-----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, AAoyWZCK2ugPK+xSvmmJbXLk2qnmRuTOmKBsGJ3O3pYaacLVQpd3tVoF31f/HpOg +9I+CNfVZIOwC8PBcfuSww== 0000889812-96-000820.txt : 19960705 0000889812-96-000820.hdr.sgml : 19960705 ACCESSION NUMBER: 0000889812-96-000820 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 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: 96590719 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, 1995. [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to _________________________ Commission file number 0-8628 FOUR CORNERS FINANCIAL CORPORATION (Exact Name of Registrant as specified in its charter) Delaware 22-2044086 - ------------------------------- ------------------- (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] (1 of 80) -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, 1995, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $32,870. As of December 31, 1995, the number of shares outstanding of the registrant's common stock was 3,343,733. Documents Incorporated By Reference None. -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 16 Executive Officers of Registrant 16 PART II Item 5: Market for Registrant's Common Equity and Related 18 Security Holder Matters Item 6: Selected Financial Data 19 Item 7: Management's Discussion and Analysis of Financial 20 Condition and Results of Operations Item 8: Financial Statements and Supplementary Data 26 Item 9: Changes in and Disagreements with Accountants on 26 Accounting and Financial Disclosure Part III Item 10: Directors and Executive Officers of Registrant 27 Item 11: Executive Compensation 28 Item 12: Security Ownership of Certain Beneficial Owners 29 and Management Item 13: Certain Relationships and Related Transactions 30 PART IV Item 14: Exhibits, Financial Statement Schedules, and 32 Reports on Form 8-K -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. Subsequently, in March, 1995, the Newburgh office was closed. The Company now provides service to the Mid-Hudson area of New York State through independent contractors. Four Corners Financial Corporation and its subsidiaries, Four Corners Abstract Corporation ("Abstract") and Proper Appraisal, provide services and products that are utilized in substantially all commercial and residential real estate transactions. As used herein, "Company" includes Four Corners Financial Corporation, Abstract and Proper Appraisal unless the context otherwise requires. These services and products are offered through offices in Buffalo, Rochester, Syracuse, Utica, Lockport, Binghamton and Albany, all located in central and western New York and through subcontractors in other areas of New York State. Services and Products The Company's services and products include real estate title and other public record searching, the preparation of abstracts of title and the issuance of title insurance as agent for certain national underwriting companies. Other services and products include real estate appraisals, abstract storage and escrow services. All of the Company's services and products may be required in connection with the mortgaging, sale or purchase of commercial or residential real property. -6- Services and Products (cont) Substantially all of the Company's revenues were derived from its abstracting and title insurance services. Although all of the Company's services and products can be obtained from other vendors at prices comparable to those of the Company, the Company believes that dealing with a single source for all of these products is convenient for customers and helps to reduce the time required for the performance of these services for a particular real estate transaction. Response time is important in many real estate transactions and the ability of the Company to provide its services and products in a timely manner is significant in the attraction and retention of customers. Abstracts The purchase, sale, leasing and financing of a parcel of real estate in New York State outside of New York City, usually require the preparation of an abstract of title. The abstract is a summary of each transaction affecting the parcel which is reflected in the records of the Clerk of the County where the subject property is located. The abstract is examined by attorneys and others to determine prior interests in, or encumbrances on, the property which have to be disposed of in order to have "clear" title. The information used to create or redate an abstract is obtained by title searchers, that is, persons who search various official records for interests which may affect the ownership interest in, or title to, real property. Such interests may include real property taxes, corporate franchise taxes, bankruptcies, mechanics liens, income tax or sales tax liens, litigation liens, judgment liens, security interests in fixtures and mortgages as well as interests of prior owners (including deceased owners) which have not been adequately transferred. Title searchers summarize their findings and deliver them to word processors who produce the abstract of title. An abstract usually exists for most properties. Thus, the Company is most often requested merely to "redate" it. This involves examining the records only from the date of the last transaction summarized in the abstract. However, where no abstract is available or when newly subdivided parcels are involved, a new abstract is created starting with a warranty deed which meets the local standards for title certification (e.g. at least 60 years old for Rochester, New York property). The information contained in abstracts which the Company creates or redates is indexed and retained by the Company, becoming part of its "title plant". These "back titles" are valuable assets which facilitate the preparation and redating of future abstracts. The title plant also aids the expeditious preparation of title insurance reports and policies. -7- The Company also offers an abstract storage service. When mortgages are placed on real property, the bank or mortgage company usually retains the abstract of title. Thus, a large volume mortgagee would require substantial storage space as well as numerous personnel to index, store and retrieve these abstracts. Through its abstract storage service, the Company picks up these abstracts and stores them for the lender, redelivering them when requested. At the present time, the Company stores approximately 20,000 abstracts. The Company does not charge for this service but believes that it helps to generate abstract "redating" revenues, since a person needing a redate of an abstract stored by the Company can, by ordering that redate from the Company, avoid having to deliver the abstract elsewhere for the redate. The Company estimates that revenues thus generated amounted to approximately $27,000 in 1995, $35,000 in 1994 and $82,000 in 1993. Abstract and title companies are often asked to act as an escrow closing agent in a real estate transaction. This practice is allowable under New York State law. In this capacity, usually as a function of providing title insurance on real estate, the Company is asked to hold funds in escrow bank accounts until certain requirements are met or title defects are cured by the parties involved in the transaction. For this service the Company charges a fee based upon the length of time which the funds are to be held and/or the number of transactions (deposits, checks) to be handled. Also, the Company acts as a conduit for the sale and purchase of mortgages between financial institutions insuring that mortgage documents are received and funds for the purchase of mortgages are wired from buyer to seller in the correct amount and in a specified time frame. The Company also acts as settlement agent on Home Equity loans and refinanced mortgage loans for its Title Insurance underwriters and certain banks/lenders. During 1995, escrow closing services generated approximately $90,000 as compared to $44,000 and $40,000 in 1994 and 1993, respectively. Other public record searches provided by the Company include guaranteed tax searches, surrogate court searches, UCC financing searches, franchise tax searches, judgment searches, new name searches, back title searches, bankruptcy searches and foreclosure searches. While these searches are most often needed by attorneys in connection with real estate transactions, they may be useful to other customers for other purposes, for example, to lenders extending credit. Title Insurance Title insurance policies are statements of the terms and conditions upon which the title insurance underwriter will insure title to real estate, showing ownership, outstanding liens, encumbrances and other matters of public record. The beneficiaries of title insurance policies are generally buyers of real property and secured lenders, and the policy amount is usually based upon either the purchase price of the property or the amount of the loan secured by the property. The title -8- Title Insurance (cont) policy protects the insured against title defects, liens and encumbrances not specifically excepted from its coverage. Most lenders require title insurance as a condition to making loans secured by real estate. Title insurance is substantially different from other types of insurance. Fire, auto, health and life insurance protect against losses due to future events that cannot generally be eliminated. Title insurers, however, seek to eliminate future losses by accurately performing record searches and examinations of title to real property, and to the extent possible, requiring that obvious defects be "cured" as a condition of and prior to issuance of the policy. Among the most commonly issued title insurance policies are standard or extended coverage policies for owners and lenders. Owners' policies insure title to real estate against defects in or liens or encumbrances against title, unmarketability of title and lack of access to the subject property. Lenders' policies insure against the invalidity of the lien of the insured mortgage, insure the priority of the lien or encumbrance as stated in the title policy, and insure against the invalidity of any assignment of the insured mortgage provided the assignment is shown in the policy. The terms of coverage have generally become standardized in accordance with forms approved by industry groups such as the American Land Title Association. Since title insurance premiums are based upon mortgage amounts and tend to be higher on a per unit basis than amounts charged for abstract services, labor costs as a percentage of revenue in title insurance are lower than in abstract services. As a result, gross margin levels are higher. Therefore, one of the Company's main goals has been to increase its revenues from title insurance. The Company's total revenue for 1995 decreased by 20%, to $3,822,215 as compared to $4,779,546 in 1994, mainly due to a decrease in real estate activity and demand for the Company's products. Similarly, revenues from title insurance representing 42% of total revenues decreased from $1,966,849 in 1994 to $1,610,147 in 1995. The title insurance premium is based upon the policy amount and the type of coverage provided by the policy. Title insurance rates, including those of the Company's competitors, are regulated by the State of New York Insurance Department. The premium for title insurance is due and must be paid in full prior to the issuance of the policy which is generally on the closing date of the real estate transaction. -9- Title Insurance (cont) The use of title insurance in connection with real estate transactions, particularly residential purchases and financing, in the Company's marketing area has been significantly increased since the early 1980's by the expanded role of the national secondary residential mortgage market, and the growth of nationwide lending, both residential and commercial, by banks and insurance companies. As a result, almost all residential and commercial real estate transfers and/or financings, except most home equity transactions, involve the issuance of a title insurance policy. This same period of time has seen, until recently, a general inflation of real estate prices resulting in increasing levels of insurance coverage and related premiums. However, this expanding market has also seen a significant increase in the number of companies providing such insurance in the Company's marketing area, both directly and through agents. See "Competition". The Company is not a title insurance underwriter. In selling title insurance, the Company acts as agent for several national title insurance underwriting companies. The Company has agency relationships with the following title insurance underwriters: Old Republic National Title Insurance Company, Albany, New York; Stewart Title Insurance Company, New York City; and Lawyers Title Insurance Corporation, Richmond, Virginia. Generally, such relationships are cancelable by either party upon short notice. The Company believes that in the event of the cancellation of its existing agency relationships, it would have no difficulty in securing similar relationships with other title insurance underwriters. The choice of an underwriter by the Company is based upon such considerations as the amount of the premium "split" offered, which varies among underwriters, the terms under which the title underwriter will require indemnification for policy losses attributable to errors made by the Company in searching and examining the title, the scope of services offered to the agent by the title underwriter, and the fact that certain underwriters will not insure titles in certain geographical areas within New York State. Typically, the title insurance premium "split" is approximately 80% to the Company and 20% to the underwriter. The title insurance underwriters for which the Company acts as agent are licensed by the State of New York. Currently, there is no requirement under New York law that requires an agent such as the Company to hold a license. Appraisals In 1989, the Company added to its services the furnishing of residential real estate appraisals. With the purchase of Proper Appraisal Specialists, Inc. in 1991, the Company added the appraisal of commercial properties to its product line. -10- Appraisals (cont) Since that time, appraisals have been performed by certified and/or licensed appraisers under the guidance of either a Senior Residential Appraiser (SRA) or an individual with a General Appraisal License from New York State. In areas where the Company has not had a direct branch operation, the Company procures the services of licensed appraisers on a subcontractor basis. As a result of an agreement dated September 27, 1995, the company sold the assets of its appraisal division to Rynne, Murphy and Associates, Inc., a well-known, professional residential/ commercial real estate appraisal company located in Rochester, N. Y. for $125,000, allocated as follows: Fixed Assets $ 12,500 Customer lists and goodwill 100,000 Covenant not-to-compete 12,500 -------- $125,000 ======== The purchase price of the fixed assets is in the form of a $12,500 non-interest bearing note receivable in ten quarterly installments of $1,250 beginning May 1, 1996. The purchase price of the customer lists, goodwill, and covenant not- to-compete is in the form of a $112,500 note receivable in quarterly installments, plus interest at 9%, beginning May 1, 1996. Payment for these assets is contingent based upon 19% of the buyer's gross margin on sales attributable to the Company's customers. These payments are to be applied by the Company in the following order: the $1,250 guaranteed payment, interest and principal. Any unpaid interest is forgiven on a quarterly basis. It is anticipated that 19% of the buyer's gross margin will not exceed the $1,250 guaranteed payment and interest for that quarter. As a result, the buyer would not be required to make any principal payments for the contingent portion of the note. At December 31, 1995, the Company has fully reserved this portion of the note receivable. Under this strategic partnership arrangement with Rynne, Murphy and Associates, Inc., the Company will continue to market and sell appraisals to its customers. However, since the appraisal reports will be prepared by Rynne, Murphy and Associates staff appraisers, the Company will realize a substantial savings in payroll and other overhead expenses associated with running its appraisal operation. -11- Appraisals (cont) Appraisal services provide an estimated value for a particular property. Appraisals are required in a variety of situations including transfer of ownership, financing, tax matters, relocation services, insurance purposes, estimation of liquidation value and divorce. The Company's customers for appraisals have included lending institutions, banks, attorneys, municipalities, relocation companies, government agencies, corporations and private individuals. The Company's errors and omissions insurance coverage also covers appraisal services. During 1995, the Company derived approximately 5% of its gross revenues from the furnishing of real estate appraisals versus 10% in 1994 and 12% in 1993. New Services and Products As a result of the Company's continuing desire to expand its service levels to new and/or existing customers and to decrease turnaround times, during 1993 the Company introduced an on-line customer based automated order entry system called "EXPERDITE". The system can be customized by the user and is designed to aid in the rapid, error-free entry and tracking of title search and title insurance orders placed with the Company. Marketing Services and products provided by the Company are utilized in substantially all commercial and residential real estate transactions. Therefore, its marketing efforts are directed primarily toward the persons who place the orders for such services and products in the typical real estate transaction or other real estate related activity attorneys, mortgage brokers, lenders, builders, and other persons and entities engaged in the real estate business generally. Marketing activities are conducted by a direct sales force of three employees under the direction of the Company's Director of Sales and Marketing. Marketing efforts include direct solicitation and advertising in publications targeted to serve mortgage lenders and attorneys, attendance at trade shows and conventions, and news releases. The Company believes that its ability to offer many of the services and products necessary in a real estate transaction is an important factor in the attraction and retention of business, since customers can therefore order those items from a single source. In its marketing activities, the Company emphasizes this factor and the equally important factors of competitive price, accuracy, response time, excellent service and reliability, all of which the Company believes it provides to its customers. -12- Significant Customers During 1995, there were no customers accounting for more than 10% of the Company's gross revenues. Industry Considerations and Seasonality The Company's business is related to the general real estate market and the fluctuations which occur therein. As a result of economic factors affecting the real estate industry, namely fluctuating interest rates, there was an increase in real estate transactions during 1993. Statistics compiled by the New York State Land Title Association indicate that, for New York State, the number of deeds and mortgages increased by an average of 8% as compared to 1992. The Company's revenues in this period declined, which the Company attributes to several competitive factors as well as a decrease in "home equity" or second mortgage transactions in favor of refinanced mortgages. Mortgage refinances continued during the first quarter of 1994 at which time long term interest rates were at very low levels. However, beginning in the second quarter and fearing an increase in the levels of inflation, the Federal Reserve Board began increasing interest rates. By year end 1994 there were an unprecedented number of consecutive monthly interest rate increases. As a direct result, deeds and mortgages recorded in New York State during 1994 fell by 7.18% as compared to 1993. As a consequence, the Company's revenues fell sharply causing the company to incur a significant net loss for the year ended December 31, 1994. Activity continued to be sluggish during 1995, when recorded deeds or mortgages fell by an average 11.50% from 1994 levels. Company revenues declined during 1995 by nearly 20% as a result of these factors. As a result of the plan developed by Company management subsequent to year end 1994 to significantly reduce the Company's overhead expense structure in order to improve operations and cash flow, the Company returned to profitability in 1995. There can be no assurance that these or other factors will enable the Company to maintain its revenue and profitability in periods of declining real estate activity. The demand for the Company's services and products is directly dependent upon the activity of the real estate market which, in turn, is closely related to changes in interest rates. Thus, the Company's business is cyclical as well as seasonal, with lowest volume when interest rates are high and in the winter and early spring. Banking Relationship During 1995, Company management worked closely with bank officials and its public accounting firm to develop a plan to restructure Company expenses and improve operations and cash flow. On 12/13/95, the amount -13- Banking Relationship (cont) outstanding on the Company's note payable to a bank, $133,333, and $185,000 of the amount borrowed under its Line-of-Credit agreement were refinanced with the same bank. The note payable to the bank requires the Company to meet certain financial covenants at December 31, 1995 (see Note 5 of the Accompanying Consolidated Financial Statements as of December 31, 1995 and 1994). Potential Liabilities Abstract companies, including the Company, certify their searches and abstracts for accuracy. In its title insurance business, the Company relies upon its abstracts and other information and considerations, including standards prescribed by its principals, in determining whether title is insurable. If the Company makes a determination of insurability, it issues a policy of title insurance on behalf of its principal, the underwriting company. As an issuer of certified searches and abstracts, the Company may, depending on applicable law and the facts of a particular case, be liable for money damages in the event of errors in its searches and abstracts. As an agent issuing title policies on behalf of an underwriter, the Company may, again depending on applicable law and the facts of a particular case, be liable to either the underwriter or the insured in the event of errors in abstracting or determinations of insurability, negligence, or breaches of agreements with its principals. There are no significant claims pending against the Company based upon any of the foregoing considerations, but the potential for such claims, and possible liability thereon, is a risk that is inherent in the Company's business, and such claims may be asserted at any time. During the most recent past five years, the amount paid by the Company for such claims, in the aggregate, is less than $35,000. The Company has errors and omissions insurance coverage of $1,000,000, which complies with requirements of its principals and is also deemed adequate by the Company's management. Employees The Company and its subsidiaries employed approximately 66 persons at December 31, 1995, as compared to 94 in 1994 and 129 in 1993. Certain members of the Company's management must sign Confidentiality Agreements which prohibits the solicitation of information or resources to existing or potential competitors. The employees of the Company are not covered by any collective bargaining or other agreements and management believes its employee relations to be good. -14- Service Marks The names "Four Corners Financial Corporation" and "Four Corners Abstract" have been registered as service marks with the U.S. Patent and Trademark Office. While the Company considers its service marks to be important, management does not consider any service mark to be critical to future operations of the Company or the marketing of any of the Company's services or products. Competition The Company competes with numerous providers of abstract and title insurance services, most of which fall into two main categories. The first are the large, integrated national or statewide companies which underwrite their own title insurance policies either directly or through agents. Such agents include not only independent companies, but also attorneys who sell title insurance policies as "examining counsel" for underwriters of title insurance. The second are the small, local companies which provide abstracts and write policies only as agents for others. Both types of companies are found in the markets served by the Company and offer substantial competition. Because of the relative ease of entry into the market place, the Company may meet additional competition from newly formed companies in one or more of its market areas. The use of title insurance in residential real estate transactions has grown in recent years because of the development of the national secondary residential mortgage market which requires title insurance for virtually all residential mortgages. Also, in recent years, institutional lenders have generally required title insurance in virtually all commercial mortgages. However, during the same period, there has been a significant increase in the number of companies providing such insurance in the Company's market area, both directly and through agents. The Company also competes with numerous residential and commercial appraisal companies, most of which are smaller than the Company and are independently owned in the geographical area in which they operate. The principal elements of competition are accuracy and speed (response time). Prices for abstract and appraisal services are generally comparable among vendors. However, in recent years, the Company experienced significant price competition from new abstract companies entering its market areas. Prices for title insurance are standardized and regulated by the New York State Insurance Department which requires that rates be filed for approval by the New York State Title Insurance Rate Service Association, Inc. (TIRSA). Personal relationships are extremely important in retaining business and obtaining new business. Excellent service and reliability, which the Company believes it provides, are the principal means of developing and maintaining such relationships. -15- Item 2. Properties Prior to July, 1995, principal offices of the Company were located at 80 West Main Street, Rochester, New York. These facilities, approximately 15,000 square feet, were leased from Wegman Building Associates, a partnership in which Messrs. Frank B., Bernard J. and Anthony M. Iacovangelo, directors and/or officers of the Company, are partners. Abstract had a one year lease for this space expiring on 12/31/95, which provided for an annual net rent of $68,000. However, effective 7/31/95, the Company moved its Rochester facilities to 370 East Avenue. These facilities are leased from Fitch Building Associates, another partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo are partners. Abstract now leases approximately 9,000 square feet of such space at a net annual rent of $72,000, pursuant to a lease expiring June 30, 2000. The Company believes that the terms of its rental are at least comparable to those which it might have obtained if dealing with a non-affiliated third person. Rent and common charges were approximately $72,000, $58,000 and $213,000 in 1995, 1994 and 1993, respectively. During 1994, total unpaid rent of $109,000 was forgiven by Wegman Building Associates and reflected as an extraordinary item. The Company owed approximately $20,000 for unpaid rent at December 31, 1995. In addition, the Company leases space for its branch offices in Buffalo (3,993 square feet), Albany (1,410 square feet), Syracuse (2,087 square feet), Lockport (625 square feet) and Binghamton (760 square feet). The building which houses the Utica branch (2,000 square feet) was sold by the Company in 1994. Per this agreement, the Company was allowed to operate from this location on a month-to-month tenancy through July 1, 1995. Effective August 1, 1996, the Company entered into a lease for 1,611 square feet in a nearby office building for its Utica Branch office. The Company also leases space in the County Clerk's offices in Monroe, Erie, Onondaga and Niagara counties, and occupies space in the County Clerk's office in Oneida County. The Company believes it has adequate insurance coverage with respect to fire and other casualty losses. Item 3. Legal Proceedings There are no pending legal proceedings to which the Company is a party or of which any of its property is the subject. -16- Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the last quarter of the fiscal year covered by this report. Executive Officers of Registrant The executive officers of the Company are as follows: Name Age Position with the Company ---- --- ------------------------- Frank B. Iacovangelo 56 President, Treasurer and Director Bernard J. Iacovangelo 48 Vice President, Secretary and Director William S. Gagliano 46 Executive Vice President and Director -17- 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. -18- PART II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters There is a very limited trading in the Company's Common Stock. The range of high and low bid prices and high and low asked prices for the years 1993, 1994 and 1995 is shown below, as reported by the National Quotations Bureau, Inc. and as adjusted to reflect the Company's one for four (1 for 4) reverse stock split which became effective July 31, 1992. COMMON STOCK DATA 1993 BID ASKED ---- --- ----- 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced 1994 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced 1995 1st Quarter *Unpriced *Unpriced 2nd Quarter *Unpriced *Unpriced 3rd Quarter *Unpriced *Unpriced 4th Quarter *Unpriced *Unpriced February 16, 1989 $2.00 $2.00 $3.00 $3.00 (last available) * = Listed in pink sheets without prices The above quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions and have not been adjusted for stock dividends or splits. The Company's agreement with its Bank places a restriction on its payment of dividends. No dividends were declared or paid during 1993, 1994 or 1995. On December 31, 1995, the Company had 1,210 holders of record of its common stock. -19- Item 6. SELECTED FINANCIAL DATA FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Revenue ....................... $ 3,822 $ 4,780 $ 5,828 $ 6,818 $ 5,505 Income (loss) before taxes .... 99 (581) 66 33 312 Net income (loss) ............. 97 (469) 56 25 288 Net income (loss) per share (1) $ .03 $ (.14) $ .02 $ .01 $ .08 BALANCE SHEET DATA: Total assets .................. $ 1,240 $ 1,315 $ 1,804 $ 1,584 $ 1,685 Long-term obligations ......... 202 564 507 625 271 Stockholders' investment ...... 56 (42) 427 377 345 Notes: (1) In 1992, the Company's stockholders approved a one-for-four reverse stock split. In conjunction with this reverse stock split, the authorized number of shares was reduced to 15,000,000 and par value was increased to $.04 per share. All years have been restated to reflect this action. -20- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 1. Liquidity and Capital Resources The Company's cash flow resulted from operations, bank loans and advances made by principal stockholders. In 1995, the operations of the Company generated cash of $210,839. This cash flow, along with cash reserves of $28,932, was sufficient to fund investments in assets of $38,881 and a net debt reduction of $138,099. The cash flow from operations of $52,351 funded investments in assets of $62,399 and a net debt reduction of $60,672 in 1994. During the calendar year 1993, an operating cash flow of $216,118 funded an investment in assets and a corresponding decrease in debt financing of $147,597 and $21,832, respectively. Cash Flow From Operations. The cash provided by operations was greater in 1995, being $210,839 versus $52,351 in 1994. This change was primarily due to a $97,384 net profit incurred in 1995 as compared to a substantial net loss of $469,030 in the previous year. The positive impact from increases in the provision for bad debts and non-cash depreciation and amortization expense, as well as a non-cash loss on property disposal, further enhanced the sizable $97,384 net profit incurred in 1995. The cash provided by operations in 1994 was lower than the 1993 amount of $216,118. This was primarily due to a decrease in accounts payable and a significant net loss in 1994. Cash Flow from Investing Activities. The Company made capital expenditures of $39,325, $31,469, and $103,108 in 1995, 1994 and 1993 respectively, primarily related to computer system to computer system upgrades and furniture and fixture purchases at various Company locations. Whereas the company made investments in its title plant in 1994 and 1993 of $36,985 and $44,013, respectively to support its ongoing business, no such commitment was made during the 1995 year. As of December 31, 1995, the Company had no material purchase commitments. In the past, the company has acquired other businesses for cash, notes and common stock. Additional acquisitions may be made in the future. These acquisitions may be made, in part or in whole, for cash. Cash Flow from Financing Activities. Primary cash flows from financing activities relate to changes in financing under lines-of-credit, notes payable and advances by principal stockholders. On December 13, 1995, the amount outstanding on the note payable to a bank of $133,333, and $185,000 of the amount borrowed under its line-of-credit agreement were refinanced with the same bank. The note payable -21- and line-of-credit have been classified in accordance with the new agreement as of December 31, 1995. The terms of the bank note require the Company to meet certain financial covenants at December 31, 1995. These ratios are adjusted on a quarterly or semi-annual basis during 1996 and thereafter. The covenants, ratios and terms of the agreement can be found in note #5 of the accompanying financial statements. The agreement also limits the Company's ability to make acquisitions, pay dividends, and make capital expenditures. In addition, the company is required to submit certain financial information on a periodic basis. At December 31, 1995, the Company was not in compliance with the current ratio, net income requirement and debt service ratio. Subsequent to year end, the Company obtained a waiver from the bank for these covenants as of December 31, 1995. The Company is currently in the process of renegotiating the covenants of this note. Since these negotiations have not yet been completed, this note has been classified as current in the accompanying consolidated balance sheets at December 31, 1995. Future maturities of the debt described above are as follows: 1996 .................................$ 331,211 1997 ................................. 1,674 ---------- 332,885 ========== The Company may borrow up to $50,000 under the terms of a line-of-credit agreement with a bank through October 31, 1997. Amounts borrowed bear interest at the bank's prime interest rate plus 1% and are collateralized by substantially all assets of the Company. At December 31, 1995, there was $35,000 outstanding under the terms of this line-of-credit. At December 31, 1994, there was $235,000 outstanding on the Company's former line-of-credit with the same bank. On December 13, 1995, $185,000 of the amount borrowed under this line-of-credit was refinanced as part of the note payable to the same bank. The Company also has available an unsecured line of credit of $100,000 with a bank with interest an amounts borrowed at the bank's prime rate plus 1%. There were no borrowings as of the years ended December 31, 1993, 1994 and 1995. Borrowings under this line of credit are personally guaranteed by the Company's principal officers/stockholders. The company repaid $150,599, $164,033, and $179,215 under its long-term debt agreements in 1995, 1994 and 1993, respectively. While long-term borrowings were $8,361 and $41,693 in 1994 and 1993 respectively, no additional borrowing activity existed for the 1995 year. At December 31, 1995, the Company owed $227,500 to a principal stockholder/director. For the years ended 1994 and 1993, this indebtedness amounted to -22- $200,000. This debt bears interest at the prime rate plus three percent (3%) and has no set repayment terms, however, the principal stockholder has agreed not to require payment prior to January, 1997. The Company expects the cash flow generated from operations and bank lines-of-credit currently available to be sufficient to meet its anticipated working capital and fixed capital expenditure needs for the next twelve months. The Company believes that the impact of inflation on its results from operations has been and will continue to be minimal due to the recent stability of the economy. 2. Results of Operations (a) Percentage Comparison The following table presents certain financial data derived from the consolidated statements of operations of the Company for the years ended December 31, 1995, 1994 and 1993, expressed as a percentage of total revenues. Percentage of Total Revenues Years Ended December 31 -------------------------------------- 1995 1994 1993 ---- ---- ---- Title insurance premiums 42.13% 41.15% 31.88% Abstract/appraisal fees 57.87 58.85 68.12 ------ ------ ------ Total revenues 100.00 100.00 100.00 Direct costs of revenue (20.90) (21.87) (16.80) ------ ------ ------ Gross profit 79.10 78.13 83.20 Operating expenses: Personnel costs (51.18) (61.77) (56.61) Other operating expenses 22.18 27.01 24.33 ------ ------ ------ Operating income/(loss) 5.54 (10.65) 2.26 Other expenses (2.94) (.14) (1.13) Income tax expense (.05) .98 (.17) ------ ------ ------ Net income/loss 2.55% (9.81)% .96% ====== ====== ====== -23- (b) Operating Revenues Combined revenues of the Company decreased 17.99% from $5,828,136 for the year ended December 31, 1993 to $4,779,546 for the year ended December 31, 1994. The combined revenues further decreased approximately 20.03% to $3,822,215 for the year ended December 31, 1995. The company experienced a revenue decrease in 1993 and 1994 due to strong competition within the abstract and title insurance industry, a weaker demand for home equity (second mortgage) loans, and the continuance of a sluggish real estate market in the northeast. This trend continued in a slightly less dramatic fashion in 1995 as the housing market began to rebound in the areas where the Company does business. The Company expects total revenues to increase during 1995 as consumer confidence continues to increase and as the volume of orders increases from those customers lost to lower-priced non-performing competitors. Specifically, revenue from title insurance premiums decreased by 18.13% during 1995 to $1,610,147 versus $1,966,849 in 1994. This occurred despite a slight increase in 1994 of 5.81% from $1,858,264 realized in 1993. Even though a minimal increase in title sales was recognized for 1994, a significant decline in title searches and appraisal sales caused an overall decline in gross revenues of the Company. In 1995, correlating declines were recognized in both areas of revenue. Abstract and appraisal service revenues declined from $3,969,872 to $2,812,697 to $2,212,068 in 1993, 1994 and 1995, respectively. These fluctuations represented a 29.15% reduction in abstract and appraisal revenues from 1993 to 1994 and a corresponding reduction of 21.35% from 1994 to 1995. As stated earlier, the decline in this segment of the Company's revenues from the years ended 1993 to 1995 resulted from more intense competition within the industry in addition to a lower volume of home equity (second mortgages) loans. The Company is able to provide appraisals on real properties under an exclusive arrangement with a local appraisal company. As a percentage of total revenue, appraisal income has fallen from twelve (12%) of total revenues in 1993 to ten (10%) in 1994. Appraisal revenues decreased significantly from $701,540 in 1993 to $464,787 in 1994. A further decrease of 58% occurred in 1995 as appraisal revenues fell sharply to $194,460. These decreases were associated with the decreased volume of abstract and title orders. (c) Direct Costs of Revenue Direct costs of revenue consist to commissions paid to underwriters of title insurance and subcontractor costs paid to other title companies and to appraisers. As a result of a decrease in the volume of title search and appraisal orders in the geographic areas where the company does not have a direct operation, as well as the positive aspect of producing a higher percentage of orders using its own work force, direct costs of revenue have decreased dramatically by 24% from $1,045,319 in 1994 to $798,897 in 1995. From 1993 to 1994, these same costs increased -24- by 21.87% due amounts paid to company paid closing attorney agents used primarily in Western New York State. (d) Operating Expenses Direct and indirect personnel costs and other operating expenses are incurred in connection with producing title searches and title examinations, maintaining the Company's title plant, and providing real estate appraisals. Total operating expenses decreased from $4,717,398 for the year ended December 31, 1993 to $4,228,331 for the same period in 1994. Operating expenses further declined in 1995 to $2,811,810. These decreases were primarily attributable to declining payroll costs associated with a reduction in staffing requirements as the demand for the Company's decreased. In 1994, gross payroll and benefits amounted to $2,952,187 as compared to $3,299,116 in 1993. For the same period, office supplies including postage decreases from $237,238 to $173,122. The decrease in operating expenses experienced by the Company in 1994 and 1995 was attributable to a cost containment and downsizing program implemented as a result of a lower than anticipated sales volume. The significant decreases in expense for 1995 are shown in the table below. Expense Item 1995 1994 ------------ ---- ---- Gross payroll & benefits $1,956,156 $2,952,187 Dues & subscriptions 6,655 17,061 Office supplies & postage 97,612 173,122 Travel expenses 35,103 85,938 As with any service company, the major item of expense and corresponding increase in expense level associated with the Company's operations is gross payroll and employee benefits. As a percentage of revenues, personnel costs and other operating expenses represented 74% in 1995, 89% in 1994, and 81% in 1993. The increase experienced in the 1994 calendar year resulted from a constant level of payroll expenditures versus a decreasing revenue base. This diminishing revenue base was attributable to a period of increasing interest rates for mortgage loans during the second half of 1994 and an increased level of competitiveness within the industry. Whereas the revenue base remained fairly stable following more traditional trends, through the 1995 calendar year, the Company was able to control payroll expenditures in a much more effective manner. The Company is continuing a strategic emphasis -25- on productivity, geographic full service, and total quality standards. The Company's work force has decreased significantly from 94 in 1994 to 75 in 1995. Based on a decrease in sales order volume, income from operations for 1995 was $211,508 verses a sizable loss from operations of $494,104 in 1994. Net income was $97,384 for the 1995 calendar year whereas a corresponding net loss in the amount of $469,030 was recognized for 1994. In 1994, the Company suffered a significant decrease in income from operations and net income due to the economic downturn of the real estate market caused by increasing interest rates. The loss from normal operations of $534,030 was reduced from a $65,000 gain relating to the early extinguishment of debt from a related party to arrive at the net loss mentioned above for 1994. In 1995, the Company fully implemented cost cutting measures to ensure the profitability of the business. As a result, income from normal operations and net income represented sizable improvements from the previous years figures. -26- Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to pages 35 to 53 of this Form 10-K and are indexed under Item 14(a)(1). See also the Financial Statement Schedules appearing herein, as indexed under Item 14(a)(2). Item 9. Disagreements on Accounting and Financial Disclosure There have been no disagreements on accounting and financial disclosure matters. -27- PART III Item 10. Directors and Executive Officers of the Registrant The following table names the directors and indicates their age, their position with the Company or their principal occupation or employment, and the approximate number of shares of Common Stock beneficially owned by each director and all directors and officers as a group as of December 31, 1995. Shares of Position with the Common Stock Percent Company or Princi- Director Beneficially of Name Age pal Occupation Since Owned Class - ---- --- ------------------ -------- ------------ ------- Frank B. 56 President and 1987 1,366,339 (3) 40.92% Iacovangelo Treasurer (1) Bernard J. 48 Vice President 1987 1,376,339 (4) 41.22% Iacovangelo Secretary (1) William S. 46 Executive Vice 1992 140,758 (5) 4.22% Gagliano President and Director (1) Anthony M. 55 President, director 1987 87,913 (6) 2.64% Iacovangelo and principal share- holder of Faber Construction Co., Inc. Rochester, NY (2) All Directors and Officers of the 2,971,349 88.99% Company as a group (four persons) (3)(4)(5)(6) (1) See information contained in the section entitled "Executive Officers of Registrant" in Part I of Form 10-K for the fiscal year ended December 31, 1994. In addition, from 1987 until June 1989, Frank B. Iacovangelo was a director, and on an interim basis for a period of approximately 11 months was Chairman of the Board of Charlie Bubbles, Ltd. food service business which filed a petition under Chapter 11 of the U S Bankruptcy Code on November 20, 1989. (2) During the past five years, Anthony Iacovangelo has also been an owner of numerous real estate projects. (3) Includes 300,000 shares owned by children of Frank B. Iacovangelo, beneficial ownership of which is disclaimed. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Frank Iacovangelo owns a 40% interest. -28- (4) Includes 500,000 shares owned by a Trust for the benefit of Bernard J. Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial ownership of these shares. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Bernard Iacovangelo has a 40% interest. (5) Includes an option to purchase 125,000 shares of Common Stock. (6) Includes 10% of the 368,869 shares owned by Wegman Building Associates, a partnership in which Anthony Iacovangelo has a 10% interest. Also includes options to purchase 1,000 shares of Common Stock. Messrs. Frank, Bernard and Anthony Iacovangelo are brothers. Item 11. Executive Compensation Executive Compensation The following table sets forth the cash compensation for each of the last three financial years awarded to or earned by the Chief Executive Officer of the Company. No other executive officer of the Company received a total salary and bonus in excess of $100,000 and accordingly no reporting is required under the regulations of the Securities and Exchange Commission. Name and Annual Compensation (1) Principal Position ----------------------- ------------------ Yearly Salary ------------- Frank B. Iacovangelo 1995 -- - 0 - President, Chief 1994 -- $61,800 Executive Officer 1993 -- $21,923 and Treasurer - ---------- (1) Mr. Iacovangelo receives no other compensation or benefits from the Company. He neither received nor exercised any options during 1995 and he held no options at December 31, 1995. Remuneration of Directors During 1995, directors of the Company received no cash remuneration for serving as directors or as members of committees. The Company's 1992 Stock Option Plan (the "Option Plan") provides for automatic grants of stock options to each member of the Board of Directors who is not also an employee of the Company. Messr. Anthony Iacovangelo is a non-employee director. -29- Pursuant to the Option Plan, a Non-Employee Director Stock Option ("NEDSO") for 500 shares is granted to each non-employee director automatically every year on the date of the Annual Meeting of Stockholders. The first such grants were made on the date of the 1992 Annual meeting of Stockholders (July 29, 1992), and each non-employee director received a NEDSO for 500 shares at an exercise price of $.75 per share, the fair market value of the Company's Common Stock on the date of grant. Each NEDSO is immediately exercisable in full. Each NEDSO terminated upon the expiration of ten years from the date upon which such NEDSO was granted. A NEDSO is not transferable other than by will or by the laws of dissent and distribution. In the event a non-employee director terminates services on the Board other than by reason of death or disability, such person's NEDSO (to the extent exercisable upon such termination) will expire three months from the date of termination of service, provided that in no event may a NEDSO be exercised beyond its original expiration date. In the event of death or disability of a non-employee director, any outstanding NEDSOs will expire one year from the date of death or disability, provided that in no event may a NEDSO be exercised beyond its original expiration date. Employment Agreements Employment agreements between the Company and each of Messrs. Frank B. Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano provide for employment terms which commenced January 1, 1992, year to year indefinite renewal terms subject to either the Company or the employee electing not to renew, as amended, minimum base salaries of $60,000 per year in the case of Frank Iacovangelo, $52,000 per year in the case of Bernard J. Iacovangelo and $75,000 in the case of Mr. Gagliano, additional salary and bonus compensation to be determined by the Board of Directors of the Company in its sole discretion, and restrictions against competition with the Company. Messrs. Frank B. Iacovangelo, Bernard J. Iacovangelo and William S. Gagliano received $ -0- , $ -0- and $69,378 respectively during 1994. Item 12. Security Ownership of Certain Beneficial owners and Management On December 31, 1995, the Company had outstanding and entitled to vote with respect to all matters to be acted upon at the Annual Meeting of Stockholders, 3,343,733 shares of Common Stock ($.04 par value). Each share of Common Stock is entitled to one vote. The Company currently has no other outstanding class of equity securities. The following table sets forth information as of December 31, 1995 showing all persons who, to the Company's knowledge, were beneficial owners of 5% or more of any class of its shares. All persons listed below have sole voting and investment power with respect to their shares unless otherwise indicated. -30- Amount and Nature of Percent of Name and Address Beneficial Ownership Class - -------------------------------------------------------------------------- Frank B. Iacovangelo 1,366,339 (1) (3) 40.92% 80 West Main St. Rochester, NY 14614 Bernard J. Iacovangelo 1,376,339 (2) (3) 41.22% 80 West Main St. Rochester, NY 14614 Wegman Building 368,879 (3) 11.05% Associates 80 West Main St. Rochester, NY 14614 (1) Includes 300,000 shares owned by children of Frank B. Iacovangelo, beneficial ownership of which is disclaimed. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Mr. Iacovangelo has a 40% interest. (2) Includes 500,000 shares owned by a Trust for the benefit of Bernard J. Iacovangelo's children, the Trustees of which are Mr. Iacovangelo's wife, Patricia, and his brother, Frank. Mr. Iacovangelo disclaims beneficial ownership of these shares. Also includes 40% of the 368,879 shares owned by Wegman Building Associates, a partnership in which Bernard Iacovangelo has a 40% interest. (3) Wegman Building Associates is a general partnership in which Messrs. Frank, Bernard and Anthony Iacovangelo have a 40%, 40% and 10% interest, respectively. They have shared voting and investment power with respect to the shares owned by the partnership. Item 13. Certain Relationships and Related Transactions The principal offices of the Company are located at 370 East Avenue, Rochester, New York. These facilities are leased from Fitch Building Associates, a partnership in which Messrs. Frank B., Bernard J., and Anthony M. Iacovangelo, directors and/or officers of the Company, are partners. Four Corners Abstract Corporation ("FCAC"), a subsidiary of the Company, currently leases approximately 9,000 square feet of such space, pursuant to a lease expiring on June 30, 2000. Effective July 1, 1995, the lease agreement requires annual rental payments of $72,000. Annual rental payments, pursuant to the lease, including common area charges, were approximately $72,000, $58,000 and $213,000 in 1995, 1994, and 1993 respectively. During 1994, total unpaid rent of $109,000 was forgiven by the related partners. The Company owed approximately $66,000 for unpaid rent at December 31, 1993, and approximately $20,000 at December 31, 1995. -31- Messrs. Frank and Bernard Iacovangelo, officers and directors of the Company, are members of the law firm of Gallo & Iacovangelo, general counsel to the Company. During 1995, 1994 and 1993, Frank Iacovangelo, President of the Company, made advances to the Company. The advances bear interest at the prime rate plus 3% and repayment is subordinated to the amounts outstanding under the Company's line of credit agreements. Mr. Iacovangelo has agreed not to require payment of these advances through January 1, 1996. At December 31, 1995, December 31, 1994 and December 31, 1993, $200,000, was outstanding. In 1995, the Company paid Mr. Iacovangelo $15,180.13 in interest. In 1995, 1994 and 1993, approximately 4% of the Company's revenue was derived from the law firm of Gallo and Iacovangelo. At December 31, 1995, 1994, and 1993, the Company was owed $36,742, $59,284 and $57,966 respectively, from Gallo and Iacovangelo. Rates charged were comparable to those charged similar customers. -32- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report and as response to Item 8: (1) Financial Statements - Auditors' Report dated February 23, 1996 - Consolidated Balance Sheets - December 31, 1995 and 1994 - Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Changes in Stockholders' Investment for the Years Ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 - Notes to Consolidated Financial Statements (1) through (9) (2) Financial Statement Schedules - Auditors' Report Dated February 23, 1996 - Schedule II - Amounts Receivable From Related Parties for the Years Ended December 31, 1995, 1994 and 1993 - Schedule VIII - Valuation and Qualifying Accounts for the Years Ended December 31, 1995, 1994 and 1993 - Schedule IX - Short-Term Borrowings for the Years Ended December 31, 1995, 1994 and 1993 -33- (3) Exhibits (a) 10.1 Waiver of Covenant(s) Letter from Marine Midland Bank dated Nay 15, 1996. 10.2 Asset purchase agreement dated September 27, 1995, by and between Rynne, Murphy and Associates, Inc. and Four Corners Abstract Corporation. 10.3 Lease agreement dated June 15, 1995, by and between Baraka Realty Company and Four Corners Abstract Corporation for property located at 36 Bank Place, Utica, NY. 22 Subsidiaries of Registrant (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the fourth quarter of the year ended december 31, 1994. (c) Exhibits See (a) (3) above. (d) Financial Statement Schedules See (a) (2) above. -34- Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 30, 1996 FOUR CORNERS FINANCIAL CORPORATION By: /s/Frank B. Iacovangelo Frank B. Iacovangelo, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capabilities on the dates indicated. /s/Frank B. Iacovangelo May 30, 1996 - --------------------------------- Frank B. Iacovangelo President, Treasurer and Director (Chief Executive Officer and Chief Financial Officer /s/William S. Gagliano May 30, 1996 - --------------------------------- William S. Gagliano Executive Vice President, Chief Accounting Officer and Director /s/Bernard J. Iacovangelo May 29, 1996 - --------------------------------- Bernard J. Iacovangelo Vice President, Secretary and Director /s/Anthony M. Iacovangelo May 29, 1996 - --------------------------------- Anthony M. Iacovangelo Director -35- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 TOGETHER WITH INDEPENDENT AUDITORS' REPORT -36- INDEPENDENT AUDITORS' REPORT February 23, 1996 To the Stockholders of Four Corners Financial Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Four Corners Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' investment, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Four Corners Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. -37- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS 1995 1994 ---- ---- CURRENT ASSETS: Cash $ 62,791 $ 28,932 Cash - escrow deposits 90,403 70,633 Accounts receivable, net of allowance for doubtful accounts of $84,000 and $100,000 in 1995 and 1994, respectively 464,288 478,094 Prepaid expenses 13,316 9,090 Other receivables 893 1,085 Current portion of note receivable 2,500 - Income tax receivable - 6,725 ---------- --------- Total current assets 634,191 594,559 ---------- --------- PROPERTY AND EQUIPMENT, net 195,940 305,358 ---------- --------- OTHER ASSETS: Note receivable, net of current portion 10,000 - Cash value of officer life insurance 17,616 20,070 Intangible assets, net of accumulated amortization of $95,924 in 1995 and $81,269 in 1994 - 14,655 Other assets 15,256 13,246 ---------- --------- 42,872 47,971 ---------- --------- TITLE PLANT 367,283 367,283 ---------- --------- $1,240,286 $1,315,171 ========== ========== LIABILITIES AND STOCKHOLDERS' INVESTMENT 1995 1994 ------- ------ CURRENT LIABILITIES: Lines-of-credit $ 35,000 $ 50,000 Current portion of notes payable 331,211 106,745 Current portion of obligations under capital leases 32,738 45,805 Notes payable to officers/principal stockholders 27,500 - Accounts payable 393,179 455,866 Accounts payable - related parties 20,000 - Escrow deposits 90,403 70,633 Other accrued expenses 50,886 63,639 Accrued income taxes 1,500 - ---------- ---------- Total current liabilities 982,417 792,688 ---------- ---------- LONG-TERM LIABILITIES: Notes payable, net of current portion 1,674 330,937 Obligations under capital leases, net of current portion 590 33,325 Subordinated debt due to officer/principal stockholder 200,000 200,000 ---------- ---------- Total long-term liabilities 202,264 564,262 ---------- ---------- Total liabilities 1,184,681 1,356,950 ---------- ---------- STOCKHOLDERS' INVESTMENT: Common stock, $.04 par value, 15,000,000 shares authorized, 3,348,733 issued in 1995 and 1994 and 3,343,733 outstanding in 1995 and 1994 133,752 133,752 Additional paid-in capital 835,402 835,402 Accumulated deficit (907,924) (1,005,308) ---------- ---------- 61,230 (36,154) Less: Treasury stock at cost, 5,000 shares (5,625) (5,625) ---------- ---------- Total stockholders' investment 55,605 (41,779) ---------- ---------- $1,240,286 $1,315,171 ========== ========== The accompanying notes are an integral part of these consolidated statements. -38- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 1993 ---- ---- ---- REVENUE: Title insurance premiums $ 1,610,147 $ 1,966,849 $ 1,858,264 Abstract and appraisal services 2,212,068 2,812,697 3,969,872 ----------- ----------- ----------- 3,822,215 4,779,546 5,828,136 ----------- ----------- ----------- DIRECT COSTS OF REVENUE: Title insurance premiums (508,784) (539,390) (351,015) Abstract and appraisal services (290,113) (505,929) (627,853) ----------- ----------- ----------- (798,897) (1,045,319) (978,868) ----------- ----------- ----------- Gross profit 3,023,318 3,734,227 4,849,268 OPERATING EXPENSES (2,811,810) (4,228,331) (4,717,398) ----------- ----------- ----------- Income (loss) from operations 211,508 (494,104) 131,870 ----------- ----------- ----------- OTHER EXPENSES: Interest (72,028) (71,845) (66,063) Loss on disposal of property (40,596) (14,932) -- ----------- ----------- ----------- (112,624) (86,777) (66,063) ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item 98,884 (580,881) 65,807 BENEFIT FROM (PROVISION FOR) INCOME TAXES (1,500) 46,851 (9,794) ----------- ----------- ----------- Income (loss) before extraordinary item 97,384 (534,030) 56,013 EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT, net of income tax of $44,000 -- 65,000 -- ----------- ----------- ----------- NET INCOME (LOSS) $ 97,384 $ (469,030) $ 56,013 =========== =========== =========== NET INCOME (LOSS) PER SHARE: Income (loss) before extraordinary item $ .03 $ (.16) $ .02 Extraordinary item -- .02 -- ----------- ----------- ----------- Net income (loss) per share $ .03 $ (.14) $ .02 =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. -39- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Stock Additional Total -------------------- Paid-in Accumulated Treasury Stockholders' Shares Amount Capital Deficit Stock Investment --------- --------- --------- ---------- ---------- ---------- BALANCE - December 31, 1992 3,347,473 $ 133,702 $ 835,137 $ (592,291) $ - $ 376,548 Shares issued in exchange for Mid-State Abstract Corporation stock 1,260 50 265 - - 315 Purchase of treasury stock - - - - (5,625) (5,625) Net income - - - 56,013 - 56,013 --------- --------- --------- ---------- ---------- --------- BALANCE - December 31, 1993 3,348,733 133,752 835,402 (536,278) (5,625) 427,251 Net loss - - - (469,030) - (469,030) --------- --------- --------- ---------- ---------- --------- BALANCE - December 31, 1994 3,348,733 133,752 835,402 (1,005,308) (5,625) (41,779) Net income - - - 97,384 - 97,384 --------- --------- --------- ---------- ---------- --------- BALANCE - December 31, 1995 3,348,733 $ 133,752 $ 835,402 $ (907,924) $ (5,625) $ 55,605 ========= ========= ========= ========== ========== =========
The accompanying notes are an integral part of these consolidated statements. -40- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 --------- --------- --------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) before extraordinary item $ 97,384 $(534,030) $ 56,013 Adjustments to reconcile net income (loss) before extraordinary item to net cash flow from operating activities: Extraordinary item - gain on extinguishment of debt -- 65,000 -- Provision for bad debts 75,675 121,678 33,533 Loss on disposal of property 40,596 14,932 -- Depreciation and amortization 110,302 124,442 124,788 Changes in: Accounts receivable (61,869) 243,605 (152,690) Prepaid expenses (4,226) (142) (2,983) Other receivables 192 31,044 (26,489) Income tax receivable 6,725 (6,725) 21,718 Accounts payable (42,687) 29,028 124,288 Other accrued expenses (12,753) (29,881) 31,340 Accrued income taxes 1,500 (6,600) 6,600 --------- --------- --------- Net cash flow from operating activities 210,839 52,351 216,118 --------- --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property and equipment (39,325) (31,469) (103,108) Proceeds from sale of property and equipment -- 24,500 -- Change in other assets (2,010) 1,625 (476) Change in cash value of officer life insurance 2,454 (20,070) -- Investment in title plant -- (36,985) (44,013) --------- --------- --------- Net cash flow from investing activities (38,881) (62,399) (147,597) --------- --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Change in lines-of-credit (15,000) 95,000 115,000 Borrowings on notes payable -- 8,361 41,693 Increase in notes payable to officers/principal stockholders 27,500 -- -- Repayment of notes payable and obligations under capital leases (150,599) (164,033) (179,215) Increase in subordinated debt due to officer/principal stockholder -- -- 6,000 Issuance of common stock -- -- 315 Purchase of treasury stock -- -- (5,625) --------- --------- --------- Net cash flow from financing activities (138,099) (60,672) (21,832) --------- --------- --------- NET INCREASE (DECREASE) IN CASH 33,859 (70,720) 46,689 CASH - beginning of year 28,932 99,652 52,963 --------- --------- --------- CASH - end of year $ 62,791 $ 28,932 $ 99,652 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. -41- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (1) The Company Four Corners Financial Corporation (FCFC) and its Subsidiaries, Four Corners Abstract Corporation (FCAC) and Proper Appraisal Specialists, Inc. provide services and products including real estate title searching, preparation of abstracts of title, issuance of title insurance as an agent for certain national underwriting companies and real estate appraisals, primarily in Western and Central New York State. All of these services and products are required in connection with the mortgaging, sale or purchase of real property. Unless otherwise indicated, the term "Company" refers to Four Corners Financial Corporation and its subsidiaries. The Company operates in one business segment. (2) Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of FCFC and all subsidiaries. All significant intercompany transactions and balances have been eliminated. Cash - The Company maintains its cash in demand deposit and money market accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk with respect to these accounts. Escrow Deposits - As a service to its customers, FCAC administers escrow deposits representing undisbursed amounts received for settlements of mortgage loans or property sales and indemnities against specific title risks. These funds are recorded as both a current asset and a current liability in the accompanying consolidated balance sheets. Property and Equipment - Property and equipment is stated at cost and is depreciated using accelerated and straight-line methods over the following useful lives: Building and improvements 15 - 31.5 years Furniture and equipment 3 - 10 years Vehicles 5 years Leasehold improvements Term of lease (2) Summary of Significant Accounting Policies (Continued) Property and Equipment - (Continued) At the time of retirement or other disposition of property, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of operations. Repairs and maintenance costs are charged to expense when incurred. -42- Intangible Assets - Intangible assets consist of goodwill and covenants not-to-compete resulting from the 1987 acquisition of the Albany branch, the 1989 acquisition of Livingston Abstract Corporation, the 1990 acquisition of Picciano Abstract Company, Inc. and the 1991 acquisition of Proper Appraisal Specialists, Inc. These assets were fully amortized during 1995. Title Plant - Title plant consists of copies of public records, maps and other relevant historical documents which facilitate the preparation of title abstract reports without the necessity of manually searching official public records. The Company has incurred identifiable costs related to the activities necessary to construct a title plant which are reflected as assets. A title plant is regarded as a tangible asset having an indefinite economic life; accordingly, title plant costs are not depreciated. Revenue Recognition - Title insurance is provided to purchasers or financers of real property. The related revenue is recognized when policies become effective, generally at the property or mortgage loan closing. Under terms of the Company's agreements with its title insurance underwriters, a commission of 15 - 20% is paid to its underwriter on all title insurance policies written. Pricing is based on a rate schedule established by the Insurance Department of the State of New York which provides for varying rates for services rendered. Commission expense is reflected as a direct cost of title insurance revenue in the statements of operations. The Company also performs title abstract research and prepares appraisals on real properties. Abstract and appraisal revenue is recognized as earned. Direct costs of abstract and appraisal revenue include the cost of work performed by subcontractors in geographical areas where the Company does not maintain an office, among other direct costs. Estimates - In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from these estimates. (2) Summary of Significant Accounting Policies (Continued) Net Income Per Share - Net income per share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during the periods. The weighted average number of shares outstanding is as follows: 1995 1994 1993 ---- ---- ---- Average number of common shares outstanding: Common shares 3,343,733 3,343,733 3,343,804 Common equivalent shares -- -- 147,752 --------- --------- --------- 3,343,733 3,343,733 3,491,556 ========= ========= ========= -43- Fully diluted earnings per share did not differ materially from primary earnings per share in any of these three years. Common equivalent shares have not been considered in the calculation of average number of common shares outstanding for 1995 as there were no outstanding stock options and for 1994 as the effect would be anti-dilutive. Reclassifications - Certain reclassifications have been made to the 1994 statements to conform to the current year presentation. (3) Property and Equipment Property and equipment consisted of the following at December 31: 1995 1994 ---- ---- Furniture and equipment $ 888,641 $ 986,630 Vehicles 96,734 96,732 Leasehold improvements 44,502 58,770 ---------- ---------- 1,029,877 1,142,132 Less: Accumulated depreciation and amortization (833,937) (836,774) ---------- ---------- $ 195,940 $ 305,358 ========== ========== During 1994, the Company entered into capital lease obligations totalling $24,107. The assets related to these obligations are included as part of property and equipment. Depreciation and amortization expense for 1995, 1994 and 1993 was $95,648, $109,839, and $108,287 respectively. (4) Income Taxes During 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires an asset and liability approach to measuring deferred income taxes. Previous standards required an income statement approach. The (benefit from) provision for income taxes consisted of the following at December 31: 1995 1994 1993 ---- ---- ---- Federal: Current $ -- $ (4,200) $ 5,000 Deferred -- (37,400) -- State: Current 1,500 1,349 4,794 Deferred -- (6,600) -- -------- -------- -------- $ 1,500 $(46,851) $ 9,794 ======== ======== ======== -44- Income tax expense for 1995, 1994 and 1993 differs from the expected tax expense, computed by applying the U.S. Federal corporate income tax rate of 34% to income before income taxes as follows: 1995 1994 1993 ---- ---- ---- Expected tax expense (benefit) $ 33,000 $(139,000) $ 22,500 Effect of graduated Federal rates (21,000) -- (12,000) State income taxes, net of Federal income tax benefit 1,000 (23,000) 3,100 Change of valuation allowance (8,000) 123,000 (3,800) Other, net (3,500) (7,851) (6) --------- --------- --------- $ 1,500 $ (46,851) $ 9,794 ========= ========= ========= At December 31, 1995, the Company has available a net operating loss carryforward of approximately $360,000. This net operating loss carryforward will begin to expire in 2002. The Company has recorded a valuation allowance equal to the deferred tax asset related to the carryforward. Taxes paid in 1995, 1994 and 1993 were $1,102, $3,425 and $5,096, respectively. (5) Financing Arrangements Notes Payable - Notes payable consisted of the following at December 31: 1995 1994 ---- ---- Note payable to a bank with monthly principal payments of $7,674 through October, 1997 and $6,230 through October, 1999, plus interest at the bank's prime rate plus 1.25%. This note is guaranteed by the officers/stockholders of the Company and is collateralized by substantially all of the Company's assets. $ 318,333 $ 410,000 Various notes payable with aggregate monthly installments of $1,391, including interest at rates ranging from 8% to 9%. These notes mature through June, 1997 and are collateralized by the related equipment. 14,552 27,682 --------- --------- 332,885 437,682 Less: Current portion (331,211) (106,745) --------- --------- $ 1,674 $ 330,937 ========= ========= On December 13, 1995, the amount outstanding on the note payable to a bank, $133,333, and $185,000 of the amount borrowed under its line-of-credit agreement were refinanced with the same bank. The note payable and line-of-credit have been classified in accordance with the new agreement as of December 31, 1994. -45- The note payable to the bank requires the Company to meet certain financial covenants at December 31, 1995 as follows: a. Working capital deficit of not more than $140,000, b. Current ratio of at least .85 to 1, c. Minimum tangible net worth of at least $250,000, d. Total liabilities to tangible net worth of not more than 3.9 to 1, e. Net income before taxes of $110,000, and f. Debt service ratio of not less than 1.75 to 1. These ratios are adjusted on a quarterly or semi-annual basis during 1996 and thereafter. The agreement also limits the Company's ability to make acquisitions, pay dividends and make capital expenditures, and requires the Company to submit certain financial information. (5) Financing Arrangements (Continued) Notes Payable (Continued) - At December 31, 1995, the Company was not in compliance with the current ratio, net income requirement and debt service ratio. Subsequent to year end, the Company obtained a waiver from the bank for these covenants as of December 31, 1995. The Company is currently in the process of renegotiating the covenants of this note. These negotiations have not yet been completed. As a result, this note has been classified as current in the accompanying consolidated balance sheets at December 31, 1995. Future maturities of long-term debt are as follows: 1996.......................................... $ 331,211 1997.......................................... 1,674 ----------- $ 332,885 =========== Obligations Under Capital Leases - The Company has entered into capital lease agreements for certain of its equipment. These obligations consisted of the following at December 31: 1995 1994 ---- ---- Various leases payable with aggregate monthly installments of $4,257, including interest at rates ranging from 8.4% to 13.1%. These leases mature through January, 1997 and are collateralized by the related equipment $ 33,328 $ 79,130 Less: Current portion (32,738) (45,805) -------- -------- $ 590 $ 33,325 ======== ======== The following is a schedule of future minimum lease payments under the capital lease obligations together with the present value of the minimum lease payments at December 31, 1995: 1996 ............................................ $ 34,363 1997 ............................................ 597 -------- Total minimum lease payments 34,960 Less: Amount representing interest (1,632) -------- Present value of future minimum lease payments under capital lease obligations $ 33,328 ======== -46- (5) Financing Arrangements (Continued) Lines-of-Credit - The Company may borrow up to $50,000 under the terms of a line-of-credit agreement with a bank through October 31, 1997. Amounts borrowed bear interest at the bank's prime interest rate plus 1% and are collateralized by substantially all assets of the Company and are guaranteed by the officers/stockholders of the Company. At December 31, 1995, there was $35,000 outstanding under the terms of this line-of-credit. At December 31, 1994, there was $235,000 outstanding on the Company's former line-of-credit with the same bank. On December 13, 1995, $185,000 of the amount borrowed under this line-of-credit was refinanced as part of the note payable to the same bank. The Company may also borrow up to $100,000 under the terms of an unsecured line-of-credit with another bank. Amounts borrowed bear interest at the bank's prime interest rate plus 1%. Borrowings under this line-of-credit are personally guaranteed by the Company's principal officers/stockholders. There were no borrowings on this line-of-credit at December 31, 1995 and 1994. Interest - Interest paid in 1995, 1994 and 1993 on all notes payable, obligations under capital leases and the lines-of-credit was $76,337, $67,536, and $66,536, respectively. (6) Stockholders' Investment Stock Options - In July, 1992, the Company's Board of Directors adopted and the stockholders approved the 1992 Stock Option Plan (1992 Plan) which replaced the 1988 Stock Incentive Plan (1988 Plan). Under the 1992 Plan, the Company may issue incentive stock options, non-statutory options, non-employee director options and reload options. The exercise price of incentive, non-statutory and reload options will not be less than fair market value at date of grant. Incentive and non-statutory options will generally expire ten years from date of grant. Reload options will have a term equal to the remaining option term of the underlying option. The 1992 Plan also provides for annual grants of stock options to purchase 500 shares of the Company's common stock to non-employee directors of the Company with an exercise price not less than fair market value at date of grant. These options will expire ten years from date of grant. Options issued under the 1988 Plan expired in 1995. No further options will be granted under the 1988 Plan. The Company has reserved 520,000 common shares for issuance under the 1992 plan. -47- (6) Stockholders' Investment (Continued) Following is a summary of option activity under the 1992 and 1988 Plans: Shares Under Option -------------------- 1995 1994 ---- ---- Outstanding, beginning of year 271,000 271,000 Expired during the year (271,000) - -------- ------- Outstanding, end of year (at $.52 per share) - 271,000 ======== ======= (7) Related Party Transactions Subordinated Debt Due to Officer/Principal Stockholder - During 1995, 1994 and 1993, one of the Company's officers/principal stockholders made advances to the Company. These advances were $200,000 at December 31, 1995, 1994 and 1993. Amounts borrowed bear interest at the prime rate plus 3%. Repayment of these advances is subordinated to the amounts outstanding under all other bank debt agreements. The officer/principal stockholder has agreed not to require payment of this amount through January, 1997. Notes Payable to Officers/Principal Stockholders - During 1995, certain of the Company's officers/principal stockholders advanced $29,000 to the Company in the form of non-interest bearing notes. These notes have no formal repayment terms. However, it is anticipated that these notes will be fully paid during 1996. Office Lease Commitment - The Company leases its Rochester facility through June 2000 from a company related through common management at an annual rental of $72,000. Rent and common area charges were approximately $72,000, $58,000 and $213,000 in 1995, 1994 and 1993, respectively. The Company owed approximately $20,000 for unpaid rent at December 31, 1995. During 1994, total unpaid rent of $109,000 was forgiven by the related party. This amount has been reflected as an extraordinary item - gain on extinguishment of debt, net of income taxes of $44,000, in the accompanying consolidated statement of operations. Significant Customer - In each of 1995, 1994 and 1993, 4% of revenue was derived from a related party. At December 31, 1995, 1994 and 1993, the Company was owed $36,742, $59,284, and $57,966, respectively, related to these sales. (8) Lease Commitments The Company leases other office facilities under operating lease agreements expiring through March, 1998. Minimum future lease payments under non-cancelable lease agreements with unrelated parties are as follows at December 31: 1996................................................ $ 103,479 1997................................................ 62,980 1998................................................ 53,895 1999................................................ 9,368 2000................................................ 781 --------- $ 230,503 ========= -48- Rent expense related to these operating leases was approximately $124,000, $135,000 and $127,000 for the years ended December 31, 1995, 1994 and 1993, respectively. (9) Sale of Appraisal Operations During 1995, the Company sold the assets of its real estate appraisal operations for $125,000, allocated as follows: Fixed assets $ 12,500 Customer lists and goodwill 100,000 Covenant not-to-compete 12,500 --------- $ 125,000 ========= The purchase price of the fixed assets is in the form of a $12,500 non-interest bearing note receivable in ten quarterly installments of $1,250 beginning May 1, 1996. The purchase price of the customer lists and goodwill and covenant not-to-compete is in the form of a $112,500 note receivable in quarterly installments, plus interest at 9%, beginning May 1, 1996. Payment for these assets is contingent based upon the buyer achieving a gross margin of 19% on sales attributable to the Company's former customers. Payments received by the Company are to be applied in the following order: the $1,250 guaranteed payment, interest and principal. Any unpaid interest is forgiven on a quarterly basis. It is anticipated that 19% of the buyer's gross margin will not exceed the $1,250 guaranteed payment and interest on a quarterly basis. As a result, the buyer would not be required to make any principal payments for the contingent portion of the note. At December 31, 1995, the Company has fully reserved this portion of the note receivable. -49- INDEPENDENT AUDITORS' REPORT February 23, 1995 To the Stockholders of Four Corners Financial Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets for Four Corners Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' investment, and cash flows for each of the three years in the period dated December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Four Corners Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. -50- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Balance at Beginning Balance at of Year Additions(1) Repayments End of Year ---------- -------------- ---------- ----------- YEAR ENDED DECEMBER 31, 1995: Note payable - officer/principal stockholders $ 200,000 $ 29,000 $ 1,500 $ 227,500 =========== ========== =========== =========== YEAR ENDED DECEMBER 31, 1994: Note payable - officer/principal stockholders $ 200,000 $ - $ - $ 200,000 =========== ========== =========== =========== YEAR ENDED DECEMBER 31, 1993: Note payable - officer/principal stockholders $ 194,000 $ 6,000 $ - $ 200,000 =========== ========== =========== ===========
(1) All additions to indebtedness to related parties were used for general working capital purposes. -51- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Additions Balance at -------------------------- Balance at Beginning Charges to Charges to End of of Period Expenses Other Accounts Deductions Period ---------- ---------- -------------- ---------- ---------- FOR THE YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts $100,000 $ 75,675 $ - $(91,675) $ 84,000 ======== ======== ======== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts $ 30,000 $121,678 $ - $(51,678) $100,000 ======== ======== ======== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 1993: Allowance for doubtful accounts $ 30,000 $ 33,533 $ - $(33,533) $ 30,000 ======== ======== ======== ======== ========
-52- FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Maximum Average Weighted Amount Amount Average Outstanding Interest Outstanding Outstanding Interest Rate Balance at Rate at During During During End of Year End of Year the Year the Year(1) the Year(2) ----------- ----------- -------- ----------- ----------- Borrowing Category ------------------ YEAR ENDED DECEMBER 31, 1995: Borrowings under lines-of-credit $ 35,000 9.50% $235,000 $218,333 9.78% ======== ===== ======== ======== ===== YEAR ENDED DECEMBER 31, 1994: Borrowing under lines-of-credit $ 50,000 9.00% $235,000 $184,583 6.69% ======== ===== ======== ======== ===== YEAR ENDED DECEMBER 31, 1993: Borrowings under lines-of-credit $140,000 6.50% $249,000 $191,500 5.90% ======== ===== ======== ======== =====
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. EX-10.1 2 WAIVER OF COVENANT(S) LETTER -53- EXHIBIT 10.1 [Letterhead of Marine Midland Bank] May 15, 1996 Mr. William Gagliano Four Corners Abstract 370 East Avenue Rochester, New York 14607 Re: Waiver Request Dear Bill, We refer to that certain Revolving Credit and Term Loan Agreement (the "Agreement"), dated December 13, 1995, between Marine Midland Bank (the "Bank") and Four Corners Financial Corporation (the "Borrower"). Unless otherwise defined herein, the terms defined in the Agreement are used herein as therein defined. The Borrower hereby requests that the Bank waive the following financial covenant for the period ending December 31, 1995: Current Ratio test: The ratio of current assets to current liabilities of not less than .85:1. Minimum Profit test: Borrower shall achieve a net profit before taxes of no less than $110,000.00. Debt Service Coverage test: The Borrower shall maintain a debt service coverage ratio (that being (i) the sum of net profit before tax plus depreciation divided by (ii) current maturities of long term debt) of not less than 1.75:1. We understand that this waiver is effective only in this instance and for the purpose for which it is given. All other terms and conditions in the Agreement continue to remain in full force and effect. We further understand that no waiver of any single breach or default under this agreement shall be deemed a waiver of any other breach or default. Kindly execute and return to the Bank, as soon as possible, an acknowledgement of this letter which will become effective upon the Bank's receipt of such acknowledgement. By:/s/Rudolph J. Napodano By:/s/ William Gagliano ----------------------- --------------------- Rudolph J. Napodano V.P. William Gagliano Exec. V.P. Marine Midland Bank Four Corners Financial Corporation EX-10.2 3 ASSET PURCHASE AGREEMENT -54- ASSET PURCHASE AGREEMENT THIS AGREEMENT, made this 29th day of September, 1995, by and between FOUR CORNERS ABSTRACT CORP., a New York Corporation, whose business address is 370 East Avenue, Rochester, New York (hereinafter referred to as the "Seller") and RYNNE, MURPHY & ASSOCIATES, INC., a New York Corporation, with offices at the Chapin Building, 205 St. Paul Street, Rochester, New York (hereinafter referred to as "Buyer"). RECITALS: WHEREAS, Seller is engaged in the business of owning and operating a real estate title search, title insurance and appraisal business, having its principal office in Rochester, New York, and; WHEREAS, the Seller desires to sell its appraisal business/division, and; WHEREAS, the Board of Directors of the Seller has duly authorized and approved the sale of all assets constituting its appraisal business/division, and; WHEREAS, the Buyer owns and operates a real estate appraisal business located in Rochester, New York, and desires to purchase all of the assets of Seller's appraisal business/division, and; WHEREAS, the Buyer is authorized to acquire all or any part of the assets and property of the Seller as it relates to the appraisal business/division, and; WHEREAS, the Board of Directors of the Buyer has determined that the purchase of Seller's assets as aforementioned is both desirable and consistent with the objectives of the Buyer, and; WHEREAS, the Seller desires to sell to Buyer and the Buyer desires to purchase from Seller those certain business assets and property used in conjunction with Seller's appraisal business/division as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: ARTICLE I - PURCHASE AND SALE: The Seller does hereby agree to sell, assign and transfer to the Buyer and the Buyer, expressly relying upon the representations and agreements made by the Seller as hereinafter set forth, agrees to purchase from the Seller those business assets set forth in "ARTICLE II" below. ARTICLE II - PURCHASE PRICE AND ASSETS: (a) The purchase price for the assets of Seller's appraisal business/division shall be One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00) to be allocated as follows: (i) For the fixed assets of the appraisal business/division, including but not limited to, equipment and supplies as shown on the attached EXHIBIT "A", the sum of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00); (ii) For the customer lists and good will of the appraisal business/division, the sum of One Hundred Thousand and 00/100 Dollars ($100,000.00); (iii) For Seller's covenant not to compete as set forth in "ARTICLE V" hereof, the sum of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00). -55- ARTICLE III - PAYMENT OF PURCHASE PRICE: The purchase price of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00) shall be paid as follows: (a) By Buyer delivering to Seller a Promissory Note (the "Note") in the amount of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00). The Note shall consist of Part A (the "Guaranteed Portion") and Part B (the "Contingent Portion"). (i) The Guaranteed Portion of the Note shall be in the amount of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00) and shall be paid in ten (10) quarterly installments of One Thousand Two Hundred Fifty and 00/100 Dollars ($1,250.00) all without interest, commencing in the first day of the fourth month following the date of said Note (January 1, 1996); (ii) The Contingent Portion of the Note shall be in the amount of One Hundred Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00) and shall be paid in quarterly installments commencing on the first day of the fourth month following the date of said Note (January 1, 1996). The quarterly installments under the Contingent Portion shall be based upon 19% of the Gross Margin ("Gross Margin") of the Buyer relating to appraisals conducted by the Buyer which were attributable to Seller's appraisal business/division as illustrated in the example set forth below. Appraisals shall not be deemed attributable to Seller's business/division if the customer was a prior client of the Buyer (e.g., The First Mortgage Division of First National Bank is a prior client of the Buyer and any appraisals and revenues generated therefrom would not be attributed to Seller. In contrast to the above, the Home Equity Division of First National Bank is a prior client of the Seller and any appraisals and revenues generated therefrom would be deemed attributable to Seller). Gross Margin as used herein shall be defined as the aggregate of gross revenues received by Buyer for appraisals attributable to Seller less the associated subcontractor or employee labor costs to the Buyer to produce the same. EXAMPLE: -------- Gross quarterly appraisal $20,000.00 revenue received by Buyer attributable to Seller Minus direct labor costs -10,800.00 --------- Gross Margin $ 9,200.00 Quarterly payment due (19% of Gross Margin) $ 1,748.00 Payments under the Contingent Portion of the Note shall be applied first to interest at the rate of nine percent (9%) per annum and the balance to be applied to the reduction of principal; (iii) In the example set forth above, the Buyer would owe the Seller the sum of One Thousand Seven Hundred Forty-Eight and 00/100 Dollars ($1,748.00) for that particular quarter. Notwithstanding the guaranteed payment as determined under subsection (i) above would not be in addition to the contingent payment as determined under subsection (ii) above would not be included in the same. As such, in the example above, the sum of One Thousand Two Hundred Fifty and 00/100 Dollars ($1,250.00) would be paid on the Guaranteed Portion and the balance of Four Hundred Ninety-Eight 00/100 Dollars ($498.00) would be paid on the Contingent Portion. In no event will the quarterly payment due the Seller from the Buyer be less than the sum of One Thousand Two Hundred Fifty and 00/100 Dollars ($1,250.00), which is the full guaranteed quarterly payment; -56- (iv) Notwithstanding any other provision of this Agreement, this Note shall not accrue negative amortization. As such, interest for a particular quarter shall not exceed the balance of the payment due on the Contingent Portion after subtracting out the guaranteed payment. Using the example set forth above, if interest on the Contingent Portion for that particular quarter exceeds the sum of Four Hundred Ninety-Eight and 00/100 Dollars ($498.00), the balance of the accrued interest above Four Hundred Ninety-Eight and 00/100 Dollars ($498.00) shall be forgiven and shall not be added to the principal balance then due under the Note. In addition, the total of the quarterly payments to the Seller under this Agreement shall not exceed Thirty Thousand and 00/100 Dollars ($30,000.00) in any calendar year; (v) This Note may be prepaid in whole or in part without the payment of a penalty; (vi) This Note may be assumed with the consent of Seller, which shall not be unreasonable withheld. ARTICLE IV - SELLER'S REPRESENTATIONS: Seller represents, warrants and covenants as follows: (a) Seller is now and on the closing date will be the legal and equitable owner of merchantable title to all of the property and assets being transferred hereunder free and clear of all liens, charges, security interest, encumbrances or other burdens of each and every kind except as would be set forth herein. Notwithstanding, it is understood that the assets to be transferred hereunder are currently subject to a security interest of Marine Midland Bank which will need to be released prior to the time of closing; (b) At the time of closing, Seller shall transfer to the Buyer all warranties and guarantees covering any equipment or other items of [personalty] being sold or transferred by the Seller to the Buyer; (c) On the closing date, all of the property to be sold and transferred by the Seller to the Buyer will be in good working order and in substantially the same condition the property is in as of the date of this Agreement; (d) Seller agrees to indemnify, protect and hold harmless the Buyer and its successors and/or assigns from any competing claims to any of the property or assets being conveyed hereunder; (e) There are no Employment Contracts in effect relating to employees of the appraisal business/division of the Seller. Seller further warrants that it will have paid all wages, salaries and other compensation of every kind due and owing to or for the benefit or account of any employee of the appraisal business/division of the Seller through the date of closing; (f) Seller warrants that at the time of closing all Federal and State income, withholding, payroll taxes and other taxes of any kind or nature due from the Seller will have been paid in full; (g) Seller shall use and exert its best efforts between the date of this Agreement and the date of closing to keep and retain the business of the Seller as the going act of concern; (h) The Seller is not a party to any contract or agreement of any nature whatsoever relating to or affecting the assets to be purchased hereunder extending beyond the date of closing of this transfer; (i) The Seller is not a party to any loan or credit agreement or any lease or any other agreement or instrument or subject to any charge or restriction which would have a material adverse effect upon its ability to carry out the obligations under this Agreement; -57- (j) That from the date of this Agreement, the Seller shall not enter into any contract or any renewal of any contract or incur any liability obligation whatsoever relating to or affecting the assets to be purchased hereunder; (k) That the Seller is a corporation duly organized, validity existing and in good standing under the Laws of the State of New York and is possessed with full power and authority to carry on its current business and to own, use and sell its assets and properties. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Seller; (l) Seller warrants that Buyer does not hereby assume or agree to assume and shall not acquire or take over any liabilities or obligations of Seller in regards to the appraisal business/division of Seller, be they direct, contingent or otherwise. Seller agrees to save Buyer harmless from any and all claims in conjunction with this transaction and will fully indemnify the Buyer for any liability incurred by Seller in connection therewith including attorney's fees, costs and disbursements of any legal action; (m) All of the representations and warranties contained herein shall be true as of the date of closing and shall be considered as having been made at said closing and shall have survived the closing and be fully enforceable thereafter; ARTICLE V - SELLER'S COVENANT NOT TO COMPETE: Provided the Buyer is not in default under the terms and conditions of this Agreement or the Note to be executed hereunder, the Seller covenants that it will not establish or attempt to establish, directly or indirectly, an appraisal business within the State of New York from the date of this closing continuing until five (5) years after payment in full to the Seller under the Note except to the extent set forth herein. Buyer may enforce this covenant not to compete in any manner provided for under the laws of the State of New York, be they legal or equitable remedies. ARTICLE VI - BUYER'S REPRESENTATIONS: Buyer warrants and represents the following: (a) At time of closing, Buyer shall execute the Note to the Seller containing the terms and conditions set forth in "ARTICLE III" above; (b) Buyer is a corporation duly organized and existing under the laws of the State of New York and Buyer has full authority to enter into this Agreement. The Board of Directors of Buyer has duly authorized the execution of this Agreement; (c) Buyer shall defend and indemnify the Seller against all liability for appraisals prepared by the Buyer as part of this Agreement. Notwithstanding, Buyer shall not be responsible for any pre-existing work or appraisals performed by the Seller prior to this date of closing; (d) Buyer agrees to provide Seller a summary of all invoices for appraisal orders on a quarterly basis which summary shall include a detailed breakdown of Buyer's labor costs. ARTICLE VII - CLOSING AND CLOSING DOCUMENTS: (a) The closing for the sale and purchase hereunder shall take place at the offices of Mangione & Roisman, attorneys for the Buyer, at The Chapin Building, 205 St. Paul Street, Rochester, New York on or about September 15, 1995, time being of the essence. At the time of closing, Buyer shall comply with all provisions of payment as hereinbefore stated and Seller shall deliver all necessary documents to give Buyer good marketable title to the assets being transferred hereunder; -58- (b) Seller shall provide the following documents at or before closing: (i) A warranty Bill of Sale from Seller to Buyer for the assets to be purchased hereunder conveying to Buyer good and marketable title of all such assets, free and clear of all liens and encumbrances; (ii) Seller's books of accounts and client lists; (iii) A copy of the Board of Directors resolution authorizing and carrying out the terms and conditions of this Agreement; (iv) Any other documents reasonably requested by counsel for the Buyer. (c) Buyer, at or prior to closing, shall deliver the following documents to Seller: (i) The Promissory note recited above; (ii) Any further documents reasonably requested by counsel for the Seller. ARTICLE VIII - BROKERS: Both parties warrant that no brokers are involved in this transaction and each party agrees to indemnify the other party for any such claims due to their own activities. ARTICLE IX - RISK OF LOSS: Seller assumes the risk of loss due to fire, theft or other loss or damage prior to closing and Buyer reserves the right to cancel this Agreement in the event that any of the assets set forth herein are substantially damaged so as to defeat the intended purpose of this Agreement. ARTICLE X - SALES TAX: Buyer shall pay the cost of the New York State sales tax on the portion of the purchase price applicable to assets and equipment as shown on Exhibit "A" at the time of closing or within a reasonable time thereafter. Both parties agree to cooperate and comply with all filing requirements as required under the Uniform Commercial Code for the State of New York. ARTICLE XI - TAX STATUS: It is understood that none of the parties hereto have made any representations to the other as to the tax status or effect of the transactions contemplated by this Agreement and each has taken separate counsel as to such matters. ARTICLE XII - APPLICABLE LAWS AND ENFORCEABILITY: This Agreement shall be construed and governed by and enforced in accordance with the laws of the State of New York. In case any provision of this Agreement shall be held invalid, illegal or unenforceable, in whole or in part, neither the validity of the remaining part of such provision or the validity of any other provision of this Agreement shall be in any way affected thereby. ARTICLE XIII - COUNTERPARTS: This Agreement may be executed in several counterparts and any executed copy may be treated as an original. -59- ARTICLE XIV - ASSIGNMENT: (a) This Agreement may not be assigned by any of the parties, except to the extent set forth herein. ARTICLE XV - MISCELLANEOUS: (a) Buyer may, in its sole discretion, offer employment to any or all employees of Seller's appraisal business/division but shall not be required to do so. All such employees who accept Buyer's offer of employment shall be considered new hires by Buyer and Buyer shall establish all terms and conditions relating to their employment. Buyer shall not be bound in any way, shape or manner for continuing benefits and/or pension plans of the Seller. Nothing contained herein shall be deemed to obligate Buyer to any of Seller's employees or to obligate Buyer to pay to said employees any salary accrued prior to the date of said employee's termination with the Seller; (b) Seller and Buyer agree that the transactions contemplated hereby are confidential and that they will not disclose to third parties other than their professional advisors, banks/lenders or necessary governmental authorities any of the terms of this Agreement or any document or agreement attached thereto as schedules or exhibits unless otherwise agreed to in writing by the respective parties; (c) Upon payment in full to Seller pursuant to the Note, the parties agree to negotiate in good faith to continue a business relationship for the placement, completion and payment of appraisal orders, whereby Seller will receive a commission on a per unit basis if such is permitted under the Uniform Standards of Professional Appraisal Practice ("USPAP"), the Appraisal Institute and New York State; (d) It is understood that this Agreement is contingent upon Seller obtaining a release of the security interest held by Marine Midland Bank against the assets to be transferred hereunder; (e) All work in progress of Seller shall be completed by Seller and Seller shall retain the fees related thereto. ARTICLE XVI - NOTICE: All notices under and by virtue of this Agreement or the documents attached hereto shall be in writing and shall be deemed given when delivered personally to a party or when deposited in the United States mail, certified mail, postage prepaid, return receipt requested, addressed to the party at its address set forth in this Agreement or at a different address as contained in a written notice sent to all of the parties to this Agreement informing them of a change of said address, together with a copy mailed to the parties respective attorney, as set forth below: (a) Seller's attorney - Gallo & Iacovangelo, 30 State Street, Suite 700, Rochester, New York 14614; (b) Buyer's attorney - Mangione & Roisman, The Chapin Building, 205 St. Paul Street, Rochester, New York 14604. -60- IN WITNESS WHEREOF, the parties have signed this Agreement the day and year first above written. FOUR CORNERS ABSTRACT By: /s/ William S. Gagliano, Ex. V.P. --------------------------------- Authorized Officer RYNNE, MURPHY & ASSOCIATES, INC. By: /S/ John P. Rynne -------------------------------- John P. Rynne, President -61- EXHIBIT "A" Assets to be transferred EQUIPMENT SUMMARY FOR APPRAISAL DIVISION BRANCH/DESCRIPTION Qty. VALUE - ------------------ ---- ----- 1. Syracuse Four Drawer File Cabinet 1 75 Two Drawer File Cabinet 2 100 Desk 1 75 Chair 1 10 MLS Computer 286 w/ NEC Monitor 1 200 IBM Computer 425SX w/ HP Monitor 1 1,000 HP Rugged Writer Printer 1 600 Toshiba Portable PC 1 200 HP Laserjet IIP+ Printer 1 350 2. Buffalo Five Drawer File Cabinet 3 225 Four Drawer File Cabinet 1 75 Two Drawer File Cabinets 2 100 Bookcase - 2 Ft Wide / 5 Shelves 1 50 Bookcase - 3 Ft Wide / 4 Shelves 1 50 Wood Desk - 6 Drawer 1 75 Wood Desk - 3 Drawer 1 75 Wood Desk - 2 Drawer 1 75 Standard Metal Desk 4 300 Desk Chair w/ Coasters 2 50 Desk Chair - Wooden 4 40 GBC Binding Machine 1 100 Paper Cutter - Boston 2612 1 25 Folding & Wooden Tables 3 75 Printer Stand 1 25 Zenith 386SX PC w/ Monitor 1 600 Hyundai 286E PC w/ Monitor 2 400 500 Meg. PC w/ Monitor 1 550 Sharp 8100 Copier w/ Stand 1 600 Fax Machine - Ricoh Fax 09 1 150 Panasonic KX-P1624 Printer 1 100 Panasonic KX-E700 Typewriter 1 50 Royal Alpha 620C Typewriter 1 50 Heavy Duty Utility Heater 1 50 Calculator - TI 503011 1 25 Heavy Duty Stapler #7-93100 1 25 Extra GoldStar Monitor/Keyboard 1 25 Bronze Print Director 1 100 Buffalo/Erie County Wall Map 1 25 Three Part Form Holder 1 10 HP Laserjet IIIIP 1 400 3. Rochester Five Drawer Lateral Files 2 150 Four Drawer Filing Cabinets 4 300 Two Drawer Filing Cabinet 3 150 Secretary Desks 4 300 Printer Stand 2 50 Typing Stand 1 25 Miscellaneous Tables 4 100 Bookcase - 4 Shelves 1 50 -62- Rolling Two Door Cabinet 1 25 Epson Equity 286 PC w/ Monitor 1 200 Hyundai 286 PC w/ Monitor 1 200 IBM 425SX PC w/ Monitor 1 1,000 Epson 286 PC w/ Monitor 1 200 Compaq 386 PC w/ Monitor 1 600 IBM Selectric II Typewriter 1 50 Chairs 3 30 HP Rugged Writer Printer 1 600 Murata F-40 Fax Machine 1 500 Modem - Robotics 1 200 Printer Director 1 100 Toshiba Portable PC 1 200 HP Laserjet IIP Printer 1 350 HP Laserjet IIIP Printer 1 350 ------ 12,840 ====== EX-10.3 4 LEASE AGREEMENT -63- EXHIBIT 10.3 LEASE AGREEMENT The Parties agree as follows: Date of this Lease: June 15, 1995 Parties of this Lease and addresses: Landlord: BARAKA REALTY COMPANY Address for notices: 1000 Pennsylvania Avenue Brooklyn, New York 11207 You, the Tenant: Four Corner Abstract Address: 370 East Avenue Rochester, NY 14604 If there are more than one Landlord or Tenant the words "Landlord" and "Tenant" used in this Lease includes them. Term: 1. Three (3) years -0- months: beginning: August 1, 1995, ending: July 31, 1998 Premises rented: 2. 36 Bank Place, Utica, New York 13501 Consisting of approximately 1611 square feet plus full basement for storage. Rent: 3. The yearly rent is $7,656.00. You, the Tenant, will pay this yearly Rent to the Landlord, as follows: $638.00 Per Month. 3a. Tenant shall Pay a Security Deposit of $638.00 upon the signing of this lease - plus first Month's rent. Agreement to lease and pay rent: 4. Landlord leases the Premises to you, the Tenant, for the Term. You, the Tenant, agree to pay the Rent and other charges as required in the Lease. You, the Tenant, agree to do everything required of you in the Lease. Default: 5. If you, the Tenant, fail to pay the Rent, or any part of the Rent when it becomes due, the Landlord may sue you for it, or re-enter the Premises, or use any legal remedy. Taxes: 6. The Landlord agrees to pay all Real Estate Taxes to be assessed on the Premises during the Term. End of the Term: 7. You, the Tenant, agree that at the end of the Term you will surrender the Premises in as good condition as now, except for ordinary wear and damage by the elements. Successors: 8. Unless otherwise stated, the Lease is binding on all parties who lawfully succeed to the rights or take the place of the Landlord or you, the Tenant. Changes: 9. This Lease can be changed only by an agreement in writing signed by the parties to the Lease. Quiet enjoyment: 10. Landlord agrees that if you, the Tenant pay the rent and are not in default under this Lease, you, the Tenant may peaceably and quietly have, hold and enjoy the premises for the Term of this Lease. 11. The Tenant is required to carry liability insurance with the Landlord, Baraka Realy Company, as additional named insured. Tenant responsible for insurance on all glass windows. 12. Landlord will Sheetrock, Paint, and Carpet Two offices, Kitchen and Reception area. -64- 13. Lessor shall be solely responsible for the brokerage commission payable to Signature Realty Inc. Upon a sale or transfer of the premises, acceptance of an assignment of lessor's interest in this lease, or the rental payable hereunder, of the right to receive such rents, shall constitute an assumption of lessor's obligation to pay said commission. 14. The Landlord shall pay for heat, water and sewer charges and the Tenant shall be responsible for their own electrical charge. Signatures: The parties have signed this lease as of the date at the top of the first page. Landlord: ---------------------------------------- ---------------------------------------- Dated: June 29, 1995 You, the TENANT: WITNESS: /s/ William S. Gagliano ---------------------------------------- - ------------------------------ ---------------------------------------- William S. Gagliano Executive VP GUARANTY OF PAYMENT Date of Guaranty: , 19 Guarantor and address: Reason for Guaranty: 1. I know that the Landlord would not rent the Premises to the Tenant unless I guarantee Tenant's performance. I have also requested the Landlord to enter into the Lease with the Tenant. I have a substantial interest in making such that the Landlord rents the premises to the Tenant. Guaranty: 2. The following is my Guaranty: I guaranty the full performance of the Lease by the Tenant. This Guaranty is absolute and without any condition. It includes, but is not limited to, the payment of rent and other money charges. In addition, I agree to these other terms: Changes in Lease have no effect: 3. This Guaranty will not be affected by any change in the Lease, whatsoever. This includes, but is not limited to, any extension of time or renewals. The Guaranty will bind me even if I am not a party to these changes. Waiver of notice: 4. I do not have to be informed about any default by Tenant. I waive notice of nonpayment or other default. Performance: 5. If the Tenant defaults, the Landlord may require me to perform without first demanding that the Tenant perform. Waiver of jury trial: 6. I give up my right to trial by jury in any claim related to the Lease or this Guaranty. -65- Changes: 7. This Guaranty can be changed only by written agreement signed by all parties to the Lease and this Guaranty. Signatures: GUARANTOR: WITNESS: --------------------------------------- -------------------------------------- STATE OF COUNTY OF ss.: On _______________________ 19__, before me personally appeared ___________________________ to me known and known to me to be the individual(s) described in and who executed the foregoing Lease, and duly acknowledged to me that __he__ executed the same. --------------------------------------- EX-22 5 SUBSIDIARIES OF REGISTRANT -66- EXHIBIT 22 Subsidiaries of Registrant Name State Incorporated - ------- ---------------------- Four Corners Abstract Corporation New York Proper Appraisal Specialists, Inc. New York -----END PRIVACY-ENHANCED MESSAGE-----