SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
the Securities Exchange Act of 1934
Check the appropriate box:
[x ] Preliminary Information Statement
[ ] Confidential, or Use of the Commission Only (as permitted by
Rule 14-a-6(e)(2))
[ ] Definitive Information Statement
...............................................................................
INTERUNION FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
...............................................................................
Payment of Filing Fee (Check the appropriate box)
[x] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14-c-5(g) and 0-11
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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INTERUNION FINANCIAL CORPORATION
SUITE 301H, 249 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
(561) 820-0084
INFORMATION STATEMENT
July 31, 1998
DATE, TIME AND PLACE INFORMATION
The Information Statement is being mailed to the shareholders of InterUnion
Financial Corporation (the "Corporation") on or about August 13, 1998, in
connection with the Annual Meeting of Shareholders of the Corporation on
September 3, 1998 at 1.00 p.m. at the Hyatt Regency Hotel, Buffalo, New York.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
ACTIONS TO BE TAKEN
1. To receive the consolidated financial statements of the
Corporation for the fiscal year ended March 31, 1998, together
with the report of the auditors therein and the Annual Report
of the directors to the shareholders.
2. To elect the Board of Directors to serve until the next annual
meeting. The persons to be nominated to serve as directors are
as follows:
Robert W. Crosbie, Chairman Georges Benarroch
Karen Bolens Selwyn Kletz Melvyn Kalman
3. To ratify the appointment of the firm of Ahearn Jasco &
Company, Certified Public Accountants Chartered, located in
Pompano Beach, Florida as the auditors of the Corporation and
to allow the remuneration of those auditors to be set by the
Board of Directors.
4. To approve the remuneration of the Corporate Secretary of the
Corporation for four years of service to the Corporation
through the issuance of an option to purchase 50,000 shares of
common stock of the Corporation at $4.00 per share.
5. To approve and ratify all actions taken by the Board of
Directors since the last annual meeting of shareholders held
on August 21, 1997, as evidenced by the Unanimous Consents in
Lieu of Special Meetings of the Board of Directors.
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6. The Corporation faces the issue of Delaware franchise taxes each
year, which such taxes may be as high as $150,000, and which such
taxes my be a consequence, at least in part, of the number of
common shares authorized by the Corporation. In order to keep
such taxes at a minimum, without having the number of common
shares authorized at a fixed level at this time the Board of
Directors is suggesting to the shareholders an amendment of the
certificate of incorporation to allow the directors to set the
number of common shares authorized to be issued by the
Corporation at an amount not exceeding 5,000,000 shares. The
amendment shall not affect the par value of the common shares or
the fact that each share is entitled to one vote.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS THEREOF
Class of Security Shares Outstanding Number of Votes
Common Stock 1,932,945 1,932,945
Preferred Class A Stock 1,500,000 150,000,000
Each holder of the shares properly registered at the close of business on the
day next preceding the day on which the Notice of Special Meeting of
Shareholders is given will be entitled to one vote for each share of Common
Stock and one hundred votes for each share of Class A Preferred Stock held by
such holder on all matters to come before the meeting except to the extent that
such holder has transferred any such shares after the record date and the
transferee of such shares established ownership thereof and makes a written
demand, not later than 10 days before the meeting, to be included in the list of
shareholders entitled to vote at the meeting, in which case the transferee will
be entitled to vote such shares.
Information with regards to Item 403 of Regulation S-B is not required as no
solicitation is being sought.
DIRECTORS AND EXECUTIVE OFFICERS
No material proceedings involve any directors, executive officers or persons
nominated or person chosen by the Corporation to become a director or executive
officer of the Corporation which is adverse to the Corporation.
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a) Directors and Executive Officers
Name, Municipality
of Residence Age Length of Service
Robert W. Crosbie 68 Nominated as Chairman of
the Board of Directors,
June 1, 1998
Georges Benarroch 51 Appointed to Board of
Paris, France Directors
Selwyn Kletz 52 Appointed to Board of
Toronto, Ontario Canada Directors,
August 18, 1997
Karen Lynn Bolens 51 Appointed to Board of
Geneva, Switzerland Directors,
December 16, 1994
Melwyn Kalman - Nominated to Board of
Helier, Jersey Islands UK Directors, August 3, 1998
T. Jack Gary, III 57 Appointed as Secretary,
West Palm Beach, Florida January 30, 1995
ROBERT W. CROSBIE is nominated to the position of Chairman of the Board of the
Corporation. Mr. Crosbie has been Chairman of the Board of Black Investment
Management Limited since 1973.
GEORGES BENARROCH is the President, Chief Executive Officer of the Corporation
as well as a Director and Chairman of the Audit Committee. He is also the Chief
Executive Officer, and Chairman of the Board of Credifinance Securities Limited,
President, Chief Executive Officer, and Chairman of the Board of Credifinance
Capital Inc. and Chairman of the Board of Guardian Timing Services, Inc. The
Glen-Ardith Frazer Corporation and InterUnion Asset Management Limited -- all
wholly-owned subsidiaries of the Corporation. In addition, he is a member of the
Board of Directors of, Black Investment Management Limited, Leon Frazer, Black &
Associates Limited and Receptagen Limited. He is also the President of Equibank
Inc.
Since 1977, Mr. Benarroch has held the position of officer and partner/director
with various investment firms and private/public companies in the United States,
Canada and Europe. He has been a senior partner and/or seat holder of a member
firm of The Toronto Stock Exchange since 1982.
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SELWYN J. KLETZ is Vice-President of the Corporation, as well as a Director. He
is also President and a member of the board of The Glen-Ardith Frazer
Corporation and InterUnion Asset Management Limited, in addition to being a
Director of Black Investment Management Limited, Guardian Timing Services, Inc.
And Leon Frazer, Black & Associates Limited. He has also held the position of
officer and partner/director with various investment firms and private/public
companies in Canada and South Africa. His experience in the investment industry
covers research, investment banking, merchant banking, corporate finance and
investment management. Mr. Kletz will be devoting 100% of his time to the
Corporation.
KAREN LYNN BOLENS serves as a Director of the Corporation. 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 and as a member of the Audit Committee.
MELVYN KALMAN has been nominated to serve as a Director of the Corporation. He
is the representative of Safeguardian Limited, Protector of Central Investment
Trust, which is the beneficial owner of a controlling interest of the shares of
the Corporation. Mr. Kalman's duties for InterUnion will be limited to his
participation at Board Meetings.
T. JACK GARY, III is the Secretary of the Corporation. He is Manager of the West
Palm Beach, Florida, office of Raymond James & Associates, a national brokerage
firm, having held that position since 1995 as well as a Director. From April
1988 to 1995, 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. Mr. Gary will devote
approximately 10% of his time to his duties as Secretary at InterUnion.
(1) No director of InterUnion is currently a director of any other reporting
company, with the following exception: Georges Benarroch is director of
Receptagen Ltd. which is listed on the Toronto Stock Exchange and trades
on the NASD OTC Bulletin Board under the symbol RCEPF.
(2) Under Section 1 ARTICLE III, of the Corporation's By-Laws, the directors
shall serve until the next annual meeting of the stockholders, as
prescribed by the Board of Directors, at which time directors are elected
by the stockholders.
(3) No director, executive officer and beneficial owner of more than ten
percent (10%) of any class of equity securities of the Corporation failed
to file on a timely basis reports required by section 16(a) of the
Exchange Act during the most recent two fiscal years to the best of the
Corporation's knowledge. Corporation's knowledge.
(b) IDENTIFY SIGNIFICANT EMPLOYEES
The Corporation does not expect to receive a significant contribution from
employees that are not executive officers.
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(c) FAMILY RELATIONSHIPS
Currently, there are no directors, executive officers or persons nominated
by the Corporation to become a director or executive officer of the
Corporation who are related to any individual who currently holds the
position of director or executive officer or is nominated to one of the
said positions.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No material events have occurred in the last five years that would affect
the evaluation of the ability or integrity of any director, person
nominated to become a director, executive officer, promoter or control
person of the Corporation.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the three fiscal years ended March 31, 1998, to the best of the
Corporation's knowledge no director, executive officer and beneficial
owner of more than ten percent (10%) of any class of equity securities of
the Corporation failed to file on a timely basis reports required by
section 16(a) of the Exchange Act.
(f) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following are known by the Corporation to be the beneficial owner of
more than five percent of any class of the said issue's voting securities.
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
________________________________________________________________________________
Common RIF Capital Inc. 293,149 15.2%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Selwyn Kletz 100,000 5.2%
499 Riverside Drive
Toronto, Ontario Canada
TOTAL
393,149 20.4%
========= ====
Preferred A RIF Capital Inc. 1,500,000 100%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
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(g) 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.
Title of Name and Address of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Owner of Class
Common Safeguardian Limited(1) 293,149 15.2%
PO Box 316
Jardine House
1 Hesley Street
St. Helier, Jersey, UK JE4 8UD
Common Robert W. Crosbie 25,404 1.3%
110 Yonge Street, #1701
Toronto, Ontario
Canada M5C 1T4
Common Selwyn J. Kletz 100,000 5.2%
499 Riverside Drive
Toronto, Ontario
Canada M6S 4B6
Preferred A Safeguardian Limited (1) 1,500,000 100.0%
PO Box 316
Jardine House
1 Hesley Street
St. Helier, Jersey, UK JE4 8UD
Common Directors and Executive Officers 418,553 21.7%
as a group (3 people)
Preferred A Directors and Executive Officers 1,500,000 100.0%
as a group (1 person)
Note 1: Trustee; Voting Power - Central Investment Trust
(h) RELATED PARTY TRANSACTIONS
The Corporation paid $186,765 to Witpan Inc. for services render in the
acquisition of Leon, Frazer, Black & Associates Limited, Cluster Asset
Management Limited, The Glen-Ardith Frazer Corporation and Black Investment
Limited. In addition, the Corporation received $135,850 from Witpan, for
investment research services. Witpan is controlled by Mr. Selwyn J. Kletz.
For services rendered in the restructuring of RCG, the Corporation paid RIF
Capital Inc. $300,000.
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In fiscal 1997, the Corporation acquired an option on all of the issued
and outstanding shares of News Research Corporation (see Exhibit 10(vi))
at a cost of $80,000. The vendors of the option were RIF Capital Inc. and
Central Investment Trust. The Corporation allowed the option to expire in
December 1997 and therefore expensed this cost of the option.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
(a) SUMMARY COMPENSATION TABLE
Name & Principal Fiscal Other Long Term All Other
Position Year Salary Bonus Compensation Compensation Compensation
- ------------------------------------------------------------------------------------------------------------------------
Georges Benarroch 1998 None None None 30,000(1) None
President & CEO 1998 None None None None None
Selwyn J. Kletz 1998 75,245( 60,000(2) None 355,000(3) None
Vice-President 1997 None None None 13,265(4) None
(1) This amount represents life, disability and medical insurance and certain
expenses.
(2) This amount represents 60,000 short term stock options, that was
fully exercised.
(3) This amount represents $168,200 for life, disability and medical
insurance and $186,800 paid to a company controlled by Mr.Kletz for
services.
(4) This amount was paid to a company controlled by Mr. Kletz for services.
(b) OPTION/SAR GRANTS IN PAST YEAR
Number of % of Total Options
Securities Underlying SARs/Granted to Exercise Expiration
Name Options/SARs Granted (#) Employees in Fiscal Year Price Date
Selwyn J. Kletz 60,000 44.4% $3.00 June 30, 1997
(c) AGGREGATED OPTION/SAR EXERCISE IN LATEST FISCAL YEAR AND FISCAL
YEAREND OPTION/VAR VALUES
Number of Securities Value of
Underlying Unexercised In-the-Money Option
Shares Acquired Value Option at Fiscal Year end at Fiscal Year end
Name on Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
Selwyn J. Kletz 60,000 $240,000 0 0 $0.00 $0.00
(d) ALL COMPENSATION COVERED
As of the date of this registration statement, the Corporation has no formal
options, warrants, SARs, long-term incentive plans, pension or profit-sharing
plans, or other compensation plans, in effect regarding any employees of the
Corporation.
The Corporation 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.
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As of the date of this registration statement, the Corporation has no agreement
or understanding, express or implied, with any officer or director, or any other
person regarding employment with the Corporation 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 Corporation and receiving compensation therefor.
The Corporation's Board of Directors has approved payment of $1,500 for the
services of each of its independent directors for the fiscal year ending March
31,1998.
INDEPENDENT PUBLIC ACCOUNTANTS
Effective February 24, 1998, InterUnion Financial Corporation
("InterUnion")retained Ahearn Jasco + Company, P.A. ("AJC") of Pompano, FL as
its new certifying accountants. AJC, replaced Goldstein Golub Kessler & Company,
P.C.("GGK") of New York. GGK or its Nexia International affiliate Mintz
&Partner's ("MP") reported on InterUnion's fiscal 1996 and 1997 financial
statements. The 1996 and 1997 opinions contained no adverse opinions or
disclaimer of opinions, and was not qualified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was recommended by
InterUnion's Audit Committee and approved by InterUnion's Board of Directors.
During the last two fiscal years and subsequent interim period to the date of
change, there were no disagreements between InterUnion and GGK or its Nexia
International affiliate MP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to satisfaction of GGK or MP, would have caused
it to make a reference to the subject matter of the disagreements in connection
with its reports.
None of the reportable events described in Item 304(a) (1) (ii) occurred with
respect to InterUnion within the last two fiscal years and the subsequent
interim period to the date of change. During the last two fiscal years and the
subsequent interim period to the date of change, InterUnion did not consult AJC
regarding any matter or events set forth in Item 304(a) (2) (i) and (ii) of
Regulation S-B.
AMENDMENT TO CHARTER, BYLAWS OR OTHER DOCUMENTS
The shareholders will be asked to grant the board of directors the authority to
set the number of common shares authorized to be issued by the Corporation at an
amount not exceeding 5,000,000 shares.
VOTING PROCEDURE
a) The vote required for approval or election, other than for the approval of
auditors, shall be a majority.
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b) No record date to determine which shareholders will be allowed to vote
at this Special Meeting has been set. Therefore, under the General
Corporation Act of Delaware, Section 213(a), shareholders entitled to
notice and to vote will be those shareholders properly registered at
the close of business on the day next preceding the day on which notice
is given.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON
a) None of the directors, officers, nominees for election as director or
associates of the directors or officers have any interest in the
matters to be acted upon other than the interest of the general
shareholders.
b) None of the directors intends to oppose any action to be taken by the
Corporation at the meeting.
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INTERUNION FINANCIAL CORPORATION
ANNUAL REPORT TO SHAREHOLDERS
July 29, 1998
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 Corporation through the merger of the Corporation 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 Corporation in
reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, as provided by Section 4(2) of that
Act and upon a similar exemption contained in applicable state
securities laws. The shares received by AU 'N AG, INC. were restricted
securities, subject to Rule 144 promulgated under the Securities Act of
1933, as amended.
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.
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.
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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, outside of the provisions of
Rule 145 as promulgated by the Securities & Exchange Commission. It is
also 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 Corporation be changed to: INTERUNION FINANCIAL
CORPORATION ("IUFC" or "InterUnion" or the "Corporation"). This change
of name was filed by the office of the Secretary of State of Delaware
on April 19, 1994.
Subsequent to a filing of information submitted to the National
Association of Securities Dealers, Inc. (NASD) pursuant to Schedule H
of the NASD By-Laws and Rule 15c 2-11 under the Securities Act of 1934,
on July 27,1994 IUFC was cleared for listing on the OTC Bulletin Board.
The Corporation currently trades under the symbol: IUFC.
Subsequent to approval by the required shareholders at a meeting held
October 14, 1994, the common stock was consolidated 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.
On January 18, 1995 the Corporation acquired all of the outstanding
capital stock of BEARHILL LIMITED, a British Virgin Islands
corporation, for the issuance of 22,262 shares of common stock of the
Corporation.
On January 18, 1995 the Corporation acquired all of the outstanding
capital stock and preferred shares of GUARDIAN TIMING SERVICES, INC., a
corporation organized under the laws of Ontario, Canada, for the
issuance of 5,566 shares of common stock of the Corporation.
Upon application to the Florida Department of State, on February
2, 1995, the Corporation was qualified and authorized to transact
business in the State of Florida. The Corporation moved its principal
office to 249 Royal Palm Way, Suite 301-H, Palm Beach, Florida 33480.
On March 20, 1995, the Corporation acquired all of the stock of I & B,
INC., a Delaware corporation, CREDIFINANCE CAPITAL INC., a corporation
organized under the laws of Ontario, Canada, CREDIFINANCE SECURITIES
LIMITED ("Credifinance"), a corporation organized under the laws of
Ontario, Canada, and ninety-five percent (95%) of the stock of ROSEDALE
REALTY CORPORATION ("Rosedale"), a corporation organized under the laws
of Ontario, Canada, for the issuance of 75,000 shares of common stock.
The Corporation further acquired the remaining outstanding stock of
Rosedale for the issuance of 1,230 shares of common stock. It should be
noted that in 1996 the Corporation disposed, by way of an assignment in
bankruptcy, of its shares in Rosedale. This assignment was a voluntary
petition filed by Credifinance Capital, Inc., the owner of Rosedale, on
September 29, 1995. The decision to file for
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bankruptcy was made after negotiations for a merger of Rosedale with
another firm were unsuccessful. Rosedale had never been profitable
subsequent to its acquisition and Credifinance Capital, Inc. made the
decision to cease financing Rosedale's operations. The bankruptcy was
concluded and there are no outstanding lawsuits against either
Credifinance Capital, Inc. or the parent, InterUnion Financial
Corporation.
At a special meeting of the shareholders held on May 17, 1996, the
Board of Directors was authorized to consolidate all authorized shares
in a ratio of twenty (20) to one (1). At the time of this
authorization, the total of all issued and outstanding voting shares of
stock was 13,851,156.
REEVE, MACKAY & ASSOCIATES LTD. ("Reeve, Mackay") 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. Due to Reeve, Mackay's continued operating
deficit and cash requirements, the Corporation divested itself of its
interest in Reeve, Mackay. The Corporation in divesting itself of
Reeve, Mackay in July 1997, was successful in recovering all of its
advances to and investment in Reeve, Mackay.
On January 19, 1997, the Corporation entered into an agreement where it
would act as an investment banker in the recapitalization of RECEPTAGEN
Ltd. ("Receptagen") (see Exhibit 10(vii)). Receptagen is a corporation
incorporated under the laws of Canada. Receptagen is listed on the
Toronto Stock Exchange (RCG) and trades on the NASDAQ Over-the-Counter
(RCEPF). Currently, it is not the intention of the Corporation to
consider its investment in Receptagen as an integral part of its
business outside of its bridge financing and special situation
activities.
On July 1, 1997, the Corporation acquired a one third interest in LEON
FRAZER, BLACK & ASSOCIATES LIMITED. ("LFB"), a corporation organized
under the laws of Ontario, Canada. The Corporation acquired its
interest for cash and notes payable.
On August 18, 1997, at the Corporation's Shareholders' meeting it was
approved that the Corporation's authorized capitalization be as
follows:
2,500,000 shares of common voting stock at $.001 par value.
1,500,000 shares of Class A preferred stock at $.10 par value.
1,000 shares of Class B preferred stock at $0.10 par value.
1,000 shares of Class C preferred stock at $0.10 par value.
A Certificate of Amendment was filed with the Secretary of State, State
of Delaware, requesting the above modification.
Effective March 1, 1998, the Corporation acquired all of the
outstanding common stock in CLUSTER ASSET MANAGEMENT LIMITED ("CAM"), a
corporation organized under the laws of Ontario, Canada, for the
issuance of 213,194 shares of Common Stock of the Corporation and
106,597 shares purchase warrants. On May 26, 1998, CAM changed its name
to INTERUNION ASSET MANAGEMENT LIMITED ("IUAM").
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Effective March 31, 1998, the Corporation acquired 45% of the
outstanding common shares of BLACK INVESTMENT MANAGEMENT LIMITED
("BIM"), a corporation organized under the laws of Ontario, Canada, for
the issuance of 216,640 shares of common stock of the Corporation and
cash.
(b) BUSINESS OF ISSUER
GENERAL
The Corporation was formed as a "business bank" which would acquire,
when possible, a majority interest in financial services companies.
The Corporation also provides bridge financing which is a part of its
investment banking activities. Such financings can be provided to
companies outside the financial service sector and can be extended for
a period of up to three years, depending on the complexity of the
undertaking.
InterUnion is both a holding and an operating company engaging in
activities separate from the activities of its named subsidiaries:
InterUnion derives independent revenues from its own investment banking
activities.
PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as the parent,
the Corporation owns operating subsidiary corporations. A description of the
business operations of these subsidiaries is as follows:
Investment Banking Investment Management
________________________________ _____________________
InterUnion Financial Corporation InterUnion Asset Management Limited
Marbury Trading Corporation Bearhill Limited
Credifinance Capital, Inc. Black Investment Management Limited
Credifinance Securities Limited Guardian Timing Services Inc.
Leon Frazer, Black & Associates Limited
The Glen Ardith-Frazer Corporation
(1) UNDERWRITING AND RESEARCH
Credifinance Capital, Inc. is an investment corporation located in
Toronto, Canada. The business activities of this company are limited
to short term trading in securities and it owns Credifinance
Securities Limited.
Credifinance Securities Limited ("Credifinance") started operations in
September 1991 as an institutional boutique active in trading for the
accounts of clients, in the fixed income and equity markets.
Credifinance acts exclusively as agent. Credifinance's specialize
research is the basis of its trading and corporate finance activities.
Between 1994 and 1998, Credifinance has been active in the financing of
Canadian companies. Credifinance is a member of the International
Securities Market Association, in addition, as a member of the
Investment Dealers Association, the Toronto Stock Exchange and the
Montreal Exchange, Credifinance is invited in most banking groups.
Credifinance has acted as sole or co-underwriter in 26 transactions
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representing C$255 million in financings. (C$ means Canadian currency.
All other amounts are in US dollars.)
(2) INVESTMENT MANAGEMENT
The Corporation has interests in four independently operated investment
management firms all located in Toronto, Canada.
Guardian Timing Services, Inc. ("Guardian") is an independent
investment and fund management firm located in Toronto, Canada, with
approximately C$80 million in assets under management. Guardian manages
the Canadian Protected Fund, the Protected American Fund and the First
America Fund, in addition to being the co-manager of the India Excel
Fund. It uses a proprietary ITM market timing model owned by Bearhill
Limited, Inc., another subsidiary of the Corporation.
Bearhill Limited ("Bearhill") is an investment management firm located
in the British Virgin Islands. 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 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. 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.
Black Investment Management Limited ("BIM") is an independent
investment counsel located in Toronto, Canada, that provides
professional management of financial assets for pension funds,
corporations, foundations, mutual funds and group investment plans. BIM
was established in 1973 by Mr. Paul Black and Mr. Robert W. Crosbie.
Today BIM has approximately C$450 million in assets under
administration. IUFC has a 45% interest in BIM and is accounted for
under the equity method.
Leon Frazer, Black & Associates Limited ("LFB") was established in 1939
and is the second oldest independent counselling and investment
management firm in Toronto, Canada. LFB manages assets for high net
worth individuals of approximately C$250 million. LFB also manages a
mutual fund, Associate Investor. IUFC has a 33.3% direct interest and
an additional 14.3% indirect interest through BIM which owns 31.7%
directly. LFB is accounted for under the equity method.
The Glen Ardith-Frazer Corporation ("GAF") is an independent investment
counsel located in Toronto, Canada that provides discretionary
management to both institutional and private clients. GAF has
approximately C$150 million in assets under administration.
(3) MEDIUM AND LONG TERM INVESTING
Marbury Trading Corporation ("Marbury") is a Panama corporation with
its head office in Geneva, Switzerland. The business of Marbury is to
take debt and equity positions in companies InterUnion carries out
merger & acquisition activities for: these investments can be carried
from a few weeks up to 3 years depending on the complexity of the
transaction. Although Marbury's, and therefore the Corporation's,
15
interest in the reorganized companies can be substantial, the intention
is after the completion of the mandate, to reduce its interest to that
of minority investor.
COMPETITION
Competition is a part of every business. InterUnion faces competition directly
and through its subsidiaries from larger and better capitalized financial
service companies. These companies can be commercial/investment/merchant banks,
thrift institutions, venture capital firms, etc.. On the investment management
side, the performance of the assets under administration is another factor which
could adversely affect the results of the Corporation, because poor performance
may cause clients to move their assets to other managers.
GROWTH STRATEGY
Since inception, InterUnion's strategy has been to be a "business bank" i.e. to
be a company able to take advantage of opportunities in the financial services
sector. These opportunities include the involvement in non pure financial
service operations. InterUnion's business will remain the purchase and selling
of companies or part of companies which will use InterUnion's investment banking
services as well as its ability to issue its own securities in order to complete
M&A transactions and reorganizations. InterUnion's strategy is also to reduce
its shareholders risk by ensuring that its book value is not dependent on any
one sector of activity or any one operation. InterUnion has been successful in
managing its investors risk as today there are enough experienced and credible
individuals in the various operations who at the same time are shareholders of
InterUnion: that strategy should help InterUnion to obtain the financing it
needs for its growth. The investment management activity should continue to
expand as InterUnion gets closer to a critical mass of assets under
administration: the size of those assets and their geographical location might
require a corporate restructuring if beneficial to all its shareholders.
GOVERNMENT REGULATION
The operating activities of InterUnion Financial Corporation are not subject to
governmental regulatory agencies, with the exception of:
Credifinance Securities Limited, a member of the Investment Dealers Association
of Canada, The Toronto Stock Exchange, The Montreal Exchange and the
International Securities Market Association. As such, it is subject to the
rules, regulations, and administrative rulings of these self regulatory
organizations.
Black Investment Management Limited, The Glen Ardith-Frazer Corporation,
Guardian Timing Services Inc. and Leon Frazer Black & Associates Limited are
regulated by the Ontario Securities Commission
InterUnion Financial Corporation is not subject to the Investment Company Act of
1940 (the "Act"). Section 3(a)(3) of the Act defines an "investment company" as
"any issuer which owns or proposes to acquire investment securities having a
value exceeding 40% 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."
16
The Corporation is not an investment company because it does not invest 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
Corporation considers its primary business to be engaging in non-investment
company businesses through majority owned companies.
EMPLOYEES
The total number of employees of InterUnion and its subsidiaries is 35.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the OTC Bulletin Board
under the symbol: IUFC.
The high and low sale prices for each quarter within the last two
fiscal years are as follows:
Period Open High Low Close
------ ---- ---- --- -----
FY97 Qtr 1* $13.75 $13.75 $5.00 $7.00
FY97 Qtr 2* 7.00 15.00 4.75 5.00
FY97 Qtr 3 5.00 6.00 4.50 4.50
FY97 Qtr 4 4.50 6.00 4.50 5.00
FY98 Qtr 1 5.00 6.50 4.00 6.00
FY98 Qtr 2 6.00 6.75 4.50 4.50
FY98 Qtr 3 4.50 5.75 4.00 4.50
FY98 Qtr 4 4.50 5.50 3.50 3.50
* Pre 20-1 split FY Qtr 2
(b) HOLDERS
The approximate number of holders of record of each class of common
equity is as follows:
Class of Stock Number of Holders
-------------- -----------------
Common Share 451
Class A Preferred 1
Class B Preferred 0
Class C Preferred 0
17
(c) DIVIDENDS
The company has never declared or paid dividends on its common stock or
its preferred stock. There are no restrictions, other than state law
that may be applicable, that limit the ability to payout all earnings
as dividends. The Board of Directors does not anticipate paying any
dividends in the foreseeable future; it intends to retain its
distributable earnings, if any, for the expansion and development of
its business.
(d) RECENT SALES OF UNREGISTERED SECURITIES
(i) SALES PURSUANT TO REGULATION D
The following sales were made by the Corporation 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:
Number Price per Date of
Title of Class of Shares Share Consideration Commission Sale
- -------------- --------- --------- ------------- ---------- -------
Common 62,500 $2.00 $125,000 $Nil June 1995
Common 160,000 2.00 320,000 Nil March 1996
NOTES TO SALES PURSUANT TO REGULATION D
(1) All sales were made directly by the Corporation as issuer. No
commissions or underwriting discounts were paid in connection with the
sales.
(2) The class of persons to whom the Corporation sold the above-referenced
securities were individuals or entities whom the Corporation 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.
(3) All sales as shown above were made to non-U.S. persons.
(4) The Corporation specifically relied upon compliance with Rule 504 of
Regulation D (Regulation Section 230.504). The Corporation qualified
for Rule 504 because all offers and sales were made by the issuer, the
Corporation was not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Corporation was not an investment
company, and the Corporation was not a development stage company.
Further, the Corporation was in compliance with the conditions as set
forth in Regulation Section 230.504(b).
18
(ii) SALES PURSUANT TO REGULATION S
The following sales were made by the Corporation 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:
Number of Price per Date
Title of Class Shares Share Consideration Commission of Sale
- -------------- --------- --------- ------------- ----------- --------
Common 100,000 2.00 200,000 nil Oct. 1995
Common 1,000 20.00 Services nil
Common 151,500 1.00 151,500 nil August 1996
Common 105,642 5.00 528,210 32,371 October 1996
Common 35,000 4.00 140,000 7,000 June 1998
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales were made directly by the Corporation as issuer.
(2) The class of persons to whom the Corporation sold the above-referenced
securities were individuals or entities whom the Corporation 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.
(3) All sales as shown above were made to non-U.S. persons.
(4) The Corporation specifically relied upon compliance with Regulation S as
promulgated by the Securities and Exchanges Commission. The Corporation was
in compliance with Category 3 of Rule 903 of Regulation S which provides an
issuer safe harbor. Under this Category the Corporation 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).
(5) The 1,000 common shares issued for services in March 1996, was for work
done in connection with the development of a business plan and market
research for said business plan. These shares were given to a non related
party.
DIRECTORS AND EXECUTIVE OFFICERS
No material proceedings involve any directors, executive officers or persons
nominated or person chosen by the Corporation to become a director or executive
officer of the Corporation which is adverse to the Corporation.
19
a) DIRECTORS AND EXECUTIVE OFFICERS
Name, Municipality
of Residence Age Length of Service
------------------ --- -----------------
Robert W. Crosbie 68 Nominated as Chairman of the Board
Toronto, ON Canada June 1, 1998
Georges Benarroch 51 Appointed as Chairman, President
Paris, France and Chief Executive Officer,
March 21, 1994
T. Jack Gary, III 57 Appointed as Secretary,
West Palm Beach, Fl January 30, 1995
Karen Lynn Bolens 51 Member of the Board,
Geneva, Switzerland December 16, 1994
Selwyn Kletz 52 Appointed as Vice-President and
Toronto, ON Canada Member of the Board, August 18, 1997
Samuel Balloul 52 Nominated as Member of the Board
Paris, France February 1, 1998
Dr. Colin B. Bier 52 Appointed as Member of the Board
Ville St-Laurent, QC August 18, 1997
Canada
Ann Glover 48 Appointed as Member of the Board
Toronto, ON February 17, 1995
Canada
Claude E. Ayache 35 Appointed as Executive Vice-President
Toronto, Ontario and Chief Financial Officer
Canada March 2, 1998
ROBERT W. CROSBIE is nominated to the position of Chairman of the Board of the
Corporation. Mr. Crosbie has been Chairman of the Board of Black Investment
Management Limited since 1973.
GEORGES BENARROCH is the President, Chief Executive Officer of the Corporation
as well as a Director and Chairman of the Audit Committee. He is also the Chief
Executive Officer, and Chairman of the Board of Credifinance Securities Limited,
President, Chief Executive Officer, and Chairman of the Board of Credifinance
Capital Inc. and Chairman of the Board of Guardian Timing Services, Inc. The
Glen-Ardith Frazer Corporation and InterUnion Asset Management Limited -- all
wholly-owned subsidiaries of the Corporation. In addition, he is a member of the
Board of Directors of, Black Investment Management Limited, Leon Frazer, Black &
Associates Limited and Receptagen Limited. He is also the President of Equibank.
20
Since 1977, Mr. Benarroch has held the position of officer and partner/director
with various investment firms and private/public companies in the United States,
Canada and Europe. He has been a senior partner and/or seat holder of a member
firm of The Toronto Stock Exchange since 1982. His experience covers
Euro-financings, venture capital, mining and high tech financings, bridge
financings and mergers & acquisitions.
SELWYN J. KLETZ is Vice-President of the Corporation, as well as a Director. He
is also President and a member of the board of The Glen-Ardith Frazer
Corporation and InterUnion Asset Management Limited, in addition to being a
Director of Black Investment Management Limited, Guardian Timing Services, Inc.
And Leon Frazer, Black & Associates Limited. He has also held the position of
officer and partner/director with various investment firms and private/public
companies in Canada and South Africa. His experience in the investment industry
covers research, investment banking, merchant banking, corporate finance and
investment management. Mr. Kletz will be devoting 100% of his time to the
Corporation.
SAMUEL BALLOUL will serve as a Director of the Corporation. Mr. Balloul is in
house counsel for Le Refuge in France since 1975. Mr. Balloul's duties for
InterUnion will be limited to his participation at Board Meetings and as a
member of the Audit Committee.
DR. COLIN B. BIER serves as a Director of the Corporation and Receptagen
Limited. Since 1990 through and including the present, he has been Managing
Director of ABA BioResearch Inc., an independent bio-regulatory consulting firm
providing expertise for strategic management and development of
biopharmaceuticals. Mr. Bier's duties for InterUnion will be limited to his
participation at Board Meetings.
KAREN LYNN BOLENS serves as a Director of the Corporation. 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 and as a member of the Audit Committee.
ANN GLOVER serves as a Director of the Corporation. She is a Director,
Secretary/Treasurer and Chief Financial Officer of Credifinance Securities
Limited a subsidiary of the Corporation. 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 as she
is also a director and officer of Credifinance Securities Limited.
T. JACK GARY, III is the Secretary of the Corporation. He is Manager of the West
Palm Beach, Florida, office of Raymond James & Associates, a national brokerage
firm, having held that position since 1995 as well as a Director. From April
1988 to 1995, 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. Mr. Gary will devote
approximately 10% of his time to his duties as Secretary at InterUnion.
21
CLAUDE E. AYACHE is the Executive Vice-President and Chief Financial Officer of
the Corporation and Manager of Corporate Finance and Investment Banking (non
resources) for Credifinance Securities Limited a subsidiary of the Corporation.
Mr. Ayache has been with the Corporation since 1995, having held various
positions in both administration, sales and corporate finance / investment
banking. Mr. Ayache will devote all of his time to the affairs of the
Corporation. Prior to joining the Corporation, Mr. Ayache was Controller for a
manufacturer and Director of Finance for an asset based lender for which he was
instrumental in their restructuring.
(1) No director of InterUnion is currently a director of any other
reporting company, with the following exception: Georges Benarroch
and Dr. Colin B. Bier are directors of Receptagen Ltd. which is
listed on the Toronto Stock Exchange and trades on the NASD OTC
Bulletin Board under the symbol RCEPF.
(2) Under Section 1 ARTICLE III, of the Corporation=s By-Laws, the
directors shall serve until the next annual meeting of the
stockholders, as prescribed by the Board of Directors, at which time
directors are elected by the stockholders.
(b) AUDIT COMMITTEE
The Audit Committee had three meetings. The first meeting was to
approve the change in auditors. The second meeting was to review the
Corporation's accounting policies with the auditors while the third
meeting was to recommend to the Board of Director that the March 31,
1998 Consolidated Financial Statements be approved and presented to
the shareholders.
(c) IDENTIFY SIGNIFICANT EMPLOYEES
The Corporation does not expect to receive a significant contribution
from employees that are not executive officers.
(d) FAMILY RELATIONSHIPS
Currently, there are no other directors, executive officers or
persons nominated by the Corporation to become a director or
executive officer of the Corporation who are related to any
individual who currently holds the position of director or executive
officer or is nominated to one of the said positions.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No material events have occurred in the last five years that would
affect the evaluation of the ability or integrity of any director,
person nominated to become a director, executive officer, promoter or
control person of the Corporation.
(f) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the three fiscal years ended March 31, 1998, to the best of the
Corporation=s knowledge no director, executive officer and beneficial
owner of more than ten percent (10%) of any class of equity
securities of the Corporation failed to file on a timely basis
reports required by section 16(a) of the Exchange Act.
22
(g) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following are known by the Corporation to be the beneficial owner
of more than five percent of any class of the said issue's voting
securities.
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
Common RIF Capital Inc. (1) 536,899 31.5%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Selwyn Kletz 100,000 5.9%
499 Riverside Drive
Toronto, Ontario Canada
TOTAL ------- -----
636,899 37.4%
======= =====
Preferred A RIF Capital Inc. (1) 1,500,000 100%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
(1) RIF Capital Inc. is a wholly-owned subsidiary of Equibank
Inc. which is wholly-owned by Central Investment Trust. As of
January 1998, Safeguardian Limited replaced Georges Benarroch
as the sole protector of Central Investment Trust and neither
is a beneficiary of the Trust nor its subsidiaries.
(h) 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.
Title of Name and Address of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Owner of Class
Common Safeguardian Limited(1) 536,899 31.5%
PO Box 316
Jardine House
1 Hesley Street
St. Helier, Jersey, UK JE4 8UD
Common Robert W. Crosbie 25,404 1.5%
110 Yonge Street, #1701
Toronto, Ontario
Canada M5C 1T4
23
Common Selwyn J. Kletz 100,000 5.9%
499 Riverside Drive
Toronto, Ontario
Canada M6S 4B6
Preferred A Safeguardian Limited (1) 1,500,000 100.0%
PO Box 316
Jardine House
1 Hesley Street
St. Helier, Jersey, UK JE4 8UD
Common Directors and Executive Officers 667,803 39.1%
as a group (4 people)
Preferred A Directors and Executive Officers 1,500,000 100.0%
as a group (1 person)
Note 1: Trustee; Voting Power - Central Investment Trust
(i) RELATED PARTY TRANSACTIONS
The Corporation paid $186,765 to Witpan Inc. for services render in the
acquisition of Leon, Frazer, Black & Associates Limited, Cluster Asset
Management Limited, The Glen-Ardith Frazer Corporation and Black
Investment Limited. In addition, the Corporation received $135,850 from
Witpan, for investment research services.
Witpan is controlled by Mr. Selwyn J. Kletz.
For services rendered in the restructuring of RCG, the Corporation paid
RIF Capital Inc. $300,000.
In fiscal 1997, the Corporation acquired an option on all of the issued
and outstanding shares of News Research Corporation (see Exhibit
10(vi)) at a cost of $80,000. The vendors of the option were RIF
Capital Inc. and Central Investment Trust. The Corporation allowed the
option to expire in December 1997 and therefore expensed this cost of
the option.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
(a) SUMMARY COMPENSATION TABLE
Name & Principal Fiscal Other Long Term All Other
Position Year Salary Bonus Compensation Compensation Compensation
- ------------------------------------------------------------------------------------------------------------------------
Georges Benarroch 1998 None None None 30,000(1) None
President & CEO 1998 None None None None None
Selwyn J. Kletz 1998 75,245( 60,000(2) None 355,000(3) None
Vice-President 1997 None None None 13,265(4) None
(1) This amount represents life, disability and medical insurance and certain
expenses.
(2) This amount represents 60,000 short term stock options, that was
fully exercised.
(3) This amount represents $168,200 for life, disability and medical
insurance and $186,800 paid to a company controlled by Mr.Kletz for
services.
(4) This amount was paid to a company controlled by Mr. Kletz for services.
24
(b) OPTION/SAR GRANTS IN PAST YEAR
% of Total
Number of Options/SARs
Securities Granted to
Underlying Options/ Employees in Exercise Expiration
Name SARs Granted (#) Fiscal Year Price Date
Selwyn J. Kletz 60,000 60,000 $4.00 June 30, 1997
(c) AGGREGATED OPTION/SAR EXERCISE IN LATEST FISCAL YEAR AND FISCAL YEAREND
OPTION/VAR VALUES
Number of Securities Value of
Underlying Unexercised In-the-Money Option
Shares Acquired Value Option at Fiscal Year end at Fiscal Year end
Name on Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
Georges Benarroch 0 $ 0.00 0 0 $0.00 $0.00
Selwyn J. Kletz 60,000 $240,000 0 0 $0.00 $0.00
(d) ALL COMPENSATION COVERED
The Corporation's Board of Directors has approved payment of $1,500 for
the services of each of its independent directors for the fiscal year
ending March 31, 1998.
The Corporation has no current options, warrants, SARs, long-term
incentive plans, pension or profit-sharing plans, or other compensation
plans, in effect regarding any employees of the Corporation.
The Corporation has no agreement or understanding, express or implied,
with any officer or director, or any other person regarding employment
with the Corporation or compensation for services.
Section 14 of ARTICLE III of the By-Laws of the Corporation 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 Corporation and receiving compensation therefor.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) OVERVIEW
InterUnion Financial Corporation, ("IUFC" or "InterUnion"), was
incorporated on February 7, 1994. InterUnion's strategy is to acquire,
when possible, a majority interest in financial services business.
InterUnion and its subsidiaries, (collectively the "Corporation"), also
provides bridge financing as part of its investment banking activities.
The Corporation acquires companies or interests in companies for cash
but preferably for common shares of the Corporation with additional
incentives for vending shareholders via common share purchase warrant
and stock options for management. Since 1994, the Corporation has
acquired:
Corporation Acquired Nature of the Company Date Acquired
-------------------- --------------------- -------------
Bearhill Limited Investment Mgmt. 1-18-95
Guardian Timing Services Inc. Investment Mgmt. 1-18-95
Credifinance Capital Inc. Investment Company 3-20-95
Credifinance Securities Limited Investment Bank 3-20-95
Rosedale Realty Corporation Real Estate Sales 3-20-95
Reeve, Mackay & Associates Ltd. Auction Sales 5-15-95
Leon Frazer, Black & Associates Ltd. Investment Mgmt. 7-02-97
Cluster Asset Management Limited Investment Mgmt. 3-01-98
The Glen Ardith-Corporation Investment Mgmt. 3-01-98
Black Investment Management Limited Investment Mgmt. 3-31-98
Note: 1 All companies listed are active with the exception of Rosedale
Realty Corporation which was disposed of by the Corporation pursuant to
an assignment in bankruptcy in September 1995 and Reeve, Mackay &
Associates Limited which was sold in July 1997.
Note: 2 All are consolidated subsidiaries with the exception of Leon
Frazer, Black & Associates Limited and Black Investment Management
Limited, which are accounted for under the equity method as InterUnion
owns 33.3% and 45% respectively, directly. An additional 14.3% of Leon,
Frazer, Black & Associates Limited is owned indirectly by InterUnion.
Due to the business strategy of the Corporation, it is not expected to
generate revenues immediately, funding of operations is mainly effected
through private (non registered) sales of common shares under
Regulation "D" as promulgated by the United States Securities and
Exchange Commission.
The first acquisition in January 1995, allowed the Corporation to
generate some revenues. The following table shows revenues (in 000's)
generated by InterUnion itself as well by each of the subsidiaries and
affiliates since being acquired by InterUnion, except Rosedale Realty
and Reeve Mackay & Associates:
26
Corporation FY 1996 FY 1997 FY 1998
----------- ------- ------- -------
Bearhill Limited 30 14 18
Black Investment Management Limited 0
Cluster Asset Management Limited 0
Credifinance Capital Inc. 65 313 406
Credifinance Securities Limited 4,500 3,750 2,440
Guardian Timing Services, Inc. 355 365 371
Leon Frazer, Black & Associates Limited 771
The Glen Ardith-Corporation 102
InterUnion Financial Corporation 900 1,475 (212)
----- ----- -----
Total 5,850 5,892 3,878
===== ===== =====
Note: The Glen-Ardith Frazer Corporation's ("GAF") revenues are only
consolidated as of March 1, 1998. The revenues from Leon Frazer, Black
& Associates ("LFB") and Black Investment Management Limited ("BIM")
are not consolidated. In addition, their revenues are only as of the
Corporation's investment in LFB on July 2, 1997, GAF on March 1, 1998
and March 31, 1998 for BIM.
Credifinance Capital Inc. ("CFCI") primarily invests its own capital
resources. There is no reason to expect any consequential change in
attained and projected revenues.
Credifinance Securities Limited ("Credifinance") is an investment bank.
Revenues for fiscal 1998 were 35% lower than 1997. For the last two
years, investment banking activities have been, when possible diverted
towards InterUnion, while Credifinance redirected its business from an
institutional agency trading boutique to a corporate finance one.
Efforts have been mainly directed towards the support of InterUnion's
activities: reorganization of Receptagen as well as acquisition of
asset management companies. Furthermore, during all of 1998, investors
feelings towards one of the areas of traditional business for
Credifinance, natural resources, has been negative.
Underwriting in junior gold companies has been non existent and another
niche sector, oil and gas in the former Soviet Union, which has been a
successful part of Credifinance business in 1997, has been reduced due
to a downturn in the emerging markets. Management is currently looking
at various options which will maintain the revenues from this
subsidiary in the $2-3 million range.
Bearhill Limited ("BHL") is an investment management firm. However, the
primary asset of BHL remains its ownership of a computer software
program, ITM Software. BHL sold an option to the right of this software
to the Bank of Nova Scotia. In order to maintain the option the Bank of
Nova Scotia is obligated to pay an annual premium. The premium of
C$50,000 due on April 23, 1998 has not been made, however, the
Corporation continues to manage approximately C$10 million in funds for
the bank. If the option is not exercised, BHL will not be adversely
affected.
27
Black Investment Management Limited ("BIM") is an independent
investment counsel. BIM has assets under administration of
approximately C$450 million. The Corporation has a 45% direct interest
in BIM and will be accounting for this investment on the equity basis
as of March 31, 1998. Therefore BIM did not have any effect on the
Corporation's performance in fiscal 1998.
Guardian Timing Services Inc. ("GTS") is an independent investment
management firm. Assets under management for GTS have risen from C$20
million at the start of fiscal 1996 to C$80 million in fiscal 1997 and
maintained that level throughout fiscal 1998. This explains the low
growth in revenues over the last three fiscal years.
Leon Frazer, Black & Associates Limited ("LFB") is the second oldest
independent counselling and investment management firm in Canada, as it
was established in 1939. LFB has assets under administration of
approximately C$250 million. The Corporation has a one third direct
interest in LFB and has been accounting for this investment on the
equity basis since July 2, 1997. Since then, LFB's revenues have been
$771,000. BIM also has a one third direct interest in LFB.
Cluster Asset Management Limited ("CAM") is a holding company who's
only asset is its investment in The Glen Ardith-Frazer Corporation
("GAF") and therefore it is not expected to contribute revenues. The
Corporation has a 91.55% direct interest and an indirect interest as
LFB owns the remaining 8.45%. For the month of March 1998, GAF had
revenues of $102.
The following is a summary of InterUnion's interest in the above
mentioned investment management firms.
Direct Indirect Total
------ -------- -----
BHL 100.00% 0.00% 100.00%
BIM 45.00% 0.00% 45.00%
GTS 100.00% 0.00% 100.00%
LFB 33.33% 14.30% 47.63%
CAM 91.55% 4.10% 95.65%
InterUnion Financial Corporation's revenues for fiscal 1998 were
negative due to the reversal of the unrealized gain on marketable
securities that had been previously recognized and not crystallized in
fiscal 1998. Without this loss InterUnion's revenues would have been
$613,000 down from $1,475,000 a year earlier. The decrease is due to
InterUnion committing a majority of its resources to Receptagen Ltd.
("RCG"). RCG has deposited with the Ontario Securities Commission an
information circular that describes the final stage of the
restructuring which shareholders of RCG will be voting on at their
Annual and Special General Meeting June 30. InterUnion derives its own
revenues primarily from bridge financing and special situations and
some limited investment in marketable securities.
There are no assurances that the Corporation will find acceptable
companies for bridge financing in the future and there is no method of
forecasting this probability except on a historical basis.
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COST OF REVENUES
The principal elements comprising costs of revenues are: commissions paid out
and salaries paid to research analysts and investment managers. In general,
non-administrative personnel within InterUnion are remunerated solely on
performance, as this permits the Corporation to keep overhead to a minimum and
to maintain a high correlation between its revenues and its personnel costs, as
InterUnion and its subsidiaries are extremely labor intensive. Therefore,
commissions paid out are the most important expense and generally rise and fall
along with revenues of the Corporation.
Across all of the Corporation's subsidiaries, the contribution margin
(contribution margin is defined as revenues less variable expenses) was 48.4% in
fiscal 1998 versus 43.0% in fiscal 1997 and 36.1% in 1996. The increase in
margin is primarily due to a shift in Credifinance's revenues from secondary
market agency to primary market revenue from corporate finance and underwriting
activities. The Corporation expects to maintain margins in this range due to the
stability of its commission payout structure.
INTEREST INCOME NET OF INTEREST EXPENSE
The Corporation invests its cash in government issued treasury bills which give
rise to interest income. Additional interest income comes from the spread
between the interest that the Corporation receives over and above what is paid
to its clients on their deposits by its broker dealer clearing agent. This
amount is not expected to be significant with respect to revenues on a yearly or
quarterly basis.
The Corporation's only debt that causes a revenue or an expense arises from its
broker/dealer operation and from funds borrowed on a short term basis for its
trading activity. This amount is not expected to be significant with respect to
revenues on a yearly or quarterly basis.
DISCONTINUED OPERATIONS
In May 1995, Reeve, Mackay and Associates Ltd. was created to act as the
Corporation's auction subsidiary. Reeve, Mackay recorded operating losses of
$390,829 and $452,291 in 1997 and 1996 respectively, prior to recording a small
profit in the first quarter of 1998. The Corporation successfully sold its
interest in Reeve, Mackay as of July 2, 1997.
EXPOSURE TO INTERNATIONAL OPERATIONS
Although all of the Corporation's revenues are generated from North America, all
of its principal subsidiaries are located in Canada. Therefore, a small foreign
exchange risk does exist due to the Canadian dollar. Due to the size of the risk
and that each company within the InterUnion Group operates independently of each
other, the Corporation does not purchase any derivative products to offset this
risk. In addition, the Corporation considers North America as its domestic
market.
SEASONAL
InterUnion Financial Corporation and its subsidiaries do not operate in any
business which is affected by changes in season.
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(b) RESULTS OF OPERATIONS
Fiscal 1997 marked a number of firsts for the Corporation.
- The first year as a reporting company, as our Form 10-SB cleared the SEC;
- The first year that the Corporation reports solely under US GAAP; and
- The first year that the Corporation reported a profit from continuing
operations.
Fiscal 1998 was no exception.
- The first year with only finance services companies with its group;
- The first year that investment management assets within the group
exceeded that of the broker dealer.
Financial highlights are as follows:
1998 1997 1996
---------- ---------- ---------
Revenues 3,115,407 5,737,848 5,857,157
Income (loss) from continuing
operations (819,461) 160,676 (75,378)
Discontinued Operations 804,174 (390,829) (429,248)
Net Loss (15,287) (230,153 (504,626)
Assets 48,743,732 38,820,507 9,364,007
Shareholders' Equity 6,692,432 3,639,337 3,033,848
Working Capital (163,274) 1,750,889 928,268
Common Shares Outstanding 1,654,001 969,714 692,558
Book Value per Share 4.05 3.75 4.38
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
(1) OVERVIEW
In fiscal 1998, revenues decreased by $2,622,411 (or 45.7%) over fiscal
year 1997. For the year, costs of revenues as a percentage of sales
decreased to 65.0% from 67.1% a year earlier. Fixed overhead and non
cash expenses increased by $311,322 or 22.0%. The reduction in revenues
and the increase in non variable expenses were too great to be over
come by the reduction in cost of sales and caused a loss from
operations in the amount of $819,461 versus a profit of $160,676 a year
earlier. The Corporation reported a net loss of $15,287 versus $230,153
in fiscal 1997. The reduction in the loss is due to the accounting gain
of the sale of Reeve, Mackay & Associates Limited. Earnings per share
for fiscal 1998 was a loss of $0.01 versus a loss of $0.26 a year
earlier. The average number of common shares outstanding for the year
ending March 31, 1998 is 1,232,100 versus 907,097 a year earlier.
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(2) REVENUES
Revenues decreased by $2,622,411 (or 45.7%) over fiscal year 1997 (from
$5,712,183 to $3,115,407). The decrease came from the activities of
Credifinance Securities Limited and the reversal of an unrealized gain
of the Corporation's portfolio of warrants, received as additional
compensation for corporate finance mandates. The value of these
warrants decreased by approximately $825,000. Revenues for InterUnion
itself also decreased by about $600,000, due to its concentrating its
resources on the restructuring of RCG. Revenues for Credifinance
decreased almost $1,300,000 or 34.5% (from $3,727,292 to $2,439,951).
The reason why Credifinance's revenues decreased was due to the
reduction in investors willingness to invest in small capitalized firms
and in the natural resource sector.
(3) COST OF REVENUES
Costs of revenues (Selling, General and Administrative expenditures)
for the year decreased by $1,539,929 or 29.5% to $3,674,548 from
$5,214,477. This decrease is due to the fact that the Corporation's
principal expense are commission earned as a function of revenues.
(4) INCOME FROM CONTINUING OPERATIONS
Income from continuing operations net of the provision for income
taxes, decreased to a loss of $818,461, or $0.66 per share, from a
profit of $160,676, or $0.18 per share, a year earlier. As discussed
previously, the decrease in profitability has been attributed to the
decrease in the value of the warrant portfolio and reduction in
revenues due to investors interest in small capitalized firms. The
average number of common shares outstanding for the year ending March
31, 1998 is 1,232,100 versus 900,429 a year earlier. These figures do
no include an accounting gain of $804,174 in fiscal 1998 on the sale of
Reeve, Mackay, for which the Corporation recorded a loss in fiscal 1997
of $390,829 as discontinued operations.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
(1) OVERVIEW
In fiscal 1997, revenues decreased by $144,974 (or 2.5%) over fiscal
year 1996. For the year, costs of revenues as a percentage of sales
decreased to 67.1% from 71.8% a year earlier. Fixed overhead and non
cash expenses also decreased by 61,082 or 4.2%. These three factors
contributed to the Corporation realizing income from continuing
operations of $160,676 versus a loss of $75,378 a year earlier. The
Corporation reported a net loss of $230,153 in 1997 versus a net loss
of $504,626 due to the losses the Corporation recorded in relation to
Rosedale Realty Corporation and Reeve, Mackay & Associates as
discontinued operations. Excluding these discontinued operations, the
Corporation's earnings per share from continuing operations was $0.18
versus a loss of $0.15 a year earlier.
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(2) REVENUES
Revenues decreased by $144,974 (or 2.5%) over fiscal year 1996 (from
$5,857,196 to $5,712,183). The majority of the decrease came from the
activities of Credifinance Securities Limited, the Corporation's main
operating subsidiary, as its revenue decreased almost $800,000 or 17.8%
(from $4,532,482 to $3,727,292). The reason why Credifinance
Securities' revenues decreased was due to the firm restructuring its
efforts from agency activities to corporate finance activities. This
decrease was offset by an increase in InterUnion's revenues of almost
$0.6 million or 62.1% (from $911,094 to $1,477,062).
(3) COST OF REVENUES
Costs of revenues (Selling, General and Administrative expenditures)
for the year decreased by $515,520 or 9.0% to $5,214,477 from
$5,729,997. This decrease is due to the fact that the Corporation's
revenues are generated more from underwritings then from buy and sell
orders, where it retains a greater percentage, as variable costs
decreased to 57.2% of revenues from 63.9% a year earlier. In addition
cost cutting of fixed overhead contributed a savings of approximately
$125,000. The Corporation was able to cut personnel due to the change
in target market.
(4) INCOME FROM CONTINUING OPERATIONS
Income from continuing operations net of the provision for income
taxes, increased to $160,676, or $0.18 per share, from a loss of
$75,378, or $0.15 per share, a year earlier. As discussed above the
increase in profitability has been attained by the combination of two
things. The Corporation is deriving its revenues from sources where the
commissions to be paid out are less (underwriting versus agency) and
the cost savings discussed above. The average number of common shares
outstanding for the year ending March 31, 1997 is 900,429 versus
501,335 a year earlier. These figures do not include losses of $390,829
and $429,248 in 1997 and 1996 respectively due to the discontinued
operations of Reeve, Mackay & Associates Ltd. and Rosedale Realty
Corporation.
(c) LIQUIDITY AND CAPITAL RESOURCES
In order to meet its growth plans and fund any operating cash
requirements, the Corporation's policy is to issue additional capital
stock, when possible. To date the Corporation has done this either
through the issuance of Confidential Private Placement Offerings under
Regulation "D" or Regulation "S". The following are details of these
private placements during the previous three fiscal years:
32
Date # of Shares Amount Type
---- ----------- ------ ----
June 1995 62,500 $125,000 Regulation "D"
October 1995 100,000 200,000 Regulation "D" & "S"
March 1996 160,000 320,000 Regulation "D"
September 1996 277,142 759,710 Regulation "S"
June 1998 35,000 140,000 Regulation "S"
When unable, due to market conditions or unfavorable terms, the
Corporation will issue notes payable. Until the acquisition of three
investment management firms, with combined assets under administration
of approximately C$1 billion, and the Corporation's involvement in the
restructuring of RCG, the Corporation did not have any long term debt.
The debt that was assumed in the restructuring of RCG has been matched
by receivables of similar terms, therefore, eliminating certain risks.
The Corporation is currently seeking to raise additional capital by the
issuance of common stock. Proceeds will be used to pay the debt that
was issued for the acquisition of these investment management firms.
The Corporation also has a credit facility of up to C$2.35 million
available with a Canadian financial institution. As of March 31, 1998
this credit was unused.
The Corporation plans on reviewing its portfolio of investment
management companies in order to maximize shareholders' value.
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 Corporation's short-term or
long-term liquidity.
In addition, there is no significant income or losses that have risen from the
Corporation'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.
Year 2000: Management has compiled a list of both internally and externally
supplied information systems that utilize imbedded date codes which could
experience operational difficulties in the year 2000. The Corporation uses third
party applications or suppliers for all high level systems and reporting. These
systems will either be upgraded and tested to be in compliance for the year 2000
or the Corporation will take necessary steps to replace the supplier. Management
is testing new systems for which it is responsible. It is the Corporation's
objective to be year 2000 compliance for all systems by the end of fiscal 1999,
however, no assurances can be given. The Corporation believes that it has
provisioned sufficient amounts to cover future expenditures.
33