<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended March 31, 1997
----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------------- ------------
Commission file number
------------------------------------
INTERUNION FINANCIAL CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 87-0520294
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
249 Royal Palm Way, Suite 301 H, Palm Beach, Fl 33480
- ----------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(561) 820-0084
- ---------------------------
(Issuer's telephone number)
------------------------------------------------------------------------------
(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 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 [ ]
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year. $5,712,183
-------------
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $2,178,788 On June 16, 1997
---------------------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 Par Value Common Shares -
969,714 as of June 16, 1997.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
Page 1 of 27
<PAGE> 2
INTERUNION FINANCIAL CORPORATION
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I ............................................................................................. 3
Item 1 DESCRIPTION OF BUSINESS.................................................................. 3
Item 2 DESCRIPTION OF PROPERTY.................................................................. 10
Item 3 LEGAL PROCEEDINGS........................................................................ 10
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 10
PART II ............................................................................................ 10
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................. 10
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS..................................................... 13
Item 7 FINANCIAL STATEMENTS..................................................................... 19
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 19
PART III ........................................................................................... 20
Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT........................................................ 20
Item 10 EXECUTIVE COMPENSATION.................................................................. 22
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................... 23
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 25
Item 13 EXHIBITS AND REPORTS ON FORM 8-K........................................................ 26
</TABLE>
Page 2 of 27
<PAGE> 3
PART I
Item 1 DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
On February 7, 1994, the shareholders of AU 'N AG, INC., a Utah corporation,
approved without dissent, a proposal to change the domicile of the Company
through the merger of the Company into AU 'N AG, INC., a Delaware corporation to
be formed.
On February 15, 1994 a Certificate of Incorporation of AU 'N AG, INC., a
Delaware corporation, was filed with the office of the Secretary of State,
Division of Corporations, State of Delaware.
On February 15, 1994, the date of incorporation of AU 'N AG, Inc. of Delaware,
the directors of that corporation approved a Pre-Organization Subscription and
Letter of Non-Distributive Intent executed by the President of AU 'N AG, Inc.,
the Delaware corporation, for $10.00 with the understanding that the shares
would be immediately canceled upon the effective date of the merger between AU
'N AG, INC. of Delaware and AU 'N AG, INC. of Utah. These shares were issued by
the Company in reliance upon the exemption from the registration requirements of
the Securities Act of 1933, as amended, as provided by Section 4(2) of that Act
and upon a similar exemption contained in applicable state securities laws. The
shares received by AU 'N AG, INC. were restricted securities, subject to Rule
144 promulgated under the Securities Act of 1933, as amended. See Exhibits at
E-1 and E-4.
Further on February 15, 1994, a Plan and Agreement of Merger of AU 'NAG, INC.
(Utah) and AU 'N AG, INC. (Delaware) was executed. On the same day a Certificate
of Merger was executed by the above corporations. This Certificate of Merger was
filed in the office of the Secretary of Delaware on March 10, 1994. Under the
Certificate of Merger AU 'N AG, INC., the Delaware Corporation, was the
surviving corporation. See Exhibit E-5 and E-9.
Under the terms of the above-referenced merger each share of common stock of AU
'N AG, INC. (Utah) was converted into one share of AU 'N AG, INC.(Delaware). At
the time of its incorporation, AU 'N AG, Inc. (Delaware) had total authorized
capital stock in the amount of 50,000,000 shares at $.001 par value. Each holder
of AU 'N AG, INC. (Utah) upon surrender to AU 'N AG, INC.(Delaware) of one or
more certificates for such shares for cancellation received one or more
certificates for the number of shares of common stock of AU 'N AG, INC.
(Delaware) represented by the certificates of AU 'N AG, INC.(Utah) so
surrendered for cancellation by such holder.
As a result of the above-referenced merger, 23,297,800 shares of common stock of
AU 'N AG, INC. (Delaware) were issued to the shareholders of the corporation
formerly known as AU 'N AG, INC. (Utah). At the time of the merger, AU 'N AG,
INC. (Utah) had no assets and was an inactive corporation.
As provided in the Plan and Agreement of Merger, the sole purpose of the
above-referenced merger was to change the issuer's domicile from Utah to
Delaware and the exchange of securities from one corporation to another was, in
the opinion of management, therefore outside of the provisions of Rule 145 as
promulgated by the Securities & Exchange Commission. Further, it is the position
of management that the exchange of stock was a transaction by an issuer not
involving any public offering and thus was within the protection of Section 4(2)
of the Securities Act of 1933, and exempted from registration requirements.
On April 11, 1994, a Certificate of Amendment of the Certificate of
Incorporation of AU 'N AG, INC. (Delaware) was executed, providing that the name
of the Company be changed to: INTERUNION FINANCIAL CORPORATION ("IFC" or the
"Company"). This change of name was filed by the office of the Secretary of
State of Delaware on April 19, 1994.
Subsequent to a filing of information submitted to the National Association of
Securities Dealers, Inc. (NASD) pursuant to Schedule H of the NASD By-Laws and
Rule 15c 2-11 under the Securities Act of
Page 3 of 27
<PAGE> 4
1934, on July 27,1994 IFC was cleared for listing on the OTC Bulletin Board. The
Company currently trades under the symbol: IUFC.
Subsequent to approval by the required shareholders at a meeting held October
14, 1994, the common stock was reverse split at a ratio of ten (10) to one (1).
Further, based upon shareholder approval at that meeting, a Certificate of
Amendment was filed with the Secretary of State, State of Delaware, showing
capitalization as follows:
(1) 100,000,000 shares of common voting stock at $.001 par value.
(2) 1,500,000 shares of Class A preferred stock at $.10 par value.
(3) 50,000,000 shares of Class B preferred stock with par value to be set
by the Board of Directors.
(4) 50,000,000 shares of Class C preferred stock with par value to be set
by the Board of Directors.
On January 18, 1995 the Company acquired all of the stock of BEARHILL LIMITED, a
British Virgin Islands corporation, for the issuance of 22,262 shares of common
stock (adjusted for the 20 for 1 reverse stock split of May 1996). On January
18, 1995 the Company also acquired all of the stock of GUARDIAN TIMING SERVICES,
INC., a corporation organized under the laws of Ontario, Canada, for the
issuance of 5,566 shares of common stock (adjusted for the 20 for 1 reverse
stock split of May 1996).
Upon application to the Florida Department of State, on February 2, 1995, the
Company was qualified and authorized to transact business in the State of
Florida. The Company moved its principal office to 249 Royal Palm Way, Suite
301-H, Palm Beach, Florida 33480.
On March 20, 1995, the Company acquired all of the stock of I & B, INC., a
Delaware corporation, CREDIFINANCE CAPITAL INC., a corporation organized under
the laws of Ontario, Canada, CREDIFINANCE SECURITIES LIMITED, a corporation
organized under the laws of Ontario, Canada, and ninety-five percent (95%) of
the stock of ROSEDALE REALTY CORPORATION, a corporation organized under the laws
of Ontario, Canada, for the issuance of 75,000 shares of common stock (adjusted
for the 20 for 1 reverse stock split of May 1996). The Company further acquired
the remaining outstanding stock of ROSEDALE REALTY CORPORATION for the issuance
of 1,230 shares of common stock (adjusted for the 20 for 1 reverse stock split
of May 1996). It should be noted that in 1996 the Company disposed, by way of an
assignment in bankruptcy, of its shares in ROSEDALE REALTY CORPORATION. This
assignment was a voluntary petition filed by Credifinance Capital, Inc., the
owner of Rosedale, on September 29, 1995. The decision to file for bankruptcy
was made after negotiations for a merger of Rosedale with another firm were
unsuccessful. Rosedale had never been profitable subsequent to its acquisition
and Credifinance Capital, Inc. made the decision to cease financing Rosedale's
operations. The bankruptcy was concluded and there are no outstanding lawsuits
against either Credifinance Capital, Inc. or the parent, InterUnion Financial
Corporation. (See Note 9 of InterUnion Financial Corporation Notes to
Consolidated Financial Statements, March 31, 1997, Part II, Item 7).
At a special meeting of the shareholders held on May 17, 1996, the Board of
Directors was authorized to reverse split all authorized shares in a ratio of
twenty (20) to one (1). At the time of this authorization, the total of all
issued and outstanding voting shares of stock was 13,851,156.
REEVE, MACKAY & ASSOCIATES LTD was formed May 15, 1995 as a corporation
organized under the laws of Ontario, Canada. All capital stock of this
corporation was originally issued to InterUnion Financial Corporation. Reeve,
Mackay is a wholly-owned subsidiary of the Company. Due to Reeve, Mackay's
continued operating deficit and cash requirements, the Company has decided to
dispose of its investment. The Company is currently engaged in discussions
with potential buyers and anticipates to fully recover its cash advances and
investments in Reeve, Mackay.
On September 26, 1996, the Company acquired an option to purchase all of the
outstanding shares of NEW RESEARCHES CORPORATION (see Exhibit 10(vi), on page
E-59). NEW RESEARCHES is a
Page 4 of 27
<PAGE> 5
corporation organized under the laws of Panama. The Company has until December
15, 1997 to exercise its option.
On January 19, 1997, the Company entered into an agreement where it would act as
an investment banker in the recapitalization of RECEPTAGEN Ltd. (see Exhibit
(10(vii), on page E-61). RECEPTAGEN is a corporation incorporated under the laws
of Canada. RECEPTAGEN currently trades on the Toronto Stock Exchange (RCG) and
the NASDAQ Over-the-Counter (RCEPF). Upon completion of the recapitalization of
RECEPTAGEN, the Company will own over 40% of the outstanding common stock of
RECEPTAGEN.
Currently, it is not the intention of the Company to consider its investment in
RECEPTAGEN as an integral part of its business outside of its bridge financing
and special situation activities.
(b) BUSINESS OF ISSUER
GENERAL
The Company was formed to acquire a majority interest in existing
securities firms, banks, insurance companies, and other financial and brokerage
companies. The Company intends to actively engage in the business of the
companies in which it invests by serving as an "information link" between these
companies. The Company's goal in providing this information link is to improve
access to new markets and business opportunities for these companies.
The Company also may provide bridge financing, which involves providing
capital to a private company, to assist the company in making a public offering
of its stock.
In addition, the Company may invest up to 40% of its total assets
(exclusive of government securities and cash items), on an unconsolidated basis,
in debt or equity securities issued by privately held firms, and in securities
listed in markets that are open to public investment in Europe and North
America.
InterUnion is both a holding company and an operating company engaging
in activities separate from the activities of its named subsidiaries.
Specifically, InterUnion derives independent revenues from financial consulting,
the bridge financing of pre-IPOs, and its participation in new ventures.
PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as
the parent, the Company owns operating subsidiary corporations. A description of
the business operations of these subsidiary corporations, each of which is
wholly-owned, is as follows:
(1) CREDIFINANCE SECURITIES LIMITED
Credifinance Securities Limited. ("Credifinance") is an investment bank
with offices in Toronto and Montreal, and is a member of the Investment Dealers
Association of Canada, The Toronto Stock Exchange, Montreal Exchange and the
International Securities Market Association. Credifinance has 25 employees
engaged in fixed income and equity trading for Canadian institutions and in
corporate finance. Credifinance's six person research team provides perspective
on equity markets, companies and industries in Canada.
Credifinance was started in 1991, engaging in institutional trading,
investment banking and research. The consolidation in the brokerage/investment
banking industry in Canada created opportunities for small companies to provide
better service to institutions. This unit began by specializing in the trading
of less than investment grade bonds. In 1991-92, it expanded into equity trading
for its institutional clients. Unlike the large brokerage firms, Credifinance
acts strictly as an agent, and does not take positions against its clients.
Page 5 of 27
<PAGE> 6
To enhance its service for the institutional clients, Credifinance has
developed research capability focusing on:
- biotechnology
- communications and media
- software
- telecommunications
- metals, minerals and precious metals mining
- oil and gas
- industrial products
Credifinance's corporate finance activities consist primarily of
underwritings for small and medium-size companies. Between 1993 and 1995,
Credifinance was the sole underwriter in five transactions, ranging in value
from C (Canadian) $1.5 to $5.4 million; co-underwriter in two transactions of
C$32.5 million and C$11 million; participated in a C$135 million co-bought deal;
and was involved in two special transactions of C$10 and C$15 million.
In fiscal 1996, Credifinance's corporate finance department
participated in 4 deals and raised in excess of C$15.3 million. In fiscal 1997,
Credifinance participated in 9 deals and raised in excess of C$150 million. The
firm is continuing an aggressive expansion in the underwriting of companies in
those sectors in which Credifinance's research specializes.
(2) GUARDIAN TIMING SERVICES INC.
Guardian Timing Services, Inc. ("Guardian") is an investment management
firm located in Toronto, Canada, currently having approximately C$75 million in
assets under management. Guardian manages the Canadian Protected Fund, the
Protected American Fund and the First America Fund. It uses a proprietary ITM
market timing model owned by Bearhill Limited, Inc., another subsidiary of the
Company.
(3) CREDIFINANCE CAPITAL INC.
Credifinance Capital, Inc. is an investment corporation located in
Toronto, Canada. The business activities of this subsidiary corporation are
limited to proprietary security investing using its own capital resources.
(4) BEARHILL LIMITED
Bearhill Limited ("Bearhill") is an investment management firm.
On September 9, 1994 Bearhill entered into an ITM SOFTWARE DEVELOPMENT
AGREEMENT with Guardian Timing Services, Inc. ("Guardian"). This Agreement
acknowledged that Bearhill owns the proprietary rights to certain computer
software known as ITM Software, which is a computer software program which is
used to generate buy and sell signals with respect to any stock market
monitored. The parties entered into the above-referenced agreement because
Bearhill wishes to market investment advisory services internationally and it
requires computer software in order to generate market timing signals. Guardian,
in turn, has agreed to perform the development of Release I of the ITM software
and the related documentation upon the terms and conditions of the Agreement.
See Exhibit 10(i), page E-29, for details of the ITM Software Development
Agreement.
The forecasting technique used by the ITM market timing model involves
general market indicators, interest rates and monetary analysis, market
perception indicators, and various statistical data to detect trends. An earlier
version of the market timing model predicted the stock market downturn in
October, 1987, allowing Guardian's clients to get out of the market 10 days
prior to the downturn. The model is continually updated and has been credited
with successfully avoiding many of the overall market declines in the early part
of the 1990s.
Page 6 of 27
<PAGE> 7
On November 30, 1995 a Letter of Understanding was issued between the
Bank of Nova Scotia ("BNS") and Guardian Timing Services, Inc., InterUnion
Financial Corporation, Havensight Holdings Corp. and Bearhill Limited. This
Letter of Understanding was issued as a condition precedent to the execution of
an Investment Management Agreement pursuant to which BNS will retain the
services of Guardian Timing Services, Inc. with regard to the management of an
investment portfolio with a minimum size of $10,000,000 (Canadian).
The material terms of the Letter of Understanding may be summarized as
follows:
a. As a consideration of BNS entering into the Investment Management
Agreement, Bearhill (the owner of the ITM software) grants to the BNS an
irrevocable option to acquire the ITM. If BNS elects to exercise its
option, BNS shall acquire 100% of the Class B shares of Bearhill (the
Class B shares shall represent 30% of the equity of Bearhill) for
$750,000 and shall enter into an agreement to acquire the ITM for $30
million. This acquisition price of $30 million shall be financed by $10
million in cash and a $20 million 15-year non-recourse promissory note,
with principal payable at the end of the term. The option as amended on
April 16, 1997, calls for renewal for a 4-year indefinite term at the
discretion of the BNS, subject to the payment of an option fee annually
(in advance) commencing on April 23, 1996. The option fee for the year
commencing April 23, 1996 is C$25,000; the following year is C$25,000,
the following year is C$50,000 and the final year is $50,000 (see
Exhibit 10(vi), on page E-57).
b. Even if the option is exercised, Guardian Timing Services, Inc.(GTS)
retains the right (if J.P. Fruchet is in its employment) to be provided
with the market signals generated by the ITM at no cost, provided that
no more than $200 million of assets (or a larger amount as may be
managed when notice to exercise the option is given) are managed using
the ITM signals.
c. If the option is exercised, Bearhill is to use the $750,000 obtained for
the Class B shares as working capital. The $10 million paid in cash
shall be divided with $1.6 million going to a trust account and $8.4
million invested in Class 1 shares of the Nirvana Fund. All principal
payments under the note are to be invested in Class 1 shares.
d. Bearhill is to pay BNS for use of the timing signals generated by the
ITM (exercise of the option) 15% of its gross revenue as a fee. If this
fee is not sufficient to satisfy BNS's interest obligations under the
note, any deficiency shall be satisfied by Bearhill.
e. The only shares of Bearhill outstanding as of the date of this Letter of
Understanding are Class A shares, now representing 100% of the equity of
Bearhill, held currently by InterUnion.
NOTE: The Letter of Understanding at Page E-42 incorrectly states that the
Class A shares are held equally by InterUnion and Havensight. Actually,
this equal ownership will occur at such time as the ITM software owned
by Bearhill is to be sold to any party. This Letter of Understanding
contemplates that such a sale is to occur. For a further explanation,
see the Agreement starting at page E-55.
f. If the Class B shares are issued upon the exercise of the option by BNS,
the Class B shares shall receive 80% of all dividends paid by Bearhill
until BNS has received $20 million, after which time the Class A and
Class B shareholders are too share equally.
g. Havensight and InterUnion each grant to BNS an immediate option to
acquire their respective Class A shares at a price equal to 90% of the
book value, upon the occurrence of one or more of the following events:
i. the Note is satisfied in full prior to its maturity,
ii. the Class B shareholders have received an aggregate of
$25,000,000 in dividends from Bearhill,
Page 7 of 27
<PAGE> 8
iii. Bearhill defaults on any of its obligations to BNS, becomes
insolvent or commits an act of bankruptcy, or
iv. the Nirvana Fund under performs (meaning that the Fund's return
averages less than 10% per annum compounded annually over any
36-month period).
The Letter of Understanding, including Schedule A, is included herein
as Exhibit 10(ii), commencing at page E-42.
Subsequent to the execution of the above-referenced Letter of
Understanding, on December 20, 1995 an Investment Management Agreement was
issued between Guardian and BNS.
This Agreement formally appoints Guardian as the investment manager of
an investment portfolio with an initial value of $10 million (Canadian).
Guardian is to use the market timing signals generated by the software developed
by Bearhill known as the "ITM Software" in handling the investment decisions of
the investment portfolio. The Agreement is to continue until either party gives
at least 30 days written notice of termination.
Under the provisions of Schedule A, Guardian is to receive a management
fee of 1/2 of one percent per month of the net asset value of the Portfolio
determined at the end of each month and payable quarterly. There may be a bonus
payable to Guardian annually determined under the more restrictive of two
calculations, as specifically provided in Paragraph 4 of Schedule A of the said
Agreement. Schedule A provides that the minimum fee and bonus to be paid to
Guardian under the Agreement is $50,000 (Canadian).
The Investment Management Agreement, including Schedule A and a
statement of the investment objectives and guidelines under the Guardian Timing
Services portfolio, is included herein as Exhibit 10(iii) commencing at page
E-46.
Subsequent to the acquisition of Bearhill by InterUnion (as the result
of the purchase of all outstanding stock of Bearhill which was owned by
Havensight Holdings, Ltd.), on January 19, 1995 an Agreement was executed
between Havensight and InterUnion providing that if InterUnion should conclude
an agreement of sale of the ITM software owned by Bearhill, Havensight will have
the right to buy one-half of the Bearhill stock for a nominal
consideration ($1.00). This Agreement is included herein as Exhibit 10(iv)
starting at Page E-55.
COMPETITION
The search for potentially profitable investments is intensely
competitive. A list of actual and potential competitors would include the
multinational banks, regional banks, thrift institutions, investment banks,
brokerage firms, finance and leasing companies, merchant banks, venture
capitalists and other financial service companies. The Company may be at a
disadvantage when competing with firms with substantially greater financial and
management resources and capabilities than the Company.
The issue of competition also directly impacts the subsidiary companies
owned by InterUnion Financial Corporation. Credifinance Securities Limited
concentrates on providing underwritings for small and medium-sized
technology-intensive companies. Credifinance must compete with underwriting
companies in Canada that are superior in asset strength and staff. Guardian
Timing Services Inc. and Bearhill Limited both operate as managers of funds. A
decline in their investment performance could cause the loss of these essential
accounts. If the ITM market timing model used by both of these companies should
not show an accurate forecast the companies could lose the managed accounts to
larger investment management firms.
GROWTH STRATEGY
The growth strategy consists of two complementary components:
Page 8 of 27
<PAGE> 9
o Investing in the existing portfolio of financial services companies,
and acquiring, when the appropriate opportunities arise, major positions in
investment managers, banks, thrifts, brokerage houses and other financial
services companies (e.g. leasing, insurance) positioned in niche markets; and
o Expansion of bridge financing and investment banking activities.
However, any acquisition will represent the second phase in the
Company's growth strategy. The first phase involves building up the existing
operations to more completely utilize the existing resources and to capitalize
on each unit's competitive strengths. For example, the Montreal office of
Credifinance, where its President is located, has been expanded and is fully
bilingual, staffed by French Canadians to better serve Quebec institutions. The
corporate finance capabilities of Credifinance will continue to be expanded to
fully utilize the unit's research and corporate finance capabilities and trading
networks. Additional capital will enable InterUnion to participate in more
bridge financing opportunities that in turn, will provide more corporate finance
work for Credifinance; and will permit Credifinance to increase its block
trading activity.
GOVERNMENT REGULATION
The operating activities of InterUnion Financial Corporation are not
subject to governmental regulatory agencies. The investment management services
of Bearhill Limited are not subject to direct government regulation in Canada.
Credifinance Securities Limited is a member of the Investment Dealers
Association of Canada, The Toronto Stock Exchange, The Montreal Exchange and the
International Securities Market Association. As such, it is subject to the
rules, regulations, and administrative rulings of these entities.
Guardian Timing Services Inc. is regulated by the Ontario Secuirties
Commission
The auction firm of Reeve, Mackay is not subject to Canadian government
regulation.
InterUnion Financial Corporation is not subject to the Investment
Company Act of 1940 (the "Act"). Section 3(a)(3) of the Act defines an
"investment company" as "any issuer which . . . owns or proposes to acquire
investment securities having a value exceeding 40 per cent of the value of such
issuer's total assets (exclusive of Government securities and cash items) on an
unconsolidated basis." "Investment securities" are defined for purposes of this
section as "all securities except (A) Government securities, (B) securities
issued by employees' securities companies, and (C) securities issued by
majority-owned subsidiaries of the owner which are not investment companies."
The Company is not an investment company because it will invest no more
than 40% of its total assets (excluding government securities and cash items),
on an unconsolidated basis, in "investment securities" as defined in the Act.
The Company considers its primary business to be engaging in non-investment
company businesses through majority owned companies.
EMPLOYEES
The employees of the Company and its subsidiaries are all full-time
employees. The total number of such employees is listed below:
InterUnion Financial Corporation 3
Bearhill Limited 0
Guardian Timing Services Inc. 2
Credifinance Capital Inc. 2
Credifinance Securities Limited 25
---
Total Employees 32
===
Page 9 of 27
<PAGE> 10
Item 2 DESCRIPTION OF PROPERTY
Neither the Company nor any of its subsidiaries owns real estate.
The Company and certain of its subsidiaries do have leasehold interests
in real estate as shown below.
<TABLE>
<CAPTION>
Lessee & Location of Gross Area Annual Rent
Premises (Sq. Ft.) Term Per Sq. Ft.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
InterUnion Financial Corporation
Suite 301
249 Royal Palm Way
Palm Beach, Florida 1,000 Mar. 97-Feb. 98 USD $4.52
Credifinance Securities Limited
Suite 3303
130 Adelaide Street W
Toronto, Ontario 3,310 Feb. 97-Jan. 02 C$22.00
Credifinance Securities Limited
Suite 3304
130 Adelaide Street W Feb. 93-Jul. 97 C$12.00
Toronto, Ontario 927 Jul. 97-Jan. 02 C$15.00
Credifinance Securities Limited
Suite 1580
1501 McGill College Ave.
Montreal, Quebec 1,386 Jun. 92-Jan. 98 C$16.00
</TABLE>
Item 3 LEGAL PROCEEDINGS
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the OTC Bulletin Board under
the symbol: IUFC.
Page 10 of 27
<PAGE> 11
The high and low sale prices for each quarter within the last two
fiscal years are as follows.
<TABLE>
<CAPTION>
============================================================================================
Period Open High Low Close
------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
FY 96 Qtr 1 $ 80.00 $ 85.00 $ 32.50 $ 40.00
FY 96 Qtr 2 40.00 50.00 15.00 30.00
FY 96 Qtr 3 30.00 32.50 10.63 21.25
FY 96 Qtr 4 21.25 21.25 5.00 13.75
FY 97 Qtr 1 13.75 13.75 5.00 7.00
FY 97 Qtr 2 7.00 15.00 4.75 5.00
FY 97 Qtr 3 5.00 6.00 4.50 4.50
FY 97 Qtr 4 4.50 6.00 4.50 5.00
============================================================================================
</TABLE>
(b) HOLDERS
The approximate number of holders of record of each class of common
equity is as follows:
==============================================================================
CLASS OF STOCK NUMBER OF HOLDERS
----------------- -----------------
Common Share 385
Class A Preferred 1
Class B Preferred 0
Class C Preferred 0
==============================================================================
(c) DIVIDENDS
The company has never declared or paid dividends on its common stock or
its preferred stock. There are no restrictions, other than state law that may be
applicable, that limit the ability to payout all earnings as dividends. The
Board of Directors does not anticipate paying any dividends in the foreseeable
future; it intends to retain its distributable earnings, if any, for the
expansion and development of its business.
(d) RECENT SALES OF UNREGISTERED SECURITIES
(i) SALES PURSUANT TO REGULATION D
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements of the
Securities Act of 1933, as amended, as contained within Regulation D, Rule 504,
promulgated by the Securities and Exchange Commission:
<TABLE>
<CAPTION>
=========================================================================================================
Title of Class Number Shares Price per Share Consideration Date of Sale
--------------- ------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
Common 84,900 $ 0.29 $ 24,621 April 1994
Common 8,750 4.00 35,000 April 1994
Common 5,000 4.00 20,000 May 1994
Common 6,250 4.00 25,000 July 1994
Common 5,000 2.00 10,000 July 1994
</TABLE>
Page 11 of 27
<PAGE> 12
<TABLE>
<CAPTION>
=======================================================================================================
Title of Class Number Shares Price per Share Consideration Date of Sale
--------------- ------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
Common 18,511 $ 2.00 $ 37,022 August 1994
Common 25,000 2.00 50,000 August 1994
Common 50,000 1.00 50,000 October 1994
Common 75,000 4.00 300,000 March 1994
Common 62,500 2.00 125,000 June 1995
Common 160,000 2.00 320,000 March 1996
=======================================================================================================
</TABLE>
NOTES TO SALES PURSUANT TO REGULATION D
(1) All sales of securities are shown based upon subsequent reverse stock
splits as approved by the shareholders (1 for 10 in October 14, 1994
and 1 for 20 in May 17, 1996).
(2) All sales were made directly by the Company as issuer. No commissions
or underwriting discounts were paid in connection with the sales.
(3) The class of persons to whom the Company sold the above-referenced
securities were individuals or entities whom the Company had reason to
believe were either accredited investors within the meaning of
Regulation Section 230.501 or were investors having such knowledge and
experience in financial and business matters that the purchaser could
properly evaluate the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
(5) The company specifically relied upon compliance with Rule 504 of
Regulation D (Regulation Section 230.504). The Company qualified for
Rule 504 because all offers and sales were made by the issuer, the
Company was not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company was not an investment company,
and the Company was not a development stage company. Further, the
Company was in compliance with the conditions as set forth in
Regulation Section 230.504(b).
(B) SALES PURSUANT TO REGULATION S
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements of the
Securities Act of 1933, as amended, as contained within Regulation S promulgated
by the Securities and Exchange Commission:
<TABLE>
<CAPTION>
=====================================================================================================================
Title of Class Number Shares Price per Share Consideration Commission Date of Sale
--------------- ------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Class A Preferred 1,500,000 0.10 $ 150,000 $ nil December 1994
Common 100,000 2.00 200,000 nil October 1995
Common 1,000 20.00 Services nil
Common 151,500 1.00 151,500 nil August 1996
Common 105,642 5.00 528,210 32,371 October 1996
=====================================================================================================================
</TABLE>
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales of securities are shown based upon subsequent reverse stock
splits as approved by the shareholders (1 for 10 in October 14, 1994
and 1 for 20 in May 17, 1996).
(2) All sales were made directly by the Company as issuer.
Page 12 of 27
<PAGE> 13
(3) The class of persons to whom the Company sold the above-referenced
securities were individuals or entities whom the Company had reason to
believe were either accredited investors within the meaning of
Regulation Section 230.501 or were investors having such knowledge and
experience in financial and business matters that the purchaser could
properly evaluate the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
(5) The company specifically relied upon compliance with Regulation S as
promulgated by the Securities and Exchanges Commission. The Company was
in compliance with Category 3 of Rule 903 of Regulation S which
provides an issuer safe harbor. Under this Category the Company
complied with the two general conditions of Rule 903(a) and (b) and to
transactional and offering restrictions by the execution of an investor
Subscription Agreement, and the placing of the appropriate restrictive
legend on the stock certificate(s).
(6) The 1,000 common shares issued for services in March 1996, was for work
done in connection with the development of a business plan and market
research for said business plan. These shares were given to a non
related party.
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) OVERVIEW
InterUnion Financial Corporation (the "Company") was incorporated on
February 7, 1994. The underlying operational strategy of the Company is to
acquire a significant influence in operating companies primarily of a financial
nature on the basis of an exchange of stock, with certain additional incentives
(such as stock warrants) depending upon the particular company to be acquired,
and to actively participate in the management of these companies. Accordingly,
the Company has acquired the following operating subsidiary corporations as
outlined below:
<TABLE>
<CAPTION>
Corporation Acquired Nature of the Company Date Acquired
-------------------- --------------------- -------------
<S> <C> <C>
Bearhill Limited Investment Management 1-18-95
Guardian Timing Services, Inc. Investment Management 1-18-95
Credifinance Capital Inc. Investment Company 3-20-95
Credifinance Securities Limited Investment Bank 3-20-95
Rosedale Realty Corporation Real Estate Sales 3-20-95
Reeve, Mackay & Associates Ltd. Auction Sales 5-15-95
</TABLE>
Note: All of the above-listed subsidiaries are active, with the
exception of Rosedale Realty Corporation which was disposed of
by the Company pursuant to an assignment in bankruptcy in
1996. In addition, the Company is actively pursuing the sale
of Reeve, Mackay & Associates Ltd.
Because of the nature of the Company as a holding company, it was to be
expected that no revenues would be realized initially after the date the Company
commenced business operations. All funding to the Company from its inception to
the date of its first subsidiary acquisition was derived from a series of
private (non-registered) sales of stock under Regulation D as promulgated by the
United States Securities and Exchange Commission.
The Company commenced its revenues stream with its first acquisitions
on January 18, 1995. The following table shows the gross revenue from its
subsidiaries prior to consolidation and elimination for the completed years of
1995, 1996 and 1997. The table also includes gross revenues generated by
InterUnion, itself. The table does not include revenue from Rosedale Realty
Corporation due to its termination in 1996 or Reeve, Mackay & Associates as the
Company plans to divest itself of this entity.
Page 13 of 27
<PAGE> 14
<TABLE>
<CAPTION>
Company FY 1995 FY 1996 FY 1997
------- ------- ------- ------
<S> <C> <C> <C>
Bearhill -0- 30,000 14,000
Guardian Timing 65,000 355,000 365,000
Credifinance Capital -0- 65,000 180,000
Credifinance Securities 4,000,000 4,500,000 3,725,000
InterUnion 5,000 900,000 1,475,000
--------- --------- ---------
Total 4,070,000 5,850,000 5,759,000
========= ========= =========
</TABLE>
Bearhill Limited is an investment management firm. However, the primary
asset of Bearhill remains its ownership of a computer software program, ITM
Software. If the Bank of Nova Scotia exercises an option to purchase the ITM
Software (see Exhibit 10(ii) at page E-42) this could produce major revenue for
the Company. If the option is not exercised, Bearhill will not be adversely
affected nor will the Company.
Guardian Timing Services Inc. is an investment management firm. The
increase in revenues from $63,240 in fiscal 1995 to $355,904 in fiscal 1996 is
due primarily to the fact that income from Guardian is included in fiscal 1995
was for only 3 months. In addition, assets under management for Guardian have
risen from C$20 million in fiscal 1995 to C$80 million in fiscal 1996 and
maintained that level in fiscal 1997 which explains the low growth in fiscal
1997.
Credifinance Capital Inc. primarily invests its own capital resources.
There is no reason to expect any consequential change in attained and projected
revenues.
Credifinance Securities Limited is an investment bank. The revenues for
fiscal year 1997 were 17.2% lower than attained revenues in fiscal 1996. The
decrease is primarily attributable to the refocusing of its activities from
agency trading to corporate finance. Management expects revenues to return to
the $4 - 5 million level by the end of fiscal 1998.
InterUnion Financial Corporation's increase in revenue from $900,000 in
fiscal 1996 to $1,475,000 is due to a stronger than expected return on its
marketable securities. As of March 31, 1997, this revenue had not been realized.
InterUnion derives its own revenues primarily from bridge financing and special
situations and some limited investment in marketable securities.
Although the Company did secure certain bridge financing in the first
half of fiscal 1997, in the latter portion of the fiscal year it became heavily
involved in financial negotiations with two corporations:
1. New Researches Corporation, a Geneva based company whose primary asset
is ownership of approximately 3.2 million shares and 200,000 warrants of Genesis
Microchip, Inc., a Canadian corporation.
In early 1990, a decision was made to re-structure Genesis as a
"fabless" semiconductor company emphasizing engineering intensive and
video/image DSP oriented integrated circuits (ICs). At the same time, the ASIC
design business continued to grow. Genesis began investing heavily in research
and development in order to bring to market a number of ICs aimed at providing
new capabilities to the emerging multimedia/video networking/video editing/
projection system/high end display markets as well as the existing video/image
markets in the medical, industrial, broadcast, compression and commercial image
processing fields.
Genesis is positioned to become an important supplier of leading edge
video/image resizing, de-interlacing and related video DSP ICs. With the
introduction of its GENESIS SCALING and GENESIS VIDEO LINE DOUBLING series of
ICs, board-level reference design and software solutions, Genesis has entered
the next state of its corporate development as a volume IC supplier, with almost
all of its revenues coming from the sale of IC product.
Page 14 of 27
<PAGE> 15
Audited financial statements of Genesis, dated May 31, 1996, show that
Genesis had revenue in FY 1995 of CDN $388,000 and revenue in FY 1996 of CDN
$1,892,000. Genesis anticipates that it will file a public registration within
the next 12 months.
After extensive negotiation, InterUnion entered into a Letter of
Understanding with New Researches Corporation et al. as of September 26, 1996
which granted to InterUnion an irrevocable option to acquire 3,216,667 common
shares and 200,000 common share purchase warrants of Genesis Microchip, Inc. The
terms of this option may be summarized as follows:
a. InterUnion paid $80,000 (US) to the Vendors, as defined in The Letter
of Understanding (see Exhibit 10(vi), on page E-59), for the option
rights.
b. The option has an expiration date of December 15, 1997.
c. If the option is exercised, InterUnion shall pay to the Vendors the sum
of $2 million (US) and upon sales of the Genesis stock, InterUnion is
to pay to the Vendors 80% of the proceeds of such sales in excess of
CDN $1.00 per share.
d. If the Vendors receive a bona fide offer from a third party to purchase
the New Researches shares, InterUnion shall then have the right to
counter the offer or exercise its option. The Letter of Understanding
is included herein as Exhibit 10(vi) at page E-59.
2. Receptagen Ltd. is a Canadian public corporation involved in
biotechnology (drug discovery and development) and the sales of its products.
InterUnion has entered into an agreement (subject to the approval by creditors
of Receptagen) to provide a secured bridge loan to that company exchangeable
into a convertible debenture. Also, the Company will give trade creditors of
that company its common stock in exchange for their debt and then plan to
convert the debt into shares of Receptagen. Creditors approval was received in
April 1997.
An agreement between InterUnion and Receptagen was executed as a Letter
of Agreement on January 7, 1997 (see Exhibit 10(vii), on page E-61). This
agreement was subsequently modified to reflect the creditors approval and may be
summarized as follows:
a. The recapitalization of Receptagen will be done in three stages.
b. The first stage involves a bridge loan from InterUnion of CDN $400,000
to maintain the Company's operations until the proceeds from the
proposed Special Warrants Offering are released to the Company. CDN
$100,000 is available to the Company as of February 7, 1997. The bridge
loan is secured by a security agreement, granting security in patents
and patent rights, and is convertible into units at CDN $0.105 per unit
for a period of five years. Each unit consists of common shares and
common share purchase warrants of Receptagen Ltd. pursuant to a secured
convertible debenture.
c. In stage two, the trade creditors will exchange their debt of
approximately CDN $9 million for shares of stock of InterUnion. The
creditors will received CDN $0.20 per CDN $1.00 in InterUnion shares,
amounting to approximately 260,000 shares and 213,000 share purchase
warrants with an exercise price of USD $4.00. InterUnion will then
receive units of Receptagen at CDN $0.07 per unit, the amount of which
depends upon the settlement amount with the creditors. Each unit
consists of one common share and one non-transferable common share
purchase warrant with an exercise price of CDN $0.14.
d. The third stage involves an agreement between Receptagen Ltd. and
Credifinance Securities Limited, a Canadian investment dealer based in
Toronto with seats on both The Montreal and Toronto Stock Exchanges,
and a wholly-owned subsidiary of Credifinance Capital Inc., for a
$2,500,000 Special Warrants Offering priced at CDN $0.116 per Special
Warrant. Receptagen was successful in raising the funds as the
subscription was closed on May 23, 1997.
Page 15 of 27
<PAGE> 16
The Letter of Agreement is included herein, as Exhibit 10(vii),
starting at page E-61.
In the event that InterUnion should decide to exercise its option to
purchase the stock of New Researches Corporation, it will obtain the necessary
cash by a private placement offering of its stock under Rule 506. However, if
Central Investment Trust, acting for RIF Capital, is agreeable, this acquisition
may be achieved by the issuance of a promissory note to the vendor and the
issuance of InterUnion stock.
There is no assurance that the Company will find acceptable companies
for bridge financing in the future and there is no method of forecasting this
probability except on a historical basis.
Cost of Revenues
The principal elements comprising costs of revenues are: commissions
paid out and salaries paid to research analysts. In general, non-administrative
personnel within InterUnion are remunerated solely on performance, as this
permits the Company to keep overhead to a minimum and to maintain a high
correlation between its revenues and its personnel costs, as InterUnion and its
subsidiaries are extremely labor intensive. The only exception to this
remuneration policy was Reeve, Mackay, where the salaries are fixed but the
marketing and research expense can fluctuate with the size of the auction.
Therefore, commissions paid out and marketing expenditures are the most
important expense and generally rise and fall along with revenues of the
Company.
Across all of the Company's subsidiaries, the contribution margin
(contribution margin is defined as Revenues less variable expenses) was 43.0% in
fiscal 1997 versus 36.1% in 1996 versus 33.4% in 1995. The increase in margin is
primarily due to a shift in Credifinance revenue from secondary market agency to
primary market revenue from corporate finance and underwriting activities. The
Company expects to maintain these margins due to the growth in revenues
summarized above and the stability of its commission payout structure.
Interest Income Net of Interest Expense
The Company's only debt that causes a revenue or an expense arises from
its broker/dealer operation and from funds borrowed on a short term basis for
its trading activity. This amount is not expected to be significant with respect
to revenues on a yearly or quarterly basis.
Discontinued Operations
The Company acquired Rosedale Realty Corporation in March 1995.
Rosedale recorded operating losses of $94,253 in 1996. As a result of continuing
losses and further analysis, Management felt that the prospect of future profit
was not sufficient for Rosedale to be retained as a subsidiary. Therefore,
fiscal 1996 will be the last year in which the income statement will carry any
item regarding Rosedale, as the Company disposed of it.
In May 1995, Reeve, Mackay and Associates Ltd. was created to act as
the Company's auction subsidiary. Reeve, Mackay recorded operating losses of
$390,829 and $452,291 in 1997 and 1996 respectively. Due to the competitive
nature of the auction industry and the difference in the compensation philosophy
of the Company, management has decided to divest itself of its investment in
Reeve, Mackay. The Company expects to complete this process within the first
half of fiscal 1998.
Exposure to International Operations
Although all of the Company's revenues are generated from North
America, 26% was derived from the United States in 1997 and less then 15% in
1996; the balance is primarily earned in Canada. Therefore, a small foreign
exchange risk does exist. Due to the size of the risk and that each company
within the InterUnion Group operates independently of each other, the Company
does not purchase any derivative products to offset this risk. In addition, the
Company considers North America as its domestic market.
Page 16 of 27
<PAGE> 17
Seasonal
InterUnion Financial Corporation and its subsidiaries do not operate in
any business which is affected by changes in season.
(b) RESULTS OF OPERATIONS
Fiscal 1997 marks a number of firsts for the Company.
o The first year as a reporting company, as our Form 10-SB
cleared the SEC;
o The first year that the Company reports solely under US
GAAP; and
o The first year that the Company is reporting profit from
continuing operations.
Financial highlights are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Revenues 5,712,183 5,857,157 4,028,068
Income from continuing operations 160,676 (75,378) (179,468)
Discontinued Operations (390,829) (429,248) (184,845)
Net Loss (230,153) (504,626) (364,313)
Assets 38,820,507 9,364,007 40,404,190
Shareholders' Equity 3,639,337 3,033,848 2,983,475
Working Capital 1,750,889 928,268 775,965
Book Value per Share 3.75 4.38 8.08
Common Shares Outstanding 969,714 692,558 369,058
</TABLE>
Fiscal Year 1997 Compared to Fiscal Year 1996
(1) Overview
In fiscal 1997, revenues decreased by $144,974 (or 2.5%) over fiscal
year 1996. For the year, costs of revenues as a percentage of sales decreased to
67.1% from 71.8% a year earlier. Fixed overhead and non cash expenses also
decreased by 61,082 or 4.2%. These three factors contributed to the Company
realizing income from continuing operations of $160,676 versus a loss of $75,378
a year earlier. The Company reported a net loss of $230,153 in 1997 versus a net
loss of $504,626 due to the losses the Company recorded in relation to Rosedale
Realty Corporation and Reeve, Mackay & Associates as discontinued operations.
Excluding these discontinuned operations, the Company's earnings per share from
continuing operations was $0.18 versus a loss of $0.15 a year earlier.
(2) Revenues
Revenues decreased by $144,974 (or 2.5%) over fiscal year 1996
(from $5,857,196 to $5,712,183). The majority of the decrease came from the
activities of Credifinance Securities Limited, the Company's main operating
subsidiary, as its revenue decreased almost $800,000 or 17.8% (from $4,532,482
to $3,727,292). The reason why Credifinance Securities' revenues decreased was
due to the firm restucturing its efforts from agency activities to corporate
finance activities. This decrease was offset by an increase in InterUnion's
revenues of almost $0.6 million or 62.1% (from $911,094 to $1,477,062).
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures)
for the year decreased by $515,520 or 9.0% to $5,214,477 from $5,729,997. This
decrease is due to the fact that the Company's revenues are generated more from
underwritings then from buy and sell orders, where it retains a greater
percentage, as variable costs decreased to 57.2% of revenues from 63.9% a year
earlier. In addition
Page 17 of 27
<PAGE> 18
cost cutting of fixed overhead contributed a savings of approximately $125,000.
The Company was able to cut personnel due to the change in target market.
(4) Income from Continuing Operations
Income from continuing operations net of the provision for income
taxes, increased to $160,676, or $0.18 per share, from a loss of $75,378, or
$0.15 per share, a year earlier. As discussed above the increase in
profitability has been attained by the combination of two things. The Company is
deriving its revenues from sources where the commissions to be paid out are less
(underwriting versus agency) and the cost saving discussed above. The average
number of common shares outstanding for the year ending March 31, 1997 is
907,097 versus 501,335 a year earlier. These figures do not include an losses of
$390,829 and $429,248 in 1997 and 1996 respectively due to the discontinued
operations of Reeve, Mackay & Associates Ltd. and Rosedale Realty Corporation.
Fiscal Year 1996 Compared to Fiscal Year 1995
(1) Overview
In fiscal 1996 revenues increased by over $1.8 million (or 45.4%) over
fiscal year 1995. For the year, costs of revenues as a percentage of sales
decreased to 63.9% from 66.6%. Fixed overhead and non cash expenses increased
$128,334 or 9.7% to $1,452,313 from $1,323,979. The loss from continuing
operations decreased to $75,378 from $179,468. The Company overall reported a
Net Loss of $504,626 in 1996 versus a loss of $364,313 after discontinued
operations. Excluding these discontinued operations, the Company's loss per
share from continuing operations was $0.15 versus $1.14 a year earlier.
(2) Revenues
Revenues increased by over $1.8 million (or 45.4%) over fiscal year
1995 (from $4,028,067 to $5,857,196). The majority of the increase came from the
activities of InterUnion itself, as it had almost $1 million in revenues on its
own in 1996 versus only interest income of $5,270 a year earlier. In addition,
Guardian Timing's contribution to the Company increased to $355,904 from
$63,240. Without these two revenue sources, InterUnion's growth in revenue would
have been just 13.2%.
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures)
for the year increased by $1,538,042 or 36.7% to $5,729,997 from $4,191,955.
This increase is due to additional commissions to be paid out due to increased
revenues and the fact that the Company hired additional staff in anticipation of
the increasing business that the bull market was providing. The hiring was done
in advance of the business in order to be prepared for the higher volume.
(4) Loss from Continuing Operations
Loss from continuing operations net of provision for income taxes for
the year was $75,378 or $0.15 per share versus $179,468 or $1.14 per share a
year earlier. The average number of common shares outstanding for the year
ending March 31, 1996 is 501,335 versus 157,531a year earlier. These figures do
not include losses of $429,248 and $184,845 in 1996 and 1995 respectively due to
the discontinued operations of Reeve, Mackay & Associates Ltd. and Rosedale
Realty Corporation.
Page 18 of 27
<PAGE> 19
(c) LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any long term debt. In order to meet its growth plans
and any operating cash requirements the Company's current policy is to issue
additional capital stock. To date the Company has done this either through the
issuance of Confidential Private Placement Offerings under Regulation "D" or
Regulation "S". The following are details of these private placements:
<TABLE>
<CAPTION>
Date # of Shares Amount Type
----------- ----------- -------- --------------
<S> <C> <C>
April 1994 2,500 $ 10,000 Regulation "D"
May 1994 5,000 20,000 Regulation "D"
July 1994 11,250 35,000 Regulation "D"
August 1994 43,511 87,022 Regulation "D"
October 1994 5,000 50,000 Regulation "D"
March 1995 75,000 300,000 Regulation "D"
June 1995 62,500 125,000 Regulation "D"
October 1995 100,000 200,000 Regulation "D" & "S"
March 1996 160,000 320,000 Regulation "D"
September 1996 277,142 759,710 Regulation "S"
</TABLE>
Currently all operating units with the exception of Reeve, Mackay are
contributing positive cash flows. Therefore, the Company does not anticipate the
need to raise further funds unless required to conclude an acquisition. Previous
cash requirements were needed to fund the operations of Reeve. Mackay &
Associates Ltd and Rosedale Realty Corporation. As stated earlier, the Company
has started to search for a purchaser of Reeve, Mackay and the Company has
already divested itself of Rosedale.
Concluding Remarks
There are no other known trends, events or uncertainties that may have,
or are reasonably likely to have, a material impact on the Company's short-term
or long-term liquidity.
In addition, there is no significant income or losses that have risen
from the Company's continuing operations that has not been analyzed or discussed
above. Nor has there been any material change in any line item that is presented
on the financial statements which has also not been discussed above.
Certain statements constitute "forward looking statements" within the
meaning of the Private Securities Litigations Reform Act of 1995. Such forward
looking statements involve risks, uncertainties and other factors which may
cause the actual results, performance and achievements of the Corporation to be
materially different from future results, performance or achievement expressed
or implied by such forward looking statements.
Item 7 FINANCIAL STATEMENTSFINANCIAL STATEMENTS
The audited consolidated financial statements for InterUnion Financial
Corporation, covering fiscal years ended March 31, 1997 and 1996 are submitted
in compliance with the requirements of Item 310 of Regulation S-B.
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective March 4, 1997, InterUnion Financial Corporation
("InterUnion") has retained Goldstein, Golub, Kessler & Company, P.C. ("GGK") of
New York as its new certifying accountants. GGK, a member of Nexia
International, replaces Mintz & Partners ("MP") of Toronto, also a member of
Nexia International. MP's report on InterUnion's financial statements during the
two most recent fiscal years and all subsequent interim periods preceding the
date hereof contained no adverse opinion or a
Page 19 of 27
<PAGE> 20
disclaimer of opinion, and was not qualified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was approved by
InterUnion's Board of Directors.
During the last two fiscal years and subsequent interim period to the
date hereof, there were no disagreements between InterUnion and MP on any
matters of accounting principles or practices, financial disclosure, or auditing
scope or procedure, which disagreements, if not resolved to satisfaction of
Mintz, would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a) (1) (ii)
occurred with respect to InterUnion within the last two fiscal years and the
subsequent interim period to the date hereof.
Effective March 04, 1997, InterUnion engaged GGK as its principal
independent accountants. During the last two fiscal years and the subsequent
interim period to the date hereof, InterUnion did not consult GGK regarding any
matter or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
In accordance with Item 304(a)(3), a letter from the Company's former
principal independent accountants agreeing with the statement set forth is
enclosed as Exhibit 16, on page E-67.
PART III
Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
Name, Municipality
of Residence Age Length of Service
- ------------------------------------------------------------------------------
Georges Benarroch 50 Appointed as President and
Toronto, Ontario Chairman of the Board,
Canada March 21, 1994
T. Jack Gary, III 56 Appointed as Secretary
West Palm Beach, Florida January 30, 1995
Ann Glover 47 Appointed to Board
Toronto, Ontario of Directors
Canada February 17, 1995
Jacques Meyer de Stadelhofen 49 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
Karen Lynn Bolens 50 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
Selwyn J. Kletz 52 Nominated to the Board and
Toronto, Ontario Vice-President
Canada
GEORGES BENARROCH is the President, Chief Executive Officer and Chief
Financial Officer of the Company. He is also the Chief Executive Officer, and
Chairman of the Board of Credifinance
Page 20 of 27
<PAGE> 21
Securities Limited, President, Chief Executive Officer, and Chairman of the
Board of Credifinance Capital Inc. and Chief Executive Officer, and Chairman of
the Board of Reeve, Mackay & Associates, Ltd. -- all wholly-owned subsidiaries
of the Company. He is also the President of Equibank.
Since 1977, Mr. Benarroch has held the position of officer and
partner/director with various investment firms and private/public companies in
the United States, Canada and Europe. He has been a senior partner and/or seat
holder of a member firm of The Toronto Stock Exchange since 1982. His experience
covers Euro-financings, venture capital, mining and high tech financings and
bridge financings.
T. JACK GARY, III is the Secretary of the Company. He is also Branch
Manager of the West Palm Beach, Florida, office of Raymond James & Associates, a
national brokerage firm, having held that position since 1995. He is the
President of Crown Financial Advisors, Inc., an investment advisory firm. From
April, 1988 to 1992 Mr. Gary was President and Chief Executive Officer of Crown
Capital Advisors, Inc., a company registered as an investment advisor with the
Securities and Exchange Commission and with the State of Florida under the
Florida Securities and Investor Protection Act. From 1992, until his appointment
with Raymond James, Mr. Gary served as Chief Executive Officer of Crown
Financial and Executive Vice President of Crown Capital Advisors, Inc. Mr. Gary
will devote approximately 10% of his time to his duties as Secretary at
InterUnion.
ANN GLOVER serves as a Director of the Company. She is a Director,
Secretary/Treasurer of Credifinance Securities Limited a subsidiary of the
Company. Ms. Glover has been an employee of Credifinance Securities Limited
since 1991, having held the position of a Director, Secretary/ Treasurer, and
Chief Compliance Officer. Ms. Glover will devote approximately 10% of her time
to InterUnion as she is also a director and officer of Credifinance Securities
Limited.
JACQUES MEYER DE STADELHOFEN serves as a Director of the Company. Since
1981 through and including the present time, he has practiced as an attorney,
specializing in tax and financial matters for international corporations and
charitable organizations. Mr. Stadelhofen's duties for InterUnion will be
limited to his participation at Board Meetings.
KAREN LYNN BOLENS serves as a Director of the Company. Since 1985
through and including the present time, she has practiced as an associate
attorney, specializing in corporate, estate and family law for international
clients. Ms. Bolens' duties for InterUnion will be limited to her participation
at Board Meetings.
SELWYN J. KLETZ has held the position of officer and partner/director
with various investment firms and private/public companies in Canada and South
Africa. His experience in the investment industry covers research, investment
banking, merchant banking, corporate finance and investment management. Mr.
Kletz will be devoting 100% of his time to InterUnion.
(1) No director of InterUnion is currently a director of any other
reporting company.
(2) Under Section 1, ARTICLE III, of the By-Laws, the directors shall
serve until the next annual meeting of the stockholders, as prescribed
by the Board of Directors, at which time directors are elected by the
stockholders.
(3) In accordance with Item 405 no director, executive officer and
beneficial owner of more than ten percent (10%) of any class of equity
securities of the Company failed to file on a timely basis reports
required by section 16(a) of the Exchange Act during the most recent
two fiscal years to the best of the Company's knowledge.
Page 21 of 27
<PAGE> 22
(b) IDENTIFY SIGNIFICANT EMPLOYEES
The Company does not expect to receive a significant contribution from
employees that are not executive officers.
(c) FAMILY RELATIONSHIPS
Currently, there are no directors, executive officers or persons
nominated or person chosen by the Company to become a director or executive
officer of the Company which is related to an individual which currently holds
the position of director or executive officer or is nominated to one of the said
positions.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There are no material events that have occurred in the last five years
that would affect the evaluation of the ability or integrity of any director,
person nominated to become a director, executive officer, promoter or control
person of the Company.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the two fiscal years ended March 31, 1997, to the best of The
Company's knowledge no director, executive officer and beneficial owner of more
than ten percent (10%) of any class of equity securities of the Company failed
to file on a timely basis reports required by section 16(a) of the Exchange Act.
Item 10 EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME & PRINCIPAL FISCAL OTHER LONG TERM ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION COMPENSATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georges Benarroch 1996 None None $50,000* None None
President & CEO 1997 None None None None None
Selwyn J. Kletz 1996 None None None None None
Vice-President 1997 None None None 13,265 None
</TABLE>
*Georges Benarroch was paid $50,000 as compensation for services subsequent to
the end of the fiscal year ending March 31, 1996. No other officer was paid
compensation. Mr. Benarroch was paid his compensation in the form of cash.
(B) ALL COMPENSATION COVERED
The Company's Board of Directors has approved payment of $1,750 for the
services of each of its independent directors for the fiscal year ending March
31, 1997.
As of the date of this registration statement, the Company has no
options, warrants, SARs, long-term incentive plans, pension or profit-sharing
plans, or other compensation plans, in effect regarding any employees of the
Company.
The Company feels that it does not have to include executive
compensation for an executive officer of any subsidiary because under Rule 3b-7
under the Exchange Act (17 CFR 240.3b-7) no executive officer(s) of any
subsidiary perform(s) policy making functions for the registrant.
Page 22 of 27
<PAGE> 23
As of the date of this registration statement, the Company has no
agreement or understanding, express or implied, with any officer or director, or
any other person regarding employment with the Company or compensation for
services.
Section 14 of ARTICLE III of the By-Laws of InterUnion provides that
directors do not receive any stated salary for their services as directors.
However, by board resolution, a fixed fee and expenses of attendance may be
allowed for each meeting. These limitations do not affect compensation for a
person serving as an officer or otherwise for the Company and receiving
compensation therefor.
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons (including any group as defined in Regulation
S-B, Section 228.403) are known to InterUnion Financial Corporation, as the
issuer, to be the beneficial owner of more than five percent of any class of the
said issuer's voting securities.
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common RIF Capital Inc. (1) 532,499 54.91%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Capital Securities & Credit Corp. 50,919 5.25%
114 Belmont Street
Toronto, Ontario, Canada M5R 1P8
Common Finance Research Development 50,500 5.21%
(FRD) Trust
Icaza, Ruiz-Gonzalez & Alemen
Vanterpool Plaza, 2nd Floor
Wickhams Cay, PO Box 873
Road Town, Tortola, BVI
Common Financiera Hispano-Suiza, SA 50,050 5.16%
10 Rue Pierre-Fatio
Geneva, Switzerland CH1204
--------- ------
TOTAL 506,815 73.18%
========= ======
Preferred A RIF Capital Inc. 1,500,000 100.00%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
</TABLE>
- --------------------
(1) RIF Capital Inc. is a wholly-owned subsidiary of Equibank Inc. which is
wholly-owned by Central Investment Trust. Georges Benarroch is the sole
protector of Central Investment Trust and is not a beneficiary of the
Trust nor its subsidiaries.
Page 23 of 27
<PAGE> 24
(2) The principal and 100% beneficial owner of Capital Securities and
Credit Corp. is Mrs. S. Benarroch, 68 Rue Spontini, 75116 Paris,
France.
(3) The principal and 100% beneficial owner of Finance Research Development
Trust is Mr. G. Serfati, Cogeser S.A.R.L., 11 bis Ave de Versaile,
75116 Paris, France.
(4) The principal and 100% beneficial owner of Financiera Hispano-Suiza, SA
is Mrs. N. Balloul, 21 rue Curial, 75019.
(5) Mrs. S. Benarroch is the mother of Georges Benarroch. The 532,499
shares as listed for RIF Capital, Inc. do not include the 52,144 shares
owned by Capital Securities & Credit Corp. Mr. Benarroch disclaims
ownership of the 52,144 shares, directly or indirectly and does not
hold voting power of these shares.
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following information lists, as to each class, equity securities
beneficially owned by all directors and nominees, and of the directors and
nominees of the issuer, as a group.
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Georges Benarroch 532,499 54.91%
Suite 3303 Trustee (voting
130 Adelaide Street power) of Central
Toronto, Ontario Investment Trust
Canada, M5H 3P5
Common Selwyn J. Kletz 40,000 4.10%
499 Riverside Drive
Toronto, Ontario
Canada, M6S 4B6
Preferred A Georges Benarroch 1,500,000 100.00%
Suite 3303 Trustee (voting
130 Adelaide Street power) of Central
Toronto, Ontario Investment Trust
Canada, M5H 3P5
Common Directors and 572,499 59.01%
Executive Officers
as a group
(2 person)
Preferred A Directors and 1,500,000 100.00%
Executive Officers
as a group
(1 Person)
</TABLE>
NOTE TO (A) AND (B): As to the beneficial owner(s) of the securities listed
above in (a) and (b), no such owner has any right to acquire within sixty (60)
days or otherwise, the right to acquire shares from options, warrants, rights,
conversion privileges or similar obligations.
Page 24 of 27
<PAGE> 25
(c) CHANGES IN CONTROL
Currently, there is no such arrangement which may result in a change in
control of the Company.
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the proposed acquisition of New Researches Corporation (see Exhibit
10(vi), on page E-59), the vendors are Rif Capital Inc. and Central Investment
Trust. Both are related parties as Rif Capital Inc. controls the Company and
Central Investment Trust owns all of the issued and outstanding common shares of
Rif Capital Inc.
The terms of the acquisition is as follows:
a. InterUnion shall pay to the Vendors, or at their direction, a
non-refundable Option fee of US$80,000 on or before December 15, 1996.
b. The Option shall expire on December 15, 1997 ("Closing Date").
c. InterUnion shall provide written notice of its intention to exercise the
Option to the Vendors and NRC.
d. The purchase price paid by InterUnion to the Vendors, upon exercise of
the option shall be:
i) US$2,000,000 payable on or before the Closing Date (4:00 p.m. Palm
Beach time); and
ii) upon the sale of any of the common shares of Genesis, including any
shares issued pursuant to the exercise of the common share purchase
warrants of Genesis, after the Closing Date, InterUnion shall pay to
the Vendors eighty percent (80%) of the proceeds realized from such
sales, in excess of C$1.00 per share. This condition shall not
expire except by mutual agreement of all parties to this Agreement.
e. In the event that NRC receives a bona fide offer from a third party to
purchase its common shares during the term of the Option and, if NRC
should desire to accept said offer, NRC shall immediately forward a copy
of the offer to InterUnion. InterUnion shall have a period of ten
calendar days from the receipt of the offer to counter the offer or
exercise the Option by giving notice, at its sole discretion, in
accordance with term c. If InterUnion fails to match the offer or
exercise the Option, NRC shall have the absolute right to accept the
offer from the third party and to declare the Option to be null and
void.
During the fiscal year ended March 31, 1997, the Company paid to Rif
Capital Inc. $1.4 million for research and recomendation services, in addition
to management services.
Pagae 25 of 27
<PAGE> 26
Item 13 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit Table
Number Exhibit Page No.
------------ ------- --------
<S> <C> <C>
(2)(i) Unanimous Consent in Lieu of The First Meeting of the Board
of Directors of AU 'N AG, INC. (A Delaware Corporation) E-1
(2)(ii) Pre-Organization Subscription and Letter of Non-Distributive Intent E-4
(2)(iii) Plan and Agreement of Merger E-5
(2)(iv) Certificate of Merger, dated February 15, 1994 E-9
(3)(i) Certificate of Incorporation of AU 'N AG, INC. Dated February 15, 1994 E-11
(3)(ii) Certificate of Amendment of Certificate of Incorporation of AU 'N
AG, INC. Dated April 11, 1994 E-13
(3)(iii) Certificate of Amendment of Certificate of Incorporation of
InterUnion Financial Corporation dated October 17, 1994 E-14
(3)(iv) Bylaws of InterUnion Financial Corporation E-16
(4) Instruments Defining the Rights of Security Holders Including Indentures E-24
(10)(i) ITM Software Development Agreement E-29
(10)(ii) Letter of Understanding ("ITM Option Agreement") dated
November 30, 1995 E-42
(10)(iii) Investment Management Agreement E-46
(10)(iv) Agreements (Havensight/InterUnion) E-55
(10)(v) Amendment to the Letter of Understanding
("ITM Option Agreement"), dated April 16, 1997 E-57
(10)(vi) Letter of Understanding (New Researches Corporation) E-59
(10)(vii) Letter Agreement (Receptagen, Ltd.) E-61
(16) Letter on change in certifying accountant E-67
(21) Subsidiaries of InterUnion E-68
(27) Financial Data Schedule E-69
</TABLE>
Page 26 of 27
<PAGE> 27
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERUNION FINANCIAL CORPORATION
(Registrant)
Date: June 20, 1997 By: /s/ Georges Benarroch
- ------------------------ -----------------------------------
Georges Benarroch
President, Chief Executive Officer
Chairman, Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in their capacities on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------ -----
<S> <C> <C>
/s/ Georges Benarroch President, Chief Executive June 20, 1997
- ------------------------------------------ Officer, Chairman, Board of ---------------------
Georges Benarroch Directors
/s/ Georges Benarroch Chief Financial Officer June 20, 1997
- ------------------------------------------ ---------------------
Georges Benarroch
/s/ Jacques Meyer de Stadelhofen Director June 20, 1997
- ------------------------------------------ ---------------------
Jacques Meyer de Stadelhofen
/s/ Ann Glover Director June 20, 1997
- ------------------------------------------ ---------------------
Ann Glover
</TABLE>
Page 27 of 27
<PAGE> 28
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
<PAGE> 29
INTERUNION FINANCIAL CORPORATION
MARCH 31, 1997
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Reports F-2
Consolidated Financial Statements:
Consolidated Balance Sheet F-4
Consolidated Statement of Operations F-6
Consolidated Statement of Shareholders' Equity F-7
Consolidated Statement of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 To F-18
</TABLE>
F-1
<PAGE> 30
INDEPENDENT AUDITOR'S REPORT
To The Directors and Shareholders,
InterUnion Financial Corporation
We have audited the accompanying consolidated balance sheet of InterUnion
Financial Corporation as of March 31, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterUnion Financial
Corporation as of March 31, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
May 14, 1997
F-2
<PAGE> 31
INDEPENDENT AUDITOR'S REPORT
To The Directors and Shareholders,
InterUnion Financial Corporation
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of InterUnion Financial Corporation and
subsidiaries for the year ended March 31, 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and its cash flows
of InterUnion Financial Corporation for the year ended March 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Mintz Partners
Toronto, Ontario
May 14, 1997
F-3
<PAGE> 32
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
==========================================================================================
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash (Note 2(b)) $ 349,738
Due from brokers and dealers (Note 2(c)) 166,062
Due from clients (Note 2(c)) 5,967,989
Marketable securities (Notes 2(b) and 3) 29,457,965
Accounts receivable 226,663
Income tax receivable 22,197
Prepaid expenses and other current assets 151,483
-----------
Total current assets 36,342,097
-----------
OTHER ASSETS
Property & equipment, net (Note 2(d) and 4) 1,609,905
Long-term investments (Note 2(e)) 256,945
Goodwill, net of accumulated amortization of $43,816 (Note 2(f)) 394,332
Deferred income tax asset, net of valuation allowance
of $60,000 (Note 10) --
Assets related to discontinued operations (Note 9(b)) 217,228
-----------
2,478,410
-----------
Total Assets $38,820,507
===========
</TABLE>
================================================================================
See Notes to Consolidated Financial Statements F-4
<PAGE> 33
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
=====================================================================================
<S> <C>
LIABILITIES
-----------
CURRENT LIABILITIES
Due to brokers and dealers (Note 2(c)) $ 33,012,864
Due to clients (Note 2(c)) 1,320,874
Accounts payable and accrued liabilities 257,470
------------
Total current liabilities 34,591,208
LIABILITIES RELATED TO DISCONTINUED OPERATIONS (Note 9(b)) 504,962
DEFERRED INCOME TAX LIABILITY (Note 10) 85,000
------------
Total liabilities 35,181,170
------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY
--------------------
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (Note 5) 5,206,815
ACCUMULATED DEFICIT (1,567,478)
------------
Total shareholders' equity 3,639,337
------------
Total Liabilities and Shareholders' Equity $ 38,820,507
============
</TABLE>
================================================================================
See Notes to Consolidated Financial Statements F-5
<PAGE> 34
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1997 1996
=====================================================================================================================
<S> <C> <C>
REVENUES
Commissions, trading and investment income $ 4,843,951 $ 4,500,899
Fee revenue 868,232 1,356,297
----------- -----------
5,712,183 5,857,157
----------- -----------
EXPENSES
Selling, General and Administrative 5,214,477 5,729,997
Loss (Gain) on foreign exchange 31,067 (33,057)
Interest income (net of interest expense of 2,631 and 30,272, respectively) (23,034) (37,337)
Depreciation and Amortization 240,912 244,739
----------- -----------
5,463,422 5,904,341
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 248,761 (47,146)
----------- -----------
PROVISION FOR INCOME TAXES 88,085 28,232
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 160,676 (75,378)
LOSS FROM DISCONTINUED OPERATIONS (Note 9 (a) & (b)) (390,829) (546,544)
GAIN ON DISPOSITION OF SUBSIDIARY (Note 9 (a)) -- 117,296
----------- -----------
NET LOSS (230,153) (504,626)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE (Note 2(h))
Continuing operations $ 0.18 $ (0.15)
=========== ===========
Discontinued operations $ (0.43) $ (0.86)
=========== ===========
Net loss $ (0.25) $ (1.01)
=========== ===========
Weighted average common shares outstanding 907,097 501,335
=========== ===========
=====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements F-6
<PAGE> 35
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
=============================================================================================================================
Cumulative
Foreign
Number Additional Currency
of Paid-in Translation
Shares Amount Capital Adjustment Total
<S> <C> <C> <C> <C> <C>
Preferred Shares
Balance, March 31, 1996 1,500,000 $ 150,000 $ -- $ -- $ 150,000
----------- ----------- ----------- ----------- -----------
Common Shares
Balance, March 31, 1995 369,058 369 3,656,607 -- 3,656,976
Issued during the year
net of issue costs 323,500 324 554,676 -- 555,000
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 692,558 693 4,211,283 -- 4,211,976
Adjustment, reverse split 14 -- -- -- --
Issued during the year
net of issue costs 277,142 277 727,062 -- 727,339
Compensation related to
stock options (Note 6) -- -- 117,500 -- 117,500
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 969,714 970 5,055,845 -- 5,056,815
----------- ----------- ----------- ----------- -----------
Share Capital 2,469,714 150,970 5,055,845 -- 5,206,815
----------- ----------- ----------- ----------- -----------
Deficit
Balance, March 31, 1995 -- -- -- -- (823,502)
Net Loss for fiscal 1996 -- -- -- -- (504,626)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 -- (1,328,128)
Foreign currency translation
adjustment (Note 2(g)) -- -- -- (9,197) (9,197)
Net loss for fiscal 1997 -- -- -- -- (230,153)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 -- -- -- -- (1,567,478)
----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity 2,469,714 $ 150,970 $ 5,055,845 $ (9,197) $(3,639,337)
=========== =========== =========== =========== ===========
=============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements F-7
<PAGE> 36
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31 1997 1996
=====================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (230,153) $ (504,626)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and Amortization 240,912 244,739
Non cash compensation - stock options (Note 6) 117,500 --
Deferred income taxes (Note 10) 85,000 --
Gain on disposition of subsidiary -- (117,296)
------------ ------------
213,259 (377,182)
Changes in operating assets and liabilities
Increase (decrease) in due to/from brokers and dealers, net 31,515,327 (28,663,907)
Decrease (increase) in due to/from client, net (5,588,459) 15,720,553
Increase (decrease) in marketable securities (26,882,380) 13,056,486
Increase in accounts receivable and other assets (184,970) (136,916)
Increase in accounts payable and accrued liabilities (56,560) 30,571
Increase in assets and liabilites related to
discontinued operations (Note 9) 129,296 31,629
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (854,487) (338,767)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on issuance of capital stock 727,339 555,000
Proceeds (Repayment) of loans payable (119,462) 18,589
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 607,877 573,589
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of long-term investments (66,945) (13,472)
Purchase of property and equipment (10,866) (37,872)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (77,811) (51,344)
------------ ------------
NET INCREASE (DECREASE) IN CASH (324,421) 183,478
CASH - Beginning of Year 674,159 490,681
------------ ------------
CASH - End of Year $ 349,738 $ 674,159
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,631 $ 30,272
Cash paid during the period for income taxes 15,160 15,406
=====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements F-8
<PAGE> 37
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
During the year, InterUnion Financial Corporation ("the Company")
decided to report solely as per U.S. Generally Accepted Accounting Principles.
In prior years, the Company reported in accordance with Canadian Generally
Accepted Accounting Principles.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was formed to acquire a majority interest in financial
companies located in the United States and Canada, as well, to provide bridge
financing and special situation investments. Currently, the Company's operating
interests are a broker/dealer and investment management firm.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles used in the United States of America ("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 dates of financial statements and the reported amounts of
operating revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
a) Principles of Consolidation
The consolidated financial statements of the Company, a Delaware
Corporation, contains the financial position, results of operations and cash
flows of InterUnion Financial Corporation and its subsidiaries, Bearhill
Limited, Credifinance Capital Inc., Credifinance Securities Limited, Guardian
Timing Services Inc. and I & B Inc. All intercompany balances and transactions
have been eliminated in consolidation.
b) Cash and Marketable Securities
The Company maintains its cash and investments in financial
institutions which, at times, may exceed federally insured limits in the United
States and Canada. The Company has not experienced any losses in such accounts.
Marketable securities carried on a short-term basis are classified as
either "trading" or "available for sale" (Note 3). Marketable securities being
held as long-term investments are classified as "held-to-maturity" (Note 3) and
are carried at cost. All gains and losses are calculated using the average cost
basis.
c) Security Transactions
Security transactions are recorded in accordance with industry practice
in the accounts on trade date. Commission income and related expenses for
transactions executed but not yet settled are accrued as of the financial
statement date.
In accordance with Canadian industry practice, the balances due from
and to brokers, dealers and clients may include the trading balances of clients
at the end of the reporting period and may not be an indication of the
investment activity of the Company. These balances may fluctuate significantly.
================================================================================
/Continued... F-9
<PAGE> 38
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
d) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. It is the company's policy to provide depreciation using straight
line and accelerated methods over the estimated useful lives of the property and
equipment.
e) Long-Term Investments
Long-term investments, in non-marketable securities where a controlling
interest or significant influence is not exercised, are recorded at cost.
Stock exchange seats are recorded at cost and are included in long-term
investments. Declines in market value are only recorded when there is an
indication of permanent decline in value.
f) Goodwill
In accordance with U.S. Generally Accepted Accounting Principles,
goodwill is being amortized over a period of 20 years on a straight line basis.
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected operating results, and
(iii) any other material factors that effect the continuity of the business.
g) Translation of Foreign Currencies
In accordance with SFAS 52, "Foreign Currency Translation", the
financial statements of certain subsidiaries of the Company are measured using
local currency as the functional currency. Assets and liabilities have been
translated at current exchange rates and related revenue and expenses have been
translated at average monthly exchange rates. The aggregate effect of
translation gains and losses has been deferred and is relocated as a separate
component of shareholders' equity until there is a sale or liquidation of the
underlying foreign investment.
================================================================================
/Continued... F-10
<PAGE> 39
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
h) Earnings Per Share
Earnings per common share and common share equivalent share are
calculated by dividing the net income available to holders of common stock by
the weighted average number of common shares and common equivalent shares
outstanding.
The number of common shares outstanding is increased by the number of
shares issuable on the exercise of options or warrants when the market price of
the common stock exceeds the exercise price of the warrant or option and the
effect would not be antidilutive. This increase in the number of common shares
is reduced by the number of common shares that are assumed to have been
purchased with the proceeds from the exercise of the warrants or options at the
average market price during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of basic
earnings per share ("EPS") and diluted EPS on the face of all statements of
earnings issued for periods ending after December 15, 1997, for all entities
with complex capital structures. Basic EPS is computed by dividing the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common shares issuable through the
exercise or conversion of stock options, restricted stock awards, warrants and
convertible securities. The Company does not anticipate that the adoption of
SFAS No. 128 will have a material effect on EPS.
i) Stock Based Compensation
The Company accounts for employee stock options in accordance with APB No.
25, "Accounting for Stock Issued to Employees". Under APB No. 25, the Company
applies the intrinsic value method of accounting.
SFAS No. 123, "Accounting for Stock-Based Compensation", prescribes the
recognition of compensation expense based on fair value of options determined on
the grant date. However, SFAS No. 123 allows companies currently applying APB
No. 25 to continue applying the intrinsic value method under APB. No. 25. For
companies that continue applying the intrinsic value method, SFAS No. 123
mandates certain pro forma disclosures as if the fair value method had been
utilised. (Note 6)
================================================================================
/Continued... F-11
<PAGE> 40
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
As of March 31, 1997 Original Carrying Market
Cost Value Value
----------- ----------- -----------
<S> <C> <C> <C>
Trading securities $29,006,131 $29,457,965 $29,457,965
Available for Sale -- -- --
Held to maturity -- -- --
----------- ----------- -----------
Total $29,006,131 $29,457,965 $29,457,965
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the year ending March 31, 1997 1996
---------- ----------
<S> <C> <C>
Proceeds from Securities classified as Available for sale 2,500,000 16,032,500
Gross Realized Gains (Losses) from securities
classified as Available for sale 335 67,585
Gross Realized Gains (Losses) due to change
in classification to Trading from Available for sale -- --
Change in Net Unrealized Gains (Losses)
on Available for Sale Securities -- --
Change in Net Unrealized Gains (Losses) on Trading
Securities included in Revenues 529,854 --
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated Net Carrying Amount
Cost Amortization 1997
---------- ------------ -------------------
<S> <C> <C> <C>
Computer hardware and software 104,046 67,838 36,208
ITM Computer software
(Notes 2(d) and 8) 1,924,443 384,888 1,539,555
Furniture, fixtures and equipment 69,786 35,644 34,142
Leasehold improvements 1,735 1,735 --
---------- ---------- ----------
$2,100,010 $ 490,105 $1,609,905
========== ========== ==========
</TABLE>
In applying SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of", the Company periodically
evaluates its property and equipment for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. As of the date of these financial statements no reduction in the
carrying value of any asset was required.
================================================================================
/Continued... F-12
<PAGE> 41
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
5. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
On May 17, 1996, shareholders' approved a twenty (20) to one (1)
reverse stock split. All references to number of shares and exercise prices
have been adjusted accordingly.
<TABLE>
<CAPTION>
Authorized
<S> <C>
1,500,000 Non-cumulative, non-participating, ($0.10 par value) Class A Preference
shares entitled to 100 votes for every one share issued
50,000,000 Non-cumulative, non-participating, non-voting Class B preference shares with
a par value to be determined at the date of first issuance
50,000,000 Non-cumulative, non-participating, non-voting, convertible into common
shares at a conversion rate to be determined at the date of first issuance
100,000,000 Common shares ($0.001 par value)
</TABLE>
The changes to capital stock and additional paid-in capital are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended March 31, 1997 Year Ended March 31, 1996
---------------------------- --------------------------
Shares Amounts Shares Amounts
-------- --------- -------- --------
<S> <C> <C> <C> <C>
For cash 277,142 $ 759,710 322,500 $645,000
For services 1,000 20,000
Adjustment for reverse split 14
Issuing costs (32,371) (110,000)
-------- --------- ------- --------
Total 277,156 $ 727,339 323,500 $555,000
======== ========= ======= ========
</TABLE>
During July 1996, the Company issued 277,142 shares for gross proceeds
of $759,142. Of these shares, 105,642 had warrants attached to them. Each
warrant entitles the holder to purchase 1 additional common share at $6.00
within one year. A value of $78,175 was assigned to the warrants.
6. OPTIONS AND WARRANTS
The Company applies APB No. 25 in accounting for stock option issued to
employees. Accordingly, the intrinsic value of the option as of the grant date
has been recognized as compensation. Had the compensation cost for the Company's
stock option plan been recognized based upon the fair value on the grant date
under the methodology prescribed by SFAS No. 123, the Company's income from
continuing operations and earnings per share for the year ended March 31, 1997
would have been impacted as indicated in the following table. The proforma
results below reflect only the impact of the options granted. No options were
granted during the year ended March 31, 1996.
<TABLE>
<CAPTION>
1997
--------------------------
Reported Pro forma
-------- ---------
<S> <C> <C>
Income (loss) from continuing operations 160,676 (50,888)
Net loss (230,153) (441,718)
EPS from continuing operations 0.18 (0.05)
EPS (0.25) (0.47)
</TABLE>
================================================================================
/Continued... F-13
<PAGE> 42
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
6. OPTIONS AND WARRANTS - continued
The fair value of the options granted, which is charged to operations
over the option vesting period in determining the proforma impact, is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Expected life of the option 2 years
Risk free interest rate 5.2%
Expected volatility 50%
Expected dividend yield 0%
Presented below is a summary of stock option plan activity for the
periods shown:
<TABLE>
<CAPTION>
Wt. Avg. Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Balance, April 1, 1995 40,250 $40.00 42,250 $40.00
Cancelled 40,250 40.00 42,250 40.00
------- ------ ------- ------
Balance, April 1, 1996 -- -- -- --
Granted 190,000 4.00 190,000 4.00
------- ------ ------- ------
Balance, March 31, 1997 190,000 $ 4.00 190,000 $ 4.00
======= ====== ======= ======
</TABLE>
The following table summarizes information for options and warrants
currently outstanding and exercisable at March 31, 1997
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------- --------------------------
Wt. Avg. Wt. Avg. Wt. Avg.
Remaining Remaining Exercise
Price Number Life Exercise Price Number Price
----- ------ ----------- -------------- ------ ---------
<S> <C> <C> <C> <C> <C>
$4.00 190,000 2 $4.00 190,000 $4.00
</TABLE>
<TABLE>
<CAPTION>
Number Exercise Expire
of Options Price Date
----------------- ------------------ ------------
<S> <C> <C>
100,000 $4.00 December 1998
90,000 $4.00 February 1999
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases warehouse and office space under a number of leases
expiring at various dates through to January 2002. The Company also has a number
of commitments with regards to information suppliers that expire at various
dates through to January 1998. The total minimum annual rentals, exclusive of
additional operating costs, under the leases for the company's premises and
information systems in each of the next five fiscal years are approximately:
1998 161,000
1999 74,000
2000 74,000
2001 63,000
2002 53,000
Payments under the above mentioned leases that have been charged to
operations for the periods ending March 31, 1997 and 1996 amount to $414,539 and
$388,234, respectively.
================================================================================
/Continued... F-14
<PAGE> 43
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
7. COMMITMENTS AND CONTINGENCIES - continued
The Company is a defendant in several unrelated lawsuits arising out of
the ordinary course of business. Management believes these actions are without
merit and intends to defend them vigorously. An estimate of the Company's
liability, if any, associated with these matters cannot be made at this time.
8. SALES COMMITMENT
The company entered into an option agreement in fiscal 1996 with a
major international financial institution whereby software ("ITM Software")
owned by its subsidiary, Bearhill Limited ("Bearhill") may be sold for proceeds
to the Company of approximately $15,000,000 CDN (March 31, 1997 - $11,000,000
USD). The company's interest in this software is through its interest in
Bearhill and is carried at $1,539,555 which is included in property and
equipment (Note 4).
During the life of the non-transferable option, Bearhill will receive
an option fee from the option holder annually in order to maintain the option.
The decision to exercise this option is at the full and unlimited discretion of
the option holder. Subsequent to year end, on April 16, 1997, the agreement had
been modified solely with regards to the option premium that is to be paid. It
was agreed that the annual option fee would be paid at the beginning of the
corresponding periods as follows:
<TABLE>
<CAPTION>
CDN USD
------- -------
<S> <C> <C>
For the year beginning April 23, 1996 $25,000 $18,060
For the year beginning April 23, 1997 25,000 18,060
For the year beginning April 23, 1998 50,000 36,120
For the year beginning April 23, 1999 50,000 36,120
</TABLE>
9. DISCONTINUED OPERATIONS
(a) During fiscal 1996, the Company disposed, by way of an assignment in
bankruptcy, its real estate subsidiary, Rosedale Realty Corporation.
The Company reported an extra ordinary gain upon disposition. The gain
is the result of the excess of the forgiveness of the debt exceeded the carrying
cost of the investment in and advances to Rosedale Realty Corporation.
(b) During fiscal 1997, the Company decided to dispose of its auction
subsidiary, Reeve, Mackay & Associates Ltd. A formal plan has been adopted and
the Company has entered into a discussion with regards to the sale of the
Company's auction business which is carried out by Reeve, Mackay & Associates
Ltd. As per APB No. 30, the Company has recorded the operating losses as a
separate item on the Consolidated Statement of Operations. No loss has been
accrued at March 31, 1997 as the Company does not expect to incur a loss upon
disposition.
Reeve, Mackay has been named as a defendant in a lawsuit. Reeve,
Mackay's potential liability ranges from $5,000 to $175,000. Management
believes, however, that the ultimate outcome of this lawsuit will not have a
material adverse effect on the Company's financial position.
================================================================================
/Continued... F-15
<PAGE> 44
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
10. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Year Ended March 31, 1997 1996
---- ----
<S> <C> <C>
Domestic
Current $ -- $ --
Deferred 85,000 --
Foreign
Current 3,085 28,232
Deferred -- --
------- -------
Total provision for income taxes $88,085 $28,232
======= =======
</TABLE>
The total provision for income taxes differs from that amount which
would be computed by applying the United States federal income tax rate to
income (loss) before provision for income taxes. The reason for these
differences are as follows:
<TABLE>
<CAPTION>
Year Ended March 31, 1997 1996
---------------- ------------------
Amount % Amount %
------- --- -------- ---
<S> <C> <C> <C> <C>
Statutory income tax rate (recovery) $84,500 34 $(16,000) 34
Other non-deductible items 10,500 4 31,500 (67)
Other 6,915 (3) 12,732 (27)
------- --- -------- ---
Net taxes (recovery) and effective rate $88,085 35 $ 28,232 (60)
======= === ======== ===
</TABLE>
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities and net operating loss
carryforwards. Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities are as follows at March 31, 1997:
<TABLE>
<CAPTION>
Component Tax Effect
--------- ----------
<S> <C> <C>
Net operating losses - foreign $ 150,000 60,000
Less valuation allowance (150,000) (60,000)
--------- --------
Net deferred asset $ -- --
========= ========
Net operating losses - domestic $ 90,000 15,000
Unrealized gains - domestic (550,000) (100,000)
--------- --------
Net deferred liability $(460,000) (85,000)
========= ========
</TABLE>
At March 31, 1997, the Company had cumulative net operating loss
carryforwards of approximately $90,000 and $150,000 in the United States and
Canada, respectively. These amounts will expire in various years through 2012.
In addition, the Company had net capital loss carryforwards available to offset
future capital gains of approximately $550,000.
================================================================================
/Continued... F-16
<PAGE> 45
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
11. GEOGRAPHICAL AREA SEGMENTATION
The following tables summaries the revenues, operating profits (losses)
from continuing operations and identifiable assets by geographical area.
<TABLE>
<CAPTION>
Adjustments
United &
Canada States Other Elimination Consolidated
------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended and as of March 31, 1997
Revenue from
unaffiliated customers $ 4,220,784 $ 1,477,062 $14,337 $ -- $ 5,712,183
Revenue from
intersegments 292,567 -- -- (292,567) --
------------ ----------- ------- --------- -----------
Total revenue 4,513,351 1,477,062 14,337 -- 5,712,183
============ =========== ======= ========= ===========
Depreciation & Amortization 25,986 574 0 214,352 240,912
============ =========== ======= ========= ===========
Operating profit 104,931 550,424 8,680 (238,308) 425,727
============ =========== ======= =========
General corporate
expenses 200,000
Interest expenses, net (23,034)
Income from continuing -----------
Operations before provision
for income taxes 248,761
===========
Identifiable assets 12,792,699 25,990,456 37,352 -- 38,820,507
============ =========== ======= ========= ===========
For the year ended and as of March 31, 1996
Revenue from
unaffiliated customers $ 4,915,350 $ 911,094 $30,751 $ -- $ 5,857,195
Revenue from
intersegments 17,606 -- -- (17,606) --
------------ ----------- ------- --------- -----------
Total revenue 4,932,956 911,094 30,751 (17,606) 5,857,195
============ =========== ======= ========= ===========
Depreciation & Amortization 28,153 2,234 -- 214,352 244,739
============ =========== ======= ========= ===========
Operating profit 209,969 116,961 27,939 (214,352) 140,517
============ =========== ======= =========
General corporate
expenses 225,000
Interest expenses, net (37,337)
Loss from continuing -----------
Operations before provision
for income taxes (47,146)
===========
Identifiable assets 6,462,306 2,873,162 28,539 -- 9,364,007
============ =========== ======= ========= ===========
</TABLE>
For both fiscal years ended March 31, 1997 and March 31, 1996 the
company did not have any customers that represented revenues in excess of 10%
nor did it have any operating company outside of the financial services business
segment.
================================================================================
/Continued... F-17
<PAGE> 46
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
================================================================================
12. SUBSEQUENT TRANSACTIONS
During fiscal 1997, the Company entered into an agreement where it
would act as an investment banker in the recapitalization of Receptagen Ltd.,
whereby, the Company made available to Receptagen a credit facility of C$400,000
(USD$290,000). This credit facility will be exchangeable for a convertible
debenture of Receptagen which converts into units of Receptagen at a rate of
C$0.105 per unit. Each unit is itself exchangeable, after the private placement
outlined below, into one common share and one share purchase warrant at C$0.14
within two years. The credit facility was fully subscribed by investors other
then the Company.
On April 7, 1997, all creditors of Receptagen agreed to exchange debt
of approximately C$9 million for shares of the Company issued under Regulation
"S" of the United State Securities Act of 1933, at a rate of C$0.20 per C$1.00
of debt. The Company expects to issue approximately 260,000 shares valued at
USD$4.00 per share for this transaction in addition to 213,000 share purchase
warrant at USD$4.00. In exchange, the Company will receive C$0.20 per C$1.00 of
debt of Receptagen acquired from creditors in the form of convertible debenture.
This debenture is convertible into unit "A" of Receptagen at a rate of C$0.07
per unit. Each unit `A' is exchangeable into one common share and one share
purchase warrant at C$0.14 within two years.
The third phase of the recapitalization of Receptagen involves a
private placement of C$2.5 million in Special Warrants, which is expected to
close May 21, 1997. The offering price of these Special Warrants is C$0.116 and
they are exchangeable into one common share and one share purchase warrant at
C$0.14 within two years.
Each Receptagen unit is exchangeable for one common share and one
common share purchase warrant at C$0.14 for two years. All securities issued by
Receptagen under its recapitalization plan will be qualified under a prospectus
to be filed with the Ontario Securities Commission (the "Qualifying
Jurisdiction") on or before September 23, 1997. Receptagen is currently traded
on the Toronto Stock Exchange ("RCG") and the NASD Over-the-Counter Bulletin
Board ("RCEPF").
13. RELATED PARTY TRANSACTION
During fiscal 1997, the Company paid a company owned by a director
approximately $40,000 which has been included as rent expense. In turn, this
company has paid an unrelated party $40,000 as rent for these same premises that
only the Company is occupying.
On September 26,1996. the Company paid $80,000 to acquire an option to
purchase all of the outstanding shares of New Research Corporation. The option
to acquire all of the outstanding shares of New Research Corporation expires on
December 15, 1997. New Research is owned by the majority shareholder of the
Company.
================================================================================
F-18
<PAGE> 1
EXHIBIT 2(i)
UNANIMOUS CONSENT IN LIEU OF THE FIRST MEETING
OF THE
BOARD OF DIRECTORS
OF
AU 'N AG, INC.
(A DELAWARE CORPORATION)
The undersigned, constituting all of the directors of AU 'N AG, INC.
(the "Company"), hereby adopt the following resolutions in lieu of the first
meeting of the Board of Directors of the Company:
INCREASE IN DIRECTORS
RESOLVED, that Ronald N. Vance, the sole director set forth in the
articles of incorporation of the Company filed this date with the State of
Delaware (file number 23779-73), hereby increases the number of directors to
three persons and appoints Neville Hawken and Gaylon W. Hansen to fill the
vacancies created by such increase in the number of directors, each such
appointed director to serve until the next annual meeting of the shareholders
and to hold office until his successor is elected and qualified; and
FURTHER RESOLVED, that the acceptance of such appointment by said
persons and consent to serve as directors shall be evidenced by their
signatures set forth on this document.
DISCHARGE OF INCORPORATOR
RESOLVED, that the incorporator of the Company be and hereby is
forever discharged and indemnified by the Company from and against any
liability incurred by the incorporator by reason of having been incorporator of
the Company.
BYLAWS
RESOLVED, that the Bylaws attached to this consent be and hereby are
adopted as the Bylaws of the Company and that the secretary of the Company
shall place such Bylaws in the minute book of the Company.
OFFICERS
RESOLVED, that Ronald N. Vance be and hereby is appointed to be the
president and secretary of the Company, and that Neville Hawken be and hereby
is appointed to be the treasurer of the Company, each to serve until removed by
the Board of Directors.
REGISTERED AGENT
RESOLVED, that the registered agent for the Company in the State of
Delaware shall be The Company Corporation, Three Christina Centre, 201 North
Walnut Street, Wilmington, Delaware.
ISSUANCE OF SHARES
WHEREAS, the Company had received subscriptions in an aggregate of
$10.00 as subscription for ten (10) shares of common stock of the Company from
AU 'N AG, INC., a Utah Corporation, pursuant to a Plan and Agreement of Merger
as set forth below; and
Page E - 1 of E - 69
<PAGE> 2
WHEREAS, it was reported that such entity had offered to acquire
Company shares and had made certain representations to the Company and had
entered into certain agreements with the Company, and that said corporation
represented to and agreed with the Company as follows:
(a) The shares being acquired have not been registered under the
Securities Act of 1933, as amended, (the "Act") or any state
securities laws, and such shares are being issued by the Company in
reliance upon the exemption from the registration requirements of the
Act contained in Section 4(2) of the Act and upon a similar exemption
contained in applicable state securities laws;
(b) At the time it acquired the shares in the Company, it had full
information concerning the Company's affairs as a result of its
relationship with officers and directors of the Company, the stock
was acquired for its own account and for purposes other than of
distribution, and the certificate evidencing its common stock is to
be stamped with a restrictive legend;
(c) The Company is newly formed, has no operating history, has no assets
other than what the initial shareholder will contribute to the
Company, has not paid any dividends and does not anticipate paying
any dividends in the foreseeable future;
(d) It has received and carefully read copies of the organizational
documents of the Company and has had access to full information
concerning the Company, its officers and directors in order to
evaluate the merits and risks of an investment in the Company's
shares;
(e) The shares which the corporation is receiving are "restricted
securities" which may not be sold into the market for a period of two
years after the date upon which the restricted securities are fully
paid for and delivered, and after two years, he may or may not be in
a position to sell restricted securities pursuant to Rule 144
promulgated under the Act, the guidelines of which provide, among
other things, that (i) the restricted securities may not be resold
for a period of two years, (ii) thereafter the owner can sell up to 1
percent of the outstanding shares (or an amount based upon trading
volume) of the Company, (iii) in a 3-month period, (iv) if the
transaction is unsolicited, (v) there is current information
available, (vi) the broker (or dealer in certain circumstances)
received no more than the customary compensation, and (vii) a Form
144 is filed with the United States Securities and Exchange
Commission (if required).
NOW, THEREFORE, BE IT
RESOLVED, that the Company hereby accepts the offer described above to
purchase Company shares and the officers of the Company hereby are authorized
to take whatever action they deem necessary to issue such shares to such
corporation upon receipt from such entity of the consideration indicated to be
received by Company, the certificates evidencing such shares to be stamped with
a restrictive legend substantially as follows:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold or transferred unless a compliance with the registration
provisions of such Act has been made or unless availability of an
exemption from such registration provisions has been established, or
unless sold pursuant to Rule 144 under the Securities Act of 1933.
FORM OF CERTIFICATE
RESOLVED, that the form of certificate to represent the common shares
of the Company shall be the same form as currently used by AU 'N AG, INC., a
Utah corporation, except that the Company shall be designated as a Delaware
corporation.
Page E - 2 of E - 69
<PAGE> 3
FISCAL YEAR
FURTHER RESOLVED, that the fiscal year of the Company shall end on the
same day each year as the current year-end of AU 'N AG, INC, a Utah
corporation.
PLAN AND AGREEMENT OF MERGER
WHEREAS, each of the directors has reviewed a form of Plan and
Agreement of Merger with AU 'N AG, INC., a Utah corporation, the purpose of
which was to change the domicile of said corporation; and
WHEREAS, the sole purpose of incorporating and organizing the Company
is to effect such change of domicile;
NOW, THEREFORE, BE IT
RESOLVED, that the form of Plan and Agreement of Merger with AU 'N AG,
INC., a Utah corporation, be and hereby is adopted and approved, and that the
officers of the Company be and hereby are authorized and directed to execute
and deliver said document;
FURTHER RESOLVED, that upon approval of said agreement by the
shareholders of AU 'N AG, INC. and the shareholder of the Company, the officers
of the Company be authorized to file a certificate of merger with the state of
Delaware to complete the merger transaction;
FURTHER RESOLVED, that upon the effective date of such merger, the ten
shares of the stock of the Company issued to AU 'N AG, Inc. shall be
immediately and automatically cancelled, and such shares shall be returned to
the authorized but unissued shares of the Company; and
FURTHER RESOLVED, that the officers and directors of the Company be
and hereby are authorized and directed to execute, deliver, file, or prepare
such other and further documents may be reasonably necessary to complete said
merger transaction and to effectuate the terms and conditions of such merger.
FILING OF CONSENT
RESOLVED, that the consent shall be placed into the minute book of the
Company with the proceedings of the board of directors and that this consent
shall have the same force and effect as if a meeting of the directors were
held.
IN WITNESS WHEREOF, the undersigned have executed this consentdocument
to be effective this 15th day of February 1994.
/S/ Ronald N. Vance, Director
---------------------------------
RONALD N. VANCE, Director
/S/ Gaylon W. Hansen, Director
---------------------------------
GAYLON W. HANSEN, Director
/S/ Neville Hawken, Director
--------------------------------
NEVILLE HAWKEN, Director
Page E - 3 of E - 69
<PAGE> 1
EXHIBIT 2(ii)
PRE-ORGANIZATION SUBSCRIPTION AND
LETTER OF NON-DISTRIBUTIVE INTENT
THE UNDERSIGNED hereby offers to purchase ten (10) shares of common
stock of AU 'N AG, INC., a Delaware corporation (the "Company") in connection
with the proposed merger between the Company and AU 'N AG, INC. and in return
for the following consideration: $10.00; provided however that the undersigned
understands and acknowledges that said shares shall immediately and
automatically be cancelled upon the effective date of the merger between the
Company AU 'N AG, INC., a Utah corporation. In addition, the undersigned
represents to and agrees with the Company as follows:
(a) The shares being acquired have not been registered under the
Securities Act of 1933, as amended, (the "Act") or any state
securities laws, and such shares are being issued by the Company in
reliance upon the exemption from the registration requirements of the
Act contained in Section 4(2) of the Act and upon a similar exemption
contained in applicable state securities laws;
(b) At the time it acquired the shares in the Company, it had full
information concerning the Company's affairs as a result of its
relationship with officers and directors of the Company, the stock
was acquired for its own account and for purposes other than of
distribution, and the certificate evidencing its common stock is to
be stamped with a restrictive legend;
(c) The Company is newly formed, has no operating history, has no assets
other than what the initial shareholders will contribute to the
Company, has not paid any dividends and does not anticipate paying
any dividends in the foreseeable future;
(d) It has received and carefully read copies of the organizational
documents of the Company and has had access to full information
concerning the Company, its officers and directors in order to
evaluate the merits and risks of an investment in the Company's
shares;
(e) The shares which the corporation is receiving are "restricted
securities" which may not be sold into the market for a period of two
years after the date upon which the restricted securities are fully
paid for and delivered, and after two years, he may or may not be in
a position to sell restricted securities pursuant to Rule 144
promulgated under the Act, the guidelines of which provide, among
other things, that (i) the restricted securities may not be resold
for a period of two years, (ii) thereafter the owner can sell up to 1
percent of the outstanding shares (or an amount based upon trading
volume) of the Company, (iii) in a 3-month period, (iv) if the
transaction is unsolicited, (v) there is current information
available, (vi) the broker (or dealer in certain circumstances)
received no more than the customary compensation, and (vii) a Form
144 is filed with the United States Securities & Exchange Commission
(if required).
Dated: February 15, 1994 AU 'N AG, INC.
(A Utah Corporation)
By /S/ R.G. Listul, President
------------------------------
R.G. Listul, President
Page E - 4 of E - 69
<PAGE> 1
EXHIBIT 2(iii)
PLAN AND AGREEMENT OF MERGER
OF
AU 'N AG, INC.
(A UTAH CORPORATION)
INTO
AU 'N AG, INC.
(A DELAWARE CORPORATION)
Plan and Agreement of Merger (hereinafter called "Agreement of
Merger") dated this 15th day of February 1994, by and between AU 'N AG, INC., a
corporation organized and existing under the laws of the state of Utah
(hereinafter sometimes referred to as "AU 'N AG (Utah)") and AU 'N AG, INC., a
corporation organized and existing under the laws of the state of Delaware
(hereinafter sometimes referred to as "AU 'N AG (Delaware)"). These two
parties are herein sometimes referred to collectively as the "merging
corporations," witnesseth:
WHEREAS, AU 'N AG (Delaware) is the wholly owned subsidiary of AU 'N
AG (Utah);
WHEREAS, AU 'N AG (Utah) wishes to change the state of its domicile by
merger into AU 'N AG (Delaware); and
WHEREAS, Section 252 of the Delaware General Corporation Law and
Section 16-10a-1104 of the Utah Business Corporation Act each authorize the
merger of AU 'N Ag (Utah) and AU 'N AG (Delaware);
NOW, THEREFORE, the merging corporations have agreed, and do hereby
agree, each with the other in consideration of the premises and the mutual
agreements, provisions, covenants and grants herein contained and in accordance
with the laws of the state of Delaware, and in accordance with the laws of the
state of Utah, that AU 'N AG (Utah) and AU 'N AG (Delaware) be merged into a
single corporation and that AU 'N AG (Delaware) shall be the continuing and
surviving corporation and do hereby agree upon and prescribe that the terms and
conditions of the merger hereby agreed upon and the mode of carrying the same
into effect and the manner of converting the presently outstanding shares of
each of the merging corporations into the shares of AU 'N AG (Delaware) are and
shall be hereinafter set forth.
ARTICLE I
Manner of Conversion of Shares
a. The manner and basis of converting the shares of AU 'N AG (Utah) into
shares of AU 'N AG (Delaware) are as follows: at the effective time
of the merger, each share of common stock of AU 'N AG (Utah) shall
thereupon be converted into one share of AU 'N AG (Delaware). Each
holder of outstanding common stock of AU 'N AG (Utah) upon surrender
to AU 'N AG (Delaware) of one or more certificates for such shares
for cancellation shall be entitled to receive one or more
certificates for the number of shares of common stock of AU 'N AG
(Delaware) of one or more certificates for such shares for
cancellation shall be entitled to receive one or more certificates
for the number of shares of common stock of AU 'N AG (Delaware)
represented by the certificates of AU 'N AG (Utah) so surrendered for
cancellation by such holder. Until so surrendered, each such
certificate representing outstanding shares of common stock of AU 'N
Page E - 5 of E - 69
<PAGE> 2
AG (Utah) shall represent the ownership of a like number of shares of
AU 'N AG (Delaware) for all corporate and legal purposes.
b. As of the effective time of the merger, all of the outstanding shares
of common stock of AU 'N AG (Delaware), which shares are held by AU
'N AG (Utah), shall be redeemed by AU 'N AG (Delaware) for the sum of
one dollar ($1) and such redeemed shares shall be cancelled and
returned to the status of authorized and unissued shares. None of
such redeemed shares shall be retained by AU 'N AG (Delaware) as
treasury shares and such shares shall be reissued in accordance with
paragraph (b) of this Article I.
ARTICLE II
Effective Time
The effective time of the merger shall be upon the issuance of the
certificate of merger by the Division of Corporations of the State of Utah and
filing the agreement of merger in accordance with Section 252 of the Delaware
General Corporation Law with the Secretary of State of Delaware and recording
such agreement of merger in the office of the recorder of deeds. Prior to said
date, this plan and agreement of merger shall (1) have been submitted to
approved by the board of directors of each of the merging corporations; (2)
have been approved by the stockholders of each of the merging corporations in
accordance with law.
ARTICLE III
Effect of Merger
When the merger shall have been effected:
(a) The merging corporations shall be a single corporation known as AU 'N
AG, INC., a Delaware corporation.
(b) The separate existence of AU 'N AG (Utah) shall cease.
(c) AU 'N AG (Delaware) shall have all rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a
corporation organized under the Delaware General Corporation Law.
(d) AU 'N AG (Delaware) shall thereupon and thereafter possess all the
rights, privileges, immunities and franchises of a public as well as
of a private nature of each of the merging corporations and all
property, real, personal, and mixed, and all debts due on whatever
account, including subscriptions to shares and all other choices in
action, and all and every other interest of and belonging to or due
to each of the merging corporations shall be taken and deemed to be
transferred to and vested in AU 'N AG (Delaware) without further act
or deed, and the title to any real estate or any interest therein
vested in either of the merging corporations shall not revert or be
in any way impaired by reason of the merger.
(e) AU 'N AG (Delaware) shall thenceforth be responsible and liable for
all the liabilities and obligations of each of the merging
corporations and any claim existing or action or processing pending
by or against either of the merging corporations may be prosecuted to
judgment as if such merger had not taken place, or AU 'N AG
(Delaware) may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of either of the merging
corporations shall be impaired by reason of the merger.
(f) After the effective time of the merger, the earned surplus of AU 'N
AG (Delaware) shall equal the aggregate of the earned surpluses of
the merging corporations immediately prior to the effective time of
the merger. The earned surplus determined as above provided shall
continue to be available for payment of dividends by AU 'N AG
(Delaware).
Page E - 6 of E - 69
<PAGE> 3
(g) The certificate of incorporation of AU 'N AG (Delaware) as in effect
on the date of the merger provided for in this agreement of merger,
shall continue in full force and effect as the certificate of
incorporation of the corporation surviving this merger.
(h) The by-laws of AU 'N AG (Delaware) as they shall exist on the
effective date of this agreement of merger shall be and remain the
by-laws of the surviving corporation until the same shall be altered,
amended or repealed as therein provided.
(i) The directors and officers of AU 'N AG (Delaware) shall continue in
office until the next annual meeting of stockholders and until their
successors shall have been elected and qualified.
ARTICLE IV
Service of Process; Rights of Dissenting Shareholders
AU 'N AG (Delaware) hereby agrees that it may be served with process
in the State of Utah in any proceeding for enforcement of any obligation of AU
'N AG (Utah), and in any proceeding for the enforcement of the rights of a
dissenting shareholder of AU 'N AG (Utah). AU 'N AG (Delaware) irrevocably
appoints the director of the Division of Corporations and Commercial Code as
its agent to accept service of process in any such proceeding. The address to
which a copy of the process may be mailed is 6 Fay Court, Wayne, NJ 07470. AU
'N AG (Delaware) will promptly pay to the dissenting shareholders of AU 'N AG
(Utah) the amount, if any, to which they shall be entitled under the provisions
of the Utah Business Corporation Act with respect to the rights of dissenting
shareholders.
ARTICLE V
Termination
If, at any time prior to the effective date hereof, events or
circumstances occur which in the opinion of a majority of the board of
directors of either constituent corporation renders it inadvisable to
consummate the merger, this Agreement of Merger shall not become effective even
though previously adopted by the shareholders of the corporation as herein
before provided. The filing of the merger shall conclusively establish that no
action to terminate this plan has been taken by the board of directors of
either corporation.
ARTICLE VI
Amendment
The boards of directors of the constituent corporations may amend the
Agreement of Merger at any time prior to the filing of the Agreement (or a
certificate in lieu thereof) with the states of Utah and Delaware provided that
an amendment made subsequent to the adoption of the Agreement of Merger by the
stockholders of any constituent corporation shall not (1) alter or change the
amount of any kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of such constituent corporation, except to correct
manifest error as may be permitted by law; (2) alter or change any term of the
Certificate of Incorporation of the surviving corporation to be effected by the
merger; or (3) alter or change any of the other terms and conditions of the
Agreement of Merger if such alteration or change would adversely affect the
holders of any class or series thereof such constituent corporation.
IN WITNESS WHEREOF, AU 'N AG (Delaware), a Delaware corporation, has
caused this Plan and Agreement of Merger to be signed by its president and its
secretary in accordance with the requirements of Section 252 of the Delaware
General Corporation Law and AU 'N AG, INC., a Utah corporation, has caused this
Plan and
Page E - 7 of E - 69
<PAGE> 4
Agreement of Merger to be signed by its president and its secretary in
accordance with the requirements of Section 16-10a-1104 of the Utah Revised
Business Corporation Act all as of the 15th day of February, 1994.
Attest: AU 'N AG, INC.
A Utah Corporation
/s/ Max Morrill By: /s/ R.G. Listul
- ---------------------------------- --------------------------------
Max Morrill, Secretary R.G. Listul, President
Attest: AU 'N AG, INC.
A Delaware Corporation
/s/ Ronald N. Vance By: /s/ Ronald N. Vance
- ---------------------------------- --------------------------------
Page E - 8 of E - 69
<PAGE> 1
EXHIBIT 2(iv)
STATE OF DELAWARE
CERTIFICATE OF MERGER SECRETARY OF STATE
DIVISION OF CORPORATIONS
of
FILED 10:51 AM 3/10/1994
AU 'N AG, INC. 44037960 - 2377973
(A Delaware Corporation)
into
AU 'N AG, INC.
(A Delaware Corporation)
The undersigned officers, president and secretary of AU 'N AG, INC., a
Utah corporation, and AU 'N AG, INC., a Delaware Corporation hereby certify
that the Plan and Agreement of Merger between the parties to the merger has
been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of Delaware by the shareholders of AU 'N AG, INC.,
a Utah corporation, at a special shareholders' meeting which was duly called
and was held on the 7th day of February 1994, after due notice had been given
to the shareholders, and was approved by the sole shareholder of AU 'N AG,
INC., a Delaware corporation, by consent action. The surviving corporation
shall be AU 'N AG, Inc., a Delaware corporation. The executed copy of the Plan
is on file at the principal place of business of the surviving corporation 357
South 200 East, Suite 300, Salt Lake City, Utah 34111. A copy of the Plan will
be furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation. The authorized capital stock of
AU 'N AG, INC., a Utah Corporation, is 50,000,000 shares of common stock, $.001
par value.
The number of shares outstanding of each class of each corporation
which were entitled to vote on the Plan and the number of shares of each class
of each corporation consenting and not consenting to the Plan, is as follows:
<TABLE>
<CAPTION>
Number of
Shares Number of Shares
Class Outstanding Consenting Not Consenting
----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
AU 'N AG, INC. Common stock 23,297,800 17,005,000 0
(a Utah Corporation) ($.001 par)
AU 'N AG, INC. Common stock 10 10
(a Delaware Corporation) ($.001 par)
</TABLE>
The certificate of incorporation of the AU 'N AG, INC., a Delaware
corporation, the surviving corporation, shall be the certificate of
incorporation of the surviving corporation.
All of the presently outstanding shares of AU 'N AG, INC., a Delaware
corporation are owned and held by AU 'N AG, INC., a Utah corporation.
Page E - 9 of E - 69
<PAGE> 2
IN WITNESS WHEREOF, AU 'N AG, INC., a Utah corporation, and AU 'N AG,
INC., a Delaware corporation, have caused this Certificate of Merger to be
executed in their respective corporate names by their respective presidents and
their respective secretaries this 15th day of February 1994.
Attest: AU 'N AG, INC.
A Utah Cororation
/s/ Max Morrill, Secretary /s/ R.G. Listul, President
- ------------------------------- ------------------------------
Max Morrill, Secretary R.G. Listul, President
Attest: AU 'N AG, INC.
A Delaware Corporation
/s/ Ronald N. Vance, Secretary /s/ Ronald N. Vance, President
- ------------------------------- ------------------------------
Ronald N. Vance, Secretary Ronald N. Vance, President
Page E - 10 of E - 69
<PAGE> 1
EXHIBIT 3(i)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 2/15/94
944020578 - 2377973
CERTIFICATE OF INCORPORATION
OF
AU 'N AG, INC.
FIRST: The name of this corporation is AU 'N AG, INC.
SECOND: Its registered office in the state of Delaware is to be located
at Three Christina Centre, 201 N. Walnut Street, Wilmington, DE 19801, New
Castle County. The registered agent in charge thereof is The Company
Corporation, address "same as above."
THIRD: The nature of the business and, the objects and purposes proposed
to be transacted, promoted and carried on, are to do any or all the things
herein mentioned as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz: The purpose of the corporation is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is divided into 50,000,000 shares of stock at $.001 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Vanessa Foster, Three Christina Centre, 201 N. Walnut Street, Wilmington DE
19801.
SIXTH: The Directors shall have power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed mortgages and liens without limit as to the amount,
upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and books
of this corporation, or any of them shall be open to the inspection of the
stockholders; and no stockholder shall have any right of inspecting any
account, or book or document of this Corporation, except as conferred by the
law or the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and keep
the books, documents, and papers of the Corporation outside of the State of
Delaware, at such places as may be from time to time designated by the By-Laws
or by resolution of the stockholders or directors, except as otherwise required
by the laws of Delaware.
It is the intention that the objects, purposes and powers specified in the
Third paragraph hereof shall, except where otherwise specified in said
paragraph, be nowise limited or restricted by reference to or inference from
the terms of any other clause or paragraph in this certificate of
incorporation, that the objects, purposes and powers specified in the Third
paragraph and in each of the clauses or paragraphs of this charter shall be
regarded as independent objects, purposes and powers.
Page E - 11 of E - 69
<PAGE> 2
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true; and I have accordingly hereunto set my hand.
DATED: February 15, 1994
/s/ Vanessa Foster
-------------------
Vanessa Foster
Page E - 12 of E - 69
<PAGE> 1
EXHIBIT 3(ii)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AU 'N AG, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of AU 'N AG, INC., a
resolution was duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that, as
amended said Article shall be and read as follow:
"FIRST: The name of the corporation is INTERUNION FINANCIAL
CORPORATION."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting of the necessary number of shares as
required by statute were voted in favor the amendment.
THIRD: That said amendment as duly adopted is in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IT WITNESS WHEREOF, said AU 'N AG, INC. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Georges Benarroch, its
President and John J. Illidge, its Secretary, this 11th day of April, 1994.
/s/ John J. Illidge /s/ Georges Benarroch
- ------------------------------ ----------------------
John J. Illidge Georges Benarroch
Secretary President
Page E - 13 of E - 69
<PAGE> 1
EXHIBIT 3(iii)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
InterUnion Financial Corporation, a corporation organized and existing under
and by virtue the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of InterUnion Financial
Corporation, a resolution was duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "FOURTH" so that, as amended said
Article shall be and read as follows:
"FOURTH: This corporation is authorized to issue one class of common stock and
three classes of preferred stock, under the terms, conditions, limitations,
preferences and characteristics as hereinafter set forth:
1. The total amount of common voting stock, each share of stock having one
vote, authorized by this corporation is 100,000,000 (One Hundred Million)
shares of stock at $.001 par value.
2. The corporation is authorized to issue 1,500,000 (One Million Five
Hundred Thousand) shares of Class A preferred stock at $.10 par value.
The Class A preferred stock shall be voting stock, each share of stock
having 100 votes. In any given fiscal year in which the directors of the
corporation shall declare a dividend out of the suprplus net profits of the
corporation, the holder(s) of Class prefrerred shall be entitled to a fixed
yearly dividend in the percentage amount, which such amount shall be fixed and
declared by the directors of the corporation at the time of issuance of the
Class A preferred stock. When such a dividend is declared, the holder(s) of the
Class A preferred stock. When such a dividend is declared, the holder(s) of the
Class A preferred stock shall receive payment before any dividend shall be set
apart or paid on the common stock. The dividends in respect to the Class A
preferred stock shall be non-cumulative and shall be non-participating.
In the case of liquidation or the dissolution of the corporation, the
holder(s) of Class A preferred shall be entitled to be paid in full the par
value of the shares before any amount shall be paid to the holders of the
common stock or the holders of Class B and C preferred stock.
3. The corporation is authorized to issue 50,000,000 (Fifty Million)
shares of Class B preferred stock. The par value of this stock and the fixed
yearly dividend in a percentage amount to which the holder(s) of this stock
shall be entitled, shall be determined by the directors of the corporation at
the time of first issuance of any such shares. In any given fiscal year in
which the directors of the corporation shall declare a dividend out of the
surplus net profits of the corporation, the holder(s) of Class B preferred
shall receive payment before any dividend shall be set apart or paid on the
common stock.
The Class B preferred stock shall be non-voting, non-cumulative and
non-participating.
In the case of liquidation or the dissolution of the corporation, the
holder(s) of Class B preferred shall be entitled to be paid in full the par
value of the shares before any amount shall be paid to the holders of the
common stock or the holders of Class C preferred stock.
Page E - 14 of E - 69
<PAGE> 2
4. The corporation is authorized to issue 50,000,000 (Fifty Million)
shares of Class C preferred stock. The par value of this stock and the fixed
yearly dividend in a percentage amount to which, the holder(s) of this stock
shall be entitled, shall be determined by the directors of the corporation at
the time of first issuance of any such shares. In any given fiscal year in
which the directors of them corporaton shall declare a dividend out of the
surplus net profits of the corporation, the holder(s) of Class C preferred
shall receive payment before any dividend shall be set apart or paid on the
common stock.
The Class C preferred stock shall be non-voting, non-cumulative and
non-participating.
The Class C preferred stock shall be convertible to common voting
stock, provided, however, that the exchange ratio on such a conversion shall be
subject to the price and terms as decided by the directors, and provided
further, that the right of conversion shall be decided by the directors in
their sole discretion. In the event, upon a conversion, it shall appear that a
fraction of a common share shall be issued, the corporation shall pay cash for
the pro rata market value of any such fraction, market value being based upon
the last sale price for a share of common stock on the business day next prior
to the date such fair market value is to be determined.
In the case of liquidation or the dissolution of the corporation, the holder(s)
of Class B preferred shall be entitled to be paid in full the par value of the
shares before any amount shall be paid to the holders of the common stock."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment as duly adopted is in accordance with the
provisons of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said InterUnion Financial Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Georges Benarroch, its President and John J. Illidge, its Secretary this 17th
day of October, 1994.
/s/ Georges Benarroch /s/ John J. Illidge
- -------------------------------- --------------------------
Georges Benarroch, President John J. Illidge, Secretary
Page E - 15 of E - 69
<PAGE> 1
EXHIBIT 3(iv)
BYLAWS
OF
INTERUNION FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. The principal office in the State of Delaware shall be at the
address of the registered agent for the corporation in the State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware and within or without the United
States of America as the board of directors may from time to time determine as
the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the board of
directors, either within or without the State of Delaware. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at times designated
by the board of directors, and at such meetings the stockholders shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days and not more than sixty
days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every election of directors, a
complete list of the stockholders entitled to vote at said election, arranged
in alphabetical order, showing the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, during ordinary business hours, for a period of
at least ten days prior to the election, either at a place within the city,
town, or village where the election is to be held and which place shall be
specified in the notice of the meeting, or if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating the
time, place and object thereof, shall be given to each stockholder entitled to
vote thereat, at least ten days before the date fixed for the meeting.
Page E - 16 of E - 69
<PAGE> 2
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after six months from its date, and, except where the transfer books of the
corporation have been closed or a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which has been transferred on the books
of the corporation within twenty days next preceding such election of
directors.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the certificates of incorporation, the
meeting and vote of stockholders may be dispensed with, if all the stockholders
who would have been entitled to vote upon the action if such meeting were held,
shall consent in writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than three and not more than seven, unless approved by all of
the directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this article, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its board of
directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Page E - 17 of E - 69
<PAGE> 3
Section 5. The first meeting of each newly elected board of directors shall
be held immediately following the final adjournment of the annual meeting of
the stockholders. No notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and such place as shall from time to time be determined by
the board.
Section 7. Special meetings of the board may be called by the president on
forty-eight hours notice to each director, either personally or by mail or by
telegram setting forth the time and place thereat; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors.
Section 8. At all meetings of the board a majority of the directors then in
office shall constitute a quorum for the transaction of business and the act of
a majority of the directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors the directors present thereat
may adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation
of these by-laws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken without a
meeting, if prior to such action a written consent thereto is signed by all
members of the board or of such committee as the case may be, and such written
consent is filed with the minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of incorporation
of these by-laws, members of the board of directors or any committee designed
by the board may participate in a meeting of such board or committee by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting in this manner shall constitute presence in person at such
meeting.
COMMITTEES OF DIRECTORS
Section 11. The directors may appoint an executive committee from their
number. The executive committee may make its own rules of procedure and shall
meet where and as provided by such rules, or by a resolution of the directors.
A majority shall constitute a quorum, and in every case the affirmative vote of
a majority of all the members of the committee shall be required for the
adoption of any resolution.
Section 12. During the intervals between the meetings of the directors, the
executive committee may exercise all the powers of the directors in the
management and direction of the business of the corporation, in such manner as
such committee shall deem best for the interest of the corporation, and in all
cases in which specific directions shall not have been given by the directors.
Section 13. The Board of directors may, by resolution passed by a majority of
the whole board, designate one or more other committees, each committee to
consist of two or more of the directors of the corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors.
Page E - 18 of E - 69
<PAGE> 4
COMPENSATION OF DIRECTORS
Section 14. Directors shall not receive any stated salary for their services
as directors, but by resolution of the board, a fixed fee and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any capacity as an officer or otherwise and receiving
compensation therefor.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing in the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Two or more
offices may be held by the same person.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders may choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the board.
Section 4. The salaries of all officers of the corporation, if any, shall be
fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall have power to call meetings of the directors and
stockholders in accordance with these by-laws, appoint and remove, subject to
the approval of the directors, servants, agents and employees of the
corporation and fix their compensation, make and sign contracts and agreements
in the name and on behalf of the corporation; he shall see that the books,
reports, statements and certificates required by the statute under which the
corporation is organized or any other laws applicable thereto are properly
kept, made and filed according to law; and he shall generally do and perform
all acts incident to the office of president, or which are authorized or
required by law.
Page E - 19 of E - 69
<PAGE> 5
THE VICE-PRESIDENTS
Section 7. The vice-president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in
the absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 8. The secretary shall attend all meetings of the board of directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the corporation and the board of directors in a book to be kept for
that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the board of directors or president,
under whose supervision he shall be. He shall have custody of the corporate
seal of the corporation and he, or an assistant secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 9. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform such other duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 10. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
monies and other valuable effects in the name an to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 11. He shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper vouchers for such disbursements, and
shall render to the president and the board of directors, at its regular
meting, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
Section 12. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 13. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall,
in the absence or disability of the treasurer, perform the duties and exercise
the powers of the treasurer and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
INDEMNIFICATION
Section 14. The corporation shall indemnify and reimburse each present and
future director and officer of the corporation for and against all or part of
the liabilities imposed upon or reasonably incurred by him in connection with
any claim, action, suit or proceeding in which he may be involved or with which
Page E - 20 of E - 69
<PAGE> 6
he may be threatened by reason of his being or having been a director or
officer of the corporation or of any other corporation of which he shall at the
request of this corporation then be serving or theretofore have served as a
director or officer, whether or not he continues to be a director or officer,
at the time such liabilities or expenses are imposed upon or incurred by him,
including but without being limited to attorney's fees, court costs, judgments
and reasonable compromise settlements; provided, however, that such
indemnification and reimbursement shall not cover: (a) liabilities or expenses
imposed or incurred in connection with any matter as to which such director or
officer shall be finally adjudged in such action, suit or proceeding to be
liably by reason of his having been derelict in the performance of his duty as
such director or officer, or (b) liabilities or expenses (including amounts
paid in compromise settlements) imposed or incurred in connection with any
matter which shall be settled by compromise (including settlement by consent
decree or judgment) unless the board of directors of the corporation by
resolution adopted by it (i) approves such settlement and (ii) finds that such
settlement is in the best interest of the corporation and that such director or
officer has not been derelict in the performance of his duty as such director
or officer with respect to such matter. These indemnity provisions shall be
separable, and if any portion thereof shall be finally adjudged to be invalid,
or shall for any other reason be inapplicable or ineffective, such invalidity,
inapplicability or ineffectiveness shall not affect any other portion or any
other application of such portion or any other portion which can be given
effect without the invalid, inapplicable or ineffective portion. The rights of
indemnification and reimbursement hereby provided shall not be exclusive of
other rights to which any director or officer may be entitled as a matter of
law or by votes of stockholders or otherwise. As used in this paragraph, the
terms "director" and "officer" shall include their respective heirs, executors
and administrators.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
president or a vice-president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent (other than the corporation or a transfer clerk who is
an employee of the corporation) or (2) by a registrar (other than the
corporation or its employee), all other signatures may be a facsimile. In case
any officer or officers, transfer agent, or registrar, whether because of
death, resignation, or otherwise, before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be adopted by the corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures have been used thereon had not ceased
to be such officer, transfer agent or registrar.
TRANSFER AGENT AND REGISTRAR
Section 3. The corporation may have such transfer agents and registrars as
the board of directors may designate and appoint.
LOST CERTIFICATES
Section 4. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of the fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of dirctors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
Page E - 21 of E - 69
<PAGE> 7
TRANSFERS OF STOCK
Section 5. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The board of directors may close the stock transfer books of the
corporation for a period not exceeding forty-five days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not
exceeding forty-five days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the board of directors may fix in advance a date, not exceeding
forty-five days preceding the date of any meeting of stockholders, or the date
for payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of, and to vote
at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to give such consent and in such case such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as
the case may be notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLES VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Page E - 22 of E - 69
<PAGE> 8
RESIGNATIONS
Section 3. Any director, member of any committee or other officer may resign
at any time. Such resignation shall be made in writing, and shall take effect
at the time specified therein, and if no time be specified therein at the time
of its receipt by the president or secretary, the acceptance of a resignation
shall not be necessary to make it effective.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officers or such other person or persons as the board
of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be as determined by the
Board of Directors.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby certify that the undersigned is the secretary
of AU 'n AG, INC. a corporation duly organized and existing under and by virtue
of the laws of the State of Delaware; that the above and foregoing Bylaws of
said corporation were duly and regularly adopted as such by the Board of
Directors of said corporation by unanimous consent on the 15th day of February
1994; and that the above and foregoing Bylaws are now in full force and effect.
Dated this 15th day of February 1994.
/s/ Ronald N. Vance
- --------------------------
Ronald N. Vance, Secretary
Page E - 23 of E - 69
<PAGE> 1
EXHIBIT 4
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
INCLUDING INDENTURES
InterUnion Financial Corporation is registering its common stock, par value
$.001, under Section 12(g) of the Securities Exchange Act of 1934, as amended.
All rights of the owners of common stock of the Company are defined in the
Certificate of Incorporation, as amended, and the By-laws of the Company. These
rights are listed as follows:
I. CERTIFICATE OF INCORPORATION
ARTICLE FOURTH
"FOURTH: This corporation is authorized to issue one class of common stock
and three classes of preferred stock, under the terms, conditions, limitations,
preferences and characteristics as hereinafter set forth:
1. The total amount of common voting stock, each share of stock having one
vote, authorized by this corporation is 100,000,000 (One Hundred Million)
shares of stock at $.001 par value.
2. The corporation is authorized to issue 1,500,000 (One Million Five
Hundred Thousand) shares of Class A preferred stock at $.10 par value.
The Class A preferred stock shall be voting stock, each share of stock
having 100 votes. In any given fiscal year in which the directors of the
corporation shall declare a dividend out of the suprplus net profits of the
corporation, the holder(s) of Class prefrerred shall be entitled to a fixed
yearly dividend in the percentage amount, which such amount shall be fixed and
declared by the directors of the corporation at the time of issuance of the
Class A preferred stock. When such a dividend is declared, the holder(s) of the
Class A preferred stock. When such a dividend is declared, the holder(s) of the
Class A preferred stock shall receive payment before any dividend shall be set
apart or paid on the common stock. The dividends in respect to the Class A
preferred stock shall be non-cumulative and shall be non-participating.
In the case of liquidation or the dissolution of the corporation, the
holder(s) of Class A preferred shall be entitled to be paid in full the par
value of the shares before any amount shall be paid to the holders of the
common stock or the holders of Class B and C preferred stock.
3. The corporation is authorized to issue 50,000,000 (Fifty Million)
shares of Class B preferred stock. The par value of this stock and the fixed
yearly dividend in a percentage amount to which the holder(s) of this stock
shall be entitled, shall be determined by the directors of the corporation at
the time of first issuance of any such shares. In any given fiscal year in
which the directors of the corporation shall declare a dividend out of the
surplus net profits of the corporation, the holder(s) of Class B preferred
shall receive payment beofre any dividend shall be set apart or paid on the
common stock.
The Class B preferred stock shall be non-voting, non-cumulative and
non-participating.
In the case of liquidation or the dissolution of the corporation, the
holder(s) of Class B preferred shall be entitled to be paid in full the par
value of the shares before any amount shall be paid to the holders of the
common stock or the holders of Class C preferred stock.
4. The corporation is authorized to issue 50,000,000 (Fifty Million) shares of
Class C preferred stock. The par value of this stock and the fixed yearly
dividend in a percentage amount to which the holder(s) of this stock shall be
entitled, shall be determined by the directors of the corporation at the time
Page E - 24 of E - 69
<PAGE> 2
of first issuance of any such shares. In any given fiscal year in which the
directors of the corporaton shall declare a dividend out of the surplus net
profits of the corporation, the holder(s) of Class C preferred shall receive
payment before any dividend shall be set apart or paid on the common stock.
The Class C preferred stock shall be non-voting, non-cumulative and
non-participating.
The Class C preferred stock shall be convertible to common voting stock,
provided, however, that the exchange ratio on such a conversion shall be
subject to the price and terms as decided by the directors, and provided
further, that the right of conversion shall be decided by the directors in
their sole discretion. In the event, upon a conversion, it shall appear that a
fraction of a common share shall be issued, the corporation shall pay cash for
the pro rata market value of any such fraction, market value being based upon
the last sale price for a share of common stock on the business day next prior
to the date such fair market value is to be determined.
In the case of liquidation or the dissolution of the corporation, the
hodler(s) of Class B preferred shall be entitled to be paid in full the par
value of the shares before any amount shall be paid to the holders of the
common stock."
ARTICLE SIXTH:
"SIXTH: The Directors shall have power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed mortgages and liens without limit as to the amount,
upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and
books of this corporation, or any of them shall be open to the inspection of
the stockholders; and no stockholder shall have any right of inspecting any
account, or book or document of this Corporation, except as conferred by the
law or the By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and
keep the books, documents, and papers of the Corporation outside of the State
of Delaware, at such places as may be from time to time designated by the
By-Laws or by resolution of the stockholders or directors, except as otherwise
required by the laws of Delaware."
II. BY-LAWS
"ARTICLE II: MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the board of
directors, either within or without the State of Delaware. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at times designated
by the board of directors, and at such meetings the stockholders shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days and not more than sixty
days before the date of the meeting.
Page E - 25 of E - 69
<PAGE> 3
Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every election of directors, a
complete list of the stockholders entitled to vote at said election, arranged
in alphabetical order, showing the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, during ordinary business hours, for a period of
at least ten days prior to the election, either at a place within the city,
town, or village where the election is to be held and which place shall be
specified in the notice of the meeting, or if not specified, at the place where
said meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating the
time, place and object thereof, shall be given to each stockholder entitled to
vote thereat, at least ten days before the date fixed for the meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after six months from its date, and, except where the transfer books of the
corporation have been closed or a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which has been transferred on the books
of the corporation within twenty days next preceding such election of
directors.
Section 11. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the certificates of incorporation, the
meeting and vote of stockholders may be dispensed with, if all the stockholders
who would have been entitled to vote upon the action if such meeting were held,
shall consent in writing to such corporate action being taken."
Page E - 26 of E - 69
<PAGE> 4
"ARTICLE III: DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than three and not more than seven, unless approved by all of
the directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this article, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders."
"ARTICLE VI: CERTIFICATES OF STOCK:
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
president or a vice-president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent (other than the corporation or a transfer clerk who is
an employee of the corporation) or (2) by a registrar (other than the
corporation or its employee), all other signatures may be a facsimile. In case
any officer or officers, transfer agent, or registrar, whether because of
death, resignation, or otherwise, before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be adopted by the corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures have been used thereon had not ceased
to be such officer, transfer agent or registrar.
LOST CERTIFICATES
Section 4. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of the fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of dirctors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
TRANSFERS OF STOCK
Section 5. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The board of directors may close the stock transfer books of the
corporation for a period not exceeding forty-five days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period of not
exceeding forty-five days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the board of directors may fix in advance a date, not exceeding
forty-five days preceding the date of any meeting of stockholders, or the date
for payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of, and to vote
at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or
Page E - 27 of E - 69
<PAGE> 5
to give such consent and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to give such consent, as the case may
be notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware."
"ARTICLE VII: GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created."
"ARTICLE VIII: AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting."
Page E - 28 of E - 69
<PAGE> 1
EXHIBIT 10(i)
ITM SOFTWARE DEVELOPMENT AGREEMENT
THIS ITM SOFTWARE DEVELOPMENT AGREEMENT (the "Agreement") is made and entered
into this 9th day of September, 1994 by and between BEARHILL LIMITED, A British
Virgin Islands corporation ("Bearhill") with its principal place of business at
Vanterpool Plaza, P.O. Box 873, Wickhams Cay I, Road Town, Tortola, British
Virgin Islands and GUARDIAN TIMING SERVICES, INC., an Ontario corporation
("GTS") with its principal place of business at 130 Adelaide Street West, Suite
3303, Toronto, Ontario, Canada.
RECITALS
A. Bearhill wishes to market investment advisory services internationally,
using market timing techniques to produce better return for its investors.
B. Bearhill requires computer software in order to generate market timing
signals.
C. Bearhill has selected GTS to perform the development of Release I of the ITM
Software and the related documentation upon the terms and subject to the
conditions of the Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "ACCEPTANCE CRITERIA" shall mean the technical and operational performance
criteria as described in Schedule A.
1.2 "ACCEPTANCE DATE" shall mean the date when a Deliverable has been duly
accepted by Bearhill as per Section 3.4.
1.3 "ACCEPTANCE TEST PLAN" shall mean the detailed test plan created by GTS for
development of the ITM software as described in Schedule A.
1.4 "CHANGE ORDER" shall mean an amendment to the ITM Specifications or Project
Plan meeting the requirements set forth in Section 2.1.
1.5 "CONFIDENTIAL INFORMATION" shall mean proprietary information as described
in Section 7.
1.6 "DELIVERABLE" shall mean a specific, tangible, numbered component of the
ITM Software, as described in the Project Plan, including, but not limited to,
source or object code, or Documentation. All Deliverables will be in English.
1.7 "DELIVERY DATE" shall mean the actual date on which GTS delivers a
Deliverable to Bearhill pursuant to Section 3.3 to enable acceptance testing
for the Deliverable in accordance with Section 3.4.
1.8 "DERIVATIVE WORK" shall mean a work which is based upon one or more
pre-existing works, such as a revision, modification, translation, abridgement,
condensation, expansion, collection, compilation or any other form in which
such pre-existing works may be recast, transformed or adapted, and which, in
the absence of this Agreement or other authorization by the owner of the
pre-existing work, would constitute a copyright infringement or other
infringement of proprietary rights of the owner therein.
1.9 "DOCUMENTATION" shall mean the documents indicated in the Project Plan.
1.10 "FINAL ACCEPTANCE DATE" shall mean the date when all Deliverables have
been completed by GTS.
Page E - 29 of E - 69
<PAGE> 2
1.11 "ITM SOFTWARE" shall mean the proprietary computer software program as
described in Exhibit B, "Description of Software".
1.12 "PROJECT PLAN" shall mean that part of Schedule A described as the
"Project Plan", which describes the phases into which the ITM Project is
divided.
2. SPECIFICATIONS
2.1 Specifications and Acceptance Test Plan
(a) The ITM Specifications are described in Schedule A.
(b) Bearhill shall, with the assistance of GTS conduct the acceptance
tests in accordance with the Acceptance Test Plan and the Acceptance
Criteria.
2.2 Change Orders
Any amendment to the ITM Specifications or Project Plan shall be valid and
binding only if effected by a Change Order approved as hereinafter set forth.
(a) Bearhill may initiate a Proposed Change Order by delivering to GTS a
written request signed by an officer of Bearhill requesting GTS to prepare
information to substantiate the Proposed Change Order. Such writing shall
specify the requested change and cross-reference the portion of the ITM
Specifications or Project Plan which is proposed to be amended.
(b) Upon receipt of a written request pursuant to this Section, GTS shall,
within fifteen (15) days, prepare a good faith estimate of the effort required
to complete the Proposed Change Order for Bearhill's review. Such estimate
shall be limited to those adjustments that GTS reasonably requires to implement
the requested change and shall contain:
(i) a detailed description of the proposed amendment to the ITM
Specifications or Project Plan (including, as necessary, the Deliverables and
technical information); and
(ii) the change, if any, to the terms of this Agreement;
(c) GTS may initiate a Proposed Change Order by delivering a Proposed
Change Order meeting the requirements of Section 2.2(b) to Bearhill. Bearhill
shall evaluate and respond to GTS with respect to any Proposed Change Order on
or before the fifteenth (15th) day after receipt.
(d) Proposed Change Orders shall become effective as Change Orders and
shall act as amendments to this Agreement and to portions of the ITM
Specifications and Project Plan specified in such Proposed Change Order upon
their execution by an officer of Bearhill and by an officer of GTS.
3. DEVELOPMENT OF SOFTWARE
3.1 Creation of Software
GTS agrees to design, develop and complete the ITM Software and Documentation
in accordance with the Project Plan, so that the ITM Software confirms to, and
operates in accordance with, the ITM Specifications set out in Schedule A.
Page E - 30 of E - 69
<PAGE> 3
3.2 GTS's Obligations
During development of the ITM Software, GTS shall:
(a) Provide Bearhill with reasonably detailed written progress reports
monthly and as otherwise requested;
(b) Provide Bearhill with access to the ITM Software and Documentation on
GTS's premises;
(c) Develop the ITM Software with diligence in a competent, timely and
professional manner.
(d) Commit and utilize sufficient resources and qualified personnel to
complete development of the ITM Software and Documentation within the
development timetable set forth in the Project Plan and ITM Specifications:
(e) Not engage in any activity to:
(i) sell, assign, encumber, restrict or otherwise transfer the ITM
Software, in whole or in part, or any rights therein, or
(ii) impede the marketing of licenses to use the ITM Software;
(f) Notify Bearhill promptly of any factor, occurrence or event coming to
its attention that may affect GTS's ability to meet any of its obligations
hereunder or that is likely to occasion any material delay in delivery of any
of the Deliverables.
3.3 Delivery
In accordance with the Project Plan, GTS shall create the Deliverables and
deliver them to Bearhill for approval and acceptance in accordance with Section
3.4.
With respect to each Deliverable, GTS hereby grants to Bearhill a limited,
fully paid and exclusive license to use the Deliverables as follows:
(1) To use and reproduce the Deliverables for the purposes of performing
acceptance testing in accordance with Section 3.4 of this Agreement;
(2) To use and reproduce the Deliverables for the purposes of marketing
and demonstration of the ITM Software including, but not limited to, developing
preliminary market contacts and further developing end user prospects and
excluding installations or sales of the ITM Software.
This license shall terminate on the date Bearhill accepts delivery of the ITM
Software as set forth in Section 3.4(d) or upon termination of this Agreement,
whichever is earlier.
3.4 Acceptance Testing
(a) Each Deliverable will be created by GTS and delivered to Bearhill for
approval. For those Deliverables requiring machine execution, acceptance tests
shall be run by Bearhill as set forth in the Acceptance Test Plan with the
assistance of GTS. Deliverables not requiring machine execution will be
compared by Bearhill to criteria as set forth in the Acceptance Test Plan.
(b) Bearhill shall promptly notify GTS in writing of any failure or
failures of a Deliverable discovered in testing or of any discrepancy of a
Deliverable against the checklist. Upon such notification, GTS shall
immediately undertake to correct such failure or discrepancies. Upon such
correction,
Page E - 31 of E - 69
<PAGE> 4
acceptance testing shall again be performed to determine that the
Deliverable complies with the requirements set forth in subsection 3.4(a)
above. Failure of a Deliverable that is material to the development of the ITM
Software to satisfy any such criteria after the second round of acceptance
testing shall constitute a material breach of this Agreement by GTS entitling
Bearhill to pursue its remedies on default set forth under Article 9 unless GTS
has provided Bearhill with a reasonably acceptable plan to satisfy the
Acceptance Criteria.
(c) Bearhill shall make every reasonable effort to promptly deliver
written acceptance of a Deliverable in a time frame that is consistent with the
approved detailed Project Plan, but shall in any event deliver such
notification within twenty (20) days (or such other number of days set forth in
the Project Plan) after the Delivery Date.
(d) The Final Acceptance Date for the ITM Software shall be determined by
the successful completion, by Bearhill, of the final acceptance tests. The
precise time, date, and place of these tests shall be mutually agreed by the
parties. Bearhill shall deliver written notification to GTS in not less than
fifteen (15) days following the tests of any failure or failures of the ITM
Software discovered in testing or any deficiencies or errors found. GTS shall
have thirty (30) days to remedy any deficiencies or errors to Bearhill's
reasonable satisfaction or if such deficiencies or errors cannot be remedied
within such thirty (30) day period, GTS shall present Bearhill within such
period a remedial plan of action which shall have a reasonable opportunity for
success. Failure of the ITM Software to satisfy the final acceptance tests
according to the above procedures shall constitute a material breach of this
Agreement by GTS.
3.5 GTS's Representations, Warranties and Covenants
(a) GTS represents and warrants to Bearhill that:
(i) the ITM Software and Documentation are and shall be original with GTS
in every and all respect;
(ii) Neither the ITM Software and Documentation nor any rights therein
have been or shall be, in any way, encumbered, restricted, conveyed, granted or
otherwise diminished; and
(iii) The ITM Software and its use, marketing and distribution does not
and will not infringe any patent, copyright, trade secret or other proprietary
rights of any third party.
(b) GTS covenants for the benefit of Bearhill that:
(i) GTS shall itself perform all of its duties under this Agreement and
will not subcontract for any work to be performed by other parties; and
(ii) For a period of five (5) years following the date of this Agreement,
GTS will not develop or acquire any software product or service similar to the
ITM Software for companies that compete with Bearhill.
4. DEVELOPMENT CONSIDERATION
4.1 Fixed Price for Development
For the performance of all of GTS's obligations hereunder (other than Section
6.4) Bearhill shall pay to GTS 12.5% of all revenues earned by Bearhill,
including, without limitation, revenue from all licenses of the ITM Software
and revenue from investment management services performed by Bearhill (whether
or not such investment management services are dependent on the use of the ITM
Software).
Page E - 32 of E - 69
<PAGE> 5
4.2 Taxes
GTS will be responsible for all taxes arising from payments and advances from
Bearhill pursuant to this Agreement.
4.3 GTS Right to Use
In addition, notwithstanding any other provisions of this Agreement, GTS shall
have the non-exclusive right to use the ITM Software in GTS's investment
management business, but in such case GTS shall pay to Bearhill 15% of all
revenues directly attributable to the exploitation of the ITM Software.
5. OWNERSHIP OF INTELLECTUAL PROPERTY
5.1 Title
Bearhill has, and at all times shall retain, all right, title and interest in
and to the Project Plan and the ITM Specifications, any modification and
Derivative Works thereof, and all intellectual property rights relating
thereto, All rights, title and interest in and to the ITM Software, any
modification and Derivative Works thereof, the Documentation and all
intellectual property rights relating thereto shall be owned exclusively by
Bearhill upon the Final Acceptance Date.
5.2 Filings or Registrations - Notices
GTS shall assist Bearhill in making any filings or registrations which Bearhill
deems appropriate to protect Bearhill's interest in the ITM Software and/or
Documentation. In addition, GTS agrees to affix appropriate copyright or other
proprietary notices on the ITM Software and/or Documentation as directed by
Bearhill.
6. GTS'S SUPPORT
When Bearhill becomes the owner of the ITM Software pursuant to Section 5.1,
the following provisions shall apply:
6.1 Error Correction
GTS shall maintain the ITM Software free of all "bugs" and errors as long as
Section 6.4 remains in effect.
6.2 New Techniques
GTS shall, on a best effort basis, promptly inform Bearhill of any new
techniques, procedures, or other developments which may necessitate updating
the ITM Software.
6.3 Marketing
Bearhill shall have sole responsibility and rights to price and market the ITM
Software and Documentation and any requested signals derived therefor. GTS
shall provide assistance in the preparation of such marketing materials,
including providing Bearhill with such information regarding the ITM Software
as Bearhill shall reasonably request.
6.4 GTS Management Agreement
Bearhill hereby appoints GTS as the manager of the ITM Software, for a term of
one year on the date of acceptance of the ITM Software. As manager GTS shall
input all necessary data, run the ITM Software and indicate forthwith to
Bearhill when the ITM Software indicates a buy, sell, hold or short signal in
respect of any stock market being monitored. Bearhill shall, from time to time,
instruct GTS which stock
Page E - 33 of E - 69
<PAGE> 6
markets are to be monitored using the ITM Software. In consideration of its
services under this Section 6.4, GTS shall receive a fee of 2.5% of the gross
revenues earned by Bearhill from its investment management and advisory
business (such fee to be in addition to the fee set out in section 4.1). The
provisions of this Section 6.4 may be renewed annually, at the option of
Bearhill. If Bearhill does not terminate the provisions of this Section 6.4 by
written notice given at least thirty days before the end of the term, the
provisions of this Section 6.4 shall continue for a further year.
7. CONFIDENTIALITY
7.1 Definition
Bearhill and GTS have and will develop, own and disclose to each other certain
proprietary techniques and confidential information ("Confidential
Information") which have great value in their respective businesses. Except as
provided in this Agreement, each party shall retain sole and exclusive
ownership, right, title and interest in and to all of its Confidential
Information.
7.2 Protection of Confidential Information
Should either party disclose to the other party any of its Confidential
Information, the party receiving the Confidential Information shall maintain
the Confidential Information in confidence, shall use at least the same degree
of care to maintain the secrecy of the Confidential Information as it uses in
maintaining the secrecy of its own proprietary, confidential and trade secret
information, shall always use at least a reasonable degree of care in
maintaining the secrecy of the Confidential Information, shall use the
information only for the purpose of performing its obligations under this
Agreement unless otherwise agreed in writing by the other party, and shall
deliver to the other party, in accordance with any request from the other
party, all copies notes, packages, diagrams, computer memory media and all
other materials containing any portion of the other party's Confidential
Information. Neither party shall disclose any such Confidential Information to
any person except those of its employees having a need to know in order to
accomplish the purposes and intent of this Agreement, and shall require each
employee, before he or she receives direct or indirect access to the
Confidential Information, to acknowledge the confidential, proprietary and
trade secret nature of the Confidential Information and to agree to be bound by
this Section 7.2.
7.3 Limitation of Obligations
Neither party shall have any obligation with respect to any portion of such
Confidential Information which:
(i) was known to it prior to receipt from the other party,
(ii) is lawfully obtained by either party from a third party under no
obligation of confidentiality or
(iii) is or becomes publicly available other than as a result of any act
or failure to act of the receiving party.
7.4 Injunctive Relief
GTS and Bearhill acknowledge that:
(i) the restrictions contained in Section 7.2 are reasonable and necessary
to protect the other party's legitimate interests,
(ii) in the event of a violation of these restrictions, remedies at law
will be inadequate and such violation will cause irreparable damages to the
other party within a short period of time, and
(iii) the disclosing party will be entitled to injunctive relief against
each and every violation.
Page E - 34 of E - 69
<PAGE> 7
7.5 Protection of Proprietary Rights
GTS shall at its own cost and expense, protect and defend Bearhill's ownership
of the ITM Software and Documentation and all copyrights, trademarks and trade
secrets associated therewith, against all claims, liens and legal processes of
creditors of GTS and misappropriations by third parties from GTS, its agents,
subdistributors or employees and keep the same free and clear from all such
claims, liens, processes, and misappropriations.
8. INFRINGEMENT INDEMNITY
8.1 Indemnity
GTS agrees to provide Bearhill with the following protection against claim of
proprietary right infringement of the ITM Software or Documentation.
Subject to Bearhill's compliance with its obligations set forth in this
Section, GTS shall:
(1) indemnify Bearhill from and against any liability, cost, loss or
expense of any kind;
(2) hold harmless Bearhill and save it from any liability, cost, loss or
expense of any kind; and
(3) defend any suit or proceeding against Bearhill arising out of or based
on any claim, demand or action alleging that the ITM Software or Documentation
or any portion thereof as furnished under this Agreement and used as herein
contemplated infringes any third-party rights in copyright or patent or the
trade secret rights of any third party.
In addition, GTS shall pay any costs, damages or awards of settlement,
including court costs, arising out of any such claim, demand or action,
provided that Bearhill promptly gives written notice of the claim, demand or
action to GTS and that GTS may direct and fully participate in the defense or
any settlement of such claim, demand or action.
8.2 Undertakings If Infringement Found
In the event that the ITM Software or Documentation or any portion thereof
developed by GTS, as furnished under this Agreement and used within the scope
hereof, is held in such a suit or proceeding to infringe a third party
proprietary right as set forth in Section 8.,1, and that the use of the ITM
Software and/or Documentation or any portion thereof is enjoined, GTS shall, at
its sole option and expense:
(1) procure for Bearhill the right to continue using the ITM Software
and/or Documentation or portion thereof, or
(2) replace the same with non-infringing software or documentation of
equivalent functions and efficiency.
8.3 Bearhill's Obligations
Bearhill shall promptly notify GTS in writing of any claim hereunder and
shall cooperate with and provide all reasonable assistance to GTS, at GTS's
expense, in the defense or settlement of such claim.
Page E - 35 of E - 69
<PAGE> 8
9. TERM AND TERMINATION
9.1 Term
This Agreement shall commence as of the date of this Agreement set forth on its
first page and will include all work done on ITM Software prior to such date
and shall remain in effect, unless terminated as provided in this Article.
9.2 Termination
This Agreement will terminate upon the occurrence of any one of the following
events before the Final Acceptance Date as follows:
(a) In the event that either party is adjudged insolvent or bankrupt, or
if any proceedings are instituted by or against it seeking relief,
reorganization or arrangement under any laws relating to insolvency, or upon
any assignment for the benefit of its creditors, or upon the appointment of a
receiver, liquidator or trustee of any of its property or assets, or upon the
liquidation, dissolution or winding up of its business, then and in any such
event this Agreement may be terminated or cancelled immediately by the other
party upon the giving of written notice.
(b) Upon the other party's default as set forth in Sections 9.1 and 9.2,
the non-defaulting party may terminate this Agreement following fifteen (15)
days' written notice to the other party.
9.3 Survival
The provisions of Section 3.5, 4, 5, 7, 8, 9, 10 and 11 shall survive
termination of this Agreement for any reason.
10. MISCELLANEOUS
10.1 Governing Laws
It is the intention of the parties hereto that the laws of the Province of
Ontario (irrespective of its choice of law principles) shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
The parties agree to exclude the United Nations Convention on Contracts for the
International Sale of Goods from this Agreement and from any agreement that may
be executed to implement this Agreement.
10.2 Binding Upon Successors and Assigns
Subject to, and unless otherwise provided in this Agreement, each and all of
the covenants, terms, provisions and agreements contained in this Agreement
shall be binding upon, and inure to the benefit of, the permitted successors,
executors, heirs, representatives, administrators and assigns of the parties
hereto; provided, however, that this Agreement shall not be assignable by
either party without the prior written consent of the other party.
10.3 Severability
If any provisions of this Agreement, or the application thereof, shall for any
reason and to any extent be invalid or unenforceable, the remainder of this
Agreement and application of such provision to other persons or circumstances
shall be interpreted so as best to reasonably effect the intent of the parties
hereto.
Page E - 36 of E - 69
<PAGE> 9
10.4 Entire Agreement
This Agreement, and the documents referred to in this Agreement, along with
their exhibits, constitute the entire understanding and agreement of the
parties with respect to their subject matter and supersede all prior and
contemporaneous agreements or understandings.
10.5 Amendment and Changes
No amendment, modification, supplement or other purported alteration of this
Agreement shall be binding upon the parties unless it is in writing and is
signed on behalf of the parties by their own authorized representatives.
10.6 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be an original as against any party whose signature appears thereon and
all of which together shall constitute one and the same instrument.
10.7 Other Remedies
Any and all remedies expressly conferred upon a party by this Agreement shall
be deemed cumulative with and not exclusive of any other remedy conferred by
this Agreement or by law on such party, and the exercise of any one remedy
shall not preclude the exercise of any other.
10.8 No Waiver
The failure of any party to enforce any of the provisions of this Agreement
shall not be construed to be a waiver of the right of such party thereafter to
enforce such provisions.
10.9 Notices
Whenever any party desires or is required to give any notice, demand, or
request with respect to this Agreement, each such communication shall be in
writing and shall be effective only if it is delivered by overnight messenger
services, express or electronic means (with confirmed receipt), addressed as
follows:
GTS: Jean-Pierre Fruchet
Guardian Timing Services
130 Adelaide Street West
Toronto, Ontario
M5H 3P5
Fax Number: (416) 364-3752
Bearhill: Bearhill Limited
Vanterpool Plaza
P.O. Box 873
Wickhams Cay I
Road Town, Tortola
British Virgin Island
Fax Number: (809) 494-5880
Such communications shall be effective when they are received by the addressee.
Any party may change its address for such communications by giving an
appropriate notice to the other party in conformity with this Section.
Page E - 37 of E - 69
<PAGE> 10
10.10 No Joint Venture
Nothing contained in this Agreement shall be deemed or construed as creating a
joint venture or partnership between the parties. Except as expressly set
forth, no party is by virtue of this Agreement authorized as an agent, employee
or legal representative of any other party, and the relationship of the parties
is, and at all times will continue to be, that of independent contractors.
10.11 Further Assurances
Each party agrees to cooperate fully with the other party and to execute such
further instruments, documents and agreements and to give such further written
assurance, as may be reasonably requested by the other party, to better
evidence and reflect the transactions described in and contemplated by this
Agreement, and to carry into effect the intents and purposes of this Agreement.
10.12 Force Majeure
Neither party will be liable for any failure or delay in performing an
obligation under this Agreement that is due to cause beyond its reasonable
control, such as natural catastrophes, governmental acts or omissions, laws or
regulations, labour strikes or difficulties, transportation stoppages or
slowdowns or the inability to procure parts or materials.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first hereinabove written.
BEARHILL LIMITED GUARDIAN TIMING SERVICES, INC.
By: /s/ Harmodio Herrera By /s/ J.P. Fruchet
- ----------------------------- -----------------------------
Title: Director Title: President
- -------------------------- -------------------------
Page E - 38 of E - 69
<PAGE> 11
SCHEDULE A
PROJECT PLAN
The Project Plan for the ITM Software describes the phases into which the ITM
Project is divided.
Overview of Project
The objective of the Project is to create a disciplined timing model using a
proprietary computer software program - the ITM Software - to generate, buy,
sell, hold or short signals in respect of any stock market being monitored. The
stock markets that will be monitored are the U.S. stock market (U.S. Standard
and Poor's Index), the Japanese Stock Market (Nikkei 225 Average), the United
Kingdom Stock Market (FTSE 100 Share Index) and the German Stock Market
(Frankfurt Dax Index).
Release I of the ITM Software will relate only to the U.S. stock market.
Release II, III and IV will relate to the Japanese, United Kingdom and German
stock markets respectively. Release II, III and IV will be undertaken only the
Final Acceptance Date and upon specific request by Bearhill to proceed with a
further Release. There are no specific acceptance criteria or acceptance test
plans with respect to Release II, III or IV.
Project Plan
Phase I
The creation and testing of the Main Computer Program taking into consideration
the ITM specifications, the Acceptance Criteria and the Acceptance Test Plan.
Phase I will be completed within sixty days.
Phase II
The Documentation of the ITM Software will be completed within a further thirty
days.
Phase III
Final Acceptance by Bearhill's testing of the ITM Software.
Deliverables
There will be four Deliverables.
Page E - 39 of E - 69
<PAGE> 12
SCHEDULE B
DESCRIPTION OF SOFTWARE
The ITM Software is a proprietary computer software program which is used to
generate buy and sell signals with respect to any stock market being monitored.
The stock markets that will be monitored are the U.S. stock market (U.S.
Standard and Poor's Index), the Japanese Stock Market (Nikkei 225 Average), the
United Kingdom Stock Market (FTSE 100 Share Index) and the German Stock Market
(Frankfurt Dax Index).
The ITM Software is based on a disciplined decision process on inputs that are
based on fundamental and technical elements. Once the data has been entered,
the ITM Software generates objective buy, hold, sell or short signals for any
monitored stock market as a whole.
The date that will be used in the ITM Software will be obtained from sources in
the public domain, mostly from Ned Davis Research, a company which specializes
in providing economic and market information. What is unique about the ITM
Software is the proprietary manner in which the data is treated by the software
to generate timing signals.
Release I will provide timing signals for the U.S. stock market (S & P 500
Index). Market timing signals for the Japanese, United Kingdom, and German
markets will be developed by combining the U.S. timing signals with timing
signals for these three markets as obtained from Ned Davis Research, but
treated by GTS in a proprietary manner. Bearhill shall indicate to GTS the
order in which the software for each of the Japanese, United Kingdom and German
markets is to be developed. Development for each will be completed within
thirty days.
DELIVERABLE #1: This will be the Main Computer Program which generates all buy,
hold, sell or short signals on the basis of the individual inputs and the
decision rules included in the Computer Program. The Main Computer Program will
be available on a diskette.
DELIVERABLE #2: The Documentation will describe each individual input and the
source, frequency of the input as well as the decision rules to reach buy and
sell signals.
DELIVERABLE #3: The Main Printout will show all the individual inputs entered
on a daily or weekly basis as well as all buy and sell signals during the Test
Periods.
DELIVERABLE #4: The Summary of Results will show the individual buy and sell
dates and the corresponding level of the S &P 500.
ITM Specifications
The ITM Software, as applied to the Standard and Poor's 500 Index ("S&P 500")
must meet the following specifications, using backtesting methods to apply the
buy and sell signals over the period from January 5, 1979 to December 31, 1993
(the "Test Period"):
(a) a maximum number of 100 buy and sell signals during the Test Period;
(b) a ratio of profitable trades to unprofitable trades of at least 2 to
1;
(c) a ratio of points gain in profitable trades to points lost in
unprofitable trades of at least 3 to 1;
Page E - 40 of E - 69
<PAGE> 13
(d) a compound annual return for the simulation which outperforms a
buy-and-hold strategy for the Standard and Poor's 500 Index by at least 6% per
annum on average over the period.
Acceptance Criteria
(a) Technical Criteria
1. The software must be able to run on an IBM compatible personal computer
using 386 processor and a hard disk with 3M free disk space.
2. The buy and sell signals must be generated by the computer software
program using a constant set of programming rules.
(b) Operational Performance Criteria
1. Source of inputs to the software. All elements entering the software
must be in the public domain and readily available to institutional investors.
2. At least eighty percent of all individual inputs must be available on a
weekly or daily basis.
3. The maximum number of individual inputs per daily input into the
software program must not exceed fifty.
Acceptance Test Plan
The Acceptance Test Plan for the development of the ITM Software will be
conducted by Bearhill with the assistance of GTS as follows:
(a) the Acceptance Test Plan will cover the Test Period;
(b) GTS will enter the data for each of the individual elements, as
described in the Documentation, entering into the ITM Software which will
generate the Main Printout;
(c) The buy and sell signals, including the dates and the corresponding S
& P 500 level generated by the ITM Software, as shown on the Main Printout,
will be entered by GTS into the Summary of Results.
The Summary of Results, the Documentation and the Main Printout will be
compared by Bearhill to the ITM Specifications and the Acceptance Criteria.
Bearhill will have the right to verify that data entered is accurate.
Page E - 41 of E - 69
<PAGE> 1
EXHIBIT 10(ii)
November 30, 1995
Mr. J.P. Fruchet
Guardian Timing Services, Inc.
130 Adelaide Street West
Suite 3303
Toronto, Ontario
M5H 3P5
Dear Mr. Fruchet:
Re: Letter of Understanding (the "Letter")
As a condition precedent to our execution of an Investment Management Agreement
pursuant to which The Bank of Nova Scotia (BNS) will retain the services of
your firm with regard to the management of an investment portfolio with a
minimum size of $10,000,000, we wish to obtain your confirmation of our
understanding of the agreement amongst Bearhill Limited ("Bearhill"), Guardian
Timing Services Inc. ("GTS"), InterUnion Financial Corporation ("InterUnion"),
Havensight Holdings Corp. ("Havensight") and ourselves with regard to the ITM
Software ("ITM") and certain related matters.
ITM was developed by GTS on behalf of Bearhill pursuant to the ITM Software
Development Agreement, dated September 9, 1994, (the "ITM Agreement") and
Bearhill has absolute title to ITM. GTS has agreed and is bound to continue to
develop and operate (the "Services") the ITM for an indefinite period and GTS
has retained J.P. Fruchet in such regard and is entitled to certain
compensation as contemplated in sections 4.1, 4.3, and 6.4 of the ITM
Agreement. Upon the exercise of the Option, GTS shall be entitled to receive
15% of Bearhill's gross revenues for providing the Services until the Note is
satisfied in full and GTS and Bearhill have agreed that neither will be
entitled to receive compensation as contemplated in sections 4.1, 4.3 and 6.4
of the ITM Agreement in such regard.
In consideration of BNS entering into the Investment Management Agreement,
Bearhill grants to BNS an irrevocable option (the "Option") to acquire the ITM
as it may be modified from time to time in furtherance of the ITM Agreement. In
the event that BNS wishes to exercise the Option, BNS shall acquire 100% of the
Class B Shares of Bearhill, which Class B shares shall represent 30% of equity
of Bearhill for $750,000 and shall enter into an agreement to acquire the ITM
for $30 million. The acquisition price of $30 million shall be financed by $10
million in cash and a $20 million dollar 15 year non-recourse note bearing
interest at 8.00 percent per annum, with the principal amount payable at the
end of the term (the "Note"), provided that BNS shall have the right to
accelerate payment of part or all of the Note at anytime without penalty and
without notice. The principal terms of the Option are outlined in Schedule "A"
hereto. All interest paid on the Note shall be credited to the Trust Account.
GTS and Bearhill have advised that the ITM is Class 12 software for purposes of
the Income Tax Act (Canada) and have agreed to provide a legal opinion in form
satisfactory to BNS, in such regard, at the closing of the exercise of the
Option.
Notwithstanding the exercise of the Option, GTS shall, provided that J.P.
Fruchet is in its employment, have the right to be provided and use the market
signals generated by the ITM at no charge or cost, provided that no more than
$200 million of assets or such larger amount of assets as may then be managed
by GTS at the time of the giving of notice of the exercise of the Option (the
"Limit on Assets"), at book value, are managed using such signals. The Limit on
Assets shall not apply on the occurrence of either of the events described in
clauses (c) or (d) below.
Page E - 42 of E - 69
<PAGE> 2
Upon acquisition of the ITM, BNS shall enter into a non-exclusive agreement
with Bearhill to provide Bearhill with the timing signals generated by the ITM,
and Bearhill shall use such signals in managing the Nirvana Fund, and may use
such signals in the management of funds for third parties. Bearhill will not be
permitted to disclose the timing signals to any third party, without the prior
written consent of BNS. The Nirvana Fund will be managed by Bearhill, and the
management of the Nirvana Fund may not be assigned or changed without the prior
written consent of the Bank.
Bearhill shall apply the funds obtained from BNS as follows. The $750,000
obtained for the Class B Shares shall be used as working capital. The proceeds
of $10 million shall be divided with $1.6 million being placed in a trust
account (the "Trust Account") and $8.4 million invested in Class 1 Shares of
the Nirvana Fund (the "Fund"). All principal amounts received by Bearhill on
the Note shall be invested in Class 1 Shares. The Class 1 Shares cannot be
redeemed prior to the Note being satisfied or without the approval of the Board
of Directors.
Class 1 Shares shall rank superior to all other shares issued by the Fund. The
Fund shall be managed by GTS on behalf of Bearhill using market signals
generated by the ITM. Bearhill shall pay to BNS for use of the timing signals
generated by the ITM, 15% of its gross revenue as a user fee (the "Fee"). In
the event that the Fee is not sufficient to satisfy BNS interest obligations
under the Note, any deficiency (a "Deficiency") shall be satisfied by Bearhill,
first from the interest earned on the Trust Account, and then from its own
assets.
Bearhill may not give any security to any party in order to borrow funds to
satisfy a Deficiency. In the event that Bearhill cannot satisfy a Deficiency,
Bearhill will be deemed to be in default, for purposes of clause (c) below.
The monies held within the Trust Account shall be retained in such account,
along with any interest earned thereon, until the Note is satisfied in full,
provided that in the event that any portion of the principal amount of the Note
is repaid, a pro-rata share of the balance of the Trust Account as of the date
of such repayment shall be released to Bearhill and Bearhill shall use such
funds to acquire Class 1 Shares.
The Class 1 Shares shall distribute all earned interest, dividends received and
crystallized capital gains annually.
The only other securities, either equity or debt, issued, or to be issued, by
Bearhill are Class A Shares, currently representing 100% of the equity of
Bearhill. The Class A Shares are held equally by InterUnion and Havensight. The
holdings of Class A Shares may not be altered prior to the exercise of the
Option. The Class A Shares and the Class B Shares shall have identical share
provisions, save for entitlement to dividends. The Class B. Shareholder shall
receive 80% of all dividends paid by Bearhill, to such point in time (the
"Preferred Period") as Class B Shareholder has received $20 million, after
which time Class B shareholders shall rank evenly with Class A Shareholders.
During the Preferred Period, all dividends received from the Class B Shares
shall be applied to the principal amount of the Note. After the Preferred
Period, dividends received on both Class A and Class B Shares shall be invested
in Class 2 Shares.
Each of the three shareholders shall have equal representation on the Board of
Directors of Bearhill, and matters coming to the Board of Directors shall
require unanimous approval. All dividends received by Class A and Class B
shareholders once they rank equally shall be invested in Class 2 Shares of the
Nirvana Fund, which will rank equally with the Class 1 Shares, save that the
Class 2 Shares will not distribute interest, dividends or capital gains. Class
2 Shares may be redeemed.
InterUnion and Havensight, each grant to BNS an immediate option to acquire
their respective Class A Shares at a price equal to 90% of book value, upon the
occurrence of one or more of the following:
(a) the Note is satisfied in full prior to its maturity,
Page E - 43 of E - 69
<PAGE> 3
(b) the Class B Shareholders have received and aggregate of $25,000,000 in
dividends from Bearhill,
(c) Bearhill defaults on any of its obligations to BNS, becomes insolvent
or commits an act of bankruptcy, or
(d) the Nirvana Fund underperforms.
The Nirvana Fund shall be deemed to have underperformed if its return averages
less than 10% per annum compounded annually over any 36 month period.
It is agreed that BNS can assign its rights and obligations hereunder to any
subsidiary or affiliate without the consent of any other party.
It is also agreed that notwithstanding that Bearhill is currently incorporated
under the laws of the British Virgin Islands, that Bearhill will at the request
of BNS take such steps as may be necessary to change the laws pursuant to which
it is incorporated and/or continued, provided that such action is acceptable to
all shareholders.
All documentation required to complete the transactions and other steps
contemplated above shall be prepared in accordance with normal commercial
terms. In the event that the parties are unable to come to an agreement on any
term or terms, the parties agree to submit to binding arbitration in accordance
with the terms of the Arbitrations Act (Ontario).
If the above conforms to your understanding of the agreement reached amongst
ourselves, please execute the four enclosed copies of this letter, and return
same to the undersigned.
Yours truly,
The Bank of Nova Scotia
- -----------------------------------
/s/ Robert L. Brooks
Agreed and accepted,
/s/ J.P. Fruchet
- -----------------------------------
Guardian Timing Services, Inc.
/s/ Georges Benarroch
- -----------------------------------
InterUnion Financial Corporation
/s/ F.P. Polo
- -----------------------------------
Havensight Holdings Corp.
/s/ F.P. Polo
- -----------------------------------
Bearhill Limited
Page E - 44 of E - 69
<PAGE> 4
SCHEDULE A
The Option shall be exercised in accordance with the following terms:
The Bank of Nova Scotia shall give notice to Bearhill of its intention to
exercise the Option in writing. Such notice shall be accompanied by a bank
draft in an amount equal to ten times the then current option fee. This sum
shall be a non-refundable deposit to be held in escrow and is to be applied
against the purchase price upon closing of the Option. In the event that The
Bank of Nova Scotia fails to proceed to the closing of the Option within 90
days of giving notice of its intention to exercise the Option, for any reason
other than the failure of Bearhill or any other interested party to negotiate
in good faith and/or to abide by the terms of any decision of any arbitration
panel, then the deposit shall be released from escrow to Bearhill.
The Option shall be renewable for a three year indefinite term at the
discretion of the Bank of Nova Scotia subject to the payment of an option fee
annually, in advance, in accordance with the following schedule commencing on
January 1, 1996.
For the 1996 calendar year $25,000
For the 1997 calendar year $50,000
For the 1998 calendar year $75,000
In the event that Bearhill should receive a bona fide offer to acquire the ITM
Software from a third party, which Bearhill is prepared to accept, Bearhill
shall immediately forward a copy of such offer to the Bank and the Bank shall
have a period of three weeks from the time it receives a copy of such offer to
match such offer or exercise the Option by giving notice in accordance with the
first paragraph above, at its sole discretion. If the Bank fails to match such
offer, then Bearhill shall pay to the Bank a sum equal to ten times the then
current option fee, and the Option shall terminate immediately thereafter.
This Option shall terminate in the event the Investment Management Agreement
between the Bank of Nova Scotia and Guardian Timing Service, dated as of
December 20, 1995 is terminated by either party thereto, provided that the Bank
shall have a three week period after the date of termination of the Investment
Management Agreement to exercise the Option by giving notice in accordance with
the first paragraph above.
Page E - 45 of E - 69
<PAGE> 1
EXHIBIT 10(iii)
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT dated as of the 20th day of December 1995
BETWEEN:
THE BANK OF NOVA SCOTIA, a Canadian chartered bank, having
its executive offices in the City of Toronto, in the Province
of Ontario
(The "Bank"),
-and-
GUARDIAN TIMING SERVICES, INC., a corporation incorporated
under the laws of Canada, having its registered office in the
City of Toronto, in the Province of Ontario,
(the "Investment Manager")
RECITALS:
A. Whereas the Bank wishes to have the Investment Manager manage an investment
portfolio (the "Portfolio") on behalf of the Bank or one or more of its
subsidiaries in Ontario using market timing signals generated by the software
developed by the Investment Manager and/or Bearhill Limited, known as "ITM
Software" (the "Software") and the parties desire to set forth certain terms
relating to the activities and responsibilities of the Bank and the Investment
Manager in such regard.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, it is agreed by and between the parties
hereto as follows:
DEFINITIONS AND INTERPRETATIONS
1. In this Agreement, except where the context otherwise requires:
(a) "Agreement" means this Investment Management Agreement as the same may
be amended from time to time and "herein", "hereof", "hereby", "hereunder" and
similar expressions refer to this Agreement and include every instrument
supplemental or ancillary to this Agreement and, except where the context
otherwise requires, not to any particular article, section or subsection
thereof;
(b) "Bank" shall include such subsidiaries and affiliates of The Bank of
Nova Scotia, where the Bank has requested that the Portfolio be managed by the
Investment Manager on behalf of such subsidiaries and affiliates;
(c) "business day" shall mean each day on which The New York Stock
Exchange is open for business;
Page E - 46 of E - 69
<PAGE> 2
(d) "Custodian" shall mean the custodian of the assets of the Portfolio as
appointed by the Bank from time to time.
(e) "Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or without
share capital, executor, administrator or other legal personal representative,
regulatory body or agency, government or governmental agency, authority or
entity however designated or constituted; and
(f) "Securities Authorities" means the Ontario Securities Commission and
equivalent regulatory authorities in each Province and Territory of Canada.
APPOINTMENT OF THE INVESTMENT MANAGER
2. The Bank hereby appoints the Investment Manager as the investment manager of
the Portfolio with full authority and responsibility to provide or cause to be
provided to the Portfolio, the investment management and related administrative
services hereinafter set forth and the Investment Manager hereby accepts such
appointment and agrees to act in such capacity and to provide or cause to be
provided such investment management and related administrative services upon
the terms set forth in this Agreement.
DUTIES OF THE INVESTMENT MANAGER
3. The Investment Manager shall, during the term of this Agreement and any
renewal thereof:
(a) manage the Portfolio and shall cause to be made the decisions as to
the purchase and sale of the Portfolio's securities in accordance with the
indicators provided by the Software and decisions as to the execution of all
portfolio transactions, including selection of market, dealer or broker and the
negotiation, where applicable, of commissions or service charges, provided that
the Investment Manager shall use Scotia McLeod, Inc. and/or its affiliates as
the dealer for the Portfolio whenever it is convenient and reasonable to do so;
(b) provide written instructions to the Custodian respecting the delivery
and acceptance of the Portfolio's securities on the purchase or sale of such
securities;
(c) comply with and enter into contracts with all sub-investment managers
and advisors appointed by it, with the prior written approval of the Bank, with
respect to the Portfolio;
(d) in accordance with the instructions of the Bank, execute and deliver,
or cause to be executed and delivered, proxies and vote or withhold from
voting, or cause to be voted or withheld from voting, securities held as part
of the Portfolio from time to time.
(f) ensure that all securities legislation is complied with in connection
with the operation of the Portfolio and the execution and delivery of all
necessary documents and certificates in connection therewith, as may be
requested by the Bank from time to time;
(g) to provide any assistance to the Bank which may be required to prepare
and file or cause to be prepared and filed all returns, reports and filings
which may be required from time to time by any municipal, provincial, federal
or other governmental authority and including, without limitation, such
returns, reports and filings which may be required pursuant to the Income Tax
Act (Canada) and applicable laws, regulations, requirements or policies of the
Securities Authorities; and
(h) provide or cause to be provided services as may be reasonably
requested by the Bank in respect of the Portfolio's daily operation, including
providing the prices of individual securities as often as may be reasonably
required by the Bank.
Page E - 47 of E - 69
<PAGE> 3
With regard to paragraphs (g) and (h) above the Bank shall pay to the
Investment Manager its reasonable costs and expenses incurred by the Investment
Manager with regard to meeting its obligations thereunder.
4. The Investment Manager may engage or retain any persons for the provision of
certain portfolio management services in connection with the Portfolio, with
the prior written approval of the Bank.
STANDARD OF CARE
5. The Investment Manager shall exercise the powers granted hereunder and
discharge its duties hereunder honestly, in good faith, and in connection
therewith, shall exercise the degree of care, diligence and skill that a
reasonably prudent investment manager would exercise in the circumstances.
The Investment Manager represents and warrants that as at the date hereof
it has, and covenants that it has, and covenants that it will maintain during
the currency of this Agreement, for its own account, all necessary licenses or
registrations which it is required to have in order to perform its duties and
obligations pursuant to this Agreement.
REPORTING OBLIGATION OF THE INVESTMENT MANAGER
6. The Investment Manager agrees that it shall maintain or cause to be
maintained complete records of all transactions in respect of the Portfolio as
may be required under applicable laws and as the Bank may otherwise reasonably
request, and to provide or cause to be provided to the Bank, on a timely basis,
such reports as the Bank may reasonably require. The Bank shall pay to the
Investment Manager, its reasonable costs and expenses incurred by the
Investment manager with regard to meeting its obligations thereunder.
FEES AND EXPENSES
7. In consideration of the duties performed by the Investment Manager pursuant
to the terms of this Agreement, the Investment Manager shall receive from the
Bank, either directly or as a charge to the Portfolio, as the Bank may direct
an investment management fee (the "Investment Management Fee") as determined in
accordance with Schedule "A" hereto.
LIABILITY OF THE INVESTMENT MANAGER
8. The Investment Manager shall not be liable to the Bank for any loss or
damage relating to any matter regarding the Portfolio, including any loss or
diminution in the value of the Portfolio. Nothing herein shall be deemed to
protect the Investment Manager against any liability to the Bank in any
circumstance where there has been negligence, willful default or dishonesty on
the part of the Investment Manager or to the extent the Investment Manager may
have failed to fulfill its duties and obligations as set forth in this
Agreement.
9. The Investment Manager shall not be liable to the Bank for the acts,
omissions, receipts, neglects or defaults of any person, firm or corporation
employed or engaged by it as permitted hereunder, or for any loss, damage or
expense caused to the Portfolio or the Bank through the insufficiency or
deficiency of any security in or upon which any of the monies of or belonging
to the Portfolio shall be laid out or invested, or for any loss or damage
arising from the bankruptcy, insolvency or tortious act of any person, firm or
corporation with whom or which any monies, securities or property of the
Portfolio shall be lodged or deposited, or for any loss occasioned by error in
judgment on the part of the Investment Manager, or for any other loss, damage
or misfortune which may happen in the execution by the Manager of its duties
hereunder, except to the extent set out in the last sentence of paragraph 8.
10. The Investment manager may rely and act upon any statement, report or
opinion prepared by or any advice received from auditors, solicitors, notaries
or other professional advisors of the Investment Manager and shall not be
responsible or held liable for any loss or damage resulting from relying or
Page E - 48 of E - 69
<PAGE> 4
acting thereon if the advice was within the area of professional competence of
the person from whom it was received and the Investment Manager acted
reasonably in relying thereon.
TERM
11. This Agreement shall continue in full force and effect until Agreement is
terminated by either party by giving at least 30 days notice prior to the last
business day of a calendar month (or such shorter period as the parties may
agree) to the other of such termination.
12. During the term of this Agreement the Investment Manager shall make
available to the Bank for inspection on reasonable notice, and upon termination
of this Agreement the Investment Manager shall forthwith deliver to the Bank
all records, documents and books of account related to the Portfolio.
13. Upon termination of this Agreement the Bank shall pay to the Investment
Manager such fees as may be due as of the date of termination and shall
reimburse the Investment Manager for its expenses and disbursements to which it
is entitled hereunder as of the date of such termination.
AMENDMENTS OF THIS AGREEMENT
14. This Agreement may not be amended or modified in any respect except by
written instrument signed by the parties hereto and any proposed change shall
not be effected without compliance with applicable requirements of the
Securities Authorities.
NOTICES
15. Any notice, request or direction required or permitted to be given
hereunder shall be in writing and shall be properly given, if delivered
personally or by facsimile transmission, addressed to The Bank of Nova Scotia,
44 King Street West, Toronto, Ontario M51I 1H1, Attention: Executive Vice
president, Investment Banking, and to the Investment Manager at Guardian Timing
Services, Inc., 130 Adelaide Street West, Suite 3303, Toronto, Ontario, M5h
3P5, Attention: President, or to such other address as either party may from
time to time specify by notice given in accordance herewith.
MISCELLANEOUS PROVISIONS
16. This Agreement shall be subject to and construed in accordance with the
laws of the Province of Ontario and each of the Bank and the Investment Manager
hereby irrevocably attorns to the jurisdiction of the courts thereof.
17. This Agreement may be assigned to an affiliate of the Investment Manager,
but otherwise shall not be assignable by either party hereto, without the
express prior written consent of the other party hereto. Written notice of any
assignment to an affiliate of the Investment Manager must be provided to the
Bank not less than 10 days in advance of such assignment.
18. The Investment Manager, may not directly or indirectly, advise any third
party of its role as investment manager of the Portfolio, without the prior
written consent of the Bank, save for such advice which it may be required to
provide to governmental authorities or by court order.
19. This Agreement may be executed in any number of counterparts all of which
taken together shall constitute this Agreement.
Page E - 49 of E - 69
<PAGE> 5
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
THE BANK OF NOVA SCOTIA
By: /s/ Robert L. Brooks
-----------------------------
GUARDIAN TIMING SERVICES INC.
By: /s/ J.P. Fruchet
-----------------------------
Page E - 50 of E - 69
<PAGE> 6
SCHEDULE "A"
1. The initial size of the Portfolio shall be C$10 million. The Investment
Manager shall manage the Portfolio in pursuit of the objectives but subject to
the constraints set forth in the Investment Objectives and Guidelines that the
Bank and the Investment Manager shall agree on from time to time. If the Bank
requests, the Portfolio shall be divided into sub-portfolios, which shall be
managed in accordance with different investment objectives, different
investment guidelines or both (e.g., as a mutual fund which complies with
national Policy 39), always provided that no sub-portfolio may be established
in an initial amount less than C$5 million.
2. The Bank shall pay all fees and bonuses to the Investment Manager from the
assets in the Portfolio, always provided that each such payment shall require
the specific authorization of the Executive Vice President, Investment Banking,
which shall not be withheld unreasonably.
3. The fee payable to the Investment Manager shall be 1/12 of one percent per
month of the net asset value of the Portfolio (net of all costs and expenses
paid or accrued earlier and net of all fees and bonuses paid or accrued
earlier), determined at the end of each month and payable quarterly.
4. There may be a bonus payable annually to the Investment Manager. This bonus
shall be determined by the more restrictive of two calculations.
(a) On the first calculation, the bonus shall be payable only if the
year's growth in net asset value of the Portfolio (net of all costs
and expenses paid earlier and net of all fees and bonuses paid
earlier), expressed in percentage terms, exceeds the year's rate of
return of the S&P 500 Total Return Index. The bonus shall be 20% of
the product of (I) the difference between the two percentage rates
multiplied by (ii) the initial net asset value of the Portfolio for
that year.
For purposes of determining the year's rate of return of the S&P 500
Total Return Index, the base figure for the initial period shall be
the level of the S&P 500 Total Return Index at the close on 22 April
1996, and the final figure for the initial period shall be the level
of the S&P 500 Total Return Index at the close on 31 December 1996 or,
if applicable, the date of termination of the Investment Management
Agreement before 31 December 1996. After such initial period, the base
figure for each calendar year shall be the level of the S&P 500 Total
Return Index at the close on the last business day of the preceding
calendar year, and the final figure shall be the level of the S&P 500
Total Return Index at the close on the last business day of the
calendar year for which a bonus is being calculated or, if applicable,
the date of termination of the Investment Management Agreement during
such calendar year. For purposes of determining the year's growth in
net asset value of the Portfolio, the same dates and times shall
apply.
(b) On the second calculation, however, the bonus shall be payable
only if the cumulative growth in net asset value of the Portfolio (net
of all costs and expenses paid or accrued earlier and net of all fees
and bonuses paid or accrued earlier) since inception, expressed in
percentage terms, exceeds the cumulative rate of return of the S&P 500
Total Return Index over the same period of time. The bonus shall be
such that the sum of all bonuses paid since the inception of the
Portfolio does not exceed 20% of the product of (i) the difference
between the two cumulative percentage rates multiplied by (ii) the net
asset value of the Portfolio at inception. For greater certainty, the
two percentage rates shall be expressed not on a per annum basis but
on the basis of the entire term of the Portfolio since inception.
For purposes of determining the cumulative rate of return of the S&P
500 Total Return Index, the base figure shall be the level of the S&P
Total Return Index at the close on 22 April 1996, and the final figure
shall be the level of the S&P Total Return Index at the close on the
last business
Page E - 51 of E - 69
<PAGE> 7
day of the calendar year for which a bonus is being calculated or, if
applicable, the date of termination of the Investment Management
Agreement during such calendar year. For purposes of determining the
cumulative growth in net asset value of the Portfolio, the same dates
and times shall apply.
5. For purposes of calculating all fees and bonuses payable hereunder,
all calculations shall be based on U.S. dollars, but all fees and bonuses shall
be payable in Toronto in Canadian dollars based on mid-market conversion rates
at the time of payment.
6. The minimum fee and bonus payable to the Investment Manager shall be
C$50,000 per annum or part thereof.
7. The Bank shall pay any GST payable on all fees and bonuses payable
hereunder.
Page E - 52 of E - 69
<PAGE> 8
INVESTMENT OBJECTIVES AND GUIDELINES
GUARDIAN TIMING SERVICES PORTFOLIO
EFFECTIVE 22 APRIL 1996
Objective: To realize a total rate of return by investing in a portfolio
of principally U.S. securities.
Benchmark: The S&P 500 Total Return Index.
Guidelines: 1. The Investment Manager shall rely exclusively on the
systematic use of his proprietary computer-generated market
timing signals and his proprietary computer-generated
stock-picking techniques.
2. The Investment Manager may buy and sell U.S. dollar-
denominated money market instruments, U.S. stocks, Canadian
stocks and other stocks (collectively, Securities).
3. The Investment Manager retains the right (which, however, he
does not anticipate exercising) to buy and sell
exchange-traded convertible debentures, exchange-traded
warrants and exchange-traded options (collectively,
Derivative Securities).
4. The Investment Manager may buy and short S&P 500 Stock Index
futures contracts.
5. When the proprietary timing model generates a buy signal, the
Investment Manager may take a long position in equities as
great as the net asset value of the Portfolio. He shall do so
using stocks selected by his proprietary stock-picking
techniques. He also may take a long position in S&P 500 Stock
Index futures contracts.
6. When the proprietary timing model generates a sell signal,
the Investment Manager shall sell any existing long position
in S&P 500 Stock Index futures contracts, may retain the
existing long position in equities and may take a short
position in S&P 500 Stock Index futures contracts.
7. When the proprietary timing model generates a short signal,
the Investment manager shall take an additional short
position in S&P 500 Stock Index futures contracts.
Limits: 1. No more than 10% of the net asset value of the portfolio at
time of purchase shall be invested in stocks other than U.S.
and Canadian stocks.
2. No more than 10% of the net asset value of the Portfolio at
time of purchase shall be invested in exchange-traded
warrants and exchange-traded options, taken together.
3. The value of the long position in Securities and Derivative
Securities plus the underlying value of the long position in
S&P 500 Stock Index futures contracts shall not exceed 200%
of the net asset value of the portfolio.
4. The underlying value of the short position in S&P 500 Stock
Index futures contracts shall not exceed 200% of the net
asset value of the portfolio.
5. For purposes of monitoring, the Bank and the Investment
Manager shall agree from time to time in writing on the
maximum number of S&P 500 Stock Index futures contracts that
the Investment Manager may use. Initially, they agree that
the Investment Manager shall be long no more than 22
contracts and shall be short no more than 44 contracts.
Page E - 53 of E - 69
<PAGE> 9
Approvals: The Investment manager shall act as a fully discretionary
manager within the limits fixed by these Investment
Objectives and Guidelines.
Clearing Broker: ScotiaMcLeod Inc. shall act as clearing broker for all
transactions in the Portfolio.
Custodian: ScotiaMcLeod Inc. shall act as custodian of the Portfolio.
Voting: ScotiaMcLeod Inc. as custodian shall execute all proxies for
voting of the securities in the Portfolio.
Monitor: The Bank's Integrated support Services shall monitor the
Investment manager's compliance with those parts of these
Guidelines that define:
1. the types of security that the Investment Manager may buy,
sell or short;
2. the percentage of the net asset value of the portfolio that
the Investment Manager may invest in stocks other than U.S.
and Canadian stocks.
3. the percentage of the net asset value of the portfolio that
the Investment Manager may invest in exchange-traded warrants
and exchange-traded options; and
4. the number of S&P 500 Stock Index futures contracts that the
Investment Manager may buy or short.
I.S.S. shall monitor daily. I.S.S. shall report any exceptions
no later than the following day to the Executive Vice
President, Investment Banking and to the Assistant General
Manager, Investments.
Reporting
Procedure: ScotiaMcLeod Inc. As custodian shall report monthly to the
E.V.P., Investment Banking, the A.G.M., Investments and the
A.G.M., International Banking Division. The report shall
include a list of all transactions, a statement and valuation
of assets and any other information required from time to
time by the E.V.P., Investment Banking, acting reasonably.
Responsibilities: Upon due notice from the E.V.P., Investment Banking or the
A.G.M., Investments, both the Investment Manager and
ScotiaMcLeod, Inc. Shall permit the Bank's external and
internal auditors access to all relevant information.
Page E - 54 of E - 69
<PAGE> 1
Exhibit 10(iv)
AGREEMENT made this 19th day of January, 1995.
BETWEEN:
HAVENSIGHT HOLDINGS LIMITED, a company
incorporated under the laws of the British Virgin
Islands
(hereinafter called "Havensight")
OF THE FIRST PART
- and -
INTERUNION FINANCIAL CORPORATION, a
corporation incorporated under the laws of Delaware
(hereinafter called "Interunion")
OF THE SECOND PART
WHEREAS Havensight has sold to Interunion all of the issued and outstanding
shares of Bearhill Limited ("Bearhill");
AND WHEREAS Bearhill is the owner of the ITM computer software (the "ITM
Software"), a computer program used to predict the timing of various markets;
AND WHEREAS it is possible that the ITM Software may be sold to a third party;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants and agreements contained herein the parties covenant and agree as
follows:
1. If the ITM Software is to be sold to any party Interunion hereby covenants
and agrees that, immediately prior to such sale Havensight shall have the right
to acquire fifty percent (50%) of the shares of Bearhill for a purchase price
of $1.00.
2. It is hereby further agreed that if any shares of Bearhill, or any shares of
any affiliate (as that term is defined in the Ontario Securities Act) of
Bearhill are offered for sale to any Canadian corporation that is, or is an
affiliate of, a bank, trust company, insurance corporation, brokerage or
dealer, mutual fund dealer, or other financial institution (or any affiliate of
any such corporation), in conjunction or connection with the sale, lease or
other exploitation of the ITM Software, the parties hereto agree that they will
become equal holders of the balance of the shares of Bearhill (or such
affiliate of Bearhill) that are not sold to such Canadian corporations.
3. Each of the parties hereto shall do, execute, acknowledge, deliver or cause
to be done, executed, acknowledged or delivered, all such furthre acts, deeds,
documents, assignments, transfers, conveyances or powers of attorney as may be
reasonably necessary or desirable to effect complete consummation of the
transactions contemplated by this agreement.
Page E - 55 of E - 69
<PAGE> 2
IN WITNESS WHEREOF this agreement has been executed by the parties hereto.
HAVENSIGHT HOLDINGS LIMITED
BY /s/ J.P. Fruchet
--------------------------
INTERUNION FINANCIAL CORPORATION
BY /s/ Georges Benarroch
---------------------------
Page E - 56 of E - 69
<PAGE> 1
EXHIBIT 10(v)
April 16, 1997
Mr. J.P. Fruchet
President
Guardian Timing Services Inc.
130 Adelaide Street West
Suite 3303
Toronto, Ontario
M5H 3P5
Dear Mr. Fruchet,
Further to our conversation over the last serveral weeks, we wish to
confirm our understanding of our agreement as to certain amendments to Schedule
A to a letter of understanding dated December 20, 1995 (the "Letter") relating
to the Bank's entering into an Investment Management Agreement and the possible
acquisition of 100% of the Class B shares of Bearhill Limited.
The second full paragraph of Schedule A currently reads as follows;
"The Option shall be renewable for a three year term at the discretion
of The Bank of Nova Scotia subject to the payment of an option fee
annually, in advance, in accordance with the following schedule
commencing on January 1, 1996.
For the 1996 calender year $25,000
For the 1996 calender year $50,000
For the 1996 calender year $75,000"
It has been agreed that the second full paragraph of Schedule A is
replaced with the following paragraph;
"The Option shall be renewable for a four year term at the discretion
of The Bank of Nova Scotia subject to the payment of an option fee
annually, in advance, in accordance with the following schedule
commencing on April 23, 1996.
For the year commencing April 23, 1996 $25,000
For the year commencing April 23, 1997 $25,000
For the year commencing April 23, 1998 $50,000
For the year commencing April 23, 1999 $50,000"
All other terms of the Letter remain the same.
Page E - 57 of E - 69
<PAGE> 2
If the above conforms to your understanding of the agreement reached
amongst ourselves, please execute the enclosed duplicate copy of the letter,
and return same to the undersigned.
Yours truly,
The Bank of Nova Scotia
- -----------------------------------
/s/ Robert L. Brooks
Agreed and accepted,
/s/ J.P. Fruchet
- -----------------------------------
Guardian Timing Services, Inc.
/s/ Georges Benarroch
- -----------------------------------
InterUnion Financial Corporation
/s/ Harmodio Herrera
- -----------------------------------
Havensight Holdings Corp.
/s/ Harmodio Herrera
- -----------------------------------
Bearhill Limited
Page E - 58 of E - 69
<PAGE> 1
EXHIBIT 10(vi)
September 26, 1996
New Researches Corporation
10 rue Pierre-Fatio
Geneva, CH-1201 Switzerland ("NRC")
- and -
RIF Capital Inc.
c/o Corporate Services
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados ("RIF")
- and -
St. Michael Trust Corp., as Trustee for
Central Investment Trust
PO Box 634C Price Waterhouse Centre
St. Michael, Barbados (the "Trust")
Dear Sirs:
LETTER OF UNDERSTANDING
This Letter of Understanding outlines the terms of the Agreement between the
parties: RIF Capital Inc. And Central Investment Trust, collectively (the
"Vendors"), New Researches Corporation and InterUnion financial Corporation
("InterUnion").
1. Central Investment Trust (the "Trust") is the owner of all the issued
and outstanding common shares of RIF Capital Inc. ("RIF") and RIF is
the owner of all the issued and outstanding shares of New Researches
Corporation ("NRC"), a company incorporated under the laws of Panama.
2. NRC owns 3,216,667 common shares and 200,000 common share purchase
warrants of Genesis and 50,000 common shares of Unirom.
3. Genesis is a public company incorporated in the Province of Ontario and
Unirom is a private company incorporated in the Province of Ontario.
4. InterUnion has expressed to the Vendors an interest in purchasing all
the issued and outstanding shares of New Researches Corporation and
the Vendors have granted to InterUnion an irrevocable option
(the"Option") to purchase NRC.
5. The terms of this Letter of Understanding are subject to each party
being satisfied with its due diligence investigation of the other
parties to the agreement.
6. All documentation required to complete the transaction and any other
actions contemplated by the Agreement as outlined in this Letter of
Understanding shall be prepared and undertaken in accordance with the
laws of the State of Delaware.
Page E - 59 of E - 69
<PAGE> 2
TERMS OF THE OPTION
a. InterUnion shall pay to the Vendors, or at their direction, a
non-refundable Option fee of US$80,000 on or before December 15, 1996.
b. The Option shall expire on December 15, 1997 ("Closing Date").
c. InterUnion shall provide written notice of its intention to exercise
the Option to the Vendors and NRC.
d. The purchase price paid by InterUnion to the Vendors, upon exercise of
the option shall be:
i) US$2,000,000 payable on or before the Closing Date (4:00 p.m.
Palm Beach time); and
ii) upon the sale of any of the common shares of Genesis, including
any shares issued pursuant to the exercise of the common share
purchase warrants of Genesis, after the Closing Date, InterUnion
shall pay to the Vendors eighty percent (80%) of the proceeds
realized from such sales, in excess of C$1.00 per share. This
condition shall not expire except by mutual agreement of all
parties to this Agreement.
e. In the event that NRC receives a bona fide offer from a third party to
purchase its common shares during the term of the Option and, if NRC
should desire to accept said offer, NRC shall immediately forward a
copy of the offer to InterUnion. InterUnion shall have a period of ten
calendar days from the receipt of the offer to counter the offer or
exercise the Option by giving notice, at its sole discretion, in
accordance with term c. If InterUnion fails to match the offer or
exercise the Option, NRC shall have the absolute right to accept the
offer from the third party and to declare the Option to be null and
void.
If this Letter of Understanding reflects your understanding of the terms of the
Agreement, please so indicate by signing and returning one copy of this Letter
of Understanding to the undersigned.
INTERUNION FINANCIAL CORPORATION
/s/ Georges Benarroch
- ----------------------------
Georges Benarroch
President and CEO
Agreed and accepted Agreed and accepted
this 26th day of September, 1996 this 26th day of September, 1996
By: /s/ P. Patterson By: /s/ Michael Woodli
- ------------------------ -------------------------------
RIF Capital, Inc. New Researches Corporation
Agreed and accepted
this 26th day of September, 1996
By: /s/ James Knott
----------------
St. Michael Trust Corp. As Trustee for
Central Investment Trust
Page E - 60 of E - 69
<PAGE> 1
EXHIBIT 10(vii)
January 7, 1997
Receptagen Ltd.
190 W Dayton
Suite 101
Edmonds, WA 980
Dear Sirs:
Re: Receptagen Ltd. ("Receptagen" or the "Company")
This letter, together with the attached schedules, is a follow-up to our letter
dated December 16, 1996 and will serve to summarize our discussions in Palm
Beach on December 30, 1996.
We would ask you to signify your agreement to the terms outlined in the
attached term sheet by signing the enclosed duplicate copy of this letter prior
to January 8, 1997 at 10:00 A.M. (Palm Beach time). Upon receipt of the
executed letter, we shall prepare the necessary News Release together with you.
We shall then instruct our respective legal counsel to prepare the appropriate
documentation and obtain the necessary approvals and/or exemptions from the
shareholders and the regulators.
Yours truly,
INTERUNION FINANCIAL CORPORATION
/s/ Georges Benarroch
- --------------------------
Georges Benarroch
President and C.E.O. Accepted
this 19th day of January 1997
Receptagen Ltd.
Per: /s/ Warren Wheeler
-----------------------------
Encls.: Schedules "A", "B", "C"
Page E - 61 of E - 69
<PAGE> 2
Schedule "A"
RECEPTAGEN LTD. ("Receptagen")
RECAPITALIZATION PLAN
PROPOSED RESTRUCTURING:
ROLLOVER OF DEBT: All trade creditors, excluding:
the University of Washington and the
National Research Council, the Biomedical
Research Centre (BRC) at the University of
B.C., and the Brooklyn Health Service
Center at the State University of New York,
agree to exchange debt of approximately
C$7,000,000 for InterUnion Financial
Corporation ("IUFC") shares. (Terms as
outlined below).
BRIDGE FINANCING: IUFC will guarantee a commitment from New
Researches Corp. ("NRC") to make available
to Receptagen up to C$300,000, starting
immediately upon completion of the due
diligence, but not later than January 25,
1997. The proceeds of the bridge financing
will be disbursed by IUFC upon instructions
from Receptagen. This credit facility will
be exchangeable for a convertible debenture
of Receptagen.
PRIVATE PLACEMENT: Receptagen to complete a Private Placement
of Special Warrants for aggregate proceeds
of up to C$2,500,000. (Terms as outlined
below)
BOARD OF DIRECTORS: As agreed by the Company and IUFC; IUFC will
have a minimum of one nominee on the Board
of directors.
DUE DILIGENCE: To commence immediately
EXPENSES AND
LEGAL FEES: To be paid by Receptagen
CLOSING DATE: February 14, 1997
ROLLOVER OF DEBT:
TRANSACTION #1:
AMOUNT: Approximately C$7,000,000
CONVERSION OF DEBT: Trade creditors will receive C$0.10 per
C$1.00 in IUFC Common Shares under
Regulation "S".
PRICE OF
COMMON SHARES: US$5.00 per IUFC Common Share
NUMBER OF
COMMON SHARES: Approximately 105,000 IUFC Common Shares
Page E - 62 of E - 69
<PAGE> 3
TRANSACTION #2:
ROLLOVER OF DEBT: IUFC will receive C$0.10 per C$1.00 of debt.
CONVERSION OF PRICE: Maximum discount allowed by the Toronto
Stock Exchange but not greater than C$0.07
per Common Share
NUMBER OF
COMMON SHARES: Approximately 9,300,000 Common Shares of
Receptagen together with the same number of
Common Share Purchase Warrants ("Units
'A'")
QUALIFICATION: All the Units 'A' will qualify under the
Prospectus to be filed with the Ontario
Securities Commission, as outlined in
Schedule "C".
ADVISOR: Credifinance Capital Inc.
ADVISOR'S FEE: 10% of the amount of the debt, payable by
Receptagen
CLOSING DATE: January 25, 1997
Page E - 63 of E - 69
<PAGE> 4
SCHEDULE "B"
RECEPTAGEN LTD.
BRIDGE FINANCING:
AMOUNT: Up to C$300,000 in the form of a revolving
credit facility, exchangeable into a
convertible debenture of Receptagen.
CONVERSION OF
THE LOAN: IUFC will convert the amount of funds
advanced to the Company into Receptagen
Common Shares together with the same number
of Common Share Purchase Warrants ("Units
'B'"). The exercise price of the Warrant
will be the same as the conversion price.
The Units "B" underlying the convertible
debenture will be qualified by way of
Prospectus.
CONVERSION PRICE: C$0.07 per Common Share
NUMBER OF
COMMON SHARES: Up to 4,285,000 Common Shares
NUMBER OF WARRANTS: Up to 4,285,000 Warrants
COMMENCEMENT DATE: Immediately upon finalizing due diligence,
but not later than January 25, 1997.
SECURITY: General Security Agreement on the assets of
the Company and Undertaking from the
Company and its subsidiaries in a form
acceptable to the Lender and its legal
counsel. The Security will specifically
include all rights to Receptagen's
intellectual property.
ADVISOR: Credifinance Capital Inc.
ADVISOR'S FEE: 10% of the amount of the line of credit,
in cash
Page E - 64 of E - 69
<PAGE> 5
SCHEDULE "C"
RECEPTAGEN LTD.
PRIVATE PLACEMENT OFFERING
ISSUER: Receptagen
OFFERING: Private Placement of o Special Warrants
AMOUNT: Up to C$2,500,000
OFFERING PRICE: - per special warrant The Offering
Price will be the closing market price of
the Common Shares of the Company on the
Toronto Stock Exchange for the business day
immediately prior to the Company's press
release announcing the warrant
restructuring less the maximum discount
allowed.
USE OF PROCEEDS: The proceeds will be used to fund research
and development. Pending use for these
purposes, the proceeds will be added to the
working capital of the Company.
TERMS OF
DISBURSEMENT: The offering is subject to the Company
converting its trade payables into Common
shares of IUFC. Funds will be disbursed to
the Company only if creditors of Receptagen
accept the terms of conversion of the
Company debt.
LISTING: The Common Shares of the Company are listed
on the Toronto Stock Exchange (symbol
"RCG")
JURISDICTION: Ontario and such other jurisdictions as
agreed to by the Company and the Agent.
MINIMUM Special Warrants
SUBSCRIPTION: ($- per purchaser)
SPECIAL WARRANTS: Each Special Warrant will be exercisable,
without payment of additional
consideration, for one Unit 'C', with each
Unit 'C' consisting of one Common share of
the Company and one transferable Share
Purchase Warrant exercisable into one
common share at C$o per common Share for
two years.
PROSPECTUS FILING: The Company and the Agent agree to prepare
and file a final prospectus (the
"Prospectus") for the Common Shares to be
issued upon the exercise of the Special
Warrants with the Ontario Securities
Commission and the Company agrees to use
its best efforts to obtain receipts
therefor on or before 5:00 P.M. (Toronto
time) on o, 1997 (the "Qualification
Date").
EXERCISE OF
SPECIAL WARRANTS: The purchaser will be entitled to exercise
the Special Warrants for Common Shares at
any time or prior to 5:00 p.m. (Toronto
time) on the earlier of (I) the sixth
business day following the date that a
receipt is
Page E - 65 of E - 69
<PAGE> 6
issued for the Prospectus by the Ontario
Securities Commission and (ii) o, 1997 (the
"Expiry Date"). Any Special Warrants not
exercised by the Expiry Date shall be
deemed to be exercised by the holder
thereof, without further action on the
holder's part immediately prior thereto.
PENALTY: If the Prospectus is not filed and receipts
issued therefor by the Ontario Securities
Commission on or before the Qualification
Date, each Special Warrant shall be
exercisable for 1.1 Common Share without
payment of additional consideration.
AGENT: Credifinance Securities Limited
AGENT'S COMPENSATION: 7.50% of the total gross proceeds realized
by the Company upon the sale of the Special
Warrants.
AGENT'S WARRANTS: Subject to entering into a standard agency
agreement (which will be subject to
standard industry outs), the Agent will
receive a two year non-transferrable
warrant to buy that number of Common Shares
of the Company that is equal to 10% of the
number of Common Shares forming part of the
Units issuable on exercise of the Special
Warrants sold pursuant to the Offering. The
exercise price of the Warrant shall be that
of Offering Price.
CLOSING DATE: February 14, 1997 or such other date as
agreed by the Company and the Agent.
Page E - 66 of E - 69
<PAGE> 1
EXHIBIT 16
March 4, 1997
Office of the Chief Accountant
United States Securities and Exchange Commission
450 Fifth Street, Northwest
Washington 20549
Gentlemen/Mesdames:
RE: INTERUNION FINANCIAL CORPORATION
- ------------------------------------
We were previously principal accountants and auditors for InterUnion Financial
Corporation and, under date of May 10, 1996, we reported on the consolidated
financial statements of InterUnion Financial Corporation and the subsidiaries
as of and for the years ended March 31, 1996 and 1995.
On March 4, 1997 InterUnion Financial Corporation retained Goldstein Golub
Kessler ("GGK"), a member of the Nexia International affiliation (as our firm
is) as principal certifying accountants.
We have read InterUnion Financial Corporation's statements included under item
4 of its Form 8-K dated March 4, 1997 and we agree with such statements.
Yours very truly,
/s/ Mintz & Partners
Page E - 67 of E - 69
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
OF
INTERUNION FINANCIAL CORPORATION
Name of Subsidiary Jurisdiction of Incorporation
- ------------------------------ -----------------------------------------
Guardian Timing Services Inc. Ontario, Canada
Bearhill Limited British Virgin Islands
I & B Inc. State of Delaware
Credifinance Securities Ltd. Ontario, Canada
Credifinance Capital Inc. Ontario, Canada
Reeve, Mackay & Associates, Ltd. Ontario, Canada
NOTE: All subsidiaries do business under their official names.
Page E - 68 of E - 69
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERUNION
FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH
31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 349,738
<SECURITIES> 29,457,965
<RECEIVABLES> 226,663
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,342,097
<PP&E> 2,100,010
<DEPRECIATION> 490,105
<TOTAL-ASSETS> 38,820,507
<CURRENT-LIABILITIES> 34,591,208
<BONDS> 0
0
150,000
<COMMON> 970
<OTHER-SE> 4,078,329
<TOTAL-LIABILITY-AND-EQUITY> 38,820,507
<SALES> 0
<TOTAL-REVENUES> 5,732,586
<CGS> 0
<TOTAL-COSTS> 5,214,477
<OTHER-EXPENSES> 266,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,631
<INCOME-PRETAX> 248,761
<INCOME-TAX> 88,085
<INCOME-CONTINUING> 160,676
<DISCONTINUED> (160,829)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230,153)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
