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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 20-F
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/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934 or
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000, or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No.: 1-4192
MFC BANCORP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
YUKON TERRITORY, CANADA
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
17 DAME STREET, DUBLIN 2, IRELAND
(ADDRESS OF OFFICE)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
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COMMON SHARES WITHOUT PAR VALUE
(TITLE OF CLASS)
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
12,088,156 COMMON SHARES WITHOUT PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the SECURITIES EXCHANGE ACT OF
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 / / Item 18 /X/
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MFC BANCORP LTD.
FORM 20-F
TABLE OF CONTENTS
PAGE
NO.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS....... 3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE..................... 3
ITEM 3. KEY INFORMATION............................................. 3
Forward-Looking Statements.................................. 3
Exchange Rates.............................................. 3
Selected Financial Data..................................... 4
Risk Factors................................................ 6
ITEM 4. INFORMATION ON THE COMPANY.................................. 10
History and Development of the Company...................... 10
Business Overview........................................... 10
Organizational Structure.................................... 12
Property, Plants and Equipment.............................. 13
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS................ 13
Operating Results........................................... 13
Liquidity and Capital Resources............................. 15
Foreign Currency............................................ 16
Derivative Instruments...................................... 16
Inflation................................................... 17
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................. 17
Directors and Senior Management; Board Practices............ 17
Compensation................................................ 18
Employees................................................... 20
Share Ownership............................................. 20
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS........... 21
Major Shareholders.......................................... 21
Related Party Transactions.................................. 21
ITEM 8. FINANCIAL INFORMATION....................................... 21
Consolidated Statements and Other Financial Information..... 21
Significant Changes......................................... 21
Legal Proceedings........................................... 22
Dividend Information........................................ 22
ITEM 9. THE OFFER AND LISTING....................................... 22
Markets and Price History................................... 22
ITEM 10. ADDITIONAL INFORMATION...................................... 23
Articles and Bylaws......................................... 23
Material Contracts.......................................... 24
Exchange Controls........................................... 24
Taxation.................................................... 25
Documents on Display........................................ 28
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 28
Interest Rate Risk.......................................... 28
Foreign Currency Exchange Rate Risk......................... 29
Equity Price Risk........................................... 30
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...... 30
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES............. 30
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS............................................. 30
ITEM 15. [RESERVED].................................................. 30
ITEM 16. [RESERVED].................................................. 30
PART III
ITEM 17. FINANCIAL STATEMENTS........................................ 30
ITEM 18. FINANCIAL STATEMENTS........................................ 31
ITEM 19. EXHIBITS.................................................... 56
SIGNATURES.................................................. 58
2
IN THIS ANNUAL REPORT, PLEASE NOTE THE FOLLOWING:
- REFERENCES TO "WE", "OUR", "US" OR "MFC" MEAN MFC BANCORP LTD. AND ITS
SUBSIDIARIES UNLESS THE CONTEXT OF THE SENTENCE CLEARLY SUGGESTS
OTHERWISE;
- ALL REFERENCES TO MONETARY AMOUNTS ARE IN CANADIAN DOLLARS UNLESS
OTHERWISE INDICATED; AND
- SELECTED FINANCIAL INFORMATION HAS BEEN PROVIDED IN U.S. DOLLARS FOR
INFORMATIONAL PURPOSES USING AN EXCHANGE RATE OF ONE CANADIAN DOLLAR BEING
EQUAL TO U.S.$0.6666, BEING THE FEDERAL RESERVE BANK OF NEW YORK RATE OF
CONVERSION FOR CANADIAN DOLLARS TO U.S. DOLLARS AS AT DECEMBER 31, 2000.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
FORWARD-LOOKING STATEMENTS
The statements in this annual report that are not based on historical facts
are called "forward-looking statements" within the meaning of the UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. These statements appear in a
number of different places in this annual report and can be identified by words
such as "estimates", "projects", "expects", "intends", "believes", "plans", or
their negatives or other comparable words. Also look for discussions of strategy
that involve risks and uncertainties. Forward-looking statements include
statements regarding the outlook for our future operations, forecasts of future
costs and expenditures, evaluation of market conditions, the outcome of legal
proceedings, the adequacy of reserves, or other business plans. You are
cautioned that any such forward-looking statements are not guarantees and may
involve risks and uncertainties. Our actual results may differ materially from
those in the forward-looking statements due to risks facing us or due to actual
facts differing from the assumptions underlying our predictions. Some of these
risks and assumptions include:
- general economic and business conditions, including changes in interest
rates;
- prices and other economic conditions;
- natural phenomena;
- actions by government authorities, including changes in government
regulation;
- uncertainties associated with legal proceedings;
- technological development;
- future decisions by management in response to changing conditions;
- our ability to execute prospective business plans; and
- misjudgments in the course of preparing forward-looking statements.
We advise you that these cautionary remarks expressly qualify in their
entirety all forward-looking statements attributable to us or persons acting on
our behalf.
EXCHANGE RATES
In this annual report, unless otherwise specified, all monetary amounts are
expressed in Canadian dollars. The following table sets out the exchange rates,
based on the noon buying rates in New York City for cable transfers in foreign
currencies, as certified for customs purposes by the Federal Reserve Bank of
New York (the
3
"Noon Buying Rate"), for the conversion of Canadian dollars into U.S. dollars in
effect at the end of the following periods, and the average exchange rates
(based on the average of the exchange rates on the last day of each month in the
period) and the range of high and low exchange rates for such periods.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
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End of period............................................ 0.6666 0.6925 0.6504 0.6999 0.7301
High for period.......................................... 0.6984 0.6925 0.7105 0.7487 0.7513
Low for period........................................... 0.6397 0.6535 0.6341 0.6945 0.7235
Average for period....................................... 0.6732 0.6744 0.6714 0.7221 0.7332
The following table sets out the range of high and low exchange rates, based
on the Noon Buying Rate, for the conversion of Canadian dollars into
U.S. dollars, for the following periods.
HIGH LOW
-------- --------
2000
October..................................................... 0.6702 0.6527
November.................................................... 0.6566 0.6397
December.................................................... 0.6691 0.6439
2001
January..................................................... 0.6709 0.6590
February.................................................... 0.6711 0.6484
March....................................................... 0.6509 0.6331
April 1 to April 23......................................... 0.6484 0.6319
The information set forth in this annual report is as at December 31, 2000,
unless an earlier or later date is indicated. On April 23, 2001, the noon rate
of exchange, as reported by the Federal Reserve Bank of New York, for the
conversion of Canadian dollars into U.S. dollars was U.S.$0.6467 per Canadian
dollar.
Our financial statements are presented in U.S. dollars for informational
purposes only and are translated to U.S. dollars using exchange rates for
convenience, which are the year-end exchange rates, as required by
Regulation S-X.
SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data for us
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). Additional information is presented to show the difference
which would result from the application of United States generally accepted
accounting principles ("U.S. GAAP") to MFC's financial information. For a
description of the differences between Canadian GAAP and U.S. GAAP, see Note 16
of our consolidated financial statements included elsewhere in this annual
report. The information in the table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading, "Item 5. Operating and Financial Review and
Prospects".
4
CANADIAN GAAP
YEARS ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
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(in thousands, other than per share amounts)
Revenues....................................... $156,220 $125,526 $123,310 $ 86,060 $ 75,467
Income from continuing operations.............. 39,163 36,328 30,235 23,617 13,994
Income from continuing operations per share
Basic(1)..................................... 3.24 3.00 2.48 1.95 1.52
Fully diluted(1)............................. 2.78 2.60 2.20 1.79 1.37
Net income..................................... 39,163 31,389 30,235 23,617 13,994
Net income per share
Basic(1)..................................... 3.24 2.59 2.48 1.95 1.52
Fully diluted(1)............................. 2.78 2.28 2.20 1.79 1.37
Total assets................................... 332,063 270,107 238,109 226,890 160,368
Net assets..................................... 216,915 173,773 156,808 122,964 94,216
Debt........................................... 35,421 30,917 40,091 41,602 42,937
Shareholders' equity........................... 213,134 170,811 154,396 120,156 91,516
Capital stock.................................. 65,138 65,498 65,706 70,368 66,281
Cash dividends(2).............................. -- -- 369 106 --
Cash dividends per share(2).................... -- -- 0.03 0.01 --
Cash dividends (U.S.$)(2)...................... -- -- 251 N/A --
Cash dividends per share (U.S.$)(2)............ -- -- 0.02 N/A --
Weighted average common stock outstanding,
fully diluted (in thousands of shares)(1).... 15,224 15,245 14,913 13,691 10,237
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(1) All amounts have been adjusted to reflect a 1 to 1.5 stock split effected in
March 1996.
(2) Paid on MFC's common shares.
U.S. GAAP
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, other than per share amounts)
Revenues....................................... $162,694 $128,270 $118,842 $ 83,138 $ 72,094
Income from continuing operations.............. 45,637 40,313 31,922 12,365 13,329
Income from continuing operations per share
Basic(1)..................................... 3.78 3.33 2.62 1.07 1.45
Diluted(1)................................... 3.51 3.12 2.42 1.00 1.41
Net income..................................... 45,637 35,374 31,922 12,365 13,329
Net income per share
Basic(1)..................................... 3.78 2.92 2.62 1.07 1.45
Diluted(1)................................... 3.51 2.75 2.42 1.00 1.41
Total assets................................... 336,523 265,658 229,529 223,528 173,597
Net assets..................................... 221,375 169,325 149,381 115,529 98,031
Debt........................................... 35,421 30,917 40,091 41,602 42,937
Shareholders' equity........................... 217,594 166,363 146,969 112,721 95,331
Capital stock.................................. 65,138 65,498 65,706 70,368 66,281
Cash dividends(2).............................. -- -- 369 106 --
Cash dividends per share(2).................... -- -- 0.03 0.01 --
Cash dividends (U.S.$)(2)...................... -- -- 251 N/A --
Cash dividends per share (U.S.$)(2)............ -- -- 0.02 N/A --
Weighted average common stock outstanding,
fully diluted (in thousands of shares)(1).... 13,438 13,422 13,706 12,246 9,131
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(1) All amounts have been adjusted to reflect a 1 to 1.5 stock split effected in
March 1996.
(2) Paid on MFC's common shares.
5
RISK FACTORS
Our primary risks are transaction risks, credit or counterparty risks, and
market risks. In addition, we have been and may continue to be affected by many
other factors, including but not limited to: (i) economic and market conditions,
including the liquidity of capital markets; (ii) the volatility of market
prices, rates and indices; (iii) the timing and volume of market activity;
(iv) inflation; (v) the cost of capital, including interest rates;
(vi) political events, including legislative, regulatory and other developments;
(vii) competitive forces, including our ability to attract and retain personnel;
(viii) support systems; and (ix) investor sentiment. In determining whether to
make an investment in the capital stock of MFC, you should consider carefully
all of the information set forth in this annual report and, in particular, the
following risk factors.
TRANSACTION RISKS
WE ARE SUBJECT TO TRANSACTION RISKS.
We manage transaction risk through allocating and monitoring our capital
investments, only underwriting securities in circumstances where the risk to our
capital is minimal, carefully screening clients and transactions, and engaging
qualified personnel to manage transactions. Nevertheless, transaction risks can
arise from, among others, our investment banking and proprietary investing
activities and relate to the risks of the proposed transaction. These risks
include market and credit risks associated with our role in providing advisory
services.
We often make investments in highly unstructured situations and in companies
undergoing severe financial stress. Such investments often involve severe time
constraints. These investments may expose us to significant transaction risks.
An unsuccessful investment may result in the total loss of such investment and
may have a material adverse effect on our business, results of operations and
financial condition.
WE MAY FACE A LACK OF SUITABLE ACQUISITION OR MERGER OR OTHER PROPRIETARY
INVESTMENT CANDIDATES.
In order to grow our business we may seek to acquire or invest in new
companies and proprietary investments. Our failure to make acquisitions or
investments may limit our growth. In pursuing acquisition and investment
opportunities, we may be in competition with other companies having similar
growth and investment strategies. Competition for these acquisitions or
investment targets could result in increased acquisition or investment prices
and a diminished pool of businesses, technologies, services or products
available for acquisition or investment.
CREDIT OR COUNTERPARTY RISKS
COUNTERPARTIES OR OTHERS MAY DEFAULT ON THEIR OBLIGATIONS.
We manage credit risk on an individual transaction, counterparty level and
on a portfolio basis. Credit limits for clients and counterparties are
established by our credit officers and management with knowledge of the client's
creditworthiness. In addition, we have established policies and limitations with
respect to our securities lending practices. Our management also reviews and
monitors exposure concentrations at a portfolio level. Nevertheless, we are
exposed to the risk that parties owing us money, securities or other assets will
not perform their obligations. These parties include our trading counterparties,
clients, clearing agents, exchanges and other financial intermediaries, as well
as issuers whose securities we hold. These parties may default on their
obligations to us due to bankruptcy, lack of liquidity, operational failure or
other reasons. These counterparty obligations may arise, for example, from
placing money market deposits, the extension of credit in trading and investment
activities, and participation in payment and securities transactions on our
behalf and as an agent on behalf of our clients.
WE MAY NOT OBTAIN SUFFICIENT OR ACCURATE CREDIT RISK INFORMATION.
To reduce credit risk, we only place money market deposits with banks
selected for their financial strength and reliability. Further, we otherwise
attempt only to deal with creditworthy counterparties and obtain collateral
where appropriate. However, although we regularly review our credit exposure to
specific clients and counterparties and to specific industries, countries and
regions that we believe may present credit concerns, default risk may arise from
events or circumstances that are difficult to detect, such as fraud. We may also
fail to receive full information with respect to the trading risks of a
counterparty. In addition, in cases where we have
6
extended credit against collateral, we may find that we are undersecured, for
example, as a result of sudden declines in market values that reduce the value
of collateral.
MARKET RISKS
Market risk relates to fluctuations in the liquidity of securities, as well
as volatility in market conditions generally. The markets for securities and
other related products are affected by many factors over which we have little or
no control. These factors include the financial performance and prospects of
specific companies and industries, world markets and economic conditions, the
availability of credit and capital, political events and perceptions of market
participants.
WE ARE EXPOSED TO THE RISK OF A MARKET DOWNTURN.
As a financial services company, our business is materially affected by
conditions in the financial markets and economic conditions generally. In the
event of a market downturn, our business, results of operations and financial
condition could be adversely affected. In addition, you cannot be assured that
an active public market for our securities will continue.
A market downturn could lead to a decline in the number and size of
transactions that we execute for our clients, including transactions in which we
provide financial advisory and other services, and to a corresponding decline in
the revenues we receive from fees. In addition, because the fees that we charge
for managing our clients' portfolios are in many cases based on the value of
those portfolios, a market downturn that reduces the value of our clients'
portfolios or increases the amount of withdrawals would reduce the revenue we
receive from our asset management business. If we were unable to reduce expenses
at the same pace, our profit margins would erode or be eliminated.
A downturn in a market could further result in losses to the extent that we
own assets in such market. Conversely, to the extent that we have sold assets we
do not own (i.e., if we have short positions) in any market, an upturn in such
market could expose us to potentially unlimited losses as we attempt to cover
our short positions by acquiring assets in a rising market.
Even in the absence of a market downturn, we are exposed to substantial risk
of loss due to market volatility.
WE ARE EXPOSED TO POLITICAL, ECONOMIC, LEGAL, OPERATIONAL AND OTHER RISKS AS A
RESULT OF OUR GLOBAL OPERATIONS.
In conducting our business in major markets around the world we are subject
to political, economic, legal, operational and other risks that are inherent in
operating in other countries. These risks range from difficulties in settling
transactions in emerging markets to possible nationalization, expropriation,
price controls and other restrictive governmental actions. We also face the risk
that exchange controls or similar restrictions imposed by foreign governmental
authorities may restrict our ability to convert local currency received or held
by us in their countries into Swiss francs, Canadian dollars, U.S. dollars or
other currencies, or to take those other currencies out of those countries.
FLUCTUATIONS IN INTEREST RATES AND FOREIGN CURRENCY EXCHANGE RATES MAY AFFECT
OUR RESULTS.
Fluctuations in interest rates may affect the fair value of our financial
instruments sensitive to interest rates. An increase in interest rates may
decrease the fair value of our financial instrument assets and a decrease in
interest rates may decrease the fair value of our financial instrument
liabilities, thereby resulting in a reduction in our equity. See "Item 11.
Quantitative and Qualitative Disclosures About Market Risk--Interest Rate Risk"
for additional information with respect to our interest rate risk.
Similarly, fluctuations in foreign currency exchange rates may affect the
fair value of our financial instruments sensitive to foreign currency exchange
rates. Our reporting currency is the Canadian dollar. We hold financial
instruments primarily denominated in U.S. dollars and Swiss francs. A
depreciation of such currencies against the Canadian dollar will decrease the
fair value of our financial instrument assets denominated in such currencies and
an appreciation of such currencies against the Canadian dollar will increase the
fair value of our financial instrument liabilities denominated in such
currencies, thereby resulting in a reduction in our equity.
7
See "Item 11. Quantitative and Qualitative Disclosures About Market
Risk--Foreign Currency Exchange Rate Risk" for additional information with
respect to our foreign currency exchange rate risk.
A RISE IN INFLATION MAY AFFECT OUR RESULTS.
We do not believe that inflation has had a material impact on revenues or
income over the past three fiscal years. In addition, since our assets to a
large extent are liquid in nature, they are not significantly affected by
inflation. However, increases in inflation could result in increases in our
expenses, which may not be readily recoverable in the price of services provided
to our clients. To the extent inflation results in rising interest rates and has
other adverse effects on capital markets, it could adversely affect our
business, results of operations and financial condition.
OUR RISK MANAGEMENT STRATEGIES MAY NOT PREVENT LOSSES.
We use derivative foreign exchange contracts to manage our exposure and our
clients' exposure to foreign currency exchange rate risks. If any of the variety
of instruments and strategies we utilize to manage our exposure to various types
of risk are not effective, we may incur losses. Many of our strategies are based
on historical trading patterns and correlations. However, these strategies may
not be fully effective in mitigating our risk exposure in all market
environments or against all types of risk. Unexpected market developments may
affect our risk management strategies during this time, and unanticipated
developments could impact our risk management strategies in the future.
MARKET RISK MAY INCREASE THE OTHER RISKS THAT WE FACE.
In addition to the market risks described above, market risk could
exacerbate other risks that we face. For example, if we incur substantial
trading losses, our need for liquidity could rise sharply while our access to
liquidity could be impaired. In addition, in conjunction with a market downturn,
our clients and counterparties could incur substantial losses of their own,
thereby weakening their financial condition and increasing our credit risk.
COMPETITION RISKS
WE FACE SIGNIFICANT GLOBAL COMPETITION.
We conduct our business in a global environment that is highly competitive
and unpredictable. Many of our competitors are national or international
companies with far greater resources, capital and access to information than us.
Competition includes firms traditionally engaged in financial services such as
banks, broker-dealers and investment dealers, along with other sources such as
insurance companies, mutual fund groups, on-line service providers and other
companies offering financial services in Europe and globally. Increased
competition may lead us to become involved in transactions with more risk. In
addition, many non-bank competitors are not subject to the same extensive
regulations that govern us.
LEGAL AND REGULATORY RISKS
WE ARE EXPOSED TO LEGAL LIABILITY.
We are exposed to legal risks in our business and the volume and amount of
damages claimed in litigation against financial intermediaries are increasing.
These risks include potential liability under securities or other laws for
materially false or misleading statements made in connection with securities and
other transactions, potential liability for advice we provide to participants in
corporate transactions and disputes over the terms and conditions of complex
trading arrangements. We also face the possibility that counterparties in
complex or risky trading transactions will claim that we improperly failed to
tell them of the risks or that they were not authorized or permitted to enter
into these transactions with us and that their obligations to us are not
enforceable. During a prolonged market downturn, we would expect these types of
claims to increase.
These risks often may be difficult to assess or quantify and their existence
and magnitude often remain unknown for substantial periods of time. We incur
significant legal expenses every year in defending against litigation, and we
expect to continue to do so in the future. See "Item 8. Financial
Information--Legal Proceedings" for additional information with respect to our
legal and regulatory proceedings.
8
EXTENSIVE REGULATION OF OUR BUSINESS LIMITS OUR ACTIVITIES.
The financial services industry is subject to extensive regulation. Our
banking operations are subject to various Swiss regulatory requirements,
including capital requirements administered by the Swiss Federal Banking
Commission (the "SFBC"). The SFBC is our primary banking regulator and
establishes minimum capital requirements for our banking subsidiary. Our failure
to meet minimum capital requirements can result in mandatory, and possibly
additional discretionary action by the SFBC that, if undertaken, could have a
direct material effect on us. Under risk-based capital adequacy guidelines
established by the SFBC, banks in Switzerland must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and other
off-balance sheet items, as calculated under Swiss regulatory accounting
practices. Our banking operations are required to file certain reports with the
SFBC and we are subject to their examination. Our banking subsidiary is subject
to restrictions on loans and extensions of credit to, and on certain other types
of transactions with, affiliates.
The requirements imposed by our regulators are designed to ensure the
integrity of the financial markets and to protect customers and other third
parties which deal with us and are not designed to protect our shareholders.
Consequently, these regulations often serve to limit our activities, including
through net capital, customer protection and market conduct requirements.
EMPLOYMENT RISKS
WE DEPEND ON THE SERVICES OF OUR KEY EMPLOYEES.
Our future success depends, in significant part, upon the continued service
and performance of our senior management and other key employees. Losing the
services of some or all of these individuals could impair our ability to manage
our company, obtain new or maintain existing client engagements and complete new
proprietary investments.
ENFORCEMENT RISKS
YOU MAY BE UNABLE TO ENFORCE CIVIL LIABILITIES.
The enforcement of civil liabilities by investors under applicable
U.S. federal and state securities laws will be adversely affected because we are
organized under the laws of the Yukon Territory, Canada, none of our officers or
directors are residents of the U.S., and substantially all of our assets are
located outside of the U.S.
As a result, it may be difficult or impossible for U.S. investors to effect
service of process upon us or our officers or directors within the United
States. It may also be difficult to realize against us or them, in the United
States, upon judgments of U.S. courts for civil liabilities under applicable
U.S. federal and state securities laws. Courts in Canada or elsewhere may not
enforce: (i) judgments of U.S. courts obtained in actions against us or our
officers or directors predicated upon the civil liability provisions of
applicable U.S. federal and state securities laws; and (ii) in original actions,
liabilities against us or officers or directors predicated upon such laws.
YOU MAY HAVE TROUBLE ENFORCING U.S. BANKRUPTCY LAWS AND OTHER LAWS IN CANADA OR
ELSEWHERE.
We are organized under the laws of the Yukon Territory, Canada and our
principal operating assets are located outside of the United States. Under
bankruptcy laws in the United States, courts typically have jurisdiction over a
debtor's property, wherever it is located, including property situated in other
countries. Courts outside of the United States may not recognize the
U.S. bankruptcy court's jurisdiction. Accordingly, you may have trouble
administering a U.S. bankruptcy case involving a Canadian debtor with property
located outside of the United States. Any orders or judgments of a bankruptcy
court in the United States may not be enforceable.
9
MISCELLANEOUS RISKS
OUR RISK MANAGEMENT POLICIES AND PROCEDURES MAY LEAVE US EXPOSED TO UNIDENTIFIED
OR UNANTICIPATED RISK.
We have adopted comprehensive risk management processes to facilitate,
control and monitor risk taking. Nonetheless, our policies and procedures we
rely on to identify, monitor and manage risks may not be fully effective. Some
of our methods of managing risk are based upon our use of observed historical
market behaviour. As a result, these methods may not predict future risk
exposure, which could be significantly greater than the historical measures
indicate.
Other risk management methods depend upon evaluation of information
regarding markets, clients or other matters that is publicly available or
otherwise accessible by us. This information may not in all cases be accurate,
complete, up-to-date or properly evaluated. Management of operational, legal and
regulatory risk requires, among other things, policies and procedures to record
properly and verify a large number of transactions and events, and these
policies and procedures may not be fully effective.
CERTAIN FACTORS MAY INHIBIT A TAKEOVER THAT OUR SHAREHOLDERS MAY CONSIDER
FAVOURABLE.
Certain provisions of our charter documents and the corporate legislation
which governs us may discourage, delay or prevent a change of control or changes
in our management that shareholders consider favourable. Such provisions include
authorizing the issuance by our board of directors of preferred stock in series,
providing for a classified board of directors with staggered, three-year terms
and limiting the persons who may call special meetings of shareholders. We also
have a shareholder protection rights plan designed to protect us and our
shareholders from unfair, abusive or coercive acquisition tactics. See
"Item 10. Additional Information--Articles and Bylaws".
In addition, the INVESTMENT CANADA ACT (the "ICA") imposes limitations on
the rights of non-Canadians to acquire our common shares. See "Item 10.
Additional Information--Exchange Controls".
If a change of control or change in management is delayed or prevented, the
market price of our common stock could decline.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
MFC is a corporation organized under the laws of the Yukon Territory in
Canada. We were originally incorporated in June 1951 by letters patent. We were
continued under the CANADA BUSINESS CORPORATIONS ACT in March 1980 and under the
BUSINESS CORPORATIONS ACT (Yukon) in August 1996. Our name was changed to
"Nalcap Holdings Inc." in August 1987, to "Arbatax International Inc." in
March 1996 and to "MFC Bancorp Ltd." in February 1997. We have an office address
at 17 Dame Street, Dublin 2, Ireland (Tel: (3531) 679-1688).
BUSINESS OVERVIEW
We are a financial services company that focuses on merchant banking. We
provide specialized banking and corporate finance services internationally. We
advise clients on corporate strategy and structure, including mergers and
acquisitions and capital raising. We also commit our own capital to promising
enterprises and invest and trade to capture investment opportunities for our own
account. We seek to invest in businesses or assets whose intrinsic value is not
properly reflected in their share price or value. Our proprietary investing is
generally not passive and we seek investments where our financial expertise and
management can either add or unlock value. Our operations are primarily
conducted in Europe and North America.
Our business focuses on providing innovative finance and advisory services
for corporate finance transactions and capital raising. We counsel clients on
business and financing strategy and the execution of transactions that advance
their strategic goals, including mergers, acquisitions, reorganizations and
divestitures, and assist in structuring and raising capital. We focus on meeting
the financial needs of small to mid-sized
10
companies and other business enterprises primarily in Europe and North America.
We believe that many of these clients, particularly in Europe, are underserviced
by the large global investment banks and financial service providers. We
specialize in advising and structuring business enterprises involved in
unstructured and novel situations where a strong financial partner is needed and
traditional, off-the-shelf solutions are not workable. In addition, from time to
time, we act as a bridge lender or provide interim financing to business
enterprises pending reorganization or prior to their going public to generate
fee income and in conjunction with our investment strategy. In furtherance of
this strategy, we often advise and help restructure enterprises that are
undergoing financial stress or have or are near debt defaults.
Our experience and operating structure permit us to respond more rapidly to
our clients' needs than many of our larger competitors. These traits are
important to small and mid-sized business enterprises, many of which do not have
large internal corporate finance departments to handle their capital
requirements. We develop a partnership approach to assist those clients. These
activities are principally conducted through our wholly-owned subsidiary,
MFC Merchant Bank S.A. ("MFC Bank"). We acquired MFC Bank in February 1997 for
$27.4 million. MFC Bank is a licensed full-service Swiss bank based in Geneva,
Switzerland. In September 1997, we also acquired Bank Rinderknecht AG ("BRA")
for $9.6 million. BRA was headquartered in Zurich, Switzerland and was active in
private banking and securities trading until it was placed in liquidation by the
SFBC in August 1997. Following its acquisition, we merged BRA with MFC Bank and
rationalized the combined operations, including transferring all administrative
activities to Geneva, Switzerland. The acquisition of BRA increased our client
base and provided us with future tax benefits, including tax loss carry-forwards
of approximately $44.0 million. Since 1999, client assets relating to our
private banking services have been placed with a large Swiss bank and other
financial institutions. These arrangements let us maintain key client
relationships and mandates where we can provide value-added advisory services
and yet offer clients the capability and economies of scale of a large
banking institution.
Our sources of revenues include fees, interest income and related trading
income. We earn advisory fees by providing strategic and financial advice for
clients. We earn interest income through interest earned on our capital.
Our proprietary investing consists of investing our own capital and
utilizing our expertise to capture investment opportunities. We seek to invest
in businesses or assets whose intrinsic value is not properly reflected in their
share price or value. Our investing is generally not passive and we invest where
we believe our expertise in financial restructuring and management can add or
unlock value. We invest globally and our objective is to maximize total return
measured through both long-term appreciation and recognized gains. In 1997, we
completed the acquisition of the MFC Securities group of companies
("MFC Securities"), a bond trading enterprise based in Zurich, Switzerland. We
acquired MFC Securities for its approximate book value of $15.7 million plus a
contingent variable annual fee payable in cash or in common shares of MFC, at
the option of the vendors, and based upon MFC Securities' future
net-after-tax profits.
One of our proprietary investments is an indirect interest in a mineral
royalty (the "royalty interest") in the Wabush Iron Ore Mine (the "Wabush Mine")
located in the Province of Newfoundland, Canada. It has provided an
uninterrupted source of fairly predictable revenue for over 30 years, which we
have used to finance our proprietary investments. The royalty interest consists
of a mining sub-lease of the lands upon which the Wabush Mine is situated that
commenced in 1956 and expires in 2055. The terms of the mining sub-lease do not
provide for renewal. Revenues from the royalty interest are subject to a minimum
annual royalty of $3.25 million and are dependent on both the price levels for
iron ore and the amount of iron ore shipped from the Wabush Mine. Revenues from
the royalty interest were $12.3 million, $11.2 million and $12.9 million in
2000, 1999 and 1998, respectively.
Other proprietary investments include a portfolio of real estate assets
which are located in the State of Washington. We are conducting pre-development
work relating to infrastructure, rezoning, subdivision and permitting on a
substantial portion of the properties to the extent necessary to protect or
enhance their value. We intend to divest or otherwise monetize these real estate
assets and redeploy the proceeds in our merchant banking activities.
11
At December 31, 2000, we also had investments of approximately $3.2 million
relating to insurance obligations with respect to our insurance operations which
we originally acquired in 1991. All of the policies of our insurance operations
have expired and we manage and administer the outstanding claims in the ordinary
course.
Our operations are primarily conducted in Europe and North America. The
following is a summary of our revenues by geographic region for the years set
forth:
2000 1999 1998
-------- -------- --------
(in thousands)
Canada...................................................... $ 10,459 $ 17,851 $ 31,392
Western Europe.............................................. 136,671 88,075 88,237
United States............................................... 9,090 19,600 3,681
-------- -------- --------
$156,220 $125,526 $123,310
======== ======== ========
Our banking operations are subject to various Swiss regulatory requirements,
including capital requirements administered by the SFBC. The SFBC is our primary
banking regulator and establishes minimum capital requirements for MFC Bank. Our
failure to meet minimum capital requirements can result in mandatory, and
possibly additional discretionary, action by the SFBC that, if undertaken, could
have a direct material effect on us. Under risk-based capital adequacy
guidelines established by the SFBC, banks in Switzerland must meet specific
capital guidelines that involve quantitative measures of assets, liabilities and
other off-balance sheet items, as calculated under Swiss regulatory accounting
practices. Our banking operations are required to file certain reports with the
SFBC and we are subject to their examination. MFC Bank is subject to
restrictions on loans and extensions of credit to, and on certain other types of
transactions with, affiliates. We believe that the capital of our banking
operations is sufficient for its current and reasonably foreseeable operations.
Our banking operations place substantially all of their client deposits with
other major financial institutions on a fiduciary or trust basis and earn a fee
on the amount of money received from the counterparty. This is in contrast to
most North American banks, which generate revenue from the spread between their
cost of funds and the credit received. These fiduciary or trust deposits are
off-balance sheet items and permit us to generate revenues without committing or
tying up significant amounts of capital.
COMPETITION
We conduct our business in a global environment that is highly competitive
and unpredictable. We encounter intense competition in all aspects of our
business and compete directly with other financial services companies, brokerage
firms, investment banks, merchant banks and other investment managers. We face
competition in Switzerland from other banks, asset managers and a range of
non-bank financial institutions and internationally from investment banks and
securities dealers. Many of our competitors are national or international
companies with far greater resources, capital and access to information than us.
As a result, we may become involved in transactions with more risk.
ORGANIZATIONAL STRUCTURE
The following is a listing of our significant operating subsidiaries as at
April 23, 2001:
JURISDICTION OF SHAREHOLDING AT
NAME OF SUBSIDIARY INCORPORATION OR ORGANIZATION APRIL 23, 2001
- ------------------ ----------------------------- ---------------
MFC Merchant Bank S.A...................................... Switzerland 100%
TriMaine Holdings, Inc..................................... State of Washington 81%
12
PROPERTY, PLANTS AND EQUIPMENT
Our offices are located in Dublin, Ireland, Geneva and Zurich, Switzerland
and Berlin, Germany. All of our premises are leased.
We indirectly participate in the royalty interest. The royalty interest
consists of a mining sub-lease of the lands upon which the Wabush Mine is
situated that commenced in 1956 and expires in 2055. The lessor is Knoll Lake
Minerals Limited ("Knoll Lake"), which holds a mining lease from the Province of
Newfoundland, Canada. The lease requires the payment of royalties to Knoll Lake
of $0.22 per ton on shipments of iron ore from the Wabush Mine. Iron ore is
shipped from the Wabush Mine to Pointe Noire, Quebec, Canada, where it is
pelletized. Geological studies done on the Wabush Mine to date have estimated
that the mine has iron ore deposits of approximately 713 million tons averaging
34.5 fe. In 1998, 1999 and 2000, 5.6 million, 5.5 million and 5.9 million tons
of iron ore, respectively, were shipped from the Wabush Mine.
The Wabush Mine is operated by an unincorporated joint venture consisting of
Wabush Iron Company Limited (U.S.A.), Steel Company of Canada Limited (Canada)
and Dominion Foundries & Steel Limited (Canada) (collectively, the
"Consortium"), which pays royalties to the holder of the royalty interest based
upon the amount of iron ore shipped from the Wabush Mine. These royalties are
not to be less than $3.25 million annually until 2055. In 1987, the royalty rate
specified in the base price was amended to require a base royalty rate of $1.685
per ton with escalations as defined by agreement. Iron ore is typically sold
either as a concentrate, whereby the iron ore is in granular form, or as a
pellet, whereby iron ore concentrate has been mixed with a binding agent, formed
into a pellet and then fired in a furnace. Iron ore pellets can be charged
directly into blast furnaces without further processing and are primarily used
to produce pig iron which is subsequently transformed into steel. As such, the
demand and, consequently, the pricing of iron ore is dependent upon the raw
material requirements of integrated steel producers. Demand for blast furnace
steel is in turn cyclical in nature and is influenced by, among other things,
the level of general economic activity. As the operator of the Wabush Mine is
owned by the Consortium of steel producers, production from the mine has been
generally maintained at relatively consistent levels.
We also indirectly own approximately 52 acres of undeveloped real property
which is annexed to the City of Gig Harbor, Washington. Of the total acreage,
35 acres are zoned for medium density residential use and 17 acres are zoned for
business park/professional office use. We may develop all or part of the
remaining land through partnerships, joint ventures or other economic
associations with local developers. Our current involvement with the property is
limited to pre-development work, including infrastructure (roads, sewer and
water services), preliminary permits, market studies, feasibility studies and
related activities.
We also indirectly own a 17.2 acre property located in Federal Way,
Washington. This property is zoned business park and all utilities are available
to the site. The site is encumbered by a wetland area which has been estimated
at 2.4 acres exclusive of setback requirements. Currently, site approval
applications have been made for an 800-unit self-storage facility and an 80,000
square foot warehouse/office facility.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results
of operations for the three years ended December 31, 2000 should be read in
conjunction with our consolidated financial statements and related notes
included in this annual report. Our financial statements included herein were
prepared in accordance with Canadian GAAP. For a reconciliation of our financial
statements included herein to U.S. GAAP, see Note 16 to the financial
statements. We have made certain reclassifications to the prior periods'
financial statements to conform to the current period's presentation.
OPERATING RESULTS
We are a financial services company that focuses on merchant banking. We
provide specialized banking and corporate finance services internationally.
These activities are primarily conducted through our wholly-owned subsidiary,
MFC Bank. We also commit our own capital to promising enterprises and invest and
otherwise trade to capture investment opportunities for our own account. We seek
to invest in businesses or assets whose
13
intrinsic value is not properly reflected in their share price or value. Our
investing is generally not passive. We seek investments where our financial and
management expertise can add or unlock value.
Our results of operations may be materially affected by market fluctuations
and economic factors. In addition, our results of operations have been and may
continue to be affected by many factors of a global nature, including economic
and market conditions, the availability of capital, the level and volatility of
equity prices and interest rates, currency values and other market indices,
technological changes, the availability of credit, inflation and legislative and
regulatory developments. Our results of operations may also be materially
affected by competitive factors. Competition includes firms traditionally
engaged in financial services such as banks, broker-dealers and investment
dealers, along with other sources such as insurance companies, mutual fund
groups, on-line service providers and other companies offering financial
services in Europe and globally.
In recent years, the financial services industry has experienced
consolidation and convergence as financial institutions involved in a broad
spectrum of services have merged or combined. The trend to consolidate is
expected to continue and produce global financial institutions with much greater
capital and other resources than MFC. As a result of the economic and
competitive factors discussed above, our results may vary significantly from
period to period. We intend to manage our business for the long term and to
mitigate the effect of such factors by focusing on our core operations of
meeting the financial needs of small to mid-sized companies and other business
enterprises internationally.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
The following table provides selected quarterly financial information for
MFC for each quarter of 2000:
2000
---------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------- -------- ---------
(in thousands, other than per share amounts)
Revenues............................................. $ 57,736 $ 28,614 $ 42,209 $ 27,661
Expenses............................................. 43,061 16,509 33,316 21,468
Net income........................................... 12,766 12,085 8,147 6,165
Fully diluted earnings per share..................... 0.89 0.85 0.59 0.46
Total assets......................................... 332,063 304,846 285,613 291,393
Shareholders' equity................................. 213,134 195,801 186,171 174,910
In 2000, our revenues increased to $156.2 million from $125.5 million in
1999, primarily as a result of investment activities. Our portfolio remains
principally invested in investment grade securities. In 1999, we transferred our
private banking services largely as a result of economies of scale.
In 1999, we began electronic banking and equities trading for our clients
through our NetBanking website. In March 2000, we discontinued operation of the
website due to changing economic fundamentals in Europe. As a result, we took a
one-time loss from such discontinued operations of $4.9 million, or $0.32 per
share on a fully diluted basis, for the year ended December 31, 1999.
Expenses from continuing operations increased to $114.4 million in 2000 from
$89.4 million in 1999, primarily as a result of higher investment expenses. In
2000, investment expenses increased to $88.9 million from $65.3 million in 1999.
General and administrative expenses increased to $21.2 million in 2000 from
$19.3 million in 1999. Interest expense decreased to $4.2 million in 2000 from
$4.9 million in 1999, primarily as a result of lower outstanding indebtedness
during 2000 compared to 1999.
In 2000, net earnings were $39.2 million, or $3.24 per share on a basic
basis ($2.78 per share on a fully diluted basis). In 1999, net earnings were
$31.4 million, or $2.59 per share on a basic basis ($2.28 per share on a fully
diluted basis). Income from continuing operations in 1999 was $36.3 million, or
$3.00 per share on a basic basis ($2.60 per share on a fully diluted basis).
14
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
In 1999, our revenues increased to $125.5 million from $123.3 million in
1998, primarily as a result of investment activities. Our investment portfolio
remains principally invested in investment grade securities. In 1999, we
transferred our private banking services largely as a result of economies of
scale.
In 1999, we began electronic banking and equities trading for our clients
through our NetBanking website. In March 2000, we discontinued operation of the
website due to changing economic fundamentals in Europe. As a result, we took a
one-time loss from such discontinued operations of $4.9 million, or $0.32 per
share on a fully diluted basis, for the year ended December 31, 1999.
Expenses from continuing operations decreased to $89.4 million in 1999 from
$92.8 million in 1998, primarily as a result of lower investment expenses.
General and administrative expenses decreased marginally to $19.3 million in
1999 from $19.4 million in 1998. Interest expense increased marginally to
$4.9 million in 1999 from $4.8 million in 1998.
In 1999, net earnings were $31.4 million, or $2.59 per share on a basic
basis ($2.28 per share on a fully diluted basis). Income from continuing
operations in 1999 was $36.3 million, or $3.00 per share on a basic basis ($2.60
per share on a fully diluted basis). In 1998, net earnings were $30.2 million,
or $2.48 per share on a basic basis ($2.20 per share on a fully diluted basis).
Net earnings in 1998 included $8.1 million on the purchase of debt securities.
LIQUIDITY AND CAPITAL RESOURCES
The following table is a summary of selected financial information
concerning MFC for the periods indicated:
DECEMBER 31, DECEMBER 31,
--------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(U.S. Dollars in (Canadian Dollars in
thousands) thousands)
Cash and cash equivalents........................ $ 45,677 $ 34,343 $ 68,524 $ 49,567
Securities....................................... 53,582 46,981 80,384 67,808
Total assets..................................... 221,346 187,145 332,063 270,107
Debt............................................. 23,611 21,421 35,421 30,917
Shareholders' equity............................. 142,070 118,348 213,134 170,811
We maintain a high level of liquidity, with a substantial amount of our
assets held in cash and cash equivalents, marketable securities and customer
loans collateralized by marketable securities. The highly liquid nature of these
assets provides us with flexibility in managing our business and financing. We
also use this liquidity in client related services where we act as a financial
intermediary for third parties and in our own proprietary investing activities.
At December 31, 2000, our cash and cash equivalents were $68.5 million,
compared to $49.6 million at December 31, 1999. At December 31, 2000, we had
securities of $80.4 million, compared to $67.8 million at December 31, 1999.
At December 31, 2000, our debt was $35.4 million, compared to $30.9 million
at December 31, 1999. At December 31, 2000, all of our borrowings were
denominated in U.S. dollars, with maturities of $7.8 million in 2002,
$6.4 million in 2003 and $21.1 million thereafter. See Note 7 of our
consolidated financial statements included elsewhere in this annual report.
15
OPERATING ACTIVITIES
Operating activities provided cash of $30.8 million in 2000, compared to
$29.9 million in 1999. In 2000, a decrease in amounts due from investment
dealers provided cash of $3.7 million, compared to an increase in amounts due
from investment dealers using cash of $11.1 million in 1999. An increase in
receivables used cash of $3.5 million in 2000, compared to a decrease in
receivables providing cash of $1.7 million in 1999. An increase in accounts
payable and accrued expenses provided cash of $2.1 million in 2000, compared to
a decrease in accounts payable and accrued expenses using cash of $1.0 million
in 1999. We expect to generate sufficient cash flow from operations to meet our
working capital requirements.
INVESTING ACTIVITIES
Investing activities used cash of $31.2 million in 2000, compared to
$35.7 million in 1999. In 2000, a net increase in loans used cash of
$31.7 million, compared to $34.7 million in 1999.
FINANCING ACTIVITIES
Net cash provided by financing activities was $16.9 million in 2000,
compared to $26.8 million in 1999. Net borrowings provided cash of $4.0 million
in 2000, compared to net debt repayments using cash of $7.2 million in 1999. In
2000, a net increase in deposits provided cash of $13.3 million, compared to
$34.3 million in 1999. The net repurchase of common shares in 2000 used cash of
$0.4 million, compared to $0.2 million in 1999. We did not pay dividends on our
common shares in 2000 or 1999.
FOREIGN CURRENCY
Substantially all of our operations are conducted in international markets
and our consolidated financial results are subject to foreign currency exchange
rate fluctuations, in particular, those in Switzerland.
We translate foreign assets and liabilities into Canadian dollars at the
rate of exchange on the balance sheet date. Revenues and expenses are translated
at the average rate of exchange prevailing during the period. Unrealized gains
or losses from these translations are recorded as shareholders' equity on the
balance sheet and do not affect our net earnings.
As a substantial amount of our revenues are received in Swiss francs, our
financial position for any given period, when reported in Canadian dollars, can
be significantly affected by the exchange rate for Swiss francs prevailing
during that period. In the year ended December 31, 2000, we reported
approximately a net $3.5 million foreign exchange translation gain and, as a
result, our cumulative foreign exchange translation loss at December 31, 2000
was $0.8 million, compared to $4.3 million at December 31, 1999.
Since both our principal sources of revenues and expenses are in Swiss
francs, we use derivatives to manage our foreign exchange exposure. See
"Item 11.--Quantitative and Qualitative Disclosures About Market Risk".
Based upon the period average exchange rates in 2000, the Canadian dollar
increased by approximately 3.0% in value against the Swiss franc and decreased
by approximately 2.8% in value against the U.S. dollar since December 31, 1999.
As at December 31, 2000, the Canadian dollar decreased by approximately 2.1% in
value against the Swiss franc and approximately 3.7% in value against the
U.S. dollar since December 31, 1999.
DERIVATIVE INSTRUMENTS
Derivatives are financial instruments, the payments of which are linked to
the prices, or relationships between prices, of securities or commodities,
interest rates, currency exchange rates or other financial measures. Derivatives
are designed to enable parties to manage their exposure to interest rates and
currency exchange rates, and security and other price risks. We use derivatives
to provide products and services to clients and to manage our foreign exchange
exposure for our own account.
16
INFLATION
We do not believe that inflation has had a material impact on revenues or
income over the past three fiscal years. Because our assets to a large extent
are liquid in nature, they are not significantly affected by inflation. However,
increases in inflation could result in increases in our expenses, which may not
be readily recoverable in the price of services provided to our clients. To the
extent inflation results in rising interest rates and has other adverse effects
on capital markets, it could adversely affect our financial position and
profitability.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT; BOARD PRACTICES
Our Articles provide for three classes of directors with staggered terms.
Each director holds office until the expiry of his term or until his successor
is elected or appointed, unless his office is earlier vacated in accordance with
our Bylaws or with the provisions of the BUSINESS CORPORATIONS ACT (Yukon). At
each annual meeting of MFC, a class of directors is elected to hold office for a
three year term. Successors to the class of directors whose terms expire are
identified as being of the same class as the directors they succeed and are
elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders. A director appointed or elected to fill a vacancy on
the board of directors holds office for the unexpired term of his predecessor.
Officers of MFC serve at the discretion of the board of directors.
The following table sets out certain information concerning our directors
and executive officers:
DATE OF EXPIRATION OF
COMMENCEMENT TERM OF
OF OFFICE WITH OFFICE WITH
NAME PRESENT POSITION WITH MFC PRINCIPAL OCCUPATION MFC MFC
- ---- ------------------------- -------------------- -------------- -------------
Michael J. Smith(1)........... Director and President President, Chief Executive 1986 2002
Officer and Director of MFC 1996
Roy Zanatta................... Director and Secretary and Director of MFC 1996 2002
Secretary 1996
Sok Chu Kim(1)................ Director Senior Vice-President, Korea 1996 2001
Exchange Bank, 1967 to 1985;
President of Korea
International Merchant Bank,
1985 to 1989; Advisor to
Sukura Bank (Seoul, Korea);
Director of Korea
Liberalization Fund Ltd.
Oq-Hyun Chin(1)............... Director Business Advisor, The Art 1994 2001
Group Architects &
Engineers Ltd.
Julius Mallin................. Director Retired Businessman 1994 2003
Dr. Stefan Feuerstein......... Director Managing Director of the 2000 2003
Industrial Investment Council
of the New German States;
President of the Thuringian
Economic Development
Corporation (Germany) from
1992 to 1997
- ------------
(1) Member of the Audit Committee.
17
There are no arrangements or understandings with major shareholders,
customers, suppliers or others pursuant to which any person referred to above
was selected as a director or executive officer, nor are there any family
relationships between any of the persons referred to above.
Our Audit Committee is responsible for, among other things: (1) meeting with
the external auditors separate from management to review specific issues;
(2) reviewing with the external auditors their annual report and reports to our
board of directors, from time to time, with respect to internal audit and
accounting procedures; and (3) making recommendations relating to the
appointment and remuneration of external auditors.
We do not have a Remuneration Committee of our board of directors. Our
executive compensation program is administered by our Chief Executive Officer
under the supervision of our board of directors.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL
Mr. Smith and Mr. Zanatta (each an "Executive") each entered into an amended
and restated employment agreement with MFC in 2000. Each agreement generally
provides, subject to certain termination provisions, for the continued
employment of the Executive for a period of 36 months with automatic one month
renewals, so that each agreement at all times has a remaining term of
36 months. Each agreement provides for an annual base salary and other
compensation to be paid to the Executive as determined by our board of
directors. In the event he is terminated without cause or resigns for good
reason (as defined in each agreement) within three years of a change of control
(as defined in each agreement), the Executive will be entitled to a lump sum
severance payment of three times the sum of: (i) his current annual salary under
the agreement; and (ii) the higher of his current annual bonus under the
agreement and the highest variable pay and bonus received by him in the previous
five fiscal years. If the Executive is terminated without cause or resigns for
good reason after three years of a change of control, he will be entitled to the
same payments in equal installments over 12 months.
In addition, all unvested rights in any stock options or other equity awards
of the Executive will vest in full in the event of a change of control. The
Executive will also be entitled, for a period of 365 days following the earlier
of the date of his termination and the date of the change of control, to require
us to purchase all or any part of our common shares held by such Executive on
the date of termination or date of change of control at a price equal to the
average closing market price of our common shares on the Nasdaq National Market
(the "Nasdaq") on the ten preceding trading days.
COMPENSATION
During the fiscal year ended December 31, 2000, we paid an aggregate of
approximately $1.5 million in cash compensation to our directors and officers.
This amount does not take into account incentive stock options granted to or
exercised by such directors and officers or other non-cash compensation, as more
particularly described below. No other funds were set aside or accrued by
MFC during the fiscal year ended December 31, 2000 to provide pension,
retirement or similar benefits for our directors or officers pursuant to any
existing plan provided or contributed to by MFC.
We are required, under applicable securities legislation in Canada, to
disclose to our shareholders details of compensation paid to certain executive
officers. The following fairly reflects material information regarding
compensation paid to such persons.
EXECUTIVE COMPENSATION
The following table provides a summary of compensation paid by us during
each of the last three fiscal years to our Chief Executive Officer and to our
next four most highly paid executive officers who received a
18
combined salary and bonus during the fiscal year ended December 31, 2000 in
excess of $100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
---------------------------------- ----------------
AWARDS
----------------
SECURITIES UNDER
FISCAL YEAR OTHER ANNUAL OPTIONS ALL OTHER
ENDED SALARY BONUS COMPENSATION GRANTED COMPENSATION
NAME AND PRINCIPAL POSITION DECEMBER 31, ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------------
Michael J. Smith 2000 289,198 259,017 17,596 -- 2,290
President, Chief Executive 1999 212,944 256,809 -- -- --
Officer and Director 1998 221,876 231,365 -- 77,000 --
- -----------------------------------------------------------------------------------------------------------------
Claudio Morandi 2000 212,333 133,974 5,278 25,000 2,290
President 1999 179,171 154,085 10,102 -- --
MFC Bank 1998 117,010 101,222 -- 75,000 --
- -----------------------------------------------------------------------------------------------------------------
Roy Zanatta 2000 85,161 10,000 -- -- --
Secretary and Director 1999 104,852 119,844 -- -- --
1998 192,500 101,222 -- 60,000 --
- -----------------------------------------------------------------------------------------------------------------
John Musacchio 2000 272,803 -- -- -- --
Vice-President 1999 283,833 -- -- -- --
1998 -- -- -- 50,000 --
- -----------------------------------------------------------------------------------------------------------------
Jean Paul Abgottspon 2000 139,768 31,903 7,484 -- 28,678
Senior Vice-President 1999 165,800 18,862 -- -- --
MFC Bank 1998(2) 171,828 -- -- 8,000 --
- -----------------------------------------------------------------------------------------------------------------
(1) On a cash basis, unless otherwise stated.
(2) Mr. Abgottspon commenced employment with MFC in June 1998. His compensation
for fiscal 1998 is presented on an annualized basis.
DIRECTORS' COMPENSATION
We did not pay any compensation to our directors for their services as
directors during the year ended December 31, 2000, nor are there any
arrangements for any such compensation to be paid. Our directors are, however,
reimbursed for reasonable expenses incurred in connection with their services as
directors of MFC.
OPTIONS TO PURCHASE SECURITIES
We have a stock option plan that provides for grants of options in respect
of directors, officers and key employees of, and other persons providing ongoing
services to, MFC. Our stock option plan is administered by our board of
directors. The maximum number of our common shares which may be reserved and set
aside for issuance under our stock option plan is 1,512,000. Each option upon
its exercise entitles the grantee to one common share. The exercise price of an
option may not be less than the closing market price of our common shares on the
Nasdaq on the day prior to the grant of the option. In the event our common
shares are not traded on such day, the exercise price may not be less than the
average between the closing bid and ask prices of our common shares on the
Nasdaq for the ten trading days immediately prior to the date the option is
granted. Options may be granted under our stock option plan exercisable for a
period of up to ten years from the date of grant of the option.
19
Option Grants During the Most Recently Completed Financial Year
The following table sets forth the grant of incentive stock options to our
Named Executives and directors during the financial year ended December 31,
2000.
- --------------------------------------------------------------------------------------------------
MARKET VALUE
SECURITIES OF SECURITIES
UNDER % OF TOTAL UNDERLYING
OPTIONS OPTIONS EXERCISE OR OPTIONS ON THE
GRANTED GRANTED IN BASE PRICE DATE OF GRANT EXPIRATION
NAME (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) DATE
- --------------------------------------------------------------------------------------------------
Claudio Morandi 25,000 19.2% U.S.$7.00 U.S.$6.94 April 11, 2005
- --------------------------------------------------------------------------------------------------
Dr. Stefan Feuerstein 50,000 38.5% U.S.$7.00 U.S.$7.00 March 29, 2005
- --------------------------------------------------------------------------------------------------
EMPLOYEES
We currently employ approximately 31 people. As at December 31, 2000, 1999
and 1998, we employed approximately 36, 37 and 35 people, respectively.
We do not have any involvement with labour unions. We do not employ a
significant number of temporary employees.
SHARE OWNERSHIP
The following table sets forth information, as of April 23, 2001, concerning
the beneficial ownership of our common shares by each of our Named Executives
and directors.
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER COMMON SHARES OF CLASS
- ------------------------ ------------- ----------
Michael J. Smith............................................ 612,000 4.8%
Claudio Morandi............................................. --(1) --
Roy Zanatta................................................. --(2) --
John Musacchio.............................................. --(3) --
Jean Paul Abgottspon........................................ -- --
Sok Chu Kim................................................. -- --
Julius Mallin............................................... -- --
Oq-Hyun Chin................................................ -- --
Dr. Stefan Feuerstein....................................... --(4) --
- ------------
(1) Mr. Morandi has incentive stock options entitling him to acquire an
aggregate of 145,000 of our common shares at an exercise price of U.S.$7.25
per share in respect of options to purchase 45,000 shares expiring July 25,
2002, U.S.$6.00 per share in respect of options to purchase 75,000 shares
expiring October 28, 2003 and U.S.$7.00 per share in respect of options to
purchase 25,000 shares expiring April 11, 2005.
(2) Mr. Zanatta has incentive stock options entitling him to acquire an
aggregate of 125,000 of our common shares at an exercise price of U.S.$7.25
per share in respect of options to purchase 65,000 shares expiring July 25,
2002 and U.S.$6.00 per share in respect of options to purchase 60,000 shares
expiring October 28, 2003.
(3) Mr. Musacchio has incentive stock options entitling him to acquire 50,000 of
our common shares at an exercise price of U.S.$6.00 per share expiring
October 28, 2003.
(4) Dr. Feuerstein has incentive stock options entitling him to acquire 50,000
of our common shares at an exercise price of U.S.$7.00 per share expiring
March 29, 2005.
20
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The following table sets forth certain information as at April 23, 2001
concerning the ownership of our common shares as to each person known to us,
based solely upon public records and filings, to be the direct and/or indirect
owner of more than five percent of our common shares:
IDENTITY OF PERSON OR GROUP AMOUNT OWNED PERCENT OF CLASS
- --------------------------- ------------ ----------------
Peter Kellogg............................................... 3,141,550(1) 24.8%
FMR Corp.................................................... 763,800 6.0%
- ------------
(1) In his public filings, Mr. Kellogg disclaims beneficial ownership of
2,881,550 of the shares, or approximately 22.8% of our issued and
outstanding common shares.
Our officers and directors, as a group, own or control, directly or
indirectly, an aggregate of 612,000 common shares and have options on 745,000
common shares, representing approximately 10.1% of our common shares on a fully
diluted basis.
All common shareholders have identical voting rights.
SHAREHOLDER DISTRIBUTION
As at April 23, 2001, there were approximately 664 holders of record of our
common shares and a total of 12,653,156 common shares were outstanding.
Approximately 10,675,625 or 84% of our common shares are held of record by 588
U.S. holders, including depositories and clearing agencies.
RELATED PARTY TRANSACTIONS
Other than as disclosed in this annual report, to the best of our knowledge,
there have been no material transactions since January 1, 2000 to which MFC was
or is a party and in which a director or officer of MFC, any relative or spouse
of any director or officer, or any individual owning, directly or indirectly, an
interest in the voting power of MFC that gives it significant influence over
MFC, has or will have a direct or indirect material interest, nor were any
directors or officers of MFC, any relatives or spouses of such directors or
officers, or any individuals owning, directly or indirectly, an interest in the
voting power of MFC that gives them significant influence over MFC, indebted to
MFC during this period.
At December 31, 2000, we had a note payable to an affiliate in the amount of
$7.8 million from whom we earned fees of $1.1 million during 2000. Our President
and Chief Executive Officer is also the President and a director of the
affiliate.
We are the lessee of the Wabush Mine located in the Province of
Newfoundland, Canada. The Wabush Mine is operated by an independent party who
pays royalties based on the amount of iron ore it extracts from the Wabush Mine.
The royalties are paid to an affiliate, which acquired the rights to the
royalties during a prior year in exchange for preferred shares which provide for
a variable annual dividend rate. During 2000, the amount of preferred dividends
earned amounted to $5.4 million and we earned management fees of $0.8 million
from the affiliate. We had a payable to the affiliate of $4.3 million at
December 31, 2000 which will be paid in the normal course.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See "Item 18. Financial Statements" for financial statements filed as part
of this annual report.
SIGNIFICANT CHANGES
No significant changes have occurred since the date of the financial
statements provided in Item 18 below.
21
LEGAL PROCEEDINGS
We are subject to routine litigation incidental to our business and are
named from time to time as a defendant in various legal actions arising in
connection with our activities, certain of which include large claims for
punitive damages. We are also involved, from time to time, in investigations and
proceedings by governmental and self-regulatory agencies. Some of these legal
actions, investigations and proceedings may result in adverse judgments,
penalties or fines.
In view of the inherent difficulty of predicting the outcome of such
matters, particularly in cases in which substantial damages are sought, we
cannot state what the eventual outcome of pending matters will be. We are
contesting the allegations made in each pending matter and believe, based on
current knowledge and after consultation with counsel, that the outcome of such
matters will not have a material adverse effect on our consolidated financial
condition, but may be material to our operating results for any particular
period, depending on the level of our income for such period.
DIVIDEND INFORMATION
The actual timing, payment and amount of dividends paid on our common shares
is determined by our board of directors, based upon things such as our cash
flow, results of operations and financial condition, the need for funds to
finance ongoing operations and such other business considerations as our board
of directors considers relevant. In June 1997, we paid a dividend of $0.01 per
share and, in June 1998, we paid a dividend of U.S.$0.02 per share. We did not
pay any dividends in 1999 or 2000.
ITEM 9. THE OFFER AND LISTING
MARKETS AND PRICE HISTORY
Our common shares are quoted on the Nasdaq under the symbol "MXBIF" and on
the Frankfurt Stock Exchange under the symbol "MFC GR". The following table sets
forth the high and low sales prices of our common shares on the Nasdaq for the
periods indicated:
NASDAQ(1)
-----------------------
HIGH LOW
---------- ----------
ANNUAL HIGHS AND LOWS
1996........................................................ U.S.$ 7.38 U.S.$ 3.27
1997........................................................ 11.56 5.45
1998........................................................ 14.38 4.69
1999........................................................ 12.25 5.81
2000........................................................ 10.00 6.75
QUARTERLY HIGHS AND LOWS
1999
First Quarter............................................... U.S.$ 9.00 U.S.$ 6.50
Second Quarter.............................................. 8.31 5.81
Third Quarter............................................... 12.25 6.31
Fourth Quarter.............................................. 9.50 7.50
2000
First Quarter............................................... 10.00 6.75
Second Quarter.............................................. 8.38 6.81
Third Quarter............................................... 8.56 6.94
Fourth Quarter.............................................. 8.88 7.50
2001
First Quarter............................................... 8.50 7.13
22
NASDAQ(1)
-----------------------
HIGH LOW
---------- ----------
MONTHLY HIGHS AND LOWS
2000
October..................................................... U.S.$ 8.19 U.S.$ 7.88
November.................................................... 8.88 7.63
December.................................................... 8.13 7.50
2001
January..................................................... 8.50 7.69
February.................................................... 8.47 7.75
March....................................................... 8.38 7.13
April 1 to April 23......................................... 8.17 7.63
- ------------
(1) Our common shares were quoted on the OTC Bulletin Board from May 1996 to
May 1997. Since May 1997, our common shares have been quoted on the Nasdaq.
ITEM 10. ADDITIONAL INFORMATION
ARTICLES AND BYLAWS
We are incorporated under the laws of the Yukon Territory, Canada and have
been assigned corporate access number 25686.
Our Articles and Bylaws do not contain a description of our objects and
purposes, except insofar as to restrict us from carrying on the business of a
railway, steamship, air transport, canal, telegraph, telephone or irrigation
company. We may perform any and all corporate activities permissible under the
laws of the Yukon Territory.
Our Articles and Bylaws do not restrict a director's power to vote on a
proposal, arrangement or contract in which the director is materially
interested, vote compensation to themselves or any other members of their body
in the absence of an independent quorum or exercise borrowing powers. There is
no mandatory retirement age for our directors and our directors are not required
to own securities of MFC in order to serve as directors.
Our authorized capital consists of common shares and class A preferred
shares. Our class A preferred shares may be issued in one or more series and our
directors may fix the number of shares which is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to each
series. Currently, we have authorized 140,000 class A preferred shares,
series 1 (the "Series 1 Shares"), 140,000 class A preferred shares, series A
(the "Series A Shares"), 100,000 class A preferred shares, series 2 (the
"Series 2 Shares") and 20,000 class A preferred shares, series 3 (the "Series 3
Shares").
Holders of our common shares are entitled to vote at all meetings of
shareholders, except meetings at which only holders of a specified class of
shares are entitled to vote, receive any dividend declared by MFC and, subject
to the rights, privileges, restrictions and conditions attaching to any other
class of shares, receive the remaining property of MFC upon dissolution.
Our class A preferred shares of each series rank on a parity with our
class A preferred shares of any other series and are entitled to a preference
over our common shares with respect to the payment of dividends and the
distribution of assets or return of capital in the event of liquidation,
dissolution or winding-up of MFC.
Holders of our Series 1 Shares and Series A Shares are entitled to dividends
of $5.00 per share per annum. Our Series 1 Shares and Series A Shares are
redeemable at our option at a price of $100.00 and carry retraction rights
entitling a holder to require us to redeem their Series 1 Shares or Series A
Shares, respectively, at any time after five years from the date of issuance for
a price of $100.00. Our Series 1 Shares and Series A Shares are also convertible
into such number of our common shares as is specified in our Articles at any
time after five years from the date of issuance or in the event the Series 1
Shares or Series A Shares, respectively, are called for redemption.
23
Holders of our Series 2 Shares and Series 3 Shares are entitled to dividends
of $3.00 per share per annum. Our Series 2 Shares and Series 3 Shares are
redeemable at our option at a price of $100.00.
The provisions in our Articles attaching to our common shares and class A
preferred shares may be altered, amended, repealed, suspended or changed by the
affirmative vote of the holders of not less than two-thirds of the common shares
and two-thirds of the class A preferred shares, respectively.
Our Articles provide for three classes of directors with staggered terms.
Each director holds office until the expiry of his term or until his successor
is elected or appointed, unless his office is earlier vacated in accordance with
our Bylaws or with the provisions of the BUSINESS CORPORATIONS ACT (Yukon). At
each annual meeting of MFC, a class of directors is elected to hold office for a
three year term. Successors to the class of directors whose terms expire are
identified as being of the same class as the directors they succeed and are
elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders. A director appointed or elected to fill a vacancy on
the board of directors holds office for the unexpired term of his predecessor.
An annual meeting of shareholders must be held at such time in each year not
later than 15 months after the last preceding annual meeting and at such place
as our board of directors, or failing it, our Chairman, Managing Director or
President, may from time to time determine. The holders of not less than five
percent of our issued shares that carry the right to vote at a meeting may
requisition our directors to call a meeting of shareholders for the purposes
stated in the requisition. The quorum for the transaction of business at any
meeting of shareholders is two persons present in person or by proxy who
together hold or represent by proxy in aggregate not less than one-third of our
outstanding shares entitled to vote at the meeting. Only persons entitled to
vote, our directors and auditor and others who, although not entitled to vote,
are otherwise entitled or required to be present, are entitled to be present at
a meeting of shareholders.
Except as provided in the ICA, there are no limitations specific to the
rights of non-Canadians to hold or vote our common shares under the laws of
Canada or the Yukon Territory, or in our charter documents. See "Exchange
Controls" below for a discussion of the principal features of the ICA for
non-Canadian residents proposing to acquire our common shares.
As set forth above, our Articles and Bylaws contain certain provisions that
would have an effect of delaying, deferring or preventing a change in control of
MFC, including authorizing the issuance by our board of directors of preferred
stock in series, providing for a classified board of directors with staggered,
three-year terms and limiting the persons who may call special meetings of
shareholders. Our Articles and Bylaws do not contain any provisions that would
operate only with respect to a merger, acquisition or corporate restructuring of
MFC.
In 1993, we adopted a shareholder protection rights plan to protect us and
our shareholders from unfair, abusive or coercive acquisition tactics.
Generally, the plan provides for the issuance to the holders of each of our
outstanding common shares of a right to purchase one of our common shares at an
exercise price determined in accordance with the plan upon the commencement of a
take-over bid. We have waived the application of the plan to an existing
shareholder to permit such shareholder to acquire up to 25% of our common
shares.
Our Bylaws do not contain any provisions governing the ownership threshold
above which shareholder ownership must be disclosed.
MATERIAL CONTRACTS
We have not entered into any material contracts, other than in the ordinary
course of business, during the preceding two years.
EXCHANGE CONTROLS
There are presently no governmental laws, decrees or regulations in Canada
which restrict the export or import of capital, or which impose foreign exchange
controls or affect the remittance of interest, dividends or other payments to
non-resident holders of MFC's common shares. However, any remittances of
dividends to United States residents are subject to a 15% withholding tax (5% if
the beneficial owner of the dividends is a corporation owning at least 10% of
our voting shares) pursuant to the Canada-U.S. Tax Convention (1980), as amended
(the "Treaty"). See "Item 10. Additional Information--Taxation".
24
Except as provided in the ICA, there are no limitations specific to the
rights of non-Canadians to hold or vote our common shares under the laws of
Canada or the Yukon Territory, or in our charter documents. The following
summarizes the principal features of the ICA for non-Canadian residents
proposing to acquire our common shares. THIS SUMMARY IS OF A GENERAL NATURE ONLY
AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL ADVICE TO
ANY HOLDER OR PROSPECTIVE HOLDER OF OUR COMMON SHARES, AND NO OPINION OR
REPRESENTATION TO ANY HOLDER OR PROSPECTIVE HOLDER OF OUR COMMON SHARES IS
HEREBY MADE. ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES
SHOULD CONSULT WITH THEIR OWN LEGAL ADVISORS WITH RESPECT TO THE CONSEQUENCES OF
PURCHASING AND OWNING OUR COMMON SHARES.
The ICA governs the acquisition of Canadian businesses by non-Canadians.
Under the ICA, non-Canadian persons or entities acquiring "control" (as defined
in the ICA) of a corporation carrying on business in Canada are required to
either notify, or file an application for review with, Investment Canada, the
federal agency created by the ICA. Investment Canada may review any transaction
which results in the direct or indirect acquisition of control of a Canadian
business, where the gross value of corporate assets exceeds certain threshold
levels (such thresholds being favourably varied for U.S. citizens by legislation
relating to the Canada-U.S. Free Trade Agreement) or where the activity of the
business is related to Canada's cultural heritage or national identity. No
change of voting control will be deemed to have occurred, for purposes of the
ICA, if less than one-third of the voting control of a Canadian corporation is
acquired by an investor.
If an investment is reviewable under the ICA, an application for review in
the form prescribed is normally required to be filed with Investment Canada
prior to the investment taking place, and the investment may not be implemented
until the review has been completed and the Minister responsible for Investment
Canada is satisfied that the investment is likely to be of net benefit to
Canada. If the Minister is not satisfied that the investment is likely to be of
net benefit to Canada, the non-Canadian applicant must not implement the
investment, or if the investment has been implemented, may be required to divest
itself of control of the Canadian business that is the subject of the
investment.
Certain transactions relating to our common shares would be exempt from the
ICA, including:
- the acquisition of our common shares by a person in the ordinary course of
that person's business as a trader or dealer in securities;
- the acquisition of control of MFC in connection with the realization of
security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the ICA; and
- the acquisition of control of MFC by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate
direct control in fact of MFC, through ownership of our common shares,
remains unchanged.
TAXATION
CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES
We consider that the following general summary fairly describes the
principal Canadian federal income tax consequences applicable to a holder of our
common shares who is a resident of the United States, who is not, will not be
and will not be deemed to be a resident of Canada for purposes of the INCOME
TAX ACT (Canada) (the "ITA") and any applicable tax treaty and who does not use
or hold, and is not deemed to use or hold, his common shares of MFC in
connection with carrying on a business in Canada (a "non-resident holder").
This summary is based upon the current provisions of the ITA, the
regulations thereunder (the "Regulations"), the current publicly announced
administrative and assessing policies of the Canada Customs and Revenue Agency
and the Treaty. This summary also takes into account the amendments to the ITA
and Regulations publicly announced by the Minister of Finance (Canada) prior to
the date hereof (the "Tax Proposals") and assumes that all such Tax Proposals
will be enacted in their present form. However, no assurances can be given that
the Tax Proposals will be enacted in the form proposed, or at all. This summary
is not exhaustive of all possible Canadian federal income tax consequences and,
except for the foregoing, this summary does not take into account or anticipate
any changes in law, whether by legislative, administrative or
25
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax consequences described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
HOLDER OR PROSPECTIVE HOLDER OF OUR COMMON SHARES, AND NO OPINION OR
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY HOLDER OR PROSPECTIVE
HOLDER OF OUR COMMON SHARES IS MADE. ACCORDINGLY, HOLDERS AND PROSPECTIVE
HOLDERS OF OUR COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON
SHARES IN THEIR PARTICULAR CIRCUMSTANCES.
DIVIDENDS
Dividends paid on our common shares to a non-resident holder will be subject
under the ITA to withholding tax at a rate of 25% subject to a reduction under
the provisions of an applicable tax treaty, which tax is deducted at source by
MFC. The Treaty provides that the ITA's standard 25% withholding tax rate is
reduced to 15% on dividends paid on shares of a corporation resident in Canada
(such as MFC) to residents of the United States, and also provides for a further
reduction of this rate to 5% where the beneficial owner of the dividends is a
corporation resident in the United States that owns at least 10% of the voting
shares of the corporation paying the dividend.
CAPITAL GAINS
A non-resident holder is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a common share of MFC unless such
share represents "taxable Canadian property" (as defined in the ITA) to the
holder thereof. Our common shares generally will be considered taxable Canadian
property to a nonresident holder if:
- the non-resident holder;
- persons with whom the non-resident holder did not deal at arm's length; or
- the non-resident holder and persons with whom such non-resident holder did
not deal at arm's length,
owned or had an interest in an option in respect of not less than 25% of the
issued shares of any class of our capital stock at any time during the five year
period immediately preceding the disposition of such shares. In the case of a
non-resident holder to whom shares of MFC represent taxable Canadian property
and who is resident in the United States, no Canadian taxes will generally be
payable on a capital gain realized on such shares by reason of the Treaty unless
the value of such shares is derived principally from real property situated in
Canada.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain possible United States
Federal foreign income tax matters under current law, generally applicable to a
U.S. Holder (as defined below) of our common shares who holds such shares as
capital assets. This discussion does not address all aspects of United States
Federal income tax matters and does not address consequences peculiar to persons
subject to special provisions of Federal income tax law, such as those described
below as excluded from the definition of a U.S. Holder. In addition, this
discussion does not cover any state, local or foreign tax consequences. See
"Certain Canadian Federal Income Tax Consequences" above.
The following discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. In
addition, this discussion does not consider the potential effects, both adverse
and beneficial, of any recently proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time. No assurance can be given
that the IRS will agree with such statements and conclusions, or will not take,
or a court will not adopt, a position contrary to any position taken herein.
26
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED
TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
HOLDER OR PROSPECTIVE HOLDER OF OUR COMMON SHARES, AND NO OPINION OR
REPRESENTATION WITH RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO ANY SUCH HOLDER OR PROSPECTIVE HOLDER IS MADE. ACCORDINGLY, HOLDERS AND
PROSPECTIVE HOLDERS OF COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING,
OWNING AND DISPOSING OF OUR COMMON SHARES.
U.S. HOLDERS
As used herein, a "U.S. Holder" includes a holder of our common shares who
is a citizen or resident of the United States, a corporation created or
organized in or under the laws of the United States or of any political
subdivision thereof, any entity which is taxable as a corporation for U.S. tax
purposes and any other person or entity whose ownership of our common shares is
effectively connected with the conduct of a trade or business in the United
States. A U.S. Holder does not include persons subject to special provisions of
Federal income tax law, such as tax-exempt organizations, qualified retirement
plans, financial institutions, insurance companies, real estate investment
trusts, regulated investment companies, broker-dealers, non-resident alien
individuals or foreign corporations whose ownership of our common shares is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their shares through the exercise of
employee stock options or otherwise as compensation.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has had withheld from distributions) Canadian
income tax with respect to the ownership of our common shares may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and generally
applies to all foreign income taxes paid by (or withheld from) the U.S. Holder
during that year. There are significant and complex limitations which apply to
the tax credit, among which is an ownership period requirement and the general
limitation that the credit cannot exceed the proportionate share of the
U.S. Holder's United States income tax liability that the U.S. Holder's foreign
source income bears to his or its worldwide taxable income. In determining the
application of this limitation, the various items of income and deduction must
be classified into foreign and domestic sources. Complex rules govern this
classification process. There are further limitations on the foreign tax credit
for certain types of income such as "passive income", "high withholding tax
interest", "financial services income", "shipping income", and certain other
classifications of income. THE AVAILABILITY OF THE FOREIGN TAX CREDIT AND THE
APPLICATION OF THESE COMPLEX LIMITATIONS ON THE TAX CREDIT ARE FACT SPECIFIC AND
HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THEIR INDIVIDUAL CIRCUMSTANCES.
PASSIVE FOREIGN INVESTMENT CORPORATION
We do not believe that we are a passive foreign investment corporation (a
"PFIC"). If a U.S. Holder disposes of shares in a PFIC, any resultant gain will
be subject to a tax that is determined by apportioning the gain pro rata over
the entire holding period of the shares. The amount of gain that is apportioned
to the current year, and to any pre-1987 holding period, is included in the
U.S. Holder's current income.
The tax on the amount apportioned to any prior years beginning with 1987 is
calculated using the highest tax rate in each applicable year. In addition,
interest compounded daily is charged on the tax due for each prior year from the
due date of the return for the respective year to the due date for the current
year. The interest rate is set quarterly. The U.S. Holder's current year tax is
increased by the special tax and interest on amounts apportioned to prior years.
A U.S. Holder can avoid this special tax and interest charge by making a
permanent election to treat a PFIC as a "qualified electing fund" and to report
in each year thereafter such shareholder's pro rata share of the ordinary
earnings and net capital gains of a PFIC. If the election is not made in the
first year that the
27
U.S. Holder owns the shares, a special election would have to be made to cleanse
the effect of the prior year's holding periods.
These rules apply similarly to distributions from a PFIC that would be
considered excess distributions. Complex rules govern the determination of
applicable gains and excess distributions, the calculation of the amounts
allocated pro rata to prior years, the resultant tax and applicable interest,
and the qualified electing fund elections whether as pedigreed or non-pedigreed.
HOLDERS AND PROSPECTIVE HOLDERS OF COMMON SHARES OF A PFIC SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THEIR INDIVIDUAL CIRCUMSTANCES.
DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, we file reports
and other information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits hereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of the materials may be obtained from the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The public may obtain information on the operation of the Commission's
public reference facilities by calling the Commission in the United States at
1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates, foreign
currency exchange rates and equity prices which may affect our results of
operations and financial condition. We manage these risks through internal risk
management policies. We also use derivative foreign exchange contracts to manage
our exposure and our clients' exposure to foreign currency exchange rate risks.
If any of the variety of instruments and strategies we utilize to manage our
exposure to various types of risk are not effective, we may incur losses. Many
of our strategies are based on historical trading patterns and correlations.
However, these strategies may not be fully effective in mitigating our risk
exposure in all market environments or against all types of risk. Unexpected
market developments may affect our risk management strategies during this time,
and unanticipated developments could impact our risk management strategies in
the future.
INTEREST RATE RISK
Fluctuations in interest rates may affect the fair value of financial
instruments sensitive to interest rates. An increase in interest rates may
decrease the fair value of our financial instrument assets and increase the fair
value of our financial instrument liabilities. A decrease in interest rates may
increase the fair value of our financial instrument assets and decrease the fair
value of our financial instrument liabilities. Our financial instruments which
may be sensitive to interest rate fluctuations are investments and debt
obligations. The following tables provide information about our exposure to
interest rate fluctuations for the carrying amount of financial instruments that
may be sensitive to such fluctuations as at December 31, 2000 and 1999,
respectively, and expected cash flows from these instruments.
AS AT DECEMBER 31, 2000
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).......... $44,147 $43,815 $41,087 $ 463 $ 926 $ -- $ -- $ 1,671
Debt obligations(2)..... 21,131 13,946 -- -- -- -- -- 21,131
- ------------
(1) Investments consist of debt securities and preferred stock.
(2) Debt obligations consist of the bonds which mature on April 1, 2008 and bear
interest at 8% per annum.
28
AS AT DECEMBER 31, 1999
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2000 2001 2002 2003 2004 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).............. $29,965 $30,086 $26,474 $ -- $ -- $ -- $3,612 $ --
Debt obligations(2)......... 20,445 16,356 -- -- -- -- -- 16,356
- ------------
(1) Investments consist of debt securities.
(2) Debt obligations consist of the bonds which mature on April 1, 2008 and bear
interest at 8% per annum.
FOREIGN CURRENCY EXCHANGE RATE RISK
Our reporting currency is the Canadian dollar. We hold financial instruments
primarily denominated in U.S. dollars and Swiss francs. A depreciation of such
currencies against the Canadian dollar will decrease the fair value of our
financial instrument assets and liabilities. An appreciation of such currencies
against the Canadian dollar will increase the fair value of our financial
instrument assets and liabilities. Our financial instruments which may be
sensitive to foreign currency exchange rate fluctuations are investments, loans,
deposits and debt obligations. The following tables provide information about
our exposure to foreign currency exchange rate fluctuations for the carrying
amount of financial instruments that may be sensitive to such fluctuations as at
December 31, 2000 and 1999, respectively, and expected cash flows from these
instruments:
AS AT DECEMBER 31, 2000
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).............. $63,208 $73,882 $57,129 $ 463 $ 926 $ -- $ -- $ 4,690
Loans(2).................... 77,420 77,420 74,194 329 2,862 11 24 --
Deposits(3)................. 45,509 45,509 45,509 -- -- -- -- --
Debt obligations(4)......... 35,421 28,236 -- 7,845 6,445 -- -- 21,131
- ------------
(1) Investments consist of debt securities and equity securities, both of which
are primarily denominated in U.S. dollars or Swiss francs.
(2) Loans are denominated in U.S. dollars or Swiss francs.
(3) Deposits consist of cash deposits with MFC Bank.
(4) Debt obligations consist of the bonds and other debt, all of which are
denominated in U.S. dollars.
AS AT DECEMBER 31, 1999
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2000 2001 2002 2003 2004 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).............. $59,548 $61,493 $53,035 $ -- $ -- $ -- $3,612 $ 4,846
Loans(2).................... 75,030 75,030 59,654 -- 7,077 8,299 -- --
Deposits(3)................. 47,563 47,563 47,563 -- -- -- -- --
Debt obligations(4)......... 30,917 26,828 3,446 -- -- 7,026 -- 16,356
- ------------
(1) Investments consist of debt securities and equity securities, both of which
are primarily denominated in U.S. dollars or Swiss francs.
(2) Loans are denominated in U.S. dollars or Swiss francs.
(3) Deposits consist of cash deposits with MFC Bank.
(4) Debt obligations consist of the bonds and other debt, all of which are
denominated in U.S. dollars.
29
EQUITY PRICE RISK
Changes in trading prices of equity securities may affect the fair value of
equity securities or the fair value of other securities convertible into equity
securities. An increase in trading prices will increase the fair value and a
decrease in trading prices will decrease the fair value of equity securities or
instruments convertible into equity securities. Our financial instruments which
may be sensitive to fluctuations in equity prices are investments and debt
obligations. The following tables provide information about our exposure to
fluctuations in equity prices for the carrying amount of financial instruments
sensitive to such fluctuations as at December 31, 2000 and 1999, respectively,
and expected cash flows from these instruments:
AS AT DECEMBER 31, 2000
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).............. $39,408 $49,242 $32,149 $ -- $ -- $ -- $ -- $ 7,259
Debt obligations(2)......... 21,131 13,946 -- -- -- -- -- 21,131
- ------------
(1) Investments consist of equity securities.
(2) Debt obligations consist of the bonds which are convertible into common
shares of MFC at a fixed price.
AS AT DECEMBER 31, 1999
(IN THOUSANDS)
EXPECTED FUTURE CASH FLOW
CARRYING FAIR -----------------------------------------------------------------
VALUE VALUE 2000 2001 2002 2003 2004 THEREAFTER
-------- -------- -------- -------- -------- -------- -------- ----------
Investments(1).............. $37,843 $38,614 $31,748 $ -- $ -- $ -- $ -- $ 6,866
Debt obligations(2)......... 20,445 16,356 -- -- -- -- -- 16,356
- ------------
(1) Investments consist of equity securities.
(2) Debt obligations consist of the bonds which are convertible into common
shares of MFC at a fixed price.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
30
ITEM 18. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
1. Independent Auditors' Report on the Consolidated Financial Statements of
MFC as at December 31, 2000, 1999 and 1998.
2. Consolidated Balance Sheets at December 31, 2000 and 1999 (audited).
3. Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998 (audited).
4. Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 2000, 1999 and 1998 (audited).
5. Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998 (audited).
6. Notes to Consolidated Financial Statements.
7. Independent Auditors' Report on Financial Statement Schedules.
8. Financial Statement Schedules:
I Condensed Financial Information of Registrant.
III Supplementary Insurance Information.
IV Reinsurance.
VI Supplemental Information Concerning Property--Casualty Insurance
Operations.
31
INDEPENDENT AUDITORS' REPORT
To the Shareholders
MFC Bancorp Ltd.
We have audited the consolidated balance sheets of MFC Bancorp Ltd. and
Subsidiaries as at December 31, 2000 and 1999, and the consolidated statements
of income, changes in shareholders' equity and cash flows for the years ended
December 31, 2000, 1999 and 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2000 and 1999, and the results of its operations and its cash flows for the
years ended December 31, 2000, 1999 and 1998, in accordance with generally
accepted accounting principles in Canada, which differ from United States
generally accepted accounting principles as described in Note 16 to the
consolidated financial statements.
/s/ PETERSON SULLIVAN P.L.L.C.
March 23, 2001
Seattle, Washington
32
MFC BANCORP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)
U.S. DOLLARS CANADIAN DOLLARS
(INFORMATION ONLY) -------------------
2000 2000 1999
------------------ -------- --------
ASSETS
Cash and cash equivalents................................... $ 45,677 $ 68,524 $ 49,567
Securities.................................................. 53,582 80,384 67,808
Loans....................................................... 79,398 119,113 81,728
Receivables................................................. 13,546 20,321 23,589
Due from investment dealers................................. 9,005 13,510 17,007
Property held for development and sale...................... 6,161 9,243 7,840
Excess cost of net assets acquired.......................... 11,353 17,032 17,851
Prepaid and other........................................... 2,624 3,936 4,717
-------- -------- --------
$221,346 $332,063 $270,107
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits.................................................. $ 42,376 $ 63,572 $ 47,563
Accounts payable and accrued expenses..................... 10,769 16,155 17,854
Debt...................................................... 23,611 35,421 30,917
-------- -------- --------
Total liabilities....................................... 76,756 115,148 96,334
Minority interests.......................................... 2,520 3,781 2,962
Shareholders' Equity
Common stock, without par value;
authorized unlimited number; 12,088,156
and 12,041,156 issued and outstanding
at December 31, 2000 and 1999, respectively............. 43,420 65,138 65,498
Cumulative translation adjustment......................... (515) (771) (4,291)
Retained earnings......................................... 99,165 148,767 109,604
-------- -------- --------
142,070 213,134 170,811
-------- -------- --------
$221,346 $332,063 $270,107
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
33
MFC BANCORP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
U.S. DOLLARS CANADIAN DOLLARS
(INFORMATION ONLY) ------------------------------
2000 2000 1999 1998
------------------ -------- -------- --------
Financial services revenue......................... $104,133 $156,220 $125,526 $123,310
Expenses
Financial services............................... 59,287 88,942 65,262 68,650
General and administrative....................... 14,127 21,194 19,305 19,361
Interest expense................................. 2,812 4,218 4,867 4,771
-------- -------- -------- --------
76,226 114,354 89,434 92,782
-------- -------- -------- --------
Income from continuing operations before
income taxes..................................... 27,907 41,866 36,092 30,528
Recovery of (provision for) income taxes........... (1,126) (1,689) 1,016 (622)
-------- -------- -------- --------
26,781 40,177 37,108 29,906
Minority interests................................. (676) (1,014) (780) 329
-------- -------- -------- --------
Income from continuing operations.................. 26,105 39,163 36,328 30,235
Discontinued operations
Loss from operations of discontinued internet
banking........................................ -- -- (4,234) --
Loss from disposal of internet banking
operations..................................... -- -- (705) --
-------- -------- -------- --------
Loss from discontinued operations................ -- -- (4,939) --
-------- -------- -------- --------
Net income................................... $ 26,105 $ 39,163 $ 31,389 $ 30,235
======== ======== ======== ========
Earnings per share
Basic
Income from continuing operations.............. $ 2.16 $ 3.24 $ 3.00 $ 2.48
Loss from discontinued operations.............. -- -- (.41) --
-------- -------- -------- --------
Net income................................... $ 2.16 $ 3.24 $ 2.59 $ 2.48
======== ======== ======== ========
Fully diluted
Income from continuing operations.............. $ 1.85 $ 2.78 $ 2.60 $ 2.20
Loss from discontinued operations.............. -- -- (.32) --
-------- -------- -------- --------
Net income................................... $ 1.85 $ 2.78 $ 2.28 $ 2.20
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
34
MFC BANCORP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(CANADIAN DOLLARS, IN THOUSANDS)
COMMON STOCK
--------------------- CUMULATIVE
NUMBER OF RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
---------- -------- -------- ----------- --------
Balance at December 31, 1997.................. 12,323,250 $70,368 $ 48,349 $ 1,439 $120,156
Net income.................................... -- -- 30,235 -- 30,235
Shares issued for conversion of bonds......... 1,946 40 -- -- 40
Shares issued for exercise of stock options... 218,500 2,275 -- -- 2,275
Shares issued for cash........................ 12,927 129 -- -- 129
Repurchase of shares.......................... (500,000) (7,106) -- -- (7,106)
Dividends paid on common shares............... -- -- (369) -- (369)
Translation adjustment........................ -- -- -- 9,036 9,036
---------- ------- -------- -------- --------
Balance at December 31, 1998.................. 12,056,623 65,706 78,215 10,475 154,396
Net income.................................... -- -- 31,389 -- 31,389
Shares issued for exercise of stock options... 8,000 70 -- -- 70
Shares issued for cash........................ 2,533 26 -- -- 26
Repurchase of shares.......................... (26,000) (304) -- -- (304)
Translation adjustment........................ -- -- -- (14,766) (14,766)
---------- ------- -------- -------- --------
Balance at December 31, 1999.................. 12,041,156 65,498 109,604 (4,291) 170,811
Net income.................................... -- -- 39,163 -- 39,163
Shares issued for exercise of stock options... 47,000 436 -- -- 436
Shares issued for cash........................ 500,000 5,230 -- -- 5,230
Repurchase of shares.......................... (500,000) (6,026) -- -- (6,026)
Translation adjustment........................ -- -- -- 3,520 3,520
---------- ------- -------- -------- --------
Balance at December 31, 2000.................. 12,088,156 $65,138 $148,767 $ (771) $213,134
========== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
35
MFC BANCORP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(CANADIAN DOLLARS, IN THOUSANDS)
2000 1999 1998
-------- -------- --------
Cash flows from continuing operating activities
Income from continuing operations......................... $ 39,163 $ 36,328 $ 30,235
Adjustments for:
Amortization............................................ 2,041 2,361 1,906
Recovery of credit losses............................... -- (553) (1,527)
Fee income received in common shares of an affiliate.... -- (3,169) --
Gain on debt............................................ -- -- (8,113)
Change in operating assets and liabilities
Due from investment dealers........................... 3,668 (11,052) (7,805)
Securities............................................ (12,209) 6,730 2,096
Receivables........................................... (3,481) 1,668 (4,275)
Properties held for development and sale.............. (1,232) 28 1,124
Accounts payable and accrued expenses................. 2,064 (951) (14,052)
Other................................................. 739 (1,449) (541)
-------- -------- --------
Cash flows from continuing operating activities............. 30,753 29,941 (952)
Cash flows from investing activities of continuing
operations
Net increase in loans..................................... (31,661) (34,659) (169)
Purchases of subsidiaries, net of cash acquired........... -- (738) (742)
Other..................................................... 430 (331) (702)
-------- -------- --------
Cash flows from investing activities of continuing
operations................................................ (31,231) (35,728) (1,613)
Cash flows from financing activities of continuing
operations
Net increase (decrease) in deposits....................... 13,282 34,332 (10,123)
Debt repayments........................................... (4,089) (8,199) (5,064)
Borrowings................................................ 8,135 969 15,415
Repurchase of common shares, net.......................... (360) (208) (4,703)
Dividends paid............................................ -- -- (369)
Other..................................................... (111) (66) (41)
-------- -------- --------
Cash flows from financing activities of continuing
operations................................................ 16,857 26,828 (4,885)
Exchange rate effect on cash and cash equivalents........... 2,578 (7,064) 4,099
-------- -------- --------
Increase (decrease) in cash and cash equivalents from
continuing operations..................................... 18,957 13,977 (3,351)
Net cash used in discontinued operations.................... -- (3,281) --
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 18,957 10,696 (3,351)
Cash and cash equivalents, beginning of year................ 49,567 38,871 42,222
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 68,524 $ 49,567 $ 38,871
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
36
MFC BANCORP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements and accompanying notes have been prepared
in conformity with generally accepted accounting principles applicable in
Canada. The notes are stated in Canadian dollars, as rounded to the nearest
thousand (except per share amounts).
NATURE OF OPERATIONS
The Company is in the financial services industry which includes banking,
merchant banking and proprietary investing on an international basis. These
activities are managed as a unit and are treated as a single segment.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions of
continuing operations have been eliminated.
The excess cost of net assets acquired over fair value is amortized on the
straight-line method over the estimated benefit period of 15 to 40 years unless
a writedown is required to reflect an other than temporary decline in value.
However, no writedowns of excess cost have been deemed necessary on any of the
Company's acquisitions based on management's review of the related businesses,
taking into account associated risks.
DISCONTINUED OPERATION
During the first quarter of 2000, the Company decided to discontinue its
internet banking operations. This activity allowed customers to use the internet
to initiate transactions at the Company's Swiss banking subsidiary. Since this
operation began during 1999, restatement of the prior year's operations was not
necessary.
The discontinued internet banking activity had expenses of $4,251 and net losses
from operations of $4,234 in 1999, its only period of operation. All of the net
assets of the internet banking activity amounting to $705 were written off as of
December 31, 1999. There was no income tax effect.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and are generally interest bearing. The
Company regularly maintains cash balances in other financial institutions in
excess of insured limits. Interest paid on a cash basis was $4,990, $5,449 and
$3,433 for the years ended December 31, 2000, 1999 and 1998, respectively.
Income tax amounts paid were $81, $27 and $377 during 2000, 1999 and 1998,
respectively.
SECURITIES
Trading account securities, held by the Company's banking subsidiary, are stated
at current market value with the unrealized gain or loss included in the results
of operations. Short-term securities held by non-bank subsidiaries are carried
at the lower of aggregate cost or current market value.
Long-term investment securities held by non-bank subsidiaries are purchased with
the original intention to hold the securities to maturity or until market
conditions render alternative investments more attractive. Equity securities are
stated at cost and debt securities at amortized cost unless there has been an
other than temporary decline in value, at which time the security is written
down and the unrealized loss is included in the results of operations.
Realized gains or losses on sales of securities are determined based on the
specific cost basis.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are stated net of allowances for credit losses, accrued interest,
reimbursable expenses and unamortized loan fees.
Loans are classified as impaired when there is no longer reasonable assurance of
the timely collection of principal and interest. Whenever a contractual payment
is 90 days past due, loans are automatically classified as impaired unless they
are fully secured and in the process of collection. When a loan is deemed
impaired, its carrying amount is reduced to its estimated realizable amount,
measured by discounting the expected future cash flows at the effective interest
rate in the loan or, as a practical expedient, based on a loan's observable
market price or the fair value of collateral if the loan is collateral
dependent. In subsequent periods, any increase in the carrying value of the loan
is credited to the provision for credit losses. Impaired loans are returned to
performing status when there is no longer reasonable doubt regarding timely
collection of principal and interest, all amounts in arrears including interest
have been collected, and all charges for loan impairment have been reversed.
Where a portion of a loan is written off and the remaining balance is
restructured, the new loan is carried on the accrual basis when there is no
longer any reasonable doubt regarding collectibility of principal and interest,
and payments are not 90 days past due. Collateral is obtained for loans (and
other receivables) if, based on an evaluation of credit-worthiness, it is
considered necessary for the overall borrowing facility.
Assets acquired in satisfaction of loans are recorded at the lesser of their
fair value at the date of transfer or the carrying value of the loan. Any excess
of the carrying value of the loan over the fair value of the assets acquired is
written off. Operating results and gains and losses on disposal of such assets
are treated as write-offs and recoveries.
Interest income from loans is recognized when earned using the interest method
unless the loan is classified as impaired at which time recognition of interest
income ceases. Interest on impaired loans is credited to the carrying value of
the loan when received. Fees relating to lending activities, net of related
expenses, are deferred and recognized over the term of the loan using the
interest method.
ALLOWANCE FOR CREDIT LOSSES
The Company's allowance for credit losses is to be maintained at an amount
considered adequate to absorb estimated credit-related losses. Such allowance
reflects management's best estimate of the losses in the Company's credit
portfolio and judgments about economic conditions. Estimates and judgments could
change in the near-term, and could result in a significant change to a
recognized allowance. Credit losses arise primarily from loans but may also
relate to other credit instruments such as guarantees and letters of credit. An
allowance for credit losses may be increased by provisions which are charged to
income and reduced by write-offs net of any recoveries.
Specific provisions are established on a loan-by-loan basis. A general provision
may be established to absorb potential credit losses attributable to the
deterioration of credit quality on aggregate exposures for which specific
provisions cannot yet be determined. A country risk provision may be made based
on exposures in less developed countries and on management's overall assessment
of the underlying economic conditions in those countries. Write-offs are
generally recorded after all reasonable restructuring or collection activities
have taken place and there is no realistic prospect of recovery.
No loans were considered impaired at December 31, 2000 and 1999, and the Company
did not consider it necessary to reserve for any specific loans, country risks
or general risks.
DERIVATIVES
During 2000 and 1999, the Company's banking subsidiary located in Switzerland
used forward foreign exchange contracts to hedge contractual U.S. and Canadian
revenues or expenses. Realized gains or losses are deferred
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and amortized to income over the life of the hedged assets or liabilities. The
banking subsidiary held three contracts at December 31, 2000, in a notational
amount of $21,114 and three contracts at December 31, 1999, in a notational
amount of $8,721. Fair value approximated replacement value at December 31, 2000
and 1999. None of the forward foreign exchange contracts are held for trading
purposes and are less than one month in duration.
PROPERTY HELD FOR DEVELOPMENT AND SALE
Property held for development and sale consists of real estate which is stated
at cost unless the estimated future undiscounted cash flows expected to result
from disposition is less than carrying value in which case a loss is recognized
based on the fair value of similar property in the same geographic region. No
such losses have been recorded in these consolidated financial statements.
Cost of the property consists of all costs directly related to the acquisition,
construction and development of the property. Such costs include land, roads,
utilities, real estate taxes and interest related to the purchase and
improvement of land until it reaches a salable condition.
FOREIGN CURRENCY TRANSLATION
The Company translates foreign assets and liabilities of its self-sustaining
foreign subsidiaries at the rate of exchange at the balance sheet date. Revenues
and expenses have been translated at the average rate of exchange throughout the
year. Unrealized gains or losses from these conversions are included in the
equity section of the balance sheet. Realized gains or losses have been included
in general and administrative expenses in the statements of income. The
translation adjustments did not recognize the effect of income tax because the
Company expects to reinvest the amounts indefinitely.
TAXES ON INCOME
Beginning January 1, 2000, the Company adopted the liability method of
accounting for income taxes as required by Section 3465 of the Handbook of the
Canadian Institute of Chartered Accountants. Under this method, current income
taxes are recognized for the estimated income taxes payable for the current
year. Future income tax assets and liabilities are recognized for temporary
differences between the tax and accounting bases of assets and liabilities as
well as for the benefit of losses to be carried forward to future years for tax
purposes that are likely to be realized using expected tax rates in which the
temporary differences are expected to be recovered or settled. Prior to
January 1, 2000, the Company used the deferral method to account for income
taxes. The Company retroactively adopted the liability method but has not
restated prior period financial statements as allowed under the standard.
However, there was no effect on the 2000 financial statements due to the
retroactive adoption of the new accounting policy.
STOCK BASED COMPENSATION
The Company follows the intrinsic value based method of accounting for
compensation resulting from the granting of stock options. No compensation
expense has been recognized for the granting of options because the exercise
price of the options approximates the market price for the common shares at the
grant date.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
in the period. Fully diluted earnings per common share takes into consideration
common shares outstanding (computed under basic earnings per share) and
potentially dilutive common shares.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
During 2000, the Canadian Institute of Chartered Accountants adopted accounting
recommendation Section 3500, "Earnings Per Share." Section 3500 specifies the
method of calculation and the presentation and disclosure requirements for
earnings per share. This standard is effective for years beginning on or after
January 1, 2001. All prior period earnings per share information presented are
to be restated to conform with this standard.
NOTE 2. SECURITIES
UNREALIZED GAINS AND LOSSES ON NON-BANK SECURITIES
-----------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------- ----------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- ---------- ---------- --------- -------- ---------- ---------- ---------
Short-term securities
Debt............... $10,701 $ -- $321 $10,380 $11,591 $ -- $ 174 $11,417
Preferred shares... 1,500 -- 55 1,445 7,232 -- 153 7,079
Common shares...... 20,099 10,183 -- 30,282 7,167 3,905 -- 11,072
------- ------- ---- ------- ------- ------ ------ -------
32,300 10,183 376 42,107 25,990 3,905 327 29,568
Long-term securities
Debt............... -- -- -- -- 3,317 295 -- 3,612
Preferred shares... 1,671 -- -- 1,671 1,671 -- -- 1,671
Common shares...... 5,588 -- 294 5,294 8,176 -- 2,981 5,195
------- ------- ---- ------- ------- ------ ------ -------
7,259 -- 294 6,965 13,164 295 2,981 10,478
------- ------- ---- ------- ------- ------ ------ -------
Total non-bank
securities....... $39,559 $10,183 $670 $49,072 $39,154 $4,200 $3,308 $40,046
======= ======= ==== ======= ======= ====== ====== =======
Bank trading securities at December 31, 2000, consisted of debt securities
amounting to $30,275 and equity securities of $10,550. The debt securities are
due $17,032 in 2001, $1,767 in 2002, $1,871 in 2003, $4,745 in 2004 and $4,860
in 2006. At December 31, 1999, debt trading securities at the bank amounted to
$15,057 which were due principally in one year and equity securities of $13,597.
The change in carrying value of bank trading securities amounting to $(4,311),
$912 and $2,023 for the years ended December 31, 2000, 1999 and 1998,
respectively, was included in the results of operations. At December 31, 2000
and 1999, bank trading account securities included common shares of an affiliate
which were stated at an estimated value of $768 and $736, respectively. Common
shares of this affiliate which cost $2,540 were sold for $7,487 (inclusive of
$6,782 from other affiliates) during 1999. At December 31, 2000, non-bank
securities included preferred shares in an affiliate stated at cost of $1,671
and at December 31, 1999, in two affiliates stated at cost of $7,403, because no
market exists for the shares. Also, at December 31, 2000, non-bank securities
included common shares in an affiliate with a cost of $1,892.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LOANS
2000 1999
-------- --------
Bank loans, collateralized with traded securities........... $ 54,858 $44,333
Non-bank loans, collateralized by traded securities,
receivables, inventories and other tangible assets (due
from two companies $32,950 and $23,493 at December 31,
2000 and 1999, respectively).............................. 64,255 37,395
-------- -------
$119,113 $81,728
======== =======
Loan maturities:
WITHIN 1 YEAR 1 - 5 YEARS 2000 TOTAL
------------- ----------- ----------
Bank loans.................................................. $ 54,259 $ 599 $ 54,858
Non-bank loans.............................................. 61,628 2,627 64,255
-------- ------ --------
$115,887 $3,226 $119,113
======== ====== ========
The non-bank loans generally earn interest ranging from 6% to 12.5% as of
December 31, 2000. Bank loans generally earn interest ranging from 3.375% to
11.5% as of December 31, 2000.
NOTE 4. RECEIVABLES
2000 1999
-------- --------
Short-term advances......................................... $ 1,413 $ 8,362
Investment income........................................... 8,859 3,741
Affiliates.................................................. 800 1,744
Taxes....................................................... -- 5,614
Pension plan recovery....................................... 1,575 1,575
Fees........................................................ 1,135 --
Contract receivable......................................... 5,222 677
Other....................................................... 1,317 1,876
------- -------
$20,321 $23,589
======= =======
NOTE 5. DEPOSITS
2000 1999
-------- --------
Clients..................................................... $62,783 $47,013
Banks....................................................... 789 550
------- -------
$63,572 $47,563
======= =======
All deposits at December 31, 2000, were payable on demand and non-interest
bearing.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
2000 1999
-------- --------
Accounts payable............................................ $ 7,025 $ 9,470
Affiliates.................................................. 5,448 --
Interest.................................................... 1,015 1,286
Property and other taxes.................................... 1,664 2,226
Due securities brokers...................................... 296 4,816
Other....................................................... 707 56
------- -------
$16,155 $17,854
======= =======
NOTE 7. DEBT
2000 1999
-------- --------
Bonds payable, U.S. $14,085 and U.S. $14,165 as at
December 31, 2000 and 1999, respectively, interest at 8%
due semi-annually in October and April, principal due
April 2008, unsecured. Convertible into common stock of
the Company at $19.83 (1,047,542 common shares reserved at
December 31, 2000)........................................ $21,131 $20,445
Non-recourse notes payable, interest at 8% payable annually,
principal due May 2003, unsecured......................... 6,445 7,026
Note payable, interest at 8.25%, interest payable quarterly,
principal due January 2002, unsecured..................... 7,845 --
Non-recourse notes payable, interest at 15% due monthly,
principal due June 2000, secured by property held for
sale...................................................... -- 3,446
------- -------
$35,421 $30,917
======= =======
As of December 31, 2000, the principal maturities of debt are as follows:
MATURITY AMOUNT
- -------- --------
2002........................................................ $ 7,845
2003........................................................ 6,445
Thereafter.................................................. 21,131
-------
$35,421
=======
The note payable of $7,845 at December 31, 2000, is to an affiliate where the
Company's president is also the president and director of the creditor. The
Company also earned a fee of $1,111 from this affiliate.
NOTE 8. INCOME TAXES
Income before income taxes, minority interests and discontinued operations
consists of:
2000 1999 1998
-------- -------- --------
Canadian.................................................... $ 5,739 $ 7,294 $ 2,495
Foreign..................................................... 36,127 28,798 28,033
------- ------- -------
$41,866 $36,092 $30,528
======= ======= =======
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The recovery of (provision for) income taxes consists of the following:
2000 1999 1998
-------- -------- --------
Current
Canadian.................................................. $ 40 $ 293 $ 7
Foreign................................................... (401) (314) (364)
Deferred
Canadian.................................................. 4 204 (265)
Foreign................................................... (1,332) 833 --
------- ------ -----
$(1,689) $1,016 $(622)
======= ====== =====
A reconciliation of the provision for income taxes calculated at applicable
statutory rates in Canada to the provision in the consolidated statements of
income is as follows:
2000 1999 1998
-------- -------- --------
Income before income taxes and minority interests and
discontinued operations................................... $ 41,866 $ 36,092 $ 30,528
======== ======== ========
Computed provision for income taxes at statutory rates...... $(18,756) $(16,169) $(13,688)
(Increase) decrease in taxes resulting from:
Nontaxable dividend income................................ 2,421 2,421 2,421
Foreign source income..................................... 16,193 12,901 12,570
Other, net................................................ (1,547) 1,863 (1,925)
-------- -------- --------
Recovery of (provision for) income taxes.................... $ (1,689) $ 1,016 $ (622)
======== ======== ========
The tax effect of temporary differences that give rise to significant components
of future tax assets at December 31, 2000, are as follows:
Non-capital tax loss carryforwards:
Canada.................................................... $ 2,803
Switzerland............................................... 4,361
United States............................................. 5,246
--------
12,410
Valuation allowance......................................... (12,410)
--------
$ --
========
Management believes that, due to the nature of its operations, the Company's
available tax loss carryforwards may not be utilized prior to their expiration
dates. Therefore, the resulting tax benefit has been fully reserved at
December 31, 2000.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
At December 31, 2000, the Company had estimated accumulated noncapital losses
which expire as follows:
YEAR CANADA U.S. SWITZERLAND
- ---- -------- -------- -----------
2001........................................................ $ 4 $ -- $ --
2002........................................................ 3,098 -- --
2003........................................................ 2,353 -- 3,240
2004........................................................ 802 -- 11,295
2005........................................................ -- -- --
2006........................................................ -- -- --
2010-2019................................................... -- 15,428 --
------ ------- -------
$6,257 $15,428 $14,535
====== ======= =======
NOTE 9. EARNINGS PER COMMON SHARE
Earnings per share data for years ended December 31 from continuing operations
is summarized as follows:
2000 1999 1998
---------- ---------- ----------
Income from continuing operations........................... $ 39,163 $ 36,328 $ 30,235
Less dividend paid on preferred shares held by subsidiary's
minority shareholders..................................... (79) (117) (119)
---------- ---------- ----------
Basic earnings from continuing operations................... 39,084 36,211 30,116
Effect of dilutive securities:
Interest on convertible bonds............................. 1,599 1,708 1,405
Interest on options....................................... 1,654 1,742 1,351
---------- ---------- ----------
Diluted earnings from continuing operations................. $ 42,337 $ 39,661 $ 32,872
========== ========== ==========
SHARES
------------------------------------
2000 1999 1998
---------- ---------- ----------
Basic earnings per share, weighted number of shares
outstanding............................................... 12,054,898 12,058,370 12,169,470
Effect of dilutive securities:
Convertible bonds......................................... 1,047,542 1,055,333 1,147,970
Options................................................... 2,121,192 2,131,589 1,595,829
---------- ---------- ----------
15,223,632 15,245,292 14,913,269
========== ========== ==========
NOTE 10. STOCK BASED COMPENSATION
1996 STOCK OPTION PLAN
During 1996, the Company issued options to employees and directors to acquire
900,000 common shares of stock at $9.41 which vested upon grant and have a
five-year term. The weighted fair value of these options was $1.92. There were
900,000 options outstanding at December 31, 2000, 1999 and 1998, under this
plan. No additional options to acquire shares will be offered under this plan.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK BASED COMPENSATION (CONTINUED)
1997 AMENDED STOCK OPTION PLAN
The Company has a 1997 stock option plan which enables certain employees and
directors to acquire common shares. Under the plan, options vest on grant and
have a five-year term. The Company is authorized to issue up to 1,737,500 shares
under this plan.
During 2000, options to acquire 30,000 shares at $13.31 and 100,000 shares at
$10.50 were granted to officers and employees of the Company. At December 31,
2000, 130,000 of these shares were outstanding and have a remaining contractual
life of 4.25 years. The weighted fair value of these options was $3.34.
During 1998, options to acquire 750,000 shares at $9.26 were granted to officers
and employees of the Company. At December 31, 2000, 620,000 of these options
were outstanding and have a remaining contractual life of 2.75 years. The
weighted fair value of these options was $2.11.
During 1997, options to acquire 742,500 shares at $11.10 were granted to
officers and employees of the Company. At December 31, 2000, 464,000 of these
options were outstanding and have a remaining contractual life of 1.5 years. The
weighted fair value of these options was $2.59.
Following is a summary of the status of the plan:
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Outstanding at January 1, 1998.............................. 732,500 $ 10.36
Granted................................................... 750,000 9.26
Exercised................................................. (218,500) 10.41
---------
Outstanding at December 31, 1998............................ 1,264,000 9.96
Forfeited................................................. (125,000) (9.87)
Exercised................................................. (8,000) (8.70)
---------
Outstanding at December 31, 1999............................ 1,131,000 9.98
Granted................................................... 130,000 11.15
Exercised................................................. (47,000) (9.38)
---------
Outstanding at December 31, 2000............................ 1,214,000 $ 10.12
========= =======
PROFORMA INFORMATION
Had compensation expense been recognized on the basis of fair value of the
options granted under both plans, proforma net income and per share data would
have been as follows compared to the amounts reported:
2000 1999 1998
-------- -------- --------
Net income
As reported............................................... $39,163 $31,389 $30,235
======= ======= =======
Proforma.................................................. $38,946 $30,605 $28,483
======= ======= =======
Earnings per share--as reported
Basic..................................................... $ 3.24 $ 2.59 $ 2.48
======= ======= =======
Fully diluted............................................. $ 2.78 $ 2.28 $ 2.20
======= ======= =======
Earnings per share--proforma
Basic..................................................... $ 3.22 $ 2.54 $ 2.33
======= ======= =======
Fully diluted............................................. $ 2.77 $ 2.23 $ 2.09
======= ======= =======
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK BASED COMPENSATION (CONTINUED)
The fair value of each option granted was estimated for proforma purposes on the
grant date using the Black-Scholes Model. The assumptions used in calculating
fair value are as follows:
2000 1999 1998
-------- -------- --------
Risk-free interest rate..................................... 7.0% 6.0% 6.0%
Expected life of the options................................ 2 years 2 years 2 years
Expected volatility......................................... 42.65% 57.91% 57.91%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
NOTE 11. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum commitments under long-term non-cancelable leases are as follows
for the next five years:
YEAR AMOUNT
- ---- --------
2001........................................................ $ 94
2002........................................................ 77
2003........................................................ 77
2004........................................................ 30
2005........................................................ 2
----
$280
====
Rent expense was $548, $586 and $1,373 for the years ended December 31, 2000,
1999 and 1998, respectively.
GUARANTEES AND LETTERS OF CREDIT
The Bank issues guarantees and letters of credit to meet credit requirements of
its customers. The amounts, which are collateralized, are not included in the
consolidated financial statements. Guarantees amounted to $9,561 and $3,612 at
December 31, 2000 and 1999, respectively.
LITIGATION
The Company and its subsidiaries are subject to litigation in the normal course
of business. Management considers the aggregate liability which may result from
such litigation not material at December 31, 2000.
REGULATIONS
The Company's wholly-owned banking subsidiary's offices are located in Geneva
and Zurich, Switzerland and has no subsidiaries. The banking subsidiary is
subject to the rules and regulations of the Swiss Federal Banking Commission.
These regulations require legal reserves of equity capital amounting to $5,647
to be maintained as of December 31, 2000.
NOTE 12. INTEREST RATE SENSITIVITY POSITION
Management has analyzed the bank subsidiary's interest rate sensitivity position
at December 31, 2000. Because of the current nature (over 90% of assets and
liabilities and off-balance sheet positions are due within three months) of the
bank subsidiary's position, the total interest rate gap is not significant at
December 31, 2000, assuming no interest rate hedging is undertaken over the next
twelve months.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SEGMENTED INFORMATION
The following table presents revenues attributed to Canada, the Company's
country of domicile, and other geographic areas based upon the customer's
location:
2000 1999 1998
-------- -------- --------
Canada...................................................... $ 10,459 $ 17,851 $ 31,392
Western Europe.............................................. 136,671 88,075 88,237
United States............................................... 9,090 19,600 3,681
-------- -------- --------
$156,220 $125,526 $123,310
======== ======== ========
The following table presents total assets by geographic area based upon the
location of the assets:
2000 1999 1998
-------- -------- --------
Canada...................................................... $ 62,200 $ 57,244 $ 79,775
Western Europe.............................................. 231,508 170,849 114,954
United States............................................... 38,355 42,014 43,380
-------- -------- --------
$332,063 $270,107 $238,109
======== ======== ========
During 2000, one client represented approximately 11% of financial services
revenues.
NOTE 14. TRANSACTIONS WITH AFFILIATES
The Company is the lessee of an iron ore mine located in Canada. Neither the
Company nor any of its affiliates operate the mine. Instead, the mine is
operated by an independent party who pays royalties based on the amount of ore
it extracts from the mine. The royalties are paid to a 19% owned affiliate which
acquired the rights to the royalties during a prior year in exchange for
preferred shares which provide for a variable annual dividend rate. The amount
of preferred dividends earned amounted to $5,400 each for 2000, 1999 and 1998.
During 2000, 1999 and 1998, the Company earned management fees of $814, $740 and
$2,328, respectively, from the affiliate. The Company had a payable to the
affiliate of $4,347 and $1,734 at December 31, 2000 and 1999, respectively,
which will be paid in the normal course.
Revenue for 1999 and 1998 includes $1,114 and $2,967, respectively, from an
entity where the Company's president was a board member. The amount due from
this entity was $7,077 at December 31, 1999.
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of other financial instruments at December 31 is summarized as
follows:
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash equivalents................................ $ 68,524 $ 68,524 $ 49,567 $ 49,567
Loans.................................................... 119,113 119,113 81,728 81,728
Deposits................................................. 63,572 63,572 47,563 47,563
Debt..................................................... 35,421 28,236 30,917 26,828
The fair value of cash and cash equivalents is based on reported market value.
The fair value of loans is based on the value of similar loans. The fair value
of deposits approximates their carrying value as they are all due on demand. The
fair value of debt was determined using discounted cash flows at prevailing
market rates or based on reported market value for the Company's publicly traded
debt.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company's consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) in Canada, which conform in
all material respects with those in the United States (U.S.), except as set
forth below:
DECEMBER 31
------------------------------
RECONCILIATION OF NET INCOME 2000 1999 1998
- ---------------------------- -------- -------- --------
Income from continuing operations in accordance with
Canadian GAAP............................................. $39,163 $36,328 $30,235
Consolidation of investee................................... -- (510) (193)
Equity accounting for an investee........................... (440) -- --
Gain on debt................................................ -- -- (8,113)
Adjustment of gain on sale of shares in investee............ -- 3,225 --
Change in unrealized gain on trading securities, net........ 6,914 1,270 2,635
Deferred income tax provision............................... -- -- (755)
------- ------- -------
Income from continuing operations........................... 45,637 40,313 23,809
Loss from discontinued operations........................... -- (4,939) --
------- ------- -------
Income before extraordinary item............................ 45,637 35,374 23,809
Extraordinary item, gain on extinguishment of debt.......... -- -- 8,113
------- ------- -------
Net income in accordance with U.S. GAAP..................... $45,637 $35,374 $31,922
======= ======= =======
Basic earnings per common share U.S. GAAP
Income from continuing operations......................... $ 3.78 $ 3.33 $ 1.95
Loss from discontinued operations......................... -- (.41) --
Extraordinary item........................................ -- -- .67
------- ------- -------
$ 3.78 $ 2.92 $ 2.62
======= ======= =======
Diluted earnings per common share U.S. GAAP
Income from continuing operations......................... $ 3.51 $ 3.12 $ 1.83
Loss from discontinued operations......................... -- (.37) --
Extraordinary item........................................ -- -- .59
------- ------- -------
$ 3.51 $ 2.75 $ 2.42
======= ======= =======
Under Canadian GAAP, fully diluted earnings per share is calculated by adjusting
net income available to common shareholders for imputed earnings on funds which
would have been received on the exercise of options. U.S. GAAP requires the use
of the treasury stock method, whereby diluted earnings per share are calculated
as if options were exercised at the beginning of the year and funds received
were used to purchase the Company's own stock.
2000 1999 1998
-------- -------- --------
Retained earnings in accordance with U.S. GAAP.............. $153,478 $107,841 $72,467
======== ======== =======
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
COMPREHENSIVE INCOME
2000 1999 1998
-------- -------- --------
Net income in accordance with U.S. GAAP..................... $45,637 $ 35,374 $31,922
Other comprehensive income, net of tax
Foreign currency translation adjustment................... 3,520 (14,766) 9,036
Unrealized holding gain (loss) on available-for-sale
securities arising during the period.................... 2,435 (1,008) (1,678)
------- -------- -------
Other comprehensive income (loss)........................... 5,955 (15,774) 7,358
------- -------- -------
Comprehensive income........................................ $51,592 $ 19,600 $39,280
======= ======== =======
The change in accumulated other comprehensive income is as follows:
ACCUMULATED OTHER
COMPREHENSIVE INCOME
-----------------------------------
FOREIGN
CURRENCY UNREALIZED
TRANSLATION LOSS ON
ADJUSTMENT SECURITIES TOTAL
----------- ---------- --------
Balance at January 1, 1998.................................. $ 1,439 $ -- $ 1,439
Change in other comprehensive income (loss)................. 9,036 (1,678) 7,358
------- ------ -------
Balance at December 31, 1998................................ 10,475 (1,678) 8,797
Change in other comprehensive loss.......................... (14,766) (1,008) (15,774)
------- ------ -------
Balance at December 31, 1999................................ (4,291) (2,686) (6,977)
Change in other comprehensive income........................ 3,520 2,435 5,955
------- ------ -------
Balance at December 31, 2000................................ $ (771) $ (251) $(1,022)
======= ====== =======
CONSOLIDATION
The results of 1999 and 1998 operations of an entity in which the Company has a
temporary investment are required to be consolidated under U.S. GAAP.
"Consolidation of investee" in the above reconciliation gives effect to this
requirement. In December 1999, the Company disposed of a substantial portion of
this investment which resulted in the Company's ownership being less than 20% at
December 31, 1999.
SECURITIES
U.S. GAAP requires that certain investments be classified into
available-for-sale or trading securities categories and be stated at their fair
values. Any unrealized holding gains or losses are to be reported as a component
of comprehensive income until realized for available-for-sale securities, and
included in earnings for trading securities.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Non-bank securities included trading securities at fair value and are summarized
as follows:
DECEMBER 31
-------------------
2000 1999
-------- --------
Debt securities............................................. $10,380 $11,417
Preferred shares............................................ 1,445 7,079
Common shares............................................... 25,349 8,389
------- -------
$37,174 $26,885
======= =======
The change in unrealized gain in trading securities is included in the income
reconciliation above.
The non-bank available-for-sale securities consist of common shares, preferred
shares and debt securities, and the bank available-for-sale securities consist
of debt securities. At December 31, 2000, securities in two companies
represented 79% of the total available-for-sale securities and 84% was
represented by five companies at December 31, 1999. The proceeds from the sale
of these securities amounted to $6,603, $1,080 and $966, which resulted in
realized gains (losses) of $(364), $96 and $(738) during 2000, 1999 and 1998,
respectively. The cost of these securities was $8,700, $13,164 and $8,327 which
resulted in unrealized losses in accumulated other comprehensive income of
$(251), $(2,686) and $(1,678) at December 31, 2000, 1999 and 1998, respectively.
INCOME TAXES
No tax is provided for the extraordinary item in 1998 because of the utilization
of tax net operating losses.
SUPPLEMENTAL DISCLOSURES WITH RESPECT TO STATEMENTS OF CASH FLOWS
During 2000, the Company exchanged 402,500 of preferred shares of an affiliate
for $1,779 in cash and 2,597,060 common shares of that affiliate. The Company
received collateral in the extinguishment of a receivable in the amount $2,490
in 1999. During 1998, $30,747 in bonds payable of a subsidiary were exchanged
for Company bonds.
NEW UNITED STATES ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," defers the effective date of FASB No. 133 (as amended by
Financial Accounting Standard No. 138). Management has not determined the effect
this standard may have on future disclosures.
Statement of Financial Accounting Standard No. 140 is generally effective on a
prospective basis for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. Management has
not determined the effect this standard may have on future disclosures.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" was generally effective July 1, 2000, on a prospective basis. This
interpretation clarifies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" under which the Company accounts for stock-based compensation.
Management has not determined the effect this interpretation may have on future
disclosures.
50
INDEPENDENT AUDITORS' REPORT
To the Shareholders
MFC Bancorp Ltd.
Our report on the consolidated financial statements of MFC Bancorp Ltd. is
included on page 32 of this Form 20-F. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedules I, III, IV and VI of this Form 20-F.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ PETERSON SULLIVAN P.L.L.C.
March 23, 2001
Seattle, Washington
51
MFC BANCORP LTD.
SCHEDULE I: CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(DOLLARS IN THOUSANDS)
BALANCE SHEETS
AS AT DECEMBER 31,
-------------------
2000 1999
-------- --------
ASSETS
Cash and securities......................................... $148,908 $117,375
Receivables................................................. 33,831 40,596
Loans and notes receivable.................................. 119,113 81,728
Real estate held for development and sale................... 9,243 7,840
Excess cost of net assets acquired.......................... 17,032 17,851
Other....................................................... 3,936 4,717
-------- --------
$332,063 $270,107
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.................................................... $ 63,572 $ 47,563
Accounts payable and accrued expenses....................... 16,155 17,853
Debt........................................................ 35,421 30,917
Minority interests.......................................... 3,781 2,962
Shareholders' equity........................................ 213,134 170,812
-------- --------
$332,063 $270,107
======== ========
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Financial services revenue.................................. $156,220 $125,526 $123,310
Expenses
General and administrative................................ 21,194 19,305 19,361
Financial services........................................ 88,942 65,262 68,650
Interest.................................................. 4,218 4,867 4,771
Income taxes (recovery)................................... 1,689 (1,016) 622
Minority interest......................................... 1,014 780 (329)
-------- -------- --------
117,057 89,198 93,075
-------- -------- --------
Income from continuing operations........................... 39,163 36,328 30,235
Loss from discontinued operations........................... -- (4,939) --
-------- -------- --------
Net income.................................................. $ 39,163 $ 31,389 $ 30,235
======== ======== ========
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net cash (used) provided by operating activities............ $ 30,753 $ 26,660 $ (952)
Net cash (used) provided by financing activities............ 16,857 26,828 (4,885)
Net cash (used) provided by investing activities............ (31,231) (35,728) (1,613)
Exchange rate effect on cash and cash equivalents........... 2,578 (7,064) 4,099
-------- -------- --------
Net change in cash.......................................... 18,957 10,696 (3,351)
Cash and cash equivalent, beginning of year................. 49,567 38,871 42,222
-------- -------- --------
Cash and cash equivalent, end of year....................... $ 68,524 $ 49,567 $ 38,871
======== ======== ========
52
MFC BANCORP LTD.
SCHEDULE III: SUPPLEMENTARY INSURANCE INFORMATION
FUTURE
POLICY OTHER
BENEFITS, POLICY BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS CLAIMS LOSS OF DEFERRED
POLICY CLAIMS AND NET AND POLICY
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION
SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES COST
- ------- ----------- ---------- --------- -------- --------- ---------- ----------- ------------
Property and
casualty:
December 31, 2000.... -- $1,307,000 -- -- -- $288,000 -- --
December 31, 1999.... -- $3,021,000 -- -- -- $397,000 -- --
December 31, 1998.... -- $5,353,000 -- -- -- $612,000 -- --
OTHER
OPERATING PREMIUMS
SEGMENT EXPENSES WRITTEN
- ------- --------- ---------
Property and
casualty:
December 31, 2000.... $143,000 --
December 31, 1999.... $ 40,000 --
December 31, 1998.... $304,000 --
53
MFC BANCORP LTD.
SCHEDULE IV: REINSURANCE
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- --------- -------- ----------
Property and casualty:
December 31, 2000.................................. $ -- $ -- $ -- $ -- N/A
December 31, 1999.................................. $ -- $ -- $ -- $ -- N/A
December 31, 1998.................................. $ -- $ -- $ -- $ -- N/A
54
MFC BANCORP LTD.
SCHEDULE VI: SUPPLEMENTAL INFORMATION CONCERNING PROPERTY--CASUALTY INSURANCE
OPERATIONS AS AT DECEMBER 31, 2000
THIS SCHEDULE IS OMITTED BECAUSE THE RELEVANT INFORMATION WAS EITHER SHOWN ON
SCHEDULE III OR SCHEDULE IV.
55
ITEM 19. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1.1 Articles of Incorporation.(1)
1.2 Certificate of Amendment dated February 24, 1997.(1)
1.3 Certificate of Amendment dated May 29, 1998.
1.4 Certificate of Amendment dated December 16, 1998.
1.5 Certificate of Amendment dated July 14, 2000.
1.6 Bylaws.(1)
2.1 Master Trust Indenture between Drummond Financial
Corporation and Harris Trust Company of New York, as
trustee, dated August 26, 1993. Incorporated by reference to
Form S-1 filed June 7, 1993.
2.2 First Supplemental Indenture between Drummond Financial
Corporation and Harris Trust Company of New York, as
trustee, dated November 30, 1993.(1)
2.3 Second Supplemental Indenture between Drummond Financial
Corporation and Harris Trust Company of New York, as
trustee, dated October 23, 1996. Incorporated by reference
to Drummond Financial Corporation's Form 10-QSB for the
period ended September 30, 1996.
2.4 Third Supplemental Indenture between Drummond Financial
Corporation, Harris Trust Company of New York and The Bank
of Nova Scotia Trust Company of New York dated for reference
May 13, 1997.(1)
2.5 Fourth Supplemental Indenture between Drummond Financial
Corporation, The Bank of Nova Scotia Trust Company of
New York and Drummond Financial (B.C.) Ltd. dated for
reference February 4, 1998.(1)
2.6 Master Trust Indenture between MFC and Norwest Bank
Minnesota, National Association, as trustee, dated
March 31, 1998.(1)
4.1 Memorandum of Agreement between MFC and Wabush Iron Co.
Limited, Stelco Inc. and Dofasco Inc. dated November 24,
1987.(2)
4.2 Amendment to Mining Lease between MFC and Wabush Iron Co.
Limited, Stelco Inc. and Dofasco Inc. dated January 1,
1987.(2)
4.3 First Amendment to Memorandum of Agreement between MFC and
Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc.(2)
4.4 Assignment Agreement between MFC and Prada Holdings Ltd.
dated as of January 1, 1992.(1)
4.5 Separation Agreement between Mercer International Inc. and
MFC dated for reference March 29, 1996.(1)
4.6 Purchase Agreement between MFC and Volendam Securities C.V.
dated for reference May 16, 1996.(1)
4.7 Purchase Agreement between MFC and Volendam Securities C.V.
dated for reference May 27, 1996.(1)
4.8 Share Purchase Agreement between MFC and Frederick Wong
dated June 6, 1996.(1)
4.9 Subscription Agreement between MFC and Drummond Financial
Corporation dated June 20, 1996. Incorporated by reference
to Drummond Financial Corporation's Form 8-K dated June 27,
1996.
4.10 Share Purchase Agreement between MFC and Med Net
International Ltd. dated June 20, 1996.(3)
4.11 Share Purchase Agreement among MFC and various shareholders
of Logan International Corp. dated June 20, 1996.(3)
56
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
4.12 Subscription Agreement between Drummond Financial
Corporation and Logan International Corp. dated June 20,
1996. Incorporated by reference to Logan International
Corp.'s Form 8-K dated June 27, 1996.
4.13 Share Purchase Agreement between Lehman Brothers Bankhaus AG
and MFC dated October 3, 1996.(1)
4.14 Purchase Agreement between MFC and Robabond Holding AG dated
June 27, 1997.(1)
4.15 Share Purchase Agreement between MFC and Procom Holding AG
dated September 22, 1997.(1)
4.16 Supplementary Agreement to Share Purchase Agreement between
MFC and Procom Holding AG dated September 22, 1997.(1)
4.17 Agreement between MFC and the holders of MFC's Class A
Preferred Shares dated December 1, 1996.(1)
4.18 Subscription Agreement between MFC and Logan International
Corp. dated December 2, 1996. Incorporated by reference to
MFC's Schedule 13D/A (Amendment No. 1) dated December 16,
1996 with respect to Logan International Corp.
4.19 Shareholder Protection Rights Plan Agreement between
MFC and Montreal Trust Company of Canada dated as of
May 18, 1993.
4.20 Amended 1997 Stock Option Plan of MFC.
4.21 Amended and Restated Employment Agreement between MFC and
Michael J. Smith made effective as of November 20, 2000.
4.22 Director's Indemnity Agreement between MFC and Michael J.
Smith dated for reference November 20, 2000.
4.23 Amended and Restated Employment Agreement between MFC and
Roy Zanatta made effective as of November 20, 2000.
4.24 Director's Indemnity Agreement between MFC and Roy Zanatta
dated for reference November 20, 2000.
8.1 Subsidiaries of MFC.
- ------------
(1) Incorporated by reference to MFC's Form 20-Fs filed in prior years.
(2) Incorporated by reference to MFC's Form 10-K for the year ended
December 31, 1989.
(3) Incorporated by reference to MFC's Schedule 13D dated June 27, 1996 with
respect to Logan International Corp.
57
SIGNATURES
Pursuant to the requirements of Section 12 of the SECURITIES EXCHANGE ACT OF
1934, the registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Dated this 23rd day of April, 2001.
MFC BANCORP LTD.
By: /s/ MICHAEL J. SMITH
-------------------------------------------
Michael J. Smith
Chief Executive Officer
58