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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995.
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________________ to _________________________
Commission file number 0-8628
FOUR CORNERS FINANCIAL CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 22-2044086
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 East Avenue, Rochester, New York 14604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 454-2263
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value
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(Title of Class)
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 such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [X]
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and to the best of registrant's
knowledge, will not be contained in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of December 31, 1995, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $32,870.
As of December 31, 1995, the number of shares outstanding of the registrant's
common stock was 3,343,733.
Documents Incorporated By Reference
None.
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TABLE OF CONTENTS
PART I PAGE
Item 1: Business 4
Item 2: Properties 15
Item 3: Legal Proceedings 15
Item 4: Submission of Matters to a Vote of Security Holders 16
Executive Officers of Registrant 16
PART II
Item 5: Market for Registrant's Common Equity and Related 18
Security Holder Matters
Item 6: Selected Financial Data 19
Item 7: Management's Discussion and Analysis of Financial 20
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 26
Item 9: Changes in and Disagreements with Accountants on 26
Accounting and Financial Disclosure
Part III
Item 10: Directors and Executive Officers of Registrant 27
Item 11: Executive Compensation 28
Item 12: Security Ownership of Certain Beneficial Owners 29
and Management
Item 13: Certain Relationships and Related Transactions 30
PART IV
Item 14: Exhibits, Financial Statement Schedules, and 32
Reports on Form 8-K
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PART I
Item 1. Business
Four Corners Financial Corporation is a Delaware corporation formed under
the name American Management Educational Corporation ("Educational Corp.") in
1974. In 1981 Educational Corp. changed its name to American Management Energy
Corporation ("AMEC") and commenced a limited oil and gas operation.
Subsequently, it discontinued the educational financial management consulting
and security investigation business which it had been conducting as well as the
oil and gas operation. Thus, AMEC was inactive and without employees from 1983
until May 12, 1987.
On that date, AMEC sold to a former principal stockholder all of its
assets, consisting of certain oil and gas leases valued at approximately $40,000
in consideration of his assumption of all of the liabilities of AMEC and his
agreement to indemnify AMEC against specified claims.
On May 14, 1987, control of AMEC was transferred to Frank B. Iacovangelo
and Bernard J. Iacovangelo through the acquisition of shares from certain
stockholders.
On April 12, 1988, AMEC acquired all of the issued and outstanding stock of
Four Corners Abstract Corporation ("Abstract") which was then owned by Frank B.
Iacovangelo and Bernard J. Iacovangelo and their affiliates, in exchange for
9,293,100 shares of AMEC. Abstract was formed in 1980 and has conducted
operations since that date. At the time of the acquisition of Abstract, AMEC
changed its name to Four Corners Financial Corporation ("FCFC"). Messrs.
Iacovangelo are also officers, directors and principal stockholders of FCFC.
Since that time, the main source of FCFC's business has been conducted through
Abstract which remains a wholly owned subsidiary of FCFC.
On October 17, 1988, FCFC acquired a controlling interest in Mid-State
Abstract Corporation ("Mid-State") for $95,000. In January 1989, FCFC made an
exchange offer to acquire the remaining shares of Mid-State, resulting in FCFC
owning approximately 84% of the outstanding voting shares being held by parties
not affiliated with FCFC. In February, 1991, Mid-State merged into Abstract and
all outstanding shares of Mid-State were changed and converted into shares of
FCFC Common Stock.
In January, 1989, FCFC acquired all of the outstanding shares of Livingston
Abstract Corporation ("Livingston") in Geneseo, New York for a purchase price of
$8,000, the assumption and agreement to pay the balance of three notes
aggregating $17,985, and the issuance (at a later date) of 20,000 shares of the
Company's Common Stock and commenced operations at the location at that time.
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In January, 1990, FCFC acquired all of the outstanding shares of Picciano
Abstract Company, Inc. ("Picciano") of Binghamton, New York for a purchase price
of $15,000 and the issuance of 20,000 shares of the Company's Common Stock and
commenced operations at that location at that time.
On July 1, 1990, Livingston and Picciano merged into Abstract.
On December 23, 1991, the Company acquired all of the outstanding shares of
Proper Appraisal Specialists, Inc. ("Proper Appraisal") of Buffalo, New York for
a purchase price of $10,000 and the issuance of 90,000 shares of the Company's
Common Stock and commenced operations at that location at that time.
In May, 1992, the Company opened a branch office in Goshen, New York
(Orange County) to service the Hudson Valley area.
In February, 1993, the Company closed its Geneseo Office and consolidated
those operations with its Rochester location. The Company also consolidated its
Cheektowaga Appraisal office with its branch in downtown Buffalo, New York in
December, 1993.
In September, 1994, the Company relocated its Goshen office to Newburgh,
New York. Subsequently, in March, 1995, the Newburgh office was closed. The
Company now provides service to the Mid-Hudson area of New York State through
independent contractors.
Four Corners Financial Corporation and its subsidiaries, Four Corners
Abstract Corporation ("Abstract") and Proper Appraisal, provide services and
products that are utilized in substantially all commercial and residential real
estate transactions. As used herein, "Company" includes Four Corners Financial
Corporation, Abstract and Proper Appraisal unless the context otherwise
requires.
These services and products are offered through offices in Buffalo,
Rochester, Syracuse, Utica, Lockport, Binghamton and Albany, all located in
central and western New York and through subcontractors in other areas of New
York State.
Services and Products
The Company's services and products include real estate title and other
public record searching, the preparation of abstracts of title and the issuance
of title insurance as agent for certain national underwriting companies. Other
services and products include real estate appraisals, abstract storage and
escrow services. All of the Company's services and products may be required in
connection with the mortgaging, sale or purchase of commercial or residential
real property.
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Services and Products (cont)
Substantially all of the Company's revenues were derived from its abstracting
and title insurance services. Although all of the Company's services and
products can be obtained from other vendors at prices comparable to those of the
Company, the Company believes that dealing with a single source for all of these
products is convenient for customers and helps to reduce the time required for
the performance of these services for a particular real estate transaction.
Response time is important in many real estate transactions and the ability
of the Company to provide its services and products in a timely manner is
significant in the attraction and retention of customers.
Abstracts
The purchase, sale, leasing and financing of a parcel of real estate in New
York State outside of New York City, usually require the preparation of an
abstract of title. The abstract is a summary of each transaction affecting the
parcel which is reflected in the records of the Clerk of the County where the
subject property is located. The abstract is examined by attorneys and others to
determine prior interests in, or encumbrances on, the property which have to be
disposed of in order to have "clear" title. The information used to create or
redate an abstract is obtained by title searchers, that is, persons who search
various official records for interests which may affect the ownership interest
in, or title to, real property. Such interests may include real property taxes,
corporate franchise taxes, bankruptcies, mechanics liens, income tax or sales
tax liens, litigation liens, judgment liens, security interests in fixtures and
mortgages as well as interests of prior owners (including deceased owners) which
have not been adequately transferred. Title searchers summarize their findings
and deliver them to word processors who produce the abstract of title.
An abstract usually exists for most properties. Thus, the Company is most
often requested merely to "redate" it. This involves examining the records only
from the date of the last transaction summarized in the abstract. However, where
no abstract is available or when newly subdivided parcels are involved, a new
abstract is created starting with a warranty deed which meets the local
standards for title certification (e.g. at least 60 years old for Rochester, New
York property).
The information contained in abstracts which the Company creates or redates
is indexed and retained by the Company, becoming part of its "title plant".
These "back titles" are valuable assets which facilitate the preparation and
redating of future abstracts. The title plant also aids the expeditious
preparation of title insurance reports and policies.
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The Company also offers an abstract storage service. When mortgages are
placed on real property, the bank or mortgage company usually retains the
abstract of title. Thus, a large volume mortgagee would require substantial
storage space as well as numerous personnel to index, store and retrieve these
abstracts. Through its abstract storage service, the Company picks up these
abstracts and stores them for the lender, redelivering them when requested. At
the present time, the Company stores approximately 20,000 abstracts. The Company
does not charge for this service but believes that it helps to generate abstract
"redating" revenues, since a person needing a redate of an abstract stored by
the Company can, by ordering that redate from the Company, avoid having to
deliver the abstract elsewhere for the redate. The Company estimates that
revenues thus generated amounted to approximately $27,000 in 1995, $35,000 in
1994 and $82,000 in 1993.
Abstract and title companies are often asked to act as an escrow closing
agent in a real estate transaction. This practice is allowable under New York
State law. In this capacity, usually as a function of providing title insurance
on real estate, the Company is asked to hold funds in escrow bank accounts until
certain requirements are met or title defects are cured by the parties involved
in the transaction. For this service the Company charges a fee based upon the
length of time which the funds are to be held and/or the number of transactions
(deposits, checks) to be handled. Also, the Company acts as a conduit for the
sale and purchase of mortgages between financial institutions insuring that
mortgage documents are received and funds for the purchase of mortgages are
wired from buyer to seller in the correct amount and in a specified time frame.
The Company also acts as settlement agent on Home Equity loans and refinanced
mortgage loans for its Title Insurance underwriters and certain banks/lenders.
During 1995, escrow closing services generated approximately $90,000 as compared
to $44,000 and $40,000 in 1994 and 1993, respectively.
Other public record searches provided by the Company include guaranteed tax
searches, surrogate court searches, UCC financing searches, franchise tax
searches, judgment searches, new name searches, back title searches, bankruptcy
searches and foreclosure searches. While these searches are most often needed by
attorneys in connection with real estate transactions, they may be useful to
other customers for other purposes, for example, to lenders extending credit.
Title Insurance
Title insurance policies are statements of the terms and conditions upon
which the title insurance underwriter will insure title to real estate, showing
ownership, outstanding liens, encumbrances and other matters of public record.
The beneficiaries of title insurance policies are generally buyers of real
property and secured lenders, and the policy amount is usually based upon either
the purchase price of the property or the amount of the loan secured by the
property. The title
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Title Insurance (cont)
policy protects the insured against title defects, liens and encumbrances not
specifically excepted from its coverage. Most lenders require title insurance as
a condition to making loans secured by real estate.
Title insurance is substantially different from other types of insurance.
Fire, auto, health and life insurance protect against losses due to future
events that cannot generally be eliminated. Title insurers, however, seek to
eliminate future losses by accurately performing record searches and
examinations of title to real property, and to the extent possible, requiring
that obvious defects be "cured" as a condition of and prior to issuance of the
policy.
Among the most commonly issued title insurance policies are standard or
extended coverage policies for owners and lenders. Owners' policies insure title
to real estate against defects in or liens or encumbrances against title,
unmarketability of title and lack of access to the subject property. Lenders'
policies insure against the invalidity of the lien of the insured mortgage,
insure the priority of the lien or encumbrance as stated in the title policy,
and insure against the invalidity of any assignment of the insured mortgage
provided the assignment is shown in the policy. The terms of coverage have
generally become standardized in accordance with forms approved by industry
groups such as the American Land Title Association.
Since title insurance premiums are based upon mortgage amounts and tend to
be higher on a per unit basis than amounts charged for abstract services, labor
costs as a percentage of revenue in title insurance are lower than in abstract
services. As a result, gross margin levels are higher. Therefore, one of the
Company's main goals has been to increase its revenues from title insurance.
The Company's total revenue for 1995 decreased by 20%, to $3,822,215 as
compared to $4,779,546 in 1994, mainly due to a decrease in real estate activity
and demand for the Company's products. Similarly, revenues from title insurance
representing 42% of total revenues decreased from $1,966,849 in 1994 to
$1,610,147 in 1995.
The title insurance premium is based upon the policy amount and the type of
coverage provided by the policy. Title insurance rates, including those of the
Company's competitors, are regulated by the State of New York Insurance
Department. The premium for title insurance is due and must be paid in full
prior to the issuance of the policy which is generally on the closing date of
the real estate transaction.
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Title Insurance (cont)
The use of title insurance in connection with real estate transactions,
particularly residential purchases and financing, in the Company's marketing
area has been significantly increased since the early 1980's by the expanded
role of the national secondary residential mortgage market, and the growth of
nationwide lending, both residential and commercial, by banks and insurance
companies. As a result, almost all residential and commercial real estate
transfers and/or financings, except most home equity transactions, involve the
issuance of a title insurance policy. This same period of time has seen, until
recently, a general inflation of real estate prices resulting in increasing
levels of insurance coverage and related premiums. However, this expanding
market has also seen a significant increase in the number of companies providing
such insurance in the Company's marketing area, both directly and through
agents. See "Competition".
The Company is not a title insurance underwriter. In selling title
insurance, the Company acts as agent for several national title insurance
underwriting companies. The Company has agency relationships with the following
title insurance underwriters: Old Republic National Title Insurance Company,
Albany, New York; Stewart Title Insurance Company, New York City; and Lawyers
Title Insurance Corporation, Richmond, Virginia. Generally, such relationships
are cancelable by either party upon short notice. The Company believes that in
the event of the cancellation of its existing agency relationships, it would
have no difficulty in securing similar relationships with other title insurance
underwriters.
The choice of an underwriter by the Company is based upon such
considerations as the amount of the premium "split" offered, which varies among
underwriters, the terms under which the title underwriter will require
indemnification for policy losses attributable to errors made by the Company in
searching and examining the title, the scope of services offered to the agent by
the title underwriter, and the fact that certain underwriters will not insure
titles in certain geographical areas within New York State. Typically, the title
insurance premium "split" is approximately 80% to the Company and 20% to the
underwriter.
The title insurance underwriters for which the Company acts as agent are
licensed by the State of New York. Currently, there is no requirement under New
York law that requires an agent such as the Company to hold a license.
Appraisals
In 1989, the Company added to its services the furnishing of
residential real estate appraisals. With the purchase of Proper
Appraisal Specialists, Inc. in 1991, the Company added the appraisal of
commercial properties to its product line.
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Appraisals (cont)
Since that time, appraisals have been performed by certified and/or
licensed appraisers under the guidance of either a Senior Residential Appraiser
(SRA) or an individual with a General Appraisal License from New York State. In
areas where the Company has not had a direct branch operation, the Company
procures the services of licensed appraisers on a subcontractor basis. As a
result of an agreement dated September 27, 1995, the company sold the assets of
its appraisal division to Rynne, Murphy and Associates, Inc., a well-known,
professional residential/ commercial real estate appraisal company located in
Rochester, N. Y. for $125,000, allocated as follows:
Fixed Assets $ 12,500
Customer lists
and goodwill 100,000
Covenant not-to-compete 12,500
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$125,000
========
The purchase price of the fixed assets is in the form of a $12,500
non-interest bearing note receivable in ten quarterly installments of $1,250
beginning May 1, 1996.
The purchase price of the customer lists, goodwill, and covenant not-
to-compete is in the form of a $112,500 note receivable in quarterly
installments, plus interest at 9%, beginning May 1, 1996.
Payment for these assets is contingent based upon 19% of the buyer's gross
margin on sales attributable to the Company's customers. These payments are to
be applied by the Company in the following order: the $1,250 guaranteed payment,
interest and principal. Any unpaid interest is forgiven on a quarterly basis.
It is anticipated that 19% of the buyer's gross margin will not exceed the
$1,250 guaranteed payment and interest for that quarter. As a result, the buyer
would not be required to make any principal payments for the contingent portion
of the note. At December 31, 1995, the Company has fully reserved this portion
of the note receivable.
Under this strategic partnership arrangement with Rynne, Murphy and
Associates, Inc., the Company will continue to market and sell appraisals to its
customers. However, since the appraisal reports will be prepared by Rynne,
Murphy and Associates staff appraisers, the Company will realize a substantial
savings in payroll and other overhead expenses associated with running its
appraisal operation.
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Appraisals (cont)
Appraisal services provide an estimated value for a particular property.
Appraisals are required in a variety of situations including transfer of
ownership, financing, tax matters, relocation services, insurance purposes,
estimation of liquidation value and divorce. The Company's customers for
appraisals have included lending institutions, banks, attorneys, municipalities,
relocation companies, government agencies, corporations and private individuals.
The Company's errors and omissions insurance coverage also covers appraisal
services. During 1995, the Company derived approximately 5% of its gross
revenues from the furnishing of real estate appraisals versus 10% in 1994 and
12% in 1993.
New Services and Products
As a result of the Company's continuing desire to expand its service levels
to new and/or existing customers and to decrease turnaround times, during 1993
the Company introduced an on-line customer based automated order entry system
called "EXPERDITE". The system can be customized by the user and is designed to
aid in the rapid, error-free entry and tracking of title search and title
insurance orders placed with the Company.
Marketing
Services and products provided by the Company are utilized in substantially
all commercial and residential real estate transactions. Therefore, its
marketing efforts are directed primarily toward the persons who place the orders
for such services and products in the typical real estate transaction or other
real estate related activity attorneys, mortgage brokers, lenders, builders, and
other persons and entities engaged in the real estate business generally.
Marketing activities are conducted by a direct sales force of three
employees under the direction of the Company's Director of Sales and Marketing.
Marketing efforts include direct solicitation and advertising in publications
targeted to serve mortgage lenders and attorneys, attendance at trade shows and
conventions, and news releases.
The Company believes that its ability to offer many of the services and
products necessary in a real estate transaction is an important factor in the
attraction and retention of business, since customers can therefore order those
items from a single source. In its marketing activities, the Company emphasizes
this factor and the equally important factors of competitive price, accuracy,
response time, excellent service and reliability, all of which the Company
believes it provides to its customers.
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Significant Customers
During 1995, there were no customers accounting for more than 10% of the
Company's gross revenues.
Industry Considerations and Seasonality
The Company's business is related to the general real estate market and the
fluctuations which occur therein. As a result of economic factors affecting the
real estate industry, namely fluctuating interest rates, there was an increase
in real estate transactions during 1993. Statistics compiled by the New York
State Land Title Association indicate that, for New York State, the number of
deeds and mortgages increased by an average of 8% as compared to 1992. The
Company's revenues in this period declined, which the Company attributes to
several competitive factors as well as a decrease in "home equity" or second
mortgage transactions in favor of refinanced mortgages. Mortgage refinances
continued during the first quarter of 1994 at which time long term interest
rates were at very low levels. However, beginning in the second quarter and
fearing an increase in the levels of inflation, the Federal Reserve Board began
increasing interest rates. By year end 1994 there were an unprecedented number
of consecutive monthly interest rate increases. As a direct result, deeds and
mortgages recorded in New York State during 1994 fell by 7.18% as compared to
1993. As a consequence, the Company's revenues fell sharply causing the company
to incur a significant net loss for the year ended December 31, 1994.
Activity continued to be sluggish during 1995, when recorded deeds or
mortgages fell by an average 11.50% from 1994 levels. Company revenues declined
during 1995 by nearly 20% as a result of these factors. As a result of the plan
developed by Company management subsequent to year end 1994 to significantly
reduce the Company's overhead expense structure in order to improve operations
and cash flow, the Company returned to profitability in 1995. There can be no
assurance that these or other factors will enable the Company to maintain its
revenue and profitability in periods of declining real estate activity.
The demand for the Company's services and products is directly dependent
upon the activity of the real estate market which, in turn, is closely related
to changes in interest rates. Thus, the Company's business is cyclical as well
as seasonal, with lowest volume when interest rates are high and in the winter
and early spring.
Banking Relationship
During 1995, Company management worked closely with bank officials and its
public accounting firm to develop a plan to restructure Company expenses and
improve operations and cash flow. On 12/13/95, the amount
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Banking Relationship (cont)
outstanding on the Company's note payable to a bank, $133,333, and $185,000 of
the amount borrowed under its Line-of-Credit agreement were refinanced with the
same bank. The note payable to the bank requires the Company to meet certain
financial covenants at December 31, 1995 (see Note 5 of the Accompanying
Consolidated Financial Statements as of December 31, 1995 and 1994).
Potential Liabilities
Abstract companies, including the Company, certify their searches and
abstracts for accuracy. In its title insurance business, the Company relies upon
its abstracts and other information and considerations, including standards
prescribed by its principals, in determining whether title is insurable. If the
Company makes a determination of insurability, it issues a policy of title
insurance on behalf of its principal, the underwriting company. As an issuer of
certified searches and abstracts, the Company may, depending on applicable law
and the facts of a particular case, be liable for money damages in the event of
errors in its searches and abstracts. As an agent issuing title policies on
behalf of an underwriter, the Company may, again depending on applicable law and
the facts of a particular case, be liable to either the underwriter or the
insured in the event of errors in abstracting or determinations of insurability,
negligence, or breaches of agreements with its principals. There are no
significant claims pending against the Company based upon any of the foregoing
considerations, but the potential for such claims, and possible liability
thereon, is a risk that is inherent in the Company's business, and such claims
may be asserted at any time. During the most recent past five years, the amount
paid by the Company for such claims, in the aggregate, is less than $35,000. The
Company has errors and omissions insurance coverage of $1,000,000, which
complies with requirements of its principals and is also deemed adequate by the
Company's management.
Employees
The Company and its subsidiaries employed approximately 66 persons at
December 31, 1995, as compared to 94 in 1994 and 129 in 1993. Certain members of
the Company's management must sign Confidentiality Agreements which prohibits
the solicitation of information or resources to existing or potential
competitors. The employees of the Company are not covered by any collective
bargaining or other agreements and management believes its employee relations to
be good.
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Service Marks
The names "Four Corners Financial Corporation" and "Four Corners Abstract"
have been registered as service marks with the U.S. Patent and Trademark Office.
While the Company considers its service marks to be important, management does
not consider any service mark to be critical to future operations of the Company
or the marketing of any of the Company's services or products.
Competition
The Company competes with numerous providers of abstract and title
insurance services, most of which fall into two main categories. The first are
the large, integrated national or statewide companies which underwrite their own
title insurance policies either directly or through agents. Such agents include
not only independent companies, but also attorneys who sell title insurance
policies as "examining counsel" for underwriters of title insurance. The second
are the small, local companies which provide abstracts and write policies only
as agents for others. Both types of companies are found in the markets served by
the Company and offer substantial competition. Because of the relative ease of
entry into the market place, the Company may meet additional competition from
newly formed companies in one or more of its market areas.
The use of title insurance in residential real estate transactions has
grown in recent years because of the development of the national secondary
residential mortgage market which requires title insurance for virtually all
residential mortgages. Also, in recent years, institutional lenders have
generally required title insurance in virtually all commercial mortgages.
However, during the same period, there has been a significant increase in the
number of companies providing such insurance in the Company's market area, both
directly and through agents.
The Company also competes with numerous residential and commercial
appraisal companies, most of which are smaller than the Company and are
independently owned in the geographical area in which they operate.
The principal elements of competition are accuracy and speed (response
time). Prices for abstract and appraisal services are generally comparable among
vendors. However, in recent years, the Company experienced significant price
competition from new abstract companies entering its market areas. Prices for
title insurance are standardized and regulated by the New York State Insurance
Department which requires that rates be filed for approval by the New York State
Title Insurance Rate Service Association, Inc. (TIRSA). Personal relationships
are extremely important in retaining business and obtaining new business.
Excellent service and reliability, which the Company believes it provides, are
the principal means of developing and maintaining such relationships.
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Item 2. Properties
Prior to July, 1995, principal offices of the Company were located at 80
West Main Street, Rochester, New York. These facilities, approximately 15,000
square feet, were leased from Wegman Building Associates, a partnership in which
Messrs. Frank B., Bernard J. and Anthony M. Iacovangelo, directors and/or
officers of the Company, are partners. Abstract had a one year lease for this
space expiring on 12/31/95, which provided for an annual net rent of $68,000.
However, effective 7/31/95, the Company moved its Rochester facilities to 370
East Avenue. These facilities are leased from Fitch Building Associates, another
partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo
are partners. Abstract now leases approximately 9,000 square feet of such space
at a net annual rent of $72,000, pursuant to a lease expiring June 30, 2000. The
Company believes that the terms of its rental are at least comparable to those
which it might have obtained if dealing with a non-affiliated third person. Rent
and common charges were approximately $72,000, $58,000 and $213,000 in 1995,
1994 and 1993, respectively. During 1994, total unpaid rent of $109,000 was
forgiven by Wegman Building Associates and reflected as an extraordinary item.
The Company owed approximately $20,000 for unpaid rent at December 31, 1995.
In addition, the Company leases space for its branch offices in Buffalo
(3,993 square feet), Albany (1,410 square feet), Syracuse (2,087 square feet),
Lockport (625 square feet) and Binghamton (760 square feet). The building which
houses the Utica branch (2,000 square feet) was sold by the Company in 1994. Per
this agreement, the Company was allowed to operate from this location on a
month-to-month tenancy through July 1, 1995. Effective August 1, 1996, the
Company entered into a lease for 1,611 square feet in a nearby office building
for its Utica Branch office.
The Company also leases space in the County Clerk's offices in Monroe,
Erie, Onondaga and Niagara counties, and occupies space in the County Clerk's
office in Oneida County.
The Company believes it has adequate insurance coverage with respect to
fire and other casualty losses.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company is a party or
of which any of its property is the subject.
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Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year covered by this report.
Executive Officers of Registrant
The executive officers of the Company are as follows:
Name Age Position with the Company
---- --- -------------------------
Frank B. Iacovangelo 56 President, Treasurer and Director
Bernard J. Iacovangelo 48 Vice President, Secretary and
Director
William S. Gagliano 46 Executive Vice President and
Director
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Business Background of Executive Officers
Set forth below is a brief description of the business backgrounds of the
executive officers of the Company.
Frank B. Iacovangelo has served as President, Treasurer, and a director of
the Company since May, 1987. He is a practicing attorney and has been a partner
in the law firm of Gallo & Iacovangelo of Rochester, New York for more than five
years. Mr. Iacovangelo is also an officer, director and principal shareholder of
Faber Construction Co., Inc. and Forest Creek Equity Corp., real estate
development companies, and an owner of numerous real estate projects. In
addition, Mr. Iacovangelo is President and director of Four Corners Abstract
Corp., a wholly-owned subsidiary of the Company, which he co-founded in 1980.
From 1987 until June, 1989, Mr. Iacovangelo was Chairman of the Board of
Directors of a food service business which filed a petition under Chapter 11 of
the U.S. Bankruptcy Code on November 20, 1989.
Bernard J. Iacovangelo has served as Vice President, Secretary, and a
director of the Company since May, 1987. He is an attorney and has had more than
five years of experience as a partner in the law firm of Gallo & Iacovangelo.
His principal activity for the last five years has been as President, director
and principal shareholder of Forest Creek Equity Corp., a real estate
development company. Mr. Iacovangelo is also a principal shareholder of Faber
Construction Co., Inc. and an owner of numerous real estate projects as well as
co-founder, officer and director of Four Corners Abstract Corp., a wholly-owned
subsidiary of the Company.
William S. Gagliano has served as Executive Vice President of the Company
and Four Corners Abstract Corp. since June, 1990. He was elected Director of the
Company in July, 1992. As Executive Vice President, he is responsible for day to
day operations of the Company. He joined Four Corners Abstract Corp. in 1987 as
Vice President of Finance and Administration.
Messrs. Frank and Bernard Iacovangelo are brothers.
<PAGE>
-18-
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters
There is a very limited trading in the Company's Common Stock. The range of
high and low bid prices and high and low asked prices for the years 1993, 1994
and 1995 is shown below, as reported by the National Quotations Bureau, Inc. and
as adjusted to reflect the Company's one for four (1 for 4) reverse stock split
which became effective July 31, 1992.
COMMON STOCK DATA
1993 BID ASKED
---- --- -----
1st Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1994
1st Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1995
1st Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
February 16, 1989 $2.00 $2.00 $3.00 $3.00
(last available)
* = Listed in pink sheets without prices
The above quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not represent actual transactions
and have not been adjusted for stock dividends or splits.
The Company's agreement with its Bank places a restriction on its payment
of dividends. No dividends were declared or paid during 1993, 1994 or 1995.
On December 31, 1995, the Company had 1,210 holders of record of its common
stock.
<PAGE>
-19-
Item 6. SELECTED FINANCIAL DATA
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenue ....................... $ 3,822 $ 4,780 $ 5,828 $ 6,818 $ 5,505
Income (loss) before taxes .... 99 (581) 66 33 312
Net income (loss) ............. 97 (469) 56 25 288
Net income (loss) per share (1) $ .03 $ (.14) $ .02 $ .01 $ .08
BALANCE SHEET DATA:
Total assets .................. $ 1,240 $ 1,315 $ 1,804 $ 1,584 $ 1,685
Long-term obligations ......... 202 564 507 625 271
Stockholders' investment ...... 56 (42) 427 377 345
Notes:
(1) In 1992, the Company's stockholders approved a one-for-four reverse stock
split. In conjunction with this reverse stock split, the authorized number
of shares was reduced to 15,000,000 and par value was increased to $.04 per
share. All years have been restated to reflect this action.
<PAGE>
-20-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
1. Liquidity and Capital Resources
The Company's cash flow resulted from operations, bank loans and advances
made by principal stockholders.
In 1995, the operations of the Company generated cash of $210,839. This
cash flow, along with cash reserves of $28,932, was sufficient to fund
investments in assets of $38,881 and a net debt reduction of $138,099. The cash
flow from operations of $52,351 funded investments in assets of $62,399 and a
net debt reduction of $60,672 in 1994. During the calendar year 1993, an
operating cash flow of $216,118 funded an investment in assets and a
corresponding decrease in debt financing of $147,597 and $21,832, respectively.
Cash Flow From Operations. The cash provided by operations was greater in
1995, being $210,839 versus $52,351 in 1994. This change was primarily due to a
$97,384 net profit incurred in 1995 as compared to a substantial net loss of
$469,030 in the previous year. The positive impact from increases in the
provision for bad debts and non-cash depreciation and amortization expense, as
well as a non-cash loss on property disposal, further enhanced the sizable
$97,384 net profit incurred in 1995. The cash provided by operations in 1994 was
lower than the 1993 amount of $216,118. This was primarily due to a decrease in
accounts payable and a significant net loss in 1994.
Cash Flow from Investing Activities. The Company made capital expenditures
of $39,325, $31,469, and $103,108 in 1995, 1994 and 1993 respectively, primarily
related to computer system to computer system upgrades and furniture and fixture
purchases at various Company locations. Whereas the company made investments in
its title plant in 1994 and 1993 of $36,985 and $44,013, respectively to support
its ongoing business, no such commitment was made during the 1995 year.
As of December 31, 1995, the Company had no material purchase commitments.
In the past, the company has acquired other businesses for cash, notes and
common stock. Additional acquisitions may be made in the future. These
acquisitions may be made, in part or in whole, for cash.
Cash Flow from Financing Activities. Primary cash flows from financing
activities relate to changes in financing under lines-of-credit, notes payable
and advances by principal stockholders. On December 13, 1995, the amount
outstanding on the note payable to a bank of $133,333, and $185,000 of the
amount borrowed under its line-of-credit agreement were refinanced with the same
bank. The note payable
<PAGE>
-21-
and line-of-credit have been classified in accordance with the new agreement as
of December 31, 1995. The terms of the bank note require the Company to meet
certain financial covenants at December 31, 1995. These ratios are adjusted on a
quarterly or semi-annual basis during 1996 and thereafter. The covenants, ratios
and terms of the agreement can be found in note #5 of the accompanying financial
statements. The agreement also limits the Company's ability to make
acquisitions, pay dividends, and make capital expenditures. In addition, the
company is required to submit certain financial information on a periodic basis.
At December 31, 1995, the Company was not in compliance with the current
ratio, net income requirement and debt service ratio. Subsequent to year end,
the Company obtained a waiver from the bank for these covenants as of December
31, 1995. The Company is currently in the process of renegotiating the covenants
of this note. Since these negotiations have not yet been completed, this note
has been classified as current in the accompanying consolidated balance sheets
at December 31, 1995.
Future maturities of the debt described above are as follows:
1996 .................................$ 331,211
1997 ................................. 1,674
----------
332,885
==========
The Company may borrow up to $50,000 under the terms of a line-of-credit
agreement with a bank through October 31, 1997. Amounts borrowed bear interest
at the bank's prime interest rate plus 1% and are collateralized by
substantially all assets of the Company. At December 31, 1995, there was $35,000
outstanding under the terms of this line-of-credit.
At December 31, 1994, there was $235,000 outstanding on the Company's
former line-of-credit with the same bank. On December 13, 1995, $185,000 of the
amount borrowed under this line-of-credit was refinanced as part of the note
payable to the same bank.
The Company also has available an unsecured line of credit of $100,000 with
a bank with interest an amounts borrowed at the bank's prime rate plus 1%. There
were no borrowings as of the years ended December 31, 1993, 1994 and 1995.
Borrowings under this line of credit are personally guaranteed by the Company's
principal officers/stockholders.
The company repaid $150,599, $164,033, and $179,215 under its long-term
debt agreements in 1995, 1994 and 1993, respectively. While long-term borrowings
were $8,361 and $41,693 in 1994 and 1993 respectively, no additional borrowing
activity existed for the 1995 year. At December 31, 1995, the Company owed
$227,500 to a principal stockholder/director. For the years ended 1994 and 1993,
this indebtedness amounted to
<PAGE>
-22-
$200,000. This debt bears interest at the prime rate plus three percent (3%) and
has no set repayment terms, however, the principal stockholder has agreed not to
require payment prior to January, 1997.
The Company expects the cash flow generated from operations and bank
lines-of-credit currently available to be sufficient to meet its anticipated
working capital and fixed capital expenditure needs for the next twelve months.
The Company believes that the impact of inflation on its results from
operations has been and will continue to be minimal due to the recent stability
of the economy.
2. Results of Operations
(a) Percentage Comparison
The following table presents certain financial data derived from the
consolidated statements of operations of the Company for the years ended
December 31, 1995, 1994 and 1993, expressed as a percentage of total revenues.
Percentage of Total Revenues
Years Ended December 31
--------------------------------------
1995 1994 1993
---- ---- ----
Title insurance premiums 42.13% 41.15% 31.88%
Abstract/appraisal fees 57.87 58.85 68.12
------ ------ ------
Total revenues 100.00 100.00 100.00
Direct costs of revenue (20.90) (21.87) (16.80)
------ ------ ------
Gross profit 79.10 78.13 83.20
Operating expenses:
Personnel costs (51.18) (61.77) (56.61)
Other operating expenses 22.18 27.01 24.33
------ ------ ------
Operating income/(loss) 5.54 (10.65) 2.26
Other expenses (2.94) (.14) (1.13)
Income tax expense (.05) .98 (.17)
------ ------ ------
Net income/loss 2.55% (9.81)% .96%
====== ====== ======
<PAGE>
-23-
(b) Operating Revenues
Combined revenues of the Company decreased 17.99% from $5,828,136 for the
year ended December 31, 1993 to $4,779,546 for the year ended December 31, 1994.
The combined revenues further decreased approximately 20.03% to $3,822,215 for
the year ended December 31, 1995.
The company experienced a revenue decrease in 1993 and 1994 due to strong
competition within the abstract and title insurance industry, a weaker demand
for home equity (second mortgage) loans, and the continuance of a sluggish real
estate market in the northeast. This trend continued in a slightly less dramatic
fashion in 1995 as the housing market began to rebound in the areas where the
Company does business. The Company expects total revenues to increase during
1995 as consumer confidence continues to increase and as the volume of orders
increases from those customers lost to lower-priced non-performing competitors.
Specifically, revenue from title insurance premiums decreased by 18.13%
during 1995 to $1,610,147 versus $1,966,849 in 1994. This occurred despite a
slight increase in 1994 of 5.81% from $1,858,264 realized in 1993. Even though a
minimal increase in title sales was recognized for 1994, a significant decline
in title searches and appraisal sales caused an overall decline in gross
revenues of the Company. In 1995, correlating declines were recognized in both
areas of revenue. Abstract and appraisal service revenues declined from
$3,969,872 to $2,812,697 to $2,212,068 in 1993, 1994 and 1995, respectively.
These fluctuations represented a 29.15% reduction in abstract and appraisal
revenues from 1993 to 1994 and a corresponding reduction of 21.35% from 1994 to
1995. As stated earlier, the decline in this segment of the Company's revenues
from the years ended 1993 to 1995 resulted from more intense competition within
the industry in addition to a lower volume of home equity (second mortgages)
loans. The Company is able to provide appraisals on real properties under an
exclusive arrangement with a local appraisal company. As a percentage of total
revenue, appraisal income has fallen from twelve (12%) of total revenues in 1993
to ten (10%) in 1994. Appraisal revenues decreased significantly from $701,540
in 1993 to $464,787 in 1994. A further decrease of 58% occurred in 1995 as
appraisal revenues fell sharply to $194,460. These decreases were associated
with the decreased volume of abstract and title orders.
(c) Direct Costs of Revenue
Direct costs of revenue consist to commissions paid to underwriters of
title insurance and subcontractor costs paid to other title companies and to
appraisers. As a result of a decrease in the volume of title search and
appraisal orders in the geographic areas where the company does not have a
direct operation, as well as the positive aspect of producing a higher
percentage of orders using its own work force, direct costs of revenue have
decreased dramatically by 24% from $1,045,319 in 1994 to $798,897 in 1995. From
1993 to 1994, these same costs increased
<PAGE>
-24-
by 21.87% due amounts paid to company paid closing attorney agents used
primarily in Western New York State.
(d) Operating Expenses
Direct and indirect personnel costs and other operating expenses are
incurred in connection with producing title searches and title examinations,
maintaining the Company's title plant, and providing real estate appraisals.
Total operating expenses decreased from $4,717,398 for the year ended December
31, 1993 to $4,228,331 for the same period in 1994. Operating expenses further
declined in 1995 to $2,811,810. These decreases were primarily attributable to
declining payroll costs associated with a reduction in staffing requirements as
the demand for the Company's decreased.
In 1994, gross payroll and benefits amounted to $2,952,187 as compared to
$3,299,116 in 1993. For the same period, office supplies including postage
decreases from $237,238 to $173,122. The decrease in operating expenses
experienced by the Company in 1994 and 1995 was attributable to a cost
containment and downsizing program implemented as a result of a lower than
anticipated sales volume. The significant decreases in expense for 1995 are
shown in the table below.
Expense Item 1995 1994
------------ ---- ----
Gross payroll & benefits $1,956,156 $2,952,187
Dues & subscriptions 6,655 17,061
Office supplies & postage 97,612 173,122
Travel expenses 35,103 85,938
As with any service company, the major item of expense and corresponding
increase in expense level associated with the Company's operations is gross
payroll and employee benefits. As a percentage of revenues, personnel costs and
other operating expenses represented 74% in 1995, 89% in 1994, and 81% in 1993.
The increase experienced in the 1994 calendar year resulted from a constant
level of payroll expenditures versus a decreasing revenue base. This diminishing
revenue base was attributable to a period of increasing interest rates for
mortgage loans during the second half of 1994 and an increased level of
competitiveness within the industry. Whereas the revenue base remained fairly
stable following more traditional trends, through the 1995 calendar year, the
Company was able to control payroll expenditures in a much more effective
manner. The Company is continuing a strategic emphasis
<PAGE>
-25-
on productivity, geographic full service, and total quality standards. The
Company's work force has decreased significantly from 94 in 1994 to 75 in 1995.
Based on a decrease in sales order volume, income from operations for 1995
was $211,508 verses a sizable loss from operations of $494,104 in 1994. Net
income was $97,384 for the 1995 calendar year whereas a corresponding net loss
in the amount of $469,030 was recognized for 1994. In 1994, the Company suffered
a significant decrease in income from operations and net income due to the
economic downturn of the real estate market caused by increasing interest rates.
The loss from normal operations of $534,030 was reduced from a $65,000 gain
relating to the early extinguishment of debt from a related party to arrive at
the net loss mentioned above for 1994. In 1995, the Company fully implemented
cost cutting measures to ensure the profitability of the business. As a result,
income from normal operations and net income represented sizable improvements
from the previous years figures.
<PAGE>
-26-
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
to pages 35 to 53 of this Form 10-K and are indexed under Item 14(a)(1). See
also the Financial Statement Schedules appearing herein, as indexed under Item
14(a)(2).
Item 9. Disagreements on Accounting and Financial Disclosure
There have been no disagreements on accounting and financial disclosure
matters.
<PAGE>
-27-
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table names the directors and indicates their age, their
position with the Company or their principal occupation or employment, and the
approximate number of shares of Common Stock beneficially owned by each director
and all directors and officers as a group as of December 31, 1995.
Shares of
Position with the Common Stock Percent
Company or Princi- Director Beneficially of
Name Age pal Occupation Since Owned Class
- ---- --- ------------------ -------- ------------ -------
Frank B. 56 President and 1987 1,366,339 (3) 40.92%
Iacovangelo Treasurer (1)
Bernard J. 48 Vice President 1987 1,376,339 (4) 41.22%
Iacovangelo Secretary (1)
William S. 46 Executive Vice 1992 140,758 (5) 4.22%
Gagliano President and
Director (1)
Anthony M. 55 President, director 1987 87,913 (6) 2.64%
Iacovangelo and principal share-
holder of Faber
Construction Co., Inc.
Rochester, NY (2)
All Directors and Officers of the 2,971,349 88.99%
Company as a group (four persons) (3)(4)(5)(6)
(1) See information contained in the section entitled "Executive
Officers of Registrant" in Part I of Form 10-K for the fiscal
year ended December 31, 1994. In addition, from 1987 until June
1989, Frank B. Iacovangelo was a director, and on an interim
basis for a period of approximately 11 months was Chairman of
the Board of Charlie Bubbles, Ltd. food service business which
filed a petition under Chapter 11 of the U S Bankruptcy Code on
November 20, 1989.
(2) During the past five years, Anthony Iacovangelo has also been an
owner of numerous real estate projects.
(3) Includes 300,000 shares owned by children of Frank B. Iacovangelo,
beneficial ownership of which is disclaimed. Also includes 40% of
the 368,879 shares owned by Wegman Building Associates, a
partnership in which Frank Iacovangelo owns a 40% interest.
<PAGE>
-28-
(4) Includes 500,000 shares owned by a Trust for the benefit of
Bernard J. Iacovangelo's children, the Trustees of which are Mr.
Iacovangelo's wife, Patricia, and his brother, Frank. Mr.
Iacovangelo disclaims beneficial ownership of these shares. Also
includes 40% of the 368,879 shares owned by Wegman Building
Associates, a partnership in which Bernard Iacovangelo has a 40%
interest.
(5) Includes an option to purchase 125,000 shares of Common Stock.
(6) Includes 10% of the 368,869 shares owned by Wegman Building
Associates, a partnership in which Anthony Iacovangelo has a 10%
interest. Also includes options to purchase 1,000 shares of
Common Stock.
Messrs. Frank, Bernard and Anthony Iacovangelo are brothers.
Item 11. Executive Compensation
Executive Compensation
The following table sets forth the cash compensation for each of the last
three financial years awarded to or earned by the Chief Executive Officer of the
Company. No other executive officer of the Company received a total salary and
bonus in excess of $100,000 and accordingly no reporting is required under the
regulations of the Securities and Exchange Commission.
Name and Annual Compensation (1)
Principal Position -----------------------
------------------ Yearly Salary
-------------
Frank B. Iacovangelo 1995 -- - 0 -
President, Chief 1994 -- $61,800
Executive Officer 1993 -- $21,923
and Treasurer
- ----------
(1) Mr. Iacovangelo receives no other compensation or benefits from the Company.
He neither received nor exercised any options during 1995 and he held no options
at December 31, 1995.
Remuneration of Directors
During 1995, directors of the Company received no cash remuneration for
serving as directors or as members of committees.
The Company's 1992 Stock Option Plan (the "Option Plan") provides for
automatic grants of stock options to each member of the Board of
Directors who is not also an employee of the Company. Messr. Anthony
Iacovangelo is a non-employee director.
<PAGE>
-29-
Pursuant to the Option Plan, a Non-Employee Director Stock Option ("NEDSO")
for 500 shares is granted to each non-employee director automatically every year
on the date of the Annual Meeting of Stockholders. The first such grants were
made on the date of the 1992 Annual meeting of Stockholders (July 29, 1992), and
each non-employee director received a NEDSO for 500 shares at an exercise price
of $.75 per share, the fair market value of the Company's Common Stock on the
date of grant.
Each NEDSO is immediately exercisable in full. Each NEDSO terminated upon
the expiration of ten years from the date upon which such NEDSO was granted. A
NEDSO is not transferable other than by will or by the laws of dissent and
distribution.
In the event a non-employee director terminates services on the Board other
than by reason of death or disability, such person's NEDSO (to the extent
exercisable upon such termination) will expire three months from the date of
termination of service, provided that in no event may a NEDSO be exercised
beyond its original expiration date.
In the event of death or disability of a non-employee director, any
outstanding NEDSOs will expire one year from the date of death or disability,
provided that in no event may a NEDSO be exercised beyond its original
expiration date.
Employment Agreements
Employment agreements between the Company and each of Messrs. Frank B.
Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano provide for
employment terms which commenced January 1, 1992, year to year indefinite
renewal terms subject to either the Company or the employee electing not to
renew, as amended, minimum base salaries of $60,000 per year in the case of
Frank Iacovangelo, $52,000 per year in the case of Bernard J. Iacovangelo and
$75,000 in the case of Mr. Gagliano, additional salary and bonus compensation to
be determined by the Board of Directors of the Company in its sole discretion,
and restrictions against competition with the Company. Messrs. Frank B.
Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano received $ -0- ,
$ -0- and $69,378 respectively during 1994.
Item 12. Security Ownership of Certain Beneficial owners and Management
On December 31, 1995, the Company had outstanding and entitled to vote with
respect to all matters to be acted upon at the Annual Meeting of Stockholders,
3,343,733 shares of Common Stock ($.04 par value). Each share of Common Stock is
entitled to one vote. The Company currently has no other outstanding class of
equity securities.
The following table sets forth information as of December 31, 1995 showing
all persons who, to the Company's knowledge, were beneficial owners of 5% or
more of any class of its shares. All persons listed below have sole voting and
investment power with respect to their shares unless otherwise indicated.
<PAGE>
-30-
Amount and Nature of Percent of
Name and Address Beneficial Ownership Class
- --------------------------------------------------------------------------
Frank B. Iacovangelo 1,366,339 (1) (3) 40.92%
80 West Main St.
Rochester, NY 14614
Bernard J. Iacovangelo 1,376,339 (2) (3) 41.22%
80 West Main St.
Rochester, NY 14614
Wegman Building 368,879 (3) 11.05%
Associates
80 West Main St.
Rochester, NY 14614
(1) Includes 300,000 shares owned by children of Frank B. Iacovangelo,
beneficial ownership of which is disclaimed. Also includes 40% of
the 368,879 shares owned by Wegman Building Associates, a
partnership in which Mr. Iacovangelo has a 40% interest.
(2) Includes 500,000 shares owned by a Trust for the benefit of
Bernard J. Iacovangelo's children, the Trustees of which are Mr.
Iacovangelo's wife, Patricia, and his brother, Frank. Mr.
Iacovangelo disclaims beneficial ownership of these shares. Also
includes 40% of the 368,879 shares owned by Wegman Building
Associates, a partnership in which Bernard Iacovangelo has a 40%
interest.
(3) Wegman Building Associates is a general partnership in which Messrs.
Frank, Bernard and Anthony Iacovangelo have a 40%, 40% and 10%
interest, respectively. They have shared voting and investment power
with respect to the shares owned by the partnership.
Item 13. Certain Relationships and Related Transactions
The principal offices of the Company are located at 370 East Avenue,
Rochester, New York. These facilities are leased from Fitch Building Associates,
a partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo,
directors and/or officers of the Company, are partners. Four Corners Abstract
Corporation ("FCAC"), a subsidiary of the Company, currently leases
approximately 9,000 square feet of such space, pursuant to a lease expiring on
June 30, 2000. Effective July 1, 1995, the lease agreement requires annual
rental payments of $72,000.
Annual rental payments, pursuant to the lease, including common area
charges, were approximately $72,000, $58,000 and $213,000 in 1995, 1994, and
1993 respectively. During 1994, total unpaid rent of $109,000 was forgiven by
the related partners. The Company owed approximately $66,000 for unpaid rent at
December 31, 1993, and approximately $20,000 at December 31, 1995.
<PAGE>
-31-
Messrs. Frank and Bernard Iacovangelo, officers and directors of the
Company, are members of the law firm of Gallo & Iacovangelo, general
counsel to the Company.
During 1995, 1994 and 1993, Frank Iacovangelo, President of the Company,
made advances to the Company. The advances bear interest at the prime rate plus
3% and repayment is subordinated to the amounts outstanding under the Company's
line of credit agreements. Mr. Iacovangelo has agreed not to require payment of
these advances through January 1, 1996. At December 31, 1995, December 31, 1994
and December 31, 1993, $200,000, was outstanding. In 1995, the Company paid Mr.
Iacovangelo $15,180.13 in interest.
In 1995, 1994 and 1993, approximately 4% of the Company's revenue was
derived from the law firm of Gallo and Iacovangelo. At December 31, 1995, 1994,
and 1993, the Company was owed $36,742, $59,284 and $57,966 respectively, from
Gallo and Iacovangelo. Rates charged were comparable to those charged similar
customers.
<PAGE>
-32-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as a part of this report and
as response to Item 8:
(1) Financial Statements
- Auditors' Report dated February 23, 1996
- Consolidated Balance Sheets - December 31, 1995 and 1994
- Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993
- Consolidated Statements of Changes in Stockholders'
Investment for the Years Ended December 31, 1995, 1994
and 1993
- Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements (1) through (9)
(2) Financial Statement Schedules
- Auditors' Report Dated February 23, 1996
- Schedule II - Amounts Receivable From Related Parties for the
Years Ended December 31, 1995, 1994 and 1993
- Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended December 31, 1995, 1994 and 1993
- Schedule IX - Short-Term Borrowings for the Years Ended
December 31, 1995, 1994 and 1993
<PAGE>
-33-
(3) Exhibits
(a)
10.1 Waiver of Covenant(s) Letter from Marine Midland Bank
dated Nay 15, 1996.
10.2 Asset purchase agreement dated September 27, 1995, by and
between Rynne, Murphy and Associates, Inc. and Four Corners
Abstract Corporation.
10.3 Lease agreement dated June 15, 1995, by and between Baraka
Realty Company and Four Corners Abstract Corporation for
property located at 36 Bank Place, Utica, NY.
22 Subsidiaries of Registrant
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth
quarter of the year ended december 31, 1994.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (2) above.
<PAGE>
-34-
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 30, 1996 FOUR CORNERS FINANCIAL CORPORATION
By: /s/Frank B. Iacovangelo
Frank B. Iacovangelo, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capabilities on the dates indicated.
/s/Frank B. Iacovangelo May 30, 1996
- ---------------------------------
Frank B. Iacovangelo
President, Treasurer and Director
(Chief Executive Officer and
Chief Financial Officer
/s/William S. Gagliano May 30, 1996
- ---------------------------------
William S. Gagliano
Executive Vice President, Chief
Accounting Officer and Director
/s/Bernard J. Iacovangelo May 29, 1996
- ---------------------------------
Bernard J. Iacovangelo
Vice President, Secretary and
Director
/s/Anthony M. Iacovangelo May 29, 1996
- ---------------------------------
Anthony M. Iacovangelo
Director
<PAGE>
-35-
FOUR CORNERS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
-36-
INDEPENDENT AUDITORS' REPORT
February 23, 1996
To the Stockholders of
Four Corners Financial Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Four Corners
Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders'
investment, and cash flows for each of the three years in the period ended
December 31, 1995. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Four Corners Financial
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
<PAGE>
-37-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---- ----
CURRENT ASSETS:
Cash $ 62,791 $ 28,932
Cash - escrow deposits 90,403 70,633
Accounts receivable, net of allowance for
doubtful accounts of $84,000 and $100,000 in
1995 and 1994, respectively 464,288 478,094
Prepaid expenses 13,316 9,090
Other receivables 893 1,085
Current portion of note receivable 2,500 -
Income tax receivable - 6,725
---------- ---------
Total current assets 634,191 594,559
---------- ---------
PROPERTY AND EQUIPMENT, net 195,940 305,358
---------- ---------
OTHER ASSETS:
Note receivable, net of current portion 10,000 -
Cash value of officer life insurance 17,616 20,070
Intangible assets, net of accumulated
amortization of $95,924 in 1995 and
$81,269 in 1994 - 14,655
Other assets 15,256 13,246
---------- ---------
42,872 47,971
---------- ---------
TITLE PLANT 367,283 367,283
---------- ---------
$1,240,286 $1,315,171
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1995 1994
------- ------
CURRENT LIABILITIES:
Lines-of-credit $ 35,000 $ 50,000
Current portion of notes payable 331,211 106,745
Current portion of obligations under
capital leases 32,738 45,805
Notes payable to officers/principal stockholders 27,500 -
Accounts payable 393,179 455,866
Accounts payable - related parties 20,000 -
Escrow deposits 90,403 70,633
Other accrued expenses 50,886 63,639
Accrued income taxes 1,500 -
---------- ----------
Total current liabilities 982,417 792,688
---------- ----------
LONG-TERM LIABILITIES:
Notes payable, net of current portion 1,674 330,937
Obligations under capital leases, net
of current portion 590 33,325
Subordinated debt due to officer/principal
stockholder 200,000 200,000
---------- ----------
Total long-term liabilities 202,264 564,262
---------- ----------
Total liabilities 1,184,681 1,356,950
---------- ----------
STOCKHOLDERS' INVESTMENT:
Common stock, $.04 par value, 15,000,000
shares authorized, 3,348,733 issued in 1995
and 1994 and 3,343,733 outstanding in 1995
and 1994 133,752 133,752
Additional paid-in capital 835,402 835,402
Accumulated deficit (907,924) (1,005,308)
---------- ----------
61,230 (36,154)
Less: Treasury stock at cost, 5,000 shares (5,625) (5,625)
---------- ----------
Total stockholders' investment 55,605 (41,779)
---------- ----------
$1,240,286 $1,315,171
========== ==========
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
-38-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Title insurance premiums $ 1,610,147 $ 1,966,849 $ 1,858,264
Abstract and appraisal services 2,212,068 2,812,697 3,969,872
----------- ----------- -----------
3,822,215 4,779,546 5,828,136
----------- ----------- -----------
DIRECT COSTS OF REVENUE:
Title insurance premiums (508,784) (539,390) (351,015)
Abstract and appraisal services (290,113) (505,929) (627,853)
----------- ----------- -----------
(798,897) (1,045,319) (978,868)
----------- ----------- -----------
Gross profit 3,023,318 3,734,227 4,849,268
OPERATING EXPENSES (2,811,810) (4,228,331) (4,717,398)
----------- ----------- -----------
Income (loss) from operations 211,508 (494,104) 131,870
----------- ----------- -----------
OTHER EXPENSES:
Interest (72,028) (71,845) (66,063)
Loss on disposal of property (40,596) (14,932) --
----------- ----------- -----------
(112,624) (86,777) (66,063)
----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item 98,884 (580,881) 65,807
BENEFIT FROM (PROVISION FOR) INCOME TAXES (1,500) 46,851 (9,794)
----------- ----------- -----------
Income (loss) before extraordinary item 97,384 (534,030) 56,013
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF
DEBT, net of income tax of $44,000 -- 65,000 --
----------- ----------- -----------
NET INCOME (LOSS) $ 97,384 $ (469,030) $ 56,013
=========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $ .03 $ (.16) $ .02
Extraordinary item -- .02 --
----------- ----------- -----------
Net income (loss) per share $ .03 $ (.14) $ .02
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
-39-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-in Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Investment
--------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1992 3,347,473 $ 133,702 $ 835,137 $ (592,291) $ - $ 376,548
Shares issued in exchange for Mid-State
Abstract Corporation stock 1,260 50 265 - - 315
Purchase of treasury stock - - - - (5,625) (5,625)
Net income - - - 56,013 - 56,013
--------- --------- --------- ---------- ---------- ---------
BALANCE - December 31, 1993 3,348,733 133,752 835,402 (536,278) (5,625) 427,251
Net loss - - - (469,030) - (469,030)
--------- --------- --------- ---------- ---------- ---------
BALANCE - December 31, 1994 3,348,733 133,752 835,402 (1,005,308) (5,625) (41,779)
Net income - - - 97,384 - 97,384
--------- --------- --------- ---------- ---------- ---------
BALANCE - December 31, 1995 3,348,733 $ 133,752 $ 835,402 $ (907,924) $ (5,625) $ 55,605
========= ========= ========= ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
-40-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary item $ 97,384 $(534,030) $ 56,013
Adjustments to reconcile net income (loss) before extraordinary
item to net cash flow from operating activities:
Extraordinary item - gain on extinguishment of debt -- 65,000 --
Provision for bad debts 75,675 121,678 33,533
Loss on disposal of property 40,596 14,932 --
Depreciation and amortization 110,302 124,442 124,788
Changes in:
Accounts receivable (61,869) 243,605 (152,690)
Prepaid expenses (4,226) (142) (2,983)
Other receivables 192 31,044 (26,489)
Income tax receivable 6,725 (6,725) 21,718
Accounts payable (42,687) 29,028 124,288
Other accrued expenses (12,753) (29,881) 31,340
Accrued income taxes 1,500 (6,600) 6,600
--------- --------- ---------
Net cash flow from operating activities 210,839 52,351 216,118
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (39,325) (31,469) (103,108)
Proceeds from sale of property and equipment -- 24,500 --
Change in other assets (2,010) 1,625 (476)
Change in cash value of officer life insurance 2,454 (20,070) --
Investment in title plant -- (36,985) (44,013)
--------- --------- ---------
Net cash flow from investing activities (38,881) (62,399) (147,597)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Change in lines-of-credit (15,000) 95,000 115,000
Borrowings on notes payable -- 8,361 41,693
Increase in notes payable to officers/principal stockholders 27,500 -- --
Repayment of notes payable and obligations under capital leases (150,599) (164,033) (179,215)
Increase in subordinated debt due to officer/principal stockholder -- -- 6,000
Issuance of common stock -- -- 315
Purchase of treasury stock -- -- (5,625)
--------- --------- ---------
Net cash flow from financing activities (138,099) (60,672) (21,832)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 33,859 (70,720) 46,689
CASH - beginning of year 28,932 99,652 52,963
--------- --------- ---------
CASH - end of year $ 62,791 $ 28,932 $ 99,652
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
-41-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) The Company
Four Corners Financial Corporation (FCFC) and its Subsidiaries, Four
Corners Abstract Corporation (FCAC) and Proper Appraisal Specialists, Inc.
provide services and products including real estate title searching,
preparation of abstracts of title, issuance of title insurance as an agent
for certain national underwriting companies and real estate appraisals,
primarily in Western and Central New York State. All of these services and
products are required in connection with the mortgaging, sale or purchase
of real property.
Unless otherwise indicated, the term "Company" refers to Four Corners
Financial Corporation and its subsidiaries. The Company operates in one
business segment.
(2) Summary of Significant Accounting Policies
Principles of Consolidation -
The consolidated financial statements include the accounts of FCFC and all
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Cash -
The Company maintains its cash in demand deposit and money market accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risk with respect to these accounts.
Escrow Deposits -
As a service to its customers, FCAC administers escrow deposits
representing undisbursed amounts received for settlements of mortgage loans
or property sales and indemnities against specific title risks. These funds
are recorded as both a current asset and a current liability in the
accompanying consolidated balance sheets.
Property and Equipment -
Property and equipment is stated at cost and is depreciated using
accelerated and straight-line methods over the following useful lives:
Building and improvements 15 - 31.5 years
Furniture and equipment 3 - 10 years
Vehicles 5 years
Leasehold improvements Term of lease
(2) Summary of Significant Accounting Policies (Continued)
Property and Equipment - (Continued)
At the time of retirement or other disposition of property, the cost and
accumulated depreciation are removed from the accounts and any gain or loss
is reflected in the statement of operations. Repairs and maintenance costs
are charged to expense when incurred.
<PAGE>
-42-
Intangible Assets -
Intangible assets consist of goodwill and covenants not-to-compete
resulting from the 1987 acquisition of the Albany branch, the 1989
acquisition of Livingston Abstract Corporation, the 1990 acquisition of
Picciano Abstract Company, Inc. and the 1991 acquisition of Proper
Appraisal Specialists, Inc. These assets were fully amortized during 1995.
Title Plant -
Title plant consists of copies of public records, maps and other relevant
historical documents which facilitate the preparation of title abstract
reports without the necessity of manually searching official public
records.
The Company has incurred identifiable costs related to the activities
necessary to construct a title plant which are reflected as assets. A title
plant is regarded as a tangible asset having an indefinite economic life;
accordingly, title plant costs are not depreciated.
Revenue Recognition -
Title insurance is provided to purchasers or financers of real property.
The related revenue is recognized when policies become effective, generally
at the property or mortgage loan closing. Under terms of the Company's
agreements with its title insurance underwriters, a commission of 15 - 20%
is paid to its underwriter on all title insurance policies written. Pricing
is based on a rate schedule established by the Insurance Department of the
State of New York which provides for varying rates for services rendered.
Commission expense is reflected as a direct cost of title insurance revenue
in the statements of operations.
The Company also performs title abstract research and prepares appraisals
on real properties. Abstract and appraisal revenue is recognized as earned.
Direct costs of abstract and appraisal revenue include the cost of work
performed by subcontractors in geographical areas where the Company does
not maintain an office, among other direct costs.
Estimates -
In preparing financial statements in conformity with generally accepted
accounting principles, management is required 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 revenue and expenses during the reporting period.
Actual results could differ from these estimates.
(2) Summary of Significant Accounting Policies (Continued)
Net Income Per Share -
Net income per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding during the
periods. The weighted average number of shares outstanding is as follows:
1995 1994 1993
---- ---- ----
Average number of common shares
outstanding:
Common shares 3,343,733 3,343,733 3,343,804
Common equivalent shares -- -- 147,752
--------- --------- ---------
3,343,733 3,343,733 3,491,556
========= ========= =========
<PAGE>
-43-
Fully diluted earnings per share did not differ materially from primary
earnings per share in any of these three years. Common equivalent shares
have not been considered in the calculation of average number of common
shares outstanding for 1995 as there were no outstanding stock options and
for 1994 as the effect would be anti-dilutive.
Reclassifications -
Certain reclassifications have been made to the 1994 statements to conform
to the current year presentation.
(3) Property and Equipment
Property and equipment consisted of the following at December 31:
1995 1994
---- ----
Furniture and equipment $ 888,641 $ 986,630
Vehicles 96,734 96,732
Leasehold improvements 44,502 58,770
---------- ----------
1,029,877 1,142,132
Less: Accumulated depreciation and
amortization (833,937) (836,774)
---------- ----------
$ 195,940 $ 305,358
========== ==========
During 1994, the Company entered into capital lease obligations totalling
$24,107. The assets related to these obligations are included as part of
property and equipment.
Depreciation and amortization expense for 1995, 1994 and 1993 was $95,648,
$109,839, and $108,287 respectively.
(4) Income Taxes
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109
requires an asset and liability approach to measuring deferred income
taxes. Previous standards required an income statement approach.
The (benefit from) provision for income taxes consisted of the following at
December 31:
1995 1994 1993
---- ---- ----
Federal:
Current $ -- $ (4,200) $ 5,000
Deferred -- (37,400) --
State:
Current 1,500 1,349 4,794
Deferred -- (6,600) --
-------- -------- --------
$ 1,500 $(46,851) $ 9,794
======== ======== ========
<PAGE>
-44-
Income tax expense for 1995, 1994 and 1993 differs from the expected tax
expense, computed by applying the U.S. Federal corporate income tax rate of
34% to income before income taxes as follows:
1995 1994 1993
---- ---- ----
Expected tax expense (benefit) $ 33,000 $(139,000) $ 22,500
Effect of graduated Federal rates (21,000) -- (12,000)
State income taxes, net of Federal
income tax benefit 1,000 (23,000) 3,100
Change of valuation allowance (8,000) 123,000 (3,800)
Other, net (3,500) (7,851) (6)
--------- --------- ---------
$ 1,500 $ (46,851) $ 9,794
========= ========= =========
At December 31, 1995, the Company has available a net operating loss
carryforward of approximately $360,000. This net operating loss
carryforward will begin to expire in 2002. The Company has recorded a
valuation allowance equal to the deferred tax asset related to the
carryforward.
Taxes paid in 1995, 1994 and 1993 were $1,102, $3,425 and $5,096,
respectively.
(5) Financing Arrangements
Notes Payable -
Notes payable consisted of the following at December 31:
1995 1994
---- ----
Note payable to a bank with monthly principal
payments of $7,674 through October, 1997 and
$6,230 through October, 1999, plus interest
at the bank's prime rate plus 1.25%. This
note is guaranteed by the
officers/stockholders of the Company and is
collateralized by substantially all of the
Company's assets. $ 318,333 $ 410,000
Various notes payable with aggregate monthly
installments of $1,391, including interest at
rates ranging from 8% to 9%. These notes
mature through June, 1997 and are
collateralized by the related equipment. 14,552 27,682
--------- ---------
332,885 437,682
Less: Current portion (331,211) (106,745)
--------- ---------
$ 1,674 $ 330,937
========= =========
On December 13, 1995, the amount outstanding on the note payable to a bank,
$133,333, and $185,000 of the amount borrowed under its line-of-credit
agreement were refinanced with the same bank. The note payable and
line-of-credit have been classified in accordance with the new agreement as
of December 31, 1994.
<PAGE>
-45-
The note payable to the bank requires the Company to meet certain financial
covenants at December 31, 1995 as follows:
a. Working capital deficit of not more than $140,000,
b. Current ratio of at least .85 to 1,
c. Minimum tangible net worth of at least $250,000,
d. Total liabilities to tangible net worth of not more than 3.9 to 1,
e. Net income before taxes of $110,000, and
f. Debt service ratio of not less than 1.75 to 1.
These ratios are adjusted on a quarterly or semi-annual basis during 1996
and thereafter. The agreement also limits the Company's ability to make
acquisitions, pay dividends and make capital expenditures, and requires the
Company to submit certain financial information.
(5) Financing Arrangements (Continued)
Notes Payable (Continued) -
At December 31, 1995, the Company was not in compliance with the current
ratio, net income requirement and debt service ratio. Subsequent to year
end, the Company obtained a waiver from the bank for these covenants as of
December 31, 1995. The Company is currently in the process of renegotiating
the covenants of this note. These negotiations have not yet been completed.
As a result, this note has been classified as current in the accompanying
consolidated balance sheets at December 31, 1995.
Future maturities of long-term debt are as follows:
1996.......................................... $ 331,211
1997.......................................... 1,674
-----------
$ 332,885
===========
Obligations Under Capital Leases -
The Company has entered into capital lease agreements for certain of its
equipment. These obligations consisted of the following at December 31:
1995 1994
---- ----
Various leases payable with aggregate monthly
installments of $4,257, including interest at
rates ranging from 8.4% to 13.1%. These
leases mature through January, 1997 and are
collateralized by the related equipment $ 33,328 $ 79,130
Less: Current portion (32,738) (45,805)
-------- --------
$ 590 $ 33,325
======== ========
The following is a schedule of future minimum lease payments under the
capital lease obligations together with the present value of the minimum
lease payments at December 31, 1995:
1996 ............................................ $ 34,363
1997 ............................................ 597
--------
Total minimum lease payments 34,960
Less: Amount representing interest (1,632)
--------
Present value of future minimum
lease payments under capital
lease obligations $ 33,328
========
<PAGE>
-46-
(5) Financing Arrangements (Continued)
Lines-of-Credit -
The Company may borrow up to $50,000 under the terms of a line-of-credit
agreement with a bank through October 31, 1997. Amounts borrowed bear
interest at the bank's prime interest rate plus 1% and are collateralized
by substantially all assets of the Company and are guaranteed by the
officers/stockholders of the Company. At December 31, 1995, there was
$35,000 outstanding under the terms of this line-of-credit.
At December 31, 1994, there was $235,000 outstanding on the Company's
former line-of-credit with the same bank. On December 13, 1995, $185,000 of
the amount borrowed under this line-of-credit was refinanced as part of the
note payable to the same bank.
The Company may also borrow up to $100,000 under the terms of an unsecured
line-of-credit with another bank. Amounts borrowed bear interest at the
bank's prime interest rate plus 1%. Borrowings under this line-of-credit
are personally guaranteed by the Company's principal officers/stockholders.
There were no borrowings on this line-of-credit at December 31, 1995 and
1994.
Interest -
Interest paid in 1995, 1994 and 1993 on all notes payable, obligations
under capital leases and the lines-of-credit was $76,337, $67,536, and
$66,536, respectively.
(6) Stockholders' Investment
Stock Options -
In July, 1992, the Company's Board of Directors adopted and the
stockholders approved the 1992 Stock Option Plan (1992 Plan) which replaced
the 1988 Stock Incentive Plan (1988 Plan).
Under the 1992 Plan, the Company may issue incentive stock options,
non-statutory options, non-employee director options and reload options.
The exercise price of incentive, non-statutory and reload options will not
be less than fair market value at date of grant. Incentive and
non-statutory options will generally expire ten years from date of grant.
Reload options will have a term equal to the remaining option term of the
underlying option.
The 1992 Plan also provides for annual grants of stock options to purchase
500 shares of the Company's common stock to non-employee directors of the
Company with an exercise price not less than fair market value at date of
grant. These options will expire ten years from date of grant.
Options issued under the 1988 Plan expired in 1995. No further options will
be granted under the 1988 Plan.
The Company has reserved 520,000 common shares for issuance under the 1992
plan.
<PAGE>
-47-
(6) Stockholders' Investment (Continued)
Following is a summary of option activity under the 1992 and 1988 Plans:
Shares Under Option
--------------------
1995 1994
---- ----
Outstanding, beginning of year 271,000 271,000
Expired during the year (271,000) -
-------- -------
Outstanding, end of year (at $.52 per share) - 271,000
======== =======
(7) Related Party Transactions
Subordinated Debt Due to Officer/Principal Stockholder -
During 1995, 1994 and 1993, one of the Company's officers/principal
stockholders made advances to the Company. These advances were $200,000 at
December 31, 1995, 1994 and 1993. Amounts borrowed bear interest at the
prime rate plus 3%. Repayment of these advances is subordinated to the
amounts outstanding under all other bank debt agreements. The
officer/principal stockholder has agreed not to require payment of this
amount through January, 1997.
Notes Payable to Officers/Principal Stockholders -
During 1995, certain of the Company's officers/principal stockholders
advanced $29,000 to the Company in the form of non-interest bearing notes.
These notes have no formal repayment terms. However, it is anticipated that
these notes will be fully paid during 1996.
Office Lease Commitment -
The Company leases its Rochester facility through June 2000 from a company
related through common management at an annual rental of $72,000. Rent and
common area charges were approximately $72,000, $58,000 and $213,000 in
1995, 1994 and 1993, respectively. The Company owed approximately $20,000
for unpaid rent at December 31, 1995.
During 1994, total unpaid rent of $109,000 was forgiven by the related
party. This amount has been reflected as an extraordinary item - gain on
extinguishment of debt, net of income taxes of $44,000, in the accompanying
consolidated statement of operations.
Significant Customer -
In each of 1995, 1994 and 1993, 4% of revenue was derived from a related
party. At December 31, 1995, 1994 and 1993, the Company was owed $36,742,
$59,284, and $57,966, respectively, related to these sales.
(8) Lease Commitments
The Company leases other office facilities under operating lease agreements
expiring through March, 1998.
Minimum future lease payments under non-cancelable lease agreements with
unrelated parties are as follows at December 31:
1996................................................ $ 103,479
1997................................................ 62,980
1998................................................ 53,895
1999................................................ 9,368
2000................................................ 781
---------
$ 230,503
=========
<PAGE>
-48-
Rent expense related to these operating leases was approximately $124,000,
$135,000 and $127,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(9) Sale of Appraisal Operations
During 1995, the Company sold the assets of its real estate appraisal
operations for $125,000, allocated as follows:
Fixed assets $ 12,500
Customer lists and goodwill 100,000
Covenant not-to-compete 12,500
---------
$ 125,000
=========
The purchase price of the fixed assets is in the form of a $12,500
non-interest bearing note receivable in ten quarterly installments of
$1,250 beginning May 1, 1996.
The purchase price of the customer lists and goodwill and covenant
not-to-compete is in the form of a $112,500 note receivable in quarterly
installments, plus interest at 9%, beginning May 1, 1996. Payment for these
assets is contingent based upon the buyer achieving a gross margin of 19%
on sales attributable to the Company's former customers. Payments received
by the Company are to be applied in the following order: the $1,250
guaranteed payment, interest and principal. Any unpaid interest is forgiven
on a quarterly basis.
It is anticipated that 19% of the buyer's gross margin will not exceed the
$1,250 guaranteed payment and interest on a quarterly basis. As a result,
the buyer would not be required to make any principal payments for the
contingent portion of the note. At December 31, 1995, the Company has fully
reserved this portion of the note receivable.
<PAGE>
-49-
INDEPENDENT AUDITORS' REPORT
February 23, 1995
To the Stockholders of
Four Corners Financial Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets for Four Corners
Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders'
investment, and cash flows for each of the three years in the period dated
December 31, 1995. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Four Corners Financial
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
<PAGE>
-50-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
of Year Additions(1) Repayments End of Year
---------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Note payable - officer/principal stockholders $ 200,000 $ 29,000 $ 1,500 $ 227,500
=========== ========== =========== ===========
YEAR ENDED DECEMBER 31, 1994:
Note payable - officer/principal stockholders $ 200,000 $ - $ - $ 200,000
=========== ========== =========== ===========
YEAR ENDED DECEMBER 31, 1993:
Note payable - officer/principal stockholders $ 194,000 $ 6,000 $ - $ 200,000
=========== ========== =========== ===========
</TABLE>
(1) All additions to indebtedness to related parties were used for general
working capital purposes.
<PAGE>
-51-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Additions
Balance at -------------------------- Balance at
Beginning Charges to Charges to End of
of Period Expenses Other Accounts Deductions Period
---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $100,000 $ 75,675 $ - $(91,675) $ 84,000
======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts $ 30,000 $121,678 $ - $(51,678) $100,000
======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts $ 30,000 $ 33,533 $ - $(33,533) $ 30,000
======== ======== ======== ======== ========
</TABLE>
<PAGE>
-52-
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Maximum Average Weighted
Amount Amount Average
Outstanding Interest Outstanding Outstanding Interest Rate
Balance at Rate at During During During
End of Year End of Year the Year the Year(1) the Year(2)
----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Borrowing Category
------------------
YEAR ENDED DECEMBER 31, 1995:
Borrowings under lines-of-credit $ 35,000 9.50% $235,000 $218,333 9.78%
======== ===== ======== ======== =====
YEAR ENDED DECEMBER 31, 1994:
Borrowing under lines-of-credit $ 50,000 9.00% $235,000 $184,583 6.69%
======== ===== ======== ======== =====
YEAR ENDED DECEMBER 31, 1993:
Borrowings under lines-of-credit $140,000 6.50% $249,000 $191,500 5.90%
======== ===== ======== ======== =====
</TABLE>
Notes:
(1) Calculated as the average of month-end balances outstanding.
(2) Calculated as actual interest expense divided by the average amount
outstanding during the year.
<PAGE>
-53-
EXHIBIT 10.1
[Letterhead of Marine Midland Bank]
May 15, 1996
Mr. William Gagliano
Four Corners Abstract
370 East Avenue
Rochester, New York 14607
Re: Waiver Request
Dear Bill,
We refer to that certain Revolving Credit and Term Loan Agreement (the
"Agreement"), dated December 13, 1995, between Marine Midland Bank (the "Bank")
and Four Corners Financial Corporation (the "Borrower"). Unless otherwise
defined herein, the terms defined in the Agreement are used herein as therein
defined.
The Borrower hereby requests that the Bank waive the following financial
covenant for the period ending December 31, 1995:
Current Ratio test: The ratio of current assets to current liabilities of
not less than .85:1.
Minimum Profit test: Borrower shall achieve a net profit before taxes of no
less than $110,000.00.
Debt Service Coverage test: The Borrower shall maintain a debt service
coverage ratio (that being (i) the sum of net profit before tax plus
depreciation divided by (ii) current maturities of long term debt) of not less
than 1.75:1.
We understand that this waiver is effective only in this instance and for the
purpose for which it is given. All other terms and conditions in the Agreement
continue to remain in full force and effect. We further understand that no
waiver of any single breach or default under this agreement shall be deemed a
waiver of any other breach or default.
Kindly execute and return to the Bank, as soon as possible, an acknowledgement
of this letter which will become effective upon the Bank's receipt of such
acknowledgement.
By:/s/Rudolph J. Napodano By:/s/ William Gagliano
----------------------- ---------------------
Rudolph J. Napodano V.P. William Gagliano Exec. V.P.
Marine Midland Bank Four Corners Financial Corporation
<PAGE>
-54-
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made this 29th day of September, 1995, by and between FOUR
CORNERS ABSTRACT CORP., a New York Corporation, whose business address is 370
East Avenue, Rochester, New York (hereinafter referred to as the "Seller") and
RYNNE, MURPHY & ASSOCIATES, INC., a New York Corporation, with offices at the
Chapin Building, 205 St. Paul Street, Rochester, New York (hereinafter referred
to as "Buyer").
RECITALS:
WHEREAS, Seller is engaged in the business of owning and operating a real
estate title search, title insurance and appraisal business, having its
principal office in Rochester, New York, and;
WHEREAS, the Seller desires to sell its appraisal business/division, and;
WHEREAS, the Board of Directors of the Seller has duly authorized and
approved the sale of all assets constituting its appraisal business/division,
and;
WHEREAS, the Buyer owns and operates a real estate appraisal business
located in Rochester, New York, and desires to purchase all of the assets of
Seller's appraisal business/division, and;
WHEREAS, the Buyer is authorized to acquire all or any part of the assets
and property of the Seller as it relates to the appraisal business/division,
and;
WHEREAS, the Board of Directors of the Buyer has determined that the
purchase of Seller's assets as aforementioned is both desirable and consistent
with the objectives of the Buyer, and;
WHEREAS, the Seller desires to sell to Buyer and the Buyer desires to
purchase from Seller those certain business assets and property used in
conjunction with Seller's appraisal business/division as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
ARTICLE I - PURCHASE AND SALE:
The Seller does hereby agree to sell, assign and transfer to the Buyer and
the Buyer, expressly relying upon the representations and agreements made by the
Seller as hereinafter set forth, agrees to purchase from the Seller those
business assets set forth in "ARTICLE II" below.
ARTICLE II - PURCHASE PRICE AND ASSETS:
(a) The purchase price for the assets of Seller's appraisal
business/division shall be One Hundred Twenty Five Thousand and 00/100 Dollars
($125,000.00) to be allocated as follows:
(i) For the fixed assets of the appraisal business/division, including but
not limited to, equipment and supplies as shown on the attached EXHIBIT "A", the
sum of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00);
(ii) For the customer lists and good will of the appraisal
business/division, the sum of One Hundred Thousand and 00/100 Dollars
($100,000.00);
(iii) For Seller's covenant not to compete as set forth in "ARTICLE V"
hereof, the sum of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00).
<PAGE>
-55-
ARTICLE III - PAYMENT OF PURCHASE PRICE:
The purchase price of One Hundred Twenty Five Thousand and 00/100 Dollars
($125,000.00) shall be paid as follows:
(a) By Buyer delivering to Seller a Promissory Note (the "Note") in the
amount of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00). The
Note shall consist of Part A (the "Guaranteed Portion") and Part B (the
"Contingent Portion").
(i) The Guaranteed Portion of the Note shall be in the amount of Twelve
Thousand Five Hundred and 00/100 Dollars ($12,500.00) and shall be paid in ten
(10) quarterly installments of One Thousand Two Hundred Fifty and 00/100 Dollars
($1,250.00) all without interest, commencing in the first day of the fourth
month following the date of said Note (January 1, 1996);
(ii) The Contingent Portion of the Note shall be in the amount of One
Hundred Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00) and shall
be paid in quarterly installments commencing on the first day of the fourth
month following the date of said Note (January 1, 1996). The quarterly
installments under the Contingent Portion shall be based upon 19% of the Gross
Margin ("Gross Margin") of the Buyer relating to appraisals conducted by the
Buyer which were attributable to Seller's appraisal business/division as
illustrated in the example set forth below. Appraisals shall not be deemed
attributable to Seller's business/division if the customer was a prior client of
the Buyer (e.g., The First Mortgage Division of First National Bank is a prior
client of the Buyer and any appraisals and revenues generated therefrom would
not be attributed to Seller. In contrast to the above, the Home Equity Division
of First National Bank is a prior client of the Seller and any appraisals and
revenues generated therefrom would be deemed attributable to Seller). Gross
Margin as used herein shall be defined as the aggregate of gross revenues
received by Buyer for appraisals attributable to Seller less the associated
subcontractor or employee labor costs to the Buyer to produce the same.
EXAMPLE:
--------
Gross quarterly appraisal $20,000.00
revenue received by Buyer
attributable to Seller
Minus direct labor costs -10,800.00
---------
Gross Margin $ 9,200.00
Quarterly payment due (19%
of Gross Margin) $ 1,748.00
Payments under the Contingent Portion of the Note shall be applied first to
interest at the rate of nine percent (9%) per annum and the balance to be
applied to the reduction of principal;
(iii) In the example set forth above, the Buyer would owe the Seller the
sum of One Thousand Seven Hundred Forty-Eight and 00/100 Dollars ($1,748.00) for
that particular quarter. Notwithstanding the guaranteed payment as determined
under subsection (i) above would not be in addition to the contingent payment as
determined under subsection (ii) above would not be included in the same. As
such, in the example above, the sum of One Thousand Two Hundred Fifty and 00/100
Dollars ($1,250.00) would be paid on the Guaranteed Portion and the balance of
Four Hundred Ninety-Eight 00/100 Dollars ($498.00) would be paid on the
Contingent Portion. In no event will the quarterly payment due the Seller from
the Buyer be less than the sum of One Thousand Two Hundred Fifty and 00/100
Dollars ($1,250.00), which is the full guaranteed quarterly payment;
<PAGE>
-56-
(iv) Notwithstanding any other provision of this Agreement, this Note shall
not accrue negative amortization. As such, interest for a particular quarter
shall not exceed the balance of the payment due on the Contingent Portion after
subtracting out the guaranteed payment. Using the example set forth above, if
interest on the Contingent Portion for that particular quarter exceeds the sum
of Four Hundred Ninety-Eight and 00/100 Dollars ($498.00), the balance of the
accrued interest above Four Hundred Ninety-Eight and 00/100 Dollars ($498.00)
shall be forgiven and shall not be added to the principal balance then due under
the Note. In addition, the total of the quarterly payments to the Seller under
this Agreement shall not exceed Thirty Thousand and 00/100 Dollars ($30,000.00)
in any calendar year;
(v) This Note may be prepaid in whole or in part without the payment of a
penalty;
(vi) This Note may be assumed with the consent of Seller, which shall not
be unreasonable withheld.
ARTICLE IV - SELLER'S REPRESENTATIONS:
Seller represents, warrants and covenants as follows:
(a) Seller is now and on the closing date will be the legal and equitable
owner of merchantable title to all of the property and assets being transferred
hereunder free and clear of all liens, charges, security interest, encumbrances
or other burdens of each and every kind except as would be set forth herein.
Notwithstanding, it is understood that the assets to be transferred hereunder
are currently subject to a security interest of Marine Midland Bank which will
need to be released prior to the time of closing;
(b) At the time of closing, Seller shall transfer to the Buyer all
warranties and guarantees covering any equipment or other items of [personalty]
being sold or transferred by the Seller to the Buyer;
(c) On the closing date, all of the property to be sold and transferred by
the Seller to the Buyer will be in good working order and in substantially the
same condition the property is in as of the date of this Agreement;
(d) Seller agrees to indemnify, protect and hold harmless the Buyer and its
successors and/or assigns from any competing claims to any of the property or
assets being conveyed hereunder;
(e) There are no Employment Contracts in effect relating to employees of
the appraisal business/division of the Seller. Seller further warrants that it
will have paid all wages, salaries and other compensation of every kind due and
owing to or for the benefit or account of any employee of the appraisal
business/division of the Seller through the date of closing;
(f) Seller warrants that at the time of closing all Federal and State
income, withholding, payroll taxes and other taxes of any kind or nature due
from the Seller will have been paid in full;
(g) Seller shall use and exert its best efforts between the date of this
Agreement and the date of closing to keep and retain the business of the Seller
as the going act of concern;
(h) The Seller is not a party to any contract or agreement of any nature
whatsoever relating to or affecting the assets to be purchased hereunder
extending beyond the date of closing of this transfer;
(i) The Seller is not a party to any loan or credit agreement or any lease
or any other agreement or instrument or subject to any charge or restriction
which would have a material adverse effect upon its ability to carry out the
obligations under this Agreement;
<PAGE>
-57-
(j) That from the date of this Agreement, the Seller shall not enter into
any contract or any renewal of any contract or incur any liability obligation
whatsoever relating to or affecting the assets to be purchased hereunder;
(k) That the Seller is a corporation duly organized, validity existing and
in good standing under the Laws of the State of New York and is possessed with
full power and authority to carry on its current business and to own, use and
sell its assets and properties. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Seller;
(l) Seller warrants that Buyer does not hereby assume or agree to assume
and shall not acquire or take over any liabilities or obligations of Seller in
regards to the appraisal business/division of Seller, be they direct, contingent
or otherwise. Seller agrees to save Buyer harmless from any and all claims in
conjunction with this transaction and will fully indemnify the Buyer for any
liability incurred by Seller in connection therewith including attorney's fees,
costs and disbursements of any legal action;
(m) All of the representations and warranties contained herein shall be
true as of the date of closing and shall be considered as having been made at
said closing and shall have survived the closing and be fully enforceable
thereafter;
ARTICLE V - SELLER'S COVENANT NOT TO COMPETE:
Provided the Buyer is not in default under the terms and conditions of this
Agreement or the Note to be executed hereunder, the Seller covenants that it
will not establish or attempt to establish, directly or indirectly, an appraisal
business within the State of New York from the date of this closing continuing
until five (5) years after payment in full to the Seller under the Note except
to the extent set forth herein. Buyer may enforce this covenant not to compete
in any manner provided for under the laws of the State of New York, be they
legal or equitable remedies.
ARTICLE VI - BUYER'S REPRESENTATIONS:
Buyer warrants and represents the following:
(a) At time of closing, Buyer shall execute the Note to the Seller
containing the terms and conditions set forth in "ARTICLE III" above;
(b) Buyer is a corporation duly organized and existing under the laws of
the State of New York and Buyer has full authority to enter into this Agreement.
The Board of Directors of Buyer has duly authorized the execution of this
Agreement;
(c) Buyer shall defend and indemnify the Seller against all liability for
appraisals prepared by the Buyer as part of this Agreement. Notwithstanding,
Buyer shall not be responsible for any pre-existing work or appraisals performed
by the Seller prior to this date of closing;
(d) Buyer agrees to provide Seller a summary of all invoices for appraisal
orders on a quarterly basis which summary shall include a detailed breakdown of
Buyer's labor costs.
ARTICLE VII - CLOSING AND CLOSING DOCUMENTS:
(a) The closing for the sale and purchase hereunder shall take place at the
offices of Mangione & Roisman, attorneys for the Buyer, at The Chapin Building,
205 St. Paul Street, Rochester, New York on or about September 15, 1995, time
being of the essence. At the time of closing, Buyer shall comply with all
provisions of payment as hereinbefore stated and Seller shall deliver all
necessary documents to give Buyer good marketable title to the assets being
transferred hereunder;
<PAGE>
-58-
(b) Seller shall provide the following documents at or before closing:
(i) A warranty Bill of Sale from Seller to Buyer for the assets to be
purchased hereunder conveying to Buyer good and marketable title of all such
assets, free and clear of all liens and encumbrances;
(ii) Seller's books of accounts and client lists;
(iii) A copy of the Board of Directors resolution authorizing and carrying
out the terms and conditions of this Agreement;
(iv) Any other documents reasonably requested by counsel for the Buyer.
(c) Buyer, at or prior to closing, shall deliver the following documents to
Seller:
(i) The Promissory note recited above;
(ii) Any further documents reasonably requested by counsel for the Seller.
ARTICLE VIII - BROKERS:
Both parties warrant that no brokers are involved in this transaction and
each party agrees to indemnify the other party for any such claims due to their
own activities.
ARTICLE IX - RISK OF LOSS:
Seller assumes the risk of loss due to fire, theft or other loss or damage
prior to closing and Buyer reserves the right to cancel this Agreement in the
event that any of the assets set forth herein are substantially damaged so as to
defeat the intended purpose of this Agreement.
ARTICLE X - SALES TAX:
Buyer shall pay the cost of the New York State sales tax on the portion of
the purchase price applicable to assets and equipment as shown on Exhibit "A" at
the time of closing or within a reasonable time thereafter. Both parties agree
to cooperate and comply with all filing requirements as required under the
Uniform Commercial Code for the State of New York.
ARTICLE XI - TAX STATUS:
It is understood that none of the parties hereto have made any
representations to the other as to the tax status or effect of the transactions
contemplated by this Agreement and each has taken separate counsel as to such
matters.
ARTICLE XII - APPLICABLE LAWS AND ENFORCEABILITY:
This Agreement shall be construed and governed by and enforced in
accordance with the laws of the State of New York. In case any provision of this
Agreement shall be held invalid, illegal or unenforceable, in whole or in part,
neither the validity of the remaining part of such provision or the validity of
any other provision of this Agreement shall be in any way affected thereby.
ARTICLE XIII - COUNTERPARTS:
This Agreement may be executed in several counterparts and any executed
copy may be treated as an original.
<PAGE>
-59-
ARTICLE XIV - ASSIGNMENT:
(a) This Agreement may not be assigned by any of the parties, except to the
extent set forth herein.
ARTICLE XV - MISCELLANEOUS:
(a) Buyer may, in its sole discretion, offer employment to any or all
employees of Seller's appraisal business/division but shall not be required to
do so. All such employees who accept Buyer's offer of employment shall be
considered new hires by Buyer and Buyer shall establish all terms and conditions
relating to their employment. Buyer shall not be bound in any way, shape or
manner for continuing benefits and/or pension plans of the Seller. Nothing
contained herein shall be deemed to obligate Buyer to any of Seller's employees
or to obligate Buyer to pay to said employees any salary accrued prior to the
date of said employee's termination with the Seller;
(b) Seller and Buyer agree that the transactions contemplated hereby are
confidential and that they will not disclose to third parties other than their
professional advisors, banks/lenders or necessary governmental authorities any
of the terms of this Agreement or any document or agreement attached thereto as
schedules or exhibits unless otherwise agreed to in writing by the respective
parties;
(c) Upon payment in full to Seller pursuant to the Note, the parties agree
to negotiate in good faith to continue a business relationship for the
placement, completion and payment of appraisal orders, whereby Seller will
receive a commission on a per unit basis if such is permitted under the Uniform
Standards of Professional Appraisal Practice ("USPAP"), the Appraisal Institute
and New York State;
(d) It is understood that this Agreement is contingent upon Seller
obtaining a release of the security interest held by Marine Midland Bank against
the assets to be transferred hereunder;
(e) All work in progress of Seller shall be completed by Seller and Seller
shall retain the fees related thereto.
ARTICLE XVI - NOTICE:
All notices under and by virtue of this Agreement or the documents attached
hereto shall be in writing and shall be deemed given when delivered personally
to a party or when deposited in the United States mail, certified mail, postage
prepaid, return receipt requested, addressed to the party at its address set
forth in this Agreement or at a different address as contained in a written
notice sent to all of the parties to this Agreement informing them of a change
of said address, together with a copy mailed to the parties respective attorney,
as set forth below:
(a) Seller's attorney - Gallo & Iacovangelo, 30 State Street, Suite 700,
Rochester, New York 14614;
(b) Buyer's attorney - Mangione & Roisman, The Chapin Building, 205 St.
Paul Street, Rochester, New York 14604.
<PAGE>
-60-
IN WITNESS WHEREOF, the parties have signed this Agreement the day and year
first above written.
FOUR CORNERS ABSTRACT
By: /s/ William S. Gagliano, Ex. V.P.
---------------------------------
Authorized Officer
RYNNE, MURPHY & ASSOCIATES, INC.
By: /S/ John P. Rynne
--------------------------------
John P. Rynne, President
<PAGE>
-61-
EXHIBIT "A"
Assets to be transferred
EQUIPMENT SUMMARY FOR APPRAISAL DIVISION
BRANCH/DESCRIPTION Qty. VALUE
- ------------------ ---- -----
1. Syracuse
Four Drawer File Cabinet 1 75
Two Drawer File Cabinet 2 100
Desk 1 75
Chair 1 10
MLS Computer 286 w/ NEC Monitor 1 200
IBM Computer 425SX w/ HP Monitor 1 1,000
HP Rugged Writer Printer 1 600
Toshiba Portable PC 1 200
HP Laserjet IIP+ Printer 1 350
2. Buffalo
Five Drawer File Cabinet 3 225
Four Drawer File Cabinet 1 75
Two Drawer File Cabinets 2 100
Bookcase - 2 Ft Wide / 5 Shelves 1 50
Bookcase - 3 Ft Wide / 4 Shelves 1 50
Wood Desk - 6 Drawer 1 75
Wood Desk - 3 Drawer 1 75
Wood Desk - 2 Drawer 1 75
Standard Metal Desk 4 300
Desk Chair w/ Coasters 2 50
Desk Chair - Wooden 4 40
GBC Binding Machine 1 100
Paper Cutter - Boston 2612 1 25
Folding & Wooden Tables 3 75
Printer Stand 1 25
Zenith 386SX PC w/ Monitor 1 600
Hyundai 286E PC w/ Monitor 2 400
500 Meg. PC w/ Monitor 1 550
Sharp 8100 Copier w/ Stand 1 600
Fax Machine - Ricoh Fax 09 1 150
Panasonic KX-P1624 Printer 1 100
Panasonic KX-E700 Typewriter 1 50
Royal Alpha 620C Typewriter 1 50
Heavy Duty Utility Heater 1 50
Calculator - TI 503011 1 25
Heavy Duty Stapler #7-93100 1 25
Extra GoldStar Monitor/Keyboard 1 25
Bronze Print Director 1 100
Buffalo/Erie County Wall Map 1 25
Three Part Form Holder 1 10
HP Laserjet IIIIP 1 400
3. Rochester
Five Drawer Lateral Files 2 150
Four Drawer Filing Cabinets 4 300
Two Drawer Filing Cabinet 3 150
Secretary Desks 4 300
Printer Stand 2 50
Typing Stand 1 25
Miscellaneous Tables 4 100
Bookcase - 4 Shelves 1 50
<PAGE>
-62-
Rolling Two Door Cabinet 1 25
Epson Equity 286 PC w/ Monitor 1 200
Hyundai 286 PC w/ Monitor 1 200
IBM 425SX PC w/ Monitor 1 1,000
Epson 286 PC w/ Monitor 1 200
Compaq 386 PC w/ Monitor 1 600
IBM Selectric II Typewriter 1 50
Chairs 3 30
HP Rugged Writer Printer 1 600
Murata F-40 Fax Machine 1 500
Modem - Robotics 1 200
Printer Director 1 100
Toshiba Portable PC 1 200
HP Laserjet IIP Printer 1 350
HP Laserjet IIIP Printer 1 350
------
12,840
======
<PAGE>
-63-
EXHIBIT 10.3
LEASE AGREEMENT
The Parties agree as follows:
Date of this
Lease: June 15, 1995
Parties of this
Lease and addresses: Landlord: BARAKA REALTY COMPANY
Address for notices: 1000 Pennsylvania Avenue
Brooklyn, New York 11207
You, the Tenant: Four Corner Abstract
Address: 370 East Avenue
Rochester, NY 14604
If there are more than one Landlord or Tenant the words
"Landlord" and "Tenant" used in this Lease includes them.
Term: 1. Three (3) years -0- months: beginning: August 1,
1995, ending: July 31, 1998
Premises rented: 2. 36 Bank Place, Utica, New York 13501 Consisting of
approximately 1611 square feet plus full basement for
storage.
Rent: 3. The yearly rent is $7,656.00. You, the Tenant, will
pay this yearly Rent to the Landlord, as follows:
$638.00 Per Month.
3a. Tenant shall Pay a Security Deposit of $638.00 upon
the signing of this lease - plus first Month's rent.
Agreement to lease
and pay rent: 4. Landlord leases the Premises to you, the Tenant, for
the Term. You, the Tenant, agree to pay the Rent and
other charges as required in the Lease. You, the
Tenant, agree to do everything required of you in the
Lease.
Default: 5. If you, the Tenant, fail to pay the Rent, or any
part of the Rent when it becomes due, the Landlord may
sue you for it, or re-enter the Premises, or use any
legal remedy.
Taxes: 6. The Landlord agrees to pay all Real Estate Taxes to
be assessed on the Premises during the Term.
End of the Term: 7. You, the Tenant, agree that at the end of the Term
you will surrender the Premises in as good condition as
now, except for ordinary wear and damage by the
elements.
Successors: 8. Unless otherwise stated, the Lease is binding on all
parties who lawfully succeed to the rights or take the
place of the Landlord or you, the Tenant.
Changes: 9. This Lease can be changed only by an agreement in
writing signed by the parties to the Lease.
Quiet enjoyment: 10. Landlord agrees that if you, the Tenant pay the
rent and are not in default under this Lease, you, the
Tenant may peaceably and quietly have, hold and enjoy
the premises for the Term of this Lease.
11. The Tenant is required to carry liability insurance
with the Landlord, Baraka Realy Company, as additional
named insured. Tenant responsible for insurance on all
glass windows.
12. Landlord will Sheetrock, Paint, and Carpet Two
offices, Kitchen and Reception area.
<PAGE>
-64-
13. Lessor shall be solely responsible for the
brokerage commission payable to Signature Realty Inc.
Upon a sale or transfer of the premises, acceptance of
an assignment of lessor's interest in this lease, or
the rental payable hereunder, of the right to receive
such rents, shall constitute an assumption of lessor's
obligation to pay said commission.
14. The Landlord shall pay for heat, water and sewer
charges and the Tenant shall be responsible for their
own electrical charge.
Signatures: The parties have signed this lease as of the date at
the top of the first page.
Landlord:
----------------------------------------
----------------------------------------
Dated: June 29, 1995 You, the TENANT:
WITNESS: /s/ William S. Gagliano
----------------------------------------
- ------------------------------ ----------------------------------------
William S. Gagliano Executive VP
GUARANTY OF PAYMENT
Date of Guaranty: , 19
Guarantor
and address:
Reason for
Guaranty: 1. I know that the Landlord would not rent the Premises
to the Tenant unless I guarantee Tenant's performance.
I have also requested the Landlord to enter into the
Lease with the Tenant. I have a substantial interest in
making such that the Landlord rents the premises to the
Tenant.
Guaranty: 2. The following is my Guaranty:
I guaranty the full performance of the Lease by the
Tenant. This Guaranty is absolute and without any
condition. It includes, but is not limited to, the
payment of rent and other money charges.
In addition, I agree to these other terms:
Changes in Lease
have no effect: 3. This Guaranty will not be affected by any change in
the Lease, whatsoever. This includes, but is not
limited to, any extension of time or renewals. The
Guaranty will bind me even if I am not a party to these
changes.
Waiver of notice: 4. I do not have to be informed about any default by
Tenant. I waive notice of nonpayment or other default.
Performance: 5. If the Tenant defaults, the Landlord may require me
to perform without first demanding that the Tenant
perform.
Waiver of jury trial: 6. I give up my right to trial by jury in any claim
related to the Lease or this Guaranty.
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Changes: 7. This Guaranty can be changed only by written
agreement signed by all parties to the Lease and this
Guaranty.
Signatures: GUARANTOR:
WITNESS: ---------------------------------------
--------------------------------------
STATE OF COUNTY OF ss.:
On _______________________ 19__, before me personally appeared
___________________________ to me known and known to me to be the individual(s)
described in and who executed the foregoing Lease, and duly acknowledged to me
that __he__ executed the same.
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EXHIBIT 22
Subsidiaries of Registrant
Name State Incorporated
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Four Corners Abstract Corporation New York
Proper Appraisal Specialists, Inc. New York
