SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 19981999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to _________
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Commission File Number 2-27985
1st FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-0521233
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 East Tugalo Street
Post Office Box 880
Toccoa, Georgia 30577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 886-7571
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant: Not Applicable.
(Cover page 1 of 2 pages)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class Outstanding at February 28, 199929, 2000
------------------------------------- --------------------------------
Common Stock, $100 Par Value 1,700 shares
Non-Voting Common Stock, No Par Value 168,300 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 19981999 are incorporated by reference into
Parts I, II and IV of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, 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. (X)
(Cover page 2 of 2 pages)
PART I
Item 1. BUSINESS:
The Company, Page 1; Business, Pages 5 - 12; and Financial Statements,
Pages 19 - 35 of Registrant's Annual Report to security holders for
the fiscal year ended December 31, 1998,1999, the ("Annual Report"), are
incorporated herein by reference.
Item 2. ROPERTIES:PROPERTIES:
Map on inside front cover page; paragraph 1 of The Company, Page 1;
and Footnote 7 Commitments)(Commitments) of Notes to Consolidated Financial
Statements, Page 31 of Registrant's Annual Report are incorporated
herein by reference.
Item 3. LEGAL PROCEEDINGS:
Two proceedings areThere is a legal proceeding pending against 1st Franklin Financial
Corporation ("the Company")Company in Alabama
alleging violationsthat the Company's practice of inserting dispute resolution
provisions into its consumer lending documents and requiring
consumers to abide by such provisions violates the Equal Credit
Opportunity Act. Plaintiffs are seeking declaratory relief that they
cannot be compelled to forfeit their statutorily granted rights under
the Truth-in-Lending Act and other consumer protection laws.
Management believes that the Company's operations are in compliance
with the applicable laws and regulations and that the actions areaction is without
merit, and themerit. The Company is diligently contesting these remaining complaints.and defending against
this proceeding. Based uponon current information currently available, Management
is unable to predict the Company,potential outcome of this matter or its
impact on the Company does
not believe that the current pending legal proceedings would,
individuallyCompany's financial condition or in the aggregate, have a material adverse effect
upon the Company, although there can be no assurance thereof.business operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
Source of Funds, Page 12 of the Company's Annual Report is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA:
Selected Consolidated Financial Information, Page 4 of Company's
Annual Report is incorporated herein by reference.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Management's Discussion of Operations, Pages 13 - 18 of Company's
Annual Report is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Management's Discussion of Operations, Market Risk sub-heading,
Page 16 of Company's Annual Report is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Pages 19 - 35 of Company's Annual Report are incorporated herein by
reference.
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Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
The Company has neither had any disagreements on accounting or
financial disclosures with its accountants nor changed such
accountants.
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Forward Looking Statements:
Certain statements contained or incorporated by reference herein under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Market for Registrant's Common Stock and Related
Stockholder Matters" and elsewhere in this Annual Report on Form 10-K may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance, or achievements of the Company to be
materially different from any future results, performance, or materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, the ability to manage cash flow and working capital, adverse economic
conditions including the interest rate environment, federal and state
regulatory changes and other factors referenced elsewhere herein.
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PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
DIRECTORS
Director Since
and Date on Which Position
Name of Director Age Term Will Expire With Company
---------------- --- ------------------------------------- ------------
Ben F. Cheek, III (3)(4)(5) 6263 Since 1967; Chairman of
When successor Board
elected and qualified
Lorene M. Cheek (2)(4)(6) 8990 Since 1946; None
When successor
elected and qualified
Jack D. StovallStoval (1)(2) 6364 Since 1983;1983 None
When successor
elected and qualified
Robert E. Thompson (1)(2) 6768 Since 1970; None
When successor
elected and qualified
______________________________________________________________________
(1) Member of Audit Committee.
(2) Mrs. Cheek is an honorary member of the Board of Trustees of Tallulah
Falls School; Dr. Thompson is a physician at Toccoa Clinic; and Mr.
Stovall is President of Stovall Building Supplies, Inc. These
positions have been held by each respective Director for more than
five years.
(3) Reference is made to "Executive Officers" for a discussion of Ben F.
Cheek, III's business experience.
(4) Member of Executive Committee.
(5) Son of Lorene M. Cheek.
(6) Mother of Ben F. Cheek, III.
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EXECUTIVE OFFICERS
Name, Age, Position
and Family Relationship Business Experience
- ----------------------- -------------------------------------------------------------------------------------------------
Ben F. Cheek, III, 6163 Joined the Company in 1961 as attorney and
became
Chairman of Board became Vice President in 1962, President in 1972
and Chairman of Board in 1989.
T. Bruce Childs, 6163 Joined the Company in 1958 and was named Vice
President President in charge of Operations in 1973 and
No Family Relationship President in 1989.
Lynn E. Cox, 4042 Joined the Company in 1983 and became
Secretary Secretary in 1989.
No Family Relationship
A. Roger Guimond, 4345 Joined the Company in 1976 as an accountant
and
Vice President and and became Chief Accounting Officer in 1978,
Chief Chief Financial Officer Chief Financial Officer in 1991 and Vice
President
No Family Relationship President in 1992.
Linda L. Sessa, 4345 Joined the Company in 1984 and became Treasurer in
Treasurer 1989.
No Family Relationship
The term of office of each Executive Officer expires when a successor
is elected and qualified. There was no, nor is there presently any,
arrangement or understanding between any officer and any other person
(except directors or officers of the registrant acting solely in their
capacities as such) pursuant to which the officer was selected.
No event such as a bankruptcy, criminal or securities violation
proceeding has occurred within the past 5 years with regard to any
Director or Executive Officer of the Company.
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Item 11. EXECUTIVE COMPENSATION:
(b) Summary Compensation Table:
Other All
Name Annual Other
and Compen- Compen-
Principal Salary Bonus sation sation
Position Year $ $ $ $ *
-------- ---- ------- ------- ------ -------------
Ben F. Cheek, III 1999 264,000 204,652 4,760 69,537
Chairman and 1998 264,000 171,893 2,852 251,638
Chairman and67,745
CEO 1997 264,000 210,081 3,044 181,504
CEO 1996 252,000 217,932 3,431 98,33669,944
T. Bruce Childs 1999 300,000 206,092 5,717 62,476
President 1998 282,000 172,613 4,066 228,281
President58,967
1997 264,000 210,081 3,459 163,878
1996 246,000 217,692 3,179 87,63361,334
A. Roger Guimond 1999 162,600 71,013 1,650 20,805
Vice President 1998 152,400 59,717 1,650 80,978
Vice President20,524
1997 142,200 72,001 1,650 54,647
and CFO 1996 132,000 74,362 1,650 29,58919,420
* Represents Company contributions to profit-sharing plan and reported
compensation from premiums on life insurance policies for the benefit
of Ben F. Cheek, III in the amount of $7,393 for 1999, $6,842 for 1998
and $5,931 for 1997
and $4,931 for 1996.1997. Includes Company contributions to profit-sharing
plan for the benefit of T. Bruce Childs and A. Roger Guimond.
(g) Compensation of Directors:
Directors who are not employees of the Company receive $2,000 per year
for attending scheduled board meetings.
(k) Board Compensation Committee Report on Executive Compensation:
The Company has no official executive compensation committee. Ben F.
Cheek, III (Chairman of the Company) establishes the bases for all
executive compensation. The Company is a family owned business with Ben
F. Cheek, III being the majority stockholder.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners as of December 31, 1998:1999:
Ownership listed below represents ownership in the Company with respect
to any person (including any "group" as that term is used in Section 13(d)(3) of
the Exchange Act) who is known to the Company to be the beneficial owner of
more than five percent of any class of the Company's voting securities.
Name and Address of Amount and Nature of Percent
Beneficial Owner Title of Class Beneficial Ownership Of Class
---------------- -------------- -------------------- --------
Ben F. Cheek, III Voting Common 1,160 Shares - Direct 68.24%
225 Valley Drive Stock
Toccoa, Georgia 30577
John Russell Cheek Voting Common 441 Shares - Direct 25.94%
181 Garland Road Stock
Toccoa, Georgia 30577
(b) Security Ownership of Management as of December 31, 1998:1999:
Ownership listed below represents ownership in the Company, of (i)
Directors and named Executive Officers of the Company and (ii) all
Directors and Executive Officers of the Company as a group:
Amount and Nature of Percent
Name Title of Class Beneficial Ownership fOf Class
---- -------------- ---------- ----------------------------- --------
Ben F. Cheek, III Voting Common Stock 1,160 Shares-DirectShares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
T. Bruce Childs Voting Common Stock None None
Non-Voting Common Stock None None
A. Roger Guimond Voting Common Stock None None
Non-Voting Common Stock None None
__________________________________________
All Directors and
Executive Officers
as a Group Voting Common Stock 1,160 Shares-DirectShares - Direct 68.24%
Non-Voting Common Stock 114,840 Shares (1) 68.24%
(1) Effective January 1, 1997, the Company elected S Corporation status
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for income tax reporting purposes. Because partnerships are
ineligible to be S Corporation shareholders, Cheek Investments, L.P.
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distributed its shares of the Company to its eight partners (six
trusts, Ben F. Cheek, III and Elizabeth Cheek, wife of Ben F.
Cheek, III). Ben F. Cheek, III and Elizabeth Cheek are grantors of
the trusts. Below is a table of ownership of non-voting common stock
attributable to Ben F. Cheek, III:
No. of
Name Shares Percentage
---- ------ ------------------------------------------------------- ------- -----------
Ben F. Cheek, III 574 .34%
Elizabeth Cheek 574 .34%
Ben Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Ben Cheek Trust B (f/b/o Virginia C. Herring) 18,949 11.26%
Ben Cheek Trust C (f/b/o David W. Cheek) 18,949 11.26%
Elizabeth Cheek Trust A (f/b/o Ben F. Cheek, IV) 18,949 11.26%
Elizabeth Cheek Trust B (f/b/o Virginia C. Herring) 18,948 11.26%
Elizabeth Cheek Trust C (f/b/o David W. Cheek) 18,948 11.26%
------- -----
114,840 68.24%
======= =====
(c) The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company leases its Home Office building and print shop for a
total of $12,600 per month from Franklin Enterprises, Inc. under
leases which expire December 31, 2004. Franklin Enterprises, Inc.
is 66.67% owned by Ben F. Cheek, III, a Director and Executive
Officer of the Company. In Management's opinion, these leases are
at rates which approximate those obtainable from independent third
parties.
The Company leases its Hartwell branch office for a total of $300
per month from John R. Cheek. John R. Cheek (brother of Ben F.
Cheek, III) owns 25.94% of the Company's voting shares of common
stock. Rent is also paid to Cheek Investments, Inc. in the amount
of $350 per month for the Clarkesville branch office. Cheek
Investments is owned by Ben F. Cheek, III. In Management's opinion,
these leases are at rates which approximate those obtainable from
independent third parties.
Beneficial owners of the Company are also beneficial owners of
Liberty Bank & Trust ("Liberty"). The Company and Liberty have
certain management and data processing agreements whereby the
Company provides certain administrative and data processing services
to Liberty for a fee. Annual income recorded by the Company from
these services during the three year ended December 31, 1999 was $67,800
and during the two year period ended period ended December 31, 1998
related to these agreementsincome was $63,800 which in Management's
opinion approximatesper year. Management believes these amounts
approximate the Company's actual cost of these services.
Liberty leases its office space and equipment from the Company for
$5,000$60,000 per month, which in Management's opinion is at a rate which
approximatespproximates that obtainable from independent third parties.
At December 31, 1998,1999, the Company maintained $2,100,000$1,000,000 of
certificates of deposit with Liberty at market rates and terms. The
Company also had $2,356,345$1,851,894 in demand deposits with Liberty at
December 31, 1998.1999.
During 1998,1999, a loan was extended to a real estate development
partnership of which one of the Company's beneficial owners (David
Cheek) is a partner. David Cheek (son of Ben F. Cheek, III) owns
less than 5% of the Company's stock. The balance on this
commercial loan (including accrued interest) was $1,498,502$1,672,179 at
December 31, 1998.1999.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) 1. Financial Statements:
Incorporated by reference from Registrant's Annual Report to
security holders for the fiscal year ended December 31, 1998:1999:
Report of Independent Public Accountants.
Consolidated Statements of Financial Position at
December 31, 19981999 and 1997.1998.
Consolidated Statements of Income for the three years ended
December 31, 1998.1999.
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1998.1999.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998.1999.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
None - Financial statement schedules are omitted because of the
absence of conditions under which they are required or because
the required information is given in the financial statements or
notes thereto.
3. Exhibits:
2. (a) Articles of Merger of 1st Franklin Corporation with and
into 1st Franklin Financial Corporation dated December 31,
1994 (incorporated herein by reference to Exhibit 3(2)(a)
from Form 10-K for the fiscal year ended December 31, 1994).
3. (a) Restated Articles of Incorporation as amended January 26,
1996 (incorporated herein by reference to Exhibit 3(3)(a)
from Form 10-K for the fiscal year ended December 31, 1995).
(b) Bylaws (incorporated herein by reference to Exhibit 3(3)(b)
from Form 10-K for the fiscal year ended December 31, 1995).
4. (a) Executed copy of Indenture dated October 31, 1984, covering
the Variable Rate Subordinated Debentures - Series 1
(incorporated herein by reference from Registration
Statement No. 2-94191, Exhibit 4a).
(b) Modification of Indenture dated March 29, 1995
(incorporated herein by reference to Exhibit 3(4)(b) from
Form 10-K for the fiscal year ended December 31, 1994).
9. Not applicable.
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10. (a) Credit Agreement dated May, 1993 between the registrant
and SouthTrust Bank of Georgia, N.A.. (Incorporated herein
by reference from Form 10-K for the fiscal year ended
December 31, 1993.)
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(b) Revolving Credit Agreement dated October 1, 1985 as amended
November 10, 1986; March 1, 1988; August 31, 1989 and
May 1, 1990, among the registrant and the banks named
therein (Incorporated by reference to Exhibit 10 to the
registrant's Form SE dated November 9, 1990.)
(c) Fifth Amendment to Revolving Credit Agreement dated
April 23, 1992. (Incorporated by reference to Exhibit 10(c)
to the Registrant's Form SE dated November 5, 1992.)
(d) Sixth Amendment to Revolving Credit Agreement dated July 20,
1992. Incorporated(Incorporated by reference to Exhibit 10(d) to the
Registrant's Form SE dated November 5, 1992.)
(e) Seventh Amendment to Revolving Credit Agreement dated
June 20, 1994. (Incorporated by reference to Exhibit 10(e)
from Form 10-K for the fiscal year ended December 31, 1994.)
(f) Merger of 1st Franklin Corporation with 1st Franklin
Financial Corporation Consent, Waiver and Eighth Amendment
to Revolving Credit and Term Loan Agreement. (Incorporated
herein by reference to Exhibit 10(f) from Form 10-K for the
fiscal year ended December 31, 1994.)
(g) Ninth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated June 20, 1996. (Incorporated herein by
reference to Exhibit 10(g) from Form 10-K for the fiscal
year ended December 31, 1996.)
(h) Tenth Amendment to Revolving Credit Agreement and Term Loan
Agreement dated January 23, 1998. (Incorporated herein by
reference to Exhibit 10(h) from the registrant's Form S-2
Registration dated March 6, 1998.)
(i) Eleventh Amendment to Revolving Credit Agreement and Term
Loan Agreement dated May 27, 1998. (Incorporated herein by
reference to Exhibit 10(i) from Form 10-K for the fiscal
year ended December 31, 1998.)
11. Computation of Earnings per Share is self-evident from the
Consolidated Statement of Income and Retained Earnings in the
Registrant's Annual Report to Security Holders for the fiscal
year ended December 31, 1998,1999, incorporated by reference herein.
12. Ratio of Earnings to Fixed Charges.
13. Registrant's Annual Report to security holders for fiscal year
ended December 31, 1998.1999.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Registrant.
22. Not applicable.
23. Consent of Independent Public Accountants.
24. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
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(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1998.1999.
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SIGNATURES
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:
1st FRANKLIN FINANCIAL CORPORATION
March 29, 2000 By s/Ben F. Cheek, III
Date: March 30, 1999 -------------------
-------------- --------------------
Date Ben F. Cheek, III
Chairman of Board
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 capacity and on the dates indicated:
Signatures Title Date
---------- ----- ----
s/ Ben F,F. Cheek, III
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(Ben F. Cheek, III) Chairman of Board; March 30, 1999
- -----------------------29, 2000
Chief Executive --------------
(Ben F. Cheek, III)
Officer
s/ T. Bruce Childs
President March 30, 1999
- ----------------------- ----------------------------------------
(T. Bruce Childs) President March 29, 2000
--------------
s/ A. Roger Guimond
- --------------------------
(A. Roger Guimond) Vice President; March 30, 1999
- -----------------------29, 2000
Principal Financial Officer --------------
(A. Roger Guimond) Officer
Principal Accounting Officer
s/ Lorene M. Cheek
Director March 30, 1999
- ----------------------- ----------------------------------------
(Lorene M. Cheek) Director March 29, 2000
--------------
s/ Jack D. Stovall
Director March 30, 1999
- ----------------------- ----------------------------------------
(Jack D. Stovall) Director March 29, 2000
--------------
s/ Robert E. Thompson
Director March 30, 1999
- ----------------------- ----------------------------------------
(Robert E. Thompson) Director March 29, 2000
--------------
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
(a) Except to the extent that the materials enumerated in (1) and/or (2)
below are specifically incorporated into this Form by reference (in
which case see Rule 12b-23b), every registrant which files an annual
report on this Form pursuant to Section 15(d) of the Act shall furnish
to the Commission for its information, at the time of filing its
report on this Form, four copies of the following:
(1) Any annual report to security holders covering the registrant's
last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security
holders with respect to any annual or other meeting of security
holders.
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(b) The foregoing material shall not be deemed to be "filed" with the
Commission or otherwise subject to the liabilities of Section 18 of
the Act, except to the extent that the registrant specifically
incorporates it in its annual report on this Form by reference.
(c) This Annual Report on Form 10-K incorporates by reference portions of
the Registrant's Annual Report to security holders for the fiscal year
ended December 31, 1998,1999, which is filed as Exhibit 13 hereto. The
Registrant is a privately held corporation and therefore does not
distribute proxy statements or information statements.
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