-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TpFOyo0SpaVef7pZoYZbuUr4jXVmzvdMHzFpUun3irQG2v1bTrU8N4jFbX9MWvgk NVv99Q6C6xcNqqWJP5AiBQ== 0000889812-96-000817.txt : 19960705 0000889812-96-000817.hdr.sgml : 19960705 ACCESSION NUMBER: 0000889812-96-000817 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19960703 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUR CORNERS FINANCIAL CORP CENTRAL INDEX KEY: 0000230014 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 222044086 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08628 FILM NUMBER: 96590671 BUSINESS ADDRESS: STREET 1: 370 EAST AVENUE CITY: ROCHESTER STATE: NY ZIP: 14604 BUSINESS PHONE: 7164542263 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MANAGEMENT ENERGY CORP DATE OF NAME CHANGE: 19880317 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MANAGEMENT EDUCATION CORP DATE OF NAME CHANGE: 19820413 10-K 1 ANNUAL REPORT 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, 1994 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to _________________________ Commission file number 0-8628 FOUR CORNERS FINANCIAL CORPORATION ---------------------------------- (Exact Name of Registrant as specified in its charter) Delaware 22-2044086 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 370 East Avenue, Rochester, New York 14604 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 454-2263 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.04 par value - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO X -2- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and to the best of registrant's knowledge, will not be contained in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of December 31, 1994, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $32,870. As of December 31, 1994, the number of shares outstanding of the registrant's common stock was 3,338,802. Documents Incorporated By Reference None. -3- TABLE OF CONTENTS PART I PAGE Item 1: Business 4 Item 2: Properties 15 Item 3: Legal Proceedings 15 Item 4: Submission of Matters to a Vote of Security Holders 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 25 Item 9: Changes in and Disagreements with Accountants on 25 Accounting and Financial Disclosure Part III Item 10: Directors and Executive Officers of Registrant 26 Item 11: Executive Compensation 27 Item 12: Security Ownership of Certain Beneficial Owners 28 and Management Item 13: Certain Relationships and Related Transactions 29 PART IV Item 14: Exhibits, Financial Statement Schedules, and 31 Reports on Form 8-K -4- 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. -5- In January, 1990, FCFC acquired all of the outstanding shares of Picciano Abstract Company, Inc. ("Picciano") of Binghamton, New York for a purchase price of $15,000 and the issuance of 20,000 shares of the Company's Common Stock and commenced operations at that location at that time. On July 1, 1990, Livingston and Picciano merged into Abstract. On December 23, 1991, the Company acquired all of the outstanding shares of Proper Appraisal Specialists, Inc. ("Proper Appraisal") of Buffalo, New York for a purchase price of $10,000 and the issuance of 90,000 shares of the Company's Common Stock and commenced operations at that location at that time. In May, 1992, the Company opened a branch office in Goshen, New York (Orange County) to service the Hudson Valley area. In February, 1993, the Company closed its Geneseo Office and consolidated those operations with its Rochester location. The Company also consolidated its Cheektowaga Appraisal office with its branch in downtown Buffalo, New York in December, 1993. In September, 1994, the Company relocated its Goshen office to Newburgh, New York. Four Corners Financial Corporation and its subsidiaries, Four Corners Abstract Corporation ("Abstract") and Proper Appraisal, provide services and products that are utilized in substantially all commercial and residential real estate transactions. As used herein, "Company" includes Four Corners Financial Corporation, Abstract and Proper Appraisal unless the context otherwise requires. These services and products are offered through offices in Buffalo, Rochester, Newburgh, Syracuse, Utica, Lockport, Binghamton and Albany, all located in central and western New York and through subcontractors in other areas of New York State. Services and Products The Company's services and products include real estate title and other public record searching, the preparation of abstracts of title and the issuance of title insurance as agent for certain national underwriting companies. Other services and products include real estate appraisals, abstract storage and escrow services. All of the Company's services and products may be required in connection with the mortgaging, sale or purchase of commercial or residential real property. Substantially all of the Company's revenues were derived from its abstracting and title insurance services. Although all of the Company's services and products can be obtained from other vendors at prices comparable to those of the Company, the Company believes that dealing with a single source for all of these products is convenient for -6- customers and helps to reduce the time required for the performance of these services for a particular real estate transaction. Response time is important in many real estate transactions and the ability of the Company to provide its services and products in a timely manner is significant in the attraction and retention of customers. Abstracts The purchase, sale, leasing and financing of a parcel of real estate in New York State outside of New York City, usually require the preparation of an abstract of title. The abstract is a summary of each transaction affecting the parcel which is reflected in the records of the Clerk of the County where the subject property is located. The abstract is examined by attorneys and others to determine prior interests in, or encumbrances on, the property which have to be disposed of in order to have "clear" title. The information used to create or redate an abstract is obtained by title searchers, that is, persons who search various official records for interests which may affect the ownership interest in, or title to, real property. Such interests may include real property taxes, corporate franchise taxes, bankruptcies, mechanics liens, income tax or sales tax liens, litigation liens, judgment liens, security interests in fixtures and mortgages as well as interests of prior owners (including deceased owners) which have not been adequately transferred. Title searchers summarize their findings and deliver them to word processors who produce the abstract of title. An abstract usually exists for most properties. Thus, the Company is most often requested merely to "redate" it. This involves examining the records only from the date of the last transaction summarized in the abstract. However, where no abstract is available or when newly subdivided parcels are involved, a new abstract is created starting with a warranty deed which meets the local standards for title certification (e.g. at least 60 years old for Rochester, New York property). The information contained in abstracts which the Company creates or redates is indexed and retained by the Company, becoming part of its "title plant". These "back titles" are valuable assets which facilitate the preparation and redating of future abstracts. The title plant also aids the expeditious preparation of title insurance reports and policies. The Company also offers an abstract storage service. When mortgages are placed on real property, the bank or mortgage company usually retains the abstract of title. Thus, a large volume mortgagee would require substantial storage space as well as numerous personnel to index, store and retrieve these abstracts. Through its abstract storage service, the Company picks up these abstracts and stores them for the lender, redelivering them when requested. At the present time, the Company stores approximately 20,000 abstracts. The Company does not -7- charge for this service but believes that it helps to generate abstract "redating" revenues, since a person needing a redate of an abstract stored by the Company can, by ordering that redate from the Company, avoid having to deliver the abstract elsewhere for the redate. The Company estimates that revenues thus generated amounted to approximately $35,000 in 1994, $82,000 in 1993 and $88,000 in 1992. 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 1994, escrow closing services generated approximately $44,000 as compared to $40,000 and $35,000 in 1993 and 1992, respectively. Other public record searches provided by the Company include guaranteed tax searches, surrogate court searches, UCC financing searches, franchise tax searches, judgment searches, new name searches, back title searches, bankruptcy searches and foreclosure searches. While these searches are most often needed by attorneys in connection with real estate transactions, they may be useful to other customers for other purposes, for example, to lenders extending credit. Title Insurance Title insurance policies are statements of the terms and conditions upon which the title insurance underwriter will insure title to real estate, showing ownership, outstanding liens, encumbrances and other matters of public record. The beneficiaries of title insurance policies are generally buyers of real property and secured lenders, and the policy amount is usually based upon either the purchase price of the property or the amount of the loan secured by the property. The title 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. -8- 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. Although the Company's total revenues for 1994 decreased by 18% mainly due to a significant downturn in real estate activity caused by sharply increasing interest rates, revenues from title insurance increased to $1,966,849. This represented 41% of the Company's revenue mix as compared to $1,858,264 in 1993 or 32% of total revenue. Much of this increased demand for title insurance was experienced during the first half of 1994 when mortgage interest rates were lowest and consumers continued to refinance mortgages which require title insurance. The title insurance premium is based upon the policy amount and the type of coverage provided by the policy. Title insurance rates, including those of the Company's competitors, are regulated by the State of New York Insurance Department. The premium for title insurance is due and must be paid in full prior to the issuance of the policy which is generally on the closing date of the real estate transaction. The use of title insurance in connection with real estate transactions, particularly residential purchases and financing, in the Company's marketing area has been significantly increased since the early 1980's by the expanded role of the national secondary residential mortgage market, and the growth of nationwide lending, both residential and commercial, by banks and insurance companies. As a result, almost -9- all residential and commercial real estate transfers and/or financings, except most home equity transactions, involve the issuance of a title insurance policy. This same period of time has seen, until recently, a general inflation of real estate prices resulting in increasing levels of insurance coverage and related premiums. However, this expanding market has also seen a significant increase in the number of companies providing such insurance in the Company's marketing area, both directly and through agents. See "Competition". The Company is not a title insurance underwriter. In selling title insurance, the Company acts as agent for several national title insurance underwriting companies. The Company has agency relationships with the following title insurance underwriters: Old Republic National Title Insurance Company, Albany, New York; Stewart Title Insurance Company, New York City; and Lawyers Title Insurance Corporation, Richmond, Virginia. Generally, such relationships are cancelable by either party upon short notice. The Company believes that in the event of the cancellation of its existing agency relationships, it would have no difficulty in securing similar relationships with other title insurance underwriters. The choice of an underwriter by the Company is based upon such considerations as the amount of the premium "split" offered, which varies among underwriters, the terms under which the title underwriter will require indemnification for policy losses attributable to errors made by the Company in searching and examining the title, the scope of services offered to the agent by the title underwriter, and the fact that certain underwriters will not insure titles in certain geographical areas within New York State. Typically, the title insurance premium "split" is approximately 80% to the Company and 20% to the underwriter. The title insurance underwriters for which the Company acts as agent are licensed by the State of New York. Currently, there is no requirement under New York law that requires an agent such as the Company to hold a license. Appraisals In 1989, the Company added to its services the furnishing of residential real estate appraisals. With the purchase of Proper Appraisal Specialists, Inc. in 1991 the Company added the appraisal of commercial properties to its product line. Appraisals are performed under the guidance of Senior Residential Appraisers, who are certified and/or licensed by New York State and are employees of the Company. The Company also procures the services of licensed appraisers on a subcontractor basis in areas where it does not have a direct branch operation. Appraisal services provide an estimated value for a particular property. Appraisals are required in a variety of situations including transfer of ownership, financing, tax matters, relocation services, insurance purposes, estimation of liquidation -10- value and divorce. The Company's customers for appraisals have included lending institutions, banks, attorneys, municipalities, relocation companies, government agencies, corporations and private individuals. The Company's errors and omissions insurance coverage also covers appraisal services. During 1994, the Company derived approximately 10% of its gross revenues from the furnishing of real estate appraisals versus 12% in 1993 and 14% in 1992. New Services and Products At the present time, the Company has discontinued the evaluation of new products in the area of environmental services as previously reported. As a result of the Company's continuing desire to expand its service levels to new and/or existing customers and to decrease turnaround times, during 1993 the Company introduced an on-line customer based automated order entry system called "EXPERDITE". The system can be customized by the user and is designed to aid in the rapid, error-free entry and tracking of title search and title insurance orders placed with the Company. Marketing Services and products provided by the Company are utilized in substantially all commercial and residential real estate transactions. Therefore, its marketing efforts are directed primarily toward the persons who place the orders for such services and products in the typical real estate transaction or other real estate related activity - attorneys, mortgage brokers, lenders, builders, and other persons and entities engaged in the real estate business generally. Marketing activities are conducted by a direct sales force of three employees under the direction of the Company's Director of Sales and Marketing. Marketing efforts include direct solicitation and advertising in publications targeted to serve mortgage lenders and attorneys, attendance at trade shows and conventions, and news releases. The Company believes that its ability to offer many of the services and products necessary in a real estate transaction is an important factor in the attraction and retention of business, since customers can therefore order those items from a single source. In its marketing activities, the Company emphasizes this factor and the equally important factors of competitive price, accuracy, response time, excellent service and reliability, all of which the Company believes it provides to its customers. -11- Significant Customers During 1994, there were no customers accounting for more than 10% of the Company's gross revenues. Management Information Systems and Equipment During 1994, the Company continued with an upgrade of its management information systems with the objective of providing better financial, marketing and customer service by linking its branch operations, including its Appraisal Division, to its computer system at corporate headquarters. When completed in 1995, this system will enable management to obtain status reports on orders placed throughout New York State, and will allow access at all locations to stored abstracts and to the Company's title plant containing back titles used to prepare and update abstracts. Industry Considerations and Seasonality The Company's business is related to the general real estate market and the fluctuations which occur therein. As a result of economic factors affecting the real estate industry in recent years, there was a downturn in real estate transactions in 1990 and 1991, as measured by the number of deeds and mortgages recorded publicly. During 1992, as interest rates continued to decline and as the country slowly emerged from recession, that trend was reversed. Statistics compiled by the New York State Land Title Association indicate that, for New York State, the number of deeds and mortgages increased approximately 29% in 1992, compared to 1991 while total revenues of the Company increased accordingly. During 1993, deeds and mortgages increased by an average of 8% as compared to 1992. The Company's revenues in this period declined, which the Company attributes to several competitive factors as well as a decrease in "home equity" or second mortgage transactions in favor of refinanced mortgages. Mortgage refinances continued during the first quarter of 1994 at which time long term interest rates were at very low levels. However, beginning in the second quarter and fearing an increase in the levels of inflation, the Federal Reserve Board began increasing interest rates. By year end 1994 there were an unprecedented number of consecutive monthly interest rate increases. As a direct result, deeds and mortgages recorded in New York State during 1994 fell by 7.18% as compared to 1993. As a consequence, the Company's revenues fell sharply causing the company to incur a significant net loss for the year ended December 31, 1994. 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 -12- business is cyclical as well as seasonal, with lowest volume when interest rates are high and in the winter and early spring. Banking Relationship As a result of considerations set forth above, falling revenues during 1994 caused the Company to incur a net loss for the period of $469,000. As a consequence, the Company was in violation of the financial covenants associated with its note payable to a bank (see Note 5 of the accompanying Consolidated Financial Statements as of December 31, 1994 and 1993). Since year end 1994, Company management has worked closely with bank officials and its public accounting firm to develop a plan to restructure Company expenses and improve operations and cash flow. Subsequent to year end 1994, payroll, rent and various other costs were reduced and the terms of the note payable were also negotiated. Management estimates that these actions will reduce costs by approximately $965,000 on an annual basis beginning in 1995. Management believes that these actions in conjunction with other cost reduction measures will return the Company to profitability in 1995. Potential Liabilities Abstract companies, including the Company, certify their searches and abstracts for accuracy. In its title insurance business, the Company relies upon its abstracts and other information and considerations, including standards prescribed by its principals, in determining whether title is insurable. If the Company makes a determination of insurability, it issues a policy of title insurance on behalf of its principal, the underwriting company. As an issuer of certified searches and abstracts, the Company may, depending on applicable law and the facts of a particular case, be liable for money damages in the event of errors in its searches and abstracts. As an agent issuing title policies on behalf of an underwriter, the Company may, again depending on applicable law and the facts of a particular case, be liable to either the underwriter or the insured in the event of errors in abstracting or determinations of insurability, negligence, or breaches of agreements with its principals. There are no significant claims pending against the Company based upon any of the foregoing considerations, but the potential for such claims, and possible liability thereon, is a risk that is inherent in the Company's business, and such claims may be asserted at any time. During the most recent past five years, the amount paid by the Company for such claims, in the aggregate, is less than $35,000. The Company has errors and omissions insurance coverage of $1,000,000, which complies with requirements of its principals and is also deemed adequate by the Company's management. -13- Employees The Company and its subsidiaries employed approximately 94 persons at December 31, 1994. 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 competition from newly formed companies in one or more of its market areas. The use of title insurance in residential real estate transactions has grown in recent years because of the development of the national secondary residential mortgage market which requires title insurance for virtually all residential mortgages. Also, in recent years, institutional lenders have generally required title insurance in virtually all commercial mortgages. However, during the same period, there has been a significant increase in the number of companies providing such insurance in the Company's market area, both directly and through agents. The Company also competes with numerous residential and commercial appraisal companies, most of which are smaller than the Company and are independently owned in the geographical area in which they operate. -14- The principal elements of competition are accuracy and speed (response time). Prices for abstract and appraisal services are generally comparable among vendors. However, during 1993 and 1994 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. Item 2. Properties During 1994, principal offices of the Company were located at 80 West Main Street, Rochester, New York. These facilities, approximately 15,000 square feet, were leased from Wegman Building Associates, a partnership in which Messrs. Frank B., Bernard J. and Anthony M. Iacovangelo, directors and/or officers of the Company, are partners. Abstract had a one year lease for this space expiring on 12/31/95, which provided for an annual net rent of $68,000. However, effective 7/31/95, the Company moved its Rochester facilities to 370 East Avenue. These facilities are leased from Fitch Building Associates, another partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo are partners. Abstract now leases approximately 9,000 square feet of such space at a net annual rent of $72,000. The Company believes that the terms of its rental are at least comparable to those which it might have obtained if dealing with a non-affiliated third person. Rent and common charges were approximately $58,372, $213,000 and $263,000 in 1994, 1993 and 1992, respectively. During 1994, total unpaid rent of $109,000 was forgiven by Wegman Building Associates and reflected as an extraordinary item. The Company owed approximately $20,000 for unpaid rent at December 31, 1995. In addition, the Company leases space for its branch offices in Buffalo (3,993 square feet), Albany (1,410 square feet), Syracuse (2,087 square feet), Lockport (625 square feet) and Binghamton (760 square feet). The building which houses the Utica branch (2,000 square feet) was sold by the Company in 1994. Per this agreement, the Company was allowed to operate from this location on a month-to-month tenancey through July, 1995. The Company also leases space in the County Clerk's offices in Monroe, Erie, Onondaga, Chenango 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. -15- 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 55 President, Treasurer and Director Bernard J. Iacovangelo 47 Vice President, Secretary and Director William S. Gagliano 45 Executive Vice President and Director -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 since May, 1987. He is a practicing attorney and has been a partner in the law firm of Gallo & Iacovangelo of Rochester, New York for more than five years. Mr. Iacovangelo is also an officer, director and principal shareholder of Faber Construction Co., Inc. and Forest Creek Equity Corp., real estate development companies, and an owner of numerous real estate projects. In addition, Mr. Iacovangelo is President and director of Four Corners Abstract Corp., a wholly-owned subsidiary of the Company, which he co-founded in 1980. From 1987 until June, 1989, Mr. Iacovangelo was Chairman of the Board of Directors of a food service business which filed a petition under Chapter 11 of the U.S. Bankruptcy Code on November 20, 1989. Bernard J. Iacovangelo has served as Vice President, Secretary, and a director of the Company since May, 1987. He is an attorney and has had more than five years of experience as a partner in the law firm of Gallo & Iacovangelo. His principal activity for the last five years has been as President, director and principal shareholder of Forest Creek Equity Corp., a real estate development company. Mr. Iacovangelo is also a principal shareholder of Faber Construction Co., Inc. and an owner of numerous real estate projects as well as co-founder, officer and director of Four Corners Abstract Corp., a wholly-owned subsidiary of the Company. William S. Gagliano has served as Executive Vice President of the Company and Four Corners Abstract Corp. since June, 1990. He was elected Director of the Company in July, 1992. As Executive Vice President, he is responsible for day to day operations of the Company. He joined Four Corners Abstract Corp. in 1987 as Vice President of Finance and Administration. Messrs. Frank and Bernard Iacovangelo are brothers. -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 1992, 1993 and 1994 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 1992 BID ASKED ---- --- ----- 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced 1993 ---- 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced 1994 ---- 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced 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 1992, 1993 or 1994. On December 31, 1994, the Company had 1,210 holders of record of its common stock. FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA The financial data included in this tablehas been selected by the Company and has been dreived 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".
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenue $ 4,780 $ 5,828 $ 6,818 $ 5,505 $ 4,257 Income (loss) before taxes (581) 66 33 312 30 Net income (loss) (469) 56 25 288 26 Net income (loss) per share (1) $ (.14) $ .02 $ .01 $ .08 $ .01 BALANCE SHEET DATA: Total assets $ 1,315 $ 1,804 $ 1,584 $ 1,685 $ 1,293 Long-term obligations 564 507 625 271 281 Stockholders' investment (42) 427 377 345 19
Notes: (1) In 1992, the Company's stockholders approved a one-for-four reverse stock split. In conjunction with this reverse stock split, the authorized number of shares was reduced to 15,000,000 and par value was increased to $.04 per share. All years have been restated to reflect this action. -18- -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 resulted from operations, bank loans and advances made by principal stockholders. In 1994, the operations of the Company generated cash of $52,351. This cash flow, along with cash reserves of $99,652, was sufficient to fund investments in assets of $62,399 and a net debt reduction of $60,672. Cash flow from operations of $216,433 funded investments in assets of $147,597 and a net debt reduction of $22,147 in 1993. During the calendar year 1992, cash reserves of $150,302 and cash flow from operating activities of $107,450 funded an investment in assets of $223,903 and a $19,114 increase in debt financing. Cash Flow from Operations. The cash provided by operations was lower in 1994, being $52,351 versus $216,433 in 1993. This change was primarily due to a substantial net loss for 1994. The impact from a gain on debt extinguishment, a decrease of accounts receivable, an increase in bad debt provision and non-cash depreciation and amortization expense was sufficient to offset the $534,030 net loss before extraordinary item incurred in 1994. The cash provided by operations in 1993 was higher than the 1992 amount of $107,450. This was primarily due to higher net income in 1993 and an increase in accounts payable in 1993. Cash Flow from Investing Activities. The Company made capital expenditures of $31,469, $103,108 and $186,931 in 1994, 1993 and 1992, respectively, primarily related to computer system upgrades and furniture and fixture purchases at various Company locations. The Company also made investments in title plant of $36,985, $44,013 and $41,072 in 1994, 1993 and 1992, respectively, to support its ongoing business. As of December 31, 1994, the Company had no material purchase commitments. The Company has, in the past, acquired other businesses for cash, notes and common stock. Additional acquisitions may be made in the future. These acquisitions may be made, in part or in whole, for cash. Cash Flow from Financing Activities. Primary cash flows from financing activities relate to changes in financing under lines-of-credit, notes payable and advances by principal stockholders. During March, 1992, the Company secured a $500,000 note payable with another bank. Proceeds from this new note were used to repay the $375,000 balloon payment discussed earlier and to completely retire the Company's note payable obligation established in 1989. This note -20- payable calls for monthly installment payments of $8,333 plus interest at the prime rate plus 3/4%, maturing in April, 1997. This note is guaranteed by the principal stockholders/officers of the Company and is collateralized by substantially all of the Company's assets. The note payable requires the Company to meet certain financial measures as follows: (a) Total liabilities to tangible net worth including subordinated debt of 2.00 to 1 at December 31, 1992; 2.00 to 1 to December 30, 1993 and 1.50 to 1 thereafter; (b) Current ratio of 1.46 to 1 at December 31, 1992; 1.36 to 1.75 to 1 to December 31, 1993 and 1.75 to 1 thereafter. This requirement varies by quarter in 1993; (c) Working capital of $425,000 at December 31, 1992; $425,000 to December 30, 1993 and $500,000 thereafter. The agreement also limits the Company's ability to make acquisitions, pay dividends and make capital expenditures, and requires the Company to submit certain financial information. Also in March, 1992, the Company secured a revolving line-of-credit bearing interest at the prime rate plus 1/2%. The maximum borrowing capacity under this agreement is $250,000. At December 31, 1994, 1993 and 1992, there was $235,000, $140,000 and $25,000, respectively, outstanding on this line-of-credit. It is anticipated that these financial requirements will be rewritten in 1995 to allow compliance by the Company. The balance on this note payable at December 31, 1994 was $225,000. At December 31, 1994, the Company was not in compliance with the financial covenants related to the note payable to a bank. On December 13, 1995, the amount outstanding on this note and $185,000 of the amount borrowed under its line-of-credit agreement were refinanced with the same bank. Under the terms of the new note payable, the Company is required to make 22 consecutive monthly principal payments of $7,674, plus interest at the bank's prime rate plus 1.25%, beginning January 1, 1996 through October 1, 1997. Beginning November 1, 1997 through September 1, 1999, the Company is required to make 23 monthly payments of $6,230, plus interest at the bank's prime rate plus 1.25%. All unpaid principal and interest is due on October 1, 1999. This note is guaranteed by the officers/ stockholders of the Company and is collateralized by substantially all of the Company's assets. The note payable and line-of-credit have been classified in accordance with the new agreement as of December 31, 1994. The refinanced note payable to the bank requires the Company to meet certain financial measures at December 31, 1995 as follows: a. Working capital deficit of $140,000. b. Current ratio of .85 to 1. c. Minimum tangible net worth of $250,000. d. Total liabilities to tangible net worth of not more than 3.9 to 1. e. Debt service ratio of not less than 1.75 to 1. -21- These ratios are adjusted on a quarterly or semi-annual basis during 1996 and thereafter. The agreement also limits the Company's ability to make acquisitions, pay dividends and make capital expenditures, and required the Company to submit certain financial information. The Company also has available an unsecured line of credit of $100,000 with a bank with interest on amounts borrowed at the bank's prime rate plus 1%. There were no borrowings as of the years ended December 31, 1992, 1993 and 1994. Borrowings under this line-of-credit are personally guaranteed by the Company's principal officers/stockholders. The Company repaid $164,033, $179,215 and $212,151 under its long term debt agreements in 1994, 1993 and 1992, respectively. Long term borrowings were $8,361, $41,693 and $232,765 in 1994, 1993 and 1992, respectively. At December 31, 1992, the Company owed $194,000 to a principal stockholder/director. For the years ended December 31, 1993 and 1994 this amount increased slightly to $200,000. This debt bears interest at the prime rate plus three percent (3%) and has no set repayment terms, however, the principal stockholder has agreed not to require payment prior to January, 1997. The Company expects cash flow generated from operations and bank lines-of-credit currently available will be adequate to meet its anticipated working capital and fixed capital expenditure needs for the next twelve months. Long term liquidity requirements, related primarily to expansion of the Company's business through the establishment of additional branch offices as well as new services and product offerings. These needs are expected to be met with a combination of cash generated from operations and borrowings. Impact of Inflation. The Company believes that the impact of inflation on its results of operations has been and will continue to be minimal due to the recent and expected continued low rates of inflation. 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, 1994, 1993, 1992, expressed as a percentage of total revenues. -22- Percentage of Total Revenues Years Ended December 31 ---------------------------- 1994 1993 1992 ---- ---- ---- Title insurance premiums 41.15% 31.88% 28.89% Abstract, appraisal fees 58.85 68.12 71.11 ------ ------ ------ Total revenues 100.00 100.00 100.00 Direct costs of revenue (21.87) (16.80) (18.78) ------ ------ ------ Gross profit 78.13 83.20 81.22 Operating expenses: Personnel costs (61.77) (56.61) (44.92) Other operating expenses (27.01) (24.33) (32.94) ------ ------ ------ Operating income/(loss) (10.65) 2.26 3.36 Other expenses (.14) (1.13) (2.88) Income tax expense .98 (.17) (.11) ------ ------ ------ Net income/(loss) (9.81)% .96% .37% ====== ====== ====== (b) Operating Revenues Combined revenues of the Company decreased 14.51% from $6,817,717 for the year ended December 31, 1992 to $5,828,136 for the year ended December 31, 1993. The combined revenues further decreased approximately 17.99% to $4,779,546 for the year ended December 31, 1994. The Company experienced a revenue increase in 1992 primarily due to the emergence of the nationwide economy from a recession and the continued stability of low interest rates. In order to further penetrate the financial institution revenue market and to better service its institutional client base throughout New York State, the Company broadened its operational capabilities to include the Hudson Valley and Long Island areas during the second quarter of 1992 with the establishment of a new branch location in Goshen, New York. In 1993, however, operating revenues declined due to strong competition within the abstract and title service industry, a weaker demand for home equity (second mortgage) loans, and the continuance of a sluggish real estate market in the northeast. This trend continued in a more dramatic fashion in 1994 leading to lower overall revenues within the title search and appraisal divisions. The Company expects total revenues to increase during 1995 as the housing rebound begins to take hold in the market areas which it serves and the volume of orders increases from those customers lost to lower priced non-performing competitors. -23- Specifically, revenue from title insurance premiums increased by 5.81% during 1994 to $1,966,849 versus $1,858,264 in 1993. This occurred despite a decrease in 1993 of 5.65% from $1,969,592 in 1992. Even though a slight increase in title sales was recognized for 1994, a significant decline in title searches and appraisal sales caused an overall decline in the gross revenues of the Company. Abstract and appraisal service revenues declined from $4,848,125 to $3,969,872 to $2,812,697 in 1992, 1993 and 1994, respectively. These fluctuations represented an 18.11% reduction in abstract and appraisal revenues from 1992 to 1993 and a corresponding reduction of 29.15% from 1993 to 1994. As stated earlier, the decline in this segment of the Company's revenues from the years ended 1992 to 1994 resulted from more intense competition within the industry in addition to a lower volume of home equity (second mortgages) loans. As a result of the acquisition of the Buffalo-based Proper Appraisal Specialists, Inc. in December, 1991, the Company has the capability to offer commercial/industrial real estate appraisals throughout New York State. As a percentage of total revenue, appraisal income has fallen from fourteen percent (14%) of total revenues in 1992 to twelve percent (12%) in 1993. Appraisal revenues decreased slightly from $983,145 in 1992 to $701,540 in 1993. A similar decrease of $236,753 occurred in 1994 when appraisal revenues decreased to $464,787 representing ten percent (10%) of total revenues. These decreases were attributable to a decreased volume of abstract and title orders. (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 to appraisers. As a result of a decrease in the volume of title search and appraisal orders in geographic areas where the Company does not have a direct operation, as well as the positive aspect of producing a higher percentage of orders using its own labor force, direct costs of revenue decreased from 18.78% in 1992 to 16.80% for the year ended December 31, 1993. These same costs increased to 21.87% in 1994 due to greater competition within the title insurance markets. (d) Operating Expenses Direct and indirect personnel costs and other operating expenses are incurred in connection with the production of title searches, title examinations, the maintenance of the Company's title plant and the preparation of real estate appraisals. Total operating expenses decreased from $5,308,324 for the year ended December 31, 1992 to $4,717,398 for the same period in 1993. Operating expenses further declined in 1994 to $4,228,331 for the year ended December 31, 1994. These decreases were primarily attributable to declining payroll costs associated with a reduction in staffing requirements. -24- In 1993, gross payroll and benefits amounted to $3,299,116 as compared to $3,526,657 in 1992. Office supplies including postage decreased from $370,581 in 1992 to $237,238 in 1993. Bad debt expense decreased from $114,912 to $33,533 for the same time period. The decrease in operating expenses experienced by the Company in 1994 can be attributable to a cost containment and downsizing program implemented as a result of a lower than anticipated sales volume. The significant decreases in expense for 1994 are shown in the table below. Expense Item 1994 1993 ------------ ---- ---- Gross payroll $2,952,187 $3,299,116 & benefits Dues & subscriptions 17,061 33,103 Office supplies 173,122 237,238 & postage (freight) Travel expenses 85,938 109,401 As with any service company, the major item of expense and corresponding increase in expense level associated with the Company's operations is gross payroll and employee benefits. As a percentage of revenues, personnel costs and other operating expenses represented 89% in 1994, 81% in 1993 and 78% in 1992. This increase in operating expenses as a percentage of revenues resulted from a constant level of payroll expenditures versus a decreasing revenue base in 1993 and 1994. This diminishing revenue base is attributable to a period of increasing interest rates for mortgage loans during the second half of 1994 and an increased level of competitiveness within the industry. The Company is continuing a strategic emphasis on productivity, geographic full service, and total quality standards. The Company's work force has decreased significantly from 127 in 1992 to 94 in 1994. Based on a decrease in sales order volume, income from operations for 1993 was $131,870 as compared to $229,037 for 1992. Net income for 1993 was $56,013 compared to $25,085 in 1992. Net income for the year ended December 31, 1992 was adversely affected by costs associated with a discontinued common stock offering of $127,500. Since there were no such costs incurred during 1993, net income was higher as compared to 1992. The Company suffered a significant decrease in income from operations and net income for the year ending December 31, 1994. Due to the economic downturn of the real estate market, the Company incurred a loss from normal operations of $534,030. After the $65,000 gain from the early extinguishment of debt from a related party are considered, the net loss for 1994 was $469,030. -25- Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to pages 34 to 54 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. -26- 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, 1994.
Shares of Position with the Common Stock Percent Company or Princi- Director Beneficially of Name Age pal Occupation Since Owned Class - ---- --- -------------- ----- ----- ----- Frank B. 55 President and 1987 1,366,339 (3) 40.92% Iacovangelo Treasurer (1) Bernard J. 47 Vice President 1987 1,376,339 (4) 41.22% Iacovangelo Secretary (1) William S. 45 Executive Vice 1992 140,758 (5) 4.22% Gagliano President and Director (1) Anthony M. 54 President, director 1987 87,913 (6) 2.64% Iacovangelo and principal share- holder of Faber Construction Co., Inc. Rochester, NY (2) All Directors and Officers of the 2,971,349 88.99% Company as a group (four persons) (3)(4)(5)(6)
(1) See information contained in the section entitled "Executive Officers of Registrant" in Part I of Form 10-K for the fiscal year ended December 31, 1994. In addition, from 1987 until June 1989, Frank B. Iacovangelo was a director, and on an interim basis for a period of approximately 11 months was Chairman of the Board of Charlie Bubbles, Ltd. food service business which filed a petition under Chapter 11 of the U S Bankruptcy Code on November 20, 1989. (2) During the past five years, Anthony Iacovangelo has also been an owner of numerous real estate projects. (3) Includes 300,000 shares owned by children of Frank B. Iacovangelo, beneficial ownership of which is disclaimed. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Frank Iacovangelo owns a 40% interest. -27- (4) Includes 500,000 shares owned by a Trust for the benefit of Bernard J. Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial ownership of these shares. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Bernard Iacovangelo has a 40% interest. (5) Includes an option to purchase 125,000 shares of Common Stock. (6) Includes 10% of the 368,869 shares owned by Wegman Building Associates, a partnership in which Anthony Iacovangelo has a 10% interest. Also includes options to purchase 1,000 shares of Common Stock. Messrs. Frank, Bernard and Anthony Iacovangelo are brothers. Item 11. Executive Compensation Executive Compensation The following table sets forth the cash compensation for each of the last three financial years awarded to or earned by the Chief Executive Officer of the Company. No other executive officer of the Company received a total salary and bonus in excess of $100,000 and accordingly no reporting is required under the regulations of the Securities and Exchange Commission. Name and Annual Compensation (1) Principal Position ----------------------- ------------------ Yearly Salary ------------- Frank B. Iacovangelo 1994 -- $61,800 President, Chief 1993 -- $21,923 Executive Officer 1992 -- $51,923 and Treasurer - -------------------- (1) Mr. Iacovangelo receives no other compensation or benefits from the Company. He neither received nor exercised any options during 1994 and he held no options at December 31, 1994. Remuneration of Directors During 1994, directors of the Company received no cash remuneration for serving as directors or as members of committees. The Company's 1992 Stock Option Plan (the "Option Plan") provides for automatic grants of stock options to each member of the Board of Directors who is not also an employee of the Company. Messr. Anthony Iacovangelo is a non-employee director. -28- Pursuant to the Option Plan, a Non-Employee Director Stock Option ("NEDSO") for 500 shares is granted to each non-employee director automatically every year on the date of the Annual Meeting of Stockholders. The first such grants were made on the date of the 1992 Annual meeting of Stockholders (July 29, 1992), and each non-employee director received a NEDSO for 500 shares at an exercise price of $.75 per share, the fair market value of the Company's Common Stock on the date of grant. Each NEDSO is immediately exercisable in full. Each NEDSO terminated upon the expiration of ten years from the date upon which such NEDSO was granted. A NEDSO is not transferable other than by will or by the laws of dissent and distribution. In the event a non-employee director terminates services on the Board other than by reason of death or disability, such person's NEDSO (to the extent exercisable upon such termination) will expire three months from the date of termination of service, provided that in no event may a NEDSO be exercised beyond its original expiration date. In the event of death or disability of a non-employee director, any outstanding NEDSOs will expire one year from the date of death or disability, provided that in no event may a NEDSO be exercised beyond its original expiration date. Employment Agreements Employment agreements between the Company and each of Messrs. Frank B. Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano provide for employment terms which commenced January 1, 1992, year to year indefinite renewal terms subject to either the Company or the employee electing not to renew, as amended, minimum base salaries of $60,000 per year in the case of Frank Iacovangelo, $52,000 per year in the case of Bernard J. Iacovangelo and $75,000 in the case of Mr. Gagliano, additional salary and bonus compensation to be determined by the Board of Directors of the Company in its sole discretion, and restrictions against competition with the Company. Messrs. Frank B. Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano received $61,800.27, $55,270.16 and $78,720.77 respectively during 1994. Item 12. Security Ownership of Certain Beneficial owners and Management On December 31, 1994, the Company had outstanding and entitled to vote with respect to all matters to be acted upon at the Annual Meeting of Stockholders, 3,338,802 shares of Common Stock ($.04 par value). Each share of Common Stock is entitled to one vote. The Company currently has no other outstanding class of equity securities. The following table sets forth information as of December 31, 1994 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. -29- Amount and Nature of Percent of Name and Address Beneficial Ownership Class - ---------------- -------------------- ----- Frank B. Iacovangelo 1,366,339 (1) (3) 40.92% 80 West Main St. Rochester, NY 14614 Bernard J. Iacovangelo 1,376,339 (2) (3) 41.22% 80 West Main St. Rochester, NY 14614 Wegman Building 368,879 (3) 11.05% Associates 80 West Main St. Rochester, NY 14614 (1) Includes 300,000 shares owned by children of Frank B. Iacovangelo, beneficial ownership of which is disclaimed. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Mr. Iacovangelo has a 40% interest. (2) Includes 500,000 shares owned by a Trust for the benefit of Bernard J. Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial ownership of these shares. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Bernard Iacovangelo has a 40% interest. (3) Wegman Building Associates is a general partnership in which Messrs. Frank, Bernard and Anthony Iacovangelo have a 40%, 40% and 10% interest, respectively. They have shared voting and investment power with respect to the shares owned by the partnership. Item 13. Certain Relationships and Related Transactions The principal offices of the Company are located at 80 West Main Street, Rochester, New York. These facilities are 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. Four Corners Abstract Corporation ("FCAC"), a subsidiary of the Company, currently leases approximately 15,000 square feet os such space, pursuant to a lease expiring on December 31, 1995. Effective January 1, 1994, the lease agreement requires annual rental payments of $159,660 plus common area charges. Annual rental payments, pursuant to the lease, including common area charges, were approximately $58,372, $213,000 and $263,000 in 1994, 1993 and 1992 respectively. During 1994, total unpaid rent of $109,000 was forgiven by the related partners. The Company owed approximately $66,000 for unpaid rent at December 31, 1993. -30- 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 1994, 1993 and 1992, Frank Iacovangelo, President of the Company, made advances to the Company. The advances bear interest at the prime rate plus 3% and repayment is subordinated to the amounts outstanding under the Company's line of credit agreements. Mr. Iacovangelo has agreed not to require payment of these advances through January 1, 1996. At December 31, 1994, December 31, 1993 and December 31, 1992, $200,000, $200,000 and $194,000 were outstanding respectively. in 1994, the Company paid Mr. Iacovangelo $13,008.93 in interest. In 1994, 1993 and 1992, approximately 4%, 4% and 3% respectively, of the Company's revenue was derived from the law firm of Gallo and Iacovangelo. At December 31, 1994, 1993, and 1992, the Company was owed $59,284, $57,966 and $44,006 respectively, from Gallo and Iacovangelo. Rates charged were comparable to those charged similar customers. -31- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report and as response to Item 8: (1) Financial Statements - Auditors' Report dated February 17, 1995 (except for Notes 5 and 6, as to which the date is December 13, 1995). - Consolidated Balance Sheets - December 31, 1994 and 1993 - Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 - Consolidated Statements of Changes in Stockholders' Investment for the Years Ended December 31, 1994, 1993 and 1992 - Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 - Notes to Consolidated Financial Statements (1) through (13) (2) Financial Statement Schedules - Auditors' Report Dated February 17, 1995 - Schedule II - Amounts Receivable From Related Parties for the Years Ended December 31, 1994, 1993 and 1992 - Schedule VI -Accumulated Depreciation of Property and Equipment for the Years Ended December 31, 1994, 1993 and 1992 - Schedule VIII - Valuation and Qualifying Accounts for the Years Ended December 31, 1994, 1993 and 1992 - Schedule IX - Short-Term Borrowings for the Years Ended December 31, 1994, 1993 and 1992 -32- (3) Exhibits (a) 10.1 Revolving Credit and Term Loan Agreement with Marine Midland Bank, N. A., dated December 13, 1995. 10.2 Lease agreement dated May 1, 1995, by and between North Pearl Partners and Four Corners Abstract Corporation for property located at 99 Pine Street, Albany, NY. 10.3 Lease agreement dated June 21, 1995, by and between Fitch Building Associates and Four Corners Abstract Corporation for property located at 370 East Ave, Rochester, NY. 10.4 Lease agreement (licensing) dated June 1, 1994, by and between the Chenango County Clerk and Four Corners Abstract Corporation for property located at 5 Court Street, Norwich, NY. 10.5 Sale agreement dated December 5, 1994, by and between J. K. Hage, III and Four Corners Financial Corporation for property located at 612 Charlotte Street, Utica, NY. 22 Subsidiaries of Registrant (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the fourth quarter of the year ended december 31, 1994. (c) Exhibits See (a) (3) above. (d) Financial Statement Schedules See (a) (2) above. -33- Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May , 1996 FOUR CORNERS FINANCIAL CORPORATION By: ------------------------------------------ Frank B. Iacovangelo, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capabilities on the dates indicated. May , 1996 - ----------------------------------------- Frank B. Iacovangelo President, Treasurer and Director (Chief Executive Officer and Chief Financial Officer May , 1996 - ----------------------------------------- William S. Gagliano Executive Vice President, Chief Accounting Officer and Director /s/Bernard J. Iacovangelo May , 1996 - ----------------------------------------- Bernard J. Iacovangelo Vice President, Secretary and Director /s/Anthony M. Iacovangelo May , 1996 - ----------------------------------------- Anthony M. Iacovangelo Director -34- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 AND 1993 TOGETHER WITH INDEPENDENT AUDITORS' REPORT June 12, 1996 (04:52pm) -35- INDEPENDENT AUDITORS' REPORT February 17, 1995 (except for Notes 5 and 6, as to which the date is December 13, 1995) To the Stockholders of Four Corners Financial Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Four Corners Financial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' investment, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Four Corners Financial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. -36- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993
ASSETS LIABILITIES AND STOCKHOLDERS' INVESTMENT 1994 1993 1994 1993 ---- ---- ---- ---- CURRENT ASSETS: CURRENT LIABILITIES: Cash $ 28,932 $ 99,652 Lines-of-credit $ 50,000 $ 140,000 Cash - escrow deposits 70,633 46,873 Current portion of notes payable 106,745 114,629 Accounts receivable, net of Current portion of obligations under allowance for capital leases 45,805 42,220 doubtful accounts of $100,000 and $30,000 in 1994 and 1993, respectively 478,094 843,377 Accounts payable 455,866 361,175 Prepaid expenses 9,090 8,948 Accounts payable - related parties -- 65,663 Other receivables 1,085 32,129 Escrow deposits 70,633 46,873 Income tax receivable 6,725 -- Other accrued expenses 63,639 93,520 ---------- ---------- Accrued income taxes -- 6,600 ---------- ---------- Total current assets 594,559 1,030,979 Total current liabilities 792,688 870,680 ---------- ---------- LONG-TERM LIABILITIES: PROPERTY AND EQUIPMENT, net 305,358 399,053 ---------- ---------- Notes payable, net of current portion 330,937 244,096 Obligations under capital leases, net OTHER ASSETS: of current portion 33,325 62,432 Subordinated debt due to officer/ Deposits 7,246 8,871 principal stockholder 200,000 200,000 ---------- ---------- Cash value of officer life 20,070 -- insurance Intangible assets, net of Total long-term liabilities 564,262 506,528 accumulated ---------- ---------- amortization of $81,269 in 1994 and $66,666 in 1993 20,655 35,258 Total liabilities 1,356,950 1,377,208 ---------- ---------- ---------- ---------- 47,971 44,129 STOCKHOLDERS' INVESTMENT: ---------- ---------- Common stock, $.04 par value, 15,000,000 TITLE PLANT 367,283 330,298 shares authorized, 3,343,802 issued in 1994 ---------- ---------- and 1993 and 3,338,802 outstanding in 1994 and 1993 133,752 133,752 Additional paid-in capital 835,402 835,402 Accumulated deficit (1,005,308) (536,278) ---------- ---------- (36,154) 432,876 Less: Treasury stock at cost, 5,000 shares (5,625) (5,625) ---------- ---------- Total stockholders' investment (41,779) 427,251 ---------- ---------- $1,315,171 $1,804,459 $1,315,171 $1,804,459 ========== ========== ========== ==========
-37- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 AND 1992
1994 1993 1992 ---- ---- ---- REVENUE: Title insurance premiums $ 1,966,849 $ 1,858,264 $ 1,969,592 Abstract and appraisal services 2,812,697 3,969,872 4,848,125 ----------- ----------- ----------- 4,779,546 5,828,136 6,817,717 ----------- ----------- ----------- DIRECT COSTS OF REVENUE: Title insurance premiums (539,390) (351,015) (349,583) Abstract and appraisal services (505,929) (627,853) (930,773) ----------- ----------- ----------- (1,045,319) (978,868) (1,280,356) ----------- ----------- ----------- Gross profit 3,734,227 4,849,268 5,537,361 OPERATING EXPENSES (4,228,331) (4,717,398) (5,308,324) ----------- ----------- ----------- Income (loss) from operations (494,104) 131,870 229,037 ----------- ----------- ----------- OTHER EXPENSES: Interest (71,845) (66,063) (68,796) Cost of discontinued stock offering -- -- (127,500) Loss on sale of property (14,932) -- -- ----------- ----------- ----------- (86,777) (66,063) (196,296) ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item (580,881) 65,807 32,741 BENEFIT FROM (PROVISION FOR) INCOME TAXES 46,851 (9,794) (7,656) ----------- ----------- ----------- Income (loss) before extraordinary item (534,030) 56,013 25,085 EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT, net of income tax of $44,000 65,000 -- -- ----------- ----------- ----------- NET INCOME (LOSS) $ (469,030) $ 56,013 $ 25,085 =========== =========== =========== NET INCOME (LOSS) PER SHARE: Income (loss) before extraordinary item $ (.16) $ .02 $ .01 Extraordinary item .02 -- -- ----------- ----------- ----------- Net income (loss) $ (.14) $ .02 $ .01 =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. -38- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---- Common Stock ---- Additional Total Paid-in Accumulated Treasury Stockholders' Shares Amount Capital Deficit Stock Investment ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1991 3,330,042 $ 133,202 $ 829,137 $ (617,376) $ -- $ 344,963 Exercise of stock options 12,500 500 6,000 -- -- 6,500 Net income -- -- -- 25,085 -- 25,085 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1992 3,342,542 133,702 835,137 (592,291) -- 376,548 Shares issued in exchange for Mid-State Abstract Corporation stock 1,260 50 265 -- -- 315 Purchase of treasury stock -- -- -- -- (5,625) (5,625) Net income -- -- -- 56,013 -- 56,013 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1993 3,343,802 133,752 835,402 (536,278) (5,625) 427,251 Net loss -- -- -- (469,030) -- (469,030) ----------- ----------- ----------- ----------- ----------- ----------- BALANCE - December 31, 1994 3,343,802 $ 133,752 $ 835,402 $(1,005,308) $ (5,625) $ (41,779) =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. -39- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ---- ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) before extraordinary item $(534,030) $ 56,013 $ 25,085 Adjustments to reconcile net income (loss) before extraordinary item to net cash flow from operating activities: Extraordinary item - gain on extinguishment of debt 65,000 -- -- Provision for bad debts 121,678 33,533 118,047 Loss on sale of property 14,932 -- -- Deferred stock offering costs -- -- 18,964 Depreciation and amortization 124,442 124,788 137,360 Common stock issued in exchange for Mid-State Abstract Corporation stock -- 315 -- Changes in: Accounts receivable 243,605 (152,690) (56,763) Prepaid expenses (142) (2,983) 20,203 Other receivables 31,044 (26,489) 16,846 Income tax receivable (6,725) 21,718 (21,718) Accounts payable 29,028 124,288 (106,237) Other accrued expenses (29,881) 31,340 (44,337) Accrued income taxes (6,600) 6,600 -- --------- --------- --------- Net cash flow from operating activities 52,351 216,433 107,450 --------- --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property and equipment (31,469) (103,108) (186,931) Proceeds from sale of property and equipment 24,500 -- -- (Increase) decrease in deposits 1,625 (476) 4,100 Increase in cash value of officer life insurance (20,070) -- -- Investment in title plant (36,985) (44,013) (41,072) --------- --------- --------- Net cash flow from investing activities (62,399) (147,597) (223,903) --------- --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Increase (decrease) in lines-of-credit 95,000 115,000 (8,000) Borrowings on notes payable 8,361 41,693 232,765 Repayment of notes payable and obligations under capital leases (164,033) (179,215) (212,151) Increase in subordinated debt due to officer/ principal stockholder -- 6,000 -- Proceeds from exercise of stock options -- -- 6,500 Purchase of treasury stock -- (5,625) -- --------- --------- --------- Net cash flow from financing activities (60,672) (22,147) 19,114 --------- --------- --------- NET INCREASE (DECREASE) IN CASH (70,720) 46,689 (97,339) CASH - beginning of year 99,652 52,963 150,302 --------- --------- --------- CASH - end of year $ 28,932 $ 99,652 $ 52,963 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. -40- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1993 (1) The Company Four Corners Financial Corporation (FCFC) and its Subsidiaries, Four Corners Abstract Corporation (FCAC) and Proper Appraisal Specialists, Inc. provide services and products including real estate title searching, preparation of abstracts of title, issuance of title insurance as an agent for certain national underwriting companies and real estate appraisals, primarily in Western and Central New York State. All of these services and products are required in connection with the mortgaging, sale or purchase of real property. Unless otherwise indicated, the term "Company" refers to Four Corners Financial Corporation and its subsidiaries. The Company operates in one business segment. (2) Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of FCFC and all subsidiaries. All significant intercompany transactions and balances have been eliminated. Results of Operations - In 1994, the Company incurred a loss of $469,030. As a result, at December 31, 1994, current liabilities exceeded current assets by $198,129 and total liabilities exceeded total assets by $41,779. Further, the Company was in violation of the financial covenants of its note payable to a bank. Management has developed a plan to improve operations and cash flow. Subsequent to year end, payroll, rent and other costs were reduced and the terms of the note payable were also renegotiated (see Note 5). Management estimates that these actions will reduce costs approximately $965,000 on an annual basis beginning in 1995. Management believes that these actions in conjunction with other cost reduction measures will return the Company to profitability in 1995. -41- Cash - Cash includes demand deposit and money market accounts. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At times, the cash balances in an institution may exceed this federally insured limit. However, the Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk with respect to these cash accounts. Property and Equipment - Property and equipment is stated at cost and is depreciated using accelerated and straight-line methods over the following useful lives: Building and improvements 15 - 31.5 years Furniture and equipment 3 - 10 years Vehicles 5 years Leasehold improvements Term of lease 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 statements of operations. Repairs and maintenance costs are charged to expense when incurred. Depreciation expense for 1994, 1993 and 1992 was $109,839, $108,287, and $126,719, respectively. Property and equipment consisted of the following at December 31: 1994 1993 ---- ---- Land, building and improvements $ -- $ 77,331 Furniture and equipment 986,630 942,042 Vehicles 96,732 95,125 Leasehold improvements 58,770 58,118 ----------- ----------- 1,142,132 1,172,616 Less: Accumulated depreciation (836,774) (773,563) ----------- ----------- $ 305,358 $ 399,053 =========== =========== -42- Intangible Assets - Intangible assets consist of goodwill and covenants not-to-compete resulting from the 1987 acquisition of the Albany branch, the 1989 acquisition of Livingston Abstract Corporation, the 1990 acquisition of Picciano Abstract Company, Inc. and the 1991 acquisition of Proper Appraisal Specialists, Inc. The goodwill and covenants not-to-compete are being amortized on a straight-line basis over a five-year period. 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. Costs incurred to perform full title search additions to the title plant are capitalized in the year incurred. Costs incurred to maintain or update existing title files in the title plant are expensed as incurred. Revenue Recognition - Title insurance is provided to purchasers or financers of real property. The related revenue is recognized when policies become effective, generally at the property or mortgage loan closing. Under terms of the Company's agreements with its title insurance underwriters, a commission of 15 - 20% is paid to its underwriter on all title insurance policies written. Pricing is based on a rate schedule established by the Insurance Department of the State of New York which provides for varying rates for services rendered. Commission expense is reflected as a direct cost of title insurance revenue in the statements of income. The Company also performs title abstract research and prepares appraisals on real properties. Abstract and appraisal revenue is recognized as earned. Direct costs of abstract and appraisal revenue include the cost of work performed by subcontractors in geographical areas where the Company does not maintain an office, among other direct costs. Net Income Per Share - Net income per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during the periods. The weighted average number of shares outstanding is as follows: -43- 1994 1993 1992 ---- ---- ---- Average number of common shares outstanding: Common shares 3,338,802 3,338,873 3,330,419 Common equivalent shares -- 145,752 187,081 --------- --------- --------- 3,338,802 3,484,625 3,517,500 ========= ========= ========= Fully diluted earnings per share did not differ materially from primary earnings per share in any of these three years. As a result of the loss incurred in 1994, common equivalent shares have not been considered in the calculation of average number of common shares outstanding. (3) Escrow Deposits As a service to its customers, FCAC administers escrow deposits representing undisbursed amounts received for settlements of mortgage loans or property sales and indemnities against specific title risks. These funds are recorded as both a current asset and a current liability in the accompanying balance sheets. (4) Income Taxes During 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires an asset and liability approach to measuring deferred income taxes. Previous standards required an income statement approach. The (benefit from) provision for income taxes consisted of the following at December 31: 1994 1993 1992 ---- ---- ---- Federal: Current $ (4,200) $ 5,000 $ -- Deferred (37,400) -- -- State: Current 1,349 4,794 7,656 Deferred (6,600) -- -- -------- -------- -------- $(46,851) $ 9,794 $ 7,656 ======== ======== ======== -44- Income tax expense for 1994, 1993 and 1992 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: 1994 1993 1992 ---- ---- ---- Expected tax expense (benefit) $(139,000) $ 22,500 $ 11,000 Effect of graduated Federal rates -- (12,000) (6,100) State income taxes, net of Federal income tax benefit (23,000) 3,100 5,000 Change in valuation allowance 123,000 (3,800) (5,500) Other, net (7,851) (6) 3,256 --------- --------- --------- $ (46,851) $ 9,794 $ 7,656 ========= ========= ========= At December 31, 1994, the Company has available a net operating loss carryforward of approximately $388,000. This net operating loss carryforward will begin to expire in 2002. The Company has recorded a valuation allowance equal to the deferred tax asset related to the carryforward. Taxes paid in 1994, 1993 and 1992 were $3,425, $5,096 and $29,374, respectively. (5) Notes Payable and Obligations Under Capital Leases Notes Payable - Notes payable consisted of the following at December 31: 1994 1993 ---- ---- Note payable to a bank $ 410,000 $ 325,000 Various notes payable in aggregate monthly installments of $1,391, including interest at rates ranging from 8% to 9%. These notes mature through February, 1997 and are 27,682 33,725 collateralized by the related -------- --------- equipment. 437,682 358,725 Less: Current portion (106,745) (114,629) --------- --------- $ 330,937 $ 244,096 ========= ========= -45- At December 31, 1994, the Company was not in compliance with the financial covenants related to the note payable to a bank. On December 13, 1995, the amount outstanding on this note and $185,000 of the amount borrowed under its line-of-credit agreement were refinanced with the same bank. Under the terms of the new note payable, the Company is required to make 22 consecutive monthly principal payments of $7,674, plus interest at the bank's prime rate plus 1.25%, beginning January 1, 1996 through October 1, 1997. Beginning November 1, 1997 through September 1, 1999, the Company is required to make 23 monthly principal payments of $6,230, plus interest at the bank's prime rate plus 1.25%. All unpaid principal and interest is due on October 1, 1999. This note is guaranteed by the officers/stockholders of the Company and is collateralized by substantially all of the Company's assets. The note payable and line-of-credit have been classified in accordance with the new agreement as of December 31, 1994. Future scheduled principal payments at December 31, 1994 are as follows: 1995 ........................ $ 106,745 1996 ........................ 103,744 1997 ........................ 90,148 1998 ........................ 74,760 1999 ........................ 62,285 --------- $ 437,682 ========= The refinanced note payable to the bank requires the Company to meet certain financial measures at December 31, 1995 as follows: a. Working capital deficit of $140,000. b. Current ratio of .85 to 1. c. Minimum tangible net worth of $250,000. d. Total liabilities to tangible net worth of not more than 3.9 to 1. e. Debt service ratio of not less than 1.75 to 1. These ratios are adjusted on a quarterly or semi-annual basis during 1996 and thereafter. The agreement also limits the Company's ability to make acquisitions, pay dividends and make capital expenditures, and requires the Company to submit certain financial information. -46- Obligations Under Capital Leases - The Company has entered into several capital lease agreements for equipment. These obligations consisted of the following at December 31: 1994 1993 --------- --------- Various leases payable in aggregate monthly installments of $4,877, including interest at rates ranging from 8.4% to 15.7%. These leases mature through January, 1997 and are collateralized by the related equipment $ 79,130 $ 104,652 Less: Current portion (45,805) (42,220) --------- --------- $ 33,325 $ 62,432 ========= ========= The following is a schedule of future minimum lease payments under the capital lease obligations together with the present value of the minimum lease payments at December 31, 1994: 1995 .......................................... $ 51,706 1996 .......................................... 34,340 1997 .......................................... 598 -------- Total minimum lease payments 86,644 Less: Amount representing interest (7,514) -------- Present value of future minimum lease payments under capital lease obligations $ 79,130 ======== (6) Lines-of-Credit The Company may borrow up to $250,000 under the terms of a line-of-credit agreement with a bank. At December 31, 1994 and 1993 there was $235,000 and $140,000 outstanding under this line-of-credit, respectively. On December 13, 1995, $185,000 of the amount borrowed under this line-of-credit was refinanced as part of the note payable described in Note 5. At the same time, the Company entered into a new line-of-credit agreement with a maximum borrowing of $50,000 through October 31, 1997. Amounts borrowed on the new line-of-credit bear interest at the bank's prime interest rate plus 1% and are collateralized by substantially all assets of the Company and are guaranteed by the officers/stockholders of the Company. -47- (6) Lines-of-Credit (continued) The Company may also borrow up to $100,000 under the terms of an unsecured line-of-credit with another bank. Amounts borrowed bear interest at the bank's prime rate plus 1%. Borrowings under this line-of-credit are personally guaranteed by the Company's principal officers/stockholders. There were no borrowings on this line-of-credit at December 31, 1994 and 1993. Interest paid in 1994, 1993 and 1992 on all notes payable, obligations under capital leases and the lines-of-credit was $67,536, $66,536, and $70,657, respectively. (7) Stockholders' Investment Stock Options - In July, 1992, the Company's Board of Directors adopted and the stockholders approved the 1992 Stock Option Plan (1992 Plan) which replaced the 1988 Stock Incentive Plan (1988 Plan). Under the 1992 Plan, the Company may issue incentive stock options, non-statutory options, non-employee director options and reload options. The exercise price of incentive, non-statutory and reload options will not be less than fair market value at date of grant. Incentive and non-statutory options will generally expire ten years from date of grant. Reload options will have a term equal to the remaining option term of the underlying option. The 1992 Plan also provides for annual grants of stock options to purchase 500 shares of the Company's common stock to non-employee directors of the Company with an exercise price not less than fair market value at date of grant. These options will expire ten years from date of grant. Options issued under the 1988 Plan expire in 1995. No further options will be granted under the 1988 Plan. The Company has reserved 520,000 common shares for issuance under both plans. Following is a summary of option activity under the 1992 and 1988 Plans: --- Shares Under Option --- 1994 1993 -------- -------- Outstanding, beginning of year 271,000 376,000 Expired during the year -- (105,000) -------- -------- Outstanding, end of year 271,000 271,000 (at $.52 per share) ======== ======== -48- (8) Related Party Transactions Subordinated Debt Due to Officer/Principal Stockholder - During 1994, 1993 and 1992, one of the Company's officers/principal stockholders made advances to the Company. These advances were $200,000 at December 31, 1994 and 1993, and $194,000 at December 31, 1992, and bear interest at the prime rate plus 3%. Repayment of these advances is subordinated to the amounts outstanding under all other bank debt agreements. The officer/principal stockholder has agreed not to require payment of this amount through January, 1996. Office Lease Commitment - The Company leases its Rochester facility through December 31, 1995, from a company related through common management at an annual rental of $68,000. Rent and common area charges were approximately $58,372, $213,000 and $263,000 in 1994, 1993, and 1992, respectively. During 1994, total unpaid rent of $109,000 was forgiven by the related party. This amount has been reflected as an extraordinary item, net of income taxes of $44,000. The Company owed approximately $66,000 for unpaid rent at December 31, 1993. Significant Customer - In 1994, 1993 and 1992, 4%, 4%, and 3%, respectively, of revenue was derived from a related party. At December 31, 1994, 1993 and 1992, the Company was owed $59,284, $57,966, and $44,006, respectively, related to these sales. (9) Lease Commitments The Company leases other office facilities under operating lease agreements expiring through March, 1998. Minimum future lease payments under non-cancelable lease agreements with unrelated parties are as follows at December 31: 1995 ............................ $ 119,501 1996 ............................ 107,668 1997 ............................ 54,668 1998 ............................ 40,062 --------- $ 321,899 ========= Rent expense related to these operating leases was approximately $135,000, $127,000 and $174,000 for the years ended December 31, 1994, 1993 and 1992, respectively. -49- (10) Supplemental Disclosure of Non-Cash Investing and Financing Activities The Company had the following non-cash transactions: 1994 ---- a. Capital lease obligations of $24,107 were incurred when the Company entered into leases for new equipment. b. An extraordinary gain of $109,000, net of income taxes of $44,000, resulted from the forgiving of amounts due to a related party, as more fully explained in Note 8. 1993 ---- a. Issued 1,260 shares of common stock with a fair value of $315 in exchange for common stock of Mid-State Abstract Corporation. 1992 ---- a. Refinanced $375,000 in borrowings under a line-of-credit with the proceeds of a term loan. (11) Reverse Stock Split In July, 1992, the Company's stockholders approved a one-for-four reverse stock split. In conjunction with this reverse stock split, the authorized number of shares was reduced to 15,000,000 and par value was increased to $.04 per share. These actions have been retroactively reflected in the financial statements. (12) Significant Customers In 1992, one customer accounted for 16% of revenue. (13) Discontinued Stock Offering During 1992 and 1991, in an effort to raise additional capital, the Company incurred professional fees related to a proposed stock offering. This offering was not completed and the related costs were charged to expense in 1992. -50- INDEPENDENT AUDITORS' REPORT February 17, 1995 (except for Notes 5 and 6, as to which the date is December 13, 1995) To the Stockholders of Four Corners Financial Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Four Corners Financial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' investment, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Four Corners Financial Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
-------- Deductions -------- Balance at End of Period ------------------------ Balance at Beginning Amounts Amounts of Period Additions Collected Written off Current Not-Current --------- --------- --------- ----------- ------- ----------- YEAR ENDED DECEMBER 31, 1994: Gallo and Iacovangelo (1) $ 57,966 $ 165,437 $(148,119) $ (16,000) $ 59,284 $ -- ========= ========= ========= ============== ========= ========== YEAR ENDED DECEMBER 31, 1993: Gallo and Iacovangelo (1) $ 44,006 $ 212,064 $(198,104) $ -- $ 57,966 $ -- ========= ========= ========= ============== ========= ========== YEAR ENDED DECEMBER 31, 1992: Gallo and Iacovangelo (1) $ 45,384 $ 179,652 $(181,030) $ -- $ 44,006 $ -- ========= ========= ========= ============== ========= ==========
Note: (1) All amounts receivable are normal receivables for services rendered. -51- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Balance at Beginning Balance at of Year Additions(1) Repayments End of Year ------- ------------ ---------- ----------- YEAR ENDED DECEMBER 31, 1994: Note payable - officer/principal $200,000 $ -- $ -- $200,000 stockholder ======== =============== ================ ======== YEAR ENDED DECEMBER 31, 1993: Note payable - officer/principal $194,000 $ 6,000 $ -- $200,000 stockholder ======== =============== ================ ======== YEAR ENDED DECEMBER 31, 1992: Note payable - officer/principal $194,000 $ -- $ -- $194,000 stockholder ======== =============== ================ ========
Note: (1) All additions to indebtedness to related parties were used for general working capital purposes. -52- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
Additions ----------------------------------- Balance at Balance at Beginning Charges to Charges to End of of Period Expenses Other Accounts Deductions Period --------- -------- -------------- ---------- ------ YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts $ 30,000 $ 121,678 $ -- $ (51,678) $ 100,000 ========= ========= ================ ========= ========= YEAR ENDED DECEMBER 31, 1993: Allowance for doubtful accounts $ 30,000 $ 33,533 $ -- $ (33,533) $ 30,000 ========= ========= ================ ========= ========= YEAR ENDED DECEMBER 31, 1992: Allowance for doubtful accounts $ 30,000 $ 118,047 $ -- $(118,047) $ 30,000 ========= ========= ================ ========= =========
-53- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Maximum Average Weighted Amount Amount Average Outstanding Interest Outstanding Outstanding Interest Rate Balance at Rate at During During During Borrowing Category End of Year End of Year the Year the Year (1) the Year (2) ------------------ ----------- ----------- ----------- ------------- ------------- YEAR ENDED DECEMBER 31, 1994: Borrowing under lines-of-credit $ 50,000 9.00% $235,000 $184,583 6.69% ======== ==== ======== ======== ==== YEAR ENDED DECEMBER 31, 1993: Borrowings under lines-of-credit $140,000 6.50% $249,000 $191,500 5.90% ======== ==== ======== ======== ==== YEAR ENDED DECEMBER 31, 1992: Borrowings under lines-of-credit $ 25,000 6.50% $ 50,000 $ 35,889 6.53% ======== ==== ======== ======== ====
Notes: (1) Calculated as the average of month-end balances outstanding. (2) Calculated as actual interest expense divided by the average amount outstanding during the year. -54- EX-10.1 2 REVOLVING CREDIT AND TERM LOAN AGREEMENT - 55 - EXHIBIT 10.1 REVOLVING CREDIT AND TERM LOAN AGREEMENT REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of December 13, 1995 between FOUR CORNERS FINANCIAL CORPORATION, a New York corporation (the "Borrower") and MARINE MIDLAND BANK, a New York State banking corporation (the "Bank"). RECITALS WHEREAS, the Borrower and the Bank are parties to a certain Commercial Installment Loan Agreement dated March 27, 1992, a certain Optional Advance Time or Grid Note dated March 27, 1992, a Security Agreement (Accounts, General Intangibles and Chattel Paper Including Leases) dated March 27, 1992, and a Security Agreement (Equipment, Consumer Goods, Fixtures) dated March 27, 1992 (collectively, the "Prior Agreements"); and WHEREAS, Bernard J. Iacovangelo and Frank B. Iacovangelo (the "Guarantors") have unconditionally guaranteed the prompt payment to the Bank of any and all indebtedness of Borrower pursuant to Unlimited Continuing Guaranties dated March 27, 1992 (the "Guaranties"); and WHEREAS, the Bank has made Loans to the Borrower under the Prior Agreements in the form of a term loan, the outstanding principal balance of which as of December 12, 1995 is $133,333.48 plus accrued and unpaid interest in the amount of $402.43 (the "Existing Term Loan") and various revolving credit loans, the aggregate principal of which as of December 12, 1995 is $235,000.00 plus accrued and unpaid interest in the amount of $664.20 (the "Existing Line") (together, the "Existing Indebtedness"); and WHEREAS, the Borrower is in default under the Prior Agreements by reason of its failure to comply with certain covenants and conditions contained therein. WHEREAS, the Bank, the Borrower and the Guarantors have agreed to restructure the Existing Indebtedness on the terms and conditions hereinafter set forth; PROVISIONS NOW, THEREFORE, in consideration of the foregoing Recitals and the representations, warranties and covenants hereinafter set forth, the Borrower and the Bank hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1 DEFINED TERMS. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "Affiliate" means any Person (1) which directly or indirectly controls, or is controlled by, or is under common control with the Borrower or a Subsidiary; (2) which directly or indirectly beneficially owns or holds five percent (5 %) or more of any class of voting stock of the Borrower; or (3) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or a Subsidiary. The term control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Revolving Credit and Term Loan Agreement, as amended, supplemented, or modified from time to time. - 56 - "Borrowing Base" shall have the meaning assigned to such term in Section 2.3. "Business Day" means any day other than a Saturday, Sunday, or other day on which banks in Rochester, New York are authorized or required to close under the laws of the State of New York. "Capital Lease" means all leases which have been or should be capitalized on the books of the lessee in accordance with GAAP. "Collateral" means all property which is subject to the Lien granted by the Security Agreement. "Confirmation of Guaranty" means the confirmation of guaranty in the form of Exhibit A hereto to be executed by the Guarantors. "Debt" means (1) indebtedness or liability for borrowed money or for the deferred purchase price of property or services (including trade obligations); (2) obligations as lessee under Capital Leases; (3) current liabilities in respect of unfunded vested benefits under any Plans; (4) obligations under letters of credit issued for the account of any Person; (5) all obligations arising under acceptance facilities; (6) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss; and (7) obligations secured by any Lien on property owned by the Person, whether or not the obligations have been assumed. "Default" means any of the events specified in Section 9.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Environmental Laws" means all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances, regulations, codes and rules relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of hazardous substances and the regulations, rules, ordinances, by-laws, policies, guidelines, procedures, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof. "ERISA Affiliate" means any trade or business (whether or not incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA. "Event of Default" means any of the events specified in Section 9.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Existing Indebtedness" has the meaning given it in the Recitals to this Agreement. "Existing Term Loan" has the meaning given it in the Recitals to this Agreement. "GAAP" means generally accepted accounting principles in the United States. "Guarantors" means Frank B. Iacovangelo and Bernard J. Iacovangelo. "Head Office" means the principal place of business of the Bank at One Marine Midland Plaza, Rochester, New York 14639. - 57 - "Lien" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "Line Expiration Date" shall have the meaning assigned to such term in Section 2.3. "Loan(s)" means, as the context may require, the Restructured Term Loan, the Revolving Credit Loans or the Take-Out Term Loan. "Loan Documents" means this Agreement, the Notes, the Security Agreement and the Guaranties. "Multiemployer Plan" means a Plan described in Section 4001(a)(3! of ERISA which covers employees of the Borrower or any ERISA Affiliate. "Note(s)" means, as the context may require, the Restructured Term Note, the Revolving Credit Note or the Take-Out Term Note. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "Plan" means any employee benefit or other plan established, maintained, or to which contributions have been made by the Borrower or any ERISA Affiliate. "Prime Rate" means the rate of interest publicly announced by the Bank from time to time to be its prime rate and is a base rate for calculating interest on certain loans. "Prior Agreement" has the meaning given it in the Recitals to this Agreement. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. "Property" means all real property owned, occupied or operated by the Borrower or its Subsidiaries. "Reportable Event" means any of the events set forth in Section 4043 of ERISA. "Restructured Term Loan" shall have the meaning assigned to such term in Section 2. 1. "Restructured Term Note" shall have the meaning assigned to such term in Section 2.2. "Revolving Credit Line and Revolving Credit Loans" shall have the meaning assigned to such terms in Section 2.3. "Revolving Credit Note" shall have the meaning assigned to such term in Section 2.8. "Security Agreement" means the Security Agreement in substantially the form of Exhibit B, to be delivered by the Borrower under the terms of this Agreement. "Subordinated Notes" means the notes evidencing the subordinated indebtedness owing to Frank B. Iacovangelo as referenced in Sections 5.16 and 7.11. - 58 - "Subsidiary" means, as to any Person, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled. directly, or indirectly through one or more intermediaries, or both, by such Person. "Termination Date" means October 1, 1999, the date that the Commitment expires. SECTION 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the financial statements referred to in Section 5.4, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. ARTICLE II AMOUNT AND CERTAIN TERMS OF THE LOANS SECTION 2.1 RESTRUCTURED TERM LOAN. The Bank agrees on the terms and conditions hereinafter set forth to increase the principal amount of the Existing Term Loan to $318,333.48 and to place such increased principal amount on a repayment schedule as hereafter provided (the "Restructured Term Loan"). The increased portion of the Restructured Term Loan shall be used to pay down the Existing Line. SECTION 2.2 RESTRUCTURED TERM NOTE. The Borrower s obligation to repay the Restructured Term Loan shall be evidenced by its promissory note (the "Restructured Term Note") in substantially the form of Exhibit C attached hereto with blanks appropriately filled in and payable to the order of the Bank. The Restructured Term Note shall be dated the date of this Agreement and the principal of the Restructured Term Loan will be repaid in forty-six (46) consecutive monthly installments as follows: beginning January 1, 1995 through and including October 1, 1997, the Borrower shall make 22 consecutive monthly payments of principal in the amount of $7,673.61 each, plus accrued interest; beginning November 1, 1997 through and including September 1, 1999, Borrower shall make 23 consecutive monthly payments of principal in the amount of $6,229.75 each, plus accrued interest; and on October 1, 1999, the Borrower shall make a final payment equal to all unpaid principal and interest owing hereunder. SECTION 2.3 REVOLVING CREDIT LINE. The Bank agrees on the terms and conditions hereinafter set forth to make loans (the "Revolving Credit Loans") to the Borrower from time to time during the period from the date of this Agreement up to but not including November 1, 1997 (the "Line Expiration in an aggregate amount not to exceed at any time the lesser of (a) $50,000 or (b) the Borrowing Base. (a) 75% of the Borrower's eligible accounts receivable from abstracting services (after giving effect to a 95% conversion rate); plus (b) 75% of the Borrower's eligible accounts receivable from appraisal services (after giving effect to a 95% conversion rate); plus (c) 100% of the Borrower's eligible work-in-process from title insurance, (after giving effect to an 85% conversion rate); plus (d) 100% of the cash surrender value of William Penn Life Insurance of New York Policy No. 0700000587 on the life of Frank B. Iacovangelo, as evidenced by the most recent statement of insurance coverage provided by the Borrower to the Bank; plus - 59 - (e) 100% of the appraised liquidation value (after expenses of sale) of the Borrower's equipment, based on a "desk top" liquidation appraisal (which must be satisfactory to the Bank in its sole discretion), net of any purchase money liens; less (f) the aggregate outstanding principal balance on the Restructured Term Loan. Without limiting the Bank's discretion to deem accounts, inventory and work-in-process not eligible for inclusion in the calculation of the Borrowing Base for any reason in the Bank's sole and absolute discretion, the following will not be deemed eligible: (1) Accounts receivable which remain unpaid for more than 180 days after the specified due date. (2) All accounts receivable from a single debtor if 50% or more of the accounts receivable owing from such debtor are more than 180 days past due. (3) Accounts receivable or work-in process referred to a collection agency. SECTION 2.4 NOTICE AND MANNER OF BORROWING. The Borrower shall give the Bank at least one (1) Business Days' written or telegraphic notice (effective upon receipt) of any Revolving Credit Loans under this Agreement, specifying the date and amount thereof. Not later than 2:00 P.M. Eastern Standard Time on the date of such Revolving Credit Loan and upon fulfillment of the applicable conditions set forth in Article IV, the Bank will make such Revolving Credit Loan available to the Borrower in immediately available funds by crediting the amount thereof to the Borrower's account with the Bank. SECTION 2.5 TAKE OUT TERM LOAN. Subject to satisfaction of the conditions set forth in Section 4.3 hereof, on the Line Expiration Date, the Borrower shall, convert the principal balance of the Revolving Credit Loans then outstanding to a term loan (the "Takeout Term Loan") on the terms and conditions contained herein. SECTION 2.6 USE OF PROCEEDS. The proceeds of the Restructured Term Loan and the initial Revolving Credit Loan hereunder shall be used by the Borrower to payoff the Existing Indebtedness. Subsequent Revolving Credit Loans shall be used to provide for working capital needs. The Take-Out Term Loan shall be used to pay off the outstanding balance of the Revolving Credit Loans on the Termination Date. The Borrower will not, directly or indirectly, use any part of such proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock. SECTION 2.7 REVOLVING CREDIT AND TAKE OUT NOTES. (1) All Revolving Credit Loans made by the Bank under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory note of the Borrower in substantially the form of Exhibit D duly completed, in the principal amount of Fifty Thousand Dollars ($50,000), dated the date of this Agreement, payable to the Bank, and maturing as to principal on the Line Expiration Date (the "Revolving Credit Note"). The Bank is hereby authorized by the Borrower to endorse on the schedule attached to the Note the amount of each Revolving Credit Loan and of each payment of principal received by the Bank on account of the Revolving Credit Loans, which endorsement shall be prima facie evidence of the outstanding balance of the Revolving Credit Loans made by the Bank; provided, however, that the failure to make such notation with respect to any Revolving Credit Loan or payment shall not limit or otherwise affect the obligations of the Borrower under this Agreement or the Revolving Credit Note. - 60 - (2) The Take-Out Term Loan shall be evidenced by, and repaid with interest in accordance with, a single promissory note (the "Take-Out Term Note") of the Borrower in substantially the form of Exhibit E duly completed and with blanks appropriately filled in. The Take-Out Term Note shall be dated as of the Line Expiration Date and the principal of the Take-Out Term Note will be repaid in twenty-four (24) consecutive monthly installments of principal plus accrued interest, beginning November 1, 1997 and on the first day of each month thereafter to and including October 1, 1999. SECTION 2.8 COMMITMENT FEES. The Borrower agrees to pay to the Bank a onetime commitment fee of one percent (1 %) of the amount of the Revolving Credit Line, or $500 payable on the date hereof. SECTION 2.9 PREPAYMENTS. The Borrower may prepay any of the Notes in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, provided that any such prepayment resulting from borrowings from another financial institution shall be accompanied by a prepayment premium equal to 1% of the principal amount of such prepayment. Each prepayment shall be applied to the principal installments thereof in the inverse order of their maturities. SECTION 2.10 METHOD OF PAYMENT. The Borrower shall make each payment under this Agreement and under the Notes not later than 11:59 A.M. Eastern Standard Time on the date when due in lawful money of the United States to the Bank at the Head Office in immediately available funds. The Borrower hereby authorizes the Bank, if and to the extent payment is not made when due under this Agreement or under the Notes, to charge from time to time against any account of the Borrower with the Bank any amount so due. Whenever any payment to be made under this Agreement or under the Notes shall be stated to be due on a Saturday, Sunday, or a public holiday, or the equivalent for the Bank generally under the laws of the State of New York, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and the commitment fee, as the case may be. ARTICLE III INTEREST ON THE LOANS SECTION 3.1 INTEREST ON RESTRUCTURED TERM LOAN. Subject to Section 3.3 hereof, the Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of the Restructured Term Loan, made under this Agreement at a rate per annum equal to one and one-quarter percent (1.25%) over the Prime Rate. Any change in the interest rate resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change in the Prime Rate shall become effective. Interest shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest shall be paid in immediately available funds on the first day of each month at the Head Office. SECTION 3.2 INTEREST ON REVOLVING CREDIT LOANS AND TAKE OUT TERM LOAN Subject to Section 3.3 hereof, the Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of the Revolving Credit Loans and the Take-Out Term Loan made under this Agreement at a rate per annum equal to one percent (1.0%) over the Prime Rate. Any change in the interest rate resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change in the Prime Rate shall become effective. Interest shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Interest shall be paid in immediately available funds on the first day of each month at the Head Office. SECTION 3.3 DEFAULT INTEREST RATE. Notwithstanding any other provision of this Agreement to the contrary, the Borrower shall pay interest to the Bank on the outstanding and unpaid principal amount of the Restructured Term Loan, the Revolving Credit Loans and the Take-Out Term Loan at a rate which shall be five percent (5%) - 61 - above the rate that would otherwise apply upon the occurrence of an Event of Default and for so long as the same shall continue. Without limiting the generality of the foregoing, any principal amount not paid when due (at maturity, by acceleration, or otherwise) shall bear interest thereafter until paid at the default interest rate provided for in the preceding sentence. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1 CONDITIONS PRECEDENT TO RESTRUCTURED TERM LOAN AND INITIAL REVOLVING CREDIT LOAN. The obligation of the Bank to make the Restructured Term Loan and the initial Revolving Credit Loan to Borrower is subject to the condition precedent that the Bank shall have received on or before the day of such Loans, each of the following, in form and substance satisfactory to the Bank and its counsel: (1) Corporate Documents. The following documents, each certified as indicated below: (a) a copy of the charter, as amended and in effect, of the Borrower certified as of a recent date by the Secretary of State of its jurisdiction of incorporation, and a certificate from such Secretary of State dated as of a recent date as to the good standing of and charter documents filed by the Borrower; (b) a Certificate of the Secretary or an Assistant Secretary of the Borrower, dated the date first above written and certifying (i) that attached thereto is a true and complete copy of the by-laws of the Borrower as amended and in effect at all times from the date of which the resolutions referred to in clause (ii) were adopted to and including the date of such certificate, (ii) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which Borrower is a party, and the extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (iii) that the charter of the Borrower has not been amended since the date of the certification thereto furnished pursuant to clause (1) above, and (iv) as to the incumbency and specimen signature of each officer of the Borrower executing the Loan Documents to which Borrower is a party, and each other document to be delivered by the Borrower from time to time in connection therewith; (2) Notes. The Restructured Term Note and Revolving Credit Note duly executed by the Borrower; (3) Security Agreement. A Security Agreement duly executed by Borrower, together with: (a) acknowledgment copies of the Financing Statements (UCC-1) duly filed under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the Bank, desirable to perfect the security interest created by the Security Agreement; and (b) certified copies of Requests for Information (Form UCC-11) identifying all of the financing statements on file with respect to the Borrower in all jurisdictions referred to under (a), including the Financing Statements filed by Bank against the Borrower, indicating that no party claims an interest in any of the Collateral; (4) Reaffirmation of Guaranties. The Guaranties duly executed by the Guarantors; (5) Assignment of Life Insurance. An assignment of life insurance policy No. 0700000587 on the life of Frank B. Iacovangelo in the form of Exhibit F. SECTION 4.2 CONDITIONS PRECEDENT TO ALL REVOLVING CREDIT LOANS. The obligation of the Bank to make each Revolving Credit Loan (including the initial Revolving Credit Loan) shall be subject to the further conditions precedent that on the date of such Loan: (1) The following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Borrower dated the date of such Revolving Credit Loan, stating that: - 62 - (a) The representations and warranties contained in Article V of this Agreement, and in Section III of the Security Agreement, are correct on and as of the date of such Loan as though made on and as of such date; and (b) No Default or Event of Default has occurred and is continuing, or would result from such Loan; and (2) The Borrower shall have delivered a Borrowing Base Certificate, in form and substance satisfactory to the Bank demonstrating that after giving effect to such Loan, the aggregate amount of Revolving Credit Loans does not exceed the Eligible Borrowing Base. (3) The Bank shall have received such other approvals, opinions, or documents as the Bank may reasonably request. SECTION 4.3 CONDITIONS PRECEDENT TO THE TAKE OUT TERM LOAN. The Borrower's right to convert the Revolving Credit Loans to the Take-Out Term Loan shall be subject to the condition precedent that the Bank shall have received on or before the Termination Date all of the documents required by Sections 4.1 and 4.2 and each of the following, in form and substance satisfactory to the Bank and its counsel: (1) Interest. All accrued interest on the Revolving Credit Loans through the Termination Date shall be paid; (2) Note. The Take-Out Term Note duly executed by the Borrower; (3) Officer's certificate, etc. The following statements shall be true and the Bank shall have received a certificate signed by a duly authorized officer of the Borrower dated the date of the Take-Out Term Loan stating that: (a) The representations and warranties contained in Article V of this Agreement, and in Section III of the Security Agreement, are correct on and as of the date of the Take-Out Term Loan as though made on and as of such date; and (b) No Default or Event of Default has occurred and is continuing, or would result from the Take-Out Term Loan; and (4) Additional Documentation. The Bank shall have received such other approvals, opinions, or documents as the Bank may reasonably request. ARTICLE V REPRESENTATIONS AND WARRANTIES To induce the Bank to enter into this Agreement and make the Loans to the Borrower, Borrower represents and warrants and, so long as the Notes remain unpaid or this Agreement remains in effect, shall be deemed continuously (except as expressly noted otherwise) to represent and warrant as follows: SECTION 5.1 INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION. The Borrower is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in; and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required. SECTION 5.2 CORPORATE POWER AND AUTHORITY. The execution, delivery, and performance by the Borrower of the Loan Documents to which each is a party have been duly authorized by all necessary corporate action and do not and will not (1) require any consent or approval of the stockholders of such corporation; (2) contravene such corporation's charter or bylaws; (3) violate any provision of any law, rule, regulation (including, without limitation, Regulation U of the Board of Governors of the Federal - 63 - Reserve System), order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to such corporation; (4) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which such corporation is a party or by which it or its properties may be bound or affected; (5) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by such corporation; and (6) cause such corporation to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument. SECTION 5.3 LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, legal, valid, and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. SECTION 5.4 FINANCIAL STATEMENTS. The balance sheet of the Borrower as at June 30, 1995, and the related statements of income and retained earnings of the Borrower and its Subsidiaries for the six month period then ended, copies of which have been furnished to the Bank, are complete and correct and fairly present the financial condition of the Borrower and its Subsidiaries as at such dates and the results of the operations of the Borrower and its Subsidiaries for the periods covered by such statements, all in accordance with GAAP consistently applied (subject to year-end adjustments), and since June 30, 1995, there has been no material adverse change in the condition (financial or otherwise), business, or operations of the Borrower or any Subsidiary. SECTION 5.5 LABOR DISPUTES AND ACTS OF GOD. Neither the business nor the properties of the Borrower are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance) materially and adversely affecting such business or properties or the operation of the Borrower. The foregoing representation and warranty is made as of the date of this Agreement only, notwithstanding the preamble of Article V hereof. SECTION 5.6 OTHER AGREEMENTS. The Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a material adverse effect on the business, properties, assets, operations, or conditions, financial or otherwise, of the Borrower or the ability of the Borrower to carry out its obligations under the Loan Documents to which it is a party. The Borrower is not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. SECTION 5.7 LITIGATION. There is no pending or threatened action or proceeding against or affecting the Borrower before any court, governmental agency, or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties, or business of the Borrower or the ability of the Borrower to perform its obligation under the Loan Documents to which it is a party. The foregoing representation and warranty is made as of the date of this Agreement only, notwithstanding the preamble of Article V hereof. SECTION 5.8 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. The Borrower has satisfied all judgments, and the Borrower is not in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board, bureau, agency, or instrumentality, domestic or foreign. - 64 - SECTION 5.9 OWNERSHIP AND LIENS. The Borrower has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets and leasehold interest reflected in the financial statements referred to in Section 5.4 (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by the Borrower or any Subsidiary and none of their leasehold interests is subject to any Lien, except such as may be permitted pursuant to Section 7.1 of this Agreement. SECTION 5.10 SUBSIDIARIES. Except for Four Corners Abstract Corp., the Borrower does not have any Subsidiaries. SECTION 5.11 ERISA. The Borrower is in compliance in all material respects with all applicable provisions of ERISA, the breach of which could create a substantial material liability for the Borrower which in the aggregate exceeds, or may exceed, Twenty-Five Thousand Dollars ($25,000). Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administrate, a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any ERISA Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower and each ERISA Affiliate has met its minimum funding requirements under ERISA with respect to all of its Plans and the present value of all vested benefits under each Plan does not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of ERISA; and neither the Borrower nor any ERISA Affiliate has incurred any liability (other than to pay annual premiums) to the PBGC under ERISA. SECTION 5.12 OPERATION OF BUSINESS. The Borrower and its Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its respective business substantially as now conducted and as presently proposed to be conducted, and the Borrower is not in violation of any valid rights of others with respect to any of the foregoing. SECTION 5.13 TAXES. The Borrower has filed all tax returns (federal, state, and local) required to be filed and has paid all taxes, assessments, and governmental charges and levies thereon to be due, including interest and penalties. SECTION 5.14 DEBT. Exhibit G is a complete and correct list of all credit agreements, indentures, purchase agreements, guaranties, Capital Leases, and other investments, agreements, and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Borrower is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Exhibit. SECTION 5.15 FINANCIAL COVENANTS. The Financial Covenants contained in Article VII are based upon financial projections provided by the Borrower to the Bank and represent a level of financial performance which the Borrower believes it can achieve. SECTION 5.16 SUBORDINATED NOTES TO FRANK B.IACOVANGELO. The Borrower is not in any way obligated to or for the benefit of Frank B. Iacovangelo or any member of his family except for the Borrower's obligation to Frank B. Iacovangelo under that certain promissory note dated - 3/27/92 in the principal amount of $194,000 (the "Subordinated Note"). True and correct copies of the Subordinated Notes are attached hereto as Exhibit H. There are no understandings relating to the Subordinated Notes other than the terms and conditions contained therein. No principal payment has been made on account of the debt evidenced by the Subordinated Notes. No default or event of default has occurred under or with respect to the Subordinated Notes. - 65 - ARTICLE VI AFFIRMATIVE COVENANTS So long as any Notes shall remain unpaid or the Bank shall have any Commitment under this Agreement, the Borrower will: SECTION 6.1 MAINTENANCE OF EXISTENCE. Preserve and maintain its corporate existence in good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required. SECTION 6.2 MAINTENANCE OF RECORDS. Keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Borrower. SECTION 6.3 MAINTENANCE OF PROPERTIES. Maintain, keep, and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 6.4 CONDUCT OF BUSINESS. Continue to engage in an efficient and economical manner in a business of the same general type as now conducted by it on the date of this Agreement. SECTION 6.5 MAINTENANCE OF INSURANCE. Maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof. SECTION 6.6 COMPLIANCE WITH LAWS. Comply in all respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property. SECTION 6.7 PAYMENT OF TAXES. Promptly pay all taxes as they become due. SECTION 6.8 RIGHT OF INSPECTION. At any reasonable time and from time to time, permit the Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of and visit the properties of, the Borrower and to discuss the affairs, finances, and accounts of the Borrower with any of their respective officers and directors and the Borrower's independent accountants. In addition, without limiting the generality of the foregoing, Borrower shall permit Bank to perform quarterly audits, at Borrower's expense, to appraise the value of the collateral and determine compliance with covenants contained in this Article VI. SECTION 6.9 REPORTING REQUIREMENTS. Furnish to the Bank: (1) Accounts Receivable and Work-in-Process. Monthly, an aging of all of the Borrower's accounts receivable, and a work-in-process schedule as of the end of the prior month, in each case along with the Borrower's computation of the available Commitment and a certificate of no default as set forth in Section 5.8(5), all in reasonable detail and certified by the chief executive officer or chief financial officer of the Borrower. (2) Monthly Financial Statements. As soon as available and in any event within twenty (20) days after the end of each fiscal month of the Borrower, a statement of income of the Borrower for the period commencing at the end of the previous fiscal year and ending with the end such month, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP consistently applied and certified by the chief financial officer of the Borrower (subject to year-end adjustments); - 66 - (3) Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of the Borrower, balance sheets of the Borrower as of the end of such quarter, statements of income and retained earnings of the Borrower for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, and a statement of changes in cash flow of the Borrower for the portion of the fiscal year ended with the last day of such quarter, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year and all prepared in accordance with GAAP consistently applied and certified by the chief financial officer of the Borrower (subject to year-end adjustments); (4) Annual Financial Statements. As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrower, a balance sheet of the Borrower as of the end of such fiscal year and a statement of income and retained earnings of the Borrower for such fiscal year and a statement of change in financial position of the Borrower for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP consistently applied and as to the consolidated statements accompanied by an opinion thereon acceptable to the Bank by independent accountants selected by the Borrower and acceptable to the Bank; (5) Personal Financial Statements/Tax Returns. As soon as available, and in any event before August 15 of each year, personal financial statements on the Bank's approved form and personal income tax returns of the Guarantors. (6) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to the Borrower by independent certified public accountants in connection with examination of the financial statements of the Borrower made by such accountants; (7) Certificate of No Default. Within thirty (30) days after the end of each month, a certificate of the chief financial officer of the Borrower (a) certifying that to the best of his knowledge no Default or Event of Default has occurred or is continuing or, if a Default or Event of Default has occurred or is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto and (b) with computations demonstrating compliance with the covenants contained in Article VIII; (8) Accountant's Report. Simultaneously with the delivery of the annual financial statements referred to in Section 6.8(3), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (9) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting the Borrower which, if determined adversely to the Borrower, could have a material adverse effect on the financial condition, properties, or operations of the Borrower; (10) Notice of Defaults and Events of Default. As soon as possible and in any event within ten (10) after the occurrence of each Default or Event of Default a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by the Borrower with respect thereto; (11) ERISA Reports. Promptly after the filing or receiving thereof, copies of all reports, including annual reports, and notices which the Borrower files with or receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon as possible and in any event within ten (10) days after the Borrower knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect - 67 - to any Plan or that the PBGC or the Borrower has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, a certificate of the chief financial officer of the Borrower setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action the Borrower proposes to take with respect thereto; (12) Reports to Other Creditors. Promptly after the furnishing thereof, copies of any statement or report furnished to any other party pursuant to the terms of any indenture. loan, or credit or similar agreement and not otherwise required to be furnished to the Bank pursuant to any other clause of this Section 6.8; (13) Proxy Statements, etc. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements, and reports which the Borrower sends to its stockholders, and copies of all regular, periodic, and special reports, and all registration statements which the Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (14) Notice of Certain Events. Promptly after the occurrence thereof, provide notice of any event or circumstance that would cause the representations and warranties of the Borrower contained herein to be untrue when made. (15) Gallo & Iacovangelo Receivables. The Borrower shall collect all past due accounts receivable owing to the Borrower by Gallo & Iacovangelo before December 31, 1995. (16) General Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrower or any Subsidiary as the Bank may from time to time reasonably request. SECTION 6.10 ENVIRONMENTAL COMPLIANCE. Comply with all Environmental Laws concerning the Collateral, any related personal property, or any Property where the Collateral is located. SECTION 6.11 LIFE INSURANCE ASSIGNMENT. Obtain, within 45 days of the date hereof, an acknowledgment by the insurance company of the Assignment of Life Insurance referenced in Section 4.1(6). ARTICLE VII NEGATIVE COVENANTS So long as any Notes shall remain unpaid or the Bank shall have any Commitment under this Agreement, the Borrower will not: SECTION 7.1 LIENS. Create, incur, assume, or suffer to exist any Lien upon or with respect to any of its properties, now owned or hereafter acquired, except: (1) Liens in favor of the Bank; (2) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, only to the extent they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; (3) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days, or, if so past due, only to the extent they are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; - 68 - (4) Liens under workmen's compensation, unemployment insurance, social security, or similar legislation; (5) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), or public or statutory obligations, surety, stay, appeal, indemnity, performance, or other similar bonds; or other similar obligations arising in the ordinary course of business; (6) Judgment and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (7) Easements, rights-of-way, restrictions, and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment by the Borrower of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (8) Purchase-money Liens on any property hereafter acquired or the assumption of any Lien on property existing at the time of such acquisition, or a Lien incurred in connection with any conditional sale or other title retention agreement or a Capital Lease; provided that (a) Any property subject to any of the foregoing is acquired by the Borrower in the ordinary course of business and the Lien on any such property is created contemporaneously with such acquisition; (b) In the case of purchase-money Liens, the obligation secured by any Lien so created, assumed, or existing shall not exceed seventy-five percent (75 %) of the lesser of cost or fair market value as of the time of acquisition by the Borrower of the property covered thereby; (c) Each such Lien shall attach only to the property so acquired and fixed improvements thereon; (d) The Debt secured by all such Liens shall not exceed Twenty-five Thousand Dollars ($25.000) at any time outstanding in the aggregate; and (e) The obligation secured by such Lien is permitted by the provisions of Section 7.2 and the related expenditure is permitted under Section 8.8. SECTION 7.2 DEBT. Create, incur, assume, or suffer to exist any Debt, except: (1) Debt of the Borrower under this Agreement or the Note; (2) Debt described in Exhibit G, but no renewals, extensions, or refinancings thereof; (3) Debt of the Borrower subordinated on terms satisfactory to the Bank to the Borrower's obligations under this Agreement and the Note; (4) Accounts payable to trade creditors for goods or services which are not aged more than ninety (90) days from billing date and current operating liabilities (other than for borrowed money) which are not more than thirty (30) days past due, in each case incurred in the ordinary course of business and paid within the specified time, unless contested in good faith and by appropriate proceedings and for which appropriate reserves have been established; (5) Debt of the Borrower secured by purchase-money Liens permitted by Section 7.1(8)(d). - 69 - SECTION 7.3 MERGERS, ETC. Merge or consolidate with, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person without prior consent of the Bank. SECTION 7.4 LEASES. Create, incur, assume, or suffer to exist any obligation as lessee for the rental or hire of any real or personal property, except: (1) Capital Leases permitted under Section 7.1; (2) leases existing on the date of this Agreement and any extensions or renewals thereof; (3) leases (other than Capital Leases) which do not in the aggregate require the Borrower on a consolidated basis to make payments (including taxes, insurance, maintenance, and similar expense which the Borrower is required to pay under the terms of any lease) in any fiscal year of the Borrower in excess of Twenty-five Thousand Dollars ($25,000). SECTION 7.5 SALE AND LEASEBACK. Sell, transfer, or otherwise dispose of any real or personal property to any Person and thereafter directly or indirectly lease back the same or similar property. SECTION 7.6 DIVIDENDS. Declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire for value any of its capital stock now or hereafter outstanding; or make any distribution of assets to its stockholders whether in cash, assets, or obligations of the Borrower; or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of, any shares of its capital stock; or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock. SECTION 7.7 SALE OF ASSETS. Sell, lease, assign, transfer, or otherwise dispose of any of its now owned or hereafter acquired assets without the prior written consent of the Bank. SECTION 7.8 INVESTMENTS. Make any loan or advance to any Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person except: (1) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition; (2) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (3) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank having capital and surplus in excess of One Hundred Million Dollars ($100,000,000); and (4) stock, obligations, or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower. SECTION 7.9 GUARANTIES, ETC. Assume, guarantee, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or to maintain or cause such Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of any Person against loss) for obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or other transactions in the ordinary course of business. SECTION 7.10 TRANSACTIONS WITH AFFILIATE. Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than would obtain in a comparable arm's-length transaction with a Person not an Affiliate. SECTION 7.11 SUBORDINATED DEBT. Make, permit or suffer any prepayment of the principal or interest owing under the Subordinated Notes to Frank B. Iacovangelo described in Section 5.16 above or any replacement note. - 70 - SECTION 7.12 HAZARDOUS SUBSTANCES. Suffer, cause or permit the disposal of hazardous substances at any real property on which the Collateral is located, nor suffer, cause or permit the generation, handling, processing, use or storage of hazardous substances on any such real property except in compliance with all Environmental Laws. ARTICLE VIII FINANCIAL COVENANTS So long as any Notes shall remain unpaid or the Bank shall have any commitment under this Agreement: SECTION 8.1 MINIMUM WORKING CAPITAL. The Borrower shall maintain at all times an excess (deficit) of current assets over current liabilities of not less (more) than the following amounts during the following periods: Applicable Time Period: Working Capital: ----------------------- ---------------- - 12/31/95 $(140,000) 1/1/96 - 6/29/96 (180,000) 6/30/96 - 9/29/96 (100,000) 9/30/96 - 12/30/96 -0 12/31/96 - thereafter 20,000 SECTION 8.2 CURRENT RATIO. The Borrower shall maintain at all times a ratio of current assets to current liabilities of not less than the following amounts during the following periods: Applicable Time Period: Current Ratio: ----------------------- -------------- - 12/31/95 .85 3/31/96 - 6/29/96 .70 6/30/96 - 9/29/96 .75 9/30/96 - 12/30/96 .95 12/31/96 - thereafter 1.1 SECTION 8.3 MINIMUM TANGIBLE NET WORTH. The Borrower shall maintain a tangible net worth of not less than the following amounts during the following periods: Applicable Time Period: Minimum Net Worth: ----------------------- ------------------ - 12/31/95 $250,000 3/31/96 - 6/29/96 200,000 6/30/96 - 9/29/96 260,000 9/30/96 - thereafter 400,000 For the purposes of this covenant, the Subordinated Notes payable to Frank B. Iacovangelo shall be deemed equity. - 71 - SECTION 8.4 LEVERAGE RATIO. The Borrower shall maintain a ratio of total liabilities to tangible net worth of not more than the following amounts during the following periods: Applicable Time Period Maximum Leverage Ratio: ---------------------- ----------------------- - 12/31/95 3.90 1/1/96 - 6/29/96 4.45 6/30/96 - 9/29/96 3.25 9/30/96 - 12/30/96 2.00 12/31/96 - thereafter 1.90 For the purposes of this covenant, the Subordinated Notes payable to Frank B. Iacovangelo shall be deemed equity. SECTION 8.5 MINIMUM PROFITS. From the date hereof, the Borrower shall achieve a quarterly net profit (loss) before taxes of no less (more) than the following amounts: Quarter Ending: Net Profit: Cumulative Profit (Loss): --------------- ----------- ------------------------- March 31 $(60,000) $ (60,000) June 30 70,000 10,000 September 30 100,000 110,000 December 31 - 0 - 110,000 SECTION 8.6 ANNUAL DEBT SERVICE COVERAGE RATIO. As of December 31, 1995 and as of each December 31 thereafter, the Borrower shall maintain a debt service coverage ratio (that being (i) the sum of net profit before taxes plus depreciation divided by (ii) current maturities of long-term debt) of not less than 1.75 to 1.0. SECTION 8.7 CAPITAL EXPENDITURES. The Borrower shall not make any expenditures for fixed or capital assets which would cause the aggregate of all such expenditures made by the Borrower to exceed $25,000 during any fiscal year without the prior written consent of the Bank. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1 EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur: (1) The Borrower should fail to pay the principal of, or interest on, any Notes, or any amount of a commitment fee, as and when due and payable; (2) The aggregate principal amount outstanding of all Loans shall exceed the Borrowing Base for more than five (S) Business Days after the Borrower knew or should have known that such was the case; (3) Any representation or warranty made or deemed made by the Borrower in this Agreement or the Security Agreement or by any Guarantor in the Guaranties or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (4) The Borrower or any Guarantor shall fail to perform or observe any term, covenant, or agreement contained in any Loan Document (other than the Notes) to which it is a party on its part to be performed or observed; - 72 - (5) Borrower or any Guarantor shall (a) fail to pay any indebtedness for borrowed money (other than the Notes) of the Borrower or any Guarantor, as the case may be, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), or (b) fail to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration after the giving of notice or passage of time, or both, of the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (6) The Borrower or any Guarantor (a) shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; or (b) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy, reorganization, arrangements, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or adjudication or appointment is made and which remains undismissed for a period of forty (40) days or more; or (e) by any act or omission shall indicate its consent to, approval of, or acquiescence in any such petition, application, or proceeding or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of forty (40) days or more; (7) One or more judgments, decrees, or orders for the payment of money in excess of Ten Thousand Dollars ($10,000) in the aggregate shall be rendered against the Borrower or any Guarantor, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of forty (40) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal or money paid into escrow to cover the same; (8) The Security Agreement shall at any time after its execution and delivery and for any reason cease (a) to create a valid and perfected first priority security interest in and to the property purported to be subject to such Security Agreement; or (b) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny it has any further liability or obligation under the Security Agreement, or the Borrower shall fail to perform any of its obligations under the Security Agreement; or (9) A Guaranty shall, at any time after its execution and delivery and for any reason, cease to be in full force and effect or shall be declared null and void, or the validity care enforceability thereof shall be contested by any Guarantor, or any Guarantor shall deny it has any further liability or obligation under or shall fail to perform its obligations under the Guaranty; (10) Any of the following events occur or exist with respect to the Borrower or any ERISA Affiliate: (a) any Prohibited Transaction involving any Plan; (b) any Reportable Event with respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, could in the opinion of the Bank subject the - 73 - Borrower to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or may exceed Twenty-Five Thousand Dollars ($25,000); then, and in any such event, the Bank may, by notice to the Borrower, (1) declare its obligation to make Loans to be terminated whereupon the same shall forthwith terminate, and (2) declare the outstanding Notes, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE X MISCELLANEOUS SECTION 10.1 AMENDMENTS, ETC. No amendment, modification, termination, or waiver of any provision of any Loan Document to which the Borrower is a party, nor consent to any departure by the Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10.2 NOTICES, ETC. Any notice or other communication required or permitted under this Agreement or under the other Loan Documents to which Borrower is a party shall be in writing and shall be deemed to have been duly given; (1) upon hand delivery or; (2) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid or; (3) on the first day following delivery to a nationally recognized United States overnight courier service, fee prepaid, return receipt or other confirmation of delivery requested; except that notices to the Bank pursuant to the provisions of Article II shall not be effective until received by the Bank. Any such notice or communication shall be delivered or directed, if to the Borrower, at its address at 80 West Main Street, Rochester, New York 14614 Attn: Frank B. Iacovangelo, and if to the Bank at One Marine Midland Plaza, Rochester, New York 14639, Attn: Rudolph J. Napodano, Vice President; or as to each party, at such other address as may be designated by a party in a notice given to the other party in accordance with the provisions of this Section 10.2. SECTION 10.3 NO WAIVER; REMEDIES. No failure on the part of the Bank to exercise, and no delay in exercising, any right, power, or remedy under any Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. SECTION 10.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under any Loan Document to which the Borrower is a party without the prior written consent of the Bank. SECTION 10.5 COSTS, EXPENSES, AND TAXES. The Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration of any of the Loan Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank, and local counsel who may be retained by said counsel, with respect thereto and with respect to advising the Bank as to its rights and responsibilities under any of the Loan Documents, and all costs and expenses, if any, in connection with the enforcement of any of the Loan Documents. Without limiting the generality of the foregoing, the Borrower agrees to pay the costs and expenses incurred by the Bank in connection with an annual appraisal of the Borrower's real estate and equipment for purposes of establishing the Borrowing Base and other purposes in connection with the Administration of the Loan Documents, as well as the costs and expenses in connection - 74 - with the Bank's quarterly collateral audit, if any. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 10.6 CERTAIN ACKNOWLEDGEMENTS AND RELEASES. The Borrower represents, acknowledges and agrees with the Bank that it has no defenses, setoffs, or counterclaims of any kind or nature whatsoever against the Bank with respect to the indebtedness of the Borrower under the Prior Agreement or the obligations of the Borrower thereunder which are restructured hereby, or any action previously taken or not taken by the Bank with respect thereto or with respect to any security interest, mortgage, encumbrance, lien or collateral in connection therewith to secure such indebtedness. Without limiting the generality of the foregoing, the Borrower waives, releases and forever discharges the Bank from and against any and all rights, claims, or causes of action against Bank arising out of the Bank's actions or inactions with respect to the Prior Agreement or any security interest, mortgage encumbrance, lien or collateral in connection therewith as well as any and all rights of setoff, defenses, claims, causes of action and any other bar to enforcement of the indebtedness or the Borrower thereunder. The Borrower further acknowledges and agrees that the Bank is specifically relying upon the representations, warranties and agreements contained herein in entering into this Agreement. The Borrower further agrees that within ninety (90) days after it learns of any such event, the Borrower will provide the Bank with a written notice setting forth with reasonable specificity any claim that the Borrower believes it may have against the Bank under the terms of this Agreement or by reason of any action or inaction on the part of the Bank in connection therewith. Failure to timely give any such notice shall not constitute the Borrower's waiver of such a claim, but the Borrower agrees to indemnify, defend and hold harmless the Bank from and against any damages incurred by it by reason of such failure on the part of the Borrower. SECTION 10.7 INDEMNIFICATION. The Borrower agrees to indemnify, defend, and hold harmless the Bank from and against any and all liabilities, claims, damages, penalties, expenditures, losses, or charges, including, but not limited to, all costs of investigation, monitoring, legal representation, remedial response, removal, restoration or permit acquisition, which may now or in the future be undertaken, suffered, paid, awarded, assessed, or otherwise incurred by the Bank or any other person or entity as a result of the presence of, Release of or threatened Release of Hazardous Substances on, in, under or near the Property. The liability of the Borrower to the Bank under the covenants of this Section is not limited by any exculpatory provisions in the Notes or in the other documents securing the Loans and shall survive any foreclosure on or transfer of the Property by deed in lieu of foreclosure or any other transfer of the Property regardless of the means of such transfer. SECTION 10.8 RIGHT OF SETOFF. Upon the occurrence and during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Notes or any other Loan Document, irrespective of whether or not the Bank shall have made any demand under this Agreement or the Notes or such other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section 10.8 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Bank may have. SECTION 10.9 GOVERNING LAW. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. - 75 - SECTION 10.10 SEVERABILITY OF PROVISIONS. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.11 HEADINGS. Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. - 76 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. MARINE MIDLAND BANK By:_____________________________________ Rudolph J. Napodano, Vice President FOUR CORNERS FINANCIAL CORPORATION By:_____________________________________ Frank B. Iacovangelo President Accepted and Agreed to by the undersigned Guarantors as of the date first above written. _______________________________ Frank B. Iacovangelo _______________________________ Bernard J. Iacovangelo STATE OF NEW YORK ) COUNTY OF MONROE ) SS: On this 13th day of December, 1995 before me personally came Rudolph J. Napodano, to me known, who, being by me duly sworn did depose and say that he is Vice President of Marine Midland Bank, the corporation described in and which executed the foregoing instrument; and that the above-named person signed thereto by order of the Board of Directors of said corporation. _____________________________________ Notary Public Wendy S. Keaty Notary Public, State of New York Qualified in Monroe County Commission Expires May 2, 1996 - 77 - STATE OF NEW YORK ) COUNTY OF MONROE ) SS: On this 13th. day of December, 1995 before me personally came Frank B. Iacovangelo to me known, who, being by me duly sworn did depose and say that he is President of Four Corners Financial Corporation, the corporation described in and which executed the foregoing instrument; and that the above-named person signed thereto by order of the Board of Directors of said corporation. Notary Public _____________________________________ Notary Public Wendy S. Keaty Notary Public, State of New York Qualified in Monroe County Commission Expires May 2, 1996 EX-10.2 3 LEASE - 78 - EXHIBIT 10.2 LEASE Between NORTH PEARL PARTNERS, - Landlord and FOUR CORNERS ABSTRACT CORPORATION, - Tenant - 79 - INDEX Page Article I Leased Premises 1 Article II Term of Lease 2 Article III Rent 2 Article IV Additional Rent 3 Article V Taxes 6 Article VI Use & Care of Premises 7 Article VII Utilities and Cleaning 7 Article VIII Repairs 8 Article IX Alterations 9 Article X Landlord's Right of Access 10 Article XI Signs 10 Article XII Insurance, Indemnity and Waiver of Subrogation 11 Article XIII Nonliability for Certain Damages 13 Article XIV Damages by Casualty 15 Article XV Eminent Domain 17 Article XVI Default 17 Article XVII Miscellaneous 20 EXHIBIT A - Premises 27 - 80 - LEASE This Agreement, made on May 1, 1995, by and between NORTH PEARL PARTNERS, a New York partnership having its main office at Capital Center, 99 Pine Street, Albany, New York 12207, (hereinafter referred to as "Landlord"), and FOUR CORNERS ABSTRACT CORPORATION, having an office and place of business at 99 Pine Street, Albany, New York 12207 (hereinafter referred to as the "Tenant"). W I T N E S S E T H : In consideration of the mutual terms, covenants and conditions set forth herein, the parties agree as follows: ARTICLE I Leased Premises Section 1.1 Landlord, in consideration of the rents and common areas charges to be paid and the covenants and agreements to be performed by Tenant: (a) Leases to Tenant, and Tenant leases from Landlord the premises highlighted on Exhibit "A" attached hereto and made a part hereof ("Premises"), in the buildings located at 99 Pine Street, City of Albany, County of Albany and State of New York ("hereinafter "Capital Center"), consisting of approximately 1,410 square feet of space. Landlord may determine the actual gross leasable area of the Premises in square feet by directing Landlord's architect to perform a retail measurement after the Premises have been made available to Tenant for Tenant's improvements. During the term of the Lease, Tenant shall have the non-exclusive right in common with other tenants of the Capital Center (and their respective employees, licensees, customers and invitees) to use common facilities as may be designated from time to time by the Landlord, subject to the provisions of this Lease, reserving unto the Landlord the unrestricted right to construct, operate, maintain, repair, replace or remove such utility pipes, electrical, telephone, computer or other lines or other facilities over, upon, under or through the Premises or common areas as may be reasonably necessary for servicing the other portions of the Capital Center. ARTICLE II Term of Lease Section 2.1 The term of this Lease shall be for a period of one (1) year commencing on May 1, 1995 (the "Lease Commencement Date"), and shall end on April 30, 1996 (the "Expiration Date"). * ARTICLE III Rent Section 3.1 Tenant agrees to pay Landlord commencing on May 1, 1995 (the "Rent Commencement Date"), and continuing during the term of this Lease, a Minimum Annual Rent of Eighteen Thousand Three Hundred Thirty Thousand and 00/100 Dollars ($18,330.00), (calculated at a rate of $13.00 per square foot) payable in equal monthly installments of One Thousand Five Hundred Twenty-Seven Dollars and 50/Cents ($1,527.50) each, on the first day of each month of this Lease in advance. * Notwithstanding the foregoing, either party may terminate this lease upon provisions of 120 days prior written notice tot he other, the tenant remaining obligated for payment of all rent and additional rent up to the effective termination date. - 81 - Section 3.2 Tenant shall pay such Minimum Annual Rental without deduction, setoff, prior notice, or demand, in advance on the first day of each month, commencing with the Rent Commencement Date, and continuing during the Lease term. Minimum Monthly Rent for any partial month shall be prorated. All rent shall be paid to Landlord at the address to which notices to Landlord are given. Section 3.3 Tenant shall pay Landlord a late charge of 10% of any installment of rent or additional rent which is not paid on the due date thereof. In the event Tenant fails or refuses to pay rent or any additional charge hereunder and Landlord institutes suit for the collection of same, Tenant agrees to reimburse Landlord for all reasonable expenses incurred by Landlord in connection therewith including but not limited to attorneys' fees. This Lease does not constitute a waiver by Landlord of its claim and right to past due rent from Tenant to Landlord currently totaling approximately $15,000.00. ** ** However, the lease dated April 1, 1992 between landlord and tenant is hereby terminated as of April 30, 1995, with all remaining obligations of tenant thereunder liquidated to payment of past due rent in said amount. ARTICLE IV Additional Rent Section 4.1 During any Calendar Year during the term of this Lease ("Comparison Year") in which the expenses for maintaining and operating the Buildings known as Capital Center (as such expenses are hereinafter defined) increase over the amount thereof of the Calendar Year 1995 ("Base Year"), Tenant shall pay to Landlord as additional rent an amount equal to Tenant's proportionate share of such increase, said amount to be payable in full within fifteen (15) days of the rendering of the statement by Landlord as hereinafter provided. For the purposes of the preceding section~ Tenant's proportionate share shall be equal the ratio of the total number of square feet leased to Tenant in the Premises over the total leasable square footage in the Buildings known as Capital Center. Section 4.2 Definition. For the Base Year and for each Comparison Year, the term "expenses for maintaining and operating the Buildings" shall mean those expenses incurred during such ear in respect of the operation and maintenance of the Buildings in accordance with accepted principles of sound management and accounting practice as applied to the operation and maintenance of first class buildings of the type involved, including, without limitation, (1) heating, lighting, cleaning, maintaining, insuring, managing, repairing and operating the Buildings and the sidewalks and landscaping surrounding the Buildings plus (2) the cost of maintaining the elevators and providing extermination, security and other services to the Buildings. Such expenses shall not include (1) expenses for any capital improvements made to the Land or Buildings, including without limitation replacement costs of building fixtures, equipment, and facilities; (2) expenses for painting, redecorating, or other work which Landlord performs for Tenant or for any other tenants in the Buildings (such expenses for maintaining and operating the Buildings shall, however, include the costs of other work in public areas which is standard for the Buildings and the proportionate cost of painting and redecorating in such public areas which is done at intervals); (3) expenses for repairs or other work occasioned by fire, windstorm, or other insured casualty; (4) expenses incurred in leasing or procuring new tenants (including Lease commissions, advertising expenses, and expenses of renovating space for new tenants); (5) legal expenses in enforcing the terms of any Lease; and (6) interest or amortization payments on any mortgage or mortgages. In addition to the rental adjustments provided for hereunder, if the term of this Lease shall terminate on a date other than a December 31st, then for the fractional portion of such calendar year at the end of this Lease, the additional rent for such period shall be adjusted at the same rate as the rent for the Comparison Year immediately prior to such calendar year. The additional rent adjustment for such period - 82 - shall be made when Landlord shall render its statement for the last monthly installment of the fixed rent payable under this Lease, or if that is not reasonably feasible, as soon thereafter as is reasonably feasible, and this obligation for the fractional portion of the Comparison Year in which this Lease terminates shall survive the termination of this Lease. Statements of the amount of Tenant's pro rata share of expenses for maintaining and operating the Buildings to be paid by Tenant as additional rent as herein above provided, shall be rendered by Landlord to Tenant as soon as reasonably feasible during the calendar year following the first Comparison Year and each Comparison Year thereafter, except as otherwise provided with respect to any fractional period at the end of this Lease. Landlord shall have the right however, after the rendering of such statement to send a corrected statement to Tenant. Any statement rendered by Landlord as provided in this Article shall be final and binding upon the parties. ARTICLE V Taxes Section 5.1 Tenant shall also pay as additional rent its proportionate share (as hereinafter defined) of all increases in real property taxes and general and special assessments, including, but not limited to state, county, city, school, sewer and water taxes and assessments or payments in lieu of taxes (real property taxes), levied and assessed against the Buildings of which the Premises is a part, in excess of the taxes or payments in lieu of taxes assessed against such Buildings during 1994 ("Tax Base Year"). Section 5.2 Tenant's proportionate share of such real property taxes shall equal the ratio of such taxes that the total number of square feet in the Premises bears to the total number of leasable square feet in the Buildings known as Capital Center. Each year Landlord shall notify Tenant of Landlord's calculation of Tenant's proportionate share of the real property taxes and together with such notice shall furnish Tenant with a copy of the tax bill. Tenant shall reimburse Landlord for Tenant's proportionate share of annual increase in real property taxes within fifteen (15) days after the receipt of the notice from Landlord. ARTICLE VI Use and Care of Premises Section 6.1 Tenant shall use the Premises for the operation of an abstract and title insurance company and no other use or purpose shall be permitted without the Landlord's written consent. Tenant shall not at any time leave the Premises vacant, but shall in good faith continually throughout the term of this Lease conduct and carry on in the entire Premises the type of business for which the Premises are Leased. Tenant shall operate its business in an efficient, First-Class and reputable manner. Section 6.2 The Tenant shall not occupy or permit or suffer the Leased Premises to be occupied, for any business or purpose deemed disreputable or extra-hazardous on account of fire, under penalty of damages and forfeiture, and in the event of a breach thereof, the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term. - 83 - ARTICLE VII Utilities and Cleaning Section 7.1 The Landlord shall provide and pay for electricity, certain minimal cleaning services as are provided to all tenants of the Building, and air conditioning and heat for the Tenant, without cost to Tenant, except as provided in Article IV above. Landlord shall provide and maintain the necessary wiring, ducts and conduits in order to bring electricity, heat, telephone service and other utilities to the Premises. The Tenant shall pay for its own telephone service hook-ups in the Premises. Landlord shall not be liable to Tenant for any interruption whatsoever regarding any utility services for any reason. ARTICLE VIII Repairs Section 8.1 Landlord shall keep and maintain the roof and structural portions of the Premises except any damage thereto caused by any act or negligence of Tenant, its employees, agents, invitees, subtenants, licensees, assignees, or contractors, in which event such damage shall be promptly repaired by Tenant. Other than as herein provided, Landlord shall not be responsible to maintain or make any improvements or repairs of any kind, in or upon the Premises. Tenant shall keep and maintain in good order, condition and repair (which repair shall mean replace if necessary) the Premises and every part thereof, except as hereinbefore provided, including without limitation, the exterior and interior portions of all doors, door checks, security gates, windows, glass, fixtures, floors and ceilings, including compliance with the applicable building codes relative to fire extinguishers. If Tenant refuses or neglects to repair property as required above, the Landlord may make such repairs without liability to Tenant for any loss or damage to any of Tenant's property by reason thereof, and upon completion thereof, Tenant shall pay the Landlord, as additional rent, the cost of such repairs plus fifteen percent (15%) for overhead and supervision upon presentation of a bill therefor. ARTICLE IX Alterations Section 9.1 Tenant shall not make any alterations, additions or improvements to the Premises and fixtures without the prior written consent of the Landlord- All permitted alterations, additions, improvements which may be made and fixtures which may be installed by either party upon the Premises shall remain upon and be surrendered with the Premises and become the property of Landlord at the termination of this Lease, unless Landlord requests their removal in which event Tenant shall remove the same and restore the Premises to its original condition at Tenant's expense. Section 9.2 All construction work done by Tenant within the Premises shall be performed in a good and workmanlike manner, in compliance with all governmental requirements, and in such manner as to cause a minimum of interference with other construction in progress and with the transaction of business by other Tenants leasing any portion of the Building. Tenant agrees to indemnify Landlord, and hold Landlord harmless against any loss, liability or damage resulting from such work, and Tenant shall, if requested by Landlord, furnish performance and payment bonds or other security satisfactory to the Landlord against any such loss, liability or damage. - 84 - ARTICLE X Landlord's Right of Access Section 10.1 Landlord shall have the right to enter upon the Premises at any time for the purpose of inspecting the same, or of making repairs, alterations, or additions to adjacent Premises, or of showing the Premises to prospective purchasers, Lessees or lenders. ARTICLE XI Signs Section 11.1 Tenant shall not, without the Landlord's prior written consent, erect or install any signs, window or door letterings, placards, decorations or advertising media of any type which can be viewed from the exterior of the Premises or within the Premises. All signs, lettering, placards decorations and advertising media shall conform in all respects to the sign criteria established by the Landlord from time to time in the exercise of its sole discretion, and shall be subject to the prior written approval of Landlord as to construction, method of attachment, size, shape, height, lighting, color and general appearance. All signs shall be kept in good condition and in proper operating order at all times. Section 11.2 The Tenant acknowledges that the Buildings of which the Premises are a part are situated within a Registered Historic District. Any signs allowed under this Article shall in all respects comply with all local laws and shall not be erected until such time as Tenant has also obtained all local approvals as well as the approval of the New York State Historical Preservation Office. ARTICLE XII Insurance. Indemnity and Waiver of Subrogation Section 12.1 The Tenant at its own expense shall maintain public liability insurance insuring the Tenant and the Landlord with minimum coverage as follows: Property and Liability Damage: $1,000,000 00 per occurrence The Tenant, at its own expense, shall maintain plate glass insurance. The Tenant shall provide the Landlord with a certificate of insurance from an insurance company qualified to do business in the State of New York which is reasonably acceptable to the Landlord as evidencing the existence of the foregoing insurance. Landlord shall have the right from time to time (but not more often than annually) to require that Tenant increase or otherwise modify the insurance coverage referred to above so as to cause said coverage to be consistent with the then current real estate industry standards in the City of Albany, New York. Landlord shall require all other Tenants in the Buildings of which this Premises is a part to maintain coverage in amounts similar to Tenants. Notwithstanding any terms of this Lease to the contrary, the Tenant shall pay the cost of any increase in Landlord's insurance costs that the insurance carrier of the Landlord attributes to the presence of Tenant upon the Premises or to the transaction of Tenant's business activities thereon. Tenant agrees throughout the term of this Lease to maintain insurance against loss or damages by fire, and such other risks and hazards as are insurable under present and future standard forms of fire and extended coverage insurance policies, to the personal property, furniture, furnishings and fixtures belonging to Tenant located in the - 85 - Premises, for the actual cash value thereof less depreciation, with the New York standard co-insurance clauses for not less than 80% of such actual cash value. Upon the occurrence of any casualty insured against, Tenant shall have full authority to, and shall take all necessary measures to negotiate, compromise or adjust any loss under Tenant's policy. All fire and extended coverage insurance maintained by Landlord and Tenant on the Premises, the property therein, and the building and its appurtenances shall include a waiver by the insurer of all right of recovery against Landlord or Tenant in connection with any loss or damage by fire or peril included within fire and extended coverage insurance and neither party shall be liable to the other for loss or damage resulting from such included claims with respect to any such loss to the extent of the insurance proceeds paid with respect thereto. Section 12.2 The Landlord shall not be liable for any damages to or loss of, including loss due to petty theft, any property, occurring in the Premises or any part thereof, and the Tenant agrees to hold the Landlord harmless from any claims for damages, except where such damage or injury is the result of the gross negligence or willful misconduct of the Landlord or its employees. Section 12.3 Any insurance policies required to be carried by this section shall name as Landlord an additional insured and shall have provision for at least ten (10) days~ notice to Landlord of cancellation. At least (10) days before the expiration of such policy, Tenant will supply Landlord with a substitute therefore with evidence of payment of the premiums thereof. ARTICLE XIII Nonliability for Certain Damages Section 13.1 Landlord and Landlord's agents and employees shall not be liable to Tenant for any injury to person or damage to property caused by the Premises, or other portions of the building owned by Landlord of which the Premises is a part, becoming out of repair or by the defect or failure of any structural element of the Premises or of any equipment, pipes, wiring, or broken glass, or by the backing up of drains, or by gas, water, steam, electricity, or oil leaking, escaping, or flowing into the Premises except where due to Landlord's willful failure to make repairs required to be made hereunder, after the expiration of a reasonable time after written notice to Landlord of the need for such repairs, nor shall Landlord be liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of other tenants of the Landlord or of any other persons whomsoever, excepting only duly authorized employees and agents of Landlord. Section 13.2 Tenant shall indemnify, defend and hold harmless Landlord, its agents and employees from and against any and all liability (statutory or otherwise), damages, claims, suits, demands, judgments, costs, interest and expense (including but not limited to, attorneys' fees and disbursements both at trial and appellate levels) arising, directly or indirectly, from any injury to, or death of, any person or persons or damage to property (including loss of use thereof) related to (A) Tenant's use of the Demised Premises or conduct of business therein, (B) any work or thing whatsoever done, or any condition created (other than by Landlord, its employees, agents or contractors) by or on behalf of Tenant in or about the Premises, including during the period of time, if any, prior to the Term Commencement Date, that Tenant may have been given access to the Premises for the purposes of doing any work or making any installations, (C) any condition of the Premises due to or resulting from any default by Tenant in the performance of Tenant's obligations under this Lease, or (D) any act, omission or negligence of Tenant or its agents, contractors, employees, subtenants, licensees or invitees. In case any action or proceeding is brought against Landlord by reason of any one or more thereof, Tenant shall pay all costs, attorneys' fees, expenses and liabilities resulting therefrom and shall defend such action or proceeding if Landlord shall so request, at Tenant's expense, by counsel reasonably satisfactory to Landlord. - 86 - ARTICLE XIV Damages by Casualty Section 14.1 Tenant shall give immediate written notice to Landlord of any damage caused to the Premises by fire or other casualty. Section 14.2 In the event that the Premises shall be damaged or destroyed by fire or other casualty insurable under standard fire and extended coverage insurance and Landlord does not elect to terminate this Lease (as hereinafter provided), Landlord shall proceed with reasonable diligence and at its sole cost and expense to rebuild and repair the Premises, to the extent of the insurance proceeds available therefore. In the event (a) the building in which the Premises is located shall be destroyed or substantially damaged by a casualty not covered by Landlord's insurance, or (b) such building shall be destroyed or rendered untenantable to an extent in excess of 508 of the first floor area by a casualty covered by Landlord's insurance, or (c) the holder of a mortgage, deed of trust or other lien on the Premises at the time of the casualty elects, pursuant to such mortgage, deed of trust, or other lien, to require the use of all or part of Landlord's insurance proceeds in satisfaction of all or part of the indebtedness secured by the mortgage, deed of trust, or other lien, then Landlord may elect either to terminate this Lease or to proceed to rebuild and repair the Premises. Landlord shall give written notice to Tenant of such election within 60 days after the occurrence of such casualty and if it elects to rebuild and repair the Building shall proceed to do so with reasonable diligence and at its sole cost and expense. Section 14.3 Landlord's obligations to rebuild and repair under this Article XIV shall in any event be limited to restoring (a) the Premises to substantially the condition in which the same existed prior to such casualty, exclusive of any alterations, additions, improvements, fixtures, and equipment installed by Tenant, or the Landlord's Work, if any, to substantially the same condition in which the same existed prior to the casualty, as the case may be. Landlord further agrees that promptly after completion of such work by it, Landlord will proceed or Landlord will, at its option cause Tenant to proceed with reasonable diligence and at Tenant's sole cost and expense to restore, repair, and replace all alterations, additions, improvements, fixtures, signs, and equipment installed by Tenant. Section 14.4 Tenant agrees that during any period of reconstruction or repair of the Premises it will continue the operation of its business within the Premises to the extent practicable. During the period from the occurrence of the casualty until Landlord's repairs are completed, the Minimum Annual Rental shall be reduced to such extent as may be fair and reasonable under the circumstances; however, there shall be no abatement of additional rent or other charges provided for herein. In the event that the Landlord is required to make structural repairs to the Premises for damages to the Premises not caused by Tenant's actions and such repairs result in a reduction of the amount of space available to Tenant under this Lease, then the rent for the Premises will abate by an amount equal to the percentage of area which is unavailable for use by the Tenant for any day in which the Premises is not available. ARTICLE XV Eminent Domain Section 15.1 Should the land and Buildings of which the Premises forms a part, or any part thereof, be condemned for public or quasi-public use or purpose, then in that event, upon the taking of the same for such public or quasi-public use or purpose, this Lease, at the option of the Landlord, shall terminate on the date when the same shall be taken and the rent shall be apportioned as of said date. No part of any award shall belong to Tenant. In the event that Landlord does not terminate this Lease following a condemnation, then Landlord shall make all necessary repairs or alterations to the Buildings so as to constitute the remaining premises a complete architectural unit to the extent practicable under the circumstances; provided, that Landlord shall not be obligated to undertake any such repairs or alterations if the estimated cost thereof will exceed the amount of the award. - 87 - ARTICLE XVI Default Section 16.1 The occurrence of any of the following shall constitute default by the Tenant: (a) Failure to pay rent or additional rent, for fifteen (15) days after, when due. (b) Abandonment, desertion or vacation of the Premises. (c) Failure to perform other provisions of this Lease, if the failure to perform is not cured within fifteen (15) days after written notice has been given to Tenant. If the default cannot reasonably be cured within fifteen (15) days, Tenant shall not be in default of this Lease if Tenant commences to cure default within the fifteen (15) day period and diligently and in good faith continues to cure the default. (d) If proceedings are commenced by or against the Tenant in any Court under a Bankruptcy Act or for the appointment of a trustee or receiver either before or after the Commencement Date. Section 16.2 If any default be made by the Tenant, the Landlord may, at its option, (a) declare the entire sum of this lease due and payable; (b) terminate this lease without further notice to the Tenant, and upon such termination the Tenant shall quit and surrender the Demised Premises to the Landlord, but such termination shall not affect Landlord's right to recover damages or exercise any other right herein provided; or (c) re-enter the Premises by force, summary proceedings or otherwise, and remove all persons therefrom, without being liable to prosecution therefor, and the Landlord will provide Tenant with two days written notice of Landlord's intention to re-enter excepting cases of abandonment of the Premises, and the Tenant shall pay at the same time as the rent becomes payable under the terms hereof a sum equivalent to the rent reserved herein, and the Landlord may rent the Premises on behalf of the Tenant, reserving the right to rent the Premises for a longer period of time than fixed in the original Lease without releasing the original Tenant from any liability, applying any moneys collected, first to the expense of resuming or obtaining possession, second to restoring the Premises to a rentable condition, and then to the payment of the rent and all other charges due and to grow due to the Landlord, any surplus to be paid to the Tenant, who shall remain liable for any deficiency. Landlord will provide Tenant with two (2) days written notice of intention to reenter or of instituting legal proceedings to that end. The Tenant waives and will waive all right to trial by jury in any summary proceeding instituted by the Landlord against the Tenant with respect to the leased property. The Tenant waives all rights to redeem under Section 761 of the New York Real Property Actions and Proceedings Law. The Tenant waives all rights to assert any set-offs or counterclaims in any summary proceeding instituted by the Landlord against the Tenant with respect to the leased property, it being the intention of the parties that any such set-offs or counterclaims be adjudicated in a separate action. The Landlord shall be entitled to reasonable attorneys fees in the event Landlord shall retain an attorney to enforce the provisions of this lease, and if suit be brought to enforce the provisions of this lease or to recover possession of the demised premises or for recovery of rent or additional rent, Landlord shall be entitled to reasonable attorneys fees at both the trial and appellate levels. ARTICLE XVII Miscellaneous Section 17.1 At the expiration of this Lease, Tenant shall surrender the Premises in the same condition as it was in upon delivery of possession thereto under this Lease, reasonable wear and tear excepted, and shall deliver all keys and combinations - 88 - to locks to Landlord. Before surrendering said Premises, Tenant shall remove all its personal property, and if requested to do so by the Landlord, remove all trade fixtures, alterations, additions and decorations and shall repair any damage caused thereby. Tenant's obligations to perform this provision shall survive the end of the term of this Lease. If Tenant fails to remove its property upon the expiration of this Lease, the said property shall be deemed abandoned and shall become the property of Landlord. Section 17.2 Any holding over after the expiration of the term shall be construed to be a tenancy from month to month at one-hundred fifty percent (150%) of the annual rents specified by Section 3.2 (prorated on a monthly basis) and shall otherwise be on the terms herein specified so far as applicable. Section 17.3 Failure of Landlord to insist upon the strict performance of any provision or to exercise any option shall not be construed as a waiver for the future of any such provision or option. The receipt by Landlord of rent with knowledge of the breach of any provision of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent shall be deemed to be other than on account of the earliest rent then unpaid nor shall any endorsement or statement on any check or any letter accompanying any such check or payment as rent be deemed an accord and satisfaction. Landlord may accept such check or payment as rent without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease. Section 17.4 Any notice, demand, request or other instrument which may be or is required to be given under this Lease, shall be delivered in person or sent by United States certified or registered mail, postage prepaid, and shall be addressed (a) if to Landlord, at the address as hereinabove given; and (b) if to Tenant, at the Premises. Either party may designate such other address as shall be given by written notice. In the case of notices sent through the United States mails pursuant to this Section, each such notice shall be deemed as given on the day that is placed in the mail. Section 17.5 (a) This Lease is and shall be subordinate to any mortgage now of record or hereafter recorded affecting the Premises or the Buildings, other improvements and land of which the Premises are a part, including but not limited to any construction loan mortgage and any advances made thereunder and any and all documents required as additional security for said loan to be executed in connection therewith. Such subordination is effective without any further act of Tenant. Tenant shall from time to time on request from Landlord execute and deliver any documents or instruments that may be required by a lender to effectuate any subordination as required in connection with said mortgage loan including, but not limited to, any assignment of rents and/or this Lease as may be required by any mortgagee. (b) Tenant agrees from time to time, but not more than two times annually, upon not less than fifteen (15) days prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect and that Tenant has no defenses, offsets or counterclaims against its obligations to pay the Rent provided for in Article III and any other rent and charges and to perform its other covenants under this Lease (or, if there have been any modifications, that the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets or counterclaims, setting them forth in reasonable detail), and the dates to which the rent provided for in Article III and any other rent and charges have been paid. Any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser or mortgagee of the Premises or of Capital Center or any prospective assignee of any such mortgage. (c) No holder of a mortgage shall be liable either as mortgagee or as assignee, to perform, or be liable in damages for failure to perform, any of the obligations of Landlord unless and until such holder shall have acquired indefeasible title to the Premises. - 89 - (d) No assignment or sublease by Tenant of this Lease and no agreement to make or accept any surrender, termination or cancellation of this Lease and no agreement to modify so as to reduce the rent, change the Lease Term, or otherwise materially change the rights of Landlord under this Lease or to relieve Tenant of any obligations or liability under this Lease, shall be valid unless consented to by Landlord's mortgagees of record, if any. No rent provided for in Article III, additional rent, profit rent or any other charge shall be paid more than ten (10) days prior to the due date thereof and payments made in violation of this provision shall (except to the extent that such payments are actually received by a mortgagee) be a nullity as against such mortgagee and Tenant shall be liable for the amount of such payments to such mortgagee. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by Law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to Landlord's mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights; and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained in this Section shall be deemed to impose any obligation on any such mortgagees to correct or cure any such condition. "Reasonable Time@' as used above means and includes a reasonable time to obtain possession of the mortgaged Premises if the mortGagee elects to do so and a reasonable time to correct or cure the condition if such condition is determined to exist. Section 17.6 The Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations, requirements and assessments of the Federal, State and Local Governments and of any and all of their Departments and Bureaus applicable to said Premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon or connected with the said Premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the New York Board of Fire Underwriters or any other similar body, at the Tenant's own cost and expense. Section 17.7 Tenant shall comply with all reasonable "Rules and Regulations" as the same shall be promulgated by the Landlord from time to time as Landlord deems necessary to safeguard the Buildings, its Tenants, the reputation of the Buildings as a First Class office building, or for any other reasonable purpose. Section 17.8 The Tenant shall not assign or sublet this lease without the Landlord's prior written consent. Section 17.9 Tenant shall not permit to be created nor to remain undischarged any lien, encumbrance, or charge arising out of any work of any contractor, mechanic, laborer, or materialman which might be or become a lien or encumbrance or charge upon the Premises and Tenant shall not suffer any other matter or thing whereby the estate, right and interest of Landlord in the Premises might be impaired. If any lien or notice of lien on account of an alleged debt of Tenant or any notice of contract by a party engaged by Tenant or Tenant's contractor to work in the Premises shall be filed against the Premises, Tenant shall, within 20 days after notice of filing thereof, cause the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction, or otherwise. If Tenant shall fail to cause such lien or notice of lien to be discharged within the period provided, then Landlord, in addition to any other rights or remedies, may, but shall not be obligated to, discharge the same by either paying the amounts claimed to be due or by procuring the discharge of such lien by deposit or by bonding proceedings; and in any such event, Landlord shall be entitled, if Landlord so elects, to defend any prosecution of an action for foreclosure of such lien by the lienor or to compel the prosecution of any action for the foreclosure of such lien by the lienor and to pay the amount of the judgment in favor of the lienor with interest, costs, and allowances. Any amount paid by Landlord and all costs and expenses, including attorney fees, incurred by Landlord in connection therewith, together with interest thereon at the maximum legal rate from the respective dates of Landlord's making of the payment or incurring of the cost and expense shall be paid by Tenant to Landlord as additional rent. - 90 - Section 17.10 If any provision of this Lease or application thereof to any person or circumstance shall to any extent be invalid, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is held invalid shall not be affected therebY and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. Section 17.11 All provisions herein shall be binding upon and shall insure to the benefit of the parties, their legal representatives, successors and assigns. In the event of any sale of the land, building or this Lease, or of a Lease of the Capital Center, Landlord shall be entirely relieved of all obligations hereunder. Section 17.12 This Lease and the exhibits attached set forth the entire agreement between the parties. Any prior conversations or writings are merged herein and extinguished. No subsequent amendment to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed. Section 17.13 This agreement shall be governed by the laws of the State of New York. Landlord: NORTH PEARL PARTNERS By:_____________________________________ Carl W. Engstrom Tenant: FOUR CORNERS ABSTRACT CORPORATION By:_____________________________________ William S. Gagliano Executive Vice President 5865E EX-10.3 4 LEASE AGREEMENT - 91 - EXHIBIT 10.3 LEASE AGREEMENT Between FITCH BUILDING ASSOCIATES Suite 400 80 West Main Street Rochester, New York 14614 And FOUR CORNERS ABSTRACT CORP. 80 West Main Street Rochester,New York 14614 - 92 - INDEX ARTICLE TITLE PAGE - ------- ----- ---- 1 DEMISE AND TERM 93 2 RENT 93 3 SECURITY DEPOSIT 94 4 COMMON AREAS 94 5 PARKING 94 6 INSURANCE 95 7 REPAIRS AND MAINTENANCE OF THE PROPERTY 95 8 CHANGES AND ALTERATIONS 96 9 INDEMNIFICATION 96 10 COMPLIANCE WITH LAWS 96 11 DAMAGE OR DESTRUCTION 97 12 CONDEMNATION 97 13 ASSIGNMENTS AND SUBLEASES 98 14 CONDITION LIMITATIONS; DEFAULT PROVISIONS: RE-ENTRY; DAMAGES 98 15 LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS 99 16 MECHANICS' LIENS 100 17 LANDLORD'S RIGHT TO ENTER PREMISES 100 18 OFFSET STATEMENT, ATTORNMENT SUBORDINATION 100 19 INVALIDITY OF PARTICULAR PROVISIONS 101 20 NOTICES 101 21 QUIET ENJOYMENT 101 22 SURRENDER 101 23 RENEWAL OPTION 102 24 BROKERS COMMISSIONS 102 25 RULES AND REGULATIONS 102 26 ENTIRE AGREEMENT AND TERMINATION 102 - 93 - BUILDING LEASE This Lease dated this 21 st day of June, 1995, between FITCH BUILDING ASSOCIATES, a New York general partnership, with offices at Suite 400, 80 West Main Street, Rochester, New York 14614, (hereinafter referred to as "Landlord") and Four Corners Abstract Corp., a New York business corporation, with offices at 80 West Main Street, Rochester, New York 14614 (hereinafter referred to as "Tenant"). This Lease is granted and accepted upon the following covenants and conditions, and each of the parties hereto agrees to perform and observe all the terms, covenants and conditions hereof to be performed on his or its part. ARTICLE 1 DEMISE AND TERM Section 1: The Demised Premises are comprised of approximately 9,000 square feet on the 1st and 2nd floors of the Landlord's building located at 360 East Avenue, Rochester, New York 14604, as more fully described in Schedule "A" attached hereto and made a part hereof, to be used by the Tenant for office space. The Tenant agrees to take the Demised Premises in their current condition, "as is" and "where is". Section 2: The term of this lease is for 5 years, commencing on July 1, 1995. ARTICLE 2 RENT Section 1: Tenant agrees to pay to the Landlord at its address indicated above, or at such other place as the Landlord may designate by written notice, a gross annual rental of Seventy Two Thousand Dollars ($72,000.00). Such gross annual rental ("Gross Rent") shall be in addition to and over and above all other payments to be made by Tenant as hereinafter provided, and such Gross Rent shall be paid in equal monthly installments of $6,000.00 in advance on the first day of each calendar month during the term of this Lease, commencing as of the effective date hereof. Section 2: All costs and expenses relating to the Demised Premises, which may arise or become due during or out of the term, shall be paid by Tenant; provided, however, that the Tenant shall not be required to pay interest or principal amortization under any mortgage placed upon the Demised Premises by the Landlord, or to pay any real estate taxes or insurance on the Building, or to pay any costs or expenses relating to those obligations of the Landlord hereunder to maintain the Building in which the Demised Premises are located, and all common areas. However, the Gross Rent does not include the costs of all utility services to the Demised Premises, including electricity, water, and gas. Electricity usage to the Demised Premises is separately metered, and the Tenant shall be responsible for arranging for said service and bearing all costs thereof. Water and gas usage to the Demised Premises are not separately metered; consequently, the Tenant shall pay to the Landlord as Additional Rent, within ten (10) days after Tenant's receipt of a bill for the same, Tenant's pro rata share of all water and gas usage for the Building. The Tenant's pro rata share shall be that portion of the total usage for the Building corresponding to the proportion between the leasable square footage of the Demised Premises and the total square footage of the Building, plus the square footage of Common Areas. Section 3: The Gross Rent shall be paid to the Landlord without notice or demand and without abatement, deduction or set-off, except as otherwise specifically provided herein. - 94 - Section 4: Additional Rent. Any costs, charges, and expenses, in addition to Gross Rent which Tenant assumes, agrees, or is obligated to pay pursuant to the Lease shall be deemed Additional Rent, and in the event of non-payment, the Landlord shall have all of the rights and remedies with respect thereto as is herein provided in the case of non-payment of Gross Rent. Section 5: Late Charges: The Tenant acknowledges that late payment by the Tenant to the Landlord of Gross Rent, Additional Rent, or any other sum due under the Lease will cause the Landlord to incur costs not contemplated by the Lease. Therefore, if any installment of Gross Rent or Additional Rent, or any other sum due under the Lease, is not received by the Landlord within ten (10) calendar days of when due, the Tenant shall pay to the Landlord an additional lump sum equivalent to five percent (5%) of the overdue rent or other sum as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that the Landlord will incur by reason of late payment by the Tenant. Acceptance of any late charge shall not constitute a waiver of the Tenant's default with respect to the overdue amount, nor prevent the Landlord from exercising any of the other rights and remedies available to the Landlord. ARTICLE 3 SECURITY DEPOSIT Section 1: The Tenant has this day deposited with the Landlord the sum of $ 0.00 as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this Lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this Lease, the Landlord shall have the right to transfer the Security to the vendee for the benefit of the Tenant, and Landlord shall be released from all liability for the return of such Security; and the Tenant agrees to look to the new Landlord solely for the return of the said Security, and it is agreed that this shall apply to every transfer or assignment made of the Security to a new Landlord. ARTICLE 4 COMMON AREAS Section 1: The Landlord will provide for the benefit of the Tenant finished common areas at the Landlord's expense. The Landlord shall exclusively provide the design and finish for said common areas. Section 2: The common areas shall be under the exclusive care and control of the Landlord. The Tenant shall not have the right to enter into any management decisions affecting the common areas. Section 3: The term "common areas" as used in this Lease refers to all components and areas of or within the building in which the Demised Premises are located, interior and exterior, and the land underlying and surrounding same, which are not specifically leased to Tenant or other tenants, including, without limitation thereto by the specification thereof, all hallways, restrooms, foyers, entries, lobbies, atriums, stairways, elevators, landscaped areas, sidewalks, driveways, parking areas, and all areas used in common with other tenants. ARTICLE 5 PARKING Section 1: The Tenant will utilize for parking twenty five (25) parking spaces in the location designated by Landlord within walking distance of the Building. - 95 - ARTICLE 6 INSURANCE Section 1: The Tenant, throughout the term of the Lease, shall maintain in full force and effect for the benefit of, and naming, the Landlord and the Landlord's agents as additional insureds, and the Tenant as parties insured therein, comprehensive general public liability insurance, including without limitation, umbrella liability coverage against claims for personal injury, death, or damage to property occurring, in, on, or about the Demised Premises, with limits of not less than $1,000,000 for personal injury or death of one person and $1,000,000 arising out of one occurrence, and $100,000 for property damage. Section 2: The insurance required hereunder shall be issued by an insurance company licensed to do business in the State of New York prior to any entry by the Tenant into the Demised Premises, and thereafter, not less than ten (10) days prior to the expiration of any expiring policy, the Tenant shall furnish renewals thereof, together with proof of payment of the premiums therefor. If such insurance is carried under a blanket policy, the Tenant may deliver a certificate in lieu of the original policy. Each policy or renewal shall contain a provision for notice to the Landlord at least ten (10) days prior to the cancellation or any modification thereof. ARTICLE 7 REPAIRS AND MAINTENANCE OF THE PROPERTY Section 1: The Landlord shall maintain in good working order and repair the exterior and the structural portion of the Building, including the structural portions of the Demised Premises, the public portions of the Building interior, and the Building plumbing, electrical, heating, and ventilating systems exterior of the Demised Premises. Maintenance and repair of the Demised Premises and all plumbing, electrical, heating and ventilating systems therein shall be the Tenant's sole responsibility. The Tenant agrees to give prompt notice of any defective condition in the Building or the Demised Premises for which the Landlord may be responsible hereunder. There shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of the Landlord by reason of inconvenience, annoyance, or injury to business arising from the Landlord or others making repairs, additions, or improvements in or to any portion of the Building or the Demised Premises or in and to the fixtures, appurtenances, or equipment thereof. It is specifically agreed that the Tenant shall not be entitled to any setoff or reduction of rent by reason of any failure of the Landlord to comply with the covenants of this clause or any other clause of the Lease. The Tenant agrees that the Tenant's sole remedy at law in such instance will be by way of an action for damages for breach of contract. The provisions of this clause shall not apply in the case of fire or other casualty which are dealt with in ARTICLE 11 of the Lease. Section 2: The Tenant: (a) shall maintain at its sole cost and expense the Demised Premises in a clean, orderly, well-ventilated, and sanitary condition, it being specifically understood and agreed that Tenant shall select and pay for its own janitorial and trash removal services; (b) shall not create or suffer to be created in or about the Demised Premises any nuisance, including, but not limited to, excessive noise; (c) the Tenant further agrees not to use the lavatories, toilets, and other apparatus in said premises and in the building in which said premises are located for any other purpose than that for which they are constructed and the Tenant agrees to pay the Landlord any damage resulting from the misuse thereof; (d) the Tenant shall at all times keep the Demised Premises in good order and repair, reasonable wear and tear excepted. The Tenant shall be responsible for all damage done to the Demised Premise or to said building by the Tenant or the Tenant's agents, employees, invitees, licensees, or servants, and the Tenant shall promptly on demand by the Landlord reimburse the Landlord as additional rent for the full cost of repair of all such damage. - 96 - Section 3: Landlord will keep and maintain common areas including sidewalks, curbs and driveways. Section 4: The term "structural" as used in this Lease as it relates to repairs and similar obligations means the roof and permanent walls, ceilings and floors. ARTICLE 8 CHANGES AND ALTERATIONS Section 1: Tenant shall have the right at any time and from time to time during the term of this Lease to make, at its sole cost and expense, and using its own contractors, changes and alterations in or of the building and other improvements to the Demised Premises, but only after receiving written consent of the Landlord, which consent shall not be unreasonably or unduly withheld or delayed; subject, however, to the following: (a) Landlord shall receive plans and specifications of any proposed alterations; (b) No change or alteration shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all permits and authorizations of all municipal departments and governmental subdivisions having jurisdiction. (c) Any change or alteration shall be made in a good and workmanlike manner and in compliance with all applicable permits and authorizations and building and zoning laws and with all other laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, departments, commissions, boards and offices, or any other body hereafter exercising functions similar to those of any of the foregoing, and shall not diminish the value of the Demised Premises. ARTICLE 9 INDEMNIFICATION Section 1: Tenant agrees that except for acts or omissions of the Landlord, it will indemnify and save the Landlord harmless from and against any and all liabilities, losses, damages, costs, expenses, suits, judgments and claims by or on behalf of any person, firm, corporation or governmental authority for injury or damage to person or property, of any nature and howsoever caused, arising on the Demised Premises and the building and improvements thereon, or out of the use, occupation, operation, possession or control by Tenant of the Demised Premises and the building and improvements thereon at any time during the term of this Lease. Tenant further agrees to indemnify and save the Landlord harmless from any and all liability arising from any failure by Tenant to perform any of the agreements, terms, covenants or conditions of this Lease on Tenant's part to be performed. ARTICLE 10 COMPLIANCE WITH LAWS Section 1: Tenant, in the use, occupation, operation, possession and control of the Demised Premises and all buildings and improvements thereon, shall comply with all requirements of all laws, orders, ordinances, rules and regulations of the federal, state, county and municipal authorities and with any direction or certificate of occupancy, pursuant to law, of any public officer and with the requirements of the Board of Fire Underwriters or similar body, with respect to the use, occupation, operation, possession and control of the Demised Premises. The Tenant shall not be responsible for required improvements to the Demised Premises made necessary by any such compliance which does not arise from the Tenant's particular use of the Building. - 97 - ARTICLE 11 DAMAGE OR DESTRUCTION Section 1: In case of casualty to the Demised Premises resulting in damage or destruction, Tenant shall promptly give written notice thereof to the Landlord. Furthermore, subject to the provisions of Article 11, Section 2, of this Lease, Landlord shall only repair the damaged structural parts of the Premises. Landlord is not required to repair or replace any equipment, fixtures, furnishings or decorations. Landlord is not responsible for delays due to settling insurance claims, obtaining estimates, labor and supply problems or any other cause not fully under Landlord's control. Such restoration, repairs, replacements, rebuilding or alterations shall be commenced promptly and prosecuted with reasonable diligence, unavoidable delays excepted. If the fire or other casualty is caused by an act or neglect of Tenant, Tenant's employees or invitees, then all repairs will be made at Tenant's expense. The cost of the repairs will be added rent. Section 2: If all or more than 50% of the Demised Premises shall be damaged or destroyed by fire or otherwise, either party shall have the option of terminating this Lease by written notice to the other party given within thirty (30) days after such destruction or damage has been made known to the party. ARTICLE 12 CONDEMNATION Section 1: In the event that the Demised Premises, or any part thereof, shall be taken in condemnation proceedings ar by exercise of any right of eminent domain, the Landlord shall be entitled to collect from any condemnor the entire award. Tenant shall retain its right to a separate award for movable trade fixtures and moving expenses. Tenant agrees to execute any and all further documents that may be required in order to facilitate collection by the Landlord of any and all such awards. Section 2: If at any time during the term of this Lease title to the whole or materially all of the Demised Premises shall be taken by exercise of the right of condemnation or eminent domain, or by agreement between the Landlord and those authorized to exercise such right, this Lease shall terminate and expire on the date title vests in the condemnor and the Net Rent provided to be paid by Tenant shall be apportioned and paid to such date. For the purposes of this Article 12, "materially all of the Demised Premises" shall be deemed to have been taken if the portion of the Demised Premises not so taken, cannot be so repaired as to be suitable for use in the conduct of Tenant's business as conducted on the Demised Premises immediately prior to the taking. Section 3: If at any time during the term of this Lease title to less than the whole or less than materially all of the Demised Premises shall be taken as aforesaid, all of the award or awards collected by the Landlord pursuant to Article 12, Section 1, of this Lease shall be held by the Landlord and applied and paid over toward the cost of any necessary demolition, repair and restoration by Tenant. The Landlord shall be entitled, in any event, to retain from the award the fair value of the land taken and the Net Rent will be adjusted as provided in Article 12, Section 4. Section 4: If title to less than the whole or less than materially all of the Demised Premises shall be taken as aforesaid, this Lease shall continue, but the Net Rent thereafter payable by Tenant shall be apportioned and reduced from the date of such partial taking by a fair and reasonable amount determined by the Landlord and Tenant. - 98 - ARTICLE 13 ASSIGNMENTS AND SUBLEASES Section 1: Tenant may not assign this Lease or sublet the Demised Premises in whole or in part or otherwise transfer or encumber its leasehold estate in whole or in part without the prior written consent of the Landlord, said consent not to be unreasonably withheld. ARTICLE 14 CONDITION LIMITATIONS; DEFAULT PROVISIONS; RE-ENTRY; DAMAGES Section 1: Any one or more of the following events shall constitute a default: (a) default by Tenant in the due and punctual payment of any Gross Rent or additional rent payable under this Lease or any part thereof when and as the same shall become due and payable, and such default shall continue for a period of ten (10) days after written notice thereof from the Landlord to Tenant; or (b) default by Tenant in the performance of or compliance with any of the covenants, agreements, terms or provisions contained in this Lease, other than those referred to in the foregoing paragraph (a), and such default shall continue for a period of ten (10) days after written notice thereof from the Landlord to Tenant, except that in connection with a default not susceptible of being cured with due diligence within thirty (30) days, the time of Tenant within which to cure the same shall be extended for such time as may be necessary to cure the same with all due diligence, provided Tenant commences promptly and proceeds diligently to cure the same and further provided that such period of time shall not be so extended as to subject the Landlords to any criminal liability or forfeitures; or In the event any such default as set forth in paragraphs (a) through (b) above shall occur and not be cured within the applicable grace period, the Landlord at any time thereafter during the continuance of such default,.may give written notice to Tenant, specifying such default or event of default and stating that this Lease and the term hereby demised shall expire and terminate on the date specified in such notice, which shall be at least twenty (20) days after giving such notice, and upon the date specified in such notice, this Lease and the term hereby demised and all rights of Tenant under this Lease shall terminate. Section 2: If this Lease shall terminate as provided in this Article or if an event of default referenced in Section 1 above occurs and is not cured within the allowed grace period, Landlord may immediately or any time after termination of this Lease or expiration of the applicable grace period, re-enter into or upon the Demised Premises, or any part thereof, by any suitable action or proceeding at law, and may repossess the same and may remove any persons therefrom, to the end that Landlord may have, hold and enjoy the Demised Premises. The words "re-enter", "re-entry" and "re-entered" as used in this Lease are not restricted to their technical legal meanings. Section 3: In the event of any termination of this Lease under the provisions of Section 1 above or in the event that the Landlord shall re-enter the Premises under the provisions of Section 2 above or in the event of the termination of this Lease (or of re-entry) by or under any summary dispossession or other action of law, Tenant shall thereupon pay to Landlord all rents and other charges payable hereunder by Tenant to Landlord up to the time of such termination of this Lease, or of such recovery of possession of the Demised Premises by Landlord, as the case may be, and shall also pay to the Landlord damages as provided in Section 4 below. The specified remedies to which Landlord may resort hereunder are cumulative and shall be in addition to every right or remedy now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or the beginning of the exercise by the Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or - 99 - in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. Section 4: In the event of any termination of this Lease under the provisions of Section 1, above or in the event that Landlord shall re-enter the Demised Premises under the provisions of Section 2 or in the event of the termination of this Lease (or of re-entry) by or under any summary dispossession or other proceeding or action or any provision of law, Tenant will pay to Landlord as damages a sum equal to the aggregate of the rent and the additional rent which would have been payable by Tenant hereunder had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates specified herein following such termination or such re-entry and until the date for the expiration of the Lease Term as provided herein; provided, however, that if Landlord shall re-let the Demised Premises during said period, Landlord shall credit Tenant with the Gross Rents received by Landlord from such re-letting, such Gross Rents to be determined by first deducting from the gross rents as and when received by Landlord payment of such expense, commissions and charges as the Landlord may have paid or incurred including legal expenses and attorneys' fees, in terminating this Lease or of re-entering the Demised Premises and of securing possession thereof, as well as the expenses of re-letting, including altering and preparing the Demised Premises and the rental therefor in connection with such re-letting, it being understood that any such re-letting may be for a period equal to or shorter or longer than the remaining term of this Lease; provided further, that (i) in no event shall Tenant be entitled to receive any excess of such Gross Rents over the sums payable by Tenant to Landlord hereunder, (ii) in no event shall Tenant be entitled in any suit for the collection of damages pursuant to this subparagraph (b) to a credit in respect of any Gross Rents from a re-letting except to the extent that such Gross Rents are actually received by Landlord prior to the commencement of such suit, and (iii) if the Demised Premises or any part thereof should be re-let in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such re-letting and of the expenses of re-letting. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this Lease would have expired if it had not been terminated under the provision of Section 1 above, or under any provision of law, or had Landlord not re-entered the Demised Premises. Nothing herein contained shall be construed as limiting or precluding the recovery by Landlord against Tenant of any sums for damages to which, in addition to the damages particularly provided above, Landlord may lawfully be entitled by reason of any default hereunder on the part of Tenant. Section 5: No failure by the Landlord to insist upon the strict performance of any covenant, agreement, term or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach shall constitute a waiver of any such breach or of such covenant, agreement, term or condition. ARTICLE 15 LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS Section 1: Tenant covenants and Decrees that if Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, the Landlord, after fifteen (15) days written notice to Tenant, may, but shall not be obligated to, and without waiving or releasing Tenant from any obligation of Tenant under this Lease, make such payment or perform such other act to the extent the Landlord may deem desirable, and in connection therewith to pay reasonable and necessary expenses, including such for the employment of counsel. All sums so paid by the Landlord and all expenses in connection therewith, together with interest thereon at the prime rate per annum as established by First National Bank in Rochester, New York, from the date of such payment, shall be deemed additional rent hereunder and be payable to the Landlord on demand. - 100 - ARTICLE 16 MECHANICS' LIEN Section 1: Tenant shall not suffer or permit any mechanics' or other liens to be filed against the Demised Premises nor against Tenant's leasehold interest therein by reason of work, labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding the premises or any part thereof through or under Tenant. If any such mechanics' liens or other liens shall at any time be filed against the Demised Premises, Tenant shall cause the same to be discharged of record or bonded within sixty (60) days after the date of filing. If Tenant shall fail to discharge or bond such mechanics' liens within such period, then in addition to any other right or remedy of the Landlord, the Landlord may, but shall not be obligated to, procure their discharge and in such event the Landlord shall be entitled, if the Landlord so elects, to compel the prosecution of an action for the foreclosure of such mechanics' liens by the lienor and to pay the amount of the judgment, if any, in favor of the lienor with interest, costs and allowances. Any amount paid by the Landlord for any of the aforesaid purposes and all reasonable legal and other expenses of the Landlord, including reasonable counsel fees, in defending any such actions or in or about procuring the discharge of such liens, with all necessary disbursements in connection therewith, with interest thereon at the rate of ten percent (10%) per annum from the date of payment, shall be repaid by Tenant to the Landlord on demand. ARTICLE 17 LANDLORD'S RIGHT TO ENTER PREMISES Section 1: Tenant agrees to permit the Landlord and any authorized representatives of the Landlord to enter the Demised Premises at all times during usual business hours upon 24 hours prior notice (48 hours for repair or other work) or any time in case of emergency, to inspect the same, or to exhibit the Demised Premises to a prospective purchaser, and if the Landlord shall desire, but without implying any obligation on Landlord to do so, to make any necessary repairs under the terms of this Lease by the Landlord and to perform any work in the Demised Premises by the Landlord to comply with any laws, ordinances, orders, regulations or requirements of any insurer. During the progress of such work, the Landlord may keep and store upon the premises all necessary materials, tools and equipment. The Landlord shall not in any event be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant, provided it be as little as may be reasonably possible in the circumstances, by reason of the performance of any such work or of bringing materials, supplies and equipment into or through the Demised Premises during the course thereof, and the obligations of Tenant under this Lease shall not be affected thereby in any manner whatsoever. ARTICLE 18 OFFSET STATEMENT, ATTORNMENT SUBORDINATION Section 1: Subordination Agreement: The rights of Tenant under this Lease shall be and are automatically subject and subordinate at all times to the lien of any mortgage now or hereafter encumbering the Demised Premises, or any refinancing, modification, renewal, extension, or consolidation thereof, without need for the execution of any further documents by Tenant. Regardless, Tenant agrees to execute upon ten (10) days' prior Written request, any further instrument reasonably requested by Landlord or any present or future lender to Landlord to evidence this subordination, and to attorn to any present or future lender to Landlord, including but not limited to, execution without change or modification of any such instrument reasonably required by any present or future lender to Landlord. Section 2: Estoppel Statement: Tenant agrees that at any time and from time to time upon ten (10) days prior written request by Landlord, Tenant will execute, acknowledge and deliver to Landlord a statement in writing stating that this Lease is unmodified and in full force and effect (or, if there have been modifications, stating the - 101 - modifications, and that the Lease as so modified is in full force and effect), the dates to which the rent and other charges have been paid and whether Landlord has defaulted in the performance of any of its obligations under the terms of this Lease, together with any other provisions in any form as reasonably required by any present or future lender to Landlord. ARTICLE 19 INVALIDITY OF PARTICULAR PROVISIONS Section 1: If any covenant, agreement or condition of this Lease or the application thereof to any person, firm or corporation or to any circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such covenant, agreement or condition to persons, firms or corporations or to circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby. Each covenant, agreement or condition of this Lease shall be valid and enforceable to the fullest extent permitted by law. ARTICLE 20 NOTICES Section 1: All notices, demands and requests which may or are required to be given by any party to another shall be in writing and either delivered personally or sent by United States certified mail, return receipt requested, postage prepaid, and addressed: (a) if to Tenant: Four Corners Abstract Corp. 360 East Avenue Rochester, New York 14604 (b) if to Landlord: Fitch Building Associates Suite 400, Wegman Building 80 West Main Street Rochester, New York 14614 or at such other address as the party to receive such notice may from time to time indicate in writing to the other party. A notice, demand or request, which is mailed as provided above shall be deemed given on the first business day following the postmark date. ARTICLE 21 QUIET ENJOYMENT Section 1: The Landlord agrees that Tenant, upon paying the Net Rent and all other charges herein provided for and performing and fulfilling the covenants, agreements and conditions of this Lease on Tenant's part to be performed and fulfilled, shall lawfully and quietly hold, occupy and enjoy the Demised Premises during the term of this Lease without hindrance or molestation by the Landlord or any person or persons claiming under the Landlord, subject, however, to the matters herein set forth. ARTICLE 22 SURRENDER Section 1: On the last day of the Lease Term, or the last Renewal Term, or any earlier date of termination, Tenant shall peaceably surrender the Demised Premises in good order, condition and repair, ordinary wear and tear and damage by the elements or other casualty excepted. All alterations, additions, improvements and permanent fixtures which shall have been made by Tenant upon the Demised Premises shall remain upon and be surrendered with the Demised Premises as part thereof, provided, however, that Tenant shall have the right to remove all trade fixtures and personal property, including but not limited to, office furniture and equipment. - 102 - ARTICLE 23 RENEWAL OPTION Section 1: Provided that Tenant is not then in default under the terms of this Lease and further provided that this Lease has not theretofore been Terminated pursuant to the terms hereof, Tenant shall have the option to renew this Lease for one (1 ) successive additional term of five (5) year(s). The option to renew for the Renewal Term shall expire and be of no further force and effect unless the option is exercised by Tenant giving written notice to Landlord not less than six (6) months prior to the expiration of the original term of the lease. The terms of the Lease shall remain the same during said renewal period, except that the Gross Rent shall be increased to Eighty Five Thousand Dollars ($85,000.00), payable in monthly installments of Seven Thousand Eighty Three and 33/100 Dollars ($7,083.33). ARTICLE 24 COMMISSIONS Section 1: The parties hereto agree that no broker or realtor brought about this Lease and Landlord agrees to be responsible for any broker's commissions whatsoever. ARTICLE 25 RULES AND REGULATIONS Section 1: The Landlord reserves the right to make such reasonable rules and regulations as in its judgment may from time to time be needful for the safety, care, and cleanliness of said Demised Premises and said building and for the preservation of good order therein and the Tenant agrees faithfully to comply with the same, to be placed into effect no earlier that thirty (30) calendar days after written notice thereof to Tenant. ARTICLE 26 ENTIRE AGREEMENT Section 1: The Lease is the total agreement of the parties thereto, and the Landlord has made no representations or promises in respect to the Demised Premises or the building in which the demised premises are located except those contained therein, and those, if any, contained in a writing signed by the parties. The Lease may not be changed, modified, discharged, or terminated orally. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. TENANT: FOUR CORNERS ABSTRACT CORP. Dated: June 22, 1995 By:______________________________________ William S. Gagliano Executive Vice President LANDLORD: FITCH BUILDING ASSOCIATES Dated: July 18, 1995 By:______________________________________ Bernard J. Iacovangelo Managing Partner EX-10.4 5 LICENSE AGREEMENT - 103 - EXHIBIT 10.4 CHENANGO COUNTY CLERK'S OFFICE LICENSE AGREEMENT Made as of the 1st day of January, 1995 between the COUNTY OF CHENANGO, 5 Court Street in the City of Norwich, New York 13815, hereinafter referred to as the "County" and FOUR-CORNERS ABSTRACT CORPORATION, 80 West Main Street, Rochester, New York 14614, hereinafter referred to as "Four Corners". WHEREAS, as of the 1st day of June, 1994 the parties have entered into a certain lease agreement whereby the County agreed to lease to Four Corners a certain area specified therein at an annual rental of One Thousand One Hundred Fifty Dollars; and WHEREAS, the parties desire to terminate the lease agreement and replace it with a license agreement pursuant to terms hereinafter specified. NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: 1. The aforesaid lease agreement made as of the 1st day of June, 1994 is terminated as of December 31, 1994, Four Corners to pay the County the pro rata share of the rental amount for the calendar months in 1994; to wit, $672.00. 2. The County will grant a license to Four Corners for such space as is necessary to place a single four draw filing cabinet and a FAX machine, an area of approximately eight square feet. 3. The term of this agreement, unless sooner terminated as provided herein, shall be January 1, 1995 through December 31, 1995. 4. Four Corners agrees that it will pay to the County for the use of said space the annual license fee of One Hundred Fifty Dollars (S150.00), payable on or before the 15th day of April 1995. 5. County agrees to provide light and heat in said premises in the same manner in which it heats and lights the premises for the use of the public. 6. It is understood and agreed that Four Corners shall keep the area in the vicinity of its filing cabinet and FAX machine neat and clean and presentable, and the County will not be responsible for safety of items stored by Four Corners in the filing cabinet or the FAX machine. It is also understood that Four Corners will only be able to use the space during the hours that the Chenango County Clerk's Office is normally open to the public for business, and not during any other period. 7. If Four Corners shall fail to pay said license fee, or if this agreement is lawfully terminated by County, or if Four Corners shall breach its obligations hereunder, it is agreed that County may remove said equipment without need of legal process and that in that event the County will have no responsibility for the said file cabinet or FAX machine. 8. The parties agree that the County reserves and shall have the right to terminate this license agreement upon thirty (30) days written notice upon determination by the County that the space is necessary for proper discharge of County municipal affairs. - 104 - WITNESS the hands and seals of the parties hereto the day and year opposite their respective signatures. COUNTY OF CHENANGO Dated: __, 1995 By:______________________________________ Clifford W. Crouch, Chairman, Board of Supervisors FOUR CORNERS ABSTRACT CORPORATION Dated: March 31, 1995 By:______________________________________ William S. Gagliano Executive Vice President EX-10.5 6 SALE AGREEMENT - 105 - EXHIBIT 10.5 FOUR CORNERS ABSTRACT A Wholly Owned Subsidiary of FOUR CORNERS FINANCIAL CORPORATION December 17 1994 FAXED AND MAILED ---------------- J. K. Hage III, Esq. 610 Charlotte Street P .0. Box 1769 Utica, NY 13503-1769 Re: Purchase of 612 Charlotte Street Utica, New York Dear J.K.: Transmitted herewith is the signed purchase agreement for the above-captioned property. Pursuant to our telephone conversation of November 10, 1994, I have deleted and initialed the section relative to repairing damage to buyers premises at 610 Charlotte Street, in favor of including the four-drawer file cabinets ln the basement in the purchase price of $25.000. We will begin to bring our abstract up to date immediately, which I will provide to you along with a survey dated December 8, 1988. As we spoke} I would like to close this transaction as soon as practicable prior to year end. To that end, I would ask that you the deed for this exchange and any other necessary documents. Furthermore, it is our understanding that we will be allowed to occupy the building beyond the closing date on a month-to-month tenancy for $250/month (net) through July 31, 1995. We will continue to be responsible for the cost of utilities, maintenance, minor repairs or other municipal charges. If possible, I would like to arrange or snow removal during the winter months using your snow plowing contractor. If this leasing arrangement meets with your approval, please indicate by signing both copies of this letter and returning it to me as soon as possible. Thank you in advance for your prompt attention to this matter I appreciate your expediency and feel this is a mutually beneficial arrangement. Agreed and Accepted: Sincerely, ________________________________ William S. Gagliano J. K. Hage, III, Buyer Date Executive Vice President WSG:lmr Enclosure cc: Frank B. Iacovangelo Chris Annesi Bonadio & Co, EX-22 7 SUBSIDIARIES OF REGISTRANT - 106 - EXHIBIT 22 Subsidiaries of Registrant Name State Incorporated - ---- ------------------ Four Corners Abstract Corporation New York Proper Appraisal Specialists, Inc. New York -----END PRIVACY-ENHANCED MESSAGE-----