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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission file number 2-93426-D
UNISTAR FINANCIAL SERVICE CORP.
(Exact name of small business issuer as specified in its charter)
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Delaware 87-0419568
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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4635 McEwen Road, Dallas, Texas 75244
(Address of principal executive offices)
(972) 702-0800
(Issuer's telephone number)
Caldera, Inc., 9 1/2 Casimir St., Toronto, Ontario, Canada M5T 2P6
(Former name, former address and former fiscal year,
if changed since last report)
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 [X] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, par value $.01 per
share - 24,009,372 shares outstanding as of March 15, 1999.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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UNISTAR FINANCIAL SERVICE CORP.
TABLE OF CONTENTS
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PAGE
ITEM NUMBER
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PART I - FINANCIAL INFORMATION
1. Financial Statements ......................................................... 1
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................ 1
PART II - OTHER INFORMATION
1. Legal Proceedings ............................................................ 4
2. Changes in Securities and Use of Proceeds .................................... 4
3. Defaults Upon Senior Securities .............................................. 4
4. Submission of Matters to a Vote of Security Holders........................... 4
5. Other Information............................................................. 5
6. Exhibits and Reports on Form 8-K ............................................. 6
Appendix A - Unaudited consolidated financial statements of Unistar Financial
Service Corp. as of and for the Quarter Ended September 30, 1998.............. F-1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements of the Company are annexed to this report as
Appendix A, beginning on page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Unistar Financial Service Corp., formerly Caldera, Inc. (the "Company"),
through its subsidiaries, the majority of which were acquired as of September
30, 1998, is primarily engaged in the distribution, premium financing,
reinsurance, claims processing and other ancillary areas of the personal lines
auto insurance business. The Company's wholly-owned retail auto insurance
agencies and independent auto insurance agencies generate income from policy
fees, commissions, premium financing and the marketing of ancillary services.
Eagle Premium generates revenue from premium financing provided to the Company's
customers. The Company's several managing general agencies generate revenue
through commissions, policy fee income and other administrative fees from the
marketing of the Company's insurance products through the Company's auto
insurance agency distribution network. International Surety and Casualty Company
(whose name is in the process of being changed to "Unistar Insurance Company,"
and is referred to as such or "UIC" herein), the Company's insurance subsidiary,
generates revenues from reinsurance retrocessions and the collection and
investment of premiums.
The completion of two significant transactions during the third quarter of
1998 provided the Company with its first active operations since 1991. These
transactions represent significant steps in transforming the Company from a
dormant public shell into a vertically integrated insurance and financial
service holding company, specializing in wholesale and retail auto insurance,
premium financing, and insurance claims management.
On August 17, 1998, the stockholders of the Company approved: (i) a Stock
Purchase Agreement, dated as of July 7, 1998 (the "IFHC Acquisition"), whereby
the Company purchased all of the issued and outstanding shares of common stock
of International Fidelity Holding Corporation, a Texas insurance holding
corporation ("IFHC"), in exchange for 19,777,000 shares of common stock, $.01
par value per share , of the Company on a post-Reverse Stock Split basis, as
defined below, (ii) an amendment to the Certificate of Incorporation authorizing
a one-for-fifteen reverse stock split of the Company's outstanding Common Stock
(the "Reverse Stock Split") and (iii) an amendment to the Certificate of
Incorporation to change the name of the Company to Unistar Financial Service
Corp. Following the closing of the IFHC Acquisition on August 17, 1998, IFHC
became a wholly-owned subsidiary of the Company. The Company, through its sole
ownership of IFHC, controls IFHC's insurance subsidiary, Unistar Insurance
Company.
On September 30, 1998, the Company completed the acquisition (the "USFH
Acquisition") of the assets and operations of U.S. Fidelity Holding Corp. and
its subsidiaries (collectively, "USFH"). USFH participates in the auto insurance
industry by providing multiple non-standard auto insurance products, premium
financing and claims administration. The USFH Acquisition was structured as a
stock-for-assets exchange, with the Company issuing 3,975,000 shares of Common
Stock in exchange for substantially all of the assets of USFH.
Prior to transactions discussed above, the Company, then known as Caldera,
Inc.("Caldera"), was a shell corporation with no operations or assets, which was
seeking to acquire a company that would become
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the business of Caldera. Caldera was formerly MW Companies, Inc. ("MW
Companies"), the successor corporation to Sansidra Corporation ("Sansidra").
Sansidra was organized under the laws of the state of Nevada in 1984, it
completed a public offering of 700,000 shares of common stock pursuant to a
registration statement on Form S-18 that became effective November 9, 1984. In
1985, Sansidra merged with and into MW Companies, changing its state of domicile
to Delaware and its name to MW Companies, Inc. In 1988, the Company's name was
changed to Caldera. From 1991 to August 1998, Caldera was dormant as it sought
out business opportunities.
EFFECT OF 1998 ACQUISITIONS ON THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements as of and for the quarter
ended September 30, 1998 (the "Q3 Financial Statements") were significantly
impacted by the transactions described above. An understanding of the Company's
Q3 Financial Statements results requires that the accounting treatment of such
acquisitions be explained:
January 1, 1998 through August 16, 1998: The Company, then known as
Caldera, Inc., was a dormant public shell, with no operations or activity
of any sort;
August 17, through September 30, 1998: The Company completed the IFHC
Acquisition on August 17, 1998, which was accounted for as a
reverse-takeover, meaning that for accounting purposes IFHC was the
acquiror of Caldera, Inc. Therefore, the financial results of IFHC (and its
sole subsidiary Unistar Insurance Company) since January 1, 1998 are
included in the Company's consolidated financial statements contained
herein.
September 30, 1998: The Company completed the USFH Acquisition on September
30, 1998, which gave the Company the substantial portion of its present
operations. Since the USFH Acquisition was completed on the last day of the
third quarter, it had no impact on the results of operations in the Q3
Financial Statements, but the assets and liabilities acquired therein are
included in the balance sheet as of September 30, 1998.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Net commissions and fees earned. Net commissions and fees earned of $2.4
million for the nine-month period consisted of the fees earned by the Company's
placing business with third-party insurers. Such fees should significantly
increase in future periods due to the acquisition of USFH and its managing
general agencies that was completed on September 30, 1998.
Commissions and loss adjustment expenses. Commissions and loss adjustment
expenses were $3.0 million for the nine months. Commissions and loss adjustment
expenses, the Company's most significant expense, represent actual payments made
and changes in estimated future payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses. Losses
and loss adjustment expenses are influenced by loss severity and frequency.
Other operating expenses. Other operating expenses were approximately
$200,000 during the nine-month period. This amount may continue to be higher
than normal, primarily because of the increase in costs associated with
supporting the growth of the Company's operations, including the operations of
USFH.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are derived from its insurance
operations, including premiums collected (net of policy cancellations and
premiums ceded), commissions, service fees and investment income. Commencing
September 30, 1998, the Company had available borrowings under formal credit
facilities for the premium finance portion its business, which was acquired on
that date. Because the Company is a holding company, it is largely dependent
upon its subsidiaries for cash flow. A substantial portion of the Company's
liquid assets are held by Unistar Insurance Company and are not available for
general corporate purposes, pursuant to insurance regulations. The Company's
management intends to aggressively continue to investigate opportunities for
future growth and expansion, the funding of which may require additional
capital.
YEAR 2000 MATTERS
In 1998, the Company began converting its computer systems to be year 2000
compliant. The Company has evaluated its internal systems, both hardware and
software, facilities, and interactions with business partners in relation to
year 2000 issues. As of December 31, 1998, the Company believes that it had
completed its efforts to bring the systems in compliance. The total cost
incurred during the year ended December 31, 1998 to modify these existing
systems, which include both internal and external costs of programming, coding
and testing, was not material. The Company continually evaluates computer
hardware and software upgrades and, therefore, many of the costs to replace
existing items with year 2000 compliant upgrades are not likely to be
incremental costs to the Company. During 1999, the Company will continue to
contact its business partners (including agents, banks, motor vehicle
departments and rating agencies) to determine the status of their compliance and
to assess the impact of noncompliance on the Company. The Company believes that
it is taking the necessary measures to mitigate issues that may arise relating
to the year 2000. To the extent that any additional issues arise, the Company
will evaluate the impact on its business, results of operations and financial
condition and, if material, make the necessary disclosures and take appropriate
remedial action.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENT INCLUDED IN THIS FORM 10-QSB
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
future growth of the Company's business activities and availability of funds.
The forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, regulatory framework, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this Form
10-QSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to routine legal proceedings in the ordinary course
of business. The Company believes that the ultimate resolution of these lawsuits
will not have a material adverse effect on its business, financial condition or
results of operations. The Company provides for a liability for both the amount
of estimated damages attributable to these lawsuits and the estimated costs of
litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 17, 1998, via a special meeting, the stockholders of the Company
approved an amendment to the Company's Certificate of Incorporation authorizing
a one-for-fifteen reverse stock split of the Company's outstanding Common Stock
(the "Reverse Split"). The Company's Common Stock has been quoted on the OTC
under the symbol "UNSF" since August 18, 1998.
During the third quarter of 1998, the Company issued the following shares
of its Common Stock without registration under the Securities Act of 1933 (all
shares are on a post-Reverse Split basis):
1. On August 17, 1998, the Company issued 19,777,000 shares for the
purchase of all of the issued and outstanding shares of common stock
of International Fidelity Holding Corporation ("IFHC");
2. On August 18, 1999, the Company issued 15,000 shares of Common Stock
in payment for $375,000 of legal fees owed to three lawyers who had
provided legal services to the Company in connection with the IFHC
acquisition;
3. On September 30, 1998, the Company issued 3,975,000 shares in exchange
for substantially all of the assets of U.S. Fidelity Holding Corp. and
its subsidiaries.
The above issuances were unregistered, as the Company was relying on the
exemption from registration contained in Section 4(2) of the Securities Act on
the basis that such transactions did not involve public offerings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 17, 1998, a Special Meeting of the Company's Stockholders was
held, at which the following five matters were submitted to a vote and approved
as indicated:
1. Proposal to approve the Stock Purchase Agreement, dated as of July 7,
1998, by and among the Company and the sole stockholders of
International Fidelity Holding Corp., a Texas Insurance Holding
Corporation ("IFHC"), whereby the Company would purchase the
outstanding shares of IFHC. This proposal was approved with 1,945,780
shares voting in favor, 0 shares voting against, and 3,600 shares
abstaining.
2. Proposal to elect nine individuals to the Board of Directors pursuant
to management's nominations: Marc A. Sparks, F. Jeffrey Nelson, Morris
Belzberg, Brent Brown, Paul Caver, Douglas Gerrard,
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James G. Leach, Patrick Rastiello and Kerry A. Sebree. This proposal
was approved with 1,946,380 shares voting in favor, and 3,000 shares
abstaining.
3. Proposal to amend the Company's Certificate of Incorporation to change
the corporate name to Unistar Financial Service Corp. This proposal
was approved with 1,944,380 shares voting in favor, 0 shares voting
against, and 5,000 shares abstaining.
4. Proposal to amend the Company's Certificate of Incorporation
authorizing a one-for-fifteen reverse split of the outstanding shares
of the Company's Common Stock, $.01 par value. This proposal was
approved with 1,923,560 shares voting in favor, 21,620 shares voting
against, and 4,200 shares abstaining.
5. Proposal to adopt the 1998 Stock Option Plan, including the
reservation of 1,000,000 shares of Common Stock for issuance
thereunder (on a post-reverse stock split basis). This proposal was
approved with 1,922,980 shares voting in favor, 18,800 shares voting
against, and 7,600 shares abstaining.
ITEM 5. OTHER INFORMATION.
The following matters have not been previously reported by the Company in a
Report on Form 8-K:
(a) Change in the Company's Certifying Accountant
(i) On February 23, 1999 the Company, by means of a letter addressed
to BDO Dunwoody LLP (the "Former Accountant") informed the Former
Accountant that it is changing independent auditors. The change arises
from the Company's desire to terminate its relationship with the
Former Accountant because of financial considerations.
(ii) There was no adverse opinion or disclaimer of opinion, or
qualification or modification as to uncertainty, audit scope, or
accounting principles for the Former Accountant's report on the
financial statements of the Company as of and for the two years ended
December 31, 1997.
(iii) This decision to dismiss was made by the Company's Board of
Directors.
(iv) & (v) During the two most recent fiscal periods ended December
31, 1997 and from January 1, 1998 through February 23, 1999, (i) there
were no disagreements between the Company and the Former Accountant on
any matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of the Former Accountant would have
caused it to make reference thereto in its report and (ii) there were
no reportable events as defined in paragraph 304 (a)(l)(iv) of
Regulation S-B.
As of February 23, 1999, the Company has engaged Karlins Arnold & Corbitt,
P.C. as successor to the Former Accountant.
(b) Resignations of the Company's Directors
(i) On December 18, 1998, Douglas Gerrard resigned as director of the
Company. Mr. Gerrard cited family and time commitments as his reason
for resigning. The resignation was not caused by any disagreement
between the parties. Mr. Gerrard's board seat was subsequently filled
by Mr. Leonard Feldman.
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(ii) Effective January 1, 1999, Paul Caver resigned as director of the
Company. Mr. Caver cited his travel schedule and time commitments as
his reasons for resigning. The resignation was not caused by any
disagreement between the parties. Mr. Caver's board seat is unfilled
at the present time.
(c) Restructuring of Acquisition of Assets of U.S. Fidelity Holding Corp.
The Stock Purchase Agreement by which the Company purchased the
outstanding stock of U.S. Fidelity Holding Corp., which was disclosed
in the Form 8-K filed by the Company on October 15, 1998, was
rescinded and restructured as an asset purchase, effective September
30, 1998, to reflect the intentions of the parties thereto. The pro
forma financial statements for this acquisition are included in the
Company's financial statements included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
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2.1 Stock Purchase Agreement, dated as of July 7, 1998, by and among Caldera, Inc., Marc A. Sparks,
F. Jeffrey Nelson and Nicole Clayton Caver.(2)
2.2 Asset Only Purchase Agreement, dated as of September 30, 1998, by and among Unistar Financial
Service Corp., U.S. Fidelity Holding Corp. and Rockford Partners Ltd.(3)
3.1 Articles of Incorporation, as amended.(1)
3.2 Bylaws of the Registrant, as amended.(1)
3.3 Certificate of Amendment to Certificate of Incorporation authorizing one-for-fifteen reverse
stock split, filed with the Secretary of State of Delaware on August 17, 1998.(2)
10.1* Registrant's 1998 Stock Option Plan.(2)
16.1 Letter from BDO Dunwoody LLP regarding change in certifying accountant.(3)
27.0 Financial Data Schedule.(3)
99.1 Proxy Statement for the Special Meeting of Stockholders held August 17, 1998.(2)
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* Denotes management contract or compensatory plan.
(1) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended December 31, 1997.
(2) Incorporated by reference to the Registrant's Report on Form 8-K filed
September 2, 1998.
(3) Filed herewith.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on September 2, 1998, dated August
17, 1998, to report the change in control resulting from the Company's
acquisition of International Fidelity Holding Corporation ("IFHC"), and other
matters resulting from the Special Meeting of Stockholders held on August 17,
1998. Financial statements for IFHC were subsequently filed on Form 8-K/A on
December 15, 1998.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNISTAR FINANCIAL SERVICE CORP.
Dated: March 31, 1999 By /s/ MARC A. SPARKS
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Marc A. Sparks
Chairman and Chief Executive Officer
Dated: March 31, 1999 By /s/ F. JEFFREY NELSON
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F. Jeffrey Nelson
President and Chief Financial Officer
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APPENDIX A
UNAUDITED FINANCIAL STATEMENTS OF
UNISTAR FINANCIAL SERVICE CORP.
AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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UNISTAR FINANCIAL SERVICE CORP.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
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ASSETS
Equity securities available for sale, at fair value $ 497,868
Cash 6,330,648
Finance contracts receivable, net of allowance for
credit losses of $1,033,587 31,617,758
Property and equipment, at cost, less accumulated
depreciation and amortization 2,900,522
Customer list, net of accumulated amortization 86,713,419
Other assets 1,530,730
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TOTAL ASSETS $ 129,590,945
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Reserve for unpaid losses and loss
adjustment expenses $ 4,960,000
Unearned premiums 1,341,358
Unearned commissions and policy fees 4,639,781
Amount due reinsurer 6,583,788
Notes payable 28,717,122
Accounts payable and accrued liabilities 5,097,225
Deferred income tax 1,970,595
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TOTAL LIABILITIES 53,309,869
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Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized
5,000,000 shares; no shares issued or outstanding --
Common stock, $.01 par value, authorized 50,000,000
shares; 24,009,372 issued and outstanding 239,944
Additional paid-in capital 78,301,458
Accumulated other comprehensive income (754,879)
Retained earnings (1,331,697)
Less treasury stock, at cost (63,333 shares) (173,750)
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TOTAL SHAREHOLDERS' EQUITY 76,281,076
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 129,590,945
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See notes to consolidated financial statements.
F-1
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UNISTAR FINANCIAL SERVICE CORP.
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
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REVENUE
Net commissions and fees earned $ 2,353,596
Net realized losses (20,672)
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Total revenues and other income 2,332,924
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EXPENSES
Commissions and loss adjustment expenses 2,973,581
Other operating expenses 196,856
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Total expenses 3,170,437
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NET LOSS $ (837,513)
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Basic loss per share $ (.03)
Diluted loss per share $ (.03)
Weighted average number of common shares outstanding:
Basic 24,006,861
Diluted 24,006,861
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See notes to consolidated financial statements.
F-2
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UNISTAR FINANCIAL SERVICE CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
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NET LOSS $ (837,513)
OTHER COMPREHENSIVE INCOME
Unrealized loss on securities available for sale (1,258,132)
Income tax effect on other comprehensive income 503,253
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(754,879)
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COMPREHENSIVE INCOME $(1,592,392)
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See notes to consolidated financial statements.
F-3
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UNISTAR FINANCIAL SERVICE CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
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COMMON STOCK, number of shares
Balance, beginning of year 3,345,000
Reverse stock split (3,117,628)
Issuance of stock:
Acquisition of International
Fidelity Holding Corp. 19,777,000
Acquisition of U.S. Fidelity
Holding Corp. 3,975,000
For services 15,000
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Balance, end of quarter 23,994,372
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COMMON STOCK, consideration
Balance, beginning of year $ 33,450
Reverse stock split (31,176)
Issuance of stock:
Acquisition of International
Fidelity Holding Corp. 197,770
Acquisition of U.S. Fidelity
Holding Corp. 39,750
For services 150
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Balance, end of quarter $ 239,944
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ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year $ 574,702
Reverse stock split 31,176
Issuance of stock
Acquisition of International
Fidelity Holding Corp. 2,819,292
Acquisition of U.S. Fidelity
Holding Corp. 74,501,438
For services 374,850
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Balance, end of quarter 78,301,458
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ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year $ --
Change in net unrealized loss on
investments, net of tax (754,879)
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Balance, end of quarter $ (754,879)
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RETAINED EARNINGS (DEFICIT)
Balance, beginning of year $ (494,184)
Net loss (837,513)
------------
Balance, end of quarter $ (1,331,697)
============
TREASURY STOCK
Balance, beginning of year $ --
Common shares acquired, at cost (173,750)
------------
Balance, end of quarter $ (173,750)
============
TOTAL STOCKHOLDERS' EQUITY $ 76,281,076
============
</TABLE>
See notes to consolidated financial statements.
F-4
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UNISTAR FINANCIAL SERVICE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
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Cash flows from operating activities:
Net loss $ (837,513)
Adjustments to reconcile net loss to net cash
provided by operating activities: 3,221,622
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Net cash provided by operating activities 2,384,693
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Cash flows from investing activities:
Businesses acquired in purchase transactions net of
cash acquired 3,381,150
-----------
Net cash provided by investing activities 3,381,150
-----------
Cash flows from financing activities:
Repayments of notes payable (125,000)
Purchase of treasury stock (173,750)
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Net cash used in financing activities (298,750)
-----------
Net increase in cash 5,466,509
Cash, beginning of year 864,139
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Cash, end of year $ 6,330,648
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</TABLE>
See notes to consolidated financial statements.
F-5
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UNISTAR FINANCIAL SERVICE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unistar Financial Service Corp. ("Unistar" or "the Company")is a vertically
integrated insurance holding company which, through its subsidiaries controls
substantially all aspects of the insurance underwriting, distribution and claims
process. Through its insurance subsidiaries (U.S. Fidelity Insurance Services),
Unistar, provides non-standard automobile insurance. Another wholly-owned
subsidiary (Eagle Premium Finance Corp.) provides premium financing.
International Surety & Casualty Company operates as a property and casualty
insurance company domiciled in the State of Texas which writes a limited amount
of construction surety bonds and reinsures non-standard automobile insurance
produced and underwritten by affiliated companies in Texas.
The accompanying consolidated financial statements include the accounts of
Unistar and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
On August 17, 1998, the stockholders of the Company approved: (i) a Stock
Purchase Agreement, dated as of July 7, 1998 (the "IFHC Acquisition"), whereby
the Company purchased all of the issued and outstanding shares of common stock
of International Fidelity Holding Corporation, a Texas insurance holding
corporation ("IFHC"), in exchange for 19,777,000 shares of common stock, $.01
par value per share ("Common Stock"), of the Company on a post-Reverse Stock
Split basis, as defined below, (ii) an amendment to the Certificate of
Incorporation authorizing a one-for-fifteen reverse stock split of the Company's
outstanding Common Stock (the "Reverse Stock Split") and (iii) an amendment to
the Certificate of Incorporation to change the name of the Company to Unistar
Financial Service Corp. Following the closing of the IFHC Acquisition on August
17, 1998, IFHC became a wholly-owned subsidiary of the Company. The Company,
through its sole ownership of IFHC, controls IFHC's insurance subsidiary,
International Surety and Casualty Company, a Texas property and casualty
insurance corporation ("ISCC").
On September 30, 1998, the Company completed the acquisition (the "USFH
Acquisition") of the assets and operations of U.S. Fidelity Holding Corp. and
its subsidiaries (collectively, "USFH"). USFH participates in the auto insurance
industry by providing multiple non-standard auto insurance products, premium
financing and claims administration and auto collision appraisal and repair
services. The USFH Acquisition was structured as a stock-for-assets exchange,
valued at approximately $75 million, with the Company issuing 3,975,000 shares
of Common Stock in exchange for substantially all of the assets of USFH.
F-6
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UNISTAR FINANCIAL SERVICE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The IFHC Acquisition was accounted for as a reverse-takeover, meaning that for
accounting purposes IFHC was the acquiror of the Company. Therefore, the
financial results of IFHC for all of 1998 are included in the Company's
consolidated financial statements contained herein. The USFH Acquisition,
however, was accounted for as an asset purchase, therefore the financial results
of USFH are not included in the September 30, 1998 in the Company's consolidated
financial statements contained herein.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets using the straight-line method, generally from
five to forty years.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Earnings per Share - Earnings per share is computed in accordance with the
Financial Accounting Standards Board (FASB) Statement No 128 "Earnings per
Share". Basic earnings per share is computed based on the weighted average
number of common shares outstanding, excluding any dilutive effects of options,
awards and convertible securities. Dilutive earnings per share is computed based
on the weighted average number of common shares outstanding plus the dilutive
effects of options, awards and convertible securities.
BUSINESS ACQUISITIONS
Effective September 30, 1998, the Company acquired substantially all of the
assets and assumed certain liabilities of U.S. Fidelity Holding Corp. The
purchase price exceed the fair value of net assets by approximately $84.1
million and has been included in customer lists.
The unaudited pro forma results, assuming the above acquisitions had occurred on
January 1, 1998 are as follows:
<TABLE>
<S> <C>
Revenues $124,754,000
Net income $ 6,746,000
Basic earnings per share $ 0.28
</TABLE>
The unaudited pro forma summary is not necessarily indicative either of results
of operations that would have occurred had the acquisitions been made at the
beginning of the periods presented, or of future results of operations of the
combined companies.
F-7
<PAGE> 18
UNISTAR FINANCIAL SERVICE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATUTORY INSURANCE ACCOUNTING PRINCIPLES
Since August 26, 1997, ISCC has operated under Regulatory Administrative
Oversight by the Texas Department of Insurance (the "TDI"). The more significant
requirements were for ISCC to provide certain financial statements, projections
and business plans for approval and review. The TDI also required ISCC to adopt
and amend certain policies and procedures.
ISCC responded to the Texas Department of Insurance on November 3, 1997
regarding the aforementioned issues. As of December 31, 1998, management
believes they have adequately addressed all of the significant issues.
F-8
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 7, 1998, by and among Caldera, Inc., Marc A. Sparks,
F. Jeffrey Nelson and Nicole Clayton Caver.(2)
2.2 Asset Only Purchase Agreement, dated as of September 30, 1998, by and among Unistar Financial
Service Corp., U.S. Fidelity Holding Corp. and Rockford Partners Ltd.(3)
3.1 Articles of Incorporation, as amended.(1)
3.2 Bylaws of the Registrant, as amended.(1)
3.3 Certificate of Amendment to Certificate of Incorporation authorizing one-for-fifteen reverse
stock split, filed with the Secretary of State of Delaware on August 17, 1998.(2)
10.1* Registrant's 1998 Stock Option Plan.(2)
16.1 Letter from BDO Dunwoody LLP regarding change in certifying accountant.(3)
27.0 Financial Data Schedule.(3)
99.1 Proxy Statement for the Special Meeting of Stockholders held August 17, 1998.(2)
</TABLE>
* Denotes management contract or compensatory plan.
(1) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended December 31, 1997.
(2) Incorporated by reference to the Registrant's Report on Form 8-K filed
September 2, 1998.
(3) Filed herewith.
<PAGE> 1
Exhibit 2.2
ASSET ONLY PURCHASE AGREEMENT
This Agreement ("Agreement"), dated this 14th day of September, 1998,
is made by and among ROCKFORD PARTNERS LTD., incorporated in Tortola, British
Virgin Islands (referred to as "Seller"), and UNISTAR FINANCIAL SERVICE CORP., a
publicly-traded Delaware corporation (referred to as "Buyer") and U.S. FIDELITY
HOLDING CORP., a Texas corporation ("USFHC").
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, at the Effective Date, Buyer shall purchase from the Seller, and the
Seller shall sell, transfer, assign, convey and deliver to Buyer, all right,
title and interest in the assets of USFHC including its subsidiaries, in
exchange for 3,975,000 shares of Common Stock, $.01 par value of Buyer (the
"Unistar Shares"), and that
IN CONSIDERATION of the mutual promises and conditions herein
contained, the parties hereby agree as follows:
1. Purchase and Sale to Acquire Specific Assets and Effective
Date.
1.01 Purchase and Sale of Assets. Upon the terms and subject
to all of the conditions herein, and the performance by each of the parties of
their respective obligations hereunder, Buyer purchases from Seller, and Seller
hereby sells, transfers and delivers to Buyer all of the Assets of USFHC,
including assets of USFHC's subsidiaries, as set forth and listed in Subsections
(a)-(i), below (collectively referred to as the "Assets"), effective September
30th, 1998 ("Effective Date"):
(a) Trade Names. All right, title and interest
whatsoever of trade names, trademarks or service marks, logos, copyrights and/or
style ("Trade Names"), of USFHC and subsidiaries, including corporate charters
and insurance licenses of Eagle Claims Corp., Eagle Premium Finance Company,
U.S. Fidelity Insurance Services, Advanced Underwriters, and Eagle Underwriters;
(b) Books and Records. All books, records,
data, memoranda, information, and goodwill of Seller, pertaining to the
insurance expirations and renewals owned by USFHC and/or its subsidiaries ("P&C
Renewals"), along with all other information and records related to the P&C
Renewal business, wherever located, specifically including, but not limited to,
all accounting and bookkeeping records relating to the P&C Renewal business and
advertising materials (radio and television commercials, print ads, brochures,
and the like). Seller shall have reasonable access to all records transferred
under this Agreement for a period of two years after the Effective Date for
reasonable business needs, including, but not limited to tax return preparation,
litigation, and regulatory matters;
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 1
<PAGE> 2
(c) Personal Property. All personal property,
including furniture, fixtures, signs and banners, automobiles or other vehicles,
telephone numbers, facsimile numbers, equipment and computer hardware and
software programs at all locations where USFHC conducts its business or stores
personal property. On January 1, 1999, a schedule of assets shall be
supplemented by a certification endorsement prepared and signed by Seller dated
as of the Effective Date, certifying the accuracy of such list and lien amounts.
(d) Renewals and Expirations. All of USFHC's
lists of customers, correspondence related to policies or customers or potential
customers, files, and the P&C Renewals;
(e) Rights to Receive Other Revenue. With
respect to the P&C Renewal business, all of USFHC's rights to receive other
revenue from business activities including, but not necessarily limited to,
performance of risk management services or other types of services for third
parties;
(f) Contracts with Insurers. To the extent
transferable, all of USFHC's rights under any appointment contracts with
insurance companies ("Appointment Contracts"), including reinsurance contracts
to which USFHC or its affiliates are a party;
(g) Customer Lists and Intangible Assets. All
the customer lists of USFHC and the intangible assets listed on the Schedule of
Assets;
(h) Leases. All of USFHC's rights pursuant to
any office lease, copier or other office equipment lease, or telecommunications
contract ("Leases") to which USFHC is a party;
(i) Other Assets. All of USFHC's cash,
outstanding accounts receivable, prepaid expenses, loans or notes receivable,
and cash value of life insurance policies, if any, and any other assets.
(j) Collection of Accounts Receivable. The
Buyer shall retain all accounts receivable of USFHC based on invoices and credit
memos with respect to insurance policies processed and billed by USFHC prior to
the close of business on the Effective Date for insurance coverage to be
effective from and after the Effective Date (such excluded accounts receivable
hereinafter called the "USFHC Receivables"). The Buyer shall pay over to the
Seller or its assigns on a monthly basis any and all amounts received by the
Buyer from customers in connection with the USFHC Receivables. If the customer
identifies the invoice paid, the Buyer will apply the funds in accordance with
the customer's instructions. If the customer fails to identify the invoice paid,
all funds received will be applied to invoices covering insurance written and
billed after the Effective Date to the extent any amount is owed to the Buyer by
the customer at the time of payment and any excess will be applied to the extent
necessary to the USFHC Receivables applicable to the paying customer, if any. On
the Effective Date, the Seller agrees to deliver to the Buyer a copy of its most
current available (but in no case over sixty days old) aged accounts receivable
trial balance report.
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 2
<PAGE> 3
2. Assumption of Certain Liabilities.
2.01 Return Premiums and Commissions. Buyer shall be liable
for return premiums and commissions resulting from the cancellation of any new
policy or P&C Renewal policy issued prior to the Effective Date and which is
current according to its contracts, unless otherwise agreed to or paid by Buyer.
2.02 Accounts Payable. The Seller agrees to timely pay to the
insurance carriers, when due and payable, all amounts owed in connection with
invoices and credit memos with respect to insurance policies processed and
billed by USFHC on or prior to the Effective Date.
3. Seller to Cease Operations.
3.01 Seller will cease USFHC business operations on Effective
Date and assist Buyer in the orderly transfer of the Assets. This assistance
shall include, but not be limited to, Seller using its best efforts (without
incurring any out-of-pocket expense) to assist Buyer with regulatory filings and
business arrangements necessary to commence, immediately on the Effective Date,
operation and administration of the Assets through Buyer's license or through
the licenses of assignees or the Designee of the Buyer, and assisting Buyer in
obtaining the necessary appointments from all insurers that have appointed
USFHC.
4. Indemnification
4.01 Seller hereby agrees to indemnify and hold harmless Buyer
and assignees (i) from any debts or liabilities to third parties or lienholders
and which are required to be paid by them in order to maintain (or obtain) title
to, the Assets, to the extent such debt or liability arose during the period
prior to Buyer's ownership of the Assets or as a result of the actions of Seller
or USFHC prior to the Effective Date, or (ii) from any loss to Buyer as a result
of any breach of this Agreement, breach of any covenant, representation, or
warranty hereunder, or any business activities of Seller, USFHC, or any of their
affiliates. Loss as used herein shall include expenses, including attorney's
fees. Buyer shall be entitled, but not obligated, to an offset of any amount
owed Seller pursuant to the Note in order to satisfy any claim of Buyer against
Seller or USFHC.
5. Certain Covenants.
5.01 Waiver of Covenants. Buyer, or its Designee or
affiliate, may offer employment to certain employees of USFHC ("Continuing
Employees"), with such employment by Buyer to commence on the Effective Date.
Seller, on behalf of itself and any affiliates, waive any rights to prevent any
Continuing Employees from competing with Seller or any of its affiliates in the
State of Texas, or from otherwise engaging in employment with the Buyer, or its
Designee or affiliate.
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 3
<PAGE> 4
5.02 Employee Benefit Plans. Under this Agreement, Buyer
will not assume or incur any liability for any employee benefits to the
Continuing Employees, or any other employee or former employee of Seller.
5.03 Conduct of Business Pending Exercise. From the
Effective Date, Seller shall cause the Seller not to enter, perform or agree to
enter or perform any transaction or act that would result in any of the
representations and warranties contained in Article Seven to be untrue or
incorrect in any material respect as of the Exercise Date, that would be likely
to cause any condition set forth in this Agreement to be unsatisfied or that
would otherwise jeopardize the transactions contemplated hereby or adversely
affect the Assets. Seller shall cause the Seller to conduct its business only in
the ordinary course of business consistent with past practice.
During the period commencing on the Effective Date,
except as provided otherwise in this Agreement, Seller shall not, without the
prior written consent of Buyer, cause, permit or suffer the Seller to take any
action to:
(a) Hire any employees or implement any employee
benefit plans or employee policies and procedures;
(b) Create, incur or assume any indebtedness
except for normal trade payables incurred in the ordinary course of business;
(c) Cause or permit USFHC's assets and
properties to not be maintained in their current condition, ordinary wear and
tear excepted;
(d) Fail to maintain USFHC's books, accounts and
records in the ordinary course of business consistent with past practices, (ii)
not continue to collect accounts receivable and pay accounts payable utilizing
normal procedures and (iii) not materially comply with all contractual and other
obligations applicable to its operations;
(e) Take any action or fail to take any action
which would cause USFHC's licenses to lapse;
(f) Make any material change in the marketing,
financial or accounting practices customarily followed by USFHC; or
(g) Sell, transfer, license or otherwise dispose
of or encumber any of the Assets.
6. Certain Liabilities Assumed by Buyer.
6.01 The only liabilities that Buyer agrees to assume as a
consequence of this Agreement are contractual liabilities pursuant to the
Leases, which shall be assumed only upon the Effective Date.
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 4
<PAGE> 5
7. Representations, Warranties and Covenants of Seller and USFHC.
7.01 As a material inducement to the Buyer to execute and
perform its obligations under this Agreement, the Seller hereby represents,
warrants and covenants to the Buyer as follows:
(a) Corporate Authority of Seller and USFHC.
The execution, delivery and performance of this Agreement, and all transactions
contemplated by this Agreement, has been duly authorized by all required
corporate action of Seller and USFHC.
(b) Conflict. The execution, delivery and
performance of this Agreement, and all documents contemplated by this Agreement,
does not and will not conflict with any agreement, contract or other instrument,
or any court order or administrative order, by which Seller, USFHC, or any of
their properties, is bound or affected, and will not constitute a default under
any provisions of the Articles of Incorporation or Bylaws of Seller, as they now
exist or as they exist at the Effective Date.
(c) Good Standing of USFHC. USFHC has the
licenses, which licenses have been validly issued and are validly existing under
the laws of the state whose Insurance Department or Commissioner issued such
license. Such licenses are in good standing under applicable provisions of the
Texas Insurance Code, or the insurance laws of the states in which such licenses
were issued. USFHC is entitled to own or lease all properties and to carry on
all business as now conducted. Seller and USFHC have all legal authority
necessary to enter into and perform under this Agreement, including, but not
limited to, the right to convey property and good title under any applicable
community property laws.
(d) Undisclosed Liabilities and Contracts to Which
USFHC is a Party. There are no debts, obligations or liabilities of USFHC,
absolute or contingent, or otherwise disclosed herein, which affect the Assets.
(e) Trade Names. Seller will cooperate with
Buyer after Effective Date in order to protect Buyer's right to use, assume or
assign the Trade Names. Seller represents and warrants that, to the best of its
knowledge, no other entity is entitled to or has asserted any right in the Trade
Names, trademarks or copyrights.
(f) Buyer Not to Assume Liabilities. Except for
the liabilities specifically assumed under this Agreement, Buyer will not assume
any liability of USFHC hereunder, whether pursuant to any contract for
advertising or computer software services, any agent appointment contract, or
otherwise. Nor will Buyer assume any liability for regulatory compliance
matters, payroll or payroll taxes, income or franchise taxes, rent, accounts
payable, notes payable, any claim, suit or agreement with any third party, or
otherwise.
(g) Legal Proceedings. There are no actions,
suits, proceedings or investigations pending or, to the knowledge of Seller or
USFHC, threatened against or affecting USFHC or any of the Assets, at law or in
equity, or at any administrative level or other governmental
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 5
<PAGE> 6
department, commission, board, agency or instrumentality or mediation, except
those which are standard in the insurance industry. Further, Seller and USFHC
are not in default with respect to any order, writ, injunction or decree of any
court or administrative tribunal. Seller or USFHC are hereby obligated to advise
Buyer of any legal actions, etc. between the date of this Agreement and the
Effective Date.
(h) Taxes. All taxes imposed by any authorized
taxing jurisdiction which are due or payable for USFHC by Seller , attributable
to any period prior to the Effective Date, either have been paid or will be paid
in full without any contribution by Buyer or its Designee. Seller specifically
holds Buyer, and its Designee and assignees, harmless from any liability or
deficiency which may be assessed against Seller, USFHC, or Buyer or its Designee
or assignees, either as a result of this Agreement and related transactions or
as a result of Seller's administration of the Assets prior to Effective Date, or
as a result of any tax lien assessed against any of the Assets conveyed under
this Agreement.
(i) No Liens or Encumbrances. There are no
liens or other encumbrances on any of the Assets transferred under this
Agreement, except as scheduled in Exhibit ___ herein.
(j) No Material Adverse Changes. There will be
no material adverse changes in the condition, financial or otherwise, of the
Assets conveyed hereunder from the Effective Date up to and including the
Effective Date.
(k) Title to Properties and Assets. Seller has
good, absolute and marketable title to the Assets being sold hereunder and
Seller will convey such title to Buyer on the Effective Date.
(l) No Default. Neither Seller nor USFHC is in
default in any respect under any contract, agreement, lease, document, or other
commitment, oral or written, to which they are a party, individually or
collectively, which default could have a material adverse impact on the Assets
or Buyer's right therein.
(m) Confidentiality of Customer Lists. Seller
and USFHC have no knowledge that any customer lists or renewal lists or other
business records have been divulged to any other entities (except their
accountants or attorneys) prior to the execution date of this Agreement; and
they covenant that they will not do so prior to or after Effective Date so long
as any restrictive covenant applies.
(n) Renewals and Expirations. All of the
renewals and expirations being transferred to Buyer under this Agreement ("P&C
Renewals") are set forth in sufficient detail, as attached in Exhibit _____
herein, to allow Buyer to classify each item listed as reasonably required for
Buyer's business and showing materially correct amounts of commissions received
by Seller in 1998 for each policy or the anticipated, annualized commission for
such policy in 1999.
(o) E&O Coverage. The Seller and USFHC shall maintain
E&O coverage
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 6
<PAGE> 7
through the Effective Date. Buyer assumes no liability for any error or omission
of Seller or USFHC and Seller and USFHC agree and understand that Buyer has no
obligation to purchase tail coverage for any E&O policy of Seller or USFHC. Tail
coverage, if any, shall be purchased and paid for by Seller or USFHC. Neither
Seller nor USFHC is aware of any pending or threatened claim against USFHC that
could adversely affect the Assets.
(p) Press Releases and Announcements. Seller
will not issue a press release or announcement to appointing insurers or
customers of USFHC regarding this Agreement without the express written consent
of the Buyer. However, the foregoing provision shall in no way limit Buyer's
ability to communicate with customers and insurance carriers regarding the
Assets.
(q) Insurance Company Contracts and
Appointments. Neither Seller nor USFHC is aware of the proposed cancellation of
any such contract, for cause or otherwise, and the Seller and USFHC agree to use
their best efforts to cause each such company to appoint Buyer (or its
designated affiliate(s)), as designated and requested by Buyer, so that the
existing business can be renewed (subject to Buyer's desires) in such companies.
All representations and warranties made above to Buyer or its
assignees shall be in effect as if made on Effective Date and shall survive the
Effective Date for a period of four (4) years.
8. Representations and Warranties of Buyer.
8.01 As a material inducement to the Seller to execute and
perform obligations under this Agreement, the Buyer hereby represents and
warrants to the Seller as follows:
(a) Corporate Authority of Buyer. The
execution, delivery and performance of this Agreement, and all transactions
contemplated by this Agreement, has been duly authorized by all required
corporate action of Buyer.
(b) Conflict. The execution, delivery and
performance of this Agreement, and all documents contemplated by this Agreement,
does not and will not conflict with any agreement, contract or other instrument,
or any court order or administrative order, by which Buyer, or any of its
properties, is bound or affected, and will not constitute a default under any
provisions of the Articles of Incorporation or Bylaws of Buyer, as they now
exist or as they exist at the Exercise Date.
All representations made by Buyer to Seller shall survive the
Effective Date for a period of four (4) years, or until Seller has been paid in
full, whichever last occurs.
9. Assignments.
Buyer may assign the rights, duties, benefits or Assets of
this Agreement to any authorized corporate or other legal entity of its
choosing, provided that Buyer shall not be released from its obligations under
this Agreement in the event of default by such assignee. Such assignment
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 7
<PAGE> 8
shall not dilute or otherwise decrease Seller's rights or benefits herein. This
Agreement, or any of its benefits, duties or rights may not be assigned or
delegated by Seller without the prior written consent of Buyer.
10. Venue.
The exclusive venue for any litigation arising out of or
related to this Agreement shall be in Dallas County, Texas.
11. Scope of Hold Harmless Provisions.
The "hold harmless" provisions contained in this Agreement
include the responsibility of the indemnifying party to pay for professional
advice and counsel to defend against any demands, assertions, claims, etc. made
by third parties which may trigger the "hold harmless" provisions ("Claim").
Buyer shall promptly notify Seller of any Claim and Seller shall have a
reasonable opportunity to assume the defense of the Claim, at Seller's expense.
If Seller elects not to defend the Claim or does not act promptly to defend the
Claim, then Buyer will have the unilateral option and right to be in control of
any defense of the Claim. The indemnifying party may participate in the defense
of such Claim to the extent provided herein, but the indemnifying party shall be
bound by the results obtained by the Buyer (or its designee party), including,
without limitation, any out of court settlement, compromise and/or attorney's
fees sustained.
12. Amendment and Waiver and Parties.
This Agreement may be amended or modified at any time and in
all respects, or any provision may be waived by an instrument in writing
executed by the Seller, Buyer, and USFHC. All references to the rights or
remedies of Buyer in this Agreement shall include the rights and remedies of
Buyer's Designee or assignee.
MISCELLANEOUS
A. Notices. All notices, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed first class postage prepaid:
To Buyer: Unistar Financial Service Corp.
Attn: Marc A. Sparks, Chairman & CEO
4635 McEwen Road
Dallas, Texas 75244
To Seller: Rockford Partners Ltd.
Attn: Deborah L. Paterson
Par La Ville Place
14 Par-La-Ville Road
Hamilton HM JX, Bermuda
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 8
<PAGE> 9
To USFHC: U.S. Fidelity Holding Corp.
Attn: F. Jeffrey Nelson
4635 McEwen Road
Dallas, Texas 75244
B. Indemnification. Each of the parties to this Agreement (as
indemnitor) shall indemnify and save harmless the other party to this Agreement
(as indemnitee) and its/his officers, agents, and employees from all suits,
actions, losses, damages, claims, or liability of any character, type, or
description, including without limiting the generality of the foregoing all
expenses of litigation, court costs, and attorney's fees for injury or death to
any person, or injury to any property, received or sustained by any person or
persons or property, arising out of, or occasioned by, the acts of indemnitor or
its/his agents or employees, in the execution or performance of this Agreement.
C. Entire Agreement. This Agreement constitutes the entire
contract between the parties hereto pertaining to the subject matter hereof and
supersedes all other prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral of the parties.
D. Governing Law. If, for any reason, any portion of this
Agreement must be amended to comply with any applicable law or regulation, the
parties hereby agree to make the necessary revisions consistent with the
substantive goals of this Agreement. This Agreement shall be performable in
Dallas County, Texas.
E. Section Headings. The Section headings are for reference only
and shall not limit or control the meaning of any provision of this Agreement.
F. Successors, Assigns and Third Parties. This Agreement shall
inure to the benefit of the respective parties hereto and their heirs,
successors assigns, but shall not create third party beneficiary rights.
G. Amendments. This Agreement may be amended at any time but only
by an instrument in writing, signed by the parties hereto.
(SIGNATURE ON FOLLOWING PAGE)
Seller ___________
Buyer ___________
USFHC ___________
ASSET ONLY PURCHASE AGREEMENT
page 9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto duly executed this Agreement as
of the day and year first above written.
BUYER: UNISTAR FINANCIAL SERVICE CORP.
------------------------------
Marc A. Sparks
Chairman & CEO
SELLER: ROCKFORD PARTNERS LTD.
-----------------------------
Deborah L. Paterson
President
U.S. FIDELITY HOLDING CORP.
-----------------------------
F. Jeffrey Nelson
President
ASSET ONLY PURCHASE AGREEMENT
page 10
<PAGE> 1
Exhibit 16.1
[BDO DUNWOODY LLP CHARTERED ACCOUNTANTS AND CONSULTANTS LETTERHEAD]
February 25, 1999
F. Jeffrey Nelson
President
Unistar Financial Service Corp.
4635 McEwen Road
Dallas, TX
75244
Dear Jeff:
In response to your letter of February 24, 1999, BDO Dunwoody LLP hereby resigns
as Unistar Financial Service Corp. (formerly known as Caldera, Inc.) independent
auditor effective immediately. As of our latest audit of Caldera, Inc. for the
period ending December 31, 1997, there was no adverse opinion or disclaimer of
opinion, or qualification or notification as to uncertainty, audit scope, or
accounting principles.
Yours very truly,
BDO DUNWOODY LLP
/s/ BDO DUNWOODY LLP
Robert W. Babensee, C.A.
Partner
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,331
<SECURITIES> 498
<RECEIVABLES> 32,650
<ALLOWANCES> 1,034
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,901
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,591
<CURRENT-LIABILITIES> 0
<BONDS> 28,717
0
0
<COMMON> 240
<OTHER-SE> 76,041
<TOTAL-LIABILITY-AND-EQUITY> 129,591
<SALES> 0
<TOTAL-REVENUES> 2,333
<CGS> 0
<TOTAL-COSTS> 2,974
<OTHER-EXPENSES> 197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (838)
<INCOME-TAX> 0
<INCOME-CONTINUING> (838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (838)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
