<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
FOUR CORNERS FINANCIAL CORPORATION
(Name of Issuer)
FOUR CORNERS FINANCIAL CORPORATION
Frank B. Iacovangelo
Bernard J. Iacovangelo
Anthony M. Iacovangelo
Wegman Building Associates
(Name of Person(s) Filing Statement)
Common Stock, $.04 Par Value
(Title of Class of Securities)
350836102
(CUSIP Number)
Richard B. Sullivan, Esq.
Chamberlain, D'Amanda,
Oppenheimer & Greenfield
1600 Crossroads Building
Two State Street
Rochester, New York 14614
(716) 232-3730
(Name, Address and Telephone of Persons Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14-C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. The filing of a registration statement under the Securities
Act of 1933.
c. A tender offer.
d. None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies:
CALCULATION OF REGISTRATION FEE
Transaction Valuation* Amount of Filing Fee
- ---------------------- --------------------
$4232 $.85
<PAGE>
*Determined by a) multiplying the per fractional share cash payment of $12.00
times each fraction of a share resulting from the 1 for 100 Reverse Stock Split
paid to fractional shareholders in lieu of the issuance of fractional shares
($2,532); and b) by adding the amount of the indebtedness owed to shareholders
owning fractional shares as the result of the 1 for 4 reverse stock split of
July 31, 1992, together with simple interest thereon at the rate of 10 percent
per annum ($1,700).
Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $.85
Form or Registration Number: 13E-3
Filing Party: Four Corners Financial Corporation
Date Filed: July 28, 1998
This Rule 13E-3 Transaction Statement is being filed by Four Corners Financial
Corporation (the "Company"), Frank B. Iacovangelo, Bernard J. Iacovangelo,
Anthony M. Iacovangelo and Wegman Building Associates with respect to the class
of equity securities of the Company that is subject to a Rule 13e-3 transaction.
The Company is submitting to its stockholders a proposal to approve and adopt a
Certificate of Amendment to its Restated Certificate of Incorporation providing
(a) for reduction in the number of authorized shares of the Company's common
stock, $.04 par value (the "Common Stock") from15,000,000 authorized shares to
150,000 authorized shares with $4.00 par value; (b) for a 1 for 100 reverse
stock split of the Company's Common Stock, and (c) for a cash payment in the
amount of $12.00 per share of the currently outstanding Common Stock in lieu of
the issuance of any resulting fractional shares of new common stock to
stockholders who, after the reverse stock split, own a fractional share of new
common stock. The Company is also submitting to its shareholders a Proposal to
pay the indebtedness to certain stockholders resulting from the Company's 1 for
4 reverse stock split on July 31, 1992, together with interest thereon.
<PAGE>
The Reverse Stock Split and the Payment Proposal are made upon the terms and
subject to the conditions set forth in the Company's Proxy Statement for the
Company's Special Meeting of Stockholders scheduled to be held on February 5,
1999, a copy of which is filed as an exhibit hereto and is incorporated hereby
by reference in its entirety.
The following Cross Reference Sheet is supplied pursuant to General Instruction
F to Schedule 13E-3 and shows the location in the Proxy Statement filed by the
Company with the Securities and Exchange Commission on July 28, 1998, (including
all exhibits thereto, the "Proxy Statement") of the information required to be
included in response to the items of this Statement. The information in the
Proxy Statement, a copy of which is attached thereto as Exhibit (d)(1), is
hereby expressly incorporated by reference and the responses to each item are
qualified in their entirety by the provisions of the Proxy Statement.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PRELIMINARY PROXY STATEMENT OF INFORMATION
REQUIRED BY ITEMS IN SCHEDULE 13E-3
Schedule 13E-3
Item Number and Caption Location in Proxy Statement
----------------------- ---------------------------
Item 1. Issuer and Class of Security
Subject to the Transaction
Item 1(a) Notice and Cover Page of Proxy
Statement
Item 1(b) Cover Page of Proxy Statement;
"The Reverse Stock Split -
Background."
Item 1(c) "Market Prices, for Shares of
Common Stock, Dividends and
Common Stock Information."
Item 1(d) "Market Prices for Shares of
Common Stock; Dividends and
Common Stock Information."
Item 1(e) Not Applicable
Item 1(f) "The Reverse Stock Split -
Fairness" and "Market Prices for
Shares of Common Stock;
Dividends and Common Stock
Information"
<PAGE>
Item 2. Identity and Background
Items 2(a)-(d) "The Reverse Stock Split -
Recommendation of the Board of
Directors and Affiliated
Shareholders; Directors and
Executive Officers of the
Company."
Items 2(e) and (f) Not Applicable
Item 2(g) "Directors and Executive
Officers of the Company."
Item 3. Past Contracts, Transactions
Items 3(a)(1) and 3(a)(2) Not Applicable
Item 3(b) " Going Private; Considerations
of Alternatives to Reverse Stock
Split; The Reverse Stock Split -
Background."
Item 4. Terms of the Transaction
Item 4(a) "The Reverse Stock
Split-Purposes; The Reverse
Stock Split-Structure and
Payment of Cash Consideration."
Item 4(b) Not Applicable
Item 5. Plans or Proposals of the
Issuer or Affiliate
Items 5(a) "The Reverse Stock Split -
Certain Effects; Plans for the
Company After the Reverse Stock
Split."
<PAGE>
Item 6. Source and Amounts of
Funds or Other Consideration
Items 6(a) and 6(b) "The Reverse Stock Split -
Expenses."
Item 6(c) Not Applicable
Item 6(d) Not Applicable
Item 7. Purpose(s), Alternatives,
Reasons and Effects
Item 7(a)-7(d) "The Reverse Stock Split -
Background; Going Private -
Consideration of Alternatives to
Reverse Stock Split; The Reverse
Stock Split - Purpose; The
Reverse Stock Split - Structure
and Treatment of Cash
Consideration; The Reverse Stock
Split - Certain Effects."
Item 8. Fairness of the Transaction
Item 8(a) "The Reverse Stock Split -
Fairness; The Reverse Stock
Split - Purpose."
Item 8(b) "The Reverse Stock Split -
Fairness; The Reverse Stock
Split - Purpose; The Reverse
Stock Split - Background."
Item 8(c) "The Reverse Stock Split -
Fairness."
Item 8(d) "The Reverse Stock Split -
Fairness."
<PAGE>
Item 8(e) "The Reverse Stock Split -
Fairness; Recommendation of the
Board of Directors and
Affiliated Shareholders."
Item 8(f) Not Applicable
Item 9. Reports, Opinions, Appraisals
and Certain Negotiations
Items 9(a) and 9(b) "The Reverse Stock Split -
Fairness."
Item 9(c) "The Reverse Stock Split -
Exhibit B."
Item 10. Interest in Securities of
the Issuer
Items 10(a) and (10(b) "Directors and Executive
Officers; Security Ownership of
Certain Beneficial Owners and
Management."
Item 11. Contracts, Arrangements or
Understandings with Respect
to the Issuer's Securities
Item 11 Not Applicable
Item 12. Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
Items 12(a) and 12(b) "The Reverse Stock Split -
Recommendation of the Board of
Directors and Affiliated
Shareholders."
<PAGE>
Item 13. Other Provisions of the
Transaction
Item 13(a) "The Reverse Stock Split -
Appraisal Rights; The Reverse
Stock Split - Certain Effects;
Proposal Three."
Items 13(b)-(c) Not Applicable
Item 14. Financial Information
Item 14(a) "Historical Consolidated
Financial Information of the
Company."
Item 14(b) "Pro Forma Consolidated
Financial Information of the
Company."
Item 15. Persons and Assets Employed,
Retained or Utilized
Items 15(a) and 15(b) Not Applicable
Item 16. Additional Information
Item 16. Proxy Statement in its Entirety,
including Exhibits thereto.
Item 17. Material to be Filed as
Exhibits
Item 17(a) Not Applicable
Item 17(b) Report of Bonadio and Company*
Item 17(c) Not Applicable
Item 17(d) Proxy Statement in its Entirety,
including Exhibits thereto.
<PAGE>
Item 17(e) Not Applicable
Item 17(f) Not Applicable
*Filed as Exhibit B to the Proxy Statement
Item 1. Issuer and Class of Security Subject to
the Transaction.
(a) The name of the issuer is Four Corners
Financial Corporation, a Delaware
corporation, and the address of its
executive offices is 370 East Avenue,
Rochester, New York 14604.
(b) The exact title of the class of equity
securities to which this Statement
relates is Common Stock, $.01 par
value. The information set forth on the
Cover page and under the caption "The
Reverse Stock Split - Background" of
the Proxy Statement is incorporated
herein by reference.
(c) The information set forth under the
caption "Market Prices for Shares of
Common Stock; Dividends and Common
Stock Information" of the Proxy
Statement is incorporated herein by
reference.
(d) The information set forth under the
caption "Market Prices for Shares of
Common Stock; Dividends and Common
Stock Information" of the Proxy
Statement is incorporated herein by
reference
(e) Not Applicable.
(f) The information set forth under the
captions "The Reverse Stock Split -
Fairness" and "Market Prices for Shares
of Common Stock; Dividends and Common
Stock Information" of the Proxy
Statement is incorporated herein by
reference.
<PAGE>
Item 2.
Format Identity and Background..
(a)-(d) and (g) This Statement is being filed by Four
Corners Financial Corporation, a
Delaware corporation, engaged in the
business of providing services and
products utilized in commercial and
residential real estate transactions,
with its executive offices at 370 East
Avenue, Rochester, NY 14604, and by
Frank B. Iacovangelo, Bernard J.
Iacovangelo, Anthony M. Iacovangelo and
Wegman Building Associates. The
information set forth under the caption
"Directors and Executive Officers" and
"Securities Ownership of Certain
Beneficial Owners and Management" of the
Proxy Statement is incorporated herein
by reference
(e) and (f) Each person described under the captions
"Directors and Executive Officers" and
"Security Ownership of Certain
Beneficial Owners and Management" of the
Proxy Statement is a citizen of the
United States and during the last five
years no such person has been convicted
in a criminal proceeding (excluding
traffic violations or similar
misdemeanors) and no such person was a
party to a civil proceeding of a
judicial or administrative body of
competent jurisdiction as a result of
which he was or is subject to a
judgment, decree, or final order
enjoining future violations of, or
prohibiting activities subject to,
federal or state securities laws or
finding any violation of such laws.
Item 3. Past Contacts, Transactions or
Negotiations.
(a)(1)and Not Applicable
(a)(2)
(b) The information set forth under the
captions "The Reverse Stock Split -
Background; Going Private -
Considerations of Alternatives to
Reverse Stock Split" of the Proxy
Statement is incorporated herein by
reference.
<PAGE>
Item 4. Terms of the Transaction.
(a) The information set forth under the
captions "The Reverse Stock
Split-Purposes; The Reverse Stock
Split-Structure and Payment of Cash
Consideration" of the Proxy Statement is
incorporated herein by reference.
(b) Not Applicable.
Item 5. Plans or Proposals of the Issuer or
Affiliate.
(a) - (g) The information set forth under the
captions "The Reverse Stock Split -
Certain Effects; Plans for the Company
after The Reverse Stock Split" of the
Proxy Statement is incorporated herein
by reference.
Item 6. Source and Amounts of Funds or Other
Consideration.
(a) and (b) The information set forth under the
caption "The Reverse Stock Split -
Expenses" of the Proxy Statement is
incorporated herein by reference.
(c) Not applicable.
(d) Not Applicable
Item 7. Purpose(s), Alternatives, Reasons and
Effects.
(a)-(d) The information set forth under the
captions "The Reverse Stock Split -
Background; Going Private; Consideration
of Alternatives to Reverse Stock Split;
The Reverse Stock Split - Purpose; The
Reverse Stock Split - Structure and
Treatment of Cash Consideration; The
Reverse Stock Split - Certain Effects"
of the Proxy Statement is incorporated
herein by reference.
<PAGE>
Item 8. Fairness of the Transaction
(a) The information set forth under the
captions "The Reverse Stock Split -
Fairness; the Reverse Stock Split -
Purpose" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth under the
captions "The Reverse Stock Split -
Fairness; The Reverse Stock Split -
Purpose; The Reverse Stock Split -
Background" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth under the
caption "The Reverse Stock Split -
Fairness" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth under the
caption "The Reverse Stock Split -
Fairness" of the Proxy Statement is
incorporated herein by reference.
(e) The information set forth under the
caption "The Reverse Stock Split -
Fairness; Recommendation of the Board of
Directors and Affiliated Shareholders"
of the Proxy Statement is incorporated
herein by reference.
(f) Not Applicable
Item 9. Reports, Opinions, Appraisals and
Certain Negotiations.
(a) and (b) The information set forth under
the caption "The Reverse Stock Split -
Fairness" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth under the
caption "The Reverse Stock Split -
Exhibit B" of the Proxy Statement is
incorporated herein by reference.
<PAGE>
Item 10. Interest in Securities of the Issuer.
(a) and (b) The information set forth under the
captions "Directors and Executive
Officers; Security Ownership of Certain
Beneficial Owners and Management" of the
Proxy Statement is incorporated herein
by reference.
Item 11. Contracts, Arrangements or
Understandings with Respect to the
Issuer's Securities.
Not Applicable.
Item 12. Present Intention and Recommendation of
Certain Persons with Regard to the
Transaction.
(a) and (b) The information set forth under the
caption "The Reverse Stock Split -
Recommendation of the Board of Directors
and Affiliated Shareholders" of the
Proxy Statement is incorporated herein
by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth under the
captions "The Reverse Stock Split -
Appraisal Rights; The Reverse Stock
Split - Certain Effects" of the Proxy
Statement is incorporated herein by
reference.
(b)-(c) Not Applicable
Item 14. Financial Information.
(a) The information set forth under the
caption "Historical Consolidated
Financial Information of the Company" of
the Proxy Statement is incorporated
herein by reference.
(b) The information set forth under the
caption "Pro Forma Consolidated
Financial Information of the Company" is
incorporated herein by reference.
<PAGE>
Item 15. Persons and Assets Employed, Retained or
Utilized.
(a) and (b) Not Applicable.
Item 16. Additional Information.
All of the information set forth in the
Proxy Statement, including the Exhibits
thereto, is incorporated hereby by
reference.
Item 17. Material to be Filed as Exhibits.
(a) Not Applicable.
(b) Report of Bonadio & Co., LLP is
incorporated by reference from Exhibit
B to the Proxy Statement filed as
Exhibit (d)(1) hereto.
(c) Not Applicable.
(d)(1) Proxy Statement of Four Corners
Financial Corporation for the Special
Meeting of Stockholders to be held on
September 9, 1998.
(d)(2) Proxy Card
(e) Not Applicable.
(f) As of the date of this Statement, no
written instruction, form or other
material has been furnished to any
person making the actual oral
solicitation or other recommendation
for such person's use, directly or
indirectly in connection with the Rule
13e-3 transaction.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, the
undersigned, and each of them, certify that the information set forth in this
statement is true, complete and correct.
FOUR CORNERS FINANCIAL CORPORATION
DATE: December 18 , 1998 By: /s/
------------------ ------------------------------
Bernard J. Iacovangelo,
Secretary and Director
/s/
------------------------------
Frank B. Iacovangelo
/s/
------------------------------
Bernard J. Iacovangelo
/s/
------------------------------
Anthony M. Iacovangelo
Wegman Building Associates
BY:/s/
---------------------------
Its Managing Partner
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
99.17(a) Not Applicable
99.17(b) Report of Bonadio & Co., LLP
incorporated by reference from
Exhibit B to the Proxy Statement
filed as Exhibit 99.17(d) (1)
hereto.
99.17(c) Not Applicable
99.17(d)(1) Proxy Statement
99.17(d)(2) Proxy Card
99.17(e) Not Applicable
99.17(f) None
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON February 5, 1999
FOUR CORNERS FINANCIAL CORPORATION
370 East Avenue
Rochester, New York 14604
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of Four
Corners Financial Corporation will be held at the offices of the Company located
at 370 East Avenue, Rochester, New York 14604 on February 5, 1999 at 10:00 a.m.
E.S.T. for the following purposes:
1. To approve the Board of Directors adoption of an
Amendment to the Company's restated Certificate of
Incorporation which provides for: (a) a reduction of
the number of authorized shares of the Company's
Common Stock from 15,000,000 authorized shares with a
par value of $.04 per share to 150,000 authorized
shares with a par value of $4.00 per share and (b) a
1 for 100 reverse stock split of the Company's
currently issued and outstanding common stock;
2. To approve a cash payment in the amount of $12.00
times each fraction of a share resulting from such
reverse stock split in lieu of the issuance of any
resulting fractional shares;
3. To approve the payment by the Company of the
indebtedness owed to Shareholders owning fractional
shares resulting from the 1 for 4 reverse stock split
effective July 29, 1992, together with the payment of
simple interest on the amount of such indebtedness.
The text of the proposed Certificate of Amendment to the Company's
restated Certificate of Incorporation is set forth in Exhibit A to the
accompanying Proxy Statement. The adoption of Proposals One and Two is
conditioned upon the adoption of each other. Consequently, a vote against
Proposal One will have the effect of a vote against Proposal Two. Proposals One
and Two are referred to herein together as the "Reverse Stock Split". Proposal
Three is not related to or in any way conditioned upon the adoption of Proposals
One and Two and a vote for or against Proposals One and Two will have no effect
upon Proposal Three and a vote for or against Proposal Three will have no effect
upon Proposals One and Two.
<PAGE>
The purpose of the Reverse Stock Split is to cause the Company to
become a privately owned corporation. If the proposed Reverse Stock Split is
approved, Shareholders of the Company who own less than 100 shares of the
Company's common stock immediately prior to the effectiveness of the Reverse
Stock Split will cease to be Shareholders of the Company or to have any equity
interest in the Company. More specifically, of the Company's 1,194 Shareholders
of record as of the record date for this meeting, 1,008 Shareholders would cease
to be Shareholders upon the effectiveness of the proposed Reverse Stock Split.
In this regard, Shareholders who immediately prior to the effectiveness of the
Reverse Stock Split hold fewer than 100 shares of the common stock of the
Company may remain Shareholders by acquiring a sufficient number of shares to
raise their ownership level to 100 or more shares.
The members of the Company's Board of Directors and its Affiliated
Shareholders owning 87.5% of the Company's issued and outstanding common stock
as of the record date have indicated their intention to vote in favor the
Reverse Stock Split. Accordingly, the Reverse Stock Split will be approved even
if all of the Company's nonaffiliated Shareholders vote against approval of the
Reverse Stock Split.
Similarly, such Directors and Affiliated Shareholders have indicated
their intention to vote in favor of Proposal Three. Accordingly, Proposal Three
will be approved even if all of the Company's nonaffiliated Shareholders vote
against approval of Proposal Three.
Accompanying this Notice is a Proxy and Proxy Statement. If you are
unable to be present in person, please sign and date the enclosed form of Proxy
and return it in the enclosed envelope which requires no postage. Only
Shareholders of record at the close of business on December 21, 1998 will be
entitled to vote at the Special Meeting and any adjournments thereof. The prompt
return of your Proxy will save the expense of further communication.
By the order of the Board of Directors
DATED: ______________, 1998 ___________________________________,
BERNARD J. IACOVANGELO, Secretary
<PAGE>
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
FOUR CORNERS FINANCIAL CORPORATION
370 East Avenue
Rochester, New York 14604
Date of Proxy Statement: December 21, 1998
Date of Mailing: December 30, 1998
Special Meeting of Shareholders: February 5, 1999
The enclosed Proxy is solicited by The Board of Directors of Four
Corners Financial Corporation (hereinafter the "Company"). Any Proxy given
pursuant to this solicitation may be revoked by the Shareholder at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Executive Vice President of the Company, (ii) properly
submitting to the Company a duly executed Proxy bearing a later date, or (iii)
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in and of itself revoke a Proxy. All written notices of
revocation and other communications with respect to revocation of Proxies should
be addressed as follows: William S. Gagliano, Executive Vice President, 370 East
Avenue, Rochester, New York 14604. Shares of common stock represented by
properly executed Proxies received at or prior to the Special Meeting and which
have not been revoked will be voted in accordance with the instructions
indicated thereon. If no instructions are indicated on a properly executed
Proxy, such Proxies will be voted FOR each of the proposals set forth in this
Proxy Statement.
All of the expenses involved in preparing and mailing this Proxy
Statement and the material enclosed herewith will be paid by the Company. The
Company will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for expenses reasonably incurred by them in sending Proxy material
to beneficial owners of stock.
Holders of a majority of the issued and outstanding common stock of the
Company must be present in person or by Proxy in order to establish a quorum for
conducting business at the Special Meeting. Only record holders of the common
stock at the close of business on December 21, 1998 are entitled to vote at the
Special Meeting. On that day, 3,293,403 shares of the $.04 par value common
stock of the Company were issued and outstanding. Each share is entitled to one
vote at the Special Meeting.
SHAREHOLDERS ARE ENCOURAGED TO READ AND REVIEW CAREFULLY THIS PROXY STATEMENT
AND THE FINANCIAL INFORMATION AND EXHIBITS INCLUDED HEREWITH. NO PERSONS HAVE
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION
OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OTHER PERSON.
<PAGE>
THE SPECIAL MEETING
At the Special Meeting, the record holders of the Company's common
stock on December 21, 1998 (the record date for the Special Meeting) will be
asked to consider, vote upon and approve the following proposals:
1. To approve the Board of Directors adoption of an
Amendment to the Company's restated Certificate of
Incorporation which provides for: (a) a reduction of
the number of authorized shares of the Company's
Common Stock from 15,000,000 authorized shares with a
par value of $.04 per share to 150,000 authorized
shares with a par value of $4.00 per share and (b) a
1 for 100 reverse stock split of the Company's
currently issued and outstanding common stock;
2. To approve a cash payment in the amount of $12.00
times each fraction of a share resulting from such
reverse stock split in lieu of the issuance of any
resulting fractional shares;
3. To approve the payment by the Company of the
indebtedness owed to Shareholders owing fractional
shares resulting from the 1 for 4 reverse stock split
effective July 31, 1992, together with the payment of
simple interest on the amount of such indebtedness.
The text of the proposed Certificate of Amendment to the Company's
restated Certificate of Incorporation is set forth in Exhibit A to this Proxy
Statement. The adoption of Proposals One and Two is conditioned upon the
adoption of each other. Consequently, a vote against Proposal One will have the
effect of a vote against Proposal Two. Proposals One and Two are referred to in
this Proxy Statement together as the "Reverse Stock Split". Proposal Three is
not related to or in any way conditioned upon the adoption of Proposals One and
Two and a vote for or against Proposals One and Two will have no effect upon
Proposal Three and a vote for or against Proposal Three will have no effect upon
Proposals One and Two.
- 2 -
<PAGE>
OVERVIEW OF THE REVERSE STOCK SPLIT
The following is a brief overview of certain information regarding
Proposals One and Two which, together, are referred to as the "Reverse Stock
Split" throughout this Proxy Statement. This overview is not intended to be a
complete description of the matters covered in this Proxy Statement regarding
the Reverse Stock Split and is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including the Exhibits hereto and the documents incorporated by
reference herein.
Purpose of the Reverse Stock Split
The purpose of the Reverse Stock Split is to cause the Company to
become a privately owned corporation and to afford approximately 1,138
Shareholders to receive cash consideration for all or a portion of their equity
position in the Company which is, in the reasonable belief of the Board of
Directors, a fair price for such equity position, without such persons incurring
the attendant costs of sale. See "The Reverse Stock Split Purpose; The Reverse
Stock Split - Fairness."
The Reverse Stock Split - Structure and Payment of Cash Consideration
If the Reverse Stock Split is approved by the Shareholders at the
Special Meeting, the Company expects to file a Certificate of Amendment to the
Company's Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware. The form of the Certificate of Amendment is attached as
Exhibit A to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the Effective
Date of filing, the authorized shares of the Company's common stock will be
reduced from 15,000,000 authorized shares with a par value of $.04 per share to
150,000 authorized shares with a par value of $4.00 per share. On the Effective
Date, each 100 shares of the Company's common stock, $.04 par value per share,
issued and outstanding immediately prior to the Effective Date will be
automatically converted into 1 share of the Company's common stock, with a par
value of $4.00 per share.
The Board of Directors has determined, as is permitted under Delaware
corporate law, to make a cash payment in lieu of the issuance of fractional
shares. Consequently, a cash payment of $12.00 times each fraction of a share
resulting from such 1 to 100 Reverse Stock Split will be made, in lieu of the
issuance of any fractional shares, to those Shareholders who, after the Reverse
Stock Split, own a fractional share of common stock. SHAREHOLDERS HOLDING
COMPLETE SHARES, RATHER THAN FRACTIONS, AFTER THE CONSUMMATION OF THE REVERSE
STOCK SPLIT WILL NOT BE ENTITLED TO RECEIVE CASH IN LIEU OF THOSE COMPLETE
SHARES. See "The Reverse Stock Split - Structure and Payment of Cash
Consideration."
The Reverse Stock Split - Certain Effects
As of the record date, 1,008 Shareholders own, in the aggregate 15,275
shares or .46% of the Company's issued and outstanding common stock. Each of
these Shareholders owns fewer than 100 shares so that, if the Reverse Stock
Split is approved, each of these Shareholders will cease being Shareholders of
the Company. Any Shareholder owning fewer than 100 shares may continue as a
Shareholder, even if the Reverse Stock Split is approved, if he or she were to
increase his or her ownership to 100 or more shares prior to the filing of the
Certificate of Amendment with the Secretary of State of the State of Delaware.
- 3 -
<PAGE>
If the Reverse Stock Split is approved, 186 Shareholders owning, in the
aggregate 3,278,128 shares or 99.54% of the Company's issued and outstanding
common stock, will continue as Shareholders since each of these Shareholders
owns 100 or more shares.
Certain Potential Detriments of the Reverse Stock Split
o If the Reverse Stock Split is approved, 1,008 nonaffiliated
Shareholders, owning in the aggregate 15,275 shares, would cease
being Shareholders of the Company.
o If the Reverse Stock Split is approved, 174 nonaffiliated
Shareholders, owning in the aggregate 395,267 shares, will
continue as minority Shareholders and consequently will not,
either singly or by aggregating their shares, be able to elect any
members of the Company's Board of Directors, thereby affecting
decisions regarding the Company's management and policies,
including but not limited to compensation policy, dividend policy,
merger and/or acquisition strategies, sale of the Company and/or
its assets as well as decisions taken with respect to the ultimate
liquidation of the Company and the distribution of its net assets
to Shareholders;
o If the Reverse Stock Split is approved, the Company will
elect to become a private company by applying for termination of
the registration of its shares of common stock under the
Securities Exchange Act of 1934. Consequently, management
believes that the ability of post-Reverse Stock Split
Shareholders to locate broker/dealers willing to enter quotations
for the Company's common stock and/or effectuate trades therein
may be severely curtailed. As a result, it is management's belief
that the only realistic way for continuing Shareholders to
realize upon their equity ownership in the Company would be
privately-negotiated transactions, a corporate redemption and/or
liquidation or management's ability to locate one or more
third-party purchasers for the Company's assets or common stock;
o The Company estimates that it will save between $40,000-
$50,000 annually in costs associated with its periodic reporting
obligations under the Securities Exchange Act. If the Reverse
Stock Split is approved, 1,008 nonaffiliated Shareholders, owning
in the aggregate 15,275 shares for which they will receive an
aggregate $1,833, will cease to be Shareholders and thereby will
not participate in such future savings;
o The receipt by a Shareholder of cash in lieu of fractional
shares of common stock pursuant to the Reverse Stock Split will be
a taxable transaction for Federal income tax purposes. See
"Material Federal Income Tax Consequences;"
o The Board of Directors did not obtain a report or opinion
with respect to the fairness of the Reverse Stock Split solely
from the standpoint of the Company's nonaffiliated Shareholders;
o The Board of Directors did not obtain a nonaffiliated
representative to act solely on behalf of nonaffiliated
Shareholders for purposes of negotiating the terms of the Reverse
Stock Split or preparing a report with respect to the fairness of
the Reverse Stock Split;
- 4 -
<PAGE>
o The Board of Directors did not structure the Reverse Stock
Split to require the approval of at least a majority of the
Company's nonaffiliated Shareholders. In this regard, the
Company's affiliated Shareholders have stated that they will vote
their shares for the Reverse Stock Split. Consequently,
approximately 87.5% of the total issued and outstanding common
stock of the Company entitled to vote for the Reverse Stock Split
will be cast in favor and thus the Reverse Stock Split will be
approved even if all of the nonaffiliated Shareholders of the
Company vote their shares against the Reverse Stock Split;
o Under the Delaware General Corporation Law, no appraisal
rights exist with respect to the Reverse Stock Split and the
Company is not voluntarily according dissenting Shareholders such
rights.
o SHAREHOLDERS OWNING COMPLETE SHARES, RATHER THAN FRACTIONS OF
A SHARE AFTER THE REVERSE STOCK SPLIT WILL NOT BE ENTITLED TO
RECEIVE ANY CASH PAYMENT.
o The 12 cents per share price being offered is 24% of the
price paid by the Company to purchase a former director's stock in
September, 1996, and 16% of the price per share paid with respect
to the 1992 Reverse Stock Split.
Conflicts of Interest
The Company's Affiliated Shareholders own, as of the record date,
2,882,861 shares of the Company's issued and outstanding common stock
representing 87.5% of such stock. If the Reverse Stock Split is approved, 1,008
Shareholders of record, owning 15,275 shares or .46% of such stock, will cease
being Shareholders of the Company. Consequently, the percentage of the Company
owned by the Company's Affiliated Shareholders would increase by .59%, from
87.5% to 88.09%. If the Reverse Stock Split is approved, therefore, the
Affiliated Shareholders' share of any dividends and/or other corporate
distribution, including net proceeds of any liquidating distribution or the net
proceeds generated by the sale of the Company's assets or common stock would
increase by such percentage.
The Reverse Stock Split - Background
On July 28, 1998, the Board of Directors of the Company met to consider
a proposal to convert the Company to private ownership. In reviewing the
proposal, the Board considered that there has not been an active trading market
for the Company's common stock since February, 1989, none has developed over the
past decade despite management's efforts to stimulate market activity (including
the 1992 reverse stock split) and management's belief that no significant
trading in the Company's common stock is likely to develop in the foreseeable
future. The Board considered that the Company has not qualified and will not
likely qualify in the foreseeable future to have its common stock eligible for
listing on any national securities exchange or for registration on an
inter-dealer quotation system of a registered national securities association,
such as the National Association of Securities Dealers, Inc. ("NASD").
The Board considered that a significant number of the Company's
Shareholders hold less than 100 shares. Of approximately 1,194 Shareholders of
record, 1,008 (approximately 85% of the Company's Shareholders) own fewer than
100 shares of common stock, aggregating 15,275 out of 3,293,403 issued and
outstanding shares (.46%). The Board noted that none of these Shareholders had
taken an active interest in the Company in over a decade and, due to each
individual Shareholder's small equity position, would likely not take an active
interest (including trading his or her shares) in the foreseeable future. The
Board further noted that of the 1,008 Shareholders, 891 owned 25 or fewer
shares. Thus, even if for any reason, an active market were
- 5 -
<PAGE>
to develop for the Company's common stock, at prices of, for example, $.50 or
$1.00 per share (which had not occurred in almost a decade) these Shareholders
would nonetheless have limited opportunities to realize commensurate value for
their shares. Any sales of such Shareholders' shares at such prices would
ordinarily involve disproportionately high brokerage commissions unless the
minimum brokerage commission typically payable on any sale transaction were to
be waived and/or reduced.
The Board further considered that the Company has incurred, and, if the
Company were to remain a public company, would continue to incur, substantial
costs as the result of its registered status under the Securities Exchange Act
of 1934 (the "Exchange Act"). The Board concluded that the fact that no
Shareholder of the Company, whether large or small, whether affiliated or
nonaffiliated, had taken advantage of the Company's public status for close to a
decade weighed heavily against continuing to incur substantial costs associated
with continued maintenance of a public market for the Company's common stock.
Moreover, the Board considered that the sale of the Company (involving
the sale of all or substantially all of the Company's assets, the merger of the
Company into or with another corporation, or another form of business
combination) was not a feasible option at this time. The Board noted that no
third party had expressed any interest in purchasing the assets of the Company,
in merging with the Company, or otherwise in entering into any business
combination with the Company. The Board considered that over the past number of
years, informal discussions with prospective purchasers from time to time had
generated no genuine interest in pursuing formal negotiations for the purchase
of the Company.
Based upon these considerations, the Board concluded that neither the
Company itself nor the Company's Shareholders were deriving any material benefit
from the continued registration of the Company's common stock under the Exchange
Act and that a conversion of the Company to private ownership was both
appropriate and desirable.
Dissenting Shareholders Rights
Under the Delaware General Corporation Law, the existing holders of the
Company's common stock are not entitled to dissenters' rights of appraisal in
connection with the consummation of the Reverse Stock Split.
Appraisal
The Board of Directors determined that it would commission the
accounting firm of Bonadio & Co., LLP ("Bonadio"), to conduct an appraisal of
the Company's common stock in order to determine the cash consideration to be
paid to Shareholders owning fractions of shares after the effectiveness of the
Reverse Stock Split ("Fractional Shareholders"). Bonadio submitted its initial
appraisal report to the Board on July 28, 1998 and its final appraisal report to
the Board on September 30, 1998. Based upon the Bonadio appraisal report, the
Board determined that $12.00 times each fraction of a share was a fair price to
pay the Fractional Shareholders. The appraisal report of Bonadio is found as
Exhibit B to this Proxy Statement.
Voting
The proposed Reverse Stock Split must be approved by a vote of not less
than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
- 6 -
<PAGE>
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
The Company's affiliated Shareholders, owning 87.5% of the Company's
issued and outstanding common stock as of the record date, have indicated their
intention to vote for the approval of the Reverse Stock Split and consequently,
it will be approved even if all of the Company's nonaffiliated Shareholders vote
against approval.
- 7 -
<PAGE>
THE REVERSE STOCK SPLIT - BACKGROUND
On July 29, 1992, the Company's Board of Directors recommended and the
Shareholders approved a 1 for 4 reverse stock split which became effective on
July 31, 1992. The purpose of the 1992 reverse stock split was to stimulate
interest in the Company's common stock which, prior to the split, had not been
actively traded since February, 1989.
The Board of Directors has concluded that the 1992 reverse stock split
has not accomplished its purpose of generating an active market for the
Company's common stock. As reported in the Company's Annual Report (Form 10-K)
filed with the Securities and Exchange Commission for the Company's fiscal year
ended December 31, 1997, there is no trading in the Company's common stock, such
stock being listed in the pink sheets by the National Quotations Bureau, Inc.
without bid and/or asked prices for all quarters in 1995, 1996 and 1997
respectively. This pattern has continued during the first, second and third
quarters of fiscal 1998 and management believes that this trend will continue
for the foreseeable future. See "Market Prices for Shares of Common Stock;
Dividends."
In light of the above circumstances, the Board, at its meeting held
July 28, 1998, considered a proposal to convert the Company to private
ownership. In reviewing the proposal, the Board considered the fact that, as
indicated above, there has not been an active trading market for the Company's
common stock since February, 1989, none has developed over the past decade
despite management's efforts to stimulate market activity (including the 1992
reverse stock split) and management's belief that no significant trading in the
Company's common stock is likely to develop in the foreseeable future. The Board
also noted that management is unaware of any market trades in the Company's
common stock since February, 1989. The Board further considered that the Company
has not qualified and will not likely qualify in the foreseeable future to have
its common stock eligible for listing on any national securities exchange or for
registration on an inter-dealer quotation system of a registered national
securities association, such as the National Association of Securities Dealers,
Inc. ("NASD").
The Board next considered that only 186 of the Company's 1,194
Shareholders own 100 or more shares, with 891 Shareholders owning 25 or fewer
shares. The Board noted that the only transaction since February, 1989 of which
it was aware, that of a Company repurchase in September, 1996 of 50,000 shares
from a former director in a private transaction, was for $.50 a share.
Consequently, even if, for some reason, an active market for the Company's
shares did develop (at, perhaps, $.50 or even $1.00 per share) a significant
number of Shareholders would not be able to realize commensurate value for their
shares unless a waiver of the normal, minimum brokerage commission were obtained
in each case. Consequently, a considerable number of the Company's Shareholders
would face considerable difficulties in order to effectuate a sale of their
shares and thus, realize any commensurate value on their holdings.
- 8 -
<PAGE>
The Board further considered that 1,008 Shareholders own 15,275 shares,
representing a .46% ownership interest in the Company. None of these
Shareholders had taken an active interest in the Company and have not
communicated with the Company (including communications regarding the exchange
of shares and payment of cash consideration as a result of the 1992 reverse
stock split) in over a decade. Consequently, the Board concluded, that based
upon the small amount of such Shareholders' holdings and historical experience,
it was quite unlikely that such Shareholders would take an active interest in
the Company (including trading of their shares) in the foreseeable future.
At the same time, the Company has incurred, and, if the Company were to
remain public, would continue to incur, substantial costs as the result of its
registered status under the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company annually incurs approximately $40,000 - $50,000 in costs
associated with Exchange Act compliance, including legal, auditing, printing and
computer related expenses, to prepare and file its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, reports and
schedules required to be filed by the Company's officers, directors and largest
Shareholders, as well as proxy solicitation materials. The Company's management
is also required to devote substantial time and attention to prepare and review
these filings.
The Board next considered that the sale of the Company (involving the
sale of all or substantially all of the Company's assets, the merger of the
Company into or with another corporation, or other form of business combination)
was not a feasible option at this time. The Board noted that no third party had
expressed any interest in purchasing the assets of the Company, in merging with
the Company, or otherwise in entering into a business combination with the
Company. The Board considered that over the past number of years, informal
discussions with prospective purchasers from time to time had generated no
genuine interest in pursuing formal negotiations for the purchase of the
Company. More specifically, no contacts and/or negotiations concerning a merger,
consolidation or acquisition have been entered into or occurred since the
commencement of the Company's fiscal year beginning January 1, 1996.
Based upon the above considerations, the Board concluded that neither
the Company itself nor the Company's Shareholders are deriving any material
benefit from the continued registration of the Company's common stock under the
Exchange Act and that a conversion of the Company to private ownership was both
appropriate and desirable.
- 9 -
<PAGE>
GOING PRIVATE; CONSIDERATION OF ALTERNATIVES TO REVERSE STOCK SPLIT
At its July 28, 1998 meeting, the Board considered that, under rules
promulgated by the Securities and Exchange Commission, it was necessary to
reduce the number of record holders of the Company's common stock to less than
300 in order to "go private" and deregister its common stock under the Exchange
Act. As the result of such deregistration, management believes that the ability
of post-Reverse Stock Split Shareholders to locate broker/dealers willing to
enter quotations or effectuate trades in the Company's common stock would be
severely curtailed since the Company would no longer be required to furnish such
broker/dealers with current information concerning the Company's operations and
financial condition. Unless the Company was to voluntarily furnish such
information (it has made no commitment to do so), management believes that the
ability of broker/dealers to effectuate trades in the Company's common stock
would be virtually eliminated. See "The Reverse Stock Split Certain Effects."
The Board reviewed a number of alternatives to the Reverse Stock Split
in order to convert the Company to private ownership. The Board determined that
the first alternative considered, that of privately negotiated or open market
purchases, would be cumbersome and in all likelihood, would not enable the
Company, in any reasonable period of time, to purchase a significant number of
shares of the Company's common stock to ensure the reduction of the number of
the holders of the shares of its common stock to less than 300. The Board noted
that over the past decade the Company has had virtually no meaningful contact
with its numerous but small Shareholders. The Board also determined that the
legal and other transaction costs to implement this alternative would be
substantially greater than the costs to implement the Reverse Stock Split.
Similarly, the Board concluded that a Company tender offer on a
shareholder-wide basis would not be feasible for the same reasons that the
alternative of privately negotiated or open market purchases would not be
feasible.
As discussed above, the Board considered the possibility of a sale of
the Company but concluded that the absence of genuine, prospective purchasers
foreclosed this alternative. The Board also considered the alternative of
additional public or private equity financing to enhance the marketability of
the Company's common stock and concluded that this alternative would not be
feasible. The Company would be required, given the current value of its shares,
to sell a substantial number of additional shares of its common stock in order
to create a larger "public float" in its common stock, resulting in the dilution
of all of the current Shareholders' interest in the Company. There would be no
guarantee that such an alternative would create a more active market in the
Company's common stock; however, the Company would remain subject to the
regulatory and reporting requirements of the Exchange Act.
At its July 28, 1998 meeting, therefore, the Board concluded that the
Reverse Stock Split, including the payment of cash consideration in lieu of
issuing fractional shares, was the most expeditious, efficient and cost
effective method of converting the Company to private ownership. In this regard,
the Board noted that, while the Reverse Stock Split, if approved, would
eliminate a large percentage of existing Shareholders of record (1,008 out of
1,194 or approximately 85%), such Shareholders own only 15,275 of 3,293,403
(.46%) outstanding shares. The holders of the Company's equity, represented by
186 Shareholders, would retain and, proportionately, increase their equitable
position in the Company.
- 10 -
<PAGE>
THE REVERSE STOCK SPLIT - PURPOSE
The purpose of the proposed Reverse Stock Split is to cause the Company
to become a privately-owned corporation in a manner that is both fair to the
Company and to its Shareholders. As discussed above, management believes that
the Company and its Shareholders do not derive significant benefit from the
Company's status as a public company, including the development of a market of
consequence for its shares of common stock and the appreciation in value as the
result of the public trading of such stock. On the other hand, the conversion of
the Company from a public, reporting company to a private, non-reporting company
will result in substantial benefits to the Company, including elimination of the
substantial costs it incurs each year as the result of its reporting
obligations.
Management proposes to pay cash consideration to Shareholders in lieu
of the issuance to them of fractions of a share resulting from the Reverse Stock
Split. The amount of the cash consideration, $12.00 times each fraction of a
share, was arrived at based upon an appraisal of the Company undertaken by the
Company's independent accounting firm, Bonadio, specifically to arrive at the
amount of such cash consideration. See the "Reverse Stock Split - Fairness."
The proposed Reverse Stock Split will afford approximately 1,138 of the
Company's 1,194 Shareholders ("Fractional Shareholders") to receive cash
consideration for all or a portion of their equity position in the Company which
is, in the reasonable belief of the Board of Directors, a fair price for such
equity position. The Board considered its payment of cash consideration to be
significant, given the fact that there is not now and will not likely in the
future develop a market of consequence for the shares of the Company's common
stock to permit any significant trading of such shares. Moreover, the Company's
operational and financial constraints, as reported in the Company's 10-K for the
Company's fiscal year ended December 31, 1997, now prevent and likely in the
foreseeable future will prevent the payment of any dividends from earnings of
the Company to its Shareholders.
- 11 -
<PAGE>
Management believes that these Fractional Shareholders will not receive
anything of value for their shares in the foreseeable future. First, no market
has existed for the Company's common stock for almost a decade. There has been
no interest in the Company for over 10 years, whether expressed by prospective
purchasers of the Company as a whole (there have been none) or by investors
placing an offer or bid for shares of the Company in the open market. There is
no current interest in the Company's stock, and management believes none is
likely to develop. Based upon the Company's past history and current financial
condition, it is highly unlikely that any investor would purchase a minority
position in the Company. In other words, management believes such Fractional
Shareholders have no realistic opportunity to sell their shares since appear to
be no buyers for their shares.
THE REVERSE STOCK SPLIT - STRUCTURE AND PAYMENT OF CASH CONSIDERATION
If the Reverse Stock Split is approved by the Shareholders at the
Special Meeting, the Company expects to file a Certificate of Amendment to the
Company's Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware on or around December 10, 1998 (the "Effective Date") in
order to effectuate the Reverse Stock Split. The form of the Certificate of
Amendment is attached as Exhibit A to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the Effective
Date, the authorized shares of the Company's common stock will be reduced from
15,000,000 authorized shares with a par value of $.04 per share to 150,000
authorized shares with a par value of $4.00 per share. On the Effective Date,
each 100 shares of the Company's common stock, $.04 par value per share, issued
and outstanding immediately prior to the Effective Date will be automatically
converted into 1 share of the Company's common stock, with a par value of $4.00
per share.
As of the record date, there are 3,293,403 common shares issued and
outstanding owned by 1,194 Shareholders. If the Reverse Stock Split is approved,
on the Effective Date, the 3,293,403 common shares will be converted into 32,723
common shares (after the elimination of fractional shares), owned by 186
Shareholders. 1,008 Shareholders of record owning, prior to the Reverse Stock
Split, 15,275 shares would be eliminated.
The Board determined, as is permitted under Delaware law, to make a
cash payment in lieu of the issuance of fractional shares. It commissioned the
accounting firm of Bonadio to conduct an appraisal of the Company for the
specific purpose of arriving at a price to pay for each fractional share.
Bonadio submitted its initial appraisal report to the Board on July 28, 1998 and
its final appraisal report to the Board on September 30, 1998. Based upon the
Bonadio appraisal report, the Board determined that $12.00 times each fraction
of a share was a fair price to pay the Fractional Shareholders. The appraisal
report of Bonadio is found as Exhibit B to this Proxy Statement.
Within 10 days after the Effective Date, the Company will mail to each
Shareholder a notice of the filing of the Certificate of Amendment (the "Notice
of Filing") and a Letter of Transmittal (the "Letter of Transmittal") containing
instructions with respect to the submission of stock certificate(s) to be
exchanged for new stock certificate(s) representative of the number of whole
shares owned by each Shareholder after the effectiveness of the Reverse Stock
Split. The Letter of Transmittal will also contain instructions with respect to
the submission of stock certificate(s) in exchange for the cash consideration to
be paid by the Company in lieu of the issuance of a certificate representing
fractional shares of common stock.
- 12 -
<PAGE>
THE NOTICE OF FILING AND THE LETTER OF TRANSMITTAL WILL BE TRANSMITTED BY THE
COMPANY TO THE SHAREHOLDERS AT A DATE SUBSEQUENT TO THE EFFECTIVE DATE.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THE NOTICE OF FILING
AND LETTER OF TRANSMITTAL ARE RECEIVED AND SHOULD SURRENDER THEIR CERTIFICATES
ONLY WITH THE RETURN OF THE LETTER OF TRANSMITTAL TO THE COMPANY'S TRANSFER
AGENT AND ONLY IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN THE LETTER OF
TRANSMITTAL.
There will be no service charges payable by the Shareholders in
connection with the exchange of stock certificates or with the payment of cash
consideration in lieu of the issuance of fractional shares of common stock upon
the effectiveness of the Reverse Stock Split. These costs, if any, will be borne
by the Company.
THE REVERSE STOCK SPLIT - FAIRNESS
The Board of Directors, at its meeting held July 28, 1998, considered
the fairness of the proposed Reverse Stock Split. At the same meeting, Messrs.
Frank B., Bernard J., Anthony M. Iacovangelo, in their capacity as affiliated
shareholders of the Company and as controlling partners of Wegman Building
Associates (the "Affiliated Shareholders") also considered the fairness of the
proposed Reverse Stock Split. The Board of Directors and Affiliated
Shareholders, unanimously concluded that, for the reasons set forth herein, the
Reverse Stock Split, is fair to, and in the best interests of, both the Company
and its nonaffiliated Shareholders. In making this determination, the Board of
Directors and Affiliated Shareholders, considered the following factors: (i)
current market prices of the Company's common stock; (ii) historical market
prices of the Company's common stock; (iii) net book value of the Company; (iv)
going concern value of the Company; (v) liquidation value of the Company; (vi)
purchase price paid by the Company or its affiliates within the Company's last
two fiscal years; (vii) the appraisal submitted to the Company's Board and its
Affiliated Shareholders by Bonadio; and (viii) whether the Company or any of its
affiliates were aware of firm offers made by any unaffiliated person during the
preceding 18 months for (A) the merger, consolidation of the Company into or
with such unaffiliated person or of such unaffiliated person into or with the
issuer, (B) the sale or the transfer of all or any substantial part of the
assets of the Company or (C) the sale or any other transfer of the securities of
the Company which would enable the securities holder thereof to exercise control
of the Company.
In assessing these factors, the Board and its Affiliated Shareholders
concluded that it was desirable and appropriate to engage the services of the
Company's accounting firm, Bonadio, to assist each of them in according the
proper weight to be given to each of these factors and to prepare an appraisal
of the Company in order to arrive at the cash consideration to be offered to
Fractional Shareholders in connection with the Reverse Stock Split. In this
connection, no restrictions and/or limitations were placed by either the Board
or the Affiliated Shareholders upon Bonadio on the scope of any investigation to
be undertaken or carried on by Bonadio in making such an appraisal.
In seeking such assistance, the Board and the Affiliated Shareholders
considered the professional experience and background of the Bonadio firm, its
familiarity with the Company and its business, its familiarity with the U.S. and
New York economies as such economies relate to the housing industry and, more
specifically, the Company's sole business, namely, the Title Insurance Industry.
Bonadio is the second largest CPA firm in the metropolitan area of Rochester,
New York. They have four professional specialists in their business valuation
group who concentrate in this area. Each of the members of their business
valuation group has received specialized training in the area of business
valuations through courses offered by the American Institute of Certified Public
Accountants, the National Association of Certified Valuation
- 13 -
<PAGE>
Analysts, and the American Society of Appraisers. Their experience includes
performing business valuations in connection with employee stock ownership
plans, gift and estate taxes, buy-sell agreements, mergers and acquisitions, and
succession planning.
The Board and the Affiliated Shareholders also noted that there was no
material relationship between the Company, its Affiliated Shareholders and
Bonadio and/or its members, either currently or during the past two years, and
that no material relationship was understood by the Board and its Affiliated
Shareholders to be contemplated in the future.
The Board of Directors and the Affiliated Shareholders instructed
Bonadio to provide their professional opinion of the fair market value of Four
Corners Financial Corporation and its wholly owned subsidiary on a minority
interest basis as of March 31, 1998.
The results of the Board's and the Affiliated Shareholders' assessment
of the eight factors set forth above were as follows:
(i) current market prices - no weight assigned since no
such prices exist;
(ii) historical market prices - no weight assigned since
the last bid price for the Company's common stock was
made nearly a decade ago;
(iii) net book value - assigned partial weight - see
"material factors considered" on page 17 of the Proxy
Statement;
(iv) going concern value - substantial weight assigned as
this factor was the major component of Bonadio's
"capitalization of earnings" approach to value
described on pages 17 and 18 of this Proxy Statement;
(v) liquidation value - assigned partial weight - see
"material factors considered" on page 17 of the Proxy
Statement;
(vi) purchase price paid by the Company - it was noted
that on September 5, 1996 the Company repurchased
50,000 shares of its common stock from a former
director of the Company at $.50 per share for the
total consideration of $25,000.00. The amount of this
transaction was equal to the former director's
original purchase price for such shares upon his
election as a director in 1988. The Board of
Directors and Affiliated Shareholders requested
Bonadio to give adequate consideration to this
transaction during its appraisal process, and the
Board and the Affiliated Shareholders have been
assured by Bonadio that such consideration was given.
(vii) Bonadio appraisal - the Board and the Affiliated
Shareholders accepted Bonadio's appraisal report and
its opinion that the fair market value of the cash
consideration to be paid to Fractional Shareholders
was $12.00 times each fraction of a share resulting
from the 1 for 100 Reverse Stock Split. As described
on Page 1 of the valuation report, Bonadio's opinion
of value relied on a "value in use" or going concern
premise. They assumed in their valuation that the
Company is an ongoing business enterprise. The
concept behind going concern value is that an
operating enterprise has a work force, systems,
procedures, operating assets and organizational
structure in place. Since the Company is a viable
operating entity, it has "intangible" value above and
beyond the "tangible" value of its assets.
- 14 -
<PAGE>
Valuing a business using the book or liquidation
value would not be appropriate since the intangible
value would be ignored. An exception to the above
general rule is a business which is highly capital
intensive. A manufacturing business which requires
the purchase of expensive machinery and large areas
for production would fall into this category. The
Company is a service business with modest capital
requirements. Bonadio did not use an asset based
approach in their valuation of the Company since the
Company does not hold significant tangible assets;
(viii) firm offers - this factor was assigned no weight
since no firm offers have been received.
The appraisal report of Bonadio relied on by the Board of Directors and
Affiliated Shareholders in order to establish the cash consideration to be paid
to the Fractional Shareholders in connection with the Reverse Stock Split is
attached to this Proxy Statement as Exhibit "B".
A summary of Bonadio's appraisal report is as follows:
(i) Appraisal Procedures
Bonadio's analysis began with the review of certain
information relating to the financial and operational performance of the
Company. The information included financial statements and tax returns of the
Company for the years ended December 31, 1993 through 1997.
Bonadio also utilized information obtained through
analytical reviews of significant accounts, trend analysis, inventory accounting
policies and valuation, management questionnaires and discussions, including an
interview with William S. Gagliano, Executive Vice President, receivable
collection history, business litigation issues, sales analysis, etc. This
information and Bonadio's extensive knowledge of the Company's operating history
was found to be useful in performing the valuation. After it had collected the
information received from the Company or obtained from its own resources,
Bonadio analyzed this information in order to select the methods of valuation
applicable to its appraisal. It arrived at its opinion of value utilizing
generally accepted valuation approaches and methods, including the
capitalization of earnings method. It also considered but did not use the asset
method because the Company does not hold significant tangible assets. The
guideline company method was also considered. However, a publicly traded company
in a similar business with similar operating characteristics could not be
located.
(ii) Objective
The objective of the analysis was to provide an
independent opinion of the fair market value of a minority interest in the
Company's common stock as of a reasonably practicable date and the date chosen
was March 31, 1998. The appraisal report, annexed to this Proxy Statement as
Exhibit B, provides a detailed narrative explanation of the methods, procedures
and calculations used to arrive at Bonadio's opinion of fair market value as of
such date. The purpose of the valuation was to provide a basis for valuing the
stock of the Company for purposes of the Reverse Stock Split. The Bonadio
opinion is the result of a detailed analysis of the Company including data
accumulations, quantitative analysis, financial analysis and selection of
appropriate valuation criteria. All of the these items were combined with
informed professional judgment to produce a reasonable opinion of the fair
market value of the Company's stock. Bonadio's opinion of fair market value
relied on "value in use" or going concern value. This premise assumes that the
Company is an ongoing business enterprise with management operating in a
rational way with a goal of maximizing shareholder value. The Bonadio analysis
considered those facts and circumstances present with respect to the Company at
the valuation
- 15 -
<PAGE>
date of March 31, 1998 and Bonadio stated in its opinion that its opinion of
value would likely be different if another valuation date was used.
(iii) Material Factors Considered
The appraisal report considered the nature and
history of the Company, its marketing activities and marketing strategies, the
Company's competition, its facilities and equipment, its current state of
financing, its management, the stock ownership of the Company and the Company's
expectations for the future, the United States, New York economic conditions and
outlook in general as well as the conditions and outlook for the Company's
specific business, namely, the title insurance industry.
(iv) Capitalization of Earnings
The basic approach to valuing the Company was the
capitalization of earnings method. The rate used to capitalize the earnings of
the Company is the estimated rate of return currently available in the market on
alternative investments with comparable risk. Bonadio's estimate of the
capitalization rate of the Company was 22.7% and is derived from market evidence
and is the sum of the following components: a risk free investment rate, which
is represented by the yield on 20 year U.S. Treasury Bonds as of the valuation
date; a premium for risk which is the sum of the following: an equity risk
premium, an additional premium for the extra risk associated with the size of
the Company, and an additional premium for other risk factors specific to the
Company relating to its operations.
In determining an adjustment for other risk factors
that should be provided for the Company, Bonadio considered the following
primary factors:
o the Company is regional and
dependent on the local economy;
o there are few barriers to
entry;
o most customers are loyal to
their agent, not necessarily the
company their agent works for;
o the company does not
provide specialized or proprietary
services;
o the Company does not
control significant market share in any
market it operates in;
o the Company has a current
ratio of less than 1;
o the Company is highly
leveraged;
o the Company operates in a
mature industry; and
o the Company has not
experienced stable operating margins and
earnings in recent years.
- 16 -
<PAGE>
The following table summarizes how the capitalization
rate of 22.7% was achieved:
Risk-free investment rate 6.0%
Equity risk premium 8.2%
------
Average market return 14.2%
Risk premium for company size 6.0%
Other risk factors 5.0%
------
Discount rate 25.2%
Average growth rate (2.5)%
------
Capitalization Rate 22.7%
======
(v) Discount
For purposes of the valuation, Bonadio applied
discounts to reflect the lack of marketability and the lack of control
associated with a minority interest. In making these discounts, Bonadio noted
that the availability of a marketability discount is based on the inability of
an owner to quickly convert his investment to cash. Despite the fact that the
Company is a public company, trading has been nonexistent since 1989, the stock
is currently listed in the Pink Sheets with virtually no market for its shares,
and consequently for purposes of the valuation, a marketability discount of 10%
was applied.
A minority discount was used to reflect the practical
difficulties that a minority shareholder experiences in influencing management
or affecting liquidation in order to convert his shares to cash. For the purpose
of its valuation, a minority discount of 25% was applied.
In accepting the appraisal report of Bonadio, the
Board of Directors and Affiliated Shareholders noted that each had instructed
Bonadio to prepare a fair valuation of the Company's common stock as of March
31, 1998 for the specific purpose of determining the fair value of the cash
consideration to be paid to Fractional Shareholders in lieu of fractional shares
resulting from the Reverse Stock Split and that it had imposed no limitations on
the scope of any investigation to be undertaken or carried on by Bonadio in
making such appraisal.
The Board of Directors and Affiliated Shareholders
did not structure the Reverse Stock Split to require the approval of at least a
majority of the Company's nonaffiliated Shareholders. Management believed that
such an approach would be extremely cumbersome and ultimately fruitless since
few, if any, nonaffiliated Shareholders have taken any interest, let alone an
active interest, in the Company for over a decade. The Board of Directors and
Affiliated Shareholders noted over the past 10 years, the Company has had
virtually no meaningful contact with its numerous but small Shareholders and
that only a few nonaffiliated Shareholders had exchanged their shares for new
shares as a result of the July, 1992 reverse stock split and/or received the
cash consideration to which they were entitled as a result of such split. See
Proposal Three.
Management did not retain a nonaffiliated independent
representative to act on behalf of nonaffiliated Shareholders in connection with
the proposed Reverse Stock Split. The Board of Directors and Affiliated
Shareholders did not believe that retaining such a representative was justified
in the light of the Company's history, its current size and financial condition
as well as the lack of nonaffiliated Shareholder response to the 1992 reverse
stock split. In addition, management noted that while the Reverse Stock Split,
if approved, would result in the elimination of 1,008 nonaffiliated Shareholders
of record, such nonaffiliated Shareholders
- 17 -
<PAGE>
owned only .46% of the Company's issued and outstanding common stock as of the
record date. Moreover, management did commission Bonadio to opine as to a fair
market value to be paid as cash consideration in connection with the Reverse
Stock Split. The Board of Directors and Affiliated Shareholders concluded that
the retention of Bonadio to perform an appraisal of the Company for the specific
purpose of determining the cash consideration to be paid to Fractional
Shareholders served as an adequate substitute for such representative. The
appraisal report of Bonadio specifically concludes that $12.00 times each
fraction of a share resulting from the Reverse Stock Split constitutes fair
market value and the Board and the Affiliated Shareholders are relying on
Bonadio's opinion in recommending the Reverse Stock Split to the Company's
nonaffiliated Shareholders.
Conflict of Interest
The Board of Directors and Affiliated Shareholders also considered that
the Reverse Stock Split presented potential or actual conflicts of interest
between certain members of the Company's Board of Directors in their capacity as
Affiliated Shareholders and the Company's nonaffiliated Shareholders.
Specifically, it was noted that the Company's Affiliated Shareholders own, as of
the record date, 2,882,861 shares of the Company's issued and outstanding common
stock representing 87.5% of such stock. If the Reverse Stock Split is approved,
1,008 Shareholders of record, owning 15,275 shares or .46% of such stock, will
cease being Shareholders of the Company. Consequently, the percentage of the
Company owned by the Company's Affiliated Shareholders would increase by .59%,
from 87.5% to 88.09%. If the Reverse Stock Split is approved, therefore, the
Affiliated Shareholders' share of any dividends and/or other corporate
distribution, including net proceeds of any liquidating distribution or the net
proceeds generated by the sale of the Company would correspondingly increase.
The Board of Directors and Affiliated Shareholders did not believe that the
percentage increase in the
- 18 -
<PAGE>
Affiliated Shareholders' ownership interest in the Company impacted negatively
upon the fairness of the proposed Reverse Stock Split to nonaffiliated
Shareholders. This conclusion was based on the fact that nonaffiliated
Shareholders have not had and management's belief that for the foreseeable
future, nonaffiliated Shareholders will not have any realistic opportunity to
convert their shares to cash, that the proposed Reverse Stock Split does enable
such Shareholders to realize cash for their shares, and the appraisal report of
Bonadio provides that Bonadio's professional opinion that the cash consideration
to be paid constitutes fair market value for the shares of the nonaffiliated
Shareholders.
THE REVERSE STOCK SPLIT - CERTAIN EFFECTS
If the Reverse Stock Split is approved by the Company's Shareholders,
upon the Effective Date, the number of authorized shares of common stock will be
decreased from 15,000,000 shares with a par value of $.04 per share to 150,000
shares with a par value of $4.00 per share. The number of issued and outstanding
shares of common stock will be decreased, after the elimination of the
fractional shares, from 3,293,403 shares to 32,723 shares. The number of
Shareholders of record will be decreased from 1,194 to 186. Shareholders of the
Company who, after the effectiveness of the Reverse Stock Split, remain as
Shareholders of the Company will have their proportionate interest in the
Company increased from 99.54% to 100%. Each share of common stock owned by
Fractional Shareholders which would upon conversion represent a fraction of a
share will be automatically converted into the right to receive from the
Company, in lieu of fractional shares of common stock, cash in the amount of
$12.00 times the fraction of shares such Fractional Shareholders otherwise would
have received. Shareholders owning less than 100 shares of common stock
immediately prior to the Reverse Stock Split will cease to be Shareholders or
have any equity interest in the Company and, therefore, will not share in its
future earnings and growth, if any, will not have any right to vote on any
future corporate matters, and would not share in liquidation proceeds, if any,
if the Company were to dissolve.
Shareholders who immediately prior to the effectiveness of the Reverse
Stock Split hold fewer than 100 shares of the common stock of the Company may
remain Shareholders by acquiring a sufficient number of shares to raise their
ownership level to 100 or more shares.
The proposed Reverse Stock Split will eliminate 1,008 out of 1,194
record holders of the Company's common stock, representing .46% of the Company's
pre-Reverse Stock Split equity ownership. The following table sets forth
illustrations of the effect of the Reverse Stock Split for Shareholders holding
various representative number of shares:
- 19 -
<PAGE>
Illustrations of the Effect of the Reverse Stock Split
for Shareholders Holding Various Representative Numbers of Shares
<TABLE>
<CAPTION>
Shares Held Fractional Share
Shares Held After 100:1 Payout @ Shares Held
Shareholder Currently Reversal $12/Share After Pay Out
----------- --------- -------- --------- -------------
<S> <C> <C> <C> <C>
A 75 .75 $ 9.00 0
B 99 .99 11.88 0
C 100 1.00 0 1
D 499 4.99 11.88 4
E 2,500 25.00 0 25
F 5,688 56.88 10.56 56
G 15,758 157.88 6.96 157
H 50,000 500.00 0 500
I 369,129 3,691.29 3.48 3,691
J 919,287 9,192.87 10.44 9,192
</TABLE>
The shares of Common Stock are currently registered under the Exchange
Act. Such registration may be terminated by application of the Company to the
Securities and Exchange Commission, if the Company has fewer than 300 record
holders of its shares of common stock. If the Reverse Stock Split is approved,
upon the Effective Date, the Company will have fewer than 300 record holders of
its common stock. The Company currently intends to make an application to the
Securities and Exchange Commission for termination of the registration of its
common stock as promptly as possible after the filing of the Certificate of
Amendment.
Deregistration would substantially reduce the information required to
be furnished by the Company to its Shareholders, would make certain, otherwise
applicable provisions, of the Exchange Act, such as the short-swing profit
recovery provisions of section 16(b) and the requirement of furnishing a proxy
statement in connection with Shareholder meetings pursuant to section 14(a),
inapplicable and would eliminate the requirement that the Company prepare and
file annual, quarterly and current reports under cover of Form 10-K, Form 10-Q
and Form 8-K with the Securities and Exchange Commission.
As a result of the Company's termination of its 1934 Act registration,
the ability of post-Reverse Stock Split Shareholders to locate broker/dealers
willing to enter quotations for the Company's common stock and/or effectuate
trades therein may be severely curtailed since such broker/dealers would not
have access to current information about the Company and its financial
condition. It is management's belief, therefore, that the only realistic way for
continuing Shareholders to realize upon their equity ownership in the Company
would be privately-negotiated
- 20 -
<PAGE>
transactions, a corporate redemption and/or liquidation or management's ability
to locate one or more third-party purchasers for the Company's assets or common
stock.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
After the consummation of the Reverse Stock Split, the Company does not
have any present plans or proposals which relate to or would result in any
extraordinary corporate transaction, such as a merger, reorganization, or
liquidation, involving the Company or any of its subsidiaries; a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; any change in the present Board of Directors or management of the
Company including, but not limited to, any plan or proposal to change the number
or term of directors, to fill any existing vacancy on the Board of Directors or
to change any material term of the employment contract of any executive officer
or any material change in the present dividend rate or policy or indebtedness or
capitalization of the Company. Upon consummation of the Reverse Stock Split, the
assets, business, and operations of the Company will be continued substantially
as they are currently being conducted as more fully set forth in the Company's
annual report (Form 10-K) for the fiscal year ended December 31, 1997.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The receipt by any Fractional Shareholder of cash in lieu of fractional
shares of common stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code").
Under Section 302 of the Code, a Fractional Shareholder will recognize
gain or loss upon receiving cash in lieu of fractional shares of common stock if
(i) the Reverse Stock Split results in a "complete redemption" of all of the
Fractional Shareholder's shares of common stock, (ii) the receipt of cash is
"substantially disproportionate" with respect to the Fractional Shareholder, or
(iii) the receipt of cash is "not essentially equivalent to a dividend" with
respect to the Fractional Shareholder. These three tests are applied by taking
into account not only shares that a Fractional Shareholder actually owns, but
also shares that a Fractional Shareholder constructively owns pursuant to
Section 318 of the Code.
If any one of these three tests is satisfied, the Fractional
Shareholder will recognize gain or loss equal to the difference between the
amount of cash received by the Fractional Shareholder pursuant to the Reverse
Stock Split and the tax basis in the existing shares of common stock owned by
the Fractional Shareholder immediately prior to the Effective Date of the
Reverse Stock Split. Provided that such shares of common stock constitute a
capital asset in the hands of the Fractional Shareholder, this gain or loss will
be taxed at a maximum rate of 20% if the shares of Common Stock have been held
for more than one year and will constitute short-term capital gain or loss if
the shares of Common Stock are held for one year or less.
Pursuant to the constructive ownership rules of Section 318 of the
Code, a shareholder is deemed to constructively own shares owned by certain
related individuals and entities in addition to these shares actually owned by
the shareholder himself. For instance, an individual shareholder is considered
to own shares owned by or for his or her spouse and his or her children,
grandchildren and parents ("Family Attribution"). A shareholder is also
considered to own a proportionate number of shares owned by estates or certain
trusts in which the shareholder has a beneficial interest, by partnerships in
which the shareholder is a partner, and by corporations in which 50% or more of
the value of the stock is owned directly or indirectly by or for such
shareholder. Similarly, shares directly or indirectly owned by beneficiaries of
estates or certain trusts, by partners of partnerships and, under certain
circumstances, by shareholders of corporations may be considered owned by these
entities ("Entity Attribution"). A shareholder is
- 21 -
<PAGE>
also deemed to own shares which the shareholder has the right to acquire by
exercise of an option.
The receipt of cash by a Fractional Shareholder pursuant to the Reverse
Stock Split will result in a "complete redemption" of all of the Fractional
Shareholder shares of common stock, so long as the Fractional Shareholder does
not actually or constructively own any shares of the Company's common stock as a
result of and immediately after the effectiveness of the Reverse Stock Split.
However, even if a Fractional Shareholder constructively owns shares of the
Company's common Stock after the Reverse Stock Split, the receipt of cash may
qualify for capital gain or loss treatment under the "complete redemption" test
provided that (i) the Fractional Shareholder constructively owns shares of
common stock as a result of the Family Attribution rules (or, in some cases, as
a result of a combination of the Family and Entity Attribution rules), and (ii)
the Fractional Shareholder qualifies for a waiver of the Family Attribution
rules (such waiver being subject to several conditions, one of which is that the
Fractional Shareholder has no interest (other than an interest as a creditor) in
the Company immediately after the Reverse Stock Split including an interest as
an officer, director, or employee.
Based upon a review of the Company's stock transfer books as certified
by the Company's Transfer Agent, management believes that most Fractional
Shareholders will qualify for capital gain or loss treatment as a result of
satisfying the "complete redemption" requirements. Consequently, management
believes that most Fractional Shareholders will qualify for long-term capital
gains treatment. However, a number of Fractional Shareholders will receive
shares as well as cash in lieu of fractional shares upon the effectiveness of
the Reverse Stock Split. Such Fractional Shareholders may nevertheless qualify
for capital gain or loss treatment by satisfying either the "substantially
disproportionate" or the "not essentially equivalent to a dividend"
requirements. In general, the receipt of cash pursuant to the Reverse Stock
Split will be "substantially disproportionate" with respect to the Fractional
Shareholder if the percentage of shares of common stock owned by the Fractional
Shareholder immediately after the effectiveness of the Reverse Stock Split is
less than 80% of the percentage of shares of common stock actually and
constructively owned by the Fractional Shareholder immediately before the
Reverse Stock Split. Alternatively, the receipt of cash pursuant to the Reverse
Stock Split will, in general, be "not essentially equivalent to a dividend" if
the Reverse Stock Split results in a "meaningful reduction" in the Fractional
Shareholder's proportionate interest in the Company.
If none of the three tests described above is satisfied, a Fractional
Shareholder receiving cash as a result of the Reverse Stock Split will be
treated under the distribution rules of Section 301 of the Code. Generally,
pursuant to Section 301 of the Code, a distribution of cash by a corporation to
its Shareholders is considered a taxable dividend in an amount equal to the
entire amount of cash received by such Shareholder to the extent of the earnings
and profits, both current and accumulated, of such corporation. Since the
Company has generated earnings in each of its last two fiscal years, Fractional
Shareholders who do not qualify for capital gain or loss treatment under the
above described Section 302 rules will be treated as receiving dividend income
under the distribution rules of Section 301.
The receipt of new shares of common stock by Shareholders as a result
of the Reverse Stock Split in exchange solely for such Shareholders' old shares
of common stock will be a nontaxable transaction for federal income tax
purposes. Consequently, a Shareholder (whether or not a Fractional Shareholder)
receiving new shares of common stock will not recognize gain or loss, or
dividend income, as a result of the Reverse Stock Split with respect to such
shares received. In addition, the basis and holding period attributed to the old
shares of common stock will carry over as the basis and holding period of such
Shareholder's new shares of common stock.
- 22 -
<PAGE>
NO FORMAL OPINION OF TAX COUNSEL WAS OBTAINED WITH RESPECT TO THE MATERIAL TAX
ASPECTS OF THE REVERSE STOCK SPLIT.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF CERTAIN OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THE SHAREHOLDERS WITHOUT REFERENCE TO
THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR SHAREHOLDER. EACH
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE REVERSE STOCK SPLIT
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
- 23 -
<PAGE>
THE REVERSE STOCK SPLIT - EXPENSES
The Company estimates that fees and expenses incurred or to be incurred
by the Company in connection with the Reverse Stock Split will be approximately
$36,333, consisting of the following:
Cash Consideration $ 2,533
Legal Fees 25,000
Accounting Fees 4,800
Printing, Mailing Costs & Filing Fees 4,000
-------
$36,333
The Company has paid or will be responsible for paying all of such expenses. It
will pay such expenses, including the cash consideration, from its general
working capital. It will not borrow any funds to pay these expenses.
THE REVERSE STOCK SPLIT - APPRAISAL RIGHTS
Under the Delaware General Corporation Law, as well as under the
Company's Certificate of Incorporation, as amended, the existing holders of the
Company's common stock are not entitled to dissenters' rights of appraisal in
connection with the consummation of the Reverse Stock Split. The Company is not
voluntarily according such rights. Under the Delaware General Corporation Law,
nonaffiliated Shareholders of the Company are entitled to bring an action that
the Board of Directors, in approving the Reverse Stock Split, violated its
fiduciary obligations to the Company's nonaffiliated Shareholders and was not an
appropriate exercise of the Board's business judgment.
THE REVERSE STOCK SPLIT - RECOMMENDATION OF THE BOARD OF DIRECTORS AND
AFFILIATED SHAREHOLDERS
The Board of Directors and Affiliated Shareholders, at its meeting held
July 28, 1998, considered and reviewed the Reverse Stock Split and concluded
that the Reverse Stock Split is fair and in the best interests of the Company
and its nonaffiliated Shareholders and unanimously approved the Reverse Stock
Split. The Board of Directors and Affiliated Shareholders unanimously recommend
that the Shareholders vote for approval of the Reverse Stock Split. The Board of
Directors and Affiliated Shareholders stated that they would vote the shares
they beneficially own in favor of the Reverse Stock Split. Messrs Frank B.,
Bernard J. and Anthony M. Iacovangelo stated that they would cause the shares
owned by Wegman Building Associates to be voted in favor of the Reverse Stock
Split.
- 24-
<PAGE>
Director/Executive Officer Shares of Common Stock Percent
and Affiliated Shareholders Beneficially Owned of Class
--------------------------- ------------------ --------
Frank B. Iacovangelo 1,219,287 37.02%
Bernard J. Iacovangelo 1,228,687 37.31%
William S. Gagliano 15,758 .48%
Anthony M. Iacovangelo 50,000 1.52%
Wegmans Building Associates 369,129 11.21%
--------- -----
2,882,861 87.54%
Based upon these statements, the Reverse Stock Split will be approved
even if all of the Company's nonaffiliated Shareholders vote against the Reverse
Stock Split.
THE REVERSE STOCK SPLIT - VOTING; VOTE REQUIRED
The proposed Reverse Stock Split must be approved by a vote of not less
than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- 25 -
<PAGE>
PROPOSAL THREE
The Shareholders of the Company will be asked at the Special Meeting to
consider, vote upon and approve Proposal to approve the payment by the Company
of the indebtedness owed to Shareholders owing fractional shares resulting from
the 1 for 4 reverse stock split effective July 29, 1992, together with the
payment of simple interest on the amount of such indebtedness.
On July 29, 1992, the Company's Board of Directors recommended and the
Shareholders approved a 1 for 4 reverse stock split which, upon the Company's
filing of a Restated Certificate of Incorporation on July 31, 1992 with the
Secretary of State of the State of Delaware, became effective on July 31, 1992.
As the result of the 1992 reverse stock split, the number of authorized shares
of the Company's common stock was reduced from 30,000,000 authorized shares with
a par value of $.01 per share to 15,000,000 authorized shares with a par value
of $.04 per share. Each 4 shares of the Company's common stock, $.01 par value
per share, issued and outstanding immediately prior to July 31, 1992 were
automatically converted into 1 share of the Company's common stock with a par
value of $.04 per share.
As part of the 1992 reverse stock split, the Company's Board authorized
and the Company's Shareholders approved a cash payment of $3.00 times the
fraction of a share to which a Shareholder otherwise would have been entitled,
in lieu of the issuance of fractional shares.
The legal effect of the 1992 reverse stock split was to reduce the
outstanding number of shares held by Shareholders as of July 31, 1992 by a
factor of 4. In addition, each Shareholder who owned a fraction of shares of
common stock as a result of the 1992 reverse stock split became a creditor of
the Company to the extent of the fraction times $3.00.
Despite the legal effectiveness of the 1992 reverse stock split, the
overwhelming proportion (97.48%) of the Company's nonaffiliated Shareholders did
not exchange their pre-1992 reverse stock split stock certificates for post-1992
reverse stock split stock certificates and the Company did not make payment of
the cash consideration owing to such Shareholders owning fractions of shares.
In conjunction with its approval of the 1 for 100 Reverse Stock Split
at its meeting held on July 28, 1998, the Board concluded that it would be
appropriate to recommend to the Company's Shareholders that they authorize the
payment by the Company of the indebtedness owed to the Shareholders owning
fractional shares as a result of the 1992 reverse split, together with payment
of simple interest at the rate of 10% per year on the amount of said
indebtedness to the date of payment.
If the current Reverse Stock Split is approved and this Proposal Three
is approved, the Company shall cause its Transfer Agent to request all
Shareholders to tender their stock certificates currently held by them to the
Transfer Agent. Upon the receipt of such certificates, the Transfer Agent shall
issue to those persons who shall remain Shareholders of the Company upon the
effectiveness of the proposed Reverse Stock Split certificates representing the
number of shares owned by them in the Company upon the effectiveness of the
Reverse Stock Split. The Company shall also cause its Transfer Agent to
distribute cash consideration of $3.00 per fractional share plus 10% interest to
the date of payment to those Shareholders who were entitled to such payment as a
result of the 1992 reverse stock split and, in addition, cash consideration of
$12.00 per share to Fractional Shareholders as a result of the proposed Reverse
Stock Split.
- 26 -
<PAGE>
The Company estimates that the amount of cash consideration to be paid
by the Company in connection with this Proposal Three, including payment of
simple interest at the rate of 10% annually calculated from July 31, 1992 to the
estimated date of payment will be approximately $1,700.00.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, at its meeting held July 28, 1998, considered
and reviewed Proposal Three and concluded that Proposal Three is fair and in the
best interests of the Company and its nonaffiliated Shareholders and unanimously
approved Proposal Three. The Board of Directors unanimously recommended that the
Shareholders vote for approval of Proposal Three. The Board of Directors stated
that they would vote the shares they beneficially own in favor of Proposal
Three. Messrs Frank B., Bernard J. and Anthony M. Iacovangelo stated that they
would cause the shares owned by Wegman Building Associates to be voted in favor
of Proposal Three.
Director/Executive Officer Shares of Common Stock Percent
and Affiliated Shareholders Beneficially Owned of Class
--------------------------- ------------------ --------
Frank B. Iacovangelo 1,219,287 37.02%
Bernard J. Iacovangelo 1,228,687 37.31%
William S. Gagliano 15,758 .48%
Anthony M. Iacovangelo 50,000 1.52%
Wegmans Building Associates 369,129 11.21%
---------- -----
2,882,861 87.54%
Based upon these statements, Proposal Three will be approved even if
all of the Company's nonaffiliated Shareholders vote against Proposal Three.
- 27 -
<PAGE>
VOTING; VOTES REQUIRED
The proposed Reverse Stock Split must be approved by a vote of not less
than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
MARKET PRICES FOR SHARES OF COMMON STOCK; DIVIDENDS AND COMMON STOCK
INFORMATION
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
1995, 1996 and 1997 is shown below, as reported by the National Quotations
Bureau, Inc. and as adjusted to reflect the Company's 1 for 4 reverse stock
split which became effective July 31, 1992.
COMMON STOCK DATA
1995 BID ASKED
---- --- -----
1ST Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1996
1ST Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1997
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
* = 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.
The Company's agreement with its Bank placed a restriction on its
payment of dividends and consequently, dividends were declared or paid during
1995, 1996 or 1997.
On December 21, 1998 the Company had 1,194 holders of record of its
common stock.
On September 5, 1996, the Company repurchased 50,000 shares of its
common stock from a former director of the Company at $.50 per share (post-1992
reverse split basis)for a total
- 28 -
<PAGE>
consideration of $25,000 which dollar amount represented the former director's
original purchase price for such shares upon his election as a director in 1988.
The number of shares purchased reflected the 1 for 4 1992 reverse stock split.
As discussed on page 15 of this Proxy Statement, this transaction was taken into
account by Bonadio in making its determination that $12.00 per share represents
a fair market value to be paid as cash consideration to Fractional Shareholders
as a result of the Reverse Stock Split.
DIRECTORS AND EXECUTIVE OFFICERS
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 21, 1998.
<TABLE>
<CAPTION>
Shares of
Position with the Company or Common Stock Percent of
Name Age Principal Occupation Director Since Beneficially owned Class
---- --- -------------------- -------------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Frank B. 58 President and Treasurer (1) 1987 1,588,416 (3) 48.23%
Iacovangelo
Bernard J. 50 Vice President Secretary 1987 1,597,816 (4) 48.51%
Iacovangelo
William S. 48 Executive Vice President and 1992 15,758 .48%
Gagliano Director
Anthony M. 57 President, Director and principal 1987 419,129 (5) 12.73%
Iacovangelo shareholder of Faber
Construction., Inc. Rochester, NY
(2)
All Directors and Officers of the Company as a group (four persons) 2,882,861 (6) 87.54%
</TABLE>
(1) 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 369,129 shares owned
by Wegman Building Associates, a partnership in which Frank Iacovangelo has
shared voting and investment power with respect to the shares owned by the
partnership.
(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 369,129 shares
- 29 -
<PAGE>
owned by Wegman Building Associates, a partnership in which Bernard Iacovangelo
has shared voting and investment power with respect to the shares owned by the
partnership.
(5) Includes 369,129 shares owned by Wegman Building Associates, a partnership
in which Anthony Iacovangelo has shared voting and investment power with respect
to the shares owned by the partnership.
(6) Includes 300,000 shares owned by children of Frank B. Iacovangelo
(beneficial ownership which is disclaimed) 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 (beneficial ownership of
which is disclaimed) and 369,129 shares owned by Wegman Building Associates, a
partnership in which Messrs. Frank, Bernard and Anthony Iacovangelo share voting
and investment power with respect to the shares owned by the partnership. The
369,129 shares owned by Wegman Building Associates is counted only once for
purposes of setting forth the approximate number of shares owned by all
directors and executive officers as a group.
- 30 -
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 21, 1998
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 has sole voting
and investment power with respect to their shares unless otherwise indicated.
Amount and Nature of
Name and Address Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
Frank B. Iacovangelo 1,588,416 (1) (3) 48.23%
39 State Street
Rochester, NY 14614
Bernard J. Iacovangelo 1,597,816 (2) (3) 48.51%
39 State Street
Rochester, NY 14614
Wegman Building Associates 369,129 (3) 11.21%
39 State Street
Rochester, NY 14614
(1) Includes 300,000 shares owned by children of Frank B. Iacovangelo,
beneficial ownership of which is disclaimed. Also includes 369,129 shares owned
by Wegman Building Associates, a partnership in which Frank Iacovangelo has
shared voting and investment power with respect to the shares owned by the
partnership.
(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 369,129 shares owned by Wegman Building
Associates, a partnership in which Bernard Iacovangelo has shared voting and
investment power with respect to the shares owned by the partnership.
(3) Wegman Building Associates is a general partnership in which Messrs. Frank,
Bernard and Anthony Iacovangelo share voting and investment power with respect
to the shares owned by the partnership.
- 31 -
<PAGE>
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The Company hereby incorporates by reference the financial information
contained in Part II, Item 8 of the Company's 1997 10-K/A, the report of the
independent accountants thereon contained in Part II, Item 8 of the 1997 10-K/A,
and Management 's Discussion and Analysis of Financial Condition and Results of
Operations contained in Part II, Item 7 of its 1997 10-K/A.
The Company hereby incorporates by reference the financial information
contained in Part I, Item 1 of the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Part I, Item 2 of the
September, 1998 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements included in the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997 incorporated
by reference in this Proxy Statement, have been audited by Bonadio, independent
public accountants, as indicated in their report with respect thereto. It is
expected that two representatives of Bonadio will be present at the Special
Meeting to respond to appropriate questions of Shareholders of the Company.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
The pro forma consolidated financial information of the Company
attached as Exhibit C to this Proxy Statement is based on and should be read in
conjunction with the consolidated financial statements of the Company as of and
for the year ended December 31, 1997 and as of and for the nine months ended
September 30, 1998, both incorporated by reference (from the Company's 1997 Form
10-K/A, and the September 30, 1998 Form 10-Q) in this Proxy Statement.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable in the
circumstances. The pro forma consolidated financial information purports neither
to represent what the Company's results of operations would actually have been
if the Reverse Stock Split and going private transaction had occurred on January
1, 1997 or September 30, 1998 nor to project the Company's financial position or
results of operations for any future date or period.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements, and
other information with the SEC. Such reports, proxy statements, and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional office of the SEC located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048. Copies of such materials can
also be obtained at prescribed rates by writing to the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The SEC also maintains a web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
Shareholders may obtain a copy of the Company's Annual Report (Form
10-K/A) for the fiscal year ended December 31, 1997 and the Company's Quarterly
Reports (Form 10-Q) for the fiscal quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, as filed with the
- 32 -
<PAGE>
Securities and Exchange Commission, by writing the Company, 370 East Avenue,
Rochester, New York 14604, Attention: William S. Gagliano, Executive Vice
President.
This Proxy Statement includes information required by the SEC to be
disclosed pursuant to Rule 13e-3 under the Exchange Act, which governs so-
called "going private" transactions by certain issuers or their affiliates. In
accordance with that rule, the Company has filed with the SEC, under the
Exchange Act, a Rule 13E-3 Transaction Statement with respect to the Reverse
Stock Split. This Proxy Statement does not contain all of the information set
forth in the Rule 13E-3 Transaction Statement, parts of which are omitted in
accordance with the regulations of the SEC. The Rule 13E-3 Transaction
Statement, and any amendments thereto, including exhibits filed as a part
thereof, will be available for inspection and copying at the offices of the SEC
as set forth above.
VOTING OF PROXIES
The shares represented by all valid Proxies received will be voted in
the manner specified on the Proxies. Where specific choices (including
abstentions) with respect to each Proposal are not indicated, THE SHARES
REPRESENTED BY ALL VALID PROXIES RECEIVED WILL BE VOTED FOR APPROVAL OF THAT
PROPOSAL.
The Board of Directors unanimously recommends that the Shareholders
vote "FOR" Proposals 1, 2 and 3.
By the order of the Board of Directors
-----------------------------------,
BERNARD J. IACOVANGELO, Secretary
- 33 -
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FOUR CORNERS FINANCIAL CORPORATION
FOUR CORNERS FINANCIAL CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. That at a meeting of the Board of Directors of the Corporation, resolutions
were duly adopted setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable and
calling a meeting of the Shareholders of the Corporation for consideration
thereof
2. That thereafter, pursuant to resolution of the Board of Directors of the
Corporation, a special meeting of the Shareholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
3. Article FOURTH of the Corporation's Certificate of Incorporation is hereby
deleted and the following substituted therefor, for the purposes of (a)
increasing the par value per share of the authorized shares of the Corporation,
and (b) decreasing the issued and unissued authorized shares of the Corporation:
FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is One Hundred
Fifty Thousand (150,000) shares of Common Stock have a par
value of $4.00 per share.
4. At 5:00 p.m. on the date of filing this Certificate of Amendment, all issued
shares of Common Stock shall be automatically combined at the rate of
one-for-one hundred and the par value per share thereof shall automatically be
increased from $.04 per share to $4.00 per share, without further action on the
part of the holders thereof or this Corporation. No fractional shares will be
issued.
5. The foregoing amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I have duly signed and executed this Certificate
and affirm under the penalties of perjury that all its contents are true and
complete.
FOUR CORNERS FINANCIAL CORPORATION
Dated: September ____, 1998 By:
-------------------------------
BERNARD J. IACOVANGELO, Secretary
<PAGE>
EXHIBIT B
Valuation Report of the
Fair Market Value of the
Common Stock of
Four Corners Financial Corporation
as of March 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
OPINION OF VALUE
VALUATION REPORT......................................................................................... 1
NATURE AND HISTORY OF THE COMPANY........................................................................ 3
ECONOMIC AND INDUSTRY CONDITIONS......................................................................... 9
FINANCIAL ANALYSIS OF THE COMPANY........................................................................ 10
VALUATION METHODS
METHODOLOGY......................................................................................... 13
CAPITALIZATION OF EARNINGS METHOD................................................................... 14
VALUATION SUMMARY........................................................................................ 17
EXHIBITS:
I. Historical Financial Information of Four Corners Financial Corporation and Subsidiary............ 18
APPENDICES:
A. Assumptions and Limiting Conditions.............................................................. 21
B. Appraisers' Certificate.......................................................................... 22
C. Statements of Qualifications..................................................................... 23 - 24
</TABLE>
<PAGE>
September 30, 1998
Mr. William Gagliano
Four Corners Financial Corporation
370 East Avenue
Rochester, NY 14604
Re: Valuation of Four Corners Financial Corporation
Dear Mr. Gagliano:
We have been engaged by Four Corners Financial Corporation and its wholly owned
subsidiary Four Corners Abstract Corporation (the "Company") to provide our
opinion of the Fair Market Value of a minority interest in the Company as of
March 31, 1998. The valuation is to be used to provide a basis for valuing
company stock for purposes of a stock repurchase.
We have used a valuation date of March 31, 1998 for our report. Based on our
discussions with management, and our further review of the capital markets and
the Company's June 30, 1998 10-Q filing, we believe that the Fair Market Value
of the Company's common stock as of March 31, 1998 reasonably represents its
Fair Market Value as of the current date. Under the terms of the engagement, we
have no responsibility to update this report for events and circumstances which
may occur after the valuation date.
Based on information contained in the detailed narrative report that follows,
which is incorporated herein, it is our opinion that the Fair Market Value of a
minority interest in the Company's common stock as of March 31, 1998 is $.12 per
share before the pending reverse stock split of 1 to 100; or $12 per share after
the pending stock split.
The opinions expressed in this valuation are contingent upon the assumptions and
limiting conditions set forth in Appendix A to the report.
Respectfully submitted,
BONADIO & CO., LLP
by
Thomas F. Bonadio, CPA
by
Douglas P. Sosnowski, CPA
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
VALUATION REPORT
OBJECTIVE
The objective of our analysis is to provide an independent opinion of the Fair
Market Value of the common stock of Four Corners Financial Corporation as of
March 31, 1998. This report provides a detailed narrative explanation of the
methods, procedures, and calculations used to arrive at our opinion of Fair
Market Value. The purpose of this valuation is to provide a basis for valuing
the stock of the Company for purposes of a stock repurchase. Our analysis was
conducted for this purpose only and should not be used for any other purpose.
Our opinion of Fair Market Value is the result of a detailed analysis including
data accumulations, qualitative analysis, financial analysis, and selection of
appropriate valuation criteria. All of the foregoing have been combined with
informed professional judgment to produce a reasonable opinion of Fair Market
Value.
Fair Market Value is defined as the value, expressed in cash or its equivalent,
at which the property would change hands between a willing buyer and a willing
seller when the former is not under any compulsion to buy and the latter is not
under any compulsion to sell, both parties having reasonable knowledge of
relevant facts.
Our valuation of the common stock of Four Corners Financial Corporation as of
March 31, 1998 was performed in a manner consistent with the guidelines set
forth in Revenue Ruling 59-60, C.B. 1959-1, 237. Although this Revenue Ruling
was originally formulated for federal estate and gift tax purposes, its general
approaches, methods, and factors to be considered embody the operational
characteristics that willing buyers and willing sellers consider in buying or
selling stock in most closely held businesses. Although our valuation is
intended to estimate Fair Market Value, the true value can only be determined by
bona fide negotiations between a willing buyer and seller.
In addition, our opinion of Fair Market Value relied on a "value in use" or
going concern premise. This premise assumes that Four Corners Financial
Corporation is an ongoing business enterprise with management operating in a
rational way with a goal of maximizing shareholder value.
Our analysis considers those facts and circumstances present at Four Corners
Financial Corporation at the Valuation Date. Our opinion would likely be
different if another Valuation Date was used.
- 1 -
<PAGE>
APPRAISAL PROCEDURES
Our analysis began with the review of certain information relating to the
financial and operational performance of the Company. This information included
the financial statements and tax returns of the Company for the years ended
December 31, 1993 through 1997.
We also utilized information obtained through analytical reviews of significant
accounts, trend analysis, accounting policies and procedures, management
questionnaires and discussions, receivable collection history, business
litigation issues, sales analyses, etc. This information and our extensive
knowledge of the Company operating history was extremely useful in performing
this valuation.
As part of our procedures, we conducted an interview with William Gagliano,
Executive Vice President of the Company.
After we collected the information received from the Company or obtained from
our own resources as described above, we analyzed this information in order to
select the methods of valuation applicable to this assignment. We arrived at our
opinion of value using generally accepted valuation approaches and methods,
including the capitalization of earnings method. We also considered but did not
use a net asset method because the Company does not hold significant tangible
assets. The guideline company method was also considered. However, a publicly
traded company in a similar business with similar operating characteristics
could not be located.
EXTERNAL SOURCES OF INFORMATION
To aid us in our analysis of the Company, we consulted a number of publicly
available sources of information. Numerous financial publications and databases
were consulted including the EDGAR database of the Securities and Exchange
Commission, MergerStat Review, Hoover's Online, and Ibbotson Associates' Stocks,
Bonds, Bills and Inflation 1998 Yearbook.
We also obtained information concerning the title insurance industry from
various sources including the 10-K filings and Annual Reports of insurance
underwriters.
These sources, together with the other analyses referred to later in this
report, form the basis of our comments concerning the Company and its industry.
- 2 -
<PAGE>
NATURE AND HISTORY OF THE COMPANY
HISTORY AND OPERATIONS
Four Corners Financial Corporation is a holding company which was incorporated
in the state of New York in 1974. The Company acquired its wholly owned
subsidiary, Four Corners Abstract Corporation, on April 12, 1988. The Company
operates from its home office in Rochester, New York and five branch offices
located in Albany, Buffalo, Syracuse, Utica and Binghamton, New York.
The Company through its subsidiary, provides services and products including
real estate title searching, preparation of abstracts of title, and issuance of
title insurance as an agent for certain national underwriting companies. Other
services and products include abstract storage and settlement/escrow closing
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.
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.
Through its Corporate Customer Service Department located in Rochester, New
York, using a statewide network of service providers, the Company is able to
perform these title services virtually anywhere in New York State.
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.
The Company's products and services are categorized as abstracts, title
insurance, and appraisals. Each category is described below.
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 interest which may affect the ownership interest
in, or title to, real property. Such interests may include real property taxes,
corporation 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.
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.
- 3 -
<PAGE>
HISTORY AND OPERATIONS (Continued)
Abstracts (Continued) -
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 15,000 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.
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.
Other public record searches provided by the Company include guaranteed tax
searches, foreclosure certificates of title, surrogate court searches, UCC
financial 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.
Due to the increasing number of residential bank foreclosures, the Company has
seen a significant increase in revenues from the sale of foreclosure related
title search products. The Company's ability to provide these services on a
statewide basis has enhanced its market penetration in the foreclosure area.
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 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.
- 4 -
<PAGE>
HISTORY AND OPERATIONS (Continued)
Title Insurance (Continued) -
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, 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 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.
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.
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 part 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 agency 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.
- 5 -
<PAGE>
HISTORY AND OPERATIONS (Continued)
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.
Since that time, appraisals were 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 did not have a direct branch operation, the Company procured
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-know, professional
residential/commercial real estate appraisal company located in Rochester, New
York.
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 has and will continue to realize a
substantial savings in payroll and other overhead expense associated with
running its appraisal operation.
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. Since the signing of this agreement, all of the Company's appraisals
were performed by Rynne, Murphy & Associates, Inc. for which the Company was
paid a commission for the placement of orders. However, since the Company's
marketing efforts have de-emphasized appraisal products in favor of more
profitable product lines, associated appraisal orders and revenues have
decreased significantly. As a result, the Company is currently only receiving
the guaranteed payment of $1,250 per quarter payable under the agreement with
Rynne, Murphy and Associates.
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 two employees
under the direction of the Company's Director of Sales and Marketing. Assistance
and technical support is provided by all of the Company's branch office
managers. Other 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 a 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.
- 6 -
<PAGE>
COMPETITION
The title insurance industry is highly competitive The competition for potential
customers are from 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.
Primary factors which effect competition are timeliness and quality of service.
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 principle means of developing and maintaining such relationships.
FACILITIES AND EQUIPMENT
The Company leases its home office from an affiliated partnership. The building
contains approximately 9,000 square feet. Annual rent is $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-party.
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),
Binghamton (760 square feet), Utica (1,611 square feet) and Oswego (350 square
feet).
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.
FINANCING
The Company has adequate financing. The Company has a stable relationship with a
regional bank which has provided funding for capital expenditures and working
capital needs.
MANAGEMENT
William S. Gagliano is the Executive Vice President and is responsible for
day-to-day operations of the Company Mr. Gagliano has been in the title
insurance industry since joining the Company in 1987.
- 7 -
<PAGE>
STOCK OWNERSHIP
Four Corners Financial Corporation has a single class of common stock with
15,000,000 shares authorized; 3,348,403 shares issued; and 3,293,403 shares
outstanding at March 31, 1998.
The Company is presently in the process of adopting an amendment to the
Company's restated Certificate of Incorporation providing for a reduction of the
number of authorized shares to 150,000. This reduction will be accomplished
through a 1 for 100 reverse stock split of the Company's common stock.
The stock is distributed as follows at March 31, 1998:
<TABLE>
<CAPTION>
Shares --%--
------ -----
<S> <C> <C>
Frank Iacovangelo & Affiliates 1,219,287 37.02%
Bernard Iacovangelo & Affiliates 1,228,687 37.31%
William S. Gagliano 15,758 .48%
Wegman Building Associates 369,129 11.20%
Anthony M. Iacovangelo 50,000 1.52%
CEDE & Co. 127,439 3.90%
Others (approx. 1,200) 283,103 8.57%
---------- ------
3,293,403 100.00%
========== ======
</TABLE>
The reverse stock split discussed above will reduce the number of shares
outstanding to 32,723 (after the elimination of fractional shares). The
ownership percentages reflected above will not change as a result of this event.
COMPANY EXPECTATIONS
The Company operates in a mature industry with few barriers to entry. The
Company does not intend to compete in new markets or offer additional services.
Consequently, the Company believes it has reached a level of consistent
earnings. The Company's growth and future operating results are expected to
increase at the rate of inflation.
- 8 -
<PAGE>
ECONOMIC AND INDUSTRY CONDITIONS
United States Economic Outlook
The U.S. economy is currently in a period of growth and expansion which is
expected to continue through 1998. The increase in consumer spending was 5.6% in
1997. Economists predict a 4.4% increase in consumer spending during 1998.
Another measure of economic growth is the increase in real disposable income.
The increase in real disposable income was 2.9% in 1997 and forecasted at 3.6%
in 1998. If the predictions are accurate, 1998 would be the highest increase in
real disposable income in eight years. The unemployment rate is at its lowest
level in over eight years. Housing starts were a record $1.48 million units in
1996 and $1.43 million units in 1997. Starts for 1998 are forecasted to remain
the same.
New York Economic Outlook
The New York economy is also expanding although at a slower rate than the U.S.
economy as a whole. Disposable income is expected to increase as wages increase
while consumer prices remain stable. The unemployment rate in the Rochester and
surrounding area was 4% during March, 1998. Unemployment is expected to
increase, but should not exceed the U.S. rate of 4.9%. Houses sold has decreased
from prior years while, due to refinancing, mortgage filings have increased.
There is little pent-up demand for housing in New York State. Therefore,
increases in residential construction should be minimal over the next five
years. The market for existing home sales is expected to remain stable.
Outlook for the Title Insurance Industry
The outlook for the industry is dependent upon the level of real estate activity
and the average price of real estate sales. Due to an increase in family income
levels and decline of mortgage interest rates, the near-term outlook for real
estate activity is fairly positive. However, in New York, many areas are
experiencing reductions in population as more jobs become available in the South
and Mid-West. Consequently, the outlook for real estate activity in New York is
not expected to increase.
Title researches and title insurance sales are increasing as the number of
refinanced mortgages are increasing. Demand is expected to be higher once real
estate closings become part of the deal.
- 9 -
<PAGE>
FINANCIAL ANALYSIS OF THE COMPANY
An analysis of the Company's historical sales trends, earnings growth and
financial conditions serves to place its financial performance in a historical
context and provides a starting point for estimating the Company's future
financial performance. This analysis is an essential step in our valuation.
Exhibit I presents the Company's comparative financial statements for 1993
through 1997.
BALANCE SHEET
The assets of the Company were fairly steady from 1993 through 1997 due to the
stability of the Company's operations as well as real estate market conditions.
At March 31, 1998, the Company's condensed balance sheet was as follows :
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash and equivalents $ 29,074
Cash - escrow deposits 32,662
Accounts receivable 670,251
Other 8,483
Title plant 419,905
Property and equipment, net 114,663
Other assets 6,627
---------------
$ 1,281,665
===============
LIABILITIES AND EQUITY
Line-of-credit $ 100,000
Accounts payable 389,055
Escrow deposits 32,662
Accrued expenses 42,263
Long-term debt 266,890
Equity 450,795
---------------
$ 1,281,665
===============
</TABLE>
The historical financial information presented above is included solely to
assist in the development of the value conclusion presented in this report, and
it should not be used to obtain credit or for any other purpose. Because of the
limited purpose of this presentation, it may be incomplete and contain
departures from generally accepted accounting principles. We have not audited,
reviewed, or compiled this presentation and express no assurance on it.
- 10 -
<PAGE>
INCOME STATEMENT
Operating results for the twelve months ended March 31, 1998 are summarized on a
normalized basis as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenue $ 4,095,133
Direct costs of revenue (862,662)
---------------
Gross profit 3,232,451
---------------
Operating expenses (2,735,665)
---------------
Income from operations 496,786
Interest, net (41,569)
---------------
Pre-tax net income $ 455,217
===============
</TABLE>
This summary of operating results includes normalization adjustments made solely
to assist in the development of the value conclusions presented in this report.
Normalization adjustments are hypothetical in nature and are not intended to
present restated historical results or forecasts of the future in accordance
with AICPA standards. Adjustments were made to more accurately reflect the
normal operations of the Company.
ADJUSTMENTS TO FINANCIAL STATEMENTS
Balance Sheet -
We analyzed the balance sheet to determine the existence of any non-operating
assets or assets with a fair value in excess of book value. In connection with
this analysis, we reviewed the 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.
We determined that the fair value of the asset is equal to identifiable costs
incurred related to the activities necessary to construct the title plant. No
adjustment was required as a result of this analysis.
Income Statement -
We analyzed the income statement to determine the existence of non-recurring
expenses and costs which do not relate to operations. The following adjustments
were required:
Extraordinary Items
Extraordinary items represent income earned on debt forgiveness. These gains
were realized in 1994 and 1997 and are not expected to occur in the future.
Provision for Income Taxes
The provision for income taxes has reflected the use of net operating loss
carryforwards which have been fully utilized at March 31, 1998. The provision
for income taxes was adjusted to reflect the federal and state tax rates
expected to apply to future taxable income.
- 11 -
<PAGE>
ADJUSTMENTS TO FINANCIAL STATEMENTS (Continued)
Loss on Disposal of Property
The Company does not currently own any obsolete or unused equipment. Past
property disposals are considered to be non-recurring events.
Bad Debt Expense
Bad debt expense includes the increase and reduction of the allowance for
doubtful accounts recorded in accounts receivable. Historically, the Company has
experienced losses due to uncollectibility on approximately 2% of annual sales.
The adjustment to bad debt expense reflects a more accurate amount for bad debts
based on sales volume.
Consulting Expense
A non-recurring charge for outside consultants was incurred in 1993. This
expense is not expected to occur in the future.
Depreciation
Historical depreciation expense reflects the depreciation of old assets which
are currently fully depreciated but are not expected to be replaced. The
adjustment to depreciation expense reflects the Company's expectation of future
property and equipment additions.
Amortization of Intangibles
The Company recorded intangible assets in connection with the acquisition of
certain branch offices. The amortization of these assets was completed in 1995.
- 12 -
<PAGE>
VALUATION METHODS
METHODOLOGY
There are many factors that must be considered in the valuation of a business
enterprise. Among them is the pattern of historical performance and earnings,
the company's competitive market position, experience and quality of management,
marketability and others. These factors are embraced by the Internal Revenue
Service's Revenue Ruling 59-60 which outlines relevant considerations to be used
as a valuation guideline:
1. The nature of the business and the history of the enterprise from its
inception.
2. The economic outlook in general and the condition and outlook of the
industry in particular.
3. The book value of the stock and the financial condition of the
business.
4. The earning capacity of the Company.
5. The dividend-paying capacity.
6. Whether or not the enterprise has goodwill or other intangible value.
7. Sales of the stock and the size of the block of stock to be valued.
8. The market price of stocks of corporations engaged in the same or
a similar line of business having their stocks traded in a free
and open market, either on an exchange or over the counter.
The factors, guidelines, techniques and considerations outlined in Revenue
Ruling 59-60 are often categorized into three distinct approaches for valuing
the stock of privately-held companies. Accordingly, the development of a Fair
Market Value opinion is based on the utilization of three basic approaches to
value, namely the Income Approach, which uses the capitalized or discounted
future returns methods, the Market Approach, and the Asset Based Approach. Other
methods, such as the excess earnings method, do not fall under one of these
approaches but may be useful in developing the Fair Market Value opinion. Value
indications derived through the applicable methods under each approach are then
analyzed in association with specific entity, economic and industry data to
formulate an objective opinion as to the Fair Market Value of the particular
equity interest of the subject business.
The following sections of this report will describe the methods used to
calculate the Fair Market Value of the subject interest. As discussed
previously, we have used a capitalization of earnings method in estimating a
value for the Company.
- 13 -
<PAGE>
CAPITALIZATION OF EARNINGS METHOD
A commonly used approach to the valuation of closely-held securities is the
capitalization of adjusted earnings. Whether a potential buyer of a closely-held
company is looking for future growth or current income, they will rely heavily
on the earnings record of the company, as reflected in the income statement.
To capitalize earnings, we multiplied adjusted earnings by a factor appropriate
for the particular company at the determined valuation date. The rate of return
was determined based on the risk involved.
The measurement of earnings which we focused on for this business valuation is
adjusted net income.
We adjusted earnings to reflect the current earning power of the business. We
reviewed all expenses, including compensation, rents, non-recurring expenses and
depreciation and made the appropriate adjustments.
Capitalization Rate -
The rate used to capitalize the earnings of the Company is the estimated rate of
return currently available in the market on alternative investments with
comparable risk. Our estimate of the capitalization rate of 22.7% is derived
from market evidence and is the sum of the following components:
1. A risk-free investment rate, which is represented by the yield on 20-year
U.S. Treasury Bonds as of the valuation date.
2. A premium for risk, which is the sum of the following:
a. An equity risk premium, which is the expected premium over the
risk-free rate that investors expect to get by investing in a
broad index of the common stock market (such as Standard & Poor's
stock composite average), modified by the market's perceived
measure of relative risk for the subject industry.
b. An additional premium for the extra risk associated with the size
of the Company.
c. An additional premium for other risk factors specific to the
Company relating to its operations.
In determining an adjustment for other risk factors that should be
provided for Four Corners Financial Corporation we considered the
following primary factors:
o The Company is regional and is dependent on the local economy.
o There are few barriers to entry.
o Most customers are loyal to their agent, not necessarily the
company their agent works for.
o The Company does not provide specialized or proprietary services.
o The Company does not control significant market share in any market
it operates in.
o The Company has a current ratio of less than 1.
o The Company is highly leveraged.
o The Company operates in a mature industry.
o The Company has not experienced stable operating margins and
earnings in recent years.
The interest rate on long-term U.S. Treasury Bonds was 6.0% on the valuation
date.
- 14 -
<PAGE>
CAPITALIZATION OF EARNINGS METHOD (Continued)
We have assigned a basic equity risk premium as of the valuation date of 8.2%.
This premium is based on an average buyer's demand for higher return on equity
investments in the U.S. stock market as opposed to risk-free investments. In
addition, we have assigned a risk premium of 6.0% for the Company's relatively
small size.
Finally, we added a risk premium of 5.0% for the specific risks associated with
Four Corners Financial Corporation's operations
The following table summarizes the build-up of the capitalization rate:
Risk-free investment rate 6.0%
Equity risk premium 8.2%
-----
Average market return 14.2%
Risk premium for company size 6.0%
Other risk factors 5.0%
-----
Discount rate 25.2
Average growth rate (2.5)%
------
Capitalization Rate 22.7%
======
DISCOUNTS
Once the fair market value of the Company was determined, we considered the need
to adjust that value for other reasons. For the purpose of this valuation, we
applied discounts to reflect a lack of liquidity, and the lack of control
associated with a minority interest.
The availability of the illiquidity discount is based on the inability of an
owner to quickly convert his investment to cash. The discount used is based on
various studies performed in this area. These studies focus on the actual
discounts realized on sales of restricted shares of publicly traded companies
and sales of closely-held company shares compared to the prices of subsequent
initial public offerings of those shares. In the case of Four Corners Financial
Corporation, the Company is a public company. However, trading has been limited
since 1989. The stock is currently listed in pink sheets with virtually no
market for its shares. Consequently, an illiquidity discount is applicable for
this valuation, although this discount is less than it would be if the company
was not publicly traded. For the purpose of this valuation, we applied an
illiquidity discount of 10%.
A minority discount is used to reflect the practical difficulties that a
minority shareholder experiences in influencing management or affecting
liquidation in order to convert his shares to cash. Usual discounts vary
nationwide, but fall in the range of 10% - 50%. For the purpose of this
valuation, we applied a minority discount of 25%.
- 15 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
CAPITALIZATION OF EARNINGS METHOD
<TABLE>
<CAPTION>
Expected
Future
1993 1994 1995 1996 1997 Earnings
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 56,013 $(469,030) $ 97,384 $ 85,718 $ 202,238
Adjustments:
Extraordinary items - (65,000) - - (14,100)
Provision for income taxes (21,083) (46,851) (59,846) (48,295) (103,862)
Loss on disposal of property - 14,932 40,596 - 7,836
Bad debt expense (83,030) 26,087 (769) 40,039 36,532
Consulting expense 26,991 - - - -
Depreciation 77,287 78,839 64,647 48,995 28,854
Amortization of intangibles 16,501 14,603 14,655 - -
--------- --------- -------- -------- ---------
Adjusted net income 72,679 (446,420) 156,667 126,457 157,498
--------- --------- -------- -------- --------- ----------
Earnings representative of expected future
earnings $ 161,000(1)
Capitalization factor 4.405
Capitalization of earnings valuation $ 709,200
=========
</TABLE>
(1) When using a capitalization of earnings method, the amount capitalized is
the earnings which are most similar to what is expected to exist in the
future. The simple average of historical earnings was $13,400 while 1998
net income is expected to exceed $200,000. Expected future net income was
determined based on management's belief that income levels achieved during
1997 and the first quarter of 1998 can be achieved and will grow at the
rate of inflation. Therefore, the amount capitalized was $161,000.
- 16 -
<PAGE>
VALUATION SUMMARY
The indicated value of the Company's operations under the method selected as of
March 31,1998 is $709,200.
The operating value of the Company after the application of applicable discounts
is calculated as follows:
Capitalization of earnings method $ 709,200
Less: Discount for lack of liquidity (10%) (70,900)
----------
638,300
Less: Minority interest discount (25%) (159,600)
----------
Operating value of a minority interest in the Company $ 478,700
==========
Tangible Net Worth Adjustment
In order to determine the total value of the Company, it is necessary to adjust
the value for excess or insufficient equity. Based on an analysis of the
financial position of Four Corners Financial Corporation, we determined that
sufficient equity is approximately $534,500 at March 31, 1998. The unadjusted
stockholders' equity of Four Corners Financial Corporation at March 31, 1998 was
$450,800. The required tangible net worth adjustment is $83,700 calculated as
follows:
Stockholders' equity - unadjusted $ 450,800
Required equity (534,500)
----------
Tangible net worth adjustment $(83,700)
==========
The resulting value of the Company using the capitalization of earnings method
is calculated as follows:
Operating value of the Company $ 478,700
Insufficient equity (83,700)
----------
Value of 100% of the common stock on a minority interest basis 395,000
Divide by number of shares outstanding 3,293,733
----------
Per share value $ .12
==========
- 17 -
<PAGE>
Exhibit I
HISTORICAL FINANCIAL INFORMATION OF
FOUR CORNERS FINANCIAL CORPORATION
- 18 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
HISTORICAL BALANCE SHEET COMPARISON
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash $ 99,652 $ 28,932 $ 62,791 $ 36,612 $ 92,623
Cash - escrow deposits 48,873 70,633 90,403 74,540 240,465
Accounts receivable 843,377 478,094 465,181 510,762 573,623
Other 41,077 16,900 15,816 13,414 11,569
------------- ------------- ------------- ------------- -------------
Total current assets 1,030,979 594,559 634,191 635,328 918,280
------------- ------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT, net 399,053 305,358 195,940 142,523 110,240
------------- ------------- ------------- ------------- -------------
OTHER ASSETS 44,129 47,971 42,872 27,378 6,627
------------- ------------- ------------- ------------- -------------
TITLE PLANT 330,298 367,283 367,283 419,905 419,905
------------- ------------- ------------- ------------- -------------
$ 1,804,459 $ 1,315,171 $ 1,240,286 $ 1,225,134 $ 1,455,052
============= ============= ============= ============= =============
CURRENT LIABILITIES:
Line-of-credit $ 140,000 $ 50,000 $ 35,000 $ 50,000 $ 100,000
Current portion of notes payable 114,629 106,745 331,211 97,050 102,559
Current portion under capital lease
lease obligation 42,220 45,805 32,738 - -
Accounts payable 361,175 455,866 393,179 425,697 373,843
Accounts payable - related parties 65,663 - 20,000 21,400 19,907
Escrow deposits 46,873 70,633 90,403 74,540 240,465
Other accrued expenses 93,520 63,639 50,886 63,953 107,779
Accrued income taxes 6,600 - 1,500 1,500 3,296
Current portion of subordinated debt
due to officer/principal stockholder - - 27,500 18,000 18,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 870,680 792,688 982,417 752,140 965,849
------------- ------------- ------------- ------------- -------------
LONG-TERM LIABILITIES:
Notes payable, net of current portion 244,096 330,937 1,674 140,171 91,642
Obligations under capital lease, net 62,432 33,325 590 - -
Subordinated debt due to
officer/principal stockholder 200,000 200,000 200,000 216,500 79,000
------------- ------------- ------------- ------------- -------------
Total long-term liabilities 506,528 564,262 202,264 356,671 170,642
------------- ------------- ------------- ------------- -------------
Total liabilities 1,377,208 1,356,950 1,184,681 1,108,811 1,136,491
------------- ------------- ------------- ------------- -------------
STOCKHOLDERS' INVESTMENT 427,251 (41,779) 55,605 116,323 318,561
------------- ------------ ------------- ------------- -------------
$ 1,804,459 $ 1,315,171 $ 1,240,286 $ 1,225,134 $ 1,455,052
============= ============= ============= ============= =============
</TABLE>
The historical financial information presented above is included solely to
assist in the development of the value conclusion presented in this report, and
it should not be used to obtain credit or for any other purpose. Because of the
limited purpose of this presentation, it may be incomplete and contain
departures from generally accepted accounting principles. We have not audited,
reviewed or compiled this presentation and express no assurance on it.
- 19 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
HISTORICAL INCOME STATEMENT COMPARISON
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE $ 5,828,136 $ 4,779,546 $ 3,822,215 $ 3,706,778 $ 3,789,864
COST OF REVENUE (978,868) (1,045,319) (798,897) (770,834) (814,035)
------------- ------------- ------------- ------------- -------------
Gross profit 4,849,268 2,734,227 3,023,318 2,935,944 2,975,829
OPERATING EXPENSES (4,717,398) (4,228,331) (2,811,810) (2,786,219) (2,733,595)
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 131,870 (494,104) 211,508 149,725 242,234
LOSS ON DISPOSAL OF PROPERTY - (14,932) (40,596) - (7,836)
INTEREST, NET (66,063) (71,845) (72,028) (60,661) (45,560)
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 65,807 (580,881) 98,884 89,064 188,838
BENEFIT FROM (PROVISION FOR)
INCOME TAXES (9,794) 46,851 (1,500) (3,346) (700)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 56,013 (534,030) 97,384 85,718 188,138
EXTRAORDINARY ITEMS - 65,000 - - 14,100
------------- ------------- ------------- ------------- -------------
NET INCOME $ 56,013 $ (469,030) $ 97,384 $ 85,718 $ 202,238
============= ============= ============= ============= =============
</TABLE>
The historical financial information presented above is included solely to
assist in the development of the value conclusion presented in this report, and
it should not be used to obtain credit or for any other purpose. Because of the
limited purpose of this presentation, it may be incomplete and contain
departures from generally accepted accounting principles. We have not audited,
reviewed, or compiled this presentation and express no assurance on it.
- 20 -
<PAGE>
===============================================================================
APPENDIX A
ASSUMPTIONS AND LIMITING CONDITIONS
===============================================================================
This valuation is subject to the following assumptions and limiting conditions:
1. Information, estimates, and opinions contained in this report are
obtained from sources considered to be reliable. However, we assume no
liability for such sources.
2. The Company and its representatives warranted to us that the information
they supplied was complete and accurate to the best of their knowledge
and that the financial statement information reflects the Company's
results of operations and financial condition in accordance with
generally accepted accounting principles, unless otherwise noted.
Information supplied by management has been accepted as correct without
further verification, and we express no opinion on that information.
3. Possession of this report, or a copy thereof, does not carry with it the
right of publication of all or part of it, nor may it be used for any
purpose by anyone but the client and shareholders of the Company without
the previous written consent of the client or us and, in any event, only
with proper attribution.
4. We are not required to give testimony in court, or be in attendance
during any hearings or depositions, with reference to the Company being
valued, unless previous arrangements have been made.
5. The various estimates of value presented in this report apply to this
valuation only and may not be used out of the context presented therein.
This valuation is valid only for the purpose or purposes specified
herein.
6. This valuation reflects facts and conditions existing at the valuation
date. Subsequent events have not been considered, and we have no
obligation to update our report for such events and conditions.
- 21 -
<PAGE>
===============================================================================
APPENDIX B
APPRAISERS' CERTIFICATE
===============================================================================
We certify that, to the best of our knowledge and belief:
o The statements of fact contained in this report are true and correct.
o The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
o Our analyses, opinions and conclusions were developed, and this report
was prepared, in conformity with Uniform Standards of Professional
Appraisal Practice.
o We have no present or prospective interest in the property that is the
subject of this report and we have no personal interest or bias with
respect to the parties involved.
o Our compensation is not contingent on an action or event resulting from
the analyses, opinions, conclusions in, or the use of this report.
o This report was prepared under the direction of Thomas F. Bonadio, CPA,
with significant professional assistance from Douglas P. Sosnowski, CPA.
- 22 -
<PAGE>
===============================================================================
APPENDIX C
STATEMENT OF QUALIFICATIONS
===============================================================================
Thomas F. Bonadio, CPA
Position:
Managing Partner of Bonadio & Co., LLP, Certified Public Accountants, Rochester,
New York.
Profile:
Mr. Thomas F. Bonadio is a native of Rochester and has a B.B.A. degree in
Accounting from St. John Fisher College. After graduation in 1971, he joined the
Small Business Division of Arthur Andersen & Co.'s Rochester office. He
specialized in providing business advice to closely-held companies and their
owners.
Mr. Bonadio left Arthur Andersen & Co. in 1978 and became a founding partner of
the firm. Since that time, he has devoted his efforts to servicing closely-held
entities in the Rochester area.
Mr. Bonadio is active in community life, serving as a Commissioner of the Monroe
County Case Commission, Monroe County Jobs Creation Task Force and on the St.
John Fisher College Alumni Activities Committee. He was certified in 1973 and is
a member of the American Institute of Certified Public Accountants. He has
served on the adjunct faculty of the Rochester Institute of Technology and as a
Trustee and Chairman of the Accounting Advisory Board of St. John Fisher
College.
Specialty Areas:
Strategic Business Planning
Sales and Acquisitions of Businesses
Banking Relationships, Securing Bank Financing
Capital Formation
- 23 -
<PAGE>
===============================================================================
APPENDIX C
STATEMENT OF QUALIFICATIONS
===============================================================================
Douglas P. Sosnowski, CPA
Position:
Manager of Business Valuation Services Group of Bonadio & Co., LLP, Certified
Public Accountants, Rochester, New York.
Education:
Graduated with honors from the State University of New York at Buffalo with a
B.S. in Accounting (1989). Continuing professional education credits have been
earned through the AICPA's Certificate of Educational Achievement Program for
Business Valuation.
Professional Affiliations:
American Institute of Certified Public Accountants (AICPA).
New York State Society of Certified Public Accountants (NYSSCPA).
Institute of Management Accountants (IMA).
National Association of Certified Valuation Analysts (NACVA).
Institute of Business Appraisers (IBA).
Community Affiliations:
Member of Kiwanis International
Member of the Board of Directors of the Rochester Family Resource Centers.
Treasurer of the Webster Avenue Family Resource Center.
Professional History:
Auditing and small business consulting (1989 - 1998).
Relevant Experience:
Mr. Sosnowski's experience includes consulting with closely-held corporations
and professional partnerships. He has been involved in the preparation of
business valuations in connection with ESOPs, estate planning, succession
planning, buy/sell agreements and mergers & acquisitions.
- 24 -
<PAGE>
EXHIBIT C
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
The following pro forma balance sheet has been derived from the balance sheet of
the Company at September 30, 1998 and adjusts such information to give effect to
the 1 for 100 reverse stock split and redemption of certain fractional shares of
common stock as if the 1 for 100 reverse stock split and redemption of certain
fractional shares of common stock had occurred at January 1, 1997. The pro forma
balance sheet is presented for informational purposes only and does not purport
to be indicative of the financial condition that actually would have resulted if
the 1 for 100 reverse stock split and redemption of certain fractional shares of
common stock had been consummated at January 1, 1997. The pro forma balance
sheet should be read in conjunction with the notes thereto and the Company's
consolidated financial statements and related notes thereto incorporated by
reference in this proxy statement.
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 270,402 $ - $ 270,402
Cash - escrow deposits 304,866 - 304,866
Accounts receivable, net of allowance for doubtful accounts
of $174,000 and $90,000 in 1998 and 1997, respectively 519,262 - 519,262
Prepaid expenses 2,985 - 2,985
------------ ------------ ------------
Total current assets 1,097,515 - 1,097,515
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net 174,645 - 174,645
------------ ------------ ------------
OTHER ASSETS:
Security deposits 6,627 - 6,627
------------ ------------ ------------
6,627 - 6,627
------------ ------------ ------------
TITLE PLANT 419,905 - 419,905
------------ ------------ ------------
$ 1,698,692 $ - $ 1,698,692
============ ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Line-of-credit $ 90,000 $ - $ 90,000
Current portion of notes payable 21,257 - 21,257
Current portion of capital leases 10,529 10,529
Current portion of subordinated debt due to
officer/stockholder 18,000 - 18,000
Accounts payable 256,020 4,232 2 295,252
35,000 3
Accounts payable - related parties - - -
Escrow deposits 304,866 - 304,866
Accrued income taxes 3,296 - 3,296
Other accrued expenses 40,499 - 40,499
------------ ------------ ------------
Total current liabilities 744,467 39,232 783,699
------------ ------------ ------------
LONG-TERM LIABILITIES, net of current portion:
Notes payable 32,154 - 32,154
Capital lease 31,805 31,805
Subordinated debt due to officer/stockholder 43,000 - 43,000
------------ ------------ ------------
Total long-term liabilities 106,959 - 106,959
------------ ------------ ------------
Total liabilities 851,426 39,232 890,658
------------ ------------ ------------
STOCKHOLDERS' INVESTMENT1
Common stock; $4.00 par value; 150,000 shares
authorized; 33,273 issued and 32,723 shares outstanding 133,752 (857)2 132,895
Additional paid-in capital 835,402 (2,665)2 797,737
(35,000)3
Accumulated deficit (91,263) (710)2 (91,973)
Treasury stock at cost; 550 shares (30,625) - (30,625)
------------ ------------ ------------
Total stockholders' investment 847,266 (39,232) 808,034
------------ ------------ ------------
$ 1,698,692 $ - $ 1,698,692
============ ============ ============
</TABLE>
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
The following pro forma statements of income have been derived from the
statements of income of the Company for the year ended December 31, 1997 and the
nine months ended September 30, 1998 and adjust such information to give effect
to the 1 for 100 reverse stock split and redemption of certain fractional shares
of common stock as if the 1 for 100 reverse stock split and redemption of
certain fractional shares of common stock had occurred on January 1, 1997. The
pro forma statements of income are presented for informational purposes only and
do not purport to be indicative of the results of operations that actually would
have resulted if the 1 for 100 reverse stock split and redemption of certain
fractional shares of common stock had been consummated on January 1, 1997, nor
which may result from future operations.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Pro Forma
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums $ 1,318,443 $ - $ 1,318,443
Abstract and appraisal fees 2,471,421 - 2,471,421
------------- ------------- --------------
3,789,864 - 3,789,864
------------- ------------- --------------
DIRECT COSTS OF REVENUE:
Title insurance premiums (310,614) - (310,614)
Abstract and appraisal services (503,421) - (503,421)
------------- ------------- --------------
(814,035) - (814,035)
-------------- ------------- --------------
Gross profit 2,975,829 - 2,975,829
OPERATING EXPENSES (2,733,595) - (2,733,595)
------------- ------------- --------------
Income from operations 242,234 - 242,234
------------- ------------- --------------
OTHER EXPENSES:
Interest (45,560) (710)2 (46,270)
Loss on disposal of property (7,836) - (7,836)
------------- ------------- --------------
Income before income taxes 188,838 (710) 188,128
PROVISION FOR INCOME TAXES (700) - (700)
------------- ------------- --------------
NET INCOME $ 188,138 $ (710) $ 187,428
============= ============= ==============
NET INCOME PER SHARE $ 5.75 $ (.02) $ 5.73
============= ============ ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING1 32,723 32,723
============= ==============
</TABLE>
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Pro Forma
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums $ 1,474,172 $ - $ 1,474,172
Abstract and appraisal fees 2,475,351 - 2,475,351
------------- ------------- --------------
3,949,523 - 3,949,523
------------- ------------- --------------
DIRECT COSTS OF REVENUE:
Title insurance premiums (429,453) - (429,453)
Abstract and appraisal services (321,816) - (321,816)
------------- ------------- --------------
(751,269) - ((751,269))
------------- ------------- --------------
Gross profit 3,198,254 - 3,198,254
OPERATING EXPENSES (2,506,604) - (2,506,604)
------------- ------------- --------------
Income from operations 691,650 - 691,650
OTHER EXPENSES:
Interest (27,128) - (27,128)
------------- ------------- --------------
NET INCOME BEFORE TAXES 664,522 - 664,522
PROVISION FOR INCOME TAXES (135,817) - (135,817)
------------- ------------- -------------
NET INCOME $ 528,705 $ - $ 528,705
============= ============= ==============
NET INCOME PER SHARE $ 16.16 $ 16.16
============= ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING1 32,723 32,723
============= ==============
</TABLE>
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AND CONSOLIDATED STATEMENTS OF INCOME
1 Reflects a 1 for 100 reverse stock split, reduction of the number of
authorized common shares from 15,000,000 to 150,000 and a change in par value
from $.04 to $4.00 per share. As a result of the reverse stock split and the
redemption and cancellation of certain fractional shares (see 2), 32,723
common shares will be outstanding.
2 Reflects redemption and cancellation of certain fractional common shares
(after 1 for 100 reverse split) as follows:
Shares Amount
------ ------
From 1992 1 for 4 reverse split 3.30 $ 990
From 1998 1 for 100 reverse split 211.03 2,532
--------- ---------
214.33 $ 3,522
========= =========
Also reflects approximately $710 of interest to be paid in conjunction with
redemption of fractional shares from the 1992 1 for 4 reverse split.
3 Reflects estimated total cost of 1998 reverse split and redemptions including
legal, accounting and filing fees related to the transaction.
<PAGE>
PROXY
Four Corners Financial Corporation, 370 East Avenue, Rochester, New York 14604
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 5, 1999
The undersigned Shareholder of Four Corners Financial Corporation hereby
appoints and constitutes William S. Gagliano and Bernard J. Iacovangelo, and
either of them, the proxy or proxies of the undersigned with full power of
substitution and revocation, for and in the name of the undersigned to attend
the special meeting of Shareholders of the Company to be held at 370 East
Avenue, Rochester, New York 14604 on January 29, 1999 at 10:00 A.M., EST, and
any and all adjournments of said meeting, and to vote all shares of stock of
Four Corners Financial Corporation, registered in the name of the undersigned
and entitled to vote at said meeting upon the matters set forth below.
Management Recommends a VOTE FOR Items 1, 2 and 3.
1. Approve Amendment to Certificate of Incorporation:
To approve the Board of Directors adoption of an Amendment to the Company's
restated Certificate of Incorporation which provides for: (a) a reduction of the
number of authorized shares of the Company's Common Stock from 15,000,000
authorized shares with a par value of $.04 per share to 150,000 authorized
shares with a par value of $4.00 per share and (b) a 1 for 100 reverse stock
split of the Company's currently issued and outstanding common stock;
FOR AGAINST ABSTAIN
2. Approve Payment of Cash In Lieu of Fractions of Shares:
To approve a cash payment in the amount of $12.00 times each fraction of a share
resulting from such reverse stock split in lieu of the issuance of any resulting
fractional shares;
FOR AGAINST ABSTAIN
3. Approve Payment Proposed on 1992 Reverse Stock Split:
To approve the payment by the Company of the indebtedness owed to Shareholders
owning fractional shares resulting from the 1 for 4 reverse stock split
effective July 29, 1992, together with the payment of simple interest on the
amount of such indebtedness.
FOR AGAINST ABSTAIN
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS
DIRECTED BY THE SHAREHOLDER. IF NO CHOICE IS SPECIFIED,
INCLUDING ABSTENTIONS, FOR A GIVEN PROPOSAL, THIS
PROXY WILL BE VOTED FOR THAT PROPOSAL
Four Corners Financial
Corporation
Special Meeting Proxy -
February 5, 1999
Dated: , 1999
---------------
----------------------------------
Signature
----------------------------------
Signature
Joint owners should each
sign. Executors,
trustees, guardians,
corporate officers, and
other representatives
should give title
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
