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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-SB/A
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
INTERUNION FINANCIAL CORPORATION
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Delaware 87-0520294
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(State of Other jurisdictions of Incorporation of Organization) (I.R.S. Employer
Identification No.)
249 Royal Palm Way, Suite 301 H, Palm Beach, FL 33480
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(Address of Principal Executive Offices) (Zip Code)
(561) 820-0084
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(Issuer's Telephone Number)
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Securities to be registered under Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
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(Title of Class)
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(Title of Class)
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INTERUNION FINANCIAL CORPORATION
FORM 10-SB/A
TABLE OF CONTENTS
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PART I. PAGE
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Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 8. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART II.
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 2. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 3. Changes in and Disagreements with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 4. Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 5. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART F/S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PART III.
Item 1. Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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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 cancelled 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 similiar 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-5.
Further on February 15, 1994, a Plan and Agreement of Merger of AU 'N
AG, 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-7 and E-12.
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. This
change of name was filed by the office of the Secretary of State of Delaware n
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 1934, on July 27,
1994 IFC was
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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, INC., a British Virgin Islands corporation, for the issuance of
444,000 shares of common stock. 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 112,112 shares of common
stock.
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, LTD., 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 1,500,000
shares of common stock. The Company further acquired the remaining outstanding
stock of ROSEDALE REALTY CORPORATION for the issuance of 24,600 shares of
common stock. 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
the Rosedale real estate operations. The bankruptcy was concluded and there
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are no outstanding lawsuits against either Credifinance Capital, Inc. or the
parent, InterUnion Financial Corporation. (See Note 13 of InterUnion Financial
Corporation Notes to Consolidated Financial Statements, March 31, 1996 and
1995, Part F/S).
At a special meeting of the shareholders held 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 LIMITED 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.
The corporation is a wholly-owned subsidiary of the Company.
(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 located in the United States and Canada. 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, acting through its
subsidiaries, 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.
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PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as
the parent, the Company owns five operating subsidiary corporations. A
description of the business operations of these subsidiary corporations is as
follows:
(1) CREDIFINANCE SECURITIES, LTD.
Credifinance Securities, Ltd. ("Credifinance") is an investment bank
with office 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 30 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 Securities was started in 1990, 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 Securities acts strictly as an agent, and
does not take positions against its clients.
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
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Credifinance's corporate finance activities consist primarily of
underwritings for small and medium-size, technology-intensive companies.
Between 1993 and 1995, Credifinance has been 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 has been involved in two
special transactions of C$10 and C$15 million.
In the first quarter of 1996, Credifinance has financed, through
private placements of special warrants, the following companies:
- Getty Cooper (C$5.9 million) - copper mining in British
Columbia;
- Etruscan Enterprises (C$7.0 million) - gold mining in Niger,
West Africa;
- Novadx International (C$1.8 million) - biotechnology company
commercializing in vitro tests for arthritis, osteoporosis and
other chronic diseases;
- Nortran Pharmaceuticals (C$2.0 million) - pharmaceutical
company focusing on research and commercial development of
targeted small molecule drugs; and
- Imutec (C$2.8 million) - biotechnology company engaged in the
development of immunotherapeutic products.
In additional, Mariposa Steamship Company and Mancan Gold Limited have
engaged in Credifinance as their fiscal agent to take them public in 1996.
(2) GUARDIAN TIMING SERVICES, INC.
Guardian Timing Services, Inc. ("Guardian") is an investment
management firm located in Toronto, Canada, currently having approximately C$90
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.
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(4) BEARHILL LIMITED, INC.
Bearhill Limited, Inc. ("Bearhill") is an investment management firm
located in Toronto, Canada. Bearhill now manages the Rexmore Fund which
invests primarily in U.S. equity mutual funds and offers management services in
the international market place.
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, page E-35, 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 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.
On November 30, 1995 a Letter of Understanding was issued between the
Bank of _________ (the name of the Bank has been omitted and filed separately
with the Securities & Exchange Commission pursuant to Rule 24b-2) and Guardian
Timing Services, Inc., InterUnion Financial Corporation, Havensight Holdings
Corp. and Bearhill Limited, Inc. Under this letter agreement, Bearhill Limited
granted to the bank an irrevocable option to acquire the ITM software owned by
Bearhill. If the bank exercises the option it is to acquire 100% of the class
B shares of Bearhill, which such shares represent 30% of equity of Bearhill for
$750,000 and shall enter into an agreement to acquire the ITM for $30 million,
under certain specific terms and conditions. The option is renewable for a
3-year indefinite term at the discretion of the bank, subject to the payment by
the bank of an annual option fee commencing January 1, 1996. The Letter of
Understanding is included as Exhibit 10, commencing at Page E-53.
(5) REEVE, MACKAY & ASSOCIATES LIMITED
Reeve, Mackay & Associates Limited ("Reeve, Mackay") commenced
business operations in July, 1995 as a Canadian auction house. Reeve, Mackay
held auctions in 1995 on a monthly basis, which has increased, due to its
successful sales, to two monthly with a continuing goal of holding four
auctions monthly. In the first nine months of operation, Reeve, Mackay
generated revenues of C$1.6 million.
As a result of its sales and a considerable amount of media attention
in the form of numerous unsolicited articles in the major Canadian press,
Reeve, Mackay has reached an agreement with two of the largest international
auction houses (Christie's and Phillips) whereby these companies have agreed to
recommend it as the Canadian auctioneers for the portion of the Canadian estates
that they will not sell in New York or London.
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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,
Ltd. 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 personnel staff.
Guardian Timing Services, Inc. and Bearhill Limited, Inc. both operate as
managers of funds. A decline in their investment performance could cause the
loss of these essential accounts. And 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.
Finally, the auction company of Reeve, Mackay & Associates Limited must
directly compete for accounts with larger internationally recognized companies
such as Christie's and Phillips. There is certainly no assurance that Reeve,
Mackay can continue to attract substantial accounts for auction.
GROWTH STRATEGY
The growth strategy consists of two complimentary components:
. Investing in the existing portfolio of financial services
companies; and acquiring, when the appropriate opportunities
arise, major positions in well-managed banks, thrifts,
brokerage houses, investment banks and other financial
services companies (e.g. leasing, insurance) positioned in
niche markets in key international money centers; and
. Expansion of bridge financing and investment banking
activities.
Entry into the U.S. market is the next step in the Company's long-term
strategy to take major positions in investment banks, brokerage houses,
insurance companies, and other financial services companies around the world.
The Company is positioning itself to take advantage of opportunities. There is
no pressure to make an acquisition at any time or at any cost.
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But 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
Securities 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.
Bearhill will launch a new fund in 1996 and Guardian will continue to
expand the assets under its management by actively engaging in marketing for
the first time in its history. A new fund may be established for U.S.
investors.
A retail brokerage operation may be established in Canada to take
advantage of the client lists provided by Reeve, Mackay and the investment
products created by Guardian. InterUnion Financial Corporation also may create
an investment banking presence in the United States by expanding Credifinance
into this market and/or by following up on negotiations with individuals who
are part of the Company's international network. Credifinance may expand into
the United States in order to provide better service for Canadian corporations
which increasingly are being listed on NASDAQ. On the other hand, if the
latter partnership is created, this new division will provide research on
markets and industries in the European Union and emerging markets in Europe and
Asia, and trading services for U.S. clients in European and emerging markets
equities and fixed income. This unit also will develop, over time, a corporate
finance capability that will match European investment opportunities with U.S.
investors.
A high priority has been assigned to acquiring hard assets, in the
form of a bank, savings and loan company or insurance company, in order to add
stability to revenues, provide access to new sources of capital and open new
distribution channels. Moreover, these types of financial institutions will
permit IFC to offer the companies, which it will advise and assist, a complete
range of loan options. In addition, IFC will continue to search for and invest
in financial services companies with talented partners and employees,
predictable cash flows, low break evens and low marginal costs that are
complementary with the Company's existing divisions. The Company will pay for
the current cash flow with stock equity and share the incremental increase in
cash flow with the owners/managers of the companies.
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GOVERNMENT REGULATION
The operating activities of InterUnion Financial Corporation are not
subject to governmental regulatory agencies. Likewise, the Canadian investment
management companies of Guardian Timing Services and Bearhill Limited are not
subject to direct government regulation in Canada.
Credifinance Securities, Ltd. is a member of the Investment Dealers
Association of Canada, the Toronto Stock Exchange, Montreal Exchange and the
International Securities Market Association. As such, it is subject to the
rules, regulations, and administrative rulings of these entities. However,
these regulatory entities are not considered as having any adverse impact on
the ability of Credifinance to conduct its underwriting activities.
The auction firm of Reeve, Mackay is not subject to government
regulation under Canadian law.
InterUnion Financial Corporation considers itself 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 centum 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:
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InterUnion Financial Corporation ............................................................... 3
Credifinance Securities, Ltd. .................................................................. 30
Bearhill Limited ............................................................................... 1
Guardian Timing Services ....................................................................... 2
Reeve, Mackay & Associates Limited ............................................................. 14
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Total Employees ....................................................................... 50
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
During the third quarter of fiscal 1997, InterUnion reported
consolidated revenue of US $2.5 million. Revenue, net cost of goods sold by
Reeve, Mackay, the auction subsidiary, has increased 26.3% to 1,291,925. The
increase is due to the high season in the auction business, otherwise revenue
would have been unchanged, as Reeve, Mackay is the Company's only subsidiary
that has seasonal swings in revenues.
InterUnion's revenue growth and financial overview (figures in 000's
except per share data):
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FY 97Q3 FY 97Q2 FY97Q1 FY 1996 FY 1995
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Commission Income . 1,144 936 1,364 4,500 3,871
Sales .............. 1,256 194 516
Fee Revenue ........ 149 87 230 1,365 57
Total Revenues ..... 2,549 1,217 2,110 5,865 4,028
Cost of goods sold . 1,256 194 516
Net Revenues (I) ... 1,293 1,023 1,594 5,865 4,028
Net Profit (Loss) .. (277) (76) 6 302 (134)
EPS - Operations ... (0.43) (0.09) 0.01 0.03 0.24
EPS ................ (0.43) (0.09) 0.01 0.60 (0.85)
Common Share, # .... 969,714 969,714 692,572 692,572 369,058
Working Capital .... 1,023 1,143 653 1,073 776
Cash Flow .......... (1.00) 94 86 204 75
Shareholders' Equity 4,496 4,773 4,146 4,140 3,629
Book Value Per Share 4.64 4.92 5.99 5.98 9.83
</TABLE>
(I) This amount is equal to Total Revenues under U.S. GAAP, except for fiscal
year 1996 where Total Revenues under U.S. GAAP would have recorded as US
$6,169,578.
The additional revenues from Reeve, Mackay & Associates ltd. operations
were offset by higher than normal expenditures related to the fall auctions. For
the nine months ending December 31, 1996, Reeve, Mackay lost
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in excess of US $300,000 before any tax loss benefits are recorded. The
Company's other subsidiaries have performed within the anticipated budget during
the first nine months of the current fiscal year and provided a combined net
income of US $40,400. Management does not expect any major variance during the
fourth quarter.
Net loss for the nine months ending During 31, 1996 was US $346,680 (US
$276,602 for the quarter versus US $76,104 for the second quarter).
Acquisition costs and deferred charges, some of which were previously
capitalized, have been charged to operating income in the third quarter. The
charges are in excess of US $200,000. These expenditures have all taken place in
the second and third quarter of the current fiscal year under the Company's
acquisition program. Exclusive of these costs and Reeve, Mackay's loss, the
Company would have had a nine-month pre-tax operating profit of US $160,000.
LIQUIDITY
In order to meet its growth plans, the Company issued a Confidential
Private Offering Memorandum under Regulation "S" dated September 1,1 996. This
Offering Memorandum offered for sale a maximum of 250,000 units of the company
at a price of $5.00 per unit. Each unit consists of one share common voting
stock and one warrant to purchase one share of common voting stock at $6.00 per
share, with an expiration date on the warrant of September 15, 1997. The total
offering seeks to raise $2,000,000, with anticipated net proceeds after
commissions and offering costs to be $1,775,000.
InterUnion has raised $759,710 of the $2,000,000 during the second
quarter and has a commitment for the balance of the offering. The company has
not raised any additional funds in the third quarter and does not plan to raise
any in the fourth quarter unless required to do so in order to complete an
acquisition.
CREDIFINANCE SECURITIES LIMITED
During the first quarter, a number of individuals of the institutional
desk left the Company to join a newly created firm by Credifinance's previous
President. Through the second quarter and part of the third the Company
continued the restructuring of Credifinance Securities Limited's institutional
sales desk and has taken advantage of market conditions to focus more
13
<PAGE> 14
active on underwriting activities in sectors in which Credifinance has expertise
in: Biotechnology, Communication, High Technology, Mining and Oil and Gas; in
addition to servicing institutional clients' trading needs.
The broker/dealer has taken advantage of its capacity to complete
financings in its niche business but has been affected by the general lack of
daily institutional trading activity. This lack of trading activity is a
phenomenon affecting all small and medium broker/dealers which restrict
themselves to agency business as opposed to taking principal trading risks. In
fact, the departure of a number of institutional sales people has benefitted
Credifinance Securities Limited since it has enabled management to restrategize
within the context of the market and ensure that a larger percentage of the
revenue is retained by the firm. Management has been positioning the
broker/dealer in a mode which would enable the firm to operate at least at break
even in the case of a "bear" market.
GUARDIAN TIMING SERVICES INC. AND BEARHILL LIMITED
The company's money management operations continue to perform as
anticipated. It should be noted that the carrying value of the ITM software need
not be adjusted as per FASB 121, "Accounting for the impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of." This is due to the fact
that the carrying value is substantiated by the management fees which Guardian
Timing Services receives. These fees would not be earned if it did not have the
use of the ITM software.
REEVE, MACKAY & ASSOCIATES LTD.
Reeve, Mackay has been in operation for approximately 18 months and
InterUnion did not expect its operation to be profitable prior to its third
year. Since inception, Reeve Mackay has posted a loss of approximately US
$750,000, of which US $438,000 was during the first year of operation. For the
nine months ending December 31, 1997, Reeve Mackay lost over US $300,000 versus
an anticipated loss of approximately US $145,000. During that period, Reeve,
Mackay has broken even in three separate months.
Sales of goods have been according to schedule, however, the costs'
components have not. The Company was adversely affected due to negotiated
commissions on two major collections. The cost of reducing the commission
charged to the consignors was required in order to be awarded the mandate. The
success of the auctions that presented these collections to the public was
instrumental to the Company's objective to gain industry
14
<PAGE> 15
approval as a viable alternative to the competition. Additional costs over-run
was due to the larger than expected number of items in each of the fall auctions
which drastically increased the cost of cataloguing and processing. In addition,
marketing and advertising expenditures ran over budget.
The continuous operating problem has caused the company to have a
substantial working capital deficit of over US $325,000. The Company has managed
to date to finance this deficit by leveraging its reputation and deferring the
payment on the goods sold on behalf of its consignors and delaying suppliers. To
date certain consignors have requested to have their goods returned, however,
Reeve, Mackay has been able to replace these consigned goods as the number of
active consignors continue to grow. This is demonstrated by the fact that Reeve,
Mackay has more collectors' auctions than any other competing auctioneer in
Toronto.
To date, suppliers have not refused to provide services. However,
should suppliers and particularly consignors as a group start to withdraw their
goods the company's auction subsidiary's ability to operate would be in jeopardy
unless the Company agrees to inject the additional cash as required. Currently,
Reeve, Mackay's liabilities have not been guaranteed by any other subsidiary
within the group nor by InterUnion, itself.
The auction house management team is currently investigating various
strategies to reverse the current trend on the bottom line and the working
capital deficit. Should no formal plan be adopted during the fourth quarter, the
Company will write down the full amount that it is carrying as start-up costs in
the amount of U.S. 372,980 under Canadian GAAP. Under U.S. GAAP this amount has
already been eliminated from the balance sheet, however, a taxable benefit of US
$200,000 has been recorded and therefore would have to be written off.
ACQUISITION PROGRAM AND NEW RESEARCHES CORPORATION
During the third quarter, the Company acquired an option to purchase
100% of the outstanding shares of New Researches Corporation. New Researches is
a high technology/biotechnology venture capital firm. InterUnion's management
continues to explore opportunities for the acquisition of operating companies
that will provide additional liquidity and cash flow. Such acquisitions would be
financed by the issuance of common stock or, if required, by means of private
placement. Although Management has investigated a number of opportunities, only
the acquisition of the option on New Researches met the Company's objectives.
The company is
15
<PAGE> 16
also considering special situations acquisitions linked to bridge financing
activities.
The Company is exploring various means of sharing the client base of
the three main subsidiaries in order to generate revenue and increase the
synergy between the operations.
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 has 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 RISK FACTORS WHICH MAY IMPACT FUTURE OPERATIONS
The Company and its subsidiaries operate in a rapidly changing
environment that involves a number of factors, some of which are beyond
management's control, such as a continued bull market and investors/ companies
appetite for new financings.
Forward-looking statements included in Management's Analysis and
Discussion reflect management's best judgment based on known factors and involve
risks and uncertainties. Actual results could differ material from those
anticipated in these forward-looking statements. Forward-looking information is
provided by InterUnion pursuant to the safe harbor established by recent
securities legislation and should be evaluated in the context of these factors.
In the opinion of management the financial statements for the periods
ending December 31,1996 accurately reflect the operations of the Company and its
subsidiaries. The Company has taken every reasonable step to ensure that its
quarterly financial statements do not represent a distorted picture to anyone
having a business reason to review such statements and who has also reviewed its
previous audited annual financial statements dated January 28, 1997.
16
<PAGE> 17
ITEM 3. 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 (S. Ft.) Term (Per S. Ft.)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Credifinance Securities, Ltd.
Suite 3303
130 Adelaide Street W 3,310 Feb. 92-Jan. 97 $16.00
Toronto, Ontario Feb. 97-Jan. 02 $22.00
Credifinance Securities, Ltd.
Suite 3304
130 Adelaide Street W 927 Feb. 93-Jan. 97 $12.00
Toronto, Ontario Jul. 97-Jan. 02 $15.00
Credifinance Securities, Ltd.
Suite 1580
1501 McGill College Ave.
Montreal, Quebec 1,386 Jun. 92-Jan. 98 $16.00
Reeve, MacKay &
Associates, Ltd.
Suite 400
163 Queen St. E
Toronto, Ontario 3,375 Jul. 96-Jun. 97 $ 5.00
Reeve, MacKay &
Associates, Ltd.
Suite 102
163 Queen St. E
Toronto, Ontario 2,053 Jul. 96-Jun. 97 $ 3.00
InterUnion Financial Corp.
Suite 301
249 Royal Palm Way
Palm Beach, Florida 1,000 Mar. 96-Feb. 97 US$365 per month
</TABLE>
17
<PAGE> 18
ITEM 4. 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) 354,121 51.13%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Capital Securities & Credit Corp. 52,144 7.53%
114 Belmont Street
Toronto, Ontario, Canada M5R 1P8
Common Finance Research Development 50,500 7.29%
(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 7.23%
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.
(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 Franciera
Hispano-Suiza, SA is Mrs. N. Balloul, 21 rue Curial, 75019.
(5) Mrs. S. Benarroch is the mother of Georges Benarroch. The
354,121 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.
18
<PAGE> 19
(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 354,121 51.13%
Suite 3303 Trustee (voting
130 Adelaide Street power) of Central
Toronto, Ontario Investment Trust
Canada, M5H 3P5
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 354,121 51.13%
Executive Officers
as a group
(1 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.
19
<PAGE> 20
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name, Municipality
of Residence Age Length of Service
- ----------------------------------------------------------------------------
<S> <C> <C>
Georges Benarroch 49 Appointed as President and
Toronto, Ontario Chairman of the Board,
Canada March 21, 1994
T. Jack Gary, III 55 Appointed as Secretary
West Palm Beach, Florida January 30, 1995
Ann Glover 46 Appointed to Board
Toronto, Ontario of Directors
Canada February 17, 1995
Jacques Meyer de Stadelhofen 48 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
Karen Lynn Bolens 49 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
</TABLE>
GEORGES BENARROCH is the President, Chief Executive Officer and Chief
Financial Officer of the Company. He is also the President, Chief Executive
Officer, and Chairman of the Board of Credifinance Securities, Ltd.,
Credifinance Capital, Inc. and 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
20
<PAGE> 21
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. Between 1988 and 1990, he was one of the
largest foreign traders of Austrian and Eastern European securities. One of
his holding companies, which indirectly is the largest current shareholder of
InterUnion, owns or has owned substantial equity interest in financial
companies in North America, mining companies in California and
technology-oriented, venture capital firms.
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, and Chief Operating Officer 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 STADELHOFFEN 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. Ms. Stadelhoffen's duties for
InterUnion will be limited to her 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.
(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
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. A director shall hold office
until his successor is selected and qualified.
21
<PAGE> 22
ITEM 6. 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,
President 1996 None None None None None
& CEO 1997 None None $50,000* None 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 directors for the fiscal year ending March 31,
1997. No payments to Directors have been made as of the date of this
registration statement.
As of the date of this registration statement, the Company has no
options, warrants, SARs, long-term incentive plans, pension or profit-sharing
plans, insurance plans, medical reimbursement plans, or other compensation
plans in any form, direct or indirect, 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.
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.
It should be noted that, other than the $50,000 paid in cash to
Georges Benarroch for the 1996 fiscal year, no compensation was set or paid by
the directors for fiscal 1996. Further, no annual compensation for directors
has been set by the Board for fiscal 1997.
22
<PAGE> 23
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 8. DESCRIPTION OF SECURITIES
(A) COMMON STOCK
The Company is authorized to issue 100,000,000 (One Hundred Million)
shares of common voting stock, each share having one vote, at $.001 par value.
There are no fixed rights to dividends on the common stock. Dividends
may be paid as authorized by the Board of Directors in cash, in property, or in
shares of capital stock.
Section 102 of the General Corporation Law of Delaware provides that
no stockholder shall have any preemptive right to subscribe to an additional
issue of stock or to any security convertible into stock unless, and except to
the extent that, such right is expressly granted to him in the certificate of
incorporation. The Certificate of Incorporation of InterUnion Financial
Corporation contains no provision for preemptive rights.
The General Corporation Law of Delaware, in Section 214, allows for
cumulative voting if so provided in the certificate of incorporation of the
Company. The Certificate of Incorporation for InterUnion Financial Corporation
contains no provisions for cumulative voting rights.
(B) PREFERRED STOCK
(1) CLASS A PREFERRED STOCK
The Company 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 is voting stock, each share having 100
votes.
In any given fiscal year in which the directors shall declare a
dividend, the holder(s) of Class A preferred stock shall be entitled to a fixed
yearly dividend in the percentage amount, which such amount shall be fixed and
declared by the directors 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 shall receive payment before any dividend shall be paid or set
apart on the common stock. The dividends in respect to the Class A preferred
stock shall be non-cumulative and shall be non-participating. These shares
carry no terms of repayment and have no terms of conversion.
23
<PAGE> 24
In the event of dissolution of the Company, the holder(s) of Class A
preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is to be paid to the holders of common stock or the
holders of Class B and C preferred stock.
(2) CLASS B PREFERRED STOCK
The Company is authorized to issue 50,000,000 (Fifty Million) shares
of Class B preferred stock. The par value of this stock and the yearly
dividend in a percentage amount to which the holder(s) of this stock shall be
entitled, shall be determined by the directors at the time of first issuance of
any such shares. In any given year in which the directors shall declare a
dividend, the holder(s) of the Class B preferred stock shall receive payment
before any dividend shall be set apart or paid on the common stock.
The Class B preferred stock is non-voting, non-cumulative and
non-participating. These shares carry no terms of repayment and have no terms
of conversion.
In the event of dissolution of the Company, the holder(s) of the Class
B preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is to be paid to the holders of common stock or the
holders of Class C preferred stock.
(3) CLASS C PREFERRED STOCK
The Company is authorized to issue 50,000,000 (Fifty Million) shares
of Class C preferred stock. The par value of this stock and the yearly
dividend in a percentage amount to which the holder(s) of this stock shall be
entitled, shall be determined by the directors at the time of first issuance of
any such shares. In any given year in which the directors shall declare a
dividend, the holder(s) of the Class C preferred stock shall receive payment
before any dividend shall be set apart or paid on the common stock.
The Class C preferred stock is non-voting, non-cumulative and
non-participating. These shares carry no terms of repayment.
The Class C preferred stock is 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
24
<PAGE> 25
shall be issued, the Company 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 event of dissolution of the Company, the holder(s) of the Class
C preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is paid to the holders of common stock.
25
<PAGE> 26
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the OTC Bulletin Board under
the symbol: IUFC.
The high and low sale prices for each quarter within the last two
fiscal years and the first quarter of fiscal year 1997 are listed below. Only
two quarters are shown for fiscal year 1995 because the stock was not cleared
by the NASD for trading until July 27, 1994.
================================================================================
<TABLE>
<CAPTION>
Open High Low Close
------ ------ ----- -----
<S> <C> <C> <C> <C>
FY 95 Qtr 3 $52.50 $100.00 $52.50 $80.00
FY 95 Qtr 4 $80.00 $102.50 $77.50 $80.00
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
</TABLE>
================================================================================
(b) HOLDERS
The approximate number of holders of record of each class of common
equity is as follows:
26
<PAGE> 27
================================================================================
<TABLE>
<CAPTION>
CLASS OF STOCK NUMBER OF HOLDERS
<S> <C>
Common 383
Class A Preferred 1
Class B Preferred 0
Class C Preferred 0
</TABLE>
================================================================================
(c) DIVIDENDS
The company has never declared or paid dividends on its common stock
or its preferred stock. 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.
ITEM 2. LEGAL PROCEEDINGS
A Statement of Claim was filed in Ontario Court (General Division) on
May 31, 1996 against Credifinance Securities, Ltd., InterUnion Financial
Corporation, and Georges Benarroch and Ann Glover, as Directors of those
defendants. The claim was filed by John Illedge, a former President and Chief
Operating Officer of Credifinance.
The plaintiff is seeking $1,500,000 for loss of remuneration, $697,000
for unpaid wages, severance pay in the amount of $110,000 vacation pay of
$150,000, $50,000 in punitive damages, and interest and costs. It is the
contention of the plaintiff that he was constructively discharged on March 25,
1996, without notice, and that at the time of his discharge he was entitled to
the amounts claimed and that he has not been paid for such items.
It is the position of the defendants that Mr. Illedge resigned from
Credifinance Securities for the purpose of commencing a new business
relationship, that there was no constructive dismissal, and there are no monies
owing to him for past wages or otherwise as claimed. Further, Mr. Illedge is
under investigation by the Investment Dealers Association of Canada as a result
of client complaints and other regulator matters where infractions may have
occurred. It is the opinion of the defendants and its counsel that the suit
filed by Mr. Illedge has no merit in fact. As of this date the lawsuit was not
progressed due to technical deficiencies in the Statement of Claim. When
appropriate, counsel for the defendants has indicated that it will file a
motion to strike the lawsuit for lack of merit.
The Investment Dealers Association of Canada, which is the
self-regulatory body regulating all broker/dealers in Canada did not require
InterUnion Financial Corporation or its subsidiary, Credifinance Securities
Limited, to provide contingent liability for Mr. Illedge's claims nor
disclosure of the details. The Company will not incur liability if the
Association determines that the complaints against Mr. Illedge are valid.
The likelihood of a material effect on the results of operations or
liquidity of the Company, or its subsidiaries as a result of the pending
litigation is remote.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) 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:
27
<PAGE> 28
===============================================================================
<TABLE>
<CAPTION>
Title of Class Number Shares Price per Share Consideration Date of Sale
- -------------- ------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C>
Common 16,980,000 .00145 cents/share $ 24,621 April 1, 1994
Common 1,750,000 2 cents/share $ 35,000 April 22, 1994
Common 1,000,000 2 cents/share $ 20,000 May 16, 1994
Common 1,250,000 2 cents/share $ 25,000 July 26, 1994
Common 1,000,000 1 cent/share $ 10,000 July 26, 1994
Common 3,702,200 1 cent/share $ 37,022 Aug. 4, 1994
Common 5,000,000 1 cent/share $ 50,000 Aug. 17, 1994
Common 1,000,000 5 cents/share $ 50,000 Oct. 5, 1994
Common 1,500,000 20 cents/share $300,000 Mar. 23, 1994
Common 1,250,000 10 cents/share $125,000 June 5, 1995
Common 3,200,000 10 cents/share $320,000 Mar. 12, 1996
</TABLE>
===============================================================================
NOTES TO SALES PURSUANT TO REGULATION D
(1) All sales of securities are shown based upon the shares at the
date of sale and do not reflect subsequent reverse stock splits
as approved by the shareholders.
(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.
28
<PAGE> 29
(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 Date of Sale
- -------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Common 2,000,000 .10 cents/share $200,000 Oct. 16, 1995
Title of Class Number Shares Price per Share Consideration Date of Sale
- -------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Class A
Preferred 1,500,000 .10 cents/share $150,000 Dec. 21, 1994
</TABLE>
================================================================================
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales of securities are shown based upon the shares at the
date of sale and do not reflect subsequent reverse stock splits
as approved by the shareholders.
29
<PAGE> 30
(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 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).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14 of the By-laws of the Company provides for Indemnification
to directors and officers. This section is as follows:
"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 and expenses 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 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
30
<PAGE> 31
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 liable by reason of
his having been derelict in the performance of his duty as such
director of 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 of 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
of 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."
This provision of the By-laws specifically does not provide any
measure of indemnification under circumstances whereby the director or officer
is adjudged to be derelict in the performance of his duty as an officer or
director. There would be no indemnification of an officer or director for
liabilities arising under the federal securities laws. It should be added, as
a note of explanation, that the term "derelict" as used in Section 14 is
synonymous with the term "negligent".
PART F/S
FINANCIAL STATEMENTS
The following audited consolidated financial statements for InterUnion
Financial Corporation, covering fiscal years ending March 31, 1995 and March
31, 1996 are submitted in compliance with the requirements of Item 310 of
Regulation S-B. In addition, unaudited financial statements for the period
ending June 30, 1996 are included.
31
<PAGE> 32
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Table
Number Exhibit Page No.
- ----------- ------- --------
(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-5
(2)(iii) Plan and Agreement of Merger E-7
(2)(iv) Certificate of Merger, dated February 15, 1994 E-12
(3)(i) Certificate of Incorporation of AU 'N AG,
INC. Dated February 15, 1994 E-14
(3)(ii) Certificate of Amendment of Certificate of
Incorporation of AU 'N AG, INC. Dated April
11, 1994 E-15
(3)(iii) Certificate of Amendment of Certificate of
Incorporation of InterUnion Financial
Corporation dated October 17, 1994 E-16
(3)(iv) Bylaws of InterUnion Financial Corporation E-18
(4) Instruments Defining the Rights of Security
Holders Including Indentures E-28
(10)(i) ITM Software Development Agreement E-35
(10)(ii) Letter of Understanding E-53
(21) Subsidiaries of InterUnion E-58
</TABLE>
32
<PAGE> 33
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this first amendment to this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERUNION FINANCIAL CORPORATION
(Registrant)
Date: February 13, 1997 By: /s/ Georges Benarroch
------------------------ -----------------------------------
Georges Benarroch
President, Chief Executive Officer
Chairman, Board of Directors
In accordance with the requirements of the Securities Exchange Act
of 1934, this Registration Statement has been signed below by the following
persons in their capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Georges Benarroch President, Chief Executive February 13, 1997
- -------------------------------- Officer, Chairman, Board of -----------------
Georges Benarroch Directors
/s/ Georges Benarroch Chief Financial Officer February 13, 1997
- -------------------------------- -----------------
Georges Benarroch
/s/ Jacques Meyer de Stadelhofen Director February 13, 1997
- -------------------------------- -----------------
Jacques Meyer de Stadelhofen
/s/ Ann Glover Director February 13, 1997
- -------------------------------- -----------------
Ann Glover
</TABLE>
33
<PAGE> 34
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
F-1
<PAGE> 35
INTERUNION FINANCIAL CORPORATION
MARCH 31, 1996 AND 1995
CONTENTS
PAGE
Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Retained Earnings 3
Consolidated Statement of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5
F-2
<PAGE> 36
AUDITORS' REPORT
To The Directors,
InterUnion Financial Corporation
We have audited the consolidated balance sheet of InterUnion Financial
Corporation as at March 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings and changes in financial position for the years
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 our audits to obtain reasonable
assurance whether the financial statements are free of material misstatement.
Audits include examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Audits also include assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 1996
and 1995 and the results of operations and changes in financial position for the
years then ended in accordance with generally accepted accounting principles.
/s/ MINTZ & PARTNERS
Toronto, Ontario.
May 10, 1996. CHARTERED ACCOUNTANTS
(except as to Notes 2(b), 3, 5 and 19 which
are as of January 28, 1997)
F-3
<PAGE> 37
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
AS AT MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
A S S E T S
CURRENT ASSETS
<S> <C> <C>
Cash $ 722,795 $ 490,681
Due from brokers and dealers (Note 2(c)) 1,168,190 172,944
Client deposits (Note 2(c)) 2,093,966 21,147,890
Marketable securities (Notes 2(b) and 3) 2,625,585 15,682,071
Accounts receivable 208,727 55,262
Income tax receivable 1,597 15,866
Prepaid expenses and sundry assets 75,906 31,615
-------------- --------------
6,896,766 37,596,329
-------------- --------------
OTHER ASSETS
Capital assets (Note 4) 948,892 933,380
Start-up costs 438,803 --
Long-term investments 913,834 900,361
Reorganization costs 184,944 234,574
Goodwill (Note 8) 1,086,461 1,143,982
Assets of discontinued operations (Note 15) -- 240,693
-------------- --------------
3,572,934 3,452,990
-------------- --------------
$ 10,469,700 $ 41,049,319
============== ==============
</TABLE>
APPROVED ON BEHALF OF THE BOARD:
___________________________ Director __________________________ Director
- --------------------------------------------------------------------------------
See Accompanying Notes
F-4
<PAGE> 38
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
AS AT MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
L I A B I L I T I E S
CURRENT LIABILITIES
<S> <C> <C> <C>
Due to brokers and dealers (Note 2(c)) $ 2,499,665 $ 30,168,593
Due to clients (Note 2(c)) 3,035,310 6,368,681
Accounts payable and accrued liabilities 675,623 283,459
-------------- --------------
6,210,598 36,820,733
LOANS PAYABLE (Note 6) 119,462 100,873
LIABILITIES OF DISCONTINUED OPERATIONS -- 499,377
-------------- --------------
6,330,060 37,420,983
-------------- --------------
S H A R E H O L D E R S' E Q U I T Y
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL 3,972,512 3,762,774
RETAINED EARNINGS (DEFICIT) 167,128 (134,438)
-------------- --------------
4,139,640 3,628,336
-------------- --------------
$ 10,469,700 $ 41,049,319
============== ==============
</TABLE>
- -------------------------------------------------------------------------------
See Accompanying Notes
F-5
<PAGE> 39
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES
<S> <C> <C>
Commissions, trading and investment income $ 4,500,899 $ 3,971,160
Fee revenue 1,356,297 56,907
-------------- --------------
5,857,196 4,028,067
-------------- --------------
EXPENSES
Selling, marketing and research 4,207,289 2,868,886
Salaries and benefits 759,361 291,687
General and administration 702,938 796,673
Other 13,132 --
Gain on foreign exchange (20,902) (247)
Interest, bank charges and interest income, net (37,337) 5,830
Amortization 218,084 24,272
-------------- --------------
5,842,565 3,987,101
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 14,631 40,966
LOSS FROM DISCONTINUED OPERATIONS (94,252) (184,845)
GAIN ON DISPOSITION OF SUBSIDIARY (Note 13) 409,418 --
-------------- --------------
INCOME (LOSS) - Before income taxes 329,797 (143,879)
PROVISION FOR (RECOVERY OF) INCOME TAXES 28,231 (9,441)
-------------- --------------
NET INCOME (LOSS) 301,566 (134,438)
DEFICIT - Beginning of year (134,438) --
-------------- --------------
RETAINED EARNINGS (DEFICIT) - End of year $ 167,128 $ (134,438)
============== ==============
EARNINGS (LOSS) PER SHARE (Note 14)
From continuing operations $ 0.03 $ 0.26
============== ==============
After discontinued operations and gain on disposition of subsidiaries $ 0.60 $ (0.85)
============== ==============
</TABLE>
- -------------------------------------------------------------------------------
See Accompanying Notes
F-6
<PAGE> 40
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 301,566 $ (134,438)
Items not affecting cash
Amortization 218,084 24,272
Gain on disposition of subsidiary (409,418) --
110,232 (110,166)
(Decrease) increase in due to brokers and dealers, net (28,664,174) 29,995,649
Decrease (increase) in client deposits 15,720,553 (14,779,209)
Increase (decrease) in marketable securities 13,056,486 (15,682,071)
Increase in accounts receivable and sundry assets (183,487) (102,741)
Increase in accounts payable and accrued liabilities 392,164 283,460
-------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 431,774 (395,078)
-------------- --------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock and additional paid-in capital 555,000 3,762,774
Increase in loans payable 18,589 100,872
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES 573,589 3,863,646
-------------- --------------
INVESTING ACTIVITIES
Start-up costs (438,803) --
Long-term investments (13,472) (900,361)
Purchase of capital assets (132,533) (957,653)
Reorganization costs (61,632) (234,574)
Goodwill -- (1,143,982)
Investment in subsidiaries (Note 5) -- (507,457)
Discontinued operations (126,809) 258,684
-------------- --------------
CASH USED IN INVESTING ACTIVITIES (773,249) (3,485,343)
--------------- --------------
INCREASE (DECREASE) IN CASH 232,114 (16,775)
CASH - Beginning of Year 490,681 --
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES -- 507,456
-------------- --------------
CASH - End of Year $ 722,795 $ 490,681
============== ==============
</TABLE>
- -------------------------------------------------------------------------------
See Accompanying Notes
F-7
<PAGE> 41
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
1. CHANGE IN ACCOUNTING POLICY
During the year, the Company decided to apply, retroactively, Section
3840 of the Handbook of the Canadian Institute of Chartered
Accountants. Therefore, the company changed its method of valuing
certain subsidiaries from fair value of consideration paid, which was
based on the market price of the share given up to the carrying value
of the underlying assets to reflect that the effective control of these
subsidiaries did not change on acquisition.
In accordance with Section 3840 of the Handbook of the Canadian
Institute of Chartered Accountants, this change has been applied
retroactively, and has resulted in a restatement of 1995 balances. The
effect of this change in policy has resulted in a decrease in Goodwill
as well as Additional Paid-In Capital, of $7,103,020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP")
and reflect the following policies:
a) Principles of consolidation
The attached consolidated financial statements of InterUnion
Financial Corporation, a Delaware Corporation, ("the Company")
contains the financial position, results of operations and
changes in financial position of the Company and its
subsidiaries, Bearhill Limited, Credifinance Capital Inc.,
Credifinance Securities Limited, Guardian Timing Services
Inc., I & B Inc., and Reeve, Mackay & Associates Limited. All
transactions and balances between the company and its
subsidiaries have been eliminated.
b) Marketable securities inventory
Marketable securities carried on a short-term basis are
classified as either "trading" or "available for sale" (Note
3) and are carried at fair market value in accordance with
industry practice. 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 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-8
<PAGE> 42
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
d) Capital assets
Capital assets are stated at cost less accumulated
amortization. It is the company's policy to provide
amortization over the estimated useful lives of the capital
assets at the following rates:
<TABLE>
<CAPTION>
<S> <C>
Automobile 30% on diminishing balance
Computer hardware 30% on diminishing balance
Computer software (internal use) 50% on straight-line basis
ITM computer software (Notes 7 & 14) over 10 years
Furniture and fixtures 20% on diminishing balance
Leasehold improvements over the lease term
Research materials 20% on diminishing balance
Start-up costs over 5 years
</TABLE>
The computer software that is amortized over 10 years
represents the fair market value of the consideration given at
the time of acquiring the subsidiary. (Note 7)
e) Start-up costs
In accordance with Canadian Generally Accepted Accounting
Principles, incremental costs incurred, net of any revenues
recovered, in the period before the company's wholly-owned
auction subsidiary became fully operational, will be amortized
on a straight-line basis over 5 years commencing in the 1997
fiscal year. If at anytime, the Company determines these costs
will not be recoverable from operations or on sale of the
subsidiary they will be charged to income in the year such
determination is made.
f) Reorganization costs
In accordance with Canadian Generally Accepted Accounting
Principles, costs incurred in reorganizing the structure of
the company are being amortized on a straight-line basis over
5 years commencing in the 1996 fiscal year.
g) Goodwill
In accordance with Canadian Generally Accepted Accounting
Principles, the deficit that was in Au 'N Ag Inc. at
acquisition date (Note 8) has been recorded as goodwill and is
being amortized on a straight-line basis over 20 years
commencing in the 1996 fiscal year.
- -------------------------------------------------------------------------------
/Continued...
F-9
<PAGE> 43
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
h) Long-Term Investments
Long-term investment in non-marketable securities where
control or significant influence is not exercised are recorded
at cost. The long-term investment in shares of the company
held by a subsidiary at the date of acquisition by the Company
of the particular subsidiary is included with long-term
investments until sold. The sale of these shares will be
accounted for as a capital transaction.
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.
i) Valuation of Subsidiaries Acquired
Subsidiaries acquired from non-related parties are valued at
acquisition based on the fair market value of the underlying
assets acquired.
j) Additional Paid-in Capital
Additional paid-in capital represents the proceeds on issuance
of common shares in excess of par value of shares issued, net
of costs to issue such shares. Contribution of assets for
which no liabilities were incurred, consideration paid or
shares given up are also included as additional paid in
capital at the value assigned to the assets at the time of
receipt.
k) Translation of Foreign Currencies
Foreign currency amounts have been translated to U.S. funds as
follows:
i) Monetary assets and liabilities, at the rate of
exchange prevailing on the balance sheet date.
ii) Revenues and expenses, at average rate of exchange
for the month of the transaction.
Gains and losses on translation of foreign currencies,
which are not significant, are included in the
statement of operations.
l) Capital Leases
Leases which transfer substantially all of the benefits and
risks incident of ownership of the property to the company,
are treated as "capital leases" and are recorded as the
acquisition of an asset and the incurrence of an obligation.
- -------------------------------------------------------------------------------
/Continued...
F-10
<PAGE> 44
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
3. MARKETABLE SECURITIES
Carrying Market
AS OF MARCH 31, 1996 Value Value
-------------- --------------
Trading securities $ 45,200 $ 45,200
Available for sale 2,581,325 2,581,325
Held to maturity -- --
-------------- --------------
Total $ 2,626,525 $ 2,626,525
============== ===============
AS OF MARCH 31, 1995
Trading securities $ -- $ --
Available for sale 15,682,071 15,682,071
Held to maturity -- --
-------------- --------------
Total $ 15,682,071 $ 15,682,071
============== ==============
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
Accumulated Net Carrying Amount
Cost Amortization 1996 1995
---- ------------ ---- ----
<S> <C> <C> <C> <C>
Automobile $ 21,781 $ 8,192 $ 13,589 $ 3,123
Computer hardware and software 104,024 47,944 56,080 44,573
ITM Computer software
(Notes 7 & 14) 864,554 90,104 774,450 855,432
Furniture, fixtures and equipment 118,299 32,393 85,906 30,253
Leasehold improvements 1,273 1,273 0
Research materials 20,964 2,097 18,867 --
-------------- -------------- -------------- --------------
$ 1,130,895 $ 182,003 $ 948,892 $ 933,381
============== ============== ============== ==============
</TABLE>
Automotive and furniture, fixtures and equipment includes amounts under
capital leases with a cost of approximately $21,000. The $19,000
obligation under these capital leases is included in accounts payable.
The value of the computer software was determined in accordance with
Canadian Generally Accepted Accounting Principles, based on the fair
market value deemed paid for Bearhill Limited (Note 7).
- -------------------------------------------------------------------------------
/Continued...
F-11
<PAGE> 45
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
5. START-UP COSTS
Start-up cost recorded in accordance with Canadian Generally Accepted
Accounting Principles, represent the net of the expenses incurred net
of the revenues recovered in the formation and organization of the
Company's auction business during its first 7 months of activities. The
revenues and expenses are summarized as follows:
Marketing and catalogue development $ 229,300
Salaries and Benefits 305,874
Other Expenses 218,574
--------------
Total Expenses 753,748
Commissions and other revenues, net (314,945)
--------------
Net Capitalized Amount $ 438,803
==============
6. LOANS PAYABLE
These amounts are due to controlling shareholders or parties that are
directly or indirectly related to controlling shareholders. These loans
are non-interest bearing and have no specific repayment terms.
7. ACQUISITION OF SUBSIDIARIES
During 1995, the company acquired the subsidiaries described in Note
2(a). The consideration for these acquisitions was a combination of
common shares of the company and 27,828 common share purchase warrants
(Note 10).
The acquisition of the subsidiaries is summarized as follows:
Cash $ 507,456
ITM computer software (Note 14) 855,432
Non-Cash Liabilities Assumed in Excess
of Assets Acquired (40,542)
--------------
$ 1,322,346
==============
8. CHANGE OF NAME
Effective, April 17, 1994, subsequent to the controlling interest being
acquired by the company's shareholders on April 11, 1994, the name of
the company was changed to InterUnion Financial Corporation from Au 'N
Ag, Inc.
Because effective control was acquired by the shareholders of the
company in an arm's length transaction the deficit of $1,143,643 in Au
'N Ag at April 11, 1994 has been included in goodwill in the attached
consolidated balance sheet, in accordance with Canadian Generally
Accepted Accounting Principles.
- -------------------------------------------------------------------------------
/Continued...
F-12
<PAGE> 46
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
9. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Authorized
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)
Issued
<TABLE>
<CAPTION>
Additional
Number Capital Paid-in
of Shares Stock Capital Total
CLASS A PREFERENCE SHARES
<S> <C> <C> <C> <C>
March 31, 1996 and 1995 1,500,000 $ 150,000 $ -- $ 150,000
========= ============== ============== ==============
COMMON SHARES (adjusted for reverse
stock splits):
Balance, April 15, 1994 (note 8) 122,739 $ 24,546 $ 1,122,059 $ 1,146,605
Shares issued during 1995, net
of costs 246,319 49,264 2,416,905 2,466,169
--------- -------------- -------------- --------------
Common shares, March 31, 1995 369,058 73,810 3,538,964 3,612,774
Common shares issued during
1995, net of costs and other
adjustments 323,500 64,700 145,038 209,738
--------- -------------- -------------- --------------
Common shares, March 31, 1996 692,558 $ 138,510 $ 3,684,002 $ 3,822,512
========= ============== ============== ==============
</TABLE>
During 1995, a reverse stock split of 10 (ten) to 1 (one) was approved.
Subsequent to the 1996 year-end, as explained in note 16 a reverse
stock split of 20 (twenty) to 1 (one) was approved.
- -------------------------------------------------------------------------------
/Continued...
F-13
<PAGE> 47
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
10. OPTIONS AND WARRANTS
Subsequent to year-end, options for 40,250 shares (adjusted for the 20
to 1 reverse stock split described in Note 9) at $40.00 and warrants
for 102,828 (adjusted for the 20 to 1 reverse stock split described in
Note 9) at $40.00 outstanding as at March 31,1995 and 1996 were
cancelled.
11. INCOME TAX MATTERS
The company has available operating and capital losses, the benefits of
which have not been recorded, of approximately $650,000 to be applied
against future income. The operating losses expire in 2003.
12. CONTRACTS AND COMMITMENTS
a) Agreement with Canada Trust Securities Inc.
The company has entered into an agreement with Canada Trust
Securities Inc. ("CT") whereby CT will perform certain
securities trading and clearing activities and record-keeping
as agent for and on behalf of the company in various
securities markets. The agreement requires CT to hold
securities and/or cash of the clients of the company in
segregation or safekeeping as the case may be, as and when
required by regulatory requirements. In summary, the services
provided by CT are merely administrative in nature and all
obligations to pay for securities purchased and to deliver
securities sold for the company's clients rests with the
company and not CT.
b) Lease Commitments
The total annual rent obligations under the operating leases
for equipment is approximately $13,000.
Minimum annual rentals, exclusive of additional operating
costs, under the leases for the company's premises in each of
the next five years are approximately:
1996 $ 100,000
1997 115,000
1998 135,000
1999 120,000
2000 120,000
13. WARRANTS HELD
The company, holds warrants for common shares in public companies
received as fees in connection with underwritings and other services
provided. No value has been recorded in respect of these warrants.
- -------------------------------------------------------------------------------
/Continued...
F-14
<PAGE> 48
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
14. SALES COMMITMENT
The company entered into an option agreement with a major international
financial institution whereby software ("ITM Software") owned by its
subsidiary, Bearhill Inc., may be sold for proceeds to the company of
approximately $15,000,000 CDN (March 31,1996 - $11,000,000 USD). The
company's interest in this software through its interest in Bearhill
Inc. is valued at approximately $770,000 (Note 7) and is included in
capital assets (Note 4).
15. DISCONTINUED OPERATIONS
During 1996, the company disposed, by way of an assignment in
bankruptcy of its real estate sales subsidiary, Rosedale Realty
Corporation ("Rosedale").
Accordingly, the assets and liabilities of Rosedale as at March 31,1995
and the results of operations for the year ended March 31,1995 and
until the effective date of disposition (September 26,1995) are
accounted for as discontinued operations in the attached consolidated
financial statements in accordance with Canadian Generally Accepted
Accounting Principles.
As a result of the disposition of Rosedale, the company has recorded a
gain, in accordance with Canadian Generally Accepted Accounting
Principles, to the extent that the deficit of Rosedale exceeds the
company's net investment at disposition date. There are no tax charges
required in respect of this gain.
At March 31, 1995, Rosedale's summarized financial position is as
follows:
Current assets $ 168,000
Capital assets 72,000
--------------
$ 240,000
==============
Current liabilities $ 240,000
Long-term debt 260,000
--------------
500,000
--------------
Share capital 360,000
Deficit (560,000)
--------------
(260,000)
--------------
$ 240,000
==============
Revenues of Rosedale up to September 26,1995 were approximately
$400,000 ($1,300,000 for the year ended March 31,1995).
- -------------------------------------------------------------------------------
/Continued...
F-15
<PAGE> 49
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
16. EARNINGS PER SHARE
Earnings (loss) per share have been calculated on a weighted average
number of common shares outstanding, which amounted to 501,335 shares
(1995 - 157,531 shares), adjusted for the reverse stock split described
in Note 9.
Fully diluted earnings per share for 1995 have not been computed as the
effect would have been antidilutive. All options and warrants that were
outstanding at the end of 1995 have been cancelled as described in Note
10.
17. INCOME TAXES
The company's approximate income tax charges (recovery) and approximate
effective rates are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Statutory income tax rate (recovery) $ 149,000 45 $ (64,000) (45)
Non-taxable gains (176,000) (53) (5,000) (3)
Other non-deductible items 13,000 4 -- --
Losses on tax affected 42,000 12 60,000 42
-------------- ----- -------------- -----
Net taxes (recovery) and effective rate 28,000 8 (9,000) (6)
============== ===== ============== =====
</TABLE>
18. 1995 FINANCIAL STATEMENTS
1995 financial statements have been restated and classified in
accordance with Canadian Generally Accepted Accounting Principles to
reflect the change in accounting policy described in Note 1.
- -------------------------------------------------------------------------------
/Continued...
F-16
<PAGE> 50
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian
GAAP"). In certain respects, Canadian GAAP differs from accounting
principles and practices generally accepted in the United States ("US
GAAP") and from practices prescribed by the United States Securities
and Exchange Commission. The effects on the Company's consolidated
financial statements resulting from these differences are as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1995
Canadian U.S. Canadian U.S.
Basis Basis Basis Basis
----- ----- ----- -----
<S> <C> <C> <C> <C>
BALANCE SHEET
Current assets $ 6,896,766 $ 6,896,766 $ 37,596,329 $ 37,596,429
Total assets 10,469,700 9,564,007 41,049,319 40,404,189
Common stock 3,972,512 4,361,976 3,762,774 3,806,977
Retained earnings 167,128 (1,128,128) (134,438) (823,502)
Total shareholders' equity 4,139,640 3,233,848 3,628,336 2,983,475
Total liabilities and
shareholders' equity 10,469,700 9,564,007 41,049,319 40,404,189
STATEMENT OF OPERATIONS
Revenues $ 5,857,196 $6,169,578 $ 4,028,067 $ 4,028,067
Profit from continuing
operations 14,631 (499,437) 40,966 (189,069)
Net income (loss) before
extraordinary items 301,566 (327,669) (134,438) (178,468)
Net income (loss) for the
period 301,566 (743,177) (134,438) (364,313)
Income (Loss) per share 0.03 (0.65) 0.26 (1.14)
STATEMENT OF CASH FLOW
Operating activities
Cash provided (used) by
operations 431,774 155,457 (395,078) (864,669)
------------ ---------- ----------- ----------
Financing Activities
Cash provided by financing
activities 573,589 573,857 3,863,646 397,804
------------ ---------- ----------- -----------
Investing Activities
Cash provided by investing
activities (773,249) (297,201) (3,485,343) 450,090
------------ ---------- ----------- -----------
</TABLE>
- -------------------------------------------------------------------------------
/Continued...
F-17
<PAGE> 51
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
The variances are due to the different treatment of the following:
a) Start-up Costs
The Company's policy has been to capitalize the first year of
operation for the auction house, as it determined that the net
costs was part of the formation and organization of a new
business segment. Under Canadian GAAP (Emerging Issue Abstract
No. 27), these costs (net of revenues) maybe amortized over a
period commencing when the pre-opening period is over. The
Company has decided to amortized these costs over a period of
five (5) years starting in fiscal 1997. Under US GAAP, these
costs must be charged to operations immediately. Therefore,
under U.S. GAAP revenues and expenses have been increased to
reflect items that have been capitalized (Note 2(e)).
In addition, as is permissible under Canadian GAAP, it is the
Company's practice to include in revenues and expenses the
value of the goods acquired and resold in addition to the
commissions charged to the buyers and consignors. Whereas,
under U.S. GAAP only the amount of commission earned is
recorded on the face of the financial statements.
b) Reorganization Costs
As permissible under Canadian GAAP, costs incurred in
reorganization structure of the Company, have been capitalized
and are being amortized on a straight line basis commencing in
the 1996 fiscal year. Whereas, under U.S. GAAP only the amount
of commission earned is recorded on the face of the financial
statements. (Note 2(f))
c) Long-term Investments
Shares of the company held by a subsidiary that have not been
eliminated as they are being held for resale and therefore are
classified as long-term investments (Note 2(h)). Under U.S.
GAAP, these shares have been eliminated in consolidation. As
described in note 2, the sale of these shares will be treated
under Canadian GAAP as a capital transaction. Under U.S. GAAP,
the sale of these shares will not be accounted for as a
capital transaction.
d) Acquisitions
Under US GAAP, the Company's acquisitions of its subsidiaries
are required to be accounted for either as a purchase or a
pooling of interest depending on whether or not there is any
beneficial change in control. U.S. GAAP requires the value of
the assets acquired to be based on the value of the
consideration given under the purchase method. In the pooling
of interest method, the assets are consolidated using their
historical values. In the pooling of interest method where
- -------------------------------------------------------------------------------
/Continued...
F-18
<PAGE> 52
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
d) Acquisitions (continued)
there is no effective change in beneficial ownership the
assets are consolidated using their historical values. This
difference in GAAP has caused the Company to carry the ITM
software (Note 14) at a greater value under US GAAP. After
recognizing the new value for the software and evaluating the
carrying cost in accordance with FASB 121" Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of", it was decided that no reduction in the
carrying value was required.
Details of subsidiaries acquired under U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
I & B Inc.
Bearhill Limited Credifinance Capital Inc.
Subsidiaries Guardian Timing Services Inc. Credifinance Capital Inc.
and Rosedale Realty Limited
Date of acquisition January 1995 March 1995
Method of accounting Purchase Pooling
-------- -------
<S> <C> <C>
Cash acquired $ 14,017 $ 493,439
Fair market value of non
cash assets acquired (i) 1,999,480 33,314,061
Non cash liabilities assumed 46,097 32,735,200
Excess fair market value of
assets over liabilities 1,967,400 1,072,300
Consideration paid 2,405,558 1,072,300
Goodwill 438,138 -
Method of payment Common stock and warrants Common stock
Number of common shares (ii) 27,828 76,230
Value per common share 86.44 14.07
Number of warrants (Note 9) (ii) 27,828 -
</TABLE>
(i) Assets acquired under the pooling of interest method
are valued at historical costs.
(ii) Common stock and warrants have been adjusted for
reverse stock splits (Note 10).
I & B Inc., Credifinance Capital Inc., Credifinance Securities
Limited and Rosedale Realty Limited were acquired on a tax
free basis. In connection with these transactions the company
incurred professional fees. It is the Company's policy, in
accordance with Canadian GAAP to capitalize and to amortize
them over a period of five (5) years, on a straight-line
basis. Under US GAAP, these cost must be charged to operations
when incurred.
- -------------------------------------------------------------------------------
/Continued...
F-19
<PAGE> 53
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
d) Acquisitions (continued)
In accounting for the purchase of subsidiaries under US GAAP,
Goodwill in the amount of $438,138 would have been recorded.
Under U.S. GAAP, this Goodwill must be charged to operations
over a period not to exceed forty (40) years. The Company's
policy had such goodwill been recorded, would have been to
amortize this amount over a period of five (5) years starting
in fiscal 1996, on a straight-line basis.
e) Shareholders Equity and Extra-Ordinary Items
The variances between Canadian GAAP and US GAAP are due to the
different methods of accounting for the disposition of
Rosedale Realty Corporation ("Rosedale")(Note 15). Under
Canadian GAAP, the acquiring cost was reversed out of the
Common Stock and the deficit eliminated by recognizing a gain
on the disposition to the extent that Rosedale's deficit
exceeded the company's investment in and advances to Rosedale.
Under US GAAP, the loss in respect of the carrying cost of the
investment in and advances to Rosedale would be charged to
income as an Extra-Ordinary Item and the removal of the
deficit that would have been recognized under the pooling of
interest method at acquisition would have been recorded as a
prior period adjustment.
f) Income Taxes
Under Canadian GAAP the deferral method is used to account for
the timing differences between accounting and taxable income.
U.S GAAP (FASB 109, "Accounting for Income Taxes"), requires
the use of the liability method to account for the differences
between the accounting basis and the income tax basis of
assets and liabilities. Under the liability method, deferred
assets and liabilities are recognized for temporary
differences between the accounting basis and the taxes basis
for the respective assets and liabilities based on currently
enacted tax rates.
Temporary differences, therefore, would arise from the
requirements under FASB 109 to provide for deferred income
taxes on the difference between book value of assets and
liabilities recorded under U.S. GAAP and their respective tax
values.
There are no significant items that would have a difference
between their carrying value based on U.S. GAAP and their
respective tax values. Canadian GAAP requires that the tax
benefit of net operating losses available to reduce future tax
liabilities only be recorded when "virtual certainty" (as
defined by section 3470 of the Handbook of the Canadian
Institute of Chartered Accountants) of their use to reduce
taxable income in the carry-forward period exists. FASB109
requires that such benefits be recorded if it is expected that
such losses will be used to reduce future income tax
liabilities in the carry forward period. Accordingly, forward
tax benefits of $200,000 in respect of the losses of Reeve,
Mackay & Associates Limited, would have been recorded under
U.S. GAAP.
- -------------------------------------------------------------------------------
/Continued...
F-20
<PAGE> 54
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
g) Statement of Changes In Financial Position
Under U.S. GAAP a Statement of Cash Flow is presented.
Canadian GAAP presentation requires a Statement of Changes in
Financial Position which, except as described below, contains
similar information and disclosures to that required by U.S.
GAAP.
Under U.S. GAAP, investing and financing activities of an
enterprise that do not result in cash receipts or cash
payments are reported in the notes to the financial statements
and not in the statement of cash flows. Consequently, under
U.S. GAAP, the acquisitions of subsidiaries described above
and in Note 7 through the issuance of common stock would not
be presented.
h) Earnings (Loss) Per Share
Under Canadian and U.S GAAP, the earnings (loss) per share is
computed on the basis of weighted average number of common
shares outstanding. The effect of common shares equivalents
arising from stock options was not included as they are
anti-dilutive using the treasury method.
i) Segmented Information
The need to supply Segmented Information is determined by
different measurements under Canadian GAAP and US GAAP.
Therefore, to adhere to US GAAP the Company needs to disclose
information in the following manner:
The Company currently operates in two segments. Although only
one segment was identical for both of the previous fiscal
periods. In 1995, the segments in which the company operated
in were Financial Services and Real Estate. In 1996, the
Company's interest in Real Estate was disposed of (Note 15)
and a new segment, Auctioneer Services, was created.
The Real Estate segment included only the activities carried
out by Rosedale Realty Corporation. The Auctioneer Services
segment includes all of the activities carried out by Reeve,
Mackay and Associates Limited. The Financial Services segment
includes the bridge financing, dealer/brokerage, investment
management and trading activities of the Company and all other
subsidiaries.
- -------------------------------------------------------------------------------
/Continued...
F-21
<PAGE> 55
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
i) Segmented Information (continued)
<TABLE>
<CAPTION>
Adjustments
Auctioneer Financial Real &
Services Services Estate Elimination Consolidated
---------- --------- ------ ----------- ------------
For the year ended and as of March 31, 1996:
<S> <C> <C> <C> <C> <C>
Revenue from
unaffilliated customers $ 294,057 $ 5,875,521 $ 463,215 $ 463,215 $ 6,169,578
Revenue from
intersegments -- -- -- -- --
Total revenue 294,057 5,875,521 463,215 (463,215) 6,169,578
============== ============== ============== ============== ==============
Operating profit (437,090) 125,976 -- -- (311,441)
============== ============== ============== ==============
General corporate
expenses 225,000
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes (499,437)
==============
Identifiable assets 216,743 9,147,264 -- -- 9,364,007
============== ============== ============== ============== ==============
For the year ended and as of March 31, 1995:
Revenue from
unaffilliated customers $ -- $ 4,028,068 $ 1,323,633 $ 1,323,633 $ 4,028,068
Revenue from
intersegments -- 42,882 -- (42,882) --
-- -------------- -------------- -------------- --------------
Total revenue -- 4,070,950 1,323,633 1,366,515 4,028,068
============== ============== ============== ============== ==============
Operating profit -- 146,762 -- -- 146,762
============== ============== ============== ==============
General corporate
expenses 330,000
Interest expenses, net 5,831
--------------
Loss from continuing
Operations before
income taxes 189,069
==============
Identifiable assets -- 40,163,496 240,693 -- 40,404,189
============== ============== ============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
/Continued...
F-22
<PAGE> 56
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
Geographical segmentation
<TABLE>
<CAPTION>
Adjustments
United &
Canada States Other Elimination Consolidated
------ ------ ----- ----------- ------------
For the year ended and as of March 31, 1996:
<S> <C> <C> <C> <C> <C>
Revenue from
unaffilliated customers $ 5,690,948 $ 911,094 $ 30,751 $ (463,215)$ 6,169,578
Revenue from
intersegments 17,606 -- -- (17,606) --
-------------- -------------- -------------- -------------- --------------
Total revenue 5,708,554 911,094 30,751 (480,821) 6,169,578
============== ============== ============== ============== ==============
Operating profit (431,565) 92,513 27,938 -- (311,114)
============== ============== ============== ==============
General corporate
expenses 225,000
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes 499,437
==============
Identifiable assets 6,378,703 2,956,765 28,539 -- 9,364,007
============== ============== ============== ============== ==============
For the year ended and as of March 31, 1995
Revenue from
unaffilliated customers $ 5,351,431 $ 270 $ -- $ (1,323,633)$ 4,028,068
Revenue from
intersegments -- 5,000 -- 5,000 --
-------------- -------------- -------------- -------------- --------------
Total revenue 5,351,431 5,270 -- (1,328,633) 4,028,068
============== ============== ============== ============== ==============
Operating profit 200,022 (53,260) -- -- 146,762
============== ============== ============== ==============
General corporate
expenses 5,831
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes 189,069
==============
Identifiable assets 35,283,176 5,121,013 -- -- 40,404,189
============== ============== ============== ============== ==============
</TABLE>
For both fiscal years ending March 31, 1996 and March 31, 1995 the
company did not have any customers that represented revenues in excess
of 10%.
- -------------------------------------------------------------------------------
F-23
<PAGE> 57
INTERUNION FINANCIAL CORPORATION
FINANCIAL STATEMENTS
(Unaudited)
INTERIM PERIOD ENDING JUNE 30, 1996
F-24
<PAGE> 58
INTERUNION FINANCIAL CORPORATION
JUNE 30, 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Controller's Report F-19
Financial Statements:
Consolidated Balance Sheet F-20
Consolidated Statement of Operations & Deficit F-21
Consolidated Statement of Changes in Financial Position F-22
</TABLE>
F-25
<PAGE> 59
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
<S> <C> <C> <C>
CURRENT ASSETS
Cash 622,757 722,795 490,681
Due from brokers and dealers 911,160 1,168,190 172,944
Client deposits 1,070,270 2,093,966 21,147,890
Marketable securities 194,117 2,625,585 15,682,071
Accounts receivable 492,324 208,727 55,262
Income tax receivable (35,402) 1,597 15,866
Sundry assets and prepaid expenses 170,149 75,906 31,615
----------- ----------- -----------
3,425,375 6,896,766 37,596,329
----------- ----------- -----------
START-UP COSTS 418,990 438,803
LONG TERM INVESTMENTS 913,834 913,834 900,361
CAPITAL ASSETS 915,586 948,892 933,380
DEFERRED CHARGES 174,367 184,944 234,574
GOODWILL AND NON-CURRENT ASSETS 1,072,165 1,086,461 1,143,982
OTHER ASSETS 0 0 240,693
----------- ----------- -----------
3,492,942 3,572,934 3,452,990
----------- ----------- -----------
----------- ----------- -----------
6,918,317 10,469,700 41,049,319
=========== =========== ===========
CURRENT LIABILITIES
Due to brokers and dealers 429,091 2,499,665 30,168,593
Due to clients 1,629,007 3,035,310 6,368,681
Accounts payable and accrued liabilities 714,382 675,623 283,459
----------- ----------- -----------
2,772,480 6,210,598 36,820,733
----------- ----------- -----------
Other liabilities 0 0 499,377
Due to related parties 171 119,462 100,873
----------- ----------- -----------
171 119,462 600,250
----------- ----------- -----------
SHAREHOLDERS EQUITY
Capital Stock and additional paid-in capital 3,972,512 3,972,512 3,762,774
Retained Earnings (Deficit) 173,154 167,128 (134,438)
----------- ----------- -----------
4,145,666 4,139,640 3,628,336
----------- ----------- -----------
----------- ----------- -----------
6,918,317 10,469,700 41,049,319
=========== =========== ===========
</TABLE>
F-26
<PAGE> 60
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
<S> <C> <C> <C>
REVENUES
Commissions, trading & investment income 1,364,701 4,500,899 3,971,160
Sales 515,934 0 0
Fee Revenue 229,908 1,364,297 56,907
----------- ----------- -----------
2,110,543 5,865,196 4,028,067
----------- ----------- -----------
EXPENSES
Selling, Marketing & Research 1,008,674 4,207,289 2,868,886
Cost of Goods Sold 515,934 0 0
Salaries & Benefits 274,331 759,361 291,687
General & Administration 176,294 710,938 796,673
Other Expenses (639) 13,132 0
Foreign Exchange Loss (Gain) 296 (20,902) (247)
Interest & Bank Charges Expense (Income) (8,137) (37,337) 5,830
Amortization 79,992 218,084 24,272
----------- ----------- -----------
2,046,745 5,850,565 3,987,101
----------- ----------- -----------
PROFIT (LOSS) FROM CONTINUING OPERATIONS 63,798 14,631 40,966
Loss from Discontinued Operation 0 (94,252) (184,845)
Gain on Disposal of Discontinued Assets 0 409,418 0
----------- ----------- -----------
PROFIT (LOSS) FOR THE PERIOD - BEFORE INCOME TAXES 63,798 329,797 (143,879)
PROVISSION FOR INCOME TAXES (RECOVERABLE) 57,772 28,231 (9,441)
----------- ----------- -----------
NET PROFIT (LOSS) FOR THE PERIOD 6,026 301,566 (134,438)
RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD 167,128 (134,438) 0
----------- ----------- -----------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD 173,154 167,128 (134,438)
=========== =========== ===========
FINANCIAL OVERVIEW
Common Shares Outstanding 692,572 692,572 369,058
Weighted Average Shares Outstanding 692,572 501,335 157,531
E.P.S. - From Continuing Operations 0.01 0.03 0.24
E.P.S. - After Discontinued Operations 0.01 0.60 (0.85)
</TABLE>
F-27
<PAGE> 61
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) 6,026 301,566 (134,438)
Amortization 79,992 218,084 24,272
Gain on disposition of discontinued operations 0 (409,418) 0
----------- ----------- -----------
86,018 110,232 (110,166)
Increase (decrease) in due to brokers and dealers, net (1,813,544) (28,664,174) 29,995,649
Increase (decrease) in due to clients (382,607) 15,720,553 (14,779,209)
Increase (decrease) in marketable securities 2,431,468 13,056,486 (15,682,071)
Increase (decrease) in accounts receivable & sundry assets (340,841) (183,487) (102,741)
Decrease (increase) in accounts payable and accrued 38,762 392,164 283,460
liabilities
----------- ----------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 19,256 431,774 (395,078)
----------- ----------- -----------
FINANCING ACTIVITIES
Capital stock and additional paid-in capital issued (note 8) 0 555,000 3,762,774
Increase (decrease) in due to related parties (119,291) 18,589 100,872
----------- ----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (119,291) 573,589 3,863,646
----------- ----------- -----------
INVESTING ACTIVITIES
Start-up costs 0 (438,803) 0
Long term investments 0 (13,472) (900,361)
Purchase of capital assets 0 (132,533) (957,653)
Reorganization costs 0 (61,632) (234,574)
Goodwill 0 0 (1,143,982)
Investment in subsidiaries (note 5) 0 0 (507,457)
Discontinued operations 0 (126,809) 258,684
----------- ----------- -----------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES 0 (773,249) (3,485,343)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (100,035) 232,114 (16,775)
CASH - BEGINING OF YEAR 722,795 490,681 0
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES 0 0 507,456
----------- ----------- -----------
CASH - END OF YEAR 622,760 722,795 490,681
=========== =========== ===========
</TABLE>
F-28
<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.
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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
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
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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.
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
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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 consent
document 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
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<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
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<PAGE> 2
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
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<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.
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<PAGE> 2
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 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.
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(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).
(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.
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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
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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
- --------------------------------- -------------------------------
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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. 944037960 - 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>
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<PAGE> 2
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.
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
AU 'N AG, INC.
Attest: A Delaware Corporation
/s/ Ronald N. Vance, Secretary /s/ Ronald N. Vance, President
------------------------------- -----------------------------------
Ronald N. Vance, Secretary Ronald N. Vance, President
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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.
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
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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 follows:
"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
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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.
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<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Page Two
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 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."
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
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<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.
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<PAGE> 2
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.
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<PAGE> 3
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.
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
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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.
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
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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.
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<PAGE> 6
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,
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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 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
<PAGE> 8
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.
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
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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.
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
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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
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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.
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<PAGE> 2
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 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."
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<PAGE> 3
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.
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<PAGE> 4
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
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<PAGE> 5
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."
"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
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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 to give such consent and in such case such stockholders and
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<PAGE> 7
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."
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<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.
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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.
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.
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<PAGE> 3
(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.
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;
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<PAGE> 4
(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.
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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, 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.
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<PAGE> 6
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).
4.2 Taxes
GTS will be responsible for all taxes arising from payments and
advances from Bearhill pursuant to this Agreement.
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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.
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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 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
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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.
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
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<PAGE> 10
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:
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<PAGE> 11
(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.
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.
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<PAGE> 12
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.
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.
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<PAGE> 13
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:
<TABLE>
<S> <C>
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
</TABLE>
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<PAGE> 14
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.
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
-------------------------- -------------------------
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<PAGE> 15
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.
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<PAGE> 16
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.
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<PAGE> 17
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;
(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.
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<PAGE> 18
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.
E-52
<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 *_________________________ 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 *___________ entering into the Investment
Management Agreement, Bearhill grants to *_______________ 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 *___________ wishes to
exercise the Option, *_______ 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
E-53
<PAGE> 2
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
*_________ 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 *____, 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.
Upon acquisition of the ITM, *_____________ 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 *______________. 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 *____________ 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 *____________ 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
*____________ 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.
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<PAGE> 3
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 *____________ 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:
<TABLE>
<S> <C>
(a) the Note is satisfied in full prior to its maturity,
(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 *______________,
becomes insolvent or commits an act of
bankruptcy, or
(d) the Nirvana Fund underperforms.
</TABLE>
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<PAGE> 4
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 *________________ 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 *__________ 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 *
-------------------------
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
* The name of the Bank has been omitted and filed separately with the
Securities & Exchange Commission pursuant to Rule 24b-2.
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<PAGE> 5
SCHEDULE A
The Option shall be exercised in accordance with the following terms:
The Bank of *___________________ 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 *______________________ 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 *__________________ subject to the payment of an
option fee annually, in advance, in accordance with the following schedule
commencing on January 1, 1996.
<TABLE>
<S> <C>
For the 1996 calendar year $25,000
For the 1997 calendar year $50,000
For the 1998 calendar year $75,000
</TABLE>
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 *___________________ and Guardian Timing Service,
dated as of November , 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.
* The name of the Bank has been omitted and filed separately with the
Securities & Exchange Commission pursuant to Rule 24b-2.
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
OF
INTERUNION FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of
- ----------------------------- ------------------------
Incorporation
------------------------
<S> <C>
Guardian Timing Services, Inc. Ontario, Canada
Bearhill Limited, Inc. 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
</TABLE>
NOTE: All subsidiaries do business under their official names.
E-58
