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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998.
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-8628
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FOUR CORNERS FINANCIAL CORPORATION
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(Exact Name of Registrant as specified in its charter)
Delaware 22-2044086
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 East Avenue, Rochester, New York 14604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 454-2263
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and to the best of registrant's
knowledge, will not be contained in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 31, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $24,652.
As of March 31, 1999, the number of shares outstanding of the registrant's
common stock was 32,937.
Documents Incorporated By Reference
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None.
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TABLE OF CONTENTS
PART I PAGE
Item 1: Business 4
Item 2: Properties 14
Item 3: Legal Proceedings 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Executive Officers of Registrant 15
PART II
Item 5: Market for Registrant's Common Equity and Related 17
Security Holder Matters
Item 6: Selected Financial Data 18
Item 7: Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data 23
Item 9: Changes in and Disagreements with Accountants on 23
Accounting and Financial Disclosure
Part III
Item 10: Directors and Executive Officers of Registrant 24
Item 11: Executive Compensation 25
Item 12: Security Ownership of Certain Beneficial Owners 26
and Management
Item 13: Certain Relationships and Related Transactions 27
PART IV
Item 14: Exhibits, Financial Statement Schedules, and 29
Reports on Form 8-K
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PART I
Item 1. Business
Four Corners Financial Corporation is a Delaware corporation formed under
the name American Management Educational Corporation ("Educational Corp.") in
1974. In 1981 Educational Corp. changed its name to American Management Energy
Corporation ("AMEC") and commenced a limited oil and gas operation.
Subsequently, it discontinued the educational financial management consulting
and security investigation business which it had been conducting as well as the
oil and gas operation. Thus, AMEC was inactive and without employees from 1983
until May 12, 1987.
On that date, AMEC sold to a former principal stockholder all of its
assets, consisting of certain oil and gas leases valued at approximately $40,000
in consideration of his assumption of all of the liabilities of AMEC and his
agreement to indemnify AMEC against specified claims.
On May 14, 1987, control of AMEC was transferred to Frank B. Iacovangelo
and Bernard J. Iacovangelo through the acquisition of shares from certain
stockholders.
On April 12, 1988, AMEC acquired all of the issued and outstanding stock of
Four Corners Abstract Corporation ("Abstract") which was then owned by Frank B.
Iacovangelo and Bernard J. Iacovangelo and their affiliates, in exchange for
9,293,100 shares of AMEC. Abstract was formed in 1980 and has conducted
operations since that date. At the time of the acquisition of Abstract, AMEC
changed its name to Four Corners Financial Corporation ("FCFC"). Messrs.
Iacovangelo are also officers, directors and principal stockholders of FCFC.
Since that time, the main source of FCFC's business has been conducted through
Abstract which remains a wholly owned subsidiary of FCFC.
On October 17, 1988, FCFC acquired a controlling interest in Mid-State
Abstract Corporation ("Mid-State") for $95,000. In January 1989, FCFC made an
exchange offer to acquire the remaining shares of Mid-State, resulting in FCFC
owning approximately 84% of the outstanding voting shares being held by parties
not affiliated with FCFC. In February, 1991, Mid-State merged into Abstract and
all outstanding shares of Mid-State were changed and converted into shares of
FCFC Common Stock.
In January, 1989, FCFC acquired all of the outstanding shares of Livingston
Abstract Corporation ("Livingston") in Geneseo, New York for a purchase price of
$8,000, the assumption and agreement to pay the balance of three notes
aggregating $17,985, and the issuance (at a later date) of 20,000 shares of the
Company's Common Stock and commenced operations at the location at that time.
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In January, 1990, FCFC acquired all of the outstanding shares of Picciano
Abstract Company, Inc. ("Picciano") of Binghamton, New York for a purchase price
of $15,000 and the issuance of 20,000 shares of the Company's Common Stock and
commenced operations at that location at that time.
On July 1, 1990, Livingston and Picciano merged into Abstract.
On December 23, 1991, the Company acquired all of the outstanding shares of
Proper Appraisal Specialists, Inc. ("Proper Appraisal") of Buffalo, New York for
a purchase price of $10,000 and the issuance of 90,000 shares of the Company's
Common Stock. Since that date, Proper Appraisal Specialists, Inc. has been
inactive while the Company operated an appraisal business begun in 1989 under
Four Corners Abstract. It is anticipated that Proper Appraisal Specialists,
Inc., a New York Corporation, will be dissolved by proclamation during 1998. In
September, 1995 the Company sold the assets of its appraisal division to Rynne,
Murphy & Associates, Inc. (See Footnote No. 9 of the accompanying audited
financial statements).
In May, 1992, the Company opened a branch office in Goshen, New York
(Orange County) to service the Hudson Valley area.
In February, 1993, the Company closed its Geneseo Office and consolidated
those operations with its Rochester location. The Company also consolidated its
Cheektowaga Appraisal office with its branch in downtown Buffalo, New York in
December, 1993.
In September, 1994, the Company relocated its Goshen office to Newburgh,
New York. Subsequently, in March, 1995, the Newburgh office was closed. The
Company now provides service to the Mid-Hudson area of New York State through
independent contractors. The Company opened a satellite office in September,
1996 in Oswego, New York which was moved to a new location in Oswego as of
October 9, 1997, and closed its Lockport satellite office in February, 1997.
On March 5, 1999 a Proxy Statement was mailed to all shareholders of the
Company's common stock as of February 24, 1999 for a special meeting which was
held on March 26, 1999 for the purpose of voting on the following:
1. To approve the Board of Directors adoption of an Amendment to the
Company's restated Certificate of Incorporation which provides for: (a) a
reduction of the number of authorized shares of the Company's common stock from
15,000,000 authorized shares with a par value of $.04 per share to 150,000
authorized shares with a par value of $4.00 per share and (b) a 1 for 100
reverse stock split of the Company's currently issued and outstanding common
stock.
2. To approve a cash payment in the amount of $12.00 times each fraction of
a share resulting from such reverse stock split in lieu of the issuance of any
resulting fractional shares.
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3. To approve the payment by the Company of the indebtedness owed to
Shareholders owning fractional shares resulting from the 1 for 4 reverse stock
split effective July 29, 1992, together with the payment of simple interest on
the amount of such indebtedness.
The text of the proxy statement is set forth as Exhibit 99.1 to this Form
10-K.
All three propositions set forth above were voted on and approved by the
shareholders of the Company at the Special Meeting on March 26, 1999. Following
this vote, the Company filed its Certificate of Amendment to its restated
Certificate of Incorporation with the Delaware Secretary of State on April 1,
1999, a copy of which is set forth as Exhibit 99.2 to this Form 10-K.
As a consequence of the shareholder vote of March 26, 1999 approving the 1
for 100 reversal of the Company's common stock and the filing of a Certificate
of Amendment to the Company's restated Certificate of Incorporation with the
State of Delaware, the Company's number of shareholders has been reduced to 174.
Therefore, on April 9, 1999, the Company filed Form 15 (Exhibit 99.3) with the
Securities and Exchange Commission requesting de-registration of its common
stock. Effectively, the Company has been privatized as of that date.
Consequently, no future Annual Report on Form 10-K will be required.
Four Corners Financial Corporation and its subsidiary, Four Corners
Abstract Corporation ("Abstract"), provide services and products that are
utilized in substantially all commercial and residential real estate
transactions. As used herein, "Company" includes Four Corners Financial
Corporation and Four Corners Abstract unless the context otherwise requires.
These services and products are offered through offices in Buffalo,
Rochester, Syracuse, Utica, Binghamton, Albany and Oswego, all located in
central and western New York and through subcontractors in other areas of New
York State.
Services and Products
The Company's services and products include real estate title and other
public record searching, the preparation of abstracts of title and the issuance
of title insurance as agent for certain national underwriting companies. Other
services and products include 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
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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 it's 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.
Abstracts
The purchase, sale, leasing and financing of a parcel of real estate in New
York State outside of New York City, usually require the preparation of an
abstract of title. The abstract is a summary of each transaction affecting the
parcel which is reflected in the records of the Clerk of the County where the
subject property is located. The abstract is examined by attorneys and others to
determine prior interests in, or encumbrances on, the property which have to be
disposed of in order to have "clear" title. The information used to create or
redate an abstract is obtained by title searchers, that is, persons who search
various official records for interests which may affect the ownership interest
in, or title to, real property. Such interests may include real property taxes,
corporate franchise taxes, bankruptcies, mechanics liens, income tax or sales
tax liens, litigation liens, judgment liens, security interests in fixtures and
mortgages as well as interests of prior owners (including deceased owners) which
have not been adequately transferred. Title searchers summarize their findings
and deliver them to word processors who produce the abstract of title.
An abstract usually exists for most properties. Thus, the Company is most
often requested merely to "redate" it. This involves examining the records only
from the date of the last transaction summarized in the abstract. However, where
no abstract is available or when newly subdivided parcels are involved, a new
abstract is created starting with a warranty deed which meets the local
standards for title certification (e.g. at least 60 years old for Rochester, New
York property).
The information contained in abstracts which the Company creates or redates
is indexed and retained by the Company, becoming part of its "title plant".
These "back titles" are valuable assets which facilitate the preparation and
redating of future abstracts. The title plant also aids the expeditious
preparation of title insurance reports and policies.
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
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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. The Company estimates that revenues thus generated amount to
approximately $25,000 annually.
Abstract and title companies are often asked to act as an escrow closing
agent in a real estate transaction. This practice is allowable under New York
State law. In this capacity, usually as a function of providing title insurance
on real estate, the Company is asked to hold funds in escrow bank accounts until
certain requirements are met or title defects are cured by the parties involved
in the transaction. For this service the Company charges a fee based upon the
length of time which the funds are to be held and/or the number of transactions
(deposits, checks) to be handled. Also, the Company acts as a conduit for the
sale and purchase of mortgages between financial institutions insuring that
mortgage documents are received and funds for the purchase of mortgages are
wired from buyer to seller in the correct amount and in a specified time frame.
The Company also acts as settlement agent on Home Equity loans and refinanced
mortgage loans for its title insurance underwriters and certain banks/lenders.
During 1998, escrow closing services generated approximately $255,000 as
compared to $75,000 and $31,000 in 1997 and 1996, respectively.
Other public record searches provided by the Company include guaranteed tax
searches, foreclosure certificates of title, surrogate court searches, UCC
financing searches, franchise tax searches, judgment searches, new name
searches, back title searches, bankruptcy searches and foreclosure searches.
While these searches are most often needed by attorneys in connection with real
estate transactions, they may be useful to other customers for other purposes,
for example, to lenders extending credit.
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 during 1998 and 1997. The Company's ability to provide
these services on a statewide basis has enhanced its market penetration in the
foreclosure area. During 1998, the Company generated approximately $821,053 in
revenues from foreclosure related products, representing 16% of total revenues
as compared to $725,000 or 19% of revenues for 1997.
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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 or liens or encumbrances against title,
unmarketability of title and lack of access to the subject property. Lenders'
policies insure against the invalidity of the lien of the insured mortgage,
insure the priority of the lien or encumbrance as stated in the title policy,
and insure against the invalidity of any assignment of the insured mortgage
provided the assignment is shown in the policy. The terms of coverage have
generally become standardized in accordance with forms approved by industry
groups such as the American Land Title Association.
Since title insurance premiums are based upon mortgage amounts and tend to
be higher on a per unit basis than amounts charged for abstract services, labor
costs as a percentage of revenue in title insurance are lower than in abstract
services. As a result, gross margin levels are higher. Therefore, one of the
Company's main goals has been to increase its revenues from title insurance.
The Company's total revenue for 1998 increased by 27.3% to $5,214,743 as
compared to $3,789,864 in 1997. Revenue from title insurance increased
significantly by 51.5% during 1998 to $1,997,540, representing 38% of total
revenues, compared to 35% 1997 and 1996, respectively. Revenues from abstract
and escrow related services also increased significantly to $3,217,203 as
compared to $2,471,421 and $2,403,808 in 1997 and 1996 respectively.
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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. See "Competition".
The Company is not a title insurance underwriter. In selling title
insurance, the Company acts as agent for several national title insurance
underwriting companies. The Company has agency relationships with the following
title insurance underwriters: Old Republic National Title Insurance Company,
Albany, New York; Stewart Title Insurance Company, New York City; and Lawyers
Title Insurance Corporation, Richmond, Virginia. Generally, such relationships
are cancelable by either party upon short notice. The Company believes that in
the event of the cancellation of its existing agency relationships, it would
have no difficulty in securing similar relationships with other title insurance
underwriters.
The choice of an underwriter by the Company is based upon such
considerations as the amount of the premium "split" offered, which varies among
underwriters, the terms under which the title underwriter will require
indemnification for policy losses attributable to errors made by the Company in
searching and examining the title, the scope of services offered to the agent by
the title underwriter, and the fact that certain underwriters will not insure
titles in certain geographical areas within New York State. Typically, the title
insurance premium "split" is approximately 80% to the Company and 20% to the
underwriter.
The title insurance underwriters for which the Company acts as agent are
licensed by the State of New York. Currently, there is no requirement under New
York law that requires an agent such as the Company to hold a license.
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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, in addition to the Company's five Branch Managers, 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 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.
Significant Customers
During 1998, there were two customers accounting for more than 10% of the
Company's gross revenues.
Industry Considerations and Seasonality
The Company's business is related to the general real estate market and the
fluctuations which occur therein, namely prevailing interest rates. As a result
of the plan developed by Company management subsequent to year end 1994 to
significantly reduce the Company's overhead expense structure in order to
improve operations and cash flow, the Company returned to profitability in 1995.
Interest rates remained relatively stable during 1996, an election year, while
the economy continued to rebound and consumer confidence also improved. This was
evidenced by an increase of 11% in recorded deeds and mortgages for 1996 as
compared to 1995. However, due to competitive factors effecting the Company's
title insurance revenue base, the Company's total revenues for 1996 declined
slightly. Despite this decline in revenue, the Company remained profitable in
1996. Real estate activity in New York State during 1997 was comparable to 1996
levels. Recorded deeds and mortgages grew slightly by 2.2%. Company revenues
increased comparably by slightly more than 1% to $3,789,864. During 1998 as
interest rates began to fall once again, real estate mortgage activity in terms
of loan
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originations began to heat up once again. Accordingly recorded deeds and
mortgages in New York State increased by 12% as compared to 1997 levels.
As a result of the increase in settlement/escrow closings performed by the
Company during 1998, where the Company is in control of all the title services
necessary to close a loan transaction for various lenders, all segments of
Company revenues increased substantially over 1997 levels. Total Company
revenues increased by more than $1,400,000 or 27% during 1998 as a result of
these factors. There can be no assurance that these or other factors will enable
the Company to maintain its revenue and profitability in periods of declining
real estate activity.
The demand for the Company's services and products is directly dependent
upon the activity of the real estate market which, in turn, is closely related
to changes in interest rates. Thus, the Company's business is cyclical as well
as seasonal, with lowest volume when interest rates are high and in the winter
and early spring.
Banking Relationship
During 1995, Company management worked closely with bank officials and its
public accounting firm to develop a plan to restructure Company expenses and
improve operations and cash flow. On December 13, 1995, the amount outstanding
on the Company's note payable to a bank, $133,333, and $185,000 of the amount
borrowed under its Line-of-Credit agreement were refinanced with the same bank.
The note payable to the bank requires the Company to meet certain financial
covenants at December 31, 1996 and 1997 (see Note 5 of the Accompanying
Consolidated Financial Statements as of December 31, 1997 and 1996).
At December 31, 1998 the Company's total indebtedness to this bank decreased to
$-0- as compared to $164,167 and $276,250 at December 31, 1997 and December 31,
1996 respectively.
The Company may borrow up to $100,000 under the terms of an unsecured
line-of-credit. Amounts borrowed bear interest at the bank's prime interest rate
plus 1%. The bank's prime rate was 7.75% at December 26, 1998. Borrowings under
this line-of-credit are personally guaranteed by the Company's principal
officers/stockholders. At December 26, 1998 and December 27, 1997, there was
$82,500 and $100,000, respectively, outstanding under the terms of this
line-of-credit.
Potential Liabilities
Abstract companies, including the Company, certify their searches and
abstracts for accuracy. In its title insurance business, the Company relies upon
its abstracts and other information and considerations, including standards
prescribed by its principals, in determining whether title is insurable. If the
Company makes a determination of
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insurability, it issues a policy of title insurance on behalf of its principal,
the underwriting company. As an issuer of certified searches and abstracts, the
Company may, depending on applicable law and the facts of a particular case, be
liable for money damages in the event of errors in its searches and abstracts.
As an agent issuing title policies on behalf of an underwriter, the Company may,
again depending on applicable law and the facts of a particular case, be liable
to either the underwriter or the insured in the event of errors in abstracting
or determinations of insurability, negligence, or breaches of agreements with
its principals. There are no significant claims pending against the Company
based upon any of the foregoing considerations, but the potential for such
claims, and possible liability thereon, is a risk that is inherent in the
Company's business, and such claims may be asserted at any time. During the most
recent past five years, the amount paid by the Company for such claims, in the
aggregate, is less than $35,000. The Company has errors and omissions insurance
coverage of $1,000,000, which complies with requirements of its principals and
is also deemed adequate by the Company's management.
Employees
The Company and its subsidiaries employed approximately 80 persons at
December 31, 1998, as compared to 70 in 1997 and 66 in 1996. Certain members of
the Company's management must sign Confidentiality Agreements which prohibits
the solicitation of information or resources to existing or potential
competitors. The employees of the Company are not covered by any collective
bargaining or other agreements and management believes its employee relations to
be good.
Service Marks
The names "Four Corners Financial Corporation" and "Four Corners Abstract"
have been registered as service marks with the U.S. Patent and Trademark Office.
While the Company considers its service marks to be important, management does
not consider any service mark to be critical to future operations of the Company
or the marketing of any of the Company's services or products.
Competition
The Company competes with numerous providers of abstract and title
insurance services, most of which fall into two main categories. The first are
the large, integrated national or statewide companies which underwrite their own
title insurance policies either directly or through agents. Such agents include
not only independent companies, but also attorneys who sell title insurance
policies as "examining counsel" for underwriters of title insurance. The second
are the small, local companies which provide abstracts and write policies only
as agents for others. Both types of companies are found in the markets served by
the Company and offer substantial competition. Because of the relative ease of
entry into the market place, the Company may meet additional
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competition from newly formed companies in one or more of its market
areas.
The use of title insurance in residential real estate transactions has
grown in recent years because of the development of the national secondary
residential mortgage market which requires title insurance for virtually all
residential mortgages.
Also, in recent years, institutional lenders have generally required title
insurance in virtually all commercial mortgages. However, during the same
period, there has been a significant increase in the number of companies
providing such insurance in the Company's market area, both directly and through
agents.
The principal elements of competition are accuracy and speed (response
time). Prices for abstract and appraisal services are generally comparable among
vendors. However, in recent years, the Company experienced significant price
competition from new abstract companies entering its market areas. Prices for
title insurance are standardized and regulated by the New York State Insurance
Department which requires that rates be filed for approval by the New York State
Title Insurance Rate Service Association, Inc. (TIRSA). Personal relationships
are extremely important in retaining business and obtaining new business.
Excellent service and reliability, which the Company believes it provides, are
the principal means of developing and maintaining such relationships.
Year 2000 Compliance
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not completed its
assessment, but currently believes that costs of addressing this issue will not
have a material financial risk to the Company. In order to assure that this does
not occur, the Company plans to devote all resources required to resolve any
significant year 2000 issues in a timely manner.
Item 2. Properties
Prior to July, 1995, principal offices of the Company were located at 80
West Main Street, Rochester, New York. These facilities, approximately 15,000
square feet, were leased from Wegman Building Associates, a partnership in which
Messrs. Frank B., Bernard J. and Anthony M. Iacovangelo, directors and/or
officers of the Company, are partners. Abstract had a one year lease for this
space expiring on December 31, 1995, which provided for an annual net rent of
$68,000.
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However, effective July 31, 1995, the Company moved its Rochester facilities to
370 East Avenue. These facilities are leased from Fitch Building Associates,
another partnership in which Messrs. Frank B., Bernard J., and Anthony M.
Iacovangelo are partners.
Abstract now leases approximately 9,000 square feet of such space at a net
annual rent of $72,000, pursuant to a lease expiring June 30, 2000. The Company
believes that the terms of its rental are at least comparable to those which it
might have obtained if dealing with a non-affiliated third party. Rent and
common charges were approximately $72,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998 there were no outstanding rental payments under this lease
agreement. The Company owed approximately $15,000 and $18,100 for unpaid rent at
December 31, 1997 and 1996, respectively.
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.
The Company believes it has adequate insurance coverage with respect to
fire and other casualty losses.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company is a party or
of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year covered by this report.
Executive Officers of Registrant
The executive officers of the Company are as follows:
Name Age Position with the Company
---- --- -------------------------
Frank B. Iacovangelo 59 Chairman, Treasurer and Director
William S. Gagliano 49 President and Director
Bernard J. Iacovangelo 51 Vice President, Secretary and
Director
<PAGE>
-16-
Business Background of Executive Officers
Set forth below is a brief description of the business backgrounds of the
executive officers of the Company.
Frank B. Iacovangelo has served as President, Treasurer, and a director of
the Company from May, 1987 to January, 1999 when he was elected Chairman of the
Board of Directors. He remains Treasurer of the Company. He is a practicing
attorney and has been a partner in the law firm of Gallo & Iacovangelo of
Rochester, New York for more than five years. Mr. Iacovangelo is also an
officer, director and principal shareholder of Faber Construction Co., Inc. and
Forest Creek Equity Corp., real estate development companies, and an owner of
numerous real estate projects. In addition, Mr. Iacovangelo is President and
director of Four Corners Abstract Corp., a wholly-owned subsidiary of the
Company, which he co-founded in 1980. From 1987 until June, 1989, Mr.
Iacovangelo was Chairman of the Board of Directors of a food service business
which filed a petition under Chapter 11 of the U.S. Bankruptcy Code on November
20, 1989.
Bernard J. Iacovangelo has served as Vice President, Secretary, and a
director of the Company since May, 1987. He is an attorney and has had more than
five years of experience as a partner in the law firm of Gallo & Iacovangelo.
His principal activity for the last five years has been as President, director
and principal shareholder of Forest Creek Equity Corp., a real estate
development company. Mr. Iacovangelo is also a principal shareholder of Faber
Construction Co., Inc. and an owner of numerous real estate projects as well as
co-founder, officer and director of Four Corners Abstract Corp., a wholly-owned
subsidiary of the Company.
William S. Gagliano has served as Executive Vice President of the Company
and Four Corners Abstract Corp. from June, 1990 to January, 1999. In January,
1999 he was named President of the Company. He was elected Director of the
Company in July, 1992. As President, he is responsible for day to day operations
of the Company. He joined Four Corners Abstract Corp. in 1987 as Vice President
of Finance and Administration.
Messrs. Frank and Bernard Iacovangelo are brothers.
<PAGE>
-17-
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
There is a very limited trading in the Company's Common Stock. The range of
high and low bid prices and high and low asked prices for the years 1995, 1996
and 1997 is shown below, as reported by the National Quotations Bureau, Inc. and
as adjusted to reflect the Company's one for four (1 for 4) reverse stock split
which became effective July 31, 1992.
COMMON STOCK DATA
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
(last available)
* = Listed in pink sheets without prices
The above quotations represent prices between dealers and do not include
retail markup, markdown or commission. They do not represent actual transactions
and have not been adjusted for stock dividends or splits.
The Company's agreement with its Bank places a restriction on its payment
of dividends. No dividends were declared or paid during 1995, 1996 or 1997.
On May 25, 1999, the Company had 174 holders of record of its common stock.
<PAGE>
-18-
ITEM 6 SELECTED FINANCIAL DATA
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The financial data included in this table has been selected by the Company and
has been derived from the financial statements for those years. The following
statement should be read in conjunction with the financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 5,214 $ 3,790 $ 3,707 $ 3,822 $ 4,780
Income (loss) before taxes 307 189 89 99 (581)
Net income (loss) 172 189 86 97 (469)
Net income (loss) per share $ 6.37 $ 5.71 $ 2.57 $ 3.00 $ (14)
BALANCE SHEET DATA:
Total assets $ 1,503 $ 1,455 $ 1,225 $ 1,240 $ 1,315
Long-term obligations 101 100 357 202 564
Stockholders' investment 491 319 116 56 (42)
</TABLE>
<PAGE>
-19-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Liquidity and Capital Resources
The Company's cash flow was generated from operations, bank loans and
advances made by principal stockholders.
In 1998, the operations of the Company generated cash of $192,957. This
cash flow, along with cash reserves from 1997 of $92,623, was sufficient to fund
investments in assets of $25,316 and a net debt reduction of $126,131. In 1997,
the cash flow from operations of $197,437 funded investments in assets of
$10,906 and a net debt reduction of $130,520. In 1996, an operating cash flow of
$174,519 funded an investment in assets and a corresponding decrease in debt
financing of $58,474 and $142,224, respectively.
Cash Flow From Operations. The cash provided by operations was slightly
lower in 1998, being $192,957 versus $197,437 in 1997. This change was primarily
due to the utilization of net operating losses in previous years resulting in
significant cash outlays for income in 1998. The positive impact arose primarily
from increased income from operations as a result of a significant revenue
increase. The cash provided by operations in 1997 of $197,437 was greater than
the 1996 amount of $174,519. This was a result of a smaller amount of net income
in 1996.
Cash Flow from Investing Activities. The Company made capital expenditures
of $29,616, $35,407, and $16,346 in 1998, 1997 and 1996 respectively, primarily
related to computer system upgrades, furniture and fixture purchases and vehicle
purchases at various Company locations. Whereas the company made investments in
its title plant of $52,622 in 1996 to support its ongoing business, no such
commitment was made during 1997 or 1998.
As of December 31, 1998, the Company had no material purchase commitments
pending. In the past, the company has acquired other businesses for cash, notes
and common stock.
Cash Flow from Financing Activities. Primary cash flows from financing
activities relate to changes in financing under lines-of-credit, notes payable
and advances by principal stockholders. The Company has placed an emphasis on
debt reduction during 1998 and 1997 given the improved cash flows from
operations.
The Company had various other notes payable outstanding at December 31,
1998 which totalled $109,380 primarily relating to the purchase of Company
vehicles and other office equipment.
<PAGE>
-20-
The Company may borrow up to $100,000 under the terms of an unsecured
line-of-credit. Amounts borrowed bear interest at the bank's prime interest rate
plus 1%. Borrowings under this line-of-credit are personally guaranteed by the
Company's principal officers/stockholders. At December 31, 1998 and 1997, there
was $82,500 and $100,000, respectively, outstanding under the terms of this
line-of-credit.
The company repaid $189,131, $43,020 and $149,456 under its long-term debt
agreements in 1998, 1997 and 1996, respectively. At December 31, 1996,
additional borrowing activity in the amount of $10,232 was incurred. At December
31, 1998, the Company owed $177,500 to two of its principal
stockholders/directors. For the years ended 1997 and 1996, this indebtedness
amounted to $97,000 and $234,500, respectively. As of December 31, 1998, this
outstanding debt bears interest at the rate of 10.5% per annum and the repayment
of these advances is subordinated to the amounts outstanding under all other
bank debt agreements.
The Company expects the cash flow generated from operations and bank
lines-of-credit currently available to be sufficient to meet its anticipated
working capital and fixed capital expenditure needs for the next twelve months.
The Company believes that the impact of inflation on its results from
operations has been and will continue to be minimal due to the recent stability
of the economy.
2. Results of Operations
(a) Percentage Comparison
The following table presents certain financial data derived from the
consolidated statements of operations of the Company for the years ended
December 31, 1998, 1997 and 1996, expressed as a percentage of total revenues.
Percentage of Total Revenues
Years Ended December 31
-------------------------------
1998 1997 1996
------- ------- -------
Title insurance premiums 38.31% 34.79% 35.15%
Abstract/appraisal fees 61.69 65.21 64.85
------- ------- -------
Total revenues 100.00 100.00 100.00
Direct costs of revenue (20.00) (21.48) (20.80)
------- ------- -------
Gross profit 80.00 78.52 79.20
Operating expenses:
Personnel costs (43.61) (48.31) (50.09)
Other operating expenses (29.85) (23.82) (25.10)
------- ------- -------
<PAGE>
-21-
Operating income 6.54 6.39 4.01
Other expenses (.65) (1.41) (1.64)
Income tax expense (1.87) -- (.06)
Extraordinary Item (.72) -- --
------- ------- -------
Net income 3.30% 4.98% 2.31%
======= ======= =======
(b) Operating Revenues
Combined revenues of the Company increased 37.59% from $3,789,864 for the
year ended December 31, 1997 to $5,214,743 for the year ended December 31, 1998.
The Company experienced an increase in total revenues of $83,086 or 2.24% from
1996 to 1997.
The revenue increase over the past three years has been a result of
positive economic conditions and a robust real estate market in the northeast.
This trend began in 1996 as the housing market rebounded from previously poor
conditions within the geographic areas where the Company does business. Whereas
a slight upturn in the industry led to a minor increase in total revenues in
1997, a significant impact was recognized in 1998. The Company expects total
revenues to increase during 1999 as consumer confidence continues and as the
volume of orders increases from those customers lost to lower-priced
non-performing competitors.
Specifically, revenue from title insurance premiums increased by 51.50%
during 1998 to $1,997,540 versus $1,318,443 in 1997. This increase in title
insurance revenue for 1998 combined with a larger increase in revenue from
abstract and other related services were the determining factors for the
increase in total revenues for the year. These revenues from abstract services
amounted to $3,217,203 in 1998 as compared to $2,471,421 in 1997. This
difference represents an increase of $745,782 or 30.18%. A similar increase
occurred when the same revenues increased by $67,613 or 2.81% from $2,403,808 in
1996. The Company experienced an increase in title insurance revenue during 1997
of 2.81% from $2,403,808 realized in 1996.
(c) Direct Costs of Revenue
Direct costs of revenue consist of commissions paid to underwriters of
title insurance and subcontractor costs paid to other title companies and/or
independent contractors. Direct costs of revenue have increased by 28.19% from
$814,035 in 1997 to $1,043,507 in 1998. From 1996 to 1997, these same costs
increased in a slightly less dramatic fashion to $814,035 or 5.60% from $770,834
in 1996. As a result of the positive aspect of producing a higher percentage of
orders using its own work force, the percentage increase in direct costs has
been slightly lower than the percentage increase in revenue.
<PAGE>
-22-
(d) Operating Expenses
Direct and indirect personnel costs and other operating expenses are
incurred in connection with producing title searches and title examinations,
title insurance policies and maintaining the Company's title plant. Total
operating expenses decreased from $2,786,219 for the year ended December 31,
1996 to $2,733,595 for the same period in 1997. Due to significantly higher
sales volumes in 1998, operating expenses increased dramatically in 1998 to
$3,829,983. These increases were primarily attributable to payroll and other
variable costs associated with the changing volume of abstract and title orders,
as well as bonuses paid to the Company's management.
In 1997, gross payroll and benefits amounted to $1,830,769 as compared to
$1,856,772 in 1996. Office supplies, especially postage, increased from $119,249
to $142,713 during the same period. However, the Company experienced sizeable
increases in operating expenses, office supplies, postage, gross payroll and
benefits in 1998. These increases are directly attributable to the significantly
higher sales volume in 1998. The significant variances in expenses for 1998 are
shown in the table below.
Expense Item 1998 1997 1996
------------ ---- ---- ----
Gross Payroll & Benefits 2,292,543 1,830,769 1,856,772
Office supplies & postage 208,685 142,713 119,249
Interest Expense 32,691 45,456 60,661
As with any service company, the major item of expense associated with the
Company's operations is gross payroll and employee benefits. As a percentage of
revenues, personnel costs and fringe benefits represented 43% in 1998, 48% in
1997, and 50% in 1996. As a result of a continuing stabilization of company
revenues following more traditional trends during 1997 and 1996, the Company was
able to control payroll expenditures in a much more effective manner. The
Company is continuing a strategic emphasis on productivity, geographic full
service, and total quality standards. The Company's work force has increased
slightly from 66 in 1996, 70 in 1997 to 85 in 1998.
Based on enhanced sales order volume and reduced operating expenses, income
from operations for 1998 was $341,253 versus $242,234 in 1997. Net income was
$172,165 for the 1998 calendar year whereas a corresponding net income in the
amount of $188,138 was realized for 1997. The decrease is the result of income
tax expense of $97,395 in 1998. In 1996, the Company experienced income from
operations and net income to the extent of $149,725 and $89,064, respectively.
<PAGE>
-23-
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
to pages 33 to 51 of this Form 10-K and are indexed under Item 14(a)(1). See
also the Financial Statement Schedules appearing herein, as indexed under Item
14(a)(2).
Item 9. Disagreements on Accounting and Financial Disclosure
There have been no disagreements on accounting and financial disclosure
matters.
<PAGE>
-24-
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table names the directors and indicates their age, their
position with the Company or their principal occupation or employment, and the
approximate number of shares of Common Stock beneficially owned by each director
and all directors and officers as a group as of December 31, 1998.
<TABLE>
<CAPTION>
Shares of
Position with the Common Stock Percent
Company or Princi- Director Beneficially of
Name Age pal Occupation Since Owned Class
- --------------------------------------------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Frank B. 59 Chairman and 1987 1,366,939 (3) 41.50%
Iacovangelo Treasurer (1)
Bernard J. 51 Vice President 1987 1,376,339 (4) 41.80%
Iacovangelo Secretary (1)
William S. 49 President and 1992 15,758 .48%
Gagliano Director (1)
Anthony M. 58 President, director 1987 87,913 (5) 2.66%
Iacovangelo and principal share-
holder of Faber
Construction Co., Inc.
Rochester, NY (2)
<S> <C> <C>
All Directors and Officers of the 2,846,949 86.44%
Company as a group (four persons) (3)(4)(5)
</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
369,129 shares owned by Wegman Building Associates, a partnership in which
Frank Iacovangelo owns a 40% interest.
<PAGE>
-25-
(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 369,129 shares owned by
Wegman Building Associates, a partnership in which Bernard Iacovangelo has
a 40% interest.
(5) Includes 10% of the 369,129 shares owned by Wegman Building Associates, a
partnership in which Anthony Iacovangelo has a 10% interest. Also includes
options to purchase 1,000 shares of Common Stock.
Messrs. Frank, Bernard and Anthony Iacovangelo are brothers.
Item 11. Executive Compensation
Executive Compensation
The following table sets forth the cash compensation for each of the last
three financial years awarded to or earned by the Chief Executive Officer of the
Company. No other executive officer of the Company received a total salary and
bonus in excess of $100,000 and accordingly no reporting is required under the
regulations of the Securities and Exchange Commission.
Name and Annual Compensation (1)
Principal Position -----------------------
------------------ Yearly Salary
-------------
Frank B. Iacovangelo 1998 -- $30,000
President, Chief 1997 -- - 0 -
Executive Officer 1996 -- - 0 -
and Treasurer
- ----------
(1) Mr. Iacovangelo receives no other compensation or benefits from the
Company. He neither received nor exercised any options during 1998 and he
held no options at December 31, 1998.
Remuneration of Directors
During 1998, three directors of the Company received $20,000 in
remuneration for serving as directors or as members of committees.
The Company's 1992 Stock Option Plan (the "Option Plan") provides for
automatic grants of stock options to each member of the Board of Directors who
is not also an employee of the Company. Mr. Anthony Iacovangelo is a
non-employee director.
<PAGE>
-26-
Pursuant to the Option Plan, a Non-Employee Director Stock Option ("NEDSO")
for 500 shares is granted to each non-employee director automatically every year
on the date of the Annual Meeting of Stockholders. The first such grants were
made on the date of the 1992 Annual meeting of Stockholders (July 29, 1992), and
each non-employee director received a NEDSO for 500 shares at an exercise price
of $.75 per share, the fair market value of the Company's Common Stock on the
date of grant.
Each NEDSO is immediately exercisable in full. Each NEDSO terminated upon
the expiration of ten years from the date upon which such NEDSO was granted. A
NEDSO is not transferable other than by will or by the laws of dissent and
distribution.
In the event a non-employee director terminates services on the Board other
than by reason of death or disability, such person's NEDSO (to the extent
exercisable upon such termination) will expire three months from the date of
termination of service, provided that in no event may a NEDSO be exercised
beyond its original expiration date.
In the event of death or disability of a non-employee director, any
outstanding NEDSOs will expire one year from the date of death or disability,
provided that in no event may a NEDSO be exercised beyond its original
expiration date.
Employment Agreements
Employment agreements between the Company and each of Messrs. Frank B.
Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano provide for
employment terms which commenced January 1, 1992, year to year indefinite
renewal terms subject to either the Company or the employee electing not to
renew, as amended, minimum base salaries of $60,000 per year in the case of
Frank Iacovangelo, $52,000 per year in the case of Bernard J. Iacovangelo and
$75,000 in the case of Mr. Gagliano, additional salary and bonus compensation to
be determined by the Board of Directors of the Company in its sole discretion,
and restrictions against competition with the Company.
Item 12. Security Ownership of Certain Beneficial owners and Management
On December 31, 1998, the Company had outstanding and entitled to vote with
respect to all matters to be acted upon at the Annual Meeting of Stockholders,
3,293,733 shares of Common Stock ($.04 par value). Each share of Common Stock is
entitled to one vote. The Company currently has no other outstanding class of
equity securities.
In September, 1996, the Company purchased 50,000 shares of its common stock
from a former director.
<PAGE>
-27-
The following table sets forth information as of December 31, 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 have 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 1,366,939 (1) (3) 41.50%
39 State Street
Rochester, NY 14614
Bernard J. Iacovangelo 1,376,339 (2) (3) 41.80%
39 State Street
Rochester, NY 14614
Wegman Building 369,129 (3) 11.21%
Associates
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
369,129 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 369,129 shares owned by
Wegman Building Associates, a partnership in which Bernard Iacovangelo has
a 40% interest.
(3) Wegman Building Associates is a general partnership in which Messrs. Frank,
Bernard and Anthony Iacovangelo have a 40%, 40% and 10% interest,
respectively. They have shared voting and investment power with respect to
the shares owned by the partnership.
Item 13. Certain Relationships and Related Transactions
The principal offices of the Company are located at 370 East Avenue,
Rochester, New York. These facilities are leased from Fitch Building Associates,
a partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo,
directors and/or officers of the Company, are partners. Four Corners Abstract
Corporation ("FCAC"), a subsidiary of the Company, currently leases
approximately 11,500 square feet of such space, pursuant to a lease expiring on
June 30, 2000 at a monthly rent of $6,000 through January, 1999 and $7,665
through June, 2000.
<PAGE>
-28-
The Company also leases storage space in Rochester, New York from another
company controlled by one of its principal stockholders/ directors at an annual
rent of $45,000 through December, 1999.
Annual rental payments, pursuant to the lease, including common area
charges, were approximately $117,000, in 1998 and $72,000 in 1997 and 1996,
respectively. During 1997, total unpaid rent of $18,100 was forgiven by the
related party. At December 31, 1998 there were no outstanding rental payments.
The company owed approximately $15,000 for unpaid rent at December 31, 1997.
Messrs. Frank and Bernard Iacovangelo, officers and directors of the
Company, are members of the law firm of Gallo & Iacovangelo, general counsel to
the Company.
During 1997 and 1996, Frank Iacovangelo, President of the Company, made
advances to the Company. As of December 26, 1998, these advances bear interest
at the rate of 10.5% per annum and repayment is subordinated to the amounts
outstanding under the Company's line of credit agreements. Mr. Iacovangelo has
agreed not to require payment of these advances through January 1, 2000. At
December 31, 1998, 1997 and 1996, this indebtedness amounted to $47,500,
$97,000, and $234,500, respectively. In 1998, the Company paid Mr. Iacovangelo
$7,948 in interest.
In 1999, 1997 and 1996, approximately 12%, 8%, and 4%, respectively, of the
Company's revenue was derived from the law firm of Gallo and Iacovangelo, a
related party. At December 31, 1998, 1997, and 1996, the Company was owed
$76,346, $79,125, and $44,878 respectively, from Gallo and Iacovangelo. Rates
charged were comparable to those charged similar customers.
<PAGE>
-29-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report and as
response to Item 8:
(1) Financial Statements
- Auditors' Report dated March 16, 1999
- Consolidated Balance Sheets - December 31, 1998 and 1997
- Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996
- Consolidated Statements of Changes in Stockholders' Investment
for the Years Ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
- Notes to Consolidated Financial Statements (1) through (11)
(2) Financial Statement Schedules
- Auditors' Report Dated March 16, 1999
- Schedule VII - Valuation and Qualifying Accounts for the Years
Ended December 31, 1998, 1997 and 1996
(3) Exhibits
(a) 22 Subsidiaries of Registrant
27 Financial Data Schedule
99.1 Proxy Statement
99.2 Certificate of Amendment to Restated Certificate of
Incorporation
99.3 Form 15
<PAGE>
-30-
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth
quarter of the year ended December 31, 1997.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (2) above.
<PAGE>
-31-
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: FOUR CORNERS FINANCIAL CORPORATION
By: /s/ Frank B. Iacovangelo
---------------------------------------
Frank B. Iacovangelo, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capabilities on the dates indicated.
/s/ Frank B. Iacovangelo June 11, 1999
- ---------------------------------------
Frank B. Iacovangelo
Chairman, Treasurer and Director
(Chief Executive Officer and
Chief Financial Officer
/s/ William S. Gagliano June 11, 1999
- ---------------------------------------
William S. Gagliano
President, Chief Accounting Officer
and Director
/s/ Bernard J. Iacovangelo June 11, 1999
- ---------------------------------------
Bernard J. Iacovangelo
Vice President, Secretary and
Director
/s/ Anthony M. Iacovangelo June 11, 1999
- ---------------------------------------
Anthony M. Iacovangelo
Director
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 26, 1998 AND DECEMBER 27, 1997
TOGETHER WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Reports
Consolidated Balance Sheets as of December 26, 1998 and December 27, 1997 1
Consolidated Statements of Income for the years ended
December 26, 1998, December 27, 1997 and December 28, 1996 2
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 26, 1998, December 27, 1997 and December 28, 1996 3
Consolidated Statements of Cash Flows for the years ended
December 26, 1998, December 27, 1997 and December 28, 1996 4
Notes to Consolidated Financial Statements 5 to 13
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Four Corners Financial Corporation
and Subsidiary
We have audited the accompanying consolidated balance sheet of Four
Corners Financial Corporation and Subsidiary as of December 26, 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Four Corners Financial Corporation and Subsidiary as of December
26, 1998, and the results of their operations, and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
March 16, 1999
Buffalo, New York
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Four Corners Financial Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of Four
Corners Financial Corporation and Subsidiary as of December 27, 1997, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Four Corners
Financial Corporation and Subsidiary as of December 27, 1997, and the results
of their operations and their cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
BONADIO & CO., LLP
November 30, 1998
Rochester, New York
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 26, 1998 AND DECEMBER 27, 1997
ASSETS
1998 1997
---- ----
CURRENT ASSETS:
Cash $ 134,133 $ 92,623
Cash restricted- escrow deposits 150,971 240,465
Accounts receivable, net of allowance for
doubtful accounts of $174,000 and $90,000
in 1998 and 1997, respectively 535,747 573,623
Prepaid expenses 5,890 7,819
Deferred tax asset 65,000 -
Current portion of note receivable - 3,750
------------- -------------
Total current assets 891,741 918,280
PROPERTY AND EQUIPMENT, net 185,776 110,240
TITLE PLANT 419,905 419,905
OTHER ASSETS:
Security deposits 6,077 6,627
------------- -------------
$ 1,503,499 $ 1,455,052
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---- ----
CURRENT LIABILITIES:
Demand note payable $ 82,500 $ 100,000
Current portion of notes payable 37,550 173,462
Current portion of subordinated debt due
to officers/stockholders 148,000 18,000
Accounts payable and other accrued expenses 320,206 373,843
Accounts payable - related parties - 19,907
Escrow deposits 150,971 240,465
Accrued income taxes 28,927 3,296
Accrued payroll and related taxes 143,289 107,779
------------- -------------
Total current liabilities 911,443 1,036,752
LONG-TERM LIABILITIES, net of current portion:
Notes payable 71,830 20,739
Subordinated debt due to officers/
stockholders 29,500 79,000
------------- -------------
Total long-term liabilities 101,330 99,739
------------- -------------
Total liabilities 1,012,773 1,136,491
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $4.00 par value, 150,000
shares authorized, 33,487 issued and
32,937 outstanding in 1998 and 1997 133,752 133,752
Additional paid-in capital 849,502 849,502
Accumulated deficit (461,903) (634,068)
------------- -------------
521,351 349,186
Less: Treasury stock; at cost 550 shares (30,625) (30,625)
------------- -------------
Total stockholders' equity 490,726 318,561
------------- -------------
$ 1,503,499 $ 1,455,052
============= =============
The accompanying notes are an integral part of these consolidated statements.
- 1 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Abstract and appraisal services $ 3,217,203 $ 2,471,421 $ 2,403,808
Title insurance premiums 1,997,540 1,318,443 1,302,970
------------- ------------- -------------
5,214,743 3,789,864 3,706,778
------------- ------------- -------------
DIRECT COSTS OF REVENUE:
Abstract and appraisal services (611,330) (503,421) (400,328)
Title insurance premiums (432,177) (310,614) (370,506)
------------- ------------- --------------
(1,043,507) (814,035) (770,834)
------------- ------------- -------------
Gross profit 4,171,236 2,975,829 2,935,944
OPERATING EXPENSES (3,829,983) (2,733,595) (2,786,219)
------------- ------------- -------------
Income from operations 341,253 242,234 149,725
------------- ------------- -------------
OTHER EXPENSES:
Interest (32,691) (45,560) (60,661)
Loss on disposal of property (1,462) (7,836) -
------------- ------------- -------------
(34,153) (53,396) (60,661)
------------- ------------- -------------
Income before income taxes and extraordinary 307,100 188,838 89,064
item
PROVISION FOR INCOME TAXES (97,395) (700) (3,346)
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 209,705 188,138 85,718
EXTRAORDINARY ITEM (NOTE 8) (37,540) - -
------------- ------------- -------------
NET INCOME $ 172,165 $ 188,138 $ 85,718
============= ============= =============
PER SHARE DATA - BASIC :
NET INCOME BEFORE EXTRAORDINARY ITEM $ 6.37 $ 5.71 $ 2.57
============= ============= =============
EXTRAORDINARY ITEM $ (1.14) $ - $ -
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
- 2 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
Common Stock
-----------
Additional
Shares Paid-in Accumulated Treasury
Outstanding Amount Capital Deficit Stock
----------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE - December 25, 1995 3,343,733 $ 133,752 $ 835,402 $ (907,924) $ (5,625)
Retroactive effect of reverse stock split (3,310,296) - - - -
Net income - - - 85,718 -
Purchase of treasury stock (500) - - - (25,000)
------------- ------------- ------------- ------------- -------------
BALANCE - December 28, 1996 32,937 133,752 835,402 (822,206) (30,625)
Net income - - - 188,138 -
Forgiveness of rent due to related party, net of
income taxes of $4,000 - - 14,100 - -
------------- ------------- ------------- ------------- -------------
BALANCE - December 27, 1997 32,937 133,752 849,502 (634,068) (30,625)
Net income - - - 172,165 -
------------- ------------- ------------- ------------- -------------
BALANCE - December 26, 1998 32,937 $ 133,752 $ 849,502 $ (461,903) $ (30,625)
============= ============= ============= ============== ==============
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
BALANCE - December 25, 1995 $ 55,605
Retroactive effect of reverse stock split -
Net income 85,718
Purchase of treasury stock (25,000)
-------------
BALANCE - December 28, 1996 116,323
Net income 188,138
Forgiveness of rent due to related party, net of
income taxes of $4,000 14,100
-------------
BALANCE - December 27, 1997 318,561
Net income 172,165
-------------
BALANCE - December 26, 1998 $ 490,726
=============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
- 3 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 172,165 $ 188,138 $ 85,718
Adjustments to reconcile net income to cash flow from operating activities:
Provision for bad debts 84,000 6,000 -
Loss on disposal of property and equipment 1,462 7,836 -
Depreciation and amortization 56,928 59,854 79,995
Deferred tax benefit (65,000) - -
Other - (4,000) -
Changes in:
Accounts receivable (46,124) (68,861) (45,581)
Prepaid expenses 1,929 (1,905) 7,402
Accounts payable and other accrued expenses (73,544) (35,247) 33,918
Accrued income taxes 25,631 1,796 -
Accrued payroll and related taxes 35,510 43,826 13,067
------------- ------------- -------------
Net cash flow from operating activities 192,957 197,437 174,519
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,616) (35,407) (16,346)
Payments received on note receivable 3,750 3,750 5,000
Change in security deposits 550 2,133 6,496
Change in cash value of officer life insurance - 18,618 (1,002)
Investment in title plant - - (52,622)
------------- ------------- -------------
Net cash flow from investing activities (25,316) (10,906) (58,474)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Change in demand note payable (17,500) 50,000 15,000
Borrowings on notes payable - - 10,232
Repayment of notes payable (189,131) (43,020) (149,456)
Borrowings on subordinated debt due to officers/stockholders 130,000 - 7,000
Repayment of subordinated debt due to officers/stockholders (49,500) (137,500) -
Purchase of treasury stock - - (25,000)
------------- ------------- -------------
Net cash flow from financing activities (126,131) (130,520) (142,224)
------------- ------------- -------------
NET CHANGE IN CASH 41,510 56,011 (26,179)
CASH - beginning of year 92,623 36,612 62,791
------------- ------------- -------------
CASH - end of year $ 134,133 $ 92,623 $ 36,612
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
- 4 -
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998, DECEMBER 27, 1997, AND DECEMBER 28, 1996
(1) The Company
Four Corners Financial Corporation (FCFC) and its subsidiary, Four
Corners Abstract Corporation (FCAC) provide 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 primarily in Western and Central New York
State. All of these services and products are required in connection
with the mortgaging, sale or purchase of real property.
Unless otherwise indicated, the term "Company" refers to Four Corners
Financial Corporation and its subsidiary. The Company operates in one
business segment.
(2) Summary of Significant Accounting Policies
Principles of Consolidation -
The consolidated financial statements include the accounts of FCFC and
FCAC. All significant intercompany transactions and balances have been
eliminated.
Fiscal Year -
The Company uses a 52-53 week fiscal year ending on the last Saturday
of December. There were 52 weeks in fiscal 1998, 1997 and 1996.
Cash -
The Company maintains its cash in accounts at financial institutions
which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk with respect to these accounts.
Escrow Deposits -
As a service to its customers, the Company administers escrow deposits
representing undisbursed amounts received for settlements of mortgage
loans or property sales and indemnities against specific title risks.
These funds are restricted for this purpose and recorded as both a
current asset and a current liability in the accompanying consolidated
balance sheet.
5
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
Property and Equipment -
Property and equipment is stated at cost and is depreciated using
accelerated and straight-line methods over the following useful lives:
Furniture and equipment 3 - 10 years
Vehicles 5 years
Leasehold improvements Term of lease
At the time of retirement or other disposition of property, the cost
and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in the statement of income. Repairs and
maintenance costs are charged to expense when incurred.
Long-lived assets to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. In performing the
review for recoverability, the Company estimates the future cash flows
expected to result from the use of the asset and its eventual
disposition. An impairment loss is recognized if the sum of the
undiscounted future cash flows is less than the carrying amount of the
asset. As of December 26, 1998, the Company believes that no
impairment exists.
Title Plant -
Title plant consists of copies of public records, maps and other
relevant historical documents which facilitate the preparation of
title abstract reports without the necessity of manually searching
official public records.
The Company has incurred identifiable costs related to the activities
necessary to construct a title plant which are reflected as assets. A
title plant is regarded as a tangible asset having an indefinite
economic life; accordingly, title plant costs are not depreciated. The
Company periodically evaluates the carrying value of the title plant
to determine if there has been an impairment in the value due to
effects of obsolescence, demand, competitive actions and abandonment.
At December 26, 1998, no impairment in value has been recognized.
Revenue Recognition -
Title insurance is provided to purchasers or financiers of real
property. The related revenue is recognized when policies become
effective, generally at the property or mortgage loan closing. Under
terms of the Company's agreements with its title insurance
underwriters, a commission of 15 - 20% is paid to its underwriter on
all title insurance policies written. Pricing is based on a rate
schedule established by the Insurance Department of the State of New
York which provides for varying rates for services rendered.
Commission expense is reflected as a direct cost of title insurance
revenue in the statements of income.
The Company also performs title abstract research on real properties.
Abstract revenue is recognized as earned when the services are
performed. Direct costs of abstract revenue include the cost of work
performed by subcontractors in geographical areas where the Company
does not maintain an office, among other direct costs.
6
<PAGE>
(2) Summary of Significant Accounting Policies (Continued)
Concentration of Credit Risk -
The Company received approximately 11% of its revenue from one
customer during 1998. Accounts receivable from this customer amounted
to approximately $115,000 at December 26, 1998. The loss of this
customer may have an adverse effect on the future results of
operations.
Advertising Costs -
The Company expenses advertising costs in the year incurred.
Advertising expense was $26,466, $21,370 and $17,248 for the fiscal
years ended in 1998, 1997 and 1996, respectively.
Net Income Per Share -
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" (EPS), which is effective for
both interim and annual periods ending after December 15, 1997. SFAS
No. 128 requires dual presentation of basic EPS and diluted EPS. Basic
EPS is computed as net income divided by the weighted-average number
of common shares outstanding for the period. The weighted average
number of common shares outstanding was 32,937 for 1998 and 1997 and
33,312 for 1996. The Company had no outstanding options, warrants or
other potential common stock equivalents in any of the three years
ended December 26, 1998. Reported EPS in prior periods have been
restated to conform to the provisions of SFAS 128.
Statement of Cash Flows -
Cash paid for interest in 1998, 1997 and 1996 was $32,691, $45,560 and
$58,394 respectively. Cash paid for income taxes in 1998, 1997 and
1996 were $136,764, $1,404 and $3,346, respectively. During 1998, the
Company entered into direct financing transactions for the acquisition
of vehicles and equipment in the amount of $104,308.
Estimates -
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and revenue and expenses during
the reporting period. Actual results could differ from these
estimates.
Fair Value of Financial Instruments -
The Company's financial instruments consist of cash, accounts and
notes receivable, accounts payable and debt. The carrying amounts
approximate their fair value due to their short term maturity, or in
the case of long term debt, such amounts bear rates of interest which
approximate the Company's current borrowing rate for instruments with
similar terms.
7
<PAGE>
(3) Property and Equipment
Property and equipment consisted of the following at December 26, 1998
and December 27, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Furniture and equipment $ 971,407 $ 900,979
Vehicles 129,795 87,685
Leasehold improvements 49,564 49,564
------------- -------------
1,150,766 1,038,228
Less: Accumulated depreciation and amortization (964,990) (927,988)
------------- -------------
$ 185,776 $ 110,240
============= =============
</TABLE>
Depreciation and amortization expense for 1998, 1997 and 1996 was
$56,928, $59,854 and $79,995, respectively.
(4) 401(k) Plan
The Company sponsors a 401(k) plan for its employees. Under the plan,
each eligible participant may contribute a percentage, up to 15% of
compensation, to the plan. Participants' accounts are credited for
their contributions upon disbursement of payroll. Discretionary
employer matching contributions are provided for in the plan.
The 401(k) plan discretionary matching expense was $8,832, $7,665 and
$7,348 for the fiscal years ended in 1998, 1997 and 1996,
respectively.
(5) Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
property and certain expenses for financial and income tax reporting
purposes. Deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or
settled.
The provision for income taxes consisted of the following for the
fiscal years ended in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 120,951 $ - $ -
Deferred (48,000) - -
State:
Current 41,444 700 3,346
Deferred (17,000) - -
-------------- ------------- -------------
$ 97,395 $ 700 $ 3,346
============= ============= =============
</TABLE>
8
<PAGE>
(5) Income Taxes (Continued)
Income tax expense for 1998, 1997 and 1996 differs from the expected
tax expense computed by applying the U.S. Federal corporate income tax
rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected tax expense $ 91,800 $ 68,400 $ 30,300
Effect of graduated Federal rates (3,100) (6,100) (3,400)
State income taxes, net of Federal
income tax benefit 23,600 11,200 5,300
Change of valuation allowance
related to loss carryforwards (27,000) (74,300) (27,800)
Other, net 12,095 1,500 (1,054)
------------- ------------- --------------
$ 97,395 $ 700 $ 3,346
============= ============= =============
The tax effects of temporary differences that give rise to deferred
taxes are as follows at December 26, 1998, December 27, 1997 and
December 28, 1996:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax asset:
Accounts receivable allowance $ 52,200 $ 27,000 $ 25,200
Accrued liabilities 12,800 - -
Net operating loss carryforward - - 76,100
Valuation allowance - (27,000) (101,300)
------------- -------------- --------------
$ 65,000 $ - $ -
============= ============= =============
</TABLE>
A valuation allowance was provided for the deferred tax asset in 1997
and 1996 due to the uncertainty of realization.
(6) Demand Note Payable
The Company may borrow up to $100,000 under the terms of an unsecured
line-of-credit. Amounts borrowed bear interest at the bank's prime
interest rate plus 1%. The bank's prime rate was 7.75% at December 26,
1998. Borrowings under this line-of-credit are personally guaranteed
by the Company's principal officers/stockholders. At December 26, 1998
and December 27, 1997, there was $82,500 and $100,000, respectively,
outstanding under the terms of this line-of-credit.
9
<PAGE>
(7) Notes Payable
Notes payable consisted of the following at December 26, 1998 and
December 27, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Various notes payable with aggregate monthly installments of $3,737
($1,116 - 1997), including interest at rates ranging from .9% to 12.2%.
These notes mature through October, 2002 and are collateralized by the
related equipment.
$ 109,380 $ 30,034
Note payable to a bank with monthly principal payments of $6,230 through
October, 1999, plus interest at the bank's prime rate plus 1.25%. This
note was guaranteed by the officers/stockholders of the Company and was
collateralized by substantially all of the Company's assets. The note
was paid in full in 1998.
- 134,167
Term note payable to a bank with monthly principal payments of $1,542
through October, 1999, plus interest at the bank's prime rate plus 1%.
This note was also guaranteed by the officers/stockholders of the
Company and was collateralized by substantially all of the Company's
assets. The note was paid in full in 1998.
- 30,000
------------- -------------
109,380 194,201
Less: Current portion (37,550) (173,462)
------------- -------------
$ 71,830 $ 20,739
============= =============
</TABLE>
The notes payable to a bank required the Company to meet certain
financial covenants. At December 27, 1997 and December 28, 1996, the
Company was not in compliance with all of the financial covenants. The
Company obtained a waiver from the bank for these covenants through
December, 1997 and 1996. At December 27, 1997, $70,903 of long-term
notes payable had been classified as current due to the covenant
violation.
Future maturities of long-term debt are as follows at December 26,
1998:
1999.............................................$ 32,586
2000............................................. 29,428
2001............................................. 20,438
2002............................................. 8,461
-------------
$ 90,913
=============
10
<PAGE>
(8) Stockholders' Investment
Reverse Stock Split -
On March 26, 1999 the Company's Board of Directors authorized a
1-for-100 reverse stock split. In conjunction with the reverse stock
split, the number of authorized shares will be reduced from 15,000,000
to 150,000 and the par value increased from $.04 to $4.00 per share.
This transaction was given retroactive effect in the accompanying
financial statements and related footnotes. The Board intends to have
the Company purchase the stock of all fractional shareholders after
the reverse split. The purchase price per share after the reverse
stock split will be $12. The total amount to be paid to fractional
shareholders to purchase their fractional shares is approximately
$2,500. The costs incurred relating to this transaction during the
year ended December 26, 1998 amounted to $37,540 and have been
reported as an extraordinary item in the accompanying statement of
income. The Company also intends to pay shareholders who hold
fractional shares as a result of a 1992 1-for-4 reverse stock split.
The total amount to be paid to these shareholders is approximately
$1,700.
Stock Options -
In July, 1992, the Company's Board of Directors adopted and the
stockholders approved the 1992 Stock Option Plan (1992 Plan) which
replaced the 1988 Stock Incentive Plan (1988 Plan).
Under the 1992 Plan, the Company may issue incentive stock options,
non-statutory options, non-employee director options and reload
options. The Company has reserved 6,475 common shares for issuance
under the 1992 plan. The exercise price of incentive, non-statutory
and reload options will not be less than fair market value at date of
grant. Incentive and non-statutory options will generally expire ten
years from date of grant. Reload options will have a term equal to the
remaining option term of the underlying option.
The 1992 Plan also provides for annual grants of stock options to
purchase 5 shares of the Company's common stock to non-employee
directors of the Company with an exercise price not less than fair
market value at date of grant. These options will expire ten years
from date of grant.
The Company did not have any outstanding options under the 1992 plan
as of December 26, 1998, December 27, 1997 and December 28, 1996.
There were no options issued during the three years ended December 26,
1998.
(9) Related Party Transactions
Subordinated Debt Due to Officers/Principal Stockholders -
During 1997 and 1996, one of the Company's officers/stockholders made
advances to the Company. The outstanding amount of these advances was
$177,500 and $97,000 at December 26, 1998 and December 27, 1997,
respectively. Amounts borrowed bear interest at the prime rate plus
3%. The prime rate was 7.75% at December 26, 1998. Interest expense
was $7,948, $18,149 and $21,292 during 1998, 1997 and 1996,
respectively. Repayment of these advances is subordinated to the
amounts outstanding under all other bank debt agreements. Principal
repayment in future years is scheduled for $18,000 per year.
11
<PAGE>
(9) Related Party Transactions (Continued)
On December 26, 1998, two of the Company's officers/stockholders made
additional advances to the Company for $65,000 each. Amounts borrowed
bear interest at 10.5% due monthly. These advances are due and payable
on December 25, 1999.
Future maturities of total debt due to officers/principal stockholders
are as follows at December 26, 1998:
1999...............................................$ 148,000
2000............................................... 18,000
2001............................................... 11,500
------------
$ 177,500
============
Office Lease Commitment -
The Company leases its Rochester facility through June 2000 from a
company controlled by FCAC's principal stockholder at a monthly rent
of $6,000 through January, 1999, and $7,665 through June, 2000. The
Company also leases storage space in Rochester from another company
controlled by FCAC's principal stockholder at an annual rent of
$45,000 through December, 1999. Rent and common area charges were
approximately $117,000 in 1998 and $72,000 in 1997 and 1996. At
December 26, 1998, there were no outstanding rental payments. The
Company owed approximately $15,000 for unpaid rent at December 27,
1997, which is included in accounts payable to related parties in the
accompanying balance sheet.
Minimum future lease payments under lease agreements with related
parties are as follows at December 26, 1998:
1999...............................................$ 135,315
2000............................................... 45,990
------------
$ 181,305
============
During 1997, total unpaid rent of $18,100 was forgiven by another
related party. This amount has been reflected as a capital
contribution, net of income taxes of $4,000 in the financial
statements for the year ended December 27, 1997.
Revenue and Accounts Receivable -
In each of 1998, 1997 and 1996, approximately 12%, 8%, and 4%,
respectively, of abstract revenue was derived from a law firm in which
an officer/stockholder is a partner in. At December 26, 1998, December
27, 1997 and December 28, 1996, the Company was owed $76,346, $79,125
and $44,878, respectively, related to this revenue.
12
<PAGE>
(10) Lease Commitments
The Company leases other office facilities under operating lease
agreements with unrelated parties expiring through June, 2003.
Minimum future lease payments under non-cancelable lease agreements
with unrelated parties are as follows at December 26, 1998:
1999...............................................$ 76,502
2000............................................... 33,732
2001............................................... 30,482
2002............................................... 25,932
2003............................................... 12,966
------------
$ 179,614
============
Rent expense related to these operating leases was approximately
$113,000, $126,000 and $121,000 for the fiscal years ended in 1998,
1997 and 1996, respectively.
(12) Litigation
The Company is involved in various legal actions in the normal course
of its business. In the opinion of management, the eventual outcome of
these actions will not have a material adverse effect on the financial
statements of the Company.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
To the Stockholders of
Four Corners Financial Corporation and Subsidiary:
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
FREED MAXICK SACHS & MURPHY, P.C.
March 16, 1999
Buffalo, New York
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
To the Stockholders of
Four Corners Financial Corporation and Subsidiary:
Our report on our audit of the basic financial statements of Four Corners
Financial Corporation and Subsidiary as of December 27, 1997 and December 28,
1996, and for each of the two years in the period ended December 31, 1997,
appears elsewhere in this Registration Statement. Those audits were made for
the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The supplemental schedules are presented for the
purpose of complying with the Securities and Exchange Commission's rules and
regulations and are not a required part of the basic financial statements. The
supplemental schedules have been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
BONADIO & CO., LLP
November 30, 1998
Rochester, New York
<PAGE>
FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
Additions
---------
Balance at Charges to Balance at
Beginning Charges to Other End of
of Period Expenses Accounts Deductions Period
--------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 26, 1998:
Allowance for doubtful accounts $ 90,000 $ 274,547 $ - $ (190,547) $ 174,000
========== =========== ========== ============ ===========
FOR THE YEAR ENDED DECEMBER 27, 1997:
Allowance for doubtful accounts $ 84,000 $ 112,329 $ - $ (106,329) $ 90,000
========== =========== ========== ============ ===========
FOR THE YEAR ENDED DECEMBER 28, 1996:
Allowance for doubtful accounts $ 84,000 $ 114,175 $ - $ (114,175) $ 84,000
========== =========== ========= ============ ===========
</TABLE>
<PAGE>
EXHIBIT 22
Subsidiaries of Registrant
--------------------------
Name State Incorporated
- ---- ------------------
Four Corners Abstract Corporation New York
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 134,133
<SECURITIES> 0
<RECEIVABLES> 709,747
<ALLOWANCES> 174,000
<INVENTORY> 0
<CURRENT-ASSETS> 891,741
<PP&E> 1,150,766
<DEPRECIATION> 964,990
<TOTAL-ASSETS> 1,503,499
<CURRENT-LIABILITIES> 911,443
<BONDS> 0
<COMMON> 133,752
0
0
<OTHER-SE> 356,974
<TOTAL-LIABILITY-AND-EQUITY> 1,503,499
<SALES> 5,214,743
<TOTAL-REVENUES> 5,214,743
<CGS> 1,043,507
<TOTAL-COSTS> 3,829,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,153
<INCOME-PRETAX> 307,100
<INCOME-TAX> 97,395
<INCOME-CONTINUING> 209,705
<DISCONTINUED> 0
<EXTRAORDINARY> 37,540
<CHANGES> 0
<NET-INCOME> 172,165
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
<PAGE>
EXHIBIT 99.1
------------
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
FOUR CORNERS FINANCIAL CORPORATION
370 East Avenue
Rochester, New York 14604
Date of Proxy Statement: February 24, 1999
Date of Mailing: March 5, 1999
Special Meeting of Shareholders: March 26, 1999
The enclosed Proxy is solicited by The Board of Directors of Four
Corners Financial Corporation (hereinafter the "Company"). Any Proxy given
pursuant to this solicitation may be revoked by the Shareholder at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Executive Vice President of the Company, (ii) properly
submitting to the Company a duly executed Proxy bearing a later date, or (iii)
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in and of itself revoke a Proxy. All written notices of
revocation and other communications with respect to revocation of Proxies
should be addressed as follows: William S. Gagliano, Executive Vice President,
370 East Avenue, Rochester, New York 14604. Shares of common stock represented
by properly executed Proxies received at or prior to the Special Meeting and
which have not been revoked will be voted in accordance with the instructions
indicated thereon. If no instructions are indicated on a properly executed
Proxy, such Proxies will be voted FOR each of the proposals set forth in this
Proxy Statement.
All of the expenses involved in preparing and mailing this Proxy
Statement and the material enclosed herewith will be paid by the Company. The
Company will reimburse banks, brokerage firms and other custodians, nominees
and fiduciaries for expenses reasonably incurred by them in sending Proxy
material to beneficial owners of stock.
Holders of a majority of the issued and outstanding common stock of
the Company must be present in person or by Proxy in order to establish a
quorum for conducting business at the Special Meeting. Only record holders of
the common stock at the close of business on February 24, 1999 are entitled to
vote at the Special Meeting. On that day, 3,293,403 shares of the $.04 par
value common stock of the Company were issued and outstanding. Each share is
entitled to one vote at the Special Meeting.
SHAREHOLDERS ARE ENCOURAGED TO READ AND REVIEW CAREFULLY THIS PROXY STATEMENT
AND THE FINANCIAL INFORMATION AND EXHIBITS INCLUDED HEREWITH. NO PERSONS HAVE
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON.
<PAGE>
THE SPECIAL MEETING
- -------------------
At the Special Meeting, the record holders of the Company's common
stock on February 24, 1999 (the record date for the Special Meeting) will be
asked to consider, vote upon and approve the following proposals:
1. To approve the Board of Directors adoption of an
Amendment to the Company's restated Certificate of
Incorporation which provides for: (a) a reduction of
the number of authorized shares of the Company's
Common Stock from 15,000,000 authorized shares with
a par value of $.04 per share to 150,000 authorized
shares with a par value of $4.00 per share and (b) a
1 for 100 reverse stock split of the Company's
currently issued and outstanding common stock;
2. To approve a cash payment in the amount of $12.00
times each fraction of a share resulting from such
reverse stock split in lieu of the issuance of any
resulting fractional shares;
3. To approve the payment by the Company of the
indebtedness owed to Shareholders owing fractional
shares resulting from the 1 for 4 reverse stock
split effective July 31, 1992, together with the
payment of simple interest on the amount of such
indebtedness.
The text of the proposed Certificate of Amendment to the Company's
restated Certificate of Incorporation is set forth in Exhibit A to this Proxy
Statement. The adoption of Proposals One and Two is conditioned upon the
adoption of each other. Consequently, a vote against Proposal One will have the
effect of a vote against Proposal Two. Proposals One and Two are referred to in
this Proxy Statement together as the "Reverse Stock Split". Proposal Three is
not related to or in any way conditioned upon the adoption of Proposals One and
Two and a vote for or against Proposals One and Two will have no effect upon
Proposal Three and a vote for or against Proposal Three will have no effect
upon Proposals One and Two.
-2-
<PAGE>
OVERVIEW OF THE REVERSE STOCK SPLIT
- -----------------------------------
The following is a brief overview of certain information regarding
Proposals One and Two which, together, are referred to as the "Reverse Stock
Split" throughout this Proxy Statement. This overview is not intended to be a
complete description of the matters covered in this Proxy Statement regarding
the Reverse Stock Split and is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Proxy
Statement, including the Exhibits hereto and the documents incorporated by
reference herein.
Purpose of the Reverse Stock Split
- ----------------------------------
The purpose of the Reverse Stock Split is to cause the Company to
become a privately owned corporation and to afford approximately 1,138
Shareholders to receive cash consideration for all or a portion of their equity
position in the Company which is, in the reasonable belief of the Board of
Directors, a fair price for such equity position, without such persons
incurring the attendant costs of sale. See "The Reverse Stock Split Purpose;
The Reverse Stock Split - Fairness."
The Reverse Stock Split - Structure and Payment of Cash Consideration
- ---------------------------------------------------------------------
If the Reverse Stock Split is approved by the Shareholders at the
Special Meeting, the Company expects to file a Certificate of Amendment to the
Company's Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware. The form of the Certificate of Amendment is attached as
Exhibit A to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the
Effective Date of filing, the authorized shares of the Company's common stock
will be reduced from 15,000,000 authorized shares with a par value of $.04 per
share to 150,000 authorized shares with a par value of $4.00 per share. On the
Effective Date, each 100 shares of the Company's common stock, $.04 par value
per share, issued and outstanding immediately prior to the Effective Date will
be automatically converted into 1 share of the Company's common stock, with a
par value of $4.00 per share.
The Board of Directors has determined, as is permitted under Delaware
corporate law, to make a cash payment in lieu of the issuance of fractional
shares. Consequently, a cash payment of $12.00 times each fraction of a share
resulting from such 1 to 100 Reverse Stock Split will be made, in lieu of the
issuance of any fractional shares, to those Shareholders who, after the Reverse
Stock Split, own a fractional share of common stock. SHAREHOLDERS HOLDING
COMPLETE SHARES, RATHER THAN FRACTIONS, AFTER THE CONSUMMATION OF THE REVERSE
STOCK SPLIT WILL NOT BE ENTITLED TO RECEIVE CASH IN LIEU OF THOSE COMPLETE
SHARES. See "The Reverse Stock Split - Structure and Payment of Cash
Consideration."
The Reverse Stock Split - Certain Effects
- -----------------------------------------
-3-
<PAGE>
As of the record date, 1,008 Shareholders own, in the aggregate 15,275
shares or .46% of the Company's issued and outstanding common stock. Each of
these Shareholders owns fewer than 100 shares so that, if the Reverse Stock
Split is approved, each of these Shareholders will cease being Shareholders of
the Company. Any Shareholder owning fewer than 100 shares may continue as a
Shareholder, even if the Reverse Stock Split is approved, if he or she were to
increase his or her ownership to 100 or more shares prior to the filing of the
Certificate of Amendment with the Secretary of State of the State of Delaware.
If the Reverse Stock Split is approved, 186 Shareholders owning, in
the aggregate 3,278,128 shares or 99.54% of the Company's issued and
outstanding common stock, will continue as Shareholders since each of these
Shareholders owns 100 or more shares.
Certain Potential Detriments of the Reverse Stock Split
- -------------------------------------------------------
o If the Reverse Stock Split is approved, 1,008 nonaffiliated
Shareholders, owning in the aggregate 15,275 shares, would cease
being Shareholders of the Company.
o If the Reverse Stock Split is approved, 174 nonaffiliated
Shareholders, owning in the aggregate 395,267 shares, will
continue as minority Shareholders and consequently will not,
either singly or by aggregating their shares, be able to elect
any members of the Company's Board of Directors, thereby
affecting decisions regarding the Company's management and
policies, including but not limited to compensation policy,
dividend policy, merger and/or acquisition strategies, sale of
the Company and/or its assets as well as decisions taken with
respect to the ultimate liquidation of the Company and the
distribution of its net assets to Shareholders;
o If the Reverse Stock Split is approved, the Company will elect to
become a private company by applying for termination of the
registration of its shares of common stock under the Securities
Exchange Act of 1934. Consequently, management believes that the
ability of post-Reverse Stock Split Shareholders to locate
broker/dealers willing to enter quotations for the Company's
common stock and/or effectuate trades therein may be severely
curtailed. As a result, it is management's belief that the only
realistic way for continuing Shareholders to realize upon their
equity ownership in the Company would be privately-negotiated
transactions, a corporate redemption and/or liquidation or
management's ability to locate one or more third-party purchasers
for the Company's assets or common stock;
o The Company estimates that it will save between $40,000-$50,000
annually in costs associated with its periodic reporting
obligations under the Securities Exchange Act. If the Reverse
Stock Split is approved, 1,008 nonaffiliated Shareholders, owning
in the aggregate 15,275 shares for which they will receive an
aggregate $1,833, will cease to be Shareholders and thereby will
not participate in such future savings;
-4-
<PAGE>
o The receipt by a Shareholder of cash in lieu of fractional shares
of common stock pursuant to the Reverse Stock Split will be a
taxable transaction for Federal income tax purposes. See
"Material Federal Income Tax Consequences;"
o The Board of Directors did not obtain a report or opinion with
respect to the fairness of the Reverse Stock Split solely from
the standpoint of the Company's nonaffiliated Shareholders;
o The Board of Directors did not obtain a nonaffiliated
representative to act solely on behalf of nonaffiliated
Shareholders for purposes of negotiating the terms of the Reverse
Stock Split or preparing a report with respect to the fairness of
the Reverse Stock Split;
o The Board of Directors did not structure the Reverse Stock Split
to require the approval of at least a majority of the Company's
nonaffiliated Shareholders. In this regard, the Company's
affiliated Shareholders have stated that they will vote their
shares for the Reverse Stock Split. Consequently, approximately
87.5% of the total issued and outstanding common stock of the
Company entitled to vote for the Reverse Stock Split will be cast
in favor and thus the Reverse Stock Split will be approved even
if all of the nonaffiliated Shareholders of the Company vote
their shares against the Reverse Stock Split;
o Under the Delaware General Corporation Law, no appraisal rights
exist with respect to the Reverse Stock Split and the Company is
not voluntarily according dissenting Shareholders such rights.
o SHAREHOLDERS OWNING COMPLETE SHARES, RATHER THAN FRACTIONS OF A
SHARE AFTER THE REVERSE STOCK SPLIT WILL NOT BE ENTITLED TO
RECEIVE ANY CASH PAYMENT.
o The 12 cents per share price being offered is 24% of the price
paid by the Company to purchase a former director's stock in
September, 1996, and 4% of the price per share paid with respect
to the 1992 Reverse Stock Split.
Conflicts of Interest
- ---------------------
The Company's Affiliated Shareholders own, as of the record date,
2,882,861 shares of the Company's issued and outstanding common stock
representing 87.5% of such stock. If the Reverse Stock Split is approved, 1,008
Shareholders of record, owning 15,275 shares or .46% of such stock, will cease
being Shareholders of the Company. Consequently, the percentage of the Company
owned by the Company's Affiliated Shareholders would increase by .59%, from
87.5% to 88.09%. If the Reverse Stock Split is approved, therefore, the
Affiliated Shareholders' share of any dividends and/or other corporate
distribution, including net proceeds of any liquidating distribution or the net
proceeds generated by the sale of the Company's assets or common stock would
increase by such percentage.
-5-
<PAGE>
The Reverse Stock Split - Background
- ------------------------------------
On July 28, 1998, the Board of Directors of the Company met to
consider a proposal to convert the Company to private ownership. In reviewing
the proposal, the Board considered that there has not been an active trading
market for the Company's common stock since February, 1989, none has developed
over the past decade despite management's efforts to stimulate market activity
(including the 1992 reverse stock split) and management's belief that no
significant trading in the Company's common stock is likely to develop in the
foreseeable future. The Board considered that the Company has not qualified and
will not likely qualify in the foreseeable future to have its common stock
eligible for listing on any national securities exchange or for registration on
an inter-dealer quotation system of a registered national securities
association, such as the National Association of Securities Dealers, Inc.
("NASD").
The Board considered that a significant number of the Company's
Shareholders hold less than 100 shares. Of approximately 1,194 Shareholders of
record, 1,008 (approximately 85% of the Company's Shareholders) own fewer than
100 shares of common stock, aggregating 15,275 out of 3,293,403 issued and
outstanding shares (.46%). The Board noted that none of these Shareholders had
taken an active interest in the Company in over a decade and, due to each
individual Shareholder's small equity position, would likely not take an active
interest (including trading his or her shares) in the foreseeable future. The
Board further noted that of the 1,008 Shareholders, 891 owned 25 or fewer
shares. Thus, even if for any reason, an active market were to develop for the
Company's common stock, at prices of, for example, $.50 or $1.00 per share
(which had not occurred in almost a decade) these Shareholders would
nonetheless have limited opportunities to realize commensurate value for their
shares. Any sales of such Shareholders' shares at such prices would ordinarily
involve disproportionately high brokerage commissions unless the minimum
brokerage commission typically payable on any sale transaction were to be
waived and/or reduced.
The Board further considered that the Company has incurred, and, if
the Company were to remain a public company, would continue to incur,
substantial costs as the result of its registered status under the Securities
Exchange Act of 1934 (the "Exchange Act"). The Board concluded that the fact
that no Shareholder of the Company, whether large or small, whether affiliated
or nonaffiliated, had taken advantage of the Company's public status for close
to a decade weighed heavily against continuing to incur substantial costs
associated with continued maintenance of a public market for the Company's
common stock.
Moreover, the Board considered that the sale of the Company (involving
the sale of all or substantially all of the Company's assets, the merger of the
Company into or with another corporation, or another form of business
combination) was not a feasible option at this time. The Board noted that no
third party had expressed any interest in purchasing the assets of the Company,
in merging with the Company, or otherwise in entering into any business
combination with the Company. The Board considered that over the past number of
years, informal discussions with prospective purchasers from time to time had
generated no genuine interest in pursuing formal negotiations for the purchase
of the Company.
-6-
<PAGE>
Based upon these considerations, the Board concluded that neither the
Company itself nor the Company's Shareholders were deriving any material
benefit from the continued registration of the Company's common stock under the
Exchange Act and that a conversion of the Company to private ownership was both
appropriate and desirable.
Dissenting Shareholders Rights
Under the Delaware General Corporation Law, the existing holders of
the Company's common stock are not entitled to dissenters' rights of appraisal
in connection with the consummation of the Reverse Stock Split.
Appraisal
The Board of Directors determined that it would commission the
accounting firm of Bonadio & Co., LLP ("Bonadio"), to conduct an appraisal of
the Company's common stock in order to determine the cash consideration to be
paid to Shareholders owning fractions of shares after the effectiveness of the
Reverse Stock Split ("Fractional Shareholders"). Bonadio submitted its initial
appraisal report to the Board on July 28, 1998 and its final appraisal report
to the Board on September 30, 1998. Based upon the Bonadio appraisal report,
the Board determined that $12.00 times each fraction of a share was a fair
price to pay the Fractional Shareholders. The appraisal report of Bonadio is
found as Exhibit B to this Proxy Statement.
Voting
The proposed Reverse Stock Split must be approved by a vote of not
less than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
The Company's affiliated Shareholders, owning 87.5% of the Company's
issued and outstanding common stock as of the record date, have indicated their
intention to vote for the approval of the Reverse Stock Split and consequently,
it will be approved even if all of the Company's nonaffiliated Shareholders
vote against approval.
-7-
<PAGE>
THE REVERSE STOCK SPLIT - BACKGROUND
- ------------------------------------
On July 29, 1992, the Company's Board of Directors recommended and the
Shareholders approved a 1 for 4 reverse stock split which became effective on
July 31, 1992. The purpose of the 1992 reverse stock split was to stimulate
interest in the Company's common stock which, prior to the split, had not been
actively traded since February, 1989.
The Board of Directors has concluded that the 1992 reverse stock split
has not accomplished its purpose of generating an active market for the
Company's common stock. As reported in the Company's Annual Report (Form 10-K)
filed with the Securities and Exchange Commission for the Company's fiscal year
ended December 31, 1997, there is no trading in the Company's common stock,
such stock being listed in the pink sheets by the National Quotations Bureau,
Inc. without bid and/or asked prices for all quarters in 1995, 1996 and 1997
respectively. This pattern has continued during the first, second and third
quarters of fiscal 1998 and management believes that this trend will continue
for the foreseeable future. See "Market Prices for Shares of Common Stock;
Dividends."
In light of the above circumstances, the Board, at its meeting held
July 28, 1998, considered a proposal to convert the Company to private
ownership. In reviewing the proposal, the Board considered the fact that, as
indicated above, there has not been an active trading market for the Company's
common stock since February, 1989, none has developed over the past decade
despite management's efforts to stimulate market activity (including the 1992
reverse stock split) and management's belief that no significant trading in the
Company's common stock is likely to develop in the foreseeable future. The
Board also noted that management is unaware of any market trades in the
Company's common stock since February, 1989. The Board further considered that
the Company has not qualified and will not likely qualify in the foreseeable
future to have its common stock eligible for listing on any national securities
exchange or for registration on an inter-dealer quotation system of a
registered national securities association, such as the National Association of
Securities Dealers, Inc. ("NASD").
The Board next considered that only 186 of the Company's 1,194
Shareholders own 100 or more shares, with 891 Shareholders owning 25 or fewer
shares. The Board noted that the only transaction since February, 1989 of which
it was aware, that of a Company repurchase in September, 1996 of 50,000 shares
from a former director in a private transaction, was for $.50 a share.
Consequently, even if, for some reason, an active market for the Company's
shares did develop (at, perhaps, $.50 or even $1.00 per share) a significant
number of Shareholders would not be able to realize commensurate value for
their shares unless a waiver of the normal, minimum brokerage commission were
obtained in each case. Consequently, a considerable number of the Company's
Shareholders would face considerable difficulties in order to effectuate a sale
of their shares and thus, realize any commensurate value on their holdings.
-8-
<PAGE>
The Board further considered that 1,008 Shareholders own 15,275
shares, representing a .46% ownership interest in the Company. None of these
Shareholders had taken an active interest in the Company and have not
communicated with the Company (including communications regarding the exchange
of shares and payment of cash consideration as a result of the 1992 reverse
stock split) in over a decade. Consequently, the Board concluded, that based
upon the small amount of such Shareholders' holdings and historical experience,
it was quite unlikely that such Shareholders would take an active interest in
the Company (including trading of their shares) in the foreseeable future.
At the same time, the Company has incurred, and, if the Company were
to remain public, would continue to incur, substantial costs as the result of
its registered status under the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company annually incurs approximately $40,000 - $50,000 in costs
associated with Exchange Act compliance, including legal, auditing, printing
and computer related expenses, to prepare and file its annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports and
schedules required to be filed by the Company's officers, directors and largest
Shareholders, as well as proxy solicitation materials. The Company's management
is also required to devote substantial time and attention to prepare and review
these filings.
The Board next considered that the sale of the Company (involving the
sale of all or substantially all of the Company's assets, the merger of the
Company into or with another corporation, or other form of business
combination) was not a feasible option at this time. The Board noted that no
third party had expressed any interest in purchasing the assets of the Company,
in merging with the Company, or otherwise in entering into a business
combination with the Company. The Board considered that over the past number of
years, informal discussions with prospective purchasers from time to time had
generated no genuine interest in pursuing formal negotiations for the purchase
of the Company. More specifically, no contacts and/or negotiations concerning a
merger, consolidation or acquisition have been entered into or occurred since
the commencement of the Company's fiscal year beginning January 1, 1996.
Based upon the above considerations, the Board concluded that neither
the Company itself nor the Company's Shareholders are deriving any material
benefit from the continued registration of the Company's common stock under the
Exchange Act and that a conversion of the Company to private ownership was both
appropriate and desirable.
-9-
<PAGE>
GOING PRIVATE; CONSIDERATION OF
- -------------------------------
ALTERNATIVES TO REVERSE STOCK SPLIT
- -----------------------------------
At its July 28, 1998 meeting, the Board considered that, under rules
promulgated by the Securities and Exchange Commission, it was necessary to
reduce the number of record holders of the Company's common stock to less than
300 in order to "go private" and deregister its common stock under the Exchange
Act. As the result of such deregistration, management believes that the ability
of post-Reverse Stock Split Shareholders to locate broker/dealers willing to
enter quotations or effectuate trades in the Company's common stock would be
severely curtailed since the Company would no longer be required to furnish
such broker/dealers with current information concerning the Company's
operations and financial condition. Unless the Company was to voluntarily
furnish such information (it has made no commitment to do so), management
believes that the ability of broker/dealers to effectuate trades in the
Company's common stock would be virtually eliminated. See "The Reverse Stock
Split Certain Effects."
The Board reviewed a number of alternatives to the Reverse Stock Split
in order to convert the Company to private ownership. The Board determined that
the first alternative considered, that of privately negotiated or open market
purchases, would be cumbersome and in all likelihood, would not enable the
Company, in any reasonable period of time, to purchase a significant number of
shares of the Company's common stock to ensure the reduction of the number of
the holders of the shares of its common stock to less than 300. The Board noted
that over the past decade the Company has had virtually no meaningful contact
with its numerous but small Shareholders. The Board also determined that the
legal and other transaction costs to implement this alternative would be
substantially greater than the costs to implement the Reverse Stock Split.
Similarly, the Board concluded that a Company tender offer on a
shareholder-wide basis would not be feasible for the same reasons that the
alternative of privately negotiated or open market purchases would not be
feasible.
As discussed above, the Board considered the possibility of a sale of
the Company but concluded that the absence of genuine, prospective purchasers
foreclosed this alternative. The Board also considered the alternative of
additional public or private equity financing to enhance the marketability of
the Company's common stock and concluded that this alternative would not be
feasible. The Company would be required, given the current value of its shares,
to sell a substantial number of additional shares of its common stock in order
to create a larger "public float" in its common stock, resulting in the
dilution of all of the current Shareholders' interest in the Company. There
would be no guarantee that such an alternative would create a more active
market in the Company's common stock; however, the Company would remain subject
to the regulatory and reporting requirements of the Exchange Act.
At its July 28, 1998 meeting, therefore, the Board concluded that the
Reverse Stock Split, including the payment of cash consideration in lieu of
issuing fractional shares, was the most expeditious, efficient and cost
effective method of converting the Company to private ownership. In this
regard, the Board noted that, while the Reverse Stock Split, if approved, would
eliminate a
-10-
<PAGE>
large percentage of existing Shareholders of record (1,008 out of 1,194 or
approximately 85%), such Shareholders own only 15,275 of 3,293,403 (.46%)
outstanding shares. The holders of the Company's equity, represented by 186
Shareholders, would retain and, proportionately, increase their equitable
position in the Company.
THE REVERSE STOCK SPLIT - PURPOSE
- ---------------------------------
The purpose of the proposed Reverse Stock Split is to cause the
Company to become a privately-owned corporation in a manner that is both fair
to the Company and to its Shareholders. As discussed above, management believes
that the Company and its Shareholders do not derive significant benefit from
the Company's status as a public company, including the development of a market
of consequence for its shares of common stock and the appreciation in value as
the result of the public trading of such stock. On the other hand, the
conversion of the Company from a public, reporting company to a private,
non-reporting company will result in substantial benefits to the Company,
including elimination of the substantial costs it incurs each year as the
result of its reporting obligations.
Management proposes to pay cash consideration to Shareholders in lieu
of the issuance to them of fractions of a share resulting from the Reverse
Stock Split. The amount of the cash consideration, $12.00 times each fraction
of a share, was arrived at based upon an appraisal of the Company undertaken by
the Company's independent accounting firm, Bonadio, specifically to arrive at
the amount of such cash consideration. See the "Reverse Stock Split -
Fairness."
The proposed Reverse Stock Split will afford approximately 1,138 of
the Company's 1,194 Shareholders ("Fractional Shareholders") to receive cash
consideration for all or a portion of their equity position in the Company
which is, in the reasonable belief of the Board of Directors, a fair price for
such equity position. The Board considered its payment of cash consideration to
be significant, given the fact that there is not now and will not likely in the
future develop a market of consequence for the shares of the Company's common
stock to permit any significant trading of such shares. Moreover, the Company's
operational and financial constraints, as reported in the Company's 10-K for
the Company's fiscal year ended December 31, 1997, now prevent and likely in
the foreseeable future will prevent the payment of any dividends from earnings
of the Company to its Shareholders.
-11-
<PAGE>
Management believes that these Fractional Shareholders will not
receive anything of value for their shares in the foreseeable future. First, no
market has existed for the Company's common stock for almost a decade. There
has been no interest in the Company for over 10 years, whether expressed by
prospective purchasers of the Company as a whole (there have been none) or by
investors placing an offer or bid for shares of the Company in the open market.
There is no current interest in the Company's stock, and management believes
none is likely to develop. Based upon the Company's past history and current
financial condition, it is highly unlikely that any investor would purchase a
minority position in the Company. In other words, management believes such
Fractional Shareholders have no realistic opportunity to sell their shares
since appear to be no buyers for their shares.
THE REVERSE STOCK SPLIT - STRUCTURE AND
- ---------------------------------------
PAYMENT OF CASH CONSIDERATION
- -----------------------------
If the Reverse Stock Split is approved by the Shareholders at the
Special Meeting, the Company expects to file a Certificate of Amendment to the
Company's Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware on or around December 10, 1998 (the "Effective Date") in
order to effectuate the Reverse Stock Split. The form of the Certificate of
Amendment is attached as Exhibit A to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the
Effective Date, the authorized shares of the Company's common stock will be
reduced from 15,000,000 authorized shares with a par value of $.04 per share to
150,000 authorized shares with a par value of $4.00 per share. On the Effective
Date, each 100 shares of the Company's common stock, $.04 par value per share,
issued and outstanding immediately prior to the Effective Date will be
automatically converted into 1 share of the Company's common stock, with a par
value of $4.00 per share.
As of the record date, there are 3,293,403 common shares issued and
outstanding owned by 1,194 Shareholders. If the Reverse Stock Split is
approved, on the Effective Date, the 3,293,403 common shares will be converted
into 32,723 common shares (after the elimination of fractional shares), owned
by 186 Shareholders. 1,008 Shareholders of record owning, prior to the Reverse
Stock Split, 15,275 shares would be eliminated.
The Board determined, as is permitted under Delaware law, to make a
cash payment in lieu of the issuance of fractional shares. It commissioned the
accounting firm of Bonadio to conduct an appraisal of the Company for the
specific purpose of arriving at a price to pay for each fractional share.
Bonadio submitted its initial appraisal report to the Board on July 28, 1998
and its final appraisal report to the Board on September 30, 1998. Based upon
the Bonadio appraisal report, the Board determined that $12.00 times each
fraction of a share was a fair price to pay the Fractional Shareholders. The
appraisal report of Bonadio is found as Exhibit B to this Proxy Statement.
Within 10 days after the Effective Date, the Company will mail to each
Shareholder a notice of the filing of the Certificate of Amendment (the "Notice
of Filing") and a Letter of
-12-
<PAGE>
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.
THE NOTICE OF FILING AND THE LETTER OF TRANSMITTAL WILL BE TRANSMITTED BY THE
COMPANY TO THE SHAREHOLDERS AT A DATE SUBSEQUENT TO THE EFFECTIVE DATE.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THE NOTICE OF FILING
AND LETTER OF TRANSMITTAL ARE RECEIVED AND SHOULD SURRENDER THEIR CERTIFICATES
ONLY WITH THE RETURN OF THE LETTER OF TRANSMITTAL TO THE COMPANY'S TRANSFER
AGENT AND ONLY IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN THE LETTER OF
TRANSMITTAL.
There will be no service charges payable by the Shareholders in
connection with the exchange of stock certificates or with the payment of cash
consideration in lieu of the issuance of fractional shares of common stock upon
the effectiveness of the Reverse Stock Split. These costs, if any, will be
borne by the Company.
THE REVERSE STOCK SPLIT - FAIRNESS
- ----------------------------------
The Board of Directors, at its meeting held July 28, 1998, considered
the fairness of the proposed Reverse Stock Split. At the same meeting, Messrs.
Frank B., Bernard J., Anthony M. Iacovangelo, in their capacity as affiliated
shareholders of the Company and as controlling partners of Wegman Building
Associates (the "Affiliated Shareholders") also considered the fairness of the
proposed Reverse Stock Split. The Board of Directors and Affiliated
Shareholders, unanimously concluded that, for the reasons set forth herein, the
Reverse Stock Split, is fair to, and in the best interests of, both the Company
and its nonaffiliated Shareholders. In making this determination, the Board of
Directors and Affiliated Shareholders, considered the following factors: (i)
current market prices of the Company's common stock; (ii) historical market
prices of the Company's common stock; (iii) net book value of the Company; (iv)
going concern value of the Company; (v) liquidation value of the Company; (vi)
purchase price paid by the Company or its affiliates within the Company's last
two fiscal years; (vii) the appraisal submitted to the Company's Board and its
Affiliated Shareholders by Bonadio; and (viii) whether the Company or any of
its affiliates were aware of firm offers made by any unaffiliated person during
the preceding 18 months for (A) the merger, consolidation of the Company into
or with such unaffiliated person or of such unaffiliated person into or with
the issuer, (B) the sale or the transfer of all or any substantial part of the
assets of the Company or (C) the sale or any other transfer of the securities
of the Company which would enable the securities holder thereof to exercise
control of the Company.
In assessing these factors, the Board and its Affiliated Shareholders
concluded that it was desirable and appropriate to engage the services of the
Company's accounting firm, Bonadio, to assist each of them in according the
proper weight to be given to each of these factors and to
-13-
<PAGE>
prepare an appraisal of the Company in order to arrive at the cash
consideration to be offered to Fractional Shareholders in connection with the
Reverse Stock Split. In this connection, no restrictions and/or limitations
were placed by either the Board or the Affiliated Shareholders upon Bonadio on
the scope of any investigation to be undertaken or carried on by Bonadio in
making such an appraisal.
In seeking such assistance, the Board and the Affiliated Shareholders
considered the professional experience and background of the Bonadio firm, its
familiarity with the Company and its business, its familiarity with the U.S.
and New York economies as such economies relate to the housing industry and,
more specifically, the Company's sole business, namely, the Title Insurance
Industry. Bonadio is the second largest CPA firm in the metropolitan area of
Rochester, New York. They have four professional specialists in their business
valuation group who concentrate in this area. Each of the members of their
business valuation group has received specialized training in the area of
business valuations through courses offered by the American Institute of
Certified Public Accountants, the National Association of Certified Valuation
Analysts, and the American Society of Appraisers. Their experience includes
performing business valuations in connection with employee stock ownership
plans, gift and estate taxes, buy-sell agreements, mergers and acquisitions,
and succession planning.
The Board and the Affiliated Shareholders also noted that there was no
material relationship between the Company, its Affiliated Shareholders and
Bonadio and/or its members, either currently or during the past two years, and
that no material relationship was understood by the Board and its Affiliated
Shareholders to be contemplated in the future.
The Board of Directors and the Affiliated Shareholders instructed
Bonadio to provide their professional opinion of the fair market value of Four
Corners Financial Corporation and its wholly owned subsidiary on a minority
interest basis as of March 31, 1998.
The results of the Board's and the Affiliated Shareholders' assessment
of the eight factors set forth above were as follows:
(i) current market prices - no weight assigned since no
such prices exist;
(ii) historical market prices - no weight assigned since
the last bid price for the Company's common stock
was made nearly a decade ago;
(iii) Net book value - assigned partial weight. The net
book value of the Company at March 31, 1998 after
applicable discounts for liquidity and minority
interest was estimated as $304,000 or $.09 per share
outstanding. Because this method does not include
intangible value related to the Company's
operations, it was not accorded substantial weight.
(iv) going concern value - substantial weight assigned as
this factor was the major component of Bonadio's
"capitalization of earnings" approach to value
described on pages 17 and 18 of this Proxy
Statement;
-14-
<PAGE>
(v) Liquidation value - assigned partial weight. The
liquidation value of the Company at March 31, 1998
was estimated to be less than the net book value
share of $.09 per share outstanding described in
(iii) above. Because the Company is a going concern
and because liquidation value does not include
intangible value related to the Company's
operations, it was not accorded substantial weight.
(vi) purchase price paid by the Company - it was noted
that on September 5, 1996 the Company repurchased
50,000 shares of its common stock from a former
director of the Company at $.50 per share for the
total consideration of $25,000.00. The amount of
this transaction was equal to the former director's
original purchase price for such shares upon his
election as a director in 1988. The Board of
Directors and Affiliated Shareholders requested
Bonadio to give adequate consideration to this
transaction during its appraisal process, and the
Board and the Affiliated Shareholders have been
assured by Bonadio that such consideration was
given.
(vii) Bonadio appraisal - the Board and the Affiliated
Shareholders accepted Bonadio's appraisal report and
its opinion that the fair market value of the cash
consideration to be paid to Fractional Shareholders
was $12.00 times each fraction of a share resulting
from the 1 for 100 Reverse Stock Split. As described
on Page 1 of the valuation report, Bonadio's opinion
of value relied on a "value in use" or going concern
premise. They assumed in their valuation that the
Company is an ongoing business enterprise. The
concept behind going concern value is that an
operating enterprise has a work force, systems,
procedures, operating assets and organizational
structure in place. Since the Company is a viable
operating entity, it has "intangible" value above
and beyond the "tangible" value of its assets. The
net book and liquidation values were considered by
Bonadio but given only minor weight since the
intangible value of the Company would be ignored.
Bonadio also considered the purchase of shares held
by a former director in 1996 at $.50 per share for
total consideration of $25,000. The amount of the
transaction was equal to the director's original
purchase price upon his election as a director in
1988.
This transaction was considered to be an isolated
event with specific circumstances and not an
accurate indication of fair market value as would be
determined in an efficient market between a
hypothetical willing buyer and seller. The number of
shares purchased represented less than 2% of the
total shares outstanding. Because the transaction
was isolated with specific circumstances and was for
less than 2% of the total shares
-15-
<PAGE>
outstanding, no weight was assigned to this
transaction in estimating the current value of the
Company.
(viii) firm offers - this factor was assigned no weight
since no firm offers have been received.
The appraisal report of Bonadio relied on by the Board of Directors
and Affiliated Shareholders in order to establish the cash consideration to be
paid to the Fractional Shareholders in connection with the Reverse Stock Split
is attached to this Proxy Statement as Exhibit "B".
A summary of Bonadio's appraisal report is as follows:
(i) Appraisal Procedures
--------------------
Bonadio's analysis began with the review of certain
information relating to the financial and operational performance of the
Company. The information included financial statements and tax returns of the
Company for the years ended December 31, 1993 through 1997.
Bonadio also utilized information obtained through
analytical reviews of significant accounts, trend analysis, inventory
accounting policies and valuation, management questionnaires and discussions,
including an interview with William S. Gagliano, Executive Vice President,
receivable collection history, business litigation issues, sales analysis, etc.
This information and Bonadio's extensive knowledge of the Company's operating
history was found to be useful in performing the valuation. After it had
collected the information received from the Company or obtained from its own
resources, Bonadio analyzed this information in order to select the methods of
valuation applicable to its appraisal. It arrived at its opinion of value
utilizing generally accepted valuation approaches and methods, including the
capitalization of earnings method. It also considered but did not use the asset
method because the Company does not hold significant tangible assets. The
guideline company method was also considered. However, a publicly traded
company in a similar business with similar operating characteristics could not
be located.
(ii) Objective
---------
The objective of the analysis was to provide an
independent opinion of the fair market value of a minority interest in the
Company's common stock as of a reasonably practicable date and the date chosen
was March 31, 1998. The appraisal report, annexed to this Proxy Statement as
Exhibit B, provides a detailed narrative explanation of the methods, procedures
and calculations used to arrive at Bonadio's opinion of fair market value as of
such date. The purpose of the valuation was to provide a basis for valuing the
stock of the Company for purposes of the Reverse Stock Split. The Bonadio
opinion is the result of a detailed analysis of the Company including data
accumulations, quantitative analysis, financial analysis and selection of
appropriate valuation criteria. All of the these items were combined with
informed professional judgment to produce a reasonable opinion of the fair
market value of the Company's stock. Bonadio's opinion of fair market value
relied on "value in use" or going concern value. This premise assumes that the
Company is an ongoing business enterprise with management operating in a
rational way with a goal of maximizing shareholder value. The Bonadio analysis
-16-
<PAGE>
considered those facts and circumstances present with respect to the Company at
the valuation date of March 31, 1998 and Bonadio stated in its opinion that its
opinion of value would likely be different if another valuation date was used.
(iii) Material Factors Considered
---------------------------
The appraisal report considered the nature and
history of the Company, its marketing activities and marketing strategies, the
Company's competition, its facilities and equipment, its current state of
financing, its management, the stock ownership of the Company and the Company's
expectations for the future, the United States, New York economic conditions
and outlook in general as well as the conditions and outlook for the Company's
specific business, namely, the title insurance industry.
(iv) Capitalization of Earnings
--------------------------
The basic approach to valuing the Company was the
capitalization of earnings method. The rate used to capitalize the earnings of
the Company is the estimated rate of return currently available in the market on
alternative investments with comparable risk. Bonadio's estimate of the
capitalization rate of the Company was 22.7% and is derived from market evidence
and is the sum of the following components: a risk free investment rate, which
is represented by the yield on 20 year U.S. Treasury Bonds as of the valuation
date; a premium for risk which is the sum of the following: an equity risk
premium, an additional premium for the extra risk associated with the size of
the Company, and an additional premium for other risk factors specific to the
Company relating to its operations.
In determining an adjustment for other risk factors
that should be provided for the Company, Bonadio considered the following
primary factors:
o the Company is regional and dependent on the local economy;
o there are few barriers to entry;
o most customers are loyal to their agent, not necessarily the
company their agent works for;
o the company does not provide specialized or proprietary services;
o the Company does not control significant market share in any
market it operates in;
o the Company has a current ratio of less than 1;
o the Company is highly leveraged;
-17-
<PAGE>
o the Company operates in a mature industry; and
o the Company has not experienced stable operating margins and
earnings in recent years.
The following table summarizes how the
capitalization rate of 22.7% was achieved:
Risk-free investment rate 6.0%
Equity risk premium 8.2%
------
Average market return 14.2%
Risk premium for company size 6.0%
Other risk factors 5.0%
------
Discount rate 25.2%
Average growth rate (2.5)%
------
Capitalization Rate 22.7%
======
(v) Discount
--------
For purposes of the valuation, Bonadio applied
discounts to reflect the lack of marketability and the lack of control
associated with a minority interest. In making these discounts, Bonadio noted
that the availability of a marketability discount is based on the inability of
an owner to quickly convert his investment to cash. Despite the fact that the
Company is a public company, trading has been nonexistent since 1989, the stock
is currently listed in the Pink Sheets with virtually no market for its shares,
and consequently for purposes of the valuation, a marketability discount of 10%
was applied.
A minority discount was used to reflect the
practical difficulties that a minority
shareholder experiences in influencing management or affecting liquidation in
order to convert his shares to cash. For the purpose of its valuation, a
minority discount of 25% was applied.
In accepting the appraisal report of Bonadio, the
Board of Directors and Affiliated Shareholders noted that each had instructed
Bonadio to prepare a fair valuation of the Company's common stock as of March
31, 1998 for the specific purpose of determining the fair value of the cash
consideration to be paid to Fractional Shareholders in lieu of fractional
shares resulting from the Reverse Stock Split and that it had imposed no
limitations on the scope of any investigation to be undertaken or carried on by
Bonadio in making such appraisal.
-18-
<PAGE>
The Board of Directors and Affiliated Shareholders
did not structure the Reverse Stock Split to require the approval of at least a
majority of the Company's nonaffiliated Shareholders. Management believed that
such an approach would be extremely cumbersome and ultimately fruitless since
few, if any, nonaffiliated Shareholders have taken any interest, let alone an
active interest, in the Company for over a decade. The Board of Directors and
Affiliated Shareholders noted over the past 10 years, the Company has had
virtually no meaningful contact with its numerous but small Shareholders and
that only a few nonaffiliated Shareholders had exchanged their shares for new
shares as a result of the July, 1992 reverse stock split and/or received the
cash consideration to which they were entitled as a result of such split. See
Proposal Three.
Management did not retain a nonaffiliated
independent representative to act on behalf of nonaffiliated Shareholders in
connection with the proposed Reverse Stock Split. The Board of Directors and
Affiliated Shareholders did not believe that retaining such a representative
was justified in the light of the Company's history, its current size and
financial condition as well as the lack of nonaffiliated Shareholder response
to the 1992 reverse stock split. In addition, management noted that while the
Reverse Stock Split, if approved, would result in the elimination of 1,008
nonaffiliated Shareholders of record, such nonaffiliated Shareholders owned
only .46% of the Company's issued and outstanding common stock as of the record
date. Moreover, management did commission Bonadio to opine as to a fair market
value to be paid as cash consideration in connection with the Reverse Stock
Split. The Board of Directors and Affiliated Shareholders concluded that the
retention of Bonadio to perform an appraisal of the Company for the specific
purpose of determining the cash consideration to be paid to Fractional
Shareholders served as an adequate substitute for such representative. The
appraisal report of Bonadio specifically concludes that $12.00 times each
fraction of a share resulting from the Reverse Stock Split constitutes fair
market value and the Board and the Affiliated Shareholders are relying on
Bonadio's opinion in recommending the Reverse Stock Split to the Company's
nonaffiliated Shareholders.
Conflict of Interest
- --------------------
The Board of Directors and Affiliated Shareholders also considered
that the Reverse Stock Split presented potential or actual conflicts of
interest between certain members of the Company's Board of Directors in their
capacity as Affiliated Shareholders and the Company's nonaffiliated
Shareholders. Specifically, it was noted that the Company's Affiliated
Shareholders own, as of the record date, 2,882,861 shares of the Company's
issued and outstanding common stock representing 87.5% of such stock. If the
Reverse Stock Split is approved, 1,008 Shareholders of record, owning 15,275
shares or .46% of such stock, will cease being Shareholders of the Company.
Consequently, the percentage of the Company owned by the Company's Affiliated
Shareholders would increase by .59%, from 87.5% to 88.09%. If the Reverse Stock
Split is approved, therefore, the Affiliated Shareholders' share of any
dividends and/or other corporate distribution, including net proceeds of any
liquidating distribution or the net proceeds generated by the sale of the
Company would correspondingly increase. The Board of Directors and Affiliated
Shareholders did not believe that the percentage increase in the Affiliated
Shareholders' ownership interest in the Company impacted negatively upon the
fairness
-19-
<PAGE>
of the proposed Reverse Stock Split to nonaffiliated Shareholders. This
conclusion was based on the fact that nonaffiliated Shareholders have not had
and management's belief that for the foreseeable future, nonaffiliated
Shareholders will not have any realistic opportunity to convert their shares to
cash, that the proposed Reverse Stock Split does enable such Shareholders to
realize cash for their shares, and the appraisal report of Bonadio provides
that Bonadio's professional opinion that the cash consideration to be paid
constitutes fair market value for the shares of the nonaffiliated Shareholders.
THE REVERSE STOCK SPLIT - CERTAIN EFFECTS
- -----------------------------------------
If the Reverse Stock Split is approved by the Company's Shareholders,
upon the Effective Date, the number of authorized shares of common stock will
be decreased from 15,000,000 shares with a par value of $.04 per share to
150,000 shares with a par value of $4.00 per share. The number of issued and
outstanding shares of common stock will be decreased, after the elimination of
the fractional shares, from 3,293,403 shares to 32,723 shares. The number of
Shareholders of record will be decreased from 1,194 to 186. Shareholders of the
Company who, after the effectiveness of the Reverse Stock Split, remain as
Shareholders of the Company will have their proportionate interest in the
Company increased from 99.54% to 100%. Each share of common stock owned by
Fractional Shareholders which would upon conversion represent a fraction of a
share will be automatically converted into the right to receive from the
Company, in lieu of fractional shares of common stock, cash in the amount of
$12.00 times the fraction of shares such Fractional Shareholders otherwise
would have received. Shareholders owning less than 100 shares of common stock
immediately prior to the Reverse Stock Split will cease to be Shareholders or
have any equity interest in the Company and, therefore, will not share in its
future earnings and growth, if any, will not have any right to vote on any
future corporate matters, and would not share in liquidation proceeds, if any,
if the Company were to dissolve.
Shareholders who immediately prior to the effectiveness of the Reverse
Stock Split hold fewer than 100 shares of the common stock of the Company may
remain Shareholders by acquiring a sufficient number of shares to raise their
ownership level to 100 or more shares.
The proposed Reverse Stock Split will eliminate 1,008 out of 1,194
record holders of the Company's common stock, representing .46% of the
Company's pre-Reverse Stock Split equity ownership. The following table sets
forth illustrations of the effect of the Reverse Stock Split for Shareholders
holding various representative number of shares:
-20-
<PAGE>
Illustrations of the Effect of the Reverse Stock Split
for Shareholders Holding Various Representative Numbers of Shares
<TABLE>
<CAPTION>
Shares Held Fractional Share
Shares Held After 100:1 Payout @ Shares Held
Shareholder Currently Reversal $12/Share After Pay Out
----------- --------- -------- --------- -------------
<S> <C> <C> <C> <C>
A 75 .75 $ 9.00 0
B 99 .99 11.88 0
C 100 1.00 0 1
D 499 4.99 11.88 4
E 2,500 25.00 0 25
F 5,688 56.88 10.56 56
G 15,758 157.88 6.96 157
H 50,000 500.00 0 500
I 369,129 3,691.29 3.48 3,691
J 919,287 9,192.87 10.44 9,192
</TABLE>
The shares of Common Stock are currently registered under the Exchange
Act. Such registration may be terminated by application of the Company to the
Securities and Exchange Commission, if the Company has fewer than 300 record
holders of its shares of common stock. If the Reverse Stock Split is approved,
upon the Effective Date, the Company will have fewer than 300 record holders of
its common stock. The Company currently intends to make an application to the
Securities and Exchange Commission for termination of the registration of its
common stock as promptly as possible after the filing of the Certificate of
Amendment.
Deregistration would substantially reduce the information required to
be furnished by the Company to its Shareholders, would make certain, otherwise
applicable provisions, of the Exchange Act, such as the short-swing profit
recovery provisions of section 16(b) and the requirement of furnishing a proxy
statement in connection with Shareholder meetings pursuant to section 14(a),
inapplicable and would eliminate the requirement that the Company prepare and
file annual, quarterly and current reports under cover of Form 10-K, Form 10-Q
and Form 8-K with the Securities and Exchange Commission.
As a result of the Company's termination of its 1934 Act registration,
the ability of post-Reverse Stock Split Shareholders to locate broker/dealers
willing to enter quotations for the
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<PAGE>
Company's common stock and/or effectuate trades therein may be severely
curtailed since such broker/dealers would not have access to current
information about the Company and its financial condition. It is management's
belief, therefore, that the only realistic way for continuing Shareholders to
realize upon their equity ownership in the Company would be
privately-negotiated transactions, a corporate redemption and/or liquidation or
management's ability to locate one or more third-party purchasers for the
Company's assets or common stock.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
- ---------------------------------------------------
After the consummation of the Reverse Stock Split, the Company does
not have any present plans or proposals which relate to or would result in any
extraordinary corporate transaction, such as a merger, reorganization, or
liquidation, involving the Company or any of its subsidiaries; a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; any change in the present Board of Directors or management of the
Company including, but not limited to, any plan or proposal to change the
number or term of directors, to fill any existing vacancy on the Board of
Directors or to change any material term of the employment contract of any
executive officer or any material change in the present dividend rate or policy
or indebtedness or capitalization of the Company. Upon consummation of the
Reverse Stock Split, the assets, business, and operations of the Company will
be continued substantially as they are currently being conducted as more fully
set forth in the Company's annual report (Form 10-K) for the fiscal year ended
December 31, 1997.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
- ----------------------------------------
The receipt by any Fractional Shareholder of cash in lieu of
fractional shares of common stock pursuant to the Reverse Stock Split will be a
taxable transaction for federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code").
Under Section 302 of the Code, a Fractional Shareholder will recognize
gain or loss upon receiving cash in lieu of fractional shares of common stock
if (i) the Reverse Stock Split results in a "complete redemption" of all of the
Fractional Shareholder's shares of common stock, (ii) the receipt of cash is
"substantially disproportionate" with respect to the Fractional Shareholder, or
(iii) the receipt of cash is "not essentially equivalent to a dividend" with
respect to the Fractional Shareholder. These three tests are applied by taking
into account not only shares that a Fractional Shareholder actually owns, but
also shares that a Fractional Shareholder constructively owns pursuant to
Section 318 of the Code.
If any one of these three tests is satisfied, the Fractional
Shareholder will recognize gain or loss equal to the difference between the
amount of cash received by the Fractional Shareholder pursuant to the Reverse
Stock Split and the tax basis in the existing shares of common stock owned by
the Fractional Shareholder immediately prior to the Effective Date of the
Reverse Stock Split. Provided that such shares of common stock constitute a
capital asset in the hands of the Fractional Shareholder, this gain or loss
will be taxed at a maximum rate of 20% if the shares of Common Stock have been
held for more than one year and will constitute short-term capital gain or loss
if the shares of Common Stock are held for one year or less.
-22-
<PAGE>
Pursuant to the constructive ownership rules of Section 318 of the
Code, a shareholder is deemed to constructively own shares owned by certain
related individuals and entities in addition to these shares actually owned by
the shareholder himself. For instance, an individual shareholder is considered
to own shares owned by or for his or her spouse and his or her children,
grandchildren and parents ("Family Attribution"). A shareholder is also
considered to own a proportionate number of shares owned by estates or certain
trusts in which the shareholder has a beneficial interest, by partnerships in
which the shareholder is a partner, and by corporations in which 50% or more of
the value of the stock is owned directly or indirectly by or for such
shareholder. Similarly, shares directly or indirectly owned by beneficiaries of
estates or certain trusts, by partners of partnerships and, under certain
circumstances, by shareholders of corporations may be considered owned by these
entities ("Entity Attribution"). A shareholder is also deemed to own shares
which the shareholder has the right to acquire by exercise of an option.
The receipt of cash by a Fractional Shareholder pursuant to the
Reverse Stock Split will result in a "complete redemption" of all of the
Fractional Shareholder shares of common stock, so long as the Fractional
Shareholder does not actually or constructively own any shares of the Company's
common stock as a result of and immediately after the effectiveness of the
Reverse Stock Split. However, even if a Fractional Shareholder constructively
owns shares of the Company's common Stock after the Reverse Stock Split, the
receipt of cash may qualify for capital gain or loss treatment under the
"complete redemption" test provided that (i) the Fractional Shareholder
constructively owns shares of common stock as a result of the Family
Attribution rules (or, in some cases, as a result of a combination of the
Family and Entity Attribution rules), and (ii) the Fractional Shareholder
qualifies for a waiver of the Family Attribution rules (such waiver being
subject to several conditions, one of which is that the Fractional Shareholder
has no interest (other than an interest as a creditor) in the Company
immediately after the Reverse Stock Split including an interest as an officer,
director, or employee.
Based upon a review of the Company's stock transfer books as certified
by the Company's Transfer Agent, management believes that most Fractional
Shareholders will qualify for capital gain or loss treatment as a result of
satisfying the "complete redemption" requirements. Consequently, management
believes that most Fractional Shareholders will qualify for long-term capital
gains treatment. However, a number of Fractional Shareholders will receive
shares as well as cash in lieu of fractional shares upon the effectiveness of
the Reverse Stock Split. Such Fractional Shareholders may nevertheless qualify
for capital gain or loss treatment by satisfying either the "substantially
disproportionate" or the "not essentially equivalent to a dividend"
requirements. In general, the receipt of cash pursuant to the Reverse Stock
Split will be "substantially disproportionate" with respect to the Fractional
Shareholder if the percentage of shares of common stock owned by the Fractional
Shareholder immediately after the effectiveness of the Reverse Stock Split is
less than 80% of the percentage of shares of common stock actually and
constructively owned by the Fractional Shareholder immediately before the
Reverse Stock Split. Alternatively, the receipt of cash pursuant to the Reverse
Stock Split will, in general, be "not essentially equivalent to a dividend" if
the Reverse Stock Split results in a "meaningful reduction" in the Fractional
Shareholder's proportionate interest in the Company.
-23-
<PAGE>
If none of the three tests described above is satisfied, a Fractional
Shareholder receiving cash as a result of the Reverse Stock Split will be
treated under the distribution rules of Section 301 of the Code. Generally,
pursuant to Section 301 of the Code, a distribution of cash by a corporation to
its Shareholders is considered a taxable dividend in an amount equal to the
entire amount of cash received by such Shareholder to the extent of the
earnings and profits, both current and accumulated, of such corporation. Since
the Company has generated earnings in each of its last two fiscal years,
Fractional Shareholders who do not qualify for capital gain or loss treatment
under the above described Section 302 rules will be treated as receiving
dividend income under the distribution rules of Section 301.
The receipt of new shares of common stock by Shareholders as a result
of the Reverse Stock Split in exchange solely for such Shareholders' old shares
of common stock will be a nontaxable transaction for federal income tax
purposes. Consequently, a Shareholder (whether or not a Fractional Shareholder)
receiving new shares of common stock will not recognize gain or loss, or
dividend income, as a result of the Reverse Stock Split with respect to such
shares received. In addition, the basis and holding period attributed to the
old shares of common stock will carry over as the basis and holding period of
such Shareholder's new shares of common stock.
NO FORMAL OPINION OF TAX COUNSEL WAS OBTAINED WITH RESPECT TO THE MATERIAL TAX
ASPECTS OF THE REVERSE STOCK SPLIT.
THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF CERTAIN OF THE FEDERAL INCOME
TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THE SHAREHOLDERS WITHOUT
REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
SHAREHOLDER. EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE REVERSE
STOCK SPLIT (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND
OTHER TAX LAWS).
-24-
<PAGE>
THE REVERSE STOCK SPLIT - EXPENSES
The Company estimates that fees and expenses incurred or to be
incurred by the Company in connection with the Reverse Stock Split will be
approximately $36,333, consisting of the following:
Cash Consideration $ 2,533
Legal Fees 25,000
Accounting Fees 4,800
Printing, Mailing Costs & Filing Fees 4,000
-------
$36,333
The Company has paid or will be responsible for paying all of such expenses. It
will pay such expenses, including the cash consideration, from its general
working capital. It will not borrow any funds to pay these expenses.
THE REVERSE STOCK SPLIT - APPRAISAL RIGHTS
- ------------------------------------------
Under the Delaware General Corporation Law, as well as under the
Company's Certificate of Incorporation, as amended, the existing holders of the
Company's common stock are not entitled to dissenters' rights of appraisal in
connection with the consummation of the Reverse Stock Split. The Company is not
voluntarily according such rights. Under the Delaware General Corporation Law,
nonaffiliated Shareholders of the Company are entitled to bring an action that
the Board of Directors, in approving the Reverse Stock Split, violated its
fiduciary obligations to the Company's nonaffiliated Shareholders and was not
an appropriate exercise of the Board's business judgment.
THE REVERSE STOCK SPLIT - RECOMMENDATION OF THE
- -----------------------------------------------
BOARD OF DIRECTORS AND AFFILIATED SHAREHOLDERS
- ----------------------------------------------
The Board of Directors and Affiliated Shareholders, at its meeting
held July 28, 1998, considered and reviewed the Reverse Stock Split and
concluded that the Reverse Stock Split is fair and in the best interests of the
Company and its nonaffiliated Shareholders and unanimously approved the Reverse
Stock Split. The Board of Directors and Affiliated Shareholders unanimously
recommend that the Shareholders vote for approval of the Reverse Stock Split.
The Board of Directors and Affiliated Shareholders stated that they would vote
the shares they beneficially own in favor of the Reverse Stock Split. Messrs
Frank B., Bernard J. and Anthony M. Iacovangelo stated that they would cause
the shares owned by Wegman Building Associates to be voted in favor of the
Reverse Stock Split.
-25-
<PAGE>
Director/Executive Officer Shares of Common Stock Percent
and Affiliated Shareholders Beneficially Owned of Class
--------------------------- ------------------ --------
Frank B. Iacovangelo 1,219,287 37.02%
Bernard J. Iacovangelo 1,228,687 37.31%
William S. Gagliano 15,758 .48%
Anthony M. Iacovangelo 50,000 1.52%
Wegmans Building Associates 369,129 11.21%
---------- ------
2,882,861 87.54%
Based upon these statements, the Reverse Stock Split will be approved
even if all of the Company's nonaffiliated Shareholders vote against the
Reverse Stock Split.
THE REVERSE STOCK SPLIT - VOTING; VOTE REQUIRED
- -----------------------------------------------
The proposed Reverse Stock Split must be approved by a vote of not
less than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-26-
<PAGE>
PROPOSAL THREE
--------------
The Shareholders of the Company will be asked at the Special Meeting
to consider, vote upon and approve Proposal to approve the payment by the
Company of the indebtedness owed to Shareholders owing fractional shares
resulting from the 1 for 4 reverse stock split effective July 29, 1992,
together with the payment of simple interest on the amount of such
indebtedness.
On July 29, 1992, the Company's Board of Directors recommended and the
Shareholders approved a 1 for 4 reverse stock split which, upon the Company's
filing of a Restated Certificate of Incorporation on July 31, 1992 with the
Secretary of State of the State of Delaware, became effective on July 31, 1992.
As the result of the 1992 reverse stock split, the number of authorized shares
of the Company's common stock was reduced from 30,000,000 authorized shares
with a par value of $.01 per share to 15,000,000 authorized shares with a par
value of $.04 per share. Each 4 shares of the Company's common stock, $.01 par
value per share, issued and outstanding immediately prior to July 31, 1992 were
automatically converted into 1 share of the Company's common stock with a par
value of $.04 per share.
As part of the 1992 reverse stock split, the Company's Board
authorized and the Company's Shareholders approved a cash payment of $3.00
times the fraction of a share to which a Shareholder otherwise would have been
entitled, in lieu of the issuance of fractional shares.
The legal effect of the 1992 reverse stock split was to reduce the
outstanding number of shares held by Shareholders as of July 31, 1992 by a
factor of 4. In addition, each Shareholder who owned a fraction of shares of
common stock as a result of the 1992 reverse stock split became a creditor of
the Company to the extent of the fraction times $3.00.
Despite the legal effectiveness of the 1992 reverse stock split, the
overwhelming proportion (97.48%) of the Company's nonaffiliated Shareholders
did not exchange their pre-1992 reverse stock split stock certificates for
post-1992 reverse stock split stock certificates and the Company did not make
payment of the cash consideration owing to such Shareholders owning fractions
of shares.
In conjunction with its approval of the 1 for 100 Reverse Stock Split
at its meeting held on July 28, 1998, the Board concluded that it would be
appropriate to recommend to the Company's Shareholders that they authorize the
payment by the Company of the indebtedness owed to the Shareholders owning
fractional shares as a result of the 1992 reverse split, together with payment
of simple interest at the rate of 10% per year on the amount of said
indebtedness to the date of payment.
If the current Reverse Stock Split is approved and this Proposal Three
is approved, the Company shall cause its Transfer Agent to request all
Shareholders to tender their stock certificates currently held by them to the
Transfer Agent. Upon the receipt of such certificates, the Transfer Agent shall
issue to those persons who shall remain Shareholders of the Company upon the
effectiveness of the proposed Reverse Stock Split certificates representing the
number of shares owned by them in the Company upon the effectiveness of the
Reverse Stock Split. The
-27-
<PAGE>
Company shall also cause its Transfer Agent to distribute cash consideration of
$3.00 per fractional share plus 10% interest to the date of payment to those
Shareholders who were entitled to such payment as a result of the 1992 reverse
stock split and, in addition, cash consideration of $12.00 per share to
Fractional Shareholders as a result of the proposed Reverse Stock Split.
The Company estimates that the amount of cash consideration to be paid
by the Company in connection with this Proposal Three, including payment of
simple interest at the rate of 10% annually calculated from July 31, 1992 to
the estimated date of payment will be approximately $1,700.00.
RECOMMENDATION OF THE BOARD OF DIRECTORS
- ----------------------------------------
The Board of Directors, at its meeting held July 28, 1998, considered
and reviewed Proposal Three and concluded that Proposal Three is fair and in
the best interests of the Company and its nonaffiliated Shareholders and
unanimously approved Proposal Three. The Board of Directors unanimously
recommended that the Shareholders vote for approval of Proposal Three. The
Board of Directors stated that they would vote the shares they beneficially own
in favor of Proposal Three. Messrs Frank B., Bernard J. and Anthony M.
Iacovangelo stated that they would cause the shares owned by Wegman Building
Associates to be voted in favor of Proposal Three.
Director/Executive Officer Shares of Common Stock Percent
and Affiliated Shareholders Beneficially Owned of Class
--------------------------- ------------------ --------
Frank B. Iacovangelo 1,219,287 37.02%
Bernard J. Iacovangelo 1,228,687 37.31%
William S. Gagliano 15,758 .48%
Anthony M. Iacovangelo 50,000 1.52%
Wegmans Building Associates 369,129 11.21%
---------- ------
2,882,861 87.54%
Based upon these statements, Proposal Three will be approved even if
all of the Company's nonaffiliated Shareholders vote against Proposal Three.
-28-
<PAGE>
VOTING; VOTES REQUIRED
- ----------------------
The proposed Reverse Stock Split must be approved by a vote of not
less than a majority of the total number of votes cast at the Special Meeting
(including abstentions) in person or by Proxy.
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of the National Association
of Securities Dealers, Inc. withhold the broker's authority to vote in the
absence of direction from the beneficial owner. Non-broker Shareholders who are
present in person or by Proxy and have the legal authority to vote their shares
but who abstain from voting will adversely affect the outcome of this Proposal.
MARKET PRICES FOR SHARES OF COMMON STOCK; DIVIDENDS
- ---------------------------------------------------
AND COMMON STOCK INFORMATION
- ----------------------------
There is a very limited trading in the Company's Common Stock. The
range of high and low bid prices and high and low asked prices for the years
1995, 1996 and 1997 is shown below, as reported by the National Quotations
Bureau, Inc. and as adjusted to reflect the Company's 1 for 4 reverse stock
split which became effective July 31, 1992.
COMMON STOCK DATA
1995 BID ASKED
---- --- -----
1ST Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1996
1ST Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
1997
1st Quarter *Unpriced *Unpriced
2nd Quarter *Unpriced *Unpriced
3rd Quarter *Unpriced *Unpriced
4th Quarter *Unpriced *Unpriced
February 16, 1989 $2.00 $2.00 $3.00 $3.00
* = Listed in pink sheets without prices.
-29-
<PAGE>
The above quotations represent prices between dealers and do not
include retail markup, markdown or commission. They do not represent actual
transactions and have not been adjusted for stock dividends.
The Company's agreement with its Bank placed a restriction on its
payment of dividends and consequently, dividends were declared or paid during
1995, 1996 or 1997.
On February 24, 1999 the Company had 1,194 holders of record of its
common stock.
On September 5, 1996, the Company repurchased 50,000 shares of its
common stock from a former director of the Company at $.50 per share (post-1992
reverse split basis)for a total consideration of $25,000 which dollar amount
represented the former director's original purchase price for such shares upon
his election as a director in 1988. The number of shares purchased reflected
the 1 for 4 1992 reverse stock split. As discussed on page 15 of this Proxy
Statement, this transaction was taken into account by Bonadio in making its
determination that $12.00 per share represents a fair market value to be paid
as cash consideration to Fractional Shareholders as a result of the Reverse
Stock Split.
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
The following table names the directors and indicates their age, their
position with the Company or their principal occupation or employment, and the
approximate number of shares of Common Stock beneficially owned by each
director and all directors and officers as a group as of February 24, 1999.
<TABLE>
<CAPTION>
Shares of
Position with the Company or Common Stock Percent of
Name Age Principal Occupation Director Since Beneficially owned Class
---- --- -------------------- -------------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Frank B. 58 President and Treasurer (1) 1987 1,588,416 (3) 48.23%
Iacovangelo
Bernard J. 50 Vice President Secretary 1987 1,597,816 (4) 48.51%
Iacovangelo
William S. 48 Executive Vice President and 1992 15,758 .48%
Gagliano Director
Anthony M. 57 President, Director and principal 1987 419,129 (5) 12.73%
Iacovangelo shareholder of Faber
Construction., Inc.
Rochester, NY (2)
<S> <C> <C>
All Directors and Officers of the Company as a group (four persons) 2,882,861 (6) 87.54%
</TABLE>
-30-
<PAGE>
(1) From 1987 until June 1989, Frank B. Iacovangelo was a director, and on an
interim basis for a period of approximately 11 months was Chairman of the Board
of Charlie Bubbles, Ltd. food service business which filed a petition under
Chapter 11 of the U.S. Bankruptcy Code on November 20, 1989.
(2) During the past five years, Anthony Iacovangelo has also been an owner of
numerous real estate projects.
(3) Includes 300,000 shares owned by children of Frank B. Iacovangelo,
beneficial ownership of which is disclaimed. Also includes 369,129 shares owned
by Wegman Building Associates, a partnership in which Frank Iacovangelo has
shared voting and investment power with respect to the shares owned by the
partnership.
(4) Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife,
Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial
ownership of these shares. Also includes 369,129 shares owned by Wegman
Building Associates, a partnership in which Bernard Iacovangelo has shared
voting and investment power with respect to the shares owned by the
partnership.
(5) Includes 369,129 shares owned by Wegman Building Associates, a partnership
in which Anthony Iacovangelo has shared voting and investment power with
respect to the shares owned by the partnership.
(6) Includes 300,000 shares owned by children of Frank B. Iacovangelo
(beneficial ownership which is disclaimed) 500,000 shares owned by a Trust for
the benefit of Bernard J. Iacovangelo's children, the Trustees of which are Mr.
Iacovangelo's wife, Patricia, and his brother, Frank (beneficial ownership of
which is disclaimed) and 369,129 shares owned by Wegman Building Associates, a
partnership in which Messrs. Frank, Bernard and Anthony Iacovangelo share
voting and investment power with respect to the shares owned by the
partnership. The 369,129 shares owned by Wegman Building Associates is counted
only once for purposes of setting forth the approximate number of shares owned
by all directors and executive officers as a group.
-31-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 24, 1999
showing all persons who, to the Company's knowledge, were beneficial owners of
5% or more of any class of its shares. All persons listed below has sole voting
and investment power with respect to their shares unless otherwise indicated.
Amount and Nature of
Name and Address Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
Frank B. Iacovangelo 1,588,416 (1) (3) 48.23%
39 State Street
Rochester, NY 14614
Bernard J. Iacovangelo 1,597,816 (2) (3) 48.51%
39 State Street
Rochester, NY 14614
Wegman Building Associates 369,129 (3) 11.21%
39 State Street
Rochester, NY 14614
(1) Includes 300,000 shares owned by children of Frank B. Iacovangelo,
beneficial ownership of which is disclaimed. Also includes 369,129 shares owned
by Wegman Building Associates, a partnership in which Frank Iacovangelo has
shared voting and investment power with respect to the shares owned by the
partnership.
(2) Includes 500,000 shares owned by a Trust for the benefit of Bernard J.
Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife,
Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial
ownership of these shares. Also includes 369,129 shares owned by Wegman
Building Associates, a partnership in which Bernard Iacovangelo has shared
voting and investment power with respect to the shares owned by the
partnership.
(3) Wegman Building Associates is a general partnership in which Messrs. Frank,
Bernard and Anthony Iacovangelo share voting and investment power with respect
to the shares owned by the partnership.
-32-
<PAGE>
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
- ------------------------------------------------------------
The Company hereby incorporates by reference the financial information
contained in Part II, Item 8 of the Company's 1997 10-K/A, the report of the
independent accountants thereon contained in Part II, Item 8 of the 1997
10-K/A, and Management 's Discussion and Analysis of Financial Condition and
Results of Operations contained in Part II, Item 7 of its 1997 10-K/A.
The Company hereby incorporates by reference the financial information
contained in Part I, Item 1 of the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in Part I, Item 2 of
the September, 1998 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------
The consolidated financial statements included in the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997 incorporated
by reference in this Proxy Statement, have been audited by Bonadio, independent
public accountants, as indicated in their report with respect thereto. It is
expected that two representatives of Bonadio will be present at the Special
Meeting to respond to appropriate questions of Shareholders of the Company.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
- -----------------------------------------------------------
The pro forma consolidated financial information of the Company
attached as Exhibit C to this Proxy Statement is based on and should be read in
conjunction with the consolidated financial statements of the Company as of and
for the year ended December 31, 1997 and as of and for the nine months ended
September 30, 1998, both incorporated by reference (from the Company's 1997
Form 10-K/A, and the September 30, 1998 Form 10-Q) in this Proxy Statement.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable in the
circumstances. The pro forma consolidated financial information purports
neither to represent what the Company's results of operations would actually
have been if the Reverse Stock Split and going private transaction had occurred
on January 1, 1997 or September 30, 1998 nor to project the Company's financial
position or results of operations for any future date or period.
ADDITIONAL INFORMATION
- ----------------------
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements, and
other information with the SEC. Such reports, proxy statements, and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional office of the SEC located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048. Copies of such materials can
also be obtained at prescribed rates by writing to the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The SEC also maintains a web site at
-33-
<PAGE>
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Shareholders may obtain a copy of the Company's Annual Report (Form
10-K/A) for the fiscal year ended December 31, 1997 and the Company's Quarterly
Reports (Form 10-Q) for the fiscal quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, as filed with the Securities and Exchange Commission,
by writing the Company, 370 East Avenue, Rochester, New York 14604, Attention:
William S. Gagliano, Executive Vice President.
This Proxy Statement includes information required by the SEC to be
disclosed pursuant to Rule 13e-3 under the Exchange Act, which governs so-
called "going private" transactions by certain issuers or their affiliates. In
accordance with that rule, the Company has filed with the SEC, under the
Exchange Act, a Rule 13E-3 Transaction Statement with respect to the Reverse
Stock Split. This Proxy Statement does not contain all of the information set
forth in the Rule 13E-3 Transaction Statement, parts of which are omitted in
accordance with the regulations of the SEC. The Rule 13E-3 Transaction
Statement, and any amendments thereto, including exhibits filed as a part
thereof, will be available for inspection and copying at the offices of the SEC
as set forth above.
VOTING OF PROXIES
- -----------------
The shares represented by all valid Proxies received will be voted in
the manner specified on the Proxies. Where specific choices (including
abstentions) with respect to each Proposal are not indicated, THE SHARES
REPRESENTED BY ALL VALID PROXIES RECEIVED WILL BE VOTED FOR APPROVAL OF THAT
PROPOSAL.
The Board of Directors unanimously recommends that the Shareholders
vote "FOR" Proposals 1, 2 and 3.
By the order of the Board of Directors
-----------------------------------,
BERNARD J. IACOVANGELO, Secretary
-34-
<PAGE>
EXHIBIT 99.2
PAGE 1 [LOGO] STATE OF DELAWARE 991128306
Secretary of State
Division of Corporations
P.O. Box 898
Dover, Delaware 19903
9152585 04-01-99
CHAMBERLAIN, D'AMANDA, OPPENHEIMER & GREENFIELD
1600 CROSSROADS BLDG.
TWO STATE STREET
ROCHESTER, NY 14614
ATTN: RICHARD B. SULLIVAN X
Description Amount
- ----------- ------
FOUR CORNERS FINANCIAL CORPORATION
0800707 0240S Amendment; Stock
Stock Amendment Fee 30.00
Receiving/Indexing 50.00
Certification Fee 20.00
Data Entry Fee 20.00
Surcharge Assessment-New Castle 6.00
Page Assessment-New Castle Count 18.00
Expedite Fee, 24 Hour 50.00
FILING TOTAL 194.00
TOTAL PAYMENTS 194.00
SERVICE REQUEST BALANCE .00
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
- --------------------------------------------------------------------------------
[GREAT SEAL OF THE STATE OF DELAWARE--1793--1847--1907]
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "FOUR CORNERS FINANCIAL CORPORATION", FILED IN THIS OFFICE ON THE FIRST DAY
OF APRIL, A.D. 1999, AT 9:04 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SECRETARY'S OFFICE OF DELAWARE SEAL]
/s/ Edward J. Freel
-----------------------
Edward J. Freel,
Secretary of State
0800707 8100 AUTHENTICATION: 9666124
991128306 DATE: 04-01-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:04 AM 04/01/1999
991128306--0800707
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: March 26, 1999 By: /s/ Bernard J. Iacovangelo, Secretary
-------------------------------------
BERNARD J. IACOVANGELO, SECRETARY
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 15
Certification and Notice of Termination of
Registration under Section 12(g) of the Securities
Exchange Act of 1934 or Suspension of Duty to File
Reports under Sections 13 and 15(d) of the
Securities Exchange Act of 1934
Commission File Number 08628
----------------------------
FOUR CORNERS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
------------------------------------------------------
370 East Avenue, Rochester, New York 14604
------------------------------------------
(Address, including zip code
of registrant's principal executive offices)
-------------------------------------------
(716) 454-2263
(Registrant's telephone number, including area code)
Commmon Stock, $4.00 par value
------------------------------
(Title of each class of securities covered by this Form)
None
----
Titles of all other classes of securities for which a duty to
file reports under section 13(a) or 15(d) remains
Please place an X in the box(es) to designate the appropiate
rule provision(s) relied upon to terminate or suspend the duty to file reports:
Rule 12g-4(a)(1)(i) /x/ Rule 12(h)-3(b)(1)(ii) / / Rule 12g-4(a)(1)(ii) / /
Rule 12h-3(b)(2)(i) / / Rule 12g-4(a)(2)(i) / / Rule 12h-3(b)(ii) / /
Rule 12g-4(a)(2)(ii) / / Rule 15d-6 / / Rule 12h-3(b)(1)(i) /x/
Approximate number of holders of record as of the certification or notice date:
174
Pursuant to the requirements of the Securities Exchange Act of 1934, FOUR
CORNERS FINANCIAL CORPORATION has caused this certification/notice on its
behalf by the undersigned duly authorized person.
DATE: April 9, 1999 By: /s/ William Gagliano
--------------------------------
William Gagliano,
Executive Vice President
