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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FOUR CORNERS FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 9, 1998
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 Wednesday, September 9, 1998 at
10:00 a.m. E.D.T. for the following purposes:
1. To approve (a) the Board of Directors adoption of an Amendment to
the Company's Restated Certificate of Incorporation providing for 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; (b) a 1 for 100 reverse stock split
of the Company's currently issued and outstanding common stock; and (c) 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 (items (a), (b) and (c) constitute one proposal and will be referred to
herein as the "Reverse Stock Split").
2. To ratify and affirm the approval by the Shareholders of the 1 for 4
reverse stock split on July 29, 1992, and to authorize the payment by the
Company of the indebtedness owed to Shareholders owning fractional shares
resulting from the 1992 reverse stock split, together with the payment of simple
interest on the amount of such indebtedness (the "Ratification and Payment
Proposal").
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 August 4, 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
/s/ Bernard J. Iacovangelo
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DATED: August 10, 1998 BERNARD J. IACOVANGELO, Secretary
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PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
FOUR CORNERS FINANCIAL CORPORATION
370 East Avenue
Rochester, New York 14604
Date of Proxy Statement: August 4, 1998
Date of Mailing: August 10, 1998
Special Meeting of Shareholders: September 9, 1998
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 the voting of the Proxy. The signing of the form of Proxy will not
preclude the Shareholder from attending the Special Meeting and voting in
person. Shares represented by the Proxy will be voted in accordance with the
directions of the Shareholder.
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 August 4, 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.
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PROPOSAL ONE
The Shareholders of the Company will be asked at the Special Meeting to
consider, vote upon and approve the Reverse Stock Split.
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 and second 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 trades in the Company's common
stock since the 1992 reverse stock split, even those of a privately negotiated
nature. 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").
Moreover, a significant number of the Company's Shareholders hold less
than 250 shares. Of approximately 1,205 shareholders of record, 1,085
(approximately 90 percent of the Company's Shareholders) hold 250 or fewer
shares of common stock. Thus, even if for any reason, an active market did
develop for the Company's common stock, a significant number of Shareholders
would nonetheless have limited opportunities to realize commensurate value for
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their shares since the sales of their shares would ordinarily involve
disproportionately high brokerage commissions.
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, and 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, given these circumstances, realized that the overwhelming
largest proportion of the Company's Shareholders would not be in a position to
realize upon the value of their shares, either by sale of their shares, or by
way of dividends. See discussion under "Market Prices for Shares of Common
Stock; Dividends." 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 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.
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.
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 de-register its common stock under the Exchange
Act. As the result of such de-registration, the Company's common stock would no
longer be eligible for trading in the over-the-counter market or quoted in the
Pink Sheets.
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
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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 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.
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.
The proposed Reverse Stock Split will 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. 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
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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
the Shareholders as well as any substantial appreciation in the future value of
the Shareholders' 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 ("Certificate of Amendment")
with the Secretary of State of the State of Delaware on or around September 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.
The Board has determined, as is permitted under Delaware 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.
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.
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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. The Board unanimously
concluded that, for the reasons set forth above, the Reverse Stock Split, is
fair to, and in the best interests of, both the Company and its Shareholders. In
this regard, the Board did not structure the Reverse Stock Split to require the
approval of at least a majority of the Company's nonaffiliated Shareholders, nor
did retain 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. The Board concluded that, despite not so structuring the
transaction and not so retaining such a representative, the Reverse Stock Split
is fair to the Company's nonaffiliated Shareholders.
The Board was aware that the Reverse Stock Split presented potential or
actual conflicts of interest between the Company and members of its Board of
Directors in their capacity as affiliated Shareholders and, despite such
potential or actual conflicts of interest, concluded that the Reverse Stock
Split is fair to the Company and to the nonaffiliated Shareholders.
The Board determined, as part of its consideration of the fairness of
the proposed Reverse Stock Split, that it would commission its independent
accounting firm, Bonadio & Co., LLP, to conduct an independent appraisal of the
Company's common stock as of the most reasonable practicable date. On July 28,
1998, Bonadio & Co., LLP submitted its appraisal to the Board and such appraised
value of the Company's common stock has been utilized by the Board in
establishing the cash consideration to be paid to Shareholders owing fractions
of shares after the effectiveness of the Reverse Stock Split. The report of
Bonadio & Co., LLP is found as Exhibit B to this Proxy Statement.
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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 from 3,293,403 shares to 32,723 shares.
The number of shareholders of record will be decreased from 1,205 to 175.
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 99.4% to 100%. Each share of common stock
owned by 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 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.
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.
If the Reverse Stock Split is approved, the Certificate of Amendment
filed and, as contemplated, the shares of the Company's common stock are
deregistered under the Exchange Act, there will not be any market available for
trading the Company's shares of common stock. Consequently, the only avenue
available for a Shareholder to realize value upon his ownership of the Company's
common stock would be privately-negotiated transactions or management's ability
to locate one or more potential third-party purchasers for the Company's assets
and/or stock.
In addition, 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), 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.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
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Except as indicated in this Proxy Statement, 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt by any Shareholder of cash in lieu of fractional shares of
common stock pursuant to the Reverse Stock Split (the "Fractional Shareholder")
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 at least eighteen months, at a maximum rate of 28% if held for more than 12
but less than 18 months and will be short-term capital gain or loss if the
shares of Common Stock are held for one year or less.
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It is anticipated that most Fractional Shareholders will qualify for
capital gain or loss treatment as a result of satisfying the "complete
redemption" requirements. However, if a Fractional Shareholder is unable to
satisfy such test because of the constructive ownership rules and further, is
unable to satisfy either of the other two tests described above, such Fractional
Shareholders will be taxed 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. The Company does not have any current or
accumulated earnings and profits. Accordingly, a Fractional Shareholder who does
not qualify for capital gain or loss treatment under the above described Section
302 rules will nonetheless qualify for capital gain or loss treatment 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 for such Shareholders' shares 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 new shares of common stock will carry
over as the basis and holding period of such Shareholder's new shares of common
stock.
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).
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
$35,000, consisting of the payment of the cash consideration, legal and
accounting fees, appraisal fees, printing and mailing costs, Securities and
Exchange Commission filing fees and miscellaneous expenses. 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.
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THE REVERSE STOCK SPLIT - APPRAISAL 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 .
THE REVERSE STOCK SPLIT - RECOMMENDATION OF THE
BOARD OF DIRECTORS
The Board of Directors, 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 Shareholders and
unanimously approved the Reverse Stock Split.
The Board of Directors unanimously recommends that the Shareholders
vote for approval of the Reverse Stock Split. In this connection, the directors
and executive officers of the Company have agreed that they will vote all of
their shares in favor of 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.
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PROPOSAL TWO
The Shareholders of the Company will be asked at the Special Meeting to
consider, vote upon and approve the Ratification and Payment Proposal.
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, a
significant number of Shareholders did not exchange their pre-1992 reverse split
stock certificates for post-1992 reverse split stock certificates. In addition,
the Company did not make payment of the cash consideration owing to 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 ratify the
action taken by the Shareholders approving the 1992 reverse stock split and
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.
The Company estimates that the expenses to be incurred by the Company
in connection with the Ratification and Payment Proposal, including payment of
simple interest at the rate of 10% annually calculated from July 31, 1992 to the
date of payment will be approximately $1,700.00.
-11-
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
Based upon the above, the Board of Directors at it meeting held July
28, 1998 unanimously approved the Ratification and Payment Proposal.
The Board of Directors unanimously recommends that the Shareholders
vote for approval of the Ratification and Payment Proposal. In this connection,
the directors and executive officers of the Company have agreed that they all
vote all of their shares in favor of the Ratification and Payment Proposal.
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.
-12-
<PAGE>
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 or splits.
The Company's agreement with its Bank places a restriction on its
payment of dividends. No dividends were declared or paid during 1995, 1996 or
1997.
On August 4, 1998 the Company had 1,205 holders of record of its common
stock.
-13-
<PAGE>
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 August 4, 1998.
<TABLE>
<CAPTION>
Name Age Position with the Company or Director Since Shares of Common Stock Percent of
Principal Occupation Beneficially owned Class
- ---- --- ---------------------------- -------------- ---------------------- ----------
<S> <C> <C>
Frank B. 58 President and Treasurer(1) 1987 1,366,339 (3) 40.92%
Iacovangelo
Bernard J. 50 Vice President Secretary(1) 1987 1,376,339 (4) 41.22%
Iacovangelo
William S. 48 Executive Vice President and 1992 140,758 (5) 4.22%
Gagliano Director(1)
Anthony M. 57 President, Director and 1987 87,913 (6) 2.64%
Iacovangelo principal shareholder of
Faber Construction., Inc.
Rochester, NY(2)
All Directors and Officers of the Company as a group (four persons) 2,971,349 (3)(4)(5)(6) 88.99%
</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 40% of the
368,879 shares owned by Wegman Building Associates, a partnership in which
Frank Iacovangelo owns a 40% interest.
-14-
<PAGE>
(4) Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife,
Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial
ownership of these shares. Also includes 40% of the 368,879 shares owned by
Wegman Building Associates, a partnership in which Bernard Iacovangelo has
a 40% interest.
(5) Includes an option to purchase 125,000 shares of Common Stock.
(6) Includes 10% of the 368,869 shares owned by Wegman Building Associates, a
partnership in which Anthony Iacovangelo has a 10% interest. Also includes
options to purchase 1,000 shares of Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 4, 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 Percent of
Name and Address Beneficial Ownership Class
- ---------------- -------------------- -----
Frank B. Iacovangelo 1,366,339 (1) (3) 40.92%
39 State Street
Rochester, NY 14614
Bernard J. Iacovangelo 1,376,339 (2) (3) 41.22%
39 State Street
Rochester, NY 14614
Wegman Building Associates 368,879 (3) 11.05%
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 40% of the
368,879 shares owned by Wegman Building Associates, a partnership in which
Mr. Iacovangelo has a 40% interest.
(2) Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife,
Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial
ownership of these shares. Also includes 40% of the 368,879 shares owned by
Wegman Building Associates, a partnership in which Bernard
-15-
<PAGE>
Iacovangelo has a 40% interest.
(3) Wegman Building Associates is a general partnership in which Messrs. Frank,
Bernard and Anthony Iacovangelo have a 40%, 40% and 10% interest,
respectively. They have shared voting and investment power with respect to
the shares owned by the partnership.
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, the report of the
independent accountants thereon contained in Part II, Item 8 of the 1997 10-K,
and Management 's Discussion and Analysis of Financial Condition and Results of
Operations contained in Part II, Item 7 of its 1997 10-K.
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 March 31, 1998 and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Part I, Item 2 of the
March, 1998 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 incorporated by
reference in this Proxy Statement, have been audited by Bonadio & Co., LLP,
independent public accountants, as stated in his report with respect thereto. It
is expected that Mr. 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 three months ended
March 31, 1998, both incorporated by reference (from the Company's 1997 Form
10-K, and the March 31, 1998 Form 10-Q) in this Proxy Statement. The pro forma
balance sheet as of March 31, 1998 gives effect to the going-private transaction
and the Reverse Stock Split as if it had been consummated at March 31, 1998. The
pro forma statements of income reflect the above-mentioned transaction as of the
first day of the respective statements.
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 and January 1, 1998, respectively, nor to project the Company's
financial
-16-
<PAGE>
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.
Shareholders may obtain a copy of the Company's Annual Report (Form
10-K) for the fiscal year ended December 31, 1997 and the Company's Quarterly
Report (Form 10-Q) for the fiscal quarter ended March 31, 1998, as filed with
the 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 and 2.
By the order of the Board of Directors
/s/ Bernard J. Iacovangelo
-----------------------------------,
BERNARD J. IACOVANGELO, Secretary
-17-
<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>
[LETTERHEAD OF BONADIO & Co., LLP]
July 15, 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, since this is
the date of the most recent 10-Q filing. Based on our discussion with
management, and our further review of the capital markets, 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 which follows,
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 /s/ Thomas F. Bonadio, CPA
---------------------------
Thomas F. Bonadio, CPA
by /s/ Douglas P. Sosnowski, CPA
-----------------------------
Douglas P. Sosnowski, CPA
<PAGE>
TABLE OF CONTENTS
Page
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
<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, 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.
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.
- 4 -
<PAGE>
HISTORY AND OPERATIONS (Continued)
Title Insurance (Continued) -
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.
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.
- 5 -
<PAGE>
HISTORY AND OPERATIONS (Continued)
Appraisals (Continued) -
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.
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.
- 6 -
<PAGE>
COMPETITION (Continued)
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.
STOCK OWNERSHIP
Four Corners Financial Corporation has a single class of common stock with
15,000,000 shares authorized; 3,348,733 shares issued; and 3,293,733 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.
- 7 -
<PAGE>
STOCK OWNERSHIP (Continued)
The stock is distributed as follows at March 31, 1998:
Shares --%--
------ -----
Frank Iacovangelo 919,287 27.9%
Bernard Iacovangelo 728,687 22.1%
Patricia Iacovangelo 500,000 15.2%
Wegman Building Associates 369,129 11.2%
CEDE & Co. 127,439 3.9%
Others (approx. 1,200) 649,191 19.7%
---------- -------
3,293,733 100.0%
The reverse stock split discussed above will reduce the number of shares
outstanding to 32,937. 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
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
---------------
---------------
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 :
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
----------------
----------------
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)
Officers' Compensation
Historical officers' compensation reflects the Company's ability to pay and not
the value of services actually performed. An adjustment was made to adjust
officers' compensation to the cost of replacing the officers' services.
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:
The Company is regional and is dependent on the local economy.
There are few barriers to entry.
Most customers are loyal to their agent, not necessarily the company
their agent works for.
The Company does not provide specialized or proprietary services.
The Company does not control significant market share in any market it
operates in.
The Company has a current ratio of less than 1.
The Company is highly leveraged.
The Company operates in a mature industry.
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.
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
- 14 -
<PAGE>
CAPITALIZATION OF EARNINGS METHOD (Continued)
.
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>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 56,013 $ (469,030) $ 97,384
Adjustments:
Extraordinary items - (65,000) -
Provision for income taxes (21,083) (46,851) (59,846)
Officers' compensation (29,077) 37,070 (80,000)
Loss on disposal of property - 14,932 40,596
Bad debt expense (83,030) 26,087 (769)
Consulting expense 26,991 - -
Depreciation 77,287 78,839 64,647
Amortization of intangibles 16,501 14,603 14,655
----------- ---------- ----------
Adjusted net income 43,602 (409,350) 76,667
----------- ----------- ----------
Earnings representative of expected future earnings
Capitalization factor
Capitalization of earnings valuation
<CAPTION>
Expected
Future
1996 1997 Earnings
---- ---- ----------
<S> <C> <C> <C>
Net income (loss) $ 85,718 $ 202,238
Adjustments:
Extraordinary items - (14,100)
Provision for income taxes (48,295) (103,862)
Officers' compensation (80,000) (80,000)
Loss on disposal of property - 7,836
Bad debt expense 40,039 36,532
Consulting expens - -
Depreciation 48,995 28,854
Amortization of intangibles - -
---------- ---------- -------------
Adjusted net income 46,457 77,498
---------- ---------- -------------
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 negative 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:
<TABLE>
<CAPTION>
<S> <C>
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
---------------
---------------
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
---------------
---------------
</TABLE>
- 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 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:
The statements of fact contained in this report are true and correct.
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.
Our analyses, opinions and conclusions were developed, and this report was
prepared, in conformity with Uniform Standards of Professional Appraisal
Practice.
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.
Our compensation is not contingent on an action or event resulting from the
analyses, opinions, conclusions in, or the use of this report.
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
MARCH 31, 1998
The following pro forma balance sheet has been derived from the balance sheet of
the Company at March 31, 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 March 31, 1998. 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 March 31, 1998. 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 $ 29,074 $ - $ 29,074
Cash - escrow deposits 32,662 - 32,662
Accounts receivable, net of allowance for
doubtful accounts of $90,000 and $84,000 in
1997 and 1996, respectively 670,251 - 670,251
Prepaid expenses 5,983 - 5,983
Current portion of note receivable 2,500 - 2,500
------------ ------------ -------------
Total current assets 740,470 - 740,470
------------ ------------ -------------
PROPERTY AND EQUIPMENT, net 114,663 - 114,663
------------ ------------ -------------
OTHER ASSETS:
Security deposits 6,627 - 6,627
------------ ------------ -------------
6,627 - 6,627
------------ ------------ -------------
TITLE PLANT 419,905 - 419,905
------------ ------------ -------------
$ 1,281,665 $ - $ 1,281,665
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Line-of-credit $ 100,000 $ - $ 100,000
Current portion of notes payable 107,205 - 107,205
Current portion of subordinated debt
due to officer/stockholder 18,000 - 18,000
Accounts payable 374,969 4,232 414,201
35,000
Accounts payable - related parties 14,086 - 14,086
Escrow deposits 32,662 - 32,662
Accrued income taxes 3,296 - 3,296
Other accrued expenses 38,967 - 38,967
------------ ------------ -------------
Total current liabilities 689,185 39,232 728,417
------------ ------------ -------------
LONG-TERM LIABILITIES, net of current portion:
Notes payable 67,185 - 67,185
Subordinated debt due to officer/stockholder 74,500 - 74,500
------------ ------------ -------------
Total long-term liabilities 141,685 - 141,685
------------ ------------ -------------
Total liabilities 830,870 39,232 870,102
------------ ------------ -------------
STOCKHOLDERS' INVESTMENT(1)
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 (487,734) (710)2 (488,444)
Treasury stock at cost; 550 shares (30,625) - (30,625)
------------ ------------ -------------
Total stockholders' investment 450,795 (39,232) 411,563
------------ ------------ -------------
$ 1,281,665 $ - $ 1,281,665
============ ============ =============
</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
three months ended March 31, 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 and January 1,
1998, respectively. 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 or January 1, 1998, respectively, 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 and extraordinary item 188,838 (710) 188,128
PROVISION FOR INCOME TAXES (700) - (700)
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 188,138 (710) 187,428
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT
OF DEBT, net of income tax of $4,000 14,100 - 14,100
------------- ------------- --------------
NET INCOME $ 202,238 $ (710) $ 201,528
============= ============= ==============
NET INCOME PER SHARE:
Income before extraordinary items $ 5.72
Extraordinary item .43
--------------
Net income per share $ 6.15
==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING(1) 32,723
==============
</TABLE>
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
---------------------------------
Pro Forma
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
REVENUE:
Title insurance premiums $ 355,508 $ - $ 355,508
Abstract and appraisal fees 734,210 - 734,210
------------- ------------- --------------
1,089,718 - 1,089,718
------------- ------------- --------------
DIRECT COSTS OF REVENUE:
Title insurance premiums (78,792) - (78,792)
Abstract and appraisal services (130,273) - (130,273)
------------- ------------- -------------
(209,065) - (209,065)
------------- ------------- -------------
Gross profit 880,653 - 880,653
OPERATING EXPENSES (738,786) - (738,786)
------------- ------------- -------------
Income from operations 141,867 - 141,867
------------- ------------- --------------
OTHER EXPENSES:
Interest (9,633) (710)2 (10,343)
------------- ------------- -------------
NET INCOME $ 132,234 $ (710) $ 131,524
============= ============= ==============
NET INCOME PER SHARE $ 4.02
==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING(1) 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 SEPTEMBER 9, 1998
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 September 9, 1998 at 10:00 A.M., EDT, 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 and 2.
1. Approve Reverse Stock Split:
To approve (a) the Board of Directors adoption of an Amendment to the Company's
Restated Certificate of Incorporation providing for 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; (b) a 1 for 100 reverse stock split of the
Company's currently issued and outstanding common stock; and (c) 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 [ ]
2. Approve Ratification and Payment Proposal:
To ratify and affirm the approval by the Shareholders of the 1 for 4 reverse
stock split on July 29, 1992, and to authorize the payment by the Company of the
indebtedness owed to Shareholders owning fractional shares resulting from the
1992 reverse stock split, 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 - September ___,
1998
Dated: _________________, 1998
----------------------------------
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
