......................... 29
Differences Between Ontario and Delaware
Corporate Law............................. 29
Differences Between the Xavier-Canada
Articles and the Xavier-Delaware
Certificate............................... 32
DISSENT RIGHTS OF XAVIER
SHAREHOLDERS................................ 35
Business Corporations Act (Ontario)........ 35
General Corporation Law of the State of
Delaware.................................. 37
1996 LONG TERM INCENTIVE PLAN................ 37
PRICE RANGE OF COMMON SHARES................. 41
CAPITALIZATION........................... 42
SELECTED HISTORICAL AND PRO
FORMA CONSOLIDATED FINANCIAL
DATA.................................... 44
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.............................. 45
Overview............................... 45
Results of Operations.................. 47
Liquidity and Capital Resources........ 49
Recent Accounting Pronouncements....... 53
BUSINESS................................. 55
General................................ 55
Strategy............................... 55
The Black Gold Joint Venture........... 56
The Western Siberia Technical Service
Agreements............................ 60
Oil Reserves........................... 65
KMNGG.................................. 67
Bandera Engineering.................... 68
Other Projects......................... 68
Competition............................ 69
Regulation............................. 70
Employees.............................. 70
Offices................................ 70
Legal Proceedings...................... 70
MANAGEMENT............................... 72
Executive Officers and Directors....... 72
Compensation of Directors.............. 74
Committees of the Board of Directors... 74
Executive Compensation................. 75
Employment Agreements.................. 76
Long Term Compensation Plans........... 78
Indebtedness of Directors, Executive...
Officers and Senior Officers.......... 79
Report on Executive Compensation....... 79
Shareholder Return Performance Graph... 81
Composition of the Compensation
Committee; Compensation Committee
Interlocks and Insider Participation.. 82
Exculpatory Charter Provision; Liability
and Indemnification of Officers and
Directors............................. 82
CERTAIN TRANSACTIONS..................... 83
Interest Purchase Agreements........... 83
KMNGG Transactions..................... 85
Employment Agreements.................. 85
Advances............................... 85
Indemnity Agreements................... 85
Bandera................................ 86
Other Transactions..................... 86
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINCIPAL SHAREHOLDERS...................... 87
DESCRIPTION OF THE XAVIER-DELAWARE SECURITIES 89
General.................................... 89
Common Stock............................... 89
Preferred Stock............................ 89
Warrants, Options and Convertible
Securities................................ 90
Provisions Having Possible Anti-Takeover
Effects................................... 91
Alberta Stock Exchange..................... 92
Exchange Agent, Transfer Agent and
Registrars................................ 92
Dividend Policy............................ 92
Registration Rights........................ 92
CANADIAN AND UNITED STATES
INCOME TAX CONSIDERATIONS................... 94
United States Tax Consequences............. 94
Canadian Federal Income Tax
Consequences.............................. 98
LEGAL OPINIONS............................... 100
EXPERTS...................................... 100
SHAREHOLDER PROPOSALS........................ 101
OTHER BUSINESS AT SPECIAL MEETING............ 101
APPROVAL OF PROSPECTUS....................... 101
GLOSSARY..................................... 102
INDEX TO FINANCIAL STATEMENTS................ 1
APPENDIX A................................... 1
APPENDIX B................................... 1
EXHIBIT A
SPECIAL RESOLUTIONS-CONSOLIDATION............ A-1
EXHIBIT B
SPECIAL RESOLUTIONS-DOMESTICATION............ B-1
EXHIBIT C
NOTICES AND REPLIES UNDER NATIONAL
POLICY 31.................................... C-1
EXHIBIT D
CERTIFICATE OF DOMESTICATION OF
XAVIER-DELAWARE.............................. D-1
EXHIBIT E
CERTIFICATE OF INCORPORATION OF
XAVIER-CANADA................................ E-1
EXHIBIT F
CERTIFICATE OF OWNERSHIP AND MERGER MERGING
XAVIER CORPORATION INTO
XAVIER MERGER CORPORATION.................... F-1
EXHIBIT G
CERTIFICATE OF INCORPORATION OF
XAVIER-DELAWARE............................. G-1
EXHIBIT H
BYLAWS OF XAVIER-DELAWARE.................... H-1
EXHIBIT I
BYLAWS OF XAVIER-CANADA...................... I-1
EXHIBIT J
TEXT OF ONTARIO BUSINESS
CORPORATION ACT SECTION 185................. J-1
</TABLE>
(iv)
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. In this
Prospectus, references to "Xavier" or the "Company" are intended to refer both
to Xavier-Canada and its affiliates, including the business as conducted to
date, and to Xavier-Delaware and its affiliates and the business they will
continue after the Merger, if consummated. References to Xavier-Canada are to
Xavier-Canada and its predecessors. All dollar amounts stated in this
Prospectus are in Canadian dollars unless otherwise indicated. All financial
information included herein has been retroactively adjusted to give effect to a
one-for-four share consolidation contemplated by the Consolidation as described
herein. Reference should be made to the "Glossary" on page 102 for the
definitions of certain terms used herein.
THE COMPANY
General Upon successful completion of the
Consolidation, Domestication and
Merger, Xavier-Canada will be
domesticated in Delaware and merged
with and into its wholly-owned
subsidiary, Xavier-Delaware. The
principal executive offices of the
Company after the Domestication and
Merger will continue to be located at
1600 Smith Street, Suite 4700,
Houston, Texas 77002 and its
telephone number will continue to be
(713) 652-5111.
Xavier-Canada Xavier-Canada is principally engaged
in the acquisition and development of
natural resources, primarily oil and
gas properties, and secondarily
provides services to the oil and gas
industry, primarily in Russia and
various republics of the former
Soviet Union (the "FSU").
Xavier-Canada commenced these
operations in December 1993. Prior
to that time, Xavier-Canada had been
essentially inactive since the early
1990's.
Xavier-Delaware Xavier-Delaware is a wholly-owned
subsidiary of Xavier-Canada and was
formed on October 30, 1995.
Xavier-Delaware currently has no
business or properties and has 1,000
shares of Common Stock outstanding,
all of which are owned by
Xavier-Canada. Xavier-Delaware will
have no business operations until the
completion of the Merger, at which
time Xavier-Delaware will succeed to
all of the business operations,
properties and rights and assume all
of the obligations and liabilities of
Xavier-Canada.
THE MEETING
Time, Date and Place of the Meeting The Meeting is scheduled to be held
on June 24, 1996 at 10:00 A.M.
(Central Standard Time) at the
offices of the Company, 1600 Smith
Street, Houston, Texas. The Meeting
will initially be called pursuant to
and governed by
1
<PAGE>
the requirements of the Business
Corporation Act (Ontario) (the
"OBCA").
Purpose The Meeting will be convened to
conduct the usual annual business,
authorize the Consolidation,
Domestication and the adoption of the
1996 Incentive Plan, and certain
related matters and transact such
other business as may properly come
before the Meeting or any
adjournment(s) thereof.
Who May Vote Holders of Common Shares as of the
close of business on May 15, 1996,
will be entitled to Notice of Meeting
and, subject to the rights of certain
transferees thereof as described
under "General Proxy Information," to
vote in person or by proxy.
RECOMMENDATION OF THE BOARD OF XAVIER-CANADA'S BOARD OF DIRECTORS
DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON
SHARES VOTE FOR THE CONSOLIDATION,
THE DOMESTICATION AND THE ADOPTION OF
THE 1996 INCENTIVE PLAN, AND THE
APPOINTMENT OF BDO SEIDMAN, LLP AS
THE COMPANY'S AUDITORS AND EXECUTE
PROXIES AUTHORIZING THE PERSONS NAMED
THEREIN TO APPROVE THE MERGER BY
WRITTEN CONSENT.
THE CONSENT
Purpose of Consent To approve the Merger.
Time and Date of Consent The Consent will be executed at or
about the opening of business on
June 25, 1996, or on such later date
that the Domestication shall have
become effective and the directors of
Xavier-Canada shall have approved the
Merger.
Who May Consent Holders of Common Shares at the time
the Domestication becomes effective
(who will be the persons registered
as shareholders of Xavier-Canada once
it is domiciled in Delaware) will be
entitled to express their consent to
the Merger by means of the proxies
solicited hereby. ANY PROXY RELATING
TO THE CONSENT EXECUTED BY A HOLDER
WHO IS NO LONGER A SHAREHOLDER OF
RECORD AT THE TIME THE DOMESTICATION
BECOMES EFFECTIVE AND THE CONSENT IS
EXECUTED, SHALL BECOME NULL AND VOID
AND OF NO FURTHER FORCE AND EFFECT.
RECOMMENDATION OF THE BOARD OF THE BOARD OF DIRECTORS OF
DIRECTORS XAVIER-CANADA RECOMMENDS THAT THE
HOLDERS OF COMMON SHARES EXECUTE
PROXIES AUTHORIZING THE PERSONS NAMED
THEREIN TO EXECUTE WRITTEN CONSENTS
EXPRESSING CONSENT FOR THE MERGER.
2
<PAGE>
THE CONSOLIDATION
Consolidation The Company is asking its
shareholders to pass a special
resolution subject to requisite
regulatory approval, including
without limitation the approval of
the ASX, authorizing the filing of
Articles of Amendment consolidating
the Company's issued and outstanding
Common Shares on the basis of one
Post-Consolidation Common Share for
every four Pre-Consolidation Common
Shares and changing the Company's
name to Xavier Corporation.
Treatment of Pre-Consolidation Common If the Consolidation occurs and the
Shares, Warrants and Options Domestication and Merger do not, (i)
holders of Pre-Consolidation Common
Shares will receive one
Post-Consolidation Common Share for
every four Pre-Consolidation Common
Shares held by such holder, (ii) each
Xavier-Canada Warrant will be
exercisable for one-fourth of a
Post-Consolidation Common Share, and
(iii) each Xavier-Canada Option will
be exercisable for one-fourth of a
Post-Consolidation Common Share. No
fractional interests in a
Post-Consolidation Common Share will
be issued. All fractions of
Post-Consolidation Common Shares
which holders of Pre-Consolidation
Common Shares, holders of
Xavier-Canada Warrants and holders of
Xavier-Canada Options would otherwise
be entitled to receive will be
rounded to the next lowest whole
number if the first decimal place is
less than five and rounded up to the
next highest whole number if the
first decimal place is five or higher.
Principal Reasons for the The Board of Directors believes that
Consolidation the Consolidation is in the best
interests of the shareholders because
over the long term the Company will
have greater flexibility with respect
to future equity financings which
will be necessary to develop the
Company's properties and the
Consolidation will facilitate
acquisitions by the Company for
equity consideration. Furthermore,
in connection with the proposed
listing on the Nasdaq National
Market, it is necessary for the
Company's Common Shares to trade at a
price over US$3.00 per share. See
"Risk Factors--Risks Relating to
Ownership of Company Securities and
this Offering--Nasdaq National Market
Listing."
Conditions to Consolidation The Consolidation must receive the
favorable vote, in person or by
proxy, of the holders of at least
two-thirds of the Common Shares
voting on the special resolution at
the Meeting. The Consolidation is
also conditioned upon the receipt of
the requisite approval from the ASX.
3
<PAGE>
DOMESTICATION AND MERGER
Domestication Xavier-Canada will change its
jurisdiction of incorporation from
Ontario to Delaware by means of a
domestication under the DGCL. Upon
the effectiveness of the
Domestication, Xavier-Canada will
become a Delaware corporation as if
it had originally been incorporated
in that jurisdiction and
Xavier-Canada will be discontinued in
Ontario.
Merger Subject to completion of the
Domestication and the execution of
consents by persons holding proxies
of holders of a majority of the
outstanding Common Shares,
Xavier-Canada, then a Delaware
corporation, will be merged with and
into Xavier-Delaware pursuant to the
DGCL and Xavier-Delaware will be the
surviving corporation. If the Merger
fails to occur, Xavier-Canada will
continue operating as a Delaware
corporation.
Treatment of Xavier-Canada Common Immediately following the completion
Shares, Warrants and Options of the Domestication, each Common
Share, Xavier-Canada Warrant and
Xavier-Canada Option will remain
issued and outstanding as an
equivalent security of Xavier-Canada,
then a Delaware corporation.
As a result of the Merger, (i)
holders of Common Shares will receive
one share of Xavier-Delaware Common
Stock for every Common Share held by
such holder, (ii) each Xavier-Canada
Warrant will be exercisable for
one-fourth of a share of
Xavier-Delaware Common Stock and
(iii) each Xavier-Canada Option will
be exercisable for one-fourth of a
share of Xavier-Delaware Common Stock.
Once the Consolidation, Domestication
and Merger have been effected, each
holder of certificates formerly
representing Common Shares will be
required to surrender such
certificates for a certificate
representing the appropriate number
of shares of Xavier-Delaware Common
Stock, subject to certain appraisal
and other statutory rights afforded
by applicable law. If the
Domestication occurs but the Merger
does not, each holder of Common
Shares will be requested to surrender
the certificate representing such
shares in order for such certificates
to be replaced with new Delaware
certificates of Xavier-Canada. In
either case, holders of Xavier-Canada
Warrants and Xavier-Canada Options
will continue to hold such securities
which will be exercisable for Common
Shares or Xavier-Delaware Common
Stock, as the case may be. See
"Description of Xavier-Delaware
Securities-Warrants, Options and
Convertible Securities."
4
<PAGE>
Directors and Officers The Domestication will not result in
any change in the persons named as
officers of Xavier-Canada. The
persons who are the officers of
Xavier-Canada immediately prior to
the Merger will be the officers of
Xavier-Delaware upon and after the
Merger. The directors of
Xavier-Canada are Chris A. Dittmar,
Robert L. Gerry, III, Michael C.P.
Hannesson, Paul T. Conroy and
Franklin L. Davis. Chris A. Dittmar,
Robert L. Gerry, III, Franklin L.
Davis, Benton H Wilcoxon and George
W. Bowman are, and will immediately
after the Merger be, the Directors of
Xavier-Delaware. See "General Proxy
Information--Election of Directors"
and "Management--Executive Officers
and Directors" for more information
concerning such individuals.
Principal Reasons for the The Domestication and Merger are
Domestication and Merger intended to enhance shareholder value
over the long term by, among other
things, improving the Company's
ability and flexibility to meet its
future equity and debt financing
needs, enhancing the marketability of
the Company's capital stock by
raising the Company's profile in U.S.
and international capital markets,
and providing greater ease in dealing
with income tax complexities
associated with multi-jurisdictional
operations.
Xavier-Canada chose the State of
Delaware to be its domicile because
Delaware, like Ontario, has a modern
and flexible corporate code. In
particular, Xavier-Canada believes
that the various indemnity and
exculpation provisions of the DGCL
will help it to attract and retain
competent directors at a time when
the escalating risks and resultant
costs of director liability have made
it increasingly difficult for
corporations to find and retain
competent directors. In addition,
the State of Delaware has an active
bar which is continually assessing
and recommending improvements to the
DGCL, and the substantial body of
settled case law under the DGCL adds
greater certainty in assessing risks
associated with conducting business.
Conditions to Domestication and Merger The Domestication must receive the
favorable vote, in person or by
proxy, of the holders of at least
two-thirds of the Common Shares
voting on the special resolution at
the Meeting. The Domestication is
also conditioned upon the receipt of
the requisite authorization of the
Director under the OBCA (the "OBCA
Director") and applicable regulatory
authorities.
The Merger is conditioned upon the
effectiveness of the Domestication,
the approval of the Merger by the
Board of Directors of Xavier-Canada
immediately following the
5
<PAGE>
effectiveness of the Domestication
and the approval by holders of a
majority of the outstanding Common
Shares pursuant to the Consent.
The Domestication and/or the Merger
are also subject to abandonment or
termination by the Board of Directors
under certain circumstances. See
"Domestication and Merger--Conditions
to Domestication and Merger."
Effect of Transactions on Xavier-Canada currently prepares its
Consolidated Financial Statements consolidated financial statements in
Canadian dollars using Canadian
generally accepted accounting
principles ("Canadian GAAP"). After
the Domestication and Merger, the
consolidated financial statements of
the Company will be presented in U.S.
dollars and prepared in accordance
with U.S. generally accepted
accounting principles ("US GAAP").
The Consolidation, Domestication and
Merger otherwise will have no
accounting implications with respect
to the consolidated financial
statements of the Company, except for
the per share data presented, which
will change as the result of the
effect of a one-for-four share
consolidation or reverse stock split
occurring in connection with the
Consolidation and except for a
reallocation of certain balances
comprising Shareholders' Equity.
Certain Differences Between Common Xavier-Delaware's authorized capital
Shares and Xavier-Delaware Common stock will consist of 310 million
Stock shares (300 million shares of
Xavier-Delaware Common Stock and ten
million shares of preferred stock,
par value $.0001 per shares (the
"Xavier-Delaware Preferred Stock") as
compared to an unlimited number of
authorized common shares of
Xavier-Canada. The par value per
share of Xavier-Delaware Common Stock
will be US$0.0001, while the common
shares of Xavier-Canada currently are
without par value. The Domestication
will not affect the Common Shares
outstanding immediately prior to the
Merger, except to the extent of
differences in governing law and
changes to Xavier-Canada's charter
and by-laws being effected in the
Domestication.
Certain Differences Between Rights Of After the Domestication,
Shareholders Before And After The Xavier-Canada, and after the Merger,
Domestication And Merger Xavier-Delaware (as the surviving
corporation), will be subject to the
provisions of the DGCL. The DGCL and
OBCA are similar in many respects,
but do differ from each other in
certain areas. These differences
include, among other things, the
percentage and basis for calculating
the number of shares needed to
approve extraordinary matters
submitted to a shareholder vote, the
obligation of a corporation to
indemnify its officers and directors
for liabilities, losses or claims
incurred while acting on behalf of
the corporation, restrictions on
business
6
<PAGE>
combinations with related parties,
the percentage of shareholders needed
to act by written consent without a
meeting, the right to appoint more
than one class of directors, the
types of transactions for which
statutory appraisal rights are
available, calling a shareholders
meeting, the availability of a
corporation's shareholder list for
inspection, the liability and
qualification of corporate directors,
the parties that may bring a
derivative action, the manner of
setting the number of directors and
the remedies for oppression with
respect to corporate security
holders. See "Effect of
Domestication and Merger on
Shareholder Rights."
In addition to the differences
embodied in the applicable governing
statutes, there are also differences
between the Xavier-Canada Articles
and the Certificate of Incorporation
of Xavier-Delaware. These include
the capitalization of the two
corporations, the directors' power to
adopt by-laws without shareholder
approval, the expanded limitations on
director liability, the notice and
calling of a shareholders meeting,
the ability of the shareholders to
take action without a meeting, the
power to effect certain business
combinations with related parties,
the power of the shareholders to
remove directors and the
establishment of the number of
directors that will comprise the
Board of Directors. See "Effect of
Domestication and Merger on
Shareholder Rights" and "Description
of Xavier--Delaware Securities."
Right to Dissent Holders of Common Shares have the
right to dissent from the
Consolidation and the Domestication
and, if such event becomes effective,
to be paid the fair value of all but
not less than all of their shares
provided that written objection is
received at or prior to the Meeting
and such holders otherwise comply
strictly with the applicable
provisions of the OBCA. See "Dissent
Rights of Xavier Shareholders." No
dissenter's rights are available
under Delaware law in connection with
the Merger.
Timing of the Effective Date Assuming that the Consolidation,
Domestication and Merger are each
approved by requisite shareholder
action and all other conditions
thereto are satisfied, it is
currently expected that the
Consolidation, Domestication and
Merger will all be completed on or
about June 28, 1996 subject to
receipt of requisite regulatory
approvals or as soon thereafter as
practicable.
Stock Exchange Listings The Common Shares are listed on the
ASX. In connection with the Merger,
Xavier-Delaware has applied for
listing of its Common Stock on the
Nasdaq National Market. In
7
<PAGE>
case the Domestication occurs but the
Merger does not, Xavier-Canada has
applied for listing of the Common
Shares on the Nasdaq National Market.
See "Risk Factors--Risks Relating to
Ownership of Company Securities and
this Offering--Nasdaq National Market
Listing."
Recent Market Prices for Xavier-Canada There is no established market in the
Common Stock United States for the Common Shares.
However, the Common Shares are listed
and traded on the ASX. The closing
price of the Common Shares on the ASX
on May 9, 1996 was CDN$1.25. For
additional information see "Price
Range of Common Shares."
Future Dividend Policy Xavier does not expect to pay
dividends on its capital stock in the
foreseeable future. See "Description
of Xavier--Delaware
Securities--Dividend Policy."
TAX CONSEQUENCES
Canada Neither the Domestication nor the
Consolidation will constitute a
taxable event for the Company's
shareholders or holders of Warrants.
Shareholders or holders of Warrants
of the Company will continue to hold
their shares or Warrants at the same
aggregate adjusted cost base as
before the Continuance.
Any dividends paid by the Company to
its shareholders on the Common Shares
or the Xavier-Delaware Common Stock
after the Continuance must be
included in computing their income
and will not be eligible for the
gross up and dividend tax credit or
other rules applicable to dividends
from Canadian corporations.
Shareholders who exercise dissenters'
rights in the Consolidation or the
Domestication may be deemed to have
received a dividend and may realize a
capital gain or loss on receipt of
payment for their shares.
A shareholder will not realize a
capital gain or loss on the Merger,
unless he or she elects otherwise.
Absent such election, the shareholder
will continue to hold his or her
shares at the same adjusted cost base
as before the Merger. A holder of
Warrants of Xavier-Canada may realize
a capital gain or loss when the
Warrants become obligations of
Xavier-Delaware on the Merger. See
"Canadian and United States Income
Tax Considerations".
8
<PAGE>
United States The Company believes that the
Consolidation will not constitute a
taxable event to the Company and that
the Domestication and Merger will
constitute a tax-free reorganization
for United States federal income tax
purposes and that no gain or loss
will be recognized by United States
shareholders of Xavier-Canada as a
result of the Consolidation and on
the exchange of Common Shares for
shares of Xavier-Delaware Common
Stock in connection with the
Domestication and Merger. Thus,
provided they satisfy the necessary
filing requirements, shareholders
will not be subject to United States
income tax as the result of the
Domestication and Merger except to
the extent that (i) they receive cash
as a result of dissenting and (ii)
either such shareholders are U.S.
persons or such gain is effectively
connected to a U.S. trade or business
of such shareholder. See "Canadian
and United States Income Tax
Considerations." After the Effective
Date, dividends received by corporate
shareholders will, subject to
applicable exceptions and
restrictions, be eligible for the 70%
dividends received deduction.
Moreover, dividends paid to United
States shareholders after the
Domestication and Merger will no
longer be subject to Canadian
withholding tax. Xavier-Canada has
not paid any cash dividends on its
Common Shares in the last ten years.
Xavier-Canada did, however, declare a
stock dividend on May 25, 1993.
There is no current expectation that
dividends will be paid on the
Xavier-Delaware Common Stock for the
foreseeable future. See "Description
of Xavier--Delaware
Securities--Dividend Policy."
Holders of Warrants of Xavier-Canada
who as a result of the Domestication
and Merger are holders of Warrants of
Xavier-Delaware should not recognize
gain or loss. However, the IRS or
courts could disagree with this
characterization of the results to
Warrant holders and instead treat the
transaction in connection with the
Warrants as a taxable exchange of the
Warrants.
ALL COMPANY SHAREHOLDERS SHOULD READ
CAREFULLY THE MORE DETAILED DISCUSSIONS
UNDER "CANADIAN AND UNITED STATES INCOME
TAX CONSIDERATIONS" AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS.
INTEREST PURCHASE AGREEMENTS
The Company has entered into Interest Purchase Agreements, effective
November 3, 1993 (the "Interest Purchase Agreements"), with Messrs. Dittmar (an
officer and director of the Company) and Bowman (an officer of the Company and
officer and director of Xavier-Delaware) pursuant to which the Company acquired
all rights and interests of Messrs. Dittmar and Bowman in and to oil, gas and
other mineral projects that had been negotiated by Messrs. Dittmar and Bowman
with respect to certain properties located in certain of the republics of the
FSU, except for certain projects in the Republics of Azerbaijan and Kazakhstan.
9
<PAGE>
Pursuant to the Interest Purchase Agreements, the Company, in consideration
for the rights and interests conveyed by Messrs. Dittmar and Bowman, will issue
them Convertible Preferred Shares prior to the Consolidation, which shares will
be convertible until December 31, 1998, at their option upon satisfaction of
the conditions described under the heading "Certain Transactions -- Interest
Purchase Agreements." Each Convertible Preferred Share is convertible into
Common Shares in an amount equal to 1% of the outstanding Common Shares at the
time of, and after giving effect to, the conversion thereof. The Company will
issue 20 Convertible Preferred Shares to Mr. Dittmar and six shares to Mr.
Bowman prior to the Consolidation and such shares will become convertible as
described under "Certain Transactions -- Interest Purchase Agreements."
Each Interest Purchase Agreement also provides for a non-assignable
royalties to be paid, subject to certain conditions, to each of Messrs. Dittmar
and Bowman equal to 1.0% of all earnings before interest, taxes, depreciation
and amortization in and from all properties and/or projects identified and/or
introduced to the Company. For a further description of these royalties, see
"Certain Transactions -- Interest Purchase Agreements."
10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical financial data set forth below for each of the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's historical financial statements. The summary pro forma financial
data for the year ended December 31, 1995 have been derived from the Company's
pro forma financial statements contained elsewhere in this Prospectus and give
effect to the Domestication and the Merger, the acquisition by the Company of a
54.5% interest in The Bandera Group, Inc, ("Bandera"), formerly known as
Bandera Acquisition, Inc., and a one-for-four share consolidation as if such
transactions (the "Transactions") took place as of January 1, 1995. The pro
forma financial data do not necessarily represent what the Company's results of
operations would have been if the Transactions had occurred on such date and
are not intended to project the Company's results of operations for any period.
The summary historical and pro forma financial data presented below should be
read in conjunction with the Company's historical and pro forma financial
statements included elsewhere in this Prospectus, the notes thereto and the
information set forth under the headings "Selected Historical and Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." The following table reflects a "for
convenience" translation of the Canadian dollar amounts included in the
Company's consolidated financial statements into U.S. dollars using the
exchange rate at December 31, 1995 of CDN$1 to US$0.7329. The Company's
financial information is presented in conformity with Canadian GAAP. These
principles differ from US GAAP and such differences could be material. Such
differences are described in Note 18 of the Company's consolidated financial
statements.
Originally called Golsil Mines Limited, the Company was formed in 1959 to
conduct mining and natural resources operations in Canada. The name was
changed to Zahavy Mines Limited in 1971, and then to Xavier Mines Limited in
1992. The Company ceased mining operations in 1991 and conducted no
significant business activities until December 1993. As a result, management
does not consider period to period comparisons of the Company's historical
results to be meaningful, nor does the Company consider such historical results
of operations to be representative of future results of operations of the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
HISTORICAL
-------------------------------------------------------
PRO
FORMA
1991 1992 1993 1994 1995 1995
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF US$, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas.......................... $ -- $ -- $ -- $ -- $10,718 $10,718
Pipeline repair...................... -- -- -- -- 1,282 2,070
----- ----- ------ ------- ------- -------
Total revenue........................ -- -- -- -- 12,000 12,788
----- ----- ------ ------- ------- -------
Expenses:
Production taxes and fees............ -- -- -- -- 5,860 5,860
Lease operating...................... -- -- -- -- 1,220 1,220
Field overhead....................... -- -- -- 95 909 909
Pipeline repair cost of sales........ -- -- -- -- 1,149 1,623
General and administrative........... 33 22 176 3,168 4,698 5,666
Interest and loan fees............... -- -- 3 1,263 528 617
Depreciation and amortization........ -- -- -- 24 1,953 2,502
Other (income) expense............... (13) 241 (1) 258 (518) (526)
----- ----- ------ ------- ------- -------
Loss before minority interests
and income taxes.................... (20) (263) (178) (4,808) (3,799) (5,084)
Minority interest in net loss
of consolidated subsidiaries........ -- -- -- 64 601 593
Income tax (expense) benefit......... -- -- -- -- (338) 47
----- ----- ------ ------- ------- -------
Net loss............................. $ (20) $(263) $ (178) $(4,744) $(3,536) $(4,444)
===== ===== ====== ======= ======= =======
Net loss per share................... $(.03) $(.46) $(.14) $(2.29) $(.41) $ (.52)
===== ===== ====== ======= ======= =======
Weighted average number
of shares outstanding................ 577 577 1,236 2,069 8,581 8,581
===== ===== ====== ======= ======= =======
BALANCE SHEET DATA:
Assets:
Current assets....................... $ 12 $ 1 $ 485 $ 1,196 $22,052
Oil and gas contract rights.......... -- -- -- 10,165 29,520
Investment in and advances to
oil and gas joint venture............ -- -- -- 8,014 12,031
Intangible assets.................... -- -- -- -- 8,164
Other assets......................... 483 242 295 708 9,603
----- ----- ------ ------- -------
Total assets......................... $ 495 $ 243 $ 780 $20,083 $81,370
===== ===== ====== ======= =======
Liabilities:
Current liabilities.................. $ 250 $ 261 $ 165 $19,475 $10,763
Share subscriptions received......... -- -- 475 36 --
Long-term notes payable.............. -- -- -- -- 20,888
Minority interest in net assets of
consolidated subsidiaries........... -- -- -- 437 6,784
Other liabilities.................... -- -- -- -- 3,396
Shareholders' equity................. 245 (18) 140 135 39,539
----- ----- ------ ------- -------
Total liabilities and shareholders'
equity.............................. $ 495 $ 243 $ 780 $20,083 $81,370
===== ===== ====== ======= =======
</TABLE>
11
<PAGE>
RISK FACTORS
The Company's operations are subject to certain significant risks, including
the following:
RISKS RELATING TO THE COMPANY.
HISTORY OF LOSSES; NEED FOR CAPITAL; MODIFIED REPORT OF INDEPENDENT AUDITORS.
The Company has an immediate need for cash to meet its currently due
obligations. For the years ended December 31, 1994 and 1995, the Company
reported net losses of US$4.7 million and US$3.5 million, respectively. At
December 31, 1995, the Company had a capital deficit of US$18.6 million and
limited net working capital including only US$25,435 of unrestricted cash on
hand. Of such cash, US$8,847 was unavailable to the Company and was
attributable to a majority owned subsidiary of the Company. The Company's
current cash position reflects no improvement over that of December 31, 1995.
Significant financing will be required on an ongoing basis to fund the
Company's capital commitments and requirements with respect to the Black Gold
Joint Venture, the TSAs and other ventures to which the Company may be a
party, including the Group I Project and the Gazprom Joint Venture. See
"Business -- Other Projects." Other than the potential line of credit
and the potential debt and warrant offering described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company has no current arrangements in place to secure additional capital, and
there can be no assurance that additional capital will be available to the
Company from any source or that, if available, it will be on terms acceptable
to the Company. The unavailability of acceptable financing would materially and
adversely impact the Company's ability to implement the development plans for
its operations and meet its funding obligations under the TSAs. The independent
auditors' report on the consolidated financial statements of the Company is
expressed in accordance with standards of reporting established and generally
accepted in Canada. Had the report been prepared in accordance with United
States' standards, the report would have been modified and would have stated
that there are conditions that raise substantial doubt about the ability of the
Company to continue as a going concern. Accordingly the independent auditors
have included their supplemental comments for U.S. readers, on Canada/U.S.
reporting conflicts describing this uncertainty. The consolidated financial
statements of the Company do not include any adjustments that might result from
the outcome of this uncertainty. Such financial statements have been prepared
assuming the Company will continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Consolidated Financial Statements of Xavier
Mines Limited" and "Consolidated Financial Statements of The Bandera Group,
Inc."
OIL INDUSTRY CONDITIONS; VOLATILITY OF PRICES FOR OIL. In addition to the
factors discussed above, the Company's revenues, profits and future rate of
growth will be substantially dependent on prevailing prices of oil.
Historically, the markets for oil have been volatile and are likely to continue
to be volatile in the future. Prices for oil are subject to wide fluctuations
in response to relatively minor changes in the supply of and demand for oil,
market uncertainty and a variety of additional factors that are beyond the
control of the Company. These factors include political conditions in oil
producing countries, the domestic and foreign supply of oil, the price of
foreign imports, the level of consumer product demand, weather conditions,
domestic and foreign government regulations, the price and availability of
alternative fuels and overall economic conditions. In addition, various
factors, including the availability and capacity of oil gathering systems and
pipelines, the effect of applicable regulations on production, transportation
and export, general economic conditions and changes in supply and demand, may
adversely affect the Company's ability to market its oil production or may
require the Company to sell its oil in markets that are not as profitable and
that may be otherwise limited. Accordingly, it is impossible to predict future
oil price movements with any certainty. Declines in oil prices, and in some
cases the failure of such prices to increase, would adversely affect the
Company's cash flow, liquidity and profitability, and limit the amount of oil
that the Company could economically produce.
12
<PAGE>
KMNGG TRANSACTIONS. In connection with the Company's loan of US$19.95
million to Aitorneftegas ("ANG"), the Company reviewed various materials
relating to ANG, Petroleum Technology Company ("PETECO") and
Khantymansiyskneftegazgeologiya ("KMNGG"). However, no financial statements or
oil and gas reserve reports prepared in accordance with international standards
exist for ANG, PETECO or KMNGG and the information provided to the Company has
not been reviewed, confirmed or audited by any independent experts, including
attorneys, accountants or petroleum engineers. Accounting, auditing and
financial reporting standards and requirements in Russia are less stringent and
less consistent than those applicable in many major Western countries and often
cannot be relied upon. Thus, the items appearing in the financial statements
of a Russian company may not reflect its financial position or the results of
operations in the way that they would be reflected had such financial
statements been prepared in accordance with generally accepted accounting
principles in more developed countries. Accordingly, there can be no assurance
that ANG will have the financial resources to repay the amount owed the Company
under the Convertible Note (as defined under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources").
If the Company were to exercise its conversion right and convert the
Convertible Note for shares of KMNGG stock, the Company would own (assuming no
further issuances of stock by KMNGG) approximately 25% of the outstanding
shares of KMNGG. If the Company were to own shares in KMNGG, such ownership
will involve a high degree of business and financial risk that could result in
substantial losses. Because of the absence of any liquid public trading market
for these investments, the Company would most likely be unable to liquidate its
position in KMNGG at a favorable price. Furthermore, ownership of shares in a
Russian company such as KMNGG is defined according to entries in the company's
share register and evidenced by extracts from the register. Therefore, it is
possible that a subsequent illegal amendment or other fraudulent act may
deprive the Company of its ownership rights, if any, in KMNGG. Also, this
could cause a delay in the sale of KMNGG securities by the Company if KMNGG
deems a potential purchaser unfavorable.
In connection with the privatization of companies such as KMNGG, much of the
responsibility for preparation of enterprises for privatization and compliance
with much of the privatization legislation was imposed on individuals at the
enterprise concerned rather than through strict control by state authorities.
This enhances the risk that there may be illegalities in the privatization that
may lead to full or partial invalidity of the privatization of KMNGG or the
imposition of sanctions on KMNGG or individuals within its administration.
Alternatively, KMNGG could be ruled to not have valid or full title to all of
the assets shown on its balance sheet and may be subject to obligations arising
from a period prior to its privatization. As a potential owner of KMNGG stock,
in such case, the Company may consequently lose all of a part of its
investments in KMNGG.
A joint stock company such as KMNGG is a limited liability legal entity for
which, generally, the shareholders are liable only to the extent of their
shares (including amounts not yet paid in full on shares). Both the new
Russian Civil Code and the new Joint Stock Company Law provide, however, that
shareholders and corporate parent companies may be subject to the liability of
a joint stock company in certain cases, including insolvency or bankruptcy
where "an act or omission" of the shareholder or parent company (generally a
holder of 20% of a subsidiary's voting stock) "is considered to [have] caused"
the bankruptcy or insolvency. Russia has no equivalent of the U.S. "business
judgment rule," but defines causation in the context of piercing the corporate
veil as acts or omissions which the shareholder or parent company "[knew] in
advance that the consequence of carrying out...would be the insolvency (or
bankruptcy) of the company." Furthermore, in the parent-subsidiary context,
subsidiaries may "demand that the principal company or partnership compensate
losses caused by its fault to the subsidiary."
13
<PAGE>
In addition, if an entity seeks to acquire 30% more of a company with greater
than 1,000 shareholders, it must notify such company and its common
stockholders in writing before the acquisition date. Furthermore, within 30
days of acquisition of 30% of the voting common shares of a company, the
acquiring stockholder is required to offer to purchase the rest of the
company's outstanding common stock at a price not less than the average
weighted share price for six months prior to the acquiring party's acquisition.
For a further discussion of the Carnegie Note, the Convertible Note and
KMNGG, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Business--KMNGG,"
"Certain Transactions--KMNGG Transactions" and "Description of Xavier-Delaware
Securities--Warrants, Options and Convertible Securities"
OPERATING RISKS. The Company's oil operations are subject to all of the
risks and hazards typically associated with the exploration for, and the
development and production of, oil. Risks in drilling operations include oil
spills, fires, blowouts, explosions, pipe failure, casing collapse and
abnormally pressured formations. Such risks can result in personal injury or
loss of life and substantial damage to or destruction of oil wells, production
facilities or other property, suspension of operations and liabilities to third
parties, any and all of which could adversely affect the Company.
The Company's Kamennoye East Jurassic wells have experienced bubble point
problems (when flowing formation pressure drops below the bubble point pressure
allowing gas to break out of solution) and, consequently, the well flow rates
have been choked back. The Company is working on a technical solution to this
problem, however, there can be no assurances such problem can be resolved. See
"Business -- The Western Siberia Technical Service Agreements -- Description of
the East and West Kamennoye License Areas" for a further description of the
Company's operations in the Kamennoye East License Area.
LIMITED OPERATING HISTORY. The Company was inactive from the late 1980's
until December 1993. The Company's operating history and experience prior to
December 1993 is not relevant to its current operations. Although certain of
the current officers of the Company were involved in the negotiation and
structuring of ventures in the republics of the FSU prior to December 1993,
such ventures were not fully implemented and had not become operational until
after such time. Accordingly, the Company's current business should be viewed
as a start-up venture subject to all of the risks inherent in an emerging
business enterprise, with no assurance that operations can be successfully
undertaken or that profitability can be achieved. See "Business--General."
DEVELOPMENT PLANS. The Company's development plans with respect to the Black
Gold Joint Venture and the TSAs call for the workover of existing wells and
drilling of additional wells in producing formations in order to substantially
increase current production from the subject properties. Accordingly, the
Company believes that the volume of oil production available for export and
sale will be relatively low initially but that such volume will increase as the
development plans are implemented. Because of all of the factors described
herein affecting the Company's operations, there can be no assurance that such
an increase will actually be realized or, if it is, when such increase will
occur. See "Business."
ESTIMATES OF RESERVES AND RELATED DATA. Numerous uncertainties are inherent
in estimating quantities of reserves and in projecting future rates of
production and timing of development expenditures, including many factors
beyond the control of the producer. The accuracy of any reserve estimate is a
function of the quality and quantity of available data, engineering and
geological interpretation and judgment. This Prospectus contains estimates of
the Company's proved oil reserves and the future net revenues therefrom that
have been prepared by Huddleston. See "Business--Oil Reserves." The reserve
data is based on various assumptions and represents only estimates based on
14
<PAGE>
available geological, geophysical, production and engineering data, the extent,
quality and reliability of which vary. In particular, basic data derived from
Russian sources have been subject to a greater degree of variation than that
which would normally be associated with Western projects of this type. Russian
production and geology associations have been limited by a variety of factors,
including the lack and/or antiquated condition of equipment, inconsistent
measurement techniques for produced fluids and other problems not normally
associated with Western operations. Oil reserve engineering is a subjective
process of estimating accumulations of oil that cannot be measured in an exact
way, and estimates of other engineers or the same engineers at different times
might differ materially from those shown herein. Results of drilling, testing
and production after the date of the estimate may require revisions.
Accordingly, reserve estimates are often materially different from the
quantities of oil that are ultimately recovered. In addition, the estimates of
future net revenues from proved reserves of the Company and the present value
thereof are based upon a number of assumptions, such as historical production
from the subject properties, comparison with other producing properties, the
assumed effects of regulation by governmental agencies and assumptions
concerning future operating costs and excise taxes, abandonment costs,
development costs and workover and remedial costs, all of which may vary
considerably from actual results. Such reports are subject to additional
qualifications, limitations and assumptions stated therein. See "Business--Oil
Reserves."
RELIANCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on a small number of key technical and managerial personnel, the loss of
any one of which could have a material adverse effect on the Company's
operations. The Company believes that its future success will also depend in
part upon its ability to attract and retain highly skilled technical and
managerial personnel. Competition for such personnel is intense. There can be
no assurance that the Company will be successful in attracting and retaining
the personnel it requires to grow and operate profitably. See "Management."
COMPETITION. The oil industry is highly competitive. The Company competes
for acquisitions and in the exploration, development, production and marketing
of oil with Russian companies (including those owned or controlled by
governmental entities), major international oil companies, other independent
oil and gas concerns, and individual producers and operators. Many of these
competitors have substantially greater financial and other resources than the
Company. See "Business--Competition."
RISKS OF RUSSIAN OPERATIONS.
For a further description of the consequences of doing business in Russia,
see Appendix A.
GENERAL. Most of the Company's operations are currently being conducted in
Russia. As a result, such operations are subject to political, economic and
other uncertainties, including, among others, risk of war, revolution,
expropriation, renegotiation or modification of existing contracts, export and
transportation regulations and tariffs, taxation policies, foreign exchange
restrictions, international monetary fluctuations, mandatory conversion of all
or a part of foreign currency earnings to Russian currency and other
uncertainties arising out of foreign government sovereignty over substantially
all of the Company's operations. Consequently, the Company may encounter
unforeseen difficulties in conducting operations in Russia, including but not
limited to the risks set forth below. The Company also intends to conduct
operations in other republics of the Commonwealth of Independent States ("CIS")
and all of these factors could also apply to a greater or lesser extent to
operations conducted by the Company in such other republics.
ABSENCE OF LEGAL FRAMEWORK GOVERNING OIL AND GAS OPERATIONS. Russia does not
have a clear and stable legal framework governing oil and gas licensing and
operations or well-defined legal standards relative to commercial contracts and
to the rights and obligations of parties to such contracts in the oil and gas
industry. As a result, the interpretation of such legal standards and contracts
could differ from the Company's
15
<PAGE>
understanding. In addition, the overlapping jurisdiction and lack of clearly
defined authority among federal, regional and local bureaucracies creates
uncertainty regarding the precise regulatory approvals required and the
authority of a particular entity or individual to execute and approve
contracts. While the Company believes that its contracts relating to the Black
Gold Joint Venture and the TSAs (each as defined under "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview")
have received all necessary approvals and signatures, any failure to have
obtained required authorizations or signatures by necessary parties could
impair the enforceability of such contracts and thereby materially and
adversely affect the Company. No legal opinions of counsel have been obtained
with respect to the enforceability of any of such contracts. Even if such
contracts have received all necessary approvals and signatures, there can be no
assurance that such contracts will not be subject to subsequent renegotiation
or unilateral modification or termination by governmental bodies.
PROCEEDINGS RELATED TO THE BLACK GOLD JOINT VENTURE. In late November and
early December 1995, the Regional Department of the State Geological Control
("DSGC"), the state agency that monitors oil and gas licenses in Russia,
completed a review of the operations and production history of the Black Gold
Joint Venture. The review committee determined, among other things, that (i)
Stravopolneftegas ("STNG"), a participant in the Black Gold Joint Venture, has
continued to operate the Black Gold Joint Venture for more than one year after
the grant of such license notwithstanding the fact that the license agreements
do not provide for such a prolonged transition period and (ii) STNG has
improperly allocated payments for oil production distribution among the
districts where oil production is conducted. The DSGC instituted a deadline of
the first quarter of 1996 (which been verbally waived) with respect to curing
such violations.
Management believes that the Company and STNG can cure these violations.
However, there can be no assurance that such cures will take place in a timely
manner, if at all. If such violations are not cured, the Black Gold Joint
Venture could be subjected to administrative action, or the Joint Venture's
licenses could be revoked. The Company could lose its entire investment in the
Black Gold Joint Venture should the licenses be permanently revoked.
RIGHT OF TSA PARTIES TO TERMINATE TSAS. KMNGG has the right to terminate the
East Kamennoye TSA on December 31, 1997 if the Company fails to establish a 50%
increase in production from the Cretaceous wells it drills in the East
Kamennoye License Area as compared to KMNGG's average Cretaceous test
production rate for wells drilled prior to January 1, 1994. KOND has the right
from October 1 through October 31, 1996, to terminate the West Kamennoye TSA if
the Company fails to establish a 50% increase in average daily oil production
per well during the period from July 1, 1995 through June 30, 1996, from the
Cretaceous wells it drills in the West Kamennoye License Area as compared to
KOND's average 1994 production from the field. The Company believes that it
will be able to satisfy the conditions with respect to the East and West
Kamennoye TSAs, however, there can be no assurances that it will be able to do
so. The termination of one or both of these TSAs could have a material adverse
effect on the Company and its results of operations.
CHANGES IN LAWS. Changes in laws applicable to the Company's business,
including income tax laws, export and tariff laws, environmental laws, foreign
investment laws, currency exchange laws and laws relating to the production,
transportation and sale of oil, could materially and adversely affect the
results of the Company's operations. In the past, certain changes in such laws
have been implemented without any provision for exempting existing projects.
There can be no assurance that subsequent changes in the laws will not have a
material adverse effect on the Company or the material terms of contracts to
which it is a party.
POLITICAL INSTABILITY. The political and economic instability in Russia
could result in a new government or the adoption of new policies that might
assume a substantially more hostile attitude toward foreign investment. In an
extreme case, such a change could result in voiding pre-existing contracts
and/or
16
<PAGE>
expropriation of foreign-owned assets. At a minimum, such a change would likely
make enforceability of contracts by foreign investors more difficult and
increase the possibility of law changes adversely affecting foreign investors.
Further, the political instability in Russia could impede the access of the
Company to sources of financing for its operations in the future. Any such
event would materially and adversely affect the Company. The Company has no
insurance against political instability.
POLITICAL DEVELOPMENTS. In the Parliamentary elections of December 1995,
candidates opposed to the scope and pace of reform under the current
administration, including communist party candidates and ultra-nationalist
party candidates, were more successful than predicted. At least 40% of the
current members of Parliament are thought to be supportive of slowing, if not
reversing, the political and economic reforms that have been implemented in the
Russian Federation in recent years. In addition, certain political figures
have publicly discussed renationalization of strategic state assets, including
portions of the oil industry. The communist party leader, Gennady Zyuganov, is
currently leading over all other candidates in polls taken in anticipation of
the June 1996 presidential election.
The vulnerability of the current administration in the June 1996 presidential
election may increase the likelihood that, in an attempt to increase support
before the election, economic policies will be implemented that are
inflationary and inconsistent with the reform of the Russian economy. The
privatization process, which was a centerpiece of the current government's
economic policy for several years, has been severely curtailed in response to
heavy criticism from political figures and perceived public dissatisfaction
with the process. Many of the individuals responsible for reforming the
Russian economy over the last several years no longer hold positions in the
Government and, in some cases, such individuals have been replaced by other
individuals who are considered far less committed to the reform of the Russian
economy. It is not clear whether governmental officials will further slow or
reverse the reform process prior to the June 1996 presidential election or
whether such officials would, if they remain in office, continue to attempt to
reform the Russian economy as they have in the past several years. Moreover,
there can be no assurance that the economic reform process will not be reversed
if a new president is elected.
UNCERTAIN OPERATING CONDITIONS. The Company believes that, through its own
resources and those of its Russian joint venture partners and available
independent contractors, it will have adequate access to the equipment,
personnel, oil service organizations and technical expertise necessary to
conduct operations under the Black Gold Joint Venture and the TSAs. However,
if any of the Company's understandings or assumptions change or prove
inaccurate, the Company's operations could be materially adversely affected.
The Company also believes that it currently has the required certificates to
permit the export of its production from the Black Gold Joint Venture for sale
proceeds paid in freely convertible currencies in the export market. However,
such certificates must be renewed annually and there can be no assurance that
such certificates will be issued in future years or, if issued, that such
certificates will not be subject to material conditions or restrictions.
TRANSPORTATION ISSUES. The Company will be dependent upon Transneft, the
government-owned transporter of oil, for transportation of Black Gold and TSA
oil production to points of sale for both export and sale internally. No
assurance can be given that the necessary arrangements can be made with
Transneft to transport all or any portion of such production or what the terms
for any such transportation would be. In addition, existing transportation
routes for the oil produced from the fields in which the Company has, or is
negotiating to acquire, an interest involve high costs and are subject to (i)
the potential uncertainty currently associated with the ownership of such
routes and/or overlapping jurisdiction of numerous regional governments and
(ii) in certain instances, a decaying infrastructure. Although the Company is
undertaking to develop alternate transportation systems, there can be no
assurance that such efforts will be successful. The unavailability of an
adequate, cost-effective transportation system for Black Gold and TSA oil
production would have a material adverse effect on the Company.
17
<PAGE>
REGULATIONS. The oil and gas industry is extensively regulated by
governmental authorities in Russia. Regulation affecting the oil and gas
industry is under continuous review and statutes are constantly being adopted,
expanded or amended. Further, numerous departments and agencies, at the
federal, regional and local levels, have issued rules and regulations binding
on the oil and gas industry, some of which carry substantial penalties for the
failure to comply. The regulatory burden on the oil and gas industry increases
the cost of doing business and, consequently, will affect the profitability of
the Company. Inasmuch as such laws and regulations are frequently expanded,
amended or reinterpreted, the Company is unable to predict the future cost
impact of complying with such laws and regulations. See "Appendix A."
SIBERIAN WORKING SEASON. Because of the weather in the Tyumen Region of
Western Siberia, the working season with respect to the East and West Kamennoye
and P&K License Areas (each as defined under "Business -- The Western Siberia
Technical Service Agreements") is generally limited to approximately five
months per year. Any shortening of this working season due to unusually severe
weather conditions could impede the Company's development plan for such
properties.
CIVIL CONFLICT. The Black Gold Fields (as defined under "Business -- The
Black Gold Joint Venture") are near Chechnya, the site of political instability
and conflict. There can be no assurance that continued conflict would not have
an adverse effect on the Black Gold Joint Venture.
RISKS RELATING TO OWNERSHIP OF COMPANY SECURITIES AND THIS OFFERING.
ANTI-TAKEOVER PROTECTIONS. Xavier-Delaware's Certificate of Incorporation
and By-Laws contain certain provisions, including a classified board of
directors, prohibitions on stockholder actions by written consent in certain
circumstances, "blank check" preferred stock, advance notice requirements for
director nominations and actions to be taken at annual meetings and the
protections afforded by Section 203 of the DGCL and certain super-majority
voting requirements. Such provisions could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company. See "--Obligation to Issue Substantial Additional
Shares," "Description of the Xavier-Delaware Securities--Provisions Having
Anti-Takeover Effects" and "Management--Executive Officers and Directors."
OBLIGATION TO ISSUE SUBSTANTIAL ADDITIONAL SHARES. The Company has agreed to
issue shares of Convertible Preferred Stock, in some cases prior to the
Consolidation, to two individuals both of whom are to be officers and directors
of Xavier-Delaware. Such shares may be converted, upon the satisfaction of
certain conditions, into at least 26% of the outstanding Common Shares on a
fully diluted basis after giving effect to such Conversion. See "Certain
Transactions--Interest Purchase Agreements." As discussed in Note 13(a) to the
financial statements included elsewhere in this Prospectus, the conversion of
these shares will be accompanied by the recognition of potentially
significant non-cash compensation expense which could have a material effect on
the Company's earnings, if any, at such time.
If such holders of Convertible Preferred Stock were to own more than one-
third of the Company's outstanding shares upon such conversion, such holders,
if they voted together, would be able to prevent certain actions requiring the
affirmative vote of the holders of at least two-thirds of the Company's
outstanding Common Shares. If they were to own more than one-half of the
Company's outstanding shares upon such conversion, they would have the ability
to elect all of the Company's directors and control the outcome of other
matters submitted to a vote of the Company's shareholders.
The Company currently has outstanding warrants and options expiring at
various times until September 23, 2000, to purchase 72,393,022 Common Shares at
a weighted average purchase price of CDN$2.01 per share. See "Description of
Xavier-Delaware Securities--Warrants, Options and Convertible Securities."
In view of the Company's continued cash needs to meet its commitments, the
Company has entered into discussions with certain entities concerning the
private placement in Europe of up to US$100 million in bonds and warrants to
purchase up to 45 million Common Shares. Xavier has no definitive agreement
with respect to the issue of such private placement and there can be no
assurances that such an agreement will be concluded.
The Company is subject to certain claims for shares equal to up to 5% of its
outstanding Common Shares at the time of issuance of such shares. See "Business
--Litigation."
Sales of a substantial amount of Common Shares or a perception that such
sales could occur, may adversely affect the prevailing market price of the
Common Shares.
INABILITY TO EXERCISE, CONVERT OR EXCHANGE THE SECURITIES UNDER FEDERAL AND
STATE SECURITIES LAWS. No warrants or options registered hereunder will be
exercisable unless at the time of exercise the Company has a current prospectus
effective with the Commission covering shares of Common Stock issuable upon
exercise of such warrants or options and such shares have been registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder. The Company will use its best efforts to have Common
Stock so registered or qualified on or before the exercise or exchange date (as
applicable) and to maintain a current prospectus relating thereto, although
there can be no assurance that the Company will be able to do so. If a
registration statement covering such shares is not kept effective for any
reason, or if the
18
<PAGE>
shares issuable upon the exercise of the warrants or options are not registered
in the state in which a holder resides, the warrants will not be exercisable
and may be deprived of substantially all of their value.
NASDAQ NATIONAL MARKET LISTING. Xavier-Delaware has applied to list the
Xavier-Delaware Common Stock on the Nasdaq National Market. In case the Merger
is not approved by the shareholders or otherwise does not occur, the Company
has also applied to list the Common Shares on the Nasdaq National Market. The
Nasdaq National Market requires, among other things, that securities it lists
have a market value of at least US$3.00 for a specified period of time. At the
April 15, 1996 closing price on the ASX of CDN$1.05 per share, after giving
effect to the one-for-four reverse stock split contemplated by the
Consolidation, the Common Shares would have been trading at US$3.08 per share.
If the current price of the Common Shares should fall below CDN$1.02 per share
(assuming exchange rates between the U.S. Dollar and the Canadian Dollar hold
constant) prior to the effectuation of the Domestication, the Merger and the
acceptance of the Xavier-Delaware Common Stock (or the Common Shares, if
necessary) for trading on the Nasdaq National Market, the Company would not
meet the listing requirements of the Nasdaq National Market. Accordingly, if
such event occurs, or the Company fails to satisfy other listing requirements,
there can be no assurances that the Nasdaq National Market or any other
established United States trading market or exchange would accept the Common
Shares or Xavier-Delaware Common Stock for listing. The Xavier-Delaware Common
Stock or the Common Shares, as the case may be, would, however, remain listed
on the ASX. In the event of the Common Shares or the Xavier-Delaware Common
Stock, as the case may be, not being listed on the Nasdaq National Market, the
Company would lose the exemptions upon which it is relying in connection with
the transactions contemplated hereby, under the securities laws of the States
of the United States. Although the Company believes that other exemptions or
filings with the applicable States of the United States could cure such
problem, there can be no assurances that each State would approve the
transactions contemplated hereby under its own regulatory regime.
TAX CONSEQUENCES OF THE DOMESTICATION AND MERGER ON HOLDERS OF WARRANTS
Although the matter is not free from doubt, for United States federal income
tax purposes, the Domestication and Merger should not result in the recognition
of gain or loss under Section 1001 of the Internal Revenue Code of 1986, as
amended (the "Code") to the holders of Warrants in Xavier-Canada who as a
result of the Domestication and Merger will hold Warrants of Xavier-Delaware
(rather than Xavier-Canada). The Internal Revenue Service or the courts could
disagree with this characterization of the results to Warrant holders and
instead treat the transaction in connection with the Warrants as a taxable
exchange. In such event, each U.S. Holder (as defined under "Canadian and
United States Income Tax Consequences--United States Tax Consequences") of
Warrants will recognize gain or loss on the exchange equal to the difference
between the fair market value of its Warrants of Xavier-Delaware and the
adjusted tax basis of its Warrants of Xavier-Canada (which such gain or loss
will be capital gain or loss if the Warrants are capital assets that have been
held for more than one year). Each holder of Warrants is urged to consult its
own tax advisor regarding the tax consequences of the Domestication and Merger
on its particular circumstances.
See "Canadian and United States Income Tax Consequences" for a further
description of the tax consequences of the Consolidation, Domestication and the
Merger.
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<PAGE>
GENERAL PROXY INFORMATION
SOLICITATION OF PROXIES
PROXIES ARE BEING SOLICITED BY AND ON BEHALF OF THE MANAGEMENT OF XAVIER-
CANADA. All expenses in connection with the solicitation of proxies will be
borne by Xavier-Canada, including charges made by brokers and other persons
holding stock in their names or in the names of nominees for reasonable
expenses incurred in sending proxy material to beneficial owners and obtaining
their proxies. Solicitation will be by mail or by regular employees of Xavier-
Canada. No arrangement has been entered into with any other party for the
solicitation of proxies for a fee.
APPOINTMENT AND REVOCATION OF PROXIES
Each person named in the enclosed forms of proxy (the "Proxy") is
respectively a director and nominee director of Xavier-Canada or, in the case
of the proxy with respect to the Consent, a director or officer of the Company.
Two forms of Proxy are being solicited through this Prospectus: the first form
seeks to appoint the persons named therein to represent the holder at the
Meeting to vote on annual business and special resolutions to authorize the
Consolidation and the Domestication and the adoption of the 1996 Incentive Plan
and certain related matters, and to transact such other business as may
properly come before the Meeting or any adjournment(s) thereof. The second
form seeks to appoint the persons named therein to act as proxy and attorney-
in-fact to execute the Consent following the completion of the Domestication to
authorize the Merger.
THE HOLDER OF OR A PERSON DEEMED TO BE THE HOLDER OF COMMON SHARES HAS THE
RIGHT TO APPOINT A PERSON TO REPRESENT HIM OR HER AT THE MEETING OR FOR THE
EXECUTION OF THE CONSENT OTHER THAN THE PERSONS DESIGNATED IN THE RESPECTIVE
FORM OF PROXY. SUCH RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF THE
PERSONS NAMED IN THAT FORM OF PROXY AND INSERTING THE NAME OF THE SHAREHOLDER'S
NOMINEE IN THE SPACE PROVIDED, OR BY COMPLETING ANOTHER PROPER FORM OF PROXY.
A PROXY FOR THE MEETING OR THE EXECUTION OF THE CONSENT MUST BE RECEIVED (I) IN
THE CASE OF THE MEETING, BY THE SECRETARY OF XAVIER-CANADA OR THE CHAIRMAN OF
THE MEETING, FORTY-EIGHT (48) HOURS PRIOR TO THE TIME OF THE MEETING OR ANY
ADJOURNMENT THEREOF OR (II) IN THE CASE OF THE CONSENT IN LIEU OF MEETING, BY
THE SECRETARY PRIOR TO EFFECTIVENESS OF THE CONSENT.
A shareholder forwarding the Proxy may indicate the manner in which the
appointee is to vote with respect to any specific item by checking the
appropriate space. If the shareholder giving the Proxy wishes to confer a
discretionary authority with respect to any item of business then the space
opposite the item is to be left blank. The shares represented by the Proxy
submitted by a shareholder will be voted in accordance with the directions, if
any, given in the Proxy.
A shareholder who has given a Proxy may revoke it at any time in so far as it
has not been exercised. A Proxy may be revoked, as to any matter on which a
vote shall not already have been cast pursuant to the authority conferred by
such Proxy, by depositing an instrument in writing executed by the shareholder
or by his attorney authorized in writing or, if the shareholder is a body
corporate, by an officer or attorney thereof duly authorized, at the registered
office of Xavier-Canada at any time up to and including the last business day
preceding the day of the Meeting, or any adjournment(s) thereof, at which the
Proxy is to be used, or with the Chairman of such Meeting on the date of the
Meeting or any adjournment(s) thereof. A Proxy may also be revoked in any
manner permitted by law.
20
<PAGE>
VOTING OF SHARES REPRESENTED BY MANAGEMENT PROXIES
GENERAL
As at the date hereof, 64,894,554 Common Shares were issued and outstanding.
Each such Common Share entitles the holder thereof to one vote on all matters
to be acted upon at the Meeting. All holders of Common Shares of record as of
the time of the Meeting or any adjournment(s) thereof are entitled either to
attend and vote thereat in person the Common Shares held by them or, provided a
completed and executed Proxy shall have been delivered to Xavier-Canada within
the time specified in the attached Notice of Meeting, to attend and vote
thereat by Proxy the Common Shares held by them. See "Description of Xavier--
Delaware Securities."
MEETING
A shareholder forwarding the Proxy may indicate the manner in which the
appointee is to vote with respect to any specific item by checking the
appropriate space. The persons named in the form of Proxy will vote the shares
in respect of which they are appointed in accordance with the direction of the
shareholders appointing them. However, in the absence of such direction, THE
NOMINEES INTEND TO VOTE THE SHARES REPRESENTED BY THE PROXY:
1. FOR the election of Chris A. Dittmar, Robert L. Gerry, III, Michael
C.P. Hannesson, Paul T. Conroy and Franklin L. Davis as directors of
Xavier-Canada.
2. FOR the special resolution authorizing and approving the
Consolidation (see "The Consolidation").
3. FOR the special resolution authorizing the Domestication (see
"Domestication and Merger -- The Domestication").
4. FOR the resolution authorizing the adoption of the 1996 Incentive
Plan (see "1996 Long Term Incentive Plan").
5. FOR the appointment of BDO Seidman LLP as the Company's auditors and
to authorize the directors to fix the remuneration of the auditors.
The enclosed form of Proxy, when properly signed, confers discretionary
authority upon the persons named therein with respect to amendments or
variations to matters identified in the Notice of Meeting and with respect to
other matters which may properly come before the Meeting or any adjournment(s)
thereof. On the date of the printing of this Prospectus, management knows of
no such amendments, variations or other matters to come before the Meeting
other than the matters referred to in the Notice of Meeting. However, if any
other matters which are not now known to management should properly come before
the Meeting or any adjournment(s) thereof, the Proxy will be voted on such
matters in accordance with the best judgment of the proxies named therein.
CONSENT.
A Proxy from a shareholder for the Consent in lieu of meeting received by
management will be exercised in the manner specified in the Proxy by such
shareholder, unless authority to exercise the Proxy is withheld or the Proxy is
left blank. If the Proxy is left blank, the proxies named in the Proxy for the
Consent in lieu of meeting will exercise the authority with respect to the
shares represented by such Proxy by executing a Consent FOR the Merger.
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<PAGE>
BECAUSE THE CONSENT IS EFFECTIVE ONLY IF EXECUTED ON BEHALF OF A MAJORITY OF
COMMON SHARES OUTSTANDING, THE FAILURE TO CONVEY A PROXY TO EXPRESS CONSENT OR
THE WITHHOLDING OF AUTHORITY TO EXPRESS CONSENT HAS THE SAME EFFECT AS A VOTE
"AGAINST" THE MERGER.
VOTING SHARES AND RECORD DATE
MEETING
The Board of Directors has fixed May 15, 1996 as the record date, being
the date for the determination of the registered holders of securities entitled
to receive Notice of the Meeting pursuant to National Policy No. 41, as
amended, issued by the securities commissions and comparable regulatory bodies
of the Provinces of Canada. Any non-registered shareholder that has requested
or requests to be registered as a shareholder in the time allotted pursuant to
such Policy will be listed on the list of shareholders referred to below.
In accordance with the provisions of the OBCA, Xavier-Canada will prepare a
list of holders of Common Shares at the close of business on May 15, 1996.
Each holder of Common Shares named in the list will be entitled to vote the
Common Shares shown opposite his name except to the extent that: (i) the
shareholder has transferred any of his shares after the record date and (ii)
the transferee of those shares produces properly endorsed share certificates or
otherwise establishes that he owns such shares and demands not later than 48
hours before the Meeting that his name be included in the list before the
Meeting, in which case the transferee is entitled to vote his shares at the
Meeting.
CONSENT
After the Domestication becomes effective, pursuant to the DGCL, the Consent
will be executed on behalf of those shareholders who (i) have delivered proxies
marked in favor of or not against the Merger and (ii) are shareholders of the
Company on the record date with respect to the Merger. The record date with
respect to shareholders entitled to be included in the Consent to the Merger
will be deemed to be the date the Consent is presented to the Company. This
date will be as soon as practicable after the Domestication becomes effective.
SINCE A SHAREHOLDER MUST HOLD THE COMMON SHARES TO BE VOTED IN HIS NAME UNDER
THE CONSENT ON THE DATE THE CONSENT IS EXECUTED, NO PROXY WITH RESPECT TO THE
CONSENT WILL BE EFFECTIVE IF THE HOLDER EXECUTING THE PROXY IS NO LONGER A
HOLDER OF RECORD AT THE TIME THE CONSENT IS EXECUTED. ACCORDINGLY, HOLDERS OF
COMMON SHARES WHO WISH TO HAVE THEIR SHARES REPRESENTED IN THE EXECUTION OF THE
CONSENT TO THE MERGER SHOULD REFRAIN FROM SELLING OR TRANSFERRING ANY COMMON
SHARES UNTIL AFTER THE MERGER BECOMES EFFECTIVE.
STATEMENT OF EXECUTIVE COMPENSATION
For information with respect to executive compensation, see "Management."
ELECTION OF DIRECTORS
Five directors will be elected at the Meeting. Management does not
contemplate that any of the nominees will be unable to serve as a director but
if that should occur for any reason prior to the Meeting, it is intended that
discretionary authority shall be exercised by the persons named in the enclosed
form of Proxy to vote the Proxy for the election of any other person or persons
in place of any nominee or nominees unable to serve. The term of office of
each of the following proposed nominees will expire at the next meeting of
shareholders of the Company when a successor is duly elected or appointed
unless his office is earlier vacated in accordance with the Company's by-laws;
provided, however, if the Merger is completed, the directors of Xavier-Delaware
will be the directors of the surviving company after the Merger. See
"Management--Executive Officers and Directors" for information concerning
Xavier-Delaware's directors.
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<PAGE>
The following table sets forth certain information pertaining to the persons
proposed to be nominated for election as directors of Xavier-Canada.
<TABLE>
<CAPTION>
YEAR
POSITION FIRST NUMBER
WITH XAVIER BECAME A OF
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT CANADA DIRECTOR SHARES(2)
------- ---------------------------------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Chris A. Dittmar Chairman, President and CEO of Chairman, 1993 373,750
the Company President
and CEO
Paul T. Conroy President of Paramount Ventures Director 1995 75,000
Finance, Inc., Beaufort Petroleum
Investments, Ltd. and Gothic
Resources, Inc.
Michael C.P. Hannesson(1) Chief Financial Officer and Director 1994 225,000
Director of Farm Energy, Ltd.
Robert L. Gerry, III Vice Chairman - Nuevo Energy Director 1994 125,000
Franklin L. Davis Partner - Smith Lyons Director 1995 75,000
</TABLE>
- --------------
(1) Mr. Hannesson served the Company as a director from August 30, 1994 to
May 20, 1995 prior to becoming a member of the Board of Directors again
on August 30, 1995. He is also a member of the Audit Committee.
(2) Information with respect to the number of shares beneficially owned,
directly or indirectly, or over which control or direction is exercised,
not being within the knowledge of Xavier-Canada, has been provided by the
nominees. For further information concerning each director nominee's
holdings of Xavier-Canada securities, see "Principal Shareholders."
For further information with respect to the persons nominated to be
directors of Xavier-Canada, the directors of Xavier-Delaware and members of
the Company's management, including the number of Common Shares beneficially
owned, directly or indirectly or over which control or direction is exercised,
see "Management" and "Principal Shareholders."
APPOINTMENT OF AUDITORS
Unless such authority is withheld, the persons named in the Proxy intend
to vote for the appointment of BDO Seidman, LLP, as the new auditors of the
Company (the "New Auditors") for the next year and to authorize the directors
to fix their remuneration.
After approval by the Company's Board of Directors, the Company's
predecessor auditors, Morgan & Co., Chartered Accountants (the "Former
Auditors") resigned at the Company's request on September 12, 1994, effective
September 12, 1994. The New Auditors were appointed as the Company's auditors
as of July 29, 1994. The Former Accountant's report for the year ended
December 31, 1993 contained no adverse opinions or disclaimer of opinions nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with the Former Accountants on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which would have required the Former Auditors
to include such disagreements in their reports.
In accordance with National Policy No. 31, the Company issued a notice of
change of auditors (the "Notice"). The Company has since received letters in
reply to the Notice from the Former Auditors and the New Auditors (together,
the "Replies") and the Notice and the Replies have been reviewed by the
directors of the Company. A copy of each of the Notices and the Replies are
attached as Exhibit C as the reporting package pursuant to National Policy No.
31.
THE CONSOLIDATION
The Company is asking its shareholders to pass a special resolution (the
"Consolidation Resolution"), subject to requisite regulatory approval,
including without limitation, the approval of the ASX, authorizing the filing
of Articles of Amendment consolidating the issued and outstanding Common
Shares on the basis of one Post-Consolidation Common Share for every four Pre-
Consolidation Common Shares of the Company and
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<PAGE>
changing the name of the Company to Xavier Corporation, all in compliance with
Ontario Securities Commission Policy No. 5.2.
The Board of Directors believes that the Consolidation is in the best
interests of the shareholders because over the long term the Company will have
greater flexibility with respect to future equity financings which will be
necessary to develop the Company's properties and the Consolidation will
facilitate acquisitions by the Company for equity consideration. Furthermore,
in connection with the proposed listing of the Common Shares on the Nasdaq
National Market, it is necessary for such shares to trade at a price over
US$3.00 per share. See "Risk Factors--Risks Relating to Ownership of Company
Securities and this Offering--Nasdaq National Market Listing."
Prior to the Consolidation, Xavier-Delaware will issue 26 shares of
Convertible Preferred Stock (the "Convertible Preferred Shares") to Messrs.
Dittmar and Bowman pursuant to the terms of certain Interest Purchase
Agreements effective November 3, 1993. Each Convertible Preferred Share will
be convertible into Xavier-Delaware Common Stock in an amount equal to 1% of
the outstanding Xavier-Delaware Common Stock at the time of, and after giving
effect to, the conversion thereof. The Company has agreed to issue at least
20 of these Convertible Preferred Shares to Mr. Dittmar and at least six of
these Convertible Preferred Shares to Mr. Bowman pursuant to the Interest
Purchase Agreements. The ability of Messrs. Dittmar and Bowman to convert
their shares and the obligation of the Company to issue additional Convertible
Preferred Shares are subject to certain conditions described more fully under
the caption "Certain Transactions--Interest Purchase Agreements." See also
"Risk Factors--Risks Related to Ownership of the Company's Securities and this
Offering--Obligation to Issue Substantial Additional Shares."
It is currently anticipated that the Articles of Amendment effecting the
Consolidation will be filed regardless of whether the Domestication and Merger
are effected. If the Consolidation is effected without the Domestication or
Merger being completed, shareholders will be required to surrender their
certificates representing Pre-Consolidation Common Shares in exchange for
certificates representing Post-Consolidation Common Shares. Appropriate
transmittal forms will be sent to shareholders for this purpose. Prior to a
share certificate being surrendered, such share certificate will represent
whole shares of the Company on a post-consolidated basis, (an amount equal to
one-fourth of the amount represented by such share certificate).
The special resolution approving the Consolidation will provide that any
person who, on the date that the Articles of Amendment are filed with the
Ministry of Consumer and Commercial Relations to give effect to this
resolution, is the registered holder of a number of Common Shares not
divisible by four shall not be entitled to receive any fractional interest in
a Common Share following such consolidation. All fractions of Post-
Consolidation Common Shares will be rounded to the next lowest whole number if
the first decimal place is less than five and rounded to the next highest
whole number if the first decimal place is five or greater.
The special resolution will not be effective unless passed at the Meeting
by at least two-thirds of the votes cast. Notwithstanding such approval, the
Board of Directors may determine not to proceed with the filing of Articles of
Amendment effecting the Consolidation.
As the special resolution is subject to the approval of the ASX, if such
approval is not obtained, the Board of Directors will not proceed with the
filing of the Articles of Amendment.
Exhibit A to this Prospectus contains the text of the special resolution
with respect to the Consolidation to be submitted to the Shareholders at the
Meeting.
24
<PAGE>
DOMESTICATION AND MERGER
THE DOMESTICATION.
Xavier-Canada is proposing to continue its existence through a
"domestication" under Section 388 of the DGCL. The continued, or
domesticated, corporation will become subject to the DGCL on the date of its
domestication, but will be deemed to have commenced its existence in Delaware
on the date it originally commenced existence in Ontario. Under the DGCL, a
corporation becomes domesticated in Delaware by filing a certificate of
domestication and a certificate of incorporation for the corporation being
domesticated. A copy of the proposed form of each of the Certificate of
Domestication and Certificate of Incorporation of Xavier-Canada that will be
filed in Delaware is attached as Exhibit D and E, respectively. The
Domestication will be effective upon the filing of such certificates and
thereafter Xavier-Canada will be subject to such Certificate of Incorporation.
Xavier-Canada will be discontinued in Ontario as of the date a certificate of
discontinuance is issued by the OBCA Director.
The Domestication will not interrupt the existence of Xavier-Canada.
Each Common Share will remain issued and outstanding as a Common Share of
Xavier-Canada after its corporate existence is continued from Ontario under
the OBCA and domesticated in Delaware pursuant to the DGCL. For a summary of
certain of the rights of shareholders of the Company before and after the
Domestication, see "Effects of Domestication on Shareholder Rights."
THE MERGER
GENERAL.
The Merger is proposed to be accomplished as a "short-form" merger
of Xavier-Canada, then a Delaware corporation, into its wholly-owned
subsidiary, Xavier-Delaware, pursuant to Section 253 of the DGCL. The
Certificate of Incorporation and By-Laws (the "Xavier-Delaware Certificate"
and "Xavier-Delaware By-Laws," respectively) attached as Exhibits G and H,
respectively, will become the Certificate of Incorporation and By-Laws of
Xavier-Delaware in connection with the Merger. A copy of each of the proposed
Certificate of Ownership and Merger relating to the Merger, the Xavier-
Delaware Certificate and the Xavier-Delaware By-Laws is attached as Exhibit F,
G and H, respectively.
In the Merger, each Common Share issued and outstanding immediately
prior to the Merger will be converted into one share of Xavier-Delaware Common
Stock. See "-- Mechanics of Merger." If the Merger fails to occur, Xavier-
Canada will continue its operations as a Delaware corporation and the proposed
Xavier-Delaware Certificate and Xavier-Delaware By-laws will be the
Certificate of Incorporation and By-laws of Xavier-Canada after the
Domestication.
PURPOSE OF MERGER.
The Company was formed in 1959 to conduct mining and natural
resource operations in Canada. In 1991 the Company ceased mining operations
and conducted no significant business activities until December 1993. Because
the corporate records relating to the Company's operations prior to December
1993 are incomplete, the Company cannot accurately establish with complete
certainty the circumstances surrounding each and every share issuance.
Although the Company has not identified any defects in share issuances during
the period from 1959 through 1993 and has not been notified that any exist, it
intends to undertake the Merger in an effort to ensure that no such issues
arise in the future. Accordingly, in connection with the Merger, when each
shareholder surrenders his certificate, he will be deemed to be surrendering
any and all claims, if any, he may have against the Company in respect of any
defective issuance which he alleges may have occurred.
25
<PAGE>
If the Merger is not completed, the Company will not have the same
level of certainty with respect to the circumstances with respect to the
issuance of the Common Shares that would be afforded if the Merger were to
occur. The Company does not believe, however, that it will be adversely
affected in any material way by the failure to complete the Merger.
MECHANICS OF THE MERGER.
In the Merger, holders of Common Shares will receive one share of
Xavier-Delaware Common Stock for every Post-Consolidation Common Share held by
such holder.
Following the Merger, holders of Common Shares will continue to hold
the same percentage interest in Xavier-Delaware that they held in Xavier-
Canada immediately prior to the Merger. In addition, in connection with the
Merger, the Xavier-Canada Warrants and the Xavier-Canada Options outstanding
immediately prior to the Merger will become obligations of Xavier-Delaware.
OFFICERS AND DIRECTORS
Upon the effectiveness of the Merger, the directors and officers of
Xavier-Delaware immediately prior to the Merger will continue to be the
officers and directors of Xavier-Delaware after the Merger. The current
officers of Xavier-Delaware are the persons who hold the same offices in
Xavier-Canada. Chris A. Dittmar, Robert L. Gerry, III, Michael C.P.
Hannesson, Paul T. Conroy and Franklin L. Davis are the current and nominee
directors of Xavier-Canada. Chris A. Dittmar, Robert L. Gerry, III, Franklin
L. Davis, Benton H Wilcoxon and George W. Bowman are, and immediately after
the Merger will continue to be, the directors of Xavier-Delaware. See
"Management" for further details about the officers and directors of Xavier-
Canada and Xavier-Delaware.
EXCHANGE OF SHARE CERTIFICATES
As soon as practicable on or after the Merger, Xavier-Canada
shareholders of record immediately prior to the Merger will be sent detailed
instructions concerning the procedures to be followed for submission of
certificates representing Common Shares to an exchange agent appointed by
Xavier-Canada (the "Exchange Agent"), together with a form of transmittal
letter to be sent to the Exchange Agent at the time such certificates are
submitted.
After the Merger, the Exchange Agent will deliver to any holder who
has previously submitted a duly completed and executed transmittal letter and
a certificate representing Common Shares, a certificate issued by Xavier-
Delaware representing the appropriate number of shares of Xavier-Delaware
Common Stock into which such holder was converted.
After the Merger but before a certificate representing Common Shares
is surrendered, certificates representing Common Shares will represent the
number of shares of Xavier-Delaware Common Stock into which the holder thereof
was converted pursuant to the terms of the Merger. The transfer agent for the
Company will be instructed to forward to the Exchange Agent any certificates
for shares of capital stock of Xavier-Canada otherwise delivered by the
shareholder. The Exchange Agent will deliver certificates representing the
appropriate amount and type of Xavier-Delaware capital stock in accordance
with the stockholder's instructions for transfer or exchange.
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CONDITIONS TO DOMESTICATION AND MERGER; SHAREHOLDER APPROVALS
DOMESTICATION
The Domestication is subject to, among other things, (i) approval by
the Xavier-Canada shareholders of a special resolution authorizing the
Domestication (a copy of which is attached as Exhibit B) by the affirmative
vote of at least two-thirds of the Common Shares voting in person or by proxy
at the Meeting or any adjournment(s) thereof and (ii) authorization of the
OBCA Director. Upon approval of the Domestication by Xavier-Canada
shareholders, Xavier-Canada intends to apply to the OBCA Director to authorize
the Domestication.
MERGER
The consummation of the Merger is subject to the following
conditions: (i) the effectiveness of the Domestication; (ii) the adoption of
a resolution approving the Merger by the Board of Directors of Xavier-Canada
after the Domestication; and (iii) the approval of the Merger by the Consent
executed on behalf of holders of record of a majority of the outstanding
Common Shares after the Domestication.
The shareholders of Xavier-Canada are being requested to approve the
Merger by written consent, instead of at a special meeting, because the notice
and voting requirements under the DGCL could not be satisfied on a timely
basis if a meeting of the shareholders of Xavier-Canada, once domesticated
under the DGCL, were held immediately following the Domestication. For the
Consent to be effective under the DGCL, it must be expressed, in person or by
proxy, by the holders of record of a majority of the outstanding Common
Shares, once Xavier-Canada is domesticated under the DGCL. Under the DGCL,
notice of the Merger must be sent to the non-consenting shareholders of
Xavier-Canada immediately prior to the effectiveness of the Merger.
Notwithstanding the requisite shareholder approvals of the
Domestication and Merger, the Board of Directors of Xavier-Canada has reserved
the right to terminate or abandon the Domestication and/or the Merger without
further shareholder approval if the Board of Directors determines that the
consummation of the Domestication and/or the Merger would be inadvisable or
not in the best interests of Xavier-Canada or its shareholders, or if all of
the respective conditions to consummation of the Domestication and Merger have
not occurred within a reasonable period of time.
PROCEEDINGS BEFORE GOVERNMENTAL AUTHORITIES
ONTARIO REGISTRAR
The Domestication is subject to the authorization of the OBCA
Director pursuant to Section 181 of the OBCA. If the special resolution is
passed by the requisite number of Common Shares, Xavier-Canada intends to
apply to the OBCA Director for authorization of the Domestication. The OBCA
Director is empowered to authorize the Domestication if, among other things,
the OBCA Director is satisfied that the Domestication will not adversely
affect creditors or shareholders of Xavier-Canada and has set out five
conditions in this regard.
Under the laws of the State of Delaware:
(i) the property of Xavier-Canada continues to be the property of
Xavier-Canada, once domiciled in Delaware;
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(ii) Xavier-Canada, once domiciled in Delaware, continues to be
liable for the obligations of Xavier-Canada prior to the
Domestication;
(iii) an existing cause of action, claim or liability to
prosecution is unaffected;
(iv) a civil, criminal or administrative action or proceeding
pending by or against Xavier-Canada may be continued to be
prosecuted by or against Xavier-Canada after the
Domestication; and
(v) a conviction against, or ruling, order or judgment in favor
of or against, Xavier-Canada prior to the Domestication may
be enforced by or against Xavier-Canada after the
Domestication.
Furthermore, pursuant to section 51 of the Regulations to the OBCA, an
application for authorization of an Ontario company to continue in another
jurisdiction must be accompanied by:
(i) a consent from the Corporations Tax Branch of the Ministry of
Revenue;
(ii) a consent from the Ontario Securities Commission;
(iii) a legal opinion to the effect that the laws of the other
jurisdiction meet the requirements of Section 181 of the
OBCA.
DELAWARE
Subject to receipt of the authorization of the OBCA Director to the
Domestication, Xavier-Canada anticipates that it will file with the
appropriate official in Delaware a Certificate of Domestication and a
Certificate of Incorporation under Section 388 of the DGCL, and that Xavier-
Canada will be domesticated in Delaware on the date that all of the conditions
to the Domestication have been satisfied. Promptly thereafter, Xavier-Canada
intends to give notice to the OBCA Director that Xavier-Canada has been
continued under the laws of Delaware and, pursuant to Section 181 of the OBCA,
request that the OBCA Director issue a Certificate of Discontinuance bearing
the same date as the date shown in the Certificate of Incorporation issued
under the DGCL.
PRINCIPAL REASONS FOR THE DOMESTICATION AND MERGER
The Domestication and Merger will result in Xavier-Delaware, a Delaware
corporation, succeeding to all of the operations, assets and liabilities of
Xavier-Canada, an Ontario, Canada corporation. The Board of Directors
believes that, by domiciling in the United States, Xavier will be able to
enhance shareholder value over the long term. The Board's belief is based, in
part, on the following factors:
(i) as a Delaware corporation, the Company will have a
significantly better opportunity to qualify for U.S.
Government and quasi-governmental agency financing for its
Russian projects described under the caption "Business;"
(ii) by domiciling in the United States, the marketability of the
Company's Common Shares will be enhanced by raising the
Company's profile in various capital markets; and
(iii) by becoming subject to United States tax laws, it will be
provided with greater ease in dealing with income tax
complexities associated with multi-jurisdictional operations.
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Furthermore, in the experience of management, potential debt and equity
capital sources in the United States are more comfortable dealing with a
United States corporation than a foreign corporation. Management believes
this may be because U.S. entities are likely to be more familiar with U.S.
standards of accounting, U.S. securities law disclosure requirements and U.S.
legal principles.
The Company chose the State of Delaware to be its domicile because
Delaware, like Ontario, has a modern and flexible corporate code. The
escalating risks and resultant costs of director liability have made it
increasingly difficult for corporations to find and retain competent
directors, and the Company believes the various indemnity and exculpation
provisions of the DGCL will help it to attract and retain competent directors.
Delaware has an active bar which is continually assessing and recommending
improvements to the DGCL, and the substantial body of settled case law under
the DGCL adds greater certainty in assessing risks associated with conducting
business.
The Company does not believe there will be any material disadvantages
associated with the Domestication.
The Company was formed in 1959 to conduct mining and natural resource
operations in Canada. In 1991 the Company ceased mining operation and
conducted no significant business activities until December 1993. Because the
corporate records relating to the Company's operations prior to December 1993
are incomplete, the Company cannot accurately establish with complete
certainty the circumstances surrounding each and every share issuance.
Although the Company has not identified any defects in share issuances during
the period from 1950 through 1993 and has not been notified that any exist, it
intends to undertake the Merger in an effort to ensure that no such issues
arise in the future. Accordingly, in connection with the Merger, when each
shareholder surrenders his certificate, he will be deemed to be surrendering
any and all claims, if any, he may have against the Company in respect of a
defective issuance which he alleges may have occurred.
If the Merger is not completed, the Company will not have the same level
of certainty with respect to the circumstances with respect to the issuance of
the Common Shares that would be afforded if the Merger were to occur. The
Company does not believe, however, that it will be adversely affected in any
material way by the failure to complete the Merger.
EFFECT OF DOMESTICATION ON SHAREHOLDER RIGHTS
On the Effective Date, the shareholders of Xavier-Canada will become
stockholders of Xavier-Delaware. Differences between the OBCA and the DGCL
and between the Xavier-Canada Articles and the proposed Xavier-Delaware
Certificate will result in various changes in the rights of shareholders of
Xavier-Canada.
The following is a summary of the rights of the Company's stockholders
after the Domestication, as compared with those of Xavier-Canada shareholders
prior to the Domestication. This summary does not purport to be complete and
is qualified in its entirety by reference to the Xavier-Delaware Certificate,
Xavier-Delaware By-Laws, Xavier-Canada Articles and Xavier-Canada By-Laws, the
text of which are included in this Prospectus as Exhibits G, H, E and I,
respectively. For further discussion of certain provisions of the Xavier-
Delaware Certificate, see "Description Xavier--Delaware Securities."
DIFFERENCES BETWEEN ONTARIO AND DELAWARE CORPORATE LAW
Upon the consummation of the Domestication and Merger, the Corporation
will be subject to the provisions of the DGCL. Set forth below is a
comparison of certain material provisions of the DGCL and the OBCA.
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Vote on Extraordinary Corporate Transactions. Under the OBCA,
amalgamations, continuances, sales or leases or exchanges of all or
substantially all of the assets of a company and other extraordinary corporate
actions require the approval of the holders of two-thirds of the shares being
voted thereon in person or by proxy. Under the DGCL, mergers or
consolidations require the approval of the holders of a majority of the
outstanding stock of the corporation entitled to vote thereon except: (i) for
a corporation that survives the merger where the merger requires the issuance
of Common Stock not exceeding 20% of such corporation's shares outstanding
immediately prior to the merger, the merger agreement does not amend in any
respect the survivor's certificate of incorporation and shareholder approval
is not specifically mandated in the survivor's certificate of incorporation;
and (ii) for both corporations where the corporation surviving the merger was
a 90% or greater parent of the other corporation. Unless a greater percentage
is required by the charter, a sale, lease or exchange of all or substantially
all the property or assets of a corporation or an amendment to the certificate
of incorporation also require the approval of the holders of a majority of the
outstanding stock entitled to vote thereon.
By-Law Amendments. Under the OBCA, either shareholders or directors may
make, amend or repeal by-laws, but director by-laws are subject to later
confirmation by the shareholders. Under the DGCL, stockholders may adopt,
amend or repeal by-laws. In addition, directors of a corporation, if
authorized by the certificate of incorporation, may adopt, amend or repeal by-
laws, such action not being subject to later shareholder confirmation.
Amendments to the Charter. Under the OBCA, an amendment to a
corporation's articles of incorporation requires the affirmative vote of at
least two-thirds of the votes cast by shareholders entitled to vote thereon
represented in person or by proxy and in most instances, the affirmative vote
of at least two-thirds of the votes cast within each class or series of
outstanding shares by shareholders represented in person or by proxy. Under
the DGCL, an amendment to a corporation's certificate of incorporation
requires the approval of a majority of the outstanding stock entitled to vote,
unless such level of approval is increased by the certificate of
incorporation. In addition, under the DGCL, if the amendment to the
certificate of incorporation adversely affects the rights of a particular
class of stock, that class is entitled to vote separately on the amendment
whether or not it is designated as voting stock.
Removal of Directors. Under both the OBCA and the DGCL, directors may
generally be removed, with or without cause, by a vote of the holders of a
majority of the shares being voted. However, under the DGCL, if the board is
classified, which the Board of Xavier-Delaware is, directors may be removed
only for cause, unless the certificate of incorporation provides otherwise,
which the Xavier-Delaware certificate of incorporation does not. Further, if
a director is elected by holders of a class or series of shares, the OBCA
provides that only the shareholders of that class or series can vote to remove
that director, without or without cause, whereas the DGCL provides that only
the shareholders of that class or series can vote to remove that director
without cause. Finally, in the case of a corporation having cumulative
voting, under both the OBCA and the DGCL a director may not be removed from
office if the votes cast against the director's removal would be sufficient to
elect such director and such votes could be voted cumulatively at an election
at which the same total number of votes were cast and, (i) in the case of the
OBCA, the number of directors required by the articles were then being
elected, or (ii) in the case of DGCL, the entire board is being elected or, if
there are classes of directors, the class of directors of which such director
is a part is being elected.
Quorum of Shareholders. Under the OBCA, a quorum for shareholders'
meetings consists of the holders of a majority of the outstanding shares,
present in person or represented by proxy, unless the by-laws otherwise
provide. Under the DGCL, a quorum consists of a majority of shares entitled
to vote, present in person or represented by proxy, unless the charter or by-
laws provide otherwise, but in no event may a quorum consist of less than one-
third of the shares entitled to vote at the meeting.
Notice and Calling of Shareholder Meetings. Under the OBCA,
shareholders' meetings may be called by the board of directors who must call a
meeting when so requested by the holders of not less than five
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percent (5%) of the voting shares, on a minimum of 21 days' notice. Under the
DGCL, unless the certificate of incorporation or by-laws authorize additional
persons, only the board of directors may call a shareholders' meeting, on ten
days' notice.
Shareholder Consent in Lieu of Meeting. Under the OBCA, shareholder
action without a meeting may only be taken by unanimous written consent of all
shareholders. Under the DGCL, unless otherwise provided in the charter,
shareholders may act by written consent without a meeting if holders of
outstanding stock representing not less than the minimum number of votes that
would be necessary to take such action at an annual or special meeting execute
a written consent providing for such action.
Appraisal Rights. The DGCL does not give appraisal rights in a merger or
consolidation to holders of stock listed on a national securities exchange
(such as the Nasdaq National Market) or held of record by more than 2,000
shareholders, provided that such holders receive shares of stock of the
company surviving the merger or consolidation or shares of stock of any other
company which is either listed on a national securities exchange or held of
record by more than 2,000 shareholders. The OBCA does not contain any similar
exemption from its provisions relating to dissenter's rights of appraisal for
amalgamations. In addition, appraisal rights are available under the DGCL for
sales of all or substantially all of the Corporation's assets or charter
amendments only if the charter so provides. Shareholders are entitled to
appraisal rights under the OBCA in connection with the sale, lease or exchange
of all or substantially all the assets of a company and for charter amendments
which affect share issuance or transferability or corporate purposes or which
would require a separate class vote.
Shareholder Register. A Delaware company's stock ledger showing the
names, addresses and security ownership of its shareholders may be inspected
only by directors and shareholders of record for a purpose reasonably related
to their respective interests as directors or shareholders. Shareholders and
certain other persons may inspect the shareholder list of an Ontario company
that is an offering corporation.
Dividends and Distributions. The DGCL and OBCA treat dividends
similarly. The DGCL permits a company, unless otherwise restricted by the
certificate of incorporation, to pay dividends out of surplus or, if there is
no surplus, out of net profits for the current and preceding fiscal year
(provided that the amount of capital of the company is not less than the
aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets). In
addition, the DGCL generally provides that a company may redeem or repurchase
its shares only if such redemption or repurchase would not impair the capital
of the corporation. The ability of a Delaware company to pay dividends on, or
to make repurchases of redemptions of, its shares is dependent on the
financial status of the company standing alone and not on a consolidated
basis. In determining the amount of surplus of a Delaware company, the assets
of the company, including stock of subsidiaries owned by the company, must be
valued at their fair market value as determined by the board of directors if
fair market value is less than historical book value and may be valued at
their fair market value if fair market value is greater than historical book
value. Under the OBCA, a company may not declare or pay a dividend if there
are reasonable grounds for believing that the company is or after the payment
would be, unable to pay its liabilities as they become due, or if the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and stated capital of all classes.
Director Qualification and Number. A majority of the directors of an
Ontario company must be Canadian residents. The DGCL has no similar
requirement. The number of directors of a Delaware company may be changed by
resolution of the directors if the charter or by-laws so provide (as will be
the case with the proposed Xavier-Delaware certificate and by-laws) while the
charter of an Ontario company must specify the number or a range for the
number of directors and if authorized by a special shareholders' resolution,
in between shareholders' meetings, the directors may increase the number of
directors within the minimum and maximum range provided that they may not do
so if after such appointment, the total number of directors
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would be one and one-third times greater than the number of directors required
to have been elected at the last annual meeting of shareholders.
Director Liability. Under the DGCL, the charter of a Delaware company
may limit the personal liability of a director to the shareholders of the
company for monetary damages for breach of fiduciary duty, except for: (i) any
breach of a director's duty of loyalty to the company or its shareholders;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) paying a dividend or approving
a stock repurchase in violation of statutory limitations; or (iv) any
transaction from which a director derived an improper personal benefit. The
OBCA has no comparable provision. Such a charter provision under the DGCL
does not affect the right of a company or its shareholders to pursue equitable
remedies such as an action to enjoin or rescind a transaction involving a
breach of a director's duty of care (although such equitable remedies may not
always be available) and in no way affects a director's liability under United
States federal securities laws.
Oppression Relief and Equitable Remedies. The OBCA creates a cause of
action for "oppression" and "unfairness" with respect to shareholders,
creditors, directors and officers and vests the court with broad remedial
powers in connection therewith. The DGCL contains no comparable provision and
the scope of the equitable powers of the Delaware courts as defined by
existing case law is less certain than the scope of the powers of Ontario
courts.
In addition, certain differences between the powers granted to companies
under the DGCL and the powers granted to companies under the OBCA may make a
Delaware company less vulnerable than an Ontario company to hostile takeover
attempts. These differences include the absence of power of shareholders to
call special meetings unless expressly granted as discussed above. On the
other hand, because of such provisions as the power of shareholders to take
action without a meeting by less than unanimous consent, the DGCL may, under
some circumstances, facilitate a hostile takeover attempt.
DIFFERENCES BETWEEN THE XAVIER-CANADA ARTICLES AND THE XAVIER-DELAWARE
CERTIFICATE
The Xavier-Delaware Certificate to be adopted in connection with the
Merger (and the Xavier-Canada Certificate after the Domestication) differ
substantially from the Xavier-Canada Articles. Differences include, but are
not limited to, the following:
Capital Structure. Under the Xavier-Delaware Certificate, the total
number of shares of capital stock that the Company will have the authority to
issue is 310 million, including 300 million shares of Xavier-Delaware Common
Stock and ten million shares of Xavier-Delaware Preferred Stock. Under the
Xavier-Canada Articles, the Company has the authority to issue unlimited
amounts of no par value stock for both common and preference shares.
Board of Director Size. The Xavier-Delaware Certificate (i) provides for
an initial board of directors consisting of five members but contains no
restrictions on the minimum or maximum number of directors except as provided
by Delaware law and (ii) divides the Board of Directors into three classes,
one of which is elected each year to hold office for a three-year term and
until successors are elected and qualified. The Xavier-Canada Articles
provides for a minimum of three and a maximum of ten directors. Both Xavier-
Delaware and Xavier-Canada have five directors. See "Management."
Liability of Directors. The Xavier-Delaware Certificate provides that
directors of the corporation shall not be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except that a director may be personally liable to the extent
provided by applicable Delaware law which currently prohibits limitation of
director liability for: (i) any breach of the director's duty of loyalty to
the corporation or its shareholders; (ii) acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law; (iii)
authorizing the payment of a dividend or repurchase
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of stock; or (iv) any transaction from which the director derived an improper
personal benefit. The Xavier-Canada Articles prior to the Domestication
contain no similar provision.
Shareholder Consent in Lieu of Meeting. As noted previously, under the
OBCA, the shareholders of a corporation may take action without a meeting only
by unanimous consent of all shareholders. Under the Xavier-Delaware
Certificate (and the Xavier-Canada Certificate after the Domestication), the
shareholders of the Company will not be permitted to take action without a
meeting unless the board of directors shall have previously approved the
taking of such action by written consent.
Shareholder Nomination of Directors. The Xavier-Delaware Certificate
(and the Xavier-Canada Certificate after the Domestication) will require
shareholder nominations of directors for an election to be held at an annual
meeting or special meeting of shareholders to meet certain procedural
requirements including disclosure of such information regarding the proposed
nominees as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission, a description of all
arrangements or any affiliation between the shareholder and the proposed
nominee and the consent of the nominee to serve as a director of the
Corporation is so elected. Although such provision is not explicitly provided
for in the Xavier-Canada Articles prior to the Domestication, the OBCA
contains similar provisions.
Business Combinations. After both the Domestication and the Merger, the
Company will be subject to the provisions of Section 203 of the DGCL ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person, or an affiliate or associate of such person, who is an
"interested stockholder" for three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved
by the Board of Directors of the corporation before the person becomes an
interested stockholder, (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction
that makes such person an interested stockholder (excluding shares owned by
persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans), or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at
least 66-2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined as any person who is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and who was the owner of 15%
or more of the outstanding voting stock of the corporation at any time within
the three years immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage. The Company has not
adopted such an amendment to its Certificate of Incorporation or By-laws.
There is no comparable provision under the OBCA, although Section 132 of
the OBCA does provide that a director or officer who is a party to a material
contract or transaction or proposed material contract or transaction with the
Company or is a director or an officer of, or has a material interest in, any
person who is a party to a material contract or transaction or proposed
material contract or transaction with the Company must disclose in writing to
the Company or request to have entered in the minutes of meetings of directors
the nature and the extent of his interest. The disclosure required must be
made:
(i) at the meeting at which a proposed contract or transaction is
first considered;
(ii) if the director was not then interested in a proposed contract
or transaction, at the first meeting after he becomes so
interested;
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(iii) if the director becomes interested after a contract is made or
a transaction is entered into, at the first meeting after he
becomes so interested; or
(iv) if a person who is interested in a contract or transaction
later becomes a director, at the first meeting after he
becomes a director.
Where the above section applies to a director in respect of a material
contract or transaction or proposed material contract or transaction that in
the ordinary course of the Company's business, would not require director or
shareholder approval, the director shall disclose in writing to the Company or
request to have entered in the minutes of meetings of directors the nature and
extent of his interest forthwith after the director becomes aware of the
contract or transaction or proposed contract or transaction.
An interested director may not vote on any resolution to approve the
contract or transaction unless the contract or transaction is:
(i) an arrangement by way of security for money lent to or
obligations undertaken by the director for the benefit of
the Company or an affiliate;
(ii) one relating primarily to his remuneration as a director,
officer, employee or agent of the Company or an
affiliate;
(iii) one for indemnity or insurance; or
(iv) one with an affiliate.
Where a material contract is made or a material transaction is entered
into between a corporation and another person or entity, of which a director
of the corporation is a director or officer or in which he has a material
interest, the director is not accountable to the Company or its shareholders
for any profit or gain realized from the contract or transaction and the
contract or transaction is neither void nor voidable, by reason only of that
relationship or by reason only that the director is present at or is counted
to determine the presence of a quorum at the meeting of directors that
authorized the contract or transaction, if the director duly disclosed his
interest and the contract or transaction was reasonable and fair to the
Company at the time it was so approved.
A director acting honestly and in good faith is not accountable to the
Company or to its shareholders for any profit or gain realized from any such
contract or transaction because he held the office of director and the
contract or transaction, if it was reasonable and fair to the Company at the
time it was approved, is not by reason only of the director's interest therein
void or voidable where the contract or transaction is confirmed or approved by
special resolution at a meeting of shareholders duly called for that purpose
and the nature and extent of the director's interest in the contract or
transaction are disclosed in reasonable detail in the notice calling the
meeting or in the required information circular.
In addition, Ontario Securities Commission Policy 9.1 deals with
restrictions relating to related party transactions and the Company, as a
reporting issuer in Ontario, is subject to such rules.
For further discussion of the Xavier-Delaware certificate of
incorporation, see "Description of Xavier--Delaware Securities."
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DISSENT RIGHTS OF XAVIER SHAREHOLDERS
In addition to any other rights a shareholder may have when the
Consolidation becomes effective or a Certificate of Domestication is filed
with the Secretary of State of Delaware pursuant to the special resolution
authorizing a company to be domesticated in Delaware under the provisions of
the DGCL (the "Domestication Resolution") and becomes effective, a shareholder
who complies with the dissent procedure of Section 185 of the OBCA is entitled
to be paid by the Company the fair value of the shares held by him in respect
of which he dissents determined as of the close of business on the day before
the Consolidation or the Domestication, as the case may be, becomes effective.
The dissent procedure of Section 185 of the OBCA is summarized below and
shareholders who may wish to dissent are specifically referred to the
disclosure set forth below, as failure by such shareholder to adhere strictly
to the requirements of such section may result in the loss of such
shareholder's rights under that section. Each shareholder who might desire to
exercise these rights of dissent should carefully consider and comply with the
provisions of such section and consult with his legal advisor.
The following summary is qualified in its entirety by reference to
Section 185 of the OBCA, a copy of which is attached as Exhibit J.
BUSINESS CORPORATIONS ACT (ONTARIO)
A dissenting shareholder may only claim under Section 185 of the OBCA
with respect to all of the shares of a class held by the dissenting
shareholder on behalf of any one beneficial owner and registered in the name
of the dissenting shareholder.
A shareholder who wishes to invoke the provisions of Section 185 of the
OBCA must send a written objection (the "Objection Notice") to the
Consolidation Resolution and/or Domestication Resolution at or before the
meeting at which such resolutions are to be considered.
The sending of a written objection to the Consolidation Resolution and/or
Domestication Resolution does not deprive the shareholder of the right to vote
thereon. Moreover, the OBCA specifically provides that the execution or
exercise of a proxy does not constitute a written objection for the purposes
of the dissent procedure.
A vote in favor of the Consolidation Resolution and/or Domestication
Resolution or the execution of a proxy which is so voted, will constitute a
waiver of the right of dissent with respect to such resolution.
Within ten days of the passing of the Consolidation Resolution and/or
Domestication Resolution, the Company is required to notify in writing each
dissenting shareholder that such resolution has been adopted.
A dissenting shareholder shall within 20 days after he receives notice of
the adoption of the Consolidation Resolution and/or Domestication Resolution
or, if he does not receive such notice, within 20 days after he learns that
the Consolidation Resolution and/or Domestication Resolution has been adopted,
send to the Company a written notice (the "Demand for Payment"), containing
his name and address, the number and class of shares in respect of which he
dissents and a demand for payment of the fair value of the shares of the
Company held by him.
Within 30 days of the sending of the Demand for Payment, the dissenting
shareholder shall send the certificates representing the shares with respect
to which he dissents to the Company or to the Company's transfer agent. The
Company or the Company's transfer agent shall endorse thereon notice that the
holder thereof is a dissenting shareholder and shall forthwith return the
share certificates to the dissenting shareholder. A dissenting shareholder
who fails to forward an Objection Notice, Demand for Payment and
35
<PAGE>
share certificates within the time required will lose any right to make a
claim to be paid the fair value of his securities.
On sending a Demand for Payment, a dissenting shareholder ceases to have
any rights as a shareholder other than the right to be paid the fair value of
the shares held by him, unless (i) the dissenting shareholder withdraws his
demand for payment before the Company makes an offer to pay (the "Offer to
Pay"), (ii) the Company fails to make an Offer to Pay and the dissenting
shareholder withdraws his Demand for Payment, or (iii) the directors revoke
the Domestication Resolution and/or Consolidation Resolution, as the case may
be, in which case his rights as a shareholder are reinstated as of the date he
sent the Demand for Payment.
Not later than seven days after the later of the day on which the action
approved by the Domestication Resolution and/or Consolidation Resolution, as
the case may be, is effective or the day the Company receives a Demand for
Payment, the Company shall send to each dissenting shareholder who has sent a
Demand for Payment, an Offer to Pay for the shares of the dissenting
shareholder in an amount considered by the directors of the Company to be the
fair value thereof, accompanied by a statement showing how the fair value was
determined, or a notification that it is lawfully unable to pay the dissenting
shareholders for their shares. Every Offer to Pay for shares of the same
class or series held by dissenting shareholders for their shares shall be on
the same terms. Any Offer to Pay accepted by a dissenting shareholder shall
be paid by the Company within ten days of the acceptance but an Offer to Pay
lapses if the Company has not received an acceptance thereof within 30 days
after the Offer to Pay has been made.
If an Offer to Pay is not made by the Company or if a dissenting
shareholder fails to accept an Offer to Pay, the Company may, within 50 days
after the action approved by the Consolidation Resolution and/or Domestication
Resolution is effective or within such further period as the court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder. If the Company fails to apply to a court within such 50 day
period, the dissenting shareholder may apply to a court for the same purpose
within a further period of 20 days or within such further period as the court
may allow. Any such application shall be made to the Ontario Court (General
Division).
A dissenting shareholder is not required to give security for costs in
any application to the court and all dissenting shareholders whose shares have
not been purchased by the Company shall be deemed to be joined as parties and
be bound by the decision of the court. The Company shall notify each affected
dissenting shareholder of the date, place and consequences of any application
and of the right of a dissenting shareholder to appear and be heard in person
or by counsel.
The court shall fix a fair value for the shares of all dissenting
shareholders and may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder from the date the action
approved by the Domestication Resolution and/or Consolidation Resolution, as
the case may be, is effective until the date of payment of the amount ordered
by the court.
If the Company fails to make an Offer to Pay, then the costs of a
shareholder application to the court shall be borne by the Company unless the
court otherwise orders. In other cases, the cost of any application to a
court by the Company or a dissenting shareholder will be in the discretion of
the court.
THE FOREGOING TEXT PROVIDES ONLY A SUMMARY OF THE HIGHLY TECHNICAL AND
COMPLEX PROVISIONS OF SECTION 185 OF THE OBCA. FAILURE TO STRICTLY COMPLY
WITH THE REQUIREMENTS SET FORTH IN THE FOREGOING SECTION MAY RESULT IN THE
LOSS OF A SHAREHOLDER'S APPRAISAL RIGHTS. ACCORDINGLY, ANY HOLDER OF COMMON
SHARES WISHING TO ASSERT HIS RIGHT TO DISSENT SHOULD SEEK LEGAL ADVICE.
36
<PAGE>
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Shareholders of Xavier-Canada will not be entitled to dissenter's or
appraisal rights under the DGCL in connection with the Domestication or
Merger.
1996 LONG TERM INCENTIVE PLAN
On May 2, 1996, the Board of Directors adopted, subject to
shareholder approval at the Meeting, the 1996 Long Term Incentive Plan (the
"1996 Incentive Plan"). The 1996 Incentive Plan will not become effective
until after the Domestication and the listing of the Company's common stock on
the Nasdaq National Market, and will remain effective after the Merger. No
grants have been made to date under the 1996 Incentive Plan. The purpose of
the 1996 Incentive Plan is to offer certain current and future key employees,
officers and consultants of the Company a favorable opportunity to become
holders of Common Shares, thereby giving them a permanent stake in the
Company's growth and prosperity and encouraging the continuance of their
involvement with the Company.
The 1996 Incentive Plan provides for the grant of any or all of the
following types of awards: (i) stock options, including incentive stock
options and nonqualified stock options; (ii) stock appreciation rights
("SARs") in tandem with stock options or freestanding; (iii) restricted stock;
(iv) performance share awards; (v) stock value equivalent awards; and (vi)
cash awards. Any stock option granted in the form of an incentive stock
option must satisfy the applicable requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Awards may be made to the same
person on more than one occasion and may be granted singly, in combination, or
in tandem as determined by the Compensation Committee (as defined below).
TERM. The 1996 Incentive Plan will terminate in May 2006 unless
earlier terminated by the Board of Directors. Termination of the 1996
Incentive Plan will not affect awards made prior to termination, but awards
will not be made after termination.
ADMINISTRATION. The 1996 Incentive Plan is administered by a committee
of two or more outside members of the Company's Board of Directors (the
"Compensation Committee"): subject to the terms of the 1996 Incentive Plan,
and to such approvals and other authority as the Board of Directors may
reserve to itself from time to time, the Compensation Committee, consistent
with the terms of the 1996 Incentive Plan, has authority to (i) select
employees to receive an award, (ii) determine the timing, form, amount, or
value and term of grants and awards, (iii) determine the conditions and
restrictions, if any, subject to which grants and awards are made and become
payable under the 1996 Incentive Plan, (iv) construe the 1996 Incentive Plan
and prescribed rules and regulations with respect to the administration of the
1996 Incentive Plan, and (v) make such other determinations authorized under
the 1996 Incentive Plan as the Compensation Committee deems necessary or
appropriate.
ELIGIBILITY. All full-time employees of the Company and its affiliates
and their consultants and advisors are eligible to participate in the 1996
Incentive Plan. The selection of participants from eligible employees is
within the discretion of the Compensation Committee. Non-employee directors
will be eligible for the award of options described under "--Stock Options."
SHARES SUBJECT TO THE 1996 INCENTIVE PLAN. Taking into account the one-
for-four reverse stock split to be effectuated prior to the Domestication,
there will be 2,250,000 Common Shares reserved for issuance under the 1996
Incentive Plan. These shares may be authorized and unissued shares or
treasury shares.
Shares are deemed to be issued under the 1996 Incentive Plan only to the
extent actually issued pursuant to an award. To the extent that an award
lapses or the rights of an awardee terminate or the award
37
<PAGE>
is paid in cash, any shares subject to such award are again made available for
grant. Upon any increases or decreases in the number of issued and
outstanding shares of Common Stock pursuant to stock splits, mergers,
reorganizations, recapitalizations, stock dividends, or other events described
under the terms of the 1996 Incentive Plan, the Compensation Committee shall
make appropriate adjustments to the aggregate number of shares available for
issuance under the 1996 Incentive Plan and the number and kinds of shares
which may be distributed under the 1996 Incentive Plan. The terms of SARs,
restricted stock, performance share awards and stock value equivalent awards
shall also be subject to adjustments by the Compensation Committee to reflect
changes in the Company's capitalization.
STOCK OPTIONS. Under the 1996 Incentive Plan, the Compensation Committee
may grant awards in the form of options to purchase shares of Common Stock.
The Compensation Committee will, with regard to each stock option, determine
the number of shares subject to the option, the manner and time of the
option's exercise, and the exercise price per share of the stock subject to
the option. The exercise price of an incentive stock option will not be less
than the fair market value of the Common Stock on the date the option is
granted. The Compensation Committee will designate each option as a non-
qualified or an incentive stock option. Each option agreement may provide
that the option price upon exercise can be paid by a participant in cash,
shares of Common Stock, or a combination thereof.
In addition, under the 1996 Plan, (i) each non-employee director who is
in office immediately after the annual meeting of stockholders each year in
which the 1996 Plan is in effect and (ii) each person who becomes a new non-
employee director, shall receive, on the day after each annual meeting of
stockholders or the date such person becomes a director, as the case may be,
as of the applicable date, non-qualified options to purchase 25,000 shares of
Xavier Delaware Common Stock.
STOCK APPRECIATION RIGHTS. The 1996 Incentive Plan also authorizes the
Compensation Committee to grant SARs either independent of, or in connection
with, a stock option. If granted with a stock option, exercise of the SAR
will result in the surrender of the right to purchase the shares under the
option as to which the SAR was exercised. Upon exercising a SAR, the holder
receives for each share with respect to which the SAR is exercised, an amount
equal to the difference between the exercise price, as determined by the
Compensation Committee, and the fair market value of the Common Stock on the
date of exercise. Payment of such amount may be made in shares of Common
Stock, cash or a combination thereof, as determined by the Compensation
Committee.
Each grant of a SAR is evidenced by an agreement which shall specify the
effect of termination of employment (by reason of death, disability,
retirement or otherwise) on the exercisability of the SAR.
RESTRICTED STOCK. The 1996 Incentive Plan provides that shares of Common
Stock subject to certain restrictions ("Restricted Stock") may be awarded to
eligible employees from time to time as determined by the Compensation
Committee. The Compensation Committee will determine the nature and extent of
the restrictions on such shares, the duration of such restrictions, and any
circumstance under which the Restricted Stock will be forfeited. During any
such period of restriction, recipients shall have most of the rights of a
holder of Common Stock, including but not limited to the right to receive
dividends and voting rights. The Compensation Committee shall determine the
effect of the termination of employment of a recipient of Restricted Stock (by
reason of retirement, disability, death or otherwise) prior to the lapse of
any applicable restrictions. With respect to outstanding awards of Restricted
Stock, if any, the Compensation Committee may in its discretion provide for
full vesting and termination of restrictions on Restricted Stock.
PERFORMANCE SHARE AWARDS. The 1996 Incentive Plan permits the
Compensation Committee to grant Performance Share Awards to eligible employees
under the 1996 Incentive Plan from time to time. Performance Share Awards are
awards which are contingent on the achievement of certain performance
objectives, valued by reference to the price performance of the Common Stock,
by reference to the financial
38
<PAGE>
or economic performance of the Company in comparison to a peer group of
companies in the same industry, or by reference to other factors, over a
specified period of time.
The length of time over which performance will be measured, the
performance objectives and the criteria to be used in determining whether and
to what degree such objectives have been obtained will be determined by the
Compensation Committee. The Compensation Committee shall also determine the
effect of termination of employment (because of death, retirement, disability
or otherwise) during the performance period.
STOCK VALUE EQUIVALENT AWARDS. The 1996 Incentive Plan permits the
Compensation Committee to grant Stock Value Equivalent Awards to eligible
employees from time to time. Stock Value Equivalent Awards are rights to
receive the fair market value of a specified number of shares of Common Stock,
or the appreciation in the fair market value thereof, over a specified period
of time, pursuant to a vesting schedule, all as determined by the Compensation
Committee. The vested portion of a Stock Value Equivalent Award will be
payable in cash based on the fair market value of the Common Stock on the
payment date. The Compensation Committee shall determine the effect of
termination of employment during the vesting period (because of death,
retirement, disability or otherwise) on an employee's Stock Value Equivalent
Award.
CHANGE OF CONTROL. Upon a Change in Control of the Company, all
outstanding awards granted more than six months prior to the date of the
Change in Control automatically become fully vested upon such Change in
Control, all restrictions, if any, with respect to such awards shall lapse,
and all performance criteria, if any, with respect to such awards shall be
deemed to have been met in full. For the 1996 Incentive Plan, a "Change in
Control" shall be deemed to occur: (a) if any person, other than Chris A.
Dittmar and/or George W. Bowman or their affiliates (as such term is used in
sections 13(d) and 14(d)(2) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities; (b) upon
the first purchase of the Company's common stock under a tender or exchange
offer (other than a tender or exchange offer made by the Company which is
supported by the Board); (c) upon the approval by the Company's stockholders
(which stockholder approval does not include Chris A. Dittmar and/or George W.
Bowman) of a merger or consolidation, a sale or disposition of all or
substantially all of the Company's assets or a plan of liquidation or
dissolution of the Company; or (d) if, during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
ASSIGNABILITY. Options to purchase Common Shares are not assignable or
transferable other than by will or the laws of descent and distribution or by
a qualified domestic relations order, and during the optionee's lifetime, an
option to purchase Common Shares may be exercised only by such optionee.
AMENDMENT. The Board may at any time terminate or amend the 1996
Incentive Plan in any respect, except that the Board may not, without approval
of the shareholders of the Company, amend the 1996 Incentive Plan so as to (i)
increase the aggregate number of shares of Common Stock which may be issued
under the 1996 Incentive Plan (except for adjustments in the number of shares
permitted with respect to certain stock splits, stock dividends, mergers,
reorganizations or recapitalizations as described above) or change the minimum
option exercise price, (ii) modify the requirements as to eligibility for
participation, (iii) materially increase the benefits accruing to participants
under the 1996 Incentive Plan or (iv) extend the duration of the 1996
Incentive Plan beyond May 2006. No amendment or termination of the 1996
Incentive Plan shall, without the consent of the optionee or participant in
the 1996 Incentive Plan, alter or impair the rights of such person under any
options, awards or agreements evidencing options or awards theretofore granted
under the 1996 Incentive Plan.
39
<PAGE>
U.S. FEDERAL INCOME TAX CONSEQUENCES OF 1996 INCENTIVE PLAN. With
respect to the grant of options under the 1996 Incentive Plan, there are no
federal income tax consequences upon the grant of an option thereunder. Upon
the exercise of a non-qualified option, the optionee generally will recognize
ordinary income in the amount of the "option spread" (the difference between
the market value of the option shares at the time of exercise and the exercise
price), and the Company is generally entitled to a corresponding tax deduction
(subject to certain reporting requirements). When an optionee sells shares
issued upon the exercise of a non-qualified stock option, the optionee
realizes a short-term or long-term capital gain or loss, depending on the
length of the holding period, but the Company is not entitled to any tax
deduction in connection with such sale.
An optionee will not be subject to federal income taxation upon the
exercise of incentive stock options granted under the 1996 Incentive Plan, and
the Company will not be entitled a federal income tax deduction because of
such exercise. A sale of shares of Xavier-Delaware Common Stock acquired by
exercise of an incentive stock option that does not occur within one year
after the exercise or within two years after the grant of the option generally
will result in the recognition of long-term capital gain or loss in the amount
of the difference between the amount realized on the sale and the exercise
price, and the Company will not be entitled to any tax deduction in connection
therewith. If a sale of shares of Common Stock acquired upon exercise of an
incentive stock option occurs within one year from the date of exercise of the
option or within two years from the date of the option grant (a "disqualifying
disposition"), the optionee generally will recognize ordinary income equal to
the lesser of (i) the excess of the fair market value of the shares on the
date of exercise over the exercise price and (ii) the excess of the amount
realized on the sale of the shares over the exercise price. Any amount
realized on a disqualifying disposition in excess of the amount treated as
ordinary compensation income will be long-term or short-term capital gain,
depending on the length of time the shares were held. The Company generally
will be entitled to a tax deduction on a disqualifying disposition
corresponding to the ordinary compensation income recognized by the
participant.
40
<PAGE>
PRICE RANGE OF COMMON SHARES
Since February 9, 1993, the Common Shares have been traded on the ASX
under the symbol XZX. Prior to that time, the Common Shares were traded on
the ASX under the name Zahavy Mines Limited, symbol ZVY. The following table
sets forth the high and low bid prices, in Canadian dollars, per Common Share
for the periods indicated as reported by the ASX.
<TABLE>
<CAPTION>
Price Range
--------------
High Low
--------------
<S> <C> <C>
FISCAL 1994:
First Quarter(1)... $6.25 $3.10
Second Quarter..... 5.88 3.00
Third Quarter...... 3.75 1.70
Fourth Quarter..... 3.20 1.50
FISCAL 1995:
First Quarter...... $1.95 $1.20
Second Quarter..... 2.40 1.28
Third Quarter...... 2.01 1.00
Fourth Quarter..... 1.40 .80
FISCAL 1996:
First Quarter...... $1.65 $ .60
Second Quarter(2).. $1.43 $1.01
</TABLE>
___________________
(1) Trading of the Common Shares was suspended from November 10, 1993 until
February 15, 1994, during which time Xavier-Canada negotiated certain
Interest Purchase Agreements with Messrs. Dittmar and Bowman and
commenced its current oil and gas operations. See "Certain Transactions-
-Interest Purchase Agreements."
(2) On May 9, 1996, the last sale price of the Common Shares as reported
by the ASX was CDN$1.25 per share.
The Company believes that past share prices are not necessarily
indicative of the value of the Common Shares in its current line of business.
The Company was formerly engaged exclusively in mining and natural resources
operations in Canada from June 15, 1959 until 1991 and inactive from 1991
until December 1993, at which time it became engaged in the acquisition and
development of natural resources, primarily oil and gas properties.
At March 29, 1996, the Company had 2,129 holders of record of its Common
Shares.
41
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995. This table should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus. The following table reflects Canadian
dollar amounts included in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1995(CDN$)
---------------------------------------------------
AS ADJUSTED FOR
THE
CONSOLIDATION AND AS ADJUSTED
ACTUAL THE DOMESTICATION FOR THE MERGER
--------------- ------------------- --------------
<S> <C> <C> <C>
Liabilities:
Current notes payable.............................. $ 1,878,335 $ 1,878,335 $ 1,878,335
Long-term notes payable............................ 28,501,043 28,501,043 28,501,043
Long-term accrued interest......................... 179,757 179,757 179,757
------------ ------------ -----------
Total liabilities.................................. 30,559,135 30,559,135 30,559,135
Minority interest.................................. 9,256,203 9,256,203 9,256,203
Stockholders' equity:
Preferred Stock of Xavier Mines Limited, no par
value, an unlimited number of shares authorized;
none issued and outstanding; as adjusted for the
Consolidation, 26 shares issued and outstanding... 0 0 0
Common Stock of Xavier Mines Limited, no par
value, an unlimited number of shares authorized;
59,060,102 shares issued and outstanding.......... 79,335,673 0 0
Preferred Stock of Xavier Corporation, par value
US$.0001, 10,000,000 shares authorized, none
issued and outstanding; as adjusted for the
Consolidation and Domestication, 26 shares
issued and outstanding............................ 0 0 0
Common Stock of Xavier Corporation, par value
US$.0001, 100,000,000 shares authorized, 1,000
and 14,765,026 issued and outstanding before
and after consolidation, respectively............. 0 2,015 0
Preferred Stock of Xavier Merger Corporation
(whose name is to change to Xavier
Corporation), par value US$.0001, 10,000,000
shares to be authorized, none issued and
outstanding; as adjusted for the Merger, 26
shares issued and outstanding..................... 0 0 0
Common Stock of Xavier Merger Corporation
(whose name is to change to Xavier
Corporation), par value US$.0001, 100,000,000
shares to be authorized, 14,765,026 issued and
outstanding....................................... 0 0 2,015
Capital in excess of stated value.................. 0 79,333,658 79,333,658
Deficit............................................ (25,387,424) (25,387,424) (25,387,424)
------------ ------------ ------------
Total stockholder's equity......................... 53,948,249 53,948,249 53,948,249
------------ ------------ ------------
Total capitalization............................... $ 93,763,587 $ 93,763,587 $ 93,763,587
============ ============ ============
</TABLE>
42
<PAGE>
The following table reflects a "for convenience" translation of the
Canadian dollar amounts included in the above table into U.S. dollars using
the exchange rate at December 31, 1995 of CDN$1 to US$0.7329.
<TABLE>
<CAPTION>
DECEMBER 31, 1995(US$)
--------------------------------------------------
AS ADJUSTED FOR
THE
CONSOLIDATION AND AS ADJUSTED
ACTUAL THE DOMESTICATION FOR THE MERGER
--------------------------------------------------
<S> <C> <C> <C>
Liabilities:
Current notes payable.............................. $ 1,376,632 $ 1,376,632 $ 1,376,632
Long-term notes payable............................ 20,888,414 20,888,414 20,888,414
Long-term accrued interest......................... 131,744 131,744 131,744
------------ ------------ -----------
Total liabilities.................................. 22,396,790 22,396,790 22,396,790
Minority Interest.................................. 6,783,871 6,783,871 6,783,871
Stockholders' equity:
Preferred Stock of Xavier Mines Limited, no par
value, an unlimited amount of shares authorized,
none issued; as adjusted for the Consolidation,
26 shares issued and outstanding.................. 0 0 0
Common Stock of Xavier Mines Limited, no par
value, an unlimited number of shares authorized;
59,060,102 shares issued and outstanding.......... 58,145,115 0 0
Preferred Stock of Xavier Corporation, par value
US$.0001, 10,000,000 shares authorized, none
issued and outstanding; as adjusted for the
Consolidation and the Domestication, 26 shares
issued and outstanding............................ 0 0 0
Common Stock of Xavier Corporation, par value
US$.0001, 100,000,000 shares authorized, 1,000
and 14,765,026 issued and outstanding before
and after consolidation, respectively............. 0 1,477 0
Preferred Stock of Xavier Merger Corporation
(whose name is to change to Xavier
Corporation), par value US$.0001, 10,000,000
shares to be authorized, none issued and
outstanding; as adjusted for the Merger, 26
shares issued and outstanding..................... 0 0 0
Common Stock of Xavier Merger Corporation
(whose name is to change to Xavier
Corporation), par value US$.0001, 100,000,000
shares to be authorized, 14,765,026 issued and
outstanding....................................... 0 0 1,477
Capital in excess of stated value.................. 58,143,638 58,143,638
Deficit............................................ (18,606,443) (18,606,443) (18,606,443)
------------ ------------ ------------
Total stockholder's equity......................... 39,538,672 39,538,672 39,538,672
------------ ------------ ------------
Total capitalization............................... $ 68,719,333 $ 68,719,333 $ 68,719,333
============ ============ ============
</TABLE>
43
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected historical financial data set forth below for each of the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's historical financial statements. The selected pro forma financial
data for the year ended December 31, 1995 have been derived from the Company's
pro forma financial statements contained elsewhere in this Prospectus and give
effect to the Transactions as if they took place as of January 1, 1995. The
pro forma financial data do not necessarily represent what the Company's
results of operations would have been if the Transactions had occurred on such
date and are not intended to project the Company's results of operations for
any period. The selected historical and pro forma financial data presented
below should be read in conjunction with the Company's historical and pro
forma financial statements included elsewhere in this Prospectus, the notes
thereto and the information set forth under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." The following table reflects a "for convenience" translation of
the Canadian dollar amounts included in the Company's consolidated financial
statements into U.S. dollars using the exchange rate at December 31, 1995 of
CDN$1 to US$0.7329. The Company's financial information is presented in
conformity with Canadian GAAP. These principles differ from US GAAP and such
differences could be material. Such differences are described in Note 18 of
the Company's consolidated financial statements.
Originally called Golsil Mines Limited, the Company was formed in 1959 to
conduct mining and natural resources operations in Canada. The name was
changed to Zahavy Mines Limited in 1971, and then to Xavier Mines Limited in
1992. The Company ceased mining operations in 1991 and conducted no
significant business activities until December 1993. As a result, management
does not consider period to period comparisons of the Company's historical
results to be meaningful, nor does the Company consider such historical
results of operations to be representative of future results of operations of
the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
HISTORICAL
------------------------------------------------------
PRO
FORMA
1991 1992 1993 1994 1995 1995
-------------------------------------------------------
(IN THOUSANDS OF US$, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues: $ -- $ -- $ -- $ -- $ 10,718 $10,718
Oil and gas.......................... -- -- -- -- 1,282 2,070
----- ----- ------ ------- -------- -------
Pipeline repair...................... -- -- -- -- 12,000 12,788
Total revenue........................ ----- ----- ------ ------- -------- -------
Expenses:
Production taxes and fees............ -- -- -- -- 5,860 5,860
Lease operating...................... -- -- -- -- 1,220 1,220
Field overhead....................... -- -- -- 95 909 909
Pipeline repair cost of sales........ -- -- -- -- 1,149 1,623
General and administrative........... 33 22 176 3,168 4,698 5,666
Interest and loan fees............... -- -- 3 1,263 528 617
Depreciation and amortization........ -- -- -- 24 1,953 2,502
Other (income) expense............... (13) 241 (1) 258 (518) (526)
----- ----- ------ ------- -------- -------
Loss before minority interests
and income taxes..................... (20) (263) (178) (4,808) (3,799) (5,084)
Minority interest in net loss
of consolidated subsidiaries........ -- -- -- 64 601 593
Income tax (expense) benefit......... -- -- -- -- (338) 47
----- ----- ------ ------- -------- -------
Net loss............................. $ (20) $(263) $ (178) $(4,744) $ (3,536) $(4,444)
===== ===== ====== ======= ======== =======
Net loss per share................... $(.03) $(.46) $(.14) $(2.29) $(.41) $(.52)
===== ===== ====== ======= ======== =======
Weighted average number
of shares outstanding............... 577 577 1,236 2,069 8,581 8,581
===== ===== ====== ======= ======== =======
BALANCE SHEET DATA:
Assets:
Current assets....................... $ 12 $ 1 $ 485 $ 1,196 $ 22,052
Oil and gas contract rights.......... -- -- -- 10,165 29,520
Investment in and advances to
oil and gas joint venture........... -- -- -- 8,014 12,031
Intangible assets.................... -- -- -- -- 8,164
Other assets......................... 483 242 295 708 9,603
----- ----- ------ ------- --------
Total assets......................... $ 495 $ 243 $ 780 $20,083 $ 81,370
===== ===== ====== ======= ========
Liabilities:
Current liabilities.................. $ 250 $ 261 $ 165 $19,475 $ 10,763
Share subscriptions received......... -- -- 475 36 --
Long-term notes payable.............. -- -- -- -- 20,888
Minority interest in net assets of
consolidated subsidiaries........... -- -- -- 437 6,784
Other liabilities.................... -- -- -- -- 3,396
Shareholders' equity................. 245 (18) 140 135 39,539
----- ----- ------ ------- -------
Total liabilities and shareholders'
equity.............................. $ 495 $ 243 $ 780 $20,083 $ 81,370
===== ===== ====== ======= ========
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is principally engaged in the acquisition and development of
natural resources, primarily oil and gas properties, and secondarily provides
services to the oil and gas industry. The Company commenced these business
activities in December 1993. Originally called Golsil Mines Limited, the
Company was formed in 1959 to conduct mining and natural resources operations
in Canada. The name was changed to Zahavy Mines Limited in 1971, and then to
Xavier Mines Limited in 1992. The Company ceased mining operations in 1991
and conducted no significant business activities until December 1993.
The Company's current strategy is to develop concessions with oil and gas in
place. In the future, however, the Company may review and participate in
selected exploration ventures on a limited basis. For example, in the Black
Gold Joint Venture (as defined) Xavier has certain rights to evaluate and
develop an exploration block in addition to its currently producing fields.
The Company is also currently drilling an exploration well in the P&K License
Area (as defined below). See "Business--Other Projects--Black Gold Group I
Project," "Business--Western Siberia Technical Services Agreements" and "Risk
Factors--Risks of Russian Operations."
The Company's oil and gas interests in the Commonwealth of Independent
States ("CIS") are currently owned either through its indirect ownership
interest in a joint stock company or pursuant to the terms of technical
service agreements ("TSAs") entered into by the Company with Russian
production and geology associations that hold hydrocarbon licenses. The
Company, through Genesis Eurasia Xavier, LLC ("GEX"), owns a 37.5% interest in
a joint stock company (the "Black Gold Joint Venture") with STNG, one of the
oldest oil producing entities in Russia, and Stravropolnefteorgsintez
("STNOS"), an investment entity owned by the Stavropol regional government.
The Company is the sole provider of financial, technical and administrative
resources to the Black Gold Joint Venture, which was formed to enhance
production from six producing oil fields (the "Black Gold Fields") in the
Stavropol region of southern Russia. See "Business--The Black Gold Joint
Venture" and "--Other Projects--Black Gold Group I Project." The Company has
also entered into TSAs to develop the Kamennoye East and Kamennoye West
license areas and the Potanay and Kartopyinskoye ("P&K") license area, all of
which are located in western Siberia. The TSAs grant the Company an economic
interest in the production from the underlying license areas at the point of
export from the applicable contract area. Under the TSAs, the Company is
required to provide financial, technical and managerial resources to develop
the designated license areas. See "Business--Western Siberia Technical
Service Agreements."
Xavier, through GEX, follows the full-cost method of accounting for its
indirect ownership in oil and gas properties in the Black Gold Joint Venture.
Under this method, all direct third-party costs incurred on behalf of the
Black Gold Joint Venture, and associated with the acquisition, exploration and
development of oil and gas properties are capitalized in one cost center,
which is the continental Russian full-cost pool, exclusive of the investments
in the TSAs described below. Proceeds from the sale of the Company's interest
in the Black Gold reserves are credited to the full-cost pool with no gain or
loss recognized, unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves of oil and gas. If
capitalized costs, net of amortization and related deferred taxes, exceed the
full-cost ceiling, the excess would be charged to expense in the period during
which such excess occurs. The full-cost ceiling includes an estimate of the
present value of future net revenues attributable to proved reserves, using
various assumptions and adjustments for other factors.
Costs of the Black Gold Joint Venture oil and gas properties will be
amortized by the unit-of-production ("UOP") method based on periodic estimates
of total proved reserves. Proved reserves for the Black Gold
45
<PAGE>
Joint Venture were estimated by the Company's independent petroleum engineer
as of December 31, 1995. The Company anticipates that it will become the
operator of the Black Gold Joint Venture during the second quarter of 1996.
No oil and gas production has been recorded for Xavier's account from the
Black Gold Joint Venture to date. See "Risk Factors--Risks of Russian
Operations--Absence of Legal Framework Governing Oil and Gas Operations."
The Company's interests under the TSAs are based on the economic realization
of the hydrocarbons produced rather than ownership of mineral interests,
infrastructure or wells. The Company capitalizes all acquisition and
development costs incurred under the TSAs using modified full-cost accounting.
Capitalized TSA costs are amortized based on units-of-production-sold (rather
than the UOP method). Units-of-production-sold relates to production from the
TSA license area that has been sold and credited to the Company under the
terms of the TSA. The East Kamennoye and P&K TSA amortization rates were
developed from the proved reserve reports that were estimated and prepared by
the Company's independent petroleum engineer as of December 31, 1995. The
same accounting procedure used for the Kamennoye East and P&K license areas
will be followed for the Kamennoye West license area where the Company's first
well was spud on January 26, 1996 by Vector Development Ltd. ("Vector"). See
"Business--The Western Siberia Technical Services Agreement--Description of
East and West Kamennoye License Areas--Development Plans."
A deferred foreign income tax accrual has been recorded for TSA revenue less
amortization of advances and other expenses related to the Russian branch.
The Company will be subject to current Russian tax when the revenue credited
under the terms of a TSA exceeds the advances made by the Company.
The timing of Xavier's revenue stream from TSA operations is currently
unpredictable. The production from each TSA license area is accounted for at
the lease level, verified by the state-owned pipeline monopoly and then
transported, together with crude from dozens of fields input by a myriad of
producers along the pipeline system, over 3,000 kilometers to export points on
the Black Sea and in Central Europe. Sales dedication at export points is
controlled by numerous regulations issued by the Ministry of Fuel and Energy,
by the pumping schedules set by Transneft, the state transport organization,
and by the accumulation of loads (crude oil) by brokers. Due to this
situation, the Company cannot book a sales or account receivable value at the
time of production as it cannot predict the spot price on the date of a future
dedication (sale) nor does it know when the dedication will occur. For
example, the first production attributable to the Company under the Kamennoye
East TSA (as defined under the heading "Business--Western Siberia Technical
Services Agreements") occurred on September 16, 1994; while the first sale
(dedication) of such production occurred on March 7, 1995.
From first production on September 16, 1994 through December 31, 1995,
Kamennoye East production averaged 1,040 Bbls per day ("BOPD"). Since June 5,
1995, the date the Company entered into the P&K TSA, through December 31,
1995, P&K production averaged an estimated 2,076 BOPD. A total of 924,771
Bbls have been produced from September 16, 1994 through December 31, 1995 from
the Kamennoye East and P&K License Areas.
Management expects to record significantly more revenue as new wells are
drilled and completed in the TSA license areas, and as old wells are worked-
over in the Black Gold Fields. In addition to the timing of the dedication
process and to the pace of drilling and completion and work-overs, the
Company's revenue stream is impacted by well flow rates, spot prices for crude
oil, Russian energy and tax legislation and other economic and political
factors. Xavier's revenue is also affected by the availability of capital (to
perform drilling and work-over operations) and seasonal, weather-related
restrictions on drilling in Western Siberia.
46
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
regarding TSA average daily oil production, oil production sold, average TSA
revenue receipts per Bbl sold and amortization and expenses attributable to
such production. No depreciation, depletion or amortization was recorded on
the Company's investment in the Black Gold Joint Venture since the venture has
not achieved production in excess of designated baseline levels.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995
-------- -------------
<S> <C> <C>
PRODUCTION DATA:
TSA Average daily oil production (Bbls)(1).. 945 2,122
TSA Oil production sold (Bbls).............. -- 707,857
Average TSA sales price per Bbl sold........ -- CDN$20.66
Operating costs and expenses per Bbl sold:
Production costs......................... -- CDN$13.65
Amortization............................. CDN$2.64
-------
Total.................................... CDN$16.29
=======
</TABLE>
- -------------
(1) For the period from September 16, 1994, the initial date of production,
to December 31, 1994.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Xavier's current management team assumed operations in December 1993 and
the Company entered into its first TSA in the same month. The Company had
been essentially inactive since the early 1990s. Consequently, management
believes that comparative results of operations for 1993 and 1994 are not
meaningful.
TSA - Revenue. Total revenue for the year ended December 31, 1995
increased to CDN$14,623,675 (US$10,717,691) from $0 in the same period in
1994. The Company's first revenue from its TSA concessions was recorded in
1995. The TSA revenue was generated from 707,857 units-of-production-sold (or
360,529 and 347,328 Bbls from the Kamennoye East and P&K license areas,
respectively) at an average price of CDN$20.66 (US$15.14) per Bbl.
Pipeline Repair Revenue. Total pipeline repair revenue for the year
ended December 31, 1995 increased to CDN$1,749,059 (US$1,281,885) from $0 in
the same period in 1994. This is a result of the Company's acquisition of the
Bandera Group in July 1995. See "Business--Bandera Engineering."
Production Taxes and Fees. Production taxes and fees associated with
initial TSA revenue described above for the year ended December 31, 1995
amounted to CDN$7,995,537 (US$5,859,929) or CDN$11.30 (US$8.28) per Bbl.
Field Operations Expense. Field operations expense for the year ended
December 31, 1995 increased by CDN$1,109,398 (US$813,078) to CDN$1,239,639
(US$908,531) from CDN$130,241 (US$95,454) for the same period in 1994. The
increase was the result of expanding activity in the Black Gold Joint Venture,
Kamennoye East and Kamennoye West License Areas and the P&K License Area.
General and Administrative. General and administrative expenses for the
year ended December 31, 1995 increased by CDN$2,086,709 (US$1,529,349) to
CDN$6,409,117 (US$4,697,242) from
47
<PAGE>
CDN$4,322,408 (US$3,167,893) for the same period in 1994. The increase was
the result of expanding activity in the Black Gold Joint Venture and Kamennoye
East license area, expenses associated with the Company's new TSA concessions
(Kamennoye West and P&K), additional business expenses associated with
marketing and capital formation efforts, expenses associated with Commission
registration statements and the inclusion of Bandera's general and
administrative costs which include one-time expenditures associated with the
start-up of its pipeline repair business.
General and administrative expenses increased by CDN$4,086,246
(US$2,944,810) to CDN$4,322,408 (US$3,167,893) in 1994, from CDN$236,162
(US$173,083) in 1993. The increase was the result of new employees hired to
manage and operate the business, business travel and related expenses,
consultants and professional services for internal and external accounting,
engineering, legal and management services and maintenance of a domestic
corporate office, a foreign corporate office and two foreign field offices.
Interest and Loan Fees. Interest and loan fees for the year ended
December 31, 1995 decreased by CDN$1,002,151 (US$734,477) to CDN$720,538
(US$528,082), from CDN$1,722,689 (US$1,262,559) for the same period in 1994.
The decrease in interest expense and loan fees was the result of lower debt
levels and a relatively lower average cost of capital for investment in
projects in Russia.
Interest and loan fees increased by CDN$1,717,473 (US$1,258,736) to
CDN$1,722,689 (US$1,262,559) in 1994, from CDN$5,216 (US$3,823) in 1993. The
increase was caused by short-term borrowings the Company made to help fund a
capital contribution required under the Kamennoye East TSA, to purchase an
interest in the Black Gold Joint Venture and to provide working capital to
fund on-going operations. Because Xavier is in its start-up phase, operating
in a risk-oriented industry with most of its assets and all of its operations
located in a country with a relatively high-risk investment climate, the
Company was precluded from standard collateralized borrowing. Xavier was
required to offer a significantly higher rate of return on investment to
secure capital from investors. In addition, the Company had to offer equity
inducements, in the form of stock and/or warrants, to investors.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 1995 increased by CDN$2,632,776 (US$1,929,561) to
CDN$2,665,277 (US$1,953,381), from CDN$32,501 (US$23,820) for the same period
in 1994. The increase resulted from initial amortization relating to TSA
sales, amortization of the intangible assets obtained in the Bandera purchase,
and to a higher charge to depreciation for equipment obtained in the Bandera
purchase and for new corporate assets that were purchased as the Company's
business activity expanded. There were 707,857 units-of-production-sold
during the year ended December 31, 1995. The TSA full-cost pool consists of
direct development costs and allocations of infrastructure and pipeline costs.
The TSA cost-pool subject to amortization totaled CDN$5,215,933 (US$3,813,861)
at December 31, 1995.
Depreciation expense increased to CDN$32,501 (US$23,820) in 1994, from $0
in 1993. The increase reflects a higher charge for corporate assets (such as
furniture, fixtures and equipment) that were purchased as business activity
expanded. No depreciation was recorded in 1993. All costs and cash advances
related to the TSAs are capitalized and amortized based on the units-of-
production-sold method. Since no production was sold in 1994, no capitalized
expenses in the Russian TSA cost-pool were amortized. A total of CDN$32,501
(US$23,820) was charged to depreciation and amortization for the year ended
December 31, 1994.
Other (Income) and Expense. Other income and expense for the year ended
December 31, 1995 increased by CDN$1,058,762 (US$775,967) to income of
CDN$706,645 (US$517,900), from expense of CDN$352,117 (US$258,067) for the
same period in 1994. The increase reflects interest income from loans the
Company made to Bandera prior to the closing date of the purchase transaction,
interest due from the Convertible Note due from ANG, interest income from a
promissory note due from Kachina Capital
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<PAGE>
Corporation ("KCC"), interest income from loans made to certain entities to
fund the Company's sulfur processing and trading plans (see "Business--Other
Projects--Gazprom Joint Venture"), income from the temporary investment of
surplus cash from an equity offering, a gain on the sale of Oxford Capital
Corp. stock and interest on loans made by the Company to Genesis Eurasia
Corporation ("GEC"), the U.S. carried interest owner in the Black Gold Joint
Venture. See "--Liquidity and Capital Resources" and "Business--The Black
Gold Joint Venture," "--Bandera Engineering" and "--KMNGG Transactions."
Other expense was CDN$352,117 (US$258,067) in 1994 as compared with other
income of CDN$1,648 (US$1,208) in 1993. The increase in expense principally
reflects the write-off of CDN$325,000 (US$238,193) of a mining lease
associated with past mineral extraction operations and a currency translation
loss of CDN$31,912 (US$23,388).
Income Taxes. Deferred income taxes increased CDN$461,383 (US$338,147)
for the year ended December 31, 1995, from $0 for the same period in 1994.
Deferred income taxes arise primarily from timing differences between the book
and tax basis of Bandera's intangible assets and from the Russian treatment of
the Company's advances under the TSAs. For Russian tax purposes, the advances
are considered loans, and revenues from TSAs are considered repayment of such
loans. The Russian tax liability is thus deferred until the advances are
repaid. For Canadian GAAP reporting, the Company computed its deferred
foreign tax liability by applying the Russian income tax rate (35%) to book
pretax income generated from Russian operations. Book pretax income generated
from Russian operations is comprised of TSA revenue less oil and gas
operations expense, amortization and administrative expenses. The Company
cannot predict when any deferred Russian income tax will reverse.
Net Income (Loss). The Company had a net loss of CDN$4,824,732
(US$3,536,046) for the year ended December 31, 1995, as compared to a net a
loss of CDN$6,472,780 (US$4,743,902) for the 1994 period. Net loss for the
1995 period was the result of the Company's receipt of its first TSA revenue
and interest income, reduced by general and administrative expense, oil and
gas operations expense, interest expense and loan fees, new TSA amortization
expense and operating losses of CDN$1,718,462 (US$1,259,461) associated with
Bandera's start up of the Miller Pipeline repair business. See "Business--
Bandera Engineering."
The Company incurred a net loss of CDN$6,472,780 (US$4,743,902) for 1994,
as compared with a net loss of CDN$239,730 (US$175,698) in 1993. The loss was
primarily the result of a combination of higher general and administrative
expense, increased oil and gas operations expense, higher interest expense, a
currency translation loss and the write-off of a mining lease.
LIQUIDITY AND CAPITAL RESOURCES
Since entering the oil and gas business in December 1993, the Company has
met its cash requirements primarily with the net proceeds from private
placements of equity securities, short-term borrowings and, commencing in the
first quarter of 1995, TSA revenues. From December 1993 through December
1994, the Company received net proceeds of CDN$6,247,567 (US$4,580,236) from
five private equity placements and had short-term borrowings of CDN$15,591,136
(US$11,410,271). As a result of two private placements in 1995, the Company
received net cash proceeds of US$29,719,074 (CDN$40,710,469) from the sale of
equity securities and US$500,000 (CDN$682,221) from the issuance of
convertible short-term debt. During the year ended December 31, 1995, the
Company also recorded gross TSA revenues of CDN$14,623,675 (US$10,717,691).
Since December 1993, the Company's cash requirements have related
primarily to the costs associated with the acquisition and development of oil
concessions, repayment of principal of and interest on short-term borrowings
and funding the Company's operating and overhead expenses. During 1994, the
Company (i) made capital contributions of US$11,000,000 (CDN$15,035,539) (of
which US$1,000,000
49
<PAGE>
(CDN$1,402,918) was refunded in January, 1995) under the Kamennoye East TSA,
(ii) acquired a 37.5% interest in the Black Gold Joint Venture for cash
payments totaling US$2,000,000 (CDN$2,733,734) and an agreement to issue
preferred stock of a subsidiary exchangeable for 2,700,002 Common Shares and
(iii) repaid CDN$523,565 (US$386,836) of short-term debt.
During the year ended December 31, 1995, the Company (i) made capital
contributions of US$9,000,000 (CDN$12,383,049) in cash and US$1,882,508
(CDN$2,578,425) through the reinvestment of TSA gross sales revenues less
associated production taxes, fees and lease operating expenses to meet its
obligations under the P&K TSA, (ii) paid US$3,520,000 (CDN$4,821,257) to
Permian Producers, Inc. ("PPI") under purchase orders for oil field equipment
to be used in the Black Gold Fields and the Kamennoye East and Kamennoye West
license areas, (iii) repaid CDN$3,676,724 (US$2,690,751) of short-term debt,
(iv) in May and June delivered US$1,000,000 (CDN$1,364,443) as a compensating
balance to a lender for the availability of an unsecured US$12,000,000
(CDN$16,373,312) line of credit (the "Line of Credit"), (v) advanced
US$748,322 (CDN$1,021,042) in connection with a proposed joint venture with
Gazprom (see "Business--Other Projects--Gazprom Joint Venture"), (vi)
converted, in connection with the Company's 1995 private placement of units
(Common Shares and warrants), US$8,737,822 (CDN$11,943,392) aggregate
principal and interest amount of short-term debt into Common Shares
(US$8,000,000 (CDN$10,934,937) at a conversion price of CDN$1.35 per share and
the balance at a conversion price of CDN$1.10 per share), (vii) made a US$2.5
million (CDN$3.4 million) pre-payment under a drilling contract with Vector
with respect to certain wells to be drilled in the West Kamennoye license area
and (viii) reinvested TSA gross sales revenues less associated production
taxes, fees and lease operating expenses of US$1,740,942 (CDN$2,384,525) to
meet its obligations under the Kamennoye East TSA. Most of the short-term
debt converted into Common Shares had been advanced to the Company in December
1994 to enable the Company to meet its US$8,000,000 (CDN$10,934,937) capital
requirement under the Kamennoye East TSA for 1994.
Also in 1995, the Company issued an unsecured promissory note in the
principal amount of Swedish Kroner ("SEK") 140 million (US$20,780,763 and
CDN$28,354,159) (the "Carnegie Note") to D. Carnegie AB ("Carnegie") for which
it received net proceeds of SEK 134,400,000 (US$19,949,532 and
CDN$27,219,992). The Carnegie Note accrues interest at the rate of 12% per
annum (effectively 26% per annum taking into account the issuance of Russ Oil
Warrants (as defined) and loan fees) and all outstanding principal and accrued
interest is due and payable on December 12, 1997. Under the terms of the
Carnegie Note, the Company may not, without Carnegie's consent, dispose of all
or substantially all of its fixed assets, significantly change the character
of the Company's operations or change in any significant respect any of its
accounting principles, except as may be approved by the Company's accountants.
In addition, the Company may not grant security in connection with any other
loan unless the Carnegie Note is equally and ratably secured.
In return for the assistance of Morgan Grenfell International Funds, Ltd.
("MGIF") in facilitating the issuance of the Carnegie Note, the Company issued
Russ Oil & Technology, S.A. ("Russ Oil," an affiliate of MGIF) warrants (the
"Russ Oil Warrants") to purchase up to 15,461,675 Common Shares at an exercise
price of SEK 9.15 per share and expiring on November 28, 1997. If the Russ
Oil Warrants are held to be unenforceable, the Company will be required to
repay all borrowings under the Carnegie Note immediately.
In December 1995, the Company loaned US$19,949,532 (CDN$27,219,992) of
the net proceeds from the Carnegie Note to Aitorneftegas ("ANG"), a closed
joint stock company established under the laws of the Russian Federation and a
wholly-owned subsidiary of PETECO. Such loan is evidenced by a convertible
promissory note bearing interest at the rate of 12% per annum and is due on or
before June 4, 1996 (the "Convertible Note"). All outstanding principal and
interest under the Convertible Note is convertible, at the option of the
holder, into shares of common stock of Khantymansiyskneftegazgeologiya, a
Russian open joint stock company ("KMNGG"), at a conversion price of US$259.14
per share. If the outstanding principal of the Convertible Note is converted
in full into shares of KMNGG common stock, and assuming no other issuances of
such stock, the Company would own approximately a 25% interest in KMNGG.
Twenty-five
50
<PAGE>
percent of the value of the risk-adjusted project reserves for the Kamennoye
East License Area, as estimated on January 1, 1995 by the Company's
independent petroleum engineer, exceeds the carrying amount of the Convertible
Note and accrued interest booked on the Company's consolidated financial
statements at December 31, 1995. The Kamennoye East License Area is one of 23
license areas owned by KMNGG. Considering the potential value of KMNGG
assets, Management does not believe any valuation allowance for the loan is
necessary. See "Business--KMNGG" for additional information concerning KMNGG.
See "Risk Factors--Risks Related to the Company--KMNGG Transactions," "Certain
Transactions--KMNGG Transactions" and "Description of Xavier-Delaware
Securities--Warrants, Options and Convertible Securities."
The Company has purchased or agreed to purchase various equipment from
PPI to be used in connection with the field development programs in the Black
Gold Fields and Kamennoye East and West license areas. This equipment
includes a fracing and stimulation package, two workover rigs and related
equipment and the East Kamennoye and West Kamennoye drilling packages. The
aggregate consideration to be paid to PPI for this equipment includes
US$5,898,067 (CDN$8,078,437) to be paid in cash and US$1,269,863
(CDN$1,739,300) to be paid through the issuance, pending ASX approval, of
Common Shares at a price equal to 90% of the average closing price of the
Common Shares during the 20 trading days prior to issuance and the issuance of
warrants, expiring on January 31, 1998, to purchase the same number of Common
Shares as are to be issued pursuant to the immediately preceding clause at a
price of CDN$2.20 per share. At April 15, 1996, US$4,020,000 (CDN$5,506,100)
has been paid in cash in connection with this transaction.
During the second quarter of 1995, the Company also loaned an aggregate
of US$5,100,000 (CDN$6,985,344) to Bandera, a company engaged in oil and gas
project management and construction and, more recently, in the pipeline repair
business using high density polyethylene liner technology. In July 1995,
Xavier acquired a 54.5% interest in Bandera in exchange for the cancellation
of such principal amount of indebtedness. In addition, Xavier is entitled to
receive 50% of the first US$16,000,000 (CDN$21,831,082) in profits derived by
BEI from contracts directed to BEI by the Company, most of which are expected
to be generated from Xavier's relationships in the oil and gas industry in the
CIS. Thereafter, the Company is entitled to receive an amount equal to 10% of
the cost of materials incurred by BEI under such contracts. From May through
July 1995, the Company also invested US$443,515 (CDN$607,472) in a corporation
in anticipation of the merger of Bandera into that corporation. The Company
subsequently decided to abandon the merger and sold its interest in the
proposed merger company to Kachina Capital Corporation ("KCC") for an
unsecured promissory note in the principal amount of US$600,000 (CDN$818,666),
bearing interest at a rate of 10% per annum and due on May 20, 1996. The
Company is involved in certain litigation with respect to Bandera. See
"Business--Litigation."
The Company's principal future capital commitments arise under the
Kamennoye East and Kamennoye West TSAs. Each of these TSAs has contractual
requirements that obligate the Company to contribute a minimum amount of funds
per year for a specified number of years unless, in the case of the Kamennoye
East TSA, the Company determines that development of the license area becomes
uneconomic. Under the Kamennoye West TSA, the Company agreed to make
aggregate capital contributions of US$75,000,000 (CDN$102,333,197) payable
over a five-year period ending in 2000 at the rate of US$15,000,000
(CDN$20,466,639) per year. The Kamennoye East TSA requires aggregate capital
contributions of US$40,000,000 (CDN$54,577,705) payable over a four year
period. Such funds may be supplied to the development of either the Kamennoye
East or P&K fields. The Company is obligated to fund 90% of such amount at
the rate of US$9,000,000 (CDN$12,279,984) per year in each of 1994, 1995, 1996
and 1997. The Company and PETECO have also verbally agreed to reinvest the
first US$8,000,000 (CDN$10,934,937) of TSA net revenue under each of the
Kamennoye East TSA and the P&K TSA in the development of the applicable
license area with such reinvestment to be applied to the Company's contractual
commitments under the Kamennoye East TSA. The Company's initial US$8,000,000
(CDN$10,934,937) capital contribution under the P&K TSA has already been
funded as discussed above. Annual field development expenditures or
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<PAGE>
capital contributions in excess of the annual minimum requirements specified
in the Kamennoye East and Kamennoye West TSAs may be carried forward and
applied against the following year's contractual capital spending
requirements. In January 1996, the Company received US$2.0 million from
PETECO which, in effect, increased the Company's remaining contractual
investment requirement to US$15.4 million.
The Company has prepared field development plans for the Black Gold
Fields and the Kamennoye East, Kamennoye West and P&K license areas. Through
the year ending December 31, 1996, Xavier anticipates working-over ten wells
and fracing five wells in the Black Gold Fields with aggregate estimated
expenses of US$22,011,000 (CDN$30,033,000), drilling and completing one
Cretaceous well and working-over seven wells and constructing related
pipelines, roads and facilities in the Kamennoye East license area with
aggregate estimated expenses of US$3,579,000 (CDN$4,883,000) (Xavier would pay
90%, or US$3,221,000 (CDN$4,395,000)), drilling and completing 30 Cretaceous
wells in the Kamennoye West license area with aggregate estimated expenses of
US$15,982,000 (CDN$21,807,000) and drilling and completing six Jurassic wells
and working-over six Jurassic wells in the P&K License Area with estimated
expenses of US$10,021,000 (CDN$13,673,000) (Xavier would pay 90%, or
US$9,019,000 (CDN$12,306,000)). The total aggregate estimated expense of the
development program through December, 1996 is US$51,593,000 (CDN$70,396,000).
The Company's share of estimated capital expenses totals US$50,233,000
(CDN$68,540,000).
The Company has rescheduled payment of the principal and interest
outstanding under a promissory note due December 31, 1995 aggregating
US$257,000 (CDN$350,662) to April 30, 1996. The Company also extended the
conversion terms of a convertible note in the amount of US$500,000
(CDN$682,221) due December 31, 1995 to April 15, 1996. This convertible note
was subsequently converted to equity in the second quarter of 1996. In the
first quarter of 1996, the Company also made a payment of US$147,000
(CDN$200,573) in connection with the Gazprom joint venture (which payment was
made in the fourth quarter of 1995 by the Company's 54.5%-owned subsidiary,
Bandera, and which Xavier repaid to Bandera in the first quarter of 1996). To
date, the Company's aggregate investment in the Gazprom joint venture totals
US$902,435 (CDN$1,231,321). In addition to its capital requirements in
connection with the proposed field development plans and its debt obligation
described above, the Company, in association with the formation of GEX,
entered into a credit agreement with GEC. The agreement requires the Company
to advance a maximum of US$40,000 (CDN$54,578) per month to GEC through April
1, 1997. The advances bear interest at 12%, are payable in monthly amounts,
including interest, and are collateralized by GEC's interest in GEX. The
advances mature no later than April 1, 2000, at which time all unpaid advances
and accrued interest are due. At December 31, 1995, the Company had advances
of US$830,000 (CDN$1,132,487) and accrued interest of US$84,845 (CDN$115,766)
due from GEC.
The Company has an immediate need for cash to meet its currently due
obligations. At December 31, 1995, the Company had US$25,435 (CDN$34,705) of
unrestricted cash on hand. Of the available cash on hand, US$8,847
(CDN$12,071) was attributable to Bandera, the Company's 54.5% subsidiary, and,
as such, was unavailable to the Company. Bandera's future cash position will
be determined by its success in winning all or a portion of US$10,400,000
(CDN$14,190,000) in bids outstanding and the profit margins realized on the
US$1,370,000 (CDN$1,869,000) backlog of contracts at March 22, 1996. Bandera
began factoring some of its accounts receivable in January 1996 to raise cash.
In January 1996, Xavier received US$2,000,000 (CDN$2,728,885) from PETECO. In
March 1996, the Company received net proceeds of US$965,300 (CDN$1,317,096)
from the sale of equity via a private placement.
The Company believes that cash flow from operations will be insufficient
to meet its 1996 capital needs by approximately US$26,540,000
(CDN$36,212,000). The Company intends to seek such additional required
capital primarily through a combination of funding sources that may include
offerings of equity and debt securities, including possible public offerings
in the United States and internationally which the Company believes will be
facilitated by its domestication in the United States. In furtherance of this
need, the Company has entered into discussions with certain entities
concerning the private placement in Europe of up to US$100 million in bonds
and warrants to purchase up to 45 million Common Shares. Xavier has no
definitive agreement with respect to the issue of such private placement and
there can be no assurances that such an agreement will be concluded. In
connection with any such offerings, pursuant to a verbal agreement with KCC,
the Company has agreed to pay KCC an amount in cash equal to 2% of all amounts
raised in public or private offerings of debt or equity. This fee is to be
paid regardless
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of whether KCC participated in the offerings and is in addition to any other
fees and expenses the Company may incur in connection with such offerings.
Fees associated with debt placements are amortized to the income statement
over the term of the loan while fees associated with equity offerings are
netted against the proceeds of the offering. Through December 31, 1995, the
Company had paid KCC approximately US$526,000 (CDN$718,000) since the
inception of the agreement, and, as of December 31, 1995, owed KCC
approximately US$463,000 (CDN$632,000) in connection with certain European
offerings. The Company intends to off-set the remaining liability against the
note receivable from KCC.
The Company may also seek to finance a portion of its capital needs with
borrowings under the Line of Credit. The Line of Credit provides for a
maximum borrowing of US$12,000,000 (CDN$16,373,312), bears interest at LIBOR
plus 2% compounded daily, is unsecured and has a term of one year from the
first drawdown. The Line of Credit requires the Company to maintain a
compensating balance of US$1,000,000 (CDN$1,364,443), which has been paid, and
pay an annual commitment fee of US$100,000 (CDN$136,444) to maintain the Line
of Credit and a US$60,000 (CDN$81,667) administration fee. On the initial
drawdown under the Line of Credit, the Company is required to issue the
lending institution 1,500,000 Common Shares and 500,000 Common Share purchase
warrants exercisable at CDN$2.00 per warrant and expiring in May 1997.
Borrowings under the Line of Credit are subject to the lender's due diligence
and to the presentation of all appropriate documentation by the Company. The
Company paid the compensating balance in May and June 1995. As of the date of
this Prospectus, the lender had not yet completed its due diligence and no
draws had been made by the Company under the Line of Credit.
In addition, following the Company's domestication in the United States,
the Company will be in a better position to seek capital and/or loan
guarantees from U.S. and foreign governmental and quasi-governmental agencies
in connection with its Russian projects. The Company may also seek an
industry partner looking for an entrance into the Russian oil and gas arena or
could sell an interest in one or more of its concessions to a third party.
There can be no assurance, however, that the Company will be successful in
obtaining the funds required to meet its capital needs on a timely basis or,
if it is successful, that the terms on which such funds are obtained will be
advantageous to the Company. If the Company is unable to obtain sufficient
capital in a timely manner, either as described above or otherwise, it would
be forced to delay the development of the properties and/or seek to
renegotiate its obligations under the TSAs, either of which could have a
material adverse effect on the financial condition and results of operations
of the Company. There can be no assurance that the Company would be able to
renegotiate its obligations under the TSAs if required to do so. See the
financial statements included in this Prospectus which contain comments by the
Company's auditors for U.S. investors regarding a Canada-U.S. reporting
conflict for a further description of these matters and "Risk Factors--Risks
Relating to the Company."
The Company has entered into Interest Purchase Agreements, effective
November 3, 1993, with each of Mr. Dittmar and Mr. Bowman pursuant to which
the Company acquired its initial rights in and to certain of its properties.
The Interest Purchase Agreements, among other things, grant to each of Mr.
Dittmar and Mr. Bowman a non-assignable royalty of 1.0% of all earnings before
interest, taxes, depreciation and amortization in and from all properties
and/or projects identified and/or introduced to Xavier, with certain limited
exceptions. Messrs. Dittmar and Bowman have the right to collateralize their
respective royalty interests against the properties subject thereto. See
"Certain Transactions--Interest Purchase Agreements."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for long
lived Assets to be disposed of" ("SFAS 121"). SFAS 121 requires that assets
to be held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets in question may
not be recoverable. An asset to be disposed of would be reported at the lower
of the carrying amount or fair value less the cost to sell the asset. The
statement is effective for years beginning after December 15, 1995.
Management believes that
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the effect on the Company's financial position and results of operations of
implementing SFAS 121 will be insignificant.
In October 1995, the Financial Accounting Standards Board issued
Statement No 123, "Accounting for Stock Based Compensation" ("SFAS 123").
SFAS 123 encourages entities to adopt the fair value method in place of the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB No. 25), for all arrangements under which employees
receive shares of stock or other equity instruments of the employer or the
employer incurs liabilities in amounts based on the price of its stock. The
Company does not anticipate adopting the fair value method encouraged by SFAS
No. 123 and will continuing to account for such transactions in accordance
with APB No. 25. However, the Company will be required to provide additional
disclosures beginning in 1996 providing pro forma effects as if the Company
had elected to adopt SFAS No. 123.
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BUSINESS
GENERAL
Xavier is principally engaged in the acquisition and development of
natural resources, primarily oil and gas properties, and secondarily provides
services to the oil and gas industry.
The Company commenced its oil and gas operations in December 1993. Prior
to that time, the Company had been essentially inactive since 1991. The
Company, through GEX, its indirect 75% owned subsidiary, has a 37.5% interest
in the Black Gold Joint Venture with STNG, one of the oldest oil producing
entities in Russia. See "--The Black Gold Joint Venture--the GEX Documents."
GEX was formed to develop six producing oil fields in the Stavropol region of
Southern Russia. In addition, the Company has entered into TSAs with respect
to three other projects. These TSAs have been entered into with
Khantymansiyskneftegazgeologiya ("KMNGG"), a Russian open joint stock company
engaged in hydrocarbon producing operations, Petroleum Technology Company
("PETECO"), a Russian closed joint stock company engaged in crude oil trading
and transportation, Kond Petroleum ("KOND"), a Russian open joint stock
company engaged in hydrocarbon producing operations, and M.R. International
Enterprises, Inc. ("MRI"), a New York corporation. These TSAs will allow the
Company to participate in oil production from the Kamennoye and P&K oil fields
in Western Siberia. The Company has also entered into a Protocol of
Agreement, through GEX, relating to the Group I Project, a joint venture to
develop 12 additional producing oil fields in the Stavropol region. In
addition, the Company has entered into negotiations or preliminary agreements
with respect to certain projects in the timber, mining and sulfur industries
in the CIS. There can be no assurance, however, that any of these projects
will be undertaken by the Company or, if one or more is undertaken, that they
will be on the terms described herein. For segment reporting data with
respect to the Company's business, see Note 16 to the Company's Consolidated
Financial Statements included elsewhere in this Prospectus.
STRATEGY
The Company believes the emerging developments in the CIS present a
significant opportunity for foreign investment in the oil and gas industry in
the CIS. See Appendix A. By providing financing and technological and
administrative services to entities which control interests in selected oil
and gas properties, the Company believes it can secure access to substantial
oil and gas fields within a framework of acceptable geological risk. However,
there are currently substantial other risks associated with doing business in
Russia and the other republics of the CIS. These risks include uncertainty in
the legal systems, currency restrictions, political instability and exposure
to changes in laws relating to foreign investment, trade, export and taxes.
As a result, many major firms and financial institutions prefer to invest in
traditional oil-producing countries with relatively more stable legal,
political and economic environments. However, management believes that
companies which are prepared to accept and manage the risks associated with
doing business in Russia and the other republics of the CIS may realize a
higher return on investment than would be available in more stable
circumstances. See "Risk Factors--Risks of Russian Operations."
Management also believes that the experience the Company continues to
gain and the relationships it develops through its oil and gas operations in
the CIS continue to generate other opportunities in those regions in related
industries. For example, the Company has engaged in preliminary discussions
and/or entered into agreements concerning opportunities in the timber, mining
and sulfur industries in the CIS. As currently contemplated, the Company's
involvement in such ventures would be with Western industry partners which
would share the economic risk and provide the industry expertise. See "--
Other Projects."
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THE BLACK GOLD JOINT VENTURE
GENERAL. The Black Gold Joint Venture was formed as a closed joint stock
company under Russian law on September 16, 1992 pursuant to an agreement (the
"Enterprise Agreement") between Genesis Eurasia Corporation ("GEC") and STNG,
each a 50% shareholder. STNG is one of the oldest oil producing entities in
Russia and possesses technology, equipment and labor resources for the
exploration, production, transportation and refinement of oil and gas. GEC is
a Delaware corporation engaged in the financing, exploration and production of
crude oil and natural gas in the United States and abroad. GEC subsequently
assigned its interest in the Black Gold Joint Venture to GEX, a Delaware
limited liability company owned 50% by the Company, 25% by Xavier BG, Inc.
("XBG") (whose common stock is wholly-owned by the Company, and whose
exchangeable preferred stock is wholly-owned by GEC), and 25% by GEC. STNG
subsequently assigned a 20% interest in the Black Gold Joint Venture to STNOS.
Rosneft, a state enterprise of the Russian federal government, retained a 38%
interest in STNG after STNG's privatization, giving Rosneft an indirect 11%
interest in the Black Gold Joint Venture.
The purpose of the Black Gold Joint Venture is to enhance the production
of oil and other petroleum products from six existing oil fields in the
Stavropol region of the CIS and to further explore for oil in that region.
The Stavropol region lies between the Caspian and Black Seas and north of the
Caucasus Mountains. The Black Gold Joint Venture has an interest in the
Achikulak, Podsolnechnoye, Belozerskoye, Neftekumsk, Urozhainenskoye and
Vladimirskoye fields (the "Black Gold Fields"). The Black Gold Fields are
located near the town of Neftekumsk and cover approximately 750 square
kilometers (185,329 acres). There were 197 wells capable of production within
the six fields of which 42 wells were producing on December 31, 1995. The
number of producing wells in the Black Gold Fields has dropped from 72 at
September 30, 1995, due to STNG's inability to provide gas injection to
Achikulak field because of leaking pipelines resulting in the non operation of
gas lift wells. Average gross daily oil production from the Black Gold Fields
for 1995 was 1,605 BOPD. The resulting 1995 total oil production from the
Black Gold Fields was 585 MBbls. Subsequent to 1995, daily production for the
first two months of 1996 averaged approximately 1,397 BOPD. The Company only
shares in profits from production from the Black Gold Fields in excess of
designated "baseline" levels. As of the date of this Prospectus, the Black
Gold Joint Venture has not achieved production in excess of these levels and
no production has been recorded for the Company's account.
In late November and early December 1995, the DSGC completed a review of
the operations and production history of the Black Gold Joint Venture. The
review committee determined, among other things, that (i) STNG has continued
to operate the Black Gold Joint Venture for more than one year after the grant
of such license notwithstanding the fact that the license agreements do not
specifically provide for such a prolonged transition period and (ii) STNG has
improperly allocated payments for oil production among the districts where oil
production is conducted. The DSGC instituted a deadline (which has been
verbally waived) of the first quarter of 1996 with respect to curing such
violations. In a letter to Black Gold dated January 26, 1996, the DSGC
advised that a petition has been filed with Roskomnedra to revoke the licenses
to the Black Gold Fields and, in the event of the loss of the subject
licenses, a bidding process would be held to reissue the licenses.
Management believes that the Company and STNG can cure these violations.
However, there can be no assurance that such cures will take place in a timely
manner, if at all. If such violations are not cured, the Black Gold Joint
Venture could be subjected to administrative action or the Joint Venture's
licenses could be revoked. The Company could lose its entire investment in
the Black Gold Joint Venture should the licenses be permanently revoked. See
"Risk Factors--Risks of Russian Operations--Proceedings Related to the Black
Gold Joint Venture."
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THE BLACK GOLD FIELDS. Set forth below is certain information concerning
the Black Gold Fields.
Achikulak. The Achikulak field was discovered in 1970. It is the
largest and most prolific oil producer of the Black Gold Fields, representing
approximately 75% of the historical oil production from such fields. As of
December 31, 1995, there were 84 wells capable of production in this field, of
which 25 were actually producing. Early developmental drilling was focused on
the Upper Cretaceous Maastrichtian limestone (approximately 8,500 feet).
Development drilling to the deeper (approximately 9,000 feet) Lower Cretaceous
Albian sandstone did not start until the early 1980's. There have been 38
wells completed in the deeper Albian reservoir and three recompletions to the
shallow Khadum reservoir. The field is a simple anticlinal structure with an
areal extent currently estimated at approximately 9,000 acres.
Only four of the Black Gold Fields are currently producing and
approximately 54% of current production comes from Achikulak Field. Analysis
of the Albian sand, one of three currently producing intervals in the
Achikulak field, indicates that the reservoir contains alternating high and
low permeabilities with abnormally large amounts of the mineral chlorite.
Xavier believes that the Russian methods employed in drilling and completing
this zone have resulted in low flow rates. Over 45% of the Achikulak field's
reserves are located in this sand, but less than 5% of such producible
reserves have been recovered. In an effort to solve this problem, the Company
has designed fracture treatments to increase the flow rates in these wells.
Two western workover rigs will be used to prepare and complete the wells for
fracture treatment. The fracture equipment will consist of three specially
designed pumping units and a sand blender/proportioner to carry out the
fracture jobs. Upon completion of the Company-designed work, western testing
equipment will be used to monitor the productive and economic success of the
jobs. Depending upon the success of the fracture treatments in establishing
anticipated well flow rates, the technical process will be modified and/or the
field development plan will be reviewed and expenditures modified accordingly.
Podsolnechnoye. The Podsolnechnoye field was discovered in 1974 and
produces from four intervals: the Maastrichtian carbonate, the Albian, the
Lower Cretaceous Hautervian and Lower Jurassic Toarcian sandstones.
Podsolnechnoye represents approximately 14% of the historical oil production
from the Black Gold Fields. As of December 31, 1995, there were 45 wells
capable of production in this field, of which eight were producing.
Belozerskoye. The Belozerskoye field was discovered in 1972. The
discovery well tested commercial oil production from three zones: the Upper
Cretaceous Maastrichtian fractured carbonate, the Lower Cretaceous Albian
sandstone and Lower Cretaceous Hautervian sandstones. Subsequent wells
identified a fourth oil productive interval, the Lower Cretaceous Aptian
sandstone. Field development has been sporadic, reflecting the lack of
drilling supplies which has hampered the activities of STNG for many years.
Belozerskoye is the third largest producing field of the six Black Gold
Fields, representing approximately 10% of historical oil production from the
Black Gold Fields. As of December 31, 1995, there were 20 wells capable of
production in this field, of which eight were producing.
Neftekumsk. The Neftekumsk field was discovered in 1968 and has produced
oil from only one interval, the Lower Cretaceous Hautervian sandstone. One
well is producing in this field out of the 10 wells capable of production as
of December 31, 1995.
Urozhainenskoye. The Urozhainenskoye field was discovered in 1970 and
has produced from three intervals: the Maastrichtian carbonate and two
Jurassic sandstone intervals. The Lower Jurassic Toarcian sandstone has
produced the majority of the cumulative oil production at Urozhainenskoye.
Although as of December 31, 1995 this field had 25 wells capable of
production, it has been shut-in since December 1992 because of needed repairs
to its oil gathering pipeline.
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Vladimirskoye. The Vladimirskoye field was discovered in 1978, and has
produced from the same four intervals as in Podsolnechnoye. Although as of
December 31, 1995 this field had 13 wells capable of production, it has been
shut-in until a pipeline is constructed.
PROPOSED DEVELOPMENT PROGRAM. The purpose of the Black Gold Joint
Venture is to enhance the production of oil from the Black Gold Fields and to
further explore for oil in the Stavropol region of Russia. In an effort to
achieve these goals, the Company has established a work program to improve the
current level of oil production. It is expected that ultimately all 42 of its
producing wells will be included in this program and that a significant
portion of the 155 shut-in wells will also be returned to production. Each of
these wells may also be a candidate for high quality perforating in both
existing and additional oil productive intervals, hydraulic fracture
treatments and possibly squeeze cementing to exclude extraneous water
production. In addition, artificial lift may be installed in wells without
any assist and some wells may be converted to different lift systems in an
effort to increase production. The Black Gold Joint Venture has ordered two
workover rigs and the necessary equipment and supplies to initiate the work
program from PPI. This equipment, to be shipped from various locations, is
expected to arrive on site in the fourth quarter of 1996. The Black Gold
Joint Venture is expected to complete up to 25 to 30 western fracture
workovers per year at an estimated cost of up to US$200,000 per well using the
PPI equipment. Since the PPI equipment is expected to arrive late in 1996,
Xavier anticipates working over up to 10 wells and fracing five wells by
December 31, 1996. Xavier has budgeted US$11,532,000 in capital costs and
US$10,479,000 in operating costs for the entire 1996 Black Gold Joint Venture
work program on various operations including pipeline repair, hydraulic
fracture workovers, and installation of artificial lift.
Once the work program is underway, a development drilling program will be
established. Management believes that numerous development drilling
opportunities exist within the Black Gold Fields. Accordingly, the Black Gold
Joint Venture intends to initiate this development drilling program in 1998.
It is expected that the planned one-rig drilling program will enable the Black
Gold Joint Venture to complete from nine to 12 wells per year, at an estimated
cost of up to US$1.0 million per well. It is currently anticipated that the
drilling program will initially focus on the development of the Achikulak
field which may require as many as 65 additional wells to complete
development, based on spacing of 80 acres per well. The specific program to
be implemented will be based, in part, on information obtained from the then
ongoing work program and existing Russian 2-D seismic surveys, and may be
supplemented by new 3-D seismic surveys to enhance effective field
development. Depending upon the success of the development program, the Black
Gold Joint Venture may thereafter undertake a more aggressive multi-rig
program.
It is also anticipated that the Black Gold Joint Venture will probably
establish an exploration drilling program in the Stavropol region. However,
specific exploration prospects within the region have not yet been identified,
and the timing of this phase of the Black Gold Joint Venture's activities is
uncertain. In addition, the Cretaceous and Jurassic sandstone reservoirs of
the Black Gold Fields may be candidates for secondary recovery operations,
such as water flooding. Planning for these potential operations is not
expected to begin before late 1996.
TRANSPORTATION AND MARKETING. Prior to 1994, the oil produced by STNG
from the Black Gold Fields was stabilized at Neftekumsk, approximately 30
kilometers to the east of the Black Gold Fields, where it was transferred to
Transneft, the state oil transportation system. Transneft operated a heated
pipeline to transport the high paraffin (15% to 30%), lubricant suitable oil
approximately 150 kilometers to the south to a refinery at Grozny for paraffin
extraction and the manufacture of lubricants. However, the civil conflict
between Russia and the Chechnya Republic resulted in the destruction of the
pipeline and refinery at Grozny and ended the viability of this system for
transportation and marketing. Consequently, STNG established an interim
network involving pipeline and rail transportation to export shipments of oil
to the Black Sea port of Novorosiysk.
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In an effort to avoid the higher cost and political uncertainty
associated with the interim route, STNG has developed an alternative
combination pipeline and rail transportation system for oil produced from the
Black Gold Fields. This system currently uses an existing petrochemical
pipeline owned by STNG that extends from Neftekumsk to the railhead at
Budennovsk (approximately 80 kilometers to the west). The oil is then
transported by rail to specific refineries or ports. The Black Sea ports of
Kavkaz and Novorosiysk are currently available as points of export for the oil
produced from the Black Gold Fields. Implementing this system required the
construction of approximately eight kilometers of pipeline and a rail loading
facility at Budennovsk at an aggregate cost of approximately US$5.0 million.
GEX did not contribute to the cost of construction or upgrade at Budennovsk.
The system was completed in June 1995, and is currently operational.
Budennovsk and the Black Gold Fields are near Chechnya, the site of current
political instability and conflict. Although management believes its
facilities and operations in the Black Gold Joint Venture are not currently at
a material risk, there can be no assurance that continued conflict would not
have an adverse effect on the Black Gold Joint Venture.
THE BLACK GOLD DOCUMENTS. Pursuant to the Joint Venture Agreement and
certain related documents (collectively, the "Black Gold Documents"), GEX made
an initial nominal capital contribution to the Black Gold Joint Venture and
was also required to advance up to US$2.3 million to be used to implement an
agreed upon development program for the Black Gold Fields. Additional capital
contributions by GEX and STNG may be required from time to time for the
operations of the joint venture, but such additional capital contributions may
only be assessed with the unanimous approval of the Board of Directors of the
Black Gold Joint Venture. Under the Black Gold Documents, GEX and STNG are
each entitled to appoint six members of the Board of Directors. The Board of
Directors may act by majority vote. GEX has the right to appoint the Chairman
of the Board, who, under Russian law, will have the controlling vote in the
event of deadlock, and the General Manager, who will have management control
over the day to day operations of the joint venture. The Black Gold Joint
Venture has a 25-year term which began in 1992.
Pursuant to the Black Gold Documents, STNG will lease the facilities and
infrastructure to the Black Gold Joint Venture, and has contributed to the
venture all licenses to develop and produce from such fields. The Black Gold
Documents provide that GEX is entitled to recover 100% of the capital
investment made by it and approved by the Board of Directors of the Black Gold
Joint Venture, such recovery to be paid from proceeds of the sale of oil over
and above specified baseline production levels (the "Baseline Production"),
after which the production of the venture in excess of the Baseline Production
will be allocated 50% to GEX, 40% to STNG and 10% to STNOS. The Black Gold
Joint Venture is responsible for the operating costs associated with the
Baseline Production, but is entitled to reimbursement from STNG for such
costs, subject to the limitation that such reimbursement will not exceed, on a
per ton basis, the average STNG-wide operating cost per ton. The Baseline
Production belongs to STNG. Any governmental "State Order" to sell production
domestically below market price will be fulfilled by STNG from the Baseline
Production or its share of incremental oil production from the Black Gold
Joint Venture. The Baseline Production is intended to reflect historical
production levels from the existing wells in the Black Gold Fields and the
anticipated natural decline in production from such wells in the absence of
any further development activity. For the years ending December 31, 1996,
1997, 1998 and 1999, Baseline Production has been set at an average of 2,400,
2,018, 1,797 and 1,604 BOPD, respectively. As of December 31, 1995,
production in excess of Baseline Production had not been achieved by the
current Russian operator, primarily due to deterioration of the field
production systems. The Company anticipates that it will become the operator
of the Black Gold Joint Venture during the second quarter of 1996.
Pursuant to the Black Gold Documents, at such time as GEX has recovered
all amounts it has contributed to the Black Gold Joint Venture, the Black Gold
Joint Venture will consult with local authorities in the allocation of a
minimum of US$1,000,000 per year in cash or in kind to be used for activities
which include the development of the infrastructure of the Stavropol region.
GEX has not yet recovered any amounts which it has invested in the Black Gold
Joint Venture.
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Each of the parties to the Black Gold Joint Venture Agreement has a
"sell-out" right in certain circumstances. Upon the failure to (i) resolve an
Event of Default (which is defined in the Black Gold Agreement to include,
among other things, the failure to make capital contributions when due, the
failure to perform under the Black Gold Joint Venture Agreement and the breach
of a representation or warranty in the Black Gold Joint Venture Agreement)
within 30 days of notice thereof, (ii) resolve an Event of Material Change
(which is defined in the Black Gold Agreement to include, among other things,
changes in law that materially and adversely alter the relationship among the
parties and final judicial decisions declaring a material term of the Black
Gold Agreement to be unenforceable) within 90 days after notice thereof or
(iii) agree on a mutually acceptable solution to a material adverse effect
resulting from a reorganization of STNG within 60 days after notice thereof,
the non-defaulting or otherwise adversely effected party may elect to sell out
all or any portion of its shares of stock in the Black Gold Joint Venture to
the other parties. The purchase price is to be determined by independent
valuation companies to be selected pursuant to a stated procedure.
The Black Gold Agreements provide that disputes that cannot be settled
amicably or by informal negotiations shall be submitted to arbitration in
London, England under the procedures established for international arbitration
by the International Chamber of Commerce.
THE GEX DOCUMENTS. The Company's interest in the Black Gold Joint
Venture arises from its 50% interest in GEX and its 100% ownership of the
common stock of XBG. XBG owns a 25% interest in GEX. GEX was formed pursuant
to an Agreement dated March 13, 1994, as amended, between the Company and GEC
(the "Genesis Agreement"). Pursuant to the Genesis Agreement, GEC contributed
to GEX all of its rights and obligations under the Black Gold Documents and
the Group I Protocols (as defined in "--Other Projects--Black Gold Group I
Project") in exchange for a 50% interest in GEX. The Company acquired its
interest in these rights and obligations in exchange for an agreement to pay
US$500,000 to GEC and a capital contribution of US$500,000 to GEX. Also on
March 13, 1994, GEC and the Company entered into a Limited Liability Company
Agreement (the "GEX Agreement") which specifies the terms governing the
relationship between GEC and the Company with respect to the ownership and
management of GEX. The Genesis Agreement and the GEX Agreements are
collectively referred to herein as the "GEX Documents."
The Genesis Agreement was amended on December 30, 1994 when GEC agreed to
contribute 50% of its remaining 50% interest in GEX to XBG in return for
US$1.0 million in cash and 1,000 shares of XBG exchangeable preferred stock
(the "XBG Exchangeable Preferred"); provided that GEC has retained a 50%
interest in the Group I Protocols. The XBG Exchangeable Preferred is to be
exchanged for 2,700,002 Common Shares (the "Exchange Shares") 30 days after
the Company has received notice from GEC that it desires such exchange to
occur. Furthermore, Xavier has the right, exercisable on or after the date
Xavier reorganizes into a United States entity, to acquire the XBG
Exchangeable Preferred from GEC in return for the Exchange Shares.
Under the GEX Documents, the Company serves as the General Manager of GEX
and is granted authority with respect to substantially all of GEX's
operational matters. Members of the Board of Directors of the Black Gold
Joint Venture appointed by GEX are required to vote in that capacity as
directed by the Company as General Manager.
The Company is obligated under the GEX Documents to make all
contributions to GEX necessary to fund GEX's future capital contribution and
cost advance obligations to the Black Gold Joint Venture. See "--The Black
Gold Documents."
THE WESTERN SIBERIA TECHNICAL SERVICE AGREEMENTS
GENERAL. The Company has entered into three TSAs for the exploration,
development, production, processing and marketing of oil, gas and associated
liquids in various license areas in Western Siberia (the
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<PAGE>
"License Areas"). Pursuant to the TSAs, the Company has agreed to provide the
financial, technical and managerial assistance required with respect to oil
production operations in the License Areas. The TSAs are with: (i) KMNGG and
PETECO (the "East Kamennoye TSA") covering the eastern portion of the
Kamennoye Field (the "East Kamennoye License Area"); (ii) KOND and MRI (the
"West Kamennoye TSA") covering the western portion of the Kamennoye Field (the
"West Kamennoye License Area"); (iii) and KMNGG and PETECO (the "P&K TSA")
covering the Potanay and Kartopyinskoye fields (the "P&K License Area").
EAST KAMENNOYE TSA. On June 5, 1995, the Company entered into a revised
East Kamennoye TSA with PETECO and KMNGG, which holds the exclusive authority
for the exploration, development, production, processing and marketing of oil,
gas and associated liquids in the East Kamennoye License Area. The East
Kamennoye TSA is terminable by the Company if it has not advised KMNGG that it
has obtained such insurance as it deems desirable from the United States
Overseas Private Investment Corporation and such insurance, loans and
guaranties as Xavier believes desirable from the Export-Import Bank of the
United States. In December 1995, the Company acquired the right to obtain
approximately 25% of the outstanding common stock of KMNGG. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "--KMNGG." PETECO is the Administrator
of the TSA.
Under the terms of the East Kamennoye TSA, the Company is required to
advance necessary funds and purchase or lease all materials, equipment and
supplies necessary to satisfy the work programs under the TSA; however, the
Company and PETECO have agreed, among other things, to advance 90% and 10%,
respectively, of all necessary funds and purchase or lease all material,
equipment and supplies required to satisfy the work programs contemplated by
the TSA. Any expenditures in the P&K License Area (of which the Company has
made US$9.0 million plus reinvested revenues of US$1.88 million to date) will
be treated as capital contributions required under the Kamennoye East TSA.
Pursuant to the East Kamennoye TSA and P&K TSA funding requirements, the
Company, through December 31, 1995, had made net aggregate capital and
operating contributions of US$19.0 million, and reinvested revenue of US$3.6
million. The total work plan commitment is US$40.0 million of which the
Company is responsible for US$36.0 million. The Company is required to make
additional expenditures of US$13.4 million through 1997 for development of the
East Kamennoye and/or P&K Fields. In January 1996, the Company received
US$2.0 million from PETECO which, in effect, increased the remaining
contractual investment requirement to US$15.4 million. See "--The Western
Siberia Technical Services Agreements--P&K TSA."
The East Kamennoye TSA expires on the later of 2018 or the expiration of
the licenses underlying the East Kamennoye License Area. On December 31, 1997,
KMNGG has the option to terminate the East Kamennoye TSA if the Company fails
to establish a 50% increase in production from the Cretaceous wells it drills
in the Kamennoye field over KMNGG's average Cretaceous test production rate
for wells drilled prior to January 1, 1994. The Company has not satisfied such
condition to date and does not expect to satisfy it before April 30, 1996.
Management, however, does not believe that KMNGG will elect to exercise this
option in light of the Company's proposed 1996 development program which KMNGG
has approved.
The East Kamennoye TSA currently provides that all production from the
East Kamennoye License Area will be allocated to the Company and PETECO (90%
and 10%, respectively) until the first US$8.0 million of their mutual
investment is recovered. The Company and PETECO have verbally agreed to
reinvest this US$8.0 million in the East Kamennoye License Area. Thereafter,
60% of production will be allocated to the Company and PETECO (90% and 10%,
respectively) to recover their capital and operating costs on an annual basis,
with the remaining 40% of such production split 50%, 45% and 5% among KMNGG,
the Company and PETECO, respectively. After cost recovery, revenues will be
allocated 50%, 45% and 5% among KMNGG, the Company and PETECO, respectively.
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<PAGE>
KMNGG has agreed to indemnify the Company against all claims in
connection with environmental damage that occurs from operations conducted by
KMNGG before, during or after the term of the East Kamennoye License Area.
WEST KAMENNOYE TSA. On October 17, 1995, the Company entered into a
revised West Kamennoye TSA with MRI and KOND, a Russian joint stock company
with the exclusive authority for the exploration, development, production
processing and marketing of oil, gas and associated liquids in the West
Kamennoye License Area. MRI is the Administrator of the TSA. The West
Kamennoye TSA expires on the later of 2035 and the expiration of the licenses
underlying such TSA.
Under the current terms of the West Kamennoye TSA, the Company is
required to advance all necessary funds and purchase or lease all material,
equipment and supplies required to satisfy the work programs under this TSA.
Pursuant to the West Kamennoye TSA, the Company is required to make aggregate
contributions of US$75.0 million through June 30, 2000 at the rate of US$15.0
million per budget year (budget years begin July 1 and end June 30). As of
the date of this Prospectus, the Company has completed drilling seven wells to
a depth just above the top of the Cretaceous sand in the West Kamennoye TSA.
The Company shares in revenue from production from the West Kamennoye TSA
in excess of designated "baseline" levels which are to be determined by future
agreement. Baseline production, defined as petroleum produced (and saved)
from existing facilities, and the costs associated with such production are
allocated to KOND. Revenues associated with incremental production are split
68%, 27% and 5% among the Company, Kond and MRI, respectively, until capital
costs have been fully recovered. Incremental Production (which is defined
generally as total production less baseline production) is allocated 63%, 27%
and 10% to the Company, KOND and MRI, respectively. Lifting, transportation
and marketing costs are borne by the parties in relation to their share of
Incremental Production. Other petroleum costs are paid 100% by the Company
from its share of the Incremental Production. The Company is required to
advance all funds required for production operations; provided, however, that
the other parties are obligated to repay the Company for their share of the
operating costs relating to baseline production and Incremental Production, as
appropriate. A baseline production level of approximately 1.1 million Bbls,
subject to negotiation and revision, has been established for the budget year
beginning July 1, 1995. Future baseline production levels are to be developed
annually based upon historical production levels.
KOND has the right from October 1, 1996, through October 31, 1996, to
terminate the West Kamennoye TSA if the Company fails to establish a 50%
increase in average daily oil production per well during the period from July
1, 1995 through June 30, 1996, from the Cretaceous wells it drills in the
Kamennoye West field as compared to KOND's average 1994 production from such
field. The Company believes that it will be able to meet such target,
although there can be no assurances that it will do so.
KOND has agreed to indemnify the Company against all claims in connection
with environmental damage that occurred or occurs from operations conducted by
KOND or their affiliates before, during or after the term of the West
Kamennoye TSA. The Company has agreed to indemnify KOND against all claims in
connection with environmental damage that occurred or occurs from operations
conducted by the Company or its affiliates during the term of the West
Kamennoye TSA.
DESCRIPTION OF EAST AND WEST KAMENNOYE LICENSE AREAS. The Kamennoye
Field is located in the western Siberian geological basin of central Russia,
approximately 90 kilometers northwest of the city of Khanty-Mansiysk. The
Kamennoye Field was discovered in 1962 and covers an area of approximately
2,220 square kilometers (548,570 acres), of which approximately 840 square
kilometers (208,000 acres) constitute the East Kamennoye License Area with the
balance of 1,140 square kilometers (281,600 acres) constituting the West
Kamennoye License Area. Initially, 47 and 99 delineation wells were drilled
in the East Kamennoye Field and the West Kamennoye Field, respectively, to
define the hydrocarbon traps and geological sequence. All of these wells were
drilled by KMNGG and briefly tested 10 to 30 years ago. Subsequent to
drilling these
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<PAGE>
wells, but prior to entering into the West Kamennoye TSA with Xavier, 170
Cretaceous development wells were drilled by Russian operators using
conventional Russian drilling methods. Approximately 80 of the 170 Cretaceous
development wells are producing and all constitute "baseline production" under
the West Kamennoye TSA. Recoverable oil has been found in the Kamennoye Field
in six oil-bearing zones: three in the Cretaceous and three in the Jurassic
horizons.
The deeper oil bearing Jurassic intervals are found in limited areas and
are made up of coarse grain sandstones and pebble conglomerates. The Jurassic
intervals at the Kamennoye Field have been briefly tested by KMNGG at oil flow
rates of up to 2,000 BOPD, but the productivity can vary laterally due to the
nature of the depositional process.
The Kamennoye East Jurassic wells have experienced bubble point problems
(when flowing formation pressure drops below the bubble point pressure
allowing gas to break out of solution) and, consequently, the well flow rates
have been choked back. As of December 31, 1995, Xavier had worked over 14
wells completed in the Jurassic interval. Currently, ten of the 14 wells are
producing approximately 854 BOPD. The remaining four wells are shut-in
pending additional workover or are currently under additional workover to
restore oil production. Xavier intends to drill only Cretaceous wells in the
Kamennoye Field until the bubble point issue has been resolved; however, there
can be no assurances such problem can be resolved. The majority of the
equipment and supplies for the Kamennoye Field is being selected for a
drilling and completion program in the Cretaceous producing interval. The
Company estimates that 92% of the potential recoverable reserves in the
Kamennoye Field lie in Cretaceous sands.
The Cretaceous horizons are significantly more wide-spread over the field
than the Jurassic horizons and the trapping structure is a geologically simple
anticline which has been well defined by well control in the field. The
productive intervals of the Cretaceous are very fine grain sandstones and
siltstones. Establishing oil production rates which support the economics of
potential Western investment is critical to the project and special drilling
techniques will need to be used to achieve adequate productivity from the
Cretaceous intervals.
To address the special drilling and completion needs of the Cretaceous
reservoir, the Company currently intends to use underbalanced drilling on the
Kamennoye wells. Company studies indicate that the previously drilled Russian
wells had a high incidence of drilling mud invasion, which limited the oil
flow from the wells. In the planned drilling program, it is anticipated that
a Russian rig (pursuant to a contract with Vector Development, Ltd. ("Vector")
as discussed below) will be used to drill each well to the top of the
objective Cretaceous sand, and then a western rig will then move over the hole
to finish drilling and completing the well. The drilling process will use a
mixture of brine and air at a designated weight which will allow the well to
produce through a separator while drilling. The completion steps will consist
of pumping produced oil downhole to stop the well from flowing and a downhole
pump will be run in the hole and the blowout preventer will be replaced with a
production tree. Depending upon the success of this drilling and completion
technique in establishing anticipated well flow rates, the technical process
will be modified and/or the field development plan will be reviewed and
expenditures modified accordingly.
Development Plans. The initial program for the East Kamennoye License
Area has been focused on establishing commercial production from the existing
Jurassic wells. To date, the results of work in the Jurassic horizon have
been commercially marginal. The initial work in the Cretaceous horizons in
the East Kamennoye License Area will focus on establishing commercial
production from such horizons with technically complex drilling and cost
effective completion techniques. Based on well performance from initial
drilling in the Cretaceous horizon, the Company will prepare a detailed
development program for the field. In 1996, Xavier anticipates initiating
Cretaceous production from two wells. One well would constitute a workover
recompletion to the Cretaceous horizon and the second well would be drilled
and completed to the Cretaceous horizon. Two other workovers are expected to
be carried out in 1996 to establish oil production in the Abalak horizon which
has not been produced at East Kamennoye to date. Additionally, the Company
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<PAGE>
plans to continue the Jurassic workover program (four planned) and the
construction of pipelines, roads and facilities in the East Kamennoye License
Area through December 31, 1996. The estimated cost of these activities is
US$2,010,000 in capital costs and US$1,569,00 in operating costs (US$3,220,875
net to the Company).
The initial program for the West Kamennoye License Area will focus on
establishing commercial production from the Cretaceous horizons with
technically complex drilling and cost effective completion techniques. Based
on well performance from initial drilling, the Company will prepare a detailed
development program for the field. The Company currently anticipates drilling
and completing 30 Cretaceous wells in the West Kamennoye License Area through
December 31, 1996. The estimated cost of required equipment and of drilling
and operating such wells is US$12,015,000 in capital costs and US$3,967,000 in
operating costs.
In furtherance of the Company's plans to drill 30 Cretaceous wells in the
West Kamennoye License Area, on October 17, 1995, the Company entered into a
drilling contract with Vector under which Vector agreed to drill 30 wells at a
rate of US$300,000 per well. Vector will be paid a standby rate of US$7,000
per day when using a rig it provides. If Vector provides a crew for a rig the
Company provides, Vector will be paid US$6,000 per day. In connection with
this contract, the Company has made a US$2.5 million pre-payment which will be
applied at a rate of US$100,000 per well drilled for the first 25 wells
drilled under the contract. Vector has drilled seven wells to the top of the
Cretaceous zone as of the date of this Prospectus.
P&K TSA. On June 5, 1995, the Company entered into a TSA with KMNGG and
PETECO for the development of the P&K License Area. Under the current terms of
the P&K TSA, the Company is required, among other things, to advance all
necessary funds and purchase or lease all material, equipment and supplies
required to satisfy the work programs contemplated by the P&K TSA; provided,
however, PETECO has agreed with the Company to provide 10% of such capital
requirements. The Company has to date made aggregate capital and operating
contributions of US$8.0 million for the development of the P&K License Area.
Additional expenditures for this work program have not been specified and the
Company is not obligated beyond the US$8.0 million initial commitment;
provided, however, that the Company has agreed to reinvest the first US$8.0
million received from cost recovery in future field development. Pursuant to
the above, the Company has reinvested US$1,882,508 of production revenues.
The P&K TSA is terminable by the Company if it has not advised KMNGG that it
has obtained such insurance as it deems desirable from the United States
Overseas Private Investment Corporation and such insurance, loans and
guaranties as Xavier believes desirable from the Export-Import Bank of the
United States. The P&K TSA expires on the later of 2020 and the expiration of
the licenses underlying the P&K License Area.
The P&K TSA currently provides that 100% of revenue attributable to
production from the P&K License Area will be allocated to the Company until
the first US$8.0 million of its investment is recovered. Thereafter, 60% of
such production revenue will be allocated to the Company and PETECO (90% and
10%, respectively) to recover capital and operating costs on an annual basis,
with the remaining 40% of such production revenue allocated among the Company,
KMNGG and PETECO, 45%, 50% and 5%, respectively. After cost recovery, revenue
will be split 45%, 50% and 5% among the Company, KMNGG and PETECO,
respectively.
KMNGG has agreed to indemnify the Company against all claims in
connection with environmental damage that occurs from operations conducted by
KMNGG before, during or after the term of the P&K TSA.
DESCRIPTION OF P&K LICENSE AREA. The P&K Field is located in the Western
Siberian geological basin of central Russia, approximately 40 kilometers west
of the city of Khanty-Mansiysk. It was discovered in 1966 and covers an area
of approximately 1,165 square kilometers (288,000 acres), all in the P&K
License Area. To date, 68 wells have been drilled in the P&K License Area to
define the hydrocarbon traps and geological sequences. As of December 31,
1995, two wells are producing in the field at an aggregate
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production rate of approximately 2,030 BOPD. Recoverable oil has been found
in the P&K Field in three sandstone formations at the Jurassic horizon.
DEVELOPMENT PLANS. As of December 31, 1995, there were two wells
producing out of the five that Xavier had worked over in the Jurassic horizon.
Three of the wells needed artificial lift installation to produce and were
shut-in as of December 31, 1995. Subsequent to year end, Xavier completed six
old exploration wells in the Jurassic horizon in the P&K License Area and
initiated a drilling program. The initial drilling program includes six
wells, two of which have been drilled and abandoned and four of which are to
be drilled by the end of 1996. The six newly completed exploration wells have
increased the number of producing wells to eight. Future development of the
Jurassic sandstone will be based on the results for the current work program.
The estimated cost of the development program is US$6,922,000 in capital costs
and US$3,099,000 in operating costs (an aggregate of US$9,019,000 net to the
Company).
TRANSPORTATION AND MARKETING FOR LICENSE AREAS. KOND has agreed to
cooperate with KMNGG and the Company to allow use of its existing production
and pipeline system to transport production from both the East and West
Kamennoye License Areas to a major Siberian oil export pipeline system.
Following successful transportation of production from the Kamennoye Field,
such production is sold by KOND or KMNGG, as the case may be, to the export
market under their existing licenses. The P&K License Area contains a
pipeline that interconnects with a major pipeline from which export production
is sold under the P&K license.
OIL RESERVES
The Company engaged Huddleston & Company, Inc. ("Huddleston") to prepare
estimates of the proved oil reserves, projected future production of such
reserves, and estimated future net revenues therefrom, as of December 31,
1995, for the Black Gold Fields. Huddleston's estimates were based upon a
review of production histories and other geologic, economic, ownership, and
engineering data provided by the Company and its joint venture partners. In
determining the estimates of the reserve quantities that are economically
recoverable, Huddleston used product prices and costs in effect on the "as of"
date of the report. In accordance with guidelines promulgated by the
Commission, no price or cost escalation or de-escalation was considered.
The following table sets forth information relating to the total proved
developed producing, proved developed nonproducing and proved undeveloped oil
reserves of the Black Gold Joint Venture as of December 31, 1995. The barrels
are net to the Company's interest and, accordingly, are net of the CAD Royalty
and GWB Royalty discussed under "Certain Transactions--Interest Purchase
Agreements."
<TABLE>
<CAPTION>
<S> <C> <C>
Proved developed producing(1)...... --
Proved developed non-producing..... 2,145,286
Proved undeveloped................. 3,947,499
-----------
Total.......................... 6,092,785
===========
</TABLE>
_________________________
(1) No reserves have been assigned to the proved developed producing
category since such volumes will be attributed to the Baseline
Production established for the Black Gold Fields. See "-- Black Gold
Joint Venture -- Black Gold Documents."
For further information concerning the Company's proved reserves, see the
Huddleston letter included as Appendix B. The TSAs grant the Company an
economic interest in the production from the underlying license areas at the
point of export and do not represent the ownership of mineral interests,
infrastructure or wells.
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<PAGE>
In general, estimates of economically recoverable oil and gas reserves
and of the future net revenues therefrom are based upon a number of variable
factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs and
future plugging and abandonment costs, all of which may vary considerably from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group
of properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
The Company does not file reserve reports with any federal agency other
than the Commission.
The following table sets forth as of December 31, 1995, the estimated
future net cash flows, and the present value of estimated future net cash
flows discounted at 10% per annum, from production and sale of the proved
developed and undeveloped reserves attributable to the Company's oil
properties as of such date, as determined by Huddleston in accordance with the
requirements of applicable accounting standards:
<TABLE>
<CAPTION>
BLACK GOLD
---------------
<S> <C>
Estimated future net revenues from proved reserves....................................... US$27,328,386
Present value of estimated future net revenues from proved reserves (discounted at 10%).. US$13,278,785
</TABLE>
Oil and gas prices have fluctuated widely in recent years. The weighted
average sales prices utilized for the purpose of estimating the Company's
proved reserves and future net revenues therefrom at December 31, 1995 was
US$18.80 per barrel of oil based on postings in the Department of Energy
weekly Petroleum Status Report for USSR-Export Blend 32 degree.
In accordance with applicable requirements of the Commission, the
estimated discounted future net revenues from estimated proved reserves are
based on prices and costs at fiscal year end unless future prices or costs are
contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net revenues also will be affected
by factors such as actual production, supply and demand for oil and gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs.
In accordance with methodology approved by the Commission, specific
assumptions were applied in the computation of the reserve evaluation
estimates. Under this methodology, future net revenues are determined by
reducing estimated future gross revenues to the Company for oil sales by the
estimated costs to develop and produce the underlying reserves, including but
not limited to future capital expenditures, operating costs, transportation
costs, mineral use rights, export tariffs and certain other taxes including
road use taxes and excise taxes.
Future net cash flows were discounted at 10% per annum to arrive at
discounted future net cash flows. The 10% discount factor used to calculate
present value is required by the Commission, but such rate is not necessarily
the most appropriate discount rate. Present value of future net cash flows,
regardless of the discount rate used, is materially affected by assumptions as
to timing of future oil prices and production, which may prove to be
inaccurate. In addition, the calculations of estimated net revenues do not
take into account the effect of certain cash outlays, including, among other
things, general and administrative costs, interest expense and dividends. The
present value of future net cash flows shown above should not be construed as
the current market value as of December 31, 1995, or any prior date, of the
estimated oil reserves attributable to the Company's properties.
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<PAGE>
KMNGG
In December 1995, the Company loaned US$19.95 million of the net proceeds
from the Carnegie Note to ANG. Such loan is evidenced by the Convertible
Note, which bears interest at the rate of 12% per annum and is due on or
before June 4, 1996. All outstanding principal and interest under the
Convertible Note is convertible, at the option of the holder, into shares of
KMNGG common stock at a conversion price of $259.14 per share. If the
outstanding principal of the Convertible Note is converted in full into shares
of KMNGG common stock, and assuming no other issuances of such stock, the
Company would own approximately a 25% interest in KMNGG. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Risk Factors--Risks Related to the Company-
-KMNGG Transactions," "Certain Transactions--KMNGG Transactions" and
"Description of Xavier Delaware Securities--Warrants, Options and Convertible
Securities" for additional information concerning the Carnegie Note, the
Convertible Note and certain related matters.
KMNGG is a Russian oil company engaged primarily in the exploration and
production of hydrocarbons in western Siberia. The Russian government
organized the predecessor to KMNGG's current operations in 1980 as a Russian
State Geological Enterprise. From 1991 until 1995, KMNGG was a Russian Joint
Stock Company of the closed type and on January 17, 1995, it became a Russian
Joint Stock Company of the open type.
The Company has been informed by KMNGG that it owns license interests in
various areas as indicated in the following table.
<TABLE>
<CAPTION>
PERCENTAGE TYPE OF
AREA OWNERSHIP LICENSE(1)
- ------------------------------------------------------------- ---------- --------
<S> <C> <C>
Kamennoye square of Krasnoleninskoye Field (eastern sector).. 100 P
P&K Field.................................................... 100 P
Salymskoye (western sector).................................. 100 P
Khanty-Mansiyskoye Field (through a subsidiary).............. 100 P
Severo-Kamnynskiy............................................ 100 E
Kislorsky (Berezovoi sector)................................. 100 E
Itiakhskiy................................................... 100 E
Gambitoviy................................................... 100 E
Eastern-Erginskiy............................................ 100 E
Zimniy....................................................... 100 E
Lebyadgye.................................................... 30 P
Rogodnikovskoye.............................................. 30 P
Tsentralnoye................................................. 30 P
Olkhouskoye.................................................. 30 P
Bolshoye..................................................... 30 P
Galianovskoye................................................ 30 P
Aprelskoye................................................... 30 P
Sredne-Nazymskoye............................................ 30 P
Em-Egovskoy + Palyanovskoye Fields (northern part)........... 20 P
Priobskoye Field (southern part)............................. 20 P
Verhne-Shapshinskoye......................................... 8 P
Nidgne-Shapshinskoye......................................... 8 P
Sredne-Shapshinskoye......................................... 8 P
</TABLE>
- --------------
(1) "P" means a license for KMNGG to carry out production operations in an
area. These production licenses typically expire 20 years after the date
of grant. "E" means a license for KMNGG to carry out exploration
operations in an area. These exploration licenses typically expire five
years after the date of grant unless converted into a production license
with a 20-year term.
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<PAGE>
KMNGG's other assets include drilling rigs and other drilling equipment;
however, its geophysics, transport and construction activities are
subcontracted to other parties. KMNGG has approximately 1,800 employees.
BANDERA ENGINEERING
On July 12, 1995, pursuant to a stock purchase agreement (the "Bandera
SPA"), the Company acquired a 54.5% interest in Bandera by forgiving US$5.1
million in loans payable by Bandera to the Company. Bandera's principal
business is providing engineering services to the petroleum industry. Bandera
used (i) US$2.97 million of such amount, and issued a US$500,000 secured,
prime plus 1% promissory note, due June 1996, to purchase the stock of Miller
Pipeline Service Corporation ("Miller") (which is in the pipeline repair and
improvement business using high density polyethylene liners) and (ii) the
balance for general corporate purposes. In connection with the acquisition of
Bandera, the Company received warrants expiring on various dates through 2005
to purchase 700,000 of Bandera common stock at US$1.00 per share. A provision
in the Bandera SPA provides that Bandera may, if requested, lend a shareholder
of Bandera US$150,000 to pay certain finders fees in connection with Bandera's
purchase of Miller.
In connection with the Bandera SPA, the Company entered into a Project
Pricing Agreement (the "PPA") with Bandera Engineering, Inc., a wholly owned
subsidiary of Bandera ("BEI"). BEI provides project management,
structural/facilities and pipeline/compressor station engineering, as well as
construction supervision and production operations to the oil and gas
industry. The PPA provides that the Company will attempt to refer business to
BEI and will use BEI's products and services if available. In return, BEI
will pay the Company 50% of the first $16.0 million of BEI's net profits (as
defined in the PPA) from such projects. Once the Company has received US$8.0
million in payments, it will be entitled to an amount equal to 10% of the
materials purchased by BEI with respect to projects undertaken by BEI under
the PPA. If BEI should intend to offer its stock publicly, and the
underwriters for such offering determine that the PPA is a hinderance to such
an offering, then BEI and the Company have agreed to modify the PPA as
appropriate. To date Bandera has made no payments to the Company under the
PPA.
For certain additional information concerning Bandera, see "--Litigation"
and "Certain Transactions--Bandera."
OTHER PROJECTS
The Company also has interests in, or has entered into negotiations or
preliminary agreements with respect to, certain additional projects including,
but not limited to, those set forth below. The Company intends to pursue such
projects and, if definitive agreements are entered into or further commitments
made with respect to one or more of them, the Company will require significant
additional funds to finance its participation in such ventures. There can be
no assurance, however, that the Company will undertake any of these projects
or, if one or more of these projects is undertaken, that they will be on the
terms discussed below.
BLACK GOLD GROUP I PROJECT. GEX and STNG are parties to a protocol of
agreement (the "Group I Protocol") with respect to 12 additional producing oil
fields and an exploration block in the Stavropol region (in the vicinity of
the Black Gold Fields) known as the "Group I Project." The 12 fields that are
the subject of the Group I Protocol (the "Group I Fields") are located to the
east of Neftekumsk. The Group I wells currently produce from the same general
horizons as the Black Gold Fields.
The Company is continuing to conduct feasibility evaluations relating to
the development and exploration of the Group I Fields as information becomes
available. Following the completion of such evaluations, the Company will
make a determination as to whether to proceed with the joint venture regarding
these fields. If the Company does elect to proceed, it is currently expected
that the Black Gold Joint Venture
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would be expanded to include the Group I Fields. Any such inclusion of the
Group I Fields in the Black Gold Joint Venture would require the prior
approval of appropriate governmental bodies in Russia, including but not
limited to the Ministry of Fuel and Energy, the Ministry of Finance and the
regional government of Stavropol. Although initial steps have been taken to
obtain these approvals, there can be no assurance that such approvals can be
obtained or, if obtained, as to the scope of the conditions that might be
imposed in connection with such approval. If the Group I Fields are
contributed to the Black Gold Joint Venture, the GEX Documents provide that
GEC and the Company shall each have an equal economic interest in the Group I
Fields. See "--The Black Gold Joint Venture--The GEX Documents."
FOREST PARTNERS. On December 14, 1994, a subsidiary of the Company,
Xavier (Eurasia), Inc. ("XEI"), entered into an agreement (the "FP Agreement")
with UST-Ilimsk External Economic Company ("UST") to create Forest Partners,
JSC ("Forest Partners"). Forest Partners intends to develop certain
timberland areas and facilities in Russia and export molding grade timber to
various Pacific-Rim markets. The joint venture is registered in the Russian
Federation. The Company has committed no significant funds to Forest
Partners. The Company's involvement in this project is anticipated to be in
conjunction with western industry partners, who would share commercial rights
and economic risk, as well as provide industry expertise. The Company
anticipates it will need to spend US$1.5 million to US$2.0 million to initiate
the joint venture's business operations. Xavier, however, currently has no
contractual commitments to fund the joint venture.
GAZPROM JOINT VENTURE. The Company is evaluating a possible transaction
with Orenburggazprom, a subsidiary of Gazprom, the state enterprise of Russia
which conducts all nonassociated gas production operations. A proposed joint
venture would refurbish and rehabilitate the existing gas processing facility
in Orenburg, which is located to the northwest of the Caspian Sea. It is
anticipated that the gas processing facility would yield substantial
quantities of sulfur that would be marketed by the Company. To date the
Company has made loans of US$902,435 in connection with the Gazprom Joint
Venture and, subject to additional economic analysis and the execution of
definitive agreements, the Company may invest US$5.0 million to US$10.0
million over the life of the project. No contract has been entered into to
date, however, and the ultimate status of the project is uncertain.
KYRGYZSTAN. The Company has entered into a verbal agreement with Mr.
William C. Nixon, with respect to certain business opportunities in the
Republic of Kyrgyzstan. The verbal agreement with Mr. Nixon contemplates that
the Company will compensate Mr. Nixon in an amount approximately equal to
$100,000 per annum, plus expenses, while Mr. Nixon develops opportunities in
downstream oil and gas activities in the Republic of Kyrgyzstan. If Mr. Nixon
is successful in developing a business opportunity acceptable to the Company,
the Company may consider undertaking to form a venture to pursue such
opportunity.
COMPETITION
The exploration and production business is highly competitive. In
seeking to obtain desirable new development projects, the Company faces
competition from both major and independent oil and natural gas companies.
Many of these competitors have financial and other resources substantially in
excess of those available to the Company and may, accordingly, be better
positioned to acquire and exploit prospects, hire personnel and market
production. In addition, many of the Company's larger competitors may be
better able to withstand the effect of changes in factors affecting the
industry, such as worldwide oil and natural gas prices and levels of
production, the cost and availability of alternative fuels and the application
of government regulations, which affect demand for the Company's oil and
natural gas production and which are beyond the control of the Company.
Further, certain of these competitors may be owned by or have strong ties with
the governments of the republics of the CIS.
There is also extensive competition in the market for oil and gas
produced by the Company. Increases in worldwide energy production capability,
decreases in energy consumption as a result of conservation
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efforts, and the continued development of alternate energy sources have
brought about substantial surpluses in oil and gas supplies in recent years
resulting in substantial competition for the marketing of oil and gas. As a
result, there have been reductions in oil and natural gas prices and delays in
producing and marketing natural gas after it is discovered.
REGULATION
For information concerning the Russian oil industry and its regulation,
see Appendix A.
EMPLOYEES
At April 15, 1996, the Company employed 31 people, 20 of whom were based
in Russia. The Company believes that an adequate supply of skilled labor at
required levels is available from the local Russian work force, and intends to
hire additional technical and field personnel as its needs warrant. The
Company has experienced no work stoppages and is not a party to any collective
bargaining agreement. The Company believes that its relations with employees
are good.
OFFICES
The Company's headquarters are in Houston, Texas. The Company leases
office space in Moscow, Neftekumsk, Khanty-Mansiysk and Nyagan and believes
that such space is adequate for its foreign office requirements. The Company
has leased new space to expand its Houston, Texas corporate offices and
intends to lease or construct additional office space and required housing
facilities for workers at each of its operating locations as its needs
warrant.
LEGAL PROCEEDINGS
On May 25, 1994, Steven W. Weller filed a suit styled Steven W. Weller v.
Xavier Mines Limited, et al., in the 334th District Court of Harris County,
Texas against the Company, certain of the Company's current and/or former
officers and/or directors (Messrs. Dittmar, Sinclair, McAuley, Gardner and
Bowman) and Noramco Mines, Ltd., a former major stockholder of the Company.
In this lawsuit, Weller alleged that he owned an interest in an enterprise
that held rights to earn interests in certain oil and gas properties in
Kazakhstan and Azerbaijan (the "Properties"), including the Siazan Monocline
Oil Field. Weller further alleged that he and the Company entered into a
letter agreement (the "Letter Agreement") pursuant to which he agreed to sell
his interest in such enterprise to the Company in exchange for a US$200,000
promissory note, a one year employment contract with the Company, a preference
share in the Company convertible into 5% of the Company's outstanding Common
Stock at the time of such conversion, a perpetual royalty of 0.5% of the gross
revenues from the Properties and an option to purchase such number of Common
Shares, at a purchase price of $1.40, as may be determined by the Company's
management. Weller also contended that through his employment with the
Company that he was responsible for the Company's acquisition of the Black
Gold Fields and the Kamennoye Field and that he is entitled to a royalty on
any production from these fields. He has asserted claims based on theories of
breach of contract, fraud, estoppel, conversion and unjust enrichment and is
seeking actual and exemplary damages. The defendants who have been served
with process in the case have either filed an answer denying Weller's
allegations or objected to the court's jurisdiction over them. Discovery has
commenced in the case. The Company disputes the merits of Weller's claims and
intends to defend against each such claim vigorously. The trial date is
August 26, 1996.
On June 21, 1995, Southwest Merchant Group ("SMG") filed a lawsuit
against BEI in the District Court in Dallas County, Texas alleging that BEI
breached its obligations under a contract with SMG. Under the terms of the
contract, as amended, SMG was to act as the exclusive financial advisor/broker
to BEI in its efforts to acquire and finance the acquisition of certain assets
of Miller. The amended contract extended the term of the contract to June 15,
1995 and provided that upon the later of June 1, 1995 and the date that Miller
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is acquired by BEI (subject to such extended termination date), BEI would pay
to SMG a fee in the amount of $150,000 and, thereafter, $100,000 on February
1, 1996, $100,000 on August 1, 1996 and $150,000 on February 1, 1997. In
addition, SMG was to be paid annually an amount based on one percent of the
previous year's sales of all products based on the Miller patents acquired.
The lawsuit claims BEI has refused to compensate SMG for its performance under
the contract and seeks unspecified damages to be determined at trial.
BEI filed an answer on July 17, 1995, denying all allegations contained
in the SMG lawsuit. On December 5, 1995, SMG filed its Second Amended
Original Petition (the "Amended Petition") which added Bandera Pipeline
Service Corp., a wholly-owned subsidiary of BEI ("BPSC"), Bandera, Bandera
Holdings, Inc., a shareholder of Bandera ("BHI"), Mr. H.E. Holder, Sr., a
shareholder of BHI and president of Bandera ("Holder"), Miller, KCC, Xavier-
Canada and Chris A. Dittmar (a director and officer of the Company) as
defendants in the lawsuit. In the Amended Petition, SMG has claimed that
BPSC, KCC, Holder, Xavier Mines Ltd. and Mr. Dittmar tortiously interfered
with SMG's contract with Bandera and that such person entered into a civil
conspiracy to deprive SMG of compensation due it. With respect to such
claims, SMG seeks unspecified damages, including punitive damages, to be
determined at trial. The Company, BPSC and BEI intend to defend this action
vigorously. See "--Bandera Engineering."
Other than the above discussed lawsuits, the Company is not a party to
any material pending legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
directors and executive officers of Xavier-Canada and Xavier-Delaware. A
summary of the background and experience of each of these individuals is set
forth after the table.
<TABLE>
<CAPTION>
Name Age Position Held
- ---- --- ---------------
<S> <C> <C>
Chris A. Dittmar 49 Chairman of the Board, Chief Executive Officer
and President of each Xavier Company
George W. Bowman 48 Vice President, Director of Russian Operations
of each Xavier Company and Director of Xavier-
Delaware
Robert L. Gerry, III 58 Director of each Xavier Company
Paul T. Conroy 54 Director of Xavier-Canada
Franklin L. Davis 41 Director of each Xavier Company
Michael C.P. Hannesson 49 Director of Xavier-Canada
Benton H Wilcoxon 46 Director of Xavier-Delaware
Robert S. Parsons 42 Chief Financial Officer of each Xavier Company
</TABLE>
The Xavier-Delaware Board of Directors currently consists of five members
and is divided into three classes, one class of which is elected each year to
hold office for a three-year term and until successors are elected and
qualified. The terms of the initial Class A, Class B and Class C directors of
the Company will expire at the 1996, 1997 and 1998 annual meetings,
respectively. Robert L. Gerry and Franklin L. Davis will serve in Class A,
Benton H Wilcoxon and George W. Bowman in Class B and Chris A. Dittmar in
Class C. Successors to those directors whose terms have expired are required
to be elected by stockholder vote while vacancies in unexpired terms and any
additional positions created by board action are filled by action of the
existing Board of Directors. The executive officers named above were elected
to serve in such capacities until the next annual meeting of the Board of
Directors, or until their respective successors have been duly elected and
have been qualified, or until their earlier death, resignation,
disqualification or removal from office. There is no family relationship
among any of the directors and executive officers of the Company.
CHRIS A. DITTMAR has been Chairman, Chief Executive Officer and President
of the Company since November 1993. Prior to that time, at Tradlink Petrocor,
LLP ("Tradlink"), he was instrumental in formulating the strategy and
negotiating and structuring the ventures and relationships with the entities
in the CIS that form the basis of the Company's current operations. Mr.
Dittmar's efforts in this regard were the most recent in a series of projects
he was involved in as a self-employed businessman from 1981 until his
association with the Company. From 1977 to 1980, Mr. Dittmar served as a
project controller and in-house counsel for Occidental Petroleum Corporation,
where he gained broad exposure to oil, gas, chemical and trading operations
while coordinating efforts to improve Occidental's project planning and
management worldwide. Mr. Dittmar earned a J.D. degree with an emphasis in
Corporate Planning from Cleveland State University in 1977. He has a working
knowledge of Russian and French and is a member of the Association of
International Petroleum Negotiators.
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GEORGE W. BOWMAN has been Vice President and Director of Russian
operations for the Company since November 1993. From January to November
1993, he identified and evaluated prospective ventures and relationships in
Russia while at Tradlink. From 1983 to 1993, Mr. Bowman was a co-founder and
served as Technical Director and Chief Operating Officer of Boffin, Inc., a
publisher of micro-computer software for the petroleum industry. He has
extensive experience in developing computer systems for the technical and
financial modeling of oil and gas projects, which systems are used by over
2,000 oil and gas companies and over 70 oil-producing nations. Mr. Bowman is
married to a Russian citizen and has lived in Russia since 1992. He holds a
BBA in Finance from the University of Texas at Arlington. Mr. Bowman has a
working knowledge of Russian, Farsi and Dutch, is a member of the Society of
Petroleum Engineers and has been published in the Oil & Gas Journal and the
Journal of Petroleum Technology.
ROBERT L. GERRY, III has been a director of Xavier-Canada since October
1994. Since 1990, Mr. Gerry has been President, Vice Chairman, Chief
Operating Officer and a Director of Nuevo Energy Company. He was the Senior
Vice President of Energy Assets Investment Company ("EAIC"), a subsidiary of
Torch Energy, from 1989 to 1990. For ten years prior to joining EAIC, Mr.
Gerry was active as an independent investor in the energy environment. Mr.
Gerry serves on the Board of Directors of the Earth Satellite Corporation, a
satellite imaging company.
PAUL T. CONROY has been a director of Xavier-Canada since August 1995.
Mr. Conroy has been the President and Chief Executive Officer of Paramount
Ventures & Finance Inc., a mining exploration company, since 1993. Since
1994, Mr. Conroy has also been President and Secretary of Beaufort Petroleum
Investments Ltd. which is an oil and gas exploration company. In May 1995,
Mr. Conroy became president of Gothic Resources, Inc. which is also in the oil
and gas exploration business. From 1988 through 1992, Mr. Conroy was the Vice
President of Corporate Finance at Chase Resources, a mining exploration
company. Mr. Conroy serves on the Board of Directors of Paramount Ventures &
Finance Inc., Beaufort Petroleum Investments Ltd., Gothic Resources, Inc. and
Churchill Resources, Inc.
FRANKLIN L. DAVIS has been a director of Xavier-Canada since August 1995
and Xavier-Delaware since October 1995. Mr. Davis has been a partner in the
law firm of Smith Lyons, Toronto, Ontario, for more than five years.
MICHAEL C.P. HANNESSON has been a director of Xavier-Canada since April
1994. Since August 1995 Mr. Hannesson has been the Executive Vice President
of Rainmaker Digital Pictures Corp., a public company servicing the motion
picture industry. He was the Executive Vice President of Bel-Fran Investments
Ltd., which invested primarily in public companies and real estate, from July
1993 to August 1995. From 1988 until July 1993, Mr. Hannesson served as
Senior Vice President, Finance and Operations Director of Adams-Coscan
Partners, a company in the real estate business. Since September 1993, Mr.
Hannesson has been the Chief Financial Officer and Director of Farm Energy
Ltd. a company in the ethanol business. From August 1993 until October 31,
1995, Mr. Hannesson served as a Director of Franklin Supply.
BENTON H. WILCOXON has been a director of Xavier-Delaware since October
1995 and currently is Chairman, Chief Executive Officer and President of
Emtech Ltd. Emtech commercializes advanced materials technologies, primarily
from Ukraine, and also owns a large mining venture in Ukraine. Mr. Wilcoxon
has been President of Emtech since 1993 and was president of its predecessor
company Ashurst Technology Corporation from July 1991 until 1993. He also
serves as a Director and President/Managing Director of the principal
subsidiaries of Emtech Ltd. and is a member of the Board of Directors of
Emtech's joint ventures in Ukraine. Prior to founding Emtech/Ashurst, Mr.
Wilcoxon was a consultant in the field of advanced technologies and operated
an analytical chemistry firm, Alpha Research Corporation, primarily for the
mining industry.
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<PAGE>
ROBERT S. PARSONS joined the Company as Chief Financial Officer in April,
1995. Before this position he was a Managing Director of Europa International
Ltd. in New York City. There he developed and executed a corporate strategy
to enter Central European and Russian financial markets for affiliated Europa
companies: a NYSE member broker/dealer, a mutual funds investment company and
a small to midmarket investment bank. Mr. Parsons was Vice-President of
Europa Capital from 1992 to 1993. He was an accounting manager at Mobil
Corporation from 1990 to 1992 and was a consultant to the oil and gas industry
from 1987 to 1989. Mr. Parsons was the Director of Internal Audit at Westland
Oil Corporation, a Houston, Texas based, medium-sized independent oil and gas
company from 1983 to 1987. He was the Chief Financial Officer and a co-
founder of Rees Exports International, an exporter of petrochemical and oil
field equipment, from 1982 to 1983. He worked in the financial reporting,
internal audit and treasury departments at Texas Eastern Corporation from 1977
to 1982. Mr. Parsons holds a BBA in Accounting from the University of Texas
at Austin and a Masters of Business Administration from Southern Methodist
University.
COMPENSATION OF DIRECTORS
Except for reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof, none of the directors of the Company were
compensated in their capacity as a director by the Company and its
subsidiaries pursuant to any other arrangement or in lieu of any standard
arrangement, nor are there any plans for such compensation in the foreseeable
future.
On September 22, 1995, the Company granted each of Michael C.P.
Hannesson, Franklin L. Davis, Paul T. Conroy, Robert L. Gerry and Chris A.
Dittmar, directors of Xavier-Canada, options to purchase 75,000 Common Shares.
Such options are fully vested and are currently exercisable at an exercisable
price of CDN$1.50. The options terminate on the sooner to occur of five years
from the date of grant and two years from the date the holder thereof is no
longer a director. See "Principal Shareholders."
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Merger, the Company will have an Audit Committee
and a Compensation Committee. The Company does not intend to have a
nominating committee.
The Audit Committee will review and report to the Board of Directors the
scope and results of audits by the Company's outside auditor. Such committee
will also recommend a firm of certified public accountants to serve as the
Company's independent public accountants, subject to nomination by the Board
of Directors and approval of the stockholders, authorize all audit and other
professional services rendered by the auditor and periodically review the
independence of the auditor. Membership of the Audit Committee is restricted
to those directors who are not active or retired officers or employees of the
Company. The Company intends to appoint Messrs. Gerry, Davis and Wilcoxon to
the Audit Committee.
The Compensation Committee will review and recommend to the Board of
Directors the compensation to be paid to the executive officers of the
Company. The Company intends to appoint Messrs. Gerry, Davis and Wilcoxon to
the Compensation Committee.
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EXECUTIVE COMPENSATION
The following table sets forth all annual and long term compensation for
services in all capacities to the Company and its subsidiaries for the years
ended December 31, 1995, 1994, and 1993 in respect of each of the individuals
who were, at December 31, 1995, the Chief Executive Officer of the Company and
the three other most highly compensated executive officers of the Company (the
"Named Executive Officers"). Specific aspects of the compensation of the
Named Executive Officers are dealt with in further detail in subsequent
tables.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------
(CDN$ EXCEPT AS INDICATED) AWARDS PAYOUTS
------------------------------- ----------------------------------
OTHER SECURITIES
ANNUAL UNDER RESTRICTED ALL OTHER
NAME AND COMPEN- OPTIONS/ STOCK LTIP COMPEN-
PRINCIPAL BONUS SATION SARS(#) AWARDS(S) PAYOUTS SATION
POSITION YEAR SALARY ($) ($) ($) GRANTED ($) ($) ($)(1)(6)
- --------- ---- ---------- ------ -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chris A. Dittmar 1995 60,000 0 0 75,000(4) 0 0 18,415
Chairman of the Board, 1994 60,000 0 0 0 0 0 0
CEO and President of 1993 10,000(1) 0 0 281,250(5) 0 0 0
each Xavier Company
George W. Bowman 1995 60,000 0 0 0 0 0 0
Vice President of each 1994 60,000 0 0 0 0 0 0
Xavier Company 1993 10,000(2) 0 0 143,750(6) 0 0 0
Robert S. Parsons 1995 US$125,000(3) 0 0 0 0 0 0
Chief Financial Officer 1994 0 0 0 0 0 0 0
of each Xavier 1993 0 0 0 0 0 0 0
Company
H. E. Holder, Jr. 1995 US$150,000 US$7,836(8) 0 0 0 0
Chairman of the Board, 1994 0 0 0 0 0 0
CEO and President of 1993 0 0 0 0 0 0
BPSC(7)
- -------------------------
</TABLE>
(1) Mr. Dittmar was appointed Chairman, President and Chief Executive Officer
of the Company in November 1993. The Company has agreed to pay Mr.
Dittmar an annual salary of US$120,000. However, pursuant to Mr.
Dittmar's Employment Agreement with Xavier-Canada and the rules of the
ASX, the maximum salary that Mr. Dittmar may receive is CDN$60,000 per
annum until certain conditions have been satisfied. At such time, the
foregone salary will not be reimbursed to Mr. Dittmar. Mr. Dittmar
received the indicated $18,415 in other compensation pursuant to the
insurance policy described below under "Executive Compensation--Other
Compensation Matters." See also "--Employment Agreements."
(2) Mr. Bowman was appointed Vice-President of the Company in November 1993.
The Company has agreed to pay Mr. Bowman an annual salary of US$96,000.
However, pursuant to Mr. Bowman's employment agreement with Xavier-Canada
and the rules of the ASX, the maximum salary that Mr. Bowman may receive
is CDN$60,000 per annum until certain conditions have been satisfied.
See "--Employment Agreements." At such time, the foregone salary will
not be reimbursed to Mr. Bowman.
(3) Mr. Robert S. Parsons was appointed Chief Financial Officer on April 17,
1995, at an annual salary of US$125,000.
(4) Options granted to Mr. Dittmar as discussed under "--Compensation of
Directors."
(5) The Board of Directors of Xavier-Canada granted Messrs. Dittmar and
Bowman options to purchase 281,250 and 143,750 Common Shares, effective
November 5, 1993, at an exercise price of CDN$1.40. 20% of such options
vested upon issuance and 20% vest thereafter at each anniversary date.
The options expire on the earlier of November 5, 1998 or upon termination
of employment with the Company.
(6) Messrs. Dittmar and Bowman have interest purchase agreements with the
Company, effective November 3, 1993, which entitle them to receive Common
Shares upon meeting certain conditions as described in "Certain
Transactions--Interest Purchase Agreements."
(7) Mr. Holder serves in the indicated capacity pursuant to the employment
agreement described under "--Executive Compensation--Employment
Agreements."
(8) The value of lease payments made on a car provided for Mr. Holder.
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<PAGE>
OTHER COMPENSATION MATTERS
On September 8, 1995, the Company purchased a US$5.0 million life
insurance policy on Chris A. Dittmar under which Mr. Dittmar has been named
the beneficiary. Mr. Dittmar has assigned the right to name the beneficiary
of the policy to the Company, and the Company has changed the beneficiary to
itself. The Company is obligated to pay premiums of approximately US$58,000
annually until 2005. The imputed benefit to Mr. Dittmar of such payments is
US$18,415 in 1995 and US$57,325 for the years 1996 through 2000. Mr. Dittmar
will be allowed to borrow against the policy up to the amount of its net cash
surrender value which will grow from US$16,302 in 1995 to US$167,943 in 2000.
If Mr. Dittmar should leave the Company's employment, he would be entitled to
the net cash surrender value of the policy. From 1995 to 2005, so as long as
the Company pays the premium, upon Mr. Dittmar's death, the US$5.0 million
death benefit minus any borrowed cash value will be paid to the Company.
After 2005, assuming Mr. Dittmar continues to pay the policy premiums, the
death benefit will go to Mr. Dittmar's estate on his death.
There are no pension plan benefits in place for any of the Named
Executive Officers and none of the Named Executive Officers, senior officers
or directors of the Company is indebted to the Company except as disclosed
under the heading "Certain Transactions."
Except as disclosed in "--Employment Agreements," there are no employment
contracts between the Company (and its subsidiaries) and any Named Executive
Officer and no compensatory plan or arrangements with respect to any Named
Executive Officer that result or will result from the resignation, retirement
or any other termination of employment of such officer's employment with the
Company (and its subsidiaries), from a change of control of the Company (and
its subsidiaries) or a change in the Named Executive Officer's
responsibilities following a change-in-control.
The Company has made certain advances to Messrs. Dittmar and Bowman. See
"Certain Transactions--Advances."
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Chris A.
Dittmar pursuant to which Mr. Dittmar serves as the Chairman, Chief Executive
Officer and President of the Company. The employment agreement provides for a
five-year employment term commencing November 3, 1993, which employment term
is renewable at the end of each year, beginning November 3, 1994, on terms and
conditions as mutually agreed to by the Company and Mr. Dittmar. The
employment agreement provides that as compensation for all services rendered
by Mr. Dittmar thereunder, he will receive an annual salary of US$120,000;
provided however, such annual compensation shall be reduced to CDN$60,000
until conditions (ii) through (vi) with respect to conversion of the First
Tranche Shares (as defined) have been satisfied. See "Certain Transactions--
Interest Purchase Agreements." In addition, Mr. Dittmar may be paid bonuses,
participate in certain employee benefit plans and receive certain other
perquisites. In connection with the execution of his employment agreement,
the Company granted to Mr. Dittmar options to purchase 281,250 Common Shares.
See "--Executive Compensation--Summary Compensation Table" and "--Long Term
Compensation Plans--Aggregate Option Exercises in Last Fiscal Year at Fiscal
Year-End Option Values."
The Company has entered into an employment agreement with George W.
Bowman pursuant to which Mr. Bowman serves as the Vice President of the
Company. The employment agreement provides for a five-year employment term
commencing November 3, 1993. The employment agreement provides that as
compensation for all services rendered by Mr. Bowman thereunder, he will
receive an annual salary of US$96,000; provided, however, such annual
compensation shall be reduced to CDN$60,000 until conditions (ii) through (vi)
with respect to conversion of the First Tranche Shares have been satisfied.
See "Certain Transactions--Interest Purchase Agreements." In addition, Mr.
Bowman may be paid bonuses, participate in certain employee benefit plans and
receive certain other perquisites. In connection with the execution of
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his employment agreement, the Company granted to Mr. Bowman options to
purchase 143,750 Common Shares. See "--Executive Compensation--Summary
Compensation Table" and "--Long Term Compensation Plans--Aggregate Option
Exercises in Last Fiscal Year at Fiscal Year-End Option Values."
In addition to any other payments to be made to Messrs. Dittmar and
Bowman under their employment agreements, they will be entitled to their
salary throughout the term of the agreement if employment is terminated
thereunder for any reason other than "cause" (as defined in the employment
agreements), resignation or disability. If Mr. Dittmar or Mr. Bowman is
terminated for "cause," then the terminated officer will be subject to a 90-
day non-competition agreement with the Company.
BPSC, an indirect wholly-owned subsidiary of Bandera, has entered into an
employment agreement with H.E. Holder, Jr. (the "Holder Employment
Agreement"), pursuant to which Mr. Holder serves as BPSC's Chairman of the
Board, Chief Executive Officer and President. The employment agreement
provides for a five-year employment term commencing June 1, 1995. The
employment agreement provides that as compensation for all services rendered
by Mr. Holder thereunder, he will receive an annual salary of US$150,000. In
addition, Mr. Holder may be paid bonuses, participate in certain employee
benefit plans and receive certain other perquisites.
The initial term of the Holder Employment Agreement is five years, which
term is extended by one year each year thereafter unless Mr. Holder's
employment is terminated upon (i) mutual agreement, (ii) his death or
disability, (iii) Mr. Holder having conducted himself in a manner constituting
neglect, willful misconduct, fraud on BPSC, dishonesty or misappropriation of
BPSC's assets, or (iv) breach of material obligations arising under the Holder
Employment Agreement and such breach has not been cured within 30 days of
notice. If Mr. Holder is terminated for any reason other than those
delineated above, Mr. Holder will be entitled to the greater of (i) US$600,000
and (ii) any remaining base compensation due him under the agreement. The
Holder Employment Agreement includes a covenant not to compete by which Mr.
Holder has agreed to not compete with BPSC for 18 months after the termination
of the Holder Employment Agreement, unless such termination is pursuant to an
uncured breach of the agreement by the Company.
77
<PAGE>
LONG TERM COMPENSATION PLANS
OPTION GRANTS IN 1995
The following table sets forth further information regarding grants of
options to purchase Common Shares made by the Company during the year ended
December 31, 1995 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
--------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTION/SARS GRANTED TO EXERCISE
NAME GRANTED EMPLOYEES IN PRICE PER EXPIRATION
FISCAL YEAR SHARE DATE 5%($) 10%($)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chris A. Dittmar(1).. 75,000 100 CDN$1.50 9/23/00 CDN$7,146 CDN$49,215
George W. Bowman..... -- -- -- -- -- --
Robert S. Parsons.... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options granted to Mr. Dittmar as discussed under "--Compensation of
Directors."
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.
The following table sets forth certain information concerning the
exercise of stock options in the last Fiscal Year and the number of unexercised
options and the value of unexercised options at December 31, 1995 held by the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
DEC. 31, 1995(#) (DEC. 31, 1995(1)
------------------------------------------
SHARES AGGREGATE
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXER. UNEXER. EXER. UNEXER.
- ------------------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chris A. Dittmar 0 0 168,750 112,500 0 0
George W. Bowman 0 0 86,250 57,500 0 0
Robert S. Parsons 0 0 0 0 0 0
</TABLE>
- ----------------------
(1) Calculated based on the difference between the closing price per Common
Share on December 31, 1995 of CDN$.86 and the exercise price of CDN$1.40
of such options.
78
<PAGE>
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
The following table sets forth the indebtedness to, or guaranteed or
supported by, the Company or any of its subsidiaries, of each director,
executive officer, senior officer, proposed nominee for election as a director
and each associate of any such director, officer or proposed nominee. The
aggregate indebtedness to the Company and its subsidiaries of all directors,
officers and employees and former directors, officers and employees as of
December 31, 1995 was US$305,499.
<TABLE>
<CAPTION>
LARGEST AMOUNT
INVOLVEMENT OUTSTANDING DURING
OF THE THE AMOUNT
NAME, PRINCIPAL POSITION AND COMPANY OR YEAR ENDED DECEMBER OUTSTANDING AS OF
MUNICIPALITY OF RESIDENCE SUBSIDIARY 31, 1995(1) MARCH 30, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chris A. Dittmar, Chairman of the
Board, CEO and President of each
Xavier Company
Houston, Texas Lender US$204,284 US$255,355(1)(2)
George W. Bowman, Vice-President of
each Xavier Company
Moscow, Russia Lender US$91,900 US$114,875(2)
Robert S. Parsons, Chief Financial
Officer of each Xavier Company
Houston, Texas Lender US$8,333 US$8,333(2)
</TABLE>
- -------------------------
(1) Of this amount, US$26,482 (plus accrued interest) represents the
balance outstanding on December 31, 1995 pursuant to a promissory
note in such amount granted on August 24, 1995. The promissory note
bears interest at a rate of 7% per annum and is payable in 90
monthly installments of US$376.85 beginning October 1, 1995.
(2) Except as indicated in footnote 1 above, the indicated amounts have
been lent on an unsecured basis, due on demand, at 7% interest.
See "Certain Transactions--Advances" for more information with respect to
such loans and advances.
REPORT ON EXECUTIVE COMPENSATION
Of the four Named Executive Officers, two, Messrs. Dittmar and Bowman,
are employed pursuant to employment agreements that were negotiated by the
Company on an arm's length basis prior to their employment with the Company
and another, Mr. Holder, is employed under an employment agreement entered
into with BPSC prior to the Company's purchase of its interest in Bandera.
Accordingly, the Compensation Committee does not have a role in determining
the compensation payable to such individuals. See "--Employment Agreements."
The Company hired Mr. Parsons to act as its Chief Financial Officer
pursuant to an agreement for "at will" employment that was negotiated and
authorized by Mr. Dittmar. Negotiating and authorizing such agreement was
within Mr. Dittmar's authority as the Chief Executive Officer and President of
the Company.
On a going forward basis, it will be the responsibility of the
Compensation Committee to determine the level of compensation in respect of
the Company's senior executives with a view to providing such executives with
a competitive compensation package having regard to performance. Performance
is defined to include achievement of the Company's strategic objective of
growth and the enhancement of shareholder
79
<PAGE>
value through increases in the stock price resulting from increases in
reserves and production, low cost production and enhanced annual cash flow.
Compensation for executive officers will be composed primarily of three
components; namely, base salary, performance bonuses and the granting of stock
options. Performance bonuses will be considered from time to time having
regard to the above referenced objectives.
In establishing the levels of base salary, the award of stock options and
performance bonuses the Compensation Committee will take into consideration
individual performance, responsibilities, length of service and levels of
compensation provided by industry competitors.
The Compensation Committee is also responsible for reviewing the
Company's manpower and succession plans to ensure that adequate plans are in
place.
Chris A. Dittmar
Robert L. Gerry
80
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The chart below compares the yearly percentage change in thecumulative
total shareholder return on the Common Shares against the cumulative total
shareholder return of The TSE 300 Stock Index for the five fiscal year period
commencing December 31, 1990 and ending December 31, 1995.
Comparison of Five-Year Cumulative
Total Shareholder Return on Common Shares
of the Company and The TSE 300 Stock Index
<TABLE>
<CAPTION>
Date TSE 300 Composite Xavier
------ ------------------- ---------
<S> <C> <C>
Dec. 31, 1990 $100.00 $ 100.00
Dec. 31, 1991 $112.02 $ 33.33
Dec. 31, 1992 $110.41 $ 53.33
Dec. 31, 1993 $146.34 $ 873.33
Dec. 31, 1994 $146.09 $1,053.33
Dec. 31, 1995 $167.31 $ 573.33
</TABLE>
- ------------------
Assumes that the initial value of the investment in the Common Shares on the
ASX, and that The TSE 300 Stock Index was equal to $100 on December 31, 1990.
Also assumes that all dividends were reinvested.
* Takes into account a one for one stock dividend paid on May 20, 1993.
81
<PAGE>
COMPOSITION OF THE COMPENSATION COMMITTEE; COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Dittmar and Gerry comprised the Company's Compensation Committee
during the fiscal year ended December 31, 1995. The Compensation Committee
has not met since it was constituted in October 1994. None of the members of
the Compensation Committee performed similar functions with other public
companies during the year ended December 31, 1995. The terms of the
employment agreements effective November 3, 1993 with Messrs. Dittmar and
Bowman were negotiated on behalf of the Company by Murray Sinclair, a former
director of the Company. See "--Employment Agreements." It is intended that
upon the consummation of the Merger, Messrs. Gerry, Wilcoxon and Davis will
constitute the Compensation Committee.
EXCULPATORY CHARTER PROVISION; LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS
The Company has included in its Delaware Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty; provided, however,
that such provision does not eliminate liability for breaches of the duty of
loyalty; acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL concerning the unlawful payment of dividends or stock redemptions or
repurchases or for any transactions from which the director derived an
improper personal benefit. However, these provisions will not limit the
liability of the Company's directors under the federal securities laws. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
82
<PAGE>
CERTAIN TRANSACTIONS
INTEREST PURCHASE AGREEMENTS
The Company has entered into Interest Purchase Agreements, effective
November 3, 1993, with each of Messrs. Dittmar and Bowman (the "Interest
Purchase Agreements") pursuant to which the Company acquired all rights and
interests of Messrs. Dittmar and Bowman in and to oil, gas and other mineral
projects that had been negotiated by Messrs. Dittmar and Bowman with respect
to properties located in the republics of the FSU, except for certain projects
in the Republics of Azerbaijan and Kazakhstan. It was pursuant to the
Interest Purchase Agreements that the Company was introduced to and acquired
the opportunity to participate in the Black Gold Joint Venture and the East
Kamennoye TSA.
Pursuant to the Interest Purchase Agreement with Mr. Dittmar, the
Company, in consideration for the rights and interests conveyed by Mr.
Dittmar, agreed to issue to Mr. Dittmar Convertible Preferred Shares, of which
20 will be issued prior to the Consolidation. These shares will be
convertible until December 31, 1998 at the option of Mr. Dittmar and upon
satisfaction of the conditions described in the next three paragraphs. Each
Convertible Preferred Share is convertible into Common Shares in an amount
equal to 1% of the outstanding Common Shares at the time of, and after giving
effect to, the conversion thereof.
With respect to Mr. Dittmar, the Company has agreed to issue at least 20
Convertible Preferred Shares, 10 of which (the "First Tranche Shares") will be
convertible upon the occurrence of all the following events:
(i) Xavier having achieved a Market Capitalization (as defined in the
Interest Purchase Agreement) of US$50 million;
(ii) approval of the ASX for the conversion of the Convertible Preferred
Stock;
(iii) receipt by the ASX of a legal opinion that the Company's interest
in one or more of the Black Gold Joint Venture, the Kamennoye East
TSA, the Kamennoye West TSA, the P&K TSA and/or any other similar
agreement (the "Interest Documents") have been negotiated, are
validly held by the applicable party, that upon the completion of
the requirements thereunder the title of the interests they purport
to convey to the Company is held by the Company;
(iv) submission to the ASX of executed copies of the Interest Documents;
(v) submission to the ASX of the Feasibility Study and Joint Evaluations
completed pursuant to the terms of the submitted Study Agreement and
Protocols of Intent;
(vi) submission to the ASX of an Engineering Report confirming the
evaluation of the property complete in accordance with the
requirements of the Policies and Procedures Manual of the ASX
National Policy Statement 2-B of the Canadian securities regulators;
and
(vii) the Company having acquired 100 million barrels of risk adjusted
recoverable equivalent reserves net to it as determined by an
independent petroleum engineer.
In addition to the above shares, nine Convertible Preferred Shares (the
"Second Tranche Shares") will become convertible upon the occurrence of all of
the following events:
(i) the Company domesticating in the United States;
(ii) the Company having its shares listed on the New York Stock Exchange,
the American Stock Exchange or Nasdaq; and
83
<PAGE>
(iii) the Company having achieved cumulative profitability and positive
cash flow with a market capitalization of US$500 million.
In addition to the above issuance, one Convertible Preferred Share (the
"Third Tranche Shares") will be issued for each 100 million Bbls of oil net to
the Company as delineated in (i) below and each such share will become
convertible upon the occurrence of all of the following events:
(i) the Company acquiring control of each additional 100 million Bbls of
risk adjusted recoverable equivalent reserves net to the Company as
determined by an independent petroleum and geologic engineering
firm; and
(ii) the Company having met the conditions with respect to the
convertibility of the First Tranche Shares.
The conditions with respect to convertibility of the First, Second and
Third Tranche Shares may be satisfied at any time in the year. However,
convertibility of the shares may only occur on December 31 of the year in
which such conditions have been met. If the independent petroleum engineer
should revise its estimate of the risk adjusted recoverable equivalent
reserves, such revision will determine whether a condition to convertibility
has been met until December 31, 2000. As of the date of this Prospectus,
items (i), (iv), and (vii) of the conditions to the exercise of the First
Tranche Shares have been satisfied.
Mr. Dittmar's Interest Purchase Agreement also provides for a non-
assignable royalty to be paid to him (the "CAD Royalty"). The CAD Royalty
provides that Mr. Dittmar is to be paid a royalty in perpetuity of 1.0% of all
earnings before interest, taxes, depreciation and amortization ("EBITDA") in
and from all properties and/or projects identified and/or introduced to Xavier
while Mr. Dittmar (i) is a Senior Officer of the Company, (ii) a member of the
Company's Board of Directors, (iii) a full time employee of the Company or
(iv) owns 2.5% of the issued and outstanding Common Shares. The CAD Royalty
excludes income from the Favourable Lake Property and the Company's passive
income.
The Interest Purchase Agreement entered into with Mr. Bowman is
substantially similar to the one entered into with Mr. Dittmar except that the
Company has agreed to issue Mr. Bowman six shares of Convertible Preferred
Stock, which issuance will occur prior to the Consolidation. Five of these
shares which will become convertible upon meeting the conversion conditions of
the First Tranche Shares. The sixth and any subsequent shares issued to Mr.
Bowman will be convertible by Mr. Bowman upon meeting the conversion
conditions of the Third Tranche Shares.
Mr. Bowman's Interest Purchase Agreement also provides for a royalty to
be paid to him (the "GWB Royalty"). The GWB Royalty provides that Mr. Bowman
is to be paid a non-assignable royalty of 1.0% of EBITDA in and from all
properties and/or projects identified and/or introduced to Xavier except
income from the Favourable Lake Property and the Company's passive income.
The GWB Royalty lasts so long as Mr. Bowman (i) is a Vice President of the
Company, (ii) is a senior officer of the Company, (iii) a full time employee
of the Company or (iv) owns 1.25% of the issued and outstanding Common Shares.
Messrs. Dittmar and Bowman have the right to collateralize their
respective royalties against the properties subject thereto. These royalties
are limited to gross revenues on active income, including without limitation
oil and gas, timber and/or mining properties, and excluding any passive income
generated by the Company, including without limitation revenues generated from
interest and investment income.
In connection with the conveyance of all of their rights and interests
pursuant to the Interest Purchase Agreements, the Company agreed to issue
100,000 Common Shares to Mr. Dittmar and issued 50,000 Common Shares to Mr.
Bowman.
84
<PAGE>
KMNGG TRANSACTIONS
In December 1995, the Company issued the Carnegie Note to Carnegie. The
Carnegie Note bears interest at 12% (effectively 26% per annum taking into
account the issuance of Russ Oil Warrants and loan fees) per year and all
principal and interest is due and payable on December 12, 1997. In connection
with the issuance of the Carnegie Notes, the Company issued the Russ Oil
Warrants to Russ Oil to purchase up to 15,461,675 Common Shares at a purchase
price of SEK 9.15 per share. The Russ Oil Warrants are immediately
exercisable and expire on November 27, 1997. For information with respect to
MGIF and its affiliates' ownership of the Company's securities, see "Principal
Shareholders."
In December 1995, US$19.95 million of the proceeds from the issuance of
the Carnegie Note was lent to ANG pursuant to the Convertible Note. The
Convertible Note bears interest at the rate of 12% per annum and is due on or
before June 4, 1996. All outstanding principal and interest under the
Convertible Note is convertible, at the option of the holder, into shares of
common stock of KMNGG at a conversion price of $259.14 per share. If the
outstanding principal of the Convertible Note is converted in full into shares
of KMNGG common stock, and assuming no other issuances of such stock, the
Company would own approximately a 25% interest in KMNGG. KMNGG and PETECO are
parties to the Kamennoye East TSA and the P&K TSA. See "Business--Western
Siberia Technical Service Agreements."
For additional information concerning the Carnegie Note, the Russ Oil
Warrants and the transactions entered into in connection therewith, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Risk Factors--Risks Related to
the Company--KMNGG Transactions," "Business--KMNGG" and "Description of Xavier
Delaware Securities--Warrants, Options and Convertible Securities."
EMPLOYMENT AGREEMENTS
Mr. Dittmar and Mr. Bowman have entered into employment agreements with
the Company. See "Management--Employment Agreements" for more information
concerning such agreements.
ADVANCES AND LOANS
From time to time the Company advances funds to Messrs. Dittmar, Bowman
and Parsons. At December 31, 1995, Messrs. Dittmar, Bowman and Parsons had
advance balances bearing interest at a rate of 7%, of approximately
US$177,802, US$91,900 and US$8,333, respectively.
On August 24, 1995, Chris A. Dittmar, Chairman of the Board of Directors,
Chief Executive Officer and President of the Company, borrowed $26,482 from
the Company pursuant to a promissory note. Such note bears interest at a rate
of 7% per annum and is payable in 90 monthly installments of $376.85 beginning
October 1, 1995.
INDEMNITY AGREEMENTS
Each Xavier Company has entered into indemnification agreements with each
of its directors and certain of its executive officers. The indemnification
agreements provide that the Company shall indemnify these individuals against
certain liabilities (including settlements) and expenses actually and
reasonably incurred by them in connection with any threatened or pending legal
action, proceeding or investigation (other than actions brought by or in the
right of the Company) to which any of them is, or is threatened to be, made a
party by reason of their status as a director, officer or agent of the
Company, provided that such individual acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
the Company. With respect to any action brought by or in the right of the
Company, such individuals may be indemnified, to the extent not prohibited by
applicable laws or as determined by a court of competent jurisdiction, against
85
<PAGE>
expenses actually and reasonably incurred by them in connection with such
action if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Company. The agreements
also require indemnification of such individuals for all reasonable expenses
incurred in connection with the successful defense of any action or claim and
provide for partial indemnification in the case of any partially successful
defense.
BANDERA
Bandera has shared office space, supplies and personnel with Bandera
Holdings, Inc. ("Holdings"), which owns 46.5% of Bandera's outstanding common
stock, and its two wholly-owned subsidiaries, Bandera Offshore, Inc. ("BOI")
and Bandera Oil & Gas Company ("BOG"). Bandera allocated the general and
administrative expenses among these entities based primarily on the
approximate time spent by Bandera's personnel on the respective entity.
Effective June 30, 1995, Bandera wrote-off $108,390 and $180,949 owed to it by
BOG and Holdings, respectively, as such amounts were deemed uncollectible. At
the same time, Bandera offset $130,413 and $18,895 it owed to BOI and H.E.
Holder, respectively. Accordingly, the net loss to Bandera in connection with
such offsets and write-offs was $140,031.
OTHER TRANSACTIONS
In conjunction with the formation of GEX, the Company entered into a
credit agreement with GEC which requires the Company to advance a maximum of
US$40,000 (CDN$54,578) per month to GEC through April 1, 1997. The advances
bear interest at 12%, are payable in monthly amounts including interest and
are collateralized by GEC's interest in GEX. The advances mature no later
than April 1, 2000, at which time all unpaid advances and accrued interest are
due. At December 31, 1995, the Company had advances of US$830,000
(CDN$1,132,487) and accrued interest of US$84,845 (CDN$115,766) due from GEC.
GEC owns 1,000 shares of XBG Preferred which is to be exchanged for 2,700,002
Common Shares upon certain conditions. See "Business--The Black Gold Joint
Venture--The GEX Documents."
86
<PAGE>
PRINCIPAL SHAREHOLDERS
Except as disclosed below, the following table sets forth certain
information regarding the beneficial ownership of the Common Shares (without
taking into effect the one-for-four reverse stock split to be effected in the
Consolidation) as of May 9, 1996, unless otherwise indicated in the
footnotes to the table, by (i) each person known by the Company to
beneficially own more than 5% of such shares, (ii) the directors of either
Xavier Company, (iii) the Named Executive Officers and (iv) all directors and
executive officers as a group. Unless otherwise indicated, each persons's
address is 1600 Smith Street, Suite 4700, Houston, Texas 77002.
<TABLE>
<CAPTION>
Shares
Beneficially
Name Owned (1) Percent of Class
- ---- ---------------- ----------------
<S> <C> <C>
Chris A. Dittmar 373,750(2) *
George W. Bowman 136,250(3) *
Robert L. Gerry, III 125,000 *
Paul T. Conroy 75,000 *
Franklin L. Davis 75,000 *
Michael C.P. Hannesson 225,000(4) *
Benton H Wilcoxon 0 *
Robert S. Parsons 326,404(5) *
Morgan Grenfell Asset Management 29,461,675(6) 33.7
20 Finsbury Circus
London, England EC2 M1NB
Mercury Asset Management 12,400,000(7) 17.4
33 King William St.
London, England EC4R 9AS
Nicholas Bogachev 10,362,908(8) 14.8
c/o PETECO
10, Letnicovskaya
Moscow, Russia 113114
Capital International, Inc. 8,513,400(9) 12.3
25 Bedford St.
London, England WC2E 9HN
Metropolitan Life Insurance Co.(GFM) 5,935,000(10) 9.1
Fifth Floor, Orion House
5 Upper St. Martins Lane
London, England WC2H 9EA
Framlington Investment Management Ltd. 6,015,000(11) 8.9
155 Bishopsgate
London, England EC2M 3XJ
Hanover Finance Ltd. 3,365,385 5.2
9 Aukland Terr
Isle of Mann
All directors and executive officers as a group 1,336,404 2.1
(8 persons) ___________ ----
</TABLE>
----------------
* Less than 1%
footnotes on following page
87
<PAGE>
(1) To the Company's knowledge, each person named in the table has sole voting
and investment power with respect to all Common Shares shown as
beneficially owned by him, subject to applicable community property law
where applicable. Common Shares that are not outstanding but that may be
acquired by a person upon exercise of options or warrants within 60 days
of the date of this Prospectus are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person. However, such shares are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially
owned by any other person.
(2) Includes 168,750 Common Shares issuable upon exercise of vested options.
Excludes Common Shares issuable to Mr. Dittmar upon conversion of
Convertible Preferred Stock to be issued to him after the Domestication
and 112,500 Common Shares issuable upon exercise of nonvested options he
currently holds. Subject to certain conditions, Mr. Dittmar will be able
to convert his Convertible Preferred Shares into Common Shares. See
"Certain Transactions--Interest Purchase Agreements."
(3) Includes 86,250 Common Shares issuable upon exercise of vested options.
Excludes Common Shares issuable to Mr. Bowman upon conversion of
Convertible Preferred Stock to be issued to him after the Domestication
and 57,500 Common Shares issuable upon exercise of nonvested options he
currently holds. Subject to certain conditions, Mr. Bowman will be able
to convert his Convertible Preferred Shares into Common Shares. See
"Certain Transactions--Interest Purchase Agreements."
(4) Consists of (i) immediately exercisable warrants to purchase 150,000
Common Shares for CDN$1.75 per share expiring on July 31, 1997 and (ii)
options to purchase 75,000 Common Shares for CDN$1.50 per share expiring
August 31, 2000.
(5) In December 1995, Mr. Parsons received 113,202 Common Shares and warrants
to purchase 213,202 Common Shares at a purchase price of CDN$2.00,
expiring December 31, 1996, from Europa Securities in connection with his
employment with Europa until April 1995.
(6) Includes warrants to purchase 7,000,000 Common Shares at an exercise price
of CDN$2.00 and the Russ Oil Warrants to purchase 15,461,675 Common Shares
at a price of SEK9.15 per share and 7,000,000 Common Shares. Other Common
Share ownership position was obtained from the Company's private placement
documents as of July 1995, the latest available information with respect
to this holder, and the Company makes no representation or warranty as to
the accuracy of such information. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Risk Factors--Risks Related to the Company--KMNGG
Transactions," "Business--KMNGG," "Certain Transactions--KMNGG
Transactions" and "Description of Xavier Delaware Securities--Warrants,
Options and Convertible Securities."
(7) Share ownership confirmed with holder on March 15, 1996. Includes
warrants to purchase 6,200,000 Common Shares at an exercise price of
CDN$2.00.
(8) Share ownership confirmed with R.M. Trust Participant Listing as of
December 31, 1995. Includes (i) 1,036,291 Common Shares owned by Mr.
Bogachev, (ii) immediately exercisable warrants to purchase 1,036,291
Common Shares at an exercise price of CDN$2.00, (iii) 4,145,163 Common
Shares owned by PETECO, and (iv) immediately exercisable warrants to
purchase 4,145,163 Common Shares at a purchase price of CDN$2.00. Mr.
Bogachev may be deemed to have the power to vote and dispose of the Common
Shares listed under clauses (iii) and (iv) and thereby to be the
beneficial owner of such Common Shares.
(9) Share ownership position confirmed with the holder, March 15, 1996.
Includes warrants to purchase 4,200,000 Common Shares at an exercise price
of CDN$2.00.
(10) Share ownership position confirmed with the holder, March 15, 1996.
(11) Share ownership confirmed with holder on April 1, 1996. Includes
warrants to purchase 2,815,000 Common Shares at an exercise price of
CDN$2.00.
88
<PAGE>
DESCRIPTION OF THE XAVIER-DELAWARE SECURITIES
The following summary description of the capital stock of Xavier-Delaware
does not purport to be complete and is qualified in its entirety by reference
to the Xavier-Delaware Certificate and By-Laws, copies of which are attached
as Exhibit G and Exhibit H, respectively. Furthermore, the following
discussion describes the capital stock of the Company assuming that the
Domestication and Merger have already been effected. If the Domestication
occurs but the Merger does not, the following description will also apply to
the Securities of Xavier-Canada as a Delaware corporation.
GENERAL
The authorized capital stock of the Company consists of 300 million
shares of Common Stock, US$0.0001 par value per share, of which 16,223,639
(assuming the effectuation of a one-for-four reverse stock split to be
effected in the Consolidation) will be issued and outstanding, and ten million
shares of Preferred Stock, par value US$0.0001 per share ("Preferred Stock"),
100 of which are designated Class A Convertible Preferred Stock. The Company
has agreed to issue 26 shares of Class A Convertible Preferred Stock prior to
the Consolidation. See "Certain Transactions--Interest Purchase
Agreements."
COMMON STOCK
Subject to the rights of holders of Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors of the Company. Holders of
Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote. Because holders of Common Stock
do not have cumulative voting rights, the holders of a majority of the shares
of Common Stock represented at a meeting can select all of the directors. In
addition, super majority voting requirements apply in respect of certain
stockholder actions.
Holders of Common Stock have no preemptive rights to subscribe for any
additional securities that Xavier-Delaware may issue and there are no
redemption provisions or sinking fund provisions applicable to the Common
Stock, nor is the Common Stock subject to calls or assessments by the Company.
All shares of Common Stock to be outstanding upon completion of the
Domestication and Merger will be legally issued, fully paid and nonassessable.
Upon the liquidation, dissolution or winding up of the Company, holders of the
shares of Common Stock are entitled to share equally, share-for-share, in the
assets available for distribution after payment to all creditors of the
Company, subject to the rights, if any, of the holders of any outstanding
shares of Preferred Stock.
PREFERRED STOCK
Pursuant to the Xavier-Delaware Certificate, the Board of Directors of
the Company is authorized, subject to any limitations prescribed by law, to
provide for the issuance of shares of Preferred Stock from time to time in one
or more series and to establish the number of shares to be included in each
such series and to fix the designation, powers, preferences and relative,
participating, optional and other special rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because
the Board of Directors has such power to establish the powers, preferences and
rights of each series, it may afford the holders of Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights
of the holders of Common Stock. Although the Company has no current intention
to issue additional shares of Preferred Stock, other than additional shares of
Convertible Preferred Stock in accordance with the terms of the Interest
Purchase Agreements, the issuance of such shares, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal.
CLASS A CONVERTIBLE PREFERRED STOCK.
The Company has agreed to issue an aggregate of at least 26 shares of
Convertible Preferred Stock to Messrs. Dittmar and Bowman. The issuances of
these 26 shares will occur prior to the Consolidation. See "Certain
Transactions--Interest Purchase Agreements" for the terms of the Convertible
Preferred Stock.
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WARRANTS, OPTIONS AND CONVERTIBLE SECURITIES
The following table delineates the terms of certain warrants Xavier-
Canada has outstanding. After the Merger, these Warrants will remain
outstanding as obligations of Xavier-Delaware. Among other terms, these
Warrants contain certain anti-dilution provisions and certain registration
rights. See "--Registration Rights."
<TABLE>
<CAPTION>
UNDERLYING EXERCISE EXPIRATION
NAME COMMON SHARES PRICE* DATE
------ ------------------- ----------- -----------
<S> <C> <C> <C>
GHL Warrants.......................... 384,615 1.30 12/31/96
AZ Warrants(1)........................ 1,132,800 US$3.66 6/1/96
Settlement Warrants................... 350,000 1.58 9/15/97
Russ Oil Warrants(2).................. 15,461,675 SEK9.15(3) 11/27/97
Private Placement Warrants, Group I... 40,327,470 2.00(4)(5) 12/31/96
Private Placement Warrants, Group II.. 13,861,462 2.00(4) 3/31/97
Other Warrants........................ 25,000 2.25 4/21/96
----------
TOTAL 71,543,022
==========
</TABLE>
- -----------------
* In Canadian dollars unless otherwise indicated.
(1) In connection with the renegotiation of these warrants, which were issued
in a private placement along with 1,132,800 Common Shares, the Company
has agreed to issue an aggregate of 1,132,800 warrants replacing these
warrants. The replacement warrants will be exercisable at a price of
CDN$2.00 per share and expire on March 28, 1998.
(2) For a further discussion of these warrants, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources," "Risk Factors--Risks Related to the Company--
KMNGG Transactions," "Business--KMNGG" and "Certain Transactions--KMNGG
Transactions."
(3) On April 15, 1996, the noon buying rate for Swedish Kroner as reported by
the Comerica Bank was US$0.1478 for every SEK1.00.
(4) These warrants provide that the exercise price therefor will be adjusted
to the price any of the Company's securities are sold to the public in an
initial public offering in the United States pursuant to an effective
registration statement under the Securities Act.
(5) Includes warrants to purchase 213,202 Common Shares transferred to Mr.
Parsons, an officer of the Company, by Europa Securities, his former
employer, in connection with services he provided Europa prior to joining
the Company.
The Company has also agreed to issue warrants to purchase 1,000,000
Common Shares to MRI International Enterprises Incorporated, an affiliate of
MRI, on the date of the Company's first public equity offering in the United
States at an exercise price that is 20% less than the market price of its
common stock on the date of such offering. These warrants will be exercisable
for five years from the date of grant. See "Business--Western Siberia
Technical Services Agreements."
The Company has agreed to issue warrants to purchase 150,000 Common
Shares at a price of CDN$1.75, expiring July 31, 1997, to Mr. Hannesson, a
director of Xavier-Canada, in connection with certain services he provided to
the Company during its private placement in 1994 while he was a director of
the Company.
The Company has agreed to issue warrants to certain persons who have
provided services to the Company from time-to-time to purchase an aggregate of
275,000 Common Shares at a price of CDN$2.00 per share that expire on
September 1, 1997.
The Company has agreed to issue warrants to certain persons to purchase
an aggregate of 55,157 Common Shares at a price of CDN$2.00 per share that
expire on May 10, 1997.
In connection with the purchase of certain oilfield equipment from PPI,
the Company has agreed to issue warrants, expiring January 31, 1998, to
purchase a currently undeterminable number of Common Shares in connection with
the purchase of oil field equipment, at a price of CDN$2.20 per share. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Resources."
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The Company currently has outstanding options to purchase 850,000 Common
Shares (without taking in account the one-for-four reverse stock split to be
effected in the Consolidation). Such options are all vested except for
options to purchase 112,500 and 57,500 Common Shares held by Messrs. Dittmar
and Bowman, respectively. Of the total outstanding options, 425,000 expire on
November 5, 1998, 50,000 expire on October 21, 1999 and 375,000 expire on
September 23, 2000.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation (the "Certificate") and the Bylaws of
Xavier-Delaware contain provisions that could have an anti-takeover effect.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions which may involve an actual or threatened change of control of
the Company. The provisions are designed to reduce the vulnerability of the
Company to an unsolicited proposal for a takeover of the Company that does not
contemplate the acquisition of all of its outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of the Company. The
provisions are also intended to discourage certain tactics that may be used in
proxy contests. Set forth below is a description of such provisions in the
Certificate and the Bylaws. The Board of Directors has no current plant to
formulate or effect additional measures that could have an anti-takeover
effect.
Pursuant to the Certificate, directors, other than those, if any, elected
by the holders of Preferred Stock, can be removed only with cause from office
by the affirmative vote of the holders of 66-2/3% of the voting power of the
then outstanding shares of capital stock entitled to vote thereon ("Voting
Stock"). Vacancies on the Board of Directors may be filled by the remaining
directors without stockholder approval.
The Certificate provides for the Board of Directors to be divided into
three classes, with staggered three-year terms. As a result, only one class
of directors will be elected at each annual meeting of stockholders of the
Company, with the other classes continuing for the remainder of their
respective three-year term. The classification of the Board of Directors
makes it more difficult to replace the Board of Directors as well as for
another party to obtain control of the Company by replacing the Board of
Directors. Since the Board of Directors has the power to retain and discharge
officers of the Company, these provisions could also make it more difficult
for existing stockholders or another party to effect a change in management.
The Company is subject to the provisions of Section 203 of the DGCL. In
general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business transaction" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. A "business combination" generally includes, without
limitation, a merger, assets or stock sale, or a transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder"
generally is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's
outstanding voting stock.
The Certificate provides that except as otherwise provided for with
respect to the rights of holders of Preferred Stock, no action that is
required or permitted to be taken by the stockholders of the Company at any
annual special meeting of the stockholders may be effected by written consent
of the stockholders in lieu of a meeting of stockholders, unless the actions
to be effected by written consent of the stockholders and the taking of such
action by such written consent has been expressly approved in advance by the
Board of Directors. This provision makes it difficult for stockholders to
initiate or effect an action by written consent, and thereby effect an action
opposed by the Board of Directors. The Certificate and Bylaws also provide
that special meetings of stockholders may be called only by the Chairman of
the Board of the Company or a majority of the Board of Directors of the
Company. In addition, the Bylaws set forth an advance notice procedure with
regard to business to be brought before an annual meeting of stockholders of
the Company.
The Certificate further provides that the Board of Directors, by a
majority vote, may adopt, alter, amend or repeal provisions of the Bylaws.
However, stockholders may only adopt, alter, amend or repeal provisions of the
Bylaws by a vote of 66-2/3% or more of the combined voting power of the then
outstanding
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Voting Stock. In addition, the Certificate provides that whenever any vote of
Voting Stock is required by law to amend, alter, repeal or rescind ("Change")
any provision thereof, then, in addition to any affirmative vote required by
law (i) the affirmative vote of 66-2/3% or more of the combined voting power
of the then outstanding shares of Voting Stock is required to Change certain
provisions of the Certificate, including the provisions referred to above
relating to interested stockholder transactions, the filling of vacancies on
the Board of Directors, the removal of directors, the limitations on
stockholder action by written consent, the calling of special meetings by
stockholders and the approval of amendments to the Company's Bylaws and (ii)
if at such time there exists one or more interested stockholders, such Change
must also be approved by the affirmative vote of the holders of at least a
majority of the combined voting power of the outstanding shares of Voting
Stock beneficially owned by persons other than the interested stockholder or
any affiliate or associate thereof.
Pursuant to the Certificate, the Board of Directors is also authorized to
issue shares of "blank check" preferred stock that may have the effect of
discouraging an unsolicited acquisition proposal. See "--Preferred Stock--
Blank Check Preferred Stock."
ALBERTA STOCK EXCHANGE
Under the rules of the ASX, Xavier-Canada is required to make application
for approval of the Domestication and Merger. The listing of the Xavier-
Delaware Common Stock following the Merger is subject to receipt of such
approval. Xavier-Canada intends to submit necessary documentation with
respect to such application to the ASX when and as required, and Xavier-Canada
expects that the Xavier-Delaware Common Stock will be listed on the ASX upon
the effectiveness of the Merger. In addition, the Company intends to apply
for listing of the Xavier-Delaware Common Stock on Nasdaq.
EXCHANGE AGENT, TRANSFER AGENT AND REGISTRARS
The Exchange Agent for exchange of stock certificates following the
Merger and payment of cash in lieu of fractional shares will be The R-M Trust
Company, at its principal offices at 393 University Avenue, Toronto, Ontario,
M5G 1E5. The Transfer Agent and Registrar for the Common Shares is The R-M
Trust Company.
DIVIDEND POLICY
The Company has not paid cash dividends on its common equity securities
in the last 10 years. The Company paid a stock dividend on May 20, 1993 and
does not anticipate that it will do so in the foreseeable future. The
Company's current policy is to retain earnings, if any, to finance the
anticipated growth of its business. Any further determination as to the
payment of dividends will be made at the discretion of the Board of Directors
and will depend upon the Company's operating results, financial condition,
capital requirements, general business conditions and such other factors as
the Board of Directors deems relevant. The Company may procure credit from
third parties for additional capital for exploration and development
activities. It is likely that any credit facility procured by the Company may
limit or restrict the Company's ability to pay cash dividends on the Common
Stock under certain circumstances. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
REGISTRATION RIGHTS
Settlement Warrants. The Settlement Warrants contain "piggyback"
registration rights that allow the holders thereof to require the Company to
register the underlying shares of common stock if the Company files a
registration statement under the Securities Act. If such registration
statement is with respect to an underwritten offering, the underwriter thereof
may reduce the amount of "piggyback" shares to be registered in the
underwriting in its discretion. These registration rights include traditional
covenants and indemnification provisions including the indemnification of the
selling shareholder for violations of the Securities Act. These rights expire
in October 1996.
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Private Placement Warrants. These warrants contain "piggyback"
registration rights that allow the holders thereof to require the Company to
register the underlying shares of common stock if the Company files a
registration statement under the Securities Act. If such registration
statement is with respect to an underwritten offering, the underwriter thereof
may reduce the amount of "piggyback" shares to be registered in the
underwriting in its discretion. These registration rights include traditional
covenants and indemnification provisions including the indemnification of the
selling shareholder for violations of the Securities Act. These rights expire
in December 1996.
Russ Oil Warrants. These warrants contain "piggyback" registration
rights that allow the holders thereof to require the Company to register the
underlying shares of common stock if the Company files a registration
statement under the Securities Act. If such registration statement is with
respect to an underwritten offering, the underwriter thereof may reduce the
amount of "piggyback" shares to be registered in the underwriting in its
discretion. These registration rights include traditional covenants and
indemnification provisions including the indemnification of the selling
shareholder for violations of the Securities Act. These rights expire in
November 1997.
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CANADIAN AND UNITED STATES INCOME TAX CONSIDERATIONS
The Consolidation, Domestication and Merger will result in certain income
tax consequences in both the United States and Canada, which management
believes will have a positive effect on the Company by reducing, over the long
term, income taxes paid by the Company and giving the Company the flexibility
to enter into certain types of mergers, acquisitions and combination
transactions with United States corporations which could result in adverse tax
consequences absent the Domestication. Certain tax consequences of the
Consolidation, Domestication and Merger are summarized below.
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED
TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY
SHAREHOLDER OR HOLDER OF WARRANTS OF THE COMPANY. ACCORDINGLY, SHAREHOLDERS
AND HOLDERS OF WARRANTS OF THE COMPANY SHOULD CONSULT THEIR OWN TAX ADVISORS
FOR ADVICE WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE
PROPOSED CONSOLIDATION, DOMESTICATION, THE EXERCISE OF DISSENT RIGHTS AND THE
PROPOSED MERGER.
UNITED STATES TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income
tax consequences of the Consolidation, Domestication and Merger (collectively,
the "Domestication Transactions") and the material United States federal
income and estate tax consequences to Non-U.S. Holders (as defined below) of
holding and disposing of the Capital Stock (as defined below) of Xavier-
Delaware.
The summary is based on current law, which is subject to change (possible
retroactively). The summary does not discuss all aspects of United States
taxation that may be relevant to security holders in light of their personal
investment circumstances or to certain security holders subject to special
treatment under United States tax laws (such as securities dealers, tax-exempt
entities (including qualified retirement plans) and insurance companies) and
does not discuss the tax consequences under state, local, or foreign laws. In
particular, this summary does not discuss the tax consequences to holders of
Options who have received their Options in connection with services rendered
to the Company. Security holders are urged to consult their own tax advisors
regarding the federal, state, local, and other tax considerations of
participating in the Domestication Transactions and of holding and disposing
of shares and warrants of Xavier-Delaware.
The term "U.S. Holder" means a beneficial owner of the stock of the
Company that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of
any State thereof or (iii) an estate or trust whose income is includable in
gross income for United States federal income tax purposes regardless of its
source. The term "Non-U.S. Holder" means a beneficial owner of the stock of
the Company that is not a U.S. Holder.
The term "Capital Shares" means the Preferred Shares and Common Shares of
Xavier-Canada. The term "Capital Stock" means the Common Stock and Preferred
Stock of Xavier-Delaware.
CONSEQUENCES TO THE COMPANY
Consolidation. The Consolidation will not constitute a taxable event to
the Company for United States federal income tax purposes.
Domestication and Merger. Although the matter is not free of doubt, the
Company believes that the Domestication and Merger will be treated as a single
transaction for United States federal income tax purposes by which Xavier-
Canada transfers its assets to Xavier-Delaware and Xavier-Delaware issues its
Capital Stock in exchange for the Capital Shares of Xavier-Canada. Further,
the Company believes that the Domestication
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and Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986. Accordingly, the Company
will recognize no gain and will incur no United States federal income tax as a
result of the Domestication and Merger.
CONSEQUENCES OF THE DOMESTICATION TRANSACTIONS TO U.S. HOLDERS
Consolidation. Generally, U.S. Holders exchanging shares in the
Consolidation will not recognize gain or loss on such exchange. However, a
U.S. Holder who has held 10% or more of the total voting power of all classes
of stock of the Company entitled to vote at any time during the 5 year period
ending on the date of the Consolidation would include in income its pro rata
portion of certain of Xavier-Canada's earnings and profits. Management of the
Company has determined that the Company has no earnings and profits for this
purpose. Subsequent to the Consolidation, each U.S. Holder of Capital Shares
will have an aggregate adjusted tax basis in its Capital Shares equal to such
U.S. Holder's aggregate adjusted tax basis prior to the Consolidation.
Domestication and Merger. U.S. Holders who exchange their Capital Shares
in Xavier-Canada for Capital Stock in Xavier-Delaware pursuant to the
Domestication and Merger will recognize no gain or loss for United States
federal income tax purposes. A U.S. Holder who dissents from the
Domestication and Merger and receives cash in exchange for his Capital Shares
will recognize gain or loss, measured by the difference between the Holder's
basis in his Capital Shares and the amount of cash received.
The total basis of Capital Stock received by a shareholder will equal his
total basis in the Capital Shares surrendered in the exchange. The holding
period for Capital Stock will be the same as such shareholder's holding period
for the Capital Shares surrendered, provided that the shares were held as a
capital asset.
Generally, a shareholder's basis in each share of the Capital Stock
received would equal such shareholder's total basis in the Capital Shares
surrendered divided by the total number of shares of Capital Stock received.
However, the basis and holding period of specific shares of Capital Stock
(including shares of different classes) may be determined solely by reference
to the basis and holding period of specific Capital Shares surrendered if the
shareholder can specifically identify such shares.
Pursuant to Temporary Treasury regulation Section 7.367(b)-7(c),
exchanging U.S. Holders who have held 10% or more of the total voting power of
all classes of stock of the Company entitled to vote at any time during the 5
year period ending on the effective date of the Domestication and Merger would
include in income (as dividend income) their pro rata portion of Xavier-
Canada's earnings and profits attributable to the stock exchanged to the
extent that the fair market value of the stock exchanged exceeds its basis.
The basis of the Capital Stock received by certain foreign corporations
treated as U.S. Holders pursuant to Temporary Treasury regulation Section
7.367(b)-2(b) would then be increased by such amount. However, management has
determined that the Company has no earnings and profits for this purpose.
Each exchanging U.S. Holder must file with his District Director of the
Internal Revenue Service on or before the last day for filing his federal
income tax return (determined by taking into account any extensions of time
therefor) for the year in which the Domestication Transactions are
consummated, the notice required by Temporary Treasury regulation Section
7.367(b)-1(c). Any such U.S. Holder who fails to file the necessary notice
and who fails to establish reasonable cause for such failure may be denied the
benefit of the federal income tax consequences specified above.
CONSEQUENCES OF THE DOMESTICATION AND MERGER TO NON-U.S. HOLDERS
A Non-U.S. Holder who dissents and receives cash in exchange of his
Capital Shares will recognize gain or loss in the manner described above for
U.S. Holders. A Non-U.S. Holder will not be subject to United States federal
income tax with respect to capital gains unless (i) such gain is effectively
connected with the conduct of a trade or business within the United States by
such holder, (ii) such holder is an individual who has been present in the
United States for at least 183 days during the taxable year of the
disposition, the
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Common Stock is a capital asset and either (a) such individual's "tax home"
for federal income tax purposes is in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iii) the Company is or has been a
"United States real property holding corporation" for federal income tax
purposes and the Non-U.S. Holder owned directly or pursuant to certain
attribution rules at any time during the five-year period ending on the date
of disposition more than 5% of the Company's Common Stock (assuming that
Common Stock is regularly traded on an established securities market). The
Company believes that it is not presently a United States real property
holding corporation.
CONSEQUENCES OF THE DOMESTICATION AND MERGER ON HOLDERS OF WARRANTS
Although the matter is not free from doubt, for United States federal
income tax purposes, the Domestication and Merger should not result in the
recognition of gain or loss under Section 1001 of the Code to the holders of
Warrants in Xavier-Canada who as a result of the Domestication and Merger will
hold Warrants of Xavier-Delaware (rather than Xavier-Canada). The IRS or the
courts could disagree with this characterization of the results to Warrant
holders and instead treat the transaction in connection with the Warrants as a
taxable exchange. In such event, each U.S. Holder of Warrants will recognize
gain or loss on the exchange equal to the difference between the fair market
value of its Warrants of Xavier-Delaware and the adjusted tax basis of its
Warrants of Xavier-Canada (which such gain or loss will be capital gain or
loss if the Warrants are capital assets that have been held for more than one
year). Non-U.S. Holders of Warrants will not be subject to United States
federal income tax with respect to capital gains (resulting from the exchange
of Warrants) unless (i) such gain is effectively connected with the conduct of
a trade or business within the United States by such holder, (ii) such holder
is an individual who has been present in the United States for at least 183
days during the taxable year of the disposition, the Warrants are capital
assets and either (a) such individual's "tax home" for federal income tax
purposes is in the United States or (b) the gain is attributable to an office
or other fixed place of business maintained in the United States by such
individual, or (iii) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes and the Non-U.S. Holder
of Warrants is treated as owning directly or indirectly or pursuant to certain
attribution rules at any time during the five-year period ending on the date
of disposition more than 5% of the Company's Common Stock (assuming that the
Common Stock is regularly traded on an established securities market). The
Company believes that it is not presently a United States real property
holding corporation. Each holder of Warrants is urged to consult its own tax
advisor regarding the tax consequences of the Domestication and Merger on its
particular circumstances. See "Risk Factors--Risks Related to Ownership of
Company Securities and this Offering--Tax Consequences of the Domestication
and Merger on Holders of Warrants."
CONSEQUENCES TO NON-U.S. HOLDERS OF OWNING AND DISPOSING OF XAVIER-
DELAWARE CAPITAL STOCK
Dividends. Generally, dividends paid to a Non-U.S. Holder of Capital
Stock will be subject to United States withholding tax at the rate of 30% of
the amount of the dividend, or at a lower applicable treaty rate. Under the
income tax treaty between the United States and Canada, the withholding tax
rate on dividends paid to most shareholders who are resident in Canada will be
15%. In the case of Canadian corporations that beneficially own 10% or more
of the voting stock of Xavier-Delaware, such withholding rate will be 5% (6%
if paid in 1996). Under current Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of determining the applicability of a treaty rate.
Under proposed Treasury regulations not currently in effect, however, a holder
of Capital Stock who wished to claim the benefit of an applicable treaty rate
would be required to file certain forms with the Company or its agent. Such
Forms would contain the holder's name and address and other pertinent
information certified by such holder under penalties of perjury.
If, however, the dividend is effectively connected with the conduct of a
trade or business within the United States by a Non-U.S. Holder, the dividend
will be subject to regular United States federal income tax, which is not
collected by withholding, provided the Non-U.S. Holder files an Internal
Revenue Service Form 4224 with the Company or its agent in accordance with
current treasury regulations. Moreover, in the case of a Non-U.S. Holder that
is a corporation, a branch profits tax at the rate of 30% (or a lower
applicable
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treaty rate) may be imposed on such corporation on its earnings (including
dividends) effectively connected with a United States trade or business to the
extent that such earnings are considered to be repatriated away from the
United States trade or business.
Sale of Capital Stock. A Non-U.S. Holder will not be subject to United
States federal income tax on any gain recognized upon the sale (or other
disposition) of Capital Stock unless (i) such gain is effectively connected
with the conduct of a trade or business within the United States by such
holder, (ii) such holder is an individual who has been present in the United
States for at least 183 days during the taxable year of the disposition, the
Common Stock is a capital asset and either (a) such individual's "tax home"
for federal income tax purposes is in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iii) the Company is or has been a
"United States real property holding corporation" for federal income tax
purposes and the Non-U.S. Holder owned directly or pursuant to certain
attribution rules at any time during the five-year period ending on the date
of disposition more than 5% of the Company's Common Stock (assuming that
Common Stock is regularly traded on an established securities market). The
Company believes that it is not presently a United States real property
holding corporation.
Estate Tax. Capital Stock owned (or treated as owned) by an individual
who, at the time of death, is neither a citizen or a domiciliary of the United
States will be includable in his gross estate for United States federal estate
tax purposes and thus may be subject to United States estate tax, unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to
each shareholder the amount of cash proceeds paid as a result of the
Domestication Transactions and dividends paid to, and the tax withheld with
respect to, each shareholder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty or not
required. Copies of these information returns may also be made available
under the provisions of a specific treaty or agreement with the tax
authorities in the country in which a Non-U.S. Holder resides.
Shareholders may be subject to backup withholding at the rate of 31% with
respect to cash proceeds from the Domestication Transactions, gross proceeds
from the sale of the Capital Stock, or dividends paid on the Capital Stock,
unless such holder (a) is a corporation or comes within certain other exempt
categories or (b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding, and otherwise complies
with applicable requirements of the backup withholding rules. A shareholder
who does not provide the Company with his correct taxpayer identification
number may be subject to penalties imposed by the Internal Revenue Service.
United States backup withholding tax will generally not apply to payments to a
payee at an address outside the United States unless the payor has knowledge
that the payee is a United States person.
Payment to a Non-U.S. Holder of the proceeds of a sale of Capital Stock
to or through a United States office of a broker will be subject to
information reporting and backup withholding unless the holder certifies as to
its status as a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. Payment of the proceeds of a sale of Capital Stock
to or through a non-U.S. office of a broker generally will not be subject to
backup withholding or information reporting; however, if such holder is (i) a
United States person, (ii) a "controlled foreign corporation," or (iii) a
foreign person that derives 50% or more of its gross income from the conduct
of a trade or business in the United States, such payment will be subject to
information reporting (but currently not backup withholding) unless such
broker has documentary evidence in its records that the holder is a Non-U.S.
Holder and certain other conditions are met or the holder otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules will be credited
against the shareholder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Internal Revenue
Service.
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<PAGE>
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the principal Canadian federal
income tax consequences under the Income Tax Act (Canada) (the "Canadian Act")
of the Consolidation, Continuance and Merger and the exercise of dissent
rights as described herein to shareholders and holders of Warrants of the
Company.
This summary is based upon and takes into account the current provisions
of the Canadian Act and the current regulations thereunder (the
"Regulations"), all specific proposals to amend the Canadian Act and the
Regulations publicly announced by the Minister of Finance prior to the date
hereof (the "Amendments"), and the Company's understanding of the current
administrative practices published by Revenue Canada ("RCT"). This summary
does not otherwise take into account or anticipate any changes in law, whether
by judicial, governmental or legislative decision or action, nor, except as
specifically noted herein, does it not take into account tax laws or
considerations of any province or territory of Canada or any jurisdiction
outside Canada. Moreover, there can be no assurance that the Amendments will
be enacted as proposed or that the Canadian Act, the Regulations thereunder or
administrative practices of RCT, respectively, will not change, in a manner
which will affect the tax consequences of the transactions to the Company, the
shareholders or the holders of Warrants.
This summary is based on the facts and agreements described herein and is
also based on the assurances of management of the Company that no other
transactions have been undertaken or are contemplated that would affect the
matters dealt with herein.
This summary is restricted to those shareholders and holders of Warrants
of the Company who, for purposes of the Canadian Act, are resident in Canada,
deal at arm's length with the Company and hold their shares or Warrants as
capital property. A share or Warrant will generally be capital property to
holders unless it is held in the course of carrying on a business of trading
or dealing in securities, has been acquired in a transaction or transactions
considered to be an adventure in the nature of trade, or is a mark-to-market
property of certain financial institutions.
This summary is of a general nature only, is not exhaustive of all
potentially relevant Canadian federal income tax considerations and is not
intended to be, nor should it be construed to be, legal or tax advice to any
particular shareholder or holder of Warrants. Therefore, shareholders and
holders of Warrants should consult their own tax advisers with respect to
their particular circumstances.
CONSOLIDATION
The Consolidation will not constitute a taxable event for the Company's
shareholders or holders of Warrants. The Company's shareholders and holders
of Warrants will continue to hold their shares or Warrants at the same
aggregate adjusted cost base as before the Consolidation.
CONTINUANCE
Shareholders Consequences. The Continuance will not constitute a taxable
event for the Company's shareholders or holders of Warrants. Shareholders or
holders of Warrants of the Company will continue to hold their shares or
Warrants at the same adjusted cost base as before the Continuance.
Any dividends paid by the Company to its shareholders on the Common
Shares after the Continuance must be included in computing their income.
After the Continuance, in the case of shareholders who are individuals,
dividends received on Common Shares, as dividends on shares of a foreign
corporation, will not be entitled to the benefit of the gross up and dividend
tax credit rules in the Canadian Act. After the Continuance, in the case of
corporate shareholders of which the Company is not a foreign affiliate for
purposes of the Canadian Act, dividends received on Common Shares are not
deductible in computing taxable income.
98
<PAGE>
Under the Canada-US Tax Convention (1980) (the "U.S. Treaty"), the U.S.
withholding tax will be 15% in most cases, and 5% (6% for dividends paid in
1996) in the case of a Canadian corporation that owns at least 10% of the
voting stock of the Company at the time the dividend is paid.
U.S. withholding taxes imposed on such dividends may either be credited
against Canadian taxes payable by the investor, or deducted by such investor
in computing income for Canadian tax purposes, at the investor's option.
Special rules apply to corporate shareholders that receive dividends from
a foreign affiliate and such shareholders are advised to consult their own tax
advisers with respect thereto.
Dissenting Shareholders. The consequences under the Canadian Act to a
shareholder who dissents from the Consolidation or the Continuance described
herein and who receives a payment for his or her shares are discussed below.
The receipt by a dissenting shareholder of a cash payment from the
Company equal to the fair value of his or her Common Shares prior to the
completion of the Continuance will generally be treated as a dividend to the
holder of such shares to the extent that such payment exceeds the paid-up
capital of the subject shares. The balance of the fair value paid (i.e. the
amount equal to the paid-up capital of the shares) will generally be treated
as proceeds of disposition of the subject shares for capital gains purposes.
Consequently, such dissenting shareholders would realize a capital gain
(capital loss) to the extent that the proceeds of disposition he or she
receives for the share exceed (are exceeded by) the shareholder's adjusted
cost base thereof. Notwithstanding the foregoing, if the dissenting recipient
shareholder is a corporation resident in Canada, the full amount of the
redemption proceeds received may be treated under the Canadian Act as proceeds
of disposition, with the result that no dividend will be deemed to have been
paid to the shareholder and any gain or loss realized by it upon the shares'
disposition will be determined by reference to the full amount of the
redemption proceeds.
If the dissenting shareholder receives such cash payment after the
Continuance, the payment will be treated as proceeds of disposition of the
subject shares for capital gains purposes. Accordingly, the dissenting
shareholder will realize a capital gain or loss as described above.
Any capital loss arising on exercise of dissent rights by a corporate
shareholder of the Company will be reduced by dividends received or deemed to
be received, including any deemed dividend arising from the exercise of
dissent rights, on the subject shares where the period of ownership of such
shares was less than 365 days or where the corporate holder (together with
persons with whom it did not deal at arm's length) held more than 5% of the
issued shares of any class of the Company at the time the dividends were
received or deemed to have been received.
Company Consequences. The "corporate emigration" rules under the
Canadian Act will apply upon Continuance. Accordingly, the Company will be
deemed to have completed a taxation year immediately prior to it being granted
articles of continuance in Delaware. In addition, each property owned by the
Company immediately before the deemed year-end will be deemed to have been
disposed by it for proceeds of disposition equal to that property's fair
market value. Any gains or losses derived by the Company from its deemed
disposition of property will be taken into account when determining the amount
of the Company's taxable income for the taxation year which ends immediately
before the Continuance. In addition, non-capital loss carry forwards will be
available to reduce the Company's taxable income in such taxation year. The
amount of any taxable income so determined will be subject to tax in
accordance with the provisions of the Canadian Act.
The Company will also be required to pay special branch tax applicable to
the amount by which the fair market value of the Company's assets exceeds the
aggregate of its liabilities, including any liabilities under the Canadian
Act, and the paid-up capital of its issued and outstanding shares at the time
of the Continuance. The rate of tax under the U.S. Treaty is 6%, on the
assumption that the Continuance occurs in 1996.
99
<PAGE>
Following completion of the Continuance, the Company will be considered
to be a resident of the United States for Canadian tax purposes. Accordingly,
it would only be required to pay Canadian tax on Canadian-source income rather
than on its worldwide income.
MERGER
Company Consequences. The Company expects that there will be no material
adverse Canadian tax consequences to it from the Merger.
Shareholders Consequences. Unless a Canadian shareholder elects
otherwise, the shareholder will not realize a capital gain or a capital loss
on the Merger. The aggregate cost base of the Common Stock of Xavier-Delaware
received by a shareholder of Xavier-Canada as a result of the Merger will be
equal to the aggregate adjusted cost base of the Common Shares that are so
exchanged. Following the Merger, dividends received on the Xavier-Delaware
Common Stock will be treated in the same way as dividends on the Common Shares
received after the Continuance, as described above.
Consequences to Holders of Warrants. While the matter is not free from
doubt, a holder of Warrants of Xavier-Canada will likely be regarded as having
disposed of the Warrants on the Merger for proceeds of disposition equal to
the fair market value of the Warrants of Xavier-Delaware, thereby giving rise
to a capital gain (capital loss) equal to the amount by which such proceeds of
disposition exceed (are exceeded by) the holder's adjusted cost base of the
Warrants of Xavier-Canada.
ELIGIBILITY FOR INVESTMENT UNDER THE CANADIAN ACT
Following the Continuance, the Common Shares or the Xavier-Delaware
Common Stock, as the case may be, will be qualified investments under the
Canadian Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans so long
as the Common Shares or the Xavier-Delaware Common Stock, as the case may be,
are listed on a prescribed stock exchange. Following the Continuance, the
Common Shares or the Xavier-Delaware Common Stock, as the case may be, will be
considered foreign property for the purposes of the foreign property
limitations under the Canadian Act subject, however, to a 24 month grace
period that generally applies to shares that had been held, or were exchanged
on the Merger for shares that had been held, prior to the Continuance.
Pursuant to the Amendments, however, if an entity subject to the foreign
property limitations acquired all of its Common Shares after 1995, otherwise
than as a consequence of the exercise of rights acquired before 1996, its
Common Shares will be classified as foreign property from the time of
acquisition and it will not be eligible for such 24 month grace period.
LEGAL OPINIONS
Certain legal matters relating to the Domestication and Merger have been
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The financial statements of Xavier-Canada, Xavier-Delaware and Bandera
included in this Prospectus and in the Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their reports appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Bandera included in this Prospectus and in
the Registration Statement have been audited by Philip Vogel & Co., P.C.,
independent certified public accountants to the extent and for the
100
<PAGE>
period set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
The information appearing in this Prospectus regarding the Company's
proved reserves as of December 31, 1995, was prepared by Huddleston & Company,
Inc., independent petroleum engineers, as stated in its report dated April 16,
1996 and is included herein in reliance upon the authorization of said firm as
experts with respect to such matters.
SHAREHOLDER PROPOSALS
Assuming the Domestication and Merger are approved and effected,
stockholders wishing to invoke the provisions of the rules of the Commission
regarding the inclusion of a proposal in Xavier-Delaware's proxy material for
its Annual Meeting of Stockholders to be held in 1997 must submit such
proposals to Xavier-Delaware, in accordance with these rules, for receipt not
later than December 30, 1996. Such stockholders must also comply with the
provisions of the Xavier-Delaware Certificate described under the caption
"Effects of the Domestication and Merger on Shareholders Rights."
OTHER BUSINESS AT SPECIAL MEETING
While there is no business other than that mentioned in the Notice of
Meeting to be presented for action by the shareholders at the Meeting, it is
intended that the proxies for the Meeting solicited hereby will be exercised
upon any other matters and proposals that may properly come before the Meeting
in accordance with the discretion of the person authorized to act thereunder.
APPROVAL OF PROSPECTUS
This Prospectus and the enclosed forms of proxy, and the sending thereof
the shareholders of the Company, have been approved by the Board of Directors
of the Company.
Dated at By Order of the Board of Directors
Houston, Texas
/s/ IRENE SHEYTMAN
_________________________________
May 9, 1996 Secretary
101
<PAGE>
GLOSSARY
The following are abbreviations and words commonly used in the oil and gas
industry and in this Prospectus.
"ASX" means the Alberta Stock Exchange
"Bbl" means barrel, a standard measure of volume for oil, condensate and
natural gas liquids which equals 42 U.S. gallons.
"BOPD" means barrels of oil per day.
"Canadian GAAP" means Canadian generally accepted accounting principles
consistently applied.
"CDN$" means Canadian dollars.
"CIS" means the Commonwealth of Independent States which is comprised of
Russia and certain former states of the Soviet Union.
"Common Shares" means the Common Shares, without par value, of Xavier-Canada.
"Common Stock" means the Common Stock, US$0.0001 par value per share, of
Xavier-Delaware.
"Consolidation" means the consolidation of the Company's issued and
outstanding Common Shares on the basis of one post-consolidation Common Share
for each four pre-Consolidation Common Shares in the capital of the Company
and changing the name of the Company to Xavier Corporation.
"Continuance" means the migration and domestication of Xavier-Canada from
Ontario to the State of Delaware in accordance with Section 181 of the OBCA
and Section 388 of the DGCL.
"DGCL" means the General Corporation Law of the State of Delaware.
"discounted present value" refers to a method of determining the present value
of proved reserves. Under the Commission method, the future net revenues
before income taxes from proved reserves are estimated assuming that oil and
natural gas prices and production costs remain constant. The resulting stream
of revenues is then discounted at the rate of 10% per year to obtain the
present value.
"Domestication" means the migration and domestication of Xavier-Canada from
Ontario to the State of Delaware in accordance with Section 181 of the OBCA
and Section 388 of the DGCL.
"Effective Date" means the date on which the Domestication and the Merger
become effective.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FSU" means the former Soviet Union.
"gross" oil and natural gas wells or "gross" acres are the total number of
wells or acres, respectively, in which the Company has an interest, without
regard to the size of that interest.
"MBbl" means thousand barrels of oil.
"Mcf" means thousand cubic feet, a standard measure of volume for gas.
102
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"Mcfe" means thousand cubic feet equivalent, which is determined using the
ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf
of natural gas.
"Meeting" means the Annual and Special Meeting of the stockholders of Xavier-
Canada which will be held at 10:00 a.m., Houston Time, on June 24, 1996,
which will be convened to discuss and vote upon, among other things, the
Domestication and Merger.
"Merger" means the short-form merger of Xavier-Canada into its wholly-owned
subsidiary, Xavier-Delaware, pursuant to the terms of the General Corporation
Law of the State of Delaware.
"Merger Agreement" means the Agreement and Plan of Merger pursuant to which
Xavier-Canada and Xavier-Delaware will effect the Merger and which will be
approved at the Meeting.
"MMcf" means million cubic feet of natural gas.
"net" oil and natural gas wells or "net" acres are determined by multiplying
gross wells or acres by the Company's interest in those wells or acres.
"OBCA" means the Business Corporations Act (Ontario), as amended.
"OBCA Director" means the Director appointed under the OBCA.
"proved reserves" means reserves which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions.
"proved undeveloped reserves" means reserves that are expected to be recovered
from new wells on undrilled acreage or from existing wells where a relatively
major expenditure is required for recompletion.
"reserves" means estimated volumes of crude oil, condensate, natural gas,
natural gas liquids, and associated substances anticipated to be commercially
recoverable from known accumulations from a given date forward, under existing
economic conditions, by established operating practices, and under current
government regulations. Reserve estimates are based on interpretations of
available geologic and/or engineering data. All reserve estimates involve
some degree of uncertainty, depending chiefly on the amount and reliability of
geologic and engineering data available at the time of the estimate and the
interpretation of these data. The relative degree of uncertainty may be
conveyed by placing reserves in one or two classifications, either proved or
unproved. Unproved reserves are less certain to be recovered than proved
reserves and may be subclassified as probable or possible to denote
progressively increasing uncertainty.
"risk adjusted reserves" means reserves that are generally utilized in the
early stages of a project where the majority of the reserves are classified in
reserve categories other than proved. The assigned risk factor is subjective
and is based on the reserve estimator's experience given the method utilized
in estimating the reserves, the uncertainty of the data, and the stage of
development of the property. Recoverable reserves are calculated utilizing
accepted methods for the estimation of reserves on a total project basis. The
reserves are multiplied by a risk factor to provide a "most likely" estimate
of reserves. The risk adjusted reserves are then used to project future net
revenues so that the financial viability of a project can be determined.
"Roskomnedra" is the Russian federal governmental authority which, together
with local geological committees approves or issues licenses to exploit
mineral resources in Russia, and regulates compliance with laws and
regulations governing such activities.
"royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually carved from the leasehold
interest pursuant
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to an assignment to a third party reserved by an owner of the leasehold in
connection with a transfer of the leasehold to a subsequent owner.
"US$" means United States dollars.
"US GAAP" means United States generally accepted accounting principles applied
on a consistent basis or any successor thereto.
"Xavier" or the "Company" means Xavier Mines Limited and any successor
thereto.
"Xavier-Canada" means Xavier Mines Limited, a corporation organized under the
OBCA, and subsequent to such corporation's continuance from Ontario and
domestication to Delaware pursuant to the Domestication, Xavier Corporation, a
corporation organized under the DGCL (prior to the merger of such corporation
into its wholly-owned subsidiary pursuant to the Merger).
"Xavier-Delaware" means Xavier Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of Xavier-Canada, with and into which Xavier-Canada
will be merged.
"Xavier-Delaware Certificate" means the Certificate of Incorporation of
Xavier-Delaware to become effective prior to the Merger.
"Xavier-Delaware By-laws" means the By-laws of Xavier-Delaware, as the same
may be amended from time to time.
"Xavier-Delaware Common Stock" means the Common Stock, 0.0001 par value per
share, of Xavier-Delaware.
In this Prospectus, natural gas volumes are stated at the legal pressure
base of the state or area in which the reserves are located and at 60 degrees
Fahrenheit.
104
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
- ---------------------------------------------------------------------------------------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF XAVIER MINES LIMITED
Report of Independent Auditors............................................. F2
Comments by Auditors for U.S. Readers
on Canada U.S. Reporting Conflict....................................... F-3
Consolidated Balance Sheets as of December 31, 1995
and 1994................................................................. F4 To F5
Consolidated Statements of Loss for Each of the
Years in the Three Year Period Ended December 31, 1995................... F-6
Consolidated Statements of Shareholders' Equity (Deficiency)
for Each of the Years in the Three Year Period Ended
December 31, 1995........................................................ F-7
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1995......................... F-8
Notes to Consolidated Financial Statements................................. F-9 to F-42
CONSOLIDATED FINANCIAL STATEMENTS OF THE BANDERA GROUP, INC.
Reports of Independent Auditors............................................ F-43 to F-44
Consolidated Balance Sheets as of December 31, 1995 and 1994............... F-45 to F46
Consolidated Statements of Income (Loss) for Each of the Years
in the Three Year Period Ended December 31, 1995......................... F-47
Consolidated Statements of Stockholders' Equity
(Capital Deficit) for Each of the Years in the Three Year Period
Ended December 31, 1995.................................................. F-48
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1995......................... F-49
Notes to Consolidated Financial Statements................................. F-50 to F-64
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Statement of Loss for the
Year Ended December 31, 1995.............................................. F-65
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.. F66 to F-68
FINANCIAL STATEMENTS OF XAVIER CORPORATION
Report of Independent Auditors............................................. F-69
Balance Sheet as of December 31, 1995...................................... F-70
Notes to Balance Sheet..................................................... F-71
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Shareholders
Xavier Mines Limited
We have audited the consolidated balance sheets of Xavier Mines Limited at
December 31, 1995 and 1994 and the consolidated statements of loss,
shareholders' equity (deficiency) and cash flows for each of the years in the
three year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada, which do not differ significantly from those applicable in the United
States. 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 1995 in accordance with
accounting principles generally accepted in Canada.
BDO SEIDMAN, LLP
Houston, Texas
April 5, 1996
F-2
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA--U.S. REPORTING CONFLICT
The opinion on the previous page is expressed in accordance with standards of
reporting established and generally accepted in Canada. Had the report been
prepared in accordance with United States standards, our report on the
consolidated financial statements would have contained the following explanatory
paragraph:
The accompanying consolidated 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 is principally engaged in the acquisition
and development of oil and gas properties and secondarily in services to the oil
and gas industry in Russia and the Commonwealth of Independent States, which
comprise the former Soviet Union. Until it achieves a profitable level of
operations, the Company is dependent upon management obtaining sufficient
financing to allow the Company to discharge its liabilities and to bring the oil
and gas properties into production. This raises substantial doubt about the
ability of the Company to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
BDO SEIDMAN, LLP
Houston, Texas
April 5, 1996
F-3
<PAGE>
XAVIER MINES LIMITED
CONSOLIDATED BALANCE SHEETS
(In Canadian Dollars)
<TABLE>
<CAPTION>
Convenience
Translation Into
December 31, U.S. Dollars
-------------------------- -----------------
1995 1994 1995
------------ ------------ -----------------
(Note 2)
<S> <C> <C> <C>
ASSETS (Note 5)
CURRENT:
Cash........................................... $ 34,705 $ 141,985 $ 25,435
Cash-restricted (Note 9(b)).................... 1,364,443 - 1,000,000
Due from affiliate (Note 3(b))................. - 1,402,918 -
Accounts receivable............................ 1,204,700 - 882,925
Short-term note receivable, collateralized by
the stock of KMNGG whose reserves
are principally unproved (Note 5)............ 27,219,992 - 19,949,532
Other.......................................... 264,717 86,640 194,011
------------ ----------- -----------
TOTAL CURRENT ASSETS................. 30,088,557 1,631,543 22,051,903
------------ ----------- -----------
OIL AND GAS CONTRACT
RIGHTS, full cost method, net
(Notes 3(b) and (c))......................... 40,278,068 13,869,933 29,519,796
INVESTMENT IN AND ADVANCES TO OIL
AND GAS JOINT VENTURE (Notes 3(a) and (c)).... 16,416,353 10,934,574 12,031,545
INTANGIBLE ASSETS, net (Notes 2(vii) and 6)...... 11,139,284 - 8,163,981
INVESTMENT IN PRODUCTION
PLATFORM HELD FOR RESALE (Note 7).............. 2,054,345 - 1,505,629
LOANS RECEIVABLE
Affiliated company (Note 4).................... 1,248,253 470,853 914,845
Other.......................................... 1,222,012 - 895,613
------------ ----------- -----------
2,470,265 470,853 1,810,458
------------ ----------- -----------
OTHER EQUIPMENT, net
(Notes 2(vi) and 6)............................ 1,943,105 229,317 1,424,102
DEFERRED FINANCING COSTS (Notes 5 and 9)......... 5,770,277 - 4,229,036
OTHER............................................ 865,054 265,592 633,998
------------ ----------- -----------
$111,025,308 $27,401,812 $81,370,448
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
XAVIER MINES LIMITED
CONSOLIDATED BALANCE SHEETS
(In Canadian Dollars)
<TABLE>
<CAPTION>
Convenience
Translation Into
December 31, U.S. Dollars
---------------------------- -----------------
1995 1994 1995
------------- ------------- -----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (Note 2)
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities.......................... $ 10,388,529 $ 3,036,272 $ 7,613,753
Current notes payable (Notes 9 and 10)........ 1,878,335 1,366,868 1,376,632
Production platform advances (Notes 6 and 7).. 2,072,639 1,519,037
Due to affiliates:
Purchase of investment
in oil and gas joint
venture (Note 3(a))........................ - 7,014,590 -
Accounts payable............................ 57,607 - 42,220
Notes payable (Note 8)...................... - 13,700,705 -
Accrued interest (Note 8)................... - 135,447 -
Loan fees (Note 8).......................... - 834,585 -
Management and consulting
fees (Note 13(c))......................... 247,787 484,310 181,603
Other......................................... 40,917 29,988
------------ ------------ ------------
TOTAL CURRENT LIABILITIES................. 14,685,814 26,572,777 10,763,233
------------ ------------ ------------
SHARE SUBSCRIPTIONS
RECEIVED (Note 12(c))......................... - 48,863 -
DEFERRED INCOME TAXES
(Notes 6, 14 and 18(e))....................... 4,454,242 3,264,514
LONG TERM NOTES PAYABLE (Notes 5 and 9)........ 28,501,043 - 20,888,414
OTHER LONG TERM LIABILITIES.................... 179,757 - 131,744
MINORITY INTEREST IN NET
ASSETS OF CONSOLIDATED
SUBSIDIARIES
(Notes 3(a), (c) and 6)....................... 9,256,203 596,258 6,783,871
COMMITMENTS AND CONTINGENCIES
(Notes 1, 2(viii), 3, 5, 9, 11 and 13)
SHAREHOLDERS' EQUITY
Share capital (Notes 10, 11 and 12).......... 79,335,673 20,746,606 58,145,115
Deficit...................................... (25,387,424) (20,562,692) (18,606,443)
------------ ------------ ------------
53,948,249 183,914 39,538,672
------------ ------------ ------------
$111,025,308 $ 27,401,812 $ 81,370,448
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
XAVIER MINES LIMITED
CONSOLIDATED STATEMENTS OF LOSS
(In Canadian Dollars)
<TABLE>
<CAPTION>
Convenience
For the Years ended December 31, Translation into
----------------------------------------------- U.S. Dollars
1995 1994 1993 1995
------------------ ------------ ---------- -----------
(Note 2)
<S> <C> <C> <C> <C>
REVENUES:
Oil And Gas........................... $14,623,675 $ - $ - $ 10,717,691
Pipeline repair....................... 1,749,059 - - 1,281,885
----------- ----------- --------- ----------
TOTAL REVENUES.......................... 16,372,734 - - 11,999,576
----------- ----------- --------- ----------
EXPENSES:
Production taxes and fees............. 7,995,537 - - 5,859,929
Lease operating....................... 1,665,186 - - 1,220,415
Field operations...................... 1,239,639 130,241 - 908,531
Pipeline repair cost of sales......... 1,567,830 - - 1,149,063
General and administrative............ 6,409,117 4,322,408 236,162 4,697,242
Interest expense and loan fees........ 720,538 1,722,689 5,216 528,082
Depreciation and amortization......... 2,665,277 32,501 - 1,953,381
----------- ----------- --------- ----------
TOTAL EXPENSES.......................... 22,263,124 6,207,839 241,378 16,316,643
----------- ----------- --------- ----------
OTHER INCOME (EXPENSE):
Loss on disposal of mineral property.. - (325,000) - -
Equity in net loss of oil and
gas joint venture (Note 3(a))....... (53,235) (18,671) - (39,016)
Translation gain (loss)............... 46,275 (31,912) - 33,915
Gain on sale of securities............ 248,576 - - 182,181
Interest income....................... 465,029 23,466 1,648 340,820
----------- ----------- --------- ----------
TOTAL OTHER INCOME (EXPENSE)............ 706,645 (352,117) 1,648 517,900
----------- ----------- --------- ----------
LOSS BEFORE THE FOLLOWING............... (5,183,745) (6,559,956) (239,730) (3,799,167)
PROVISION FOR DEFERRED
INCOME TAX............................ (461,383) (338,147)
MINORITY INTEREST IN NET
LOSS OF CONSOLIDATED
SUBSIDIARY (Notes 3(a), (c) and 6).... 820,396 87,176 - 601,268
----------- ----------- --------- -----------
NET LOSS................................ $(4,824,732) $(6,472,780) $(239,730) $(3,536,046)
=========== =========== ========= ===========
NET LOSS PER SHARE (Note 15)............ $ (.56) $ (3.13) $(.19) $ (.41)
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
XAVIER MINES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(In Canadian Dollars)
<TABLE>
<CAPTION>
Common Stock
--------------------------
Number of
Shares Amount Deficit Total
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
BALANCE, DECEMBER 31, 1992...................... 5,774,919 $13,826,016 $(13,850,182) $ (24,166)
Net loss...................................... - - (239,730) (239,730)
1 for 5 share consolidation................... (4,620,211) - - -
Shares issued in private placement
(net of commission of $33,150).............. 1,500,000 416,850 - 416,850
Exercise of stock options at $.30 per share... 115,400 34,620 - 34,620
Stock dividend................................ 2,770,183 - - -
---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1993...................... 5,540,291 14,277,486 (14,089,912) 187,574
Net loss...................................... - - (6,472,780) (6,472,780)
Shares issued in private placements
at $1.10, $1.75 and U.S. $3.00
per share (net of commissions of $474,184).. 2,985,250 5,781,854 - 5,781,854
Shares issued for consulting and loan fees
at $1.10, $2.90 and U.S. $2.50 per share.... 241,500 548,366 - 548,366
Exercise of stock options at $1.40 and
$2.00 per share............................. 93,000 138,900 - 138,900
---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1994...................... 8,860,041 20,746,606 (20,562,692) 183,914
Net loss...................................... - - (4,824,732) (4,824,732)
Shares issued in private placements
at $1.10, $1.30, $1.35 and $1.95 per share
(net of commissions of $4,984,725).......... 49,482,615 52,729,001 - 52,731,001
Shares issued for consulting and loan fees
at $1.50 and $1.55 per share................ 653,446 989,545 - 987,545
Shares issued to officers and employees....... 64,000 104,216 - 104,216
Warrants issued in connection with
note payable (Note 5)....................... - 4,766,305 - 4,766,305
---------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1995...................... 59,060,102 $79,335,673 $(25,387,424) $53,948,249
========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
XAVIER MINES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Canadian Dollars)
<TABLE>
<CAPTION>
Convenience
For the Years ended December 31, Translation Into
--------------------------------------------- U.S. Dollars
1995 1994 1993 1995
------------ ------------ ---------- ------------
(Note 2)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss for the period............................ $ (4,824,732) $ (6,472,780) $ (239,730) $ (3,536,046)
Adjustments to reconcile net loss to cash
provided by (used in) operations:
Minority interest in net loss of subsidiaries...... (820,396) (87,176) - (601,268)
Loss on disposal of mineral property............... - 325,000 - -
Gain on sale of assets............................. (205,612) - - (150,693)
Depreciation and amortization...................... 2,665,277 32,501 1,953,381
Deferred income taxes.............................. 461,383 - 338,147
Changes in assets and liabilities:
Accounts receivable............................... 683,468 (1,412,350) (679) 500,914
Other assets...................................... (450,905) (87,877) (57,720) (330,468)
Accounts payable and accrued liabilities.......... 6,553,904 2,421,899 (294,905) 4,803,356
Other liabilities................................. 130,888 - - 95,928
Due to affiliates................................. (1,148,948) 2,012,994 - (842,064)
------------ ------------ ---------- ------------
3,044,327 (3,267,789) (593,034) 2,231,187
------------ ------------ ---------- ------------
INVESTING ACTIVITIES:
Expenditures for oil and gas investment and
contract rights.................................. (33,760,515) (24,121,073) - (24,743,081)
Expenditures for other assets...................... (861,523) (195,882) - (631,410)
Purchase of equipment.............................. (631,607) (248,300) (13,518) (462,906)
Purchase of Bandera, net of Bandera cash
of CND $1,726,457................................ (5,258,886) - - (3,854,238)
Proceeds from the sale of assets................... 843,083 - - 617,896
Loans to third parties............................. (28,442,004) - - (20,845,145)
Loan to affiliated company......................... (777,400) (470,853) - (569,756)
------------ ------------ ---------- ------------
(68,888,852) (25,036,108) (13,518) (50,488,640)
------------ ------------ ---------- ------------
FINANCING ACTIVITIES:
Common shares issued in private placements......... 52,729,001 5,281,754 451,470 38,645,084
Common shares issued for consulting and loan fees.. 1,093,761 548,366 801,619
Preferred shares issued to GEC..................... 7,014,590 - - 5,140,993
Warrants issued in connection with note payable.... 4,766,305 - - 3,493,225
Conversion of third party debt to common shares.... (683,434) - - (500,889)
Conversion of affiliated debt to common shares..... (11,235,779) - - (8,234,703)
Net borrowings from third parties.................. 22,896,760 - - 16,781,035
Share subscriptions received....................... - 48,863 639,000 -
Proceeds from private debt placement............... - 683,434 - -
Line of credit compensating balance................ (1,364,443) - - (1,000,000)
Due to affiliate for oil and gas investment........ (7,014,590) 7,014,590 - (5,140,993)
Net borrowings from (payments to)
affiliated companies............................ (2,464,926) 14,217,889 166,250 (1,806,544)
------------ ------------ ---------- ------------
65,737,245 27,794,896 1,256,720 48,178,827
------------ ------------ ---------- ------------
INCREASE (DECREASE) IN CASH (107,280) (509,001) 650,168 (78,626)
CASH, beginning of period.......................... 141,985 650,986 818 104,061
------------ ------------ ---------- ------------
CASH, END OF PERIOD................................ $ 34,705 $ 141,985 $ 650,986 $ 25,435
============ ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
1. NATURE OF BUSINESS AND MANAGEMENT'S PLANS FOR CONTINUED OPERATIONS
Xavier Mines Limited (the Company) is principally engaged in the acquisition
and development of interests in oil and gas reserves in Russia and the
Commonwealth of Independent States, which comprised the former Soviet Union. The
Company, through a subsidiary, also provides petrochemical pipeline repair and
engineering services, primarily in the United States.
These financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business. The ability of the Company to continue as a going
concern is dependent on the Company's ability to obtain necessary financing and
generate future profitable operations. The financial statements do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that may be
necessary should the Company be unable to continue as a going concern.
The Company was incorporated in Ontario, Canada in 1959 to conduct mining and
natural resource operations in Canada. The Company's common stock is traded on
the Alberta Stock Exchange (ASX). Prior to December 1993, the Company had been
essentially inactive since 1991. In December 1993, the Company commenced its
oil and gas operations. In March 1994, the Company formed Genesis Eurasia
Xavier L.L.C. (GEX) with Genesis Eurasia Corporation (GEC) (see Note 3(a)). The
Company, through its 75% interest in GEX, has a 37.5% interest in the Black Gold
Joint Venture (Black Gold) with Stavropolneftegas (STNG) and
Stavropolnefteorgsintez (STNOS). The joint venture owns the rights to enhanced
production that may be achieved on six producing oil fields in the Stavropol
region of Southern Russia. In addition, the Company through GEX has an interest
in a preliminary agreement relating to a second joint venture, the Group I
project, to develop twelve additional producing oilfields in the Stavropol
region. The Company has also entered into Technical Service Agreements (TSAs),
which allow the Company to participate in new oil production from several fields
located in Western Siberia (see Note 3(b)).
Management's plans are to continue developing these fields in an effort to
increase the oil and gas production in which the Company has an interest.
Management also believes that the experience that the Company gains and the
relationships that it develops through its oil and gas activities in Russia will
generate other opportunities in Russia in related industries. In that regard,
the Company has entered into negotiations or preliminary agreements with
respect to certain projects in the timber, mining and sulfur industries in
Russia.
The Company's capital commitments under the ventures described above and
others that it may enter into will require significant financing. To date, the
Company has entered into a variety of debt and equity financing arrangements
with a view to funding these commitments (see Notes 9 and 10). However, there
can be no assurance that these sources will be sufficient to fully develop such
ventures. Also, there can be no assurance that additional capital or debt
financing will be available to the Company from any source, or that if
available, it will be on terms acceptable to the Company. The unavailability of
acceptable financing would materially and adversely impact the Company's ability
to implement the development plans for these ventures, as well as other ventures
that may be entered into by the Company.
F-9
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
i) Basis of Presentation
The Company follows Canadian generally accepted accounting principles as set
out below. Differences from accounting principles generally accepted in the
United States are disclosed in Note 18. Unless otherwise noted, all
financial statements and disclosures are stated in Canadian (CND) dollars.
The convenience translation into United States (U.S.) dollars is for the
convenience of the reader and is based on the exchange rate at December 31,
1995 of CND $1 to U.S. $.7329. No representation is made that Canadian
dollar amounts have been, or could be converted into U.S. dollars at the
exchange rate on December 31, 1995, or at any other rate.
ii) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Xavier (Eurasia), Inc. and Xavier BG, Inc., its
75% owned subsidiary GEX and its 54.5% owned subsidiary, The Bandera Group,
Inc. All significant intercompany balances and transactions have been
eliminated.
iii) Investment in Oil and Gas Joint Venture
GEX accounts for its 50% investment in Black Gold using the equity method of
accounting, whereby the investment is carried at cost and adjusted for GEX's
proportionate share of undistributed earnings or losses. Accounting
principles generally accepted in Canada require that interests in joint
ventures be accounted for using the proportionate consolidation method. Use
of the equity method for the Company's interest in Black Gold however, would
not be materially different from the presentation using the proportionate
consolidation method except that the current balance sheet caption
"Investment in and Advances to Oil and Gas Joint Venture" would be referred
to as "oil and gas properties". GEX utilizes the full cost method of
accounting for acquisition and development costs incurred on behalf of Black
Gold, as described below. Black Gold also utilizes the full cost method of
accounting.
The Company capitalizes all acquisition and development costs incurred on
behalf of Black Gold under the full cost method. Such costs are capitalized
and accumulated in a single cost center representing the Company's current
activities undertaken in connection with Black Gold in Russia. Costs
associated with the acquisition and evaluation of unproved properties are
excluded from amounts subject to depletion until such time as the properties
are proved or become impaired. Gains and losses are recognized only upon
sales or dispositions of significant amounts of oil and gas reserves.
Proceeds from all other sales or dispositions are treated as reductions to
capitalized costs.
Upon the commencement of Black Gold production, depreciation, depletion and
amortization will be computed using the units of production method based on
proved reserves as determined annually by an independent petroleum engineer.
The depletable base consists of capitalized costs, estimated future costs to
develop proved reserves, and estimated future dismantlement costs.
Pursuant to the full cost accounting method, the Company will apply a ceiling
test to ensure Black Gold capital costs do not exceed estimated future net
revenue from production of proven reserves less future administrative,
financing and income tax expense. No ceiling test was applied at December
31, 1995 and 1994, as enhanced production activities are not expected to
begin until the second quarter of 1996 (see Note 3(a)).
F-10
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
iv) Oil and Gas Contract Rights
The Company capitalizes all acquisition and development costs incurred under
the TSAs using the full cost method. Such costs are capitalized and
accumulated into a single cost center representing the Company's current
activities under such agreements undertaken in Russia. Significant
infrastructure and pipeline improvements relating to future development
operations are excluded from the costs subject to amortization until
production from such development is realized.
Amortization is computed using a units of production sold method based on
proved reserves as estimated annually by the Company's independent petroleum
engineer. The amortization base consists of direct development cost and
allocated infrastructure and pipeline cost. Pursuant to the full cost
accounting method, the Company applies a ceiling test to ensure TSA capital
costs do not exceed estimated future net revenue from production of proved
reserves less future administrative, financing and income tax expense. No
ceiling test was applied at December 31, 1994 as the Company's TSA activities
were in the preproduction stage at that date (see Note 3(b)). At December
31, 1995, the present value of future net cash flows from proved reserve
estimates exceeded capitalized TSA costs.
Due to the unpredictable nature in which the Company is given credit for
sales dedications of TSA production (see Note 3(b)), oil and gas revenues
from the TSAs are recognized only when the Company receives credit for such
sales, which can occur several months after production. Lease operating
costs are recorded in the statement of loss during the accounting period that
the Company recognizes the corresponding oil and gas revenues.
v) Risk Associated with Russian Operations
The Company's activities in Russia are subject to the risks associated with
certain foreign operations, including political and economic uncertainties,
risk of cancellation or unilateral modification of agreements, operating
restrictions, expropriation, export limitations and restrictions, the
imposition of new taxes and increase of existing taxes, inflation and other
risks arising out of foreign governmental sovereignty over areas in which
operations are conducted. The Company is evaluating the merits of obtaining
insurance to protect itself against certain political risks inherent in such
ventures. There is no certainty that the steps taken by the Company will
provide adequate protection.
vi) Other Equipment
Other equipment consists primarily of pipe lining equipment, furniture and
office equipment and is recorded at cost. Depreciation is computed over the
estimated useful lives of the equipment by the straight-line method for
financial reporting purposes and by accelerated methods for income tax
purposes. At December 31, 1995 and 1994, other equipment is recorded in the
accompanying consolidated balance sheet net of accumulated depreciation of
$212,823 and $32,501 respectively. No depreciation expense was recorded
during 1993 for financial statement purposes as the equipment was placed in
service in late December 1993.
F-11
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
vii) Intangible Assets
Intangible assets consist of exclusive patent rights and know-how used in the
rehabilitation of pipeline systems acquired in a business combination (see
Note 6). These assets are stated at cost and are amortized over their useful
lives, as follows:
Life
(In Years)
----------
Patents rights 10
Know-how 10
Additions to intangible assets during the year ended December 31, 1995,
amounted to CND $29,720. Amortization expense of CND $590,188 was also
recorded in 1995. No amortization expense was recorded in prior years.
viii) Income Taxes
The Company provides for deferred taxes on timing differences between income
or loss for financial reporting and income tax purposes using the deferred
method. Timing differences arise primarily from differences in the book and
tax basis of intangible assets, and from differences in the treatment of
advances, costs and revenues related to the TSAs for financial reporting and
Russian tax purposes. Tax laws and regulations in Russia have undergone
significant and frequent changes in recent years, and some of these changes
have been retroactive. Accordingly, the tax consequences of the Company's
activities in Russia could be subject to revision.
ix) Deferred Financing Costs
Deferred financing costs are amortized to the income statement over the term
of the related debt.
x) Foreign Currency Translation
Balances of the Company denominated in foreign currencies, and the accounts
of its foreign subsidiaries, have been translated into Canadian dollars using
the temporal method as follows:
i) Monetary items are translated at the rate prevailing at the balance sheet
date,
ii) Non-monetary items are translated at the historical exchange rate,
iii) Revenue and expenses are translated at the average rate in effect
during the applicable accounting period.
Gains or losses arising on translation are included in the statements of
loss. Gains and losses arising on the translation of long-term foreign
currency denominated liabilities of each period are deferred and amortized
over the remaining life of such liabilities.
xi) Segment Information
The Company's current operations are classified into two segments, oil and
gas and pipeline repair. Disclosure has been made of financial data by
segment in Note 16.
F-12
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
xii) Accounting Estimates
The accompanying consolidated financial statements are prepared in conformity
with accounting principles generally accepted in Canada, which require
management to make estimates and assumptions that effect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The actual results could differ
from those estimates.
xiii) Reclassifications
Certain amounts have been reclassified in the accompanying 1994 consolidated
financial statements to conform to the 1995 presentation.
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS
The Company's interests in oil and gas development projects at December 31,
1995 consisted of the following:
(a) Black Gold
The Company, through its 75% interest in GEX, as more fully described below,
has a 37.5% interest in Black Gold at December 31, 1995. Black Gold owns the
rights to enhanced production levels, if achieved, from six producing oil
fields (the Black Gold Fields) in the Stavropol region of Southern Russia.
In accordance with the joint venture agreement, profits from production in
excess of baseline levels will be distributed 100% to GEX until GEX's costs
are recovered, then divided 50% to GEX, 40% to STNG and 10% to STNOS.
Baseline levels for the years ending 1996, 1997, 1998 and 1999 have been set
at an average of 2,400, 2,018, 1,797 and 1,604 barrels per day, respectively.
As of December 31, 1995, enhanced recovery operations had not been initiated.
As a result, production in excess of the baseline levels has not yet been
achieved. Management believes development operations may begin as soon as
the second quarter of 1996.
On March 13, 1994, the Company formed GEX with GEC. GEC contributed its 50%
interest in Black Gold and the Group I properties in exchange for a 50%
interest in GEX. The Company acquired its 50% interest in GEX in exchange
for a U.S. $500,000 (CND $683,434) cash payment to GEC and a capital
contribution of U.S. $500,000 (CND $683,434) to GEX. The Company is also
required to make all contributions to GEX necessary to fund GEX's future
capital contribution obligations to Black Gold.
Effective December 30, 1994, the Company, through its wholly-owned
subsidiary, Xavier BG, Inc., acquired 50% of GEC's interest in GEX (giving
the Company a combined 75% interest in GEX) for U.S. $6,000,000 (CND
$8,417,508) via a cash payment of U.S. $1,000,000 (CND $1,402,918) on
December 29, 1994 and the issuance of U.S. $5,000,000 (CND $7,014,590) of
Xavier BG, Inc.'s preferred stock, which is exchangeable for shares of the
Company's common stock beginning October 1995. The exchange of the preferred
stock for common stock will be based on the market value of the Company's
common stock on December 1, 1994 of $2.55 per share. The preferred shares
were issued to GEC in the fourth quarter of 1995. Accordingly, they have
been included as a component of minority interest in net assets of
consolidated subsidiaries and as due to affiliates as of December 31, 1995
and 1994, respectively, in the accompanying consolidated financial
statements.
F-13
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(a) Black Gold (continued)
Pursuant to the Black Gold agreements at such time as it becomes profitable
or otherwise desirable, Black Gold is to consult with local authorities to
explore the possibility of allocating a minimum of U.S. $1,000,000 (CND
$1,364,443) per year in cash or in kind to be used for activities which
include the development of the infrastructure of the Stavropol region. The
Black Gold Joint Venture currently is not committed to make such social
contribution for any particular year.
Following is a summary of the financial position and net loss of Black Gold
as of and for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------
<S> <C> <C>
Balance Sheet:
Assets:
Current........................................................ $ 390,614 $510,683
Oil and gas properties......................................... 284,502 284,502
Other property and equipment................................... 51,752 51,752
--------- --------
Total assets..................................................... $ 726,868 $846,937
========= ========
Liabilities and Stockholders' Equity:
Current Liabilities............................................ $ 561,127 $574,726
Stockholders' Equity:
GEX.......................................................... 237,647 290,882
STNG and STNOS............................................... (71,906) (18,671)
--------- --------
Total liabilities and stockholders' equity....................... $ 726,868 $846,937
========= ========
Statement of Loss:
Revenues......................................................... $ - $ -
Expenses......................................................... 106,470 37,342
--------- --------
Net Loss......................................................... $(106,470) $(37,342)
========= ========
</TABLE>
GEX's investment in Black Gold consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Capital contributions of cash, oil and gas
development costs and equipment $ 309,553 $309,553
GEX's share of Black Gold deficit (71,906) (18,671)
--------- --------
$ 237,647 $290,882
========= ========
</TABLE>
F-14
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(a) Black Gold (Continued)
In late 1995, the Regional Department of the State Geological Control (SGC),
the state agency that monitors oil and gas licenses in Russia, reviewed the
operations and production history of Black Gold. The review committee
determined, among other things, that (i) STNG has continued to operate Black
Gold for more than one year after the grant of such license notwithstanding
the fact that the license agreements do not specifically provide for such a
prolonged transition period and (ii) STNG has improperly allocated payments
for oil production among the districts where oil production is conducted.
SGC instituted a deadline of the first quarter of 1996 with respect to curing
such violations. In January 1996, SGC advised Black Gold that a petition
had been filed to revoke the Black Gold licenses; and that if the licenses
are revoked, a bidding process would be held to reissue the licenses.
Management believes that Black Gold and STNG cured these violations during
the first quarter of 1996. However, there can be no assurance that the
actions taken by the Company will be considered sufficient by SGC. If such
violations are not considered to be cured, Black Gold could be subjected to
administrative action or its licenses could be revoked. The Company could
lose its entire investment in Black Gold of U.S. $12,031,545 (CND
$16,416,353) should the licenses be permanently revoked.
(b) Technical Services Agreements (TSAs)
From December 1993 through June 1995, the Company entered into three separate
TSAs (more fully described below). Each of these TSAs include the
participation of a Russian entity which owns exclusive licenses for the
exploration, development, processing and marketing of oil and gas from fields
located in the Western Siberian geological basin of central Russia. The
Company has agreed to provide financial, technical and managerial assistance
with respect to development and production operations in each of the TSA
license areas in exchange for the rights to a portion of production from such
license areas.
Due to the unpredictable nature of the existing sales dedication process in
Russia (described below), the Company recognizes TSA oil revenues only when
production has been sold and credited to the Company's account. Currently,
TSA sales dedications are influenced, among other things, by unilateral
allocation decisions made by Russian brokers, by unpredictable production
pumping schedules set by Transneft, a state-owned transportation organization
and by numerous regulations issued by the Russian Ministry of Fuel and Energy
(RMFE). This situation limits the Company's ability to make reliable revenue
accruals based on actual production as it cannot predict the crude oil spot
price on the date of a future dedication nor does it know when the dedication
will occur.
At December 31, 1995 and 1994, crude oil produced from the TSA license areas
but not sold amounted to approximately 176,000 and 112,000 barrels,
respectively. Because the initial sale of TSA production did not occur until
March 1995, no TSA revenues were recorded by the Company for the year ended
December 31, 1994.
F-15
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(b) Technical Services Agreements (TSAs) (Continued)
Further information regarding the history, terms and commitments associated
with the TSAs is as follows:
Kamennoye East TSA
------------------
On December 29, 1993, the Company entered into a TSA (the Kamennoye East
TSA) with Khantymansiyskneftegazgeologiya (KMNGG), a Russian geology
association which owns the exclusive licenses for the exploitation of the
Kamennoye East field. On December 19, 1994 and June 5, 1995, the TSA was
amended to (i) include Petroleum Technology Company (PETECO), a Russian
joint stock company, and (ii) clarify the terms of the original
agreement, respectively. Under the amended terms of the TSA, the Company
and PETECO are required, among other things, to advance 90% and 10%,
respectively, of all necessary funds and to purchase or lease all
material, equipment and supplies required to satisfy the work programs
contemplated by the TSA. The Company and PETECO have also agreed to
apply their first U.S. $8,000,000 (CND $10,915,541) of gross production
revenue less all related production costs ("net production revenues")
toward further field development. Such reinvestment may be applied
against the required capital and operating contribution commitments
described in the work program. Through December 31, 1995, the Company
made capital and operating contributions to the TSA of U.S. $11,740,942
(CND $16,053,196), of which U.S. $1,740,942 (CND $2,384,525) represents
reinvestment of the Company's net production revenue from the TSA, and is
required to make additional combined expenditures of U.S. $15,376,550
(CND $20,980,421) to the Kamennoye East TSA and the P & K TSA (see below)
over the next two years, as follows:
<TABLE>
<CAPTION>
Year ended December 31, U.S. CND
------------------------- ---------- -----------
<S> <C> <C>
1996 $6,376,550 $ 8,700,437
1997 9,000,000 12,279,984
</TABLE>
Net production revenues from the eastern license area of the Kamennoye
field will be allocated 100% to the Company and PETECO (90% and 10%,
respectively) until U.S. $8,000,000 (CND $10,915,541) of their combined
investment is recovered. Thereafter, 60% of net production revenues will
be credited, via cost recovery, to the Company and PETECO (90% and 10%,
respectively) and the remaining 40% of net production revenues during
cost recovery will be shared 45%, 5% and 50% between the Company, PETECO
and KMNGG, respectively. After cost recovery, revenues will be split
45%, 5% and 50% between the Company, PETECO and KMNGG. The agreement
expires on the later of 2018 or the expiration of the underlying
licenses.
On April 30, 1996, KMNGG has the option to terminate the TSA if the
Company fails to establish a 50% increase in production from the
Cretaceous wells it drills in the Kamennoye East field over KMNGG's
average Cretaceous test production rate for wells drilled prior to
January 1, 1994 (8 tons of oil per day). The Company has not satisfied
such conditions to date and does not expect to by April 30, 1996.
However, management believes KMNGG will not elect to exercise this option
in light of the Company's proposed 1996 development program which has
been approved by KMNGG.
F-16
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(b) Technical Services Agreements (TSAs) (Continued)
Kamennoye East TSA (Continued)
------------------------------
Pursuant to the TSA, KMNGG has agreed to indemnify the Company against
all claims in connection with environmental damage that has occurred from
operations conducted by KMNGG before, during or after the effective date
of the TSA.
In order to meet the initial expenditure requirements of the TSA in early
1994, the Company received U.S. $625,000 (CND $828,473) from Clifton Star
Resources, Inc. (CSR) in return for a 21% interest in the Company's share
of net production revenue from the first four wells brought on line. On
June 8, 1994, CSR agreed to relinquish its production rights in return
for the Company issuing 50,000 shares of the Company's common stock and
agreeing to pay CSR U.S. $812,500 (CND $1,077,015) in cash. As of
December 31, 1994, U.S. $500,000 (CND $683,434) of the total CSR
liability was included in notes payable (see Note 9(a)) and the remainder
included in accounts payable and accrued liabilities in the accompanying
consolidated balance sheet. During 1995, the Company and CSR agreed to
settle all amounts due to CSR by paying U.S. $400,000 (CND $547,870) and
committing to issue 400,000 shares of the Company's common stock. At
December 31, 1995, all amounts due to CSR have been included in accounts
payable and accrued liabilities in the accompanying consolidated balance
sheet. Subsequent to December 31, 1995, the Company issued the shares to
CSR. In order for the Company to meet the remainder of its 1994
contractual capital expenditure requirements under the TSA, payments of
U.S. $8,000,000 (CND $10,934,937) were made on behalf of the Company by
PETECO and related individuals. Those advances were reflected as notes
payable to affiliates at December 31, 1994 (see Note 8) and were
subsequently converted to 8,290,327 shares of the Company's common stock
in 1995 in connection with a private placement offering (see Note 10).
At December 31, 1994, the Company had overfunded required contributions
under the TSA of U.S. $2,000,000 (CND $2,769,785) of which U.S.
$1,000,000 (CND $1,402,918) was refunded to the Company in January 1995
and the remainder was applied to the 1995 required capital and operating
contributions. Accordingly, at December 31, 1994, the refundable
contributions were reflected as due from affiliate.
Kamennoye West TSA
------------------
In January 1995, the Company entered into a TSA (the Kamennoye West TSA)
with M.R. International Enterprises, Inc. (MRI), a New York corporation,
and Kond Petroleum (Kond), a Russian joint stock company which owns the
exclusive licenses for the exploitation of the Kamennoye West field.
Under the terms of the TSA, as amended in October 1995, the Company
obtained the rights to a portion of production in excess of certain
baseline levels (incremental production) from the license area.
The Company is required to advance all necessary funds and to purchase or
lease all material, equipment and supplies required to satisfy the work
programs contemplated by the TSA. Through December 31, 1995, the Company
made capital and operating contributions to the TSA of U.S. $7,489,321
(CND $10,257,939) and is required to make additional expenditures under
the work program requirements, as follows:
F-17
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(b) Technical Services Agreements (TSAs) (Continued)
Kamennoye West TSA (Continued)
--------------------------------
<TABLE>
<CAPTION>
Year ended December 31, U.S. CND
-------------------------------- ------------ ------------
<S> <C> <C>
1996 $15,000,000 $20,466,639
1997 15,000,000 20,466,639
1998 15,000,000 20,466,639
1999 15,000,000 20,466,639
2000 7,500,000 10,233,320
----------- -----------
$67,500,000 $92,099,876
=========== ===========
</TABLE>
The TSA provides that all revenues and lifting and transportation costs
associated with baseline production levels will be allocated 100% to
Kond. Revenues and lifting and transportation costs associated with
incremental production will be split 68%, 27% and 5% between the Company,
Kond and MRI, respectively, until capital costs have been fully
recovered. Thereafter, revenues and lifting and transportation costs
will be split 63%, 27% and 10% between the Company, Kond and MRI,
respectively. All other production and operating costs will be allocated
100% to the Company. A baseline production level of approximately 1.1
million barrels of oil, subject to negotiation and revision, has been
established for the budget year beginning July 1, 1995. Future baseline
production levels are to be determined annually based upon historical
production levels.
Kond has the right to terminate the TSA through October 1996 if the
Company fails to achieve a 50% increase in average daily oil production
per well during the period from July 1, 1995 through June 30, 1996 from
the Cretaceous wells over Kond's 1994 average daily well production from
new wells in the license area. The agreement expires on the later of
2035 or the expiration of the underlying licenses. Furthermore, the TSA
may be terminated at any time by mutual agreement of the parties approved
by the board of directors of the Company and Kond. Kond has agreed to
indemnify the Company against all claims in connection with environmental
damage that occurs from operations conducted by Kond before, during or
after the term of the TSA.
P&K TSA
-------
On June 5, 1995, the Company entered into a TSA (the P&K TSA) with PETECO
and KMNGG, which owns the exclusive licenses for the exploitation of the
Potanay and Kartopyinskoye oil fields. Under the terms of the TSA, the
Company made initial cash advances of U.S. $8,000,000 (CND $11,007,154)
to the TSA, which were applied against the combined funding requirements
for the Kamennoye East TSA and the P&K TSA. In addition, the Company and
PETECO have agreed to advance 90% and 10%, respectively, of all necessary
future funds and to purchase or lease all material, equipment and
supplies required to satisfy the work programs contemplated by the TSA,
which will be determined on an annual basis. The Company has also agreed
to apply the first U.S. $8,000,000 (CND $10,755,579) of its net
production revenue toward future development of the fields. Such
reinvestment may be applied against the Company's future capital and
operating contribution require-
F-18
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(b) Technical Services Agreements (TSAs) (Continued)
P&K TSA (Continued)
-------------------
ments. As of April 5, 1996, no work program capital and operating
requirements had been established by the parties to the TSA. Through
December 31, 1995, the Company made capital and operating contributions
under the TSA totalling U.S. $10,882,508 (CND $14,905,503), of which U.S.
$1,882,508 (CND $2,578,425) represented reinvestment of the Company's
initial net production revenues under the TSA.
The TSA provides that the first U.S. $8,000,000 (CND $10,755,579) of net
production revenue will be allocated 100% to the Company until the
Company's initial cash investment is recovered. Thereafter 60% of net
production revenue will be credited, via cost recovery, to the Company
and PETECO (90% and 10%, respectively) and the remaining 40% of net
production revenue during cost recovery will be shared 45%, 5% and 50%
between the Company, PETECO and KMNGG, respectively. After cost
recovery, net production revenue will be split 45%, 5% and 50% between
the Company, PETECO and KMNGG. The agreement expires on the later of
2020 or the expiration of the underlying licenses.
(c) Summary of Black Gold and TSA Costs
All capitalized costs related to the acquisition and development of the
Company's investment in Black Gold and TSA contract rights are subject to
depreciation, depletion and amortization once production commences or credit
is received for production sold, respectively. Capitalized costs associated
with the Company's interests in oil and gas reserves as of December 31, 1995
were as follows:
<TABLE>
<CAPTION>
Black
TSAs Gold Total
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition costs......... $ 866,775 $10,240,833 $11,107,608
Development costs........ 40,806,983 5,845,728 46,652,711
Advances.................. 474,911 557,377 1,032,288
Accumulated losses........ - (227,585) (227,585)
----------- ----------- -----------
42,148,669 16,416,353 58,565,022
Accumulated amortization (1,870,601) - (1,870,601)
----------- ----------- -----------
$40,278,068 $16,416,353 $56,694,421
=========== =========== ===========
</TABLE>
The Black Gold figures above include GEX's $237,647 equity method investment
in the Black Gold Joint Stock Company (see Note 3(a)) as well as $16,178,706
of acquisition and development costs incurred directly by the Company. In
addition, the Black Gold acquisition costs and accumulated losses include
minority interest of $683,434 and $(100,484), respectively, the net of which
is included in the minority interest in net assets of consolidated
subsidiaries of $2,241,613 at December 31, 1995. The above TSA costs and
advances relate to the Kamennoye East, Kamennoye West and P&K TSAs (see Note
3(b)).
F-19
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
3. OIL AND GAS INVESTMENT AND CONTRACT RIGHTS (Continued)
(c) Summary of Black Gold and TSA Costs (Continued)
Net capitalized costs associated with the Company's interests in oil and gas
reserves as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Black
TSA Gold Total
---------- ------------- ------------
<S> <C> <C> <C>
Acquisition costs.......................................................... 136,006 $10,086,316 $10,222,322
Development costs......................................................... 9,996,207 465,232 10,461,439
Advances................................................................... 3,737,720 557,377 4,295,097
Accumulated losses......................................................... - (174,351) (174,351)
----------- ----------- -----------
$13,869,933 $10,934,574 $24,804,507
=========== =========== ===========
</TABLE>
The Black Gold figures above include GEX's $290,882 equity method investment
in the Black Gold Joint Stock Company (see Note 3(a)) as well as $10,643,692
of acquisition and development costs incurred directly by the Company. In
addition, the Black Gold acquisition costs and accumulated losses include
minority interest of $683,434 and $(87,176), respectively, the net of which
is included in the minority interest in net assets of consolidated
subsidiaries of $596,258 in the accompanying consolidated balance sheet as of
December 31, 1994. The above TSA costs and advances relate to the Kamennoye
East TSA (see Note 3(b)).
The following table sets forth information concerning TSA costs subject to,
and not subject to, amortization as of December 31, 1995:
<TABLE>
<S> <C>
Costs subject to amortization:
Acquisition.............................. $ 292,639
Direct development....................... 2,904,461
Allocated equipment and infrastructure... 2,018,833
-----------
Costs subject to amortization...... 5,215,933
-----------
Costs not subject to amortization:
Advances................................. 474,912
Acquisition.............................. 574,138
Equipment and infrastructure............. 35,883,686
-----------
Costs not subject to amortization.. 36,932,736
-----------
$42,148,669
===========
</TABLE>
Acquisition costs are included in the amortization base once sales of
production are achieved. Equipment and infrastructure costs are allocated to
the amortization base according to the relationship between wells drilled or
completed and the number of wells expected to be drilled or completed over
the life of the project. Because production in excess of baseline levels had
not been achieved at Black Gold as of December 31, 1995, no Black Gold costs
were subject to amortization at December 31, 1995.
F-20
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
4. LOANS RECEIVABLE - AFFILIATED COMPANY
In association with the formation of GEX, the Company entered into a credit
agreement with GEC. The agreement requires the Company to advance a maximum of
U.S. $40,000 (CND $54,578) per month to GEC through April 1, 1997. The advances
bear interest at 12%, are payable in monthly amounts based upon GEC's monthly
profits from Black Gold in excess of U.S. $40,000, including interest, and are
collateralized by GEC's interest in GEX. The advances mature no later than
April 1, 2000, at which time all unpaid advances and accrued interest are due.
At December 31, 1995 and 1994, the Company had advances of U.S. $830,000 (CND
$1,132,487) and $330,000 (CND $451,066) and accrued interest of U.S. $84,845
(CND $115,766) and U.S. $14,476 (CND $19,787) due from GEC, respectively.
5. CARNEGIE/AITORNEFTEGAS NOTES
On December 12, 1995, the Company issued an unsecured promissory note in the
principal amount of Swedish Kroner ("SEK") 140,000,000 (U.S. $20,780,763 and CND
$28,354,159) (the "Carnegie Note") to D. Carnegie AB ("Carnegie") for which it
received net proceeds, after loan fees of U.S. $831,231 (CND $1,134,167), of SEK
134,400,000 (U.S. $19,949,532 and CND $27,219,992). The Carnegie Note accrues
interest at the rate of 12% per annum and all outstanding principal and interest
is due and payable on December 12, 1997. Under the terms of the Carnegie Note,
the Company may not, without Carnegie's consent, dispose of all or substantially
all of its fixed assets, significantly change the character of the Company's
operations or change in any significant respect any of its accounting
principles, except as may be approved by the Company's accountants. In
addition, the Company may not grant security in connection with any other loan
unless the Carnegie Note is equally and ratably secured.
In return for the assistance of Morgan Grenfell International Funds, Ltd.
("MGIF") in facilitating the issuance of the Carnegie Note, the Company issued
Russ Oil & Technology, S.A., an affiliate of MGIF ("Russ Oil") warrants (the
"Russ Oil Warrants") to purchase up to 15,461,675 shares of the Company's common
stock at an exercise price of SEK 9.15 (CND $1.88) per share. The Russ Oil
Warrants had a fair market value of U.S. $3,493,225 (CND $4,766,305) on the date
of issuance as determined by utilizing the Black-Scholes option pricing model.
These warrants and the loan fees indicated above represent additional financing
costs and will be amortized to the income statement over the term of the loan.
If the Russ Oil Warrants are held to be unenforceable, Xavier will be required
to immediately repay all borrowings outstanding under the Carnegie Note.
In December 1995, the Company loaned U.S. $19,949,532 (CND $27,219,992) of
the net proceeds from the Carnegie Note to Aitorneftegas ("ANG"), a closed joint
stock company established under the laws of the Russian Federation and a wholly-
owned subsidiary of PETECO. Such loan is evidenced by a convertible promissory
note bearing interest at the rate of 12% per annum and is due on or before June
4, 1996 (the "Convertible Note"). The Convertible Note is secured by a pledge
of 76,983 shares of the common stock of KMNGG owned by ANG. All outstanding
principal and interest under the Convertible Note is convertible at the option
of the holder, into shares of common stock of KMNGG at a conversion price of
approximately U.S. $259.00 per share. If the outstanding principal of the
Convertible Note is converted in full into shares of KMNGG common stock, and
assuming no other issuances of such stock, the Company would own approximately a
25% interest in KMNGG. Twenty-five percent of the value of risk-adjusted
project reserves (as estimated on January 1, 1995) associated with one of
twenty-three KMNGG-owned license areas exceeded the carrying amount of the loan
and accrued interest on the Company's consolidated financial statements at
December 31, 1995.
F-21
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
5. CARNEGIE/AITORNEFTEGAS NOTES (Continued)
Russian law provides that in certain circumstances, investors in Russian
joint stock companies holding greater than 20% of the voting stock may be
subject to the liabilities of the joint stock company if an act or omission by
the shareholder is considered to have caused an insolvency or bankruptcy. If
the KMNGG note is converted into an ownership interest, as outlined in the
preceding paragraph, the Company could be liable in excess of the amount of its
investment should KMNGG become insolvent or declare bankruptcy.
6. BANDERA ACQUISITION
On July 12, 1995, the Company entered into a Stock Purchase and Sale
Agreement (the "Agreement") for the purchase of a 54.5% interest in The Bandera
Group, Inc., a Texas Corporation (Bandera), engaged in the business of pipeline
repair and engineering. Under the terms of the Agreement, the Company
received 3,600,000 shares of Bandera's common stock in exchange for the
cancellation of the principal portion of notes receivable totalling U.S.
$5,100,000. At December 31, 1995, the balance sheet of Bandera is included in
the Company's consolidated balance sheet. The acquisition has been accounted
for as a purchase, and accordingly, the purchase price of U.S. $5,100,000 (CND
$6,985,344) has been allocated to the assets acquired and liabilities assumed
based on the estimated fair values at the date of acquisition as follows:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Current assets..................... $ 2,523,776
Intangible assets.................. 11,699,752
Investment in production platform.. 2,032,875
Other equipment.................... 1,316,663
Other assets....................... 41,016
Current liabilities................ (3,940,817)
Deferred income taxes.............. (4,222,170)
Minority interest.................. (2,465,751)
-----------
$ 6,985,344
===========
</TABLE>
The results of operations of Bandera are included in the accompanying
consolidated financial statements since the date of acquisition. The pro forma
condensed consolidated financial statements, showing the consolidated results of
operations of the Company and Bandera as if the acquisition had occurred at the
beginning of 1995 and 1994 and after giving effect to certain pro forma
adjustments, are presented on pages F-65 through F-68 of the Registration
Statement. In addition to its equity interest, the Company will receive 50% of
the first U.S. $16 million in profits derived by Bandera Engineering, Inc.
(BEI), a wholly-owned subsidiary of Bandera, from contracts directed to BEI by
the Company. Thereafter, the Company will receive an amount equal to 10% of the
cost of materials incurred by BEI under such contracts. In connection with the
agreement, the Company and an investment company received warrants to purchase
700,000 and 200,000 shares of Bandera's common stock, respectively, exercisable
at U.S. $1.00 per share expiring through 2005. The Agreement also provides that
Bandera may, if requested, lend a shareholder of Bandera U.S. $150,000 to pay
certain finders fees in connection with Bandera's purchase of Miller Pipeline
Services Corporation.
During 1995, in contemplation of completing a reverse merger between Bandera
and a public shell corporation, the Company purchased 750,000 shares of the
common stock of Oxford Capital Corporation ("Oxford"), a U.S. public corporation
traded over the counter, for U.S. $443,515 (CND $607,472). Subsequently,
however, the Company revised its plans and sold its investment in Oxford in
exchange for a U.S. $600,000 unsecured note receivable, bearing interest at 10%
per annum with all principal and interest due May 20, 1996.
F-22
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
7. INVESTMENT IN PRODUCTION PLATFORM HELD FOR RESALE
During 1992, Bandera entered into a contract whereby it was to design,
construct and place in service a production platform for a Nigerian customer
(the "Customer"). In conjunction with the contract, Bandera entered into a
financing arrangement with Conjunto Manufacturero, S.A. De C.V. (Conjunto), for
Conjunto to finance all work performed under the contract. The financing was
secured by a letter of credit provided by the Customer, with no recourse to
Bandera and also provided for Conjunto to share equally with Bandera in any
profits or losses under the contract.
In 1993, after the construction of the platform, the Customer defaulted on
its obligation to purchase the platform. The letter of credit, which was
provided to secure the Conjunto financing, was found to be defective, and no
payment was made to Conjunto by the Customer. As a result of the Customer's
default, Bandera placed the platform in dry-dock in Tampico, Mexico and has been
actively seeking potential buyers for the platform.
Accordingly, the production platform is recorded in the accompanying
consolidated balance sheet as "investment in production platform held for
resale" at the amount of its fair estimated market value at the date of Xavier's
acquisition of Bandera (see Note 6).
8. NOTES PAYABLE TO AFFILIATES
Notes payable to affiliates consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Convertible unsecured notes payable
to PETECO and related individuals,
bearing interest at 12% per annum,
converted to common stock in 1995
(see Notes 3(b) and 10)................... $ - $10,934,937
Notes payable to an affiliated company,
bearing interest at 10% and 12%,
paid in 1995.............................. - 1,367,406
Unsecured notes payable to shareholders,
bearing interest at 10%, paid in 1995..... - 546,747
Convertible notes payable to an affiliated
company, bearing interest at 12% per
annum, paid in 1995....................... - 506,920
Other, paid in 1995......................... - 344,695
----------- -----------
$ - $13,700,705
=========== ===========
</TABLE>
The Company incurred interest expense on affiliated notes payable totalling
$134,003 and $223,799, for the years ended December 31, 1995 and 1994,
respectively, of which $-0- and $135,447 remained unpaid at December 31, 1995
and 1994, respectively.
During the years ended December 31, 1995 and 1994, the Company incurred loan
fees on affiliated notes payable totalling $-0- and $1,071,744, respectively, of
which $-0- and $834,585 remained unpaid at December 31, 1995 and 1994,
respectively.
F-23
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
9. NOTES PAYABLE
(a) Notes Payable
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Convertible unsecured note payable bearing
interest at 12% per annum, due on demand,
converted to common stock subsequent to
December 31, 1995...................................... $ 682,221 $ -
Note payable bearing interest at 12% per annum,
due on April 30, 1996, secured by the personal
guarantee of an officer of the Company................. 341,111 -
Unsecured note payable bearing interest at
12% per annum, with an effective interest rate
of 26%, due on December 12, 1997
(see Note 5)........................................... 28,354,159 -
Convertible note payable converted into
525,000 shares of the Company's common
stock during 1995...................................... - 683,434
Non-interest bearing note payable, due
September 30, 1994, settled in 1995
(see Note 3(b))........................................ - 683,434
Note payable bearing interest at the prime rate
(8.5% at December 31, 1995) plus 1%, due
June 16, 1996, secured by various patents,
trademarks, copyrights and licenses of the
subsidiary............................................. 682,221 -
Note payable bearing interest at the prime rate
plus 1%, due on demand or in monthly install-
ments of principal and interest through November 5,
1997, collateralized by the accounts receivable
of a subsidiary, the personal guarantee
of an officer of the subsidiary and the
subsidiary's interest in certain oil and
gas properties held by an affiliate of the subsidiary.. 180,729 -
Other.................................................... 138,937
----------- -----------
30,379,378 1,366,868
Less current maturities.................................. (1,878,335) (1,366,868)
----------- -----------
$28,501,043 $ -
=========== ===========
</TABLE>
F-24
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
9. NOTES PAYABLE (Continued)
(b) Line of Credit
In April 1995, the Company entered into an unsecured line of credit agreement
with a lending institution. The line of credit provides for a maximum
borrowing of U.S. $12,000,000 (CND $16,373,312), bears interest at LIBOR plus
2% compounded daily and has a term of one year from the first drawdown. The
agreement requires the Company to maintain a compensating balance of U.S.
$1,000,000 (CND $1,364,443) with the lending institution and pay an annual
commitment fee of U.S. $100,000 (CND $136,444) to maintain the line of credit
and a U.S. $60,000 (CND $81,667) administration fee. On the initial drawdown
on the line of credit, the Company is required to issue the lending
institution 1,500,000 shares of the Company's common stock and 500,000 common
stock purchase warrants exercisable at CND $2.00 per warrant expiring May
1997. Borrowings under the line of credit are subject to the lender's due
diligence and to the submission by the Company of all required documentation.
As of April 5, 1995, the lender had not yet completed its due diligence and
no draws had been made by the Company on the line of credit.
10. PRIVATE PLACEMENTS
In June 1995, the Company entered into an agreement with an underwriter and
filed notice, as subsequently revised, with the ASX for a "best efforts" private
equity placement to raise up to U.S. $47,639,000 (CND $65,000,000). Under the
terms of the revised offering, investors are entitled to receive one share of
the Company's common stock at $1.30 per share and one common stock purchase
warrant for each share of common stock received, exercisable at $2.00, which
expires March 31, 1997. As of December 31, 1995, the Company had received net
proceeds of approximately U.S. $8.3 million (CND $11.4 million) from this
offering used principally to fund oil and gas operations and working capital
requirements.
During 1994, the Company entered into an agreement with an underwriter and
filed notice with the ASX for the private placement of either debt or equity
financing. The private placement was a "best efforts" offering to raise U.S.
$20,000,000 with an additional over allotment option of U.S. $5,000,000. In
January 1995, the Company received approval from the ASX for an additional
Private Placement. After receiving this approval, the Company increased the
combined offerings to U.S. $33,000,000 and engaged an additional underwriter.
Investors electing debt financing were entitled to receive one common stock
purchase warrant for each share of common stock received at the time of
conversion of their debt to equity. The Company received U.S. $8,500,000 (CND
$11,618,371) in debt financing under this offering during 1994 (see Note 3(b)),
of which (i) U.S. $500,000 (CND $683,434) was included in notes payable at
December 31, 1994 (see Note 9) and has subsequently been converted into 525,000
shares of the Company's common stock, and (ii) $8,000,000 (CND $10,934,937) was
included in notes payable to affiliates at December 31, 1994 (see Note 8) and
was converted into 8,290,327 shares of the Company's common stock during the
year ended December 31, 1995.
F-25
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
10. PRIVATE PLACEMENTS (Continued)
The Company received approximate net proceeds from the combined offerings of
U.S. $30,200,000 (CND $41,300,000). In conjunction with the offerings, which
closed May 1995, the Company issued 39,338,144 warrants to subscribers of the
offerings which allow holders to purchase one share of common stock at $2.00 and
expire December 31, 1996.
11. COMMITMENTS AND CONTINGENCIES
On May 25, 1994, a former employee filed suit against the Company and certain
of the Company's officers and directors. The former employee alleges that he
earned interests in certain oil and gas properties owned by the Company. The
individual further alleges that he and the Company entered into a letter
agreement pursuant to which he agreed to sell his interest in these oil and gas
properties to the Company in exchange for a U.S. $200,000 (CND $272,889)
promissory note, a one year employment agreement, preferred shares of stock
convertible into 5% of the Company's common stock, a perpetual royalty of 0.5%
of the gross revenues from the properties and an option to purchase an
indeterminate number of shares of the Company's common stock at $1.40 per share.
The former employee has asserted claims of breach of contract, fraud, estoppel,
conversion and unjust enrichment against the Company and is seeking actual and
exemplary damages. The Company intends to vigorously defend the allegations.
Currently, the case is in the discovery stage and the Company is unable to
assess the ultimate outcome of the case and the damages sought by the former
employee. Accordingly, the financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
Under a verbal agreement in 1994 with Kachina Capital Corporation
("Kachina"), an investment banking and financial advisory firm, the Company
agreed to pay an amount equal to 2% of all amounts raised in public or private
offerings of debt or equity. This fee is paid regardless of whether Kachina
participates in the offerings and is in addition to any other fees and expenses
the Company may incur in connection with such offerings. Fees associated with
debt placements are amortized to the income statement over the term of the loan
while fees associated with equity offerings are netted against the proceeds of
the offering in the accompanying consolidated financial statements. From
inception of the agreement through December 31, 1995, Kachina earned commissions
under the agreement totalling approximately U.S. $989,000 (CND $1,355,000) of
which approximately U.S. $526,000 (CND $718,000) were paid as of December 31,
1995.
The Company has entered into a verbal agreement with an individual relating
to certain business opportunities in the Republic of Kyrgyzstan. The verbal
agreement contemplates that the Company will compensate the individual in an
amount equal to approximately U.S. $100,000 (CND $136,444) per annum, plus
expenses, while he develops opportunities in downstream oil and gas activities
in the Republic of Kyrgyzstan. If the individual is successful in developing a
business opportunity acceptable to the Company, the Company may consider forming
a legal venture to pursue such opportunity.
F-26
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
11. COMMITMENTS AND CONTINGENCIES (Continued)
The Company and its subsidiaries lease office space and equipment under
operating lease agreements. At December 31, 1995, estimated future minimum
rental payments required under the leases are:
<TABLE>
<CAPTION>
Year ended December 31, U.S. CND
------------------------- ---------- ----------
<S> <C> <C>
1996.......... $ 393,244 $ 536,559
1997.......... 416,605 568,434
1998.......... 245,600 335,107
1999.......... 195,198 266,336
2000.......... 188,176 256,755
2001.......... 47,044 64,189
---------- ----------
$1,485,867 $2,027,380
========== ==========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1994 totalled U.S.
$119,566 (CND $163,141) and U.S. $15,431 (CND $21,055), respectively.
See Notes 1 and 3 for discussions regarding the Company's financing needs,
funding requirements for oil and gas investments and management's plans for
continuing operations.
See Note 13(b) regarding commitments for employment agreements.
12. SHARE CAPITAL
a) Authorized:
An unlimited number of common shares without par value.
An unlimited number of preferred shares without par value, in which the Board
of Directors will determine preferences and rights of each series.
b) Issued:
See consolidated statements of shareholders' equity (deficiency).
c) Subscribed:
At December 31, 1994, the Company had received share subscriptions of $48,863
for 25,000 shares of common stock which were issued in 1995.
d) Stock options:
At December 31, 1995, the Company had the following stock options outstanding
to officers and directors:
<TABLE>
<CAPTION>
Number of Exercise Expiration Options
Shares Price Date Vested
----------- -------- ---------- -------
<S> <C> <C> <C>
425,000 $1.40 11/5/98 255,000
50,000 2.00 10/21/99 50,000
375,000 1.50 9/23/00 375,000
</TABLE>
F-27
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
12. SHARE CAPITAL (Continued)
e) Warrants:
At December 31, 1995, the Company had the following common stock warrants
outstanding or committed:
<TABLE>
<CAPTION>
Shares
-----------------------------------
Outstanding Committed Total Price Date
------------ --------- ---------- ------------- --------
<S> <C> <C> <C> <C>
25,000 - 25,000 $2.25 4/21/96
- 384,615 384,615 1.30 12/31/96
39,802,684 - 39,802,684 2.00 12/31/96
- 9,436,923 9,436,923 2.00 3/31/97
- 150,000 150,000 1.75 7/31/97
- 275,000 275,000 2.00 9/1/97
350,000 - 350,000 1.58 9/15/97
15,461,675 - 15,461,675 9.15 (SEK)(1) 11/27/97
- 1,132,800 1,132,800 2.00 3/28/98
- 1,000,000 1,000,000 (2) 10/27/99
</TABLE>
(1) Denominated in Swedish Kroners.
(2) The lower of U.S. $2.00 or 80% of the issue price of the
Company's initial U.S. public offering.
In addition, the Company has agreed to issue warrants for an as yet
undetermined number of shares of the Company's common stock in connection
with the purchase of oil field equipment at a price of $2.20 per share,
expiring January 31, 1998.
f) During the year ended December 31, 1993, the shareholders approved:
i) A consolidation of the Company's issued and outstanding common shares
on the basis of one post-consolidation share for every five pre-
consolidation shares.
ii) An addition to the authorized share capital of an unlimited number
of preferred shares without par value.
13. RELATED PARTY TRANSACTIONS
(a) Interest Purchase Agreements
Pursuant to interest purchase agreements executed on November 14, 1994, and
effective November 3, 1993, the Company acquired the rights and interests of
certain officers of the Company to participate in oil and gas projects
located in the Russian Federation. Through these interest purchase
agreements, the Company was introduced to and acquired the opportunity to
participate in Black Gold (see Note 3(a)) and the Kamennoye East TSA (see
Note 3(b)). In exchange for such rights and interests, the Company agreed to
issue to the individuals twenty-six non-assignable shares of preferred stock
convertible into at least 26% of the Company's outstanding common stock
through December 31, 1998. A nominal value was assigned to these rights and
interests at the date of acquisition. Conversion of the preferred shares is
at the option of the individuals and is dependent upon the satisfaction of
the following conditions for the shares indicated:
F-28
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
13. RELATED PARTY TRANSACTIONS (Continued)
(a) Interest Purchase Agreements (Continued)
Fifteen Preference Shares:
(i) The Company must have achieved a market capitalization of at least
U.S. $50,000,000 (CND $68,222,131).
(ii) The ASX must have approved the conversion of the preferred shares
pursuant to the interest purchase agreements.
(iii) the ASX must have received and accepted an opinion of legal
counsel as to the validity of the oil and gas agreements acquired by
the Company.
(iv) All applicable agreements, including feasibility studies and
engineering reports must have been filed with the ASX through
December 31, 1998.
(v) The Company must have acquired control of 100 million barrels of
risk-adjusted recoverable equivalent reserves as determined by an
independent reserve engineer.
Nine Preference Shares:
(i) The Company must have redomesticated in the United States,
(ii) The Company must have its shares listed on the New York, American or
NASDAQ stock exchange, and
(iii) The Company must have achieved cumulative profitability and
positive cash flow with a market capitalization of U.S. $500,000,000
(CND $682,221,313).
Two Preference Shares:
(i) Upon the Company's acquisition of each additional 100 million barrels
of risk adjusted recoverable reserves, as determined by an
independent reserve engineer, and
(ii) Conditions for the fifteen preference shares described above must
have been satisfied.
F-29
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
13. RELATED PARTY TRANSACTIONS (Continued)
(a) Interest Purchase Agreements (Continued)
Once all conditions precedent to the conversion of the preferred shares have
been met, the value of the preferred shares convertible to common stock will
be reflected as compensation expense in the Company's consolidated financial
statements. As of December 31, 1995, no preferred shares had been issued to
the individuals and only conditions (i) and (v) precedent to the conversion
of the first fifteen preferred shares had been met.
The Company also agreed to issue to the individuals 150,000 shares of the
Company's common stock in payment of costs incurred by the individuals
associated with the Black Gold and Kamennoye TSA projects. As of December
31, 1995, 50,000 common shares had been issued to one of the individuals.
In addition, the Company has agreed to pay each of the individuals a net
profits interest in perpetuity in the amount of one percent of all earnings
before interest, taxes, depreciation and amortization (EBITDA) from all
projects introduced to the Company by the individuals from all current and
future properties or projects of the Company (except for Favorable Lake
Mining Property) acquired during this individuals' lifetimes.
(b) Employment Agreements
On November 14, 1994, the Company executed employment agreements with its
acting President, Chief Executive Officer and Chairman of the Board and with
its Vice President and Director of Russian Operations. The agreement with
the President, Chief Executive Officer and Chairman of the Board provides for
a five-year term effective November 1, 1993, renewable thereafter as mutually
agreed with the Company. The agreement provides that this individual, as
compensation for services rendered, will receive annual compensation of U.S.
$120,000 (CND $163,733); provided, however, that such annual compensation
shall be reduced to CND $60,000 until the conditions with respect to the
conversion of the fifteen initial preference shares have been satisfied.
The agreement with the Vice President is substantially the same as the
agreement above, except the individual's compensation is U.S. $96,000 (CND
$130,986); provided, however, that such annual compensation shall be reduced
to CND $60,000 until the conditions with respect to the conversion of fifteen
preference shares have been satisfied.
c) Management and Consulting Fees
During the year ended December 31, 1994, the Company incurred management and
consulting fees charged by an affiliated company and individuals totalling
$600,251, of which $-0- and $484,310 remained unpaid at December 31, 1995 and
1994, respectively. During 1995, the Company agreed to issue shares or
options to purchase shares of its common stock to two officers of the Company
in return for their services of which U.S. $181,603 (CND $247,787) of common
shares remained unissued at December 31, 1995.
d) See Note 4 for discussion and terms of loans to an affiliated company.
e) See Note 8 for discussions and terms of loans from affiliated companies.
F-30
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
14. INCOME TAXES
Pretax income (loss) was generated under the following tax jurisdictions
for the years ended December 31,
<TABLE>
<CAPTION>
CND
---------------------------------------
1995 1994 1993
----------- ------------- ---------
<S> <C> <C> <C>
Foreign:
Russia $ 1,183,223 $ - $ -
United States (1,938,020) - -
----------- ----------- ---------
(754,797) - -
Domestic (4,428,948) $(6,559,956) (239,730)
----------- ----------- ---------
Total $(5,183,745) $(6,559,956) $(239,730)
=========== =========== =========
</TABLE>
The provision for deferred income tax relates entirely to foreign operations
for the year ended December 31, 1995, and was attributable to the following tax
jurisdictions:
CND
----------
Russian operations $(414,128)
United States operations (47,255)
----------
$(461,383)
==========
Deferred tax expense from United States operations is comprised of a
valuation allowance of $229,311 offset by $182,056 of deferred tax benefits
related to the basis differences of intangible assets and equipment.
The Company's effective tax rates for the year ended December 31, 1995, which
differ from the applicable statutory rates, may be reconciled as follows:
<TABLE>
<CAPTION>
Foreign
------------------------
Russia United States Domestic
------ -------------- ---------
<S> <C> <C> <C>
Basic rate applied to pretax % % %
income (loss) 35 (34) (44.3)
Losses not tax affected - - 44.3
Change in valuation allowance - 35 -
Other - 1 -
-- --- -----
35 2 -
== === =====
</TABLE>
F-31
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
14. INCOME TAXES (Continued)
At December 31, 1995, the Company had operating loss carryforwards available
to offset future income for Canadian income tax purposes of approximately
$10,487,000 which expire as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
1996............ $ 121,000
1997............ 60,000
1998............ 34,000
1999............ 32,000
2000............ 240,000
2001............ 6,000,000
2002............ 4,000,000
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately U.S. $975,000 (CND $1,330,000) to offset future income for United
States income tax purposes. The Company also has capital loss carryforwards of
approximately $140,000 and $23,000, respectively, to offset future domestic and
foreign taxable income as of December 31, 1995.
15. LOSS PER SHARE
The net loss per share figures have been calculated using the weighted
average number of common shares outstanding during the period, giving
retroactive recognition to the stock split and dividend for all years presented
and giving retroactive adjustment for a proposed four-for-one reverse stock
split (see Note 17).
16. INDUSTRY AND GEOGRAPHICAL AREA SEGMENT INFORMATION
The Company's operations since the acquisition of Bandera (see Note 6) are
classified into two principal industry segments, each located in different
geographical areas; (1) oil and gas development operations located in Russia and
the Commonwealth of Independent States, which comprise the former Soviet Union;
and (2) oil and gas pipeline repair operations performed primarily, at present,
in the United States. As discussed in Note 6, the Company acquired the patents
and know-how related to the pipeline repair operations on July 12, 1995.
Accordingly, this segment's data is presented only for the year ended December
31, 1995.
F-32
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Canadian Dollars)
16. INDUSTRY AND GEOGRAPHICAL AREA SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Net sales to unaffiliated customers:
Oil and gas $ 14,623,675 $ -
Pipeline repair 1,749,059 -
------------ -----------
$ 16,372,734 $ -
============ ===========
Net loss:
Oil and gas $ (3,646,540) $ -
Pipeline repair (1,178,192) -
------------ -----------
$ (4,824,732) $ -
============ ===========
Depreciation and amortization:
Oil and gas $ 2,261,160 $ -
Pipeline repair 404,117 -
------------ -----------
$ 2,665,277 $ -
============ ===========
Intersegment sales:
Oil and gas $ - $ -
Pipeline repair 190,601 -
------------ -----------
$ 190,601 $ -
============ ===========
Identifiable assets:
Oil and gas $100,939,914 $24,804,507
Pipeline repair 10,085,394 -
------------ -----------
$111,025,308 $24,804,507
============ ===========
Capital expenditures:
Oil and gas $ 34,080,786 $24,804,507
Pipeline repair 240,322 -
------------ -----------
$ 34,321,108 $24,804,507
============ ===========
</TABLE>
17. SUBSEQUENT EVENTS
The Company's wholly-owned U.S. subsidiary, Xavier Corporation (New Corp.)
plans to file an amendment to its Registration Statement on Form S-4 with the
Securities and Exchange Commission in connection with a proposed domestication
of the Company from a publicly traded Ontario, Canada corporation to a publicly
traded U.S. corporation. If the domestication is approved and becomes
effective, the Company will thereafter be merged into New Corp. and holders of
the Company's common stock will receive one share of New Corp.'s common stock
for every four shares of the Company's common stock held.
In connection with the proposed domestication and merger, the Company has
agreed to issue to two officers of the Company twenty-six non-assignable shares
of preferred stock convertible, if certain conditions are met, into at least 26%
of the Company's outstanding common stock through December 31, 1998 (see Note
13(a)).
F-33
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
As discussed in Note 2, these financial statements are prepared in
accordance with accounting principles generally accepted in Canada. Differences
between Canadian and U.S. generally accepted accounting principles as they
pertain to these financial statements are as follows:
a) Weighted Average Shares
U.S. generally accepted accounting principles require that outstanding stock
options and warrants be considered as common share equivalents for purposes
of calculating primary earnings per share if their effect is dilutive. Since
the impact of options and warrants on the Company's loss per share
calculation for periods with net losses is anti-dilutive and has no effect on
the calculation of earnings per share for the period with net income, there
are no differences in the computation of weighted average number of shares
outstanding under U.S. and Canadian generally accepted accounting principles.
b) Stock Options
U.S. generally accepted accounting principles require the following
disclosure of the Company's stock option transactions:
<TABLE>
<CAPTION>
Price Expiration
Shares Per Share Date
------------- ---------- -------------
<S> <C> <C> <C>
Stock options
outstanding
at December
31, 1993 575,000 1.40 11/5/98
Issued during
1994 145,000 2.00 1/14/99
Issued during
1994 75,000 2.00 8/23/99
Issued during
1994 100,000 2.00 10/7/95
Issued during
1994 100,000 2.00 10/21/99
Options
exercised (78,000) 1.40 -
Options
exercised (15,000) 2.00 -
Options
expired (45,000) 1.40 -
--------
Stock options
outstanding
at December
31, 1994 857,000
Issued during
1995 375,000 1.50 9/23/00
Options expired (355,000) 2.00 -
Options expired (27,000) 1.40 -
--------
Stock options
outstanding
at December
31, 1995 850,000
=======
Stock options
vested at
December 31,
1995 680,000
=======
</TABLE>
c) New Accounting Pronouncements
U.S. generally accepted accounting principles require the disclosure of the
impact of new accounting pronouncements which have not been adopted by the
Company.
F-34
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
c) New Accounting Pronouncements (Continued)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121)
SFAS No. 121 requires, among other things, that impairment losses on assets
to be held, and gains or losses from assets that are expected to be disposed
of, be included as a component of income from continuing operations. The
Company will adopt SFAS No. 121 in 1996 and its implementation is not
expected to have a material effect on the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board Issued Statement of
Financial Accounting No. 123, "Accounting for Stock-Based Compensation."
(SFAS No. 123). SFAS No. 123 encourages entities to adopt the fair value
method in place of the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees
in amounts based on the price of its stock. The Company does not anticipate
adopting the fair value method encouraged by SFAS No. 123 and will continue
to account for such transactions in accordance with APB No. 25. However, the
Company will be required to provide additional disclosures beginning in 1996
providing pro forma effects as if the Company had elected to adopt SFAS No.
123.
d) Common Stock Outstanding and per Share Data
U.S. generally accepted accounting principles require all financial statement
references to common stock outstanding and all per share data to be
retroactively adjusted to reflect common stock dividends and common stock
splits for all periods presented. Canadian generally accepted accounting
principles require this treatment only for per share data. Presentation
requirements for U.S. and Canadian generally accepted accounting principles
for common stock outstanding are the same for all periods presented except as
follows:
<TABLE>
<CAPTION>
Number of Number of
Common Shares Common Shares
Per Canadian Per U.S.
GAAP GAAP
-------------- -------------
<S> <C> <C>
Balance, December 31, 1992............. 5,774,919 2,309,491
1 for 5 share consolidation............ (4,620,211) -
Shares issued in private placement at
CND $.30 per share................... 1,500,000 3,000,000
Exercise of stock options at
CND $.30 per share.................... 115,400 230,800
Stock dividend......................... 2,770,183 -
---------- ---------
Balance, December 31, 1993............. 5,540,291 5,540,291
========== =========
</TABLE>
F-35
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
e) Deferred Taxes
U.S. generally accepted accounting principles require the following
disclosures of the Company's deferred tax liabilities and assets related to
the expected future tax consequences of temporary differences between the
carrying amounts of assets and liabilities used for financial reporting
purposes and for income tax purposes. Deferred tax assets must be reduced by
a valuation allowance to amounts expected to be realized. The components of
the non-current deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ ------------
(CND) (CND)
<S> <C> <C>
NON-CURRENT LIABILITIES:
Difference in book and tax
treatment of TSA advances,
costs and net revenues.......... $ (414,128) $ -
Difference in book and tax
basis of intangible assets
and other equipment............. (4,040,114) -
----------- -----------
Deferred tax liabilities.......... $(4,454,242) $ -
=========== ===========
NON-CURRENT ASSETS:
Net operating loss carryforwards.. $ 5,100,000 $ 3,292,000
Capital loss carryforwards........ 78,000 70,000
----------- -----------
5,178,000 3,362,000
Less valuation allowance.......... (5,178,000) (3,362,000)
----------- -----------
Net deferred tax asset.............. $ - $ -
=========== ===========
</TABLE>
The deferred tax liability associated with the difference in book and
tax basis of intangible assets and other equipment represents the
deferred tax liability of $4,222,170 resulting from the acquisition of
Bandera (see Note 6), less the current period deferred tax benefit of
$182,056.
F-36
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
f) Supplemental Disclosure of Cash Flow Information
U.S. generally accepted accounting principles require the following
disclosures:
The Company paid interest totalling U.S. $191,072 (CND $261,707), U.S.
$14,566 (CND $19,910) and U.S. $3,816 (CND $5,216) during the years ended
December 31, 1995, 1994 and 1993, respectively.
Notes payable and accrued interest totalling U.S. $8,720,100 (CND
$11,919,213) were converted to common stock during the year ended December
31, 1995.
Amounts due to an affiliate totalling U.S. $5,000,000 (CND $7,014,590) for
the purchase of an additional interest in Black Gold were converted to
preferred stock of Xavier BG, the Company's wholly-owned subsidiary, during
the year ended December 31, 1995.
TSA and Black Gold costs of U.S. $1,169,281 (CND $1,601,535) and U.S.
$687,987 (CND $942,319), respectively, were incurred during the year ended
December 31, 1995 via the issuance of, or the commitment to issue, shares of
the Company's common stock.
The Company issued shares of its common stock in payment of loan fees and
other expenses totalling U.S. $798,554 (CND $1,093,761) and U.S. $401,185
(CND $548,366) during the years ended December 31, 1995 and 1994,
respectively.
g) Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
as of December 31, 1995 and 1994, because of the relatively short-term
maturity of these instruments. The carrying value of long-term debt,
including the current portion, approximated fair value as of December 31,
1995 and 1994, based upon the market price of the long-term debt arranged
during the period.
h) Accounting Matters
i) Mineral Properties
Under Canadian generally accepted accounting principles, the cost of
acquisition and all related exploration and development expenditures,
less recoveries, are capitalized and carried as an asset to be amortized
against income if the property is brought into commercial production or
charged to income if the property is, or is to be, abandoned or disposed
of. Under U.S. generally accepted accounting principles, mineral
properties having a remote likelihood of recovery of their capital costs
would be expensed at the time recovery became remote.
ii) Compensation Expense Associated with Stock Options
Under U.S. generally accepted accounting principles, compensation
expense is required to be recorded in the statement of income (loss) if
stock options are issued having an exercise price below the market value
of the Company's stock at the date the options are issued. Under
Canadian generally accepted accounting principles, compensation expense
is not required to be recorded with respect to these circumstances.
F-37
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
h) Accounting Matters (Continued)
The impact of the two items described above on the financial statements is as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
------------- -------------- -------------
(CND) (CND) (CND)
<S> <C> <C> <C>
Net loss per Canadian GAAP....... $ (4,824,732) $ (6,472,780) $ (239,730)
Adjustments:
Compensation expense.......... - - (11,540)
------------ ------------ ------------
Net loss per U.S. GAAP........ $ (4,824,732) $ (6,472,780) $ (251,270)
============ ============ ============
Net loss per share............... $(.56) $ (3.13) $ (.20)
============ ============ ============
Weighted average shares
outstanding................... 8,580,943 2,068,941 1,236,023
============ ============ ============
Deficit at end of year per
Canadian GAAP.................. $(25,387,424) $(20,562,692) $(14,089,912)
Adjustments:
Write-down of mineral
properties................... - - (325,000)
Compensation expense.......... - (11,540) (11,540)
------------ ------------ ------------
Deficit at end of year per U.S.
GAAP.......................... $(25,387,424) $(20,574,232) $(14,426,452)
============ ============ ============
Total assets per Canadian
GAAP............................ $105,255,031 $ 27,401,812 $ 1,048,545
Less: write-down of mineral
properties.................... - (325,000)
------------ ------------ ------------
Total assets per U.S. GAAP....... $105,255,031 $ 27,401,812 $ 723,545
============ ============ ============
</TABLE>
F-38
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
i) Supplemental Oil and Gas Information
U.S. general accepted accounting principles require the following disclosures
regarding the Company's oil and gas activities:
Information with respect to the Company's interests in oil and gas related
projects is presented in the following tables. Estimates of the Company's
interests in proved oil reserves as of December 31, 1995 and 1994 were
prepared by Huddleston and Co., Inc., independent petroleum engineers, and
are based on data supplied to them by the Company. In addition, the Company
has interest in oil reserves which are either classified as unproved or
cannot be classified until sufficient geological and seismological data
becomes available. Accordingly, such reserve data is not included in the
following tables.
i) Results of Operations
The Company realized its first sales of TSA oil production during the
year ended December 31, 1995. Because production in excess of baseline
levels had not been achieved as of December 31, 1995 for both the Black
Gold Joint Venture and the Kamennoye West TSA project, the following
table presents the results of operations of the Kamennoye East and P&K
TSAs only:
<TABLE>
<CAPTION>
CND USD
------------ ------------
<S> <C> <C>
Revenues $14,623,675 $10,717,691
Production costs and taxes (9,660,723) (7,080,344)
Amortization (1,870,601) (1,370,963)
----------- -----------
Results of operations before income taxes 3,092,351 2,266,384
Income taxes (414,128) (303,514)
----------- -----------
Results of operations from oil producing activities $ 2,678,223 $ 1,962,870
=========== ===========
</TABLE>
In the presentation above, no deduction has been made for indirect costs
such as corporate overhead or interest expense. For the year ended
December 31, 1995, the TSA amortization rate per barrel of oil sold was
U.S. $1.95.
ii) Oil Reserves Data (unaudited)
The following table sets forth the Company's interests in net proved oil
reserves relating to the TSA and Black Gold development projects at
December 31, 1995 and 1994 and the changes in net proved oil reserves for
such projects for the years then ended. All of the Company's proved
reserves are located in Russia. Proved reserves represent the estimated
quantities of crude oil which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from know
reservoirs under existing economic and operating conditions. The reserve
information indicated below requires substantial judgment on the part of
the reserve engineers, resulting in estimates which are not subject to
precise determination. Accordingly, it is expected that the estimates of
reserves will change as future production and development information
becomes available and that revisions in these estimates could be
significant.
F-39
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
i) Supplemental Oil and Gas Information (Continued)
ii) Oil Reserves Data (unaudited) (Continued)
<TABLE>
<CAPTION>
Reserves (barrels)
-----------------------------------
TSAs Black Gold Total
----------- ------------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994 - - -
Acquisition of interest
in proved TSA reserves............ 1,911,435 - 1,911,435
Acquisition of Black Gold
proved reserves................... - 6,217,128 6,217,128
--------- --------- ---------
Balance at December 31, 1994....... 1,911,435 6,217,128 8,128,563
Acquisition of interest in
proved TSA reserves............... 2,081,835 - 2,081,835
Revisions of previous estimates.... - (124,343) (124,343)
TSA production..................... (707,857) - (707,857)
--------- --------- ---------
Balance at December 31, 1995....... 3,285,413 6,092,785 9,378,198
========= ========= =========
</TABLE>
Proved reserves were classified as follows at December 31, 1995:
<TABLE>
<CAPTION>
TSAs Black Gold Total
--------- ---------- ---------
<S> <C> <C> <C>
Developed producing................ 1,015,635 - 1,015,635
Developed non-producing............ 1,197,330 2,145,286 3,342,616
Undeveloped........................ 1,072,448 3,947,499 5,019,947
--------- --------- ---------
3,285,413 6,092,785 9,378,198
========= ========= =========
</TABLE>
Proved developed oil reserves represent reserves expected to be recovered
through existing wells with existing equipment and operating methods.
Proven undeveloped oil reserves represent reserves that are expected to
be recovered from new wells on undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.
iii) Standardized Measure of Discounted Future Net Cash Flows
(unaudited)
The standardized measure of discounted future net cash flows represents
the present value of such net cash flows discounted at 10%. The
standardized measure does not purport to be an estimate of the fair value
of the Company's interest in proven reserves. An estimate of fair value
would also take into account, among other things, the expected recovery
of reserves in excess of proved reserves, anticipated changes in future
prices and costs and a discount factor more representative of the time
value of money and the risks inherent in producing oil and gas in Russia.
F-40
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
i) Supplemental Oil and Gas Information (Continued)
iii) Standardized Measure of Discounted Future Net Cash Flows
(unaudited) (Continued)
The Company's share of future net cash flows from the TSAs and Black Gold
development projects in the following table were computed by applying
year-end prices of oil to the expected future production of proved
reserves, less estimated future expenditures (based on year-end costs)
expected to be incurred in developing and producing such reserves.
<TABLE>
<CAPTION>
U.S.
---------------------------
TSAs Black Gold
------------ -------------
<S> <C> <C>
Future cash inflows $ 61,765,765 $114,544,357
Future production costs and taxes (30,160,046) (56,674,985)
Future development costs (3,890,700) (22,750,000)
Future income tax expenses (6,092,338) (7,790,986)
------------ ------------
Future net cash flows 21,622,681 27,328,386
Discount at 10% for timing of cash flows (3,371,724) (14,049,601)
------------ ------------
Discounted future net cash flows from proved
reserves at December 31, 1995 $ 18,250,957 $ 13,278,785
============ ============
</TABLE>
iv) Principal Sources of Change in the Standardized Measure of Discounted
Future Net Cash Flows (unaudited)
The following table sets forth the changes in the standardized measure of
discounted future net cash flows from proved reserves during 1995:
<TABLE>
<CAPTION>
U.S.
-------------------------
TSAs Black Gold
------------ -----------
<S> <C> <C>
Balance at December 31, 1994..... $ 2,795,563 $12,627,377
Sales, net of production costs... (3,637,347) -
Acquisition of proved reserves... 13,066,758 -
Changes in prices and costs...... 4,324,144 (12,156)
Revisions of quantity estimates.. - (560,000)
Development costs incurred....... 2,361,004 4,268,587
Changes in future development
costs.......................... (227,426) (4,300,000)
Net change in income taxes....... (825,074) 1,344,532
Accretion of discount............ 279,556 1,262,738
Changes in production rates...... - (1,078,687)
Other............................ 113,779 (273,606)
----------- -----------
Balance at December 31, 1995..... $18,250,957 $13,278,785
=========== ===========
</TABLE>
For the year ended December 31, 1994, the principal sources of change
resulted from the Company's acquisition of $2,795,563 and $12,627,377 of
proved reserves related to the Kamennoye East TSA and Black Gold,
respectively.
F-41
<PAGE>
XAVIER MINES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
18. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
i) Supplemental Oil and Gas Information (Continued)
iv) Principal Sources of Change in the Standardized Measure of
Discontinued Future Net Cash Flows (unaudited) (Continued)
An average price of U.S. $18.80 and U.S. $15.08 per barrel of oil at
December 31, 1995 and 1994 respectively, were used in developing the TSA
and Black Gold estimates above. No deduction has been made for
amortization expense or any indirect costs such as general corporate
overhead or interest expense. Deduction has been made in the above
estimates for the effect of royalties due to two officers of the Company
pursuant to interest purchase agreements described in Note 13(a).
Income tax expense is computed based on applying the Russian net profits
tax rate of 35% to the excess of future cash inflows less future
production and development costs and other deductions over the current
tax basis of the properties involved, less applicable carryforwards.
F-42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Bandera Group, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of The Bandera
Group, Inc. as of December 31, 1995 and the related consolidated statements of
income (loss) , stockholders' equity (capital deficit) and cash flows for the
years ended December 31, 1995 and 1993. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Bandera Group,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1993, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered recurring
operating losses and has a working capital deficit that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Seidman, LLP
Houston, Texas
March 12, 1996
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bandera Engineering, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Bandera Engineering, Inc.
(predecessor to The Bandera Group and a wholly-owned subsidiary of Bandera
Holdings, Inc.) as of December 31, 1994, and the related statements of income
(loss), of stockholders' equity, and of cash flows for the year then ended.
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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bandera Engineering, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ PHILIP VOGEL & CO., PC
PHILIP VOGEL & CO., PC
Dallas, Texas
April 20, 1995
F-44
<PAGE>
THE BANDERA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT
Cash and cash equivalents.................... $ 8,847 $ 111,632
Accounts receivable, less allowance
for doubtful accounts of $1,506,917,
in 1994 (Notes 6 and 11).................... 708,103 157,061
Due from affiliates (Note 8)................. 45,273 -
Federal income tax receivable (Note 7)....... 36,106 -
Inventories.................................. 58,964 22,482
Costs and estimated profits in excess of
billings on uncompleted contracts (Note 4).. 16,200 -
Prepaid expenses and other................... 59,256 11,696
---------- ----------
Total current assets.......................... 932,749 302,871
---------- ----------
INVESTMENT IN PRODUCTION
PLATFORM HELD FOR RESALE
(Note 3)..................................... 1,519,037 1,519,037
PROPERTY AND EQUIPMENT, net
(Notes 5, 6 and 9)........................... 733,956 60,946
INTANGIBLE ASSETS, net (Notes 6 and 9)........ 4,148,519 -
DUE FROM STOCKHOLDER (Note 8)................. - 158,596
OTHER......................................... 29,085 37,361
---------- ----------
$7,363,346 $2,078,811
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE>
THE BANDERA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(CAPITAL DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued
liabilities..................................... $ 864,330 $ 292,481
Production platform
advances (Note 3)............................... 1,519,037 1,519,037
Notes payable (Notes 6, 9 and 13)................ 671,400 217,060
Current maturities of long-term debt (Note 6).... 15,955 -
Due to affiliates (Note 8)....................... - 469,758
Billings on uncompleted contracts in excess
of cost and estimated profits (Note 4).......... 18,000 -
Other............................................ 11,988 139,018
----------- -----------
Total current liabilities......................... 3,100,710 2,637,354
LONG-TERM DEBT, LESS CURRENT MATURITIES (Note 6).. 46,928 -
DEFERRED INCOME TAXES (Notes 7 and 9)............. 1,500,643 -
OTHER............................................. 13,988 25,977
----------- -----------
Total liabilities................................. 4,662,269 2,663,331
----------- -----------
COMMITMENTS AND
CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Common stock..................................... 660,000 10
Additional paid-in capital....................... 4,898,632 458,622
Deficit.......................................... (2,857,555) (1,043,152)
----------- -----------
Total stockholders' equity
(capital deficit)................................ 2,701,077 (584,520)
----------- -----------
$ 7,363,346 $ 2,078,811
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
THE BANDERA GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Pipeline repair....................... $ 1,552,242 $ - $ -
Engineering and other................. 549,487 776,384 536,767
Platform construction (Note 11)....... - 1,407,886 3,682,193
----------- ---------- ----------
2,101,729 2,184,270 4,218,960
----------- ---------- ----------
Cost of sales:
Pipeline repair....................... 1,352,187 - -
Engineering and other................. 266,414 146,877 361,441
Platform construction (Note 11)....... - 675,576 2,792,268
----------- ---------- ----------
1,618,601 822,453 3,153,709
----------- ---------- ----------
Gross margin........................... 483,128 1,361,817 1,065,251
General and administrative expenses.... 2,360,498 1,601,660 833,328
----------- ---------- ----------
Operating income (loss)................ (1,877,370) (239,843) 231,923
Other income (expense):
Interest income....................... 18,501 - 3,319
Interest expense...................... (126,921) (22,573) (19,238)
Miscellaneous......................... 55,752 - -
----------- ---------- ----------
Total other expense, net............... (52,668) (22,573) (15,919)
----------- ---------- ----------
Income (loss) before income taxes...... (1,930,038) (262,416) 216,004
Income tax benefit (expense) (Note 7).. 115,635 (311,300) (127,330)
----------- ---------- ----------
Net income (loss)...................... $(1,814,403) $ (573,716) $ 88,674
=========== ========== ==========
Earnings (loss) per common share....... $(.27) $(.09) $.01
=========== ========== ==========
Weighted average number
of common shares outstanding.......... 6,600,000 6,600,000 6,600,000
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
THE BANDERA GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Common Stock (1) Additional Retained
-------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992...................... 6,600,000 $ 10 $ 990 $ (558,110) $ (557,110)
Net income...................................... - - - 88,674 88,674
---------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993...................... 6,600,000 10 990 (469,436) (468,436)
Non-cash contributions by parent and
stockholder and conversion of debt
to equity (Notes 8 and 13)..................... - 457,632 - 457,632
Net loss........................................ - - - (573,716) (573,716)
---------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1994...................... 6,600,000 10 458,622 (1,043,152) (584,520)
Conversion of note payable to equity (Note 13).. - 659,990 4,440,010 - 5,100,000
Net loss........................................ - - - 814,403) (1,814,403)
---------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995...................... 6,600,000 $660,000 $4,898,632 $(2,857,555) $ 2,701,077
========= ======== ========== =========== ===========
</TABLE>
__________________
(1) $.01 par value, 20,000,000 authorized
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
THE BANDERA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,814,403) $ (573,716) $ 88,674
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 361,732 32,716 78,931
Deferred income taxes (79,528) 36,300 119,700
Provision for bad debts - 1,350,167 -
Loss on sale of fixed assets 4,912 - -
Changes in assets and liabilities, net of effects
from purchase of Miller Pipeline Service Corporation:
Accounts receivable (247,509) (1,442,764) (42,555)
Federal income taxes receivable (36,106) 50,629 (50,629)
Inventories (22,051) 7,518 (30,000)
Prepaid expenses (41,488) 7,071 (3,263)
Deposits and other 9,506 32,789 (52,285)
Accounts payable and accrued liabilities (268,841) 35,129 212,321
Due to affiliates - 275,000 -
Production platform advances - (94,815) -
Billings in excess costs, net 33,357 - -
Other (138,419) (46,254) 163,415
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (2,238,838) (330,230) 484,309
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (163,005) (4,995) (5,503)
Intangible assets (61,972) - -
Proceeds from disposition of assets 15,535 - -
Payment for purchase of Miller Pipeline
Service Corporation, net of cash proceeds (2,909,155) - -
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,118,597) (4,995) (5,503)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to affiliates, net (356,435) 302,464 (308,882)
Proceeds from notes payable 5,873,905 293,698 896,920
Payments on notes payable (262,820) (184,914) (1,037,624)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,254,650 411,248 (449,586)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (102,785) 76,023 29,220
Cash and cash equivalents,
at beginning of period 111,632 35,609 6,389
----------- ----------- -----------
Cash and cash equivalents,
at end of period $ 8,847 $ 111,632 $ 35,609
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Bandera Group, Inc., successor to Bandera Engineering, Inc. (the
Company), was incorporated in the state of Texas on May 24, 1995. The principal
business activity of the Company consists of repairing petrochemical pipeline
throughout the world using its patented plastic pipeline liner. The Company
also provides engineering services to the petroleum industry and constructs off-
shore drilling platforms, through the use of subcontractors.
On July 12, 1995, the Company entered into a Stock Purchase and Sale
Agreement for the sale of a 54.5% interest in the Company to Xavier Mines,
Limited (Xavier), a Canadian company. Under the terms of the agreement, Xavier
received 3,600,000 shares of common stock of the Company in exchange for the
cancellation of the principal portion of notes payable totalling $5,100,000.
Interest on the notes payable totalled $72,867 during the year ended December
31, 1995, of which $62,500 remains unpaid at December 31, 1995.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Bandera Engineering, Inc. (BEI) and Bandera
Pipeline Services Corporation (BPSC). All significant intercompany transactions
have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.
Revenue Recognition
For financial statement purposes, revenues and profits for construction
contracts are recorded using the percentage-of-completion method based on
contract size and duration of time to completion. The percentage of completion
is determined by relating the actual cost of work performed to date to the
current estimated total cost of the respective contracts. If estimated total
costs on any of these contracts indicate a loss, the entire amount of the
estimated loss is recognized immediately.
Costs and estimated earnings in excess of billings on uncompleted
contracts, as reflected on the accompanying consolidated balance sheet, comprise
amounts of revenue recognized on contracts for which billings have not been
rendered. Billings in excess of costs and estimated earnings on uncompleted
contracts comprise amounts of billings recognized on contracts for which costs
have not been incurred. In accordance with industry practice, the Company
includes in current assets and liabilities amounts realizable and payable under
long-term contracts.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). SFAS No.
121 requires, among other things, that impairment losses on assets to be held,
and gains or losses from assets that are expected to be disposed of, be included
as a component of income from continuing operations. The Company will adopt
SFAS No. 121 in 1996 and its implementation is not expected to have a material
effect on the consolidated financial statements.
F-50
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." (SFAS No. 123). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), for all
arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock. The Company does not anticipate
adopting the fair value method encouraged by SFAS No. 123 and will continue to
account for such transactions in accordance with APB No. 25. However, the
Company will be required to provide additional disclosures beginning in 1996
providing pro forma effects as if the Company had elected to adopt SFAS No. 123.
Reclassifications
Certain 1994 amounts have been reclassified to conform to the 1995
financial statement presentation.
Concentration of Credit Risk
The Company extends credit to its customers, which operate primarily in the
petroleum industry. In the event of complete nonperformance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of nonperformance.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The actual results could differ from those estimates.
Property, Equipment and Depreciation
Property and equipment are stated at cost. These assets are depreciated
over their estimated useful lives, generally using straight-line methods for
financial reporting purposes and accelerated methods for tax reporting purposes.
Leasehold improvements are amortized over the life of the related lease. The
lives of the respective classes of assets, for depreciation purposes, are as
follows:
<TABLE>
<CAPTION>
Life
(in Years)
----------
<S> <C>
Furniture and equipment.............. 5-10
Automotive equipment................. 5
Leasehold improvements............... 5
</TABLE>
Intangible Assets
Intangible assets consist of exclusive patent rights and know-how used in
the rehabilitation of pipeline systems acquired in a business combination (see
Note 9). These assets are stated at cost and are amortized over their useful
lives, as follows:
Life
(in Years)
----------
Patent Rights........................ 10
Know-how............................. 10
F-51
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred Income taxes are computed using the liability method. The
liability method requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Deferred tax assets must be
reduced by a valuation allowance to amounts expected to be realized.
Through July 11, 1995, the Company was wholly-owned by Bandera Holdings,
Inc. (Holdings). For the year ended December 31, 1994, the Company joined with
Holdings in filing a consolidated federal income tax return. The Company has
accrued federal income taxes as if it were a stand alone taxable entity and has
recorded any income taxes payable as due to affiliate in the accompanying
consolidated balance sheets.
NOTE 2 GOING CONCERN UNCERTAINTY
The accompanying consolidated financial statements have been prepared
assuming that the company will continue as a going concern. The Company has
suffered recurring operating losses and working capital deficits that raise
substantial doubt about the Company's ability to meet its current obligations.
The Company also has significant future expenditure obligations relating to its
plans to fully develop its pipeline repair business using its recently acquired
pipeline repair patents and know-how. Although management anticipates receiving
funding from Xavier in the future, there can be no assurance that Xavier will be
successful in obtaining financing or that alternative financing will be
available. Should the Company be unable to obtain additional financing it would
delay its development of the pipeline repair business and significantly reduce
its existing level of operations.
The consolidated financial statements do not include any adjustments
related to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that may be necessary should the
Company be unable to continue as a going concern.
NOTE 3 INVESTMENT IN PRODUCTION PLATFORM HELD FOR RESALE
During 1992, BEI entered into a contract whereby BEI was to design,
construct and place in service a production platform for a Nigerian customer
(the "Customer") of BEI. In conjunction with the contract, BEI entered into a
financing arrangement with Conjunto Manufacturero, S.A. De C.V. (Conjunto), for
Conjunto to finance all work performed under the contract. The financing was
secured by a letter of credit provided by the Customer, with no recourse to BEI
and also provided for Conjunto to share equally with BEI in any profits or
losses under the contract.
In 1993, after the construction of the platform, the Customer defaulted on
its obligation to purchase the platform. The letter of credit, which was
provided to secure the Conjunto financing, was found to be defective, and no
payment was made to Conjunto by the Customer. As a result of the Customer's
default, BEI placed the platform in dry-dock in Tampico, Mexico and has been
actively seeking potential buyers for the platform. During construction of the
platform, BEI incurred costs of $1,519,037 which were financed by Conjunto.
Conjunto made additional advances to BEI of $94,815 which were recognized as
income during 1994.
Accordingly, the production platform is recorded in the accompanying
consolidated balance sheet as "investment in production platform held for
resale" at the amount of BEI's cost to construct the platform of $1,519,037.
The carrying value of the platform is below its market value. The outstanding
liability for funds advanced by Conjunto is reflected as "production platform
advances" in the accompanying consolidated balance sheets.
F-52
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 4 UNCOMPLETED CONTRACTS
As of December 31, 1995, contracts with total expected revenues of
approximately $198,136 were in process. At December 31, 1994, there were no
contracts in process.
Information with respect to these contracts in process at December 31, is
summarized as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Costs incurred................................................ $ 33,755
Estimated profits............................................. 8,916
---------
42,671
Less: progress billings....................................... (44,471)
---------
$ (1,800)
=========
</TABLE>
These amounts were included in the accompanying balance sheets at December
31, as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Costs and estimated profits in excess of
billings on uncompleted contracts............................ $ 16,200
Billings on uncompleted contracts in
excess of costs and estimated profits........................ 18,000
----------
$ (1,800)
=========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ---------
<S> <C> <C>
Furniture and equipment........................... $ 958,749 $ 359,671
Automotive equipment.............................. 154,312 18,902
Leasehold improvements............................ 18,902 20,366
Building.......................................... 7,133 -
Land.............................................. 19,051 -
---------- ---------
1,158,147 398,939
Less: accumulated depreciation
and amortization................................. (424,191) (337,993)
---------- ---------
$ 733,956 $ 60,946
========== =========
</TABLE>
F-53
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT
At December 31, notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Term loan payable to a bank,
payable monthly at prime plus 1%
(9.5% at December 31, 1995).......... $132,456 $193,165
Notes payable to two individuals with
interest at prime plus 1% due in
June 1996, collateralized by
patents, trademarks, copyrights
and licenses (see Note 9)............ 500,000 -
Other.................................. 38,944 23,895
-------- --------
$671,400 $217,060
======== ========
</TABLE>
The term loan is due on demand with monthly payments of principal and
interest calculated based upon an amortization schedule through November
1997. The loan is collateralized by accounts receivable, an affiliated
company's interest in certain oil and gas properties, and the personal
guarantee of the Company's president.
At December 31, 1995, Long-term debt consisted of the following:
Amount
------
Notes payable to various financing
companies, due in monthly payments
totalling $1,800 plus interest ranging
from 10.7% to 15.6%, due August
1999, collateralized by equipment.............. $62,883
Less current maturities......................... (15,955)
--------
$46,928
=======
F-54
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
At December 31, 1995, the remaining principal payments were as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
-------------------------- -------
<S> <C>
1996 $15,955
1997 18,035
1998 18,504
1999 10,389
-------
$62,883
=======
</TABLE>
NOTE 7 INCOME TAXES
Effective January 1, 1993, the Company adopted FAS 109, "Accounting for
Income Taxes." In accordance with FAS 109, the initial application of this
change in the method of accounting for income taxes was made as of January 1,
1993 and the cumulative effect of applying this new method to years prior to
1993 was not material to the 1993 financial statements.
The components of income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current... $ 36,107 $(275,000) $ (7,630)
Deferred.. 79,528 (36,300) (119,700)
-------- --------- ---------
$115,635 $(311,300) $(127,330)
======== ========= =========
</TABLE>
Deferred income taxes result from temporary differences between the income
tax and financial reporting bases of the Company's assets and liabilities
measured at enacted tax rates. The sources of those differences and the related
tax effects of each are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred Tax Liabilities:
Non-current:
Intangible assets $1,391,531 $ -
Property and equipment 109,112 -
---------- ----------
$1,500,643 $ -
========== ==========
</TABLE>
F-55
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 7 INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Current:
Allowance for uncollectible
accounts $ - $ 459,000
--------- ---------
Non-current:
Net operating loss carryforward 974,810 -
Capital loss carryforward 16,500 16,500
--------- ---------
991,310 475,500
Less: valuation allowance.......... (991,310) (475,500)
--------- ---------
Net deferred tax asset............. $ - $
========= =========
</TABLE>
The deferred tax liability at December 31, 1995, represents the deferred
tax liability of $1,580,171 resulting from the business combination with BPSC
(see Note 9) less the current year deferred tax benefit of $79,528.
The components of the deferred portion of income tax (expense) benefit are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Intangible assets.................. $ 85,082 $ - $ -
Property and equipment............. (16,202) - -
Recognition of profits from
long-term construction
contracts......................... - (36,300) 36,300
Utilization of net operating loss.. - - (163,000)
Other.............................. 10,648 - 7,000
-------- -------- ---------
$ 79,528 $(36,300) $(119,700)
======== ======== =========
</TABLE>
F-56
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 7 INCOME TAXES (CONTINUED)
The effective federal income tax rate as a percentage of financial
statement income before taxes is different from the maximum Federal statutory
tax rate. The following summary reconciles taxes at the maximum Federal
statutory tax rate with the effective rate:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Taxes on income (loss) at the maximum
statutory rate............................... (34%) (34%) 34%
Increase (decrease) in
rates resulting from:
Writedown of assets not deductible......... - 149% 39%
Change in valuation allowance.............. 27% - -
Capital loss carryforward arising in 1993
available through 1998.................. - (8)% -
Other...................................... 1% 4% (6)%
---- ---- -----
(6%) 119% $ 59%
==== ==== =====
</TABLE>
NOTE 8 RELATED PARTY TRANSACTIONS
Through July 11, 1995, the Company was wholly-owned by Bandera Holdings,
Inc. (Holdings). The president of the Company is the sole stockholder of
Holdings. Transactions with other companies in which Holdings has investments
principally include cash advances and the allocation of the Company's overhead
costs, as more fully described below.
As of January 1, 1994, the Company transferred its investment in previously
held subsidiaries of Bandera Oil and Gas, Inc. (Oil and Gas), Bandera Offshore,
Inc. (Offshore) and Bandera International, Inc. (International) to Holdings.
The equity (deficit) with respect to the Company's investment in each at the
date of transfer was as follows:
<TABLE>
<CAPTION>
Equity Deficit
-------- ----------
<S> <C> <C>
Oil and Gas.... $ - $(60,569)
Offshore....... 116,090 -
International.. 42,506 -
-------- --------
$158,596 $(60,569)
======== ========
</TABLE>
F-57
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 8 RELATED PARTY TRANSACTIONS (CONTINUED)
The Company's investments in Offshore and International were transferred,
at no gain or loss, to Holdings in exchange for an unsecured, non-interest
bearing receivable. Repayment of the receivable was expected to begin in 1996.
Accordingly, this receivable was classified as non-current at December 31, 1994.
During 1995, the balance was deemed to be uncollectible and was written-off.
The deficit with respect to the Company's investment in Oil and Gas of $60,569
was transferred to Holdings and recorded as a contribution of capital by
Holdings to the Company.
As of December 31, 1994, the net amount due to Oil and Gas of $369,063 was
assumed by Holdings. Accordingly, this amount has been included as a
contribution to paid-in capital in the accompanying consolidated financial
statements.
During 1994, the Company's president made interest-free advances to the
Company of $28,000 in order to meet working capital needs. The amount due was
converted to equity by the president as of December 31, 1994, and has been
accounted for as a contribution to paid-in capital in the accompanying
consolidated financial statements.
The Company shares office space, supplies and personnel with Oil and Gas
and Offshore and their affiliates. The Company allocated general and
administrative expenses to these entities based primarily on the approximate
amount of time spent by the Company's personnel on the respective entity.
During the years ended December 31, 1995, 1994 and 1993, the Company allocated
$71,172, $232,261 and $212,778 to Offshore and $78,887, $177,169 and $259,889 to
Oil and Gas, respectively. These amounts have been recorded as reductions to
general and administrative expense in the accompanying consolidated statements
of income for the years ended December 31, 1995, 1994 and 1993. For the years
ended December 31, 1995 and 1993, the Company wrote-off 100% of these overhead
allocations, as the balances was determined to be uncollectible.
As of December 31, 1994, the Company owed Offshore $208,499. This
unsecured balance is due on demand and is non-interest bearing.
At December 31, 1995, the Company had a receivable from its parent company
of $45,273.
F-58
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 9 BUSINESS COMBINATION
In June 1995, BPSC entered into an agreement whereby, effective May 31,
1995, BPSC acquired 100% of the capital stock of MPSC, an "S" Corporation, in a
business combination accounted for as a purchase. In addition to MPSC's
recorded assets and liabilities, BPSC also received certain assets of Miller
Pipeline Corporation (MPSC's parent) related to the MPSC business, as well as
patent rights and know-how used in the rehabilitation of pipeline systems. The
results of operations of MPSC are included in the accompanying consolidated
financial statements since the date of acquisition. The total cost of
acquisition was $3,472,944, which exceeded the net carrying value of the
acquired assets and liabilities by $2,969,248. The excess was allocated to the
following assets (liabilities) as of May 31, 1995:
<TABLE>
<CAPTION>
Original
Carrying Allocation New
Value of Excess Basis
-------- ------------ ------------
<S> <C> <C> <C>
Property and equipment, net.. $288,379 $ 341,228 $ 629,607
Patents rights............... 134,795 2,628,257 2,763,052
Know-how..................... - 1,579,934 1,579,934
Deferred income taxes........ - (1,580,171) (1,580,171)
-------- ----------- -----------
$423,174 $ 2,969,248 $ 3,392,422
======== =========== ===========
</TABLE>
The excess allocated to property and equipment and patent rights will be
depreciated or amortized over the estimated remaining useful lives of the
assets. During 1995, the Company recorded amortization expense with respect to
the intangibles of $194,467. Deferred taxes, representing the temporary
differences between the new financial reporting basis and the tax basis of
MPSC's assets, will also be amortized over the estimated remaining useful lives
of the assets. The purchase price included cash payments of $2,794,060, legal
fees of $178,884 and the issuance of a $500,000 promissory note (see Note 6).
The following unaudited pro forma summary combines the consolidated results
of operations of the Company and MPSC as if the acquisition had occurred at the
beginning of 1995 and 1994 after giving effect to certain pro forma adjustments.
The pro forma adjustments include increased interest expense on the notes
payable issued as part of the purchase price, additional depreciation and
amortization of revalued property and equipment and intangibles, and estimated
related income tax effects.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net revenues $ 3,498,000 $ 3,775,000
=========== ===========
Net loss $(1,777,000) $(1,674,000)
=========== ===========
Loss per share $ (.27) $ (.25)
=========== ===========
</TABLE>
This pro forma financial information is presented for information purposes
only and may not be indicative of the results of operations as they would have
been if the Company and MPSC had been a single entity throughout 1995 and 1994,
nor is it necessarily indicative of the results of operations which may occur in
the future.
F-59
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 10 SEGMENT INFORMATION
The Company's operations are classified into two principal industry
segments; (1) oil and gas pipeline repair; and (2) engineering services
including construction of offshore drilling platforms. As discussed in Note 9,
the Company acquired the patents and know-how of the oil and gas pipeline repair
segment during June 1995, accordingly, this segment is presented only for the
year ended December 31, 1995.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Pipeline repair............... $ 1,552,242 $ - $ -
Engineering................... 549,487 2,184,270 4,218,960
----------- ---------- -----------
$ 2,101,729 $2,184,270 $4,218,960
=========== ========== ===========
Operating Income (Loss):
Pipeline repair............... $(1,543,352) $ - $ -
Engineering................... (334,018) (239,843) 231,923
----------- ---------- -----------
$(1,877,370) $ (239,843) $ 231,923
=========== ========== ===========
Depreciation and amortization:
Pipeline repair............... $ 314,217 $ - $ -
Engineering................... 47,515 32,716 78,931
----------- ---------- -----------
$ 361,732 $ 32,716 $ 78,931
=========== ========== ===========
Identifiable assets:
Pipeline repair............... $ 5,150,939 $ -
Engineering................... 2,212,407 2,078,811
----------- ----------
$ 7,363,346 $2,078,811
=========== ==========
Capital expenditures:
Pipeline repair............... $ 5,068,425 $ -
Engineering................... 135,283 4,995
----------- ----------
$ 5,203,708 $ 4,995
=========== ==========
</TABLE>
The two segments did not have intersegment sales for the years ended
December 31, 1995, 1994 and 1993. Increases to identifiable assets and
capital expenditures during the year ended December 31, 1995, relate
primarily to the acquisition of MPSC (see Note 9).
F-60
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 11 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space and certain equipment under operating lease
agreements. At December 31, 1995, the estimated future minimum rental payments
required under the leases were:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ---------
<S> <C>
1996............................................... $252,112
1997............................................... 228,429
1998............................................... 57,424
1999............................................... 7,022
--------
$544,987
========
</TABLE>
Rental expense for the years ended December 31, 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Rent expense......................................... $225,712 $199,000 $190,086
Less: rent allocated to affiliates................... (19,900) (39,800) (36,498)
Less: rent subleased to others....................... (20,990) (64,466) (20,141)
-------- -------- --------
$184,822 $ 94,734 $133,447
======== ======== ========
</TABLE>
Commitment - Xavier
Effective July 12, 1995, as part of the stock purchase and sales agreement
with Xavier, the Company is committed to pay Xavier 50% of the first $16,000,000
in net profits, as defined by the Company from Xavier directed contracts.
Thereafter, Xavier would receive 10% of the cost of materials incurred by the
Company under such contracts. The Company had no profits under such contract
for the year ended December 31, 1995.
Turnkey Contract
During July 1993, BEI entered into a contract with an Egyptian customer
which provided for the design, engineering, fabrication, transportation and
installation of an off-shore production platform. The contract called for a
total "turnkey" price of approximately $8,600,000, to be paid in increments
during the contract period, with final payment to be made upon installation,
which was expected to occur in June 1994.
During the latter part of 1993; however, the customer made modifications to
the contract so significant that management determined that the nature of the
contract had been changed from a "turnkey" arrangement to one based on time and
material charges. Prior to BEI completing the project, the customer terminated
its relationship with BEI, took possession of the platform, and completed
construction by paying sub-contractors directly.
F-61
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 11 Commitments and Contingencies (Continued)
The customer made scheduled payments totalling $3,671,598 against BEI
billings of $3,682,193 during 1993, but refused to make further payments under
the contract thereafter. As a result, BEI recorded a $196,094 provision for the
estimated non-realization of profit under the contract at December 31, 1993.
During 1994, BEI billed an additional $1,339,572 under the contract,
reclassified the 1993 reserve to the allowance for doubtful accounts and
increased the allowance account by an additional $1,154,073 due to the
uncertainty of the ultimate collection of the billed amounts. The increase in
the allowance for doubtful accounts was included in general and administrative
expense in the accompanying consolidated statements of loss for the year ended
December 31, 1994. At December 31, 1994, the receivable relating to the
contract was composed of $1,350,167 of billings offset fully by an allowance
amount of $1,350,167. During 1995, BEI decided not to pursue collection of this
balance.
Employment Contracts
Effective June 1, 1995, MPSC, entered into employment contracts with the
president and two officers of the Company. Under the terms of the employment
contracts, MPSC is required to provide base compensation to the individuals over
the next five years as follows:
<TABLE>
<CAPTION>
Minimum
Per Total
Year Commitment
-------- ----------
<S> <C> <C>
President.. $150,000 $ 675,000
Officer.... 120,000 540,000
Officer.... 84,000 378,000
-------- ----------
$354,000 $1,170,000
======== ==========
</TABLE>
In addition, each of the individuals is entitled to:
(1) Annual pay increases based upon the individual's and the Company's
performance;
(2) Annual cash bonuses based upon the performance of the individual and
the financial performance of the Company, as determined by the
Company's Board of Directors; and
(3) Stock options, to be issued at the time of the Company's initial
public offering based upon the individual's performance as determined
by the Company's Board of Directors.
F-62
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 11 COMMITMENTS AND CONTINGENCIES (CONTINUED)
Contingency Southwest Merchant Group
On June 21, 1995, in connection with the purchase of MPSC (see Note 9),
Southwest Merchant Group (SMG) filed a lawsuit against the Company in the
District Court in Dallas County, Texas alleging that the Company breached its
obligations under a contract with SMG. Under the terms of the contract, SMG was
to act as the exclusive financial advisor/broker to the Company in its efforts
to acquire and finance the acquisition of certain assets of MPSC. The contract
was amended to extend the term of the contract to June 15, 1995 and provided
that upon the later of June 1, 1995 and the date that MPSC was acquired by the
Company, the Company would pay to SMG a fee in the amount of $150,000 and,
thereafter, $100,000 on February 1, 1996, $100,000 on August 1, 1996 and
$150,000 on February 1, 1997. In addition, SMG was to be paid annually an
amount based on one percent of the previous year's sales of all products based
on the MPSC patents acquired. The lawsuit claims the Company has refused to
compensate SMG for its performance under the contract and seeks unspecified
damages to be determined at trial. The Company believes no payments are due
under the contract as the acquisition of MPSC occurred subsequent to the
expiration of the SMG contract. Accordingly, the Company filed an answer on
July 17, 1995, denying all allegations contained in the SMG lawsuit. Outside
counsel for the Company has advised that, at this stage in the proceedings, an
opinion as to the probable outcome cannot be determined.
NOTE 12 SUBSEQUENT EVENT
Effective January 3, 1996, the Company entered into an agreement to factor
accounts receivable without recourse on an as needed basis to supplement cash
flows. Under the terms of the agreement, the Company will incur a fee ranging
from 2% of all account factored to a variable discount rate that cannot be lower
than 7% per annum. The Company sold approximately $300,000 of the December 31,
1995 accounts receivable for a total fee of $7,184.
NOTE 13 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Interest paid.............. $36,832 $22,573 $19,238
======= ======= =======
Federal income taxes paid.. $ - $ 6,988 $60,000
======= ======= =======
</TABLE>
During the year ended December 31, 1994, the Company had payables to
affiliates that were assumed or forgiven by the Company's parent (see Note 8)
and were recorded as contributions to additional paid-in capital as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Due to Oil and Gas........... $369,063
Deficit with respect to
investment in Oil and Gas.. 60,569
--------
$429,632
========
</TABLE>
F-63
<PAGE>
THE BANDERA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
NOTE 13 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
As discussed in Note 1, in July 1995, Xavier was issued 3,600,000 shares of
common stock of the Company in exchange for the cancellation of notes payable
totalling $5,100,000.
As discussed in Note 9, the Company purchased all of the capital stock of
MPSC for $3,472,944. In connection with the acquisition, liabilities were
assumed as follows:
Amount
------
Fair value of assets acquired $4,313,634
Cash paid for the capital stock,
Including acquisition costs (2,972,944)
Promissory note issued (500,000)
----------
Liabilities assumed $ 840,690
==========
F-64
<PAGE>
XAVIER MINES LIMITED AND
THE BANDERA GROUP, INC.
(IN U.S. DOLLARS)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF LOSS
(Unaudited)
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Xavier Adjustments
Mines The Bandera Increase Pro Forma
Limited Group (Decrease) Combined
------------ ------------ -------------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas........................ $10,717,691 $ - $ - $10,717,691
Pipeline repair.................... 1,281,885 2,101,729 (1,313,888) (b) 2,069,726
----------- ----------- ----------- -----------
TOTAL REVENUES...................... 11,999,576 2,101,729 (1,313,888) 12,787,417
----------- ----------- ----------- -----------
EXPENSES:
Production taxes and fees.......... 5,859,929 - - 5,859,929
Lease and field operations......... 2,128,946 - - 2,128,946
Pipeline repair.................... 1,149,063 1,618,601 (1,144,673) (b) 1,622,991
General and administrative......... 4,697,242 1,943,014 (973,874) (a)(b) 5,666,382
Interest expense and loan fees..... 528,082 126,921 (37,513) (b) 617,490
Depreciation and amortization...... 1,953,381 361,732 186,687 (a)(b) 2,501,800
----------- ----------- ----------- -----------
Total expenses................... 16,316,643 4,050,268 (1,969,373) 18,397,538
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Equity in net loss of oil and gas
joint venture..................... (39,016) - - (39,016)
Translation gain (loss)............ 33,915 - - 33,915
Gain on sale of securities......... 182,181 - - 182,181
Interest income.................... 340,820 18,501 (9,971) (b) 349,350
----------- ----------- ----------- -----------
Total other income (expense)...... 517,900 18,501 (9,971) 526,430
----------- ----------- ----------- -----------
LOSS BEFORE THE
FOLLOWING......................... (3,799,167) (1,930,038) 645,514 (5,083,691)
MINORITY INTEREST IN NET
LOSS OF CONSOLIDATED
SUBSIDIARIES...................... 601,268 - (8,565) (a) 592,703
INCOME TAX (EXPENSE)
BENEFIT........................... (338,147) 115,635 269,595 (a)(b) 47,083
----------- ----------- ----------- -----------
NET LOSS............................ $(3,536,046) $(1,814,403) $ 906,544 $(4,443,905)
=========== =========== =========== ===========
NET LOSS PER SHARE.................. $(.41) $(1.10) $(.52)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING........................ 8,580,943 1,650,000 8,580,943
=========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-65
<PAGE>
XAVIER MINES LIMITED AND
THE BANDERA GROUP, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(IN U.S. DOLLARS)
The unaudited pro forma condensed consolidated statement of loss for the year
ended December 31, 1995 gives effect to the acquisition of 54.5% of the common
stock of The Bandera Group, Inc. ("Bandera") by Xavier Mines Limited ("Xavier")
as if the acquisition, accounted for as a purchase, had occurred on January 1,
1995. The pro forma information is based on the historical financial statements
of Xavier and Bandera for the year ended December 31, 1995, after giving effect
to the proposed transaction using the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma financial
statements.
The pro forma financial statements have been prepared by Xavier based upon the
financial statements of Bandera (included elsewhere in this Registration
Statement). These pro forma financial statements may not be indicative of the
results that actually would have occurred if the combination had been in effect
on the dates indicated or which may be obtained in the future. The pro forma
financial statements should be read in conjunction with the audited financial
statements of Xavier and Bandera.
All amounts presented in the accompanying unaudited pro forma condensed
consolidated financial statements are in United States (U.S.) dollars. The
financial information of Xavier reflects the "for convenience translation" of
Canadian dollar amounts to U.S. dollar amounts based on the exchange rate at
December 31, 1995 of CND $1 to U.S. $.7329.
All Xavier financial information included herein is presented in conformity with
Canadian generally accepted accounting principles. These accounting principles
differ from U.S. generally accepted accounting principles. Such differences are
described in Note 18 to the Xavier consolidated financial statements included
elsewhere in this Registration Statement. The Bandera financial information
included herein is presented in conformity with U.S. generally accepted
accounting principles.
F-66
<PAGE>
XAVIER MINES LIMITED AND
THE BANDERA GROUP, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(IN U.S. DOLLARS)
Pro Forma Adjustments
(a) The following December 31, 1995 pro forma adjustments are made primarily as
a result of estimated fair value purchase price adjustments and are
reflected in the pro forma condensed combined statement of loss:
Amount
------
Additional compensation expense arising from
employment contracts entered into by Bandera
on June 1, 1995............................... $(18,849)
Additional depreciation and amortization of
equipment and intangibles of Bandera, net
to Xavier, after fair value adjustment........ (481,733)
Deferred income tax benefits related to
differences between book and tax bases of
equipment and intangibles of Bandera, net to
Xavier, after fair value adjustment........... 156,230
Minority interest in pro forma net loss
of Bandera.................................... (8,565)
---------
$(352,917)
==========
F-67
<PAGE>
XAVIER MINES LIMITED AND
THE BANDERA GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
(IN U.S. DOLLARS)
Pro Forma Adjustments (Continued)
(b) The following pro forma adjustments are made to reverse Bandera's third and
fourth quarter 1995 operations recorded in both the Xavier and Bandera
statements of loss for the twelve months ended December 31, 1995:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Revenues............................. $(1,313,888)
Cost of sales........................ 1,144,673
General and administrative expenses.. 992,723
Interest expense and loan fees....... 37,513
Depreciation and amortization........ 295,046
Other income......................... (9,971)
Income tax (expense) benefit......... 113,365
-----------
Net loss for the six months
ended December 31, 1995............. $ 1,259,461
===========
</TABLE>
Intangible Assets
Intangible assets consist of exclusive patent rights and unpatented
technological know how used in the rehabilitation of pipeline systems as well as
a protocol agreement with a Russian entity. These assets are amortized over the
following useful lives for pro forma purposes:
<TABLE>
<CAPTION>
Life
(Years)
-------
<S> <C>
Patent rights...................... 10
Unpatented technological know how.. 10
Protocol agreement................. 10
</TABLE>
Domestication
In connection with the domestication of Xavier from a publicly traded Canadian
corporation to a publicly traded U.S. corporation, a one-for-four reverse stock
split has been proposed. Accordingly, the weighted average number of common
shares outstanding in the accompanying pro forma condensed consolidated
statements of loss have been adjusted to reflect the proposed reverse stock
split.
F-68
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Xavier Corporation
Houston, Texas
We have audited the accompanying balance sheet of Xavier Corporation (a wholly-
owned subsidiary of Xavier Mines Limited) as of December 31, 1995. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Xavier Corporation as of December
31, 1995 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Houston, Texas
April 5, 1996
F-69
<PAGE>
XAVIER CORPORATION
BALANCE SHEET
December 31, 1995
(In U.S. Dollars)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT:
Cash.............................. $1,000
------
Total assets $1,000
======
STOCKHOLDER'S EQUITY
Common stock (par value $.0001),
1,000 shares authorized,
issued and outstanding........... $ -
Additional paid-in capital........ 1,000
------
Total stockholder's equity......... $1,000
======
</TABLE>
See accompanying notes to balance sheet.
F-70
<PAGE>
XAVIER MINES LIMITED
NOTES TO BALANCE SHEET
(IN U.S. DOLLARS)
Xavier Corporation (the Company) is a Delaware corporation formed and
initially capitalized on October 30, 1995. The Company has had no business
operations and has 1,000 shares of common stock outstanding, all of which are
held by Xavier Mines Limited (Xavier). The Company was formed for the purpose
of being merged with Xavier in connection with Xavier's proposed
redomestication, at which time the Company will succeed to all of the business
operations, properties and rights and assume all of the obligations and
liabilities of Xavier.
F-71
<PAGE>
APPENDIX A
THE RUSSIAN OIL INDUSTRY AND ITS REGULATION
THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED FROM VARIOUS
GOVERNMENTAL AND PRIVATE SOURCES. THE COMPANY MAKES NO REPRESENTATION AS TO
THE ACCURACY OF THE INFORMATION, NOR HAS THE COMPANY OR ANY OTHER PERSON
ATTEMPTED TO VERIFY THE INFORMATION PRESENTED IN THIS SECTION. STATISTICAL
DATA MAY VARY FROM SOURCE TO SOURCE AS A RESULT OF DIFFERENCES IN THE
UNDERLYING ASSUMPTIONS OR METHODOLOGIES USED. FURTHERMORE, AS A RESULT OF
SIGNIFICANT POLITICAL, ECONOMIC AND OTHER STRUCTURAL CHANGES IN RUSSIA IN
RECENT YEARS, HISTORICAL INFORMATION PRESENTED HEREIN, IF ACCURATE, MAY NOT BE
INDICATIVE OF FUTURE DEVELOPMENTS. IN ADDITION, NO REPRESENTATION IS MADE
THAT ANY CORRELATION WILL EXIST BETWEEN THE RUSSIAN OIL INDUSTRY AS A WHOLE
AND THE PERFORMANCE OF THE COMPANY.
THE RUSSIAN OIL INDUSTRY
Since the dissolution of the Soviet Union, the oil industry in Russia has
been undergoing major restructuring. Under the Soviet regime, the incentive
system focused on the quantity of oil produced without regard to the quality
of the oil. Furthermore, the prices for oil and petroleum products were
maintained by the state at artificially low levels and the maximization of the
economic value played little or no part in production decisions. As a result,
producers had no incentive to produce crude oil from which a relatively high
percentage of premium products could be refined, and over-production and
under-maintenance of equipment were widely prevalent in the system.
The privatization of Russia's oil industry may, over time, help to resolve
many inefficiencies by allowing market-based incentives to influence
exploration, drilling and production decisions. Although in January of 1995
the Government took significant steps to liberalize oil prices, crude oil and
refined product prices in the Russian market still do not reflect world
prices. In addition, substantial restructuring, rationalization and
modernization accompanied by the introduction of effective information
management systems will be required before newly privatized Russian oil
companies can adequately respond to market-based incentives.
The privatization of the Russian oil industry was launched by Decree 1403
issued on November 17, 1992 establishing the framework for privatizing Russian
oil companies. Decree 1403 established the basis for the transformation of
state-owned exploration, production, distribution and refining enterprises
into several major vertically-integrated companies. Following the planned
corporatization of wholly state-owned Rosneft, there will be twelve such
vertically integrated oil companies in Russia: Lukoil, Rosneft, Yukos,
Surgutneftegas, Sidanco, Tatneft, Bashneft, Slavneft, the Eastern Oil Company
(BNK), Komitek, Onako and East Siberian Oil Co. Initially, these entities
essentially functioned as holding companies, with shares in separate
production, refining and distribution subsidiaries. The process of vertical
integration is expected to be facilitated by the Presidential Decree issued on
April 1, 1995 that allowed the integration of subsidiaries into vertically
integrated companies through share exchanges.
Decree 1403 provides that the Government is required to hold from 45% to
51% of the original share capital of each vertically integrated company for
three years after the establishment of the company and is represented on their
boards by officials from various agencies, usually including representatives
of the Mintopenergo and the Ministry of Finance, the Property Committee, and
the Anti-Monopoly Committee. At the present time, pursuant to Decree 1403,
any dividends on or funds generated from the sale of shares owned by the
Government remain at the disposal of the respective company and are used to
fund the retooling, rebuilding and expansion of production facilities and to
finance environmental efforts. According to the 1995 Budget Law, 55% of the
proceeds from future sales of government-owned shares of oil companies are to
be remitted to the Government.
Vertically integrated companies were typically established through the
Government's contributions of 38% of the capital stock (representing 51% of
the voting shares) of exploration, production, distribution and refining
enterprises. Some of the shares of these enterprises were sold to the general
public or distributed
Appendix A-1
<PAGE>
among workers and managers. At present, shares in such subsidiaries are
frequently traded alongside the shares of their vertically-integrated parent
companies. However, the shares of many of these subsidiaries have been or are
expected to be exchanged for the shares of vertically integrated companies as
a result of the authorized share exchanges described above.
The vertically-integrated oil companies differ as to the size of
operations, geographic focus, and management philosophy, as well as changes in
government policy at various times during the privatization process. Some
companies seek foreign ventures beyond neighboring countries, others
concentrate primarily on opportunities in their region or within the CIS.
Oil and Gas Reserve Estimates
Russian methodologies for calculating reserves and Russian reserve
classifications have historically differed from accepted practices in the U.S.
and other parts of the world. Reserve calculations performed using different
methodologies cannot be made comparable.
Russian Reserve Classifications
Russian reserve classifications are based on the chronological development
of an oil or gas basin (a likely deposit of hydrocarbons) to a field (a basin
into which, at a minimum, a discovery well has been drilled). The current
Russian classifications are as follows:
<TABLE>
<CAPTION>
Classification Scope of Classification Characteristic Event
- ---------------- ----------------------- ---------------------------------------------
<S> <C> <C>
D2 Basin A geologist has formed an opinion that a
basin exists that shares characteristics of
other basins known to contain hydrocarbons
D1 Basin Some exploratory activities have occurred
and data has been obtained, such as seismic,
gravity or magnetic data from an appraisal
well indicating the possible presence of
hydrocarbons
C2 Field A discovery well has been drilled and
hydrocarbons have been discovered but no
further drilling has occurred
C1 Field "Delineation" wells have been drilled and
reserves related to the delineated area are
upgraded from C2 to C1
B Field Development wells are being drilled, but
reserves are not yet being produced
(transition category)
A Field Development wells have been completed and
the reserves are being produced
</TABLE>
Basis of Reserve Calculations
Russian reserve calculations have historically not used economic
assumptions in calculating reserve estimates. Generally, Russian
methodologies classify oil and gas deposits as reserves if such deposits are
practically recoverable, even if the recovery of a portion of such reserves
using currently available technology might be uneconomic. In contrast, the
U.S. methodology classifies oil and gas deposits as reserves only if such
deposits are economically extractable under existing technologies, prices and
costs.
Production
Oil production in Russia has been declining since the late 1980s. In 1993,
Russia produced 7.1 million BOPD, which made it the second largest producer of
oil in the world after Saudi Arabia. In 1994, production
Appendix A-2
<PAGE>
declined to 6.4 million BOPD, or approximately 10.6% of world production,
making Russia the third largest producer after Saudi Arabia and the U.S. The
decrease in production is attributable to many factors, including
overproduction of wells during the Soviet period, lack of funds for capital
expenditures to maintain operations, inefficient secondary recovery methods,
insufficient transportation capacity in the pipeline system leading to shut-in
wells, losses during transit and reduced demand attributable to significant
economic dislocation following the dissolution of the Soviet Union. Poor well
spacing (for both production and injecting wells), imprecise directional
drilling technology and waterflooding techniques, which in some instances
actually damage the formation, are problems often associated with Russian
production methods. Inferior or improper production methods can lead to
increased costs associated with recovering reserves. Another serious problem
contributing to the decline in production is a large number of non-operating
wells. Towards the end of 1994, this number reached 40,000 wells and amounted
to one third of all operating wells.
In general, the Russian oil industry now has commercial incentives to
alleviate or reverse inefficient resource exploitation and encourage prudent
production practices, stabilization and growth. These incentives include
lifting of export quotas and the elimination of export licensing requirements
in early 1995. Domestic pricing remains, however, significantly below world
levels, hampering the ability of companies to reinvest or modernize production
practices, equipment and facilities. The following table shows comparative
crude oil production levels of Russian oil companies in 1994:
COMPARATIVE CRUDE OIL PRODUCTION BY RUSSIAN OIL COMPANIES IN 1994
<TABLE>
<CAPTION>
VOLUME OF PRODUCTION
---------------------
(THOUSANDS OF BOPD)
---------------------
<S> <C> <C>
Rosneft 1,463 23.0%
LUKoil 902 14.2
Surgutneftegas 685 10.8
Sidanco 651 10.2
Yukos 592 9.3
Tatneft 472 7.4
Bashneft 359 5.6
Slavneft 263 4.1
Vostochnaya NK 225 3.5
Onaco 149 2.3
Komi-TEK 101 1.6
Others 495 7.8
----- -----
Total: 6,354 100.0%
===== =====
</TABLE>
Source: Russian Ministry of Fuel and Energy
Refining
Refinery utilization dropped to 55% in 1994 from 67% in 1993 as the output
of refined products declined 17% from 4.5 million BOPD in 1993 to 3.7 million
BOPD in 1994. This decline is largely attributable to a substantial decrease
in demand and the inability of many customers to pay for refined products. In
1994, Russia produced an average of 550,000 barrels per day of gasoline,
940,000 barrels per day of diesel and 1.3 million barrels per day of fuel oil.
Significant investment is necessary to maintain and upgrade most refineries.
Appendix A-3
<PAGE>
Prices
Oil prices in Russia do not reflect world levels or international supply
and demand fundamentals. While crude oil production in Russia has fallen in
recent years, demand has fallen further, leading to excess domestic supplies
of crude oil. This decline in demand, combined with constraints on exports,
has kept domestic prices low and hindered a significant increase in the
domestic price of crude oil in dollar terms.
Prior to 1995, Russia carried out a policy of controlling domestic oil
prices and exports in order to ensure a low-cost domestic supply of oil.
Beginning in 1995, oil prices have been liberalized by removal of restrictions
on sales margins, export quotas and licensing. Moreover, there has been
substantial liberalization of the program of mandatory sales at fixed prices
to the Government, although in practice the Government still controls a
significant portion of oil sales and has a significant role in setting the
prices that oil producers can receive in respect of such sales.
While prices realized by Russian producers in the Russian market have
increased substantially in rouble terms from 1991 to 1994, in US dollar terms
prices fell between February and October of 1994 before showing signs of
recovery in November 1994, which accelerated with the liberalization of
pricing and exports in January 1995. As a result, between 1991 and 1994 the
rouble price of crude oil in the domestic market increased five fold and, in
dollar equivalents, reached the average level of US$8.50 to US$9.00 a barrel.
This domestic price, net of transportation charges and export tax, amounted to
approximately two-thirds of the average export price.
Exports
While exports from the FSU have dropped significantly since 1990 reflecting
the fall in production, Russian oil enterprises have been able to increase
their exports since 1991, both as a percentage of the total exported from the
FSU and in absolute terms as shown by the following table:
<TABLE>
<CAPTION>
EXPORTS BY OIL ENTERPRISES IN RUSSIA AND THE FSU
1990 1991 1992 1993 1994
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
(MILLIONS OF BOPD)
Russia 2.1 1.1 1.4 1.6 1.8
FSU 3.1 2.1 2.1 2.2 2.1
Percent Russian 68% 52% 67% 73% 86%
</TABLE>
Sources: FSU data--International Energy Agency
Russian data--Almanac of Russian Petroleum 1994
The incentive to export oil and petroleum products can be explained by a
fall in domestic demand, a substantial gap between domestic and foreign
prices, the elimination in January 1995 of export quotas and export licensing
requirements and the reduction of export duties from US$5 to US$3.75 per
barrel. However, exports have been and will probably continue to be
restricted in the medium term by limited domestic and international pipeline
transportation and port capacity.
In 1994, Russia exported 1.8 million BOPD, a 11.9% increase from 1993, and
860,000 barrels per day of petroleum products, a 21% increase compared with
1993. In 1994, the increase in exports of petroleum products coincided with
the fall of production levels by approximately 15%.
Appendix A-4
<PAGE>
Transportation
Transneft and Transnefteproduct are state monopolies which control all
crude oil trunk pipelines in Russia. Transneft has been corporatized and
Transnefteproduct is expected to be corporatized, but the Russian Federation
will retain a controlling interest of shares in Transneft and
Transnefteproduct during 1995 and is expected to retain a controlling interest
in both companies after 1995. The Russian Government sets the tariffs charged
by Transneft. Transneft cannot ship individual batches of oil and the crude
oil delivered reflects a blend of the crude oil in the system. Because
Transneft does not pay a premium for higher quality crude oil, producers of
heavier crudes are subsidized by producers of lighter crude.
The privatization of oil producers has increased demand for pipeline
capacity, especially in regard to exports, leading to export capacity
constraints in the system. Furthermore, the pipeline facilities have not been
sufficiently maintained during the recent political and economic transition,
and effective capacity has significantly diminished. At the present time, the
portion of the system oriented to the export of oil is operating at or near
capacity. Moreover, there are important capacity constraints at the Russian
oil shipment terminals. Although there are Government-sponsored and private
programs to improve pipeline and port capacity, there appears little
likelihood that the situation will improve significantly in the medium term.
On January 1, 1995, as part of a scheme to deregulate price and liberalize
exports controls, the Government established pipeline access procedures for
oil companies in proportion to the actual production volume of each company.
Access is granted on a contractual basis and is overseen by an interagency
commission comprised of representatives of Mintopenergo, Ministry of
Economics, Ministry of Finance, Ministry for Foreign Economic Affairs, the
State Customs Committee, the Anti-Monopoly Committee and oil companies. Rates
charged by Transneft are approved by Mintopenergo and the Price Committee of
the Ministry of Finance. The deregulation of oil exports may result in
increased competition for limited pipeline access.
REGULATION OF THE RUSSIAN OIL INDUSTRY
Regulation of the oil industry in Russia is currently in a state of flux
and involves a complex interrelationship among federal and local authorities.
The current regulatory regime for the oil industry has been subject to strong
criticism from both domestic and foreign oil companies, in particular on
account of the high tax burden which makes exploration and production less
profitable and fails to provide a stable legal and regulatory environment.
At the federal level, the primary regulatory authority over the industry is
divided between Mintopenergo and the State Committee for Geology and the Use
of Subsoil Resources ("Roskomnedra"). In general, Mintopenergo sets
governmental policy for the industry and regulates the activities of oil
companies and pipeline access via the Interdepartmental Pipeline Committee and
tariffs. Roskomnedra is involved in the licensing of subsoil resources,
including exploration and production.
Federal legislation also gives a measure of autonomy to local authorities
at the republic, oblast, krai and okrug levels, depending on the locality, to
exercise rights to the use of natural resources and provides that the use of
subsoil is under the joint jurisdiction of the federal and regional
authorities. In general, authorities at the local levels with jurisdiction
over the specific area in which an oil and gas development project, pipeline
or refinery or other enterprise is located may have substantial authority.
Such authorities must generally approve any subsoil resource license granted
by Roskomnedra. In addition, such authorities usually control local land use
transfers, have a role in environmental, worker health and safety monitoring
and enforcement and local taxing authority. The conditions applicable to the
operations of an oil company in a particular location will depend in large
measure on the relationships among the relevant local and federal authorities
and between the company and each of such authorities.
Appendix A-5
<PAGE>
The transportation network is primarily regulated by Mintopenergo and other
federal authorities. As of April 15, 1996, the pipeline grid is largely
controlled by the state-owned monopoly company "Transneft." Local and
regional authorities exercise some control over the use of the national and
local pipeline grid through their jurisdiction to regulate land use and
environmental matters. The adoption of a comprehensive regulatory framework
governing the construction and operation of dedicated pipelines is
contemplated by the Law on Oil and Gas described below.
Licensing
The licensing regime for exploration, development and production is
primarily established by the Subsoil Law and the regulations issued pursuant
thereto (the "Subsoil Regulations"). Licenses may be granted for periods of
up to five years for geological study and exploration, twenty years for
production and twenty-five years for combined licenses. Generally, licenses
are awarded by tender or auction held jointly by Roskomnedra and a relevant
regional or local authority. The winning bidder in a tender is expected to
submit the most technically competent and financially attractive (the highest
bid) proposal which meets published tender terms and conditions. Under
certain limited conditions a license may be granted without a tender or a
written auction.
A licensee is generally granted use rights to the surface land that is
associated with the licensed resources. The boundaries of the land allotment
must be specified in the license and it is usually necessary to obtain an
amendment to the license to expand the subsoil use and land use rights
associated with the license if the subsoil resources are subsequently
discovered to extend beyond the original scope of the license.
The licensee is ordinarily required to make a number of commitments,
including a commitment to extract an agreed amount of resources each year, to
keep environmental pollutants within specified limits and to clean up
environmental contamination. A license also normally requires the holder to
return at its expense the associated land to a condition adequate for future
use at the expiration of the license. A licensee can be fined for failing to
comply with the license, and the license can be revoked in the event of
repeated violations of the license, or if the license is not used for a
substantial period.
A holder of a production license is subject to an annual royalty ordinarily
calculated as a percentage of the expected value of the resources to be
extracted during the term of the license. Current regulations provide ranges
for royalties; for oil and gas, the royalties, which are accounted for in
costs of production, are set at 6% to 16%. In addition, the Subsoil Law and
the Subsoil Regulations provide for a license fee (usually on the order of
several thousand dollars), excise taxes for certain premium resources (the
excise tax for oil and gas condensate is currently about US$1 per barrel) and
payments to a fund for resource development (currently 10% of the extracted
value). These royalties, taxes, fees and payments do not generally replace,
but are in addition to, tax obligations that may be applicable to the license
holder. The combination of such royalties, duties, transportation costs,
taxes, fees and payments with more generally applicable taxes (discussed
below) can significantly increase a licensee's financial burden, making it
difficult to produce oil and petroleum products for domestic consumption
profitably.
The Subsoil Law includes a grandfather provision under which all operating,
mining, extractive and other enterprises that had obtained and implemented the
right to use subsoil resources prior to the enactment of the Subsoil Law could
apply for and obtain subsoil and land use licenses. Although under the
Subsoil Law licenses cannot be held by more than one legal entity, new
regulations promulgated subsequent to the Subsoil Law permit transfer of a
license under certain limited circumstances, including to a spin-off company
and subsidiaries in which the holder of the license retains at least one half
of the charter capital.
Since December of 1992 when the licensing system went into effect,
Roskomnedra has issued more than 6,500 licenses granting the right to use the
subsoil, 20% of which cover prospecting for and the exploration and production
of oil and gas.
Appendix A-6
<PAGE>
Taxation
The high current level of taxation in Russia at the federal and local
levels, together with royalties and other payments, has significant adverse
impact on oil companies. Current taxes include a profits tax (currently up to
a maximum of 35% of net profits calculated under Russian accounting rules),
VAT, an excise tax (which has increased to reflect reductions in export
duties), a transport tax, an assets tax (presently a maximum of 2% of the
value of assets per year), taxes included in the cost of production (such as
contributions to the rehabilitation of the mineral and raw material base and
royalties for the use of production licenses) and local taxes such as a
housing tax, education tax, road tax, advertising tax and other miscellaneous
taxes. In 1995, a 100% increase in the excise tax, from US$0.55 cents to
US$1.10 per barrel of crude oil and the abolition of certain export benefits
were instituted. At the same time, the Government is implementing a schedule
gradually reducing export duties, with a stated aim of eliminating export
tariffs altogether by July 1, 1996.
Environmental Protection
A number of federal laws and regulations establish environmental rules and
standards. Among the principal legislation on environmental matters is the
Law On Environmental Protection of December 12, 1991 (the "Environmental
Protection Law"). The Environmental Protection Law establishes a "pay-to-
pollute" regime administered by the Ministry of Ecology and local authorities.
Fees are assessed for exceeding agreed limits on emissions and effluents and
the revenues are divided between the federal and local budgets. These fees
are currently generally small in relation to the cost of environmental
protection equipment and it is generally less expensive to pay the fees than
to install anti-pollution devices. Moreover, the Law on Environmental
Protection does not include clear clean-up requirements, and when clean-up is
required, it is generally confined to superficial clean-up.
In connection with obtaining a license to explore or develop oil fields,
oil companies are generally required to make environmental commitments. Such
commitments may be stringent, but the fees for failing to comply are generally
low and any clean-up requirements are generally limited.
It is widely expected that as the economic situation improves, enforcement
of existing legislation and licenses will become more stringent and that more
comprehensive legislation will be adopted. It is difficult to predict whether
and when such increased enforcement and new legislation will be adopted and
what the financial impact of such legislation would be.
New Legislative Developments
In late 1994, President Yeltsin proposed legislation on production sharing
agreements ("PSA's") to regulate relations between the federal and local
governments, on the one hand, and investors (foreign and domestic) on the
other hand, with respect to all phases of oil and gas production. A form of
PSA legislation was passed by the State Duma (the lower house of the Russian
parliament) on June 14, 1995, which would have, among other beneficial
effects, established the principal legal framework for state regulation of
PSA's, including a measure of protection from taxation and security of
ownership rights to production on the part of the investor. In any event, a
form of PSA law was ultimately passed by the Federation Council (the upper
house) on December 30, 1995, which differed significantly from the proposed
PSA legislation. Most western commentators have been critical of the
amendments to the PSA law introduced by the Federation Council which include a
reference to a Civil Code provision that may be interpreted to mean that a
party (e.g. the Russian government), may terminate the PSA in the event of a
"significant change in the circumstances" in which the PSA. Arguably, parties
to a PSA may, under the Civil Code, expressly exclude this "escape hatch" in
the PSA, but this interpretation has yet to be tested. At present, therefore,
it is premature to determine whether the new PSA law will have the expected
benefits.
On November 30, 1995, a law entitled "On the Continental Shelf" was
adopted. This law provides for a separate licensing regime for exploration and
production on the Russian maritime continental shelf, as
Appendix A-7
<PAGE>
well as in inland seas such as the Caspian. This law has the benefit of
limiting the role of the local authorities, but may have the effect of
excluding western investors from bidding on certain prospecting or exploration
opportunities, and imposes new environmental costs on operators in continental
shelf fields.
On December 26, 1995, a law titled "On Joint Stock Companies" was adopted,
and came into effect January 1, 1996. This law provides a regulatory
framework for the corporate governance and financial management of "open"
(public) and "closed" (closely held) joint stock companies, which are the most
prevalent form of legal entity for enterprises in the Russian oil and gas
sector. Generally, both Russian and western legal observers have described
the law as a significant improvement over the former regulatory regime for
joint stock companies. The law has, however, been criticized as being too
"pro-management" with respect to open joint stock companies.
Appendix A-8
<PAGE>
APPENDIX B
REPORT OF INDEPENDENT ENGINEERS
Appendix B-1
<PAGE>
HUDDLESTON & CO. INC.
PETROLEUM AND GEOLOGICAL ENGINEERS
1111 FANNIN-SUITE 1700
HOUSTON, TEXAS 77002
--------------
(713) 658-0248
April 10, 1996
Mr. Chris A. Dittmar
Xavier Mines Limited
1600 Smith Street, Suite 4230
Houston, Texas 77002
Re: Group IV Fields - Stavropol, Russia
Estimated Future Reserves and Revenues
As of December 31, 1995
Gentlemen:
Pursuant to your request, we have estimated reserves and projected net revenues
for interests owned by Xavier Mines Limited (Xavier) in the Black Gold Joint
Venture (Black Gold). Black Gold currently holds the production license for six
fields: Achikulak, Belozerskoye, Neftekumsk, Podsolnechnoye, Urozhainenskoye,
and Vladimirskoye. The properties are located in the Stavropol region of
Southern Russia.
Our conclusions, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
-------------------------------------------
Proved Developed Proved Total
Base Pricing Case Nonproducing Undeveloped Proved
- ----------------- ---------------- ------------ -----------
<S> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 2,145,286 3,947,499 6,092,785
Estimated Future Net Gas, MMcf 0.0 0.0 0.0
Total Future Gross Revenue, $ 22,933,114 42,198,753 65,131,867
Operating Expenses and Direct Taxes, $ 3,100,000 4,162,500 7,262,500
Capital Expenditures, $ 4,000,000 18,750,000 22,750,000
Estimated Future Net Revenue (FNR), $ 15,833,114 19,286,253 35,119,367
Discounted FNR at 10%, $ 9,930,619 6,720,157 16,650,776
Discounted FNR at 15%, $ 8,074,904 3,789,363 11,864,267
Projected Reserves and Revenues by Year - Base Pricing Case
- -------------------------------------------------------------
Estimated Revenues, $
- ---------------------
1996 0 0 0
1997 263,608 0 263,608
1998 3,142,466 (6,538,330) (3,395,864)
Thereafter 12,427,040 25,824,583 38,251,623
Total 15,833,114 19,286,253 35,119,367
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 0 0 0
Gas, MMcf 0.0 0.0 0.0
</TABLE>
*See discussion under Black Gold Joint Venture
<PAGE>
Xavier Mines Limited
April 10, 1996
Page Two
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
--------------------------------------------
Proved Developed Proved Total
Alternate Pricing Case Nonproducing Undeveloped Proved
- ---------------------- ----------------- ------------ -----------
<S> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 2,569,987 4,782,267 7,352,254
Estimated Future Net Gas, MMcf 0.0 0.0 0.0
Total Future Gross Revenue, $ 19,711,805 36,679,986 56,391,791
Operating Expenses and Direct Taxes, $ 3,546,250 4,673,438 8,219,688
Capital Expenditures, $ 4,000,000 24,031,250 28,031,250
Estimated Future Net Revenue (FNR), $ 12,165,555 7,975,298 20,140,853
Discounted FNR at 10%, $ 7,587,382 700,017 8,287,399
Discounted FNR at 15%, $ 6,116,886 (824,135) 5,292,751
Projected Reserves and Revenues by Year - Alternate Pricing Case
- ------------------------------------------------------------------
Estimated Revenues, $
- ---------------------
1996 0 0 0
1997 (425,316) 0 (425,316)
1998 1,520,179 (7,558,652) (6,038,473)
Thereafter 11,070,692 15,533,950 26,604,642
Total 12,165,555 7,975,298 20,140,853
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 0 0 0
Gas, MMcf 0.0 0.0 0.0
</TABLE>
*See discussion under Black Gold Joint Venture
PUBLIC REPORTING REQUIREMENTS AND STANDARDS OF PRACTICE
- -------------------------------------------------------
Securities and Exchange Commission (SEC) Regulation S-K, Item 102 and
Regulations S-X Rule 4-10, and Financial Accounting Standards Board (FASB)
Statement No. 69 require oil and gas reserve information to be reported by
publicly held companies as supplemental financial data. These regulations and
standards provide for estimates of Proved reserves and revenues discounted at
10% based on product prices in effect on the "as of" date of the report.
Alternate pricing cases may also be reported in addition to the current pricing
case. Estimates of Probable reserves and revenues are prohibited from SEC
filings.
The Society of Petroleum Engineers (SPE) requires Proved reserves to be
economically recoverable with prices and costs in effect on the "as of" date of
the report. In addition, the SPE has issued Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserve Information which sets
requirements for qualifications and independence of reserve estimators and
auditors and accepted methods to be used for estimating future reserves.
The estimated Proved reserves shown herein have been prepared in accordance with
our understanding of all applicable SEC, FASB, and SPE regulations and
requirements. At the request of Xavier, we have included herein an alternate
pricing case which assumes the export tariff remains at the current level of 20
European Currency Units (ECU) per ton.
HUDDLESTON & CO. INC.
<PAGE>
Xavier Mines Limited
April 10, 1996
Page Three
BLACK GOLD JOINT VENTURE
- ------------------------
Black Gold is comprised of four entities which include Xavier (37.5%), Genesis
Eurasia Corporation (12.5%), Stavropolneftegas (40%), and Stavropolneftorgsitez
(10%). Xavier and Genesis Eurasia Corporation's combined 50% interest in Black
Gold is assigned to Genesis Eurasia Xavier LLC (GEX) in which Xavier owns a 51%
voting right and acts as general manager. It is our understanding that Xavier
provides 100% of the capital associated with the Black Gold project and receives
100% of the revenue from the sale of oil over and above the specified baseline
production until cost recovery. After cost recovery, incremental oil above the
baseline is split 50% to GEX and 50% to the Russian partners. In addition, we
have reduced Xavier's net revenue interest to account for certain contractual
obligations Xavier has with various officers of the company.
Consideration should be given to the effect of project payout on the individual
components of the work program. The rate of return calculated for the
development drilling program will appear low since the majority of the capital
is funded prior to cost recovery on a total project basis and the majority of
the oil is produced after cost recovery. For this reason, the combined results
for the workover and development programs should be utilized for consideration
of economic returns.
PROJECTIONS
- -----------
The reserve and revenue projections contained herein are on a calendar year
basis with the first time period being the twelve (12) month period from January
1, 1996, to December 31, 1996. The estimated reserves projected herein
represent a "roll forward" of the reserves included in our initial report dated
June 30, 1994. Xavier represented that no additional stimulation work or field
development has occurred since our initial study in Achikulak Field. Based on
this representation, we do not believe a detailed review of the field utilizing
data from April 1994 to the present would materially change the reserves
estimated herein.
RESERVE ESTIMATES
- -----------------
We have utilized engineering data supplied by Stavropolneftegas including
production, rock and fluid properties, and geologic interpretations for the six
fields where possible. The remaining data were derived by companies retained by
Xavier who specialize in petrophysical and chemical analyses. In general,
production on an individual reservoir basis through April 1994 was available for
our study.
Reserves were not assigned to the Proved Developed Producing category since
these volumes will be attributable to the baselines established for the six
fields by Stavropolneftegas. Reserves for the Nonproducing and Undeveloped
classifications were necessarily estimated utilizing volumetric calculations and
analogy to nearby production. These estimates are subject to greater
variability than estimates for producing properties having established
performance trends. We have generally reviewed the baseline reserve projections
and believe they are appropriate with consideration for historical performance
of the properties. However, reductions in remedial operations or maintenance
may result in reduced production levels and therefore may affect volumes
attributable to the joint venture.
A brief discussion of the six fields follows.
HUDDLESTON & CO. INC.
<PAGE>
Xavier Mines Limited
April 10, 1996
Page Four
ACHIKULAK FIELD - ALBIAN SAND. The Albian formation is a glauconitic sandstone
which is Lower Cretaceous in age and produces from a subsea depth of
approximately 9,000 feet. The structure is a large anticline trending northwest
to southeast with the majority of the existing completions in the southeast half
of the structure. Cumulative production through April 1994 is 3.1 million
barrels which corresponds to a recovery of approximately 1.1% of the estimated
original oil-in-place to date. The low recoveries are believed to be a
combination of formation damage caused by traditional Russian drilling and
completion techniques, an inefficient gas lift system, high scaling tendencies
of the produced water, and lack of development to the northwest. Evidence of
formation damage is illustrated by the two fracture stimulations performed by
Stavropolneftegas which experienced greater than a three-fold increase in
production on average. Proved Nonproducing reserves of 4.0 million barrels
(8/8ths) were assigned to the stimulation of twenty (20) existing wells.
Twenty-five (25) development locations were also assigned a total of 9.375
million barrels (8/8ths) based on volumetrics. Additional locations are
anticipated to effectively develop the field; however, the lack of development
to the northwest limits the number of undeveloped locations which can be
assigned at this time. In addition, the majority of Stavropolneftegas's
completions to date have been in the lower interval of the Albian. While
Stavropolneftegas has had limited success in testing the upper intervals, log
responses are similar to those observed in the lower interval. We have been
unable to determine any technical reason for the lack of established production
from these intervals other than those previously mentioned. However, Proved
reserves were not assigned to these intervals based on the data available to
date.
Cumulative recoveries to date for the remaining horizons in Achikulak and the
remaining five fields (Belozerskoye, Neftekumsk, Podsolnechnoye,
Urozhainenskoye, and Vladimirskoye) relative to estimates of original oil in
place indicate the majority of horizons will be adequately drained with existing
completions.
It should be noted that current recoveries of 7.2% and 4.8% estimated for the
Albian sand in Belozerskoye and Podsolnechnoye Fields, respectively, indicate
incremental reserve potential may exist if sufficient analogies can be developed
with the Albian in Achikulak Field. Petrophysical analysis of cores obtained
from these two fields yields similar rock properties to those observed in
Achikulak Field.
PRODUCT PRICES
- --------------
We have utilized an initial oil price of $18.80 per barrel derived from the
Department of Energy Weekly Petroleum Status Report for U.S.S.R. - Export Blend
32. Xavier has provided certain fees, taxes, and tariffs based on actual
payments made by the company during 1995 for exported crude oil.
The export tariff in effect on the "as of" date of this report was 20 ECU per
ton. However, as part of the International Monetary Fund's (IMF) stabilization
loan to the Russian Federation, the Russian Federation government agreed to
reduce the export tariff to 14 ECU per ton in April 1996 and to eventually phase
out the export tariff on crude oil altogether as of July 1, 1996. At the
request of Xavier, we have utilized this export tariff scenario in determining
the estimated future net revenue for the "Base Case." However, given the
current state of Russia's economy and the failure of the government to eliminate
the export tariff on January 1, 1996, as stated last year, Xavier has requested
an alternate case be run at the current export tariff of 20 ECU per ton
throughout the life of the properties. We also note that certain statements
made by Russian Federation government officials indicate that the excise tax on
crude oil may be increased to compensate for the decrease in the export tariff.
Xavier has represented that while these statements are of concern, they have not
been acted upon in any official or legislative fashion and therefore the
aggregate change, if any, cannot be determined at this time. We note that any
material increase in the excise tax from that which has been utilized herein
would have a negative effect on the estimated future net revenues included
herein.
HUDDLESTON & CO. INC.
<PAGE>
Xavier Mines Limited
April 10, 1996
Page Five
The product prices which are included in the economic projections are the net
prices after all appropriate deductions. A summary of the fees, taxes, and
tariffs utilized herein follows:
<TABLE>
<CAPTION>
Deductions, $/bbl*
--------------------------------------
Base Case Alternate Case
----------------- ------------------
<S> <C> <C> <C>
1) Transportation Cost 4.22 4.22
2) Export Tariff 1.53 - 0.00 3.60
3) Mineral Use Rights 0.78 - 0.87 0.66
4) Payment for Replacement of Minerals 1.30 - 1.45 1.09
5) Road Use Tax 0.38 0.38
6) Excise Tax 0.62 0.62
7) Housing Tax 0.28 0.28
8) Other Fees 0.29 0.29
</TABLE>
* Conversion to dollars per barrel based on the following assumptions:
a) 4,550 roubles = US$1.00
b) 1 ECU = US$1.2795
c) 1 ton = 7.11337 bbl
OPERATING COSTS AND CAPITAL EXPENDITURES
- ----------------------------------------
Operating costs of $2,500 per well per month were supplied by Xavier. Capital
costs of $150,000 per well for the stimulation of existing wells and $1,000,000
per location drilling and completion costs were also supplied by Xavier.
Operating costs and capital expenditures were held constant throughout the life
of the properties.
FACTORS NOT INCLUDED
- --------------------
The following items have not been deducted from future revenues.
1. General office overhead
2. Federal income tax
3. Russian profits tax
4. Allowances for depletion, depreciation, and amortization
5. Cost to plug and abandon wells
HUDDLESTON & CO. INC.
<PAGE>
Xavier Mines Limited
April 10, 1996
Page Six
OTHER CONSIDERATIONS
- --------------------
There are several factors which need to be considered which are unique to Black
Gold and to operations in Russia in general. Stavropolneftegas has recently
exported several shipments of oil through Black Sea ports utilizing a system of
pipeline and rail. Further rail expansion may be required depending on the
success of this venture and any other projects in the area where material
production increases are anticipated. Additionally, continual change in Russian
policies toward foreign investment such as profits taxation, license and
contractual requirements, and import and export tariffs will likely require
continual negotiations with the various ministries for the foreseeable future.
Any significant change in the price, cost, and production fees from those
utilized herein will have a material effect on the projected revenues.
REPORT QUALIFICATIONS
- ---------------------
In general, basic data derived from Russian sources have been subject to a
greater degree of variation than that which would normally be associated with
Western projects of this type. The Russian production associations have been
limited by a variety of factors including either lack of or antiquated
equipment, inconsistencies in measurement techniques for produced fluids, and
other problems not normally associated with Western operations. As a result,
the variability of reserve estimates may be significantly greater than those
normally associated with properties of the type discussed herein.
THE REVENUES AND PRESENT WORTH OF FUTURE NET REVENUES FOR THE PROPERTIES
INCLUDED HEREIN ARE NOT REPRESENTED TO BE MARKET VALUE.
All data furnished by Xavier and Stavropolneftegas were accepted as represented.
We have reviewed these data and have generally found only minor inconsistencies.
We retain in our files comprehensive data pertinent to the properties included
herein. Representatives of Xavier have inspected the properties and have
represented the facilities to be reasonably well maintained and functional.
Respectfully submitted,
/S/ Peter D. Huddleston, P.E.
Peter D. Huddleston, P.E.
/S/ Gregory S. Floyd, P.E.
Gregory S. Floyd, P.E.
HUDDLESTON & CO. INC.
<PAGE>
[LETTERHEAD OF HUDDLESTON & CO., INC. APPEARS HERE]
April 15, 1996
Mr. Chris A. Dittmar
Xavier Mines Limited
1600 Smith Street, Suite 4230
Houston, Texas 77002
Re: Potanay/Kartopyinskoye Fields
Estimated Future Reserves and
Revenues As of December 31, 1995
Gentlemen:
Pursuant to your request, we have estimated reserves and projected net revenues
net to the interests owned by Xavier Mines Limited (Xavier) under the terms of
the Technical Services Agreement (TSA) between Xavier and
Khantymansiyskneftegazgeologiya (KMNGG) for Potanay and Kartopyinskoye Fields.
The properties are located in the Khanty-Mansiysk Autonomous Okrug, Tuymen
Region of the Russian Federation.
Our conclusions, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
---------------------------------------------------------------------
Proved Developed
------------------------------ Proved Total
Base Pricing Case Producing Nonproducing Undeveloped Expenses Proved
- ------------------------------------------------------------- ---------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 501,953 681,907 550,647 0 1,734,507
Estimated Future Net Gas, MMcf 0.0 0.0 0.0 0.0 0.0
Total Future Gross Revenue, $6,099,959 8,530,481 7,119,867 0 21,750,307
Operating Expenses and Direct Taxes, $ 0 0 0 3,193,192 3,193,192
Capital Expenditures, $ 0 126,000 1,080,000 0 1,206,000
Estimated Future Net Revenue (FNR), $6,099,959 8,404,481 6,039,867 (3,193,192) 17,351,115
Discounted FNR at 10%, $5,486,971 6,644,663 4,669,657 (2,215,693) 14,585,598
Discounted FNR at 15%, $5,230,549 6,016,638 4,144,357 (1,890,351) 13,501,193
Projected Reserves and Revenues by Year - Base Pricing Case
- -------------------------------------------------------------
Estimated Revenues,
- -------------------
1996 $3,922,948 2,754,471 0 (399,149) 6,278,270
1997 1,169,725 1,564,181 2,093,268 (399,149) 4,428,025
1998 537,694 1,069,983 2,033,928 (399,149) 3,242,456
Thereafter 469,592 3,015,846 1,912,671 (1,995,745) 3,402,364
Total 6,099,959 8,404,481 6,039,867 (3,193,192) 17,351,115
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 333,584 244,938 0 0 578,522
Gas, MMcf 0.0 0.0 0.0 0.0 0.0
</TABLE>
*See discussion under Potanay/Kartopyinskoye TSA
<PAGE>
Xavier Mines Limited
April 15, 1996
Page Two
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
---------------------------------------------------------------------
Proved Developed
------------------------------ Proved Total
Alternate Pricing Case Producing Nonproducing Undeveloped Expenses Proved
- ---------------------- ---------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 521,466 710,598 568,436 0 1,800,500
Estimated Future Net Gas, MMcf 0.0 0.0 0.0 0.0 0.0
Total Future Gross Revenue, $5,303,309 7,226,782 5,780,993 0 18,311,084
Operating Expenses and Direct Taxes, $ 0 0 0 3,193,192 3,193,192
Capital Expenditures, $ 0 126,000 1,080,000 0 1,206,000
Estimated Future Net Revenue (FNR), $5,303,309 7,100,782 4,700,993 (3,193,192) 13,911,892
Discounted FNR at 10%, $4,789,150 5,639,878 3,613,379 (2,215,693) 11,826,714
Discounted FNR at 15%, $4,573,318 5,118,662 3,198,323 (1,890,351) 10,999,952
Projected Reserves and Revenues by Year - Alternate Pricing
Case
- --------------------------------------------------------------
Estimated Revenues,
- -------------------
1996 $3,537,177 2,471,215 0 (399,149) 5,609,243
1997 953,743 1,275,359 1,507,329 (399,149) 3,337,282
1998 429,703 855,083 1,625,430 (399,149) 2,511,067
Thereafter 382,686 2,499,125 1,568,234 (1,995,745) 2,454,300
Total 5,303,309 7,100,782 4,700,993 (3,193,192) 13,911,892
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 347,805 255,380 0 0 603,185
Gas, MMcf 0.0 0.0 0.0 0.0 0.0
</TABLE>
*See discussion under Potanay/Kartopyinskoye TSA
PUBLIC REPORTING REQUIREMENTS AND STANDARDS OF PRACTICE
- -------------------------------------------------------
Securities and Exchange Commission (SEC) Regulation S-K, Item 102 and
Regulations S-X Rule 4-10, and Financial Accounting Standards Board (FASB)
Statement No. 69 require oil and gas reserve information to be reported by
publicly held companies as supplemental financial data. These regulations and
standards provide for estimates of Proved reserves and revenues discounted at
10% based on product prices in effect on the "as of" date of the report.
Alternate pricing cases may also be reported in addition to the current pricing
case. Estimates of Probable reserves and revenues are prohibited from SEC
filings.
The Society of Petroleum Engineers (SPE) requires Proved reserves to be
economically recoverable with prices and costs in effect on the "as of" date of
the report. In addition, the SPE has issued Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserve Information which sets
requirements for qualifications and independence of reserve estimators and
auditors and accepted methods to be used for estimating future reserves.
The estimated Proved reserves shown herein have been prepared in accordance with
our understanding of all applicable SEC, FASB, and SPE regulations and
requirements. At the request of Xavier, we have included herein an alternate
pricing case which assumes the export tariff remains at the current level of 20
European Currency Units (ECU) per ton.
Huddleston & Co., Inc.
<PAGE>
Xavier Mines Limited
April 15, 1996
Page Three
POTANAY/KARTOPYINSKOYE TSA
- --------------------------
It is our understanding that Xavier is credited 100% of the oil produced after
deducting operating expenses until $8,000,000 net of expenses is recovered.
After the first $8,000,000 is recovered, Xavier funds 90% of the capital
requirements and 100% of the operating costs associated with the contract area.
Operating costs are to be recovered and paid for from total production while
capital costs are recovered and paid for from a maximum of 60% of the value of
total production less operating costs. The remaining production is split 50% to
Xavier and 50% to KMNGG with 10% of Xavier's 50% share to be transferred to the
administrator, Peteco, upon receipt by Xavier of its full share. Unrecovered
costs for any calendar year shall be recovered as part of the operating costs or
capital costs in succeeding years.
In projecting future net revenues net to Xavier, we have reduced Xavier's share
of production to account for certain contractual obligations Xavier has with
various officers of the company.
PROJECTIONS
- -----------
The reserve and revenue projections contained herein are on a calendar year
basis with the first time period being the twelve (12) month period from January
1, 1996, to December 31, 1996.
RESERVE ESTIMATES
- -----------------
We have utilized engineering data supplied by KMNGG including production, rock
and fluid properties, and geologic interpretations where possible. The
remaining data were supplied by Xavier or companies retained by Xavier. In
general, monthly production on a total field basis through December 1995 was
available for our study. It should be noted that volumes produced versus
volumes agreed to or credited to KMNGG by the various Russian entities can vary
materially on a monthly basis due to a number of reasons specific to Russian
operations. However, produced and agreed upon volumes aggregated over several
months appear to be within reason. In addition, production for individual wells
is not measured, which necessitates allocating total field production utilizing
periodic well tests. Therefore, individual well performance may vary
significantly depending on the length of the test and the duration between
tests.
Reserves for the producing wells were primarily based on volumetric
calculations. Extrapolation of performance history was utilized for certain
wells where sufficient history was available to suggest decline trends. The
reserves for the Nonproducing and Undeveloped classifications were necessarily
estimated utilizing volumetric calculations and analogy to nearby production.
These estimates are subject to greater variability than estimates for producing
properties having established performance trends.
PRODUCT PRICES
- --------------
We have utilized an initial oil price of $18.80 per barrel derived from the
Department of Energy Weekly Petroleum Status Report for U.S.S.R. - Export Blend
32(degrees). Xavier has provided certain fees, taxes, and tariffs based on
actual payments made by the company during 1995 for exported crude oil.
Huddleston & Co., Inc.
<PAGE>
Xavier Mines Limited
April 15, 1996
Page Four
The export tariff in effect on the "as of" date of this report was 20 ECU per
ton. However, as part of the International Monetary Fund's (IMF) stabilization
loan to the Russian Federation, the Russian Federation government agreed to
reduce the export tariff to 14 ECU per ton in April 1996 and to eventually phase
out the export tariff on crude oil altogether as of July 1, 1996. At the
request of Xavier, we have utilized this export tariff scenario in determining
the estimated future net revenue for the "Base Case." However, given the
current state of Russia's economy and the failure of the government to eliminate
the export tariff on January 1, 1996, as stated last year, Xavier has requested
an alternate case be run at the current export tariff of 20 ECU per ton
throughout the life of the properties. We also note that certain statements
made by Russian Federation government officials indicate that the excise tax on
crude oil may be increased to compensate for the decrease in the export tariff.
Xavier has represented that while these statements are of concern, they have not
been acted upon in any official or legislative fashion and therefore the
aggregate change, if any, cannot be determined at this time. We note that any
material increase in the excise tax from that which has been utilized herein
would have a negative effect on the estimated future net revenues included
herein.
The product prices which are included in the economic projections are the net
prices after all appropriate deductions. A summary of the fees, taxes, and
tariffs utilized herein follows:
<TABLE>
<CAPTION>
Deductions, $/bbl*
----------------------------------
Base Case Alternate Case
----------------- ----------------
<S> <C> <C> <C>
1) Transportation Cost 2.29 2.29
2) Export Tariff 1.40 - 0.00 3.29
3) Mineral Use Rights 0.90 - 0.99 0.79
4) Payment for Replacement of Minerals 1.51 - 1.65 1.32
5) Road Use Tax 0.38 0.38
6) Housing Tax 0.28 0.28
7) Other Fees 0.29 0.29
</TABLE>
* Conversion to dollars per barrel based on the following assumptions:
a) 4,550 roubles = US$1.00
b) 1 ECU = US$1.2795
c) 1 ton = 7.785 bbl
OPERATING COSTS AND CAPITAL EXPENDITURES
- ----------------------------------------
Annual operating costs of $399,149 were provided by Xavier and accepted as
represented. Workover and drilling and completion costs were also provided by
Xavier and are included under "other" costs.
Xavier has indicated that operating expenses charged to the TSA by KMNGG are
higher than the annual costs represented herein. The $399,149 in annual
operating expenses included herein are net of certain audit exceptions taken by
Xavier on various costs KMNGG has charged against the TSA. Any material
increase in operating expenses from those utilized herein may cause actual
future receipts to be significantly less than those projected.
Operating costs and capital expenditures were held constant throughout the life
of the properties.
Huddleston & Co., Inc.
<PAGE>
Xavier Mines Limited
April 15, 1996
Page Five
FACTORS NOT INCLUDED
- --------------------
The following items have not been deducted from future revenues.
1. General office overhead
2. Federal income tax
3. Russian profits tax
4. Allowances for depletion, depreciation, and amortization
5. Cost to plug and abandon wells
OTHER CONSIDERATIONS
- --------------------
There are several factors which need to be considered which are unique to
operations in Russia in general. Continual change in Russian policies toward
foreign investment such as profits taxation, license and contractual
requirements, and import and export tariffs will likely require continual
negotiations with the various ministries for the foreseeable future. Any
significant change in the price, cost, and production fees from those utilized
herein will have a material effect on the projected revenues.
REPORT QUALIFICATIONS
- ---------------------
In general, basic data derived from Russian sources have been subject to a
greater degree of variation than that which would normally be associated with
Western projects of this type. The Russian production associations have been
limited by a variety of factors including either lack of or antiquated
equipment, inconsistencies in measurement techniques for produced fluids, and
other problems not normally associated with Western operations. As a result,
the variability of reserve estimates may be significantly greater than those
normally associated with properties of the type discussed herein.
THE REVENUES AND PRESENT WORTH OF FUTURE NET REVENUES FOR THE PROPERTIES
INCLUDED HEREIN ARE NOT REPRESENTED TO BE MARKET VALUE.
All data furnished by Xavier and KMNGG were accepted as represented. We have
reviewed these data and have generally found only minor inconsistencies. We
retain in our files comprehensive data pertinent to the properties included
herein. Representatives of Xavier have inspected the properties and have
represented the facilities to be reasonably well maintained and functional.
Respectfully submitted,
/s/ Gregory S. Floyd, P.E.
Gregory S. Floyd, P.E.
/s/ M. Drayton Prator, III, P.E.
M. Drayton Prator, III, P.E.
GSF:MDP:klh
Huddleston & Co., Inc.
<PAGE>
[LETTERHEAD OF HUDDLESTON & CO., INC. APPEARS HERE]
April 16, 1996
Mr. Chris A. Dittmar
Xavier Mines Limited
1600 Smith Street, Suite 4230
Houston, Texas 77002
Re: Kamennoye East Field
Estimated Future Reserves and
Revenues As of December 31, 1995
Gentlemen:
Pursuant to your request, we have estimated reserves and projected net revenues
net to the interests owned by Xavier Mines Limited (Xavier) under the terms of
the Technical Services Agreement (TSA) between Xavier and
Khantymansiyskneftegazgeologiya (KMNGG) for Kamennoye East Field. The property
is located in the Khanty-Mansiysk Autonomous Okrug, Tuymen Region of the Russian
Federation.
Our conclusions, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
----------------------------------------------------------------------
Proved Developed
------------------------------ Proved Total
Base Pricing Case Producing Nonproducing Undeveloped Expenses Proved
- ------------------------------------------------------------- ---------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 513,682 515,423 521,801 0 1,550,906
Estimated Future Net Gas, MMcf 0.0 0.0 0.0 0.0 0.0
Total Future Gross Revenue, $ 6,317,618 6,467,198 6,746,887 0 19,531,703
Operating Expenses and Direct Taxes, $ 0 0 0 6,483,099 6,483,099
Capital Expenditures, $ 0 524,700 2,160,000 0 2,684,700
Estimated Future Net Revenue (FNR), $ 6,317,618 5,942,498 4,586,887 (6,483,099) 10,363,904
Discounted FNR at 10%, $ 5,489,407 4,659,584 3,096,673 (4,695,646) 8,550,018
Discounted FNR at 15%, $ 5,159,214 4,191,150 2,573,817 (4,073,230) 7,850,951
Projected Reserves and Revenues by Year - Base Pricing Case
- -----------------------------------------------------------
Estimated Revenues, $
- ---------------------
1996 3,259,531 1,457,624 0 (926,157) 3,790,998
1997 1,385,928 1,346,841 (328,465) (926,157) 1,478,147
1998 695,337 873,266 1,636,990 (926,157) 2,279,436
Thereafter 976,822 2,264,767 3,278,362 (3,704,628) 2,815,323
Total 6,317,618 5,942,498 4,586,887 (6,483,099) 10,363,904
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 277,171 168,565 0 0 445,736
Gas, MMcf 0.0 0.0 0.0 0.0 0.0
</TABLE>
*See discussion under Kamennoye East TSA
<PAGE>
Xavier Mines Limited
April 16, 1996
Page Two
<TABLE>
<CAPTION>
Net to Xavier Mines Limited*
---------------------------------------------------------------------
Proved Developed
------------------------------- Proved Total
Alternate Pricing Case Producing Nonproducing Undeveloped Expenses Proved
- ---------------------- ---------------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Estimated Future Net Oil/Cond., bbl 544,881 556,145 578,845 0 1,679,871
Estimated Future Net Gas, MMcf 0.0 0.0 0.0 0.0 0.0
Total Future Gross Revenue, $ 5,541,441 5,655,995 5,886,853 0 17,084,289
Operating Expenses and Direct Taxes, $ 0 0 0 6,483,099 6,483,099
Capital Expenditures, $ 0 524,700 2,160,000 0 2,684,700
Estimated Future Net Revenue (FNR), $ 5,541,441 5,131,295 3,726,853 (6,483,099) 7,916,490
Discounted FNR at 10%, $ 4,819,940 4,021,655 2,481,862 (4,695,646) 6,627,811
Discounted FNR at 15%, $ 4,531,607 3,616,358 2,047,803 (4,073,230) 6,122,538
Projected Reserves and Revenues by Year - Alternate Pricing
Case
- -------------------------------------------------------------
Estimated Revenues, $
- -------------------
1996 2,818,829 1,189,606 0 (926,157) 3,082,278
1997 1,326,565 1,289,170 (406,906) (926,157) 1,282,672
1998 570,029 715,887 1,341,982 (926,157) 1,701,741
Thereafter 826,018 1,936,632 2,791,777 (3,704,628) 1,849,799
Total 5,541,441 5,131,295 3,726,853 (6,483,099) 7,916,490
Estimated Production - 1996
- ---------------------------
Oil/Cond., bbl 277,171 168,565 0 0 445,736
Gas, MMcf 0.0 0.0 0.0 0.0 0.0
</TABLE>
*See discussion under Kamennoye East TSA
PUBLIC REPORTING REQUIREMENTS AND STANDARDS OF PRACTICE
- -------------------------------------------------------
Securities and Exchange Commission (SEC) Regulation S-K, Item 102 and
Regulations S-X Rule 4-10, and Financial Accounting Standards Board (FASB)
Statement No. 69 require oil and gas reserve information to be reported by
publicly held companies as supplemental financial data. These regulations and
standards provide for estimates of Proved reserves and revenues discounted at
10% based on product prices in effect on the "as of" date of the report.
Alternate pricing cases may also be reported in addition to the current pricing
case. Estimates of Probable reserves and revenues are prohibited from SEC
filings.
The Society of Petroleum Engineers (SPE) requires Proved reserves to be
economically recoverable with prices and costs in effect on the "as of" date of
the report. In addition, the SPE has issued Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserve Information which sets
requirements for qualifications and independence of reserve estimators and
auditors and accepted methods to be used for estimating future reserves.
The estimated Proved reserves shown herein have been prepared in accordance with
our understanding of all applicable SEC, FASB, and SPE regulations and
requirements. At the request of Xavier, we have included herein an alternate
pricing case which assumes the export tariff remains at the current level of 20
European Currency Units (ECU) per ton.
Huddleston & Co., Inc.
<PAGE>
Xavier Mines Limited
April 16, 1996
Page Three
KAMENNOYE EAST TSA
- ------------------
It is our understanding that Xavier is credited 90% of the oil produced after
deducting operating expenses until $8,000,000 net of expenses is recovered.
After the first $8,000,000 is recovered, Xavier funds 90% of the operating
expenses and capital requirements associated with the contract area. Operating
costs are to be recovered and paid for from total production while capital costs
are recovered and paid for from a maximum of 60% of the value of total
production less operating costs. The remaining production is split 50% to
Xavier and 50% to KMNGG with 10% of Xavier's 50% share to be transferred to the
administrator, Peteco, upon receipt by Xavier of its full share. Unrecovered
costs for any calendar year shall be recovered as part of the operating costs or
capital costs in succeeding years.
In projecting future net revenues net to Xavier, we have reduced Xavier's share
of production to account for certain contractual obligations Xavier has with
various officers of the company.
PROJECTIONS
- -----------
The reserve and revenue projections contained herein are on a calendar year
basis with the first time period being the twelve (12) month period from January
1, 1996, to December 31, 1996.
RESERVE ESTIMATES
- -----------------
We have utilized engineering data supplied by KMNGG including production, rock
and fluid properties, and geologic interpretations where possible. The
remaining data were supplied by Xavier or companies retained by Xavier. In
general, monthly production on a total field basis through December 1995 was
available for our study. It should be noted that volumes produced versus
volumes agreed to or credited to KMNGG by the various Russian entities can vary
materially on a monthly basis due to a number of reasons specific to Russian
operations. However, produced and agreed upon volumes aggregated over several
months appear to be within reason. In addition, production for individual wells
is not measured, which necessitates allocating total field production utilizing
periodic well tests. Therefore, individual well performance may vary
significantly depending on the length of the test and the duration between
tests.
Reserves for the producing wells were primarily based on volumetric
calculations. Extrapolation of performance history was utilized for certain
wells where sufficient history was available to suggest decline trends. The
reserves for the Nonproducing and Undeveloped classifications were necessarily
estimated utilizing volumetric calculations and analogy to nearby production.
These estimates are subject to greater variability than estimates for producing
properties having established performance trends.
PRODUCT PRICES
- --------------
We have utilized an initial oil price of $18.80 per barrel derived from the
Department of Energy Weekly Petroleum Status Report for U.S.S.R. - Export Blend
32(degrees). Xavier has provided certain fees, taxes, and tariffs based on
actual payments made by the company during 1995 for exported crude oil.
Huddleston & Co., Inc.
<PAGE>
Xavier Mines Limited
April 16, 1996
Page Four
The export tariff in effect on the "as of" date of this report was 20 ECU per
ton. However, as part of the International Monetary Fund's (IMF) stabilization
loan to the Russian Federation, the Russian Federation government agreed to
reduce the export tariff to 14 ECU per ton in April 1996 and to eventually phase
out the export tariff on crude oil altogether as of July 1, 1996. At the
request of Xavier, we have utilized this export tariff scenario in determining
the estimated future net revenue for the "Base Case." However, given the
current state of Russia's economy and the failure of the government to eliminate
the export tariff on January 1, 1996, as stated last year, Xavier has requested
an alternate case be run at the current export tariff of 20 ECU per ton
throughout the life of the properties. We also note that certain statements
made by Russian Federation government officials indicate that the excise tax on
crude oil may be increased to compensate for the decrease in the export tariff.
Xavier has represented that while these statements are of concern, they have not
been acted upon in any official or legislative fashion and therefore the
aggregate change, if any, cannot be determined at this time. We note that any
material increase in the excise tax from that which has been utilized herein
would have a negative effect on the estimated future net revenues included
herein.
The product prices which are included in the economic projections are the net
prices after all appropriate deductions. A summary of the fees, taxes, and
tariffs utilized herein follows:
<TABLE>
<CAPTION>
Deductions, $/bbl*
----------------------------------
Base Case Alternate Case
--------------- -----------------
<S> <C> <C> <C>
1) Transportation Cost 2.29 2.29
2) Export Tariff 1.40 - 0.00 3.29
3) Mineral Use Rights 0.90 - 0.99 0.79
4) Payment for Replacement of Minerals 1.51 - 1.65 1.32
5) Road Use Tax 0.38 0.38
6) Housing Tax 0.28 0.28
7) Other Fees 0.29 0.29
</TABLE>
* Conversion to dollars per barrel based on the following assumptions:
a) 4,550 roubles = US$1.00
b) 1 ECU = US$1.2795
c) 1 ton = 7.785 bbl
OPERATING COSTS AND CAPITAL EXPENDITURES
- ----------------------------------------
Annual operating costs of $926,157 were provided by Xavier and accepted as
represented. Workover and drilling and completion costs were also provided by
Xavier and are included under "other" costs.
Xavier has indicated that operating expenses charged to the TSA by KMNGG are
higher than the annual costs represented herein. The $926,157 in annual
operating expenses included herein are net of certain audit exceptions taken by
Xavier on various costs KMNGG has charged against the TSA. Any material
increase in operating expenses from those utilized herein may cause actual
future receipts to be significantly less than those projected.
Operating costs and capital expenditures were held constant throughout the life
of the properties.
Huddleston & Co., Inc
<PAGE>
Xavier Mines Limited
April 16, 1996
Page Five
FACTORS NOT INCLUDED
- --------------------
The following items have not been deducted from future revenues.
1. General office overhead
2. Federal income tax
3. Russian profits tax
4. Allowances for depletion, depreciation, and amortization
5. Cost to plug and abandon wells
OTHER CONSIDERATIONS
- --------------------
There are several factors which need to be considered which are unique to
operations in Russia in general. Continual change in Russian policies toward
foreign investment such as profits taxation, license and contractual
requirements, and import and export tariffs will likely require continual
negotiations with the various ministries for the foreseeable future. Any
significant change in the price, cost, and production fees from those utilized
herein will have a material effect on the projected revenues.
REPORT QUALIFICATIONS
- ---------------------
In general, basic data derived from Russian sources have been subject to a
greater degree of variation than that which would normally be associated with
Western projects of this type. The Russian production associations have been
limited by a variety of factors including either lack of or antiquated
equipment, inconsistencies in measurement techniques for produced fluids, and
other problems not normally associated with Western operations. As a result,
the variability of reserve estimates may be significantly greater than those
normally associated with properties of the type discussed herein.
THE REVENUES AND PRESENT WORTH OF FUTURE NET REVENUES FOR THE PROPERTIES
INCLUDED HEREIN ARE NOT REPRESENTED TO BE MARKET VALUE.
All data furnished by Xavier and KMNGG were accepted as represented. We have
reviewed these data and have generally found only minor inconsistencies. We
retain in our files comprehensive data pertinent to the properties included
herein. Representatives of Xavier have inspected the properties and have
represented the facilities to be reasonably well maintained and functional.
Respectfully submitted,
/s/ Gregory S. Floyd, P.E.
Gregory S. Floyd, P.E.
/s/ M. Drayton Prator, III, P.E.
M. Drayton Prator, III, P.E.
GSF:MDP:klh
Huddleston & Co., Inc.
<PAGE>
DEFINITIONS FOR OIL AND GAS RESERVES*
RESERVES
Reserves are estimated volumes of crude oil, condensate, natural gas, natural
gas liquids, and associated substances anticipated to be commercially
recoverable from known accumulations from a given date forward, under existing
economic conditions, by established operating practices, and under current
government regulations. Reserves estimates are based on interpretation of
geologic and/or engineering data available at the time of the estimate.
Reserves estimates generally will be revised as reservoirs are produced, as
additional geologic and/or engineering data become available, or as economic
conditions change.
Reserves do not include volumes of crude oil, condensate, natural gas, or
natural gas liquids being held in inventory. If required for financial reporting
or other special purposes, reserves may be reduced for on-site usage and/or
processing losses.
The ownership status of reserves may change due to the expiration of a
production license or contract; when relevant to reserves assignment such
changes should be identified for each reserves classification.
Reserves may be attributed to either natural reservoir energy, or improved
recovery methods. Improved recovery includes all methods for supplementing
natural reservoir energy to increase ultimate recovery from a reservoir. Such
methods include (1) pressure maintenance, (2) cycling, (3) waterflooding, (4)
thermal methods, (5) chemical flooding, and (6) the use of miscible and
immiscible displacement fluids.
All reserves estimates involve some degree of uncertainty, depending chiefly on
the amount and reliability of geologic and engineering data available at the
time of the estimate and the interpretation of these data. The relative degree
of uncertainty may be conveyed by placing reserves in one of two
classifications, either proved or unproved. Unproved reserves are less certain
to be recovered than proved reserves and may be subclassified as probable or
possible to denote the progressively increasing uncertainty.
PROVED RESERVES
Proved reserves can be estimated with reasonable certainty to be recoverable
under current economic conditions. Current economic conditions include prices
and costs prevailing at the time of the estimate. Proved reserves may be
developed or undeveloped.
In general, reserves are considered proved if commercial producibility of the
reservoir is supported by actual production or formation tests. The term proved
refers to the estimated volume of reserves and not just to the productivity
of the well or reservoir. In certain instances, proved reserves may be assigned
on the basis of electrical and other type logs and/or core analysis that
indicate subject reservoir is hydrocarbon bearing analogous to reservoirs in the
same area that are producing, or have demonstrated the ability to produce on a
formation test.
The area of a reservoir considered proved includes (1) the area delineated by
drilling and defined by fluid contacts, if any, and (2) the undrilled areas that
can be reasonably judged as commercially productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the proved limit
unless otherwise indicated by definitive engineering or performance data.
Proved reserves must have facilities to process and transport those reserves
to market that are operational at the time of the estimate, or there is a
commitment or reasonable expectation to install such facilities in the future.
In general, proved undeveloped reserves are assigned to undrilled locations that
satisfy the following conditions: (1) the locations are direct offsets to wells
that have indicated commercial production in the objective formation, (2) it is
reasonably certain that the locations are within the known proved productive
limits of the objective formation, (3) the locations conform to existing well
spacing regulations, if any, and (4) it is reasonably certain that the locations
will be developed. Reserves for other undrilled locations are classified as
proved undeveloped only in those cases where interpretations of data from wells
indicate that the objective formation is laterally continuous and contains
commercially recoverable hydrocarbons at locations beyond direct offsets.
Reserves that can be produced through the application of established improved
recovery methods are included in the proved classification when (1) successful
testing by a pilot project or favorable production or pressure response of an
installed program in that reservoir, or one in the immediate area with similar
rock and fluid properties, provides support for the engineering analysis on
which the project or program is based, and (2) it is reasonably certain the
project will proceed.
Reserves to be recovered by improved recovery methods that have yet to be
established through repeated commercially successful applications are included
in the proved classification only (1) after a favorable production response from
subject reservoir from either (a) a representative pilot or (b) an installed
program, where the response provides support for the engineering analysis on
which the project is based, and (2) it is reasonably certain the project will
proceed.
Page One of Two Pages
<PAGE>
UNPROVED RESERVES
Unproved reserves are based on geologic and/or engineering data similar to that
used in estimates of proved reserves; but technical, contractual, economic, or
regulatory uncertainties preclude such reserves being classified as proved.
They may be estimated assuming future economic conditions different from those
prevailing at the time of the estimate.
Estimates of unproved reserves may be made for internal planning or special
evaluations, but are not routinely compiled.
Unproved reserves are not to be added to proved reserves because of different
levels of uncertainty.
Unproved reserves may be divided into two subclassifications: PROBABLE and
POSSIBLE.
PROBABLE RESERVES. Probable reserves are less certain than proved reserves and
can be estimated with a degree of certainty sufficient to indicate they are more
likely to be recovered than not.
In general, probable reserves may include (1) reserves anticipated to be proved
by normal stepout drilling where subsurface control is inadequate to classify
these reserves as proved; (2) reserves in formations that appear to be
productive based on log characteristics but that lack core data or definitive
tests and which are not analogous to producing or proved reservoirs in the area;
(3) incremental reserves attributable to infill drilling that otherwise could be
classified as proved but closer statutory spacing had not been approved at the
time of estimate; (4) reserves attributable to an improved recovery method which
has been established by repeated commercially successful applications when a
project or pilot is planned but not in operation and rock, fluid, and reservoir
characteristics appear favorable for commercial application; (5) reserves in an
area of a formation that has been proved productive in other areas of the field
but subject area appears to be separated from the proved area by faulting and
the geologic interpretation indicates subject area is structurally higher than
the proved area; (6) reserves attributable to a successful workover, treatment,
retreatment, change of equipment, or other mechanical procedure, where such
procedure has not been proved successful in wells exhibiting similar behavior in
analogous reservoirs; and (7) incremental reserves in a proved producing
reservoir where an alternate interpretation of performance or volumetric data
indicates significantly more reserves than can be classified as proved.
POSSIBLE RESERVES. Possible reserves are less certain than probable reserves and
can be estimated with a low degree of certainty, insufficient to indicate
whether they are more likely to be recovered than not.
In general, possible reserves may include (1) reserves suggested by structural
and/or stratigraphic extra polation beyond areas classfied as probable, based on
geologic and/or geophysical interpretation; (2) reserves in formations that
appear to be hydrocarbon bearing based on logs or cores but that may not be
productive at commercial rates; (3) incremental reserves attributable
to infill drilling that are subject to technical uncertainty; (4) reserves
attributable to an improved recovery method when a project or pilot is planned
but not in operation and rock, fluid, and reservoir characteristics are such
that a reasonable doubt exists that the project will be commercial; and (5)
reserves in an area of a formation that has been proved productive in other
areas of the field but subject area appears to be separated from the proved area
by faulting and geologic interpretation indicates subject area is structurally
lower than the proved area.
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status of wells
and/or reservoirs.
DEVELOPED. Developed reserves are expected to be recovered from existing wells
(including reserves behind pipe). Improved recovery reserves are considered
developed only after the necessary equipment has been installed, or when the
costs to do so are relatively minor. Developed reserves may be subcategorized as
producing or nonproducing.
PRODUCING. Producing reserves are expected to be recovered from completion
intervals open at the time of the estimate and producing. Improved recovery
reserves are considered to be producing only after an improved recovery project
is in operation.
NONPRODUCING. Nonproducing reserves include shut-in and behind-pipe reserves.
Shut-in reserves are expected to be recovered from completion intervals open at
the time of the estimate, but which had not started producing, or were shut-in
for market conditions or pipeline connection, or were not capable of production
for mechanical reasons, and the time when sales will start is uncertain.
Behind-pipe reserves are expected to be recovered from zones behind casing
in existing wells, which will require additional completion work or a future
recompletion prior to the start of production.
UNDEVELOPED. Undeveloped reserves are expected to be recovered: (1) from new
wells on undrilled acreage, (2) from deepening existing wells to a different
reservoir, or (3) where a relatively large expenditure is required to (a)
recomplete an existing well of (b) install production or transportation
facilities for primary or improved recovery projects.
*Approved by the Board of Directors, Society of Petroleum Engineers (SPE), Inc.
February 27, 1987.
Page Two of Two Pages
<PAGE>
EXHIBIT A
SPECIAL RESOLUTIONS-CONSOLIDATION
Set forth below is the text of the resolution to be submitted with respect
to the Consolidation to the Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. Subject to receipt of requisite regulatory approval including without
limitation, the approval of the Albert Stock Exchange, the Company be and is
hereby authorized to file Articles of Amendment consolidating its issued and
outstanding common shares on the basis of one post-consolidation common share
for every four pre-consolidation common shares and changing its name to Xavier
Corporation.
2. The Articles of Amendment filed by the Company shall provide that all
fractions of common shares will be rounded to the next lowest whole number if
the first decimal place is less than five and rounded to the next highest
whole number if the first decimal place is five or greater.
3. Any director or officer of the Company be and he is hereby authorized
and directed on behalf of the Company to deliver Articles of Amendment in
duplicate to the Ministry of Consumer and Commercial Relations and to sign and
execute all documents and to do all such things necessary or advisable in
connection with the foregoing.
4. Notwithstanding the foregoing, the directors of the Company may revoke
the special resolution authorizing the filing of Articles of Amendment to
effect the Consolidation without further approval of the shareholders at any
time prior to the endorsement by the Director of a Certificate of Amendment of
Articles in respect of the amendment authorized by this special resolution.
Exhibit A-1
<PAGE>
EXHIBIT B
SPECIAL RESOLUTIONS-DOMESTICATION
Set forth below is the text of the resolution to be submitted to the
Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. The Company be and it is hereby authorized and directed to make
application to the Director under the Business Corporation Act
(Ontario) for Authorization to Continue in Another Jurisdiction.
2. The Company be and it is hereby authorized and directed to become
domesticated as a corporation incorporated under the laws of the
State of Delaware pursuant to the Delaware General Corporation Law
(the "DGCL").
3. The Company be and it is hereby authorized and directed to adopt a
new Certificate of Incorporation, a copy of which is attached
hereto, to be effective upon the domestication of the Company as a
Delaware corporation.
4. Any director or officer of the Company be and he is hereby
authorized and directed, for and in the name of and on behalf of the
Company, to execute all such documents under the corporate seal or
otherwise and to do all such other acts and things including without
limitation, the execution of a Certificate of Domestication in the
prescribed form and the delivery thereof to the Secretary of State
of Delaware under the DGCL and the execution as an incorporator of
the Certificate of Incorporation attached hereto and the delivery of
the Certificate of Incorporation to the Secretary of State of
Delaware, as he may determine in his sole and absolute discretion to
be necessary or advisable to give effect to the foregoing provisions
of this resolution, the execution of any such document or the doing
of any such act or thing being conclusive evidence of such
determination, provided that the directors of the Company may, in
their sole discretion revoke this special resolution without further
approval of the shareholders at any time prior to the filing of the
Certificate of Domestication with the Secretary of State of
Delaware.
Exhibit B-1
<PAGE>
EXHIBIT C
NOTICES AND REPLIES UNDER NATIONAL POLICY 31
Exhibit C-1
<PAGE>
[LETTERHEAD OF XAVIER APPEARS HERE]
September 12, 1995
Alberta Securities Commission
Suite 2100-10025 Jasper Avenue
Edmonton, Alberta
T3J3Z5
- -and-
Ontario Securities Commission
18th Floor
20 Queen Street West
Toronto, Ontario
M5H3S8
Dear Sirs:
RE: CHANGE OF AUDITOR
______________________
In accordance with Section 4.3 of National Policy 31, we are enclosing herewith
the Reporting Package, as defined therein:
The package includes the following:
1. Notice of Change of Auditor,
2. Letter from the former auditor,
3. Letter from the successor auditor, and
4. Resolution of the Audit Committee and Board of Directors approving the
change.
Yours Truly,
XAVIER MINES LIMITED
/s/ GATES G. BRELSFORD
Per ______________________________
Gates G. Brelsford
Director of Investor Relations
cc: Alberta Stock Exchange
Exhibit C-2
<PAGE>
[Letterhead]
September 12, 1995
NOTICE OF CHANGE OF AUDITOR
Xavier Mines Limited (the "Company") advises that BDO Seidman, Certified Public
Accountants was appointed auditors of the Company on July 29, 1994, following
the resignation, at the request of the Company, of the previous auditors, Morgan
& Company, Chartered Accountants.
There was no reservation in the auditor's report for the two most recently
completed fiscal years or for any period subsequent to the most recently
completed period for which an audit report was issued and preceding the date of
the Morgan & Company termination.
There was no reportable event as defined by National Policy 31 of the Canadian
Securities Administrators, between the Company and the Former or Successor
Auditors.
The termination of Morgan & Company has been approved by the Company's audit
committee and its board of directors.
The Notice of Change of Auditor, together with the letters from Morgan & Company
and BDO Seidman, have been reviewed by the Company's audit committee and board
of directors.
XAVIER MINES LIMITED
/s/ CHRIS A. DITMAR
Per: ______________________
Chris A. Ditmar
Director and President
Exhibit C-3
<PAGE>
[LETTERHEAD OF MORGAN & COMPANY APPEARS HERE]
July 29, 1994
Xavier Mines Limited
999 West Hastings Street, Suite 900
Vancouver, B.C.
V6C 2W2
Dear Sirs:
We are writing to confirm that, effective on the date of this letter, we have
resigned as auditors of Xavier Mines Limited.
Yours very truly,
/s/ JIM PHILIP
- -------------------------
Jim Philip, C.A.
for MORGAN & COMPANY
JLP/dm
Exhibit C-4
<PAGE>
[LETTERHEAD OF MORGAN & COMPANY APPEARS HERE]
September 12, 1995
Alberta Securities Commission Ontario Securities Commission
10025 Jasper Avenue, Suite 2100 20 Queens Street West, 800
Edmonton, Alberta Toronto, Ontario
T3J 3Z5 M5H 3S8
Dear Sirs:
RE: XAVIER MINES LIMITED (the "Company")
____________________________________
As requested by National Policy 31 of Canadian Securities Administrators, we
have reviewed the information contained in the Notice of Change of Auditor for
the Company and, based on our knowledge of such information at this time, we do
not disagree with the information contained in such notice.
Our understanding is that the notice reads as follows:
"Xavier Mines Limited (the "Company") advises that BDO Seidman, Certified
Public Accountants have been appointed auditors of the Company on July 29,
1994 following the resignation, at the request of the Company, of the
previous auditors, Morgan & Company.
There was no reservation in the Auditor's report for the two most recently
completed fiscal years or for any period subsequent to the most recently
completed period for which an audit report was issued and preceding the
date of Morgan & Company's Termination.
There was no reportable event, as defined by National Policy 31 of the
Canadian Securities Administrators, between the Company and the Former or
Successor Auditors.
The Termination of Morgan & Company has been approved by the Company's
audit committee and board of directors.
The Notice of Change of Auditor, together with the letters from Morgan &
Company and BDO Seidman, have been reviewed by the Company's audit
committee and board of directors."
We understand that notice of such change will be distributed in accordance with
the requirements of National Policy 31.
Yours very truly
/s/ JIM PHILIP
Jim Philip, C.A.
for MORGAN & COMPANY
Exhibit C-5
<PAGE>
MINUTES OF BOARD MEETING OF XAVIER HELD ON THE JULY 29TH 1994 AT 999 WEST
- -------------------------------------------------------------------------
HASTINGS STREET VANCOUVER BC
- ----------------------------
Present: W. Gordon Blankstein, S. Lionel McAuley, Robert O. Gardner.
W. Gordon Blankstein took the Chair and Robert C. Gardner was nominated
Secretary for the purposes of taking the minutes.
The last minutes of the Board were presented and approved subject to two
corrections. Board had resolved that $5,000,000. U.S. be raised on behalf of
the company by way of private placement. That resolution had been proposed by
W. Gordon Blankstein and seconded by S. Lionel McAuley and unanimously approved
at the last Board meeting and therefore should have been included in the
minutes. In addition the Board had voted to approve the Notice to the
Shareholders and information Circular that as of that date proposed the
continuance of the current Board.
It was noted that as of the 28th of July 1994 Michael Hannesson had presented
his resignation. The Board has accepted this resignation. It was explained by
Michael Hannesson that he was uncomfortable with last minute requests for Board
meetings and the lack of response by management to requests for information that
had been made in the last two Board meetings but with little or no results.
The Board having regrettably accepted the resignation of Mr. Hannesson then
observed that the information circular for the A.G.M. should be amended to
include the following date for the A.G.M. of August 30th 1994:
Chris A. Dittmar,
W. Gordon Blankstein,
S.Lionel McAuley,
Robert O. Gardner,
Gordon H. Barrows.
The Board resolved that BDO Seidman of 1200 Smith St. Suite 3080 Houston should
be appointed our Auditors. This resolution was proposed by W. Gordon Blankstein
and seconded by Robert C. Gardner and unanimously approved.
The Board also observed that Akin and Gump of 1900 Pennzoil Place-South Tower
711 Louisiana Street, Houston had been acting for the company. It was noted
that Akin and Gump had been advised that they were acting in this capacity in
its preparation of the Management contracts. The Board unanimously approved
this firm continuing as its legal representative.
Approved:
W.G.B..[initials go here].......R.C.G...[initials go here]......
S.L.M....[initials go here].....
......
C-6
<PAGE>
EXHIBIT D
CERTIFICATE OF DOMESTICATION OF
XAVIER CORPORATION
XAVIER CORPORATION (the "Corporation"), a corporation presently organized
and existing under the laws of the Province of Ontario, Canada, and which is
domesticating to the State of Delaware pursuant to section 388 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: the Corporation was first incorporated on June 15, 1959, under the
laws of the Province of Ontario, Canada.
SECOND: the name of the Corporation immediately prior to the filing of
this Certificate of Domestication was Xavier Corporation.
THIRD: the name of the Corporation as set forth in its Certificate of
Incorporation filed in accordance with section 388(b) of the General
Corporation Law of the State of Delaware is Xavier Corporation.
FOURTH: the principal place of business of the Corporation immediately
prior to the filing of this Certificate of Domestication was located in the
State of Texas.
FIFTH: a Certificate of Incorporation of Xavier Corporation is being filed
with the Secretary of State of the State of Delaware contemporaneously with
the filing of this Certificate of Domestication.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Domestication to be signed by [_______], its [_______], who is authorized to
sign this Certificate of Domestication on behalf of the Corporation, on
[_______], 1996.
XAVIER CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Exhibit D-1
<PAGE>
EXHIBIT E
CERTIFICATE OF INCORPORATION OF XAVIER-CANADA
Exhibit E-1
<PAGE>
For Ministry Use Only Ontario Corporation Number
A Usage exclusif du ministere Numero de la compagnie en Ontario
[L Ministry of Ministere de
O Consumer and la Consommation 100443
G Commercial
O]
Ontario Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to verify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
APRIL 29 AVRIL 1993
............................................
[SIGNATURE APPEARS HERE] TRANS
Director/Directeur CODE
Business Corporations Act/Lor de sur les compagnies [C]
____
18
________________________________________________________________________________
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the Denomination sociale actuelle
Business corporation is: de la compagnie:
Corporations
Act X A V I E R M I N E S L I M I T E D
1982
Formule
numero 3
Lor de 1982
sur les 2. The name of the corporation Nouvelle demonination sociale
compagnies is changed to (if applicable) de la compagnie (sily a lieu):
3. Date of incorporation/ Date de la constitution ou
amalgamation: de la fusion:
15 June 1959
________________________________________________________________________________
(Day Month Year)
(Our mois. annee)
4. The articles of the Les statuts de la compagnie
corporation are amended as sont modifies de la
follows: facon suivante:
(a) The number of directors of the Corporation shall be
changed from a minimum of four (4) and a maximum of
nine (9) to a minimum of three (3) and a maximum of ten
(10);
(b) By providing that the Corporation is authorized to
issue:
(i) an unlimited number of preference shares,
issuable in series; and
(ii) an unlimited number of common shares;
(c) To reflect the changes in the authorized share capital,
specifically the creation of the preference shares and
to further set out the rights, privileges, restrictions
and conditions attaching to each of the common shares
and the preference shares of the Corporation by
providing that the rights, privileges, restrictions and
conditions attaching to the preference shares of the
DYE & DURHAM Corporation, as a class and to the common shares of the
FORM 3 (B C A) Corporation as a class shall be as follows:
E-2
<PAGE>
la
A. PREFERENCE SHARES
-----------------
The preference shares, as a class, shall have attached thereto the
following rights, privileges, restrictions and conditions:
1. DIRECTORS' AUTHORITY TO ISSUE IN ONE OR MORE SERIES
___________________________________________________
1.1 The directors of the Corporation may issue the preference shares at any
time and from time to time in one or more series. Before any shares of a
particular series are issued, the directors of the Corporation shall fix
the number of shares in such series and shall determine, subject to the
limitations set out in the articles, the designation, rights, privileges,
restrictions and conditions to be attached to the shares of such series,
including, but without in any way limiting or restricting the generality
of the foregoing, the rate or rates, amount or method or methods of
calculation of any dividends thereon and whether such rate(s), amount or
method(s) of calculation shall be subject to change or adjustment in the
future, the currency or currencies of payment, the date or dates and
place or places of payment thereof and the date or dates from which such
dividends shall accrue, the consideration and the terms and conditions of
any purchase for cancellation, retraction or redemption rights (if any),
the conversion or exchange rights attached thereto (if any) and the terms
and conditions of any purchase obligation or sinking fund or other
provisions attaching thereto. Before the issue of a series of preference
shares, the directors of the Corporation shall send to the Director
appointed under the Ontario Business Corporations Act (as now enacted or
from time to time amended, re-enacted or replaced) (the "Act") articles
of amendment in prescribed form containing a description of such series
including the number of shares in such series and the designation,
rights, privileges, restrictions and conditions determined by the
directors.
2. RANKING OF PREFERENCE SHARES
____________________________
2.1 No rights, privileges, restrictions or conditions attaching to a series
of preference shares shall confer upon the shares of a series a priority in
respect of dividends or in respect of return of capital in the event of the
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, over the shares of any other series of preference shares.
2.2 The preference shares, as a class, shall be entitled to such priority
over the common shares of the Corporation and over any other shares of any other
class of the Corporation ranking junior to the preference shares with respect to
priority in the payment of dividends and/or the return of capital and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding-up its affairs as the directors of the Corporation shall
determine at the time of determining the number and designation of, and the
rights, privileges, restrictions and conditions attaching to, the series of
preference shares. The preference shares of any series
E-3
<PAGE>
may also be given such other preferences not inconsistent with the preferences
so determined to attach to the preference shares as a class nor inconsistent
with the provisions hereof over the common shares and over any other shares
ranking junior to the preference shares as the directors of the Corporation may
determine at the time of determining the number and designation of, and the
rights, privileges, restrictions and conditions attached to, the shares of such
series.
2.3 If any amount of cumulative dividends, whether or not declared, or
declared non-cumulative dividends or amounts payable on a return of capital in
the event of the liquidation, dissolution or winding-up of the Corporation in
respect of a series of preference shares is not paid in full, the preference
shares of all series shall participate rateably in respect of all accumulated
cumulative dividends, whether or not declared, and all declared non-cumulative
dividends, and in respect of amounts payable on return of capital in the event
of liquidation, dissolution or winding-up of the Corporation; provided, however,
that in the event of there being insufficient assets to satisfy in full all such
claims as aforesaid, the claims of the holders of the preference shares with
respect to amounts payable on return of capital shall first be paid and
satisfied and any assets remaining thereafter shall be applied towards the
payment and satisfaction of claims in respect of dividends.
3. VOTING RIGHTS
_____________
3.1 Except as herein specifically provided or as otherwise provided by law,
the holders of the preference shares shall not be entitled as such to receive
notice of, to attend or to vote at any meeting of the shareholders of the
Corporation. The holders of the preference shares shall be entitled to receive
notice of meetings of shareholders of the Corporation called for the purpose of
authorizing the dissolution of the Corporation or the sale, lease or exchange of
all or substantially all the property of the Corporation other than in the
ordinary course of business of the Corporation under subsection 184(3) of the
Act.
4. MODIFICATION
____________
4.1 The rights, privileges, restrictions and conditions attaching to the
preference shares, as a class, may not be deleted, amended, modified or varied
in whole or in part except with the prior approval of the holders of the
preference shares given as hereinafter specified in addition to any other
approval required by the Act.
4.2 The approval of the holders of the preference shares with respect to any
and all matters hereinbefore referred to may be given by not less than two-
thirds of the votes cast at a meeting of the holders of the preference shares
duly called for that purpose and held upon at least 21 days' notice at which the
holders of not less than 25 per cent of the
E-4
<PAGE>
outstanding preference shares are present or represented by proxy. If at any
such meeting the holders of 25 percent of the outstanding preference shares are
not present or represented by proxy within one-half hour after the time
appointed for such meeting, then the meeting shall be adjourned to such date
being not less than 30 days later and at such time and place as may be
determined by the person appointed as chairman by the persons present and
entitled to vote at such meeting (and, for such purpose, the presence of one
holder of preference shares or of a proxy therefor shall constitute a quorum)
and not less than 21 days' notice shall be given of such adjourned meeting. At
such adjourned meeting the holders of the preference shares present or
represented by proxy may transact the business for which the meeting was
originally called and a resolution passed thereat by not less than two-thirds of
the votes cast at such adjourned meeting shall constitute the approval of the
holders of the preference shares referred to above. The formalities to be
observed in respect of the giving of notice of any such meeting or any adjourned
meeting and the conduct thereof shall be those from time to time prescribed by
the Act and the by-laws of the Corporation with respect to meetings of
shareholders. On every poll taken at a meeting of holders of preference shares
as a class, each holder of preference shares entitled to vote thereat shall have
one vote in respect of each $1.00 of stated capital attributable to each
preference share held by him.
B. COMMON SHARES
_____________
The common shares, as a class, shall attached thereto the following rights,
privileges, restrictions and conditions:
1. Dividends
_________
1.1 Subject to the prior rights of the holders of any shares of the Corporation
ranking senior to the common shares with respect to priority in the payment of
dividends, the holders of the common shares shall be entitled to receive
dividends and the Corporation shall pay dividends thereon, as and when declared
by the Board of Directors of the Corporation out of assets properly applicable
to the payment of dividends, in such amount and in such form as the Board of
Directors may from time to time determine and all dividends which the directors
may declare on the common shares shall be declared and paid in equal amounts per
share on all common shares at the time outstanding. Cheques of the Corporation
payable at par at any branch of the Corporation's bankers for the time being in
Canada shall be issued in respect of any such dividends payable in cash (less
any tax required to be withheld by the Corporation) and payment thereof shall
satisfy such dividends. Dividends which are represented by a cheque which has
not been presented to the Corporation's bankers for payment or that otherwise
remain unclaimed for a period of six years from the date on which they were
declared to be payable shall be forfeited to the Corporation.
E-5
<PAGE>
2. Dissolution
-----------
2.1 In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of
assets of the Corporation among its shareholders for the purpose of winding-up
its affairs, subject to the prior rights of the holders of any shares of the
Corporation ranking senior to the common shares with respect to priority in the
distribution of assets upon liquidation, dissolution or winding-up, the holders
of the common shares shall be entitled to receive the remaining property and
assets of the Corporation and to participate equally in any distribution thereof
without preference or distinction.
3. Voting Rights
-------------
3.1 The holders of the common shares shall be entitled to receive notice and to
attend all meetings of the shareholders of the Corporation. At any such meeting
other than meeting at which only holders of another specified class or series of
shares of the Corporation are entitled to vote separately as a class or series,
each common share shall confer one vote.
4. Creation of other Voting Shares
-------------------------------
4.1 No other class or series of shares of the Corporation, other than the common
share carrying the right to vote at a meeting of the Corporation (other than a
meeting at which only the holders of a particular class or series of shares of
the Corporation are entitled to vote separately as a class or series) either
under all circumstances or under certain circumstances that have occurred and
are continuing shall be authorized without the affirmative vote of a majority of
the votes cast at a meeting of the holders of common shares voting separately as
a class.
5. The amendment has been duly authorized as required by Sections 167 and 169
(as applicable) of the Business Corporation Act.
La modification a ete dument autorisee conformement a l'article 167 et.
s'ily a lieu, a l'article 169 de la Los suries compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le case ocheant) de la compagnie
ont approuve la resolution autorisant la modification
April 26, 1993
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, anee)
These articles are signed in duplicate.
Les presents statuts sont signes en double exemplaire.
XAVIER MINES LIMITED
------------------------------------------
(Name of Corporation)
(Denomination societe de la compagnie)
By/Par: [SIGNATURE APPEARS HERE] Secretary
------------------------------------
Signature Description of Office
E-6
<PAGE>
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la compagnie en Ontario
[LOGO] Ministry of Ministere de
Consumer and la Consommation 100443
Commercial
Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to verify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
JANUARY 22 JANVIER, 1993
............................................
TRANS
Director/Directeur CODE
Business Corporations Act/Lor de sur les compagnies C
____
18
________________________________________________________________________________
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the Denomination sociale actuelle
Business corporation is: de la compagnie:
Corporations
Act Z A H A V Y M I N E S L I M I T E D
1982
Formule
numero 3
Lor de 1982
sur les 2. The name of the corporation Nouvelle demonination sociale
compagnies is changed to (if applicable) de la compagnie (s'ily a lieu):
XAVIER MINES LIMITED
3. Date of incorporation/ Date de la constitution ou
amalgamation: de la fusion:
15 June 1959
________________________________________________________________________________
(Day Month Year)
(Our mois. annee)
4. The articles of the Les statuts de la compagnie
corporation are amended as sont modifies de la
follows: facon suivante:
1. The name of the Corporation shall be changed to XAVIER
MINES LIMITED;
2. The issued and outstanding common shares of the
Corporation shall be consolidated on the basis of one (1) post-
consolidation common share for every five (5) issued and
outstanding common shares in the capital of the Corporation;
3. All fractions of common shares will be rounded to the
next lowest whole number if the first decimal place is less
than five (5) and rounded to the next highest whole number if
the first decimal place is five (5) or greater.
DYE & DURHAM
FORM 3 (B C A)
E-7
<PAGE>
<TABLE>
<S> <C>
5. The amendment has been duly authorizes as La modification a ete dument autorisee conformenment
required by Sections 167 and 169 (as applicable) of a l'article 167 et.s'ily a lieu. a l'article 169 de la Loi
the Business Corporation sur les compagnies
6. The resolution authorizing the amendment was Les actionnaires ou les admisistrateurs (le cas echeant)
approved by the shareholders/directors (as de la compagnie ont approuve la resolution autorisant
applicable) of the corporation on la modification
NOVEMBER 24, 1992
----------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents statuts sont signes en double exemplaire.
ZAHAVY MINES LIMITED
-----------------------------------------------
(Name of Corporation)
(Denomination sociate en la compagnis)
By/Par: [Signature goes here] President
------------------------------------------------
(Signature) (Description of Office)
</TABLE>
E-8
<PAGE>
For Ministry Use Only Ontario Corporation Number
A Usage exclusif du ministere Numero de la compagnie en Ontario
[L Ministry of Ministere de
O Consumer and la Consommation 100443
G Commercial
O]
Ontario Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to verify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
JUNE 23 JUIN, 1988
............................................
[SIGNATURE APPEARS HERE] TRANS
Director/Le Directeur CODE
Companies Branch/Direction des Compagnies [C]
____
18
________________________________________________________________________________
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the Denomination sociale actuelle
Business corporation is: de la compagnie:
Corporations
Act Z A H A V Y M I N E S L I M I T E D
1982
Formule
numero 3
Lor de 1982
sur les 2. The name of the corporation Nouvelle demonination sociale
compagnies is changed to (if applicable): de la compagnie (sily a lieu):
3. Date of incorporation/ Date de la constitution ou
amalgamation: de la fusion:
15 June, 1959
________________________________________________________________________________
(Day Month Year)
(Our mois. annee)
4. The articles of the Les statuts de la compagnie
corporation are amended as sont modifies de la
follows: facon suivante:
(a) To decrease the capital of the Corporation by
cancelling the Special Preference Shares and the
Preferred, Cumulative, Redeemable, Convertible Shares;
and
(b) To increase the capital of the Corporation by the
creation of an unlimited number of common shares
without par value ranking pari passu with the existing
10,000,000 common shares without par value.
Dye & Durham
E-9
<PAGE>
<TABLE>
<S> <C>
5. The amendment has been duly authorized as La modification a ete dument autorisee conformement
required by Sections 167 and 169 (as applicable) of a l'article 167 et. s'ily a lieu, a l'article 169 de la Loi sur les
the Business Corporations Act. compagnies.
6. The resolution authorizing the amendment was Les actionnaries ou les admisistrateurs (le cas echeant)
approved by the shareholders/directors (as de la compagnie ont approuve la resolution autorisant
applicable) of the corporation on la modification
17, June, 1988
---------------------------------------------------------
(Day, Month, Year)
(jour, mois, annes)
These articles are signed in duplicate. Les presents statuts sont signes en double
exemplaire.
ZAHAVY MINES LIMITED
--------------------------------------------------------
(Name of Corporation)
(Denomination sociate de la compagnie)
By/Par: [Signature goes here] President
--------------------------------------------------------
(Signature) (Description of Office)
E-10
</TABLE>
<PAGE>
For Ministry Use Only Ontario Corporation Number
A Usage exclusif du ministere Numero de la compagnie en Ontario
[L Ministry of Ministere de
O Consumer and la Consommation 100443
G Commercial
O]
Ontario Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to verify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur le
JULY 6 JUILLET, 1984
............................................
[SIGNATURE APPEARS HERE] TRANS
Controller of Records Controleur des Dossiers CODE
Companies Branch Direction des Compagnies [C]
____
18
________________________________________________________________________________
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the Denomination sociale actuelle
Business corporation is: de la compagnie:
Corporations
Act Z A H A V Y M I N E S L I M I T E D
1982
Formule
numero 3
Lor de 1982
sur les 2. The name of the corporation Nouvelle denomination sociale
compagnies is changed to (if applicable): de la compagnie (sily a lieu):
3. Date of incorporation/ Date de la constitution ou
amalgamation: de la fusion:
15/6/59
________________________________________________________________________________
(Day Month Year)
(Our mois. annee)
4. The articles of the Les statuts de la compagnie
corporation are amended as sont modifies de la
follows: facon suivante:
RESOLVED as a special resolution that the Articles of
the Corporation be amended as follows:
1. Provide that the authorized capital of the
Corporation shall consist of two million (2,000,000) special
shares, ten million (10,000,000) common shares and five
hundred thousand (500,000) preferred, cumulative, redeemable,
convertible shares.
2. Amend the rights, privileges, restrictions and
conditions attaching to the special shares of the
Corporation, set forth in the Articles of Amendment of the
Corporation effective on October 6, 1981 and referred to as
the "Special Preference Shares", as follows:
(i) Paragraph (c) be amended to delete the words "with
a par value of 1/10 of 1 cent each* appearing in the first
line.
(ii) Paragraph (c)(i) be amended to delete the words
"with a par value of 1/10 of 1 cent each* appearing in the
second line.
E-11
<PAGE>
(iii) Paragraph (c)(iii) be amended to change the words aggregate
par value of appearing in the fifth and sixth lines to read
amount paid up on.
(iv) Paragraph (c)(viii) be amended to change the words par value
thereof appearing in the forth line to read amount paid up
thereon.
3. Amend the rights, provisions, restrictions and conditions attaching to the
Preference, redeemable, cumulative, convertible shares of the Corporation, set
forth in the Articles of Amendment of the Corporation effective on October 6,
1981 and referred to as the "convertible preference shares" as follows:
(i) Paragraph (d)(ii) be amended to change the words "Provided
that the statement required by (S)31 of the Business Corporations Act has been
filed and that the Minister has issued a certificate thereof appearing in the
ninth and tenth lines to read "Provided that articles of amendment required by
(S)25(4) of the Business Corporations Act, 1982, in the prescribed form,
designating such series of shares has been filed and the Director has endorsed
thereon a certificate which shall constitute the certificate of amendment.
4. Provide that the Board of Directors of the Corporation shall consist of a
minimum of four (4) directors and a maximum of nine (9) directors.
5. Delete all the object clauses of the Corporation so that there shall be no
restriction on business the Corporation may carry on or on powers the
Corporation may exercise.
6. Provide that the directors of the Corporation may, without authorization of
the shareholders of the Corporation.
(i) borrow money upon the credit of the Corporation:
(ii) issue, reissue, sell or pledge debt obligations of the
Corporation:
(iii)to the extent permitted by the Business Corporations Act, 1982
(Ontario) as amended or replaced from time to time, give a
guarantee on behalf of the Corporation to secure performance of
an obligation of any person
(iv) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the
Corporation: and
(v) delegate any or all of the foregoing powers to a director, a
committee of directors or an officer of the Corporation.
7. Any officer or director of the Corporation is hereby authorized and directed
on behalf of the Corporation to execute and deliver to the Director under the
Business Corporations Act, 1982 articles of amendment in duplicate and to
execute and deliver all such documents and to do all such acts and things as may
be necessary or desirable to give effect to the foregoing.
E-12
<PAGE>
<TABLE>
<S> <C>
5. The amendment has been duly authorized as La modification a ete cument autorisee conformement
required by Sections 167 and 169 (as applicable) of a l'article 167 et. s'ily a lieu, a l'article 169 de la Los sur les
the Business Corporation Act. compagnies.
6. The resolution authorizing the amendment was Les actionnaires ou les administraterus (le cas echeant)
approved by the shareholders/directors (as de la compagnie ont approuve is resolution autorisant
applicable) of the corproation on la modification
15, June, 1984
---------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents statuts sont signes en double
exemplaire.
ZAHAVY MINES LIMITED
------------------------------------------------------
(Name of Corporation)
(Denomination soeciete de la compagnie)
By/Par: [Signature goes here] President
--------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Function)
E-13
</TABLE>
<PAGE>
Y USE ONLY
[LOGO] Ministry of
Consumer and CERTIFICATE
Commercial
Ontario Relations
THIS IS TO CERTIFY THAT THESE
ARTICLES ARE EFFECTIVE ON
OCTOBER 6, 1981
- ---------------------------------
[SIGNATURE APPEARS HERE]
CONTROLLER OF RECORDS
COMPANIES SERVICES BRANCH
ONTARIO CORPORATION NUMBER
100443
- ---------------------------------
Trans.
Coop
C
-----
1*
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
OF
NAME OF CORPORATION
LESS Z A H A V Y M I N E S L I M I T E D
ONS
INCORPORATED/ALMALGAMATED ON JUNE 15, 1959
---------------
[Original Unclear]
THE FOLLOWING IS A CERTIFIED COPY OF THE RESOLUTION AMENDING THE ARTICLE
OF THE CORPORATION
The articles of the Corporation be amended by Special Resolution to:
(a) increase the authorized capital of the Corporation
(i) by creating an additional [Original Unclear],198,000 common shares
without par value ranking on a parity with the existing 2,802,000 common
shares without par value of the Corporation and
(ii) increase the authorized capital of the Corporation by the
creation of 2,000,000 special shares with a par value of 1/10 of 1 cent
each and
(iii) increase the authorized capital of the Corporation by the
creation of 500,000 preferred, cumulative, redeemable, convertible shares
with a par value of $25.00;
(b) declare that the authorized capital of the Corporation is divided into
2,000,000 special shares with a par value of 1/10 of 1 cent each and
10,000,000 common shares without par value and 500,000 preferred,
cumulative, redeemable, convertible shares with a par value of
$25.00;
E-14
<PAGE>
1A.
(c) provide that the special shares with a par value of 1/10 of 1 cent each
(hereinafter called the "Special Preference Shares") shall have attached thereto
the following:
(i) The Special Preference shares shall be redeemable, voting,
non-participating shares with a par value of 1/10 of 1 cent each and designated
as preference shares.
(ii) No dividends at any time shall be declared, set aside or paid on the
Special Preference Shares.
(iii) In the event of the liquidation, dissolution or winding up of the
Corporation or other distribution of assets or property of the Corporation among
shareholders for the purpose of winding up its affairs the holders of the
Special Preference Shares shall be entitled to receive from assets and property
of the Corporation a sum equivalent to the aggregate par value of the Special
Preference Shares held by them respectively before any amount shall be paid or
any property or assets of the Corporation distributed to the holders of any
common shares or shares of any other class ranking junior to the Special
Preference Shares. After payment to the holders of the Special Preference shares
of the amount so payable to them as above provided they shall not be entitled to
share in any further distribution of the assets or property of the Corporation.
(iv) The Special Preference shares shall be issued only for cash and may, if
authorized by the directors of the Corporation, be accompanied by warrants to
purchase common shares in the Capital of the Corporation on the basis of one
Warrant for each Special Preference Share.
(v) In the event that Warrants to purchase common shares in the capital of
the Corporation which accompanied Special Preference shares are exercised, the
Special Preference shares which such Warrants accompanied shall be redeemed in
accordance with the provisions of Clause (vii) hereof.
(vi) Subject to the provisions of Clause (v) hereof the Corporation may not
redeem the Special Preference shares or any of them prior to the expiration of
five (5) years from the respective dates of issuance thereof, without the prior
consent of the holders of the Special Preference shares to be redeemed. The
Corporation shall redeem all the then outstanding Special Preference Shares five
(5) years from the respective dates of issue of the Special Preference shares.
(vii) The Corporation may, upon giving notice as hereinafter provided,
redeem the whole or any part of the Special Preference shares on payment for
each share to be redeemed of the amount paid up thereon; not less than thirty
(30) days' notice in writing of such redemption shall be given by mailing such
notice to the registered holders of the shares to be redeemed, specifying the
date and place or places of redemption; if notice of any such redemption be
given by the Corporation in the manner aforesaid and an amount sufficient to
redeem the shares be deposited with any trust company or chartered bank in
Canada, as specified in the notice, on or before the date fixed for redemption,
and the holders thereof shall there after have no rights against the Corporation
in respect thereof except, upon the surrender of certificates for such shares,
to receive payment therefor out of the moneys so deposited.
E-15
<PAGE>
1B.
(viii) The Corporation may at any time or times purchase for cancellation
all or any part of the Special Preference shares outstanding from time to time
from the holders thereof, at a price not exceeding the par value thereof, with
the consent of the holders thereof.
(ix) The holders of the Special Preference shares shall be entitled to
receive notice of and attend all meetings of shareholders of the Corporation and
shall have one (1) vote for each Special Preference share held at all meetings
of the shareholders of the Corporation.
(x) The number of Special Preference shares issuable by the Corporation at
any time shall be limited so that at no time shall more than 500,000 Special
Preference shares be issued and outstanding.
(d) provide that the Preference, redeemable, cumulative, convertible shares
(hereinafter called the "convertible preference shares) shall have attached
thereto the following:
(i) The convertible preference shares may at any time and from time to time
be issued in one or more series, each series to consist of the number of shares
previously determined by resolution of the board of directors of the Company.
(ii) The Board of Directors may, by resolution in accordance with the
provisions herein contained, fix from time to time, before issuance, the
designation, preference, rights and restrictions attaching to the convertible
preference shares of each series, including (without limiting the generality of
the foregoing) the rate of preferential dividends, the dates of payment thereof,
the redemption price and terms and conditions of redemption, voting rights (if
any) and conversion rights and any sinking fund, or other provisions attaching
to the convertible preference shares. Provided that the statement required by
S.51 of the Business Corporations Act has been filed and that the Minister has
issued a certificate thereof.
(e) The Corporation may purchase any of its common shares.
2. Any two officers or a director and an officer of the Corporation be and they
are hereby authorized and directed on behalf of the Corporation to deliver
articles of amendment in duplicate to the Minister of Consumer and Commercial
Relations and to sign and execute all documents and to do all things necessary
or advisable in connection with the foregoing.
E-16
<PAGE>
2. THE AMENDMENT HAS BEEN DULY AUTHORIZED AS REQUIRED BY SUBSECTIONS 2, 3 AND 4
(AS APPLICABLE) OF SECTION 189 OF THE BUSINESS CORPORATIONS ACT.
3. THE RESOLUTION AUTHORIZING THE AMENDMENT WAS CONFIRMED BY THE SHARES HOLDERS
OF THE CORPORATION ON July 29, 1981.
--------------
4. THESE ARTICLES ARE EXECUTED IN DUPLICATE FOR DELIVERY TO THE MINISTER.
CERTIFIED
ZAHAVY MINES LIMITED
--------------------------------------
(NAME OF CORPORATION)
BY [SIGNATURE APPEARS HERE] President
-------------------------------------------
(CORPORATE SEAL) SIGNATURE DESCRIPTION OF OFFICE
A. Lewis
BY [SIGNATURE APPEARS HERE] Secretary-Treasury
-------------------------------------------
SIGNATURE DESCRIPTION OF OFFICE
R. Lewis
E-17
<PAGE>
CERTIFICATE
OF
AMENDMENT OF ARTICLES
THIS IS TO CERTIFY THAT
ZAHAVY MINES LIMITED
(FORMERLY GOLSIL MINES LIMITED)
INCORPORATED OR AMALGAMATED ON JUNE 15, 1959
HAS UNDER SECTION 190 OF THE BUSINESS CORPORATIONS ACT, 1970 DELIVERED THE
ATTACHED ARTICLES OF AMENDMENT
THESE ARTICLES OF AMENDMENT ARE EFFECTIVE ON
NOVEMBER 8, 1971.
[SIGNATURE APPEARS HERE]
ASSISTANT CONTROLLER OF RECORDS
COMPANIES BRANCH
DEPARTMENT OF FINANCIAL
AND
COMMERCIAL AFFAIRS
E-18
<PAGE>
ARTICLES OF AMENDMENT
OF
GOLSIL MINES LIMITED
incorporated on June 15, 1959
1. The following is a certified copy of the resolution amending the articles of
the Corporation:
"BE IT RESOLVED THAT
1. the Company be and it is hereby authorized to deliver to the Minister
of Financial and Commercial Affairs articles of amendment to the articles of the
Company
(a) consolidating all of the issued and unissued shares without
par value of the Company into 2,000,000 shares without par
value on the basis that each five (5) of the said shares
FILED shall become one (1) share;
Nov. 8, 1971
Department of (b) increasing the authorized capital of the Company by the
Financial and creation of an additional 1,000,000 shares without par value
Commercial ranking on a parity in all respects with the 2,000,000
Affairs shares without par value resulting from the consolidation
aforesaid:
(c) declaring that the authorized capital of the Company shall
be divided into 3,000,000 shares without par value provided,
however, that the aggregate consideration for the issue of
the said 3,000,000 shares without par value shall not exceed
in amount or value the sum of $4,000,000 or such greater
amount as the board of directors of the Company by
resolution
E-19
<PAGE>
- 2 -
determine provided that such resolution shall not be
effective until a certified copy thereof has been filed with
the Minister of Financial and Commercial Affairs, all
prescribed fees have been paid and the Minister has so
certified; and
(d) changing the name of the Company to Zahavy Mines Limited;
2. the directors and/or the proper officers of the Company be and they
are hereby authorized to do, sign and execute all deeds, documents
and things necessary or desirable in connection with the foregoing."
2. The amendment has been duly authorized as required by subsection 2 of Section
189 of The Business Corporations act, 1970.
3. The resolution authorizing the amendment was confirmed by the shareholders of
the Corporation on November 8, 1971.
4. These articles are executed in duplicate for delivery to the Minister.
GOLSIL MINES LIMITED
By [SIGNATURE APPEARS HERE]
_____________________________
President
Certified [SIGNATURE APPEARS HERE] c/s
_____________________________
Secretary-Treasurer
E-20
<PAGE>
AFFIDAVIT OF VERIFICATION
PROVINCE OF ONTARIO ) IN THE MATTER OF The Business
) Corporations Act, 1970 and
JUDICIAL DISTRICT ) the Articles of Amendment of
) Golsil Mines Limited
OF YORK )
)
TO WIT: )
I. ALLEN MITSUHIRO MORISHITA, of the City of Toronto, in the Judicial
District of York, in the Province of Ontario, make oath and say that:
1. I am the Secretary-Treasurer of Golsil Mines Limited (hereinafter
called the "corporation") and as such have personal knowledge of the
matters herein deposed to.
2. The statements contained in the accompanying articles of amendment of
the corporation are true.
3. The corporation has complied with the requirements of The Business
Corporations Act, 1970 and the conditions contained in the articles
and by-laws of the corporation precedent to the delivery of articles
of amendment.
SWORN BEFORE ME at the )
)
City of Toronto in the )
)
Judicial District of ) [SIGNATURE APPEARS HERE]
) ________________________________
York this [Original ) Allen Mitsuhiro Morishita
Unclear] day of )
)
November, 1971. )
A Commissioner, etc.
GEORGE J. COBIN, A Commissioner etc.
Providence of Ontario for [Original Unclear],
[Original Unclear]
Expires August 31, 197[Original Unclear]
E-21
<PAGE>
AFFIDAVIT OF SOLVENCY
PROVINCE OF ONTARIO ) IN THE MATTER OF The Business
) Corporations Act, 1970 and
JUDICIAL DISTRICT ) the Articles of Amendment of
) Goldsil Mines Limited
OF YORK )
)
TO WIT: )
We, WILLIAM CECIL ARROWSMITH and ALLEN MITSUHIRO MORISHITA, both of the City of
Toronto, in the Judicial District of York, in the Province of Ontario, make oath
and say that:
1. We are the President and Secretary-Treasurer respectively of GOLSIL
MINES LIMITED (hereinafter called the "corporation") and as such have personal
knowledge of the matters herein deposed to.
2. In our opinion the corporation is not insolvent within the meaning of
subsection 7 of Section 1 of The Business Corporations Act, 1970.
SEVERALLY SWORN BEFORE )
)
ME at the City of ) /s/ WILLIAM CECIL ARROWSMTIH
) _____________________________________
Toronto in the Judicial ) William Cecil Arrowsmith
)
District of York this ) /s/ ALLEN MITSUHIRO MORISHITA
) _____________________________________
[Original Unclear]th day ) Allen Mitsuhiro Morishita
of November, )
)
1971.
/s/ GEORGE J. CORBIN
GEORGE J. CORBIN, A Commissioner etc.
Province of Ontario for Shelby,
[Original Unclear] & [Original Unclear]
Expires August 31, 1974.
E-22
<PAGE>
P R O V I N C E O F O N T A R I O
BY THE HONOURABLE
R O B E R T W E L C H ,
PROVINCIAL SECRETARY AND MINISTER OF CITIZENSHIP
TO ALL TO WHOM THESE PRESENTS SHALL COME
G R E E T I N G
W H E R E A S The Corporations Act provides that the Lieutenant Governor may in
his discretion issue Supplementary Letters Patent to any Corporation that
applies therefor amending or otherwise altering or modifying its Letters Patent
or prior Supplementary Letters Patent;
AND WHEREAS by the said Act it is further provided that the Provincial
Secretary may in his discretion and under the Seal of his office have, use,
exercise and enjoy any power, right or authority conferred by the said Act on
the Lieutenant Governor;
AND WHEREAS by its application in that behalf the Corporation herein named has
applied for Supplementary Letters Patent for the purpose hereinafter set out;
AND WHEREAS it has been made to appear that the said Corporation has complied
with the conditions precedent to the issue of the desired Supplementary Letters
Patent;
E-23
<PAGE>
AND WHEREAS by The Department of the Provincial Secretary and Citizenship Act,
1960-61 it is provided that the Provincial Secretary and Minister of Citizenship
may exercise the powers that were conferred on the Provincial Secretary at the
time the said Act came into force;
N O W T H E R E F O R E K N O W Y E that I,
R O B E R T W E L C H,
PROVINCIAL SECRETARY AND MINISTER OF CITIZENSHIP, under the authority of
the hereinbefore in part recited Acts
DO BY THESE SUPPLEMENTARY LETTERS PATENT
to
GOLSIL MINES LIMITED
incorporated by Letters Patent dated the
fifteenth day of June, 1979
(a) SUBDIVIDE each of the issued and unissued shares of the Company
without par value into Two (2) shares without par value; and
(b) DECLARE that the authorized capital of the Company shall be divided
into Ten Million (10,000,000) shares without par value; provided that
the Ten Million (10,000,000) shares shall not be issued for a
consideration exceeding in amount or value the sum of Three Million
dollars ($3,000,000) or such greater amount as the board of directors of
the Company deems expedient or payment to the Treasurer of Ontario of
the fees payable or such greater amount
E-24
<PAGE>
and on the issuers by the Provincial Secretary of a certificte of such
payment.
GIVEN under my hand and Seal of office at the City of Toronto in the said
Province of Ontario this sixth day of March in the year of Our Lord one thousand
nine hundred and sixty-seven.
Robert Welch
Provincial Secretary and
Minister of Citizenship
E-25
<PAGE>
March 6, 1967
GOLSIL MINES LIMITED
E. F. Morton
Recording Officer
E-26
<PAGE>
P R O V I N C E O F O N T A R I O
BY THE HONOURABLE
[Original Unclear]
PROVINCIAL SECRETARY
TO ALL TO WHOM THESE PRESENTS SHALL COME
G R E E T I N G
W H E R E A S The Corporations Act, 1953 provides that with the exceptions
therein mentioned the Lieutenant-Governor may in his discretion, by Letters
Patent, issue a Charter to any number of persons, not less than three, of
twenty-one or more years of age who apply therefor, constituting them and any
others who become shareholders or members of the corporation thereby created a
Corporation for any of the objects to which the authority of the Legislature
extends;
AND WHEREAS by the said Act it is further provided that the Provincial
Secretary may in his discretion and under the Seal of his office have, use,
exercise and enjoy any power, right or authority conferred by the said Act on
the Lieutenant-Governor;
AND WHEREAS by their Application in that behalf the persons herein named have
applied for the issue of a Charter consituting them a corporaion for the due
carrying out of the undertaking hereafter set forth;
AND WHEREAS it has been made to appear that the said persons have complied with
the conditions precedent to the issue of the desired Charter and that the said
undertaking is within the scope of the said Act;
N O W T H E R E F O R E K N O W Y E that under the authority
[Original Unclear] hereinbefore in part [Original Unclear] issue a Charter to
the Persons hereinafter named that [original unclear] say:
E-27
<PAGE>
order [Original Unclear], solicitor; Maureen [Original Unclear] anders, Maureen
Zirvan and [Original Unclear, Secretaries; and Phyllis [Original Unclear]; all
of the City of Toronto, in the County of [Original Unclear] and Province of
Ontario; constituting [Original Unclear] and any others who become shareholders
of the Company hereby created a [Original Unclear]un or [Original Unclear] name
of
[Original Unclear]
For the following [Original Unclear], that is to say:
(a) [Original Unclear] carry on in all its [Original Unclear] the business of
mining, milling, production and development;
(b) To acquire, own, leave, prospect for, open explore, develop, work, improve,
maintain and manage mines and mineral lands and [Original Unclear], and to
[Original Unclear], crush, work, smelt, assay, analyze, reduce, amalgamate,
refine, mine, convey and otherwise treat ores, metals and minerals, whether
belonging to the Company or not, and to render the same [Original Unclear] and
to sell or otherwise dispose of the same or any part thereof or interest
therein; and
(c) To take, no rules and hold as consideration for ores, metals or minerals
sold or otherwise disposed of or for goods supplied or for work done by contract
or otherwise, shares, debentures or other securities of or in any other company
having objects [Original Unclear], in whole or in part, to those of the Company
hereby incorporate and to sell and otherwise dispose of the same;
E-28
<PAGE>
[Original Unclear] or [Original Unclear] of the Company to be divided into Five
Million (5,000,000) shares without par value; provided that [Original Unclear]
all not be issued for a consideration exceeding in [Original Unclear] sum of
Three Million dollars ($3,000,000) or one [Original Unclear] directors of the
Company may [Original Unclear] treasurer of Ontario of the fees payable
[Original Unclear] and on the issuance by the provincial [Original Unclear] of
certificate of such payment;
[Original Unclear] of the Company to be situate at the said City of Toronto;
and
[Original Unclear] of the Company to be Gordon McLaughlin, Maureen [Original
Unclear] and or, [Original Unclear] [Original Unclear], Phyllis [Original
Unclear] and Margaret [Original Unclear], hereinbefore mentioned.
GIVEN under my hand and Seal of office at the City of Toronto in the said
Province of Ontario this fifteenth day of June in the year of Our Lord one
thousand nine hundred and fifty-nine.
[Original Unclear] Phillips
E-29
<PAGE>
June 15, 1959
Golsil Mines Limited
(Private Company)
Grace C. Hunsford
Recording Officer
E-30
<PAGE>
EXHIBIT F
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
XAVIER CORPORATION
INTO
XAVIER MERGER CORPORATION
(pursuant to Section 253 of the General Corporation
Law of the State of Delaware)
XAVIER CORPORATION, a Delaware corporation (Xavier), does hereby certify:
FIRST: That Xavier Merger Corporation (the Merger Company), is
incorporated pursuant to the General Corporation Law of the State of Delaware
(the DGCL).
SECOND: That Xavier owns all of the outstanding shares of capital stock of
the Merger Company.
THIRD: That Xavier, by the following resolutions of its Board of
Directors, duly adopted by unanimous written consent effective November 8,
1995, determined to, and effective upon the filing of this Certificate of
Ownership and Merger with the Office of the Secretary of State of Delaware
does, merge Xavier into the Merger Company.
WHEREAS, the Board of Directors deems it in Xavier's best interest to
merge Xavier into the Merger Company in accordance with the provisions of
Section 253 of the DGCL.
NOW THEREFORE BE IT RESOLVED, Xavier is to be merged into the Merger
Company.
FURTHER RESOLVED, that the name of Xavier Merger Corporation shall be
changed to "Xavier Corporation."
FURTHER RESOLVED, that each issued share of capital stock of Xavier
shall, by virtue of the merger and without any action on the part of the
holder thereof, be converted into the identical number of shares of
capital stock of the Merger Company, as the corporation surviving the
merger.
FURTHER RESOLVED, that, until surrendered, certificates formerly
representing shares of capital stock of Xavier shall, from and after the
effective time of the merger, represent the number of shares of capital
stock of the surviving corporation into which such shares were converted
in the merger.
FURTHER RESOLVED, that each issued and outstanding share of capital
stock of Merger Company, by virtue of the Merger and without any action
on the part of the holder thereof, be cancelled and no consideration
shall be issued in respect thereof.
FURTHER RESOLVED, that the Chief Executive Officer, the President, and
any Vice President of Xavier be and each of them hereby is authorized and
empowered to execute a Certificate of Ownership and Merger, and to cause
the filing of same in the Office of the Secretary of State of the State
of Delaware and a certified copy of same in the Office of Recorder of
Deeds of the appropriate county in Delaware.
FURTHER RESOLVED, the officers of Xavier be, and each of them
individually hereby is, authorized and empowered, in the name and on
behalf of Xavier, to do or cause to be done any and all such further acts
and things and to make, execute, acknowledge,
Exhibit F-1
<PAGE>
verify, deliver, record and/or file, any and all such further
certificates, notices, statements, consents, instruments, documents and
papers, and to incur and pay all such fees and expenses of Xavier, as any
such officer may deem necessary or desirable to consummate the
transactions approved in the foregoing resolutions, the necessity and
desirability of each such certificate, notice, statement, consent,
document, paper, or other instrument, payment of money or other act or
thing to be conclusively evidenced by the execution and delivery thereof
by any such officer or by his taking such action, and each such officer
is hereby authorized and empowered, in the name and on behalf of Xavier,
to attest or join in the execution of any or all such certificates,
notices, consents, documents, papers or other instruments which shall be
so signed on behalf of Xavier by any such officer, to join in the
acknowledgment or verification of such certificates, notices, statements,
consents, documents, papers or other instruments to deliver or join in
delivering the same, and to execute and deliver any certificates or
statements which may be necessary, desirable or appropriate in connection
therewith.
FOURTH: That the merger provided for herein has been approved by a
majority of the outstanding stock of Xavier entitled to vote thereon pursuant
to and in accordance with Sections 253 and 228 of the General Corporation Law
of the State of Delaware, and, pursuant to Section 228(d) of the General
Corporation Law of the State of Delaware, written notice has been given to the
stockholders of Xavier who have not so consented.
IN WITNESS WHEREOF, Xavier has caused this Certificate to be signed by its
duly authorized officer on [_______], 1996.
XAVIER CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Exhibit F-2
<PAGE>
EXHIBIT G
CERTIFICATE OF INCORPORATION OF XAVIER-DELAWARE
G-1
<PAGE>
XAVIER CORPORATION
CERTIFICATE OF INCORPORATION
THE UNDERSIGNED, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:
ARTICLE I
NAME
The name of this company (the "Company") is Xavier Corporation.
ARTICLE II
DEFINITIONS
For the purpose of this Certificate of Incorporation (an amended, and/or
restated from time-to-time, this "Certificate"), the following terms have the
indicated meanings:
A. "ASX" means the Alberta Stock Exchange.
B. "Board" means the Company's Board of Directors.
C. "Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York are not required to
be open.
D. "Class A CPS" means Class A Convertible Preferred Stock.
E. "Closing Price" means for any trading day, the last reported sales price
regular way or, in case no such reported sale takes place on such day,
the average of the last closing bid and asked prices, in either case on
the principal national securities exchange on which the Common Stock is
then listed or admitted to trading, or if not then listed or admitted to
trading on any national securities exchange, the closing sales price for
such day reported by the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") if the Common Stock is traded
over-the-counter and quoted in the NASDAQ National Market System, or if
the Common Stock is so traded, but not so quoted, the average of the
closing reported bid and asked prices of the Common Stock as reported by
NASDAQ or any comparable system or, if the Common Stock is not listed on
NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for
that purpose. If the Common Stock is not traded in such manner that the
quotations referred to above are available for the period required
hereunder, the closing price per share of Common Stock shall be deemed
the fair value per share of Common Stock as determined in good faith by
the Board (the determination of which shall be conclusive).
F. "Common Stock" means the common stock of the Company, par value $.0001
per share.
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G. "Expiration Date" means December 31, 1998.
H. "GCL" means the Delaware General Corporation Law, as amended from time
to time.
I. "Independent Engineer" means an independent petroleum and geological and
engineering firm, including but not limited to Huddleston & Co., Inc. of
Houston, Texas.
J. "Kamennoye East TSA" means the Technical Services Agreement for the
Joint Development of Contract Area of Kamennoye (East) Oil Field, dated
June 5, 1995, by and between Khantymansiyskneftegazgeologiya, Xavier
(Eurasia), Inc. and PETECO.
K. "Liquidation" means the voluntary or involuntary liquidation,
dissolution or winding-up of the Company
L. "Market Capitalization" means the sum of: (i) the number of shares of
Common Stock that are issued and outstanding at any point in time
multiplied by the Closing Price thereof on the Company's most senior
stock exchange plus, (ii) the greater of the market value or the par
value of any and all preferred stock outstanding other than the Class A
CPS.
M. "Person" means any individual, firm, corporation, partnership or other
entity.
N. "Voting Stock" means all the outstanding shares of capital stock of the
Company that pursuant to or in accordance with this Certificate are
entitled to vote generally in the election of directors of the Company,
and each reference herein, where appropriate, to a percentage or portion
of shares of Voting Stock shall refer to such percentage or portion of
the voting power of such shares entitled to vote. The outstanding shares
of Voting Stock will not include any shares of Voting Stock that may be
issuable by the Company pursuant to any agreement, or upon the exercise
or conversion of any right, warrants or options or otherwise.
ARTICLE III.
BUSINESS
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the GCL.
ARTICLE IV.
AUTHORIZED CAPITAL STOCK
A. The total number of shares of all classes of stock that the Company
shall have authority to issue is Three Hundred Ten Million (310,000,000) shares,
consisting of Three Hundred Million (300,000,000) shares of Common Stock and Ten
Million (10,000,000) shares of Preferred Stock, par value of $0.0001 per share
("Preferred Stock").
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B. Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board, each of said series
to be distinctly designated. The voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions thereof, if any, of each such series may differ from
those of any and all other series of Preferred Stock at any time outstanding and
the Board is hereby expressly granted authority to fix or alter, by resolution
or resolutions, the designation, number, voting powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, of each such series,
including, but without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of Preferred
Stock that shall constitute, such series, which number (except where otherwise
provided by the Board in the resolution establishing such series) may be
increased (but not above the total number of shares of Preferred Stock) or
decreased (but not below the number of shares of such series then outstanding)
from time to time by like action of the Board;
(2) The rights in respect of dividends, if any, of such series of Preferred
Stock, the extent of the preference or relation, if any, of such dividends to
the dividends payable on any other class or classes or any other series of the
same or other class or classes of capital stock of the Company, and whether such
dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of such series of Preferred Stock to
convert the same into, or exchange the same for, shares of any other class or
classes or of any other series of the same or any other class or classes of
capital stock of the Company, and the terms and conditions of such conversion or
exchange;
(4) Whether shares of such series of Preferred Stock shall be subject to
redemption, and the redemption price or prices and the times at which, and the
terms and conditions on which, shares of such series of Preferred Stock may be
redeemed;
(5) The rights, if any, of the holders of such series of Preferred Stock
upon the Liquidation or upon any merger or consolidation of, or sale of assets
by, the Company;
(6) The terms of any sinking fund or redemption or purchase account, if
any, to be provided for shares of such series of the Preferred Stock; and
(7) The voting powers, if any, of the holders of any series of Preferred
Stock generally or with respect to any particular matter, which may be less
than, equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a series
by itself or together with the holders of any other series of Preferred Stock or
all series of Preferred Stock as a class, to elect one or more directors of the
Company generally or under such specific circumstances and on such conditions,
as shall be provided in the resolution or resolutions of the Board adopted
pursuant hereto, including, without limitation, if there shall have been a
default in the payment of dividends on or redemption of any one or more series
of Preferred Stock.
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C. Class A Convertible Preferred Stock.
(1) Designation and Number. The distinctive designation of such class of
Preferred Stock is "Class A Convertible Preferred Stock" (the "Class A CPS"),
and such class shall consist of 100 shares.
(2) Rank. The Class A CPS will rank, upon Liquidation, (i) senior to the
Common Stock and each other class of capital stock or series of preferred stock
established by the Board the terms of which do not expressly provide that such
class or series ranks senior to or on a parity with the Class A CPS as to rights
upon Liquidation (collectively referred to as "Junior Securities"); (ii) on a
parity with each other class of capital stock or series of preferred stock
established by the Board the terms of which expressly provide that such class or
series will rank on a parity with the Class A CPS as to rights upon Liquidation
(collectively referred to as "Parity Securities"); and (iii) junior to each
class of capital stock or series of preferred stock established by the Board the
terms of which expressly provide that such class or series will rank senior to
the Class A CPS as to rights upon liquidation (collectively referred to as
"Senior Securities").
(3) Dividends. No dividends shall be payable on outstanding shares of
Class A CPS.
(4) Liquidation Preference.
(a) Upon any Liquidation, occurring prior to the Expiration Date, after
payment or provision for payment by the Company of its debts and other
liabilities, and subject to the preferential rights of the holders of any Senior
Securities, each holder of shares of Class A CPS then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders an amount in cash equal to $1.00 for each outstanding share
of Class A CPS held by such holder (the "Liquidation Preference") and the
holders of any Parity Securities shall be entitled to receive an amount equal to
the full respective liquidation preferences (included premium) to which they are
entitled, before any payment shall be made or any assets distributed to the
holders of outstanding Junior Securities in respect of such Liquidation; and the
holders of shares of Class A CPS shall not be entitled to any further payment.
If the net assets of the Company are insufficient to pay in full the respective
preferential liquidation payments payable to the holders of outstanding shares
of Class A CPS and any Parity Securities, then the entire net assets of the
Company shall be distributed ratably among the holders of all outstanding shares
of Class A CPS and all outstanding shares of such Parity Securities in
proportion to the respective amounts that would be payable per share if such
assets were sufficient to permit payment of such amounts in full.
(b) Written notice of any Liquidation, stating a payment date and the place
where the distributable amounts shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to the holders of record of Class A CPS, if any, at their respective addresses
as the same shall appear on the Company's books.
(c) For purposes of this Section C(4), neither the sale, conveyance,
exchange, lease or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property and assets of the
Company nor the consolidation or merger of the Company with or into one or more
corporations shall be deemed to be a Liquidation, unless such sale, conveyance,
exchange, lease, transfer, consolidation or merger shall be in connection with a
Liquidation of the business of the Company.
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(5) Voting Rights. Holders of Class A CPS shall have no voting rights,
except as provided by Delaware law.
(6) Conversion Rights. Shares of Class A CPS shall, when surrendered
together with the required consideration described below, be convertible into
shares of Common Stock as follows:
(a) Each share of Class A CPS shall entitle the registered holder thereof,
subject to the satisfaction of the conditions set forth in this Section C(6), to
convert such share into shares of Common Stock in an amount equal to 1% of the
issued and outstanding Common Stock of the Company after taking into account
such conversion. Shares of Class A CPS are convertible up to and including the
Expiration Date at a conversion price of $1.00 per share; provided, however,
that conversion of Class A CPS shares may only occur on December 31 of the year
in which all conditions to the conversion of such shares are satisfied. Shares
of Class A CPS will be convertible in the following instances:
(i) First Tranche. Fifteen (15) shares of Class A CPS shall be designated
"First Tranche Class A Convertible Preferred Stock" (the "First Tranche Class A
CPS") and shall become convertible upon the satisfaction of the following
conditions:
(A) the Company having achieved a Market Capitalization of $50,000,000.00;
(B) the Company having received the approval from the ASX for the
conversion of the Class A CPS;
(C) a legal opinion from a law firm satisfactory to the ASX shall have been
submitted to the ASX confirming that the interests acquired by the Company, in
one or more of the Black Gold Joint Venture, the Kamennoye East TSA, the
Kamennoye West BA, the P&K TSA and/or any other similar agreements acceptable to
the ASX (the "Interest Documents") are validly held by the Company and that upon
the completion of the requirements of the applicable Interest Document, title in
such interest will be validly transferred to the Company in accordance with all
applicable laws;
(D) the Company shall have submitted to the ASX an executed copy of one or
more of the Interest Documents;
(E) the Company shall have submitted to the ASX copies of the Feasibility
Study and Joint Evaluations completed pursuant to the terms of the Study
Agreement and Protocols of Intent; and
(F) the Company shall have submitted to the ASX an Engineering Report
confirming the evaluation of the property subject to one or more of the Interest
Documents, completed in accordance with the requirements of the Policies and
Procedures Manual of the ASX and Canadian National Policy 2-B.
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(ii) Second Tranche. Nine (9) shares of Class A CPS shall be designated
"Second Tranche Class A Convertible Preferred Stock" (the "Second Tranche Class
A CPS") and shall become convertible upon the satisfaction of the following
conditions:
(A) the Common Stock shall have been listed on any of the New York Stock
Exchange, the American Stock Exchange or NASDAQ;
(B) the Company shall have achieved cumulative profitability and positive
cash flow with a Market Capitalization of $500,000,000.00;
(iii) Third Tranche. Seventy-six (76) shares of Class A CPS shall be
designated "Third Tranche Class A Convertible Preferred Stock" (the "Third
Tranche Class A CPS"). Following the satisfaction of each of the requirements
with respect to the conversion of the First Tranche Class A CPS, each time the
Company acquires control of an additional 100 million barrels of risk adjusted
recoverable equivalent reserves (net to the Company) as determined by an
independent Engineer, two shares of Third Tranche Class A CPS shall become
convertible. In the event that an independent engineer revises its estimate of
risk adjusted recoverable equivalent reserves, such revision will determine
whether a condition precedent has been met until December 31, 2000.
(b) Shares of Class A CPS may be converted into shares of Common Stock by
surrendering the certificate or certificates evidencing no fewer than the number
of shares of Class A CPS to be converted to the Company, at the office of the
Company or any transfer agent for the Class A CPS, together with (i) the
Election to Exercise form set forth on the reverse side of such certificates
duly completed and executed, (ii) the payment of the Conversion Price and (iii)
the payment of an amount equal to all applicable taxes, if any, other than taxes
which the Company is required to pay hereunder. The shares of Class A CPS
evidenced by such certificate(s) shall be convertible, at the election of the
registered holder thereof, either as an entirety or from time to time for part
of the number of shares of Class A CPS evidenced by the certificate(s), subject
to the provisions of Section C(6)(a).
(c) As soon as practicable after such surrender for conversion of
certificates evidencing shares of Class A CPS, and the payment of any amounts
required by Section (b) above, the Company shall cause to be issued a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, registered in such name or names as may be
directed by such holder, and, if the number of shares of Class A CPS represented
by a certificate shall not have been exercised in full, a new certificate for
the balance of such shares of Class A CPS.
(d) The Company shall not be required to issue fractional shares of Common
Stock on the conversion of shares of Class A CPS. If more than one certificate
evidencing shares of Class A CPS shall be presented for conversion in full at
the same time by the same holder, the number of full shares of Common Stock that
shall be issuable upon the conversion thereof shall be computed on the basis of
the aggregate number of shares of Common Stock issuable upon conversion of the
shares of Class A CPS so presented. If any fraction of a share of Common Stock
would, after giving effect to this Section C.(6)(d), be issuable upon the
conversion of any shares of Class A CPS, the Company shall, in lieu of issuance
of such fraction of a share, round up to the next closest whole share.
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(e) All shares of Common Stock issued upon the conversion of shares of
Class A CPS shall, upon payment of the conversion price therefor, be validly
issued, fully paid and nonassessable. Each Person in whose name any such
certificate for shares of Common Stock is issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the certificate representing the shares of Class A CPS to be converted was
surrendered, duly endorsed, at the office of the Company or of any transfer
agent for the Class A CPS, and payment of any applicable amounts was made,
irrespective of the date of delivery of such certificate for shares of Common
Stock, except that, if the date of such surrender and payment is a date when the
stock transfer books of the Company are closed, such Person shall be deemed to
have become the holder of such shares at the close of business on the next
succeeding date on which the stock transfer books are open (whether before or
after the Expiration Date) and the Company shall be under no duty to deliver any
such certificate until such date.
(7) Adjustment of Shares of Common Stock Purchasable. The number of shares
of Common Stock purchasable upon the conversion of each share of Class A CPS
shall be subject to adjustment from time to time as follows:
(a) As used in this Section C.(6)(e), "Common Stock" shall mean (i) the
class of stock designated as the Common Stock at the date hereof, or (ii) any
other class of stock resulting from successive changes or reclassifications of
shares of such Common Stock consisting solely of changes in par value, or from
par value to no par value, or from no par value to par value.
(b) In case of any capital reorganization of the Company, or of any
reclassification or similar change of the Common Stock (other than as a result
of a stock split or stock dividend or distribution) or in case of any
consolidation of the Company with, or merger of the Company with or into, any
other corporation or other entity (other than a merger which does not result in
any reclassification, conversion, exchange or redemption of outstanding shares
of Common Stock) each share of Class A CPS shall after such capital
reorganization, reclassification, change, consolidation or merger be
convertible, upon the terms and conditions specified herein, only into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock issuable upon conversion of such share of
Class A CPS would have been entitled upon such capital reorganization,
reclassification, change, consolidation or merger had such share of Class A CPS
been exercised immediately prior to the effective date of such event; and, in
any such case, appropriate adjustments (as determined by the Board) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the shares of Class A CPS to
the end that the provisions set forth herein shall thereafter be applicable, so
nearly as may reasonably be, in relation to any shares of stock or other
securities thereafter deliverable upon the exercise of shares of Class A CPS.
(c) No holder of any shares of Class A CPS shall, upon the conversion
thereof, be entitled to any dividends that may have accrued with respect to
shares of Common Stock issuable upon conversion of such shares of Class A CPS
prior to the date of such holder's conversion thereof.
(d) The Company shall from time to time promptly pay all documentary,
stamp, transfer or other transactional taxes and charges attributable to the
issuance of shares of Common Stock upon the conversion of shares of Class A CPS,
but the Company shall not be obligated to pay any tax or taxes which may be
payable in respect of any transfer involved in the issuance of any certificates
for shares of Common Stock (or any other securities) upon conversion of shares
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of Class A CPS in a name other than that of the registered holder of the
certificate surrendered upon the conversion of a share of Class A CPS, 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.
(8) Certain Notices. If at any time prior to the Expiration Date, any of
the following events shall occur:
(a) the Company shall authorize any capital reorganization,
recapitalization, subdivision or reclassification of the shares of the Common
Stock (other than a subdivision or combination of the outstanding shares of
Common Stock or a change in par value, or from par value to no par value, or
from no par value to par value), or any consolidation or merger to which it is a
party and for which approval of the holders of the Common Stock is required, or
the sale of all or substantially all of its assets; or
(b) the Liquidation of the Company shall be proposed;
then the Company shall cause to be filed with the transfer agent for the Class A
CPS, and shall cause to be sent to each record holder of shares of Class A CPS
at least 20 days prior to the applicable record date hereinafter specified, a
notice stating the date on which such reclassification, consolidation, merger,
sale or Liquidation is expected to become effective, and the date as of which it
is expected that holders of shares of Common Stock of record shall be entitled
to exchange their shares for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, or Liquidation. Failure to give
any such notice or any defect therein shall not affect the legality or validity
of the proceedings referred to in clauses (a) and (b) above or any action or
vote taken in connection with any thereof.
(9) Reacquired Shares. Any shares of Class A CPS redeemed or repurchased or
otherwise acquired by the Company in any manner whatsoever shall be retired
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of preferred stock of the
Company without designation as to series, until any such shares are once more
designated as part of a series by the Board in accordance with this Certificate
and applicable law, subject to the conditions and restrictions on issuance set
forth herein.
(10) Reservation of Shares. The Company shall at all time reserve and keep
available, out of its authorized but unissued shares of Common Stock or out of
shares of Common Stock held in its treasury, the full number of shares of common
stock into which all shares of class a cps from time to time outstanding are
exercisable or may automatically convert and shall, if necessary, take all
requisite action to increase its authorized but unissued shares of common stock
to enable it to fulfill its obligations hereunder.
(11) Limitation of Rights. Except as expressly set forth in this
Certificate, the holders of the Class A CPS shall have no rights other than
those required by applicable law.
(12) Termination. After the Expiration Date with respect to any shares of
Class A CPS, the Company may purchase all such shares of Class A CPS from the
holder thereof for $1.00 per share and such shares shall be retired promptly
after the acquisition thereof. All such shares upon their cancellation will
become authorized but unissued shares of preferred stock of the Company without
designation as to class, until any such shares are once more designated as part
of a series by the Board in accordance with this Certificate and applicable law.
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D. Common Stock
(1) After the provisions with respect to preferential dividends on any
series of Preferred Stock (fixed in accordance with Section B of this Article
IV), if any, shall have been satisfied and after the Company shall have complied
with all the requirements, if any, with respect to redemption of, or the setting
aside of sums as sinking funds or redemption or purchase accounts with respect
to, any series of Preferred Stock (fixed in accordance with Section B of this
Article IV), and subject further to any other conditions that may be fixed in
accordance with Section B of this Article IV, then and not otherwise the holders
of Common Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board.
(2) Upon the Liquidation of the Company, after distribution in full of the
preferential amounts, if any (fixed in accordance with Sections B and C of this
Article IV), to be distributed to the holders of Preferred Stock by reason
thereof, the holders of Common Stock shall, subject to the additional rights, if
any (fixed in accordance with Sections B and C of this Article IV), of the
holders of any outstanding shares of Preferred Stock, be entitled to receive all
of the remaining assets of the Company, tangible and intangible, of whatever
kind available for distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted by the Board
pursuant to Section B of this Article IV granting the holders of one or more
series of Preferred Stock exclusive voting powers with respect to any matter,
each holder of Common Stock shall have one vote in respect of each share of
Common Stock held on all matters voted upon by the stockholders.
(4) The authorized amount of shares of Common Stock and of Preferred Stock
may, without a class or series vote, be increased or decreased from time to time
by the affirmative vote of the holders of a majority of the combined voting
power of the then-outstanding shares of Voting Stock, voting together as a
single class.
ARTICLE V.
REGISTERED OFFICE
The street address of the Company's registered office in the State of
Delaware is 9 East Loockerman Street, Dover, Delaware 19901 in Kent county, and
the name of its registered agent at such address is Capital Services, Inc.
ARTICLE VI.
ELECTION OF DIRECTORS
A. The business and affairs of the Company shall be conducted and managed
by, or under the direction of, the Board. Except as otherwise provided for or
fixed pursuant to Article IV relating to the rights of the holders of any series
of Preferred Stock to elect additional directors, the total number of directors
constituting the entire Board shall be fixed from time to time by or pursuant to
a resolution passed by the Board.
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B. The number of directors which shall constitute the whole Board shall be
as specified pursuant to the Bylaws of the Company (the "Bylaws") and may be
altered from time to time as may be provided therein. The Board shall be
divided into three classes, Class A, Class B and Class C. Such classes shall be
as nearly equal in number of directors as possible. Each director shall serve
for a term expiring at the third annual meeting following the annual meeting at
which such director was elected; provided, however, that the directors first
elected to Class A shall serve for an initial term expiring at the annual
meeting following the end of the Company's 1996 fiscal year, the directors first
elected to Class B shall serve for an initial term expiring at the second annual
meeting next following the end of the Company's 1996 fiscal year, and the
directors first elected to Class C shall serve for an initial term expiring at
the third annual meeting next following the end of the Company's 1996 fiscal
year. The foregoing notwithstanding, except as otherwise provided in this
Certificate or any resolution or resolutions of the Board designating a series
of Preferred Stock, directors who are elected at an annual meeting of
stockholders, and directors elected in the interim to fill vacancies and newly
created directorships, shall hold office for the term for which elected and
until their successors are elected and qualified or until their earlier death,
resignation or removal. Whenever the holders of any class or classes of stock
or any series thereof shall be entitled to elect one or more directors pursuant
to this certificate or any resolution or resolutions of the Board designating a
series of Preferred Stock, and except as otherwise provided herein or therein,
vacancies and newly created directorships of such class or classes or series
thereof may be filled by a majority of the directors elected by such class or
classes or series thereof then in office, by a sole remaining director so
elected or by the unanimous written consent or the affirmative vote of a
majority of the outstanding shares of such class or classes or series entitled
to elect such director or directors.
C. Except as otherwise provided for or fixed pursuant to Article IV
relating to the rights of the holders of any series of Preferred Stock to elect
additional directors, and subject to the provisions hereof, newly created
directorships resulting from any increase in the authorized number of directors,
and any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause, may be filled only by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
newly created directorship or for the directorship in which the vacancy
occurred, and until such director's successor shall have been duly elected and
qualified, subject to his earlier death, disqualification, resignation or
removal. Subject to the provisions of this Certificate, no decrease in the
number of directors constituting the Board shall shorten the term of any
incumbent director.
D. During any period when the holders of any series of Preferred Stock have
the right to elect additional directors as provided for or fixed pursuant to
Article IV, then upon commencement and for the duration of the period during
which such right continues (i) the then otherwise total authorized number of
directors of the Company shall automatically be increased by such specified
number of directors, and the holders of such Preferred Stock shall be entitled
to elect the additional directors so provided for or fixed pursuant to said
provisions, and (ii) each such additional director shall serve until such
director's successor shall have been duly elected and qualified, or until such
director's right to hold such office terminates pursuant to said provisions,
whichever occurs earlier, subject to his earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Company shall
be reduced accordingly. Notwithstanding the foregoing, whenever, pursuant to
Article VI, the holders of any one
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or more series of Preferred Stock shall have the right, voting separately as a
series or together with holders of other such series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate and the Certificate of Designations applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C unless expressly provided by such terms.
E. Except for such additional directors, if any, as are elected by the
holders of any series of Preferred Stock as provided for or fixed pursuant to
Article IV, any director may be removed from office only by the affirmative vote
of the holders of 66 2/3% or more of the combined voting power of the then-
outstanding shares of Voting Stock at a meeting of stockholders called for that
purpose, voting together as a single class.
ARTICLE VII.
MEETINGS OF STOCKHOLDERS
A. Meetings of stockholders of the Company ("Stockholder Meetings") may be
held within or without the State of Delaware, as the Bylaws may provide. Except
as otherwise provided for or fixed pursuant to Article IV relating to the rights
of the holders of any series of Preferred Stock, special Stockholder Meetings
may be called only by (i) the Chairman of the Board or (ii) the Board pursuant
to a resolution adopted by a majority of the then-authorized number of directors
of the Company. Special Stockholder Meetings may not be called by any other
Person or Person or in any other manner. Elections of directors need not be by
written ballot unless the Bylaws shall so provide.
B. In addition to the powers conferred on the Board by this Certificate
and by the GCL, and without limiting the generality thereof, the Board is
specifically authorized from time to time, by resolution of the Board without
additional authorization by the stockholders of the Company, to adopt, amend or
repeal the Bylaws, in such form and with such terms as the Board may determine,
including, without limiting the generality of the foregoing, Bylaws relating to
(i) regulation of the procedure for submission by stockholders of nominations of
persons to be elected to the Board, (ii) regulation of the attendance at annual
or special Stockholder Meetings by Persons other than holders of record or their
proxies, and (iii) regulation of the business that may properly be brought by a
stockholder of the Company before an annual or special meeting of stockholders
of the Company.
ARTICLE VIII.
STOCKHOLDER CONSENT
Except as otherwise provided for or fixed pursuant to Article IV of this
Certificate relating to the rights of the holders of any series of Preferred
Stock, no action that is required or permitted to be taken by the stockholders
of the Company at any annual or special meeting of stockholders may be effected
by written consent of stockholders in lieu of a meeting of stockholders, unless
the action to be effected by written consent of stockholders and the taking of
such action by such written consent have expressly been approved in advance by
the Board.
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ARTICLE IX.
LIMITATION OF LIABILITY
A director of this Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the GCL as the same exists or may hereafter be amended.
If the GCL is amended after approval of this Certificate to further
eliminate or limit the personal liability of directors, then the liability of
directors of the Company shall be eliminated or limited to the fullest extent
permitted by the GCL, as so amended. The rights and authority conferred in this
Article IX shall not be exclusive of any other right that a director may have or
hereafter acquire under any statute, provision of this Certificate or the
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
Neither the amendment nor repeal of this Article IX, nor the adoption of any
provision of this Certificate or Bylaws or of any statute inconsistent with this
Article IX, shall eliminate or reduce the effect of this Article IX in respect
of any acts or omissions occurring prior to such amendment, repeal or adoption
of an inconsistent provision.
ARTICLE X.
SECTION 203
The Company shall be governed by Section 203 of the GCL.
ARTICLE XI.
AMENDMENT OF CORPORATE DOCUMENTS
A. Certificate. Whenever any vote of the holders of Voting Stock is
required by law to amend, alter, repeal or rescind any provision of this
Certificate, then in addition to any affirmative vote required by applicable law
and in addition to any vote of the holders of any series of Preferred Stock
provided for or fixed pursuant to Article IV, such alteration, amendment, repeal
or rescission (a "Change") of any provision of this Certificate must be approved
by at least a majority of the then-authorized number of directors and by the
affirmative vote of the holders of at least a majority of the combined voting
power of the then-outstanding shares of Voting Stock, voting together as a
single class; provided, however, that if any such Change relates to Articles II,
IV, VI, VII, VIII, IX, X or to this Article XI, such Change must also be
approved by the affirmative vote of the holders of at least 66 2/3% of the
combined voting power of the then-outstanding shares of Voting Stock, voting
together as a single class; provided further, however, that the vote(s) required
by the immediately preceding clause shall not be required if such Change has
been first approved by at least two-thirds of the then-authorized number of
directors.
Subject to the provisions hereof, the Company reserves the right at any
time, and from time to time, to amend, alter, repeal or rescind any provision
contained in this Certificate in the manner now or hereafter prescribed by law,
and other provisions authorized by the laws of the State of Delaware at the time
in force may be added or inserted, in the manner now or hereafter prescribed by
law; and all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other Persons whomsoever by and pursuant to
this Certificate in its present form or as hereafter amended are granted subject
to the rights reserved in this article.
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B. Bylaws. In addition to any affirmative vote required by law, any
Change of the Bylaws may be adopted either (i) by the Board by the affirmative
vote of at least a majority of the then-authorized number of directors, or (ii)
by the stockholders by the affirmative vote of the holders of at least 66 2/3%
of the combined voting power of the then-outstanding shares of Voting Stock,
voting together as a single class.
ARTICLE XII.
EXISTENCE
The Company is to have perpetual existence.
ARTICLE XIII.
RELATED PARTIES
A. No contract or transaction between the Company and one or more of its
directors or officers, or between the Company and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers, are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a vote of the stockholders; or
(3) The contract or transaction is fair as to the Company as of the time it
is authorized, approved or ratified, by the Board, a committee or the
stockholders.
B. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
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EXHIBIT H
BYLAWS OF XAVIER-DELAWARE
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===============================================================================
BYLAWS
OF
XAVIER RESOURCES CORPORATION
(A DELAWARE CORPORATION)
----------------------
Adopted October 30, 1995
================================================================================
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TABLE OF CONTENTS
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I. OFFICES 1
1.1. Registered Office 1
1.2. Additional Offices 1
II. STOCKHOLDERS MEETINGS 1
2.1. Annual Meetings 1
2.2. Special Meetings 1
2.3. Notices 1
2.4. Quorum 1
2.5. Organization and Conduct of Meetings 2
2.6. Notification of Stockholder Business 3
2.7. Voting of Shares 3
2.7.1. Voting Lists 3
2.7.2. Votes Per Share 4
2.7.3. Proxies 4
2.7.4. Required Vote 4
2.7.5. Consents in Lieu of Meeting 4
2.8. Inspectors of Election 5
III. DIRECTORS 5
3.1. Purpose 5
3.2. Number and Class 5
3.3. Election 5
3.4. Notification of Nominations 6
3.5. Vacancies and Newly Created Directorships 6
3.5.1. Vacancies 6
3.5.2. Newly Created Directorships 7
3.6. Removal 7
3.7. Compensation 7
IV. BOARD MEETINGS 7
4.1. Regular Meetings 7
4.2. Special Meetings 7
4.3. Conduct of Meetings 7
4.4. Quorum, Required Vote 8
4.5. Consent In Lieu of Meeting 8
V. COMMITTEES OF DIRECTORS 8
5.1. Establishment; Standing Committees 8
5.1.1. Executive Committee 8
5.1.2. Finance Committee 8
5.1.3. Conflicts and Audit Committee 9
5.1.4. Compensation Committee 9
5.2. Available Powers 9
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5.3. Unavailable Powers 10
5.4. Alternate Members 10
5.5. Procedures 10
VI. OFFICERS 11
6.1. Elected Officers 11
6.1.1. Chairman of the Board 11
6.1.2. Chief Executive Officer 11
6.1.3. President 11
6.1.4. Chief Financial Officer 12
6.1.5. Vice Presidents 12
6.1.6. Secretary 12
6.1.7. Assistant Secretaries 12
6.1.8. Treasurer 12
6.1.9. Assistant Treasurers 13
6.1.10. Divisional Officers 13
6.2. Election 13
6.3. Appointed Officers 13
6.4. Multiple Officeholders, Stockholder and Director Officers 13
6.5. Compensation, Vacancies 13
6.6. Additional Powers and Duties 14
6.7. Removal 14
6.8. Voting Upon Stocks 14
VII. SHARE CERTIFICATES 14
7.1. Entitlement to Certificates 14
7.2. Multiple Classes of Stock 14
7.3. Signatures 15
7.4. Issuance and Payment 15
7.5. Lost, Stolen or Destroyed Certificates 15
7.6. Transfer of Stock 15
7.7. Registered Stockholders 15
VIII. INDEMNIFICATION 16
8.1. General 16
8.2. Actions by or in the Right of the Corporation 16
8.3. Board Determinations 16
8.4. Advancement of Expenses 17
8.5. Nonexclusive 17
8.6. Insurance 17
8.7. Certain Definitions 17
8.8. Change in Governing Law 18
IX. INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS 18
9.1. Validity 18
9.2. Disclosure, Approval 18
9.3. Nonexclusive 19
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X. MISCELLANEOUS 19
10.1. Place of Meetings 19
10.2. Fixing Record Dates 19
10.3. Means of Giving Notice 19
10.4. Waiver of Notice 19
10.5. Attendance via Communications Equipment 20
10.6. Dividends 20
10.7. Reserves 20
10.8. Reports to Stockholders 20
10.9. Checks, Notes and Contracts 20
10.10. Loans 20
10.11. Fiscal Year 21
10.12. Seal 21
10.13. Books and Records 21
10.14. Resignation 21
10.15. Surety Bonds 21
10.16. Amendments 21
</TABLE>
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BY-LAWS
OF
XAVIER RESOURCES CORPORATION
ARTICLE I.
OFFICES
Section 1.1. Registered Office. The registered office of the Company within
the State of Delaware shall be located at the principal place of business in
said state of such Company or individual acting as the Company's registered
agent in Delaware.
Section 1.2. Additional Offices. The Company may, in addition to its
registered office in the State of Delaware, have such other offices and places
of business, both within and without the State of Delaware, as the Board of
Directors of the Company (the Board) may from time to time determine or as the
business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1. Annual Meetings. Annual meetings of stockholders shall be
held at a place and time on any weekday which is not a holiday as shall be
designated by the Board and stated in the notice of the meeting, at which
meeting the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, shall be called in the manner prescribed by Article VII
of the Certificate of Incorporation (the Certificate).
Section 2.3. Notices. Written notices of each stockholders meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote thereat at the address of such stockholder as reflected in the
records of the Company. Such notice shall be given by or at the direction of
the party calling such meeting not less than 10 nor more than 60 days before the
date of the meeting. If said notice is for a stockholders meeting other than an
annual meeting, it shall in addition state the purpose or purposes for which
said meeting is being called, and the business transacted at such meeting shall
be limited to the matters so stated in said notice and any matters reasonably
related thereto.
Section 2.4. Quorum. At any stockholders meeting, the holders present in
person or by proxy of a majority of the voting power of the shares of capital
stock of the Company entitled to vote thereat shall constitute a quorum of the
stockholders for all purposes (unless the representation of a larger number of
shares shall be required by law or by the Certificate, in which case the
representation of the number of shares so required shall constitute a quorum).
The holders of a majority of the voting power of the shares of capital
stock of the Company entitled to vote which are present in person or by proxy at
any meeting (whether or not constituting a quorum of the outstanding shares) may
adjourn the meeting from time to time without notice other than
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by announcement thereat; and at any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally called, but only those stockholders entitled to vote at
the meeting originally noticed shall be entitled to vote at any adjournment or
adjournments thereof. However, if the adjournment is for more than 30 days, or
if after the adjournment a new record date is fixed, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 2.5. Organization and Conduct of Meetings. The Chairman of the
Board shall call stockholders meetings to order and shall act as Chairman of
such meetings. In the absence of the Chairman of the Board at any meeting, the
Chief Executive Officer or, in his absence, the President or any Vice President
designated by the Board to perform the duties of the Chairman of the Board shall
act as Chairman. In the absence of the Chairman of the Board, the Chief
Executive Officer, the President or any such Vice President at any meeting, the
holders of a majority of the shares of capital stock entitled to vote present in
person or by proxy at such meeting shall elect a Chairman.
The Secretary shall act as secretary of all stockholders meetings; but, in
the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting by the Chairman of the meeting. The Board may, to the extent not
prohibited by law, adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board,
the Chairman of any meeting of stockholders shall have the right and authority
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of such Chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the Chairman of the meeting, may to the extent not prohibited by
law include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and for the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Company, their duly authorized and constituted proxies or such
other persons as the Chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitation on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the Chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
Proceedings at every stockholders meeting shall, at the election of the
Chairman, comply with Robert's Rules of Order (latest published edition).
Section 2.6. Notification of Stockholder Business. All business properly
brought before an annual meeting shall be transacted at such meeting. Subject
to the right of stockholders to elect a Chairman of the meeting, as set forth in
Section 2.5, business shall be deemed properly brought only if it is (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (ii) otherwise properly brought before the meeting
by or at the direction of the Board or (iii) brought before the meeting by a
stockholder of record entitled to vote at such meeting if written notice of such
stockholder's intent to bring such business before such meeting is delivered to,
or mailed, postage prepaid, and received by, the Secretary at the principal
executive offices of the Company not later than the close of business on the
tenth day following the date on which the Company first makes public disclosure
of the date of the annual meeting; provided, however, that if the annual meeting
is adjourned,
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and the Company is required by Delaware law to give notice to stockholders of
the adjourned meeting date, written notice of such stockholder's intent to bring
such business before the meeting must be delivered to or received by the
Secretary no later than the close of business on the fifth day following the
earlier of (1) the date the Company makes public disclosure of the date of the
adjourned meeting or (2) the date on which notice of such adjourned meeting is
first given to stockholders. Each notice given by such stockholder shall set
forth: (A) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting; (B) the
name and address of the stockholder who intends to propose such business; (C) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting (or if the record date for such meeting
is subsequent to the date required for such stockholder notice, a representation
that the stockholder is a holder of record at the time of such notice and
intends to be a holder of record on the record date for such meeting) and
intends to appear in person or by proxy at such meeting to propose such
business; and (D) any material interest of the stockholder, if any, in such
business. The Chairman of the meeting may refuse to transact any business at any
meeting made without compliance with the foregoing procedure. For this Section
2.6, public disclosure shall be deemed to first be given to stockholders when
disclosure of such date of the meeting of stockholders is first made in a press
release reported by the Dow Jones News Services, Associated Press or comparable
national news service, or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended.
Section 2.7. Voting of Shares.
Section 2.7.1. Voting Lists. The officer or agent who has charge of the
stock ledger of the Company shall prepare, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote thereat
arranged in alphabetical order and showing the address and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The original stock transfer books
shall be prima facie evidence as to who are the stockholders entitled to examine
such list or transfer books or to vote at any meeting of stockholders. Failure
to comply with the requirements of this Section shall not affect the validity of
any action taken at said meeting.
Section 2.7.2. Votes Per Share. Each outstanding share of capital stock
shall be entitled to vote in accordance with the provisions for voting included
in the Certificate. In determining the number of shares of stock required by
law, by the Certificate or by the By-laws to be represented for any purpose, or
to determine the outcome of any matter submitted to stockholders for approval or
consent, the number of shares represented or voted shall be weighted in
accordance with the provisions of the Certificate regarding voting powers of
each class of stock. Any reference in these By-laws to a majority or a
particular percentage of the voting stock or a majority or a particular
percentage of the capital stock shall be deemed to refer to a majority or a
particular percentage, respectively, of the voting power of such stock. issues
shall be determined by a class vote only when a class vote is required by law or
the Certificate.
Section 2.7.3. Proxies. Every stockholder entitled to vote at a meeting or
to express consent or dissent without a meeting or a stockholder's duly
authorized attorney-in-fact may authorize another person or persons to act for
him by proxy. Each proxy shall be in writing, executed by the
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stockholder giving the proxy or by his duly authorized attorney. No proxy shall
be voted on or after three years from its date, unless the proxy provides for a
longer period. Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it, or his legal representatives or assigns,
except in those cases where an irrevocable proxy permitted by statute has been
given.
Section 2.7.4. Required Vote. When a quorum is present at any meeting, the
vote of the holders, present in person or represented by proxy, of capital stock
of the Company representing a majority of the votes of all capital stock of the
Company entitled to vote thereat shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of law or
the Certificate or these By-laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 2.7.5. Consents in Lieu of Meeting. Pursuant to Article VIII of the
Company's Certificate, no action that is required or permitted to be taken by
the stockholders of the Company at any annual or special meeting of stockholders
may be effected by written consent of stockholders in lieu of a meeting of
stockholders, unless, subject to certain exceptions contained in the
Certificate, the action to be effected by written consent of stockholders and
the taking of such action by such written consent have expressly been approved
in advance by the Board.
Section 2.8. Inspectors of Election. The Company shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Company, to act at the meeting or any adjournment thereof and
to make a written report thereof. The Company may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector so appointed or designated is able to act at a meeting of
stockholders, the Chairman or the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability.
The inspector or inspectors so appointed or designated shall: (a)
ascertain the number of shares of capital stock of the Company outstanding and
the voting power of each such share; (b) determine the shares of capital stock
of the Company represented at the meeting and the validity of proxies and
ballots; (c) count all votes and ballots; (d) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors; and (e) certify their determination of the
number of shares of capital stock of the Company represented at the meeting and
such inspectors' count of all votes and ballots. Such certification and report
shall specify such other information as may be required by law. In determining
the validity and counting of proxies and ballots cast at any meeting of
stockholders of the Company, the inspectors may consider such information as is
permitted by applicable law. No person who is a candidate for an office at an
election may serve as an inspector at such election.
ARTICLE III.
DIRECTORS
Section 3.1. Purpose. The business and affairs of the Company shall be
managed by or under the direction of the Board, acting by not less than a
majority of the directors then in office. The Board shall exercise all such
powers of the Company and do all such lawful acts and things as are not by law,
the Certificate or these By-laws directed or required to be exercised or done by
the stockholders. Directors need not be stockholders or residents of the State
of Delaware.
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Section 3.2. Number and Class. The number of directors constituting the
Board shall never be less than one (1), and shall be determined by resolution of
the Board. At each election held after the initial elections, directors elected
to succeed such directors whose terms expire shall be elected for a term of
office which shall expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, except as otherwise
provided in the Certificate or any resolution or resolutions of the Board
designating a series of preferred stock of the Company, directors who are
elected at an annual meeting of stockholders, and directors elected in the
interim to fill vacancies and newly created directorships, shall hold office for
the term for which elected and until their successors are elected and qualified
or until their earlier death, resignation or removal. Whenever the holders of
any class or classes of stock or any series thereof shall be entitled to elect
one or more directors pursuant to the provisions of the Certificate or any
resolution or resolutions of the Board designating a series of preferred stock
of the Company, and except as otherwise provided herein or therein, vacancies
and newly created directorships of such class or classes or series thereof may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, by a sole remaining director so elected or by the
unanimous written consent or the affirmative vote of a majority of the
outstanding shares of such class or classes or series entitled to elect such
director or directors. Except as otherwise provided in the Certificate,
directors need not be stockholders.
Section 3.3. Election. Directors shall be elected by the stockholders by
plurality vote at a stockholders meeting as provided in the Certificate and
these By-laws, and each director shall hold office until his successor has been
duly elected and qualified or until the earlier of his death, resignation or
removal from office.
Section 3.4. Notification of Nominations. Subject to the rights of the
holders of any one or more series of Preferred Stock then outstanding,
nominations for the election of directors may be made by the Board or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at an annual meeting or a special
meeting called for the purpose of electing directors may nominate persons for
election as directors at such meeting only if written notice of such
stockholder's intent to make such nomination is delivered to, or mailed, postage
prepaid, and received by, the Secretary at the principal executive offices of
the Company not later than the close of business on the tenth day following the
date on which the Company first makes public disclosure of the date of the
meeting; provided, however, that if the meeting is adjourned, and the Company is
required by Delaware law to give notice to stockholders of the adjourned meeting
date, written notice of such stockholder's intent to make such nomination at
such adjourned meeting must be delivered to or received by the Secretary no
later than the close of business on the fifth day following the earlier of (1)
the date the Company makes public disclosure of the date of the adjourned
meeting or (2) the date on which notice of such adjourned meeting is first given
to stockholders. Each notice given by such stockholder shall set forth: (A)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (B) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting (or if the record date for such meeting is subsequent to the date
required for such stockholder notice, a representation that the stockholder is a
holder of record at the time of such notice and intends to be a holder of record
on the record date for such meeting) and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (C) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (D) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board; and (E)
the written consent of each
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nominee to serve as a director of the Company if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person made without
compliance with the foregoing procedure. For this Section 3.4, public disclosure
shall be deemed to be first given to stockholders when disclosure of such date
of the meeting of stockholders is first made in a press release reported by the
Dow Jones News Services, Associated Press or comparable national news service,
or in a document publicly filed by the Company with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act
of 1934, as amended.
Section 3.5. Vacancies and Newly Created Directorships.
Section 3.5.1. Vacancies. Any vacancy occurring in the Board shall be
filled in accordance with Article VI of the Certificate. A director elected to
fill a vacancy shall hold office until his successor has been duly elected and
qualified or until his earlier death, resignation or removal from office.
Section 3.5.2. Newly Created Directorships. A directorship to be filled
because an increase in the number of directors shall be filled in accordance
with Article VI of the Certificate. A director elected to fill a newly-created
directorship shall hold office until his successor has been duly elected and
qualified or until his earlier death, resignation or removal from office.
Section 3.6. Removal. Any director or the entire Board may be removed in
accordance with the procedures set forth in Article VI of the Certificate.
Section 3.7. Compensation. Unless otherwise restricted by law, the
Certificate or these By-laws, the Board shall have the authority to fix
compensation of directors. The directors may be reimbursed for their expenses,
if any, of attendance at each meeting of the Board and may be paid either a
fixed sum for attendance at each meeting of the Board and/or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of
committees of the Board may be allowed like compensation.
ARTICLE IV.
BOARD MEETINGS
Section 4.1. Regular Meetings. Regular meetings of the Board shall be held
at such times and places as the Board shall determine. No notice shall be
required for any regular meeting of the Board; but a notice of the fixing or
changing of the time or place of regular meetings shall be mailed to every
director at least five days before the first meeting held pursuant to the
notice.
Section 4.2. Special Meetings. Special meetings of the Board (i) may be
called by the Chairman of the Board, Chief Executive Officer or President and
(ii) shall be called by the President or Secretary on the written request of two
or more directors. Notice of each special meeting of the Board shall be given
to each director at least 24 hours before the meeting if such notice is
delivered personally or by means of telephone, telegram, telex or facsimile
transmission and delivery; two days before the meeting if such notice is
delivered by a recognized express delivery service; and three days before the
meeting if such notice is delivered through the United States mail. Any and all
business may be transacted at a special meeting which may be transacted at a
regular meeting of the Board. Except as may be otherwise
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expressly provided by law, the Certificate or these By-laws, neither the
business to be transacted at, nor the purpose of, any special meeting need be
specified in the notice or waiver of notice of such meeting.
Section 4.3. Conduct of Meetings. The Chairman of the Board shall preside
at all meetings of the Board and shall determine the order of business that
shall be considered at such meetings. In the absence of the Chairman of the
Board, the Chief Executive Officer shall preside at all meetings of the Board.
In the absence of the Chief Executive Officer, a Chairman of the meeting shall
be elected from the directors present. The Secretary shall act as secretary of
all meetings of the directors, but in the absence of the Secretary, the Chairman
of the meeting may appoint any person to act as secretary of the meeting.
Section 4.4. Quorum, Required Vote. A majority of the directors shall
constitute a quorum for the transaction of business at any meeting of the Board,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board, except as may be otherwise
specifically provided by law, the Certificate or these By-laws. If a quorum
shall not be present at any meeting, a majority of the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
Section 4.5. Consent In Lieu of Meeting. Unless otherwise restricted by the
Certificate or these By-laws, any action required or permitted to be taken at
any meeting of the Board or any committee thereof may be taken by written
consent in lieu of a meeting in accordance with applicable provisions of law.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1. Establishment; Standing Committees. The Board may by
resolution establish, name or dissolve one or more committees, each committee to
consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required. Such
committees may include the following standing committees, which committees, if
established, shall have and may exercise the following powers and authority:
Section 5.1.1. Executive Committee. The Executive Committee shall have and
may exercise all the powers of the Board delegable by law in the management of
the business and affairs of the Company, unless the resolution creating such
committee or further defining its powers provides otherwise, in which case the
Executive Committee shall have and exercise the powers so provided in such
resolution or resolutions. The Executive Committee shall be comprised of the
Chairman of the Board and such other director or directors as the Board by
resolution shall appoint thereto. In addition to the foregoing, the Executive
Committee shall have such other powers and duties as shall be specified by the
Board in a resolution or resolutions.
Section 5.1.2. Finance Committee. The Finance Committee shall, from time
to time, meet to review the Company's consolidated operating and financial
affairs, both with respect to the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Finance Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Finance Committee shall
not be binding on the Board, except when, pursuant to Section 5.2, such power
and authority have been specifically delegated
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to such committee by the Board by resolution. In addition to the foregoing, the
specific duties of the Finance Committee shall be determined by the Board by
resolution.
Section 5.1.3. Conflicts and Audit Committee. The Conflicts and Audit
Committee shall, from time to time, but no less than two times per year, meet to
review and monitor the financial and cost accounting practices and procedures of
the Company and its subsidiaries, if any, and to report its findings and
recommendations to the Board for final action. In addition, the Conflicts and
Audit Committee shall recommend an independent public accountant to audit the
Company's financial statements and perform other accounting services for the
Company to the Board for submission to the stockholders for approval.
Furthermore, the Conflicts and Audit Committee will, at the request of the Board
by resolution, review specific matters as to which the Board believe there may
be a conflict of interest between the Company and an affiliate, officer and/or
director of the Company to determine if the resolution of such conflict proposed
by the Board or management of the Company, as the case may be, is fair and
reasonable. The composition of the Conflicts and Audit Committee shall meet the
requirements of any national securities exchange or national market system on
which the Company lists any of its capital stock. The Conflicts and Audit
Committee shall not be empowered to approve any corporate action, of whatever
kind or nature, and the recommendations of the Conflicts and Audit Committee
shall not be binding on the Board, except when, pursuant to Section 5.2, such
power and authority have been specifically delegated to such committee by the
Board by resolution. In addition to the foregoing, the specific duties of the
Conflicts and Audit Committee shall be determined by the Board by resolution.
In addition to the foregoing, the specific duties of the Conflicts and Audit
Committee shall be determined by the Board by resolution. For this Section,
"affiliate" shall include (i) any entity that is an "affiliate" within the
meaning set forth in Section 12b-2 of Regulation 12B promulgated under the
Securities Exchange Act of 1934, as amended, and (ii) any officer or director of
an "affiliate" as defined therein.
Section 5.1.4. Compensation Committee. The Compensation Committee shall,
from time to time, meet to review the various compensation plans, policies and
practices of the Company and its subsidiaries, if any, and to report its
findings and recommendations to the Board for final action. The Compensation
Committee shall not be empowered to approve any corporate action, of whatever
kind or nature, and the recommendations of the Compensation Committee shall not
be binding on the Board, except when, pursuant to section 5.2, such power and
authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the
Compensation Committee shall be determined by the Board by resolution.
Section 5.2. Available Powers. Any committee established pursuant to
Section 5.1, including the Executive Committee, the Finance Committee, the
Conflicts and Audit Committee and the Compensation Committee, but only to the
extent provided in the resolution of the Board establishing such committee or
otherwise delegating specific power and authority to such committee, and as
limited by law, the Certificate, and these By-laws, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it. Without limiting the foregoing, such
committee may, but only to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
as provided in Section 151(a) of the General Corporation Law of Delaware (the
DGCL), fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the Company.
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Section 5.3. Unavailable Powers. No committee of the Board shall
have the power or authority to amend the Certificate (except in connection with
the issuance of capital stock as provided in the previous Section); adopt an
agreement of merger or consolidation; recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's property and
assets, a dissolution of the Company or a revocation of such a dissolution;
amend the By-laws of the Company; or, unless the resolution establishing such
committee or the Certificate expressly so provides, declare a dividend,
authorize the issuance of stock or adopt a certificate of ownership and merger.
Section 5.4. Alternate Members. In the absence or disqualification
of a member of a committee, (i) the Board may designate one or more directors as
alternate members of any such committee or (ii) the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member; provided, however, that any person or persons appointed pursuant to
subparagraph (i) or (ii) are qualified to serve on such committee in accordance
with these By-laws and/or the resolutions establishing the same.
Section 5.5. Procedures. Time, place and notice, if any, of meetings
of a committee shall be determined by such committee. At meetings of a
committee, a majority of the number of members designated by the Board to serve
on such committee shall constitute a quorum for the transaction of business.
The act of a majority of the members present at any meeting at which a quorum is
present shall be the act of the committee, except as otherwise specifically
provided by law, the Certificate, these By-laws or the resolution or resolutions
establishing such committee. If a quorum is not present at a meeting of a
committee, the members present may adjourn the meeting from time to time,
without notice other than an announcement at the meeting, until a quorum is
present. Any member of any committee established pursuant to Section 5.1 shall
serve until his successor is duly elected by the Board and qualified or until
the earlier of his death or his resignation or removal from such committee or
the Board. The Board by resolution shall have at any time and from time to time
the power to change the membership of, fill any vacancies in, or dissolve any,
committee established pursuant to Section 5.1; provided, however, that in no
event shall the Audit and Conflicts Committee be dissolved once it is
established nor shall the membership of any committee, including, without
limitation, the Audit and Conflicts Committee and the Executive Committee, be
altered in any way if such alteration would cause such committee to fail to meet
its membership standards as set forth in the resolutions or resolutions of the
Board creating such committee.
ARTICLE VI.
OFFICERS
Section 6.1. Elected Officers. The Board shall elect a President and
a Secretary (collectively, the Required Officers) and may elect such other
officers having the titles and duties set forth below which are not reserved for
the Required Officers or such other titles as the Board may by resolution from
time to time establish. The respective duties of the Required Officers or any
other officer, shall be defined by and subject to the description of such office
set forth below and by the resolution creating the same.
Section 6.1.1. Chairman of the Board. The Chairman of the Board, or
in his absence, the Chief Executive Officer, shall preside, when present, over
all meetings of the stockholders and the Board. The Chairman of the Board shall
advise and counsel the Chief Executive Officer and other
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officers and shall exercise such powers and perform such duties as shall be
assigned to or required of him from time to time by the Board or these By-laws.
The Chairman of the Board may execute bonds, mortgages and other contracts
requiring a seal under the seal of the Company, except where required or
permitted by law to be otherwise signed and executed to another agent of the
Company or where the signing and execution thereof shall be expressly delegated
by the Board to some other officer or agent of the Company. The Chairman of the
board may delegate all or any of his powers or duties to the Chief Executive
Officer and/or President, if and to the extent deemed by the Chairman of the
Board to be desirable or appropriate.
Section 6.1.2. Chief Executive Officer. The Chief Executive Officer
shall generally and actively manage the business of the Company and shall see
that all orders and resolutions of the Board are carried into effect. The Chief
Executive Officer shall only report to the Chairman of the Board and the Board.
In the absence of the Chairman of the Board or upon his inability or refusal to
act, the Chief Executive Officer shall perform the duties and exercise the
powers of the Chairman of the Board.
Section 6.1.3. President. The President shall have general executive
powers to manage the operations of the Company, and such other powers and duties
as the Chairman of the Board, these By-laws or the Board may from time to time
prescribe. In the absence of the Chief Executive Officer or upon his inability
or refusal to act, the President shall perform the duties and exercise the
powers of the Chief Executive Officer.
Section 6.1.4. Chief Financial Officer. The Chief Financial Officer
shall be the principal financial officer of the Company and shall have such
powers and perform such duties as these By-laws or the Board may from time to
time prescribe.
Section 6.1.5. Vice Presidents. In the absence of the President, or
upon his inability or refusal to act, the Vice President (or if there be more
than one Vice President, the Vice Presidents in the order designated by the
Board, or in the absence of any such designation, then in the order of their
election or appointment) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President.
Section 6.1.6. Secretary. The Secretary shall keep in books provided
for that purpose the minutes of all meetings of the Board and of all committees
of the Board and the minutes of all meetings of the stockholders; he shall
attend to the giving or serving of all notices of the Company; he may sign with
the Chairman of the Board or the Chief Executive Officer, the President or a
Vice President, in the name of the Company, all contracts when authorized so to
do either generally or in specific instances by the Board or by any committee of
the Board having the requisite authority and, when so ordered by the Board or
such committee, he shall affix the seal of the Company thereto; he may sign with
the Chairman of the Board, the President or a Vice President certificates for
shares of the capital stock; he shall have charge of the stock certificate
books, transfer books and stock ledgers and such other books and papers as the
Board shall direct, all of which shall at all reasonable times be open to the
examination of the independent public accountants of the Company or any
director, at the office of the Company during business hours; and he shall in
general perform all the duties incident to the office of Secretary, subject to
the control of the Board.
Section 6.1.7. Assistant Secretaries. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries (in the order determined by
the Board or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Secretary or upon his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary.
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Section 6.1.8. Treasurer. The Treasurer shall have custody of all
the funds and securities of the Company which may come into his hands, and shall
deposit the same with such bank or banks or other depositary or depositaries as
the Board from time to time shall determine; he may endorse on behalf of the
Company for collection checks, notes and other obligations and shall deposit the
same to the credit of the Company in such bank or banks or depositary or
depositaries as the Board may designate; he may sign all receipts and vouchers
for payments made to the Company; he may sign with the Chairman of the Board or
the President or a Vice President certificates for shares of the capital stock;
he shall enter or cause to be entered regularly in the books of the Company full
and accurate accounts of all moneys received and paid on account for the Company
and wherever required by the Board shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to the
independent public accountant of the Company or to any director of the Company
during business hours; and he shall perform all acts incident of the office of
Treasurer, subject to the control of the Board.
Section 6.1.9. Assistant Treasurers. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers (in the order determined
by the Board or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Treasurer or upon his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer.
Section 6.1.10. Divisional Officers. Each division of the Company,
if any, may have a President, Secretary or Treasurer and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other assistant
officers. Any number of such offices may be held by the same person. Such
divisional officers will be appointed by, report to and serve at the pleasure of
the Board and such other officers that the Board may place in authority over
them. The officers of each division shall have such authority with respect to
the business and affairs of that division as may be granted from time to time by
the Board, and in the regular course of business of such division may sign
contracts and other documents in the name of the division where so authorized;
provided that in no case and under no circumstances shall an officer of one
division have authority to bind any other division of the Company except as
necessary in the pursuit of the normal and usual business of the division of
which he is an officer.
Section 6.2. Election. All officers shall serve until their
successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
Section 6.3. Appointed Officers. The Board may also appoint or
delegate the power to appoint such other officers, assistant officers and
agents, and may also remove such officers and agents or delegate the power to
remove same, as it shall from time to time deem necessary, and the titles and
duties of such appointed officers may be as described in Section 6.1 for elected
officers; provided that the officers and any officer possessing authority over
or responsibility for any function of the Board shall be elected officers.
Section 6.4. Multiple Officeholders, Stockholder and Director
Officers. Any number of offices may be held by the same person, unless the
Certificate or these By-laws otherwise provide. Officers need not be
stockholders or residents of the State of Delaware. Officers, such as the
Chairman of the Board, possessing authority over or responsibility for any
function of the Board must be directors.
Section 6.5. Compensation, Vacancies. The Board shall have the power
to establish the compensation of officers of the Company or authorize the
Company to enter into an agreement with an affiliate whereby the services of
such officers, along with certain other services specified therein, are
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provided to the Company for a fee. To the extent not governed by such an
agreement, the Board shall fill any vacancy in an office. Any of the powers
granted in this Section may be delegated to a committee established pursuant to
Section 5.1. For this Section, "affiliate" shall include (i) any entity that is
an "affiliate" within the meaning set forth in Section 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended, and (ii) any
officer or director of an "affiliate" as defined therein.
Section 6.6. Additional Powers and Duties. In addition to the
foregoing especially enumerated powers and duties, the several officers of the
Company shall perform such other duties and exercise such further powers as may
be provided by law, the Certificate or these By-laws or as the Board may from
time to time determine or as may be assigned to them by any competent committee
or superior officer.
Section 6.7. Removal. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board.
Section 6.8. Voting Upon Stocks. Unless otherwise ordered by the
Board, the Chairman of the Board, the Chief Executive Officer or the President,
or any other officer of the Company designated by the Chairman of the Board or
the Chief Executive Officer shall have full power and authority on behalf of the
Company to attend and to act and to vote in person or by proxy at any meeting of
the holders of securities of any corporation or entity in which the Company may
own or hold stock or other securities, and at any such meeting shall possess and
may exercise in person or by proxy any and all rights, powers and privileges
incident to the ownership of such stock or other securities which the Company,
as the owner or holder thereof, might have possessed and exercised if present.
The Chairman of the Board, the Chief Executive Officer, the President or any
other officer of the Company designated by the Chairman of the Board, the Chief
Executive Officer, or the President, may also execute and deliver on behalf of
the Company powers of attorney, proxies, waivers of notice and other instruments
relating to the stocks or securities owned or held by the Company. The Board
may, from time to time, by resolution confer like powers upon any other person
or persons.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1. Entitlement to Certificates. Every holder of the
capital stock of the Company, unless and to the extent the Board by resolution
provides that any or all classes or series of stock shall be uncertificated,
shall be entitled to have a certificate, in such form as is approved by the
Board and conforms with applicable law, certifying the number of shares owned by
him.
Section 7.2. Multiple Classes of Stock. If the Company shall be
authorized to issue more than one class of capital stock or more than one series
of any class, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall, unless the Board shall by resolution provide that such
class or series of stock shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of stock; provided that, to the extent allowed
by law, in lieu of such statement, the face or back of such certificate may
state that the Company will furnish a copy of such statement without charge to
each requesting stockholder.
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Section 7.3. Signatures. Each certificate representing capital stock
of the Company shall be signed by or in the name of the Company by (1) the
Chairman of the Board, the President or a Vice President; and (2) the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary. The signatures
of the officers of the Company may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to hold such office before such certificate is issued, it may be
issued by the Company with the same effect as if he held such office on the date
of issue.
Section 7.4. Issuance and Payment. Subject to any provision of
applicable law, the Certificate or these By-laws, shares of capital stock of the
Company may be issued for such consideration and to such persons as the Board
may determine from time to time. Shares may not be issued until the full amount
of the consideration has been paid, unless upon the face or back of each
certificate issued to represent any partly paid shares of capital stock there
shall have been set forth the total amount of the consideration to be paid.
Section 7.5. Lost, Stolen or Destroyed Certificates. The Board may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen or destroyed upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.6. Transfer of Stock. Upon surrender to the Company or its
transfer agent, if any, of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer and of
the payment of all taxes applicable to the transfer of said shares, the Company
shall be obligated to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books; provided,
however, that the Company shall not be so obligated unless such transfer was
made in compliance with applicable state and federal securities laws.
Section 7.7. Registered Stockholders. The Company shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. General. The Company shall indemnify any person who was
or is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company), because
he is or was a director or officer of the Company, or is or was serving at the
written request of the Company as a director, officer, trustee, employee or
agent of or in any other capacity with another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
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fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, have reasonable cause to believe that his conduct was unlawful.
Section 8.2. Actions by or in the Right of the Company. The Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Company to procure a judgment in its favor because he is or was a
director or officer of the Company, or is or was serving at the written request
of the Company as a director, officer, trustee, employee or agent of or in any
other capacity with another corporation, partnership, joint venture or trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 8.3. Board Determinations. Any indemnification under
Sections 8.1 and 8.2 (unless ordered by a court) shall be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 8.1 and 8.2. Such determination shall be made (1) by the Board by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel (which may be counsel ordinarily used by the Company) in a written
opinion, or (3) by the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon.
Section 8.4. Advancement of Expenses. Expenses incurred by a
director or officer of the Company in defending a civil or criminal action, suit
or proceeding shall (in the case of any action, suit or proceeding against a
director of the Company) or may (in the case of any pending threatened action,
suit or proceeding against an officer) be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company as authorized by law or in this Article VIII.
Section 8.5. Nonexclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VIII shall not be
deemed exclusive of any other rights to which any director, officer, employee or
agent of the Company seeking indemnification or advancement of expenses may be
entitled under any other provision of these By-laws or by the Certificate, an
agreement, a vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized
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or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8.6 Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under provisions of applicable law, the Certificate or this Article
viii.
Section 8.7 Certain Definitions. For this Article VIII, (a) references to
the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger, which, if its separate existence had continued,
would have the power and authority to indemnify its directors, officers,
employees or agents, so that any person who is or was a director, officer,
employee, or agent of such constituent corporation, or is serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued; (b) references
to "other enterprises" shall include employee benefit plans; (c) references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and (d) references to "serving at the request of the
Company" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Article VIII.
Section 8.8 Change in Governing Law. Upon any amendment or addition to
Section 145 of the DGCL or the addition of any other section to such law which
shall limit indemnification rights thereunder, the company shall, to the extent
permitted by the dgcl, indemnify to the fullest extent authorized or permitted
hereunder, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of the Company) because he is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding.
ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1 Validity. any contract or other transaction between the
Company and any of its directors, officers or stockholders (or any corporation
or firm in which any of them are directly or indirectly interested) shall be
valid for all purposes notwithstanding the presence of such director, officer,
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or stockholder at the meeting authorizing such contract or transaction, or his
participation or vote in such meeting or authorization.
Section 9.2 Disclosure, Approval. The foregoing shall, however, apply only
if the material facts of the relationship or the interest of each such director,
officer or stockholder is known or disclosed:
(1) to the Board and it nevertheless in good faith authorizes or ratifies
the contract or transaction by a majority of the directors present, each such
interested director to be counted in determining whether a quorum is present but
not in calculating the majority to carry the vote; or
(2) to the stockholders and they nevertheless in good faith authorize or
ratify the contract or transaction by a majority of the shares present, each
such interested stockholder to be counted for quorum and voting purposes.
Section 9.3 Nonexclusive. This provision shall not be construed to
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE X
MISCELLANEOUS
Section 10.1 Place of Meetings. All stockholders, directors and committee
meetings shall be held at such place or places, within or without the state of
Delaware, as shall be designated from time to time by the board or such
committee and stated in the notices thereof. If no such place is so designated,
said meetings shall be held at the principal business office of the Company.
Section 10.2 Fixing Record Dates. so that the company may determine the
--------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of stockholders for any other proper purpose,
the board may fix, in advance, a record date for any such determination of
stockholders, which shall not be more than 60 nor less than 10 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. in the absence of any action by the board, the date on which a
notice of meeting is given, or the date the board adopts the resolution
declaring a dividend or other distribution or allotment or approving any change,
conversion or exchange, as the case may be, shall be the record date. A record
date validly fixed for any meeting of stockholders and the determination of
stockholders entitled to vote at such meeting shall be valid for any adjournment
of said meeting except where such determination has been made through the
closing of stock transfer books and the stated period of closing has expired.
Section 10.3 Means of Giving Notice. Except as expressly provided elsewhere
herein, whenever under law, the Certificate or these By-laws, notice is required
to be given to any director or stockholder, such notice may be given in writing
and delivered personally, through the United States mail, by a recognized
express delivery service (such as Federal Express) or by means of telegraph,
telex, or facsimile transmission, addressed to such director or stockholder at
his address, telex or facsimile transmission number, as the case may be,
appearing on the records of the Company, with postage and fees thereon prepaid.
Such notice shall be deemed to be given at the time when the same shall be
H-21
<PAGE>
deposited in the united states mail or with an express delivery service or when
transmitted, as the case may be.
Section 10.4 Waiver of Notice. whenever notice is required to be given
under any provision of law or of the Certificate or of these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting of stockholders or of directors or of a committee shall
constitute waiver of notice of such meeting, except where otherwise provided by
law.
Section 10.5 Attendance via Communications Equipment. Unless otherwise
restricted by law, the Certificate or these By-laws, members of the Board or any
committee thereof or the stockholders may hold a meeting by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with each other. Such
participation in a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 10.6 Dividends. Dividends on the capital stock of the Company,
paid in cash, property, or securities of the Company and as may be limited by
applicable law and applicable provisions of the Certificate (if any), may be
declared by the Board at any regular or special meeting.
Section 10.7 Reserves. Before payment of any dividends, there may be set
aside out of any funds of the Company available for dividends such sum or sums
as the Board from time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company to be distributed to
stockholders, or for such other purpose as the Board shall determine to be in
the best interest of the Company; and the Board may modify or abolish any such
reserve in the manner in which it was created.
Section 10.8 Reports to Stockholders. The Board shall present at each
annual meeting of stockholders, and at any special meeting of stockholders when
called for by vote of the stockholders, a statement of the business and
condition of the Company.
Section 10.9. Checks, Notes and Contracts. Checks and other orders for the
payment of money shall be signed by such person or persons as the Board shall
from time to time by resolution determine. Contracts and other instruments or
documents may be signed in the name of the Company by the Chairman of the Board,
the Chief Executive Officer or the President or by any other officer authorized
to sign such contract, instrument or document by the Board, and such authority
may be general or confined to specific instances.
Checks and other orders for the payment of money made payable to the
Company may be endorsed for deposit to the credit of the Company, with a
depositary authorized by resolution of the Board, by the Chief Financial Officer
or Treasurer or such other persons as the Board may from time to time by
resolution determine.
Section 10.10 Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Company except as authorized by the Board. When
authorized so to do by the Board, any officer or agent of the Company may effect
loans and advances for the Company from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Company.
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<PAGE>
When authorized so to do by the Board, any officer or agent of the Company may
pledge, hypothecate or transfer, as security for the payment of any and all
loans, advances, indebtedness and liabilities of the Company, any and all
stocks, securities and other personal property at any time held by the Company,
and to that end may endorse, assign and deliver the same. Such authority may be
general or confined to specific instances.
Section 10.11. Fiscal year. The fiscal year of the Company shall begin on
the first day of July in each year and terminate on the final day of June in the
succeeding calendar year.
Section 10.12. Seal. The seal of the Company shall be in such form as shall
from time to time be adopted by the Board. The seal may be used by causing it or
a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 10.13. Books and Records. The Company shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its stockholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 10.14. Resignation. Any director, committee member, officer or
agent may resign by giving written notice to the Chairman of the Board, the
President or the Secretary. The resignation shall take effect at the time
specified therein, or immediately if no time is specified. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 10.15. Surety Bonds. Such officers and agents of the Company (if
any) as the Chief Executive Officer, the President or the Board may direct, from
time to time, shall be bonded for the faithful performance of their duties and
for the restoration to the Company, in case of their death, resignation,
retirement, disqualification or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in their possession or under
their control belonging to the Company, in such amounts and by such surety
companies as the president or the Board may determine. The premiums on such
bonds shall be paid by the Company and the bonds so furnished shall be in the
custody of the Secretary.
Section 10.16. Amendments. These By-laws may from time to time be altered,
amended or repealed and new By-laws may be adopted, as provided in the
Certificate.
[NEXT PAGE IS ADOPTION PAGE]
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<PAGE>
EXHIBIT I
BYLAWS OF XAVIER-CANADA
Exhibit I-1
<PAGE>
BY-LAW NUMBER 1
A by-law relating generally to the
transaction of the business and
affairs of XAVIER MINES LIMITED
TABLE OF CONTENTS
Article Description
- ------- -----------
I Interpretation
II Business of the Corporation
III Directors
IV Committees of the Board
V Officers
VI Protection of Directors, Officers and Others
VII Shares
VIII Dividends and Rights
IX Meetings of Shareholders
X Notices
XI Effective Date
BE IT MADE as a by-law of XAVIER MINES LIMITED as follows:
Exhibit I-2
<PAGE>
- 2 -
ARTICLE I
INTERPRETATION
1.01 Definitions. In the by-laws and special resolutions of the Corporation,
unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, R.S.O. 1990, c.B.16, as
from time to time amended and any statute that may be substituted
therefor, and any reference to a particular provision of the Act
shall be deemed also to be a reference to any similar provision
resulting from the amendment or replacement thereof;
(b) "appoint" includes "elect" and vice versa;
(c) "articles" shall, in respect of the Corporation, have the meaning
attributed to it by the Act;
(d) "Board" means the Board of Directors of the Corporation;
(e) "by-laws" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
(f) "committee" means a committee of directors appointed by the Board;
(g) "Corporation" means XAVIER MINES LIMITED;
(h) "director" means a director of the Corporation;
(i) "meeting of shareholders" includes an annual meeting of shareholders
and a special meeting of shareholders;
(j) "non-business day" means any day that is a Saturday, Sunday or any
other day that is a holiday as defined in the Interpretation Act,
R.S.O. 1990, c.I.11, and any statute that may be substituted
therefor, as from time to time amended;
(k) "officer" means an officer of the Corporation;
(l) "recorded address" means,
EXHIBIT I-3
<PAGE>
-3-
(i) in the case of a shareholder, his latest address as shown in the
records of the Corporation or its transfer agent,
(ii) in the case of an officer or auditor of the Corporation, his address
as shown in the records of the Corporation, and
(iii) in the case of a director of the Corporation, the latest address as
shown in the records of the Corporation or in the most recent
notice filed by the Corporation under the Corporations Information
Act or any statue that may be substituted therefor, as from time to
time amended, whichever is the more current;
(m) "signing officer" means, in relation to any instrument, any person
authorized to sign the same on behalf of the Corporation by section
2.04 hereof or by a resolution passed pursuant thereto;
(n) "shareholders" means shareholders of the Corporation.
1.02 Subject to section 1.01 hereof, words and expressions defined in the Act
have the same meanings when used in the by-laws and special resolutions of the
Corporation.
1.03 Words in the by-laws and special resolutions of the Corporation importing
the singular number include the plural and vice versa; words importing gender
include the masculine and feminine and neuter genders; and words importing
persons include individuals, bodies corporate, partnerships, trusts and
unincorporated organizations.
ARTICLE II
BUSINESS OF THE CORPORATION
2.01 Registered or Head Office. The Board may from time to time fix by
resolution the location of the registered office of the Corporation at a place
within Ontario where the articles provide that the registered office or head
office of the Corporation is to be located.
2.02 Corporate Seal. The Corporation shall have a seal which shall be adopted
and may be changed by resolution of the directors.
2.03 Financial Year. Until changed by the Board, the financial year of the
Corporation shall end on December 31 in each year.
EXHIBIT I-4
<PAGE>
-4-
2.04 Execution of Instruments. Contracts and engagements on behalf of the
Corporation may be made and bills of exchange and promissory notes on behalf of
the Corporation may be made, drawn, accepted and endorsed and deeds, transfers,
mortgages, charges, hypothecs, leases, assignments and all other documents may
be executed on behalf on the Corporation (i) by the following officers: any one
of the Chairman of the Board, the Vice-Chairman of the Board, the President,
any Executive Vice-President or any Vice-President together with any one of the
Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer, or
(ii) by any one of the foregoing officers together with any one director;
provided nevertheless that the Board may appoint any other person or persons
form time to time to make contracts and engagements on behalf of the
Corporation, to draw, accept and endorse bills of exchange and promissory notes
on behalf of the Corporation, and to execute deeds, transfers, mortgages,
charges, hypothecs, leases, assignments and all other documents on behalf of the
Corporation. The Corporation's seal may be affixed to such documents as require
the same by any of the persons executing such documents in accordance with the
foregoing provisions of this section.
2.05 Banking Arrangements. The Corporation's bank accounts shall be kept in
such bank or banks, trust company or trust companies or other depositories as
the Board may from time to time determine. All cheques, drafts, notes,
acceptances or orders for the payment of money shall be signed on behalf of the
Corporation (i) by any one of the Chairman of the Board, the Vice-Chairman of
the Board, the President, any Executive Vice-President or any Vice-President
together with any one of the Secretary, the Treasurer, any Assistant Secretary
or any Assistant Treasurer, (ii) by any one of the foregoing officers together
with any one director, or (iii) by such other officer or officers or such other
person or persons as the Board may from time to time appoint; provided that
bills of exchange, promissory notes, or cheques or orders for the payment of
money may be endorsed for deposit to the credit of the Corporation's bank
account by any one of the following, viz: the Chairman of the Board, the Vice-
Chairman of the Board, the President, any Executive Vice-President, any Vice-
President, any Vice-President, the Secretary, the Treasurer, any Assistant
Secretary, any Assistant Treasurer, or such other person or persons as the Board
may from time to time appoint for that purpose, or, if the Board so determines,
by means of a rubber stamp. If authorized by resolution of the Board, the
signature of any officer or other person authorized to sign cheques, drafts,
notes, acceptances or orders for the payment of money may be engraved,
lithographed or otherwise mechanically reproduced in facsimile thereon and in
such event every such facsimile signature for all purposes shall be deemed to be
the signature of the officer or person whose signature it reproduces and shall
be binding upon the Corporation notwithstanding that any signing officer or
person whose signature is so produced may have ceased to hold office at the date
of delivery or issue of such cheques, drafts, notes, acceptances or orders for
the payment of money.
Exhibit I-5
<PAGE>
-5-
2.06 Voting Rights in Other Bodies Corporate. Any security carrying voting
rights of any firm or other body corporate held from time to time by the
Corporation shall be voted at such meeting or meetings of security holders of
such firm or other body corporate and in such manner and by such person or
persons as may be specified in a resolution passed by the Board. In the absence
of such a resolution, the signing officers of the Corporation may from time to
time execute and deliver for and on behalf of the Corporation proxies and/or
arrange for the issuance of voting certificates and/or other evidence of the
right to vote in such names (including their own) as they may determine without
the necessity of a resolution or other action by the Board.
2.07 Voting At Municipal Elections. The Chairman of the Board, the Vice-Chairman
of the Board, the President, an Executive Vice-President, a Vice-President, the
Secretary or the Treasurer, or any person named in writing for that purpose by
any two of the aforementioned officers, is hereby authorized and empowered to
vote for and on behalf of the Corporation in any municipal election held in any
municipality in which the Corporation is entitled to vote.
ARTICLE III
DIRECTORS
3.01 Number of Directors and Quorum. Until changed in accordance with the Act,
the board shall consist of not fewer than the minimum number and not more than
the maximum number of directors provided in the articles. A majority of the
directors shall constitute a quorum for the transaction of business. A majority
of the directors shall be resident Canadian, but where the Corporation has only
one or two directors, that director or one of the two directors, as the case may
be, shall be a resident Canadian.
3.02 Qualification. The following persons are disqualified from being a director
of the Corporation:
(a) a person who is less than eighteen years of age;
(b) a person who is of unsound mind and has been so found by a court in
Canada or elsewhere;
(c) a person who is not an individual; and
(d) a person who has the status of a bankrupt.
Exhibit I-6
<PAGE>
-6-
Unless the articles otherwise provide, a director shall not be required to hold
shares issued by the Corporation.
3.03 Election and Term. Unless the articles otherwise provide, a director not
elected for an expressly stated term shall cease to hold office at the close of
the first annual meeting of shareholders following his election. The election
of directors shall take place at each annual meeting of shareholders and all
directors then in office shall retire but, if qualified, shall be eligible for
re-election. The election may be by a show of hands or by resolution of the
shareholders or, if a ballot is required or demanded, by ballot. If an election
of directors is not held at the proper time, the incumbent directors shall
continue in office until their successors are duly elected.
3.04 Removal of Directors. Subject to the provisions of the Act, the
shareholders may by ordinary resolution passed at a meeting of shareholders
remove any director from office and the vacancy created by such removal may be
filled at the same meeting, failing which it may be filled by a quorum of the
directors. Where the holders of any class or series of shares of the
Corporation have an exclusive right to elect one or more directors, a director
so elected may only be removed by an ordinary resolution passed at a meeting of
the shareholders of that class or series.
3.05 Vacation of Office.
(a) A director ceases to hold office when (i) he dies, or subject to
subsection 3.05(b) of this by-law, he resigns, (ii) he is removed from
office in accordance with the provisions of the Act or the by-laws, or
(iii) he becomes disqualified from being a director under the Act.
(b) A director may resign his office as a director by giving the
Corporation his written resignation, which resignation shall become
effective at the later of (i) the time at which such resignation is
received by the Corporation, and (ii) the time specified in the
resignation.
3.06 Vacancies. Subject to the provisions of the Act and the articles, a quorum
of the Board may fill a vacancy in the Board. In the absence of a quorum of the
Board, the Board shall forthwith call a meeting of shareholders to fill the
vacancy. If the Board fails to call such meeting or if there are no directors
then in office, any shareholder may call the meeting. A director appointed or
elected to fill a vacancy holds office for the unexpired term of his
predecessor.
3.07 Duties and Conduct of Business. The Board shall manage or supervise the
management of the business and affairs of the Corporation. The powers of the
Board
Exhibit I-7
<PAGE>
-7-
may be exercised by a meeting at which a quorum of directors is present and,
subject to the exceptions permitted by the Act, at which a majority of the
directors present are resident Canadians, or by resolution in writing signed by
all the directors entitled to vote on that resolution at a meeting of the Board
if such directors constitute a quorum. Where there is a vacancy in the Board,
the remaining directors may exercise all the powers of the Board so long as a
quorum remains in office.
3.08 Place of Meetings. Meetings of the Board or of a committee of the Board
may be held at any place within or outside Ontario, provided that in any
financial year of the Corporation a majority of the meetings shall be held at a
place within Canada.
3.09 Calling of Meetings. Meetings of the Board may be called by the Chairman
of the Board, the Vice-Chairman of the Board, the President or by an Executive
Vice-President or a Vice-President who is a director or by the Secretary or by
any two directors.
3.10 Notice of Meeting. Except as hereinafter provided, notice of the time and
place of every meeting of the Board shall be given in the manner provided in
Article X to each director (a) not less than 48 hours before the time when the
meeting is to be held if the notice is mailed, or (b) not less than 12 hours
before the time when the meeting is to be held if the notice is given personally
or is delivered or is sent by any means of transmitted or recorded
communication; provided that a meeting of the Board may be held at any time on
shorter notice or without notice to any or all directors and proceedings thereat
shall not thereby the invalidated if all the directors are present or if those
absent have (i) been given notice of the holding of such meeting or (ii) in any
manner and at any time waived notice of such meeting. No notice of meeting need
be given to a director in respect of the meeting at which he was elected or
appointed to the Board to fill a vacancy thereon. A notice of a meeting of
directors need not specify the purpose of or the business to be transacted at
the meeting except where the Act requires such purpose or business to be
specified. A director may in any manner waive notice of or otherwise consent to
a meeting of the Board.
3.11 First Meeting of the New Board. Provided a quorum of directors is
present, and subject to the Act, a majority of directors present are resident
Canadians, each newly elected Board may without notice hold its first meeting
immediately following the meeting of shareholders at which such Board is
elected.
3.12 Adjourned Meeting. Notice of an adjourned meeting of the Board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
3.13 Regular Meetings. The Board may appoint a day or days in any month or
months for regular meetings of the Board at a place and hour to be named. A
copy of any
Exhibit I-8
<PAGE>
-8-
resolution of the Board fixing the place and time of such regular meetings shall
be sent to each director forthwith after being passed, but no other notice shall
be required for any such regular meeting except where the Act requires the
purpose thereof or the business to be transacted thereat to be specified.
3.14 CHAIRMAN. The chairman of any meeting of the Board shall be the Chairman
of the Board or, in his absence or at his request, the Vice-Chairman of the
Board or, in his absence or at his request or that of the Chairman of the Board,
the President. If no such person is present, the directors present shall choose
one of their number to be chairman.
3.15 PROCEDURE AT MEETINGS. At all meetings of the Board every question shall
be decided by a majority of the votes cast on the question. In case of an
equality of votes the chairman of the meeting shall be entitled, in addition to
his original vote, to a second or casting vote. Notwithstanding the foregoing,
where all the directors present at or participating in the meeting consent, a
meeting of the Board or of a committee of the directors may be held by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and a director participating in such a
meeting is deemed to be present at such meeting.
3.16 INTEREST OF DIRECTORS. No director shall be disqualified by reason of his
being a director from, directly or indirectly, contracting with the Corporation,
but shall make such disclosure as required by the Act and shall refrain from
voting where required by the Act.
3.17 REMUNERATION AND EXPENSES. The directors may fix the remuneration of the
directors, officers and employees of the Corporation. The directors shall be
reimbursed as the Board may from time to time determine in respect of their
out-of-pocket expenses incurred in attending Board, committee or shareholders'
meetings or otherwise in respect of the performance by them of their duties. No
confirmation by the shareholders of any such reimbursement shall be required.
If any director or officer shall be employed by or shall perform services for
the Corporation otherwise than as a director or officer or shall be a member of
a firm or a shareholder, director or officer of a body corporate which is
employed by or performs services for the Corporation, the fact of his being a
director or officer of the Corporation shall not, subject to the Act, disentitle
such director or officer or such firm or body corporate, as the case may be,
from receiving proper remuneration for such services.
ARTICLE IV
COMMITTEES OF THE BOARD
Exhibit I-9
<PAGE>
-9-
4.01 COMMITTEES. The directors may from time to time appoint from their number
one or more committees of directors (including, without limitation, an executive
committee) and, subject to the Act, may delegate to any such committee any of
the powers of the directors. A majority of the members of any such committee
shall be resident Canadians. The functions of any such committee may, but need
not, be advisory only.
4.02 AUDIT COMMITTEE. The Corporation shall have an audit committee to be
composed of not fewer than three directors qualified in accordance with the
provisions of the Act to hold office until the next annual meeting of the
shareholders, which committee shall exercise the powers of an audit committee as
provided in the Act.
4.03 PROCEDURE. Unless otherwise determined by the Board, each committee of
the Board shall have power to fix its quorum at not less than a majority of its
members, to elect its chairman and vice-chairman and to regulate its procedure.
4.04 INTERPRETATION. Subject to the Act, any power of or conferred on the
Board or the Directors, whether under the by-laws or otherwise, may be delegated
by the Board to any committee or officer. Nothing in the by-laws shall be
construed as in any way limiting the powers which the directors may delegate to
any committee, officer or other person.
ARTICLE V
OFFICERS
5.01 APPOINTMENT. There shall be a Chairman of the Board and a President, all
of whom shall be directors of the Corporation, a Secretary, a Treasurer and such
other officers as the Board may determine, including one or more assistants to
any of the officers so appointed The Board may specify the duties of and, in
accordance with the by-laws and subject to the provisions of the Act, delegate
to such officers powers to manage the business and affairs of the Corporation.
5.02 CHAIRMAN OF THE BOARD. The Chairman of the Board shall have such duties
as may be assigned to him from time to time by the Board and the by-laws.
5.03 VICE-CHAIRMAN OF THE BOARD. During the absence or inability of the
Chairman of the Board, his powers and duties shall devolve upon the
Vice-Chairman of the Board. If the Vice-Chairman of the Board exercises any
such power or duty the absence or inability of the Chairman of the Board with
reference thereto shall be presumed. The Vice-Chairman of the Board shall also
perform such other duties and exercise such other
Exhibit I-10
<PAGE>
-10-
powers as the Board may from time to time prescribe or as the Chairman of the
Board may delegate to him.
5.04 PRESIDENT. The President shall, subject to the authority of the Board,
have general supervision of the business of the Corporation. The President
shall have such other powers and duties as the Board may specify.
5.05 VICE-PRESIDENT. A Vice-President shall have such powers and duties as the
Board may specify.
5.06 SECRETARY. The Secretary shall attend and be the secretary of all
meetings of the Board, shareholders and committees of the Board and shall enter
or cause to be entered in records kept for that purpose minutes of all
proceedings thereat; he shall give or cause to be given as and when instructed
all notices to shareholders, directors, officers, auditors and members of
committees of the Board; he shall be the custodian of the stamp or mechanical
device generally used for affixing the corporate seal of the Corporation and of
all books, papers, records, documents and instruments belonging to the
Corporation, except when some other officer or agent has been appointed for
those purposes. The Secretary shall have such other powers and duties as the
Board may specify.
5.07 TREASURER. The Treasurer, under the direction of the Board, shall control
the deposit of money, the safekeeping of securities and the disbursement of
funds of the Corporation. The Treasurer shall render to the Board whenever
required an account of all of his transactions as Treasurer and report to and
advise the Board on the financial position and requirements of the Corporation.
The Treasurer shall have such other powers and duties as the Board may specify.
5.08 POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other
officers shall be such as the terms of their engagement call for or as the Board
may specify. Any of the powers and duties of an officer to whom an assistant
has been appointed may be exercised nd performed by such assistant, unless the
Board otherwise directs.
5.09 VARIATION OF POWERS AND DUTIES. The Board may form time to time and
subject to the provisions of the Act vary, add to or limit the powers and
duties of any officer.
5.10 TERM OF OFFICE. The Board, in its discretion, may remove any officer of
the Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise, each officer appointed by the Board shall hold office
until his successor is appointed or until his earlier resignation.
Exhibit I-11
<PAGE>
-11-
5.11 TERMS OF EMPLOYMENT AND REMUNERATION. The terms of employment and the
remuneration of an officer appointed by the Board shall be settled by the Board
from time to time. The Board may fix the remuneration of the officers from time
to time.
5.12 INTEREST OF OFFICERS. No officer shall be disqualified by reason of his
being an officer from, directly or indirectly, contracting with the
Corporation, but shall disclose his interest in any material contract or
proposed material contract with the Corporation as required by the Act.
5.13 AGENTS AND ATTORNEYS. The Board may from time to time appoint agents or
attorneys for the Corporation in or outside Ontario with such powers of
management or otherwise (including the powers to subdelegate) as may be thought
fit.
5.14 FIDELITY BONDS. The Board may require such officers, employees and agents
of the Corporation as the Board deems advisable to furnish bonds for the
faithful discharge of their powers and duties, in such form and with such surety
as the Board may from time to time determine.
ARTICLE VI
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.01 STANDARD OF CARE. Every director and officer in exercising his powers and
discharging his duties shall (a) act honestly and in good faith with a view to
the best interests of the Corporation, and (b) exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances.
6.02 LIABILITY FOR ACTS OF OTHERS. Subject to the provisions of section 6.01
of this by-law, no director or officer shall be liable for the acts, receipts,
neglects or defaults of any other director or officer or employee or for joining
in any receipt or other act for conformity or for any loss, damage, or expense
happening to the Corporation through the insufficiency or deficiency of title to
any property acquired by order of the Board for or on behalf of the Corporation
or for the insufficiency or deficiency of any security in or upon which any of
the moneys of or belonging to the Corporation shall be placed out or invested,
or for any loss or damage arising from the bankruptcy, insolvency, or tortious
act of any person, firm or body corporate with whom or which any moneys,
securities or effects of the Corporation shall be lodged or deposited or for any
loss occasioned by any error of judgment or oversight on his part, or for any
loss, conversion, misapplication or misappropriation of or damage resulting from
any dealings with any moneys, securities or other assets belonging to the
Corporation or for any other loss, damage or misfortune whatsoever which may
happen in the execution of the duties of his
Exhibit I-12
<PAGE>
-12-
respective office or trust or in relation thereto, unless the same are
occasioned by his own wilful neglect or default; provided that nothing herein
shall relieve any director or officer from the duty to act in accordance with
the Act or from liability for any breach thereof.
6.03 INDEMNIFICATION BY CORPORATION.
(a) Subject to the limitations contained in the Act, the Corporation
shall indemnify a director or officer, a former director or officer
or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is
or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including
an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative
action or proceeding to which he is made a party by reason or being
or having been a director or officer of the Corporation or such body
corporate, if (i) he acted honestly and in good faith with a view to
the best interests of the Corporation, and (ii) in the case of a
criminal or administrative action or proceeding that is enforced by a
monetary penalty, he had reasonable grounds for believing that his
conduct was lawful. The Corporation may from time to time enter into
agreements pursuant to which the Corporation agrees to indemnify one
or more persons in accordance with the provisions or this section.
(b) The Corporation shall, with any approval required by law, indemnify a
person referred to in subsection 6.03(a) of this by-law in respect of
an action by or on behalf of the Corporation or a body corporate to
procure a judgment in its favour, to which he is made a party by
reason of being or having been a director or an officer of the
Corporation or body corporate, against all costs, charges and
expenses reasonably incurred by him in connection with such action if
he fulfils the conditions set out in clauses 6.03(a)(i) and
6.03(a)(ii) of this by-law.
6.04 INSURANCE. The Corporation may purchase and maintain insurance for the
benefit of any person referred to in subsection 6.03(a) of this by-law against
any liability incurred by him (a) in his capacity as a director or officer,
except where the liability relates to his failure to act honestly and in good
faith with a view to the best interests of the Corporation, or (b) in his
capacity as a director or officer of another body corporate where he acts or
acted in that capacity at the Corporation's request, except where the liability
relates to his failure to act honestly and in good faith with a view to the best
interests of the body corporate.
Exhibit I-13
<PAGE>
-13-
ARTICLE VII
SHARES
7.01 ISSUE. The Board may from time to time issue, or grant options to
purchase, the whole or any part of the authorized and unissued shares of the
Corporation in such manner and on such terms and to such person or persons or
class of persons and for such consideration as the Board shall by resolution
determine or authorize, provided that no share shall be issued until it is fully
paid as provided by the Act.
7.02 COMMISSIONS. The Board may from time to time authorize the Corporation to
pay a commission to any person in consideration of his purchasing or agreeing to
purchase shares of the Corporation, whether from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
7.03 REGISTRATION OF TRANSFERS. Subject to the provisions of the Act, no
transfer of shares shall be registered in a securities register of the
Corporation except upon presentation of the certificate representing such shares
with an endorsement, which complies with the Act, made thereon or delivered
therewith duly executed by an appropriate person as provided by the Act,
together with such reasonable assurance that the endorsement is genuine and
effective as the Board may from time to time prescribe, upon payment of all
applicable taxes and any fees prescribed by the Board, upon compliance with such
restrictions on transfer as are authorized by the articles and upon satisfaction
of any lien referred to in section 7.05 of this by-law.
7.04 TRANSFER AGENTS AND REGISTRARS. The Board may from time to time appoint
one or more agents to maintain, in respect of each class of securities of the
Corporation issued by it in registered form, a central securities register and
one or more branch securities registers. Such a person may be designated as
transfer agent or registrar according to his functions and one person may be
designated both transfer agent and registrar. The board may at any time
terminate such appointment.
7.05 LIEN FOR INDEBTEDNESS. If the articles provide that the Corporation shall
have a lien on shares registered in the name of a shareholder indebted to the
Corporation, such lien may be enforced, subject to any other provision of the
articles, by the sale of the shares thereby affected or by any other action,
suit, remedy or proceeding authorized or permitted by law or by equity and,
pending such enforcement, the Corporation may refuse to register a transfer of
the whole or any part of such shares.
7.06 NON-RECOGNITION OF TRUST. Subject to the provisions of the Act, the
Corporation may treat as absolute owner of any share the person in whose name
the share is registered
Exhibit I-14
<PAGE>
-14-
in the securities register as if that person had full legal capacity and
authority to exercise all rights of ownership, irrespective of any indication to
the contrary through knowledge or notice or description in the Corporation's
records or on the share certificate.
7.07 SHARE CERTIFICATES. Every holder of one or more shares of the Corporation
shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgement of his right to obtain a share
certificate, stating the number and class or series of shares held by him as
shown on the securities register, The Board may from time to time by resolution
provide for the charging of a fee not in excess of that authorized by the Act
for every share certificate issued, except for certificates issued in respect of
an issue of shares. Share certificates and acknowledgements of a shareholder's
right to a share certificate, respectively, shall be in such form as the Board
shall from time to time approve and shall be signed manually by at least one
director or officer or by or on behalf of a registrar, transfer agent, branch
transfer agent or issuing or other authenticating agent of the Corporation, or
by a trustee who certifies it in accordance with a trust indenture, and any
additional signatures required on a share certificate may be printed or
otherwise mechanically reproduced thereon. If a share certificate contains a
printed or mechanically reproduced signature of a person, the Corporation may
issue the certificate notwithstanding that the person has ceased to be a
director or officer, and the share certificate shall be as valid as if he were a
director or officer at the date of its issue.
7.08 REPLACEMENT OF SHARE CERTIFICATES. The Board or any officer or agent
designated by the Board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken on such terms as to indemnity,
reimbursement of expenses and evidence of loss and of title as the Board may
from time to time prescribe, whether generally or in any particular case.
7.09 JOINT SHAREHOLDERS. If two or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any of such persons may
give effectual receipt for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
7.10 DECEASED SHAREHOLDERS. In the event of the death of a holder or of one of
the joint holders of any share, the Corporation shall not be required to make
any entry in the securities register in respect thereof or to make payment of
any dividends thereon except upon production of all such documents as may be
required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
Exhibit I-15
<PAGE>
-15-
ARTICLE VIII
DIVIDENDS AND RIGHTS
8.01 DIVIDENDS. Subject to the provisions of the Act and the articles, the
Board may from time to time declare dividends payable to the shareholders
according to their respective rights and interests in the Corporation.
Dividends may be paid in money or property or by issuing fully paid shares of
the Corporation or options or rights to acquire fully paid shares of the
Corporation. Any Dividend unclaimed for a period of 6 years from the date on
which the same has been declared to be payable shall be forfeited and shall
revert to the Corporation.
8.02 DIVIDEND CHEQUES. A dividend payable in cash shall be paid by cheque
drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class or series in respect of which it has
been declared and mailed by prepaid ordinary mail to such registered holder at
his recorded address, unless such holder otherwise directs. In the case of
joint holders the cheque shall, unless such joint holders otherwise direct, be
made payable to the order of all of such joint holders and mailed to them at
their recorded address. The mailing of such cheque as aforesaid, unless the
same is not paid on due presentation, shall satisfy and discharge the liability
for the dividend to the extent of the sum represented thereby plus the amount of
any tax which the Corporation is required to and does withhold.
8.03 NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the Board may from time to time prescribe, whether generally or in any
particular case.
8.04 RECORD DATE FOR DIVIDENDS AND RIGHTS. The Board may fix in advance a
date, preceding by not more than 50 days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of the right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
receive such warrant or other evidence of right to subscribe for such
securities. In every such case only such persons as shall be shareholders of
record at the close of business on the record date so fixed shall be entitled to
receive payment of such dividend or other evidence or right to subscribe for
securities of the Corporation, notwithstanding the transfer or issue of any
shares after the record date so fixed. If no record date is so fixed, the record
date for the determination of the persons entitled to receive payment of any
dividend or to exercise the right to subscribe
Exhibit I-16
<PAGE>
-16-
for securities of the Corporation shall be at the close of business on the day
on which the resolution relating to such dividend or right to subscribe is
passed by the Board.
ARTICLE IX
MEETINGS OF SHAREHOLDERS
9.01 ANNUAL MEETINGS. Subject to the Act, the annual meeting of the
shareholders shall be held at such place and on such date and at such time as
the Board or the Chairman of the Board, the Vice-Chairman of the Board, the
President or an Executive Vice-President or a Vice-President who is a director
may appoint.
9.02 SPECIAL MEETINGS. The Board on its own motion or the Chairman of the
Board, the Vice-Chairman of the Board, the President or an Executive
Vice-President or a Vice-President who is a director may at any time call a
special meeting of the shareholders for the transaction of any business.
9.03 NOTICE OF MEETINGS. Notice of the time and place of each meeting of
shareholders shall be given in the manner provided in Article X of this by-law
not less than 21 and not more than 50 days before the date of the meeting to
each director, to the auditor of the Corporation and to each shareholder who at
the close of business on the record date for notice is entered in the register
of shareholders as the holder of one or more shares carrying the right to vote
at the meeting.
9.04 RECORD DATE FOR NOTICE. The Board may fix in advance a time and date,
preceding the date of any meeting of shareholders by not more than 50 days and
not less than 21 days, as the record date for the determination of the
shareholders entitled to receive notice of the meeting. If no such record date
for notice is fixed by the Board in connection with any meeting of shareholders,
the record date for the determination of the shareholders entitled to receive
notice of the meeting shall be at the close of business on the day immediately
preceding the day on which notice is given.
9.05 RECORD DATE FOR FINANCIAL STATEMENTS. The Board may fix in advance a time
and date, preceding the date of any annual meeting of shareholders by not more
than 50 days and not less than 21 days, as the record date for the determination
of the shareholders entitled to receive the financial statements of the
Corporation pursuant to the Act. If no such record date for the determination
of such shareholders is fixed by the Board, the record date for such
determination shall be the record date determined under section 9.04 of this
by-law in connection with such annual meeting.
Exhibit I-17
<PAGE>
-17-
9.06 MEETINGS WITHOUT NOTICE. Subject to the Act, a meeting of shareholders
may be held at any time without notice to the directors, the auditor or any or
all shareholders entitled thereto or on shorter notice than that provided for
herein and proceedings thereat shall not thereby be invalidated if all such
persons as receive no notice or short notice in any manner and at any time waive
notice of such meeting, and attendance of any such person or representation by
proxy is a waiver of notice of the meeting.
9.07 CHAIRMAN, SECRETARY AND SCRUTINEER. At any meeting of shareholders, the
Chairman of the Board or, in his absence, the Vice-Chairman of the Board or, in
their absence, the President or, in their absence, a Vice-President who is a
director shall be chairman. If no such officer is present within 15 minutes from
the time fixed for holding the meeting, the persons present and entitled to vote
shall choose one of their number to be chairman. If a ballot is demanded on the
election of such a chairman it shall be taken forthwith, without adjournment. If
the Secretary of the Corporation is absent, the chairman shall appoint some
person, who need not be a shareholder, to act as secretary of the meeting. One
or more scrutineers, who need not be shareholders, may be appointed by the
chairman.
9.08 PERSONS ENTITLED TO BE PRESENT. The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the directors,
the officers of the Corporation, the auditor of the Corporation and others who,
although not entitled to vote, are entitled or required under any provision of
the Act or the articles or by-laws to be present at the meeting. Any other
person may be admitted only on the invitation of the chairman of the meeting or
with the consent of the meeting.
9.09 QUORUM. Subject to section 9.20 of this by-law, a quorum for the
transaction of business at any meeting of shareholders shall be 2 persons
present in person, each being a shareholder entitled to vote thereat or a duly
appointed proxy or proxyholder for an absent shareholder so entitled, holding or
representing in the aggregate not less than 10% of the issued shares of the
Corporation enjoying voting rights at such meeting.
9.10 RIGHT TO VOTE. Subject to the Act, at any meeting of shareholders a
person named in the list of shareholders entitled to receive notice of the
meeting, prepared in accordance with the Act, shall be entitled to vote the
shares shown opposite his name on such list at the meeting to which the list
relates, except to the extent that
(a) such person has transferred any of his shares after the record date
for the determination of the shareholders entitled to receive notice
of the meeting determined under section 9.04 of this by-law, and
(b) the transferee of those shares,
Exhibit I-18
<PAGE>
-18-
(i) produces properly endorsed share certificates, or
(ii) otherwise establishes that he owns the shares, and demands, not later
than such time before the meeting as the Board may from time to time
prescribe, that his name be included in the list before the meeting,
in which case the transferee is entitled to vote his shares at the
meeting.
9.11 PROXIES. Every shareholder entitled to vote at a meeting of shareholders
may by means of a proxy appoint a proxyholder or one or more alternate
proxyholders, who need not be shareholders, as his nominee to attend and act for
him at the meeting in the manner, to the extent and with the authority conferred
by the proxy. A proxy shall be executed by the shareholder or his attorney
authorized in writing or, if the shareholder is a body corporate, by an officer
or attorney thereof duly authorized. Subject to the requirements of the Act, a
proxy shall be in such form as the Corporation may from time to time require. A
proxy ceases to be valid one year from its date.
9.12 TIME FOR DEPOSIT OF PROXIES. The Board may by resolution fix a time, not
exceeding 48 hours, excluding non-business days, preceding any meeting or
adjourned meeting of shareholders before which time proxies to be used at that
meeting must be deposited. A proxy shall be acted upon only if, prior to the
time so fixed and specified in the notice calling the meeting, it shall have
been deposited with the Corporation or an agent thereof or, if no such time is
specified in such notice, unless it has been received by the Secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
9.13 PERSONAL REPRESENTATIVE. If a shareholder of record is deceased, his
personal representative, upon compliance with the requirements of the
Corporation, shall be entitled to exercise the same voting rights at any meeting
of shareholders as the shareholder of record would have been entitled to
exercise if he were living and for the purposes of the meeting shall be
considered a shareholder. If there is more than one personal representative,
the provisions of section 9.14 of this by-law shall apply.
9.14 JOINT SHAREHOLDERS. If shares are held jointly by 2 or more persons, any
one of them present in person or represented by proxy at a meeting of
shareholders may, in the absence of the other or others, vote the shares; but if
more than one of them shall be present in person or represented by proxy, they
shall vote together as one on the shares jointly held by them.
9.15 VOTES TO GOVERN. At any meeting of shareholders every question posed for
the consideration of the shareholders entitled to vote thereat shall, unless
otherwise required
Exhibit I-19
<PAGE>
-19-
by the articles or the by-laws, be determined by the majority of the votes cast
on the question. In case of an equality of votes, either upon a show of hands or
upon a ballot, the chairman of the meeting shall have, in addition to any vote
or votes he may have as a shareholder, a second or casting vote.
9.16 SHOW OF HANDS. Subject to the provisions of the Act, voting at a meeting
of shareholders shall be decided by a show of hand except where a ballot is
required or demanded as hereinafter provided. Upon a show of hands every person
who is present and entitled to vote shall have one vote. Whenever a vote by
show of hands shall have been taken upon a question, unless a ballot is so
required or demanded, an entry in the minutes of a meeting of shareholders to
the effect that the chairman of the meeting declared a motion to be carried is
prima facie proof of the fact without proof of the number or proportion of the
votes recorded in favour of or against the motion.
9.17 BALLOTS. On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, the
chairman may require or any person entitled to vote on the question may demand a
ballot thereon. A ballot so required or demanded shall be taken in such manner
and at such time as the chairman shall direct. A requirement or demand for a
ballot may be withdrawn at any time prior to the taking of the ballot and, if
withdrawn, shall be deemed not to have been required or demanded. Upon a ballot
each person present shall be entitled, in respect of the shares which he is
entitled to vote at the meeting upon the question, to that number of votes
provided for by the Act or the articles, and the result of the ballot so taken
shall be the decision of the shareholders upon the question.
9.18 ADJOURNMENT. The chairman presiding at a meeting of shareholders may,
subject to the Act, with consent of the meeting and subject to such conditions
as the meeting decides, adjourn the meeting from time and from place to place.
If a ballot is demanded on the question of adjournment it shall be taken
forthwith without adjournment.
9.19 ACTION IN WRITING BY SHAREHOLDERS. Subject to the Act, a resolution in
writing signed by all the shareholders entitled to vote on that resolution at a
meeting of shareholders is a valid as if it had been passed at a meeting of the
shareholders so entitled.
9.20 ONLY ONE SHAREHOLDER. Where the Corporation has only one holder of any
class or series of shares of the Corporation that shareholder present in person
or by proxy constitutes a meeting.
9.21 MEETINGS OF THE HOLDERS OF ONE OR MORE CLASSES OR SERIES OF SHARES OF THE
CORPORATION. Subject to the Act and the Articles, the provisions of the by-laws
applicable
Exhibit I-20
<PAGE>
-20-
to meetings of shareholders shall apply to any meetings of the holders of one or
more classes or series of shares of the Corporation.
9.22 INTERPRETATION. Nothing in the by-laws shall be construed as conferring
upon any shareholder the right, or entitling any shareholder, to receive notice
of or attend or vote in respect of any shares of the Corporation held by him at
any meeting of shareholders, if such shareholder would not have such right or
entitlement under the provisions of the Act or the articles.
ARTICLE X
NOTICES
10.01 METHOD OF GIVING NOTICES. Any notice (which term includes any
communication or document) to be given, sent, delivered or served pursuant to
the Act, the articles, the by-laws or otherwise to or upon a shareholder,
director, officer, auditor of the Corporation or member of a committee shall be
sufficiently given, sent, delivered or served, as the case may be, if delivered
personally to the person to whom it is to be given or delivered to his recorded
address or if mailed to him at his recorded address by prepaid mail, or if sent
to him at his recorded address by means of wire, wireless, telex or any other
form of prepaid transmitted or recorded communication. A notice so delivered
shall be deemed to have been given, sent, delivered or served, as the case may
be, when it is delivered personally or at the recorded address as aforesaid; a
notice so mailed shall be deemed to have been given, sent, delivered or served,
as the case may be, on the date of mailing and shall be deemed to have been
received by the addressee on the fifth day after mailing; and a notice sent by
means of wire, wireless, telex or other form of transmitted or recorded
communication shall be deemed to have been given, sent, delivered or served, as
the case may be, when dispatched or delivered to the appropriate communication
company or agency or its representative for dispatch. The Secretary may change
or cause to be changed the recorded address of any shareholder, director,
officer, auditor or member of a committee in accordance with any information
believed by him to be reliable. A certificate of any signing officer of the
Corporation in office at the time of making the certificate or of an executive
or officer of any registrar or transfer agent or branch registrar or transfer
agent of shares of any class of the Corporation as to facts in relation to the
delivery or mailing or service of any notice or other document to any
shareholder, director, officer or auditor or publication of any notice of other
documents shall be conclusive evidence thereof and shall be binding on every
shareholder, director, officer and the auditor of the Corporation.
10.02 NOTICE TO JOINT SHAREHOLDERS. If two or more persons are registered as
joint holders of any share or shares, notice to one of such persons shall be
sufficient notice to
Exhibit I-21
<PAGE>
-21-
all of them. Any notice shall be addressed to all of such joint holders and the
address to be used for the purposes of section 10.01 shall be the address
appearing on the securities register in respect of such joint holding, or the
first address so appearing if there is more than one.
10.03 COMPUTATION OF TIME. Where a period of days is required to be
calculated, the period of days shall be deemed to commence the day following the
event that began the period and shall be deemed to terminate at midnight of the
last day of the period except that if the last day of the period falls on a
Sunday or holiday the period shall terminate at midnight of the day next
following that is not a Sunday or holiday.
10.04 OMISSIONS AND ERRORS. The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee, or the
non-receipt of any notice by any such person or any notice not affecting the
substance thereof, shall not invalidate any action taken at any meeting held
pursuant to such notice or otherwise founded thereon.
10.05 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Subject to the Act, every
person who, by operation of law, transfer, death of a shareholder or any other
means whatsoever, shall become entitled to any share of the Corporation shall be
bound by every notice or other document in respect of such share which, prior to
his name and address being entered on the securities register of the
Corporation, shall have been duly given to a person from whom he derives his
title to such share, whether such notice or other document was given before or
after the happening of the event upon which he became so entitled.
10.06 WAIVER OF NOTICE. Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee may at any time waive any
notice or waive or abridge the time for the giving or sending of any notice or
document required to be given or sent to him under any provision of the Act, the
articles, the by-laws or otherwise and such waiver or abridgement shall cure any
default in the giving or sending of such notice or document, as the case may be.
ARTICLE XI
EFFECTIVE DATE
11.01 EFFECTIVE DATE. This by-law shall come into force on the date of its
confirmation by the shareholders in accordance with the Act.
Exhibit I-22
<PAGE>
-22-
11.02 REPEAL. Upon this by-law coming into force, all previous by-laws of the
Corporation is repealed provided that such repeal shall not affect the previous
operation of such by-laws so repealed or affect the validity of any act done or
right, privilege, obligation or liability acquired or incurred under the
validity of any contract or agreement made pursuant to any such by-laws prior to
such repeal.
* * *
The foregoing by-law was passed by the directors of the Corporation
pursuant to the Business Corporations Act (Ontario).
DATED as of the day of 1994.
______________________________
Secretary
The foregoing by-law was confirmed by the shareholders of the Corporation
pursuant to the Business Corporations Act (Ontario) at a meeting of the
shareholders held on the day of May, 1994.
DATED as of the day of 1994.
_______________________________
Secretary
Exhibit I-23
<PAGE>
EXHIBIT J
TEXT OF ONTARIO BUSINESS CORPORATION ACT SECTION 185
(1) RIGHTS OF DISSENTING SHAREHOLDERS. Subject to subsection (3) and to
sections 186 and 248, if a corporation resolves to,
(a) amend its articles under section 168 to add, remove or change
restrictions on the issue, transfer or ownership of shares of
a class or series of the shares of the corporation;
(b) amend its articles under section 168 to add, remove or change
any restriction upon the business or businesses that the
corporation may carry on or upon the powers that the
corporation may exercise;
(c) amalgamate with another corporation under sections 175 and
176;
(d) be continued under the laws of another jurisdiction under
section 181; or
(e) sell, lease or exchange all or substantially all its property
under subsection 184(3),
a holder of shares of any class or series entitled to vote on the resolution
may dissent.
(2) IDEM. If a corporation resolves to amend its articles in a manner
referred to in subsection 170(1), a holder of shares of any class or series
entitled to vote on the amendment under section 168 or 170 may dissent, except
in respect of an amendment referred to in,
(a) clause 170(1)(a), (b) or (e) where the articles provide that
the holders of shares of such class or series are not entitled
to dissent; or
(b) subsection 170(5) or (6).
(3) EXCEPTION. A shareholder of a corporation incorporated before the
29th day of July, 1983 is not entitled to dissent under this section in
respect of an amendment of the articles of the corporation to the extent that
the amendment,
(a) amends the express terms of any provision of the articles of
the corporation to conform to the terms of the provision as
deemed to be amended by section 277; or
(b) deletes from the articles of the corporation all of the
objects of the corporation set out in its articles, provided
that the deletion is made by the 29th day of July, 1986.
(4) SHAREHOLDER'S RIGHT TO BE PAID FAIR VALUE. In addition to any other
right the shareholder may have, but subject to subsection (30), a shareholder
who complies with this section is entitled, when the action approved by the
resolution from which the shareholder dissents becomes effective, to be paid
by the corporation the fair value of the shares held by the shareholder in
respect of which the shareholder dissents, determined as of the close of
business on the day before the resolution was adopted.
(5) NO PARTIAL DISSENT. A dissenting shareholder may only claim under
this section with respect to all the shares of a class held by the dissenting
shareholder on behalf of any one beneficial owner and registered in the name
of the dissenting shareholder.
(6) OBJECTION. A dissenting shareholder shall send to the corporation,
at or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the
resolution, unless the corporation did not give notice to the shareholder of
the purpose of the meeting or of the shareholder's right to dissent.
Exhibit J-1
<PAGE>
(7) IDEM. The execution or exercise of a proxy does not constitute a
written objection for purposes of subsection (6).
(8) NOTICE OF ADOPTION OR RESOLUTION. The corporation shall, within ten
days after the shareholders adopt the resolution, send to each shareholder who
has filed the objection referred to in subsection (6) notice that the
resolution has been adopted, but such notice is not required to be sent to any
shareholder who voted for the resolution or who has withdrawn the objection.
(9) IDEM. A notice sent under subsection (8) shall set out the rights of
the dissenting shareholder and the procedures to be followed to exercise those
rights.
(10) DEMAND FOR PAYMENT OF FAIR VALUE. A dissenting shareholder entitled
to receive notice under subsection (8) shall, within twenty days after
receiving such notice, or, if the shareholder does not receive such notice,
within twenty days after learning that the resolution has been adopted, send
to the corporation a written notice containing,
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the
shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
(11) CERTIFICATES TO BE SENT IN. Not later than the thirtieth day after
the sending of a notice under subsection (10), a dissenting shareholder shall
send the certificates representing the shares in respect of which the
shareholder dissents to the corporation or its transfer agent.
(12) IDEM. A dissenting shareholder who fails to comply with subsections
(6), (10) and (11) has no right to make a claim under this section.
(13) ENDORSEMENT ON CERTIFICATE. A corporation or its transfer agent
shall endorse on any share certificate received under subsection (11) a notice
that the holder is a dissenting shareholder under this section and shall
return forthwith the share certificates to the dissenting shareholder.
(14) RIGHTS OF DISSENTING SHAREHOLDER. On sending a notice under
subsection (10), a dissenting shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of the shares as
determined under this section except where,
(a) the dissenting shareholder withdraws notice before the
corporation makes an offer under subsection (15);
(b) the corporation fails to make an offer in accordance with
subsection (15) and the dissenting shareholder withdraws
notice; or
(c) the directors revoke a resolution to amend the articles under
subsection 168(3), terminate an amalgamation agreement under
subsection 176(5) or an application for continuance under
subsection 181(5), or abandon a sale, lease or exchange under
subsection 184(8),
in which case the dissenting shareholder's rights are reinstated as of the
date the dissenting shareholder sent the notice referred to in subsection
(10), and the dissenting shareholder is entitled, upon presentation and
surrender to the corporation or its transfer agent of any certificate
representing the shares that has been endorsed in accordance with subsection
(13), to be issued a new certificate representing the same number of shares as
the certificate so presented, without payment of any fee.
Exhibit J-2
<PAGE>
(15) OFFER TO PAY. A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is
effective or the day the corporation received the notice referred to in
subsection (10), send to each dissenting shareholder who has sent such notice,
(a) a written offer to pay for the dissenting shareholder's shares
in an amount considered by the directors of the corporation to
be the fair value thereof, accompanied by a statement showing
how the fair value was determined; or
(b) if subsection (30) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
(16) IDEM. Every offer made under subsection (15) for shares of the same
class or series shall be on the same terms.
(17) IDEM. Subject to subsection (30), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (15) has been accepted, but any such offer lapses if the
corporation does not receive an acceptance thereof within thirty days after
the offer has been made.
(18) APPLICATION TO COURT TO FIX FAIR VALUE. Where a corporation fails
to make an offer under subsection (15) or if a dissenting shareholder fails to
accept an offer, the corporation may, within fifty days after the action
approved by the resolution is effective or within such further period as the
court may allow, apply to the court to fix a fair value for the shares of any
dissenting shareholder.
(19) IDEM. If a corporation fails to apply to the court under subsection
(18), a dissenting shareholder may apply to the court for the same purpose
within a further period of twenty days or within such further period as the
court may allow.
(20) IDEM. A dissenting shareholder is not required to give security for
costs in an application made under subsection (18) or (19).
(21) COSTS. If a corporation fails to comply with subsection (15), then
the costs of a shareholder application under subsection (19) are to borne by
the corporation unless the court otherwise orders.
(22) NOTICE TO SHAREHOLDERS. Before making application to the court
under subsection (18) or not later than seven days after receiving notice of
an application to the court under subsection (19), as the case may be, a
corporation shall give notice to each dissenting shareholder who, at the date
upon which the notice is given,
(a) has sent to the corporation the notice referred to in
subsection (10); and
(b) has not accepted an offer made by the corporation under
subsection (15), if such an offer was made,
of the date, place and consequences of the application and of the dissenting
shareholder's right to appear and be heard in person or by counsel, and a
similar notice shall be given to each dissenting shareholder who, after the
date of such first mentioned notice and before termination of the proceedings
commenced by the application, satisfies the conditions set out in clauses (a)
and (b) within three days after the dissenting shareholder satisfies such
conditions.
(23) PARTIES JOINED. All dissenting shareholders who satisfy the
conditions set out in clauses (22)(a) and (b) shall be deemed to be joined as
parties to an application under subsection (18) or (19) on the later of the
date upon which the application is brought and the date upon which they
satisfy the conditions, and shall be bound by the decision rendered by the
court in the proceedings commenced by the application.
Exhibit J-3
<PAGE>
(24) IDEM. Upon an application to the court under subsection (18) or
(19), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall fix a fair
value for the shares of all dissenting shareholders.
(25) APPRAISERS. The court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(26) FINAL ORDER. The final order of the court in the proceedings
commenced by an application under subsection (18) or (19) shall be rendered
against the corporation and in favor of each dissenting shareholder who,
whether before or after the date of the order, complies with the conditions
set out in clauses (22)(a) and (b).
(27) INTEREST. The court may in its discretion allow a reasonable rate
of interest on the amount payable to each dissenting shareholder from the date
the action approved by the resolution is effective until the date of payment.
(28) WHERE CORPORATION UNABLE TO PAY. Where subsection (30) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (26), notify each dissenting shareholder that is unable lawfully to
pay dissenting shareholders for their shares.
(29) IDEM. Where subsection (30) applies, a dissenting shareholder, by
written notice sent to the corporation within thirty days after receiving a
notice under subsection (28), may,
(a) withdraw a notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder's full
rights are reinstated; or
(b) retain a status as a claimant against the corporation, to be
paid as soon as the corporation is lawfully able to do so or,
in a liquidation, to be ranked subordinate to the rights of
creditors of the corporation but in priority to its
shareholders.
(30) IDEM. A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that,
(a) the corporation is or, after the payment, would be unable to
pay its liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby
be less than the aggregate of its liabilities.
(31) COURT ORDER. Upon application by a corporation that proposed to
take any of the actions referred to in subsection (1) or (2), the court may,
if satisfied that the proposed action is not in all the circumstances one that
should give rise to the rights arising under subsection (4), by order declare
that those rights will not arise upon the taking of the proposed action, and
the order may be subject to compliance upon such terms and conditions as the
court thinks fit and, if the corporation is an offering corporation, notice of
any such application and a copy of any order made by the court upon such
application shall be served upon the Commission.
(32) COMMISSION MAY APPEAR. The Commission may appoint counsel to assist
the court upon the hearing of an application under subsection (31) if the
corporation is an offering corporation.
Exhibit J-4
<PAGE>
====================================================
__________
TABLE OF CONTENTS
Page
----
Available Information................... (i)
Exchange Rate Data...................... (ii)
Summary................................. 1
General Proxy Information............... 10
Domestication and Merger................ 13
Effect of Domestication on Shareholder
Rights................................. 17
Dissent Rights of Xavier Shareholders... 23
Price Range of Common Shares............ 25
Selected Consolidated Financial Data.... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 27
Business................................ 35
Risk Factors............................ 49
Management.............................. 54
Certain Transactions.................... 63
Principal Shareholders.................. 66
Description of Xavier-Delaware
Securities............................. 67
Canadian and United States Income Tax
Considerations........................ 72
Legal Opinions.......................... 78
Experts................................. 78
Shareholder Proposals................... 78
Other Business of Special Meeting....... 79
Approval of Prospectus.................. 79
Glossary................................ 80
Index to Financial Statements........... F-1
The Russian Oil Industry and Its
Regulation............................. A-1
Report of Independent Engineers......... B-1
__________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE BUSINESS
OF THE COMPANY SINCE THE DATE HEREOF.
====================================================
====================================================
XAVIER MINES LIMITED
64,894,554 SHARES OF
COMMON STOCK
and
71,543,022 WARRANTS AND 850,000
OPTIONS TO PURCHASE SHARES OF
COMMON STOCK
XAVIER MERGER CORPORATION
16,223,639 SHARES OF
COMMON STOCK
and
71,543,022 WARRANTS AND 850,000
OPTIONS TO PURCHASE SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1996
THE R-M TRUST COMPANY
====================================================
<PAGE>
PART II TO FORM S-4
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes a
corporation to indemnify any person ("indemnitee") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the
corporation) because such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation, in a similar position with another corporation or entity, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. With respect to actions
or suits by or in the right of the corporation, however, an indemnitee who
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation is generally limited to
attorneys' fees and other expenses, and no indemnification shall be made if
such person is adjudged liable to the corporation unless and only to the
extent that a court of competent jurisdiction determines that indemnification
is appropriate. Section 145 further provides that any indemnification shall
be made by the corporation only as authorized in each specific case upon a
determination by the (i) board of directors by a majority vote of directors
who were not parties to such action, suit or proceeding even though less than
a quorum, (ii) independent counsel if there are no such disinterested
directors or if such directors so direct, or (iii) stockholders, that
indemnification of the indemnitee is proper because he has met the applicable
standard of conduct. Section 145 provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors of otherwise.
Article X of Xavier-Canada's (upon Domestication) and Xavier-Delaware's
Bylaws, copies of which are filed as Exhibit 3.2 and Exhibit 3.5 to this
Registration Statement, provides, in substance, that directors, officers,
employees and agents shall be indemnified to the fullest extent permitted by
Section 145 of the DGCL.
Section 8.E of Xavier-Canada's (upon Domestication) and Xavier-Delaware's
Certificate of Incorporation, copies of which are filed as Exhibit 3.1 and 3.4
to this Registration Statement, limits the liability of directors of the
Company to the Company or its stockholders (in their capacity as directors but
not in their capacity as officers) to the fullest extent permitted by the
DGCL. Specifically, directors of the Company will not be personally liable
for monetary damages for breach of a director's fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit. The Certificate
of Incorporation also provides that if the DGCL is amended after the approval
of the Amended and Restated Certificate of incorporation also provides that if
the DGCL is amended after the approval of the Amended and Restated Certificate
of incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Company will be eliminated or limited to the full extent permitted by the
DGCL, as so amended.
The Company has entered into indemnification agreements with certain of
its directors providing for indemnification to the full extent permitted by
the laws of the State of Delaware. These agreements provide for specific
procedures to better assure the directors' rights to indemnification,
including procedures for directors to submit claims, for determination of
directors' entitlement to indemnification (including the allocation of the
burden of proof and selection of a reviewing party) and for enforcement of
directors' indemnification rights.
II-1
<PAGE>
The foregoing discussion is qualified in its entirety by reference to the
Company's Bylaws. See Exhibit 3.2 to this Registration Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
PAGE NUMBER
OR
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- -------- ----------- --------------
<C> <S> <C>
+3.1 Canadian Certificate of Incorporation of Xavier Mines Limited ("Mines") Page ___
+3.2 Canadian Bylaws of Mines Page ___
+3.3 Certificate of Domestication of Mines Page ___
+3.4 Certificate of Incorporation, as amended, of Xavier Corporation ("New Page ___
Xavier")
+3.5 Bylaws of New Xavier Page ___
+4.1 Form of Certificate for Mines' Common Stock Page ___
+4.2 Form of Certificate for New Xavier's Common Stock Page ___
+4.3 Form of Settlement Warrant Page ___
+4.4 Form of Private Placement Warrant Page ___
+4.5 Other Warrant - Warrant agreement with Raymond D. Cohn, dated Page ___
August 2, 1995.
+4.6 Letter Agreement with MRI International Enterprises Incorporated Page ___
+4.7 Form of Arizona Securities Warrant Agreement Page ___
+4.8 Form of New Arizona Securities Warrant Agreement Page ___
+4.9 Form of Russ Oil Warrant Page ___
+5.1 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Page ___
+10.1 Agreement between Genesis Eurasia Corporation ("GEC") and Mines Page ___
dated March 13, 1994
+10.2 Limited Liability Company Agreement of Genesis Eurasia Xavier L.L.C. Page ___
("GEX") dated March 13, 1994
+10.3 Black Gold Joint Venture Agreement between Stavropolneftegas Page ___
("STNG") and GEC dated September 16, 1992
+10.4 Credit Agreement, by and between Mines and GEC, dated March 13, Page ___
1994
+10.5 Transfer Agreement by and among GEX, GEC and STNG Page ___
+10.6 Charter of Black Gold (JSC) dated September 16, 1992 Page ___
+10.7 Protocol of the General Meeting of the Shareholders of the Joint Stock Page ___
Company "Black Gold" from April 21, 1994
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
OR
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- -------- ----------- --------------
<C> <S> <C>
+10.8 Agreement No. 1, to amend the Credit Agreement by and between Mines Page ___
and GEC, dated March 13, 1994
+10.9 Agreement, dated March 25, 1994, to amend the Limited Liability Page ___
Company Agreement of GEX, dated March 13, 1994
+10.10 Agreement No. 2, dated April 14, 1994, to amend the Agreement by and Page ___
between Mines and GEC, dated March 13, 1994, as amended
+10.11 Agreement No. 3, to amend the Agreement by and between Mines and Page ___
GEC, dated March 13, 1994, as amended.
+10.12 Memorandum of Understanding, effective December 30, 1994, by and Page ___
between Mines and GEC.
+10.13 Stock Option Plan of Mines Page ___
*10.14 1996 Long Term Incentive Plan Page ___
+10.15 Management Agreement, by and between Mines and Chris A. Dittmar, Page ___
dated as of November 14, 1994
+10.16 Management Agreement, by and between Mines and George W. Bowman, Page ___
dated as of November 14, 1994
+10.17 Interest Purchase Agreement, by and between Mines and Chris A. Page ___
Dittmar, dated as of November 3, 1994
+10.18 Interest Purchase Agreement, by and between Mines and George W. Page ___
Bowman, dated as of November 3, 1994
+10.19 Technical Services Agreement (E. Kamennoye) (the "Kamennoye East Page ___
TSA"), by and among Xavier (Eurasia) Inc. ("Eurasia"),
Khantymansiyskneftegazgeologiya ("KMNGG") and Peteco, dated as of
June 5, 1995
+10.20 Amendment No. 1 to the Kamennoye East TSA Technical Services Page ___
Agreement, by and among Eurasia, KMNGG and Peteco, dated as of Jun e 6, 1995
+10.21 Technical Services Agreement (W. Kamennoye), by and among Eurasia, Page ___
Kond Petroleum and MR International
+10.22 Technical Services Agreement (Potanay) (the "P&K TSA"), by and Page ___
among Eurasia, KMNGG and Peteco, dated as of June 5, 1995
+10.23 Stock Purchase and Sale Agreement, by and among Mines, Bandera Page ___
Acquisition Inc., Bandera Holdings, Inc., H.E. Holder, Jr., and Bandera
Engineering, Inc., dated as of July 12, 1995
+10.24 Line of Credit Provision Agreement, dated 1995, by and between the Page ___
Mines and SKM (UK) Limited.
+10.25 Project Pricing Agreement, by and between Bandera Engineering, Inc. Page ___
and Mines, dated as of July 12, 1995
+10.26 Foundation Agreement, by and between Mines and Rosneftegazstrov, Page ___
dated September 2, 1994
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
OR
EXHIBIT METHOD OF
NUMBER DESCRIPTION FILING
- -------- ----------- --------------
<C> <S> <C>
+10.27 Charter of the Closed Stock Company Petrox, dated September 2, 1995 Page ___
+10.28 Agreement by and between Eurasia and UST-Ilimsk External Economic Page ___
Company on the Establishment of the Russian-American Joint Venture
"ForestPartners JSC" in the Form of a Joint Stock Company of the Closed
Type, dated July 31, 1995 (superseding version filed with Registration
Statement on November 9, 1995)
+10.29 Charter of ForestPartners JSC a Joint Stock Company of the Closed Type, Page ___
dated December 14, 1994
+10.30 Drilling Contract, dated October 17, 1995, by and between Eurasia and Page ___
Vector Development Ltd.
10.31 [Intentionally omitted] Page ___
+10.32 Loan Agreement, dated December 8, 1995, by and between Mines and Page ___
D. Carnegie AB.
+10.33 Convertible Promissory Note payable by Aitorneftegas to the Registrant i n the amount of $20,000,000 Page ___
+10.34 Promissory Note payable by Kachina Capital Corporation to the Registrant Page ___
in the amount of $600,000
+10.35 Memorandum of Understanding, dated December 5, 1995, by and among Page ___
Eurasia, KMNGG and Peteco, with respect to the Kamennoye East TSA
and the P&K TSA
+10.36 Memorandum of Understanding, dated December 5, 1995, by and among Page ___
Eurasia, KMNGG and Peteco, with respect to the Kamennoye East TSA
+10.37 Employment Agreement, dated as of June 1, 1995, by and between Page ___
Bandera Pipeline Service Corp. and H.E. Holder, Jr.
+10.38 Office Space Lease Agreement Page ___
+16 Letter of Morgan & Co., Chartered Accountants regarding their dismissal Page ___
as the Registrant's accountants
+21 Subsidiaries of Registrant Page ___
*23.1 Consents of BDO Seidman, LLP Page ___
*23.2 Consent of Philip Vogel & Co., P.C. Page ___
*23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Included in
Exhibit 5
*23.4 Consent of Huddleston & Company, Inc. Page ___
</TABLE>
- ----------------------
+ Previously filed.
* Filed herewith.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(a) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(b) to supply by means of a post-effective amendment all information
concerning a transactions, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
(c) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(d) that every prospectus (i) that is filed pursuant to paragraph (i)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being offered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act, and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, XAVIER MINES
LIMITED has duly caused this Form S-4 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston and State of Texas on May 9, 1996.
XAVIER MINES LIMITED
an Ontario corporation
By /s/ ROBERT S. PARSONS
-----------------------------
Robert S. Parsons
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Form S-4
Registration Statement has been signed below by the following persons in the
indicated capacities on May 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
----------- -----
<S> <C>
*
- ------------------------ Chairman of the Board, Chief
Chris A. Dittmar Executive Office and President
(Principal Executive Officer)
*
- ------------------------ Director and Secretary
Michael C.P. Hannesson
*
- ------------------------ Director
Franklin L. Davis
*
- ------------------------ Director
Robert L. Gerry, III
- ------------------------ Director
Paul T. Conroy
/s/ ROBERT S. PARSONS
- ------------------------ Chief Financial Officer
Robert S. Parsons (Principal Financial and
Accounting Officer)
* /s/ ROBERT S. PARSONS
- -------------------------
Robert S. Parsons, as
attorney-in-fact for the
indicated persons pursuant to
the power of attorney filed with the
Commission with the initial filing of
this Registration Statement.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, XAVIER
CORPORATION has duly caused this Form S-4 Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston and State of Texas on May 9, 1996.
XAVIER CORPORATION
a Delaware corporation
By /s/ ROBERT S. PARSONS
------------------------
Robert S. Parsons
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Form S-4
Registration Statement has been signed below by the following persons in the
indicated capacities on May 9, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
*
- ---------------------- Chairman of the Board, Chief
Chris A. Dittmar Executive Office and President
(Principal Executive Officer)
*
- ---------------------- Director and Secretary
George W. Bowman
*
- ---------------------- Director
Franklin L. Davis
- ---------------------- Director
Robert L. Gerry, III
*
- ---------------------- Director
Benton H Wilcoxon
/s/ ROBERT S. PARSONS
- ----------------------- Vice President and
Robert S. Parsons Chief Financial Officer
(Principal Financial and
Accounting Officer)
* /s/ ROBERT S. PARSONS
- ------------------------
Robert S. Parsons, as
attorney-in-fact for the
indicated persons pursuant to
the power of attorney filed with the
Commission with the initial filing of
this Registration Statement.
</TABLE>
<PAGE>
EXHIBIT 10.14
XAVIER CORPORATION
1996 LONG-TERM INCENTIVE PLAN
1. PURPOSE OF THE PLAN. The Xavier Mines Limited 1996 Long-Term Incentive
Plan (the Plan) is intended to promote the interests of Xavier Mines Limited,
the name of which is to change to Xavier Corporation (the Company), by
encouraging employees of the Company, its subsidiaries and affiliated entities
and non-employee directors of the Company to acquire or increase their equity
interest in the Company and to provide a means whereby employees may develop a
sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company thereby advancing the
interests of the Company and its stockholders. The Plan is also contemplated to
enhance the ability of the Company, its subsidiaries and affiliated entities to
attract and retain the services of individuals who are essential for the growth
and profitability of the Company.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
meanings set forth below:
Affiliate - (i) any entity that, directly or through one or more
intermediaries, is controlled by the Company, and (ii) any entity in which the
Company has a significant equity interest, as determined by the Committee.
Award - any Option, Stock Appreciation Right, Restricted Stock, Performance
Award, Phantom Shares, Bonus Shares or Cash Award.
Award Agreement - any written agreement, contract or other instrument or
document evidencing any Award, which may, but need not, be executed or
acknowledged by a participant.
Board - the Company's Board of Directors.
Bonus Shares - an award of Shares granted pursuant to Section 6(e).
Cash Award - an award payable in cash granted pursuant to Section 6(g).
Code - the Internal Revenue Code of 1986, as amended from time to time, and
the rules and regulations thereunder.
Committee - initially, Franklin L. Davis, Robert L. Gerry, III and Benton H
Wilcoxon, and thereafter, those individuals who may be designated by the Board.
Employee - any employee or director of, or consultant or advisor to, the
Company or an Affiliate.
Exchange Act - the Securities Exchange Act of 1934, as amended.
Fair Market Value - with respect to Shares, the closing price of a Share
quoted on the Composite Tape, or if the Shares are not listed on the New York
Stock Exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or if the Shares are not
listed on any such stock exchange, the last sales price, or if none is reported,
the highest closing bid
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quotation on the National Association of Securities Dealers, Inc., Automated
Quotations System or any successor system then in use on the date of grant, or
if none are available on such day, on the next preceding day for which such
price or quotation is available, or if no such quotation or price is available.
the fair market value on the date of grant of a Share as determined in good
faith by the Board.
Incentive Stock Option or ISO - an option granted under Section 6(a) that is
intended to qualify as an "incentive stock option" under Section 422 of the Code
or any successor provision thereto.
Non-employee Director - a director of the Company who is not otherwise an
employee of the Company or any Affiliate.
Non-Qualified Stock Option or NQO - an option granted under Sections 6(a) or
6(h) that is not intended to be an Incentive Stock Option.
Option - an Incentive Stock Option or a Non-Qualified Stock Option.
Participant - any individual granted an Award under the Plan.
Performance Award - any right granted under Section 6(d).
Person - an individual, corporation, partnership, limited liability company,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
Phantom Shares - an Award of the right to receive Shares issued at the end of
a Restricted Period which is granted pursuant to Section 6(f).
Restricted Period - the period established by the Committee with respect to an
Award during which the Award either remains subject to forfeiture or is not
exercisable by the Participant.
Restricted Stock - any Share, prior to the lapse of restrictions thereon,
granted under Sections 6(c) or 6(h).
Rule 16b-3 - Rule 16b-3 promulgated by the SEC under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time.
SEC - the Securities and Exchange Commission, or any successor thereto.
Shares, Common Shares or Common Stock - the common stock of the Company, no
par value, and such other securities or property as may become the subject of
Awards.
Stock Appreciation Right or Right shall mean any right to receive the
appreciation of Shares granted under Section 6(b).
Substitute Award - Awards granted in assumption of, or in substitution for,
outstanding awards previously granted by (i) a company acquired by the Company
or one or more of its Affiliates, or (ii) a company with which the Company or
one or more of its Affiliates combines.
3. ADMINISTRATION. The Plan shall be administered by the Committee, which
Committee shall consist of at least two members. All members of the Committee
shall be "disinterested persons"
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within the meaning of Rule 16b-3, which has been adopted by the SEC under the
Exchange Act as such Rule or its equivalent is then in effect, and "outside
directors," as defined in Section 162(m) of the Code and regulations promulgated
thereunder. A majority of the Committee shall constitute a quorum, and the acts
of the members of the Committee who are present at any meeting thereof at which
a quorum is present, or acts unanimously approved by the members of the
Committee in writing, shall be the acts of the Committee. Subject to the Plan
and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (a) designate Participants; (b) determine the type or types of
Awards to be granted to an eligible Employee; (c) determine the number of Shares
to be covered by, or with respect to which payments, rights, or other matters
are to be calculated in connection with, Awards; (d) determine the terms and
conditions of any Award; (e) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (f) determine whether, to what extent, and under what
circumstances, cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee; (g)
interpret and administer the Plan and any instrument or agreement relating to an
Award made under the Plan; (h) establish, amend. suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (i) make any other determination and take
any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon all Persons, including the Company, and any Affiliate, any Participant any
holder or beneficiary of any Award, any stockholder and any Employee.
4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(c), the number of Shares with respect to which Awards may be granted
under the Plan shall be 2,250,000; provided, however, that no Employee may
be granted Awards of Options and/or Stock Appreciation Rights covering more
than 250,000 shares over the term of the Plan. If, after the effective date
of the Plan, any shares covered by an Award granted under the Plan, or to
which such an Award relates, are forfeited, or if an Award otherwise
terminates or is canceled without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such
award relates, or the number of Shares otherwise counted against the
aggregate number of Shares with respect to which Awards may be granted, to
the extent of any such forfeiture, termination or cancellation, shall again
be, or shall become, to the extent permissible under Rule 16b-3, Shares
with respect to which Awards may be granted.
(b) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(c) ADJUSTMENTS. If the Committee determines that any dividend or
other distribution (whether in the form of cash, Shares, other securities,
or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spinoff, combination,
repurchase, or exchange of Shares or other securities of the Company,
issuance of warrants or other rights to purchase Shares or other securities
of the Company, or other similar corporate
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action or event affects the Shares such that an adjustment is determined by
the Committee to be appropriate to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and type of Shares (or other securities
or property) with respect to which Awards may be granted, (ii) the number
and type of Shares (or other securities or property) subject to outstanding
Awards, and (iii) the grant or exercise price with respect to any Award or,
if deemed appropriate, make provision for a cash payment to the holder of
an outstanding award; provided, in each case, that with respect to Awards
of Incentive Stock Options and Awards intended to qualify as performance-
based compensation under Section 162(m)(4)(C) of the Code, no such
adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 422(b)(1) of the Code or would cause such
Award to fail to so qualify under Section 162(m) of the Code, as the case
may be, or any successor provisions thereto; and provided further, that the
number of Shares subject to any Award denominated in Shares shall always be
a whole number.
5. ELIGIBILITY. Other than Awards granted to Non-employee Directors
pursuant to Section 6(h), any Employee shall be eligible to be designated a
Participant. However, no Employee may receive an aggregate amount of Options
and/or Stock Appreciation Rights under the Plan greater than 10% of all Shares
that may be made subject to Awards under the Plan.
6. AWARDS.
(a) OPTIONS. Subject to the Plan, the Committee shall have the
authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the purchase price therefor
and the conditions and limitations applicable to the exercise of the
option, including the following terms and conditions and such additional
terms and conditions, as the committee shall determine, that are not
inconsistent with the plan.
(i) exercise price. subject to section 6(a)(iii), the
purchase price per share purchasable under an option shall be
determined by the committee at the time each option is granted.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part, and the method or methods by which, and the form or
forms (which may include, without limitation, cash, Shares,
outstanding Awards, Shares that would otherwise be acquired upon
exercise of the Option, other securities or other property, or any
combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which payment of the exercise
price with respect hereto may be made or deemed to have been made.
(iii) Incentive Stock Options. The terms of any
Incentive Stock Option granted under the Plan shall comply in all
respects with the provisions of Section 422 of the Code, or any
successor provision, and any regulations promulgated thereunder.
Incentive Stock Options may be granted only to employees of the
Company and its subsidiaries, within the meaning of Section 424(f) of
the Code. The purchase price per Share purchasable under an Incentive
Stock Option shall not be less than the Fair Market Value of the Share
on the date of grant of the Option.
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If an Incentive Stock Option is granted to a Participant
who owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the
combined voting power of all classes of stock of the Company (or any
parent or subsidiary), the exercise price shall be at least one
hundred ten percent (110%) of the Fair Market Value per Share on the
date such Option is granted.
(b) STOCK APPRECIATION RIGHTS. Subject to the Plan, the Committee
shall have the authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by
each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof. A Stock
Appreciation Right may be granted in tandem with another Award, in addition
to another Award, or freestanding and unrelated to another Award. A Stock
Appreciation Right granted in tandem with or in addition to another Award
may be granted either at the same time as such other Award or at a later
time. The foregoing notwithstanding, a Stock Appreciation Right that is
granted in tandem with an incentive Stock Option shall comply with Section
422 of the Code including Treasury Regulation Section 14a-422a-1 Q&Q 39.
(i) Grant Price. The grant price of a Stock Appreciation Right
shall be determined by the Committee on the date of grant.
(ii) Other Terms and Conditions. Subject to the Plan and any
applicable Award Agreement, the Committee shall determine, at or after the
grant of a Stock Appreciation Right, the term, methods of exercise, methods
of settlement, and any other terms and conditions of any Stock Appreciation
Right. Any such determination by the Committee may be changed by the
Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
(c) RESTRICTED STOCK. Subject to the Plan, the Committee shall have the
authority to determine the Employees to whom Restricted Stock shall be
granted, the number of Shares of Restricted Stock to be granted to each
such Participant, the duration of the Restricted Period during which, and
the conditions, including the performance criteria, if any, under which,
the Restricted Stock may be forfeited to the Company, and the other terms
and conditions of such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture and/or
transfer restrictions during any period established by the Committee or
sequestered and held in a bookkeeping cash account (with or without
interest) or reinvested on an immediate or deferred basis in additional
shares of Common Stock, which credit or shares may be subject to the
same restrictions as the underlying Award or such other restrictions,
all as determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such
manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate
or certificates. If a stock certificate is issued in respect of
Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to
such Restricted Stock.
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(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
during the applicable Restricted Period, all Restricted Stock shall be
forfeited by the Participant and re-acquired by the Company. The
Committee may, when it finds that a waiver would be in the best
interests of the Company and not cause such Award, if it is intended to
qualify as performance-based compensation under Section 162(m) of the
Code, to fail to so qualify under Section 162(m) of the Code, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Stock. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be issued to the
holder of Restricted Stock promptly after the applicable restrictions
have lapsed or otherwise been satisfied.
(iv) Transfer Restrictions. During the Restricted Period,
Restricted Stock will be subject to the limitations on transfer as
provided in Section 6(i)(iii).
(d) PERFORMANCE AWARDS. The committee shall have the authority to
determine the employees who shall receive a performance award, which shall
be denominated as a cash amount at the time of grant and confer on the
participant the right to receive payment of such award, in whole or in
part, upon the achievement of such performance goals during such
performance periods as the committee shall establish with respect to the
award.
(i) Terms and Conditions. Subject to the Plan and any applicable
Award Agreement, the Committee shall determine the performance goals to
be achieved during any performance period, the length of any performance
period, the amount of any Performance Award and the amount of any
payment or transfer to be made pursuant to any Performance Award.
(ii) Payment of Performance Awards. Performance Awards may be
paid (in cash and/or in Shares, in the sole discretion of the Committee)
in a lump sum or in installments following the close of the performance
period, in accordance with procedures established by the Committee with
respect to such Award.
(e) BONUS SHARES. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to eligible Employees. Each Bonus Share
shall constitute a transfer of an unrestricted Share to the Participant,
without other payment therefor, as additional compensation for the
Participant's services to the Company.
(f) PHANTOM SHARES. The Committee shall have the authority to grant
Awards of Phantom Shares to eligible Employees upon such terms and
conditions as the Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall
constitute an agreement by the Company to issue or transfer a specified
number of Shares or pay an amount of cash equal to a specified number
of Shares, or a combination thereof to the Participant in the future,
subject to the fulfillment during the Restricted Period of such
conditions, including performance objectives, if any, as the Committee
may specify at the date of grant. During the Restricted Period, the
Participant shall not have any rights of ownership in the Phantom
Shares and shall not have any right to vote such shares.
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(ii) Dividends. Any Phantom Share Award may provide that any or
all dividends or other distributions paid on Shares during the
Restricted Period be credited in a cash bookkeeping account (without
interest) or that equivalent additional Phantom Shares be awarded,
which account or shares may be subject to the same restrictions as the
underlying Award or such other restrictions as the Committee may
determine.
(g) CASH AWARDS. The Committee shall have the authority to determine
the Employees to whom Cash Awards shall be granted, the amount and the
terms or conditions, if any, as additional compensation for the Employee's
services to the Company or its Affiliates. A cash award may be granted
(simultaneously or subsequently) separately or in tandem with another Award
and may entitle a Participant to receive a specified amount of cash from
the Company upon such other Award becoming taxable to the Participant,
which cash amount may be based on a formula relating to the anticipated
taxable income associated with such other Award and the payment of the Cash
Award.
(h) GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS. Each Non-employee
Director who is elected or appointed to the Board for the first time after
the effective date of the Plan shall receive, as of the date of his or her
election or appointment and without the exercise of the discretion of any
person or persons, a Non-Qualified Stock Option exercisable for 25,000
Shares (subject to adjustment in the same manner as provided in Section 7
with respect to Shares subject to Options then outstanding). As of the date
of the annual meeting of the stockholders of the Company in each year that
the Plan is in effect, each Non-employee Director who is in office
immediately after such meeting and who is not then entitled to receive an
Option pursuant to the preceding provisions of this Section 6(h) shall
receive, without the exercise of the discretion of any person or persons, a
Non-Qualified Stock Option exercisable for 25,000 Shares (subject to
adjustment in the same manner as provided in Section 7 with respect to
shares of Stock subject to Options then outstanding).
(i) Other Terms and Conditions. The following provisions are
applicable to Options granted pursuant to this Section 6(h):
(A) Subject to the following provisions, an Option granted
pursuant to Section 6(h) shall become exercisable for 20% of the Shares
covered thereby on the first anniversary of the date of grant, and
thereafter, for an additional 20% of the Shares covered thereby on each
of the second, third, fourth and fifth anniversaries of the grant
thereof.
(B) The purchase price of a Share covered under an Option
granted under this Section 6(h) shall be the Fair Market Value of a
Share on the date of grant.
(C) To the extent that the right to exercise an Option has
accrued and is in effect, the Option may be exercised in full at one
time or in part from time to time by giving written notice, signed by
the optionee exercising the Option, to the Company, stating the number
of Shares with respect to which the Option is being exercised,
accompanied by payment in full for such Shares, which payment may be in
whole or in part in Shares of the Company already owned by said
optionee, valued at Fair Market Value; provided, however, that (1) no
Option shall be exercisable after ten years from the date on which it
was granted, and (2) there shall be no such exercise at any one time
for fewer than 100 Shares or for all of
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the remaining Shares then purchasable by the optionee exercising the
Option, if fewer than 100 Shares.
(D) Each Option shall expire ten years from the date of grant
thereof, subject to earlier termination as follows: Options, to the
extent exercisable as of the date a Non-employee Director optionee
ceases to serve as a director of the Company, must be exercised within
three months of such date unless such event results from death,
disability or retirement, in which case all outstanding Options held by
such Non-employee Director may be exercised in full by the optionee,
the optionee's legal representative, heir or devisee, as the case may
be, within two years from the date of death, disability or retirement;
provided, however, that no such event shall extend the normal
expiration date of such Options. Options not exercisable on termination
as provided above shall be automatically canceled on termination.
(E) Upon exercise of the Option, delivery of a certificate for
fully paid and nonassessable Shares shall be made at the corporate
office of the Company to the optionee exercising the Option either at
such time during ordinary business hours after 15 days but not more
than 30 days from the date of receipt of the notice by the Company as
shall be designated in such notice, or at such time, place and maimer
as may be agreed upon by the Company and the optionee exercising this
Option.
(ii) Number of Available Shares. If the number of Shares available for
grants under the Plan is insufficient to make all grants provided for in
this Section 6(h) hereby made on the applicable date, then all Non-employee
Directors who are entitled to a grant on such date shall share ratably in
the number of Shares then available for grant under the Plan and shall have
no right to receive a grant with respect to the deficiencies in the number
of available Shares and the grants under this Section 6(h) shall terminate.
(iii) Rule 16b-3 Compliance. It is intended that the Plan meet the
requirements of Rule 16b-3 and that any Non-employee Director to whom a
grant is made pursuant to this Section 6(h) will not for such reason cease
to be a "disinterested person" within the meaning of Rule 16b-3 with
respect to the Plan and other stock related plans of the Company.
(i) GENERAL.
(i) Awards May be Granted Separately or Together. Awards to Employees
may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company or
any Affiliate. Awards granted in addition to or in tandem with other Awards
or awards granted under any other plan of the Company or any Affiliate may
be granted either at the same time as or at a different time from the grant
of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the Plan and
of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award may
be made in such form or forms as the Committee shall determine, including,
without limitation, cash,
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Shares, other securities, other Awards or other property, or any
combination thereof, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance with rules
and procedures established by the Committee. Such rules and procedures may
include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments.
(iii) Limits on Transfer of Awards.
(A) Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant's lifetime,
or, if permissible under applicable law, by the Participant's guardian
or legal representative or by a transferee receiving such Award
pursuant to a qualified domestic relations order (a QDRO) as determined
by the Committee.
(B) No Award and no right under any such Award may be assigned,
alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of
descent and distribution (or, in the case of Restricted Stock, to the
Company) if permissible under applicable law or pursuant to a QDRO and
any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the
Company or any Affiliate.
(iv) Term of Awards. The term of each Award (other than pursuant to
Section 6(h)) shall be for such period as may be determined by the
Committee; provided, that in no event shall the term of any Award exceed a
period of ten years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other securities
of the Company or any Affiliate delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations and other requirements of the SEC, any stock
exchange upon which such Shares or other securities are then listed, and
any applicable Federal or state laws, and the Committee may cause a legend
or legends to be placed on any such certificates to make appropriate
reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by Participant
of Consideration. No Shares or other securities shall be delivered pursuant
to any Award until payment in full of any amount required to be paid
pursuant to the Plan or the applicable Award Agreement is received by the
Company. Such payment may be made by such method or methods and in such form
or forms as the Committee shall determine, including, without limitation,
cash, Shares, other securities, other Awards or other property, withholding
of Shares, cashless exercise with simultaneous sale, or any combination
thereof, provided that the combined value, as determined by the Committee,
of all cash and cash equivalents and the Fair Market Value of any such
Shares or other property so tendered to the Company, as of the date of such
tender, is at least equal to the
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full amount required to be paid pursuant to the Plan or the applicable Award
Agreement to the Company.
(viii) Performance Criteria and Payment Limits. The Committee shall
establish performance goals applicable to those Awards (other than Options
and Rights) the payment of which is intended by the Committee to qualify as
"performance-based compensation" as described in Section 162(m)(4)(C) of the
Code. Until changed by the Committee, the performance goals shall be based
upon the attainment of such target levels of net income, cash flows,
acquisitions, total capitalization, total or comparative shareholder return,
assets, costs reductions and savings, return on equity, profit margin or
sales, and/or earnings per share as may be specified by the Committee. Which
factor or factors to be used with respect to any grant, and the weight to be
accorded thereto if more than one factor is used, shall be determined by the
Committee at the time of grant. The maximum amount of compensation that may
be paid to any Participant with respect to any single Performance Award or
Cash Award in any calendar year shall be $1.5 million. With respect to any
Restricted Stock Award, Phantom Stock Award, or Cash Award granted in tandem
with, and expressed as a percentage of, a Share-denominated Award, which is
intended to qualify as "performance-based compensation," the maximum payment
to any Participant with respect to such Award in any calendar year shall be
an amount (in cash and/or in Shares) equal to the Fair Market Value of the
number of Shares subject to such Award.
7. AMENDMENT AND TERMINATION. Except to the extent prohibited by
applicable law and unless otherwise expressly provided in an Award Agreement or
in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any shareholder,
Participant, other holder or beneficiary of an Award, or other Person;
provided however, that the provisions of Section 6(h) may not be amended
more than once every six months other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, and; provided further, that notwithstanding any other
provision of the Plan or any Award Agreement without the approval of the
stockholders of the Company no such amendment alteration, suspension,
discontinuation, or termination shall be made that would (i) increase the
number of Shares available for Awards under the Plan, except as provided in
Section 4(c), (ii) materially modify the requirements as to eligibility for
participation in the Plan, (iii) materially increase the benefits accruing
to Participants under the Plan, or (iv) extend the term of the Plan beyond
the date approved by the stockholders of the Company.
(b) AMENDMENT TO AWARDS. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore granted
(other than Awards granted under Section 6(h)), provided no change, other
than pursuant to Section 7(c), in any Award shall reduce the benefit to
Participant without the consent of such Participant. Notwithstanding the
foregoing, with respect to any Award intended to qualify as performance-
based compensation under Section 162(m) of the Code, no adjustment shall be
authorized to the extent such adjustment would cause the Award to fail to
so qualify.
(c) ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee is hereby authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards, in
recognition of unusual or nonrecurring events (including,
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without limitation, the events described in section 4(c)) affecting the
company, any affiliate, or the financial statements of the company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the committee determines that such adjustments are
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the plan. notwithstanding the
foregoing, with respect to any award intended to qualify as performance-
based compensation under section 162(m) of the code, no adjustment shall be
authorized to the extent such adjustment would cause the award to fail to
so qualify.
8. CHANGE IN CONTROL. Notwithstanding any other provision of this
Plan to the contrary, upon a Change in Control of the Company, all outstanding
Awards granted more than six months prior to the date of the Change in Control
automatically shall become fully vested upon such Change in Control, all
restrictions, if any, with respect to such Awards shall lapse, and all
performance criteria, if any, with respect to such Awards shall be deemed to
have been met in full. For this Plan, a Change in Control shall be deemed to
occur.
(a) if any person, other than Chris A. Dittmar and/or George W. Bowman
or their affiliates (as such term is used in sections 13(d) and 14(d)(2) of
the Exchange Act), is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's common stock under a tender
or exchange offer (other than a tender or exchange offer made by the
Company which is supported by the Board),
(c) upon the approval by the Company's stockholders (which stockholder
approval does not include Chris A. Dittmar and/or George W. Bowman) of a
merger or consolidation (other than the merger of the Company with and into
any of its wholly-owned subsidiaries), a sale or disposition of all or
substantially all of the Company's assets or a plan of liquidation or
dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or nomination
for the election by the Company's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the
same with respect to each recipient.
(b) WITHHOLDING. The Company or any Affiliate is authorized to
withhold from any Award, from any payment due or transfer made under any
Award or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that
would otherwise be issued pursuant to such Award, other Awards or other
property)
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of any applicable taxes payable in respect of an Award, its exercise, the
lapse of restrictions thereon, or any payment or transfer under an Award or
under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such
taxes. With respect to any Person who is an "insider" for purposes of
Section 16(b) of the Exchange Act the Company may provide in an Award
Agreement for mandatory withholding from any Award payable in Shares the
appropriate number of Shares required to satisfy the Company's withholding
obligations, except to the extent the Award has a tandem Cash Award, in
which event withholding shall be made first from such Cash Award.
(c) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any
time dismiss a Participant from employment, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in
any Award Agreement.
(d) GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal
Law.
(e) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be co or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award, such
provision shall be stricken as to such jurisdiction, Person or Award and
the remainder of the Plan and any such Award shall remain in force and
effect.
(f) OTHER LAWS. The Committee may refuse to issue or transfer any Shares
or other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and
any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant holder or beneficiary.
(g) NO TRUST OR FUND CREATED. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any Affiliate.
(h) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
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(i) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provisions thereof.
10. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective upon the
occurrence of all of the following events (i) its approval by the Board and the
Stockholders of the Company within 12 months thereafter in accordance with Rule
16b-3, (ii) the Domestication of the Company as a Delaware corporation in the
United States, and (iii) the listing of the Shares on the Nasdaq National
Market.
11. TERM OF THE PLAN. No Award shall be granted under the Plan ten
years after approval by the Board. However, unless otherwise expressly provided
in the plan or in an applicable Award Agreement, any Award theretofore granted
may, and the authority of the Board or the Committee to amend, alter, adjust,
suspend, discontinue, or terminate any such Award or to waive any conditions or
rights under any such Award shall extend beyond such date.
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