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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Commission file number: 0-28204
XAVIER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-049006
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Formerly Named
XAVIER MINES LIMITED
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 76-049009
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1600 SMITH STREET, SUITE 4700
HOUSTON, TX 77002
(Address of principal offices)
(713) 652-5111
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES___ NO X
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date:
16,585,898 shares of common stock, $0.0001 par value, issued and outstanding at
August 8, 1996.
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XAVIER CORPORATION
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
---------------------
CONSOLIDATED FINANCIAL STATEMENTS:
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Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995................................................ 3
Consolidated Statements of Income (Loss) and Retained Deficit
for the three months and six months ended June 30, 1996 and 1995.. 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995............................................ 6
Condensed Notes to Consolidated Financial Statements............... 7
Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
PART II OTHER INFORMATION
Item 1 - Legal Proceedings.......................................... 15
Item 2 - Changes in Securities...................................... 15
Item 3 - Defaults upon Senior Securities............................ 15
Item 4 - Submission of Matters to a Vote of Security Holders........ 15
Item 5 - Other Information.......................................... 16
Item 6 - Exhibits and Reports on Form 8-K........................... 16
(a) Exhibits
(b) Reports on Form 8-K
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XAVIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
------------ --------------
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ASSETS
CURRENT
Cash...................................................... $ 1,529,586 $ 25,435
Cash-restricted........................................... - 1,000,000
Accounts receivable....................................... 2,003,718 882,925
Short-term note receivable,
collateralized by the stock of
KMNGG whose reserves are
principally unproved................................. 19,949,532 19,949,532
Other..................................................... 447,612 193,323
------------ --------------
Total current assets............................. 23,930,448 22,051,215
------------ --------------
OIL AND GAS CONTRACT RIGHTS,
FULL COST METHOD, NET................................... 37,784,598 29,427,822
INVESTMENT IN AND ADVANCES TO
OIL AND GAS JOINT VENTURE................................. 11,774,174 11,870,107
INVESTMENT IN PRODUCTION
PLATFORM HELD FOR RESALE, NET............................. 1,499,877 1,499,877
INTANGIBLE ASSETS, NET...................................... 7,774,069 8,132,791
OTHER EQUIPMENT, NET........................................ 1,520,066 1,419,293
LOAN RECEIVABLE-AFFILIATED COMPANY.......................... 1,207,107 914,845
LOAN RECEIVABLE - OTHER..................................... 2,920,935 895,613
DEFERRED FINANCING COSTS.................................... 4,826,822 4,229,036
OTHER....................................................... 656,090 631,894
------------ --------------
$ 93,894,186 $ 81,072,493
============ ==============
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XAVIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities............. $ 13,134,608 $ 7,604,765
Notes payable....................... 1,626,014 1,376,646
Production platform advances........ 1,519,037 1,519,037
Due to affiliates:
Accounts payable.............. 42,220 42,220
Management and consulting fees 218,409 180,909
Other............................... 49,488 29,988
------------- --------------
Total current liabilities......... 16,589,776 10,753,565
------------- --------------
SHARE SUBSCRIPTIONS RECEIVED............ 14,000 -
DEFERRED INCOME TAX..................... 3,120,703 3,252,042
LONG TERM NOTES PAYABLE................. 29,871,658 20,888,400
OTHER................................... 1,434,513 131,745
MINORITY INTEREST IN NET ASSETS OF
CONSOLIDATED SUBSIDIARIES........... 6,316,310 6,637,496
SHAREHOLDERS' EQUITY
Share capital................... 65,816,067 58,309,202
Deficit......................... (29,268,841) (18,899,957)
------------- --------------
36,547,226 39,409,245
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$ 93,894,186 $ 81,072,493
============= ==============
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XAVIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
For the Three months ended For the Six months ended
June 30, June 30,
------------ ------------ ----------- ----------
1996 1995 1996 1995
------------ ------------ ----------- ----------
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REVENUES:
Oil and gas........................... $ 7,816,695 $3,459,331 $ 11,066,880 $6,596,949
Pipeline repair....................... 1,222,681 - 2,379,561 -
----------- ---------- ------------ ----------
TOTAL REVENUES.......................... 9,039,376 3,459,331 13,446,441 6,596,949
----------- ---------- ------------ ----------
EXPENSES:
Production taxes and fees............. 3,638,876 1,365,959 5,419,922 2,678,768
Lease operating expense.............. 3,164,074 121,608 3,745,534 243,607
Pipeline repair cost of sales......... 898,406 - 1,645,638 -
Depreciation and amortization......... 1,687,942 552,740 2,549,296 735,810
General and administrative............ 4,431,649 759,025 5,775,866 1,415,122
Interest and loan fees................ 1,304,889 524,622 2,345,924 623,691
----------- ---------- ------------ ----------
TOTAL EXPENSES.......................... 15,125,836 3,323,954 21,482,180 5,696,998
----------- ---------- ------------ ----------
OTHER INCOME (EXPENSE):
Interest income....................... 670,197 112,973 1,353,397 123,421
Litigation settlement expense......... (4,100,000) - (4,100,000) -
Equity in net loss of oil and gas
joint venture........................ (25,734) (9,150) (39,067) (9,150)
----------- ---------- ------------ ----------
TOTAL OTHER INCOME (EXPENSE)............ (3,455,537) 103,823 (2,785,670) 114,271
----------- ---------- ------------ ----------
LOSS BEFORE THE FOLLOWING............... (9,541,997) 239,200 (10,821,409) 1,014,222
PROVISION FOR DEFERRED
INCOME TAX............................. 126,811 (406,794) 131,339 (897,683)
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES.............. 199,416 - 321,186 -
----------- ---------- ------------ ----------
NET INCOME (LOSS)....................... $(9,215,770) $ (167,594) $(10,368,884) $ 116,539
=========== ========== ============ ==========
NET INCOME (LOSS) PER SHARE............. $(0.57) $(0.03) $(0.66) $0.01
=========== ========== ============ ==========
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XAVIER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOW
(Unaudited)
For the Six months ended June 30,
---------------------------------
1996 1995
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OPERATING ACTIVITIES:
Net income (loss) for the period................................................. $ (10,368,884) 116,539
Non-cash items:
Depreciation.................................................................. 2,549,296 735,810
Amortization of deferred financing costs...................................... 929,368 -
Deferred foreign income tax................................................... (131,339) 897,683
Minority interest in loss of subsidiaries..................................... (321,186) (3,050)
--------------- ------------
(7,342,745) 1,746,982
Net changes in non-cash balances
relating to operating activities.............................................. 5,856,145 (19,660)
--------------- ------------
(1,486,600) 1,727,322
INVESTING ACTIVITIES:
Expenditures for oil and gas
investment and contract rights................................................ (10,330,332) (15,517,574)
Purchase of other equipment..................................................... (242,265) (61,110)
Loan to affiliated company...................................................... (292,262) (305,884)
Loans and advances to others.................................................... (2,025,322) (5,350,000)
Other........................................................................... (3,789) (658,657)
--------------- ------------
(12,893,970) (21,893,225)
FINANCING ACTIVITIES:
Shares issued for cash........................................................... 5,928,157 22,473,958
Shares issued for consulting and loan fees....................................... 70,946 749,198
Share subscriptions received..................................................... 14,000 -
Warrants issued in connection with note payable.................................. 1,166,146 -
Repayment of debt................................................................ - (1,652,573)
Line of credit compensating balance.............................................. 1,000,000 (1,000,000)
Conversion of third party debt to common shares.................................. (500,000) (500,000)
Proceeds from third party borrowings............................................. 8,205,472 500,000
--------------- ------------
15,884,721 20,570,583
--------------- ------------
INCREASE (DECREASE) IN CASH........................................................ 1,504,151 404,680
CASH, BEGINNING OF PERIOD.......................................................... 25,435 107,222
--------------- -------------
CASH, END OF PERIOD................................................................ $ 1,529,586 511,902
=============== =============
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XAVIER CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES:
- -----------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to interim financial reporting as
prescribed by the Securities and Exchange Commission. All adjustments, which,
in the opinion of management, are necessary for a fair presentation of the
results for the interim periods have been reflected in the accompanying
unaudited financial statements. For further information regarding accounting
policies, refer to the Companys audited financial statements for the years ended
December 31, 1995 and 1994 included in its 1995 Annual Report or on Form S-4 as
submitted to the Commission.
NOTE 2 - CARNEGIE/AITORNEFTEGAZ NOTES:
- --------------------------------------
The Company has been unable to complete its due diligence on
Khantymansiyskeftegazgeologiya (KMNGG), whose shares collateralize the
$19,949,532 convertible promissory note due to Xavier from Aitorneftegaz (ANG).
Consequently, the parties extended the note's maturity to December 5, 1996.
NOTE 3 - NOTES PAYABLE:
- -----------------------
On June 19, 1996, the Company issued a note for $500,000 to Steve W.
Weller that was due on July 18, 1996. The note was for settlement of the Weller
lawsuit and was paid on July 18, 1996.
The Company asked the credit provider to activate the $12 million line
of credit or refund the $1 million commitment fee that the Company prepaid for
the availability of said credit facility. The credit provider failed to grant
either of these requests and, consequently, the balance was written off.
Management is pursuing legal and corporate options to recover the funds.
The Company is in technical default on the $276,000 (principal and
interest) note payable to Felton Investments Ltd. (Felton). Felton has issued
the Company a demand letter for payment of the note.
The Bandera Group (Bandera), Xaviers 54.5% subsidiary, received a 30
day extension on its $500,000 notes payable that were due on June 30, 1996 to
the sellers of the Miller Pipeline Service Company. Bandera is in technical
default on the notes, and currently, Xavier Corporation is negotiating to buy
the notes from the sellers.
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XAVIER CORPORATION
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NOTE 4 - COMMITMENTS AND CONTINGENCIES:
- ---------------------------------------
On August 12, 1996, Xavier and other named defendants began court-
ordered mediation in an attempt to settle the Southwest Merchants Groups claims
associated with Xaviers purchase of 54.5% of Bandera in July 1995. The
mediation produced no tangible results, so the lawsuit will proceed toward an
October 28, 1996 trial date.
NOTE 5 - SHARE CAPITAL:
- -----------------------
On April 26, 1996, the Company issued and delivered 3,365,385 units
(consisting of one share of Xavier Mines Limited (XML) common stock and a
warrant to purchase one share of XML common stock) via a private placement. On
May 3, 1996, the Company entered into a non-refundable, $1 million contract for
past and future financial advisory services (related to a proposed debenture
offering) with the purchaser of the above units. The purchaser, however, failed
to deliver funds for payment of the units. On May 11, 1996, Xavier arranged for
the resale of 3,000,000 of the units to a different purchaser. The original
purchaser returned the warrant certificate, along with approximately $1,715,000
in resale proceeds to the Company. However, the original purchaser has refused
to return the 365,385 share certificate and has kept approximately $1,131,000 of
the remaining resale proceeds citing the non-refundable financial services
contract and a selling commission due from the resale of the units. The Company
charged $1,131,000 to expense, and is reviewing the merits of a lawsuit against
the original purchaser for the return of or payment for the 365,385 share
certificate and the return of $1,131,000 of resale proceeds. No value was
recorded for the 365,385 share certificate.
On June 19, 1996, the Company issued 1,368,000 shares of common stock
for $1,000,000 via a private placement. The proceeds were used to fund the
Weller litigation settlement. Also on June 19, 1996, the Company issued 100,000
shares of stock to the entity that guaranteed the $500,000 note issued by Xavier
in settlement of the Weller litigation (see Part II, Item 1 and footnote 3 to
Consolidated Financial Statements).
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NOTE 6 - SUBSEQUENT EVENTS:
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(a) On July 15, 1995, XML domesticated as a Delaware corporation and
merged into its wholly-owned subsidiary, a Delaware corporation.
The post-merger entity retained the name Xavier Corporation. Also
on July 15, 1996, XML filed articles of amendment to consolidate
its shares on a one-for-four basis. On July 24, 1996, the Company's
shares began trading on the NASDAQ National Market on a post-
consolidation basis with the ticker symbol XVRC.
(b) On July 26, 1996, Genesis Eurasia Corporation notified the Company
of its intention to put its 1,000 shares of Xavier B.G. Inc.
exchangeable preferred stock to Xavier in exchange for 675,000
shares of Xavier common stock.
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XAVIER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In the second quarter of 1996, work continued on three wells at Potanay in
order to place them on artificial lift (rod pump) in the Potanay/Kartopyinskoye
(P&K) license area. At the Kamennoye East license area, the Company worked-over
two wells. Completion work of exploration well #163 resulted in a test of 115
bopd with 70% water cut and the well was shut-in for further evaluation. Work on
well #195 yielded unsatisfactory results and was subsequently shut-in. At the
Kamennoye West license area, the Company's Russian drilling contractor completed
drilling two additional wellbores to within 100 meters above the Cretaceous
formation. At August 10, 1996, the drilling contractor had drilled a total of
fourteen wells to within 100 meters of the Cretaceous objective. Preparations
continue for the Company to rig-up its own drilling rig with a specialized
drilling package for the underbalanced drilling program required to complete in
the Cretaceous formation. All operations in these Western Siberia TSA's were
normally slowed down by the annual spring thaw and subsequent loss of the winter
ice road system.
RESULTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1996 AND 1995
TSA--Revenue. Total revenue for the quarter ended June 30, 1996 increased
by $4,357,364 to $7,816,695 from $3,459,331 in the same period in 1995. TSA
revenue increased on higher sales volumes and higher crude prices.
Pipeline Repair Revenue. Total pipeline repair revenue for the quarter
ended June 30, 1996 increased to $1,222,681 from $0 in the same period in 1995.
This is a result of the Company's acquisition of a majority equity interest in
the Bandera Group (Bandera) in July of 1995.
Production Taxes and Fees. Production taxes and fees for the quarter ended
June 30, 1996 increased by $2,272,917 to $3,638,876 from $1,365,959 in the same
period in 1995. Production taxes and fees increased due to higher sales volumes
and higher per-unit production taxes in the Khanty Mansiysk region of western
Siberia.
Lease Operating Expense. Lease operating expense for the quarter ended June
30, 1996 increased by $3,042,466 to $3,164,074 from $121,608 in the same period
in 1995. The higher charges are due to expanding operations at the Potanay and
Kamennoye East TSA's and unusually large charges for direct and indirect
expenses billed by the Company's Russian partner to the venture. The Company is
reviewing the charges and will seek adjustments where the billings cannot be
substantiated.
Depreciation and Amortization. Depreciation and amortization expense for
the quarter ended June 30, 1996 increased by $1,135,202 to $1,687,942 from
$552,740 for the same period in
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1995. The increase resulted from amortization of the intangible assets obtained
in the purchase of 54.5% of Bandera, higher charges to depreciation for
equipment obtained in the Bandera purchase, for depreciation of new corporate
assets purchased as the Company's business expanded, and, primarily, for
depletion, depreciation and amortization associated with increased sales of
crude production.
General and Administrative. General and administrative expenses for the
quarter ended June 30, 1996 increased by $3,672,624 to $4,431,649 from $759,025
for the same period in 1995. The increase was the result of expanding
operations activity in the Siberian license areas and the Moscow and Houston
corporate offices, unusually high legal and accounting fees associated with a
registration statement and the Weller lawsuit, and write-offs of prepaid
expenses.
Interest and Loan Fees. Interest and loan fees for the quarter ended June
30, 1996 increased by $780,267 to $1,304,889 from $524,622 for the same period
in 1995. The increase in interest expense and loan fees was principally the
result of accrued interest on the Carnegie loans and amortization of the
associated warrants and interest on Bandera's debt.
Other (Income) and Expense. Other income and expense for the quarter ended
June 30, 1996 decreased by $3,559,360 to expense of $3,455,537 from income of
$103,823 for the same period in 1995. The decrease principally reflects
interest income on the Convertible Note due from Aitorneftegaz (ANG), interest
income from a promissory note due from Kachina Capital Corporation (KCC), and
interest income from loans made to certain entities to fund the Company's
commodities trading venture. The above items are offset by a onetime charge
related to a litigation settlement.
Income Taxes. Deferred income taxes for the quarter ended June 30, 1996
decreased $533,605 to $126,811 from ($406,794) for the same period in 1995.
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 TSA's. The change in deferred taxes as reported
in the Company's financial statements is due to the amortization of the step-up
in the basis of Banderas assets. The Company's Russian branch has a deferred
foreign tax liability.
Net Income (Loss). The Company had a net loss of $9,215,770 for the
quarter ended June 30, 1996, as compared to a net loss of $167,594 for the 1995
period. Net loss for the 1996 period was the result of TSA revenue, interest
income, and pipeline repair income, reduced by general and administrative
expense, oil and gas operations expense, interest expense, depreciation and
amortization expense, and the costs of litigation settlement.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
TSA - Revenue. Total revenue for the six months ended June 30, 1996
increased by $4,469,931 to $11,066,880 from $6,596,949 in the same period in
1995. TSA revenue increased on higher sales volumes (production from Potanay
TSA began in July 1995) and higher crude prices.
Pipeline Repair Revenue. Total pipline repair revenue for the six months
ended June 30, 1996 increased to $2,379,561 from $0 in the same period in 1995.
This is a result of the company's acquisition of a majority equity interest in
Bandera in July of 1995.
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Production Taxes and Fees. Production taxes and fees for the six months
ended June 30, 1996 increased by $2,741,154 to $5,419,922 from $2,678,768 in the
same period for 1995. Production taxes and fees increased due to higher sales
volumes (production from Potanay TSA began in July 1995) and higher per-unit
production taxes in the Khanty Mansiysk region of western Siberia.
Lease Operating Expense. Lease operating expense for the six months ended
June 30, 1996 increased by $3,501,927 to $3,745,534 from $243,607 in the same
period in 1995. The higher charges are due to expanding operations at the
Potanay and Kamennoye East TSA's and, in the second quarter, unusually large
charges for direct and indirect expenses billed by the Company's Russian partner
to the venture. The Company is reviewing the charges and will seek adjustments
where the billings cannot be substantiated.
Depreciation and Amortization. Depreciation and amortization expense for
the six months ended June 30, 1996 increased by $1,813,486 to $2,549,296 from
$735,810 for the same period in 1995. The increase resulted from amortization
of the intangible assets obtained in the purchase of 54.5% of Bandera, higher
charges to depreciation for equipment obtained in the Bandera purchase, for
depreciation of new corporate assets purchased as the Company's business
expanded, and, primarily, for depletion, depreciation and amortization
associated with increased sales of crude production.
General and Administrative. General and administrative expenses for the
six months ended June 30, 1996 increased by $4,360,744 to $5,775,866 from
$1,415,122 for the same period in 1995. The increase was the result of
expanding operations activity in the Siberian license areas and the Moscow and
Houston corporate offices, and, in the second quarter, unusually high legal and
accounting fees associated with a registration statement and the Weller lawsuit,
and write-offs of prepaid expenses.
Interest and Loan Fees. Interest and loan fees for the six months ended
June 30, 1996 increased by $1,722,233 to $2,345,924 from $623,691 for the same
period in 1995. The increase in interest expense and loan fees was principally
the result of accrued interest on the Carnegie loans and amortization of the
associated warrants and interest on Bandera's debt.
Other (Income) and Expense. Other income and expense for the six months
ended June 30, 1996 decreased by $2,899,941 to expense of $2,785,670 from income
of $114,271 for the same period in 1995. The decrease principally reflects
interest income on the Convertible Note due from Aitorneftegaz (ANG), interest
income from a promissory note due from Kachina Capital Corporation (KCC), and
interest income from loans made to certain entities to fund the Company's
commodities trading venture. The above items are offset by a onetime charge
related to a litigation settlement.
Income Taxes. Deferred income taxes for the six months ended June 30, 1996
decreased $1,029,022 to $131,339 from ($897,683) for the same period in 1995.
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 TSA's. The change in deferred taxes as reported
in the Company's financial statements is due to the amortization of the step-up
in the basis of Bandera's assets. The Company's Russian branch has a deferred
foreign tax liability.
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Net Income (Loss). The Company had a net loss of $10,368,884 for the six
months ended June 30, 1996, as compared to net income of $116,539 for the 1995
period. Net loss for the 1996 period was the result of TSA revenue, interest
income, and pipeline repair income, reduced by general and administrative
expense, oil and gas operations expense, interest expense, depreciation and
amortization expense, and the costs of litigation settlement.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an immediate need for cash to meet its currently due
obligations. At June 30, 1996, the Company had $1,529,586 of unrestricted cash
on hand. Of the available cash on hand, $106,206 was attributable to Bandera,
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 $19,552,000 in
bids outstanding and the profit margins realized on its $1,061,800 backlog of
contracts at July 1, 1996. Bandera began factoring some of its accounts
receivable in January 1996 to raise cash. At August 12, 1996, Xavier had
approximately $36,000 of cash on hand (net of Bandera).
In January 1996, Xavier received $2,000,000 from PETECO, a partner in the
P&K and Kamennoye East TSA's. In March 1996, the Company received $1,000,000
before deductions of commissions and fees from the sale of equity via a private
placement. In April 1996 the Company sold 3,365,385 shares of common stock.
(See footnote 5 to consolidated financial statements.) The proceeds were used
to pay drilling costs of $600,000 in the West Kamennoye license area and to make
a $675,000 prepayment toward a $1,320,000 hook-up contract for connecting the
Cretaceous wells with the extant gathering system, to provide a non-refundable
agency fee of $1,000,000 for a debenture/bond placement contract, and for
working capital. In June 1996, the Company issued an unsecured promissory note
for SEK 55,000,000 (US$9,025,000) under the same terms and conditions as the
December 1995 Carnegie note. The Company must also issue 6,939,778 warrants to
Morgan Grenfell International Funds, Ltd. which facilitated the additional
funding tranche of the Carnegie loan. The warrants carry the same terms and
conditions as in the prior funding. Also in June 1995, the Company received
$1,000,000 from a private placement of 1,368,000 shares. Funds from the June
note proceeds and June private placement were disbursed: $3.6 million to settle
litigation (see Part II, Item 1); $2,000,000 to facilitate the buying and re-
selling of ammonium nitrate vis-a-vis the Gazprom joint venture; $662,000 to
Vector Development for the on-going Cretaceous drilling program; $250,000 to
PETECO, the Company's partner in the Kamennoye East and Potanay TSA's, which
increases the advance account; and on July 17, 1996, a $500,000 note was paid in
settlement of the Weller lawsuit. The remainder was used to reduce accounts
payable and for general corporate purposes.
The Company also extended the conversion terms of a convertible note in the
amount of $500,000 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 $147,000 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). In the second quarter, the Company
advanced $2,000,000 to facilitate the buying and reselling of ammonium nitrate
from a Russian supplier to a western buyer. Through the Company's relationship
with Gazprom, it has agreed to enter into commercial agreements with the Kirovo
Chepetsk chemical complex to market chemical products derived from natural gas
processing. Initial sales contracts are for 25,000 to 50,000 metric tons per
month for each of anhydrous ammonia and ammonium nitrate (nitrogen fertilizers).
The initial transaction in June 1996 concerned the sale of ammonium nitrate
through terminal space in
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Tallinn, Estonia. Xavier is attempting to establish a source of trade credit for
these trading activities by collertalizing an inventory position in the port of
Tallinn and the associated accounts receivable. To date, the Company's aggregate
investment in the Gazprom joint venture is approximately $2,950,000.
The Company is in technical default on a promissory note, due June 30,
1996, with total principal and interest of $276,000. Bandera is in technical
default on notes due July 31, 1996, totaling $500,000, exclusive of interest;
Xavier is negotiating to buy the notes from the holders. (See footnote 3 to
Consolidated Financial Statements.)
The Company's principal future capital commitments arise under the
Kamennoye East and Kamennoye West TSA's. Each of these TSA's 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 $75,000,000 payable over a five-year period ending in
2000 at the rate of $15,000,000 per year. The Kamennoye East TSA requires
aggregate capital contributions of $40,000,000 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
$9,000,000 per year in each of 1994, 1995, 1996 and 1997. The Company and
PETECO have agreed to reinvest the first $8,000,000 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. Annual field development
expenditures or capital contributions in excess of the annual minimum
requirements specified in the Kamennoye East and Kamennoye West TSA's may be
carried forward and applied against the following year's contractual capital
spending requirements. In January 1996, the Company received $2.0 million from
PETECO, which reduced its TSA advance account balance. This transfer, when
added to the net reinvested revenue from P&K and Kamennoye East from first and
second quarters 1996 sales, resulted in a remaining contractual investment
requirement of $10.9 million. At June 30, 1996, the Company had committed
approximately $11 million towards the $15 million contractual capital commitment
at Kamennoye West. The Kamennoye West TSA funding commitment year runs from
July to June, however, management does not believe the $4 million underfunding
will effect the contractual status of the TSA.
The Company believes that cash flow from operations will be insufficient to
meet its 1996 capital needs by approximately $21,371,000. 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 addition, the Company has entered into discussions with
certain entities concerning the private placement in Europe of up to $100
million in convertible debentures. 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, effective January 1, 1996, the Company and Kachina Capital Corp.
(KCC) terminated their verbal agreement whereby Xavier had agreed to pay KCC an
amount equal to 2% of all amounts raised in public or private offerings of debt
or equity.
The Company wrote-off its $1 million prepaid commitment fee that was
securing a $12 million line of credit. The credit provider failed to establish
the credit facility as requested and, to
13
<PAGE>
date, has not refunded the prepayment. The Company will seek alternate funding
sources (as noted above and below) to meet anticipated cash shortfalls.
With the Company's domestication in the United States, it expects to 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 TSA's, 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 TSA's if required
to do so.
14
<PAGE>
XAVIER CORPORATION
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On June 19, 1996, Xavier settled the litigation styled Steven W. Weller v.
Xavier Mines Limited, Xavier (USA), Inc., Noramco Mining Corporation, Robert C.
Gardner, Murray Sinclair, George W. Bowman, II, Chris A. Dittmar and S. Lionel
McAuley. Mr. Weller had filed the suit on May 25, 1994, in the 334th District
Court of Harris County, Texas. As part of the settlement, the Company paid $4.1
million to Mr. Weller.
ITEM 2 - CHANGES IN SECURITIES
The common stock of Xavier Mines Limited, an Ontario corporation, was
exchanged for the common stock of Xavier Corporation, a Delaware corporation.
The information required by this Item 2 is incorporated by reference to the
section entitled "Effect of Domestication on Shareholder Rights" located at
pages 29-34 of the Registrant's Proxy Statement/Prospectus filed pursuant to
Rule 424(b)(3) on May 15, 1996, relating to Form S-4 Registration Statement No.
33-99126 (the "Proxy Statement"), and the section entitled "Description of the
Xavier-Delaware Securities" located at pages 89-93 of the Proxy Statement.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The June 24, 1996 meeting was both an annual and a special meeting.
(b) The following directors were elected:
Paul T. Conroy
Franklin L. Davis
Chris A. Dittmar
Robert L. Gerry, III
Michael C.P. Hannesson
No other directors' terms continued after the meeting.
(c) Following is a brief description of each matter voted upon at the meeting:
(1) 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 (45,654,559 votes for, no votes against).
15
<PAGE>
(2) A special resolution authorizing and approving the share consolidation
on a one-for-four basis and changing the Corporation's name to Xavier
Corporation (42,775,668 votes for, 124,698 votes against).
(3) A special resolution authorizing the domestication of the Company to
Delaware (40,384,052 votes for, 103,194 votes against).
(4) The adoption of the 1996 Long-Term Incentive Plan (31,838,272 votes
for, 6,370,118 votes against).
(5) Appointment of BDO Siedman LLP as the Company's auditors and
authorization to the directors to fix the remuneration of the auditors
(39,700,424 votes for, no votes against).
The information required by this Item 4 (c) is incorporated by reference to
the section entitled "Voting of Shares Represented by Management Proxies"
located at pages 21-29 of the Proxy Statement.
ITEM 5 - OTHER INFORMATION
On July 22, 1996, Franklin L. Davis, an outside director, resigned.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description Method of Filing
- --------------------------- ----------- -----------------------
27 Financial Data Schedule Filed herewith
99-A Copy of the section Filed herewith
entitled "Effect of
Domestication on
Shareholder Rights" from
pages 29-34 of the
Registrants' Proxy
Statement/Prospectus
filed pursuant to Rule
424(b)(3) on May 15,
1996, relating to Form
S-4 Registration
Statement No. 33-99126
(the Proxy Statement).
99-B Copy of the section Filed herewith
entitled "Description of
the Xavier-Delaware
Securities" from pages
89-93 of the Proxy
Statement.
16
<PAGE>
Exhibit No. Description Method of Filing
- --------------------------- ----------- -----------------------
99-C Copy of the section Filed herewith
entitled "Voting of
Shares Represented
by Management
Proxies" from pages
21-29 of the Proxy
Statement.
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, who has signed this
report on behalf of the Registrant and as the principal financial and accounting
officer of the Registrant.
XAVIER CORPORATION
Date: August 19, 1996 By: /S/ Robert S. Parsons
---------------------------------
Robert S. Parsons
Vice President and
Chief Financial Officer
18
<PAGE>
XAVIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash....................................................... $ 1,529,586 $ 25,435
Cash-restricted............................................ - 1,000,000
Accounts receivable........................................ 2,003,718 882,925
Short-term note receivable, collateralized by the stock of
KMNGG whose reserves are principally unproved............ 19,949,532 19,949,532
Other...................................................... 447,612 193,323
----------- -----------
Total current assets................................. 23,930,448 22,051,215
----------- -----------
OIL AND GAS CONTRACT RIGHTS,
FULL COST METHOD, NET...................................... 37,784,598 29,427,822
INVESTMENT IN AND ADVANCES TO
OIL AND GAS JOINT VENTURE.................................. 11,774,174 11,870,107
INVESTMENT IN PRODUCTION
PLATFORM HELD FOR RESALE, NET.............................. 1,499,877 1,499,877
INTANGIBLE ASSETS, NET....................................... 7,774,069 8,132,791
OTHER EQUIPMENT, NET......................................... 1,520,066 1,419,293
LOAN RECEIVABLE - AFFILIATED COMPANY......................... 1,207,107 914,845
LOAN RECEIVABLE - OTHER...................................... 2,920,935 895,613
DEFERRED FINANCING COSTS..................................... 4,826,822 4,229,036
OTHER........................................................ 656,090 631,894
----------- -----------
$93,894,186 $81,072,493
=========== ===========
</TABLE>
<PAGE>
XAVIER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities...................................... $ 13,134,608 $ 7,604,765
Notes payable.............................................. 1,626,014 1,376,646
Production platform advances............................... 1,519,037 1,519,037
Due to affiliates:
Accounts payable......................................... 42,220 42,220
Management and consulting fees........................... 218,409 180,909
Other...................................................... 49,488 29,988
------------ -------------
Total current liabilities 16,589,776 10,753,565
------------ -------------
SHARE SUBSCRIPTIONS RECEIVED................................. 14,000 -
DEFERRED INCOME TAX.......................................... 3,120,703 3,252,042
LONG TERM NOTES PAYABLE...................................... 29,871,658 20,888,400
OTHER........................................................ 1,434,513 131,745
MINORITY INTEREST IN NET ASSETS OF
CONSOLIDATED SUBSIDIARIES.................................. 6,316,310 6,637,496
SHAREHOLDERS' EQUITY
Share capital.............................................. 65,816,067 58,309,202
Deficit.................................................... (29,268,841) (18,899,957)
------------ -------------
36,547,226 39,409,245
------------ -------------
$ 93,894,186 $ 81,072,493
============ =============
</TABLE>
<PAGE>
XAVIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three months ended For the Six months ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas......................................... $ 7,816,695 $ 3,459,331 $ 11,066,880 $ 6,596,949
Pipeline repair..................................... 1,222,681 - 2,379,561 -
------------ ------------ ------------ ------------
TOTAL REVENUES........................................ 9,039,376 3,459,331 13,446,441 6,596,949
------------ ------------ ------------ ------------
EXPENSES:
Production taxes and fees........................... 3,638,876 1,365,959 5,419,922 2,678,768
Lease operating expense............................. 3,164,074 121,608 3,745,534 243,607
Pipeline repair cost of sales....................... 898,406 - 1,645,638 -
Depreciation and amortization....................... 1,687,942 552,740 2,549,296 735,810
General and administrative.......................... 4,431,649 759,025 5,775,866 1,415,122
Interest and loan fees.............................. 1,304,889 524,622 2,345,924 623,691
------------ ------------ ------------ ------------
TOTAL EXPENSES........................................ 15,125,836 3,323,954 21,482,180 5,696,998
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income..................................... 670,197 112,973 1,353,397 123,421
Litigation settlement expense....................... (4,100,000) - (4,100,000) -
Equity in net loss of oil and gas joint venture..... (25,734) (9,150) (39,067) (9,150)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE).......................... (3,455,537) 103,823 (2,785,670) 114,271
------------ ------------ ------------ ------------
LOSS BEFORE THE FOLLOWING............................. (9,541,997) 239,200 (10,821,409) 1,014,222
PROVISION FOR DEFERRED
INCOME TAX.......................................... 126,811 (406,794) 131,339 (897,683)
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARIES........................... 199,416 - 321,186 -
------------ ------------ ------------ ------------
NET INCOME (LOSS)..................................... $ (9,215,770) $ (167,594) $(10,368,884) $ 116,539
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE........................... $ (0.57) $ (0.03) $ (0.66) $ 0.01
============ ============ ============ ============
</TABLE>
<PAGE>
XAVIER CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six months ended June 30,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) for the period........................................ $ (10,368,884) $ 116,539
Non-cash items:
Depreciation........................................................ 2,549,296 735,810
Amortization of deferred financing costs............................ 929,368 -
Deferred foreign income tax......................................... (131,339) 897,683
Minority interest in loss of subsidiaries........................... (321,186) (3,050)
-------------- --------------
(7,342,745) 1,746,982
Net changes in non-cash balances
relating to operating activities.................................... 5,856,145 (19,660)
-------------- --------------
(1,486,600) 1,727,322
-------------- --------------
INVESTING ACTIVITIES:
Expenditures for oil and gas
investment and contract rights........................................ (10,330,332) (15,517,574)
Purchase of other equipment............................................. (242,265) (61,110)
Loan to affiliated company.............................................. (292,262) (305,884)
Loans and advances to others............................................ (2,025,322) (5,350,000)
Other................................................................... (3,789) (658,657)
-------------- --------------
(12,893,970) (21,893,225)
-------------- --------------
FINANCING ACTIVITIES:
Shares issued for cash.................................................. 5,928,157 22,473,958
Shares issued for consulting and loan fees.............................. 70,946 749,198
Share subscriptions received............................................ 14,000 -
Warrants issued in connection with note payable......................... 1,166,146 -
Repayment of debt....................................................... - (1,652,573)
Line of credit compensating balance..................................... 1,000,000 (1,000,000)
Conversion of third party debt to common shares......................... (500,000) (500,000)
Proceeds from third party borrowings.................................... 8,205,472 500,000
-------------- --------------
15,884,721 20,570,583
-------------- --------------
INCREASE (DECREASE) IN CASH............................................... 1,504,151 404,680
CASH, beginning of period................................................. 25,435 107,222
-------------- --------------
CASH, end of period....................................................... $ 1,529,586 $ 511,902
============== ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,529,586
<SECURITIES> 0
<RECEIVABLES> 21,953,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,930,448
<PP&E> 63,282,063
<DEPRECIATION> 4,429,156
<TOTAL-ASSETS> 93,894,186
<CURRENT-LIABILITIES> 16,589,776
<BONDS> 29,871,658
0
0
<COMMON> 65,816,067
<OTHER-SE> (29,268,841)
<TOTAL-LIABILITY-AND-EQUITY> 93,894,186
<SALES> 13,446,441
<TOTAL-REVENUES> 13,446,441
<CGS> 21,482,180
<TOTAL-COSTS> 21,482,180
<OTHER-EXPENSES> 4,100,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,345,924
<INCOME-PRETAX> (10,821,409)
<INCOME-TAX> 131,339
<INCOME-CONTINUING> (10,368,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,368,884)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99-A
The following is the information set forth under the section entitled
"Effect of Domestication on Shareholder Rights" from pages 29-34 of the
Registrant's Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) on
May 15, 1996, relating to Form S-4 Registration Statement No. 33-99126, which
has been incorporated by reference into Part II, Item 2 of this Form 10-Q:
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.
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
EXHIBIT 99-B
The following is the information set forth under the section entitled
"Description of the Xavier-Delaware Securities" from pages 89-93 of the
Registrant's Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) on May
15, 1996, relating to Form S-4 Registration Statement No. 33-99126, which has
been incorporated by reference into Part II, Item 2 of this Form 10-Q:
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
4
<PAGE>
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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<PAGE>
EXHIBIT 99-C
The following is the information set forth under the section entitled "Voting
of Shares Represented by Management Proxies" from pages 21-29 of the
Registrant's Proxy Statement/Prospectus filed pursuant to Rule 424(b)(3) on May
15, 1996, relating to Form S-4 Registration Statement No. 33-99126, which has
been incorporated by reference into Part II, Item 4(c) of this Form 10-Q:
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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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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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.
4
<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.
5
<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.
6
<PAGE>
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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<PAGE>
(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.
8
<PAGE>
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.
9
