<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: September 30, 1996
OR
[] Transition Report under Section 13 or 15(d) of the Exchange Act
For transition period from to
-------------- --------------
Commission File No.: 0-22936
Crown NorthCorp, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-3172740
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1251 Dublin Road, Columbus, Ohio 43215
(Address of Principal Executive Offices)
(614) 488-1169
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
As of September 30, 1996, the issuer had 8,199,779 shares of its common
stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one).
Yes No X
--- ---
<PAGE> 2
CROWN NORTHCORP, INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
PART I. PAGES
-----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of September 30, 1996.... I-1
Consolidated Statements of Operations for the three
months ended September 30, 1996 and 1995............... I-2
Consolidated Statements of Operations for the nine
months ended September 30, 1996 and 1995............... I-3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995............... I-4 to I-5
Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1996........... I-6
Notes to Consolidated Financial Statements-
September 30, 1996 and 1995............................ I-7 to I-12
Item 2. Management's Discussion and Analysis or Plan of
Operation.............................................. I-13 to I-22
PART II.
Item 1. Legal Proceedings...................................... II-1
Item 2. Changes in Securities.................................. II-1
Item 3. Defaults Upon Senior Securities........................ II-1
Item 4. Submission of Matters to a Vote of Security Holders.... II-1
Item 5. Other Information...................................... II-1 to II-3
Item 6. Exhibits and Reports on Form 8-K....................... II-4
(a) Exhibits...................................... II-4 to II-5
(b) Reports on Form 8-K........................... II-5
Signature....................................................... II-6
Exhibit Index................................................... II-7
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 390,265
Receivables, less
collection allowance of $93,384 2,805,740
Prepaid expenses and other assets 215,245
-----------
Total current assets 3,411,250
Property and equipment, at cost, net of
accumulated depreciation of $1,010,554 2,054,925
Restricted cash 367,792
Goodwill - net of accumulated amortization
of $176,007 440,270
Other assets 231,962
-----------
$ 6,506,199
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 334,094
Other accrued liabilities 309,879
Current portion of long-term obligations 35,000
Notes payable 2,638,152
-----------
Total current liabilities 3,317,125
-----------
Industrial development revenue bond-
less current portion 1,330,000
Commitments
Stockholders' Equity:
Common stock 82,500
Additional paid-in capital 2,192,772
Retained earnings (386,039)
Treasury stock, at cost (16,736)
Excess purchase price of subsidiary (13,423)
-----------
Total stockholders' equity 1,859,074
-----------
$ 6,506,199
===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-1
<PAGE> 4
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Management fees $ 1,252,506 $ 2,060,109
Disposition, liquidation
and bonus fees 152,012 1,796,388
Incentive fees -- 621,436
Other 42,489 117,671
----------- -----------
Total revenues 1,447,007 4,595,604
----------- -----------
Operating and administrative
expenses:
Personnel 1,845,414 2,747,276
Occupancy 297,529 386,544
Insurance 62,707 87,149
Depreciation and amortization 130,967 314,706
Other 295,814 328,766
----------- -----------
Total operating &
administrative expenses 2,632,431 3,864,441
----------- -----------
Earnings (loss)from operations (1,185,424) 731,163
----------- -----------
Other Expenses:
Minority interest (177,321) 163,637
Interest 63,009 72,037
Loss on sale of subsidiary 1,406,724 --
Loss on write-off of property
and equipment 185 7,841
----------- -----------
Total other expenses 1,292,597 243,515
----------- -----------
Earnings (loss) before income taxes (2,478,021) 487,648
Income tax expense (benefit) (613,396) 195,475
----------- -----------
Net earnings (loss) ($1,864,625) $ 292,173
=========== ===========
Net earnings (loss) per share ($ 0.23) $ 0.04
=========== ===========
Weighted average shares
outstanding 8,199,779 8,249,779
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 5
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Management fees $ 4,558,518 5,677,390
Disposition, liquidation
and bonus fees 1,848,134 4,751,419
Incentive fees 1,302,219 1,060,790
Other 209,625 222,349
------------ ------------
Total revenues 7,918,496 11,711,948
------------ ------------
Operating and administrative
expenses:
Personnel 6,976,517 7,453,173
Occupancy 1,084,334 849,349
Insurance 207,132 231,399
Depreciation and amortization 1,798,017 702,009
Other 888,002 980,521
------------ ------------
Total operating &
administrative expenses 10,954,002 10,216,451
------------ ------------
Earnings (loss) from operations (3,035,506) 1,495,497
------------ ------------
Other expenses:
Minority interest (353,158) 163,637
Interest 156,627 106,106
Loss on sale of subsidiary 1,406,724 --
Loss on write-off of property
and equipment 47,779 7,841
------------ ------------
Total other expenses 1,257,972 277,584
------------ ------------
Earnings (loss) before income taxes (4,293,478) 1,217,913
Income tax expense (benefit) (1,248,978) 503,475
------------ ------------
Net earnings (loss) ($ 3,044,500) $ 714,438
============ ============
Net earnings (loss) per share ($ 0.37) $ 0.09
============ ============
Weighted average shares
outstanding 8,199,779 8,249,804
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 6
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Operating activities:
Net earnings (loss) $(3,044,500) $ 714,438
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1,798,017 702,009
Deferred income taxes (65,773) (62,364)
Loss on disposal of property and
equipment 47,779 --
Minority interest (353,158) 163,637
Equity income from investment in
partnerships 14,377 (57,656)
Bond payment from escrow fund 79,078 27,483
Loss on sale of subsidiary 1,406,724 --
Change in operating assets
and liabilities:
Accounts receivable 2,273,851 (1,136,067)
Prepaid expenses and
other assets (16,562) 21,588
Accounts payable and
accrued expenses (2,143,281) 377,267
----------- -----------
Net cash provided by (used in)operating activities (3,448) 750,335
----------- -----------
Investing activities:
Capital expenditures (260,447) (268,701)
Acquisition expenditures -- (62,889)
Corporate stock acquisitions (156,000) --
Distribution from partnership 6,010 --
Increase in other assets (11,072) --
Security deposit on office lease -- (42,000)
Earnest money deposits (26,000) --
Investment in partnerships -- (14,900)
Purchase of treasury stock -- (219)
Net cash paid for corporate acquisition -- (952,222)
----------- -----------
Net cash (used in) investing activities (447,509) (1,340,931)
----------- -----------
Financing activities:
Principal payments on notes and bond
payable (866,848) (234,002)
Principal payments on capital lease
obligations -- (10,475)
Proceeds from note payable 2,000,000 770,000
Payment of loan fees (25,181) (19,217)
Deposits on lease financings (14,676) --
Distributions to minority interest (527,611) (2,762)
----------- -----------
Net cash provided by financing activities 565,684 503,544
----------- -----------
Net increase (decrease) in cash during the
period 114,727 (87,052)
Cash and cash equivalents at
beginning of period 275,538 607,487
----------- -----------
Cash and cash equivalents at
end of period $ 390,265 $ 520,435
=========== ===========
</TABLE>
I-4
<PAGE> 7
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Supplemental information:
Cash paid for income taxes $ 1,565,475 $ 228,957
=========== ===========
Cash paid for interest $ 192,220 $ 73,256
=========== ===========
Noncash investing and financing activities:
Loss on sale of 80% interest in CSW:
Accounts receivable $ 606,323
Property and equipment - net 204,267
Write-off of acquisition costs 47,167
Other assets - net 572,293
Accounts payable and accrued expenses (23,326)
-----------
Loss on sale $ 1,406,724
===========
Corporate acquisition of CSW:
Accounts receivable $ 830,769
Prepaid expenses 12,812
Property and equipment - net 97,654
Goodwill 1,734,264
Other assets 13,557
Accounts payable and accrued expenses (62,845)
Deferred tax liability (282,000)
Minority interest (121,989)
-----------
Assets acquired, net of acquired cash 2,222,222
Amount financed with debt (1,270,000)
-----------
Net cash paid corporate acquisition $ 952,222
===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 8
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
EXCESS
ADDITIONAL PURCHASE TOTAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK PRICE OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT SUBSIDIARY EQUITY
--------- ------- ----------- ----------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1995 8,250,000 $82,500 $ 2,192,772 $ 2,658,461 (50,221) $(16,736) $(53,742) $ 4,863,255
NET (LOSS) -- -- -- (3,044,500) -- -- (3,044,500)
AMORTIZATION OF
EXCESS PURCHASE
PRICE OF
SUBSIDIARY -- -- -- -- -- -- 40,319 40,319
--------- ------- ----------- ----------- ------- -------- -------- -----------
BALANCES AT
SEPTEMBER 30, 1996 8,250,000 $82,500 $ 2,192,772 $ (386,039) (50,221) $(16,736) $(13,423) $(1,859,074)
========= ======= =========== =========== ======= ======== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-6
<PAGE> 9
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. General and Basis of Presentation
The accompanying unaudited consolidated financial statements of Crown
NorthCorp, Inc., and subsidiaries (the "Company") reflect all material
adjustments consisting of only normal recurring adjustments which, in
the opinion of management, are necessary for a fair presentation of
results for the interim periods. Certain information and footnote
disclosures required under generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"), although the Company
believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the year-end financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended December 31,
1995.
The results of operations for the nine months ended September 30, 1996
and 1995, respectively, are not necessarily indicative of the results
to be expected for the entire fiscal year or any other period.
The consolidated financial statements of the Company include the
accounts of Crown NorthCorp, Inc. (formerly known as NorthCorp
Realty Advisors, Inc.) and its subsidiaries as follows:
NAME PERCENT OWNED
Crown Revenue Services, Inc., ("Crown") 100%
Prime Tempus, Inc. ("Tempus") 100%
Crown Properties, Inc. ("CPI") 100%
Crown NorthCorp Euro A/S ("CNC Euro") 100%
CNC Holding Corp. ("CNC") 100%
Crown Revenue Services Joint Venture I
("Crown JV") 75%
I-7
<PAGE> 10
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
A related party owns the 25% minority interest in Crown JV. All
material intercompany accounts and transactions have been eliminated.
2. Acquisitions
Effective August 4, 1994, American Holdings, Inc. (now known as Pure
World, Inc., "Pure World") and its wholly owned subsidiary, NorthCorp
Realty Advisors, Inc. ("NorthCorp"), entered into a Stock Purchase and
Exchange Agreement (the "Acquisition Agreement") with Ronald E. Roark
("Buyer"), and his wholly owned company, Crown. This resulted in Crown
becoming a wholly owned subsidiary of NorthCorp, and Buyer owning 51%
of the resulting entity.
Crown NorthCorp, Inc. acquired 80% of CSW Associates, Inc. ("CSW") in
June, 1995 for $952,222 cash and $1,270,000 in notes payable to the
former shareholders. The CSW acquisition was accounted for using the
purchase method which resulted in the Company recording goodwill of
approximately $1,730,000. As of March 31, 1996, the unamortized
goodwill relating to the CSW acquisition was approximately $1,170,000.
During the second quarter of 1996, the Company recorded a write down of
the goodwill in the amount of $1,170,000. This amount is included in
depreciation and amortization in the statement of operations for the
nine months ended September 30, 1996.
The acceleration of revenues from CSW's existing contracts plus a
changing business environment, which led to its inability to either
expand existing contractual relationships or to develop new business
for the Company, led to an adjustment of goodwill.
Pursuant to an action take by the Company's Board of Directors on July
23, 1996, effective July 31, 1996, the Company sold its 80% interest in
CSW. As a result of the sale, the buyer acquired assets of CSW
including cash, contracts, receivables and the investments of Choice
Hotels Venezuela C.A. and CHV
I-8
<PAGE> 11
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Corporation A.V.V. and assumed liabilities of CSW, a long-term lease
for CSW's offices and obligations associated with acquired contracts.
During the third quarter of the 1996, the Company recorded a loss on
the sale of its 80% interest in CSW of $1,406,724.
The following information summarizes the results of operations, on a
pro forma basis, as though all companies had been combined or sold as
of January 1, 1995:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Revenues $ 6,140,000 $10,231,000
============ ===========
Expenses and tax
provision $ 7,410,000 $10,225,000
============ ===========
Net income (loss) $ (1,270,000) $ 6,000
============ ===========
Earnings (loss)
per share $ (.15) $ --
============ ===========
</TABLE>
3. Income taxes
For the nine months ended September 30, 1996 and 1995, the components
of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $(1,183,205) $ 565,839
Deferred (65,773) (62,364)
----------- -----------
Total income tax expense
(benefit) $(1,248,978) $ 503,475
=========== ===========
</TABLE>
I-9
<PAGE> 12
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
At September 30, 1996, the Company had recorded a deferred tax asset as follows:
<TABLE>
<S> <C>
Assets:
Current - collection allowance $32,000
Long-term - depreciation and amortization 12,000
-------
Total assets $44,000
=======
</TABLE>
4. Retainage on disposition fees
Under the terms of its contracts with the Company, the Resolution Trust
Corporation ("RTC") retained a portion of earned disposition fees
(between 10% and 15% depending on the contract) pending expiration or
termination of the contracts. The purpose of the retention was to
provide a fund against which the RTC may recover costs attributable to
assets that remained unsold at the time of contract expiration or
termination. If the retainage exceeds such costs, the excess is to be
remitted back to the Company. The Company, however, has no obligation
to reimburse the RTC for such costs exceeding the retention.
In connection with the acquisition of Crown (the NorthCorp business
combination discussed in Note 2), NorthCorp entered into an agreement
with Pure World providing that one half of approximately $2,830,000 of
gross retainage outstanding as of July 31, 1994 will be remitted to
Pure World if collected. Similarly on July 31, 1994, Crown entered into
a retainage sharing agreement with an affiliate of the Buyer also
providing for one half of approximately $1,265,000 of gross retainage
outstanding as of July 31, 1994 to be remitted to the affiliate if
collected.
In connection with the sale of CSW, the Company gave the buyer all
rights to the CSW gross retainages which were approximately
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<PAGE> 13
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
$400,000 at the time of sale. Final contract audits had not been
completed on the contracts and the proceeds, if any, to ultimately be
collected were uncertain. The Company had not recorded any revenues
relating to these retainages.
During 1996 and 1995, final contract audits were completed on the
seventeen Crown NorthCorp and Crown RTC contracts. Gross retainage on
these contracts was approximately $4,647,000. The Company has recorded
retainage revenue, net of questioned costs, unsold asset recovery costs
and the retainage due either Pure World or Buyer, of $185,981 in 1996
and $636,959 in 1995. No retainage revenue was recorded prior to 1995.
No retainage revenue has been received as of September 30, 1996. The
Company and the FDIC, as successor to the RTC, are in ongoing
negotiations to settle all issues surrounding payment of retainages.
Management anticipates receiving recorded retainage revenues in 1996.
5. Contingent Liabilities and Commitments
During the nine months ended September 30, 1996 and through November 1,
1996, there has been no material change in the status of pending
litigation as disclosed in the Company's Form 10-KSB for the year ended
December 31, 1995.
During the nine months ended September 30, 1996 and through November 1,
1996, the Company had not entered into any material commitments other
than those disclosed in the Company's Form 10-KSB for the year ended
December 31, 1995.
6. Stockholders' Equity
At September 30, 1996, the Company has 30,000,000 authorized shares of
its $.01 par value common stock. During 1995, the Company's Board of
Directors authorized 1,000,000 shares of preferred stock. As of
September 30, 1996, no preferred shares were issued. (See Note 7).
I-11
<PAGE> 14
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
A stock option plan for the outside directors of the Company was
approved by the Board of Directors in July 1995 and ratified by the
Company's stockholders in May 1996. Under the plan, each outside
director may be granted options for 100,000 shares of the Company's
common stock at an option price equal to the common stock's market
value on the date of grant. The options vest over a four-year period if
the Company achieves certain stock price thresholds. No options have
been granted under this plan as of September 30, 1996.
7. Subsequent Event - Eastern Acquisition
Effective October 1, 1996, the Company, through CNC, acquired all of
the issued and outstanding capital stock or membership interests, as
the case may be, of each of Eastern Realty Corporation, a Virginia
corporation ("Eastern"), Eastern Baltimore, Inc., a Virginia S
corporation ("Baltimore") and Eastern Realty, L.L.C., a Virginia
limited liability company ("ELLC") in exchange for 450 shares of Series
A Convertible Preferred Stock, par value $.01 per share, of the Company
(the "Series A Preferred Stock") and warrants for the issuance of
149,300 shares of the common stock of the Company (the "Warrants"). The
Company's acquisition of Eastern, Baltimore and ELLC is collectively
referred to herein as the Eastern Acquisition.
I-12
<PAGE> 15
Item 2. - Management's Discussion and Analysis or Plan of Operations
GENERAL
The Company derives its primary revenues from financial services provided under
asset management, disposition, servicing, securitization and land management
contracts or agreements for clients or partners. Under these arrangements, the
Company manages and disposes of real estate and loan assets, services individual
loans and loan portfolios, manages tax-exempt bond financings, coordinates the
development of real estate, administers receiverships and manages various
corporate and partnership interests throughout the United States. The Company
has utilized strategic acquisitions and alliances as primary means of expanding
and diversifying its core businesses and developing and entering new businesses.
Management continues to pursue such acquisitions and alliances.
Currently, the Company operates under contracts with various clients including
investment banking firms, partnerships and the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). At September 30, 1996, the assets under management
pursuant to these contracts had an aggregate book value of $948 million, as
compared to $659.2 million of assets under management at September 30, 1995.
Assets are added to most of these contracts by addenda, each with its own
compensation structure. During the third quarter of 1996, assets with an
aggregate book value of $60 million were added to the contract with Freddie Mac
to provide loss mitigation and loan workout services. Management believes that,
to operate profitably, the Company must continue to significantly expand and
develop the revenues it derives from these contracts and arrangements.
Prior to 1996, the Company derived most of its revenues from public-sector
contracts, primarily with the Federal Deposit Insurance Corporation ("FDIC") and
the Resolution Trust Corporation ("RTC"). The statutory authority of the RTC
expired December 31, 1995 and its remaining operations were assigned to the
FDIC. Business from these agencies declined substantially in recent years as
issues related to the massive failures of banks and thrifts were resolved.
During the third quarter, the Company concluded work under its remaining FDIC
contracts. The Company does not believe that public-sector contracts will be a
primary source of revenue in the foreseeable future. Therefore, as public-sector
contracts have expired or reduced in
I-13
<PAGE> 16
size, management has reduced staff, consolidated offices and otherwise
restructured operations to more competitively pursue other opportunities. While
management believes this restructuring is now substantially complete, the
reduction in revenues from public-sector contracts and the administrative costs
of winding up those contracts have materially contributed to the Company's
operating losses in 1996.
Business Outlook
During the third quarter of 1996, the Company continued to restructure its
operations to place itself in a better competitive position in the markets in
which it now operates. Effective July 31, 1996, the Company closed its Miami,
Florida office through the sale of a subsidiary (see Note 2 to Consolidated
Financial Statements). As is further discussed in Note 7 to the Consolidated
Financial Statements, the Company's acquisition of Eastern was effective October
1, 1996. In conjunction with this acquisition, the Company has relocated its
Washington, D.C. office to Eastern's offices in McLean, Virginia. During the
nine months ended September 30, 1996, the Company has also consolidated and
realigned several management positions and effected staff reductions which have
resulted in annual payroll reductions of approximately $1,300,000.
The composition of the assets under the Company's management was virtually
unchanged during the third quarter. Historically, the Company has managed
numerous, relatively small assets of public-sector clients. It now manages
predominately larger assets held by private concerns. As the table set forth
below indicates, during this transition, the value of assets under management
has increased from the comparable period in 1995.
I-14
<PAGE> 17
Assets Under Management
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Number of Assets
-Public Sector 0 2,067
Contract Book Value
-Public Sector $ 0 $ 313 million
Number of Assets
-Private Sector 1,591 494
Contract Book Value
-Private Sector $ 948 million $ 346 million
Total Number of Assets 1,591 2,561
Total Contract Value $ 948 million $ 659 million
</TABLE>
While the value of assets under management has increased, the Company's revenues
for the nine months ended September 30, 1996 declined from the same period in
1995. The Company's present contracts provide for generally lower ongoing
management fees than did the expired public-sector contracts. While these
present contracts do offer greater opportunities for additional, incentive-based
compensation at the end of an engagement, the lower ongoing fees have been a
material factor in the decline in the Company's revenue. Management is
concentrating the Company's financial and human resources on efforts to increase
the Company's revenues through the expansion of its core asset management,
disposition and servicing businesses and the development of new, related
businesses. Until the Company can expand its revenue base, management
anticipates that operating losses will continue, albeit at a lesser rate than
during the first nine months of 1996.
The Company continues to pursue strategic acquisitions of entities and
portfolios to expand its core asset management, disposition and servicing
businesses. Management is placing particular emphasis on the acquisition of
asset servicing rights since, given the Company's human and technical resources,
such acquisitions can be accomplished at relatively low marginal costs. The
Eastern acquisition, effective October 1, 1996, brings to the Company additional
capabilities in asset management, real estate development and structured
financings. The Company also plans to begin, through acquisitions, new loan
servicing and mortgage banking relationships with the Federal National Mortgage
Association ("FNMA"). During the fourth quarter of 1996, FNMA approved the
Company as a loan seller and servicer.
I-15
<PAGE> 18
FNMA also conditionally approved the Company's acquisition of two entities which
service multifamily loans for FNMA. Definitive agreements for these two
acquisitions are being finalized. In Europe, a newly formed Danish subsidiary of
the Company is pursing opportunities to acquire overseas asset portfolios and
operating entities. This subsidiary has secured third-party financing of
$225,000 for operational purposes. Throughout the remainder of 1996 and into
1997, management anticipates that additional acquisition opportunities will
arise as a result of ongoing consolidations in the industries in which the
Company operates.
Standard and Poor's Corporation and Fitch Investors Service, L.P., two
nationally recognized rating agencies, have each assigned the company an overall
rating of "above average" as an asset manager, the second highest rating
available. These ratings enhance the Company's ability to obtain asset
management and loan servicing contracts as many portfolio holders only award
contracts to rated servicers. Pursuant to their standard procedures, these
agencies will be considering renewals of these ratings during the fourth quarter
of 1996.
I-16
<PAGE> 19
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
The following discussion and analysis sets forth the significant changes in the
results of the operations of the Company for the three months ended September
30, 1996 and 1995. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements.
For comparative purposes, the following table defines the periods that
operations of the Company are reflected in the Consolidated Financial
Statements:
<TABLE>
<CAPTION>
Name 1996 1995
---- ---- ----
<S> <C> <C>
Crown NorthCorp 7/1-9/30 7/1-9/30
Crown 7/1-9/30 7/1-9/30
Tempus 7/1-9/30 N/A
CPI 7/1-9/30 7/1-9/30
CSW 7/1-7/31 7/1-9/30
CNC Euro 7/1-9/30 N/A
CNC 7/1-9/30 N/A
Crown JV 7/1-9/30 7/1-9/30
</TABLE>
Total revenues for the third quarter of 1996 decreased to $1.4 million from $4.6
million for the third quarter of 1995. The decrease was due to management,
disposition and incentive fees decreasing due to the expiration of RTC contracts
by year-end 1995 and FDIC contracts by September 30, 1996.
For the third quarter of 1996, management fee revenues decreased to $1.3 million
from $2.1 million for the third quarter of 1995. Disposition, liquidation and
bonus fee revenues of $152,000 decreased from $1.8 million for the third quarter
of 1995. There were no incentive fee revenues for the third quarter of 1996
compared to $621,000 for the third quarter of 1995. These decreases were due to
the expiration of RTC contracts by year-end 1995 and FDIC contracts by
September, 30, 1996.
I-17
<PAGE> 20
Other revenues decreased to $42,000 for the third quarter of 1996 from $117,000
for the third quarter of 1995. The decrease was due to a decline in
miscellaneous consulting fees for Crown NorthCorp and Crown.
Personnel costs decreased to $1.8 million for the third quarter of 1996 from
$2.7 million for the third quarter of 1995. Due to the sale of CSW and the
expiration of the public-sector contracts, personnel costs decreased by $1.0
million. The addition of Tempus and Crown Euro operations increased personnel
costs by $120,000. At September 30, 1996, the Company had 86 full-time
employees.
Occupancy costs of $297,000 for the third quarter of 1996 decreased from
$386,000 for the third quarter of 1995. The decrease was due primarily to the
sale of CSW in July, 1996.
Insurance costs remained relatively unchanged for the third quarter of 1996 when
compared to the third quarter of 1995.
Depreciation and amortization decreased to $131,000 for the third quarter of
1996 from $315,000 for the third quarter of 1995. The decrease was due to the
write-down in the second quarter of 1996 of the remaining unamortized goodwill
relating to the CSW acquisition.
Other expenses remained relatively unchanged for the third quarter of 1996 when
compared to the third quarter of 1995.
Minority interest of ($177,000) for the third quarter of 1996 reflects the 20%
of CSW operations not owned by the Company.
Interest expense remained relatively unchanged for the third quarter of 1996
when compared to the third quarter of 1995.
The Company recorded a $1.4 million loss on the sale of its 80% interest in CSW
in the third quarter of 1996. (See Note 2 to the Consolidated Financial
Statements).
Income tax expense (benefit) was ($613,000) for the third quarter of 1996 and
$195,000 for the third quarter of 1995 (See Note 3 to the Consolidated Financial
Statements). The third quarter tax benefit was created due to losses from
operations and the sale of CSW.
I-18
<PAGE> 21
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995.
The following discussion and analysis sets forth the significant changes in the
results of the operations of the Company for the nine months ended September 30,
1996 and 1995. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements.
For comparative purposes, the following table defines the periods that
operations of the Company are reflected in the Consolidated Financial
Statements:
<TABLE>
<CAPTION>
Name 1996 1995
---- ---- ----
<S> <C> <C>
Crown NorthCorp 1/1-9/30 1/1-9/30
Crown 1/1-9/30 1/1-9/30
Tempus 1/1-9/30 N/A
CPI 1/1-9/30 1/1-9/30
CSW 1/1-7/31 7/1-9/30
CNC Euro 7/1-9/30 N/A
CNC 7/1-9/30 N/A
Crown JV 1/1-9/30 1/1-9/30
</TABLE>
Total revenues decreased to $7.9 million for the first nine months of 1996 from
$11.7 million for the nine months of 1995. The decrease was due primarily to the
expiration by year-end 1995 of the RTC contracts of Crown, as total Crown
revenues decreased by $3.5 million.
Management fee revenues of $4.6 million for the first nine months of 1996
decreased from $5.7 million for the nine months of 1995. The addition of the
operations of Tempus increased management fee revenues by $300,000. The
expiration of Crown's RTC contracts by year-end 1995 resulted in a decrease of
$1.9 million in management fee revenues for the first nine months of 1996 versus
the first nine months of 1995. Crown NorthCorp management fee revenues increased
$500,000 in 1996 due to its private sector contract fees.
I-19
<PAGE> 22
Disposition, liquidation and bonus fee revenues decreased to $1.8 million for
the first nine months of 1996 from $4.7 million for the first nine months of
1995. The expiration of Crown's RTC contracts by year-end 1995, and the
reduction in disposition activity of Crown NorthCorp's FDIC contract resulted in
a decrease of $2.4 million for the first nine months of 1996 versus the same
period for 1995. CSW operations had a $500,000 decrease in disposition fees.
This decrease was due to a reduction in the disposition activity of the CSW FDIC
contract.
Incentive fee revenues of $1.3 million for the first nine months of 1996
increased from $1.1 million for the first nine months of 1995. The increase was
due to certain performance levels being reached in early 1996 pursuant to the
terms of the FDIC contracts of the Company. The operations of CSW accounted for
$300,000 of these revenues for the first nine months of 1996, while the other $1
million was earned through the FDIC contract of Crown NorthCorp. All of the 1995
revenues for this period were earned through the FDIC contract of Crown
NorthCorp.
Other revenues remained relatively constant for the first nine months of 1996
and 1995.
Personnel expenses of $7.0 million for the first nine months of 1996 decreased
from $7.5 million for the first nine months of 1995. The addition of the
operations of CSW, Tempus and CNC Euro increased personnel costs by $1.1 million
for the first nine months of 1996 versus the same period of 1995. Due to the
expiration of public-sector contracts of the Company, there were reductions in
personnel costs of $1.6 million for Crown NorthCorp and Crown for the first nine
months of 1996 from the first nine months of 1995.
Occupancy costs increased to $1.1 million for the first nine months of 1996 from
$850,000 for the first nine months of 1995. The addition of the operations of
CSW and Tempus increased occupancy costs by $200,000 for the first nine months
of 1996. Occupancy costs for Crown NorthCorp and Crown remained relatively
constant.
Insurance costs remained at relatively the same levels for the first nine months
of 1996 and 1995.
Depreciation and amortization of $1.8 million for the first nine months of 1996
increased from $700,000 for the first nine months of
I-20
<PAGE> 23
1995. The increase was primarily due to the write-off of the unamortized
goodwill related to the CSW acquisition.
Other expenses decreased to $890,000 for the first nine months of 1996 from
$980,000 for the first nine months of 1995. This decrease was due to the
continued streamlining of operations by the Company.
Minority Interest of ($353,000) for the first nine months of 1996 reflects the
20% of CSW operations not owned by the Company.
Interest expense increased to $160,000 for the first nine months of 1996 from
$110,000 for the first nine months of 1995. Increased bank borrowings to fund
operations of the Company resulted in the increase.
Loss on write-off of property and equipment was $50,000 for the first nine
months of 1996. This was a result of outdated computers and equipment being
donated to charity by the Company.
The Company recorded a $1.4 million loss on the sale of its 80% interest in CSW
in the third quarter of 1996 (See Note 2 to the Consolidated Financial
Statements).
Income tax expense (benefit) was ($1.2) million for the first nine months of
1996 and $500,000 for the first nine months of 1995 (See Note 3 to the
Consolidated Financial Statements). The 1996 tax benefit was created due to
losses from operations, the write down of the CSW goodwill and the sale of CSW.
I-21
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $94,000 (including
cash and cash equivalents of $390,265) and $1,330,000 of long-term debt. The
Company had a $1,400,000 revolving credit facility with a bank, having an
outstanding balance of $1,100,000 at September 30, 1996. A $650,000 portion of
this facility (with an outstanding balance of $350,000 at September 30, 1996) is
due and payable on December 31, 1996 or on demand. The remaining portion is due
May 30, 1997.
In March 1996, the Company borrowed $1.5 million under an installment note. The
terms of this note, as modified, call for payments of interest only through
March 1997, at which time the outstanding loan balance, currently $1,363,152, is
due. The Company has secured repayment of this note primarily by an assignment
of an anticipated federal tax refund due the Company for the year ending
December 31, 1996.
Management anticipates that its cash flows will not begin to improve during the
remainder of 1996 unless the Company starts receiving retainage revenue from the
FDIC, as successor to the RTC. Retainage revenue will be used to retire debt.
Additionally, while the Company will continue in its efforts to reduce operating
expenses, it will be necessary to develop new sources of revenue to eliminate
operating deficits or to develop alternative funding sources to fund those
deficits.
The Company is actively seeking credit facilities to replace and expand existing
facilities, to maintain operations and to fund acquisitions. The Company has
also engaged an investment banker to assist it in the consideration of various
other funding alternatives. If the Company cannot expand its revenue base or
secure new means of financing operations and acquisitions, its working capital
position and ability to operate will deteriorate.
I-22
<PAGE> 25
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
Item 2. - Changes in Securities
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
Eastern Acquisition
Effective October 1, 1996, the Company and CNC entered into a Stock Purchase
Agreement (the "Purchase Agreement") with Miller and Smith Holding, Inc., a
Virginia corporation ("M&S"), Gordon V. Smith ("Smith"), Alvin D. Hall ("Hall"),
Spencer R. Stouffer ("Stouffer"), Richard J. North ("North"), Jay N. Rollins
("Rollins"), Charles F. Stuart, Jr. ("Stuart"); each of Smith, Hall, Stouffer,
North, Rollins and Stuart are collectively referred to herein as the
"ELLC/Baltimore Stockholders"; and the ELLC/Baltimore Stockholders and M&S are
collectively referred to herein as the "Stockholders"); Eastern, Baltimore and
ELLC evidencing the Eastern Acquisition. The principal business of Eastern,
Baltimore and ELLC include the investment in and management and development of
real estate, primarily in the Mid-Atlantic region. Following the Eastern
Acquisition, Eastern and Baltimore operate as subsidiaries of CNC; CNC and Crown
are the members of ELLC.
Pursuant to the Purchase Agreement, the Company, through CNC, acquired all of
the issued and outstanding capital stock or membership interests, as the case
may be, of each of Eastern, Baltimore and ELLC in exchange for Series A
Preferred Stock and
II-1
<PAGE> 26
Warrants. As is further set forth in the Certificate of Designation for the
Series A Preferred Stock, each of the 450 shares of the Series A Preferred
Stock has a liquidation price of $1,000; carries a cumulative dividend of
7.467% of the liquidation price per annum, payable semiannually either in cash
or the common stock of the Company (priced at the time of payment); has a
five-year term; is redeemable by the Company upon ten days' written notice,
subject to the right of each Stockholder to convert to the common stock of the
Company upon receipt of such a notice; is convertible into 1,244.75 shares of
the common stock of the Company, which conversion shall occur (i) at the option
of a Stockholder, (A) if, prior to October 1, 1998, the closing price of the
common stock of the Company equals or exceeds $1.00 or (B) if, prior to October
1, 2001, the closing price of the common stock of the Company equals or exceeds
$1.25 or (C) if a Stockholder receives a redemption notice from the Company or
(ii) automatically without action by the Company or a Stockholder (A) if, prior
to October 1, 1998, the closing price of the common stock of the Company equals
or exceeds $1.75 or (B) if, prior to October 1, 2001, the closing price of the
common stock of the Company equals or exceeds $2.50 or (C) at the end of the
five-year term. The Company and the Stockholders have entered into a
Registration Rights Agreement in the form appearing on Exhibit 10.40 with
respect to the Series A Preferred Stock. The Series A Preferred Stock, the
Warrants and the common stock of the Company are collectively referred to herein
as the "Securities."
Pursuant to the provisions of the Warrants, which are in the form appearing on
Exhibit 10.41, the Stockholders have the right, exercisable on or before October
1, 1999, to purchase up to 149,300 shares of the common stock of the Company at
$0.75 per share.
As is further set forth in the Purchase Agreement, the Stockholders received
Series A Preferred Stock and Warrants in the following amounts:
<TABLE>
<CAPTION>
Stockholder Shares of Series A Preferred Stock Warrants
- ----------- ---------------------------------- --------
<S> <C> <C>
M&S 207.72 68,917.63
Smith 112.61 37,360.56
Hall 17.35 5,756.63
Stouffer 17.35 5,756.63
North 17.35 5,756.63
Rollins 68.77 22,816.08
Stuart 8.85 2,935.88
</TABLE>
II-2
<PAGE> 27
Pursuant to the Purchase Agreement, the parties thereto understand and agree
that (i) the Securities and (ii) the outstanding capital stock or membership
interests, as the case may be, of Eastern, Baltimore and ELLC have not been
registered under the Securities Act of 1933 and may not be resold, transferred
or otherwise disposed of absent such registration or the availability of an
exemption therefrom.
Effective October 1, 1996, Smith, the Chairman of M&S, has been elected to the
Company's board of directors and Rollins, Eastern's President, has been elected
an Executive Vice President of the Company.
The Eastern Acquisition does not constitute a "significant business combination"
as defined in Regulation S-B. Therefore, submission of financial statements and
pro forma financial information with respect to Eastern, Baltimore and ELLC is
not required at this time.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
- ------
4.1 Certificate of Designation for Series A Convertible Preferred
Stock, par value $.01 per share, of Crown NorthCorp, Inc.
10.39 Stock Purchase Agreement dated as of October 1, 1996 by and
among Crown NorthCorp, Inc., CNC Holding Corp., Miller and Smith
Holding, Inc., Gordon V. Smith, Alvin D. Hall, Spencer R.
Stouffer, Richard J. North, Jay N. Rollins, Charles F. Stuart,
Jr., Eastern Realty Corporation, Eastern Baltimore, Inc. and
Eastern Realty L.L.C.
10.40 Form of Registration Rights Agreement, dated as of October 1,
1996, between Crown NorthCorp, Inc. and Miller and Smith
Holding, Inc., Gordon V. Smith, Alvin D. Hall, Spencer R.
Stouffer, Richard J. North, Jay N. Rollins, and Charles F.
Stuart, Jr.
II-3
<PAGE> 28
10.41 Form of Warrant, dated October 1, 1996, to purchase the common
stock of Crown NorthCorp, Inc.
(b) Reports on Form 8-K
None
II-4
<PAGE> 29
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CROWN NORTHCORP, INC.
Dated: November 13, 1996 By: /s/ Richard A. Brock
----- ------------------------------
Richard A. Brock
Acting Chief Financial Officer
II-5
<PAGE> 30
Exhibit Index
Exhibit
Number
- ------
4.1 Certificate of Designation for Series A Convertible Preferred
Stock, par value $.01 per share, of Crown NorthCorp, Inc. (1)
10.39 Stock Purchase Agreement dated as of October 1, 1996 by and
among Crown NorthCorp, Inc., CNC Holding Corp., Miller and Smith
Holding, Inc., Gordon V. Smith, Alvin D. Hall, Spencer R.
Stouffer, Richard J. North, Jay N. Rollins, Charles F. Stuart,
Jr., Eastern Realty Corporation, Eastern Baltimore, Inc. and
Eastern Realty L.L.C. (1)
10.40 Form of Registration Rights Agreement, dated as of October 1,
1996, between Crown NorthCorp, Inc. and Miller and Smith
Holding, Inc., Gordon V. Smith, Alvin D. Hall, Spencer R.
Stouffer, Richard J. North, Jay N. Rollins, and Charles F.
Stuart, Jr. (1)
10.41 Form of Warrant, dated October 1, 1996, to purchase the common
stock of Crown NorthCorp, Inc. (1)
- ----------
(1) Filed herewith
II-6
<PAGE> 1
EXHIBIT 4.1
<PAGE> 2
CORRECTED CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01 PER SHARE,
OF
CROWN NORTHCORP, INC.
The undersigned, being the Chairman and Chief Executive Officer of
Crown NorthCorp, Inc., a Delaware corporation (the "Corporation"), does hereby
certify that the words "of the Liquidation Price" were omitted in error from the
first sentence of Section 6 of the Certificate of Designation filed with the
Delaware Secretary of State on October 1, 1996, and that set forth below is the
entire Certificate of Designation, in corrected form, in accordance with Section
103 of the Delaware General Corporation Law:
RESOLVED, that the Board of Directors of the Corporation, by unanimous
written consent, adopted the following resolutions creating a series of the
Corporation's preferred stock, par value $.01 per share, designated "Series A
Convertible Preferred Stock":
SECTION 1. DESIGNATION. The designation of the series of preferred
stock, par value $.01 per share, of the Corporation hereby authorized is "Series
A Convertible Preferred Stock" (the "Series A Preferred Stock").
SECTION 2. DEFINITIONS. Unless the context otherwise requires, the
terms defined in this Section 2 shall have the meanings herein specified:
"Closing Price" shall mean as of the date of determination (i) if the
Common Stock is traded on a securities exchange or through Nasdaq National
Market, the closing price of the Common Stock on such exchange on the last
business day prior to the date of determination; (ii) if the Common Stock is
actively traded over-the-counter, the last closing bid or sale price (whichever
is applicable) prior to the close of business on the last business day prior to
the date of determination; and (iii) if there is no active public market for the
Common Stock, the fair market value of one share of the Common Stock, as
determined by the Board of Directors of the Corporation, acting in good faith,
on the date of determination.
"Junior Stock" shall mean the Common Stock, par value $.01 per share,
of the Corporation, and any other class or series of stock of the Corporation
authorized after October 1, 1996 not entitled to receive any assets upon
liquidation, dissolution, or winding up of the affairs of the Corporation until
the Series A Preferred Stock and any Parity Stock shall have received the entire
amount to which such stock is entitled upon such liquidation, dissolution, or
winding up.
"Liquidation Price" measured per share of Series A Preferred Stock as
of any date shall mean $1,000.
<PAGE> 3
"Parity Stock" shall mean any class or series of stock of the
Corporation authorized after October 1, 1996, entitled to receive assets upon
liquidation, dissolution, or winding up of the affairs of the Corporation on a
parity with the Series A Preferred Stock.
"Redemption Price" as to any share of Series A Preferred Stock on any
date shall mean the Liquidation Price as of such date.
"Term" shall mean a period commencing on the date that Series A
Preferred Stock is first issued and terminating on the fifth anniversary
thereof.
SECTION 3. AUTHORIZED NUMBER. The number of shares constituting the
Series A Preferred Stock shall be 450 shares.
SECTION 4. PAR VALUE PER SHARE. Each share of Series A Preferred Stock
shall have a par value of $.01.
SECTION 5. VOTING RIGHTS. No share of the Series A Preferred Stock
shall entitle the holder thereof to any right to vote on any matter which is the
subject of a vote of the stockholders of the Corporation, except as otherwise
required by the General Corporation Law of the State of Delaware.
SECTION 6. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of Series
A Preferred Stock shall be entitled to receive dividends on each share of issued
and outstanding Series A Preferred Stock during the Term at the rate of 7.467%
of the Liquidation Price per annum, payable, unless otherwise prohibited by
applicable law, whether or not declared by the Board of Directors of the
Corporation, in cash or, at the option of the Corporation, in shares of the
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock")
based upon the Closing Price, semi-annually in arrears on the first day of July
and January of each year (each such date being referred to herein as a
"Semi-Annual Dividend Payment Date") except for the last Semi-Annual Payment
Date, which shall be on the last day of the Term, commencing on the first
Semi-Annual Dividend Payment Date after the first issuance of any share of
Series A Preferred Stock by the Corporation. The dividends provided for in this
Section 6 shall begin to accrue and be cumulative on outstanding shares of
Series A Preferred Stock from the date of original issuance of the shares of
Series A Preferred Stock by the Corporation. Such dividends shall accrue from
day to day, whether or not earned or declared.
SECTION 7. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of the shares of the Series A Preferred Stock shall be
entitled to receive from the assets of the Corporation available for
distribution to the stockholders of the Corporation, before any payment or
distribution shall be made to the holders of any Junior Stock of the
Corporation, an amount in cash or property at its fair market value, as
determined by the Board of Directors of the Corporation in good faith, or a
combination thereof, equal to the Liquidation Price, which payment shall be made
pari passu with any such payment made to the holders of any Parity Stock.
<PAGE> 4
The holders of the Series A Preferred Stock shall not be entitled to any other
or further distribution of or participation in any remaining assets of the
Corporation by virtue of their holdings of Series A Preferred Stock after
receiving the Liquidation Price per share. If, upon distribution of the
Corporation's assets in liquidation, dissolution, or winding up, the assets of
the Corporation to be distributed among the holders of the Series A preferred
Stock and to all holders of any Parity Stock shall be insufficient to permit
payment in full to such holders of the preferential amounts to which they are
entitled, then the entire assets of the Corporation to be distributed to holders
of the Series A Preferred Stock and such Parity Stock shall be distributed pro
rata to such holders based upon the aggregate of the full preferential amounts
to which the shares of Series A Preferred Stock and such Parity Stock would
otherwise respectively be entitled. Neither the merger or consolidation of the
Corporation with or into any other corporation or corporations nor the sale,
transfer, or lease of all or substantially all of the assets of the Corporation,
shall itself be deemed to be a liquidation, dissolution, or winding up of the
Corporation within the meaning of this Section 7. Notice of the liquidation,
dissolution, or winding up of the Corporation shall be mailed, first class mail,
postage prepaid, not less than 20 days prior to the date on which such
liquidation, dissolution, or winding up is expected to take place or become
effective, to the holders of record of the Series A Preferred Stock at their
respective addresses as the same appear on the books of the Corporation or
supplied by them in writing to the Corporation for the purpose of such notice.
Section 8. Redemption. Subject to Section 9, each share of the Series A
Preferred Stock is subject to redemption by the Corporation in whole or in part
during the Term. A notice of intention (each, a "Redemption Notice") by the
Corporation to redeem shares of the Series A Preferred Stock or any part thereof
and of the date (the "Redemption Date") and place of redemption shall be
personally delivered or mailed 10 days before the date of redemption to each
holder of record of the shares to be redeemed at his last known post office
address as shown on the records of the Corporation (each, a "Holder"). Subject
to Section 9, on the applicable Redemption Date, (i) such holder shall deliver
certificates representing the shares of Series A Preferred Stock to be so
redeemed to the Corporation, duly endorsed for transfer in blank, along with
such other documents and instruments as the Corporation may reasonably request,
and (ii) the Corporation will pay to such holder the Redemption Price for such
shares of Series A Preferred Stock in cash or by certified check. In case fewer
than the total number of shares of Series A Preferred Stock represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to the
holder. All shares of Series A Preferred Stock redeemed, retired, purchased, or
otherwise acquired by the Corporation shall be retired and shall be restored to
the status of authorized and unissued shares of preferred stock (and may be
reissued as part of another series of preferred stock of the Corporation, but
such shares shall not be reissued as Series A Preferred Stock).
SECTION 9. CONVERSION. The holders of Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
3
<PAGE> 5
(a) Conversion Ratio. Each share of Series A Preferred Stock shall be
convertible into 1,244.75 fully paid and non-assessable shares of the Common
Stock (the "Conversion Ratio"). The Corporation shall not be required to issue
any fractional shares, but shall instead pay to the holder of the Series A
Preferred Stock being so converted an amount in cash equal to (i) the Closing
Price as of the date of determination, multiplied by (b) the fraction of one
share of Common Stock constituting any fractional shares otherwise issuable in
connection with such conversion.
(b) Right to Convert. Each share of Series A Preferred Stock shall be
convertible without the payment of any additional consideration by the holder
thereof and, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such stock, as follows:
(i) From the commencement of the Term to the second
anniversary thereof, at any time when the Closing Price equals or exceeds $1.00.
(ii) From the second anniversary of the commencement of the
Term until the end of the Term, when the Closing Price equals or exceeds $1.25.
(iii) From the mailing or delivery by the Company of any
Redemption Notice to any Holder pursuant to Section 8 until the Redemption Date
specified in such Redemption Notice.
(c) Mandatory Conversion. Each share of Series A Preferred Stock shall
be converted automatically without action by the Corporation or the holder
thereof without the payment of any additional consideration by the holder
thereof at any time after the date of issuance of such share, as follows:
(i) From the commencement of the Term to the second
anniversary thereof, at any time when the Closing Price equals or exceeds $1.75.
(ii) From the second anniversary of the commencement of the
Term until the end of the Term, when the Closing Price equals or exceeds $2.50.
In addition, each share of Series A Preferred Stock shall be converted
automatically without action by the Corporation or the holder thereof without
the payment of any additional consideration by the holder thereof at the end of
the Term.
(d) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office, of his election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The
4
<PAGE> 6
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
as aforesaid, a certificate for the number of shares of Series A Preferred Stock
that were represented by the certificate or certificates delivered to the
Corporation in connection with the conversion but that were not converted, and
payment pursuant to Section 9(a) for any fractional shares otherwise issuable as
a result of such conversion pursuant to Section 9(a). Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such time. Upon the conversion of
any share of Series A Preferred Stock, all accrued and unpaid dividends with
respect to the converted shares will be promptly declared and paid to the holder
thereof to the extent assets are legally available therefor and any amount for
which assets are not legally available shall be paid promptly as assets become
legally available therefor.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Stock solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock that number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all then outstanding
shares of Series A Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series A Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to that number of shares as shall be sufficient for that purpose.
(f) Notices. Any notice required by the provisions of this Section 9 to
be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation.
(g) Reissuance of Converted Shares. No shares of Series A Preferred
Stock which have been converted into Common Stock after the original issuance
thereof shall ever again be reissued, sold or transferred and all shares so
converted shall upon that conversion cease to be a part of the authorized shares
of the Corporation and the number of shares of Series A Preferred Stock
authorized shall be reduced by the number of shares so converted.
(h) Adjustment Upon Stock Dividends, Subdivisions, Combinations,
Capital Reorganizations, and Reclassifications.
(i) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date the payment is made or the change is
5
<PAGE> 7
effective, the Conversion Ratio shall be appropriately adjusted so that the
number of shares of Common Stock issuable upon conversion of any shares of
Series A Preferred Stock shall be increased in proportion to the increase of
outstanding shares of Common Stock.
(ii) If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of outstanding
shares of Common Stock, then, on the effective date of that combination, the
Conversion Ratio shall be appropriately adjusted so that the number of shares of
Common Stock issuable on conversion of any shares of Series A Preferred Stock
shall be decreased in proportion to the decrease in outstanding shares of Common
Stock.
(iii) If the Corporation declares a dividend upon the Common
Stock payable in shares of the Common Stock, then, in each such case, the
Conversion Ratio shall be appropriately adjusted so that the number of shares of
Common Stock issuable on conversion of any shares of Series A Preferred Stock
shall, upon payment of such dividend, be increased in proportion to the increase
in outstanding shares of Common Stock.
(iv) If at any time after the date hereof, there is any
capital reorganization, any reclassification of the stock of the Corporation
(other than as a result of a stock dividend or subdivision, split-up, or
combination of shares), or any similar transaction which is effected in such a
way that the holders of Common Stock are entitled to receive capital stock,
securities, or assets with respect to or in exchange for Common Stock, the
shares of Series A Preferred Stock shall, after the reorganization,
reclassification, consolidation, or such similar transaction, be convertible
into the kind and number of shares of stock or other securities or property of
the Corporation or otherwise to which each holder would have been entitled if
immediately prior to the reorganization, reclassification, or similar
transaction he had converted his shares of Series A Preferred Stock into Common
Stock. The provisions of this clause (iv) shall similarly apply to successive
reorganizations, reclassifications, or such similar transactions.
SECTION 10. PREEMPTIVE RIGHTS. The holders of the Series A Preferred
Stock shall not have any preemptive right to subscribe for or purchase any
shares of stock or any other securities which may be issued by the Corporation
by virtue of their holdings of Series A Preferred Stock.
SECTION 11. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be
required by law and for the equitable rights and remedies that may otherwise be
available to the holders of the Series A Preferred Stock, the shares of Series A
Preferred Stock shall not have any designations, preferences, qualifications,
restrictions, limitations, or relative rights, other than as specifically set
forth in these resolutions and in the Certificate of Incorporation, as amended
or restated, of the Corporation.
6
<PAGE> 8
SECTION 12. HEADINGS. The headings of the various sections and
subsections hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
IN WITNESS WHEREOF, this Corrected Certificate of Designation has been
executed on the date first above written.
7
<PAGE> 1
EXHIBIT 10.39
<PAGE> 2
STOCK PURCHASE AGREEMENT,
DATED AS OF OCTOBER 1, 1996,
BETWEEN AND AMONG
CROWN NORTHCORP, INC.;
CNC HOLDING CORP.;
MILLER AND SMITH HOLDING, INC.;
GORDON V. SMITH;
ALVIN D. HALL;
SPENCER R. STOUFFER;
RICHARD J. NORTH;
JAY N. ROLLINS;
CHARLES F. STUART, JR.;
EASTERN REALTY CORPORATION;
EASTERN BALTIMORE, INC.;
AND
EASTERN REALTY L.L.C.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
ARTICLE I
The Purchase and Sale.................................. 2
1.1. Terms of the Purchase and Sale............................................... 2
1.2. The Closing.................................................................. 3
ARTICLE II
Representations and Warranties of Stockholders............... 3
2.1. Organization and Qualification............................................... 3
2.2. Capitalization............................................................... 6
2.3. Authorizations............................................................... 6
2.4. Accreditation and Non-Distributive Intent.................................... 7
2.5. Completeness of Disclosure................................................... 8
2.6. Validity of Issuance......................................................... 8
2.7. Several Representations...................................................... 8
ARTICLE III
Representations and Warranties of Active Stockholder............ 8
3.1. Financial Condition.......................................................... 8
3.2. Taxes........................................................................ 9
3.3. Litigation and Claims........................................................ 10
3.4. Properties................................................................... 11
3.5. Contracts and Other Instruments.............................................. 12
3.6. Employees.................................................................... 13
3.7. Patents, Trademarks, Et Cetera............................................... 14
3.8. Questionable Payments........................................................ 14
3.9. Consents..................................................................... 14
3.10. Specific Representations and Warranties With Respect To the Controlled
Entities..................................................................... 15
3.11. Qualification as to Controlled Entity Representations and Warranties......... 16
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
ARTICLE IV
Representations and Warranties of the Purchaser...... 17
4.1. Organization......................................................... 17
4.2. Validity of Shares................................................... 17
4.3. Authority to Buy..................................................... 17
4.4. Non-Distributive Intent.............................................. 17
4.5. Validity of Issuance................................................. 18
4.6. Capitalization....................................................... 18
ARTICLE V
Covenants and Agreements.................. 18
5.1. Covenants and Agreements of the Acquired Corporations and the
Stockholders......................................................... 18
5.2. Covenants and Agreements of the Purchaser and CNC.................... 19
ARTICLE VI
Indemnification...................... 20
6.1. Indemnification by Active Stockholders............................... 20
6.2. Indemnification By The Stockholders.................................. 20
6.3. Indemnification By The Purchaser and CNC............................. 21
6.4. Method of Asserting Claims........................................... 21
6.5. Payment.............................................................. 23
6.6. Arbitration.......................................................... 23
6.7. Other Rights and Remedies Not Affected............................... 23
ARTICLE VII
Miscellaneous....................... 24
7.1. Actual Knowledge..................................................... 24
7.2. Brokerage Fees....................................................... 24
7.3. Further Actions...................................................... 24
7.4. Availability of Equitable Remedies................................... 24
7.5. Survival............................................................. 25
7.6. Modification......................................................... 25
7.7. Notices.............................................................. 25
7.8. Waiver............................................................... 27
7.9. Acquired Entity Obligations.......................................... 27
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
7.10. Binding Effect....................................................... 27
7.11. No Third Party Beneficiaries......................................... 27
7.12. Separability......................................................... 27
7.13. Headings............................................................. 27
7.14. Counterparts; Governing Law.......................................... 28
</TABLE>
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<PAGE> 6
LIST OF SCHEDULES
Schedule 1.1(c) - Shares of Series A Convertible Preferred Stock to be
Issued
Schedule 2.1(a) - List Of ERC Subsidiaries, ERC Interests, and Controlled
ERC Entities And Information About Them And ERC
Schedule 2.1(b) - List Of Baltimore Subsidiaries, Baltimore Interests, and
Controlled Baltimore Entities And Information About Them
And Baltimore
Schedule 2.1(c) - List Of ELLC Subsidiaries, ELLC Interests, and Controlled
ELLC Entities And Information About Them And ELLC
Schedule 2.1(d) - Organizational Chart of the Acquired Corporations, the
Subsidiaries, the Controlled Entities, and the Interests
Schedule 2.2 - Ownership of the Acquired Corporations, the Subsidiaries,
and the Controlled Entities
Schedule 2.4(d) - Information about the Purchaser
Schedule 3.1(a) - Delivered Financial Statements
Schedule 3.2 - Taxes
Schedule 3.3 - Litigation
Schedule 3.4(b) - List Of Property Owned, Leased, And Licensed
Schedule 3.4(d) - Environmental Laws
Schedule 3.5 - List Of Contracts, Agreements, Instruments, And
Arrangements
Schedule 3.6 - Employee Benefits
Schedule 3.7 - List Of Intangibles Owned And Licensed
Schedule 3.9(a) - Governmental Consents
Schedule 3.9(b) - Contractual Consents
Schedule 3.10 - Representations and Warranties with respect to Controlled
Entities as to delinquent taxes or assessments
-iv-
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of October
1, 1996, is between and among CROWN NORTHCORP, INC., a Delaware corporation with
offices at 1251 Dublin Road, Columbus, Ohio 43215 (the "Purchaser"); CNC HOLDING
CORP., a Delaware corporation and a wholly-owned subsidiary of the Purchaser
with offices at 1251 Dublin Road, Columbus, Ohio 43215 ("CNC"); MILLER AND SMITH
HOLDING, INC., a Virginia corporation with offices at 1568 Springhill Road,
Suite 401, McLean, Virginia 22102 ("M&S"); GORDON V. SMITH, an individual
residing at 8716 Crider Brook Way, Potomac, Maryland 20854 ("Smith"); ALVIN D.
HALL, an individual residing at 23876 Champe Ford Road, Middleburg, Virginia
22117 ("Hall"); SPENCER R. STOUFFER, an individual residing at 3513 Prosperity
Avenue, Fairfax, Virginia 22031 ("Stouffer"); RICHARD J. NORTH, an individual
residing at 6848 Georgetown Pike, McLean, Virginia 22101 ("North"); JAY N.
ROLLINS, an individual residing at 8901 Seneca Way, Bethesda, Maryland 20817
("Rollins"); CHARLES F. STUART, JR., an individual residing at 9001 Clifford
Avenue, Chevy Chase, Maryland 20815 ("Stuart"; each of Smith, Hall, Stouffer,
North, Rollins, and Stuart are generically referred to herein as an
"ELLC/Baltimore Stockholder," and are collectively referred to herein as the
"ELLC/Baltimore Stockholders"; and the ELLC/Baltimore Stockholders and M&S are
collectively referred to herein as the "Stockholders"); EASTERN REALTY
CORPORATION, a Virginia corporation and a wholly-owned subsidiary of M&S with
offices at 1568 Springhill Road, Suite 222, McLean, Virginia 22102 ("ERC");
EASTERN BALTIMORE, INC., a Virginia S corporation with offices at 1568
Springhill Road, Suite 222, McLean, Virginia 22102 ("Baltimore"); and EASTERN
REALTY L.L.C., a Virginia limited liability company with offices at 1568
Springhill Road, Suite 222, McLean, Virginia 22102 ("ELLC"; ERC, Baltimore, and
ELLC are collectively referred to herein as the "Acquired Corporations" and are
individually referred to herein as an "Acquired Corporation").
WHEREAS, the Purchaser desires to acquire, through CNC, all of the
issued and outstanding capital stock or membership interests, as the case may
be, of each of the Acquired Corporations from the Stockholders for consideration
of shares of the Series A Convertible Preferred Stock, par value $.01 per share,
of the Purchaser (the "Preferred Stock") and Warrants for the issuance of Common
Stock of Purchaser at a purchase price equal to $0.75 per share, exercisable for
a period of three (3) years from the date of this Agreement (the "Warrants"; the
Preferred Stock, the Warrants and the securities issuable upon conversion of the
Warrants are sometimes referred to herein collectively as the "Securities"); and
WHEREAS, M&S owns all of the issued and outstanding capital stock of
ERC and desires to effect such purchase and sale; and
<PAGE> 8
WHEREAS, the ELLC/Baltimore Stockholders own all of the issued and
outstanding capital stock of Baltimore and desire to effect such purchase and
sale; and
WHEREAS, the ELLC/Baltimore Stockholders own all of the issued and
outstanding membership interests in ELLC, and desire to effect such purchase and
sale;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the adequacy, sufficiency, and receipt of which is
hereby acknowledged by the parties, the parties hereto agree as follows:
ARTICLE I
THE PURCHASE AND SALE
SECTION 1.1. TERMS OF THE PURCHASE AND SALE. On the basis of the
representations, warranties, covenants, and agreements contained in this
Agreement and subject to the terms and conditions of this Agreement:
(a) (i) M&S shall sell, assign, transfer, and convey to CNC at
the consummation of the transactions contemplated by Sections 1.1(a) and 1.1(b)
hereby (the "Closing") all of the issued and outstanding capital stock of ERC
(the "ERC Shares").
(ii) Each of the ELLC/Baltimore Stockholders shall sell,
assign, transfer, and convey to CNC at the Closing all of the issued and
outstanding shares of capital stock of Baltimore owned by him, which shares
shall collectively constitute all of the issued and outstanding shares of
capital stock of Baltimore (the "Baltimore Shares").
(iii) Each of the ELLC/Baltimore Stockholders shall sell,
assign, transfer, and convey to CNC at the Closing all of the issued and
outstanding membership interests in ELLC owned by him, which membership
interests shall collectively constitute all of the issued and outstanding
membership interests in ELLC as of the Closing (the "ELLC Membership
Interests").
(b) (i) M&S shall deliver at the Closing certificates
representing all of the ERC Shares duly endorsed in blank or accompanied by
stock powers duly endorsed in blank, in each case in proper form for transfer,
and with all stock transfer and any other required documentary stamps affixed
thereto.
(ii) The ELLC/Baltimore Stockholders shall deliver at the
Closing certificates representing all of the Baltimore Shares duly endorsed in
blank or accompanied by stock powers duly endorsed in blank, in each case in
proper form for transfer, and with all stock transfer and any other required
documentary stamps affixed thereto.
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<PAGE> 9
(iii) Each of the ELLC/Baltimore Stockholders shall deliver at
the Closing to CNC and Crown Revenue Services, Inc., an Ohio corporation, a
transfer and assignment of all of his membership interest in ELLC, which
transfer and assignment shall be in form and substance satisfactory to the
Purchaser.
(c) As consideration for the ERC Shares, the Baltimore Shares, and
the ELLC Membership Interests delivered to the Purchaser pursuant to this
Agreement, CNC shall deliver at the Closing (i) certificates registered in the
names and for the number of shares of the Preferred Stock as set forth in
Schedule 1.1(c), and (ii) Warrants registered in the names and for the number of
shares of Common Stock of the Purchaser as set forth on Schedule 1.1(c).
SECTION 1.2. THE CLOSING. The Closing shall take place at the offices
of Powell, Goldstein, Frazer & Murphy, 1001 Pennsylvania Avenue, Washington,
D.C. 20006, and shall be effective as of October 1, 1996.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholders, jointly and severally, hereby make the following
representations and warranties to the Purchaser and CNC as of the Closing.
SECTION 2.1. ORGANIZATION AND QUALIFICATION.
(a) (i) ERC owns, either directly or through one or more ERC
Subsidiaries (as hereinafter defined), the equity interests in the entities
listed on Schedule 2.1(a) (collectively, the "ERC Interests").
(ii) Schedule 2.1(a) correctly lists all entities which
should be consolidated in the financial statements of ERC in accordance with
generally accepted accounting principles (collectively, the "ERC Subsidiaries").
(iii) Schedule 2.1(a) correctly lists each of the ERC
Interests which are general partner interests, managing membership interests, or
other Control Securities (as hereinafter defined) along with the issuer thereof
(such issuers, which shall be deemed to include, without limitation, all
enterprises in which ERC directly or indirectly possesses an interest which are
involved in land development or model home programs, being referred to herein as
the "Controlled ERC Entities"). As used herein, "Control Securities" means
securities which, through voting rights, by or in tandem with contractual
rights, or otherwise (alone or in conjunction with other elements), confer upon
the holder thereof the power to influence the management, policies, or direction
of the issuer thereof.
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<PAGE> 10
(iv) Schedule 2.1(a) correctly sets forth as to ERC, each ERC
Subsidiary, the issuer of each ERC Interest, and each Controlled ERC Entity (A)
its place of incorporation or organization, (B) its principal place of business,
(C) the jurisdictions in which it is qualified to do business, (D) a description
of the business which it currently conducts, (E) its authorized capitalization,
(F) the equity interests therein currently outstanding, and (G) the record owner
of such equity interests.
(v) Other than the ERC Subsidiaries and the ERC Interests,
neither ERC nor any of the ERC Subsidiaries or Controlled ERC Entities has a
Subsidiary or affiliate or owns any interest in any enterprise (whether or not
such enterprise is a corporation) that is not listed on Schedule 2.1(a).
(b) (i) Baltimore owns, either directly or through one or more
Baltimore Subsidiaries (as hereinafter defined), the equity interests in the
entities listed on Schedule 2.1(b) (collectively, the "Baltimore Interests").
(ii) Schedule 2.1(b) correctly lists all entities which
should be consolidated in the financial statements of Baltimore in accordance
with generally accepted accounting principles (collectively, the "Baltimore
Subsidiaries").
(iii) Schedule 2.1(b) correctly lists each of the Baltimore
Interests which are general partner interests, managing membership interests, or
other Control Securities along with the issuer thereof (such issuers, which
shall be deemed to include, without limitation, all enterprises in which
Baltimore directly or indirectly possesses an interest which are involved in
land development or model home programs, being referred to herein as the
"Controlled Baltimore Entities").
(iv) Schedule 2.1(b) correctly sets forth as to Baltimore,
each Baltimore Subsidiary, the issuer of each Baltimore Interest, and each
Controlled Baltimore Entity (A) its place of incorporation or organization, (B)
its principal place of business, (C) the jurisdictions in which it is qualified
to do business, (D) a description of the business which it currently conducts,
(E) its authorized capitalization, (F) the equity interests therein currently
outstanding, and (G) the record owner of such equity interests.
(v) Other than the Baltimore Subsidiaries and the Baltimore
Interests, neither Baltimore nor any of the Baltimore Subsidiaries or Controlled
Baltimore Entities has a Subsidiary or affiliate or owns any interest in any
enterprise (whether or not such enterprise is a corporation) that is not listed
on Schedule 2.1(b).
(c) (i) ELLC owns, either directly or through one or more ELLC
Subsidiaries (as hereinafter defined), the equity interests in the entities
listed on Schedule 2.1(c) (collectively, the "ELLC Interests").
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<PAGE> 11
(ii) Schedule 2.1(c) correctly lists all entities which
should be consolidated in the financial statements of ELLC in accordance with
generally accepted accounting principles (collectively, the "ELLC
Subsidiaries").
(iii) Schedule 2.1(c) correctly lists each of the ELLC
Interests which are general partner interests, managing membership interests, or
other Control Securities along with the issuer thereof (such issuers, which
shall be deemed to include, without limitation, all enterprises in which ELLC
directly or indirectly possesses an interest which are involved in land
development or model home programs, being referred to herein as the "Controlled
ELLC Entities").
(iv) Schedule 2.1(c) correctly sets forth as to ELLC, each
ELLC Subsidiary, the issuer of each ELLC Interest, and each Controlled ELLC
Entity (A) its place of incorporation or organization, (B) its principal place
of business, (C) the jurisdictions in which it is qualified to do business, (D)
a description of the business which it currently conducts, (E) its authorized
capitalization, (F) the equity interests therein currently outstanding, and (G)
the record owner of such equity interests.
(v) Other than the ELLC Subsidiaries and the ELLC Interests,
neither ELLC nor any of the ELLC Subsidiaries or Controlled ELLC Entities has a
Subsidiary or affiliate or owns any interest in any enterprise (whether or not
such enterprise is a corporation) that is not listed on Schedule 2.1(c).
(d) Schedule 2.1(d) contains an accurate and complete
organizational chart accurately depicting (i) each of the Acquired Corporations,
(ii) each of the ERC Subsidiaries, the Baltimore Subsidiaries, and the ELLC
Subsidiaries (each, a "Subsidiary," and collectively, the "Subsidiaries"), (iii)
each of the Controlled ERC Entities, the Controlled Baltimore Entities, and the
Controlled ELLC Entities (each, a "Controlled Entity," and collectively, the
"Controlled Entities"), and (iv) the ownership of each of the ERC Interests, the
Baltimore Interests, and the ELLC Interests (each, an "Interest", and
collectively, the "Interests"). The Acquired Corporations, the Subsidiaries and
the Controlled Entities are sometimes referred to herein as the "Acquired
Entities".
(e) Each of the Acquired Entities is a corporation, partnership,
or limited liability company, as the case may be, duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation or organization, with all requisite power and authority, and all
necessary consents, authorizations, approvals, orders, licenses, certificates,
and permits of and from, and declarations and filings with, all federal, state,
local, and other governmental authorities and all courts and other tribunals, to
own, lease, license, and use its material properties and assets and to carry on
the business in which it is now engaged. For the purpose of this Section 2.1(e),
the term "material properties and assets" means those assets with a value in
excess of $10,000. Each of the Acquired Entities is duly qualified to transact
the business in which it is engaged and is in good standing as a foreign
corporation, partnership, or limited liability
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<PAGE> 12
company, as the case may be, in every jurisdiction in which its ownership,
leasing, licensing, or use of property or assets or the conduct of its business
makes such qualification necessary.
SECTION 2.2. CAPITALIZATION.
(a) (i) The authorized capital stock of ERC consists of 1,000 shares
of common stock, of which 200 shares are outstanding and comprise the ERC Stock.
(ii) The authorized capital stock of Baltimore consists of 1,000
shares of common stock, of which 100 shares are outstanding and comprise the
Baltimore Stock.
(iii) All of the authorized membership interests of ELLC are
outstanding and comprise the ELLC Membership Interests.
(b) Each of the outstanding shares of ERC Stock and Baltimore Stock,
each of the ELLC Membership Interests, and each of the Interests is duly
authorized, validly issued, fully paid, and nonassessable, has not been issued
and is not owned or held in violation of any preemptive right of any person or
entity, and is owned of record and beneficially as set forth in Schedule 2.1(a),
Schedule 2.1(b), or Schedule 2.1(c) in the case of the Interests, and otherwise
as set forth in Schedule 2.2, in each case free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and voting
trusts.
(c) There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
equity interest in any Acquired Entity or any security or other instrument
convertible into, exercisable for, or exchangeable for any equity interest in
any Acquired Entity. There is outstanding no security or other instrument
convertible into or exchangeable for any equity interest in any of the Acquired
Entities.
SECTION 2.3. AUTHORIZATIONS.
(a) Each of the Acquired Corporations and each of the Stockholders have
all requisite power and authority to execute, deliver, and perform this
Agreement and each of the other agreements, instruments, and other documents
executed and delivered pursuant hereto or in connection herewith (collectively,
the "Operative Documents") to which it is a party. All necessary corporate or
other proceedings of each of the Acquired Corporations and the Stockholders have
been duly taken to authorize the execution, delivery, and performance of this
Agreement and each of the Operative Documents to which it is a party by such
Acquired Corporation and such Stockholders. This Agreement and each of the
Operative Documents have been duly authorized, executed, and delivered by each
of the Acquired Corporations, has been duly authorized, executed and delivered
by each of the Stockholders, constitutes the legal, valid, and binding
obligation of Acquired Corporation and Stockholders, and is enforceable as to
them in accordance with its terms.
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<PAGE> 13
(b) Upon the Closing, CNC will have good title to all the issued and
outstanding capital stock or membership interests, as the case may be, of each
Acquired Corporation, free and clear of all liens, security interests, pledges,
charges, encumbrances, pre-emptive rights, stockholders' agreements, and voting
trusts.
SECTION 2.4. ACCREDITATION AND NON-DISTRIBUTIVE INTENT.
(a) Each of Rollins and Smith represent and warrant that they are an
"accredited investor," as such term is defined in Rule 501(a) under the
Securities Act of 1933, as amended (the "Securities Act"), and that they have
executed and delivered to the Purchaser an accredited investor questionnaire
prior to the date of this Agreement.
(b) Each Stockholder represents and warrants that he or it is acquiring
the Securities to be issued hereunder to him or it for his or its own account
(and not for the account of others), for investment purposes only, and not with
a view toward the resale or distribution thereof.
(c) Each Stockholder understands that the Securities have not been
registered under the Securities Act, and may not be resold, transferred, or
otherwise disposed of absent such registration or the availability of an
exemption therefrom. Each Stockholder acknowledges that the Purchaser advised it
in writing of such resale restrictions a reasonable time prior to the Closing.
Each Stockholder agrees that he or it will not resell, transfer, or otherwise
dispose of any of the Securities without registration of such Securities under
the Securities Act or the availability of an exemption therefrom, and that each
Security or certificate representing one or more Securities may contain a legend
to the foregoing effect.
(d) Each Stockholder acknowledges that he or it has received the
information about the Purchaser listed on Schedule 2.4(d) a reasonable time
prior to the Closing.
(e) Each Stockholder acknowledges that the Purchaser has made available
to such Stockholder and his or its purchaser representative a reasonable time
prior to the Closing the opportunity to ask questions and receive answers
concerning the terms and conditions of the transactions contemplated hereby and
to obtain any additional information which such Stockholder or such purchaser
representative has requested.
(f) Each Stockholder acknowledges that he or it has not been offered
the Securities by any form of general solicitation or general advertising,
including but not limited to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast over radio or television, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(g) Each Stockholder represents and warrants that he or it does not
constitute more than one stockholder pursuant to Rule 501(e) under the
Securities Act with respect to the offering of the Securities contemplated
hereby.
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<PAGE> 14
(h) Each Stockholder represents and warrants that he or it, either
alone or with his or its purchaser representative, has such knowledge and
experience in financial and business matters that he or it is capable of
evaluating the merits and risks of his or its prospective investment in the
Securities.
(i) Each Stockholder resides at the address listed opposite its name in
the introductory paragraph of the Agreement.
(j) Each Stockholder has consulted with counsel with respect to each of
the representations and warranties in this Section 2.4.
SECTION 2.5. COMPLETENESS OF DISCLOSURE. No representation or warranty
by any Stockholder in this Agreement contains an untrue statement of material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements made therein not misleading.
SECTION 2.6. VALIDITY OF ISSUANCE. Assuming the truth of the
representations and warranties made by the Purchaser in Section 4.4, the offer,
sale, and delivery of the ERC Shares, the Baltimore Shares, and the ELLC
Membership Interests under the circumstances contemplated by this Agreement
constitute exempted transactions under the Securities Act, and registration of
such shares under the Securities Act is not required in connection with any such
offer, sale, or delivery of such shares.
SECTION 2.7. SEVERAL REPRESENTATIONS. Notwithstanding any other
provision of this Agreement, the representations and warranties of each
Stockholder contained in Section 2.5 are deemed to be made severally and not
jointly.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACTIVE STOCKHOLDER
Rollins and Smith (the "Active Stockholders"), jointly and severally,
hereby make the following representations and warranties to the Purchaser and
CNC as of the Closing.
SECTION 3.1. FINANCIAL CONDITION.
(a) The Stockholders have delivered to the Purchaser true and correct
copies of the unaudited consolidated balance sheets, statements of income,
statements of retained earnings, and statements of sources and uses of cash for
each of the Acquired Corporations and each of the Controlled Entities listed on
Schedule 3.1(a). Each such consolidated balance sheet presents fairly the
financial condition, assets, liabilities, and stockholders' equity of the
subject thereof as of its
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date; each such consolidated statement of income and consolidated statement of
retained earnings presents fairly the results of operations of the subject
thereof for the period indicated; and each such consolidated statement of
sources and uses of cash (excluding future projections) presents fairly the
information purported to be shown therein. Except as indicated on Schedule
3.1(a), such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. All of such financial statements are in accordance with the
books and records of the subject thereof. Except as disclosed on Schedule
3.1(a), since the end of the last fiscal year of each such entity:
(i) there has not been a material adverse change in the
financial condition, results of operations, business, properties, assets or
liabilities of any of the Acquired Entities.
(ii) Except as disclosed on Schedule 3.1(a), none of the
Acquired Entities has authorized, declared, paid, or effected any dividend or
other distribution in respect of any of its equity interests or any direct or
indirect redemption, purchase, or other acquisition of any equity interest in
any of the Acquired Entities.
(iii) The operations and business of each of the Acquired
Entities have been conducted in all respects in the ordinary course.
(iv) None of the Acquired Entities has suffered an
extraordinary loss (whether or not covered by insurance) or waived any right of
substantial value which could have a material adverse effect on any Acquired
Entity.
(v) Except as disclosed on Schedule 3.1(a), none of the
Acquired Entities has paid or incurred any tax, or other liability or expense to
any third party, from the preparation of, or the transactions contemplated by,
this Agreement, it being understood that Stockholders shall have paid or will
pay all such taxes (including stock transfer taxes resulting from this Agreement
or the transactions contemplated hereby), liabilities and expenses.
(b) Except as and to the extent reflected on the balance sheets
delivered to Purchaser pursuant to Section 3.1(a) (including the footnotes
thereto) (the "Last Balance Sheets" for each Acquired Entity) or in this
Agreement (including the Schedules hereto), the Acquired Entities do not have
any liabilities, commitments or obligations of any nature (whether absolute,
accrued, contingent or otherwise) which could have a material adverse effect on
any Acquired Entity or which, under generally accepted accounting principles or
the terms of this Agreement, are required to be disclosed, other than those
incurred in the ordinary course of business consistent with past practice since
the dates of the Last Balance Sheets.
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SECTION 3.2. TAXES. Except as set forth on Schedule 3.2:
(a) All tax returns (including federal, state, local and foreign)
required to be filed with respect to the business and assets of the Acquired
Entities have been duly and timely (within any applicable extension periods)
filed with the appropriate authorities in all jurisdictions in which such
returns are required to be filed; and all taxes, penalties and interest
("Taxes") due thereon have been paid.
(b) The provisions for Taxes on the Last Balance Sheets are sufficient
for the payment of all Taxes for which the Acquired Entities may be liable for
the periods covered thereby that were not yet due and payable as of the date
thereof.
(c) There is no claim or assessment pending or, to the actual knowledge
of the Active Stockholders, threatened against the Acquired Entities for any
alleged deficiency in Taxes. There are no pending audits of any tax returns of
the Acquired Entities and no federal or state income tax return of the Acquired
Entities has been audited by any tax authority.
(d) No Acquired Entity is a party to any written agreement providing
for the allocation or sharing of Taxes.
(e) Each Acquired Entity has complied in all material respects with all
applicable laws relating to the payment and withholding of Taxes and has
withheld all amounts required by law to be withheld from the wages or salaries
of employees, and no Acquired Entity is liable for any Taxes (other than Taxes
not yet due and payable) for failure to comply with such laws.
(f) Baltimore has elected (with the consent of all of its
shareholders), in compliance with all applicable legal requirements, to be taxed
under Subchapter S of the Internal Revenue Code of 1986, as amended (the
"Code"), and corresponding provisions under any applicable state and local laws,
and such elections are in effect for Baltimore. Baltimore's election to be taxed
under Subchapter S of the Code is and has been in effect since its organization,
and no action has been taken by Baltimore or any shareholder of Baltimore that
may result in the revocation of any such elections. Baltimore has no liability,
absolute or contingent, for the payment of any income Taxes under the Code or
under the laws of such states or localities which afford tax treatment similar
to that under Subchapter S of the Code.
SECTION 3.3. LITIGATION AND CLAIMS. Except as set forth on Schedule
3.3, no Acquired Entity has received notice of any litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or investigation
pending or to the actual knowledge of the Active Stockholders threatened or
contingent (or any basis therefor to the actual knowledge of the Active
Stockholders) with respect to any of the Acquired Entities, or any of their
respective businesses, properties, or assets, which would have a material
adverse effect on the business, properties or assets of any Acquired Entity or
which under generally accepted accounting principles are required to be
disclosed. None of the Acquired Entities is affected by any current or
threatened
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strike or other labor disturbance nor to the actual knowledge of the
Stockholders is any union attempting to represent any employee of any of the
Acquired Entities as collective bargaining agent. None of the Acquired Entities
is in violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree; nor are any of the Acquired Entities, or any
Stockholder required to take any action in order to avoid such violation or
default, the result of which would have a material adverse impact on the
business, properties or assets of any Acquired Entity.
SECTION 3.4. PROPERTIES.
(a) Each of the Acquired Entities has insurable title in fee simple
absolute to all real properties and title to all other properties and assets
owned by it (except such real and other properties and assets as are held
pursuant to leases or licenses described in Schedule 3.4(b) and Schedule 3.7),
free and clear of all liens, mortgages, security interests, pledges, charges,
and encumbrances (except such as are listed in Schedule 3.4(b) and Schedule
3.7). The Acquired Entities have delivered or made available to the Purchaser
copies of the deeds and other instruments (as recorded) by which the Acquired
Entities acquired such real properties, and copies of all title insurance
policies, opinions, abstracts and surveys in the possession of the Acquired
Entities and relating to such real property.
(b) Attached as Schedule 3.4(b) is a true and complete list of all real
and other properties and assets (i) with a book value in excess of $10,000 owned
by any of the Acquired Entities or (ii) leased or licensed by any of the
Acquired Entities from or to a third party with an annual lease or license cost
in excess of $10,000 (including inventory but not including Intangibles, as
defined in Section 3.7), including with respect to such properties and assets
owned by any of the Acquired Entities a statement of cost, book value and
(except for land) reserve for depreciation of each item for tax purposes, and
net book value of each item for financial reporting purposes, and, with respect
to such properties and assets leased or licensed by any of the Acquired
Entities, a description of such lease or license. All such real and other
properties and assets (including Intangibles) owned by any of the Acquired
Entities are reflected on the Last Balance Sheet of such entity (except for
acquisitions and sales subsequent to the Last Balance Sheet Date for such entity
and prior to the Closing which are either noted in Schedule 3.4(b) or Schedule
3.7 or are approved in writing by the Purchaser). Except as set forth on
Schedule 3.4(b), all real and other tangible properties and assets owned,
leased, or licensed by any of the Acquired Entities are to the actual knowledge
of the Active Stockholders in good and usable condition (reasonable wear and
tear which is not such as to affect adversely the operation of the business of
any Acquired Entity excepted).
(c) To the actual knowledge of the Active Stockholders, no real
property owned, leased, or licensed by any of the Acquired Entities lies in an
area which is or will be subject to zoning, use, or building code restrictions
which would prohibit, and to the actual knowledge of the Active Shareholders no
state of facts relating to the actions or inaction of another person or
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entity or his or its ownership, leasing, licensing, or use of any real or
personal property exists which would prevent the continued use of such asset as
currently used.
(d) Except as set forth on Schedule 3.4(d):
(i) To the actual knowledge of the Active Stockholders, each
Acquired Entity is, and at all times has been, in full compliance with, and has
not been and is not in violation of or liable under, any law relating to the
protection of the environment, including laws related to releases and discharge
of pollutants and hazardous substances or materials.
(ii) No Acquired Entity has received any actual or threatened
order, notice or other communication from any governmental or administrative
authority of any actual or potential violation or failure to comply with any
environmental law.
(iii) To the actual knowledge of the Active Stockholders, no
officer, employee or agent of an Acquired Entity, or any other person or entity
for whose conduct an Acquired Entity may be held responsible, has Released any
Hazardous Substances at or from the properties of the Acquired Entities or
properties in which the Acquired Entities had an interest. The term "Hazardous
Substance" means any hazardous waste, as defined by 42 U.S.C. Section6903(5),
any Hazardous Substance, as defined by 42 U.S.C. Section9601 (14), any pollutant
or contaminant, as defined by 42 U.S.C. 9601(33), and all toxic substances,
hazardous materials, or other chemical substances regulated by any other law,
rule or regulation. The term "Release" shall have the meaning set forth in 42
U.S.C. Section9601(22).
(iv) The Acquired Entities have delivered to Purchaser true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by the Acquired Entities pertaining to
Hazardous Substances in, on, or under the properties now or previously owned by
the Acquired Entities, or concerning compliance by the Acquired Entities, or any
other person or entity for whose conduct they are or may be held responsible,
with environmental laws.
SECTION 3.5. CONTRACTS AND OTHER INSTRUMENTS.
(a) Schedule 3.5 accurately and completely sets forth the information
required to be contained therein regarding contracts, agreements, instruments,
leases, licenses, arrangements, or understandings with respect to each Acquired
Entity, identifying whether the matter disclosed therein relates to an Acquired
Corporation, to a Subsidiary named therein, or to a Controlled Entity named
therein. The Stockholders have furnished to the Purchaser (a) the certificate of
incorporation (or other organizational document) and by-laws (or other governing
document) of each Acquired Entity and all amendments thereto, as currently in
effect, and (b) the following:
(i) true and correct copies of all contracts, agreements, and
instruments referred to in Schedule 3.5;
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(ii) true and correct copies of all leases and licenses referred
to in Schedule 3.4(b) or Schedule 3.7; and
(iii) to the actual knowledge of the Active Shareholders, true and
correct written descriptions of all material arrangements or understandings
referred to in Schedule 3.5 which have a material effect on the business of any
Acquired Entity.
(b) None of the Acquired Entities, or to the actual knowledge of the
Active Stockholders, any other party to any material contract, agreement,
instrument, lease, or license referred to in Schedule 3.4(b), Schedule 3.5 or
Schedule 3.7 (the "Material Contracts"), is now in violation or breach of, or in
default with respect to complying with, any material term of any Material
Contract, and each such Material Contract is in full force and is the legal,
valid, and binding obligation of the parties thereto and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to them in accordance with its
terms.
(c) Each material arrangement or understanding described on Schedule
3.5 is a valid and continuing arrangement or understanding; none of the Acquired
Entities has, nor to the actual knowledge of the Active Shareholders, has any
other party to any such material arrangement or understanding, given notice of
termination or taken any action inconsistent with the continuance of such
material arrangement or understanding; and the execution, delivery, and
performance of this Agreement will not prejudice any such material arrangement
or understanding in any way. Each of the Acquired Entities enjoys peaceful and
undisturbed possession under all material leases and licenses described on
Schedule 3.4(b), Schedule 3.5 and Schedule 3.7.
(d) None of the Acquired Entities has engaged within the last two years
in, is engaging in, or intends to engage in any transaction with, or has had
within the last two years, now has, or intends to have any contract, agreement,
instrument, lease, license, arrangement, or understanding with, any Stockholder,
any director, officer, or employee of any of the Acquired Entities, any relative
or affiliate of any Stockholder or of any such director, officer, or employee,
or any other corporation or enterprise in which any Stockholder, any such
director, officer, or employee, or any such relative or affiliate then had or
now has a 5% or greater equity or voting or other substantial interest
(collectively, "Affiliated Transaction Persons"), other than as listed and so
specified in Schedule 3.5.
(e) The stock or other equity interest ledgers and stock or other
equity interest transfer books and the minute book records of each of the
Acquired Entities relating to all issuances and transfers of stock or other
equity interests by such Acquired Entities and all proceedings of the
stockholders, members and the Board of Directors (or similar governing bodies)
and committees thereof of each of the Acquired Entities since their respective
organization made available to the Purchaser are true and complete copies of the
original ledgers and transfer books and minute book records of such Acquired
Entities. None of the Acquired Entities is in violation or breach of, or
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in default with respect to, any term of its certificate of incorporation (or
other organizational documents) or by-laws (or other governing documents).
SECTION 3.6. EMPLOYEES.
(a) Except as set forth on Schedule 3.6, none of the Acquired Entities
has, or contributes to, any pension, profit-sharing, option, other incentive
plan, or any other type of Employee Benefit Plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), or
has any obligation to or customary arrangement with employees for bonuses,
incentive compensation, vacations, severance pay, insurance, or other benefits.
(b) Nothing contained in this Agreement or otherwise shall obligate the
Purchaser, any Acquired Entity, or CNC to employ any person who is now or in the
future may be employed by any of the Acquired Entities.
SECTION 3.7. PATENTS, TRADEMARKS, ET CETERA.
(a) No Acquired Entity owns or has pending, or is licensed under, any
patent, patent application, trademark, trademark application, trade name,
service mark, copyright, franchise, or other intangible property or asset (all
of the foregoing being herein called "Intangibles"), other than as described in
Schedule 3.7, all of which are in good standing and uncontested. Schedule 3.7
accurately sets forth with respect to Intangibles owned by any of the Acquired
Entities, where appropriate, a statement of cost, book value and reserve for
depreciation of each item for tax purposes, and net book value of each item for
financial reporting purposes, and with respect to Intangibles licensed by any of
the Acquired Entities from or to a third party, a description of such license.
No Affiliated Transaction Person possesses any Intangible which relates to the
business of any of the Acquired Entities.
(b) No Acquired Entity has infringed, has received notice of
infringement, or to the actual knowledge of the Active Stockholders is
infringing, with asserted Intangibles of others. To the actual knowledge of the
Active Stockholders, there is no infringement by others of Intangibles of any of
the Acquired Entities.
SECTION 3.8. QUESTIONABLE PAYMENTS. None of the Acquired Entities, any
director, officer, agent, employee, or other person associated with or acting on
behalf of any of the Acquired Entities, nor any Stockholder has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entry on the books or records of any
of the Acquired Entities; made any bribe, rebate, payoff,
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influence payment, kickback, or other unlawful payment; given any favor or gift
which is not deductible for federal income tax purposes; or made any bribe,
kickback, or other payment of a similar or comparable nature, whether lawful or
not, to any person or entity, private or public, regardless of form, whether in
money, property, or services, to obtain favorable treatment in securing business
or to obtain special concessions, or to pay for favorable treatment for business
secured or for special concessions already obtained.
SECTION 3.9. CONSENTS.
(a) Except as set forth in Schedule 3.9(a), no consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by any of the Acquired Entities or any
Stockholder for the execution, delivery, or performance of this Agreement or any
of the other Operative Documents by any Acquired Corporation or any Stockholder
or for any Acquired Corporation or any Subsidiary to continue to exercise all of
its rights as a partner, member, or other security holder of each issuer of each
Interest under the agreements and other documents governing such issuer without
penalty or dissolution of such issuer for any purpose. Each required consent set
forth on Schedule 3.9(a) has been obtained as of the date hereof.
(b) Except as set forth in Schedule 3.9(b), no consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which any Acquired Entity, or any Stockholder is a party, or to
which it or he or any of its or his respective businesses, properties, or assets
are subject, is required for the execution, delivery, or performance of this
Agreement or any of the Operative Documents, the absence of which consent could
have a material adverse effect on any Acquired Entity; and the execution,
delivery, and performance of this Agreement and each of the Operative Documents
will not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under, entitle any party to rights and privileges that such
party was not receiving or entitled to receive immediately before this Agreement
was executed under, or create any obligation on the part of any Acquired Entity
that it was not paying or obligated to pay immediately before this Agreement was
executed under, any term of any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or violate or result in a breach of any
term of the certificate of incorporation (or other organizational document) or
by-laws (or other governing document of any Acquired Entity), or violate, result
in a breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on any Acquired Entity, or any Stockholder or to which it or he
or any of its or his respective businesses, properties, or assets are subject,
the result of which could have a material adverse effect on any Acquired Entity.
Each required consent set forth on Schedule 3.9(b) has been obtained as of the
date hereof.
SECTION 3.10. SPECIFIC REPRESENTATIONS AND WARRANTIES WITH RESPECT TO
THE CONTROLLED ENTITIES. Except as set forth on Schedule 3.10:
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(a) There is no delinquent tax or assessment lien against any real
property owned at any time by any of the Controlled Entities ("Controlled Entity
Real Property").
(b) Each Controlled Entity is the beneficiary of an American Land Title
Association approved form title insurance policy covering each Controlled Entity
Real Property currently owned by it, in an amount in each instance at least
equal to the Controlled Entity's purchase price for such Controlled Entity Real
Property. Each such policy is valid and remains in full force and effect. No
claims have been made under any such title insurance policy and no person or
entity has done, by act or omission, anything which would impair the coverage of
such title insurance policy.
(c) All Controlled Entity Real Property and all owned improvements
comply in all material respects with all applicable environmental, zoning,
public safety, and building code laws, rules, and regulations. All inspections,
licenses, and certificates required to be made or issued with respect to all
such improvements upon any Controlled Entity Real Property have been made or
obtained from appropriate authorities and remain in full force and effect. None
of the building products utilized in the construction of any such improvements
currently are the subject of material products liability claims.
(d) None of the Controlled Entity Real Property is in an area (i) that
contains at any time any protected or endangered species, or (ii) identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards.
(e) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which are or
previously became due with respect to any Controlled Entity Real Property
currently owned by any Controlled Entity have been paid, or an escrow of funds
has been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
(f) None of the Controlled Entities has any existing liability of any
kind or nature and no such liability of any kind or nature is pending or has
been threatened, in each case relating to (i) proffers made to or required by
local municipalities relating to the development of any Controlled Entity Real
Property, (ii) warranties made to builders or other land purchasers with respect
to improvements thereon, or (iii) owners of dwellings constructed upon any
Controlled Entity Real Property.
(g) Utilities are available to all of the Controlled Entity Real
Property currently owned by any of the Controlled Entities without necessity for
unusual or unduly expensive off-site improvements. There is no actual, pending,
or threatened moratorium, discontinuation, or interruption of services to any
such Controlled Entity Real Property or upon the availability of building
permits thereon.
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(h) There are no undisclosed conditions or other impediments with
respect to any of the Controlled Entity Real Property currently owned by any of
the Controlled Entities that cause unusual development or remediation costs with
respect thereto. There are no unusual soil conditions present on any of the
Controlled Entity Real Property.
(i) None of the Controlled Entities has made any loan of any kind or
nature to, or other investment of any kind in, any other Controlled Entity,
either directly or utilizing any other person or entity as a conduit. None of
the other issuers of any of the Interests has made any loan of any kind or
nature to, or other investment of any kind or nature in, any other issuer of any
Interest, either directly or utilizing any other person or entity as a conduit.
All investments or monetary transfers of any of the Controlled Entities, the
Acquired Corporations, or the Subsidiaries are, and all investments or monetary
transfers of any kind of any of such other issuers are, fully reflected upon the
books and records of such entity.
3.11. Qualification as to Controlled Entity Representations and
Warranties. Notwithstanding any other provision of this Agreement, all
representations and warranties contained in Article II and Article III regarding
the Controlled Entities are made to the actual knowledge of the Active
Stockholders.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to each of the
Stockholders as of the Closing as follows:
SECTION 4.1. ORGANIZATION. Each of the Purchaser and CNC is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, with all requisite power and authority to own,
lease, license, and use its properties and assets and to carry on the business
in which it is now engaged.
SECTION 4.2. VALIDITY OF SHARES. The shares of Preferred Stock to be
delivered to Stockholders pursuant to this Agreement, when issued in accordance
with the terms and provisions of this Agreement, will be duly authorized,
validly issued, fully paid, and nonassessable.
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SECTION 4.3. AUTHORITY TO BUY. The Purchaser and CNC have all requisite
power and authority to execute, deliver, and perform this Agreement and each of
the Operative Documents to which any is or is to be a party. All necessary
corporate proceedings of the Purchaser and CNC have been duly taken to authorize
the execution, delivery, and performance of this Agreement and each of the
Operative Documents by the Purchaser and CNC. This Agreement and each of the
Operative Documents have been duly authorized, executed, and delivered by the
Purchaser and CNC, are the legal, valid, and binding obligation of the Purchaser
and CNC, and are enforceable as to them in accordance with its terms.
SECTION 4.4. NON-DISTRIBUTIVE INTENT. The Purchaser is an accredited
investor, as defined in Rule 501(a) under the Act. The Purchaser, through CNC,
is acquiring the ERC Stock, the Baltimore Stock, and the ELLC Membership
Interests for its own account (and not for the account of others), for
investment purposes only, and not with a view toward the resale or distribution
thereof. The Purchaser will not sell or otherwise dispose of such shares
(whether pursuant to a liquidating dividend or otherwise) without registration
under the Securities Act or an exemption therefrom, and the certificate or
certificates representing such shares may contain a legend to the foregoing
effect. By virtue of its position, the Purchaser has access to the kind of
financial and other information about ERC, ELLC, and Baltimore as would be
contained in a registration statement filed under the Securities Act. The
Purchaser understands that it may not sell or otherwise dispose of such shares
in the absence of either a registration statement under the Securities Act or an
exemption from the registration provisions of the Securities Act.
SECTION 4.5. VALIDITY OF ISSUANCE. Assuming the truth of the
representations and warranties made by the Stockholders in Section 2.4, the
offer, sale, and delivery of the Securities under the circumstances contemplated
by this Agreement constitute exempted transactions under the Securities Act, and
registration of such shares under the Securities Act is not required in
connection with any such offer, sale, or delivery of such shares.
SECTION 4.6. CAPITALIZATION. The authorized capital stock of the
Purchaser consists of 30,000,000 shares of Common Stock, par value $.01 per
share (the "Purchaser Common Stock"), of which 8,199,799 shares were outstanding
as of September 30, 1996, and 1,000,000 shares of preferred stock, par value
$.01 per share, of which no shares were outstanding as of September 30, 1996. As
of September 30, 1996, 1,232,044 shares of the Purchaser Common Stock were
subject to the resale restrictions imposed by Rule 144 under the Securities Act
of 1933.
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ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.1. COVENANTS AND AGREEMENTS OF THE ACQUIRED CORPORATIONS AND
THE STOCKHOLDERS. The Acquired Corporations and the Stockholders covenant and
agree as follows:
(a) Confidentiality. The Stockholders shall use due care to insure that
all confidential information which any Stockholder or any of his counsel,
agents, investment bankers, or accountants may now possess or may hereafter
create or obtain relating to the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of any Acquired
Entity, the Purchaser, or CNC, any affiliate of any of them, or any customer or
supplier of any of them or any such affiliate shall not be published, disclosed,
or made accessible by any of them to any other person or entity at any time or
used by any of them except in the business and for the benefit of the Acquired
Entities, in each case without the prior written consent of the Purchaser;
provided, however, that the restrictions of this sentence shall not apply (i) as
may otherwise be required by law, including, without limitation, federal
securities laws, (ii) as may be necessary or appropriate in connection with the
enforcement of this Agreement or any Operative Document, or (iii) to the extent
such information shall have otherwise become publicly available. Each Acquired
Corporation and Stockholder shall, and shall cause all other such persons and
entities to, deliver to the Purchaser all tangible evidence of such confidential
information to which the restrictions of the foregoing sentence apply at the
Closing.
(b) Public Statements. The Purchaser and the Active Stockholders shall
jointly issue all communications with respect to the announcement of the
consummation of the transactions contemplated by this Agreement; provided,
however, the Purchaser may release any information to any governmental authority
if required to do so by law.
(c) Release by Stockholders. Each Stockholder fully and unconditionally
releases and discharges all claims and causes of action which he or his heirs,
personal representatives, successors, or assigns ever had, now have, or
hereafter may have against the Purchaser, CNC, each Acquired Entity and, when
acting as such, their respective officers, directors, employees, counsel,
agents, and stockholders, in each case past, current, or as they may exist at
any time after the date of this Agreement, and each person, if any, who
controls, controlled, or will control any of them within the meaning of Section
15 of the Securities Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), except claims and causes of action
arising out of, based upon, or in connection with this Agreement or with their
ownership of securities issued by the Purchaser.
(d) File Tax Return. The Stockholders agree to file, within the time
allowed by law, all federal, state, local, and foreign tax returns with the
appropriate jurisdictions, for all periods
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<PAGE> 26
prior to the Closing Date, to include therein all information required to be
contained therein relating to each of the Acquired Entities for such period, and
to pay all Taxes with respect to each Acquired Entity for such periods.
SECTION 5.2. COVENANTS AND AGREEMENTS OF THE PURCHASER AND CNC. The
Purchaser and CNC covenant and agree as follows:
(a) Confidentiality. Each of the Purchaser and CNC shall use due care
to insure that all confidential information which the Purchaser, CNC, or any of
their respective officers, directors, employees, counsel, agents, investment
bankers, or accountants may now possess or may hereafter create or obtain
relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of any Acquired Entity, any
Interest, any affiliate of any of them, or any customer or supplier of any of
them or any such affiliate shall not be published, disclosed, or made accessible
by any of them to any other person or entity at any time or used by any of them
except pending the Closing in the business and for the benefit of the Acquired
Corporations and the Subsidiaries and Controlled Entities, in each case without
the prior written consent of the Stockholders; provided, however, that the
restrictions of this sentence shall not apply (i) with respect to the
obligations of the Purchaser and CNC after the Closing takes place, (ii) as may
otherwise be required by law including, without limitation, the federal
securities laws, (iii) as may be necessary or appropriate in connection with the
enforcement of this Agreement or any Operative Document, or (iv) to the extent
such information shall have otherwise become publicly available. The Purchaser
and CNC shall, and shall cause all other such persons and entities to, deliver
to the Stockholders all tangible evidence of such confidential information to
which the restrictions of the foregoing sentence apply at the Closing.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION BY ACTIVE STOCKHOLDERS. The Active
Stockholders, jointly and severally, hereby agree to indemnify and hold harmless
the Purchaser, CNC, each of the Acquired Entities, and their respective past,
current, and future officers, directors, employee, counsel, agents, and equity
holders, in each case who are not a Stockholder, and each person, if any, who
controls, controlled, or will control any of them within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act (the "Purchaser
Indemnitees"), against any and all losses, liabilities, damages, and expenses
whatsoever (including but not limited to reasonable counsel fees and any and all
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when incurred
arising out of, based upon, or in connection with (a) any material
misrepresentation or breach of any warranty of the Active
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<PAGE> 27
Stockholders contained in this Agreement or any other Operative Document, and
(b) any act, alleged act, omission, or alleged omission occurring at or prior to
the Closing (including, without limitation, any which arise out of, are based
upon, or are in connection with any of the transactions contemplated hereby or
any of the Operative Documents), arising out of, based upon, or relating to the
Acquired Entities, the Acquired Entities' business, the assets owned or leased
by the Acquired Entities, the ERC Shares, the Baltimore Shares, the ELLC
Interests, the Subsidiaries, the Interests, the Controlled Entities, and all
other matters as they relate to the Acquired Entities, any of which have a
material adverse effect on any Acquired Corporation. The foregoing agreement to
indemnify shall be in addition to any liability the Active Stockholders may
otherwise have, including liabilities arising out of this Agreement or any of
the Operative Documents. The aggregate amount of the Active Stockholders' joint
and several indemnification pursuant to this Section 6.1 shall not exceed the
aggregate purchase price paid to the Stockholders pursuant to the Agreement at
Closing.
SECTION 6.2. INDEMNIFICATION BY THE STOCKHOLDERS. Each of the
Stockholders hereby agrees to indemnify and hold harmless each of the Purchaser
Indemnitees against any and all losses, liabilities, damages, and expenses
whatsoever (including but not limited to reasonable counsel fees and any and all
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when incurred
arising out of, based upon, or in connection with any breach of any covenant or
agreement of any Stockholder contained in this Agreement or in any Operative
Document, any of which have a material adverse effect on any Acquired
Corporation. Notwithstanding the foregoing, the Stockholders shall have no
indemnification obligations with respect to the representations and warranties
of the Active Stockholders contained in Article III. The foregoing agreement to
indemnify shall be in addition to any liability the Stockholders may otherwise
have, including liabilities arising out of this Agreement or any of the
Operative Documents. The aggregate amount of any Stockholder's indemnification
pursuant to this Section 6.2 shall not exceed the purchase price paid to the
Stockholder pursuant to this Agreement at Closing.
SECTION 6.3. INDEMNIFICATION BY THE PURCHASER AND CNC. Each of the
Purchaser and CNC, jointly and not severally, hereby agrees to indemnify and
hold harmless each of the Stockholders and their respective successors, assigns,
heirs, legatees, executors, and administrators (collectively, the "Stockholder
Indemnitees") against any and all losses, liabilities, damages, and expenses
whatsoever (including but not limited to reasonable fees of one counsel and any
and all expenses whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred arising out of, based upon, or in connection with any material
misrepresentation or breach of any warranty made by the Purchaser or CNC in this
Agreement or in any Operative Document or any breach of any covenant or
agreement of the Purchaser or CNC contained in this Agreement or in any
Operative Document, any of which have a material adverse effect on any
Stockholder.
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<PAGE> 28
SECTION 6.4. METHOD OF ASSERTING CLAIMS. In the event that any claim or
demand for which one or more Stockholders (collectively, the "Liable
Stockholders") could be liable to a Purchaser Indemnitee hereunder is asserted
against or sought to be collected from a Purchaser Indemnitee by a third party,
the Purchaser Indemnitee shall promptly notify the Liable Stockholders of such
claim or demand, specifying the nature of such claim or demand and the amount or
the estimate amount thereof to the extent then feasible, which estimate shall
not be conclusive of the final amount of such claim and demand (the "Claim
Notice"). The Liable Stockholders shall have twenty (20) days from the personal
delivery or mailing of the Claim Notice (the "Notice Period") to notify the
Purchaser Indemnitee (A) whether or not they dispute their liability to the
Purchaser Indemnitee hereunder with respect to such claim or demand, and (B)
notwithstanding any such dispute, whether or not they desire, at their sole cost
and expense, to defend the Purchaser Indemnitee against such claim or demand.
(a) The Liable Stockholders shall not be entitled to act independently
under the procedures set forth in this Section 6.4, but must act in concert in
complying with the procedures set forth in this Section 6.4. If the Liable
Stockholders dispute their liability with respect to such claim or demand or the
amount thereof (whether or not the Liable Stockholders desire to defend the
Purchaser Indemnitee against such claim or demand as provided in subsections (b)
and (c) below), such dispute shall be resolved in compliance with Section 6.6.
Pending the resolution of any dispute by the Liable Stockholders of their
liability with respect to any claim or demand, such claim or demand shall not be
settled without the prior written consent of the Purchaser Indemnitee.
(b) In the event that the Liable Stockholders notify the Purchaser
Indemnitee within the Notice Period that they desire to defend the Purchaser
Indemnitee against such claim or demand then, except as hereinafter provided,
the Liable Stockholders shall have the right to defend the Purchaser Indemnitee
by appropriate proceedings, which proceeding shall be promptly settled or
prosecuted by it to a final conclusion in such a manner as to avoid any risk of
the Purchaser Indemnitee becoming subject to liability for any other matter;
provided, however, that the Liable Stockholders shall not, without the prior
written consent of the Purchaser Indemnitee, consent to the entry of any
judgment against the Purchaser Indemnitee or enter into any settlement or
compromise which does not include, as an unconditional term thereof, the giving
by the claimant or plaintiff to the Purchaser Indemnitee of a release, in form
and substance satisfactory to the Purchaser Indemnitee, from all liability in
respect of such claim or litigation. If any Purchaser Indemnitee desires to
participate in, but not control, any such defense or settlement, it may do so at
its sole cost and expense. If, in the reasonable opinion of the Purchaser
Indemnitee, any such claim or demand or the litigation or resolution of any such
claim or demand involves an issue or matter which could have a material adverse
effect on the business, operations, assets, properties, or prospects of the
Purchaser Indemnitee, including without limitation the administration of the tax
returns and the responsibilities under the tax laws of the Purchaser Indemnitee,
then the Purchaser Indemnitee shall have the right to control the defense or
settlement of any such claim or demand and its reasonable costs and expenses
shall be included as part of the indemnification obligation of the Stockholders
hereunder; provided, however, that the Purchaser Indemnitee shall
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<PAGE> 29
not settle any such claim or demand without the prior written consent of the
Liable Stockholders, which consent shall not be unreasonably withheld or
delayed. If the Purchaser Indemnitee should elect to exercise such right, the
Liable Stockholders shall have the right to participate in, but not control, the
defense or settlement of such claim or demand at their sole cost and expense.
(c) (i) If the Liable Stockholders elect not to defend the Purchaser
Indemnitee against such claim or demand, whether by not giving the Purchaser
Indemnitee timely notice as provided above or otherwise, then the amount of any
such claim or demand, or if the same may be defended by the Liable Stockholders
or by the Purchaser Indemnitee (but the Purchaser Indemnitee shall not have any
obligation to defend any such claim or demand), then that portion thereof as to
which such defense is unsuccessful, in each case shall be conclusively deemed to
be a liability of the Liable Stockholders hereunder unless the Liable
Stockholders have disputed their liability to the Purchaser Indemnitee as
provided in subsection (a) above, in which event such dispute shall be resolved
as provided in Section 6.6.
(ii) In the event that a Purchaser Indemnitee should have a claim
or demand against the Liable Stockholders that does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Purchaser Indemnitee shall promptly send a Claim Notice with respect
to such claim to the Liable Stockholders. If the Liable Stockholders dispute
their liability with respect to such claim or demand, such dispute shall be
resolved in accordance with Section 6.6; if the Liable Stockholders do not
notify the Purchaser Indemnitee within the Notice Period that they dispute such
claim, the amount of such claim shall be conclusively deemed a liability of the
Liable Stockholders hereunder.
(d) All claims for indemnification by a Stockholder Indemnitee
hereunder shall be asserted and resolved utilizing the procedures set forth
above substituting in the appropriate place "Stockholder Indemnitee" for
"Purchaser Indemnitee" and variations thereof an "Purchaser" for "Stockholder."
SECTION 6.5. PAYMENT. Upon the determination of the liability under
Section 6.1, Section 6.2, Section 6.3, or Section 6.4, the appropriate party
shall pay to the other, as the case may be, within ten (10) days after such
determination, the amount of any claim for indemnification made hereunder. In
the event that the indemnified party is not paid in full for any such claim
pursuant to the foregoing provisions promptly after the other party's obligation
to indemnify has been determined in accordance herewith, it shall have the
right, notwithstanding any other rights that it may have against any other
person or entity, to setoff the unpaid amount of any such claim against any
amounts owed by it under this Agreement or any of the Operative Documents. Upon
the payment in full of any claim, either by setoff or otherwise, the entity
making payment shall be subrogated to the rights of the indemnified party
against any person or entity with respect to the subject matter of such claim.
SECTION 6.6. ARBITRATION.
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<PAGE> 30
(a) All disputes under this Article VI shall be settled by arbitration
in McLean, Virginia before a single arbitrator pursuant to the rules of the
American Arbitration Association. Arbitration may be commenced at any time by
any party hereto giving written notice to each other party to a dispute that
such dispute has been referred to arbitration under this Section 6.6. The
arbitrator shall be selected by the agreement of the Stockholders, the
Purchaser, and CNC, but if they do not so agree within 20 days after the date of
the notice referred to above, the selection shall be made pursuant to such rules
from the panel of arbitrators maintained by such Association. Any award rendered
by the arbitrator shall be conclusive and binding upon the parties hereto;
provided, however, that any such award shall be accompanied by a written opinion
of the arbitrator giving the reasons for the award. This provision shall be
specifically enforceable by the parties and the decision of the arbitrator in
accordance herewith shall be final and binding, and there shall be no right of
appeal therefrom. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrator shall be equally shared; provided, however, that if
in the opinion of the arbitrator any party to such arbitration has raised an
unreasonable claim, defense, or objection, then the arbitrator may assess, as
part of his award, all or any part of the arbitration expenses of the other
party (including reasonable attorneys' fees) against the party raising such
unreasonable claim, defense, or objection.
(b) To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of such
dispute mutually agree to submit such dispute to arbitration, any party may
commence a civil action in a court of appropriate jurisdiction to resolve
disputes hereunder. Nothing contained in this Section 6.6 shall prevent the
parties from settling any dispute by mutual agreement at any time.
SECTION 6.7. OTHER RIGHTS AND REMEDIES NOT AFFECTED. The
indemnification rights of the parties hereunder are independent of and in
addition to such rights and remedies as the parties may have at law or in equity
or otherwise for any misrepresentation, breach of warranty, or failure to
fulfill any agreement or covenant hereunder on the party of any party hereto,
including without limitation the right to seek specific performance, recision,
or restitution, none of which rights or remedies shall be affected or diminished
hereby.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1. ACTUAL KNOWLEDGE. As used herein, the term "actual
knowledge" means the actual knowledge as of the date hereof of the appropriate
party.
SECTION 7.2. BROKERAGE FEES. The Purchaser hereby agrees to pay to
Underhill Investment Corporation such brokerage fee in connection with the
transactions contemplated hereby as may be agreed to by the Purchaser and
Underhill Investment Corporation. Each of the Stockholders, jointly and not
severally, hereby represents and warrants to the Purchaser and CNC that neither
such Stockholder nor any Acquired Corporation, Subsidiary, or Controlled Entity
has in any manner created any other liability of any person or entity for any
other brokerage or finders fee in connection with the transactions contemplated
hereby and by the Operative Documents. Each of the Purchaser and CNC, jointly
and not severally, hereby represents and warrants to each of the Stockholders
that it has not in any manner created any other liability of any person or
entity for any other brokerage or finders fee in connection with the
transactions contemplated hereby and by the Operative Documents.
SECTION 7.3. FURTHER ACTIONS.
(a) At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement and each of
the Operative Documents.
(b) After the Closing, each party shall from time to time, at the
reasonable request of any other party, and without cost or expense to the
requesting party, execute and deliver such other instruments of conveyance and
transfer and take such other actions as the requesting party may reasonably
require, in order to effectuate the purposes of this Agreement and each of the
Operative Documents.
SECTION 7.4. AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, either before or after the Closing, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such an injunction and to the ordering of specific
performance.
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<PAGE> 32
SECTION 7.5. SURVIVAL.
(a) The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive the Closing and
any delivery of Securities by Purchaser or CNC, irrespective of any
investigation made by or on behalf of any party, as follows:
(i) the representations and warranties contained in Articles II
and IV shall survive indefinitely;
(ii) the representations and warranties contained in Sections 3.2,
3.4(d) and 3.6 shall survive through the date of the expiration of the
applicable statutes of limitations (including any extensions thereof); and
(iii) all other representations and warranties contained in this
Agreement shall survive for a period of two (2) years from the date of Closing.
(b) The statements contained in any of the Operative Documents or
delivered to the Purchaser or CNC in connection with the transactions
contemplated hereby or thereby, or in any statement, certificate, or other
instrument delivered by or on behalf of any Acquired Entity, or any Stockholder
pursuant hereto or thereto or delivered to the Purchaser or CNC in connection
with the transactions contemplated hereby or thereby shall be deemed
representations and warranties, covenants and agreements, or conditions, as the
case may be, of Stockholders (jointly and not severally except as otherwise
expressly set forth herein or therein) hereunder for all purposes of this
Agreement (including all statements, certificates, or other instruments
delivered pursuant hereto or thereto or delivered in connection with the
transactions contemplated hereby or thereby).
SECTION 7.6. MODIFICATION. This Agreement, the Exhibits and Schedules
hereto, and the Operative Documents set forth the entire understanding of the
parties with respect to the subject matter hereof, supersede all existing
agreements among them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
SECTION 7.7. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested or by Federal Express, Express Mail, or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications equipment) against receipt to the
party to whom it is to be given at the address of such party set forth below (or
to such other address as the party shall have furnished in writing in accordance
with the provisions of this Section 7.7):
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<PAGE> 33
If to the Purchaser:
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Attn: Mr. Ronald E. Roark
Chairman
Telecopy: (614) 488-9780
With copies to:
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Attn: Stephen W. Brown, Esq.
Telecopy: (614) 488-9780
Powell, Goldstein, Frazer & Murphy
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Jonathan R. Shils, Esq.
Telecopy: (404) 572-6999
If to the Stockholders or the Acquired Corporations:
Eastern Realty Corporation
1568 Springhill Road
Suite 222
McLean, Virginia 22102
Attn: Jay N. Rollins, President
Telecopy: (703) 821-3625
With copies to:
Miller and Smith Holding, Inc.
1568 Springhill Road
Suite 401
McLean, Virginia 22102
Attn: Charles F. Stuart, Jr., Esq.
Telecopy: (703) 821-2040
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<PAGE> 34
Tucker, Flyer & Lewis
1615 L Street, N.W.
Suite 400
Washington D.C. 20036
Attn: Stuart M. Ginsberg, Esq.
Telecopy: (202) 429-3231
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 7.7. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which will be deemed given at the
time of receipt thereof. Any notice given by other means permitted by this
Section 7.7 shall be deemed given at the time of receipt thereof.
SECTION 7.8. WAIVER. Any waiver by any party of a breach of any term of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
SECTION 7.9. ACQUIRED ENTITY OBLIGATIONS. No Stockholder shall have any
rights against any Acquired Entity if a remedy is sought or obtained against any
Stockholder because both such Acquired Entity and one or more Stockholders
breach a representation, warranty, covenant, or agreement.
SECTION 7.10. BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of each Acquired Entity, the Purchaser,
and CNC and their respective successors and assigns and each Stockholder and his
heirs, executors, and administrators, and shall inure to the benefit of each
Purchaser Indemnitee and Stockholder Indemnitee and its successors and assigns
(if not a natural person) and his heirs, executors, and administrators (if a
natural person).
SECTION 7.11. NO THIRD PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement (except as provided in Section 7.10).
SECTION 7.12. SEPARABILITY. If any provision of this Agreement is
invalid, illegal, or unenforceable, the balance of this Agreement shall remain
in effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and circumstances.
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<PAGE> 35
SECTION 7.13. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 7.14. COUNTERPARTS; GOVERNING LAW. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance with
the laws of Delaware, without giving effect to the conflict of law principles
thereof.
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<PAGE> 36
[Signatures on following page]
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<PAGE> 37
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
CROWN NORTHCORP, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CNC HOLDING CORP.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
MILLER AND SMITH HOLDING, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
---------------------------------------------
GORDON V. SMITH
---------------------------------------------
ALVIN D. HALL
---------------------------------------------
SPENCER R. STOUFFER
<PAGE> 38
---------------------------------------------
RICHARD J. NORTH
---------------------------------------------
JAY N. ROLLINS
---------------------------------------------
CHARLES F. STUART, JR.
EASTERN REALTY CORPORATION
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EASTERN BALTIMORE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EASTERN REALTY L.L.C.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 39
SCHEDULE 1.1(C)
NUMBER OF SHARES OF
STOCKHOLDER AND SECURITIES TO BE SOLD OF
FOR SUCH PREFERRED STOCK PREFERRED STOCK
M&S
- ERC Shares
Smith
- Baltimore Shares
- ELLC Membership Interest
Hall
- Baltimore Shares
- ELLC Membership Interest
Stouffer
- Baltimore Shares
- ELLC Membership Interest
North
- Baltimore Shares
- ELLC Membership Interest
Rollins
- Baltimore Shares
- ELLC Membership Interest
Stuart
- Baltimore Shares
- ELLC Membership Interest
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<PAGE> 40
SCHEDULE 2.1(A)
LIST OF ERC SUBSIDIARIES, ERC INTERESTS,
AND CONTROLLED ERC ENTITIES AND INFORMATION
ABOUT THEM AND ERC
1. THE ERC INTERESTS:
Name of Issuer Type of Equity Interest Quantum of Equity Interest
Jurisdiction Principal Business Qualif. Cap. Ownership
Form of of Place of
Organization Organization Business
2. ERC SUBSIDIARIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
3. CONTROLLED ERC ENTITIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
4. OTHER OWNERSHIP INTERESTS:
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<PAGE> 41
SCHEDULE 2.1(B)
LIST OF BALTIMORE SUBSIDIARIES,
BALTIMORE INTERESTS, AND CONTROLLED BALTIMORE ENTITIES
AND INFORMATION ABOUT THEM AND BALTIMORE
1. THE BALTIMORE INTERESTS:
Name of Issuer Type of Equity Interest Quantum of Equity Interest
Jurisdiction Principal
Form of of Place of
Organization Organization Business Business Qualif. Cap. Ownership
2. BALTIMORE SUBSIDIARIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
3. CONTROLLED BALTIMORE ENTITIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
4. OTHER OWNERSHIP INTERESTS:
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<PAGE> 42
SCHEDULE 2.1(C)
LIST OF ELLC SUBSIDIARIES, ELLC INTERESTS,
AND CONTROLLED ELLC ENTITIES AND INFORMATION
ABOUT THEM AND ELLC
1. THE ELLC INTERESTS:
Name of Issuer Type of Equity Interest Quantum of Equity Interest
Jurisdiction Principal
Form of of Place of
Organization Organization Business Business Qualif. Cap. Ownership
2. ELLC SUBSIDIARIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
3. CONTROLLED ELLC ENTITIES:
Jurisdiction Principal
Form of of Place of
Name Organization Organization Business Business Qualif. Cap. Ownership
4. OTHER OWNERSHIP INTERESTS:
-viii-
<PAGE> 43
SCHEDULE 2.1(D)
ORGANIZATIONAL CHART OF THE ACQUIRED CORPORATIONS,
THE SUBSIDIARIES, THE CONTROLLED ENTITIES,
AND THE INTERESTS
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<PAGE> 44
SCHEDULE 2.2
OWNERSHIP OF THE ACQUIRED CORPORATIONS
-x-
<PAGE> 45
SCHEDULE 2.4(D)
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<PAGE> 46
SCHEDULE 3.1
DELIVERED FINANCIAL STATEMENTS
-xii-
<PAGE> 47
SCHEDULE 3.3
LITIGATION
-xiii-
<PAGE> 48
SCHEDULE 3.4(B)
LIST OF PROPERTY OWNED, LEASED, OR LICENSED
<TABLE>
<CAPTION>
Net Book
Tax Reserve for Value Acquired Since
Description of Depreciation for Financial Last Balance
Property Owned Cost Tax Book Value (Except for Land) Reporting Sheet Date
- ----------------------- ---- -------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Description of Property Description of Lease or License
Leased or Licensed
</TABLE>
-xiv-
<PAGE> 49
SCHEDULE 3.4
ENVIRONMENTAL LAWS
-xv-
<PAGE> 50
SCHEDULE 3.5
LIST OF CONTRACTS, AGREEMENTS, INSTRUMENTS, AND ARRANGEMENTS
Where no such instrument exists, the Stockholders have inserted the word "none."
(a) Specimen copies of standard transaction terms and warranties.
(b) Sale, purchase, and lease agreements with an aggregate sale, purchase, or
lease price in excess of $1,000.
(c) Agreements for the acquisition of businesses and joint venture agreements.
(d) Brokerage agreements, model home conversion agreements, agreements with
finders and brokers, and other agency agreements.
(e) Bank credit, factoring, and loan agreements, indentures, promissory notes,
and other evidences of indebtedness (excluding invoices and like evidences of
regular trade indebtedness), and letters of credit; and all consents or waivers
relating to any of the foregoing.
(f) Liens, mortgages, security interests, pledges, charges, easements, and other
encumbrances; and all documents purporting to create any of the foregoing.
(g) Insurance policies (including all under which any Acquired Corporation, any
Subsidiary, any Controlled Entity, or any Stockholder is a beneficiary).
(h) Consent decrees, judgments, orders, settlement agreements, or agreements
relating to competitive activities which require or prohibit any future action
by any Acquired Corporation, any Subsidiary, any Controlled Entity, or any
Stockholder or to which any of them or any of their respective businesses,
properties, or assets are or may be subject.
(i) Contracts, agreements, instruments, leases, licenses, arrangements, or
understandings with any Affiliated Transaction Person.
(j) Rights of way, proffers, PUD plans, market studies, appraisals,
environmental studies, and soil reports.
(k) Government contracts, permits, franchises, and inspection reports.
(l) Powers of attorney and letters of authorization.
(m) Bank accounts, escrows, and safe deposit boxes, and persons authorized to
draw thereon or having access thereto.
-xvi-
<PAGE> 51
(n) Deeds.
(o) Consents necessary for the execution, delivery, or performance of this
Agreement or any Operative Document by any Acquired Corporation, any Subsidiary,
any Controlled Entity, or any Stockholder, or for the transfer of the owner of
any Interest to the Purchaser or CNC contemplated by this Agreement or any of
the Operative Documents.
(p) Guarantees or undertakings.
(q) Any management, advisory, consulting, engineering, designing, utility, or
other agreement not listed above.
(r) Contracts, agreements, and instruments not listed above which are of
material importance in the conduct of the business of any Acquired Corporation,
any Subsidiary, or any Controlled Entity as currently conducted.
(s) Reports or memoranda relating to broad aspects of the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of any Acquired Corporation or of any Subsidiary or Controlled Entity
made within the last five years.
(t) Other reports, opinions, or appraisals of any property or asset of any
Acquired Corporation or any Subsidiary or Controlled Entity made in the last ten
years.
(u) Any agreements, instruments, or other documents through which any of the
Acquired Corporations or the Subsidiaries exercises control over any Controlled
Entity.
The following is a list of arrangements and understandings relating to financial
matters, regardless in each case of whether or not such arrangements or
understandings are in contractual or written form:
The following are other material contracts to which any of the Acquired
Corporations, the Subsidiaries, or the Controlled Entities are parties or to
which any of their respective properties or assets are subject:
-xvii-
<PAGE> 52
SCHEDULE 3.6
EMPLOYEE BENEFITS
-xviii-
<PAGE> 53
SCHEDULE 3.7
LIST OF INTANGIBLES OWNED AND LICENSED
<TABLE>
<CAPTION>
Description of
Intangible Owned
or for Which Net Book Value Acquired Since
Application is Tax Reserve for for Financial Last Balance
Pending Cost Tax Book Value Depreciation Reporting Sheet Date
- ---------------- ---- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Description of Intangible Licensed Description of License
</TABLE>
The following rights under Intangibles are necessary to the business of any
Acquired Corporation or of any Subsidiary or Controlled Entity:
-xix-
<PAGE> 54
SCHEDULE 3.9(A)
GOVERNMENTAL CONSENTS
-xx-
<PAGE> 55
SCHEDULE 3.9(B)
CONTRACTUAL CONSENTS
-xxi-
<PAGE> 56
SCHEDULE 3.10
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO CONTROLLED
ENTITIES AS TO DELINQUENT TAXES, ASSESSMENTS, ETC.
-xxii-
<PAGE> 57
CROSS REFERENCES -- PLEASE DO NOT DELETE!!!
1.1 Terms
2.1 organization
2.2 capitalization
2.3 financialcondition
2.6 Properties
2.7 contracts
2.9 Patents
2.11 authoritytosell
2.14 Validityofissuance
3.5 Validity
4.16 employmentagreement
7.1 indemnification
7.2 indemnificationellc
7.3 indemnificationstockholders
7.4 indemnificationpurchaser
7.5 assertingclaims
7.7 arbitration
8.6 appointmentagent
8.8 notices
8.11 bindingeffect
-xxiii-
<PAGE> 1
EXHIBIT 10.40
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is by and among MILLER AND SMITH HOLDING, INC., GORDON V.
SMITH, ALVIN D. HALL, SPENCER R. STOUFFER, RICHARD J. NORTH, JAY N.
ROLLINS, AND CHARLES F. STUART, JR. (each, a "Holder," and collectively, the
"Holders"), and CROWN NORTHCORP, INC., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, each of the Holders will receive the number of shares of
Preferred Stock set forth opposite his name on Exhibit A attached hereto and
hereby made a part hereof as consideration for of all of the Equity Interests
upon the consummation of the Acquisition pursuant to the Purchase Agreement; and
WHEREAS, the Preferred Stock is convertible into shares of the Common
Stock upon the terms and conditions set forth in the Certificate of Designation;
and
WHEREAS, in order to induce the Holders to consummate the Acquisition
pursuant to the Purchase Agreement, the Company desires to grant the Holders
certain registration rights as more fully provided for herein;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. The following terms shall have the following
meanings:
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation of
Series A Preferred Stock, Par Value $.01 Per Share, of the Company relating to
the Preferred Stock, as filed with the Secretary of State of the State of
Delaware on October 1, 1996.
"CERTIFICATE OF INCORPORATION" means the Certificate of Incorporation
of the Company, as amended and as in effect on the date hereof.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"COMMISSION" means the Securities and Exchange Commission or any
similar federal agency then having jurisdiction to enforce the Securities Act
and other federal securities laws.
"NASD" means the National Association of Securities Dealers, Inc. or
any successor corporation thereto.
<PAGE> 3
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof), or other entity of
any kind.
"PREFERRED STOCK" means the Company's Series A Convertible Preferred
Stock, par value $.01 per share.
"PURCHASE AGREEMENT" means that certain Stock Purchase Agreement, dated
as of the date of this Agreement, between and among the Company, CNC Holding
Corp., the Holders, Eastern Realty Corporation, Eastern Baltimore, Inc., and
Eastern Realty L.L.C.
"REGISTRABLE SECURITIES," collectively, means (i) the Shares, (ii) any
shares of Common Stock hereafter distributed to the holders of the Registrable
Securities by the Company as a stock dividend with respect to the Shares or
otherwise thereon, and (iii) any equity securities of the Company convertible
into, or exercisable or exchangeable for, any of the shares of Common Stock
identified in the foregoing clauses (i) through (ii); provided, however, that
any such securities shall cease to be Registrable Securities when (i) such
securities shall have been registered under the Securities Act, the Registration
Statement with respect to the sale of such securities shall have become
effective under the Securities Act, and such securities shall have been disposed
of pursuant to such effective registration statement, (ii) such securities shall
have been otherwise transferred, if new certificates or other evidences of
ownership for them not bearing a legend restricting further transfer and not
subject to any stop transfer order or other restrictions on transfer shall have
been delivered by the Company and subsequent disposition of such securities
shall not require registration or qualification of such securities under the
Securities Act or any state securities law then in force, or (iii) such
securities shall cease to be outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rule and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"SHARES" means the shares of Common Stock or other equity securities
issued to each of the Holders upon conversion of all of the Preferred Stock
issued to them pursuant to the Purchase Agreement (as set forth on Exhibit A
attached hereto).
"TERM" shall have the meaning ascribed thereto in the Certificate of
Designation.
-2-
<PAGE> 4
SECTION 2. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. On one occasion during the Term, all (and
not less than all) of the Holders may request in writing that the Company
register all (and not less than all) of the Registrable Securities for resale
under this Section 2(a). The Company shall thereupon use commercially reasonable
efforts to effect the registration of the Registrable Securities under the
Securities Act. No registration hereunder shall count as a registration under
this Section 2(a) unless it shall have been declared effective, and each holder
must convert his Preferred Stock issued to him pursuant to the Purchase
Agreement (as set forth on Exhibit A hereto) into Shares prior to the effective
date of the registration.
(b) INCIDENTAL REGISTRATION.
(i) If the Company at any time proposes to file on its behalf
and/or on behalf of any of its security holders (the "registering
security holders") a Registration Statement under the Securities Act on
any form (other than a Registration Statement on Form S-4 or S-8 or any
related small business form or any successor form for securities to be
offered in a transaction of the type referred to in Rule 145 under the
Securities Act or to employees of the Company pursuant to any employee
benefit plan, respectively) for the general registration of securities
to be sold for cash with respect to its Common Stock or any other class
of equity security of the Company, it will give written notice to all
Holders at least 45 days before the initial filing with the Commission
of such Registration Statement, which notice shall set forth the
intended method of disposition of the securities proposed to be
registered by the Company. The notice shall offer to include in such
filing the aggregate number of shares of Registrable Securities as such
Holder may request.
(ii) Each Holder desiring to have Registrable Securities
registered under this Section 2(b) must advise the Company in writing
within 10 days after the date of receipt of such offer from the
Company, setting forth the amount of such Registrable Securities for
which registration is requested. The Company shall thereupon include in
such filing the number of shares of Registrable Securities for which
registration is so requested, subject to the next sentence, and shall
use commercially reasonable efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a
proposed public offering shall advise the Company in writing that, in
its opinion, the distribution of the Registrable Securities so
requested to be included in the registration concurrently with the
securities being registered by the Company or such registering security
holder would materially and adversely affect the distribution of such
securities by the Company or such registering security holder, then all
selling security holders (other than the Company) shall reduce the
amount of securities each intended to distribute through such offering
on a pro rata basis (such event is hereinafter referred to as a
"Reduction Event").
-3-
<PAGE> 5
(iii) Notwithstanding any provision of this Agreement to the
contrary, each Holder may include shares of Registrable Securities in
any registration of stock under this Agreement on a maximum of two
occasions.
(c) REGISTRATION PROCEDURES. If the Company is required by the
provisions of Section 2 to use its reasonable commercial efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such securities and use its commercially
reasonable efforts to cause such Registration Statement to become and
remain effective for a period of time required for the disposition of
such securities by the Holders thereof, but not to exceed 180 days;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of any securities
covered by such Registration Statement until the earlier of such time
as all of such securities have been disposed of in a public offering or
the expiration of 180 days;
(iii) furnish to such Holders such number of copies of a
summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents, as such Holders may reasonably request;
(iv) use its commercially reasonable efforts to register or
qualify the securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as each Holder of such securities shall
request (provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified or to file any general
consent to service of process), and do such other reasonable acts and
things as may be required of it to enable such Holder to consummate the
disposition in such jurisdiction of the securities covered by such
Registration Statement;
(v) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of the Registrable Securities owned by such Holder and covered by such
Registration Statement;
(vi) otherwise use its reasonable commercial efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
but not less than 18 months after the effective
-4-
<PAGE> 6
date of the Registration Statement, an earnings statement covering the
period of at least 12 months beginning with the first full month after
the effective date of such Registration Statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(vii) permit counsel to the Holders to inspect and copy such
public corporate documents as reasonably requested.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 2 in respect of the securities which
are to be registered at the request of any holder of Registrable Securities that
such holder shall furnish to the Company such information regarding the
securities held by such holder and the intended method of disposition thereof as
the Company shall reasonably request and as shall be required under the
Securities Act in connection with the action taken by the Company and that such
holder shall execute such agreements, instruments, and other documents in
connection with such registration (including, without limitation, an escrow
agreement relating to such securities) as the Company may reasonably request.
SECTION 3. REGISTRATION EXPENSES. All expenses incurred in complying
with Section 2 of this Agreement, including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
NASD), printing expenses, fees and disbursements of counsel for the Company,
expense of any special audits incident to or required by such registration, time
charges of Company personnel, and expenses of complying with the securities or
blue sky laws of any jurisdictions pursuant to Section 2(c), shall be paid by
the Company, except that:
(a) all such expenses in connection with any amendment or supplement to
the Registration Statement or prospectus filed more than 120 days after the
effective date of such Registration Statement because any holder of Registrable
Securities has not effected the disposition of the securities requested to be
registered shall be paid by such holder;
(b) the Company shall not be liable for any fees, discounts, or
commissions to any underwriter in respect of the securities sold by such holder
of Registrable Securities; and
(c) the Company shall not be liable for any fees or expenses of counsel
to holders.
SECTION 4. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company shall indemnify and hold harmless the Holder of such
Registrable Securities against any losses, claims, damages, or liabilities,
joint or several, to which such Holder may become subject under the Securities
Act or any other statute or at common law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary
-5-
<PAGE> 7
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse such holder for any legal or any other expenses reasonably
incurred by such Holder in connection with investigating or defending any such
loss, claim, damage, or liability; provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon any alleged untrue statement or alleged
omission made (x) in such Registration Statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such holder or underwriter
specifically for use therein, or (y) in such Registration Statement, preliminary
prospectus, or amendment or supplement but corrected in such final prospectus if
such final prospectus was not delivered to the Person alleging such loss, claim,
damage, or liability. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder, and shall
survive the transfer of such securities by such Holder.
(b) Each holder of any Registrable Securities, by acceptance thereof,
agrees to indemnify and hold harmless the Company, its directors and officers,
and each other Person, if any, who controls the Company within the meaning of
the Securities Act against any losses, claims, damages, or liabilities, joint or
several, to which the Company or any such director or officer or any such Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement (or alleged
untrue statement) of material fact or any omission (or alleged omission) to
state a material fact required to be stated or necessary to make statements
therein not misleading provided to the Company in writing by such holder of such
Registrable Securities specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement under
which securities were registered under the Securities Act at the request of such
holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto (collectively, "Disclosure Documents"). If a
holder provides a notice to the Company of its intent to review the Disclosure
Documents along with a facsimile number to receive such Disclosure Documents,
the Company shall provide via facsimile to each holder copies of the Disclosure
Documents. Each holder, at his own expense, shall have 24 hours from the time
that the Company transmits such Disclosure Documents to provide written comments
to the Company regarding the Disclosure Documents.
(c) (i) If the indemnification provided for in this Section 4 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities, or expenses
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities, or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
the indemnified parties in connection with the actions which resulted
in such losses, claims, damages, liabilities, or expenses, as well as
any other relevant equitable
-6-
<PAGE> 8
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, as well as
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities, and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4(c) were determined
by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in Section
4(c)(i). No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not also guilty of such fraudulent
misrepresentation.
SECTION 5. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding
the other provisions of this Agreement, the Company shall not be obligated to
register the Registerable Securities of any holder if, in the opinion of Powell,
Goldstein, Frazer & Murphy or such other counsel to the Company reasonably
satisfactory to the holder and its counsel (or, if the holder has engaged an
investment banking firm, to such investment banking firm and its counsel), the
sale or other disposition of such holder's Registrable Securities, in the manner
proposed by such holder (or by such investment banking firm), may be effected
without registering such Registrable Securities under the Securities Act.
SECTION 6. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities (as that term is used in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to:
(a) make and keep public information available pursuant to Rule 144(c)
under the Securities Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act at any time after it has become subject to such
reporting requirements; and
(c) so long as any Holder owns any restricted securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the Securities
Act and Securities Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
-7-
<PAGE> 9
filed by the Company as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
SECTION 7. MISCELLANEOUS
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified, or supplemented,
and waivers or consents to departure from the provisions thereof may not be
given, without the prior written consent of the parties hereto.
(b) NOTICES. Any notice, demand, request, consent, approval,
declaration, or other communication hereunder to be made pursuant to the
provisions of this Agreement, shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Holders, to the address specified on the
signature page of this Agreement.
(ii) If to the Company:
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Attn: Stephen W. Brown
Secretary
With a copy to:
Powell, Goldstein, Frazer & Murphy
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Jonathan R. Shils
(iii) If to any holder of Registrable Securities other than
the Holders, at its last known address appearing on the books of the
Company maintained for such purpose, or at such other address as may be
substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery, or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) business days after the same
shall have been deposited in the United States mail.
-8-
<PAGE> 10
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties hereto. This Agreement may be assigned by the Company to any successor
to the Company without the consent of any Holder. This Agreement may not
otherwise be assigned by the Company without the prior written consent of a
majority of the Holders, which consent shall not be unreasonably delayed or
withheld. A Holder may assign all or any part of his rights hereunder in
accordance with the terms of this Agreement and applicable securities laws. If a
Holder transfers less than all of his Registerable Securities, the transferee
holders must reimburse the Company for any additional expense incurred by the
Company (as reasonably determined by the Company) in connection with the
Company's registration of the transferee holder's Registerable Securities
pursuant to Section 2(b) of this Agreement.
(d) HEADINGS. The headings in this Agreement are for convenience of
reference only, and shall not limit or otherwise affect the meaning thereof.
(e) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware, without regard to the provisions thereof relating to conflict
of laws.
(f) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(g) ENTIRE AGREEMENT. This Agreement represents the complete agreement
and understanding of the parties in respect of the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
(h) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, and all of which, when
taken together, shall constitute one and the same Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-9-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MILLER AND SMITH HOLDING, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
--------------------------------------
GORDON V. SMITH
Address:
-----------------------------
-----------------------------
-----------------------------
--------------------------------------
ALVIN D. HALL
Address:
-----------------------------
-----------------------------
-----------------------------
--------------------------------------
SPENCER R. STOUFFER
Address:
-----------------------------
-----------------------------
-----------------------------
--------------------------------------
RICHARD J. NORTH
Address:
-----------------------------
-----------------------------
-----------------------------
-10-
<PAGE> 12
--------------------------------------
JAY N. ROLLINS
Address:
-----------------------------
-----------------------------
-----------------------------
--------------------------------------
CHARLES F. STUART, JR.
Address:
-----------------------------
-----------------------------
-----------------------------
CROWN NORTHCORP, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-11-
<PAGE> 13
EXHIBIT A
<TABLE>
<CAPTION>
NAME OF HOLDER NUMBER OF SHARES OF PREFERRED STOCK
<S> <C>
MILLER AND SMITH HOLDING, INC. 207.72
GORDON V. SMITH 112.61
ALVIN D. HALL 17.35
SPENCER R. STOUFFER 17.35
RICHARD J. NORTH 17.35
JAY N. ROLLINS 68.77
CHARLES F. STUART, JR. 8.85
</TABLE>
-12-
<PAGE> 1
EXHIBIT 10.41
<PAGE> 2
No. W-007 October 1, 1996
THE SECURITIES REPRESENTED BY THIS WARRANT AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE
SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR
PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933
ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE
SECURITIES ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED, NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN
EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH
SECURITIES.
WARRANT TO PURCHASE 2,935.88 SHARES OF COMMON STOCK
1. Grant of Warrant.
(a) Crown NorthCorp, Inc. (the "Company"), a Delaware corporation,
hereby agrees that ______________________ (the "Holder") is entitled, subject to
the provisions of this Warrant, to purchase from the Company, at any time or
from time to time, during the period commencing on the date hereof and expiring
at 5:00 p.m. Columbus, Ohio time, on the third anniversary of the date of this
Warrant (the "Expiration Date"), up to ________ fully paid and non-assessable
shares of Common Stock at a price of $0.75 per share (the "Exercise Price").
(b) The term "Common Stock" means the Common Stock, $.01 par value
per share, of the Company as constituted on the date hereof, together with any
other equity securities that may be issued by the Company in substitution
therefor. The number of shares of Common Stock to be received upon the exercise
of this Warrant may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter referred to as "Warrant Stock." The term "Company"
means and includes the corporation named above as well as (i) any successor
corporation resulting from the merger or consolidation of such corporation with
another corporation, or (ii) any corporation to which such corporation has
transferred its property or assets as an entirety or substantially as an
entirety.
2. Exercise of Warrant. Subject to the limitations set forth in Section
5 hereof, this Warrant may be exercised in whole or in part at any time or from
time to time during the period commencing on the date hereof and expiring 5:00
p.m. Columbus, Ohio time, on the Expiration Date or, if such day is a day on
which banking institutions in Ohio are authorized by law to close, then on the
next succeeding day that shall not be such a day, by presentation and surrender
of this Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company) of the Exercise Price
for the number of shares specified in such form. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder. Upon
receipt by the Company of this Warrant, together with the Exercise Price, at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
3. Reservation of Shares. The Company will at all times reserve for
issuance and delivery all shares of Common Stock issuable upon exercise of this
Warrant. All such shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable and free of all
preemptive rights. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant, but the Company shall pay the
Holder an amount equal to the applicable Exercise Price multiplied by such
fraction in lieu of each fraction of a shares otherwise called for upon any
exercise of this Warrant.
4. Adjustments.
(a) Capital Adjustments. The number of shares of Warrant Stock and
the Exercise Price shall be deemed automatically adjusted equitably and
proportionately to reflect any stock dividend, stock split, reverse stock
dividend or reverse stock split, or any recapitalization of the Company.
<PAGE> 3
(b) Business Combinations. If the Company is a party to a merger,
sale of all or substantially all of its assets, share exchange or other similar
business combination transaction, this Warrant shall pertain and apply to the
securities and/or other property to which the holder of the number of shares of
stock of the Company covered by this Warrant would have been entitled had this
Warrant then been exercised in whole.
(c) Notice to Warrant Holder of Adjustment. Whenever the number of
shares of Warrant Stock or the Exercise Price is adjusted as herein provided,
the Company shall cause to be mailed to the Holder in accordance with the
provisions of this Section 4 a notice (i) stating that an event giving rise to
an adjustment hereunder has occurred, (ii) setting forth the adjusted number of
shares of Warrant Stock and the adjusted Exercise Price and (iii) showing in
reasonable detail the computations and the facts upon which such adjustments are
based.
5. Restrictions on Exercise Imposed by Federal and State Securities
Laws. The Holder hereby acknowledges that neither this Warrant nor any of the
securities that may be acquired upon exercise of this Warrant have been
registered or qualified under the 1933 Act or under the securities laws of any
state. The Holder acknowledges that, upon exercise of this Warrant, the
securities to be issued upon such exercise may be subject to applicable federal
and state securities (or other) laws requiring registration, qualification or
approval of governmental authorities before such securities may be validly
issued or delivered upon notice of such exercise. The Holder agrees that the
issuance of such securities may be deferred until the issuance or sale of such
securities shall be lawful in all respects. The restrictions imposed by this
Section 5 upon the exercise of this Warrant shall cease and terminate as to any
particular shares of Warrant Stock (i) when such securities shall have been
effectively registered and qualified under the 1933 Act and all applicable state
securities laws and disposed of in accordance with the registration statement
covering such securities, or (ii) when, in the opinion of counsel for the
Company, such restrictions are no longer required in order to insure compliance
with the 1933 Act and all applicable state securities laws.
6. Legends. Unless (i) the shares of Warrant Stock have been registered
under the 1933 Act, or (ii) in the opinion of counsel for the Company such
legend is no longer required in order to ensure compliance with the 1933 Act and
all applicable state securities laws, upon exercise of any of the Warrants and
the issuance of any of the shares of Warrant Stock, all certificates
representing such shares shall bear on the face thereof substantially the
following legend:
The securities represented by this certificate have not
been registered or qualified under the Securities Act of
1933, as amended (the "1933 Act"), or under the provisions
of any applicable state securities laws, but have been
acquired by the registered holder hereof for purposes of
investment and in reliance on statutory exemptions under
the 1933 Act, and under any applicable state securities
laws. These securities may not be sold, pledged,
transferred or assigned, except in a transaction which is
exempt under provisions of the 1933 Act and any applicable
state securities laws or pursuant to an effective
registration statement; and in the case of an exemption,
only if the Company has received an opinion of counsel
satisfactory to the Company that such transaction does not
require registration of any such securities.
7. Notices of Record Date, Etc. In case:
(a) the Company shall establish a record date for the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or to receive any other
right;
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, any share exchange for
shares of capital stock of another corporation or any conveyance of all or
substantially all of the assets of the Company to another corporation;
(c) of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
-2-
<PAGE> 4
(d) the Company shall enter into a letter of intent or agreement
with respect to a transaction by which all of the outstanding shares of Common
Stock of the Company are to be acquired by a third party;
then the Company shall mail or cause to be mailed to each Holder at the time
outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
and stating the amount and character of such dividend, distribution or rights,
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the time, if any is to be fixed, as to which the holders of record of Common
Stock shall be entitled to exchange their shares for securities or other
property deliverable upon the completion of such transaction, or (iii) the
closing of the acquisition by a third party of all of the outstanding shares of
Common Stock. Such notice shall be mailed as soon as practicable after the
occurrence or likelihood of such event is publicly disclosed.
8. Transfer and Assignment.
(a) Except as set forth in Section 8(b), neither this Warrant nor
any rights hereunder may be assigned, transferred, pledged or hypothecated in
any way (whether by operation of law or otherwise). This Warrant shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this Warrant contrary to
the provisions of this Agreement shall be null and void and without legal
effect.
(b) The Holder may assign or transfer this Warrant; provided,
however, that prior to such assignment or transfer the Holder provides to the
Company evidence satisfactory to the Company that the proposed transfer will be
effected in compliance with all applicable laws, including without limitation
federal and state securities laws.
9. Notices. All notices required hereunder must be in writing and shall
be deemed given when telefaxed, delivered personally or within three days after
mailing when mailed by certified or registered mail, return receipt requested,
if to the Company, at 1251 Dublin Road, Columbus, Ohio 43215, and if to the
Holder, at the address for the registered Holder as it appears on the books of
the Company, or at such other address of which the Company or Holder has been
advised by notice hereunder.
10. Rights as a Shareholder. The Holder shall have no rights as a
shareholder with respect to any shares covered by this Warrant until the date of
issuance of such shares.
11. Lost or Destroyed Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. The Holder agrees with the Company that this Warrant is
issued, and all the rights hereunder shall be held subject to, all of the
conditions, limitations and provisions set forth herein.
12. Applicable Law. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Delaware.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-3-
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, as of the day
and year first above written.
CROWN NORTHCORP, INC.
By:
-----------------------------------
Print Name:
---------------------------
Title:
--------------------------------
[CORPORATE SEAL]
Attest:
-----------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
-4-
<PAGE> 6
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing shares of Common Stock of Crown
NorthCorp, Inc., a Delaware corporation, and hereby makes payment of
$ in payment therefor.
-----------------------------------
Signature
-----------------------------------
Signature, if jointly held
Date:
-----------------------
********************************************************************************
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant)
Name
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------------------------------------------
Social Security or Taxpayer Identification Number
------------------------------
********************************************************************************
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns and
Name (please typewrite or print in block letters)
transfers unto the right to purchase Common Stock of Crown NorthCorp, Inc., a
Delaware corporation, represented by this Warrant to the extent of shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint , Attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Dated:
---------------------
-----------------------------------
Signature
-----------------------------------
Signature, if jointly held
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 390,265
<SECURITIES> 0
<RECEIVABLES> 3,110,624
<ALLOWANCES> 93,384
<INVENTORY> 0
<CURRENT-ASSETS> 3,590,750
<PP&E> 3,065,479
<DEPRECIATION> 1,010,554
<TOTAL-ASSETS> 6,685,699
<CURRENT-LIABILITIES> 3,496,625
<BONDS> 1,330,000
<COMMON> 82,500
0
0
<OTHER-SE> 1,776,574
<TOTAL-LIABILITY-AND-EQUITY> 6,685,699
<SALES> 0
<TOTAL-REVENUES> 7,918,496
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,051,750
<LOSS-PROVISION> 3,597
<INTEREST-EXPENSE> 156,627
<INCOME-PRETAX> (4,293,478)
<INCOME-TAX> (1,248,978)
<INCOME-CONTINUING> (3,044,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,044,500)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
