SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FIRSTMARK CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
..................................................................
2) Aggregate number of securities to which transaction applies:
..................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
..................................................................
4) Proposed maximum aggregate value of transaction:
..................................................................
5) Total fee paid:
..................................................................
[X ] Fee paid previously with preliminary materials. (JUNE 17, 1996)
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
..................................................................
2) Form, Schedule or Registration Statement No.:
..................................................................
3) Filing Party:
..................................................................
4) Date Filed:
..................................................................
FIRSTMARK CORP.
One Financial Place
222 Kennedy Memorial Drive
Waterville, ME 04901
(207) 873-6362
SPECIAL MEETING OF STOCKHOLDERS
October __, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Meeting") of Firstmark Corp. (the "Company"), to be held at One Financial
Place, 222 Kennedy Memorial Drive, Waterville, Maine, on ________, October __,
1996, commencing at 10:00 a.m.
The sole purpose of the Meeting will be to act on two amendments to the
Company's Articles of Incorporation (the "Amendments"). The first amendment will
increase from 5,000,000 to 30,000,000 the number of shares of common stock that
the Company is authorized to issue. The second amendment will opt the Company
out of Section 910 of the Maine Business Corporation Act.
Information concerning the Amendments is set forth in the attached
Proxy Statement. The formal Notice of Special Meeting of Stockholders and the
Proxy Statement are enclosed.
I ask that you promptly sign, date and mail the enclosed Proxy in the
enclosed postage-paid envelope provided for your convenience. This action will
not prevent you from voting in person should you decide to attend the meeting.
Since the vote of at least a majority of the shares outstanding is
required, regardless of whether you attend the meeting or how many shares you
own, it is extremely important that you vote your shares.
Thank you for your timely attention to this matter.
Sincerely,
James F. Vigue
Chairman of the Board, President
and Chief Executive Officer
FIRSTMARK CORP.
One Financial Place
222 Kennedy Memorial Drive
Waterville, ME 04901
(207) 873-6362
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER __, 1996
To the Stockholders of FIRSTMARK CORP.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of
Stockholders of Firstmark Corp. (the "Company") will be held at One Financial
Place, 222 Kennedy Memorial Drive, Waterville, Maine, on ________, October __,
1996, commencing at 10:00 a.m to act upon the following matters:
PROPOSAL NO. 1
To approve an amendment to the Company's Articles of Incorporation to
increase the amount of authorized Common Stock from 5,000,000 to 30,000,000
Shares (the full text of the amendment is attached to the Proxy Statement as
Appendix A).
PROPOSAL NO. 2
To approve an amendment to the Company's Articles of Incorporation to
opt out of Section 910 of the Maine Business Corporation Act (the full text of
the amendment is attached to the Proxy Statement as Appendix B).
The Board of Directors has established the close of business on October
__, 1996, as the record date for determining the stockholders entitled to notice
of, and to vote at, the Meeting and any adjournments or postponements thereof.
Only those stockholders of record as of the close of business on that date will
be entitled to vote at the Meeting or any such adjournments or postponements
thereof.
Please sign, date, and promptly mail the enclosed Proxy to ensure the
presence of a quorum at the Meeting.
By Order of the Board of Directors
Ivy L. Gilbert, Secretary
Waterville, Maine
October __, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THIS MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. EVEN IF
YOU PLAN TO BE PRESENT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THIS MEETING, YOU
MAY VOTE EITHER IN PERSON OR BY PROXY. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE IT IS EXERCISED.
TABLE OF CONTENTS
Page
Introduction......................................................................................................1
Security Ownership of Management and Certain Beneficial Owners....................................................2
Proposal One
Amendment of the Articles of Incorporation to Increase
the Amount of Authorized Common Stock....................................................................3
Proposal Two
Amendment of the Articles of Incorporation to Opt Out
of Section 910 of Maine Business Corporation Act.........................................................4
The Consummated Acquisition.......................................................................................5
General..................................................................................................5
The Acquisition..........................................................................................6
Certain Differences in Rights of Security Holders........................................................9
Accounting Treatment.....................................................................................9
Federal Income Tax Matters..............................................................................10
Regulatory Approvals....................................................................................10
Legal Opinion...........................................................................................10
Market Prices and Dividends.............................................................................10
Firstmark Corp...................................................................................................12
General.................................................................................................12
Related Industry Segments...............................................................................12
Subsidiaries............................................................................................13
Employees...............................................................................................15
Significant Customers...................................................................................15
Competition.............................................................................................15
Insured Risk and Loss Reserves..........................................................................15
Regulation..............................................................................................16
Reinsurance.............................................................................................17
Properties..............................................................................................17
Legal Proceedings.......................................................................................17
Firstmark Corp. Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................................................18
Independent Accountants..........................................................................................20
Southern Capital Corp............................................................................................22
Southern Capital Corp. Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................................................22
i
Pro Forma Financial Information..................................................................................24
Pro Forma Balance Sheet.................................................................................25
Pro Forma Statement of Income...........................................................................26
Notes to Pro Forma Financial Information................................................................27
Proposals for 1996 Annual Meeting................................................................................27
Appendix A: Proposed Amendment to Articles of Incorporation
to Increase the Amount of Authorized Common Stock.............................................A-1
Appendix B: Proposed Amendment to Articles of Incorporation
to Opt Out of Section 910 of the Maine Business Corporation Act...............................B-1
Appendix C: Agreement and Plan of Reorganization between Southern Capital Corp.,
Southern Capital Acquisition Corp. and Firstmark Corp. dated April 30, 1996...................C-1
Appendix D: Financial Statements of Firstmark Corp........................................................D-1
Appendix E: Financial Statements of Southern Capital Corp.................................................E-1
ii
FIRSTMARK CORP.
PROXY STATEMENT
INTRODUCTION
The enclosed Proxy is solicited on behalf of the Board of Directors of
Firstmark Corp. (the "Company") for use at the Special Meeting of Stockholders
to be held on October __, 1996, or any adjournments thereof (the "Meeting"). The
shares of the Company's common stock, par value $.20 per share (the "Common
Stock"), of record on October __, 1996 represented by all validly executed
Proxies received in time to be taken to the Meeting will be voted. It is the
intention of the persons named in the Proxy to vote as instructed by the
Stockholders, or, if no instructions are given with respect to the matters to be
acted upon, the shares represented by the Proxy will be voted FOR approval of
the amendments to the Company's Articles of Incorporation, which are set forth
in Appendices A and B to this Proxy Statement (the "Amendments") and which are
the only items on the Proxy.
The principal executive offices of the Company are located at One
Financial Place, 222 Kennedy Memorial Drive, Waterville, Maine 04901. The
approximate date on which this Proxy Statement and the accompanying Proxy are
being mailed to the Company's stockholders is October __, 1996.
Any Proxy given pursuant to this solicitation may be revoked by the
person giving it any time before it is voted. Proxies may be revoked by filing
with the Secretary of the Company written notice of revocation bearing a later
date than the Proxy, by duly executing a subsequent Proxy relating to the same
shares of Common Stock or by attending the Meeting and voting in person.
Attendance at the Meeting will not in and of itself constitute revocation of a
Proxy unless the stockholder votes his or her shares of Common Stock in person
at the Meeting. Any notice revoking a Proxy should be sent to the Secretary of
the Company, Ivy L. Gilbert, at Firstmark Corp., One Financial Place, 222
Kennedy Memorial Drive, Waterville, Maine 04901.
The cost of soliciting Proxies will be borne by the Company. In
addition to solicitation by mail, officers and regular employees of the Company
may solicit Proxies in person or by telephone.
As of October __, 1996, the record date of the Meeting, the Company had
outstanding _________ shares of Common Stock. Each share is entitled to one vote
on the matters presented at the Meeting.
The affirmative vote of at least a majority of the Company's shares of
Common Stock which are entitled to vote at the Meeting is required for adoption
of the Amendments. Abstentions and broker non-votes will not be considered a
vote for, or a vote against, the Amendments.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of August 31, 1996, by (i) each person
who is known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, and (iii)
all of the directors and executive officers of the Company as a group. For the
purposes of the following table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Exchange Act, under
which, in general, a person is deemed to be a beneficial owner of a security if
he or she has or shares the power to vote or direct the voting of the security
or the power to dispose or direct disposition of the security, or if he or she
has the right to acquire beneficial ownership of the security within 60 days.
Except as otherwise indicated (i) each stockholder identified in the table
possesses sole voting and investment power with respect to his shares, and (ii)
the mailing address of each individual is Firstmark Corp., One Financial Place,
222 Kennedy Memorial Drive, Waterville, Maine 04901.
Name Common Stock Percent
James F. Vigue 143,858(1) 6.7%
Chairman of the Board, President,
Chief Executive Officer and Director
Ivy L. Gilbert 156,624(2) 7.3%
Chief Financial Officer, Corporate
Secretary, Treasurer and Director
Robert A. Rice -- --
Vice President of Trading and Director
H. William Coogan, Jr. -- --
Director
Donald V. Cruickshanks -- --
Director
Susan C. Coogan -- --
Director
R. Brian Ball -- --
Director
All Directors and executive officers as a
group (7 persons) 194,108 9.0%
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1 Includes 37,484 shares held as trustee for various trusts and 4,599
shares held by his spouse, Ivy L. Gilbert.
2 Includes 50,250 shares held as custodian for her minor children and
101,775 shares held by her spouse, James F. Vigue.
2
In June 1996, Southern Capital Corp. ("SCC") was merged with and into
Southern Capital Acquisition Corporation, a subsidiary of the Company. See "The
Consummated Acquisition." As part of the merger, the shareholders of SCC
received 40,000 shares of the Company's Series B, cumulative, non-voting
preferred stock, par value $.20 per share. The preferred stock is not
convertible by the holders, but may be converted by the Company into not less
than 2,000,000 shares of the Common Stock, subject to adjustment if the market
price of the Common Stock is less than $4.00 per share at the time of
conversion. If not converted by the Company sooner, the preferred stock begins
accruing dividends after January 1, 1997 and is redeemable at the option of the
holders at a price of $200 per share after June 30, 1998. H. William Coogan,
Jr., Donald V. Cruickshanks and Susan C. Coogan, Directors of the Company, were
shareholders of SCC and are now holders of the Company's preferred stock.
PROPOSAL ONE
AMENDMENT OF THE ARTICLES OF INCORPORATION
TO INCREASE THE AMOUNT OF AUTHORIZED COMMON STOCK
The Company's Board of Directors has unanimously approved and
recommends to the stockholders that they adopt an amendment to Article Fifth of
the Company's Articles of Incorporation that would increase the amount of
authorized Common Stock from 5,000,000 shares to 30,000,000 shares. See
"Proposed Amendment to Articles of Incorporation to Increase the Amount of
Authorized Common Stock," attached hereto as Appendix A. As of October __, 1996,
the Company had issued and outstanding ________ shares of Common Stock. The
additional shares of Common Stock for which authorization is sought would be a
part of the existing class of Common Stock and, if and when issued, would have
the same rights and privileges as the shares of Common Stock presently
outstanding. No holder of Common Stock has any preemptive rights to acquire
additional shares of Common Stock.
The Company currently has outstanding 40,000 shares of cumulative,
non-convertible, non-voting preferred stock, designated by the Board of
Directors as Series B Preferred Stock (the "Preferred Stock"). The Preferred
Stock currently has certain features, including dividend and redeemable rights,
that could be adverse to the holders of Common Stock. See "The Consummated
Acquisition - Voting Rights; Dividends; - Liquidation Preference; - Conversion;
- - Redemption" and "Resolution of Firstmark Corp. Board of Directors" (Exhibit B
to the Agreement and Plan of Reorganization between Southern Capital Corp.,
Southern Capital Acquisition Corp. and Firstmark Corp. dated April 30, 1996 (the
"Acquisition Agreement"), attached hereto as Appendix C). The Preferred Stock,
however, may be converted by the Company's Board of Directors into not less than
2,000,000 shares of Common Stock, and, at the present time, there are not enough
shares of Common Stock authorized to allow for such a conversion. The Preferred
Stock was issued in connection with the merger between Southern Capital
Acquisition Corp., a wholly-owned subsidiary of the Company, and Southern
Capital Corp., a Virginia corporation ("SCC"), that was consummated on June 7,
1996 (the "Acquisition"). See "The Consummated Acquisition."
In addition, the Board of Directors believes that an increase in the
number of shares of authorized Common Stock as contemplated by Proposal One
would benefit the Company and its stockholders by giving the Company needed
flexibility in its corporate planning and in responding to developments in the
Company's business, including possible financing and acquisition transactions,
stock splits or stock dividends and other general corporate purposes that
require the issuance of additional shares of Common Stock. Having such
authorized shares available for issuance would give the Company greater
flexibility to respond to future developments and allow Common Stock to be
issued without the expense and delay
3
of a special stockholders' meeting. Unless otherwise required by applicable law
or regulation, the additional shares of Common Stock will be issuable without
further authorization by vote or consent of the stockholders and on such terms
and for such consideration as may be determined by the Board of Directors.
Adoption of Proposal One requires the affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT ADOPTION OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY
TO 30,000,000 SHARES IS IN THE BEST INTEREST OF ALL STOCKHOLDERS AND,
ACCORDINGLY, RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT.
PROPOSAL TWO
AMENDMENT OF THE ARTICLES OF INCORPORATION
TO OPT OUT OF SECTION 910 OF
MAINE BUSINESS CORPORATION ACT
The Company's Board of Directors has unanimously approved and
recommends to the stockholders that they adopt an amendment to Article Eighth of
the Company's Articles of Incorporation pursuant to which the Company would opt
out of Section 910 of the Maine Business Corporation Act. See "Proposed
Amendment to Articles of Incorporation to Opt Out of Section 910 of the Maine
Business Corporation Act," attached hereto as Appendix B. Section 910 provides
for the right of a stockholder to receive payment for his or her shares
following a "control transaction." Specifically, following the acquisition by a
person or group of at least 25% of those shares of a corporation that are
entitled to vote in an election of directors, or of those shares within a class
of shares that are entitled to vote in an election of directors, a stockholder
may make a written demand on the person or group for payment of the fair value
of that stockholder's shares. The stockholder would then be entitled to receive
cash from the acquiring person or group in exchange for his or her shares. A
corporation may opt out of Section 910 by so providing in its articles of
incorporation.
The current holders of the Preferred Stock were unable to acquire
shares of Common Stock in the Acquisition because the Company did not have a
sufficient number of authorized shares of Common Stock at the time of the
merger. In addition, even if a sufficient number of shares had been authorized,
the stockholders of SCC were unwilling to accept Common Stock because of a
concern that one or more of them could have been considered a group acting in
concert under Section 910, thereby triggering the potential cash payment
obligations of that section. Accordingly, the stockholders of SCC received the
Preferred Stock, which cannot be voted in elections of directors and is
non-convertible by the holder. The Preferred Stock has certain features,
including dividend and redemption rights, that are potentially unfavorable to
the holders of Common Stock. Under the terms of the Preferred Stock, only the
Company's Board of Directors can approve the conversion of the Preferred Stock
into shares of Common Stock. A vote by stockholders to opt the Company out of
Section 910 will permit the Company's Board of Directors to make such a
conversion before, for example, dividends and mandatory sinking fund payments on
the Preferred Stock accrue and before holders of the Preferred Stock acquire the
right to require the Company to redeem their shares. See "The Consummated
Acquisition - Voting Rights; -
4
Dividends; - Liquidation Preference; - Conversion; - Redemption" and "Resolution
of Firstmark Corp. Board of Directors" (Exhibit B to the Acquisition Agreement).
In addition, Section 910, as currently implemented with respect to the
Company, could have the effect of discouraging corporations that may be
interested in merging with or acquiring the Company from entering into
discussions with management or making offers to stockholders for all or part of
the Company's shares at a premium above the current share price. Eliminating the
applicability of Section 910 to the Company would eliminate one means by which
the management of the Company could deter possible takeover bids.
Adoption of Proposal Two requires the affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS BELIEVES THAT ADOPTION OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION TO OPT OUT OF SECTION 910 OF THE MAINE BUSINESS
CORPORATION ACT IS IN THE BEST INTEREST OF ALL STOCKHOLDERS AND, ACCORDINGLY,
RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT.
THE CONSUMMATED ACQUISITION
The following section is a summary description of the material terms of
the Acquisition, and is qualified in its entirety by reference to the Agreement
and Plan of Reorganization between Southern Capital Corp., Southern Capital
Acquisition Corp. and Firstmark Corp. dated April 30, 1996, which is attached as
Appendix C hereto. As described below, the Acquisition did not require approval
of the Company's stockholders and was consummated on June 7, 1996. At the
Special Meeting, the Company's stockholders will be asked to vote only on the
two amendments to the Company's Articles of Incorporation presented above, and
not on the Acquisition. The business and financial information provided in this
Proxy Statement is being furnished to stockholders for their information.
General
The Company, through its wholly-owned subsidiary, Southern Capital
Acquisition Corp. ("SCAC"), acquired Southern Capital Corp., a Virginia
corporation ("SCC") in a transaction that was consummated on June 7, 1996. SCC
merged into SCAC, and stockholders of SCC received 40,000 shares of the
Preferred Stock.
SCC, through its subsidiary, Southern Title Insurance Corporation
("STIC"), is principally engaged in the business of issuing title insurance. SCC
is also involved in providing financial consulting advice to corporations and
reviews investment opportunities for its own account. SCC also is an investor in
Champion Broadcasting Corp., a small market radio acquisition company that
acquires multiple stations in single markets ranked below the top 150 markets by
Arbitron.
The Company's principal executive offices are located at One Financial
Place, 222 Kennedy Memoria Drive. Waterville, Maine 04901, and its telephone
number is (207) 873-6362. SCC's principal executive offices are located at One
James Center, 901 East Cary Street, Richmond, Virginia 23219, and its telephone
number is (804) 648-6000.
5
The Acquisition
The parties began discussions concerning a possible acquisition of SCC
by the Company in early 1996. Negotiations continued over a period of several
months. The Company proposed that it acquire SCC by way of a merger for
2,000,000 shares of the Company's Common Stock. However, two factors prevented
the Company from concluding the acquisition as it had proposed. First, the
Company has 5,000,000 shares of Common Stock authorized. While only _______
shares are issued and outstanding, the Company has possible commitments to issue
up to an additional _______ shares of Common Stock in connection with stock
options (if approved by the Company's stockholders), convertible preferred
stock, warrants and convertible debentures. While it is possible that the
Company would not be required to issue all of the shares called for by such
instruments, if all such shares were issued, the Company would have _______
shares of Common Stock issued and outstanding. Thus, if the Company had issued
2,000,000 shares of its Common Stock in connection with the acquisition of SCC,
it might have breached its obligations to holders of convertible preferred
stock, warrants, convertible debentures and stock options.
Additionally, even if the Company had a sufficient number of authorized
shares of Common Stock to acquire SCC solely in exchange for Common Stock, the
stockholders of SCC, as a group, would have held approximately 46% of the
Company's issued and outstanding shares of Common Stock. Section 910 of the
Maine Business Corporation Act, generally, gives a stockholder of a publicly
held Maine corporation, such as the Company, the right to require any person or
group of persons that acquires 25% or more of the shares entitled to vote in the
election of directors, the right to require such person or group to purchase his
or her shares for cash at fair market value. Although none of the stockholders
of SCC, individually, would have held as much as 25% of the issued and
outstanding shares of Common Stock, they were unwilling to take the risk that
one or more of them would have been considered a group acting in concert, thus
triggering a potential obligation to buy a substantial number of the shares held
by other Company stockholders for cash.
It is possible for a Maine corporation to opt out of Section 910 of the
Maine Business Corporation Act by amending its articles of incorporation.
Likewise, a Maine corporation can increase its authorized shares of common stock
by amending its articles of incorporation. However, SCC was unwilling to
condition the acquisition on a favorable vote of the stockholders of the Company
on amendments to the Company's Articles of Incorporation that would have
permitted the acquisition to be completed solely with shares of the Company's
Common Stock.
Accordingly, the acquisition of SCC was accomplished through a merger
of SCC into SCAC in which the Company issued shares of the Preferred Stock,
which are not entitled to vote in elections of directors. The terms of the
Preferred Stock issued in the acquisition of SCC were structured to permit a
prompt conversion of those shares into shares of Common Stock following the
proposed amendments to the Company's Articles of Incorporation. Provided that
the stockholders of the Company approve the proposed amendments to the Articles
of Incorporation, the Company's Board of Directors will have the right at any
time thereafter, to require a conversion of all of the shares of the Preferred
Stock into Common Stock.
SCC and its stockholders were willing to accept the Preferred Stock
only on terms and conditions that provided them a high level of assurance that
the holders of Common Stock would vote in favor of the proposed amendments to
the Articles of Incorporation.
6
Exhibit B to the Acquisition Agreement is the Resolution adopted by the
Board of Directors of the Company that creates the rights and preferences of the
Preferred Stock. Holders of the Company's Common Stock are encouraged to review
the Resolution carefully.
The Preferred Stock carries the following voting powers, rights and
preferences.
Voting Rights. Shares of the Preferred Stock are not entitled to vote
for the election of Directors. Holders of shares of the Preferred Stock do have
the right to vote on any amendment to the Company's Articles of Incorporation
which adversely affects the voting powers, rights or preferences of any of the
outstanding shares of the Preferred Stock. Additionally, the affirmative vote of
holders of a majority of the issued and outstanding shares of the Preferred
Stock is necessary to approve any merger, consolidation, other business
combination or other transaction or action in which the Company would issue any
of its capital stock or securities that are convertible into or exchangeable for
any shares of the Company's capital stock. Thus, while the holders of the
Preferred Stock have no right to vote for the election of Directors, without the
vote of a majority of the holders of the Preferred Stock, the Company may not
issue additional shares of its capital stock or any securities convertible into
shares of the Company's capital stock.
Dividends. No dividends will accrue on shares of the Preferred Stock
until January 1, 1997. Thus, if the Preferred Stock is converted into Common
Stock before January 1, 1997, no dividends will accrue or be payable with
respect to the Preferred Stock.
However, if the Preferred Stock has not been converted to Common Stock
before January 1, 1997, dividends will begin to accrue on the Preferred Stock.
Dividends will accrue at the rate of $16.00 per share per year in 1997; $20.00
per share per year in 1998; and $24.00 per share per year after 1998.
Accordingly, if the Preferred Stock is not converted to Common Stock, dividends
totalling $640,000 will accrue in 1997; dividends totalling $800,000 will accrue
in 1998; and dividends totalling $960,000 per year will accrue each year after
1998.
Dividends on the Preferred Stock are cumulative and are payable
quarterly. That is, no dividends may be paid on the Company Common Stock unless
all dividends that have accrued on the Preferred Stock have been declared and
paid.
Additionally, if the Company does not declare and pay any quarterly
dividend on the Preferred Stock, holders of 80% of the issued and outstanding
shares of the Preferred Stock may require the Company to pay dividends on the
shares of the Preferred Stock in the form of additional shares of the Preferred
Stock, which payment would have the effect of compounding the Company's dividend
payment obligations.
Liquidation Preference. In any liquidation, dissolution or winding up
of the affairs of the Company, the holders of the Preferred Stock would be
entitled to a payment of $200 per share, plus dividends accrued and unpaid,
before any payment to holders of the Company's Common Stock. As a result, the
liquidation preference of the 40,000 shares of the Preferred Stock would be a
minimum of $8,000,000.
Conversion. Provided that the Company's Articles of Incorporation have
been amended to provide that Section 910 of the Maine Business Corporation Act
shall not apply to the Company and the Company has available a sufficient number
of authorized and unreserved shares of Common Stock, the
7
Company has the right to convert all of the shares of the Preferred Stock into
Common Stock. The number of shares of Common Stock into which each share of the
Preferred Stock is convertible is equal to the number arrived at by dividing
$200, plus any accrued and unpaid dividends, by the conversion price per share.
The conversion price per share is the lesser of $4.00 or the current market
value of the Company's Common Stock at the time of conversion. For this purpose,
"current market value" is defined to be the average of the asked and bid prices
of Common Stock as reported by the Nasdaq Stock Market for the twenty
consecutive trading days commencing twenty-five days before the conversion date.
As a result, the minimum number of shares of Common Stock issuable to holders of
the Preferred Stock is 2,000,000 shares. If the "current market value" of Common
Stock declines below $4.00 per share, the number of shares of Common Stock
issuable to the holders of the Preferred Stock would increase as the current
market value decreases. For example, if the current market value at the
conversion date were $3.00 per share, the number of shares of Common Stock
issuable upon conversion of the Preferred Stock would be 2.67 million shares.
Redemption. If any shares of the Preferred Stock remain outstanding at
June 30, 1998, holders of a majority of such shares may require the Company to
redeem such shares at a price of $200 per share, plus dividends accrued to the
date fixed for redemption. If the holders of any shares of the Preferred Stock
outstanding after June 30, 1998 exercise their right to be redeemed, the Company
will have the right, instead of paying the redemption price in cash, to redeem
such shares of the Preferred Stock by distributing pro rata to the holders of
the Preferred Stock, 100% of the capital stock of SCAC.
So long as any Preferred Stock is outstanding, the Company must set
aside as a sinking fund for redemption of the Preferred Stock, on or before
April 1 of each year, commencing April 1, 1997, the sum of $1.0 million.
However, the Company will not be required to set aside in any year an amount
greater than $25.00 multiplied by the number of shares of the Preferred Stock
then outstanding. It is unlikely that the Company will have the financial
resources to pay dividends on the Preferred Stock and make the required sinking
fund payment.
To provide the holders of the Preferred Stock with a high level of
assurance that the Company will be in a position, if necessary, to fulfill its
potential obligation to redeem the Preferred Stock, the Company has entered into
an Escrow Agreement with the holders of the Preferred Stock and the law firm of
Thompson & McMullan, P.C., Richmond, Virginia, as Escrow Agent (the "Escrow
Agreement"). Holders of the Company's Common Stock are encouraged to review the
Escrow Agreement, which is attached as Exhibit D to the Acquisition Agreement.
Under the Escrow Agreement, all of the issued and outstanding shares of SCAC
have been delivered to the Escrow Agent. Under the Escrow Agreement, the Escrow
Agent will redeliver the shares of SCAC to the Company upon the conversion of
all of the shares of the Preferred Stock into Common Stock, at which time the
Escrow Agreement will terminate.
If holders of the Preferred Stock exercise their right of redemption
and the Company elects to pay the redemption price in shares of SCAC Common
Stock, the Escrow Agent will deliver the shares of SCAC Common Stock to a
representative of holders of the Preferred Stock (the "Representative"), who
will split up and deliver the shares of SCAC Common Stock to the holders of the
Preferred Stock.
Under the Escrow Agreement, the Company retains the rights to receive
dividends and other distributions on the SCAC Common Stock and, in most cases,
to vote the SCAC Common Stock as long as the Company has not failed to declare
and pay any cash dividend or make any sinking fund payment with respect to the
Preferred Stock. However, even if the Company has made all required dividend and
sinking fund payments, it may not exercise any voting right with respect to the
SCAC Common Stock
8
if, in the judgment of the Representative, such action would have a material
adverse effect on the value of the SCAC Common Stock or any part thereof. Thus,
as long as the Escrow Agreement is in effect, the Company may not dispose of the
SCAC Common Stock or, among other things, vote the SCAC Common Stock in favor of
any encumbrance or disposition of a substantial portion of the assets of SCAC.
If the Company fails to make any dividend or sinking fund payment with
respect to the Preferred Stock, its right to vote the SCAC Common Stock and its
right to receive distributions with respect to the SCAC Common Stock terminate.
In such a case, the right to vote the SCAC Common Stock would pass to the
Representative and the Representative could be expected to immediately vote the
shares of SCAC Common Stock for the election of a new Board of Directors of
SCAC, who would operate SCAC in a manner designed to preserve its value, pending
delivery of the shares of SCAC Common Stock to the holders of the Preferred
Stock after June 30, 1998.
On the effective date of the Acquisition, the Board of Directors of the
Company was expanded by the appointment of H. William Coogan, Jr., Donald V.
Cruickshanks, Susan C. Coogan and R. Brian Ball to the Board of Directors of the
Company. Messrs. Coogan and Cruickshanks and Mrs. Coogan were the sole
stockholders of SCC. Mr. Ball is an attorney and was a Director of SCC
immediately prior to the Effective Date of the Acquisition. James F. Vigue, Ivy
L. Gilbert and Robert A. Rice were the Directors of the Company prior to the
effective date of the Acquisition and remain as Directors of the Company.
Messrs. Coogan, Cruickshanks and Ball and Mrs. Coogan were not Directors of the
Company prior to the effective date and, prior to the effective date, owed no
duty to the Company or its stockholders.
Messrs. Vigue and Rice and Ms. Gilbert considered the terms of the
transaction and concluded that it was in the best interests of the Corporation
and its stockholders and that the terms of the Preferred Stock and Escrow
Agreement involved risks that were reasonable for the Company to undertake in
light of the potential benefits of the Acquisition to the Company and its
stockholders. However, if the holders of the Company's Common Stock do not vote
in favor of the proposed amendments to its Articles of Incorporation and the
Company, therefore, is unable to convert the Preferred Stock into Common Stock,
the effect on the Company and its stockholders would be material and adverse. It
is likely that the Company would be unable to meet its dividend and sinking fund
obligations to the holders of the Preferred Stock; that the Company would be
unable to pay dividends on its Common Stock; that the Company would be unable to
raise additional capital through the issuance of Common Stock or Preferred Stock
or securities convertible into Common Stock or Preferred Stock; it would be
unable to dispose of SCAC or vote the shares of SCAC Common Stock; and, finally,
that SCAC, which presently represents more than half of the net worth of the
Company, would be operated by a Board of Directors selected by a representative
of the holders of the Preferred Stock which could be adverse to the Company.
Certain Differences in Rights of Security Holders
Other than any effects through the issuance of Preferred Stock as
described above, there are no material differences in the rights of holders of
Common Stock as a result of the Acquisition.
Accounting Treatment
The Acquisition was accounted for as a purchase for accounting and
financial reporting purposes. Under this method of accounting, the purchase cost
was allocated to the fair value of assets acquired and liabilities assumed based
on valuations and other studies performed as of the date of the Acquisition.
9
Combined goodwill resulting from the Acquisition is being amortized over 20
years on a straight-line basis.
Federal Income Tax Matters
There were no federal income tax consequences under the Internal
Revenue Code of 1986, as amended, to stockholders of the Common Stock of the
Company as a result of the Acquisition.
Regulatory Approvals
The Acquisition was subject to approval by the Virginia State
Corporation Commission's Bureau of Insurance (the "Commission") under Section
38.2-1323 of the Code of Virginia (the "Code"). Section 38.2-1323 of the Code
requires any entity attempting "to acquire, through merger or otherwise, control
of any domestic insurer, or any person controlling a domestic insurer" to file
an application for approval of such acquisition with the Commission and obtain
the approval of the Commission prior to acquiring such control. The Acquisition
is subject to the provisions of Section 38.2-1323 of the Code since STIC is a
Virginia title insurance company.
The parties filed an Application for Approval of Acquisition of Control
or Acquisition with a Domestic Insurer (Form A) with the Commission on February
23, 1996, as supplemented by letter dated April 24, 1996. The Commission
approved the proposed acquisition on May 14, 1996.
Legal Opinion
The validity of the Preferred Stock issued in connection with the
Acquisition was passed upon by Lipman & Katz, P.A, Augusta, Maine.
Market Prices and Dividends
SCC. Before the Acquisition, SCC was owned entirely by fewer than five
stockholders. There had been and, at the time of the Acquisition, was no
established public trading market for the equity of SCC.
The Company. The Common Stock of the Company is traded on the Nasdaq
SmallCap Market under the symbol of "FIRM". On June 7, 1996, the last day on
which the Common Stock traded prior to the announcement of the Acquisition, the
price for the Common Stock varied from a low of $4.375 to a high of $4.75 per
share.
10
The following table sets forth the high and low bid information for the
Common Stock on the Nasdaq SmallCap Market for each quarter within the last two
fiscal years.
Fiscal Year Ended June 30, Bid Information
High Low
1995
1st quarter............................................................ 4.625 4.50
2nd quarter............................................................ 4.75 4.625
3rd quarter............................................................ 4.75 4.625
4th quarter............................................................ 4.625 4.625
1996
1st quarter............................................................ 4.25 4.00
2nd quarter............................................................ 4.375 4.00
3rd quarter............................................................ 4.50 4.375
4th quarter............................................................ 4.375 4.094
As of August 31, 1996, there were approximately 647 stockholders of the
Common Stock.
The Company has never declared any cash dividends, and any future
payment of dividends is solely in the discretion of the Board of Directors and
is dependent upon the earnings and financial condition of the Company and such
other factors as the Board of Directors from time to time may deem relevant.
11
FIRSTMARK CORP.
General
The Company was incorporated in Maine in January 1982. The Company has
been an investment company that makes private investments in venture capital
situations either in the form of pure equity investments or in the form of loans
with an equity participation feature. In addition, the Company makes control
investments in situations where the Company's management actually operates the
business. Currently, the Company has numerous minority interest investments and
one control investment in title insurance. The Company also actively trades
public stocks and bonds and provides financial consulting services to a select
number of individuals and institutions.
In June 1996, SCC was merged with and into SCAC, a subsidiary of the
Company. As part of the merger, the shareholders of SCC received 40,000 shares
of the Company's Series B, cumulative, non-voting preferred stock, par value
$.20 per share. The preferred stock is not convertible by the holders, but may
be converted by the Company into not less than 2,000,000 shares of the Company's
common stock, par value $.20 per share (the "Common Stock"), subject to
adjustment if the market price of the Common Stock is less than $4.00 per share
at the time of conversion. If not converted by the Company sooner, the preferred
stock begins accruing dividends after January 1, 1997 and is redeemable at the
option of the holders at a price of $200 per share after June 30, 1998.
SCC, through its subsidiary, STIC, is principally engaged in the
business of issuing title insurance. SCC is also involved in providing financial
consulting advice to corporations and reviews investment opportunities for its
own account. Currently, SCC is an investor in Champion Broadcasting Corp., a
small market radio acquisition company that acquires multiple stations in single
markets ranked below the top 150 markets by Arbitron.
The title insurance industry is highly sensitive to the volume of real
estate transactions and to interest rate levels. The Company is not subject to
environmental litigation.
Related Industry Segments
The following description is a summary of the Company's operations by
industry segment.
Financial Services
Financial services subsidiaries derive their revenues from commissions
and fees generated from consulting, investment banking, the manufacturing of
proprietary investment products and the marketing of investment and insurance
products manufactured by others. In addition, the Company invests its own
capital in marketable securities and other investments and makes various
business and other loans.
There is no geographical limitation to the financial services and
investment segment. Through proper licensing with each State, these services may
be provided nationwide.
12
Venture Capital
The venture capital segment derives its revenue from interest earned on
loans to companies in venture capital situations and from equity returns.
Investment real estate transactions are also considered a source of revenues for
this segment.
Title Insurance
The title insurance related subsidiaries derive their revenues from
policy premiums and other related fees for title abstracts, binder preparations
and escrow closings. Title insurance policies are issued to buyers of real
property and secured real property lenders. These policies customarily insure
against title defects, liens and encumbrances that are not specifically exempted
in the policy. Title insurance differs from other types of insurance because it
is related to past events which affect title to the property at the time of
closing and not to unforeseen future events. Revenues are generated from 14
directly owned and operated offices as well as an agency network of over 100
agents. The majority of these revenues are generated in the Commonwealth of
Virginia. The sales and marketing efforts of STIC are generally targeted at the
residential housing market.
Subsidiaries
The Company attempts to serve the total financial needs of a broad
range of clients. The following lists its subsidiaries and the services that
they provide:
Firstmark Capital Corp. Acquired: June 1982
The Company's financial planning subsidiary offers investment
management services to Firstmark's affiliated partnerships by serving as general
partner. The subsidiary also offers investment management, financial planning,
estate and tax planning, and insurance planning. The subsidiary's revenues are
derived by charging fees and receiving commissions on various products. The
subsidiary has been in business since 1972 and is a Federally Registered
Investment Advisory firm. Firstmark Capital Corp. has four certified financial
planners and seven financial advisors.
Firstmark Investment Corp. Acquired: January 1986
This subsidiary also serves as the Company's investment banking and
consulting subsidiary. Firstmark Investment Corp. markets the Company's
proprietary investment products to other firms and serves as advisor and manager
in some cases to the Company's equity funds.
Firstmark Properties Inc. Founded: 1985
This subsidiary offers commercial and investment real estate brokerage
services primarily to the Company's own holdings. The subsidiary also advises
its parent company on real estate related acquisitions and projects. This
subsidiary currently has five State of Maine Real Estate Agent licensed
professionals affiliated with it.
13
Firstmark Corp.
In addition to being the parent company, the Company also invests its
own capital in various real estate and venture capital projects, business loans,
and other investments.
QFAN Marketing Services, Inc. Founded: 1984
This subsidiary provides consulting services to emerging growth
companies. These services include business consulting, marketing consulting,
financial public relations, and other promotional activities. In addition, this
subsidiary holds certain real estate holdings of the Company.
Southern Capital Acquisitions Corp. Founded: 1996
This subsidiary was established to serve as the corporation used to
acquire the stock of SCC and SCC's subsidiaries. See "Description of Business --
General."
Investors Southern Corporation Acquired: 1996
Investors Southern Corporation serves as the holding company for the
title insurance and related operations.
Subsidiaries of Investors Southern Corporation:
Southern Title Insurance Corporation Acquired: 1996 (Founded in 1925)
This subsidiary is a title insurance underwriter. It operates
through a combination of 14 direct offices and over 100 agents.
Southern Title Agency Corporation Acquired: 1996
This subsidiary is a title insurance agency for two of the
national title insurance underwriters.
Southern Abstractors Corporation Acquired: 1996
This subsidiary performs all title examinations and abstracts
for all of the title insurance operations. Title examinations and
abstracts involve the researching of court and other land records to
find the status of title to that particular property.
Glasgow Enterprises Corp. Acquired: 1996
This subsidiary is involved in title agency joint ventures
with various partners. These joint ventures and the percentage of
ownership are as follows:
Southern Title of Ohio, Inc. 75%
Southern Title of Ohio, Limited 75%
Southern Title of the Peninsula, LLC 70%
Southern Title of Chesapeake, Inc. 70%
Southern Title of North Carolina, LLC 70%
14
Virginia First Title and Escrow LLC 70%
Southern Agency, LC 70%
Attorneys' Title Insurance Company LLC 50%
Southern Title of Roanoke, LLC 33%
Southern Title Services, Inc. Acquired: 1996
This company is a subsidiary of STIC and currently provides
special title insurance and real estate transaction accommodation
functions, such as exchanger in like kind exchanges and mechanics' lien
agent for construction loans in Virginia.
Firstmark and all of its subsidiaries are collectively hereinafter
referred to as the "Company'.
Employees
The Company and its subsidiaries have 148 total employees, of which 13
are part-time, as of June 30, 1996. The Company believes that its relations with
its employees are good.
Significant Customers
The Company does not receive more than 10% of its business or revenues
from any single customer.
Competition
The title insurance business is very competitive. Competition is based
primarily on price, service, and expertise. Competition within the title
insurance industry has increased as new local and regional title insurance
operations as well as national companies are vying for market share. Title
insurance underwriters also compete for agents on the basis of service and
commission levels.
The financial services industry is highly competitive. Everyone from
bankers to securities brokers is marketing financial services. In recent years,
competition has intensified as more people have entered the industry. Stock
brokers have expanded into financial planning, banks are now buying out
brokerage firms, insurance companies are doing the same, and all of them are
calling themselves financial advisors. The Company feels, however, that it has
developed an ability to identify and penetrate niche markets. In the venture
capital area, the Company targets firms that are too small for the large firms
to work with and too large for the smaller firms to service. This market is
particularly appealing to a company the Company's size. In the financial
consulting area, the Company has assembled a team of specialists with
diversified backgrounds in investments, law and accounting. This specialist
approach provides our individual and corporate clients with objective
personalized service.
Insured Risk and Loss Reserves
The insured risk or "face amount" of insurance under a title insurance
policy is generally equal to either the purchase price of the property or the
amount of the loan secured by the property. The insurer is also responsible for
the cost of defending claims against the insured title. The insurer's actual
exposure at any time is significantly less than the total face amount of
policies in force because the risk
15
on an owner's policy is often reduced over time as a result of subsequent
transfers of the property and the reissuance of title insurance by other title
insurance underwriters, and the coverage of the lender's policy is reduced and
eventually terminated as a result of payment of the mortgage loan. Because of
these factors, there is no practical way to ascertain the total contingent
liability of a title underwriter on outstanding policies.
In the ordinary course of business, STIC represents and defends the
interests of their insured and provides on its books for estimated losses and
loss adjustment expenses. In recent years, the cost of defending policy claims
has increased. Title insurers are also sometimes subject to claims arising
outside the insurance contract, such as for alleged negligence in search,
examination or closing, alleged improper claims handling and alleged bad faith.
The damages alleged in such claims may often exceed the stated liability limits
of the policies involved.
Liabilities for estimated losses and loss adjustment expenses are
accrued when premium revenues are recognized and are based upon historical and
anticipated loss experience. The resulting liability reflects discounted
estimates of net costs to settle all reported claims and claims incurred but not
yet reported to the company. Loss reserve calculations are based on annual
reviews of the actual paid claims experience. Reserves for losses incurred but
not reported (IBNR) are estimated based on the use of actuarial methods.
Regulation
The title insurance businesses, in common with those of other insurance
companies, are subject to comprehensive, detailed regulation in the
jurisdictions in which they do business. Such regulation is primarily for the
protection of policyholders rather than for the benefit of investors. Although
their scope varies from place to place, insurance laws in general grant broad
powers to supervisory agencies or officials to examine companies and to enforce
rules or exercise discretion touching almost every significant aspect of the
conduct of the insurance business. These powers include the licensing of
companies and agents to transact business, the imposition of monetary penalties
for rules violations, varying degrees of control over premium rates, the forms
of policies offered to customers, financial statements, periodic reporting,
permissible investments and adherence to financial standards relating to
surplus, dividends and other criteria of solvency intended to assure the
satisfaction of obligations to policyholders.
State holding company acts also regulate changes of control in
insurance holding companies and transactions and dividends between an insurance
company and its parent or affiliates. Although the specific provisions vary, the
holding company acts generally prohibit a person from acquiring a controlling
interest in an insurer incorporated in the state promulgating the act or in any
other controlling person of such insurer unless the insurance authority has
approved the proposed acquisition in accordance with the applicable regulations.
In many states, including Virginia, where STIC is domiciled, "control" is
presumed to exist if 10% or more of the voting securities of the insurer are
owned or controlled by a party, although the insurance authority may find that
such control in fact does or does not exist where a person owns or controls
either a lesser or a greater amount of securities. The holding company acts also
impose standards on certain transactions with related companies, which generally
include, among other requirements, that all transactions be fair and reasonable
and that certain types of transactions receive prior regulatory approval either
in all instances or when certain regulatory thresholds have been exceeded.
16
The Insurance Law of Virginia limits the maximum amount of dividends
which may be paid without approval by the Virginia Bureau of Insurance.
Reinsurance
STIC distributes title insurance risks through the mechanism of
reinsurance. In reinsurance agreements, the reinsurer accepts that part of the
risk which the primary insurer (the "ceder") decides not to retain, in
consideration for a portion of the premium. The ceder, however, remains liable
to the insureds for the total risk, whether or not the reinsurer meets its
obligation.
At June 30, 1996, STIC had a treaty reinsurance agreement where all
single policy risk in excess of $250,000 is reinsured.
Properties
Corporate Real Estate
The Company's executive and administrative offices, consisting of
approximately 4,000 square feet, are located in a 6,000 square foot building
owned by the Pinnacle Investment Group ("Pinnacle"), a group consisting of four
individuals, one of whom is an officer of the Company. This facility is leased
from Pinnacle under a fifteen year lease terminating on December 31, 2003. The
lease is renewable and negotiable after five years. The Company owns the parcel
of land where its administrative offices are located. Pinnacle, however, holds
an option to purchase the land for $60,000.
The Company also owns 5,716 square feet of land and a two-story office
building containing 3,842 square feet that contains the Charlottesville,
Virginia office of STIC. The building is not encumbered and is in good operating
condition. The brick structure was built in 1920 and renovated in 1985.
Investment Real Estate
Investments in real estate are made for possible development of the
property or immediate re-sale. Most real estate held by the Company consists of
lakefront property, but non-lakefront property is also owned. The majority of
the real estate owned by the Company is either developed or undeveloped raw
land. The Company has one single-family housing unit that was acquired in
connection with the moving of an employee.
The Company's real estate properties are reviewed for impairment
whenever events or circumstances indicate that the carrying value of such
properties may not be recoverable.
Legal Proceedings
Firstmark is involved in litigation from time to time in the ordinary
course of business. As of June 30, 1996, the Company was not involved in any
litigation.
On August 7, 1996, Lake Anna Development, L.C. ("Lake Anna") filed a
Motion for Judgment against STIC in the Circuit Court of Louisa County in the
Commonwealth of Virginia. The Motion for Judgment alleges that STIC breached a
contractual obligation under a title insurance policy that contained
17
affirmative mechanics' lien coverage when STIC denied liability under the
exclusions of the title insurance policy. STIC issued the title insurance policy
at issue to the lender, a federal savings bank, in connection with the
development of the insured project. Lake Anna alleges that it has succeeded to
the position of the lender. The Motion for Judgment seeks relief in the amount
of $1,342,374.38 plus interest from May 6, 1996. STIC denies any liability to
the lender and is vigorously defending the claims asserted against it.
FIRSTMARK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of Firstmark Corp. This discussion and analysis should be read
in conjunction with the Company's Financial Statements and the Notes to
Financial Statements, which are attached to this Proxy Statement as Appendix D.
Results of Operations
1996 vs. 1995
Fiscal year 1996 was one of significant change for the Company. On June
7, 1996, the Company completed the acquisition of SCC, and as a result the
Company's assets increased $11.4 million or 164% and its stockholders' equity by
$8.75 million or 154%. As more fully explained in Note 2 to the Consolidated
Financial Statements, the assets of SCC were merged into a wholly owned
subsidiary of the Company in exchange for 40,000 shares of the company's
Preferred Series B, cumulative, non-voting preferred stock. It is anticipated
that these shares will be converted into at least 2,000,000 shares of the Common
Stock. This larger balance sheet will allow the Company a broader base to build
on and increase stockholders' equity.
This increase in the assets and stockholders' equity was offset by $1.2
million of write-offs and reserves for venture capital investments and loans in
several startup companies. Due to the uncertainty of these investments and
loans, the Company's Board of Directors has described it as prudent to make
these adjustments in the venture capital investments. The progress of these
investments and the repayment of these loans will be actively managed for
improvements which may allow the Company to recover these write-offs and
reserves.
Please note that the statement of earnings as shown in the Consolidated
Financial Statements only includes the consolidated results of operations for
SCC for the period of June 7, 1996 to June 30, 1996. It is anticipated that in
the future the title insurance revenues will become the Company's major source
of revenues.
Pretax earnings decreased $1.5 million or 200% from 1995 largely as a
result of the write-offs and reserves noted above.
Revenues increased $.3 million or 11% from 1995 mainly as a result of
$.8 million in title insurance revenues which were not present in 1995. This
increase was offset by a decrease in real estate and timber revenues of $.7
million or nearly 100%. There were no timber revenues in 1996 as all timber has
been harvested. The real estate market continues to be sluggish. The Company
continues to believe
18
that its properties, located largely on Maine lakes, will prove to be profitable
investments over the longer term. As a result of management's review of the real
estate holdings, the Company added an additional $20,000 to the reserve against
real estate holdings. Investment gains increased $.2 million or 50% from 1995
mainly as a result of the Intercel stock distribution. Please see the Note 3 to
the Consolidated Financial Statements for additional information on this
investment.
Expenses before write-offs of loans and investments increased $.6
million or 27% from 1995. This increase was mainly from increased employee
compensation and benefits costs of $.7 million or 59% from 1995. This increase
is attributed largely to SCC's insurance operations as the title insurance
operations is highly labor intensive.
During fiscal 1996 the Company had to make some hard decisions
concerning its venture capital, investments, but with the decisions behind the
Company and with the addition of the Southern Capital Corp. companies,
management is working on strategies to return to profitability.
Results of Operations
1995 vs. 1994
Pre-tax earnings in 1995 increased 185% to $771,895 over the $271,003
level of 1994. Total expenses, 91% of revenues in 1994, only amounted to 75% of
revenues in 1995. Total 1995 revenues of $3,054,453 were slightly lower than the
prior year's $3,176,950.
Real estate and timber revenues were higher in 1995 than in 1994 due to
increased harvesting from the timber tract purchased in August 1993. This tract
was completely harvested by June 30, 1995. The real estate market continues to
be sluggish. However, in March 1994 the Company provided an additional write
down of $296,000 related to its real estate holdings. The Company continues to
believe its properties, located largely on Maine lakes, will prove to be
profitable investments over the longer term.
Commissions and fees went from $1,562,684 in 1994 to $1,665,078 in
1995. The 6.55% increase resulted both from increased consulting fees as well as
additional revenues generated at the Firstmark Prime Securities division of
Firstmark Investment Corp. in Portland, Maine. The property and equipment of
Prime Securities were acquired and its employees were hired in April 1994;
therefore, fiscal year 1995 was the first year which included a full year's
worth of revenues.
Gains on securities, $443,134, were significantly higher than in the
prior year. Over $200,000 of these gains were due to the implementation of a
trading program at Firstmark Prime Securities. In addition, the parent company
changed its method of accounting for investments in equity securities and
accordingly reported an unrealized gain of approximately $176,000 on trading
securities.
Interest and dividend income was up over 10% from last year due to
improved interest rates earned on cash investments. The increase was partially
offset because of paydowns on loans receivable.
Commissions and fees expense decreased to $916,227 in 1995 from
$1,072,464 in 1994, despite an increase in related revenues. The decrease
resulted primarily because some commissioned representatives became employees in
January 1994 and received lower commission percentages. In addition, certain fee
income was generated for which no commissions were paid.
19
The cost of real estate and timber revenues was 47% lower than in the
prior year. One reason for the decrease was the $296,000 write down, discussed
above, that occurred last year. There was no comparable write down in 1995. In
addition, there were fewer real estate sales in 1995 than in 1994.
General and administrative expenses increased slightly to $763,160 from
$718,901. Depreciation and amortization were $26,000 higher than in the prior
year. These increases were largely due to the cost associated with the new
trading office in Portland and the acquisition of a client list from a former
financial advisor.
Interest expense, $87,476 in 1995, was almost 40% lower than in the
prior year. The decrease resulted because $675,000 of short term borrowing
obtained to finance the timberland purchase, outstanding for most of fiscal year
1994, were paid off. In addition, the Company's long term debt has been reduced
from $1,147,500 at June 30, 1994 to $1,035,000 at June 30, 1995.
Overall, Firstmark increased its profitability over 1994 because both
financial services and real estate operations improved. The financial services
improvement resulted from gains on trading securities and increased net
commissions and fees offset by the one time gain on Unity Telephone in 1994. The
real estate operations improvement resulted from higher profitability on its
timber cutting operation and the one time write down of real estate in 1994.
Liquidity and Capital Resources at June 30, 1996
The Company's cash level is at $1,600,000 at June 30, 1996. The Company
continues to focus on maintaining and in fact increasing it liquidity by
converting real estate and other nonliquid investments to cash in a timely
manner so that it can meet its obligations when due. The Company has the
following obligations coming due in fiscal year 1997:
Convertible notes issued April 1992 due April 1997 $ 1,035,000
Advance from stockholder due January 1997 100,000
Bank line of credit due April 1997 400,000
Reference is made to the "Regulation" section of Part I concerning
payments of dividends from the title insurance companies.
Due to the nature of its operations, the Company does not expect to
incur significant environmental costs. Its capital resources are not expected to
be affected significantly by the current accounting pronouncements regarding
accounting for impairment of loans and accounting for investments in debt and
equity securities and derivatives.
INDEPENDENT ACCOUNTANTS
On August 19, 1996, the Board of Directors of the Company, approved the
replacement of Edwards, Faust & Smith as the independent accountant chosen to
audit the Company's financial statements and approved the appointment of
Deloitte & Touche LLP as the Company's independent accountant.
20
Edwards, Faust & Smith's report on the financial statements of the
Company for each of the two fiscal years ended June 30, 1995 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to audit scope or accounting principles. Their report on the Company's June 30,
1995 financial statements dated September 11, 1995 did contain an explanatory
paragraph due to a change in the method of accounting for investments, the
uncertainty regarding the recoverability of an investment and emphasis of a
matter regarding a gain from a settlement which occurred subsequent to year end.
During the Company's two fiscal years ended June 30, 1995 and during
the subsequent period preceding the date of Edwards, Faust & Smith's
replacement, there has been no disagreement with Edwards, Faust & Smith on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Edwards, Faust & Smith, would have caused Edwards, Faust & Smith
to make reference to the subject matter of the disagreement in connection with
its report.
Representatives of Deloitte & Touche LLP are expected to be present at
the Special Meeting of Stockholders, will have the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
21
SOUTHERN CAPITAL CORP.
SCC, through its subsidiary, STIC, is principally engaged in the
business of issuing title insurance and related services. SCC is also involved
in providing financial consulting advice to corporations and reviews investment
opportunities for its own account. SCC also is an investor in Champion
Broadcasting Corp., a small market radio acquisition company that acquires
multiple stations in single markets ranked below the top 150 markets by
Arbitron.
SOUTHERN CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of SCC prior to the Acquisition. This discussion and analysis
should be read in conjunction with SCC's Financial Statements and the Notes to
Financial Statements, which are attached to this Proxy Statement as Appendix E.
Results of Operations
Six Months Ended June 30, 1996 vs. June 30, 1995
Overall, the result of the first six months of 1996 were better than
1995 as the new operations started in the second half of 1995 have started to
produce. The first two quarters of the year are generally slower than the last
two of the year. Losses were $113,000 for the first six months of 1996, down
from losses of $119,000 for the first six months of 1995. Revenues in total
increased $842,000 or 21% the first six months of 1996 versus 1995. This
increase was a result of an increase in premium revenue of $313,000 or 10% from
1995 and abstract and related income of $544,000 or 102% from 1995. Both the
premium revenues and abstract and related income increases were due in part to
the new operations started in the second half of 1995. The new operations
perform escrow closing services, which generate additional abstract and related
income not available through our non-closing operations.
Gains on sales of investments increased by $41,000 or 87% over 1995 as
management continues to work on increasing the returns on investments.
Total expenses increased $761,000 or 18% over the same six-month period
in 1995. This increase was a result of increased salaries and benefits costs of
$611,000 or 37% and office occupancy and operations costs of $192,000 or 39%.
The cost increases can be attributed to the new operations started in the second
half of 1995. The number of employees increased from 85 employees at June 30,
1995 to 135 at June 30, 1996. The number of operating facilities increased by 7
facilities from June 30, 1995 to June 30, 1996. This increase was accomplished
in part through the acquisitions of the operations of two title agencies, First
Security Title with two offices in the Tidewater area of Virginia and
Residential Title and Escrow in Northern Virginia. Management is currently
proceeding with consolidating the overhead of the new offices acquired with
existing STIC facilities. The expense increases are partially offset by
decreases in commissions of $117,000 or 8% and provision for policy claims of
$111,000 or 77%. The commissions to agents decreased as a result of slightly
lower premiums from non-affiliated agencies. The provision for policy claims
continues to decrease as the rate of claims filed continues to decrease. This
decrease can be attributed to the company's continuing commitment to
22
quality underwriting and abstracting. Professional fees and other fees increased
for the six month period ended June 30, 1996 as a result of organizational costs
related to the new operations.
Results of Operations
1995 vs. 1994
Assets decreased from the prior year during 1995 by 3% or $195,000.
This decrease can be attributed primarily to the expansion of SCC's title
operations in 1995 and the startup costs associated with that expansion.
Property, Plant and Equipment increased by $136,000 or 33% as a result of the
new operations as well as the completion of a major project to upgrade and
standardize SCC's computer systems.
Loss reserves continue to decrease, down $50,674 or 5% from 1994 due to
SCC's continued effort of providing quality underwriting and related title
services.
Revenues decreased $1,135,000 or 11% from 1994. This decrease was
mainly a result of decreased premiums from title insurance. Premiums decreased
$1,697,000 or 20% from 1994, due to the end of refinance activity in the second
half of 1994 and rising interest rates. The reduction in premium levels was
partially offset by an increase in abstract and related income of $349,000 or
30% and an increase in other income of $98,000 or 88%. The increase in abstract
and related income is a result of expanded activity in the real estate
settlement segment of SCC's business.
Expenses were down $506,000 or 5% from 1994. The main contributor to
this change was a decrease in commissions to agents of $1,099,000 or 26%. This
decrease corresponds to the decrease in premium revenues received from the
agents. Other expenses increased primarily as a result of the expansion efforts
as previously discussed.
The net income of SCC fell $448,000 or 107% to a loss of $31,000 in
1995. The loss or net income was caused by the drop in revenues as previously
discussed. Expenses also decreased but not in proportion to the decrease in
revenues. The expenses included costs for setting up new operations, expanding
current operations and standardizing and upgrading computer systems, the
combination of which is expected to increase profitability in the future.
Results of Operations
1994 vs. 1993
Results of 1994 as compared to 1993 were not unexpected as the level of
refinancing which took place in 1993 dropped significantly, and an overall
slowdown occurred in the real estate market. As a result, whereas SCC saw an
improvement in overall shareholder equity of 19%, premium revenues actually
fell by 7%.
1994 saw dramatic changes in the balance sheet from 1993. As stated
above, shareholder's equity increased by 19% or $336,000 from 1993. Total assets
were down $931,000 or 13% from 1993, while total liabilities were down 1,268,000
or 23% from 1993. These decreases can be attributed to the payoff of the
$100,000 note and the settlement of several claims which had been reserved for
in prior years.
23
Cash decreased $1,883,000 or 76%, as it was used for the payoff of the
notes payable of $100,000, settlement of claims previously reserved and the
purchase of investments held to maturity (bonds).
Total investments increased $664,000 or 25% from 1993, as SCC increased
its investments held to maturity (bonds) by $935,686 or 67% from 1993, and
reduced its investments available for sale (stocks) by $276,000 or 23%. It is
anticipated that this movement of cash and stocks into bonds will help improve
SCC's investment income in future years. Maturities of these new bonds are
spread out from one to ten years so that SCC will not have a large balance
maturing at any one time.
Property, Plant and Equipment increased $217,555 or 116% from 1993.
This increase was a result of two factors: the setup costs of SCC's joint
venture in Ohio and the start of a project, which was completed in 1995, of
upgrading and standardizing SCC's computer systems in each of its operating
offices. The Ohio joint venture will provide title insurance and real estate
escrow closings to potential clients in the Central Ohio area. It marks SCC's
first operation providing escrow closing services. The computer upgrade and
standardization will enable all of the title insurance offices to function in
the same fashion and will enhance productivity and customer service.
During 1994, as part of a claims settlement, SCC acquired two
properties, a two acre lot and an 86 acre parcel. These parcels of land are
being actively marketed for sale.
The Reserve for policy claims decreased $686,000 or 38% from 1993. This
decrease was a result of payoffs of claims that were reserved in prior years, as
well as a decrease in the loss expense, which is recorded based on a rate per
dollar of premium revenue. This rate is calculated using prior years' experience
factors. Total Loss expense decreased $556,000 or 73% from 1993.
Net income for 1994 fell $767,000 or 65% from 1993, which can be
attributed to several factors. The first factor is that Premium Revenues fell
$610,000 or 7% from 1993 as a result of the decline in the "refinance" market
during the second half of 1994. The second factor was that SCC was able to
recognize a $245,000 gain on sale of foreclosed properties in 1993, while in
1994 it recognized a loss of $31,000, a decrease of $276,000 from 1993. The
third factor was that expenses in total increased from 1993 by $323,000 or 3%,
while the revenues were down. These changes were a result of higher commissions
to agents and higher salaries and benefits offset partially by the decrease in
the provision for policy claims. The commissions to agents increased because a
larger percentage of premium revenues was being generated by outside agents
versus direct operations in 1994 and higher commission percentages having to be
paid to be competitive with the market. The increase in salaries and benefits
can be attributed mainly to the startup of the Ohio joint venture.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
and statement of operations give effect to the Acquisition. See "The Consummated
Acquisition." The pro forma information is based on historical financial
statements of the Company and SCC giving effect to the transaction under the
purchase method of accounting and adjustments described in the accompanying
explanatory notes to the unaudited pro forma statements. The June 30, 1996
unaudited pro forma condensed consolidated balance sheet gives effect to the
Acquisition as if the Acquisition had occurred on June 30, 1996. The unaudited
pro forma condensed consolidated statement of operations for the year
24
ended June 30, 1996, gives effect to the Acquisition as if the Acquisition had
occurred on July 1, 1995, the first day of the period presented.
The unaudited pro forma condensed consolidated financial statements
have been prepared by the Company based upon assumptions deemed proper by it.
The unaudited pro forma condensed consolidated financial statements presented
herein are shown for illustrative purposes only and are not necessarily
indicative of the future financial position or future results of operations of
the Company, or the financial position or results of operations of the Company
that would have actually occurred had the transaction been in effect as of the
date or for the period presented.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements of the
Company and SCC.
FIRSTMARK CORP.
PRO FORMA BALANCE SHEET
YEAR ENDED JUNE 30, 1996
(Unaudited)
(Amounts in thousands)
Firstmark Southern Pro Forma Pro Forma
Corp. Capital Adjustments Combined
ASSETS
Cash and cash equivalents $ 658 $ 982 $ 1,640
Investments - interest bearing time deposits - - 63
Investments - trading 386 - 386
Investments - available for sale 957 399 1,356
Investments - held to maturity - 1,979 1,979
Real estate and timber 1,175 - 1,175
Other Investments 1,554 506 $ 412 {a} 2,472
Notes and accounts receivable 501 1,174 1,675
Title plant - 42 3,502 {a} 3,544
Property - net 154 634 350 {a} 1,138
Other assets 285 669 535 {b} 1,489
============== =============== ============== ================
Total Assets $ 5,670 $ 6,448 $ 4,799 $ 16,917
============== =============== ============== ================
LIABILITIES
Borrowed funds $ - $ 682 $ 682
Other accrued liabilities 196 310 506
Reserve for policy claims - 945 945
Deferred income tax liability - 655 655
Convertible notes payable 1,035 - 1,035
Negative goodwill 2,123 $ (2,123){d} 0
-------------- --------------- -------------- ----------------
Total Liabilities 1,231 4,715 (2,123) 3,823
-------------- --------------- -------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock 11 - 8 {f} 19
Common stock 454 - 454
Treasury stock (819) - (819)
Retained earnings (826) 1,537 (3){d} 708
Additional paid in capital - common 3,394 204 3,598
Additional paid in capital - preferred 2,163 - 6,917 {f} 9,080
Net unrealized gain / (loss) 62 (8) 54
-------------- --------------- -------------- ----------------
Total Stockholders' Equity 4,439 1,733 6,922 13,094
-------------- --------------- -------------- ----------------
Total Liabilites and Stockholders'
Equity $ 5,670 $ 6,448 $ 4,799 $ 16,917
============== =============== ============== ================
check $0 $0 $0 $0
See accompanying notes to unaudited pro forma financial statements.
25
FIRSTMARK CORP.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(Unaudited)
(Amounts in thousands)
Firstmark Southern Pro Forma Pro Forma
Corp. Capital Adjustments Combined
Commissions and fees $ 1,730 $ - $ 1,730
Interest and dividend income 156 243 399
Loss (gain) on investments 659 132 791
Title insurance revenues - 9,117 9,117
Amortization of negative goodwill - - 0
Other income 6 176 182
------------- -------------- -------------- -------------
Total revenues 2,551 9,668 - 12,219
-------------
Commissions and fee expense 1,018 3,028 4,046
Depreciation and amortization 68 - 3{d} 71
Interest expense 85 - 85
General and adminstrative 862 6,972 7,834
Provision for policy claims 0 209 209
Other 29 - 29
------------- -------------- -------------- -------------
Operating expenses 2,062 10,209 3 12,274
Bad debt expense 1,272 1,272
------------- -------------- -------------- -------------
Income (loss) before taxes (783) (541) (3) (1,327)
Income tax expense (benefit) (266){e} (184){e} (450)
------------- -------------- -------------- -------------
Net income (loss) (517) (357) (3) (877)
Dividends on preferred stock 142 142
------------- -------------- -------------- -------------
Net income (loss) applicable to
common stock $ (659) $ (357) $ (3) $ (1,019)
============= ============== ============== =============
Earnings (Loss) per common share $ (0.31) $ (.25){c}
============= =============
See accompanying notes to unaudited pro forma financial statements.
26
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) Represents the write up of fixed assets, title plant, and
investments that resulted from applying purchase price
accounting.
(b) Represents the excess of purchase price over the net assets
acquired with and estimated useful life of 20 years. The
amounts are preliminary estimates and are not expected to
materially change.
(c) EPS calculation includes preferred shares issued to SCC as if
the Acquisition had been completed at the beginning of the
year and assumes conversion to common stock.
(d) Includes amortization of goodwill for one year that resulted
from the Acquisition. Elimination of negative goodwill that
resulted from prior acquisition by SCC.
(e) Income taxes have been determined using the applicable
statutory rate.
(f) Issuance of Firstmark preferred stock to sellers of SCC.
PROPOSALS FOR 1996 ANNUAL MEETING
Under the regulations of the Securities and Exchange Commission, any
stockholder desiring to make a proposal to be acted upon at the 1996 Annual
Meeting of Stockholders must cause such proposal to be received, in proper form,
by the Secretary of the Company, whose address is One Financial Place, 222
Kennedy Memorial Drive, Waterville, Maine 04901, no later than June 22, 1996, in
order for the proposal to be considered for inclusion in the Company's Proxy
Statement. The Company presently anticipates holding the 1996 Annual Meeting in
November 1996.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO
FILL IN, SIGN AND RETURN THE ACCOMPANYING PROXY CARD, NO MATTER HOW
LARGE OR SMALL YOUR HOLDINGS MAY BE.
By Order of the Board of Directors
Ivy L. Gilbert, Secretary
Waterville, Maine
October __, 1996
27
Appendix A
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE THE AMOUNT OF AUTHORIZED COMMON STOCK
RESOLVED, that the stockholders of Firstmark Corp. hereby approve a
proposal to amend Article Fifth of the Company's Articles of Incorporation so
that after amendment it shall read in its entirety as follows:
The number of shares that the corporation has authority to
issue is as follows:
1. Thirty million (30,000,000) shares of Common Stock, $.20 par
value per share.
2. Two hundred fifty thousand (250,000) shares of Preferred
Stock, $.20 par value per share.
The aggregate par value of all such shares (of all classes and
series) having par value is $6,050,000.
The total number of all such shares (of all classes and
series) without par value is zero shares.
Nothing in this amendment shall affect:
(a) Appendix I to Exhibit A to the Articles of Amendment
of the Corporation, describing the Preferred Stock of the Corporation,
filed April 7, 1996;
(b) the Statement of Resolution Establishing Series of Shares
of the Corporation, creating the $2.40 Cumulative Convertible Preferred
Stock of the Corporation and the relative rights and preferences
thereof, filed May 1, 1996; and
(c) the Statement of Resolution Establishing Series of Shares
of the Corporation, creating the Series B Preferred Stock of the
Corporation and the relative rights and preferences thereof, filed May
7, 1996.
Appendix B
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
TO OPT OUT OF SECTION 910
OF THE MAINE BUSINESS CORPORATION ACT
RESOLVED, that the stockholders of Firstmark Corp. hereby approve a
proposal to amend Article Eighth of the Company's Articles of Incorporation so
that after amendment it shall include the following:
Section 910 of the Maine Business Corporation Act shall not be
applicable to the Corporation.
Appendix C
AGREEMENT AND PLAN OF REORGANIZATION
between
Southern Capital Corp.
and
Southern Capital Acquisition Corp.
and
Firstmark Corp.
-------------------------
April __, 1996
TABLE OF CONTENTS
ARTICLE 1
The Reorganization and Related Matters
Page
1.1 The Reorganization...................................................................................... 6
1.2 Management and Business of SCC and FMC...................................................................6
1.3 The Closing and Effective Date...........................................................................7
1.4 Definitions..............................................................................................7
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of Shares.....................................................................................7
2.2 Manner of Exchange.......................................................................................8
ARTICLE 3
Representations and Warranties
3.1 Representations and Warranties of SCC....................................................................8
(a) Organization, Standing and Power................................................................8
(b) Authority.......................................................................................8
(c) Capital Structure...............................................................................9
(d) Ownership of the SCC Subsidiaries; Capital Structure
of the SCC Subsidiaries; and Organization of the SCC
Subsidiaries....................................................................................9
(e) Financial Statements...........................................................................10
(f) Absence of Undisclosed Liabilities.............................................................10
(g) Legal Proceedings; Compliance with Laws........................................................10
(h) Regulatory Approvals...........................................................................10
(i) Labor Relations................................................................................11
(j) Tax Matters....................................................................................11
(k) Property.......................................................................................11
(l) Reports........................................................................................11
(m) Employee Benefit Plans.........................................................................11
(n) Investment Securities..........................................................................12
(o) Certain Contacts...............................................................................12
(p) Insurance......................................................................................13
(q) Absence of Material Changes and Events.........................................................13
2
Page
(r) Brokers and Finders............................................................................13
(s) Environmental Matters..........................................................................13
3.2 Representations and Warranties of FMC...................................................................15
(a) Organization, Standing and Power...............................................................15
(b) Authority......................................................................................16
(c) Capital Structure..............................................................................16
(d) Ownership of the FMC Subsidiaries; Capital Structure
of the FMC Subsidiaries; and Organization of the FMC
Subsidiaries...................................................................................17
(e) Financial Statements...........................................................................17
(f) Absence of Undisclosed Liabilities.............................................................18
(g) Legal Proceedings; Compliance with Laws........................................................18
(h) Regulatory Approvals...........................................................................19
(i) Labor Relations................................................................................19
(j) Tax Matters....................................................................................19
(k) Property.......................................................................................19
(l) Reports........................................................................................19
(m) Employee Benefit Plans.........................................................................20
(n) Investment Securities..........................................................................20
(o) Certain Contacts...............................................................................20
(p) Insurance......................................................................................21
(q) Absence of Material Changes and Events.........................................................21
(r) Brokers and Finders............................................................................21
(s) Environmental Matters..........................................................................21
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties........................................................................23
4.2 Confidentiality.........................................................................................23
4.3 Shareholder Approval....................................................................................23
4.4 Operation of the Business of SCC and FMC................................................................23
4.5 Dividends...............................................................................................25
4.6 No Solicitation.........................................................................................25
4.7 Regulatory Filings......................................................................................25
4.8 Public Announcements....................................................................................25
4.9 Notice of Breach........................................................................................25
4.10 Accounting Treatment....................................................................................25
4.11 Reorganization Consummation.............................................................................25
3
Page
ARTICLE 5
Additional Agreements
5.1 Amendment of Articles of Incorporation..................................................................26
5.2 Conversion of Preferred Stock...........................................................................26
5.3 Independent Auditor.....................................................................................26
5.4 Indemnification.........................................................................................26
5.5 Certain Expenses........................................................................................27
5.6 Escrow Agreement........................................................................................27
5.7 Key Man Life Insurance..................................................................................27
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the Reorganization ................27
(a) Shareholder Approval...........................................................................27
(b) Regulatory Approvals...........................................................................27
(c) Tax Opinion....................................................................................27
(d) Accountants' Letter............................................................................27
(e) Opinions of Counsel............................................................................27
(f) Legal Proceedings..............................................................................28
(g) Voting Agreement...............................................................................28
6.2 Conditions to Obligations of FMC........................................................................28
(a) Representations and Warranties.................................................................28
(b) Performance of Obligations.....................................................................28
(c) Affiliate Letters..............................................................................28
(d) Waiver of Dissenters' Rights...................................................................28
6.3 Conditions to Obligations of SCC........................................................................29
(a) Representations and Warranties.................................................................29
(b) Performance of Obligations.....................................................................29
4
Page
ARTICLE 7
Termination
7.1 Termination.............................................................................................29
7.2 Effect of Termination...................................................................................30
7.3 Survival of Representations, Warranties and Covenants...................................................30
7.4 Expenses................................................................................................30
ARTICLE 8
General Provisions
8.1 Entire Agreement........................................................................................30
8.2 Waiver and Amendment....................................................................................30
8.3 Descriptive Headings....................................................................................31
8.4 Governing Law...........................................................................................31
8.5 Notices.................................................................................................32
8.6 Counterparts............................................................................................32
8.7 Severability............................................................................................32
8.8 Brokers and Finders.....................................................................................32
8.9 Subsidiaries............................................................................................32
Exhibit A - Plan of Merger between Southern Capital Corp. and Firstmark Corp....................................A-1
Exhibit B - Resolution of Firstmark Corp. Board of Directors....................................................B-1
Exhibit C - Voting Agreement....................................................................................C-1
Exhibit D - Escrow Agreement....................................................................................D-1
5
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of April __, 1996 by and between Southern Capital Corp., a
Virginia corporation ("SCC"), Southern Capital Acquisition Corp., a Virginia
corporation ("SCAC"), and Firstmark Corp., a Maine corporation ("FMC").
WITNESSETH:
WHEREAS, SCC and FMC desire to combine their respective businesses; and
WHEREAS, FMC has caused SCAC to be organized for the purpose of
acquiring all of the assets and liabilities of SCC; and
WHEREAS, SCC and FMC have agreed to the affiliation of their two
companies through a Merger of SCC and SCAC under Virginia law in which the
shareholders of SCC would become shareholders of FMC, all as more specifically
provided in this Agreement and the Plan of Merger in the form attached hereto as
Exhibit A (the "Plan"); and
WHEREAS, the respective Boards of Directors of SCC, SCAC and FMC have
resolved that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Reorganization and Related Matters
1.1 The Reorganization. Subject to the terms and conditions of
this Agreement and the Plan of Merger attached hereto as Exhibit A, at the
Effective Date as defined in Section 1.3 hereof, SCC will be merged with and
into SCAC (the "Reorganization"). The separate corporate existence of SCC shall
thereupon cease, and SCAC will be the surviving corporation in the
Reorganization
1.2 Management and Business of SCC. The directors, officers and
employees of SCC will not change as a result of the Reorganization. H. William
Coogan, Jr., Donald V. Cruickshanks, R. Brian Ball and Susan C. Coogan shall be
elected and appointed to serve on the FMC Board of Directors on the Effective
Date. It is the intention of the parties that after the FMC Preferred Stock (as
hereafter defined) to be issued to the shareholders of SCC in the Reorganization
has been converted to common stock of FMC, Susan C. Coogan will resign from the
FMC Board of Directors and will be replaced by an individual unaffiliated with
FMC or SCC and who is approved by all the directors of FMC. The parties intend
to continue to operate
6
FMC and SCC substantially as they have been operated in the recent past and are
being operated currently, with such changes to their respective businesses as
the Board of Directors of FMC deems appropriate from time to time, including
changes that result from the acquisition of new businesses. No substantial
change in the business of either FMC or SCC is contemplated and will not be
considered for at least twelve months after the Effective Date, unless such
change is dictated by economic conditions and deemed by the Board of Directors
to be in the best interests of FMC and its majority owned subsidiaries. There
shall not be any liquidation of substantially all assets of FMC as part of any
plan of liquidation in 1996.
1.3 The Closing and Effective Date. The closing of the
transactions contemplated by this Agreement and the Plan of Merger shall take
place at the offices of Williams, Mullen, Christian & Dobbins, 1021 East Cary
Street, Richmond, Virginia or at such other place as may be mutually agreed upon
by the parties. The Reorganization shall become effective on the date shown on
the Certificate of Merger issued by the State Corporation Commission of Virginia
effecting the Reorganization (the "Effective Date"). Unless otherwise agreed
upon in writing by the chief executive officers of FMC and SCC, subject to the
conditions to the obligations of the parties to effect the Reorganization as set
forth in Article 6, the parties shall use their best efforts to cause the
Effective Date to occur on the first day of the month following the month in
which the conditions set forth in Sections 6.1(a) and 6.1(b) are satisfied. All
documents required by the terms of this Agreement to be delivered at or prior to
consummation of the Reorganization will be exchanged by the parties at the
closing of the Reorganization (the "Reorganization Closing"), which shall be
held on the Effective Date. Prior to the Reorganization Closing, SCAC and SCC
shall execute and deliver to the Virginia State Corporation Commission Articles
of Merger containing a Plan of Merger in substantially the form of Exhibit A
hereto. As between the parties, the Reorganization shall be treated as if it
were effective on the first day of the month in which the Effective Date occurs.
1.4 Definitions. Any term defined anywhere in this Agreement shall
have the meaning ascribed to it for all purposes of this Agreement (unless
expressly noted to the contrary). In addition:
(a) the term "knowledge" when used with respect to a
party shall mean the knowledge, after due inquiry, of any executive officer of
such party;
(b) For the purpose of interpreting this Agreement, the
sum of $50,000 or more shall be deemed material to the business, financial
condition or value of SCC and FMC; and
(c) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered by that
party to the other party prior to or contemporaneously with the execution of
this Agreement and specifically designated as information "Previously Disclosed"
pursuant to this Agreement.
7
ARTICLE 2
Basis and Manner of Exchange
2.1 Conversion of SCC Stock. At the Effective Date, by virtue of
the Reorganization and without any action on the part of the holders thereof,
each share of common stock, par value $1.00 per share, of SCC ("SCC Common
Stock") issued and outstanding immediately prior to the Effective Date shall
cease to be outstanding and shall be converted into and exchanged for Four
Hundred (400) shares of Cumulative Nonconvertible Nonvoting Preferred Stock,
Series B of FMC, par value $.20 per share ("FMC Preferred Stock"). The terms,
rights and preferences of the FMC Preferred Stock are set forth in the form of
resolution attached hereto as Exhibit B, which the directors of FMC adopted on
the date hereof. The shares of FMC Preferred Stock into which shares of SCC
Common Stock will be converted are hereafter referred to as the "Merger
Consideration". Each holder of a certificate representing any shares of SCC
Common Stock, after the Effective Date, shall cease to have any rights with
respect to such SCC Common Stock, except the right to receive any dividends
previously declared but unpaid as to such stock and the Merger Consideration. In
the event FMC changes the number of shares of FMC Common Stock (as hereafter
defined) issued and outstanding prior to the Effective Date as a result of any
stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding FMC Common Stock and the record date therefor shall
be prior to the Effective Date, the Merger Consideration shall be
proportionately adjusted.
2.2 Manner of Exchange. At the Reorganization Closing, FMC shall
deliver the Merger Consideration to each person who is a shareholder of record
of SCC on the Effective Date.
ARTICLE 3
Representation and Warranties
3.1 Representations and Warranties of SCC. SCC represents and
warrants to FMC as follows:
(a) Organization, Standing and Power. SCC is a Virginia
corporation, duly organized, validly existing and in good standing under the
laws of Virginia. It has all requisite corporate power and authority to carry on
its business as now being conducted and to own and operate its assets,
properties and business; SCC has one subsidiary, Investors Southern Corporation
("ISC"), a Virginia corporation, of which SCC holds 100% of the outstanding
capital stock; and SCC has the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
the Plan of Merger. ISC holds 100% of the outstanding capital stock of Southern
Title Insurance Corporation ("STIC"), a Virginia corporation.
8
(b) Authority. (1) The execution and delivery of this
Agreement, the Plan of Merger and the consummation of the Reorganization, have
been duly and validly authorized by all necessary corporate action on the part
of SCC, except the approval of shareholders. The Agreement represents the legal,
valid, and binding obligations of SCC, enforceable against SCC in accordance
with its terms (except in all such cases as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by SCC with
any of the provisions hereof will: (i) conflict with or result in a breach of
any provision of SCC's Articles of Incorporation or Bylaws; (ii) except as
Previously Disclosed, constitute or result in the breach of any term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or assets of SCC
pursuant to (A) any note, bond, mortgage, indenture, or (B) any material
license, agreement, lease, or other instrument or obligation, to which SCC is a
party or by which any of them or any of their properties or assets may be bound,
or (iii) subject to the receipt of the requisite approvals referred to in
Section 4.7, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to SCC or any or its properties or assets.
(c) Capital Structure. The authorized capital stock of SCC
consists of 5,000 shares of common stock, par value $1.00 per share, of which,
as of the date hereof, 100 shares are issued, outstanding, fully paid and
nonassessable, not subject to shareholder preemptive rights and were not issued
in violation of any agreement to which SCC is a party or otherwise bound, or of
any registration or qualification provisions of any federal or state securities
laws. Except as Previously Disclosed, there are no outstanding options, warrants
or other rights to subscribe for or purchase from SCC any capital stock of SCC
or securities convertible into or exchangeable for capital stock of SCC.
(d) Ownership of the SCC Subsidiaries; Capital Structure of
the SCC Subsidiaries; and Organization of the SCC Subsidiaries. (1) SCC does not
own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation or other organization actively
engaged in business except as Previously Disclosed (collectively the "SCC
Subsidiaries" and each individually a "SCC Subsidiary"). The outstanding shares
of capital stock of each SCC Subsidiary have been duly authorized and are
validly issued, and are fully paid and nonassessable and all such shares are
directly or indirectly owned by SCC free and clear of all liens, claims and
encumbrances. No rights are authorized, issued or outstanding with respect to
the capital stock of any SCC Subsidiary and there are no agreements,
understandings or commitments relating to the right of SCC to vote or to dispose
of said shares, except as Previously Disclosed. None of the shares of capital
stock of any SCC Subsidiary has been issued in violation of the preemptive
rights of any person.
9
(2) Each SCC Subsidiary is a duly organized corporation
validly existing and in good standing under applicable laws. Each SCC Subsidiary
(i) has full corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of SCC on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to so qualify would have a material adverse effect on the financial
condition, results of operations or business of SCC on a consolidated basis.
Each SCC Subsidiary has all federal, state, local and foreign governmental
authorizations and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted, except where
failure to obtain such authorization or license would not have a material
adverse effect on the business of such SCC Subsidiary.
(e) Financial Statements. SCC has previously furnished to
FMC true and complete copies of its audited consolidated balance sheets and
related consolidated statements of income, statements of cash flows, and
statements of stockholders' equity for the three year period ended December 31,
1995 (together with the notes thereto, the "SCC Financial Statements"). The SCC
Financial Statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
presented, and present fairly the financial position of SCC as of the respective
dates thereof and the results of its operations for the three year period then
ended.
(f) Absence of Undisclosed Liabilities. At December 31,
1995, SCC had no obligation or liability (contingent or otherwise) of any nature
which was not reflected in the SCC Financial Statements, except for those which
in the aggregate are immaterial or have been Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of SCC's management, threatened against SCC,
or against any property, asset, interest or right of SCC, that are reasonably
expected to have, either individually or in the aggregate a material adverse
effect on the financial condition of SCC or that are reasonably expected to
threaten or impede the consummation of the Reorganization. SCC is not a party to
any agreement or instrument or subject to any judgment, order, writ, injunction,
decree or rule that might reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), business or prospects of SCC.
To the best knowledge of SCC's management, SCC has complied in all material
respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
(h) Regulatory Approvals. SCC knows of no reason why the
regulatory approval referred to in Section 6.1(b) should not be obtained without
the imposition of any condition of the type referred to in Section 6.1(b).
10
(i) Labor Relations. SCC is not a party to or bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is it the subject of a proceeding
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it, pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving its employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(j) Tax Matters. SCC has filed all federal, state and local
tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the SCC Financial Statements or are being contested in good faith and have been
Previously Disclosed. Except to the extent that liabilities therefor are
specifically reflected in the SCC Financial Statements, there are no federal,
state or local tax liabilities of SCC other than liabilities that have arisen
since December 31, 1995, all of which have been properly accrued or otherwise
provided for on the books and records of SCC. Except as Previously Disclosed, no
tax return or report of SCC is under examination by any taxing authority or the
subject of any administrative or judicial proceeding, and no unpaid tax
deficiency has been asserted against SCC by any taxing authority.
(k) Property. Except as disclosed or reserved against in the
SCC Financial Statements, SCC has good and marketable title free and clear of
all material liens, encumbrances, charges, defaults or equities of whatever
character to all of the material properties and assets, tangible or intangible,
reflected in the SCC Financial Statements as being owned by SCC as of the dates
thereof. To the best knowledge of SCC, all buildings, and all fixtures,
equipment, and other property and assets which are material to its business on a
consolidated basis, held under leases or subleases by SCC are held under valid
instruments enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws. The
buildings, structures, and appurtenances owned, leased, or occupied by SCC are
in good operating condition and in a state of good maintenance and repair, and
to the best knowledge of SCC (i) comply with applicable zoning and other
municipal laws and regulations, and (ii) there are no latent defects therein.
(l) Reports. Since January 1, 1993, SCC has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the Virginia State
Corporation Commission, and to the best knowledge of SCC, any other governmental
or regulatory authority or agency having jurisdiction over its operations.
(m) Employee Benefit Plans. (1) SCC will deliver for FMC's
review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement
11
Income Security Act of 1974, as amended ("ERISA"), currently adopted, maintained
by, sponsored in whole or in part by, or contributed to by SCC for the benefit
of employees, retirees or other beneficiaries eligible to participate
(collectively, the "SCC Benefit Plans"). Any of the SCC Benefit Plans which is
an "employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as a "SCC ERISA Plan." No SCC Benefit Plan is or
has been a multi-employer plan within the meaning of Section 3(37) of ERISA.
(2) Except as Previously Disclosed, all SCC Benefit Plans are
in compliance with the applicable terms of ERISA and the Internal Revenue Code
of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to SCC on a consolidated basis.
(3) No SCC ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(n) Investment Securities. Except as Previously Disclosed,
none of the investment securities reflected in the SCC Financial Statements is
subject to any restriction, contractual, statutory, or otherwise, which would
impair materially the ability of the holder of such investment to dispose freely
of any such investment at any time.
(o) Certain Contracts. (1) Except as Previously Disclosed,
neither SCC nor any SCC Subsidiary is a party to, or is bound by, (i) any
material agreement, arrangement or commitment, (ii) any agreement, indenture or
other instrument relating to the borrowing of money by SCC or any SCC Subsidiary
or the guarantee by SCC or any SCC Subsidiary of any such obligation, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election, retention in office or severance of any present or
former director or officer, (iv) any agreement to make loans or for the
provision, purchase or sale of goods, services or property between SCC or any
SCC Subsidiary and any director of officer of SCC or any SCC Subsidiary, or any
member of the immediate family or affiliate of any of the foregoing, or (v) any
agreement between SCC or any SCC Subsidiary and any 5% or more shareholder of
SCC.
(2) Neither SCC nor any SCC Subsidiary, nor to the knowledge
of SCC, the other party thereto, is in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument whether
entered into in the ordinary course of business or otherwise, nor has there
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default.
(3) Since December 31, 1995 neither SCC nor any SCC
Subsidiary has incurred or paid any obligation or liability that would be
material to SCC, except obligations incurred or paid in connection with
transactions in the ordinary course of business of SCC or
12
a SCC Subsidiary consistent with its practice and, except as Previously
Disclosed, from December 31, 1995 to the date hereof, neither SCC nor any SCC
Subsidiary has taken any action that, if taken after the date hereof, would
breach any of the covenants contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of SCC has previously been furnished to FMC and
all such policies or binders are valid and enforceable in accordance with their
terms, are in full force and effect, and insure against risks and liabilities to
the extent and in the manner customary for the industry and are deemed
appropriate and sufficient by SCC. SCC is not in default with respect to any
provision contained in any such policy or binder and has not failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion. SCC has not received notice of cancellation or non-renewal of any such
policy or binder. SCC has no knowledge of any inaccuracy in any application for
such policies or binders, any failure to pay premiums when due or any similar
state of facts or the occurrence of any event that is reasonably likely to form
the basis for any material claim against it not fully covered (except to the
extent of any applicable deductible) by the policies or binders referred to
above. SCC has not received notice from any of its insurance carriers that any
insurance premiums will be increased materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.
(q) Absence of Material Changes and Events. Since December
31, 1995, there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business of SCC, and SCC has conducted its business only in the ordinary
course consistent with past practice.
(r) Brokers and Finders. Neither SCC nor any SCC Subsidiary,
nor any of their respective officers, directors or employees, has employed any
broker, finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, except for
Peter MacMillan. FMC and SCC will mutually determine how to compensate Mr.
MacMillan.
(s) Environmental Matters. (1) Except as Previously
Disclosed, to the best of SCC's knowledge, neither SCC nor any SCC Subsidiary
owns or leases any properties affected by toxic waste, radon gas or other
hazardous conditions or constructed in part with the use of asbestos. Each of
SCC and the SCC Subsidiaries is in substantial compliance with all Environmental
Laws applicable to real or personal properties in which it has a direct fee
ownership or, with respect to a direct interest as lessee, applicable to the
leasehold premises or, to the best knowledge of SCC and the SCC Subsidiary, the
premises on which the leasehold is situated. Neither SCC nor any SCC Subsidiary
has received any Communication alleging that SCC or such SCC Subsidiary is not
in such compliance and, to the best knowledge of SCC and the SCC Subsidiaries,
there are no present circumstances (including Environmental Laws that
13
have been adopted but are not yet effective) that would prevent or interfere
with the continuation of such compliance.
(2) There are no legal, administrative, arbitral or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on SCC and the SCC
Subsidiaries of any liability arising under any Environmental Laws pending or,
to the best knowledge of SCC and the SCC Subsidiaries, threatened against (A)
SCC or any SCC Subsidiary, (B) any person or entity whose liability for any
Environmental Claim SCC or any SCC Subsidiary has or may have retained or
assumed either contractually or by operation of law, or (C) any real or personal
property which SCC or any SCC Subsidiary owns or leases, or has been or is
judged to have managed or to have supervised or participated in the management
of, which liability might have a material adverse effect on the business,
financial condition or results of operations of SCC. SCC and the SCC
Subsidiaries are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
(3) To the best knowledge of SCC and the SCC Subsidiaries,
there are no legal, administrative, arbitral or other proceedings, or
Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on SCC or any SCC Subsidiary of any liability arising under any
Environmental Laws pending or threatened against any real or personal property
in which SCC or any SCC Subsidiary holds a security interest in connection with
a loan or a loan participation which liability might have a material adverse
effect on the business, financial condition or results of operations of SCC. SCC
and the SCC Subsidiaries are not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
(4) With respect to all real and personal property owned or
leased by SCC or any SCC Subsidiary, SCC has made available to FMC copies of any
environmental audits, analyses and surveys that have been prepared relating to
such properties. With respect to all real or personal property which SCC or any
SCC Subsidiary has been or is judged to have managed or to have supervised or
participated in the management of, SCC has made available to FMC the information
relating to such property available to SCC. SCC and the SCC Subsidiaries are in
compliance in all material respects with all recommendations contained in any
environmental audits, analyses and surveys relating to any of the properties,
real or personal, described in this subsection (4).
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against SCC or any SCC Subsidiary or
against any person or entity
14
whose liability for any Environmental Claim SCC or any SCC Subsidiary has or may
have retained or assumed either contractually or by operation of law.
(6) For the purpose of this Agreement, the following terms
shall have the following meanings:
(i) "Communication" means a communication which is of a
substantive nature and which is made (A) in writing to SCC or any SCC Subsidiary
on the one hand or to FMC or any FMC Subsidiary on the other hand, or (B) orally
to a senior officer of SCC or any SCC Subsidiary or of FMC or any FMC
Subsidiary, whether from a governmental authority or a third party.
(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from the
presence, or release into the environment, of any Material of Environmental
Concern.
(iii)"Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata). This definition includes, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
3.2 Representations and Warranties of FMC. represents and warrants
to SCC as follows:
(a) Organization, Standing and Power. (1) FMC is a
corporation duly organized, validly existing and in good standing under the laws
of Maine. FMC has all requisite corporate power and authority to carry on its
business as now being conducted and to own and operate its assets, properties
and business. FMC and SCAC have the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
Plan of Reorganization. SCAC, a wholly owned subsidiary of FMC, is a Virginia
corporation, duly organized, validly existing and in good standing under the
laws of Virginia and it has all requisite corporate power and authority to carry
on its business as now being conducted and to own and operate its assets,
properties and business.
15
(2) FMC has Previously Disclosed its subsidiary corporations
(and the subsidiaries thereof), all of which are duly organized, validly
existing and in good standing in their respective states of incorporation and
which have all requisite corporate power and authority to carry on their
businesses as now being conducted and to own and operate their assets,
properties and business (the "FMC Subsidiaries" and, collectively with FMC, the
"FMC Companies"). All of the shares of capital stock of the FMC Subsidiaries
held by FMC are duly and validly issued, fully paid and nonassessable, and all
such shares are owned by FMC or a FMC Subsidiary free and clear of any claim,
lien, pledge or encumbrance of any kind, and were not issued in violation of the
preemptive rights of any shareholder or in violation of any agreement or of any
registration or qualification provisions of federal or state securities laws.
Except as Previously Disclosed, none of the FMC Companies owns any equity
securities of any other corporation or entity. Except as Previously Disclosed,
each of the FMC Companies is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification and where failure to so qualify
either singly or in the aggregate would have a material adverse effect on the
financial condition, properties, businesses or results of operations of the FMC
Companies.
(b) Authority. (1) The execution and delivery of this
Agreement and the Plan of Merger and the consummation of the Reorganization have
been duly and validly authorized by all necessary corporate action on the part
of FMC and SCAC. The approval of the shareholders of FMC is not required. The
Agreement represents the legal, valid, and binding obligation of FMC and SCAC,
enforceable against FMC and SCAC in accordance with its terms (except in all
such cases as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of the Agreement, the
consummation of the transactions contemplated therein, nor the compliance by FMC
with any of the provisions thereof will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation or Bylaws of FMC, (ii) except
as Previously Disclosed, constitute or result in the breach of any term,
condition or provision of, or constitute default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon, any property or assets of
any of the FMC Companies pursuant to (A) any note, bond, mortgage, indenture, or
(B) any material license, agreement, lease or other instrument or obligation, to
which any of the FMC Companies is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject to the receipt of the
requisite approvals referred to in Section 4.7, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the FMC
Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of
FMC consists of: 5,000,000 shares of common stock, par value $.20 per share
("FMC Common Stock"), of which
16
2,103,074 shares are issued and outstanding, fully paid and nonassessable, not
subject to shareholder preemptive rights, and not issued in violation of any
agreement to which FMC is a party or otherwise bound, or of any registration or
qualification provisions of any federal or state securities laws; and 250,000
shares of preferred stock, par value $.20 per share, of which 62,000 are issued
and outstanding. The shares of FMC Common Stock and FMC Preferred Stock to be
issued in exchange for shares of SCC Common Stock upon consummation of the
Reorganization have been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and subject to no preemptive rights. Except as Previously Disclosed, there are
no outstanding understandings or commitments of any character pursuant to which
FMC and any of the FMC Companies could be required or expected to issue shares
of capital stock.
(d) Ownership of the FMC Subsidiaries; Capital Structure of
FMC Subsidiaries; and Organization of the FMC Subsidiaries. (1) FMC does not
own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation or other organization actively
engaged in business except as Previously Disclosed (collectively the "FMC"
Subsidiaries" and each individually a "FMC Subsidiary"). The outstanding shares
of capital stock of each FMC Subsidiary have been duly authorized and are
validly issued, and are fully paid and nonassessable and all such shares are
directly or indirectly owned by FMC free and clear of all liens, claims and
encumbrances. Except as Previously Disclosed, no rights are authorized, issued
or outstanding with respect to the capital stock of any FMC Subsidiary and there
are no agreements, understandings or commitments relating to the right of FMC to
vote or to dispose of said shares. None of the shares of capital stock of any
FMC Subsidiary has been issued in violation of the preemptive rights of any
person.
(2) Each FMC Subsidiary is a duly organized corporation,
validly existing and in good standing under applicable laws. Each FMC Subsidiary
(i) has full corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of FMC on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to so qualify would have a material adverse effect on the financial
condition, results of operations or business of FMC on a consolidated basis.
Each FMC Subsidiary has all federal, state, local and foreign governmental
authorizations and licenses necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted, except where
failure to obtain such authorization or license would not have a material
adverse effect on the business of such FMC Subsidiary.
(e) Financial Statements. FMC's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995, and all other documents filed or to be
filed subsequent to June 30, 1995 under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), in the form filed with the SEC (in
each such case, the "FMC Financial Statements") did not and will
17
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets in or incorporated by reference into
the FMC Financial Statements (including the related notes and schedules thereto)
fairly presents and will fairly present the financial position of the entity or
entities to which it relates as of its date and each of the statements of income
and changes in stockholders' equity and cash flows or equivalent statements in
the FMC Financial Statements (including any related notes and schedules thereto)
fairly presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein, subject to normal and recurring year-end audit adjustments in the case
of unaudited statements.
(f) Absence of Undisclosed Liabilities. At December 31,
1995, none of the FMC Companies had any obligation or liability (contingent or
otherwise) of any nature which were not reflected in the FMC Financial
Statements, except for those which in the aggregate are immaterial or have been
Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted or
pending or, to the best knowledge of FMC's management, threatened or probable of
assertion against any of the FMC Companies, or against any property, asset,
interest or right of any of them, that are reasonably expected to have, either
individually or in the aggregate, a material adverse effect on the financial
condition of FMC on a consolidated basis or that are reasonably expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement. None of the FMC Companies is a party to any agreement or instrument
or subject to any judgment, order, writ, injunction, decree or rule that might
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business or prospects of FMC on a consolidated basis.
Except as Previously Disclosed, as of the date of this Agreement, none of the
FMC Companies nor any of their properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, any federal or state
governmental agency or authority which restricts or purports to restrict in any
material respect the conduct of the business of it or any of its subsidiaries or
properties, or in any manner relates to the capital, liquidity, credit policies
or management of it; and except as Previously Disclosed, none of the FMC
Companies has been advised by any such regulatory authority that such authority
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter or similar submission. To the best knowledge of
FMC, the FMC Companies have complied in all material respects with all laws,
ordinances, requirements, regulations or orders applicable to its business
(including environmental laws, ordinances, requirements, regulations or orders).
18
(h) Regulatory Approvals. FMC knows of no reason why the
regulatory approval referred to in Section 6.1(b) should not be obtained
without the imposition of any condition of the type referred to in Section
6.1(b).
(i) Labor Relations. None of the FMC Companies is a party
to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
the subject of a proceeding asserting that is has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking to
compel it to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it, pending
or, to the best of its knowledge, threatened, nor is it aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
(j) Tax Matters. The FMC Companies have filed all federal,
state, and local tax returns and reports required to be filed, and all taxes
shown by such returns to be due and payable have been paid or are reflected as a
liability in the FMC Financial Statements or are being contested in good faith
and have been Previously Disclosed. Except to the extent that liabilities
therefor are specifically reflected in the FMC Financial Statements, there are
no federal, state or local tax liabilities of the FMC Companies other than
liabilities that have arisen since December 31, 1995, all of which have been
properly accrued or otherwise provided for on the books and records of the FMC
Companies. Except as Previously Disclosed, no tax return or report of any of the
FMC Companies is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against any of the FMC Companies by any taxing authority.
(k) Property. Except as disclosed or reserved against in the
FMC Financial Statements, all of the FMC Companies have good and marketable
title free and clear of all material liens, encumbrances, charges, defaults or
equities of whatever character to all of the material properties and assets,
tangible or intangible, reflected in the FMC Financial Statements as being owned
by the FMC Companies as of the dates thereof. To the best knowledge of FMC, all
buildings, and all fixtures, equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by the FMC Companies are held under valid instruments enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws. The buildings, structures, and appurtenances owned,
leased, or occupied by the FMC Companies are, to the best knowledge of FMC, in
good operating condition, in a state of good maintenance and repair and (i)
comply with applicable zoning and other municipal laws and regulations, and (ii)
there are no latent defects therein.
(l) Reports. Since January 1, 1993, the FMC Companies have
filed all reports and statements, together with any amendments required to be
made with respect thereto, that were required to be filed with the SEC and any
other governmental or regulatory authority or agency having jurisdiction over
their operations.
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(m) Employee Benefit Plans. (1) FMC will deliver for SCC's
review, as soon as practicable, true and complete copies of all material
pension, retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material medical,
dental or other health plans, all life insurance plans and all other material
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
FMC for the benefit of employees, retirees or other beneficiaries eligible to
participate (collectively, the "FMC Benefit Plans"). Any of the FMC Benefit
Plans which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as a "FMC ERISA Plan." No FMC
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(2) Except as Previously Disclosed, all FMC Benefit Plans are
in compliance with the applicable terms of ERISA and the Internal Revenue Code
of 1986, as amended (the "IRC") and any other applicable laws, rules and
regulations the breach or violation of which could result in a material
liability to FMC on a consolidated basis.
(3) No FMC ERISA Plan which is a defined benefit pension plan
has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(n) Investment Securities. Except as Previously Disclosed,
none of the investment securities reflected in the FMC Financial Statements is
subject to any restriction, contractual, statutory, or otherwise, which would
impair materially the ability of the holder of such investment to dispose freely
of any such investment at any time.
(o) Certain Contracts. (1) Except as Previously Disclosed,
neither FMC nor any FMC subsidiary is a party to, or is bound by, (i) any
material agreement, arrangement or commitment, (ii) any agreement, indenture or
other instrument relating to the borrowing of money by FMC or any FMC Subsidiary
or the guarantee by FMC or any FMC Subsidiary of any such obligation, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election, retention in office or severance of any present or
former director or officer, (iv) any agreement to make loans or for the
provision, purchase or sale of goods, services or property between FMC or any
FMC Subsidiary and any director or officer of FMC or any FMC Subsidiary, or any
member of the immediate family or affiliate of any of the foregoing, or (v) any
agreement between FMC or any FMC Subsidiary and any 5% or more shareholder of
FMC.
(2) Neither FMC or any FMC Subsidiary, nor to the knowledge
of FMC, the other party thereto, is in default under any material agreement,
commitment, arrangement, lease,
20
insurance policy or other instrument whether entered into in the ordinary course
of business or otherwise, nor has there occurred any event that, with the lapse
of time or giving of notice or both, would constitute such a default.
(3) Since December 31, 1995 neither FMC nor any FMC
Subsidiary has incurred or paid any obligation or liability that would be
material to FMC, except obligations incurred or paid in connection with
transactions in the ordinary course of business of FMC or an FMC Subsidiary
consistent with its practice and, except as Previously Disclosed, from December
31, 1995 to the date hereof, neither FMC nor any FMC Subsidiary has taken any
action that, if taken after the date hereof, would breach any of the covenants
contained in Section 4.4 hereof.
(p) Insurance. A complete list of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the FMC Companies has previously been
furnished to SCC and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by FMC. The FMC Companies are not in
default with respect to any provision contained in any such policy or binder and
have not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. None of the FMC Companies has received notice
of cancellation or non-renewal of any such policy or binder. None of the FMC
Companies has knowledge of any inaccuracy in any application for such policies
or binders, any failure to pay premiums when due or any similar state of facts
or the occurrence of any event that is reasonably likely to form the basis for
any material claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to above. None of the
FMC Companies has received notice from any of its insurance carriers that any
insurance premiums will be increased materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.
(q) Absence of Material Changes and Events. Since December
31, 1995, there has not been any material adverse change in the condition
(financial or otherwise), aggregate assets or liabilities, cash flow, earnings
or business or FMC, and FMC has conducted its business only in the ordinary
course consistent with past practice.
(r) Brokers and Finders. Neither FMC nor any FMC Subsidiary,
nor any of their respective officers, directors or employees, has employed any
broker, finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, except for
Peter MacMillan. FMC and SCC will mutually determine how to compensate Mr.
MacMillan.
(s) Environmental Matters. (1) Except as Previously
Disclosed, to the best of FMC's knowledge, neither FMC nor any FMC Subsidiary
owns or leases any properties affected by toxic waste, radon gas or other
hazardous conditions or constructed in part with the
21
use of asbestos. Each of FMC and the FMC Subsidiaries is in substantial
compliance with all Environmental Laws applicable to real or personal properties
in which it has a direct fee ownership or, with respect to a direct interest as
lessee, applicable to the leasehold premises or, to the best knowledge of FMC
and the FMC Subsidiaries, the premises on which the leasehold is situated.
Neither FMC nor any FMC Subsidiary has received any Communication alleging that
FMC or such FMC Subsidiary is not in such compliance and, to the best knowledge
of FMC and the FMC Subsidiaries, there are no present circumstances (including
Environmental Laws that have been adopted but are not yet effective) that would
prevent or interfere with the continuation of such compliance.
(2) There are no legal, administrative, arbitral or other
claims, causes of action or governmental investigations of any nature, seeking
to impose, or that could result in the imposition, on FMC and the FMC
Subsidiaries of any liability arising under any Environmental Laws pending or,
to the best knowledge of FMC and the FMC Subsidiaries, threatened against (A)
FMC or any FMC Subsidiary, (B) any person or entity whose liability for any
Environmental Claim, FMC or any FMC Subsidiary has or may have retained or
assumed either contractually or by operation of law, or (C)any real or personal
property which FMC or any FMC Subsidiary owns or leases, or has been or is
judged to have managed or to have supervised or participated in the management
of, which liability might have a material adverse effect on the business,
financial condition or results of operations of FMC. FMC and the FMC
Subsidiaries are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
(3) To the best knowledge of FMC and the FMC Subsidiaries,
there are no legal, administrative, arbitral or other proceedings, or
Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition, on FMC or any FMC Subsidiary of any liability arising under any
Environmental Laws pending or threatened against any real or personal property
in which FMC or any FMC Subsidiary holds a security interest in connection with
a loan or a loan participation which liability might have a material adverse
effect on the business, financial condition or results of operations of FMC. FMC
and the FMC Subsidiaries are not subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
(4) With respect to all real and personal property owned or
leased by FMC or any FMC Subsidiary, FMC has made available to SCC copies of any
environmental audits, analyses and surveys that have been prepared relating to
such properties. With respect to all real or personal property which FMC or any
FMC Subsidiary has been or is judged to have managed or to have supervised or
participated in the management of, FMC has made available to SCC the information
relating to such property available to FMC. FMC and the FMC Subsidiaries are in
compliance in all material respects with all recommendations contained in any
environmental audits, analyses and surveys relating to any of the properties,
real or personal, described in this subsection (4).
22
(5) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Materials of Environmental
Concern, that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could result in the
imposition of any liability arising under any Environmental Laws currently in
effect or adopted but not yet effective against FMC or any FMC Subsidiary or
against any person or entity whose liability for any Environmental Claim FMC or
any FMC Subsidiary has or may have retained or assumed either contractually or
by operation of law.
ARTICLE 4
Conduct Prior to the Effective Date
4.1 Access to Records and Properties. SCC will keep FMC, and FMC
will keep SCC advised of all material developments relevant to their respective
businesses prior to consummation of the Reorganization. Prior to the Effective
Date, FMC, on the one hand, and SCC on the other, agree to give to the other
party reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries and to cause
its officers to furnish the other with such financial and operating data and
other information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the warranties and
representations set forth herein; provided, however, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other.
4.2 Confidentiality. Between the date of this Agreement and the
Effective Date, FMC and SCC each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection with legal proceedings. If the Reorganization is not consummated,
each party will return or destroy as much of such written information as may
reasonably be requested.
4.3 Shareholder Approval. The Board of Directors of SCC will duly
call and will hold a meeting of shareholders as soon as practicable for the
purpose of approving the Reorganization (the "SCC Shareholders' Meeting" and,
subject to the fiduciary duties of the Board of Directors of SCC (as advised in
writing by its counsel), SCC each shall use its best efforts to solicit and
obtain votes of the holders of its Common Stock in favor of the Reorganization
and will comply with the provisions in its Articles of Incorporation and Bylaws
relating to the call and holding of a meeting of shareholders for such purpose.
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4.4 Operation of the Business of SCC and FMC. SCC and FMC each
agrees that from the date hereof to the Effective Date it will operate its
business substantially as presently operated and only in the ordinary course,
and, consistent with such operation, it will use its best efforts to preserve
intact its relationships with persons having business dealings with it. Without
limiting the generality of the foregoing, SCC and FMC each agrees that it will
not prior to the Effective Date, without the prior written consent of the other:
(a) Make any change in its authorized capital stock, or issue
or sell any additional shares of, securities convertible into or exchangeable
for, or options, warrants or rights to purchase, its capital stock, nor shall it
purchase, redeem or otherwise acquire any of its outstanding shares of capital
stock, provided that FMC and SCC each may issue shares of common stock pursuant
to options granted or convertible securities issued prior to the date hereof:
(b) Voluntarily make any changes in the composition of its
officers, directors or other key management personnel;
(c) Make any change in the compensation or title of any
officer, director or key management employee or make any change in the
compensation or title of any other employee, other than permitted by current
employment policies in the ordinary course of business, any of which changes
shall be reported promptly to the other party;
(d) Enter into any bonus, incentive compensation, stock
option, deferred compensation, profit sharing, thrift, retirement, pension,
group insurance or other benefit plan or any employment or consulting agreement;
(e) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or encumber
any of its assets, nor dispose of any of its assets in any other manner, except
in the ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;
(f) Except as permitted by Section 4.4(a) hereof, issue or
contract to issue any shares of its Common Stock, options for shares of its
Common Stock, or securities exchangeable for or convertible into such shares;
(g) Knowingly waive any right to substantial value:
(h) Enter into material transactions otherwise than in the
ordinary course of its business;
(i) Alter, amend or repeal its Bylaws or Articles of
Incorporation; or
(j) Propose or take any other action which would make any
representation or warranty in Section 3.1 or Section 3.2 hereof untrue.
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4.5 Dividends. FMC and SCC each agree that the other may declare
and pay only regular periodic cash dividends in the ordinary course of business
and consistent with past practice from the date of this Agreement through the
Effective Date.
4.6 No Solicitation. Unless and until this Agreement shall have
been terminated pursuant to its terms, neither SCC nor any of its officers,
directors, representatives or agents shall, directly or indirectly, (i)
encourage, solicit or initiate discussions or negotiations with any person other
than FMC concerning any merger, share exchange, sale of substantial assets,
tender offer, sale of shares of capital stock or similar transaction involving
SCC, (ii) enter into any agreement with any third party providing for a business
combination transaction, equity investment or sale of a significant amount of
assets, or (iii) furnish any information to any other person relating to or in
support of such transaction. SCC will promptly communicate to FMC the terms of
any proposal which it may receive in respect to any of the foregoing
transactions. Unless and until the Effective Date or until this Agreement shall
have been terminated pursuant to its terms, neither FMC nor any of its officers,
directors, representatives or agents shall enter into any agreement or letter of
intent that provides for the acquisition by FMC of substantially all of the
assets or voting stock of a third party.
4.7 Regulatory Filings. FMC and SCC shall prepare jointly all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Plan of Merger and submit the filings for approval with the
Virginia State Corporation Commission, and any other governing regulatory
authority, as soon as practicable after the date hereof. FMC and SCC shall use
their best efforts to obtain approvals of such filings.
4.8 Public Announcements. Each party will consult with the other
before issuing any press release or otherwise making any public statements with
respect to the Reorganization and shall not issue any such press release or make
any such public statement prior to such consultations except as may be required
by law.
4.9 Notice of Breach. FMC and SCC will give written notice to the
other promptly upon becoming aware of the impending or threatened occurrence of
any event which would cause or constitute a breach of any of the
representations, warranties or covenants made to the other party in this
Agreement and will use its best efforts to prevent or promptly remedy the same.
4.10 Accounting Treatment. FMC and SCC shall each use their best
efforts to ensure that the Reorganization is treated as a purchase of SCC by
FMC.
4.11 Reorganization Consummation. Subject to the terms and
conditions of this Agreement, each party shall use its best efforts in good
faith to take, or cause to be taken, all actions, and to do or cause to be done
all things necessary, proper or desirable, or advisable under applicable laws,
as promptly as practicable so as to permit consummation of the Reorganization at
the earliest possible date, consistent with Section 1.3 herein, and to otherwise
enable consummation of the transactions contemplated hereby and shall cooperate
fully with the
25
other parties hereto to that end, and each of SCC and FMC shall use, and shall
cause each of their respective subsidiaries to use, its best efforts to obtain
all consents (governmental or other) necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
ARTICLE 5
Additional Agreements
5.1 Amendment of Articles of Incorporation. As soon as
practicable after the Effective Date, the Board of Directors of FMC shall call a
meeting of the holders of all shares of FMC capital stock entitled to vote
thereon for the purpose of amending the Articles of Incorporation of FMC to (i)
increase the number of authorized shares of FMC Common Stock from 5,000,000 to
20,000,000; and (ii) provide that Section 13-A-910 of the Maine Business
Corporation Act shall not apply to FMC.
5.2 Conversion of Preferred Stock. Provided the shareholders of
FMC approve the amendments to the FMC Articles of Incorporation described in
Section 5.1, the FMC Board of Directors shall vote to convert the FMC Preferred
Stock to be issued in the Reorganization into FMC Common Stock, such that the
conversion date is no later than January 1, 1997.
5.3 Independent Auditors. After the Effective Date, the Board of
Directors of FMC shall cause Edward, Faust & Smith and Deloitte & Touche to plan
FMC's fiscal 1996 audit in terms of schedule and their respective roles, so that
such audit is performed in a timely and professional manner. If an acceptable
working relationship cannot be established, the FMC Board of Directors will
determine how to use such auditing firms or another auditing fees for FMC's
fiscal 1996 audit. Should either auditing firm not be utilized for such purpose,
such firm will be paid the auditing fees it would have earned or will be
utilized in another fashion to earn such fees.
5.4 Indemnification. FMC agrees that following the Effective
Date, it shall indemnify and hold harmless any officer or director of SCC who
has rights to indemnification from SCC, to the same extent and on the same
conditions as such person is entitled to indemnification pursuant to Virginia
law and SCC's Articles of Incorporation or Bylaws, as in effect on the Effective
Date, to the extent legally permitted to do so, with respect to matters
occurring on or prior to the Effective Date. FMC further agrees that any such
person who has rights to indemnification pursuant to this Section 5.4 is
expressly made a third party beneficiary of this Section 5.4 and may directly,
in such person's personal capacity, enforce such rights through an action at law
or in equity or through any other manner or means of redress allowable under
Virginia law to the same extent as if such person were a party hereto. Without
limiting the foregoing, in any case in which corporate approval may be required
to effectuate any indemnification, FMC shall direct, at the election of the
party to be indemnified, that the determination of permissibility of
indemnification shall be made by independent counsel mutually agreed upon
between FMC and the indemnified party. FMC shall use its reasonable best efforts
to obtain a directors' and officers' liability policy covering the directors and
officers of FMC after the Effective Date.
26
5.5 Certain Expenses. After the Effective Date, consistent
with applicable laws and regulations, SCC will pay to FMC, when requested by
FMC, one-half of the expenses FMC incurs to communicate with shareholders and
prospective shareholders, report to the Securities and Exchange Commission, and
to have its stock traded in The Nasdaq Stock Market, and one-half of the
auditors fees incurred by FMC and its Subsidiaries.
5.6 Escrow Agreement. Prior to the Effective Date, FMC shall enter
into an escrow agreement with a bank, trust company or other fiduciary or
corporation designated by SCC with its principal office in Richmond, Virginia.
Such escrow agreement shall be substantially in the form of Exhibit D hereto.
5.7 Key Man Life Insurance. After the Effective Date FMC and SCAC
shall use their best efforts to obtain key man life insurance policies on James
F. Vigue and H. William Coogan in the face amount of $3 million, each, and on
Donald V. Cruickshanks in the face amount of $1 million. The parties intend that
one-third of any death benefit received by FMC (in the case of Mr. Vigue) or
SCAC (in the case of Mr. Coogan or Mr. Cruickshanks) shall be used to purchase
FMC Common Stock held by any such individual on the date of his death at a price
equal to the highest independent bid price for FMC Common Stock on the date of
death. As soon as practicable after such life insurance policies are in force,
FMC and each of Messrs. Vigue, Coogan and Cruickshanks shall enter into
agreements consistent with this Section 5.7.
ARTICLE 6
Conditions to the Reorganization
6.1 Conditions to Each Party's Obligations to Effect the
Reorganization. The respective obligations of each of FMC and SCC to effect the
Reorganization and the other transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Effective Date of the
following conditions:
(a) Shareholder Approval. Shareholders of SCC shall have
approved all matters relating to this Agreement and the Reorganization required
to be approved by such shareholders in accordance with Virginia law.
(b) Regulatory Approvals. This Agreement and the Plan of
Merger shall have been approved by the Virginia State Corporation Commission,
and any other regulatory authority whose approval is required for consummation
of the transactions contemplated hereby, and such approvals shall not have
imposed any condition or requirement which would so materially adversely impact
the economic or business benefits of the transactions contemplated by this
Agreement as to render inadvisable the consummation of the Reorganization in the
reasonable opinion of the Board of Directors of FMC or SCC.
(c) Tax Opinion. FMC and SCC shall have received an opinion
of Williams, Mullen, Christian & Dobbins, or other counsel reasonably
satisfactory to FMC and SCC, to the
27
effect that the Reorganization will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code and that no gain or loss
will be recognized by the shareholders of SCC to the extent they receive FMC
Common Stock and FMC Preferred Stock solely in exchange for their SCC Common
Stock in the Reorganization.
(d) Accountants' Letter. FMC and SCC shall have received a
letter, dated as of the Effective Date, from Deloitte & Touch stating, that the
Reorganization will qualify be treated as a purchase of SCC by FMC under
generally accepted accounting principles.
(e) Opinions of Counsel. SCC shall have delivered to FMC and
FMC shall have delivered to SCC opinions of counsel, dated as of the Effective
Date, as to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(f) Legal Proceedings. Neither FMC nor SCC shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Reorganization.
(g) Voting Agreement. The shareholders of SCC and the
directors of FMC shall have entered into an agreement with in the form attached
hereto as Exhibit C to vote their shares of FMC Common Stock and FMC Preferred
Stock in favor of the amendments to the Articles of Incorporation of FMC
described in Section 5.1.
6.2 Conditions to Obligations of FMC. The obligations of FMC to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of SCC shall be true and correct
as of the date of this Agreement and upon the Effective Date with the same
effect as though all such representations and warranties had been made on the
Effective Date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and FMC shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of SCC dated the Effective Date, to such effect.
(b) Performance of Obligations. SCC shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and FMC shall have received a certificate
signed by the Chief Executive Officer of SCC to that effect.
28
(c) Affiliate Letters. Each shareholder of SCC who may be
deemed by counsel for FMC to be an "affiliate" of SCC within the meaning of Rule
145 under the Securities Act of 1933 shall have executed and delivered a
commitment and undertaking to the effect that (1) such shareholder will dispose
of the shares of FMC Common Stock received by him in connection with the
Reorganization only in accordance with the provisions of paragraph (d) of Rule
145; (2) such shareholders will not dispose of any such shares until FMC has
received an opinion of counsel acceptable to it that such proposed disposition
will not violate the provisions of any applicable security laws; and (3) the
certificates representing said shares may bear a conspicuous legend referring to
the forgoing restrictions.
(d) Waiver of Dissenters' Rights. Each shareholder of SCC
shall have waived his or her dissenters' rights with respect to the
Reorganization.
6.3 Conditions to Obligations of SCC. The obligations of SCC to
effect the Reorganization shall be subject to the fulfillment or waiver at or
prior to the Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties contained herein of FMC shall be true and correct
as of the date of this Agreement and upon the Effective Date with the same
effect as though all such representations and warranties had been made on the
Effective date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not materially adversely affect the Reorganization and the
other transactions contemplated by this Agreement and SCC shall have received a
certificate or certificates signed by the Chief Executive Officer and Chief
Financial Officer of FMC dated the Effective Date, to such effect.
(b) Performance of Obligations. FMC shall have performed in
all material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and SCC shall have received a certificate
signed by Chief Executive Officer of FMC to that effect.
ARTICLE 7
Termination
7.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement and the Plan of
Merger by the shareholders of SCC, this Agreement may be terminated and the
Reorganization abandoned at any time prior to the Effective Date:
(a) By the mutual consent of the Board of Directors of each
of FMC and SCC;
29
(b) By the respective Boards of Directors of FMC or SCC
if the conditions set forth in Section 6.1 have not been met or waived by FMC
and SCC;
(c) By the Board of Directors of FMC if the conditions
set forth in Section 6.2 have not been met or waived by FMC;
(d) By the Board of Directors of SCC if the conditions
set forth in Section 6.3 have not been met or waived by SCC;
(e) By the respective Boards of Directors FMC or SCC if
the Reorganization is not consummated by July 31, 1996.
7.2 Effect of Termination. In the event of the termination and
abandonment of this agreement and the Reorganization pursuant to Section 7.1,
this Agreement shall become void and have no effect, except that (i) the last
sentence of Section 4.2 and all of Sections 4.8 and 7.4 shall survive any such
termination and abandonment and (ii) no party shall be relieved or released from
any liability arising out of an intentional breach of any provision of this
Agreement.
7.3 Survival of Representations, Warranties and Covenants. All of
the respective representations and warranties, obligations, covenants and
agreements of the parties shall survive the Effective Date.
7.4 Expenses. The parties provide for the payment of expenses as
follows:
(a) Except as provided in Section 7.4(b), each of the parties
shall bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated herein, including fees and
expenses of its own consultants, investment bankers, accountants and counsel.
(b) If this Agreement is terminated (w) by SCC in breach of
this Agreement or (x) by FMC as a result of a breach by SCC or a failure by SCC
to perform any of its obligations hereunder, then SCC shall bear and pay
one-half of the costs and expenses of FMC, including fees and expenses of
consultants, investment bankers, accountants, counsel, printers and persons
involved in the transactions contemplated by this Agreement. If this Agreement
is terminated (y) by FMC in breach of this Agreement or (z) by SCC as a result
of a breach by FMC or a failure by FMC to perform any of its obligations
hereunder, then FMC shall bear and pay one-half of the costs and expenses of
SCC, including fees and expenses of consultants, investment bankers,
accountants, counsel, printers and persons involved in the transactions
contemplated by this Agreement.
(c) Final settlement with respect to the payment of such fees
and expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.
30
ARTICLE 8
General Provisions
8.1 Entire Agreement. This Agreement contains the entire
agreement among FMC and SCC with respect to the Reorganization and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
8.2 Waiver and Amendment. Any term or provision of this
Agreement may be waived in writing at any time by the party which is, or whose
shareholders are, entitled to the benefits thereof, and this Agreement may be
amended or supplemented by written instructions duly executed by the parties
hereto at any time, whether before or after the meetings of SCC and FMC
shareholders referred to in Section 6.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
8.3 Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning and construction of
any provisions of this Agreement.
8.4 Governing Law. Except as required otherwise or otherwise
indicated herein, this Agreement shall be construed and enforced according to
the laws of the Commonwealth of Virginia.
8.5 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to FMC:
James F. Vigue
Firstmark Corp.
One Financial Place
222 Kennedy Memorial Drive
Waterville, Maine 04901
(Tel. (207) 873-6362)
Copy to:
Ronald E. Colby, III, Esq.
Lipman & Katz, P.A.
227 Water Street
Augusta, Maine 04330
(Tel. (207) 622-3711
31
If to SCC:
H. William Coogan, Jr. and
Donald V. Cruickshanks
Southern Capital Corp.
One James Center
Suite 1700
901 East Cary Street
Richmond, Virginia 23219
(Tel. (804) 648-8504)
Copy to:
R. Brian Ball, Esquire
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tel. (804) 783-6426)
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
8.7 Severability. In the event any provisions of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only in
part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of competent
jurisdiction may reform any provision of this Agreement held invalid or
unenforceable so as to reflect the intended agreement of the parties hereto.
8.8 Brokers and Finders. Except for Peter MacMillan, each of the
parties represents and warrants that neither it nor any of its officers,
directors, employees, affiliates, or subsidiaries has employed any broker or
finder or incurred any liability for any financial advisory fees, investment
banker's fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of any
claim by any broker or finder based upon his or its representing or being
retained by or allegedly representing or being retained by either FMC or SCC,
FMC or SCC, as the case may be, agrees to indemnify and hold the other party
harmless of and from any such claim.
8.9 Subsidiaries. All representations, warranties, and covenants
herein, where pertinent, include and shall apply to the wholly owned
subsidiaries belonging to the party making such representations, warranties, and
covenants.
32
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers and
their corporate seals to be affixed hereto, all as of the dates first written
above.
Firstmark Corp.
By: /s/ James F. Vigue
-------------------------
James F. Vigue
President
ATTEST:
/s/ Ivy Gilbert
- ---------------------
Secretary
Southern Capital Corp.
By: /s/ H. William Coogan, Jr.
-------------------------
H. William Coogan, Jr.
Chairman
ATTEST:
/s/ Donald V. Cruickshanks
- --------------------------
Secretary
33
Southern Capital Acquisition Corp.
By: /s/ James F. Vigue
--------------------------
James F. Vigue
President
ATTEST:
/s/ Ivy Gilbert
- -------------------
Secretary
The undersigned, being all of the Directors of Firstmark Corp., by
their signatures hereto hereby, in their capacities as Directors of Firstmark
Corp., unanimously approve this Agreement and Plan of Reorganization; adopt the
resolution attached hereto as Exhibit B; authorize the issuance of the FMC
Preferred Stock described in Section 2.1; and authorize and direct the officers
of FMC and Southern Capital Acquisition Corp. ("SCAC") to take such steps as are
necessary for FMC and SCAC to perform their obligations hereunder and consummate
the Reorganization.
/s/ James F. Vigue
----------------------
James F. Vigue
/s/ Ivy L. Gilbert
----------------------
Ivy L. Gilbert
/s/ Robert A. Rice
----------------------
Robert A. Rice
34
The undersigned, being all of the Directors of Southern Capital
Acquisition Corp., by their signatures hereto, hereby unanimously approve this
Agreement and Plan of Reorganization in their capacities as Directors of
Southern Capital Acquisition Corp.
/s/ James F. Vigue
--------------------------
James F. Vigue
/s/ Ivy L. Gilbert
--------------------------
Ivy L. Gilbert
The undersigned, being all of the Directors of Southern Capital Corp.
("SCC"), by their signatures hereto, hereby unanimously approve this Agreement
and Plan of Reorganization in their capacities as Directors of Southern Capital
Corp. and authorize and direct the officers to take such steps as are necessary
for SCC to perform its obligations hereunder and consummate the Reorganization.
/s/ H. Willam Coogan, Jr.
--------------------------
H. William Coogan, Jr.
/s/ Donald V. Cruickshanks
--------------------------
Donald V. Cruickshanks
/s/ R. Brian Ball
--------------------------
R. Brian Ball
/s/ Susan C. Coogan
--------------------------
Susan C. Coogan
35
EXHIBIT A to
Agreement and
Plan of Reorganization
PLAN OF MERGER
BETWEEN
Southern Capital Corp.
AND
Southern Capital Acquisition Group
Pursuant to this Plan of Merger ("Plan of Merger"), Southern Capital
Corp. ("SCC") shall merge with and into Southern Capital Acquisition Corp.
("SCAC"), a Virginia corporation pursuant to Section 13.1-716 of the Virginia
Stock Corporation Act.
ARTICLE 1
Terms of the Merger
1.1 The Merger. In accordance with the terms and conditions of
the Agreement and Plan of Reorganization, dated as of April __, 1996 (the
"Agreement") between SCC, SCAC and Firstmark Corp., a Maine corporation, ("FMC")
at the Effective Date, SCC shall merge with and into SCAC under Section 13.1-716
of the Virginia Stock Corporation Act (the "Merger"). At the Effective Date, the
Merger shall have the effect as provided in Section 13.1-721 of the Virginia
Stock Corporation Act. SCAC shall be the surviving corporation and the separate
corporate existence of SCC shall cease.
1.2 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of SCAC in effect immediately prior to the consummation
of the Merger shall remain in effect following the Effective Date until
otherwise amended or repealed.
1.3 Effective Date. The Effective Date shall be the date shown on
the Certificate of Merger issued by the State Corporation Commission of Virginia
effecting the Merger.
ARTICLE 2
Manner of Converting Shares
2.1 Exchange of Shares. Upon, and by reason of, the Merger
becoming effective pursuant to the issuance of a Certificate of Merger by the
Virginia State Corporation Commission, each share of common stock, par value
$1.00 per share, of SCC ("SCC Common Stock") issued and outstanding immediately
prior to the Effective Date shall cease to be outstanding and be converted into
and exchanged for 400 shares of Cumulative Nonconvertible Nonvoting Preferred
Stock, Series B of FMC, par value $.20 per share ("FMC Preferred Stock"). Each
holder of a certificate representing any shares of SCC Common Stock, after the
A-1
Effective Date, shall cease to have any rights with respect to such SCC Common
Stock, except the right to receive any dividends previously declared but unpaid
as to such stock and shares of FMC Preferred Stock, which shall be delivered by
FMC to each person who is a shareholder of record of SCC on the Effective Date
at the Reorganization Closing (as defined in the Agreement).
ARTICLE 3
Termination
This Plan of Merger may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 7 of the Agreement.
A-2
EXHIBIT B
to the Agreement and
Plan of Reorganization
A. The name of the Corporation is Firstmark Corp.
B. The following Resolution setting forth the designation and the
number of shares of a series of Preferred Stock ($.20 par value) of the
Corporation and the relative rights and preferences thereof, was duly adopted by
the Board of Directors of the Corporation at a meeting held on April __, 1996.
C. The text of the Resolution is as follows:
RESOLVED, that one hundred eighty-eight thousand (188,000) authorized
but unissued shares of this Corporation's Preferred Stock ($.20 par value) are
hereby designated as a series of Preferred Stock called the Cumulative
Nonconvertible Nonvoting Preferred Stock, Series B (the "Series B Preferred
Stock"), with the following voting powers, rights and preferences:
1. Dividends.
(a) The holders of the outstanding shares of Series B Preferred
Stock shall be entitled to receive (i) if, when and as declared by the Board of
Directors of the Corporation, out of any funds legally available therefor, cash
dividends at the rate and payable on the dates hereinafter set forth or (ii)
stock dividends payable in accordance with Section 1(b). Dividends shall be
cumulative and shall accrue on the Series B Preferred Stock from and after
January 1, 1997. The rate of cash dividends payable on the Series B Preferred
Stock shall be $16.00 per share per annum for dividends that accrue in 1997;
$20.00 per share per annum for dividends that accrue in 1998; and $24.00 per
share per annum for dividends that accrue after 1998. Dividends shall be payable
in equal quarterly installments on the last day of March, June, September and
December of each year, commencing on March 31, 1997. Dividends payable on any
date which is not the last day of March, June, September or December shall be
calculated on the basis of a 360 day year and the actual number of days elapsed.
(b) If the Board of Directors shall not declare and pay a cash
dividend for any dividend period, the Corporation, upon receipt of a written
demand signed by holders of at least eighty percent (80%) of the issued and
outstanding shares of Series B Preferred Stock, shall pay a dividend to the
holders of Series B Preferred Stock in shares of Series B Preferred Stock for
such dividend period and any prior dividend period identified in such demand for
which a cash dividend was not declared and paid. The number of shares of Series
B Preferred Stock issuable
as a dividend for any dividend period shall be determined by dividing the cash
dividend accrued for such dividend period by $200.00.
(c) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon any shares of Parity Stock
for any dividend period unless a like proportionate dividend for the same
dividend period (in proportion to the respective annual dividend rates per share
set forth in the Articles of Incorporation or the respective Articles of
Amendment) shall have been declared and paid upon, or declared and a sufficient
sum set apart for the payment of such dividend upon, all shares of Series B
Preferred Stock outstanding.
(d) Unless Dividends Accrued on all outstanding shares of Series B
Preferred Stock and any outstanding shares of Parity Stock due for all past
dividend periods shall have been declared and paid, or declared and a sum
sufficient for the payment thereof set apart, and full dividends (to the extent
that the amount thereof shall have become determinable) on all outstanding
shares of such stock due on the respective next following payment dates shall
have been declared and a sum sufficient for the payment thereof set apart, then
(i) no dividend (other than a dividend payable solely in Common Stock) shall be
declared or paid upon, or any sum set apart for the payment of dividends on any
shares of Junior Stock; (ii) no other distribution shall be made upon any shares
of Junior Stock; (iii) no shares of Junior Stock shall be purchased, redeemed or
otherwise acquired for value by the Corporation or by any Subsidiary; and (iv)
no monies shall be paid into or set apart or made available for a sinking or
other like fund for the purchase, redemption or other acquisition for value of
any shares of Junior Stock by the Corporation or any Subsidiary.
2. Voting Rights.
(a) Shares of Series B Preferred Stock shall not be entitled to
vote for the election of directors.
The holders of the outstanding shares of the Series B Preferred Stock
shall have the voting rights described in Paragraph (b) of this Section 2 and
such additional voting rights as may be afforded under the laws of the State of
Maine in existence at the time any matter requiring their vote shall arise.
(b) The affirmative vote or consent of the holders of a majority
of the then issued and outstanding shares of the Series B Preferred Stock
(voting in person or by proxy at a meeting called for such purpose at which
holders of such shares shall vote separately as a class) shall be necessary to
effect any of the following:
(i) The authorization of any shares of Prior Stock or the
authorization of any shares that are convertible into Prior Stock;
(ii) Any amendment, alteration or repeal of any of the
provisions of this resolution or any of the other provisions of the Articles of
Incorporation which affects
B-2
adversely the voting powers, rights or preferences of any of the
outstanding shares of Series B Preferred Stock or the holders thereof,
it being understood that any such amendment, alteration or repeal in
order to increase the number of directors of the Corporation shall not
be deemed to affect adversely the voting powers, rights or preferences
of any shares of Series B Preferred Stock or the holders thereof; or
(iii)Any merger, consolidation, other business combination
or other transaction or action in which the Corporation issues
any of any Capital Stock or securities that are convertible into or
exchangeable for any shares of the Corporation's Capital Stock.
3. Liquidation.
In the event of liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of shares of Series B Preferred Stock then
outstanding shall be entitled to be paid in cash out of the net assets of the
Corporation, including its capital, a liquidation price of $200 per share, plus
Dividends Accrued to the date of payment, and no more, before any distribution
or payment shall be made to the holders of shares of Junior Stock and after
payment to the holders of the outstanding shares of Series B Preferred Stock and
to the holders of shares of other classes and series of Parity Stock of the
amounts to which they are respectively entitled, the balance of such assets, if
any, shall be paid to the holders of the Junior Stock according to their
respective rights. For the purposes of the preceding sentence, neither the
consolidation of the Corporation with nor the merger of the Corporation into any
other corporation nor the sale, lease or other disposition of all or
substantially all of the Corporation's properties and assets shall, without
further corporate action, be deemed a liquidation, dissolution or winding up of
the affairs of the Corporation. In case the net assets of the Corporation are
insufficient to pay the holders of the outstanding shares of Series B Preferred
Stock and other series of Parity Stock the full preferential amounts to which
they are respectively entitled, the entire net assets of the Corporation shall
be distributed ratably to the holders of the outstanding shares of Series B
Preferred Stock and other series of Parity Stock in proportion to the full
preferential amounts to which they are respectively entitled.
4. Conversion.
(a) Provided (i) the Corporation's Articles of Incorporation have
been amended to effectively provide that Section 13-A-910 of the Maine Business
Corporation Act shall not apply to the Corporation and (ii) that the Corporation
has available a sufficient number of authorized and unreserved shares of Common
Stock, the Corporation shall have the right, at any time, to convert all, and
not less than all, shares of Series B Preferred Stock into Common Stock of the
Corporation. The number of shares of Common Stock into which each share of
Series B Preferred Stock shall be convertible shall be equal to the number
arrived at by dividing $200.00, plus Dividends Accrued, by the conversion price
per share of the Common Stock fixed or determined as hereinafter provided. Such
conversion price shall be the lesser of (i) $4.00 per
B-3
share, subject to the adjustments hereinafter provided or (ii) the Current
Market Value per share of the Corporation's Common Stock--(such price as
adjusted at any time being hereinafter called the "Conversion Price".) For the
purposes of this Section 4(a), the "Current Market Value" per share of the
Corporation's Common Stock shall be deemed to be the average of the Fair Market
Value (as defined in Section 6 on each of the 20 consecutive trading days
commencing 25 trading days before the Conversion Date (a trading day, for the
purpose of this resolution, being a day on which securities are traded in the
over-the-counter market or, if the Common Stock is then listed on any national
stock exchange, on such exchange).
(b) The Corporation may exercise the conversion right provided in
Paragraph (a) above by delivering to each holder of record of Series B Preferred
Stock at the holder's address appearing in the Corporation's stock transfer
records a written notice stating that the Corporation elects to convert such
shares. Conversion shall be deemed to have been effected on the date (the
Conversion Date) when such delivery is made. Upon receipt of such notice, each
holder of Series B Preferred Stock shall deliver to the Corporation at the
address set forth in Section 5(b) all certificates held by him for shares of
Series B Preferred Stock, endorsed in blank. As promptly as practicable
thereafter the Corporation shall issue and deliver to or upon the written order
of such holder, at such office or other place designated by the Corporation, a
certificate or certificates for the number of full shares of Common Stock to
which he is entitled. The person in whose name the certificate or certificates
for shares of Common Stock are to be issued shall be deemed to have become a
stockholder of record on the Conversion Date, unless the transfer books of the
Corporation are closed on that date, in which event he shall be deemed to have
become a stockholder of record on the next succeeding date on which the transfer
books are open; but the Conversion Price shall be that in effect on the
Conversion Date.
(c) The Corporation shall not issue any fraction of a share upon
conversion of shares of the Series B Preferred Stock. If any fractional interest
in a share of Common Stock would be deliverable upon conversion, the number of
shares of Common Stock deliverable shall be rounded up to the nearest full
share.
(d) The issuance of Common Stock on conversion of outstanding
shares of Series B Preferred Stock shall be made by the Corporation without
charge for expenses or for any tax in respect of the issuance of such Common
Stock, but the Corporation shall not be required to pay any tax or expense which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in any name other than that of the holder of record on
the books of the Corporation of the outstanding shares of Series B Preferred
Stock converted, and the Corporation shall not be required to issue or deliver
any certificate for shares of Common Stock unless and until the person
requesting the issuance shall have paid to the Corporation the amount of such
tax or shall have established to the satisfaction of the Corporation that such
tax has been paid.
(e) The Conversion Price shall be subject to the following
adjustments:
B-4
(i) Whenever the Corporation shall (A) pay a dividend on its
outstanding shares of Common Stock in shares of its Common Stock or
subdivide or otherwise split its outstanding shares of Common Stock, or
(B) combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect at the effective date
of the happening of such event shall be adjusted so that the holders of
the Series B Preferred Stock, upon conversion of all thereof
immediately following such event, would be entitled to receive the same
aggregate number of shares of Common Stock as they would have been
entitled to receive immediately following such event if such shares of
Series B Preferred Stock had been converted immediately prior to such
event, or if there is a record date in respect of such event,
immediately prior to such record date.
(ii) In case the Corporation, after the effective date of this
amendment, shall issue rights, warrants or options to subscribe for or
purchase shares of Common Stock, or securities convertible into or
exchangeable for shares of Common Stock, at a price per share which is
less than the Conversion Price in effect immediately prior to such
issuance, the Conversion Price in effect immediately prior to such
issuance shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the issuance of such rights, warrants, options or convertible
securities by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the date
of issuance of such rights, warrants, options or convertible securities
plus (A) The number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options, or upon the conversion of
convertible securities then outstanding and which have been taken into
account and determining the then effective Conversion Price (excluding
any theretofore exercised, converted or exchanged), and (B) the number
of shares which the aggregate exercise price of the shares of Common
Stock called for by all such rights, warrants, options or convertible
securities (excluding any theretofore exercised, converted or
exchanged) would purchase at the Conversion Price then in effect and
the denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date of issuance of such
rights, warrants, options or convertible securities plus (A) The number
of shares of Common Stock issuable upon the exercise of rights,
warrants or options or upon the conversion of convertible securities
then outstanding and which have been taken into account in determining
the then effective Conversion Price (excluding any theretofore
exercised, converted or exchanged), and (B) the number of additional
shares of Common Stock called for by all such rights, warrants, options
or convertible securities (excluding any theretofore exercised,
converted or exchanged). Such adjustment shall be made on the date that
such rights, warrants or options are issued.
(iii) Whenever the Corporation shall make a distribution to
holders of Common Stock of evidences of its indebtedness or assets
(excluding dividends and distributions paid in cash out of funds
available for dividends in accordance with applicable law), the
Conversion Price immediately prior to such distribution shall be
adjusted by multiplying
B-5
such Conversion Price by a fraction, (y) the numerator of which shall
be the denominator, hereinbelow described, less the fair value (as
conclusively determined in good faith by the Board of Directors of the
Corporation) at the time of such distribution of that portion of the
evidences of indebtedness or assets distributed which is applicable to
one share of Common Stock, and (z) the denominator of which shall be
the Conversion Price per share of Common Stock on the next full
business day after the record date fixed for the determination of the
holders of the Common Stock entitled to such distribution. Such
adjustment shall be retroactively effective as of immediately after
such record date.
(iv) If the Corporation shall sell any shares of Common Stock
for cash at a price per share which is less than the Conversion Price
in effect immediately prior to such sale, or issue shares of the Common
Stock for a consideration other than for cash, whether in a merger or
other acquisition or otherwise, for a gross consideration per share
which is less than the Conversion Price in effect immediately prior to
such issuance, the Conversion Price in effect immediately prior to such
issue or sale shall be adjusted to a new Conversion Price equal to that
number determined by dividing (A) the sum of (1) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
multiplied by the Conversion Price then in effect and (2) the gross
consideration received by the Corporation upon such issue or sale by
(B) the number of shares of Common Stock outstanding immediately after
such issue or sale. For purposes of such computation, the gross
consideration received by the Corporation upon such issue or sale shall
be the amount of cash and the fair value of property received at the
value determined in good faith by the Board of Directors of the
Corporation. The provisions of this subparagraph shall not apply to the
issuance of shares of Common Stock pursuant to (x) the exercise of
rights, warrants or options to purchase shares of Common Stock, or (y)
the exercise of conversion rights.
(f) Notwithstanding any of the foregoing provisions of this
Section 4, no adjustment of the Conversion Price shall be made if the
Corporation shall issue rights, warrants or options to purchase Common Stock, or
issue Common Stock, pursuant to one or more stock purchase plans, stock option
plans, incentive compensation plans, or other remuneration plans for employees
(including officers) of the Corporation or its Subsidiaries adopted or approved
by the Board of Directors of the Corporation before or after the adoption of
this resolution.
(g) In any case in which this Section 4 provides that an adjustment
of the Conversion Price shall become effective retroactively immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event issuing to the holder of any shares of Series B Preferred Stock converted
after such record date and before the occurrence of such event that number of
shares of Common Stock issuable upon such conversion that shall be in addition
to the number of shares of Common Stock which were issuable upon such conversion
immediately before the adjustment in the conversion price required in respect of
such event.
B-6
(h) Whenever the Conversion Price and subsequent changes to be
made therein are adjusted pursuant to this Section 4, the Corporation shall (i)
promptly place on file at its principal office and at the office of each
transfer agent for the Series B Preferred Stock, if any, a statement, signed by
the Chairman or President of the Corporation and by its Treasurer, showing in
detail the facts requiring such adjustment and a computation of the adjusted
Conversion Price, and shall make such statement available for inspection by
shareholders of the Corporation, and (ii) cause a notice to be mailed to each
holder of record of the outstanding shares of Series B Preferred Stock stating
that such adjustment has been made and setting forth the adjusted Conversion
Price. It shall be accompanied by a letter from the Corporation's independent
public accountants stating that the change has been made in accordance with the
provisions of this resolution.
(i) In the event of any reclassification or recapitalization
of the outstanding shares of Common Stock (except a change in par value, or from
par value to no par value, or subdivision or other split or combination of
shares), or in case of any consolidation or merger to which the Corporation is a
party, except a merger in which the Corporation is the surviving corporation and
which does not result in any such reclassification or recapitalization of the
outstanding Common Stock of the Corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the property of
the Corporation, effective provisions shall be made by the Corporation or by the
successor or purchasing corporation (i) that the holder of each share of Series
B Preferred Stock then outstanding shall thereafter have the right to convert
such share into the kind and amount of stock and other securities and property
receivable, upon such reclassification, recapitalization, consolidation, merger,
sale or conveyance, by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series B Preferred Stock might have been
converted immediately prior thereto, and (ii) that there shall be subsequent
adjustments of the Conversion Price which shall be equivalent, as nearly as
practicable, to the adjustments provided for in this Section 4. The provisions
of this paragraph (j) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
(j) Shares of Common Stock issued on conversion of shares of
Series B Preferred Stock shall be issued as fully paid shares and shall be
nonassessable by the Corporation.
5. Redemption.
(a) Holders of a majority of the issued and outstanding shares of
Series B Preferred Stock, by written notice to the Corporation at any time after
June 30, 1998, may require the Corporation to redeem all of the outstanding
shares of Series B Preferred Stock. At the option of the Corporation, the
redemption price shall be payable (i) in cash in the amount of $200.00 per
share, plus Dividends Accrued to the date fixed for redemption, or (ii) by
distributing pro rata to the holders of Series B Preferred Stock, one hundred
percent of the capital stock of Southern Capital Acquisition Corp., a Virginia
corporation ("SCAC").
B-7
(b) Notice of redemption shall be given by holders of a majority
of the issued and outstanding shares of Series B Preferred Stock to the
Corporation by first class mail, postage prepaid, to Corporation at the
following address: Firstmark Corp., One Financial Place, 222 Kennedy Memorial
Drive, Waterville, Maine 04901. If such notice is given, all shares of Series B
Preferred Stock shall be redeemed and all holders of Series B Preferred Stock
shall be bound to accept the redemption price. The notice of redemption shall
set forth the date fixed for redemption (which shall not be less than 30 days
after the date the notice is mailed to the Corporation), the applicable
redemption price (including the amount of Dividends Accrued to the date fixed
for redemption), and the place where the payment of the redemption price shall
be made. Certificates representing shares to be redeemed shall be surrendered
against payment of the redemption price.
(c) When a notice of redemption of the outstanding shares of
Series B Preferred Stock shall have been duly mailed as hereinabove provided, on
or before the date fixed for redemption, the Corporation shall deposit (i) cash
funds sufficient to pay the redemption price (including Dividends Accrued to the
date fixed for redemption) of such shares in trust for the benefit of the
holders of the shares to be redeemed with any bank or trust company in the City
of Richmond, State of Virginia, having capital and surplus aggregating at least
$50,000,000 as of the date of its most recent report of financial condition and
named in such notice or (ii) stock certificates, duly endorsed, representing one
hundred percent of the capital stock of SCAC to be applied to the redemption of
the shares so called for redemption against surrender of the certificates
representing shares so redeemed for cancellation. From and after the time of
such deposit of all shares for the redemption of which such deposits shall have
been so made shall, whether or not the certificates therefor shall have been
surrendered for cancellation, be deemed no longer to be outstanding for any
purpose and all rights with respect to such shares shall thereupon cease and
determine except the right to receive payment of the redemption price (including
Dividends Accrued to the date fixed for redemption), but without interest. Any
interest accrued on such funds shall be paid to the Corporation from time to
time.
(d) So long as any Series B Preferred Stock is outstanding, the
Corporation shall set aside as a sinking fund for redemption of the Seriesk B
Preferred Stock on or before April 1 of each year commencing April 1, 1997, the
sum of $1,000,000; provided that in any year the Corporation shall not be
required to set aside an amount greater than the total of $25.00 multiplied by
the number of shares of Series B Preferred Stock then outstanding plus Dividends
Accrued.
Funds so set aside for the sinking fund shall be applied by or at the
direction of the Corporation only to the redemption of shares of Series B
Preferred Stock in the manner, upon notice and with the effect specified in this
Section 5. Accrued and unpaid dividends on shares of Series B Preferred Stock to
be redeemed through the sinking fund shall not be charged to funds deposited in
the sinking fund but shall be paid out of other funds of the Corporation.
B-8
6. Definitions.
For the purposes of this resolution, the following terms shall have the
following meanings:
"Capital Stock" means the Capital Stock of any class or series
(however designated) of the Corporation.
"Common Stock" means the Common Stock of the Corporation ($.20
par value) as constituted on the date of this Resolution, or shares of
any other class of Capital Stock into which such Common Stock is
reclassified after such date.
"Dividends Accrued" means an amount equal to the sum of all
cash dividends required to be paid on the shares of Series B Preferred
Stock from the date of issue of the shares of Series B Preferred Stock
to the date to which the determination is to be made, whether or not
such amount or any part thereof shall have been declared as dividends
and whether there shall be or have been any funds out of which such
dividends might legally be paid, less the sum of the amount of cash
dividends declared and paid under Section 1(a) and stock dividends
declared and paid under Section 1(b) and, if any dividends have been
declared and set apart for payment but not paid, the amount so set
apart for the payment of such dividends. Accrued Dividends for any
period less than a full calendar quarter shall be calculated on the
basis of the actual number of days elapsed over a 360 day year.
The "Fair Market Value" per share of Common Stock on any day
shall be deemed to be the mean between the asked and bid prices as
reported by NASDAQ or any similar service, or the last sale price as
reported on the NASDAQ National Market if the Common Stock is quoted on
such system, but if the Common Stock is listed and traded on a national
stock exchange, the "Fair Market Value" per share of Common Stock on
any date shall be deemed to be the last sale price for such day on the
exchange on which it generally has the highest trading volume;
provided, however, that if the Common Stock is not traded on any
trading day, then the Fair Market Value on such day shall be determined
in the manner hereinabove set forth on the most recent preceding
trading day.
"Junior Stock" means any Capital Stock ranking as to dividends
and as to rights in liquidation, dissolution or winding up of the
affairs of the Corporation junior to the Series B Preferred Stock.
"Parity Stock" means shares of any series of the Corporation's
Preferred Stock, shares of the Corporation's Class B Preferred Stock
and any shares of Capital Stock ranking as to dividends and/or as to
the rights in liquidation, dissolution or winding up of the affairs of
the Corporation equally with the Series B Preferred Stock.
B-9
"Prior Stock" means any Capital Stock ranking as to dividends
or as to rights in liquidation, dissolution or winding up of the
affairs of the Corporation prior to the Series B Preferred Stock.
"Subsidiary" means any corporation, a majority of the
outstanding voting stock of which is owned, directly or indirectly, by
the Corporation or by the Corporation and one or more Subsidiaries.
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April 24, 1996
B-11
EXHIBIT C to
Agreement and
Plan of Reorganization
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
April __, 1996, by and between Southern Capital Corporation, a Virginia
corporation ("SCC"), H. William Coogan, Jr. ("Coogan"), Donald V. Cruickshanks
("Cruickshanks"), and Susan C. Coogan, Trustee under H. William Coogan, Jr.
Irrevocable Trust Agreement dated 12/30/92 ("Susan Coogan"), and each of the
persons named on Exhibit A hereto (each such named person a "Shareholder" and,
collectively, the "Shareholders").
WHEREAS, SCC, Southern Capital Acquisition Corp., a Virginia
corporation ("SCAC") and Firstmark Corp., a Maine corporation ("FMC") are
concurrently herewith entering into an agreement and plan of reorganization (the
"Merger Agreement") with respect to a merger of SCC with and into SCAC; and
WHEREAS, Coogan, Cruickshanks and Susan Coogan are the sole
shareholders of SCC and are causing SCC to execute the Merger Agreement in
reliance upon the execution and delivery of this Agreement by the Shareholders;
and
WHEREAS, as a condition to causing SCC to enter into the Merger
Agreement, Coogan, Cruickshanks and Susan Coogan have requested that each
Shareholder agree to vote all shares of FMC capital stock ("FMC Shares")
beneficially owned by such shareholder as of the date hereof or at any time
hereafter as provided in this Agreement, and each Shareholder is willing to vote
such shares as provided in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and intending to be legally bound, the parties hereto
agree as follows:
1. Voting Agreement; Proxy.
(a) Voting. Each Shareholder agrees to vote all FMC Shares
in favor of the matters set forth in Section 5.1 of the Merger Agreement.
(b) Proxy. Each Shareholder agrees to grant, at the request
of Coogan, Cruickshanks, or Susan Coogan, upon the execution and delivery of the
Merger Agreement, a proxy to vote the FMC Shares as indicated in subsection 1(a)
above. Each Shareholder intends such proxy to be irrevocable and coupled with an
interest and will take such further action or execute such other instruments as
may
be necessary to effectuate the intent of this proxy and hereby revokes any proxy
previously granted by him with respect to the FMC Shares.
2. Termination. This Agreement shall terminate upon the
earlier to occur of (i) conversion of the FMC Preferred Stock issued pursuant to
the Merger Agreement into FMC Common Stock as contemplated by the Merger
Agreement, and (ii) the termination of the Merger Agreement in accordance with
its terms.
3. Representations and Warranties of Shareholders. Each
Shareholder hereby represents and warrants to Coogan, Cruickshanks, and Susan
Coogan as follows:
(a) Authority Relative to this Agreement. Such Shareholder
has all necessary power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by such Shareholder and, assuming that this
Agreement has been duly and validly authorized, executed and delivered by SCC,
Coogan, Cruickshanks, and Susan Coogan, this Agreement constitutes a valid and
binding agreement of such Shareholder, enforceable against such Shareholder in
accordance with its terms.
(b) Ownership of Shares. Such Shareholder beneficially owns
all of the FMC Shares indicated opposite such Shareholder's name on Exhibit A
hereto, which constitute all the FMC Shares beneficially owned by such
Shareholder. Other than as provided in this Agreement, there are no restrictions
on the voting rights or rights of disposition pertaining to such shares.
(c) No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation by such Shareholder of the transactions
contemplated hereby will conflict with or constitute a violation of or default
under any contract, commitment, agreement, arrangement or restriction of any
kind to which such Shareholder is a party or by which such Shareholder is bound.
4. No Transfer. Until the termination of this Agreement, each
Shareholder hereby agrees not to sell, transfer, assign or otherwise dispose of
any of its FMC Shares other than sales, transfers, assignments or other
dispositions to affiliates of such Shareholder or to another Shareholder or
transfers which occur upon the death of a Shareholder without the prior written
consent of Coogan, Cruickshanks, and Susan Coogan. Any permitted transferee of
FMC Shares must become a party to this Agreement and any purported transfer of
FMC Shares to a person or entity that has not become a party hereto shall be
null and void.
5. Entire Agreement. This Agreement (a) constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes
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all other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; (b) shall
not be amended, altered or modified in any manner whatsoever, except by a
written instrument executed by the parties hereto; and (c) shall be governed in
all respects, including validity, interpretation and effect, by the laws of the
State of Virginia (without giving effect to the provisions thereof relating to
conflicts of law).
6. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives; provided, that this Agreement shall not be assigned without the
prior written consent of the other parties hereto, except that each Shareholder
may assign all or any of its rights, interests and obligations hereunder to an
affiliate of such Shareholder who agrees to become bound hereby. Nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
9. Definitions. Unless the context otherwise requires, the
following terms shall have the following respective meanings:
(a) "beneficial owner" has the meaning set forth in Rule
13d-3(a) and (b) of the Rules and Regulations to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and "beneficially owned" shall have a
correlative meaning; and
(b) "person" means a corporation, association, partnership,
joint venture, organization, business, individual, trust, estate or any other
entity or group (within the meaning of Section 13(d)(3) of the Exchange Act).
10. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
confirmed delivery by a standard overnight carrier or (b) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address as the
parties hereto shall specify by like notice):
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(x) If to SCC, to
Southern Capital Corp.
One James Center, 17th Floor
901 East Cary Street
Richmond, Virginia 23219
Attention: H. William Coogan, Jr., Chairman
with a copy to:
R. Brian Ball, Esq.
Williams, Mullen, Christian & Dobbins
Two James Center, 16th Floor
1021 East Cary Street
P. O. Box 1320
Richmond, Virginia 23210-1320
(y) If to any of the Shareholders, to the respective addresses
noted on Exhibit A hereto
11. Descriptive Headings. The descriptive headings herein are
inserted forconvenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
12. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
13. Further Assurances. Each Shareholder and the Company will
execute and deliver all such further documents and instruments and take all such
further actions as may be reasonably necessary in order to consummate the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SOUTHERN CAPITAL CORP.
By
--------------------------------
H. William Coogan, Jr.
Chairman
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----------------------------------
H. William Coogan, Jr.
----------------------------------
Donald V. Cruickshanks
----------------------------------
Susan C. Coogan, Trustee under
H. William Coogan, Jr. Irrevocable
Trust Agreement dated 12/30/92
----------------------------------
James F. Vigue
----------------------------------
Ivy L. Gilbert
----------------------------------
Robert A. Rice
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EXHIBIT A
James F. Vigue
Ivy L. Gilbert
Robert A. Rice
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Exhibit D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (as amended, supplemented or modified from time
to time, this "Agreement") is dated as of ____________, 1996 and is by and among
Firstmark Corp. ("FMC"), a Maine Corporation; Thompson & McMullan, a Virginia
professional corporation (the "Agent"); H. William Coogan, Jr., Donald V.
Cruickshanks and Susan C. Coogan, trustee U/A dated December 30, 1992 (together
the "Shareholders"); and H. William Coogan, Jr. ("Representative").
Recitals:
1. FMC, Southern Capital Corp., a Virginia corporation ("SCC"), and
Southern Capital Acquisition Corp., a Virginia corporation ("SCAC"), entered
into an Agreement and Plan of Reorganization, dated April ___, 1996 (the
"Reorganization Agreement"). The Reorganization Agreement provides for the
merger of SCC into SCAC.
2. SCAC is a wholly-owned subsidiary of FMC.
3. The Shareholders are the only shareholders of SCC. Pursuant to the
Reorganization Agreement, upon the merger of SCC into SCAC, the Shareholders
will receive shares of Cumulative Nonconvertible Nonvoting Preferred Stock,
Series B, of FMC ("FMC Preferred Stock") in exchange for their shares of the
common stock of SCC. The terms and the relative rights and preferences of the
FMC Preferred Stock are set forth in Exhibit B to the Reorganization Agreement
(the "Articles of Amendment").
4. Subject to certain conditions, Section 4(a) of the Articles of
Amendment provides that FMC shall have the right to convert the shares of FMC
Preferred Stock into shares of common stock of FMC, par value $.20 per share
("FMC Common Stock").
5. Section 5(a) of the Articles of Amendment provides that after June
30, 1998 the holders of the FMC Preferred Stock shall have the right to require
FMC to redeem the FMC Preferred Stock. If such right of redemption is exercised,
FMC will have the right to pay the redemption price in cash or by delivering all
of the issued and outstanding shares of the capital stock of SCAC to the holders
of FMC Preferred Stock.
6. It is the desire and expectation of FMC and the Shareholders that
FMC will exercise its right to convert the FMC Preferred Stock into FMC Common
Stock before January 1, 1997, such that FMC will never be required to redeem the
FMC Preferred Stock.
7. FMC and the Shareholders, however, realize that satisfaction of the
conditions precedent to the right of FMC to convert the FMC Preferred Stock into
FMC Common Stock, as set forth in Section 4(a) of the Articles of Amendment,
requires a vote of the shareholders of FMC to amend the Articles of
Incorporation of FMC and, therefore, is not within the control of FMC and the
Shareholders. Consequently, the parties are entering this Agreement to ensure
that, if the FMC Preferred Stock is not converted into FMC Common Stock before
June 30, 1998 and the holders of FMC Preferred Stock exercise their right of
redemption, all of the issued and outstanding shares of SCAC common stock will
be available for prompt delivery to the Shareholders, or their assigns, if FMC
does not elect to pay the redemption price in cash.
NOW THEREFORE, for and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
ESCROW OF STOCK
SECTION 1.1. Delivery of Stock Certificates. Certificate Number ____
(the "Certificate") representing and evidencing five thousand (5,000) shares of
the common stock of SCAC, no par value ("SCAC Common Stock"), is hereby
delivered to and shall be held by the Agent pursuant to the terms of this
Agreement. The Certificate is in suitable form for transfer by delivery.
SECTION 1.2. Release of Certificate.
(a) Upon the conversion of all of the shares of FMC Preferred Stock
into FMC Common Stock, this Agreement shall terminate and the Certificate shall
be delivered by the Agent to FMC.
(b) If the holders of FMC Preferred Stock exercise their right of
redemption, as set forth in Section 5(a) of the Articles of Amendment, and FMC
elects to pay the redemption price in shares of SCAC Common Stock, the Agent
shall deliver, at such time as FMC and the Representative shall direct, the
Certificate to the Representative, who shall split up the Certificate and
deliver shares of SCAC Common Stock to each such holder of FMC Preferred Stock
in the proportion that the number of shares of FMC Preferred Stock held by each
person bears to the total number of shares of FMC Preferred Stock issued and
outstanding.
(c) This Agreement shall terminate when the Agent delivers the
Certificate to FMC pursuant to Section 1.2(a) or to the Representative pursuant
to Section 1.2(b).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
FMC represents and warrants as follows:
SECTION 2.1. Contravention. The execution, delivery and performance by
FMC of this Agreement require no action by or in respect of, or filing with, any
governmental authority and do not contravene, or constitute (with or without the
giving of notice or lapse of time or both) a default under, any provision of
applicable law or of any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting FMC.
SECTION 2.2. Binding Effect. This Agreement constitutes a valid and
binding agreement of FMC, enforceable against FMC in accordance with its terms,
except as the enforceability hereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors rights generally and by equitable principles of
general applicability (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
SECTION 2.3. Title to Stock. FMC owns all of the issued and outstanding
shares of SCAC Common Stock free and clear of any liens or encumbrances. All
issued and outstanding shares of SCAC Common Stock have been duly authorized and
validly issued, and are fully paid and non-assessable, and are subject to no
options to purchase or similar rights of any person or entity. There are no
shares of SCAC Common Stock issued or outstanding, except the shares evidenced
by the Certificate.
ARTICLE III
COVENANTS
FMC agrees that until this Agreement terminates FMC will not sell or
otherwise dispose of, or grant any option with respect to, any of the SCAC
Common Stock or create or suffer to exist any lien or encumbrance on any SCAC
Common Stock. FMC agrees that it will cause SCAC not to issue any stock or other
securities after the date hereof, except to the Agent.
ARTICLE IV
DISTRIBUTIONS ON COLLATERAL; VOTING
SECTION 4.1. Right to Receive Distributions: Voting.
(a) So long as FMC shall not have failed (i) to declare and pay any
cash dividend on the FMC Preferred Stock or (ii) to make any sinking fund
payment with respect to the FMC Preferred Stock:
(i) FMC shall be entitled to exercise any and all voting and
other consensual rights pertaining to the SCAC Common
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Stock or any part thereof for any purpose not inconsistent with the terms of
this Agreement; provided, however, that FMC shall not exercise or shall refrain
from exercising any such right if, in the Representative's judgment, such action
would have a material adverse effect on the value of the SCAC Common Stock or
any part thereof.
(ii) FMC shall be entitled to receive and retain any and all
dividends and distributions made upon or with respect to the SCAC Common Stock.
(iii)The Agent shall execute and deliver, or cause to be
executed and delivered, to FMC all such proxies, powers of attorney, consents,
ratifications and waivers and other instruments as FMC may reasonably request
for the purpose of enabling FMC to exercise the voting and other rights which
FMC is entitled to exercise pursuant to paragraph (i) above and to receive the
dividends which FMC is authorized to receive and retain pursuant to paragraph
(ii) above. Before taking any such action, the Agent shall have the right, but
not the obligation, to request confirmation from the Representative that FMC is
entitled to exercise such rights and/or receive such dividends.
(b) If FMC shall fail to (i) declare and pay any cash dividend on the
FMC Preferred Stock or (ii) to make any sinking fund payment with respect to the
Series B Preferred Stock:
(i) All rights of FMC to exercise the voting and other
consensual rights which FMC would otherwise be entitled to exercise pursuant to
Section 4(a)(i) and to receive the dividends which FMC would otherwise be
authorized to receive and retain pursuant to Section 4(a)(ii) shall cease, and
all such rights shall thereupon become vested in the Representative for the
benefit of the holders of the FMC Preferred Stock, who shall thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and hold such dividends.
(ii) All dividends which are received by FMC contrary to the
provisions of paragraph (i) of this Section 4(b) shall be received in trust for
the benefit of the holders of the FMC Preferred Stock, shall be segregated from
other funds of FMC and shall be paid over to the Representative in the same form
as so received, with any necessary endorsement.
ARTICLE V
GENERAL AUTHORITY
SECTION 5.1. General Authority. FMC hereby irrevocably appoints the
Agent, with full power of substitution, as FMC's true and lawful
attorney-in-fact, in the name of FMC, for the sole use and benefit of the
holders of FMC Preferred Stock, at any time and from time to time, to take any
and all appropriate
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action and to execute any and all documents and instruments which may be
necessary or desirable to carry out the terms of this Agreement.
SECTION 5.2. Waiver and Estoppel. FMC agrees, to the extent it may
lawfully do so, that FMC will not at any time in any manner whatsoever claim or
take the benefit or advantage of, any appraisal, valuation, stay, extension,
moratorium, turnover or redemption law, or any law permitting FMC, now or at any
time hereafter in force which may delay, prevent or otherwise affect the
performance or enforcement of this Agreement, and hereby waives all benefit or
advantage of all such laws. FMC covenants that it will not hinder, delay or
impede the execution of any power granted to the Agent or the Representative in
this Agreement.
SECTION 5.3. Reliance on the Representative. The Shareholders hereby
authorize FMC and the Agent to rely on the actions of the Representative as
their own actions in connection with the protection of their interests under
this Agreement until such time as FMC and the Agent shall receive notice from
all of the Shareholders to the contrary.
ARTICLE VI
RIGHTS AND DUTIES OF AGENT
SECTION 6.1. Reliance. The Agent may conclusively rely, and shall be
protected in acting or refraining from acting, on any written notice, instrument
or signature believed by it to be genuine and to have been signed or presented
by the proper party or parties duly authorized to do so. The Agent shall have no
responsibility for the contents of any writing contemplated herein and may rely
without any liability upon the contents thereof. The Agent may assume the
validity and accuracy of any statement or assertion contained in such writing or
instrument that it does not actually know to be invalid or inaccurate and may
assume that any person purporting to give any writing, notice advice or
instructions in connection with the provisions of this Agreement has been duly
authorized to do so unless it has actual knowledge to the contrary.
SECTION 6.2. No Liability. The Agent shall not be liable for any
action taken or omitted by it in good faith and believed by it to be authorized
hereby or within the rights and powers conferred upon it hereunder, nor for
action taken or omitted by it in good faith, or in accordance with advice of
counsel of its own choosing, and it shall not be liable for any mistake of fact
or error of judgment or for any acts or omissions of any kind unless caused by
its own gross negligence or willful misconduct.
SECTION 6.3. Depository. The Agent acts hereunder as a depository
only, and its duties hereunder shall be limited to the
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safekeeping of the Certificate in accordance with the provisions of this
Agreement and the performance of its obligations as expressly set forth herein.
It shall undertake to perform only such duties as are expressly set forth
herein.
SECTION 6.4. Delivery of the Certificate. Upon receipt of and in
accordance with (i) joint written instructions from FMC and the Representative
or (ii) final order from a court of competent jurisdiction, the Agent shall
deliver the Certificate as provided in such instructions or order. In the event
that December 31, 1999 or such later time as FMC and the Representative or such
court shall have requested or ordered, shall have passed without the Agent
having received such instructions or order, the Agent shall deliver the
Certificate to FMC.
SECTION 6.5. Resignation. The Agent may resign and be discharged from
its duties hereunder at any time by giving written notice of such resignation to
the parties hereto, specifying the date when such resignation shall take effect.
Upon such notice, a successor agent shall be appointed with the unanimous
consent of the parties hereto, and the service of such successor agent shall be
effective as of the date of resignation specified in such notice, which date
shall not be less than thirty (30) days after the giving of such notice. If the
parties hereto are unable to agree upon a successor agent within thirty (30)
days after such notice, the Agent shall be authorized to appoint its successor.
The Agent shall continue to serve until its successor accepts such appointment
by written notice to the parties hereto and the Agent deposits the Certificate
with the successor agent.
SECTION 6.6. Reimbursement. The fees and charges of the Agent shall
be borne jointly by FMC and the Shareholders. In the event that the Agent is
required to appear before any court of competent jurisdiction in any proceedings
regarding or relating to the Certificate or this Agreement, its costs, including
reasonable attorneys' fees, shall be paid by the party who does not prevail in
such proceedings as determined by such court, and, if no such determination is
made, such costs shall be paid jointly by FMC and the Shareholders.
SECTION 6.7. Waiver of Conflicts. The parties hereto acknowledge that
the Agent has served as special Virginia counsel to SCAC in connection with its
execution and delivery of and performance under the Reorganization Agreement,
confirm that with such knowledge they have requested the Agent to serve as such
hereunder, and waive any conflict of interest that the Agent may now or
hereafter have as a result of serving as both special Virginia counsel to SCAC
and in its capacity hereunder.
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SECTION 6.8. Right to Interplead. If at any time while this Agreement
remains in effect the Agent receives conflicting instructions from, or notice of
a dispute by, any of the parties hereto or has reason to question the
genuineness, validity or accuracy of any writing, notice, advice or instructions
received by it or the authority of the party giving such writing, notice, advice
or instructions, the Agent may deposit the Certificate and any other document,
instrument or proceeds received by it as Agent hereunder with a court of
competent Jurisdiction (which all of the parties hereto agree shall include,
without limitation, the Circuit Court of the City of Richmond, Virginia) and by
interpleader request such court to advise it as to how to proceed in the
performance of its duties hereunder.
ARTICLE VII
INDEMNIFICATION
Each of FMC and the Shareholders shall indemnify the Agent and hold it
harmless against any and all Claims that are a consequence of such party's
action, and FMC and the Shareholders shall jointly indemnify the Agent and hold
it harmless against any and all Claims that are not a consequence of any party's
actions, except in the case of any Claims resulting solely from the Agent's own
gross negligence or willful misconduct. As used herein, "Claims" shall mean and
include actions at law, suits in equity, causes of actions, damages,
liabilities, losses, demands, costs, fines, judgments, expenses, claims and
counterclaims, including, without limitation, all consequential or incidental
damages and all attorneys' fees, asserted against or incurred or sustained by
the Agent of any kind or nature which may now exist or hereafter arise that are
related to, based upon, on account of or connected in any way to or with the
Certificate or this Agreement. The indemnification extended hereunder shall
include, but is not limited to, all costs incurred by the Agent to investigate,
defend, or settle any Claims and any amounts necessary to put the Agent in the
same position and condition that it would have been in if such Claims had not
arisen.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing and shall be given to each other
party hereto at their respective addresses set forth on the signature page
hereof or to such other address as any such party may hereafter specify for the
purpose by notice to the others. Each such notice, request or other
communication shall be effective (i) five (5) business days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means, when delivered at
the address specified under the signatures of the parties hereto. Rejection or
refusal to
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accept, or the inability to deliver because of a changed address of which no
notice was given shall not affect the validity of notice given in accordance
with this Section 8.1.
SECTION 8.2. Successors and Assigns. This Agreement is for the
benefit of the Shareholders and their successors and assigns. This Agreement
shall be binding upon FMC and its successors and assigns.
SECTION 8.3. Amendments and Waivers. Any provision of this Agreement
may be amended or waived, if, but only if, such amendment or waiver is in
writing and is signed by FMC, the Agent, the Representative and the
Shareholders, or their assigns.
SECTION 8.4. Delivery and Virginia Law. This Agreement has been
delivered in Virginia and shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, except as otherwise required by
mandatory provisions of law and except to the extent that remedies provided by
the laws of any jurisdiction other than Virginia are governed by the laws of
such jurisdiction.
SECTION 8.5. Limitation by Law; Severability.
(a) All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and be limited to the extent necessary so that they will not
render this Agreement invalid, unenforceable in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any
applicable law.
(b) If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Shareholders in order to carry out
the intentions of the parties hereto as nearly as may be possible; and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
SECTION 8.6. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
-8-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FMC
Firstmark Corp.
By:
----------------------------------
James F. Vigue, President
Address:
---------------------------
---------------------------
AGENT
Thompson & McMullan, a Virginia
professional corporation
By:
----------------------------------
Title:
-------------------------------
Address: 100 Shockoe Slip
Richmond, Virginia 23219
REPRESENTATIVE
-------------------------------------
Address:
-----------------------------
-----------------------------
SHAREHOLDERS
-------------------------------------
Donald V. Cruickshanks
Address: One James Center, 17th Floor
901 E. Cary Street
Richmond, Virginia 23219
-------------------------------------
H. William Coogan, Jr.
Address: One James Center, 17th Floor
901 E. Cary Street
Richmond, Virginia 23219
-9-
-------------------------------------
Susan C. Coogan, Trustee under H.
William Coogan, Jr., Irrevocable
Trust Agreement dated 12/30/92
Address: 4712 Charmain Road
Richmond, Virginia 23226
-10-
Appendix D
FIRSTMARK CORP.
Consolidated Financial Statements for
the Years Ended June 30, 1996 and 1995
and Independent Auditors' Report
FIRSTMARK CORP.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995:
Consolidated Balance Sheets 2
Consolidated Statements of Earnings 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Firstmark Corp.
We have audited the consolidated balance sheet of Firstmark Corp. and
subsidiaries as of June 30, 1996, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of the Company for the year ended June 30,
1995 were audited by other auditors whose report, dated September 11, 1995,
expressed an unqualified opinion on those statements and included an explanatory
paragraph that described the issues involving the valuation of certain
investments discussed in Note 2 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1996, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
September 9, 1996
DELOITTE & TOUCHE LLP
Richmond, Virginia
FIRSTMARK CORP.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS 1996 1995
Cash and cash equivalents $ 1,707,327 $ 1,622,016
Receivables:
Receivables - trade, net 1,065,469 190,986
Receivables - related parties 53,116 424,169
-------------- -------------
Total receivables 1,118,585 615,155
Notes receivables:
Notes receivables, net 219,743 268,134
Notes receivables - related parties 209,935 310,338
-------------- -------------
Total notes receivables 429,678 578,472
Income taxes receivables 436,910 -
Investments:
Marketable securities 3,742,382 1,242,101
Venture capital investments, net 2,026,176 1,574,789
Real estate and other investments 1,611,455 1,226,585
-------------- -------------
Total investments 7,380,013 4,043,475
Title plant 3,544,243 -
Property, plant and equipment, net 1,130,572 156,561
Excess of cost over fair value 1,111,777 114,384
Deferred tax asset 829,591 80,000
Other assets 263,361 118,050
-------------- -------------
TOTAL ASSETS $ 17,952,057 $ 7,328,113
============== =============
See notes to consolidated financial statements.
- 2 -
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
LIABILITIES:
Accounts payable and other liabilities $ 422,120 $ 237,830
Borrowed funds 1,885,561 1,035,000
Reserve for title policy claims 944,754 -
Income taxes payable - 89,594
Deferred tax liability 931,817 -
----------- ----------
Total liabilities 4,184,252 1,362,424
----------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.20 par value - authorized
250,000 shares; issued 57,000 and 60,000 shares,
respectively, (liquidation preference $2,280,000) 11,400 12,000
Preferred stock, Series B, $0.20 par value - authorized 188,000 shares;
issued 40,000 shares 8,000 -
Common stock, $0.20 par value - authorized 5,000,000
shares; issued 2,271,044 and 2,196,040 shares, respectively 454,209 439,209
Additional paid-in capital - preferred 10,904,889 2,283,789
Additional paid-in capital - common 3,393,992 3,106,201
Retained earnings (deficit) (234,852) 380,391
Treasury stock, at cost - 201,554 and 45,770 shares, respectively (818,773) (193,898)
Net unrealized gain (loss) on marketable equity securities held for sale 48,940 (62,003)
----------- ----------
Total stockholders' equity 13,767,805 5,965,689
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,952,057 $ 7,328,113
============== ==============
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
REVENUES:
Commissions and fees $ 1,729,389 $ 1,665,078
Title insurance 803,035 -
Investment gains 661,147 443,134
Interest and dividends 177,144 176,474
Other revenues 28,185 769,767
----------- -------------
Total revenues 3,398,900 3,054,453
------------- -------------
EXPENSES:
Employee compensation and benefits 1,950,887 1,225,135
Write-offs of loans and investments 1,249,347 -
General and administrative expenses 869,676 969,947
Interest expense 84,558 87,476
------------- -------------
Total expenses 4,154,468 2,282,558
------------- -------------
Earnings (losses) before income taxes (755,568) 771,895
Income tax (benefit) expense (281,925) 304,000
------------- -------------
Net earnings (loss) (473,643) 467,895
Preferred stock dividend 141,600 143,749
------------- -------------
Net earnings (loss) available for common shares $ (615,243) $ 324,146
============= =============
Earnings (loss) per share $ (0.287) $ 0.145
============= =============
Weighted number of shares and equivalents outstanding 2,147,006 2,231,530
============= =============
See notes to consolidated financial statements.
- 3 -
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
Additional Additional
Paid-In Preferred Preferred Paid-In
Common Capital Stock, Stock, Capital
Stock Common Series A Series B Preferred
BALANCE, JULY 1, 1994 $ 439,209 $ 3,106,201 $ 10,250 $ -- $ 1,965,914
Treasury stock purchased -- -- -- -- --
Preferred stock sold -- -- 1,750 -- 317,875
Net earnings -- -- -- -- --
Preferred dividends paid -- -- -- -- --
Change in valuation of securities -- -- -- -- --
------------ ------------ ------------ ------------- ------------
BALANCE, JUNE 30, 1995 439,209 3,106,201 12,000 -- 2,283,789
Common stock issued 15,000 287,791 -- -- --
Preferred stock issued -- -- -- 8,000 8,742,000
Preferred dividends paid -- -- -- --
Preferred stock redeemed -- -- (600) -- (120,900)
Treasury stock purchased -- -- -- -- --
Net loss -- -- -- -- --
Change in valuation of securities
------------ ------------ ------------ ------------- ------------
BALANCE, JUNE 30, 1996 $ 454,209 $ 3,393,992 $ 11,400 $ 8,000 $ 10,904,889
============ ============ ============ ============= ============
Net
Unrealized
Loss on
Retained Marketable
Earnings Treasury Equity
(Deficit) Stock Securities
BALANCE, JULY 1, 1994 $ 56,245 $ (26,172) $ (32,229)
Treasury stock purchased -- (167,726) --
Preferred stock sold -- -- --
Net earnings 467,895 -- --
Preferred dividends paid (143,749) -- --
Change in valuation of securities -- -- (29,774)
------------ ------------ ------------
BALANCE, JUNE 30, 1995 380,391 (193,898) (62,003)
Common stock issued -- -- --
Preferred stock issued -- -- --
Preferred dividends paid (141,600) -- --
Preferred stock redeemed -- -- --
Treasury stock purchased -- (624,875) --
Net loss (473,643) -- --
Change in valuation of securities 110,943
------------ ------------ ------------
BALANCE, JUNE 30, 1996 $ (234,852) $ (818,773) $ 48,940
============ ============ ============
See notes to consolidated financial statements.
- 4 -
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
OPERATING ACTIVITIES:
Net income(loss) $ (473,643) $ 467,895
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (276,283) 96,000
Depreciation and amortization 85,659 66,768
Write-down of investments 1,271,569 -
Depletion of timberland - 445,687
Commissions paid in stock 33,743 -
Gain on sale of property (21,065) -
Gain on sale of investments (2,408) -
Loss realized on available-for-sale securities 12,952 -
Fee received in stock or property (145,550) (125,000)
Gain on spin off of Unitel (587,365) -
Issuance of stock for services 211,539 -
Net decrease in notes receivable 96,848 226,946
Net decrease in notes receivable from related parties 51,946 106,710
Net change in marketable trading securities 160,682 (899,903)
Changes in current assets and liabilities:
Decrease (increase) in:
Accounts receivable 96,150 (23,168)
Accrued interest receivable (30,468) -
Prepaid expenses and other current assets 6,088 (22,614)
Advances to related parties 371,053 (319,175)
Refundable income taxes (233,611) -
Increase (decrease) in:
Accounts payable (107,823) 126,643
Accrued expenses 7,477 (44,300)
Reserve for policy claims (27,078) -
Income taxes (89,594) (12,850)
------------- -------------
Net cash provided by operating activities 410,818 89,639
------------ ------------
(Continued)
- 5 -
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
INVESTING ACTIVITIES:
Acquisiton of business, net of cash acquired 1,012,322 -
Acquisition costs (28,998) -
Proceeds from sale of real estate (9,301) (144,217)
Increase in numismatic and stamp investments (50,701)
Additions to other investments (1,726,626) (440,481)
Securities held for investments - (195,531)
Proceeds from sale of property, plant and equipment (21,908) -
Purchase of property, plant and equipment (25,827) (8,104)
Proceeds from available-for-sale securities 1,104,494 -
Purchase of available-for-sale securities (250,019) -
------------- -------------
Net cash provided (used) by investing activities 54,137 (839,034)
-------------- --------------
FINANCING ACTIVITIES:
Issuance (purchase) of preferred stock (121,500) 825,875
Payments on other liabilities (41,003) (61,908)
Repayment of convertible notes - (112,500)
Proceeds from lease buy-back 158,084 -
Purchase of treasury stock (233,625) (167,726)
Preferred stock dividends (141,600) (143,749)
------------- -------------
Net cash provided (used) by
financing activities (379,644) 339,992
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 85,311 (409,403)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,622,016 2,031,419
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,707,327 $ 1,622,016
============= =============
See notes to consolidated financial statements.
- 6 -
FIRSTMARK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Firstmark Corp. ("the Company") and it
subsidiaries, based in Waterville, Maine, are engaged in venture capital,
consulting services and title insurance. The Company invests its capital
in and provides bridge loans to emerging growth or start up companies, and
provides financial consulting services to individuals, institutions, and
corporations. The Company also issues title insurance policies through
branch offices and independent agencies in Mid-Atlantic states of the
United States. The majority of the Company's title insurance business is
concentrated in Virginia.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management 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 the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company, all wholly-owned and majority-owned
subsidiaries. Investments in companies in which ownership interest range
from 20 to 50 percent, and the Company exercises significant influence
over operating and financial policies, are accounted for using the equity
method. Other investments are accounted for using the cost method. All
significant intercompany accounts and transaction have been eliminated.
Debt and Equity Securities - All marketable securities held for trading or
available-for-sale are stated at market value at the balance sheet date,
and securities held to maturity are stated at cost. Securities are
classified as trading, held for sale, or held to maturity based on
management's intent at the time they are purchased. The excess of cost
over market for securities available for sale not considered to be
permanently impaired is shown as a valuation allowance in the equity
section of the balance sheet. Gains or losses realized upon sale,
unrealized gains or losses on trading securities, and write-down
necessitated by permanent impairment are reflected in income. The cost of
the securities sold is based on the specific identification of each
security held at the time of sale.
Real Estate and Timber Investments - Investment real estate is stated at
the lower of cost or estimated net realizable value. Sales of units of a
real estate development project are recorded when the buyer's down payment
is sufficient, collectibility of the receivable is reasonably assured, and
the Company has completed substantially all development related to the
property sold. Sales not meeting this criteria are recorded using the
installment method. Costs of individual units sold are determined by
allocating total costs based on the relative fair value of the units.
Timberland is stated at cost less depletion on harvested timber.
Other Investments - Numismatic and stamp investments are carried at the
lower of cost or market. Other investments are carried at cost, unless
evidence indicates a loss has been incurred, at which time the investments
are marked to their net realizable value.
- 7 -
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is charged to expense over the
estimated useful lives of the assets and is computed using the
straight-line method for financial reporting purposes. Depreciation for
tax purposes is computed based upon accelerated methods. The costs of
major renewals or improvements are capitalized while the costs of ordinary
maintenance and repairs are charged to expense as incurred.
Intangible Assets - Goodwill represents the excess of purchase price over
net assets acquired, and is being amortized on a straight line basis over
15 to 20 years from the date of acquisition. Other intangible assets,
consisting mainly of deferred note offering costs are being amortized on
the straight line method over five years.
Other Real Estate Owned - Assets acquired in settlement of claims are
carried at estimated realizable value. Adjustments to reported estimated
realizable values and realized gains and losses on dispositions are
recorded as increases or decreases in income.
Reserve for Loan Losses - An allowance is maintained for losses on loans.
Loan losses, net of recoveries on loans previously charged off, are
charged to the allowance. The allowance for loan losses is based upon
management's periodic evaluation of the portfolio with consideration given
to the overall loss experience, delinquency data, financial condition of
the borrowers, and such other factors that, in management's judgment,
warrant recognition in providing an adequate allowance.
Effective July 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, which requires that
an impaired loan be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair
value of collateral if the loan is collateral dependent. A loan is
considered impaired when it is probable that a creditor will be unable to
collect all interest and principal payments as scheduled in the loan
agreement. The Company records interest receipts on impaired loans as
interest income only when the ultimate collectibility of the principal is
not in doubt. A valuation allowance is maintained to the extent that the
measure of the impaired loans is less than the recorded investment.
Revenue Recognition - Title insurance premiums are recognized as income
when policies are issued or liabilities are incurred under title
commitments, whichever occurs first. An allowance for credits is provided
for unearned premiums.
Commission Revenues and Expenses - The Company records commission revenues
and expenses on the sale of life insurance policies or annuities when the
sale is complete and the customer has accepted delivery of the product.
Brokerage commissions are recorded as customer security transactions are
completed. All customer transactions are executed through correspondent
brokers, National Financial Services Corporation, a subsidiary of Fidelity
Investments, and Cantella and Company, which carry and clear all customer
accounts on a fully-disclosed basis. The brokerage subsidiary is a member
of the National Association of Securities Dealers and the Securities
Investor Protection Corporation.
Reserve for Policy Claims - Liabilities for reported claims are based on
management's estimate of the ultimate loss. Reserves for losses incurred
but not reported (IBNR) are estimated based on the use of actuarial
methods. Such liabilities are reviewed and updated by management, and any
adjustments resulting therefrom are reflected in income currently. Actual
results could differ from these estimates.
- 8 -
Reinsurance - In the normal course of business, the Company seeks to
reduce the loss that may arise from events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas
of exposure with other insurance enterprises or reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Reinsurance is charged against title insurance premiums
for financial reporting purposes.
Escrow and Trust Deposits - As a service to its customers, the Company
administers escrow and trust deposits representing undisbursed amounts
received for settlements of mortgage loans and indemnities against
specific title risks. These funds are not considered assets of the Company
and therefore are excluded from the accompanying consolidated balance
sheet.
Income Taxes - The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
consolidated financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future. The
taxable or deductible amounts are based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax
assets and liabilities.
Earnings Per Share - Earnings per share are computed by dividing net
earnings, after reduction for preferred stock dividends, by the weighted
average number of common shares and share equivalents assumed outstanding
during the year. Earnings per share are equivalent to fully diluted
earnings per share. Common share equivalents included in the computation
represent shares issuable upon assumed exercise of stock options and
warrants which would have a dilutive effect.
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This Statement establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. This Statement is effective for
financial statements for fiscal years beginning after December 15, 1995.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial
accounting and reporting standards for stockbased employer compensation
plans. The financial accounting standards of SFAS No. 123 permit companies
to either continue accounting for stock-based compensation under existing
rules or adopt SFAS No. 123 and begin reflecting the fair value of stock
options and other forms of stock-based compensation in the results of
operations as additional expense. The disclosure requirements of SFAS No.
123 require companies which elect not to record the fair value in the
statement of operations to provide pro forma disclosures of net income and
earnings per share in the notes to the consolidated financial statements
as if the fair value of stock-based compensation had been recorded. The
disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
will provide the pro forma disclosures beginning in 1996 and will continue
accounting for such plans under the existing accounting rules. The
implementation of this standard is not expected to have a significant
impact on the Company's financial statements.
- 9 -
Statement of Cash Flows - The statement of cash flows is presented using
the indirect method which reconciles net income to net cash flows from
operating activities. The Company's definition of cash and cash
equivalents includes short-term, highly-liquid investments with maturities
of three months or less at date of purchase.
Reclassification - Certain reclassifications have been made to the
accompanying statements to permit comparison. In particular, the cash
flows statements have been modified to present real estate (except for
timberland), investment securities, and other investments as investment
activities.
2. ACQUISITIONS
Southern Capital Corp. - In June of 1996, Southern Capital Corp. ("SCC"),
a Virginia corporation, was merged into Southern Capital Acquisition
Corporation ("Southern Capital"), which was acquired by the Company. As
part of the acquisition, the shareholders of SCC received 40,000 shares
of the Company's Series B, cumulative, non-voting preferred stock, par
value $.20 per share. The preferred stock is not convertible by the
holders prior to June 30, 1998, but may be converted by the Company into
not less than 2,000,000 shares of the Company's common stock, subject
to adjustment if the price of the Company's stock is less than $4.00 per
share at the time of conversion. If not converted by the Company sooner,
the preferred stock begins accruing dividends after January 1, 1997
and is redeemable at the option of the holders at a price of $200 per
share after June 30, 1998. As long as any of the Series B preferred
stock is outstanding, the Company must set aside as a sinking fund for
redemption of the preferred stock, on or before April 1 of each year,
commencing April 1, 1997, the sum of $1.0 million.
The acquisition has been accounted for using the purchase method of
accounting whereby the purchase cost was allocated to the fair value of
assets acquired and liabilities assumed based on valuations and other
studies performed as of the date of the acquisition. Accordingly, the
operating results of the acquired companies have been included in
consolidated operating results since the date of the acquisition. Combined
goodwill resulting from the acquisition amounted to $992,928 and is being
amortized over 20 years on a straight-line basis.
The following unaudited pro forma information has been prepared assuming
that the acquisition had taken place at the beginning of the respective
periods. The pro forma information includes adjustments for the
amortization of intangibles arising from the transaction and certain other
adjustments for the adequacy of intangibles arising from the transactions
and certain related income tax effects together with related income tax
effects. The pro forma financial information does not purport to be
indicative of what would have occurred had the acquisition been effected
on the assumed dates.
1996 1995
Revenues $ 12,220,000 $ 11,544,546
Net Loss $ (734,000) $ (142,252)
Net Loss Per Common Share $( .17) $( .06)
Prime Securities - In May 1994, the Company issued common stock valued at
$100,750 in exchange for the property and equipment and $10,000 in cash of
Prime Securities, a Portland, Maine brokerage firm. The excess of the
purchase price over fair value of assets acquired, $29,048, was accounted
for as goodwill and is being amortized over 15 years on a straight-line
basis.
- 10 -
Other - In October 1994, the Company purchased the right to service the
clients of a former sales representative for a percentage of the
commissions estimated to be generated. The purchase was recorded at
$100,000, which is being paid as commissions are earned.
3. INVESTMENTS
The following is a summary of the Company's investments at June 30, 1996
and 1995:
1996 1995
Marketable Securities:
Trading $ 386,470 $ 932,153
Available-for-Sale:
Common Stocks 1,179,376 309,948
Preferred Stocks 176,000 -
Held to Maturity:
Bonds and Notes 2,000,536 -
------------- --------------
Total Marketable Securities 3,742,382 1,242,101
------------- --------------
Venture Capital Investments:
Loans 534,182 50,000
Loan Participations 288,403 200,000
Common Stocks 682,800 1,324,789
Preferred Stocks 225,000 -
Warrants 106,750 -
Limited Partnerships 189,041 -
------------- --------------
Total Venture Capital Investments 2,026,176 1,574,789
------------- --------------
Real Estate Investments:
Real estate owned 1,142,591 772,345
Other real estate investments 408,954 394,330
------------- --------------
Total Real Estate Investments 1,551,545 1,166,675
------------- --------------
Other investments:
Numismatic and Stamp Investments 57,701 57,701
Art Pieces 2,209 2,209
------------- -------------
Total Other Investments 59,910 59,910
------------- --------------
Total Real Estate and Other Investments 1,611,455 1,226,585
------------- --------------
Total Investments $ 7,380,013 $ 4,043,475
============= ==============
- 11 -
Marketable Securities
In 1995, the Company implemented SFAS No. 115 on accounting for
investments in debt and equity securities. Accordingly, all investments in
securities held for trading and available-for-sale are carried at market,
and securities held to maturity are carried at amortized cost. Previously,
securities were carried at the lower of cost or market, except for the
securities of the brokerage subsidiary, which were carried at market. The
effect of the change was to increase 1995 income before income taxes by
$176,063, the amount of unrealized gains at the parent company on trading
securities held at June 30, 1995.
Following is a summary of gains and losses on marketable securities:
1996 1995
Securities for Trading:
Gains (losses) on sales $ (46,277) $ 244,473
Unrealized gains (losses) 34,766 187,100
----------- -----------
Total trading gains (losses) (11,511) 431,573
Securities Available for Sale:
Gains (losses) on sales 23,950 11,561
----------- -----------
Total gains on securities $ 12,439 $ 443,134
=========== ===========
Securities held to maturity and available for sale are as follows:
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to Maturity:
Bonds and Notes $ 2,000,536 $ - $ 7,012 $ 1,993,524
Available for Sale:
Common stocks 1,093,463 434,653 348,740 1,179,376
Preferred stocks 176,666 2,162 2,828 176,000
-------------- ---------- ----------- -------------
Total $ 3,270,665 $ 436,815 $ 358,580 $ 3,348,900
============== ========== =========== =============
1995
Available for Sale:
Common stocks $ 401,951 $ 16,800 $ 108,803 $ 309,948
There were no investments classified as held to maturity and no available
for sale preferred stock at June 30, 1995.
- 12 -
Proceeds from sales of investments available for sale were $227,689 and
$62,912 in 1996 and 1995, respectively. Gross gains of $26,271 and $4,561
were realized on sales in 1996 and 1995, respectively. Gross losses of
$4,730 were realized in 1996, no gross losses were realized in 1995.
The contractual maturities of bonds and notes as of June 30, 1996 are as
follows:
Amortized Market
Cost Value
Due in 1 year or less $ 357,035 $ 356,772
Due after 1 year through 5 years 1,042,346 1,040,084
Due after 5 years through 10 years 601,155 596,668
------------- --------------
$ 2,000,536 $ 1,993,524
============= ==============
Venture Capital Investments
The $681,569 investment in a television marketing company at December 31,
1995, included stock valued at $125,000 received for consulting services
provided by the Company. In addition to this investment, a limited
partnership in which the Company is a general partner has invested
$360,000 in the marketing company. The marketing company has transferred
certain of its operations to a new company, which is currently being
capitalized. The Company has received shares of stock in the newly formed
company. Due to the uncertainty surrounding the newly formed company and
the inability to determine the recoverability of the investment, the
Company has written off the entire investment at June 30, 1996.
Additionally, during fiscal year 1996, the Company provided loans and
venture capital to several start up companies. Due to the uncertainty of
the ability of these companies to become operational and the inability to
determine the recoverability of the investments, the Company has written
down these investments at June 30, 1996. Total write-downs of these
investments in the fourth quarter of 1996 were $1,249,347. There were no
write-downs in fiscal year ended 1995. Included in the write-down amounts
is a $450,000 addition to a reserve for loan loss. There were no amounts
in the reserve at June 30, 1995.
The Company owned a 21% interest in Unity Telephone Company, which had two
wholly-owned subsidiaries: Unitel for its telephone operations and Unicel
for its cellular operations. In January 1994, Unity Telephone was merged
into InterCel. Prior to the merger, Unity Telephone spun off Unitel to its
stockholders in a taxable transaction. The Company received Unitel stock
with an appraised value of $642,720, of which $165,568 was estimated to be
an ordinary dividend distribution and $477,152 was estimated to be a
return of capital distribution. In addition, Firstmark received $367,071
in a cash distribution paid by InterCel to offset the Company's income
taxes payable to the transaction. The cash distribution was also
considered to be a return of capital dividend to the recipients.
- 13 -
Receipt of the InterCel shares in the merger were not recorded because of
an outstanding option on the Company's Unity holdings. The Unitel
investment was accounted for on the cost method because the Company does
not exert significant influence over the operations of Unitel. On July 21,
1995, the Company and the option holder reached an agreement in which
Firstmark will transfer its Unitel stock and a majority of the InterCel
shares received in exchange for cash and Firstmark stock owned by the
option holder. The Company retained 57,236 shares of InterCel stock and
will also retain up to 29,614 shares of InterCel stock that may be
released from an acquisitions escrow account in March 1997. The Company
reported a gain of $648,708 as a result of the agreement in July 1995 and
will report an additional gain in March 1997 when the escrow distribution
occurs.
Real Estate Investments
Real estate investments include seasonal cottages, lots that are located
on or near Maine lakes, a residential lot in Maine, and ocean side lots in
Nova Scotia. These properties are being marketed or developed for
marketing. Timberland consists of one tract of timber that was fully
harvested at June 30, 1995. In addition, the Company has three subdivided
lots of approximately two acres each and approximately 84 acres of raw
land in Clarke County, Virginia and a single family housing unit in
Everett, Washington.
The Cumberland Ledges investment is a 67% interest in Cumberland Ledges, a
joint venture owning an undeveloped parcel of commercial real estate in
Cumberland, Maine. The Falmouth Hills investment is a 50% general
partnership interest in Falmouth Hills Limited Partnership, which owns
approximately 200 acres of raw residential land in Falmouth, Maine.
The Company periodically reevaluates its real estate investments and
adjusts their values in conjunction with a plan to market them more
aggressively. Total adjustments during 1996 amounted to $20,000 and are
included in cost of real estate revenues. No adjustments were recorded in
1995.
4. NOTES RECEIVABLES
The Company provides financing on certain real estate sales after making
an appropriate determination of the creditworthiness of the buyer.
Property sold is utilized as collateral and would be repossessed and
resold by the Company in the event of default. In addition, the Company
makes certain business and accommodation loans to its customers and
others. These loans are secured by real estate, insurance policies, and
other assets of the borrower to the extent deemed necessary by the
Company. Most of the Company's loans are due from customers residing in
Maine.
Following is a summary of notes receivable:
1996 1995
Real estate mortgage loans $ 86,183 $ 86,889
Business loans 178,560 211,245
------------ ------------
264,743 298,134
Less reserve for loan losses (45,000) (30,000)
------------ ------------
$ 219,743 $ 268,134
============ ============
- 14 -
The following is a summary of activity in the reserve for losses on notes
receivable:
1996 1995
Balance, beginning $ 30,000 $ 130,000
Additions to reserve charged to expense 15,000 22,296
Loans charged off - (122,296)
------------ ------------
Balance, ending $ 45,000 $ 30,000
============ ============
5. PROPERTY AND EQUIPMENT
Following is a summary of property, plant and equipment owned:
1996 1995
Land and land improvements $ 195,339 $ 126,839
Building 360,950 -
Furniture, fixtures, and equipment 1,634,661 180,778
Leasehold improvements 165,088 -
Property under capital lease 158,083 -
Automobiles 12,994 -
------------- -----------
2,527,115 307,617
Less accumulated depreciation 1,396,543 151,056
------------- -----------
Total property, plant and equipment $ 1,130,572 $ 156,561
============= ===========
Depreciation and amortization charged to operations was $42,220 and
$29,707 for the years ended June 30, 1996 and 1995, respectively.
6. BORROWINGS
1996 1995
The convertible notes payable are due April 1, 1997 and carry
interest at 8%. The notes are convertible into common stock of
the Company at $5.00 per share. In addition, the Company has the
right to call the notes at par value plus a 5% call premium. $ 1,035,000 $ 1,035,000
Equity Line of Credit (assumed as part of movement of an employee)
secured by a second deed of trust on a single family residential
housing unit in Everett, Washington, monthly principal and
interest payments (interest at prime plus 3%) 16,877 -
- 15 -
Mortgage loan (assumed as part of movement of an employee) secured by
a first deed of trust on a single family residential housing unit
in Everett, Washington, monthly principal and interest payments
(interest at 6.1%) final payment due December 2022 175,601 -
BankLine of Credit, unsecured, interest only payments, balance due
April 1997 (interest at the 30 Day LIBOR Rate plus 2% as of the
first business day of each month) 400,000 -
Advance from shareholder, unsecured, interest only payments, balance
due January 1997 (interest at prime plus 1%) 100,000 -
Capital lease obligation 158,083 -
------------- --------------
Total Borrowings $ 1,885,561 $ 1,035,000
============= ==============
In June, the Company entered into lease agreements for certain office
equipment which, in accordance with generally accepted accounting
principles, has been accounted for as a capital lease. As a result, the
present value of future minimum lease payments under these leases has been
recorded as property under capital leases, in the amount of $158,083. The
corresponding liabilities have been recorded as obligations under capital
leases.
The future minimum lease payments under the capital leases as of June 30,
1996 are as follows:
1997 $ 61,236
1998 61,236
1999 61,236
-----------
Total lease payments 183,708
Less: Amount representing interest 25,625
Present value of future minimum lease payments $ 158,083
=================
- 16 -
7. INCOME TAXES
Income tax expense (benefit) consists of the following:
Current Deferred Total
1996
Federal $ (5,589) $ (247,200) $ (252,789)
State (53) (29,083) (29,136)
----------- ------------ ------------
$ (5,642) $ (276,283) $ (281,925)
=========== ============ ============
1995
Federal $ 166,000 $ 72,000 $ 238,000
State 42,000 24,000 66,000
----------- ------------ ------------
$ 208,000 $ 96,000 $ 304,000
=========== ============ ============
The actual tax expense differs form the expected tax (computed at the U.S.
federal corporate tax rate of 34.0% applied to earnings before income
taxes) for the following reasons:
1996 1995
Expected tax expense (benefit) $ (256,893) $ 262,444
State income taxes, net of federal taxes (30,233) 43,560
Nondeductible goodwill amortization 1,765
Dividend deduction for corporations (3,487)
Other 5,201 (282)
------------ -----------
$ (281,925) $ 304,000
============ ===========
The tax effects of each type of significant items that give rise to
deferred taxes are:
1996 1995
Deferred Tax Asset:
Allowance for loan losses $ 240,324 $ 10,000
Unrealized loss on investments - 72,000
IBNR reserve 221,288 -
Net unrealized loss on real estate 106,588 -
NOL carry forward 225,602 -
Other 35,789 (2,000)
------------ ----------
Deferred tax asset 829,591 80,000
------------ ----------
- 17 -
1996 1995
Deferred Tax Liability:
Net unrealized gain on securities available for sale 35,874 -
Premium reserve 684,244 -
Purchase accounting adjustments 136,243 -
Depreciation 58,020 -
Other 17,436 -
------------ ----------
Deferred tax liability 931,817 -
------------ ----------
Net Deferred Tax Asset (Liability) $ (102,226) $ 80,000
============ ==========
At June 30, 1996, the Company has net operating loss carryforwards
totaling $663,532 related to the acquisition of Southern Capital which
will be utilized by that subsidiary, subject to certain tax law
limitations. The Company expects to utilize these carryforwards prior to
their expiration dates and, accordingly, has recorded a deferred tax asset
of $225,600.
8. RELATED PARTY TRANSACTIONS
Related party balances include receivables and advances from related
parties arising in the normal course of business. Interest at the current
rate is charged on notes, and no interest is charged on advances. Notes
receivable are substantially secured by real estate mortgages.
1996 1995
Interest bearing notes:
Officers $ 25,000 $ -
Employees and independent agents 97,123 100,145
Others 87,812 210,193
----------- -----------
$ 209,935 $ 310,338
=========== ===========
Advances to related parties:
Limited partnerships in operation $ 50,505 $ -
Limited partnerships being formed - 361,504
Other advances to employees and officers 2,611 62,665
----------- -----------
$ 53,116 $ 424,169
=========== ===========
Advances from related parties:
Advance from shareholder $ 100,000 $ -
=========== ===========
The Company is the general partner in Firstmark Vacationland Partners, a
limited partnership that purchases, develops, and sells vacation property.
Noninterest bearing advances to Vacationland amounted to $1,000 at June
30, 1996.
- 18 -
The Company is the general partner in Venture One Limited Partnership, a
venture capital fund formed in 1995. The Company received management fees
from the partnership in the amount of $26,700 in 1996. As of June 30, 1996
and 1995, the Company had advances outstanding of $28,625 and $361,000,
respectively.
The Company is also the general partner in Equity First Limited
Partnership, an equity fund formed in 1995. The Company received
management fees from the partnership in the amount of $26,250 in 1996. As
of June 30, 1996, the Company had advances outstanding of $20,880.
9. STOCK OPTIONS
The Board of Directors has previously approved a stock option plan,
however, the plan has not been approved by the shareholders as required by
Maine law.
Under its stock option plan, options to purchase shares of the Company's
common stock are granted at a price equal to the market price of the stock
at the date of grant. Options may be exercised generally over a five year
period.
Following is a summary of transactions:
1996 1995
Outstanding, beginning of year 304,888 209,888
Granted during the year 15,000 95,000
----------- -----------
Outstanding, end of year 319,888 304,888
=========== ===========
All of the options outstanding are eligible for exercise currently at
prices ranging from $3.125 to $4.50 per share, if the plan is approved
by the shareholders and the issuance of such options is ratified by the
shareholders.
10. CASH FLOW INFORMATION
The Company had the following noncash investment and financing
transactions:
1996 1995
Stock issued for business acquisition $ 8,750,000 $ -
Stock issued for services 211,539 -
Stock received as investment in exchange
for consulting services 145,550 125,000
Purchase of client list for note - 100,000
Commissions paid in securities 33,743 -
Cash paid for interest and income taxes was as follows:
Interest $ 85,000 $ 87,000
=========== ===========
Income taxes $ 282,000 $ 220,850
=========== ===========
- 19 -
11. PREFERRED STOCK - SERIES A
At June 30, 1996, the Company had 57,000 shares of Series A Preferred
Stock outstanding. Each Series A share was issued with ten attached
warrants which allow for the purchase of common stock at $6.00 per share
within three years. The stock pays dividends at a 6% rate ($2.40 per
share) and is convertible into ten shares of common stock at $4.00 per
share.
12. COMMITMENTS
The Company leases the majority of its offices and certain equipment under
noncancellable operating lease agreements. In addition the Company leases
its administrative offices in Waterville, Maine from a company controlled
by corporate officers and key people affiliated with the Company. The
facility is rented under a noncancelable operating lease expiring in 2003.
The lease calls for rent at $3,665 per month, of which a portion is
subleased. In addition, the Company rents its Portland, Maine office space
for $2,300 per month under a month to month operating lease from an
officer of the Company. Future minimum lease payments under these lease
agreements are as follows as of June 30, 1996:
1997 $ 367,913
1998 329,992
1999 114,459
2000 112,773
2001 115,882
Thereafter 214,740
-------------
Total future minimum lease payments $ 1,255,759
=============
Total rental expense under noncancellable operating leases approximated
$107,000 for 1996 and $67,000 for 1995.
13. RETIREMENT PLAN
The Company has 401(k) profit sharing plans (the "Plans") covering
employees who meet the participation requirements outlined in the Plans.
The Company's contribution aggregated $8,608 and $1,163 for the years
ended June 30, 1996 and 1995, respectively. Contributions to the Plans are
made based on a matching percentage of employee contributions as
designated in the Plans.
14. REGULATORY REQUIREMENTS
The Company's title insurance subsidiary, Southern Title Insurance Corp
("Southern"), is subject to certain minimum levels of capital and surplus
as required by statutes of the states in which it is authorized to do
business. Southern is also subject to regulations under which the payment
of certain dividends requires the prior approval of applicable insurance
regulatory authorities. At June 30, 1996, Southern exceeded all minimum
statutory capital requirements.
At June 30, 1996, investments and certificates of deposits with a book
value of $908,654 were either on deposit with various regulatory
authorities or held by Southern in accordance with statutory requirements
for the protection of its policyholders.
- 20 -
15. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid known claims and claim adjustment
expense is summarized as follows:
Acquired balance at June 7, 1996 $ 971,832
Less reinsurance recoverables 20,205
-----------
Net acquired balance at June 7, 1996 951,627
Incurred related to:
Current year 13,585
Prior years -
-----------
Total incurred 13,585
-----------
Paid net of recoveries related to:
Current year 3,320
Prior years 37,343
-----------
Total paid 40,663
-----------
Net balance at June 30, 1996 924,549
Plus reinsurance recoverables 20,205
-----------
Balance at June 30, 1996 $ 944,754
===========
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expense decreased by $22,222 in
1996.
State insurance regulations require an insurer to obtain reinsurance to
limit the primary insurer's coverage. The Company has elected reinsurance
limits lower than the State requirements. Although the ceding of insurance
does not discharge an insurer from its primary liability to an insured,
the reinsuring company assumes the related liability and, accordingly, the
ceding company's liabilities do not include amounts for reinsured
exposure. Reinsurance expected to be recovered on claims filed was $20,205
as of June 30, 1996 .
16. DISCLOSURES CONCERNING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined based on available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
- 21 -
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Investments - The nature of these instruments and
their relatively short maturities provides for the reporting of fair value
equal to the historical cost.
Accounts and Accounts Payable - The nature of these instruments and their
relatively short maturities provides for the reporting of fair value equal
to the historical cost.
Investment Securities - The fair value of investment securities is based
on quoted market prices. The fair value of the Company's investment
securities is disclosed in Note 3 of these financial statements.
Venture Capital Investments - The fair values of some of the venture
capital investments are estimated primarily on the most recent rounds of
financing and securities transactions and to a lesser extent, on other
pertinent information, including financial condition and operations. For
other investments for which there are no quoted market prices, a
reasonable estimate of fair value could not be made without incurring
excessive costs. The investments are carried at the lower of cost or
estimated net realizable value.
Real Estate and Other Investments - The carrying amount is a reasonable
estimate of the fair value.
Notes Receivable - The fair value of the Company's notes receivable is
estimated based on the current rates offered for similar issuances.
Convertible Notes Payable and Other Borrowings - The fair value of the
Company's convertible notes payable and other borrowings is estimated
based on the current rates available to the Company for debt of similar
terms and remaining maturities. At June 30, 1996, fair value approximates
carrying value.
The estimated fair values of the Company's financial instruments are as
follows:
1996
Carrying Fair
Amount Value
Venture Capital investments for which it is:
Practicable to estimate fair value $ 1,850,676 $ 2,360,675
Not practicable 235,411 -
Notes receivable 429,678 392,420
------------- -------------
$ 2,515,765 $ 2,753,095
============= =============
- 22 -
Appendix D
SOUTHERN CAPITAL CORP.
AND SUBSIDIARY
Consolidated Financial Statements for the
Years Ended December 31, 1995 and 1994
and Independent Auditors' Report
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-15
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders
Southern Capital Corp.
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Southern
Capital, Corp. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our 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 consolidated 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Southern Capital
Corp. and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Richmond, Virginia
March 1, 1996
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
Cash and cash equivalents $ 407,436 $ 591,063
-------------- -------------
Investments:
Interest-bearing time deposits 118,348 104,547
Investment securities:
Investments held to maturity (at amortized cost, fair value of
$2,150,215 and $2,288,694, respectively) 2,102,894 2,330,712
Investments available for sale (at estimated fair value,
amortized cost of $896,157 and $1,006,036, respectively) 961,405 918,194
-------------- -------------
Total investments 3,182,647 3,353,453
-------------- -------------
Notes and accounts receivable:
Premiums and fees receivable (net of allowance for
doubtful accounts of $103,600 in 1995 and 1994) 784,610 761,761
Notes receivable - 7,176
Accounts receivable reinsurer 37,547 37,547
Refundable income taxes 308,734 243,850
Other receivables 162,396 201,559
-------------- -------------
Total notes and accounts receivable 1,293,287 1,251,893
-------------- -------------
Accrued interest receivable 45,424 48,058
Title plant 42,534 -
Property and equipment, net 541,724 405,562
Deferred income tax asset 442,196 439,186
Other real estate owned 158,781 158,781
Other assets 78,929 140,458
-------------- -------------
TOTAL ASSETS $ 6,192,958 $ 6,388,454
============== =============
See notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
LIABILITIES:
Accounts payable $ 198,596 $ 154,936
Reserve for policy claims 1,064,105 1,114,779
Accrued and other liabilities 66,263 56,844
Deferred income tax liability 741,059 708,052
Negative goodwill (net of accumulated amortization
of $1,010,801 in 1995 and $712,374 in 1994) 1,973,472 2,271,899
------------- --------------
Total liabilities 4,043,495 4,306,510
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share -
authorized, 5,000 shares;
issued and outstanding, 100 shares 100 100
Additional paid-in capital 204,400 204,400
Retained earnings 1,901,896 1,932,012
Net unrealized gain (loss) on investments
available for sale, net of tax of $(22,181)
in 1995 and $33,274 in 1994 43,067 (54,568)
------------- --------------
Total stockholders' equity 2,149,463 2,081,944
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,192,958 $ 6,388,454
============= ==============
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
REVENUES:
Title insurance premiums $ 6,763,222 $ 8,460,596
Abstract and related income 1,497,045 1,148,063
Interest and dividend income 238,034 209,815
Net gain on sale of investments 91,159 32,170
Loss on sale of foreclosed property - (31,432)
Gain on sale of property and equipment 3,108 5,146
Amortization of negative goodwill 298,427 298,427
Other 208,887 110,771
------------- --------------
Total revenues 9,099,882 10,233,556
------------- --------------
EXPENSES:
Commissions to agents 3,145,028 4,244,464
Salaries and employee benefits 3,641,191 3,466,778
Provision for policy claims 319,868 201,417
Office occupancy and operations 1,156,537 920,756
Taxes and licenses 432,798 463,034
Professional fees 118,571 94,720
Other 553,660 482,603
------------- --------------
Total expenses 9,367,653 9,873,772
------------- --------------
INCOME BEFORE INCOME TAXES (267,771) 359,784
INCOME TAX BENEFIT (237,655) (56,655)
------------- --------------
NET INCOME (LOSS) $ (30,116) $ 416,439
============= ==============
See notes to consolidated financial statements.
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Net Unrealized
Shares Paid-in Retained Gain (Loss) on
Issued Amount Capital Earnings Investments Total
BALANCE, JANUARY 1, 1994 100 $ 100 $ 204,400 $ 1,515,573 $ 25,557 $ 1,745,630
Net income - - - 416,439 - 416,439
Net unrealized loss on investments
available for sale - - - - (80,125) (80,125)
----- ------ ---------- ------------ --------- ------------
BALANCE, DECEMBER 31, 1994 100 100 204,400 1,932,012 (54,568) 2,081,944
Net loss - - - (30,116) - (30,116)
Net unrealized gain on investments
available for sale - - - - 97,635 97,635
----- ------ ---------- ------------ --------- ------------
BALANCE, DECEMBER 31, 1995 100 $ 100 $ 204,400 $ 1,901,896 $ 43,067 $ 2,149,463
===== ====== ========== ============ ========= ============
See notes to consolidated financial statements.
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
OPERATING ACTIVITIES:
Net income (loss) $ (30,116) $ 416,439
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 91,390 58,436
Gain on sale of property and equipment (3,108) (5,146)
Gain on sale of investments (91,159) (32,170)
Net amortization of premium on bonds 10,397 10,704
Amortization of negative goodwill (298,427) (298,427)
Loss on sale of foreclosed property - 31,432
Deferred income taxes (25,461) 97,668
Change in assets and liabilities:
Premiums and fees receivable (22,849) 249,487
Accounts receivable reinsurer - (6,546)
Refundable income taxes (64,884) (112,648)
Accrued interest receivable 2,634 (7,788)
Other assets 100,692 (190,382)
Accounts payable 43,660 (48,778)
Reserve for policy claims (50,674) (685,907)
Other liabilities 9,419 (40,425)
-------------- -------------
Net cash used in operating activities (328,486) (564,051)
-------------- -------------
INVESTING ACTIVITIES:
Proceeds from sale of investments available for sale 386,961 263,359
Proceeds from maturities of investments held to maturity 317,226 206,000
Proceeds from sale of time deposits 158,337 152,813
Purchase of investments available for sale (186,147) (84,678)
Purchase of investments held to maturity (99,578) (1,152,956)
Purchase of time deposits (172,138) (156,390)
Payments received on notes receivable 7,176 14,326
Proceeds from sale of property and equipment 3,993 6,017
Purchase of property and equipment (228,437) (276,862)
Proceeds from sale of foreclosed property - 280,031
Purchase of foreclosed property - (470,244)
Purchase of title plant (42,534) -
-------------- -------------
Net cash provided by (used in) investing activities 144,859 (1,218,584)
-------------- -------------
(Continued)
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
FINANCING ACTIVITIES - Principal repayments on borrowings - (100,000)
-------------- -------------
NET DECREASE IN CASH (183,627) (1,882,635)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 591,063 2,473,698
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 407,436 $ 591,063
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest expense $ - $ 2,701
Cash received during the year for income tax refund $ 147,313 $ -
See notes to consolidated financial statements.
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of
Southern Capital Corp. and its subsidiary:
Organization - Southern Capital Corp. (the "Company") was incorporated on
June 29, 1992 for the purpose of acquiring Investors Southern Corporation
("Investors Southern"). The Company purchased Investors Southern from the
Resolution Trust Corporation (RTC) as of the close of business on August
10, 1992 and commenced operations on August 11, 1992. This transaction has
been accounted for using the purchase method of accounting.
Nature of Operations - The Company issues title insurance policies through
branch offices and independent agencies in Mid-Atlantic states of the
United States. The Company's business is concentrated in the Commonwealth
of Virginia.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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 the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Basis of Presentation - The consolidated financial statements include the
accounts of Southern Capital Corp. and its subsidiary, Investors Southern
Corporation. Southern Title Insurance Corporation ("Southern"), Southern
Title Agency Corporation (formerly Commonwealth Title Corporation),
Southern Abstractors Corporation and Glasgow Enterprises, Inc. are wholly
owned subsidiaries of Investors Southern. Southern Title Services
Corporation is a wholly owned subsidiary of Southern. Glasgow Enterprises,
Inc., maintains ownership percentages in the following companies, Southern
Title Agency L.C. (formerly University Title L.C.), 100%; Southern Title
of Ohio, Inc., 75%; Southern Title of the Peninsula, Inc., 70%; Southern
Title of Chesapeake, Inc., 70%; Southern Title of North Carolina, L.L.C.,
50%; Virginia First Title and Escrow, L.L.C., 50%; Attorneys' Title
Insurance Company, L.L.C., 50%. For financial reporting purposes, the
assets, liabilities, results of operations and cash flows, of the
subsidiaries of Glasgow Enterprises, Inc., are included in the Company's
consolidated financial statements since the date of acquisition. The
outside investors' interest is reflected as minority interest in the
Company's financial statements to the extent the investor's investment
exceeds accumulated losses. All significant intercompany accounts and
transactions have been eliminated.
Investment Securities - The Company classifies its investments in debt and
equity securities with readily determinable fair values as either trading,
held to maturity, or available for sale. The Company does not have any
securities classified as trading. Securities classified as held to
maturity are accounted for at amortized cost, and require the Company to
have both the positive intent and ability to hold those securities to
maturity. All other securities are classified as available for sale and
are carried at fair value with unrealized gains and losses included in
stockholders' equity on an after tax basis. Realized gains or losses on
the sale of investments are recognized at the time of sale using the
amortized cost of the specific security sold.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is charged to expense over the
estimated useful lives of the assets and is computed using the
straight-line method for financial reporting purposes. Depreciation for
tax purposes is computed based upon accelerated methods. The costs of
major renewals or improvements are capitalized while the costs of ordinary
maintenance and repairs are charged to expense as incurred.
Other Real Estate Owned - Assets acquired in settlement of claims are
carried at estimated realizable value. Adjustments to reported estimated
realizable values and realized gains and losses on dispositions are
recorded as increases or decreases in income.
Revenue Recognition - Title insurance premiums are recognized as income
when policies are issued or liabilities are incurred under title
commitments, whichever occurs first. An allowance for credits is provided
for unearned premiums.
Reserve for Policy Claims - Liabilities for reported claims are based on
management's estimate of the ultimate loss. Reserves for losses incurred
but not reported (IBNR) are estimated based on the use of actuarial
methods. Such liabilities are reviewed and updated by management, and any
adjustments resulting therefrom are reflected in income currently. Actual
results could differ from these estimates.
Reinsurance - In the normal course of business, the Company seeks to
reduce the loss that may arise from events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas
of exposure with other insurance enterprises or reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Reinsurance is charged against title insurance premiums
for financial reporting purposes.
Escrow and Trust Deposits - As a service to its customers, the Company
administers escrow and trust deposits representing undisbursed amounts
received for settlements of mortgage loans and indemnities against
specific title risks. These funds are not considered assets of the Company
and therefore are excluded from the accompanying consolidated balance
sheet.
Income Taxes - The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
consolidated financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. The
taxable or deductible amounts are based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax
assets and liabilities.
Negative Goodwill - Negative goodwill resulted from the purchase of
Investors Southern in 1992. Negative goodwill is being amortized on a
straight-line basis over 10 years.
Statement of Cash Flows - The statement of cash flows is presented using
the indirect method which reconciles net income to net cash flows from
operating activities. The Company's definition of cash and cash
equivalents includes short-term, highly-liquid investments with maturities
of three months or less at date of purchase.
2. INVESTMENTS
Investments as of December 31, 1995 and 1994 consist of:
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
HELD TO MATURITY:
Bonds and Notes:
U.S. Government and
government agencies
and authorities $ 299,684 $ 660 $ - $ 300,344
Political subdivisions of states 1,187,014 31,619 15 1,218,618
Public utilities 616,196 15,057 - 631,253
-------------- ----------- ---------- -------------
2,102,894 47,336 15 2,150,215
-------------- ----------- ---------- -------------
AVAILABLE FOR SALE:
Common stocks:
Industrials and utilities 203,775 10,807 3,498 211,084
Financial institutions 200,671 40,291 7,904 233,058
Communication 100,000 - - 100,000
Preferred stocks:
Industrials and utilities 348,827 32,232 1,108 379,951
Financial institutions 42,884 - 5,572 37,312
-------------- ----------- ---------- -------------
896,157 83,330 18,082 961,405
-------------- ----------- ---------- -------------
Total Investments $ 2,999,051 $ 130,666 $ 18,097 $ 3,111,620
============== =========== ========== =============
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
HELD TO MATURITY:
Bonds and Notes:
U.S. Government and
government agencies
and authorities $ 299,936 $ - $ 11,668 $ 288,268
Political subdivisions of states 1,293,857 869 20,829 1,273,897
Public utilities 736,919 653 11,043 726,529
-------------- ---------- ----------- -------------
2,330,712 1,522 43,540 2,288,694
-------------- ---------- ----------- -------------
AVAILABLE FOR SALE:
Common stocks:
Industrials and utilities 332,269 18,459 44,222 306,506
Financial institutions 227,904 1,354 35,696 193,562
Preferred stocks:
Industrials and utilities 402,979 - 23,853 379,126
Financial institutions 42,884 - 3,884 39,000
-------------- ---------- ----------- -------------
1,006,036 19,813 107,655 918,194
-------------- ---------- ----------- -------------
Total Investments $ 3,336,748 $ 21,335 $ 151,195 $ 3,206,888
============== ========== =========== =============
Proceeds from sales of investments available for sale were $386,961 and
$263,359 in 1995 and 1994, respectively. Gross gains of $130,237 and
$31,736 were realized on sales in 1995 and 1994, respectively. Gross
losses of $39,304 were realized in 1995. No losses were realized in 1994.
The contractual maturities of bonds and notes as of December 31, 1995 are
as follows:
Estimated
Amortized Fair
Cost Value
Due in one year or less $ 435,726 $ 436,415
Due after one year through five years 978,794 995,688
Due after five years through ten years 688,374 718,112
------------- --------------
$ 2,102,894 $ 2,150,215
============= ==============
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 are summarized as
follows:
1995 1994
Furniture, fixtures and equipment $ 584,228 $ 357,716
Leasehold improvements 117,753 117,753
Automobiles - 1,483
----------- -----------
701,981 476,952
Less accumulated depreciation and amortization 160,257 71,390
----------- -----------
$ 541,724 $ 405,562
=========== ===========
Depreciation and amortization charged to operations was $91,390 and
$58,436 for the years ended December 31, 1995 and 1994, respectively.
4. REGULATORY REQUIREMENTS
Southern is subject to certain minimum levels of capital and surplus as
required by statutes of the states in which it is authorized to do
business. Southern is also subject to regulations under which the payment
of certain dividends requires the prior approval of applicable insurance
regulatory authorities. At December 31, 1995, Southern exceeded all
minimum statutory capital requirements.
At December 31, 1995, investments and certificates of deposits with a book
value of $908,654 were either on deposit with various regulatory
authorities or held by Southern in accordance with statutory requirements
for the protection of its policyholders.
5. RETIREMENT PLAN
The Company has a 401(k) profit sharing plan (the "Plan") covering
employees who meet the participation requirements outlined in the Plan.
The Company's contribution aggregated $24,007 and $28,275 for the years
ended December 31, 1995 and 1994, respectively. Contributions to the Plan
are made based on a matching percentage of employee contributions as
designated in the Plan.
6. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid known claims and claim adjustment
expense is summarized as follows:
1995 1994
Balance at January 1 $ 1,114,779 $ 1,800,686
Less reinsurance recoverables 37,547 31,001
------------- --------------
Net balance at January 1 1,077,232 1,769,685
------------- --------------
Incurred related to:
Current year 107,816 50,140
Prior years 212,052 151,277
------------- --------------
Total incurred 319,868 201,417
------------- --------------
Paid related to:
Current year 62,240 188,281
Prior years 308,302 705,589
------------- --------------
Total paid 370,542 893,870
------------- --------------
Net balance at December 31 1,026,558 1,077,232
Plus reinsurance recoverables 37,547 37,547
------------- --------------
Balance at December 31 $ 1,064,105 $ 1,114,779
============= ==============
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses (net of reinsurance
recoveries of $6,546 in 1994) increased by $118,451 and decreased by
$556,166 in 1995 and 1994, respectively.
State insurance regulations require an insurer to obtain reinsurance to
limit the primary insurer's coverage. The Company has elected reinsurance
limits lower than the State requirements. Although the ceding of insurance
does not discharge an insurer from its primary liability to an insured,
the reinsuring company assumes the related liability and, accordingly, the
ceding company's liabilities do not include amounts for reinsured
exposures. Premiums earned in 1995 and 1994 exclude $162,841 and $141,385,
respectively, of charges for reinsurance ceded to reinsurance companies.
Reinsurance expected to be recovered on claims filed was $37,547 as of
December 31, 1995 and 1994.
7. INCOME TAXES
Deferred tax assets recognized of $442,196 and $439,186 at December 31,
1995 and 1994, respectively, in the financial statements relate primarily
to temporary differences in the book basis and tax basis of depreciable
assets and from claims incurred but not reported calculations. Deferred
tax liabilities of $741,059 and $708,052, respectively, related primarily
to temporary differences in the premium reserve calculation.
At December 31, 1995 and 1994, the Company had capital loss carryovers for
income tax purposes of $254,124 and $345,283, respectively. For financial
reporting purposes, a valuation allowance of $188,876 and $345,283,
respectively, has been recognized to offset the deferred tax asset related
to these items.
At December 31, 1995, the Company had a net operating loss carryforward of
$180,313.
The components of the benefit for federal and state income taxes are as
follows:
1995 1994
Current:
Federal $ (212,194) $ (95,765)
State - (58,558)
Deferred:
Federal (25,461) 124,134
State - (26,466)
------------ -----------
Total income tax benefit $ (237,655) $ (56,655)
============ ===========
The following is a reconciliation of the expected tax expense with the
reported expense for the years ended December 31, 1995 and 1994:
1995 1994
Percent of Percent of
Pre-Tax Pre-Tax
Amount Income Amount Income
Expected tax expense (benefit) $ (91,216) (34.0)% $ 122,327 34.0%
State income tax, net of
Federal tax benefit - - (56,116) (15.6)
Tax exempt income (34,649) (12.9) (42,460) (11.8)
Utilization of capital loss
carryforwards - - 19,808 5.5
Depreciable assets - - (25,472) (7.1)
Amortization of negative
goodwill (101,465) (37.8) (99,486) (27.7)
Other (10,325) (3.9) 24,744 6.9
------------ ------ ----------- ------
Total $ (237,655) (88.6)% $ (56,655) (15.8)%
============ ====== =========== ======
8. COMMITMENTS
The Company leases the majority of its offices and certain equipment under
noncancellable operating lease agreements. Future minimum lease payments
under these lease agreements are as follows as of December 31, 1995:
1996 $ 338,787
1997 256,644
1998 205,515
1999 4,200
-----------
Total future minimum lease payments $ 805,146
===========
Total rental expense under noncancellable operating leases was $395,916
and $238,458 in 1995 and 1994, respectively.
9. DISCLOSURES CONCERNING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about
Fair Value of Financial Instruments". The estimated fair value amounts
have been determined by the Company based on available market information
and appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
Cash and short-term investments. The nature of these instruments and their
relatively short maturities provides for the reporting of fair value equal
to the historical cost.
Accounts, notes receivable and accounts payable. The nature of these
instruments and their relatively short maturities provides for the
reporting of fair value equal to the historical cost.
Investment securities. The fair value of investment securities is based on
quoted market prices. The fair value of the Company's investment
securities is disclosed in Note 2 of these financial statements.
* * * * * *
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 (Unaudited)
(amounts in thousands)
- --------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 982
----------
Investments:
Interest-bearing time deposits 63
Investment securities:
Investments held to maturity (at amortized cost, fair value of
$1,994) 1,979
Investments available for sale (at estimated fair value,
amortized cost of $511) 865
----------
Total investments 2,907
Notes and accounts receivable:
Premiums and fees receivable (net of allowance for
doubtful accounts of $1) 953
Notes receivable 3
Accounts receivable reinsurer 20
Refundable income taxes 192
Other receivables 6
----------
Total notes and accounts receivable 1,174
Accrued interest receivable 61
Title plant 3,544
Property and equipment, net 984
Excess of cost over fair value of net assets acquired, net 8,55
Deferred income tax asset 442
Other real estate owned 386
Other assets 166
----------
TOTAL ASSETS $ 11,501
==========
See notes to consolidated financial statements.
- ----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Borrowed funds $ 682
Accounts payable 99
Capitalized lease payable 158
Reserve for policy claims 945
Accrued and other liabilities 53
Deferred income tax liability 655
----------
Total liabilities 2,592
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share -
authorized, 5,000 shares;
issued and outstanding, 100 shares -
Additional paid-in capital 7,129
Retained earnings 1,788
Net unrealized gain (loss) on investments
available for sale (8)
Total stockholders' equity 8,909
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,501
==========
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
- ----------------------------------------------------------------------------------------------------------------------
1996 1995
REVENUES:
Title insurance premiums $ 3,350 $ 3,037
Abstract and related income 1,077 533
Interest and dividend income 117 112
Net gain on sale of investments 88 47
Gain on sale of property and equipment 19 -
Amortization of negative goodwill 124 149
Other 8 63
--------- ---------
Total revenues 4,783 3,941
--------- ---------
EXPENSES:
Commissions to agents 1,323 1,419
Commissions to underwriters 38 59
Salaries and employee benefits 2,237 1,626
Provision for policy claims 34 145
Office occupancy and operations 678 486
Taxes and licenses 255 187
Professional fees 83 40
Other 270 195
--------- ---------
Total expenses 4,918 4,157
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (135) (216)
INCOME TAX BENEFIT (22) (97)
---------- -----------
NET INCOME (LOSS) $ (113) $ (119)
========= =========
See notes to consolidated financial statements.
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------
1996 1995
OPERATING ACTIVITIES:
Net income (loss) $ (114) $ (120)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 57 41
Gain on sale of property and equipment (19)
Gain on sale of investments (88) (47)
Net amortization of premium on bonds 2 3
Amortization of negative goodwill (121) (149)
Change in assets and liabilities:
Premiums and fees receivable (51) 50
Accounts receivable reinsurer 18
Refundable income taxes 117 (38)
Accrued interest receivable (16) (5)
Other assets (87) (14)
Accounts payable (101) (11)
Reserve for policy claims (119) (26)
Other liabilities (13) (46)
Net cash used in operating activities (535) (362)
INVESTING ACTIVITIES:
Proceeds from sale of investments available for sale 471 281
Proceeds from maturities of investments held to maturity 360 102
Proceeds from sale of time deposits 55 52
Purchase of investments available for sale (1)
Purchase of investments held to maturity (238) 99
Purchase of time deposits (53)
Payments received on notes receivable (3)
Proceeds from sale of property and equipment 158
Purchase of property and equipment (149) (97)
Purchase of foreclosed property (227)
Net cash provided by (used in) investing activities 427 185
(Continued)
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
- ---------------------------------------------------------------------------------------
1996 1995
FINANCING ACTIVITIES - Proceeds from Borrowings 696
FINANCING ACTIVITIES - Principal repayments on borrowings (13) 0
-------------- ----------
Net cash provided by (used in financing activities 683
NET DECREASE IN CASH 575 (177)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 407 591
-------------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 982 $414
============== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest expense $ 11 $ 0
Cash received during the year for income tax refund $ 79 $ 0
See notes to consolidated financial statements.
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
- ------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim financial information presented herein as of June 30, 1996 and
for the six months ended June 30, 1996 and 1995 is unaudited. The
financial information reflects all normal recurring adjustments.
Accounting policies followed by Southern Capital Corp. (" Southern
Capital"), are described in Note 1 to the audited financial statements as
of December 31, 1995. The audited financial statements for 1995 should be
read in conjunction with these interim financial statements. These interim
financial statements reflect the effects of the acquisition by Firstmark
Corp. ("Firstmark"), on June 7, 1996 as described in Note 2.
2. FIRSTMARK ACQUISITION
As part of the Firstmark merger, the shareholders of Southern Capital
received 40,000 shares of Firstmark Series B, cumulative, non-voting
preferred stock, par value $.20 per share. The preferred stock is not
convertible by the holders, but may be converted by Firstmark into not
less than 2,000,000 shares of Firstmark common stock, subject to
adjustment if the price of Firstmark stock is less than $4.00 per share at
the time of conversion. If not converted by Firstmark sooner, the
preferred stock begins accruing dividends after January 1, 1997 and is
redeemable at the option of the holders at a price of $200 per share after
June 30, 1998.
Firstmark Corp.
Proxy Solicited on Behalf of The Board of Directors
The undersigned hereby appoints ______________ and ______________,
jointly and severally, proxies, with full power to act alone, and with full
power of substitution, to represent the undersigned and to vote, as designated
below and upon any and all other matters which may properly be brought before
such meeting, all shares of Common Stock which the undersigned would be entitled
to vote at the Special Meeting of Stockholders of Firstmark Corp. (the
"Corporation") to be held at One Financial Place, 222 Kennedy Memorial Drive,
Waterville, Maine on October __, 1996 at _____ _.m., local time, or any
adjournments thereof, for the following purposes:
1. To approve an amendment to the Company's Articles of Incorporation
to increase the amount of authorized Common Stock from 5,000,000 to 30,000,000
Shares (the full text of the amendment is attached to the Proxy Statement as
Appendix A).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve an amendment to the Company's Articles of Incorporation
to opt out of Section 910 of the Maine Business Corporation Act (the full text
of the amendment is attached to the Proxy Statement as Appendix B).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR ITEMS 1 AND 2.
-------------------------------
Signature
-------------------------------
Signature
Dated:
(In signing as Attorney, Administrator,
Executor, Guardian or Trustee, please
add your title as such)
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY