<PAGE>
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: March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
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(Address of principal executive offices)
(614) 488-1169
---------------------------
(Issuer's telephone number)
N/A
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(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 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 April 30, 1998, the issuer had 10,990,899 shares of its common stock,
par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one). Yes No X
---- ----
<PAGE>
CROWN NORTHCORP, INC.
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
PART I.
PAGES
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997........................................ 1
Condensed Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997................... 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 .................. 3
Notes to Consolidated Financial Statements-
March 31, 1998 and 1997 ..................................... 5
Item 2. Management's Discussion and Analysis or Plan of
Operation.................................................... 8
PART II.
Item 1. Legal Proceedings............................................ 13
Item 2. Changes in Securities........................................ 13
Item 3. Defaults Upon Senior Securities.............................. 13
Item 4. Submission of Matters to a Vote of Security Holders ......... 13
Item 5. Other Information............................................ 14
Item 6. Exhibits and Reports on Form 8-K ............................ 14
(a) Exhibits ............................................... 14
(b) Reports on Form 8-K .................................... 14
Signature.............................................................. 15
Exhibit Index.......................................................... 16
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1998 AND DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $5,374,170 $735,940
Accounts receivable - net of allowance of $30,000 1,716,063 1,672,306
Prepaid expenses and other assets 246,972 275,283
----------- -----------
Total current assets 7,337,205 2,683,529
PROPERTY AND EQUIPMENT - Net 2,048,400 2,014,746
RESTRICTED CASH 4,570,893 4,550,766
OTHER ASSETS - net 2,866,233 2,171,572
----------- -----------
TOTAL $16,822,731 $11,420,613
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES 1,983,179 2,143,011
LONG-TERM OBLIGATIONS:
Notes and bonds payable - less current portion 2,426,061 2,563,550
Allowance for loan losses & other 1,350,811 1,385,721
----------- -----------
Total long-term obligations 3,776,872 3,949,271
REDEEMABLE PREFERRED STOCK 2,000,000 2,000,000
SHAREHOLDERS' EQUITY:
Common stock 110,310 108,310
Convertible preferred stock:
Series AA - -
Series BB - -
Additional paid-in capital 9,938,331 4,209,752
Accumulated deficit (972,597) (976,367)
Treasury stock, at cost (13,364) (13,364)
----------- -----------
Total shareholders' equity 9,062,680 3,328,331
----------- -----------
TOTAL $16,822,731 $11,420,613
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Management fees $ 507,143 $1,047,814
Disposition fees 446,662 174,140
Incentive fees 608,625 159,082
Other 329,820 298,675
---------- ----------
Total revenues 1,892,250 1,679,711
---------- ----------
EXPENSES:
Personnel 1,539,426 1,730,671
Occupancy, insurance and other 169,301 627,748
Interest 71,657 78,170
Depreciation and amortization 88,696 118,961
Employment contract settlement - 206,563
---------- ----------
Total expenses 1,869,080 2,762,113
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 23,170 (1,082,402)
INCOME TAX (BENEFIT) 19,400 (182,563)
---------- ----------
NET INCOME (LOSS) $ 3,770 $ (899,839)
---------- ----------
---------- ----------
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ - $ (0.10)
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,770 $ (899,839)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 112,688 118,960
Decrease in reserve for loan losses (200,000)
Accrued abandonment cost settlement (100,000)
Other - net (39,965)
Change in operating assets and liabilities - net of effects from purchases and divestitures
of subsidiaries:
Accounts receivable (43,757) 275,420
Prepaid expenses and other assets 28,311 (45,518)
Accounts payable and accrued expenses (432,590) 129,093
---------- ----------
Net cash used in operating activities (631,578) (461,849)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for corporate acquisitions and mergers (1,606,855)
Purchase of property and equipment (99,841) (49,735)
Other 3,800 (222,590)
---------- ----------
Net cash used in investing activities (96,041) (1,879,180)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,031,000 3,581,286
Principal payments on notes payable (795,730) (1,971,173)
Proceeds from issuance of common stock 126,000 954,569
Proceeds from issuance of preferred stock 5,604,579
Increase in long term contract receivable (600,000) (72,793)
---------- ----------
Net cash provided by financing activities 5,365,849 2,491,889
---------- ----------
NET INCREASE IN CASH DURING THE QUARTER 4,638,230 150,860
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 735,940 587,080
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $5,374,170 $ 737,940
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SUPPLEMENTAL INFORMATION
CASH PAID FOR INTEREST $63,163 $69,729
------- ---------
------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
CORPORATE ACQUISITIONS:
Accounts receivable $16,983
Restricted cash 1,358,735
Other assets 591,137
Loan loss reserve (360,000)
---------
Net assets acquired, net of acquired cash 1,606,855
---------
---------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
1. GENERAL AND BASIS OF PRESENTATION
The accompanying unaudited condensed 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, 1997. Certain
reclassifications have been made to the 1997 amounts to conform to the 1998
presentation.
2. EARNINGS (LOSS) PER COMMON SHARE
The components of basis and diluted earnings per share for the three months
ended March 31, 1998 are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
NET INCOME $3,770
BASIC EPS
Income available to common shareholders $3,770 10,855,333
Effect of dilutive securities:
Convertible preferred stock 4,228,845 $ -
Warrants 561,329
Contingent shares - 195,000
------ ----------
DILUTED EPS
Income available to common shareholders
and assumed conversions $3,770 15,840,507 $ -
------ ---------- ------
------ ---------- ------
</TABLE>
The loss per share for the three months ended March 31, 1997 is computed
based on the loss applicable to common stock after deducted Series A
Preferred stock dividends divided by the weighted average number of common
shares outstanding during the period. As the Company had a net loss for
the three months ended March 31, 1997 there are no potential common shares
to be included in the computation of diluted per-share amount.
5
<PAGE>
3. PROPERTY & EQUIPMENT
Property and equipment consists of the following at March 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 271,845 $ 271,845
Building and improvements 1,137,112 1,137,112
Furniture and equipment 1,497,600 1,397,760
---------- ----------
Total property and equipment 2,906,557 2,806,717
Less accumulated depreciation (858,157) (791,971)
---------- ----------
Property and equipment - net $2,048,400 $2,014,746
---------- ----------
---------- ----------
</TABLE>
4. STOCKHOLDERS' EQUITY
In March 1997, the Company entered into a stock purchase agreement (the
"Harbert SPA") with Harbert Equity Fund I, L.L. C. ("Harbert Fund") to
invest up to $5 million in Common Stock. The Harbert Fund invested $1
million in the Company in March 1997 and additional sums in October and
December 1997. On December 31, 1997 the Company and the Harbert Fund
entered into Amendment No. 2 to the SPA (the "SPA Amendment") pursuant to
which the Harbert Fund purchased one share of the Company's Series AA
Non-Voting Convertible Preferred Stock, par value $.01 per share (the
"Series AA Preferred") on the terms and conditions set forth in the SPA
Amendment. The shareholder is entitled to a non-cumulative dividend at the
rate of 5% per annum on the liquidation preference. The liquidation
preference is $3,647,185, plus a 12% cumulative dividend from January 26,
1998, the date the transaction was consummated. The holders of the Series
AA Preferred have the option to convert the Series AA Preferred into
3,473,510 shares of the Common Stock at any time. The Company has the
option to convert the Series AA Preferred upon the occurrence of certain
stipulated events. Provided that the Harbert Fund continues to hold all of
the Series AA Preferred, if the stipulated events have not occurred by
June 30, 1998, then the Harbert Fund shall have the right to designate a
majority of the Company's Board of Directors. The Company has the right to
redeem the Series AA Preferred upon thirty days' written notice for the
liquidation preference provided, however, that upon receipt of a redemption
notice, the holders of the Series AA Preferred have the right to convert
the Series AA Preferred to 3,473,510 shares of Common Stock.
In March 1998, the Company entered into a stock purchase agreement the (the
"Conti SPA") with an affiliate of ContiFinancial Corporation ("Conti")
whereby Conti invested $2 million in exchange for one share of the
Company's Non-Voting Series BB Convertible Preferred Stock, par value $.01
per share (the "Series BB Preferred") on the terms and conditions set forth
in the Conti SPA, and a warrant to purchase up to 200,000 shares of the
Company's common stock. The liquidation preference is $2,000,000, plus a
12% cumulative dividend from the issuance date. The holders of the Series
BB Preferred have the option to convert the Series BB Preferred
6
<PAGE>
into 1,000,000 shares of the Common Stock at any time. The Company has
the option to convert the Series BB Preferred upon the occurrence of
certain stipulated events. The Company has the right to redeem the
Series BB Preferred upon thirty days' written notice for the liquidation
preference provided, however, that upon receipt of a redemption notice,
the holders of the Series BB Preferred have the right to convert the
Series BB Preferred to 1,000,000 shares of Common Stock. Conti has the
right to designate one Director of the Company's Board of Directors as
long as they hold the Series BB Preferred or at least 1,000,000 shares
of Common Stock and certain other conditions are met.
5. CONTINGENCIES
The Company has certain contingent liabilities resulting from litigation
and claims incident to the ordinary course of business. Management
believes that the probable resolution of such contingencies will not
materially affect the financial statements of the Company.
The Company is a co-sponsor of Strategic Realty Capital Corp. ("SRCC")
which on March 24, 1998 filed with the Securities and Exchange Commission
to register shares in an initial public offering. SRCC is a real estate
investment trust and will make high-yield commercial and multi-family real
estate loans and investments. The Company will manage the operations of
SRCC, subject to the supervision of SRCC's Board of Directors. Concurrent
with the initial public offering, the Company is committed to purchase an
additional 133,333 shares (2% of the aggregate common stock) of SRCC at the
initial public offering price, estimated to be $15 per share. Upon the
closing of the offering of common stock of SRCC, the Company will issue a
warrant to SRCC for the purchase of 2,000,000 shares of Common Stock at
$2.50 per share. The Company will also invest cash of $2,000,000 in SRCC.
At the time of the filing, the Company owned all 100 issued shares of SRCC.
6. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
which supersedes Statement No. 14 "Financial Reporting For Segments of a
Business Enterprise". Generally, this statement requires financial
information to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources. The
Company will implement the provisions of this statement, as required, for
the year ended December 31, 1998.
7
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
GENERAL
The Company derives its primary revenues from the financial services it offers
to owners and operators of commercial real estate interests. These services
include third-party asset management, loan servicing, mortgage loan originations
and European operations. Fees the Company receives include asset management and
disposition fees, incentive fees based on the overall performance of a contract
or pool of assets and fees associated with the origination of mortgage loans.
The Company utilizes strategic acquisitions and alliances as the primary means
of expanding and diversifying its core businesses and developing and entering
new businesses. Management is actively pursuing additional acquisitions and
alliances.
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 21E of the Exchange
Act, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include terminology such as "anticipate," "believe," "has the opportunity,"
"seeking to,""attempting," "would," "contemplated," "believes" or comparable
terminology. All forward-looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
It is important to note that the Company's actual results could differ
materially from those in such forward-looking statements. The factors listed
below are among those that could cause actual result to differ materially
from those in forward-looking statements. Additional risk factors are listed
from time to time in the Company's reports on Forms 10-QSB, 8-K and 10-KSB.
Among the risk factors which could materially and adversely affect the future
operating results of the Company are:
- - The Company has experienced operating deficits or marginally profitable
results. Management anticipates that marginal operating results, including
operating deficits will continue until the Company is able to increase its
revenues by originating mortgage loans and securing additional asset
management and servicing contracts.
- - Many of the Company's asset management contracts are for an indefinite
term, cancelable upon thirty days' notice. If a significant number of
these contracts are terminated or modified, this may adversely affect the
Company's revenues and profitability.
- - The Company currently operates as a rated servicer. If the Company no
longer received ratings, or if its ratings were downgraded, its ability to
retain existing business and to obtain new business in many commercial real
estate markets could be limited.
8
<PAGE>
- - The Company may not be successful in its efforts to continue to develop and
expand its mortgage loan origination capability for a number of reasons.
Currently, the commercial mortgage lending industry has numerous
competitors with large amounts of capital available for mortgage lending.
The Company is a correspondent in the loan conduit program of ContiTrade
L.L.C. ("ContiTrade"), an affiliate of Conti. The conduit program and its
related funding facility may at some point be unavailable to the Company or
may be available only on terms less favorable than those currently
available to the Company. In addition to attempting to continue the
internal growth of its mortgage loan origination capability, the Company
intends to augment its lending capability through strategic acquisitions
and alliances, expanded product lines and participation in additional
lending programs. The Company may be unsuccessful in some or all of these
efforts which, in turn, may adversely affect the Company's revenues and
profitability.
- - The Company may be unable to develop sufficient capital resources through
profitable operations, strategic alliances or acquisitions or otherwise to
more successfully compete with larger and better capitalized competitors in
the acquisition of new business.
- - Until such time, if ever, as the public offering contemplated by the
registration statement filed by SRCC closes and becomes effective, the
Company will be unable to derive benefits either from a management
agreement with SRCC or from any investment in SRCC.
BUSINESS OUTLOOK
The Company continues to derive its primary revenues from management,
disposition and incentive fees associated with third-party asset management
contracts with various clients, including investment banking firms and
partnerships. Assets under management include large single assets, such as loans
secured by hotels and office buildings, as well as portfolios of commercial real
estate assets and interests. Third-party asset management will continue to be
an important source of revenue for the Company. The Company is seeking to
expand asset management revenues through several means including the development
of new and existing client relationships, dealings with SRCC and European
Operations. If the public offering contemplated by the registration statement
filed by SRCC does not become effective and close, management will seek to
expand its asset management business through other means.
In the area of loan servicing, Standard & Poor's Corporation ("S&P") and Fitch
IBCA, Inc. ("Fitch") have both recently reaffirmed their "above average" ratings
of the Company as a special servicer of assets. Rated special servicers manage
non-performing loans and foreclosed properties in securitized transactions. S&P
recently rated the Company "average" as a commercial servicer; the Company also
received an "acceptable" rating as a master servicer from Fitch. These latter
two ratings allow the Company to seek to expand its operations as a rated
servicer to service performing as well as non-performing components of
securitizations. Loan servicing has been a core business of the Company and an
important source of revenue. The Company is actively seeking to acquire the
servicing rights to additional assets. Continued enhancement of its
capabilities as a rated servicer is a significant component of the Company's
business development activities.
9
<PAGE>
The Company continues to develop its mortgage loan origination business begun in
1997. As a loan correspondent for the conduit program of ContiTrade, the
Company originates qualifying multifamily and commercial loans which ContiTrade
purchases at closing under a funding facility ContiTrade is providing to the
Company. The Company intends to continue to devote significant resources to the
expansion of its mortgage loan origination capabilities through acquisitions,
the development of correspondent relationships and internal growth. Management
anticipates that mortgage loan origination will become a primary source of the
Company's revenue.
In addition to managing assets and interests throughout the United States, the
Company has commenced business operations in Europe. Since 1997, a Danish
subsidiary of the Company has been part of a joint venture providing asset
management, financial and advisory services to an investment group which
acquired an interest in a large portfolio of assets from the Swedish government.
The Company is actively seeking to expand its asset management and servicing
activities in Europe. Much of the Company's initial business development
activities have been conducted through offices in Copenhagen and London. These
offices are in the process of being reduced in size. In the future, management
anticipates that a greater portion of business development activities in Europe
will be conducted from the United States.
To overcome operating deficits and to sustain profitability, the Company must
continue to develop and enhance its revenues from both new and existing business
lines. There can be no assurance that the Company will be successful in
increasing its revenues or that any level of revenues will produce any
particular financial results.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
Total revenues increased $212,541 to $1,892,250 in the first three months of
1998 from $1,679,711 during the same period in 1997. Revenue components changed
significantly, with management fees decreasing by approximately $540,671 in
1998. Asset management contracts with various clients, including investment
banking firms and partnerships, continues to provide a significant portion of
the Company's revenue. The change in the management fee revenue components
reflects the Company's continuing transition from its traditional public-sector
contract orientation and their replacement with private-sector contracts that
generally provide for lower ongoing fees with the opportunity for additional,
incentive-based compensation at the end of an engagement. Pursuant to its
strategic business plan, the Company is continuing to take steps to reposition
the Company's core businesses, to grow both those businesses and new, related
activities. Increased fees from these other sources almost entirely offset the
decrease in management fees. Attributable to corporate acquisitions and European
development activities, new revenue sources developed from equity investments in
partnerships and joint ventures, and loan servicing. Also, pursuant to the
strategic business plan, new related business development through loan
origination activities generated new revenues during the year. The Company
operates in the real estate industry, which is a cyclical business environment.
Commensurate with the change in the real estate business cycle, management
expects the change in revenue components to continue, with asset management
revenues decreasing as a percentage of total revenues and being replaced with
increased revenues from lending and servicing activities.
10
<PAGE>
Management fees are recorded as services required under a contract are
performed, and are based on a percentage applied to the aggregate value of
the assets managed, as assigned in the contracts, or on original base monthly
amounts, as defined in the contracts. Management fee revenues decreased
$540,671, or 51.6% to $507,143 in the first three months of 1998 from
$1,047,814 for the comparable period in 1997. The decrease in management fee
revenues for three month period in 1998 versus the same period in 1997 was
generally attributed to the loss of a large number of assets under the
Company's management that were placed into a securitized transaction by an
investment-banking client during 1997. Additionally, management fees have
decreased because of contracts being resolved and replaced with lower fee
contracts.
Disposition fees are recorded as revenue when the disposition of an asset has
been consummated and the asset owner has received the gross proceeds from the
disposition. Disposition fees are generally based on a percentage of the
proceeds of an asset disposition, as defined by the contracts, or a fixed amount
per disposition. Disposition fee revenues increased to $446,662 in the first
three months of 1998 from $174,140 during the corresponding period in 1997. Of
the 1998 amount, approximately 84% reflects the resolution of assets under one
contract with an investment-banking client.
Certain contracts provide for incentive fees if the Company achieves net cash
collections in excess of thresholds established in the contracts. Incentive fees
increased to $608,625 in the first three months of 1998 from $159,082 in the
first three months of 1997. The 1998 fees were generally due to the progressive
resolution of one private-sector contract.
Other fees reflect the generation of fees from mortgage origination, loan
servicing, accounting, asset management and consulting services, and interest
income. Other fees increased $31,145, or 10.4%, to $329,820, in the first three
months of 1998 from $298,675 in the same period in 1997.
Personnel expenses include salaries, related payroll taxes and benefits, travel
and living expenses, and professional development expenses. Personnel expenses
decreased $191,245 or 11.1%, to $1,539,426 for the first three months of 1998
from $1,730,671 for the same period in 1997. The decreases were primarily
caused by the implementation of its strategic business plan whereby staffing was
reduced significantly from 1997, with resultant decreases in salaries, payroll
taxes and benefits expenses.
Occupancy, insurance and other operating expenses decreased to $169,301 for the
first three months of 1998 from $627,748 for the first three months of 1997. The
decrease includes credits of $200,000, made to the provision for loan losses
reflecting favorable credit experience with the Company's loan portfolio under
the Federal National Mortgage Association's Delegated Underwriting and Servicing
Program; and $100,000, to due diligence expenses reflecting a negotiated
settlement of contractual expenses accrued under an expense reimbursement
agreement. Corresponding with the corporate restructuring addressed above, other
occupancy, insurance and other expense components, including equipment leases
and other services were restructured to reduce overall expenses.
11
<PAGE>
Interest expense decreased $6,513 to $71,657 for the first three months of 1998
from $78,170 for the same period in 1997. The decrease primarily reflects the
reduction in short-term borrowings during 1997 utilizing proceeds from tax loss
carry forwards and cash generated from operations.
Depreciation and amortization decreased $30,265 to $88,696 for the first three
months of 1998 from $118,961 for the corresponding period in 1997. The decrease
in depreciation and amortization expenses for 1998 primarily reflects the
closure and downsizing of offices, including related write-off of depreciable
assets, resulting from implementation of the strategic business plan.
The employment contract settlement of $206,563 in the first three months of 1997
reflects a non-recurring charge representing the lump sum, final settlement of
incentive compensation payments otherwise due over time to a former employee.
Income tax expense of $19,400 for the first three months of 1997 reflects the
impact of deferred tax items for deferred loan servicing and amortization after
eliminating non-deductible foreign losses and utilizing of a portion of the
Company's net operating loss carry forward. The tax benefit for the comparable
period of 1997 primarily reflects the receipt of miscellaneous tax refunds and
credits.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Cash and cash equivalents increased to $5,374,170 at March 31, 1998 from
$735,940 at December 31, 1997. The Company had aggregate bank credit facilities
of $600,000 of which $356,000 was outstanding at March 31, 1998.
In March 1997, the Company entered into the Harbert SPA with the Harbert Fund
whereby the Harbert Fund agreed to invest up to $5 million in the Common Stock.
The Harbert Fund invested $1 million in the Company in March 1997 and additional
sums in October and December 1997. On December 31, 1997 the Company and the
Harbert Fund entered into the SPA Amendment pursuant to which the Harbert Fund
purchased one share of the Series AA Preferred in exchange for cash of
$3,647,185.
In March 1998, the Company entered into the Conti SPA with an affiliate of Conti
whereby Conti invested $2,000,000 in exchange for one share of the Series BB
Preferred, and a warrant for 200,000 shares of the Common Stock.
The Company anticipates that, during 1998, it will invest $2 million in SRCC, a
newly organized entity, in exchange for common stock in connection with an
initial public offering of that entity. Additionally, the Company plans to
issue a five-year warrant to purchase up to $2 million shares of the Common
Stock at $2.50 per common share. The Company intends to fund the initial
investment with proceeds provided from private investment capital infusions.
The Company expects to fund current operations with cash provided by operations,
proceeds provided from private investment capital infusions, and from draws on
bank credit facilities. Through the
12
<PAGE>
implementation of the strategic business plan discussed above, the Company
will continue its efforts to reduce operating expenses. Moreover, the
Company is developing both new sources of revenue in an effort to eliminate
operating deficits as well as alternative funding sources to fund those
deficits.
The Company is actively seeking credit facilities to expand existing facilities
and to fund acquisitions. The Company is also actively pursuing private equity
capital infusions. The Company expects to fund strategic acquisitions of
entities and asset portfolios by cash provided from debt or equity financing.
HISTORICAL CASH FLOWS
Cash flows used for operating activities decreased to $631,578 for the first
three months of 1998 from $461,849 in the corresponding period of 1997. The
Company's net income for the first three months of 1998 includes non-cash
credits for reductions in loan losses and accrued abandonment costs. During the
first three months of 1997 the Company incurred an operating loss which was
partially offset by increases in cash provided from changes in working capital
components.
Cash flows used by investing activities decreased to $96,041 for the first three
months of 1998, from $1,879,180 for the same time period in 1997. The decrease
primarily relates to the use of funds for corporate acquisitions in 1997.
Cash flows from financing activities increased to $5,365,849 for the first three
months of 1998 from $2,491,889 for the respective time period in 1997. The
increase is generally attributable to the issuance of the Series AA Preferred
and the Series BB Preferred.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business.
Management does not believe that the resolution of this litigation will
materially affect the financial position or liquidity of the Company.
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
13
<PAGE>
ITEM 5. - OTHER INFORMATION
On April 13, 1998, Harold E. Cooke, President and Chief Operating Officer of the
Company, was appointed to the Company's Board of Directors.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers
- -------
10.73 Stock Purchase Agreement dated March 21, 1998 between Strategic Realty
Capital Corp. and CNC Holding Corp.
10.74 Registration Rights Agreement dated as of March 22, 1998 by and among
CNC Holding Corp., ContiWest Corporation, MarRay Investment, L.L.C.
and Strategic Realty Capital Corp.
27 Financial Data Schedule
(b) Reports on Form 8-K
On February 20, 1998, the Company filed a Current Report on Form 8-K
reporting on the purchase by Harbert Equity Fund I, L.L.C. of the
Company's Series BB Convertible Preferred Stock.
14
<PAGE>
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: May 11, 1998 By: /s/ Richard A. Brock
---------------------------------------------
Richard A. Brock
Senior Vice President, Treasurer and
Chief Financial Officer
By: /s/ Ray L. Druseikis
---------------------------------------------
Ray L. Druseikis
Controller and Chief Accounting
Officer
15
<PAGE>
INDEX TO EXHIBITS
10.73 Stock Purchase Agreement dated March 21, 1998 between Strategic Realty
Capital Corp. and CNC Holding Corp.(1)
10.74 Registration Rights Agreement dated as of March 22, 1998 by and among
CNC Holding Corp., ContiWest Corporation, MarRay Investment, L.L.C.
and Strategic Realty Capital Corp.(1)
27 Financial Data Schedule (1)
- ----------------------------------
(1) Filed herewith
16
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT
Dated March 21, 1998
between
STRATEGIC REALTY CAPITAL CORP.
and
CNC HOLDING CORP.
<PAGE>
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into this 21st day of March, 1998, between STRATEGIC REALTY CAPITAL CORP., a
Maryland corporation (the "Company"), and CNC HOLDING CORP., a Delaware
corporation (the "Purchaser").
WHEREAS, upon the terms and subject to the conditions set forth in
this Agreement, the Purchaser wishes to purchase from the Company, and the
Company wishes to issue and sell to the Purchaser, shares of the Company's
Common Stock, par value $.0001 per share (the "Common Stock"), in the amount and
on the terms set forth herein;
WHEREAS, concurrently with the execution of this Agreement between the
Company and the Purchaser, the Company shall enter into separate Stock Purchase
Agreements with each of ContiWest Corporation ("ContiWest") and MarRay
Investment, L.L.C. ("MarRay") (the Purchaser, ContiWest and MarRay are each a
"Holder" and collectively the "Holders", and the shares of stock purchased by
them pursuant to Stock Purchase Agreements executed on the date hereof,
including this Agreement, are "Sponsor Shares").
NOW, THEREFORE, in consideration of the mutual recitals and covenants
hereinafter set forth, the parties to this Agreement hereby agree as follows:
ARTICLE I.
DEFINTIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the terms
set forth in this Article I shall have the respective definitions given.
"Crown Holder" has the meaning as defined in the Rights Agreement.
"Rights Agreement" means the Registration Rights Agreement dated as of
March 21, 1998 among MarRay Investment, L.L.C., the Purchaser, the Company and
ContiWest Corporation.
ARTICLE II.
CLOSING DATE TRANSACTIONS
Section 2.1 SALE AND PURCHASE OF STOCK. In reliance on the
representations, warranties and covenants contained herein, at the Closing (as
hereinafter defined) the Company will issue and sell to the Purchaser, and the
Purchaser will purchase from the Company, such number of shares equal to (i)
10,000,000 divided by (ii) the price per share paid by the public in the
Company's initial public offering (the "IPO") pursuant to a firm commitment
underwritten public offering and an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act")(such number of shares
being hereinafter referred to as the "Number of Shares"), for an aggregate
purchase price of $2,000,000, free and clear of any liens or encumbrances.
1
<PAGE>
(The shares of Common Stock to be issued to the Purchaser pursuant to this
Agreement are hereinafter referred to as the "Crown Shares.")
Section 2.2 PURCHASE PRICE; PAYMENT. The aggregate purchase price
for the Crown Shares shall be $2,000,000.
At the Closing, the Purchaser will pay the aggregate purchase price by
wire transfer of immediately available funds to an account designated by the
Company.
Section 2.3 STOCK CERTIFICATES. At the Closing, the Company will
deliver to the Purchaser a certificate or certificates evidencing shares of
Common Stock in an amount equal to the Number of Shares. Such certificate or
certificates will bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE REASONABLE SATISFACTION OF THE
COMPANY.
ARTICLE III.
CLOSING
The closing of the transaction contemplated hereby (the "Closing")
shall take place concurrently with the closing of the Company's IPO at such
place as the parties shall agree. At the Closing, the parties hereto will
exchange funds, certificates and other documents specified in this Agreement.
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE COMPANY
The Company hereby represents and warrants to and agrees with the
Purchaser as follows:
Section 4.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and has all requisite corporate power and authority to
conduct its business as now conducted and as proposed to be conducted and is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which qualification is necessary under applicable law,
except where the failure to be so qualified would not have a material adverse
effect on its business.
2
<PAGE>
Section 4.2 CAPITALIZATION. The authorized capital stock of the
Company consists of 500,000,000 shares of capital stock, all of which is
initially classified as Common Stock and of which 100 shares are issued and
outstanding as of the date hereof.
Section 4.3 DUE AUTHORIZATION. The Company has all requisite power
and authority to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all requisite corporate action and this
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general or by general principles of equity.
Section 4.4 NO CONFLICT. The execution, delivery and performance
by the Company of this Agreement will not violate or conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any provision of law, any order of any court or governmental agency, the
Articles of Incorporation or bylaws of the Company or any provision of any
indenture, agreement or other instrument by which the Company or any of its
properties or assets is bound, or result in the creation or imposition of any
lien, charge, restriction, claim or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company.
Section 4.5 VALID ISSUANCE OF THE SHARES. The Shares to be
purchased by the Purchaser hereunder have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable. Based in part upon the representations of the Purchaser
contained in Sections 5.1 and 5.2 of this Agreement, the Crown Shares, when
issued and delivered pursuant to this Agreement, will be issued in compliance
with Federal and applicable state securities laws.
Section 4.6 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company which
questions the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the financial position, business prospects or results of operations of the
Company, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing.
ARTICLE V.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE PURCHASER
The Purchaser hereby represents and warrants to and agrees with the
Company as follows:
Section 5.1 INVESTMENT INTENT. The Crown Shares to be purchased by
the Purchaser pursuant to this Agreement are being acquired by the Purchaser
solely for
3
<PAGE>
the Purchaser's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of such Crown Shares.
Section 5.2 ACCREDITED INVESTOR. The Purchaser is an Accredited
Investor as such term is defined in Rule 501 of the General Rules and
Regulations promulgated under the Securities Act.
Section 5.3 DUE AUTHORIZATION. The Purchaser has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Purchaser and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all requisite corporate action and this
Agreement constitutes the legal, valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general or by general principles of equity.
ARTICLE VI.
RESTRICTIONS ON TRANSFER
The Purchaser agrees that none of the Crown Shares shall be sold,
transferred, assigned, pledged, hypothecated or otherwise disposed of by the
Purchaser: (i) for a period of 180 days from the date of the Closing and (ii)
after the expiration of the 180 day period following the date of the Closing,
unless and until such disposition is in accordance with the provisions of the
Securities Act.
ARTICLE VII.
RIGHTS OF HOLDER
The Crown Shares purchased under this agreement are entitled to the
benefits of the Rights Agreement. The Company shall keep a copy of the Rights
Agreement and any amendment thereto, at the principal office of the Company and
shall furnish copies thereof to the Purchaser upon request.
ARTICLE VIII.
CONDITIONS
Section 8.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. The obligation of each party to
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The closing of the Company's IPO, on substantially the same
terms and conditions as set forth in the draft registration statement
attached as Annex I hereto, except that the net proceeds to be received by
the Company from such IPO must equal or exceed $75 million; and
4
<PAGE>
(b) all governmental and other consents and approvals, if any,
necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been obtained.
Section 8.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the transactions contemplated by this
Agreement is subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) The Purchaser shall have performed in all material respects
each obligation and agreement and complied in all material respects with
each covenant to be performed and complied with by it hereunder at or prior
to the Closing Date;
(b) The representations and warranties of the Purchaser in this
Agreement shall be true and correct in all material respects as of the
Closing Date with the same force and effect as though made at such time,
except for changes contemplated by this Agreement;
(c) The Purchaser shall have furnished to the Company a
certificate, dated as of the Closing Date, signed by a duly authorized
officer of the Purchaser to the effect that all conditions set forth in
Sections 8.2(a) and (b) have been satisfied; and
(d) The Purchaser shall have furnished to the Company such other
instruments and documents, in form and substance reasonably acceptable to
the Company, as may be reasonably necessary to effect the Closing.
Section 8.3 CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to effect the transactions contemplated by this
Agreement is subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) The Company shall have performed in all material respects
each obligation and agreement and complied in all material respects with
each covenant to be performed and complied with by it hereunder at or prior
to the Closing;
(b) The representations and warranties of the Company in this
Agreement shall be true and correct in all material respects as of the
Closing Date with the same force and effect as though made at such time,
except for changes contemplated by this Agreement;
(c) The Company shall have furnished to the Purchaser a
certificate, dated as of the Closing Date, signed by a duly authorized
officer of the Company to the effect that all conditions set forth in
Sections 8.3(a) through (f) have been satisfied;
(d) The Company shall have furnished to the Purchaser a
certificate, signed by an authorized officer of the Company, certifying:
(i) the due organization and good standing of the Company; (ii) the
corporate resolutions of the Company authorizing the transactions
contemplated by this Agreement; and
5
<PAGE>
(iii) the incumbency of officers of the Company executing this Agreement
and the other instruments or certificates delivered at the Closing;
(e) The Company shall have furnished to the Purchaser a
certificate or certificates representing the Shares; and
(f) The Company shall have furnished to the Purchaser such other
instruments and documents, in form and substance reasonably acceptable to
the Purchaser, as may be reasonably necessary to effect the Closing.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
sent by facsimile transmission, sent by overnight express mail or mailed by
registered or certified mail, return receipt requested, postage pre-paid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of any change of
address shall be effective only upon receipt thereof):
If to the Company: Strategic Realty Capital Corp.
1251 Dublin Road
Columbus, Ohio 43215
Fax No.: (614) 488-9780
If to the Purchaser: CNC Holding Corp.
1251 Dublin Road
Columbus, Ohio 43215
Fax No.: (614) 488-9780
A notice shall be deemed given when received by the addressee.
Section 9.2 SUCCESSORS AND ASSIGNS. Each of the parties hereto
hereby acknowledges that in entering into this Agreement it has not relied upon
any representation or warranty except as expressly set forth herein. Subject to
the exceptions specifically set forth in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and permitted
assigns of the parties. This agreement cannot be assigned by the Purchaser or
the Company other than to "Affiliates" of the Company or the Purchaser, as such
term is defined in Section 405 of the General Rules and Regulation promulgated
under the Securities Act. Any assignee of this Agreement will agree in writing
to be bound by the terms hereof prior to such assignment becoming effective.
Section 9.3 GOVERNING LAW; JURISDICTION; SERVICE. This Agreement
has been negotiated, executed and delivered at and shall be deemed to have been
made in New York, New York. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflict of laws rules therein. The parties hereto hereby consent and agree
that the Supreme
6
<PAGE>
Court of New York County, New York and the United Stated District court for
the Southern District of New York, shall have exclusive jurisdiction to hear
and determine any claims or disputes between the parties hereto pertaining to
this Agreement or to any matter arising out of or related to this Agreement.
The parties hereto expressly submit and consent in advance to such jurisdiction
in any action or suit commenced in any such court, and hereby waive any
objection which it may have been based upon lack of personal jurisdiction,
improper venue or forum non conveniens and hereby consent to the granting for
such legal or equitable relief as is deemed appropriate by such court. Each
party hereto irrevocably consents to the service of process by registered or
certified mail, postage prepaid, its address given pursuant to Section 9.1
hereof. Subject to the foregoing, nothing in this Agreement shall be deemed to
operate to affect the right of any party hereto to serve legal process in any
other manner permitted by law, to preclude the enforcement by any party hereto
of any judgement or order obtained in such forum or the taking of any action
under this Agreement to enforce same in any other appropriate forum or
jurisdiction.
Section 9.4 IMMUNITY; WAIVER OF TRIAL BY JURY. To the extent that
a party has or may hereafter acquire any immunity from the jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgement, attachment in aid of execution, execution or otherwise) with
respect to such party or such party's property, such Party hereby irrevocably
waives such immunity in respect of its obligations under this Agreement.
SUBJECT TO SECTION 9.7 HEREIN, EACH PARTY HERETO WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF
OR RELATED TO THIS AGREEMENT. In the event of litigation, this Agreement may be
filed as a written consent to a trial by the court. To the extent permitted by
applicable law, each party hereto irrevocably waives any right such party may
have to punitive damages.
Section 9.5 COUNTERPARTS. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.6 CROSS-REFERENCES; SCHEDULES; TITLES AND SUBTITLES.
Unless expressly indicated to the contrary, all references in this Agreement to
enumerated Sections are to the respective Sections of this Agreement. The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement.
Section 9.7 DISPUTE RESOLUTION. The parties agree that each will
attempt in good faith to resolve through negotiation any dispute, claim or
controversy arising out of or relating to this Agreement prior to filing any
claim by suit in a court. Any party may initiate negotiations by providing
written notice in letter form to the other party, setting forth the subject of
the dispute and the relief requested. The recipient of such notice will respond
in writing within five days with a statement of its position on and recommended
solution to the dispute. If the dispute is not resolved by this exchange of
correspondence, then representatives of each party with full settlement
authority will meet at a mutually agreeable time and place within ten days of
the date of the initial notice in order to exchange relevant information and
perspectives, and to attempt to
7
<PAGE>
resolve the dispute. If the dispute is not resolved by these negotiations, the
matter will be submitted to J.A.M.S/ENDISPUTE, or its successor, for mediation.
If the matter is not resolved by such mediation within 180 days of the
initiation of negotiations, then either party may file a suit in court. If the
matter is resolved by litigation, the prevailing party's litigation expenses,
including but not limited to all filing fees, attorney's fees and fees paid to
other consultants in the course of litigation will be paid by the other party.
Each party agrees to bear its own costs and expenses relating to mediation.
Section 9.8 WAIVER; SEVERABILITY . The waiver by one party hereto
of any breach by the other (the "BREACHING PARTY") of any provision of this
Agreement shall not operate or be considered as a waiver of any other (prior or
subsequent) breach by the Breaching Party, and waiver of a breach of a provision
in one instance shall not be deemed a waiver of such provision in any other
circumstance. If any term or provision of this Agreement or the application
thereof to any person, property or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement, or the application of such
term or provision to persons, property or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby.
Section 9.9 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements or understandings, written or oral,
between the parties with respect to the subject matter hereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CNC HOLDING CORP. STRATEGIC REALTY CAPITAL CORP.
By: /s/Ronald E. Roark By:/s/Harold E. Cooke
------------------------------ ---------------------------------
Name: Ronald E. Roark Name: Harold E. Cooke
Title: Chairman and Chief Title: President and Chief
Executive Officer Executive Officer
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of the 22nd day of March, 1998 by and among CNC Holding Corp.,
("Crown"), ContiWest Corporation ("Conti"), MarRay Investment, L.L.C., an
affiliate of Harbert Management Corporation ("Harbert") and Strategic Realty
Capital Corp. (the "Company").
WHEREAS, concurrently with the execution of this Agreement, the
Company is entering into separate Stock Purchase Agreements with each of Crown,
Conti and Harbert (each a "Holder" and, collectively, the "Holders") and the
shares of stock purchased by them pursuant to the Stock Purchase Agreement
executed on the date hereof, are the "Sponsor Shares."
NOW, THEREFORE, in consideration of the mutual representatives,
warranties and covenants hereinafter set forth, the parties to this Agreement
hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. As used in this agreement, the
following definitions apply:
"Act" means the Securities Act of 1933, as amended, or any similar
federal statute and the rules and regulations of the Commission thereunder, as
shall be in effect from time to time.
"Agreement" means this Registration Rights agreement, dated as of
March 22, 1998, among Crown, Conti, Harbert and the Company (as such agreement
may be amended, restated, supplemented or otherwise modified, from time to
time).
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conti Holder" means Conti, so long as it holds the Sponsor Shares,
and any holder of the Sponsor Shares to whom the registration rights conferred
by this agreement have been transferred pursuant to Section 3.2 hereof.
"Conti Shares" means the shares of the capital stock of the Company
purchased by Conti from the Company pursuant to the Conti Stock Purchase
Agreement.
"Conti Stock Purchase Agreement" means the Stock Purchase Agreement,
dated the date hereof, between Conti and the Company.
<PAGE>
"Crown Holder" means Crown, so long as it holds the Sponsor Shares,
and any holder of the Sponsor Shares to whom the registration rights conferred
by this Agreement have been transferred pursuant to Section 3.2 hereof.
"Crown Shares" means the shares of the capital stock of the Company
purchased by Crown from the Company pursuant to the Crown Stock Purchase
Agreement.
"Crown Stock Purchase Agreement" means the Stock Purchase Agreement,
dated the date hereof, between CNC Holding Corp. and the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to time.
"Harbert Holder" means Harbert, so long as it holds the Sponsor
Shares, and any holder of the Sponsor Shares to whom the registration rights
conferred by this Agreement have been transferred pursuant to Section 3.2
hereof.
"Harbert Shares" means the shares of the capital stock of the Company
purchased by Harbert from the Company pursuant to the Harbert Stock Purchase
Agreement.
"Harbert Stock Purchase Agreement" means the Stock Purchase Agreement,
dated as of the date hereof, between MarRay Investment, L.L.C. and the Company.
"Ipo" shall mean a firm commitment underwritten initial public
offering pursuant to an effective registration statement under the Act covering
the offer and sale of common stock for the account of the Company.
"Stock Purchase Agreements" means collectively, each of the Conti
Stock Purchase Agreement, the Harbert Stock Purchase Agreement and the Crown
Stock Purchase Agreement. The foregoing agreements are sometimes individually
referred to as a Stock Purchase Agreement.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 DEMAND REGISTRATION. (a) Upon written request of the
Conti Holder(s) at any time within the period commencing six months and ending
five years after the closing date of the IPO, the Company shall file within a
reasonable period of time and, in any event, within the time period provided in
Section 2.3 (a) below after receipt of such written request, at its sole
expense, on no more than one occasion, a registration statement under the
Securities Act registering the Conti Shares for sale to the public; PROVIDED,
HOWEVER, that the Company shall not be required to effect such a registration
unless the reasonably anticipated price to the public of the Conti Shares
2
<PAGE>
proposed to be registered is at least $7,000,000. Notwithstanding anything in
this Agreement to the contrary, the Conti Holders shall not request and the
Company shall not be required to effect a registration statement under this
Section 2.1(a) within 180 days of the completion of any offering pursuant to
Section 2.1(b) or (c) hereof. Within 15 days after receiving any such notice,
the Company shall give notice to the other Holders of the Sponsor Shares
advising that the Company is proceeding with such registration statement, and
offering to include therein the Sponsor Shares of such other Holders. The
Company shall not be obligated to include the Sponsor Shares of any such other
Holder in such registration unless such other Holder shall accept such offer by
notice in writing to the Company within 15 days after receipt of such notice
from the Company. In addition, if the managing underwriter in its good faith
judgment determines that marketing factors require a limitation of the number of
shares of Sponsor Shares to be underwritten, the managing underwriter may limit
the Sponsor Shares to be included in such registration. The Company shall so
advise the Holders and the number of Sponsor Shares that may be included in the
registration shall be allocated among the Holders as follows: First, to the
Conti Holders, the total number of Conti Shares requested to be registered
pursuant to this Section 2.1(a); second to the other Holders in proportion to
the respective amounts to Sponsor Shares held by each of such Holders at the
time of filing of the registration statement. Any Sponsor Shares or other
securities that are so excluded from the underwriting shall be excluded from the
registration.
The Company shall use its reasonable best efforts, through its
officers, directors, auditors and counsel in all matters necessary or advisable,
to file and cause such registration statement to become effective as promptly as
practicable and to remain effective for the period of time provided in Section
2.3 below, to reflect in the registration statement financial statements that
are prepared in accordance with Section 10 (a)(3) of the Securities Act, and to
amend or supplement such registration statement to reflect any facts or events
arising that, individually or in the aggregate, represent a material change in
the information set forth in the registration statement to enable any Conti
Holders and, if applicable, other Holders of Sponsor Shares to sell their shares
during such time period provided in Section 2.3 below. If any registration
pursuant to this Section 2.1(a) is an underwritten offering, the Holders of a
majority of the Conti Shares to be included in such registration will select an
underwriter (or managing underwriter if such offering should be syndicated)
approved by the Company, with such approval not to be unreasonably withheld.
Notwithstanding anything in this Agreement to the contrary, the Company shall be
entitled, by written notice to the Conti Holders, to postpone for a reasonable
period of time (not exceeding 90 days in any twelve month period, it being
understood that such postponement shall not be cumulative with the correlative
provisions of Sections 2.1(b) and (c) below) the filing or effectiveness of any
registration statement otherwise required to be prepared and filed by it
pursuant to this Section 2.1(a) if the Company's Board of Directors determines,
in its sole discretion, that such postponement is in the Company's best
interests. If the Company shall so postpone the filing of a registration
statement, a majority-in-interest of the requesting Conti Holders shall have the
right to withdraw the request for demand registration by giving written notice
to the company within 30 days after receipt of the notice of postponement. No
registration shall be counted as the demand registration to which the Conti
Holders are
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entitled pursuant to this Section 2.1(a) unless the Conti Holders are able to
register and sell at least 80% of the Conti Shares requested to be included
therein.
(b) Upon written request of the Harbert Holder(s) at any time within
the period commencing six months and ending five years after the closing date of
the IPO, the Company shall file within a reasonable period of time and, in any
event, within the time period provided in Section 2.3 (a) below after receipt of
such written request, at its sole expense, on no more than one occasion, a
registration statement under the Securities Act registering the Harbert Shares
for sale to the public; PROVIDED, HOWEVER, that the Company shall not be
required to effect such a registration unless the reasonably anticipated price
to the public of the Harbert Shares proposed to be registered is at least
$7,000,000. Notwithstanding anything in this Agreement to the contrary, the
Harbert Holders shall not request and the Company shall not be required to
effect a registration statement under this Section 2.1(b) within 180 days of the
completion of any offering pursuant to Section 2.1(a) or (c) hereof. Within 15
days after receiving any such notice, the Company shall give notice to the other
Holders of the Sponsor Shares advising that the Company is proceeding with such
registration statement, and offering to include therein the Sponsor Shares of
such other Holders. The Company shall not be obligated to include the Sponsor
Shares of any such other Holder in such registration unless such other Holder
shall accept such offer by notice in writing to the Company within 15 days after
receipt of such notice from the Company. In addition, if the managing
underwriter in its good faith judgment determines that marketing factors require
a limitation of the number of shares of Sponsor Shares to be underwritten, the
managing underwriter may limit the Sponsor Shares to be included in such
registration. The Company shall so advise the Holders and the number of shares
of Sponsor Shares that may be included in the registration shall be allocated
among the Holders as follows: First, to the Harbert Holders, the total number
of Harbert Shares requested to be registered pursuant to this Section 2.1(b);
second to the other Holders in proportion to the respective amounts to Sponsor
Shares held by each of such Holders at the time of filing of the registration
statement. Any Sponsor Shares or other securities that are so excluded from the
underwriting shall be excluded from the registration.
The Company shall use its reasonable best efforts, through its
officers, directors, auditors and counsel in all matters necessary or advisable,
to file and cause such registration statement to become effective as promptly as
practicable and to remain effective for the period of time provided in Section
2.3 below, to reflect in the registration statement financial statements that
are prepared in accordance with Section 10 (a)(3) of the Securities Act, and to
amend or supplement such registration statement to reflect any facts or events
arising that, individually or in the aggregate, represent a material change in
the information set forth in the registration statement to enable any Harbert
Holders and, if applicable, other Holders of Sponsor Shares to sell these Shares
during such time period provided in Section 2.3 below. If any registration
pursuant to this Section 2.1(b) is an underwritten offering, the Holders of a
majority of the Harbert Shares to be included in such registration will select
an underwriter (or managing underwriter if such offering should be syndicated)
approved by the Company, such approval not to be unreasonably withheld.
Notwithstanding anything in this Agreement to the contrary, the Company shall be
entitled, by written notice to the Harbert Holders, to postpone for a reasonable
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period of time (not exceeding 90 days in any twelve month period, it being
understood that such postponement shall not be cumulative with the correlative
provisions of Section 2.1(a) above and (c) below) the filing or effectiveness of
any registration statement otherwise required to be prepared and filed by it
pursuant to this Section 2.1(b) if the Company's Board of Directors determines,
in its sole discretion, that such postponement is in the Company's best
interests. If the Company shall so postpone the filing of a registration
statement, a majority-in-interest of the requesting Harbert Holders shall have
the right to withdraw the request for demand registration by giving written
notice to the company within 30 days after receipt of the notice of
postponement. No registration shall be counted as the demand registration to
which the Harbert Holders are entitled pursuant to this Section 2.1(b) unless
the Harbert Holders are able to register and sell at least 80% of the Harbert
Shares requested to be included therein.
(c) In the event either the Conti Holders or the Harbert Holders
shall have completed a demand registration pursuant to Section 2.1(a) or (b)
above, then upon the written request of the holders of a majority of the then
outstanding Sponsor Shares (the "Majority Holders") within the period commencing
180 days following the completion of such demand registration pursuant to
Section 2.1(a) or (b) above and ending five years after the closing date of the
IPO, the Company shall file within a reasonable period of time and, in any
event, within the time period provided in Section 2.3 (a) below after receipt of
such written request, at its sole expense, on no more than one occasion, a
registration statement under the Securities Act registering the requested
Sponsor Shares for sale to the public; PROVIDED, HOWEVER, that the Company shall
not be required to effect such a registration unless the reasonably anticipated
price to the public of the requested Sponsor Shares proposed to be registered in
such registration (including Sponsor Shares included in such registration
pursuant to the further provisions of this Section 2.1(c)) is at least
$5,000,000. Notwithstanding anything in this Agreement to the contrary, in the
event the Majority Holders wish to exercise their demand registration right
under this Section 2.1(c) before either the Conti Holders or the Harbert Holders
shall have completed their demand registration pursuant to Section 2.1(a) or (b)
above, the Majority Holders shall first give 15 days written notice to each of
the other Sponsors of the Majority Holders intent to exercise their rights under
this Section 2.1(c) so that the Sponsors to which notice is given shall have the
opportunity during such 15-day period to (i) request a demand registration of
their Sponsor Shares in priority to the Majority Holders if they have a demand
right remaining under 2.1(a) or 2.1(b) above or (ii) determine to participate in
the registration pursuant to this 2.1(c) as set forth below. The Company
further agrees not to honor any notice from the Majority Holders to exercise
their demand rights under this Section 2.1(c) during such 15-day period. The
Company shall not be obligated to include the Sponsor Shares of any such other
Holder in such registration unless such other Holder shall accept such offer by
notice in writing to the Company within 15 days after receipt of such notice
from the Company. In addition, if the managing underwriter in its good faith
judgment determines that marketing factors require a limitation of the number of
shares of Sponsor Shares to be underwritten, the managing underwriter may limit
the Sponsor Shares to be included in such registration. The Company shall so
advise the Holders and the number of shares of Sponsor Shares that may be
included in the registration shall be allocated among the Holders in proportion
to the respective amounts of Sponsor Shares held by each of such Holders at
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the time of filing of the registration statement. Any Sponsor Shares or other
securities that are so excluded from the underwriting shall be excluded from the
registration.
The Company shall use its reasonable best efforts, through its
officers, directors, auditors and counsel in all matters necessary or advisable,
to file and cause such registration statement to become effective as promptly as
practicable and to remain effective for the period of time provided in Section
2.3 below, to reflect in the registration statement financial statements that
are prepared in accordance with Section 10 (a)(3) of the Securities Act, and to
amend or supplement such registration statement to reflect any facts or events
arising that, individually or in the aggregate, represent a material change in
the information set forth in the registration statement to enable any Holders of
Sponsor Shares to sell the Sponsor Shares during such time period provided in
Section 2.3 below. If any registration pursuant to this Section 2.1(c) is an
underwritten offering, the Holders of a majority of the shares to be included in
such registration will select an underwriter (or managing underwriter if such
offering should be syndicated) approved by the Company, such approval not to be
unreasonably withheld. Notwithstanding anything in this Agreement to the
contrary, the Company shall be entitled to postpone for a reasonable period of
time (not exceeding 90 days in any twelve month period, it being understood that
such postponement shall not be cumulative with the correlative provisions of
Sections 2.1(a) and (b) above) the filing or effectiveness of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section 2.1(c) if the Company's Board of Directors determines, in its sole
discretion, that such postponement is in the Company's best interests. If the
Company shall so postpone the filing of a registration statement, the Majority
Holders shall have the right to withdraw the request for demand registration by
giving written notice to the company within 30 days after receipt of the notice
of postponement. No registration shall be counted as the demand registration to
which the olders are entitled pursuant to this Section 2.1(c) unless the Holders
are able to register and sell at least 80% of the Sponsor Shares requested to be
included therein.
Section 2.2 PIGGYBACK REGISTRATION. If, at any time within the
period commencing six months and ending seven years after the closing date of
the IPO, the Company proposes to register any voting equity securities under the
Securities Act in a primary registration on behalf of the Company and/or in a
secondary registration on behalf of holders of such securities, and the
registration form to be used may be used for registration of the Sponsor Shares,
the Company shall give prompt written notice (which, in the case of a
registration pursuant to the exercise of demand registration rights other than
those provided in Section 2.1 above, shall be within 10 business days after the
Company's receipt of notice of such exercise and, in any event, shall be at
least 30 days prior to the date of such filing) to the Holders of Sponsor Shares
(regardless of whether some of the Holders shall have theretofore availed
themselves of the demand right provided in Section 2.1 hereof) at the
address(es) appearing on the records of the Company of the intention to effect
registration and shall offer to include in such registration such number of
Sponsor Shares with respect to which the Company has received written requests
for inclusion therein within 10 business days after receipt of such notice from
the Company upon generally the same terms and conditions as the person or
persons for whom such registration is being effected has agreed to. This
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Section 2.2 is not applicable to any registration statement to be filed by the
Company on Forms S-4 or S-8 or any successor forms. The Company shall not be
obligated to cause to be effective any registration statement as to which it has
given notice to the Holders of Sponsor Shares and shall have discretion to
withdraw any such registration without liability to Holders of Sponsor Shares.
Notwithstanding the foregoing, if the managing underwriter of the
offering shall determine in good faith and advise the Company in writing that
the inclusion of the Sponsor Shares and other securities being offered in such
registration would materially and adversely affect the marketability of the
offering, then the Company and the managing underwriter may reduce the number of
Sponsor Shares to be registered on a pro rata basis proportionate to the
reduction of all holder of securities participating in such registration
pursuant to the exercise of piggyback registration rights. In such event, the
Company may reduce the number of Sponsor Shares to be registered but shall not
limit such Sponsor Shares to fewer than 20% of the securities sold in the
offering. The Company shall so advise all Holders and the number of Sponsor
Shares that may be included in the registration and underwriting shall be
allocated among the Company and the Holders as follows: first, to the Company
so as to permit the Company to include all securities that the Company desires
to sell; second to the Holders pro rata in proportion to the respective amount
of Sponsor Shares or other securities held by the Holders at the time of the
filing of the registration statement.
Section 2.3 REGISTRATION PROCEDURES. If and whenever the Company
is required by the provisions of this Article II to use its reasonable best
efforts to effect the registration of any Sponsor Shares under the Securities
Act, the Company will, as expeditiously as possible:
(a) in connection with any registration pursuant to Section 2.1,
prepare and file with the Commission a registration statement (which shall
be filed as soon as practicable after receipt of requisite requests from
Holders of Sponsor Shares for registration, but not more than 90 days in
the case of a registration statement on Form S-11, or 45 days in the case
of any other form) with respect to the Sponsor Shares and use its
reasonable best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby
(determined as hereinafter provided);
(b) 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 for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Sponsor Shares covered by such registration statement in
accordance with the Holders' intended method of disposition set forth in
such registration statement for such period (so long as such registration
statement was filed pursuant to Section 2.1).
(c) furnish to each seller of Sponsor Shares and to each
underwriter such number of copies of the registration statement and the
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prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or
other disposition of the Sponsor Shares covered by such registration
statement;
(d) use its best efforts to register or qualify the Sponsor
Shares covered by such registration statement under such securities or blue
sky laws of such jurisdictions as each seller shall request, and do any and
all other acts and things which may be necessary under such securities or
blue sky laws to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the securities to be sold by such
seller, except that the Company shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not qualified or to file any general consent to service of
process;
(e) use its reasonable best efforts to list the Sponsor Shares
covered by such registration statement with any securities exchange or
automated quotation system on which the common Stock of the Company is then
listed;
(f) immediately notify each seller of Sponsor Shares and each
underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, included any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing;
(g) enter into such agreements (including an underwriting
agreement, if applicable) and take all such other actions reasonably
necessary in connection therewith in order to expedite and facilitate the
disposition of the Sponsor Shares to be registered;
(h) whether or not the offering is underwritten and at the
request of any seller of Sponsor Shares, furnish: (i) such representations
and warranties to such seller and the underwriters, if any, as are
customary in primary underwritten offerings, (ii) an opinion of counsel
reasonably acceptable to the Holders representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and
to such seller of Sponsor Shares in form and substance as is customarily
given to underwriters in an underwritten public offering and to such other
effects as reasonably may be requested by counsel for the underwriters or
by such seller of Sponsor Shares and its counsel and (iii) a letter dated
such date from the nationally recognized independent public accountants
retained by the Company, addressed to the underwriters, if any, and to such
seller of Sponsor Shares, in form and substance as is customarily given by
nationally recognized independent certified public accountants to
underwriters in an underwritten public offering, and such letter shall
additionally cover such other financial matters (including information as
to the period ending no more than five business days
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prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request;
(i) make available upon reasonable notice for inspection by each
seller of Sponsor Shares, any underwriter participating in any distribution
pursuant to such registration statement, and any attorney, accountant or
other agent retained by such seller of Sponsor Shares, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the commission, and make available to
its securityholders, as soon as reasonably practicable, but not later than
18 months after the effective 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.
For purposes of paragraphs (a) and (b) above, the period of
distribution of Sponsor Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the distribution
of all securities purchased by it, and the period of distribution of Sponsor
Shares in any other registration shall be deemed to extend until the earlier of
the sale of all Sponsor Shares covered thereby and 120 days after the effective
date thereof.
In connection with each registration hereunder the sellers of Sponsor
Shares will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary and shall be requested by the Company in order to comply with federal
and applicable state securities laws.
In connection with each registration pursuant to this Article II
covering an underwritten public offering, the Company and each seller of Sponsor
Shares agree to enter into a written agreement with the managing underwriter
(unless the Holder is the managing underwriter) in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
Section 2.4 EXPENSES. All expenses incurred by the Company in
complying with Sections 2.1, 2.2, and 2.3, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and nationally recognized independent public accountants for the
Company, fees and expenses (including counsel fees) incurred in connection with
complying with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and reasonable fees and
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disbursements of one counsel for the sellers of Sponsors Shares, but excluding
any Selling Expenses, are herein referred to as "Registration Expenses."
"Selling Expenses" as used herein mean all underwriting discounts and selling
commissions applicable to the sale of Sponsor Shares.
The Company will pay or cause to be paid all Registration Expenses of
the Holders in connection with each registration statement under Sections 2.1
and 2.2. All Selling Expenses in connection with each registration statement
under Sections 2.1 and 2.2 shall be borne by the participating sellers of
Sponsors Shares in proportion to the number of shares sold by each, or by such
participating sellers of Sponsors Shares other than the Company (except to the
extent the Company shall be a seller of Common Stock) as they may agree.
Section 2.5 NO CONFLICTS. The Company will not enter into any
agreement granting registration rights to any person or entity on terms which
conflict with the provisions of this Article II.
Section 2.6 INDEMNIFICATION AND CONTRIBUTION. In the event of a
registration of any Sponsor Shares under the Securities Act pursuant to this
Article II, the Company will indemnify and hold harmless, to the fullest extent
permitted by law, each Holder selling Sponsor Shares thereunder, each
underwriter of such Common Stock thereunder and each other person, if any, who
controls such selling Holder of Sponsor Shares or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, liabilities and expenses,
joint or several, to which such selling Holder, underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, or liabilities, (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Sponsor Shares
were registered under the Securities Act pursuant to Article II, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will pay or reimburse each such
selling Holder, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company (i) will not be liable in any such case if
and to the extent that (A) any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information furnished
by any such selling Holder, any such underwriter or any such controlling person,
as the case may be, in writing specifically for use in such registration
statement, prospectus, amendment or supplement or (B) in respect to such
statement, alleged statement, omission or alleged omission with respect to which
such loss, claim, damage, liability or action directly relates, the final
prospectus for such registration statement corrected in all material respects
such statement, alleged statement, omission or alleged omission and a copy of
such final prospectus was not sent or given by or on behalf of such Holder (or
otherwise delivered
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in accordance with applicable law or regulation) at or prior to the confirmation
of the sale of Sponsor Shares of such Holder and (ii) will not be liable for
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, such consent
not to be unreasonably withheld or delayed.
(b) In the event of a registration of any Sponsor Shares under the
Securities Act pursuant to this Article II, each Holder selling Sponsor Shares
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise, but only to the extent that such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) an untrue statement or alleged untrue statement or omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, made in
reliance upon and in conformity with information pertaining to such selling
Holder, as such, furnished in writing to the Company by such selling Holder
specifically for use in such registration statement under which such Sponsors
Shares was registered under the Securities Act pursuant to this Article II, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, and will pay or reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action or (ii) any
statement, alleged statement, omission or alleged omission made by the Company
with respect to which such loss, claim, damage or liability directly relates, if
the final prospectus for such registration statement corrected in all material
respects such statement, alleged statement, omision or alleged omission and a
copy of such final prospectus was not sent or given by or on behalf of such
Holder (or otherwise delivered in accordance with applicable law or regulation)
at or prior to the confirmation of the sale of Sponsor Shares of such Holder;
PROVIDED, HOWEVER, that (A) the liability of each selling Holder hereunder shall
be limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the public offering price of the
shares of Sponsor Shares sold by such selling Holder under such registration
statement bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed the net proceeds received by such
selling Holder from the sale of Sponsor Shares covered by such registration
statement and (B) no selling Holder shall be liable for amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such selling Holder, such consent
not to be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of any claim or the commencement of any action or proceeding,
such indemnified party shall, if a claim in respect thereof is to made against
the indemnifying party hereunder, notify the indemnifying party in writing
thereof, but the omission so to
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notify the indemnifying party shall not relieve it from any liability which it
may have to such indemnified party, except to the extent the indemnifying party
is materially prejudiced by such omission. In case any such action shall be
brought against any indemnified party and the indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this paragraph (c) for any legal or other professional expenses
subsequently incurred by such indemnified party in connection with the defense
thereof. No indemnifying party, in the defense of any such claim or litigation
against an indemnified party, shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation, unless such indemnified
party shall otherwise consent in writing. An indemnifying party who elects not
to assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless any indemnified party
reasonably concludes that there may be legal defenses available to such
indemnified party with respect to sch claim which are different from or
additional to those available to any other of such indemnified parties or that a
conflict of interest may exist between such indemnified party and other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels.
(d) In order to provide for just and equitable contribution in any
case in which either (i) any Holder exercising registration rights under this
Article II, or any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 2.6, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and following the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that Section 2.6 provides for indemnification in such
case or (ii) contribution under the Securities Act may be required on the part
of any such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.6, then, and in each such case,
the Company and such Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion as is appropriate to reflect both the relative
benefit received by such Holder and the relative fault of the Company and such
Holder; PROVIDED, HOWEVER, that, in any such case, (A) no Holder will be
required to contribute any amount in excess of the public offering price of all
such Sponsor Shares offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation. For purposes of the preceding sentence, the relative benefit
received by the Holder of Sponsor Shares shall be deemed to be in the same
proportion as the public offering price of its Sponsor Shares offered by the
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registration statement bears to the public offering price of all securities
offered by such registration statement; and the relative fault of the Company
and such Holder shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission of a
material fact relates to information supplied by the Company or by the Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Section 2.7 SECURITIES LAW COMPLIANCE. The Company covenants that
it will timely file all reports required to be filed by it under the Act and
Exchange Act. So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, the Company covenants to make publicly
available such information as may be necessary to permit the sale of Sponsor
Shares without registration under the Act pursuant to the exemption provided by
Rule 144 under the Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon the request of any Holder of Sponsor Shares at any time, if
applicable, the Company will deliver to such Holder or such Holder's prospective
transferee such information as may be necessary to permit the sale of Sponsor
Shares pursuant to Rule 144A under the Act, as such rule may be amended from
time to time. Upon request of any Holder of Sponsor Shares, the Company will
deliver to such Holder a written statement as to whether it has complied with
such information requirements.
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
sent by facsimile transmission, sent by overnight express mail or mailed by
registered or certified mail, return receipt requested, postage pre-paid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of any change of
address shall be effective only upon receipt thereof):
If to the Company: Strategic Realty Capital Corp.
1251 Dublin Road
Columbus, Ohio 43215
Fax No.: (614) 488-9780
If to Conti: Contiwest Corporation.
277 Park Avenue
New York, New York
Fax No.: (212) 953-0406
If to Harbert: MarRay Investment, L.L.C.
c/o Harbert Management Corporation
P.O. Box 1297
Birmingham, Alabama 35201
13
<PAGE>
Fax No.: (205) 987-5505
If to Crown: CNC Holding Corp.
1251 Dublin Road
Columbus, Ohio 43215
Fax No.: (614) 488-9780
A notice shall be deemed given when received by the addressee.
Section 3.2 SUCCESSORS AND ASSIGNS. Each of the parties hereto
hereby acknowledges that in entering into this Agreement it has not relied upon
any representation or warranty except as expressly set forth herein. Subject to
the exceptions specifically set forth in this Agreement, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and permitted
assigns of the parties. This agreement cannot be assigned by the parties other
than to "Affiliates" of the parties hereto, as such term is defined in Section
405 of the General Rules and Regulation promulgated under the Securities Act.
Any assignee of this Agreement will agree in writing to be bound by the terms
hereof prior to such assignment becoming effective.
Section 3.3 GOVERNING LAW; JURISDICTION; SERVICE. This Agreement
has been negotiated, executed and delivered at and shall be deemed to have been
made in New York, New York. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflict of laws rules therein. The parties hereto hereby consent and agree
that the Supreme Court of New York County, New York and the United Stated
District court for the Southern District of New York, shall have exclusive
jurisdiction to hear and determine any claims or disputes between the parties
hereto pertaining to this Agreement or to any matter arising out of or related
to this Agreement. The parties hereto expressly submit and consent in advance
to such jurisdiction in any action or suit commenced in any such court, and
hereby waive any objection which it may have been based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby consent to the
granting for such legal or equitable relief as is deemed appropriate by such
court. Each party hereto irrevocably consents to the service of process by
registered or certified mail, postage prepaid, its address given pursuant to
Section 3.1 hereof. Subject to the foregoing, nothing in this Agreement shall
be deemed to operate to affect the right of any party hereto to serve legal
process in any other manner permitted by law, to preclude the enforcement by any
party hereto of any judgement or order obtained in such forum or the taking of
any action under this Agreement to enforce same in any other appropriate forum
or jurisdiction.
Section 3.4 IMMUNITY; WAIVER OF TRIAL BY JURY. To the extent that
a party has or may hereafter acquire any immunity from the jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgement, attachment in aid of execution, execution or otherwise) with
respect to such party or such party's property, such Party hereby irrevocably
waives such immunity in respect of its obligations under this Agreement.
SUBJECT TO SECTION 3.7 HEREIN, EACH
14
<PAGE>
PARTY HERETO WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING
OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT. In
the event of litigation, this Agreement may be filed as a written consent to a
trial by the court. To the extent permitted by applicable law, each party
hereto irrevocably waives any right such party may have to punitive damages.
Section 3.5 COUNTERPARTS. This Agreement may be executed in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 3.6 CROSS-REFERENCES; SCHEDULES; TITLES AND SUBTITLES.
Unless expressly indicated to the contrary, all references in this Agreement to
enumerated Sections are to the respective Sections of this Agreement. The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement.
Section 3.7 DISPUTE RESOLUTION. The parties agree that each will
attempt in good faith to resolve through negotiation any dispute, claim or
controversy arising out of or relating to this Agreement prior to filing any
claim by suit in a court. Any party may initiate negotiations by providing
written notice in letter form to the other party, setting forth the subject of
the dispute and the relief requested. The recipient of such notice will respond
in writing within five days with a statement of its position on and recommended
solution to the dispute. If the dispute is not resolved by this exchange of
correspondence, then representatives of each party with full settlement
authority will meet at a mutually agreeable time and place within ten days of
the date of the initial notice in order to exchange relevant information and
perspectives, and to attempt to resolve the dispute. If the dispute is not
resolved by these negotiations, the matter will be submitted to
J.A.M.S/ENDISPUTE, or its successor, for mediation. If the matter is not
resolved by such mediation within 180 days of the initiation of negotiations,
then either party may file a suit in court. If the matter is resolved by
litigation, the prevailing party's litigation expenses, including but not
limited to all filing fees, attorney's fees and fees paid to other consultants
in the course of litigation will be paid by the other party; PROVIDED THAT, each
party shall bear its own costs of mediation and the mediator's fee shall be
borne pro rata by the parties hereto which are subject to such mediation.
Section 3.8 WAIVER; SEVERABILITY. The waiver by one party hereto
of any breach by the other (the "BREACHING PARTY") of any provision of this
Agreement shall not operate or be considered as a waiver of any other (prior or
subsequent) breach by the Breaching Party, and waiver of a breach of a provision
in one instance shall not be deemed a waiver of such provision in any other
circumstance. If any term or provision of this Agreement or the application
thereof to any person, property or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement, or the application of such
term or provision to persons, property or circumstances other than those as to
which it is invalid or unenforceable, shall not be affected thereby.
15
<PAGE>
Section 3.9 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all other prior agreements or understandings, written or oral,
between the parties with respect to the subject matter hereof.
16
<PAGE>
IN WITNESS WHEREOF, the PARTIES hereto have executed this Agreement as
of the date first written above.
CONTIWEST CORPORATION STRATEGIC REALTY CAPITAL
CORP.
By: /s/ Peter Abeles By: /s/ Harold E. Cooke
--------------------------- -------------------------------
Name: Peter Abeles Name: Harold E. Cooke
Title: President Title: President and Chief
Executive Officer
By: /s/Robert E. Riedl
---------------------------
Name: Robert E. Riedl
Title: Vice President
CNC HOLDING CORP. MARRAY INVESTMENT, L.L.C.
By: Harbert Management Corp.
Its: Managing Member
By: /s/ Ronald E. Roark By: /s/ Raymond J. Harbert
--------------------------- -------------------------------
Name:Ronald E. Roark Name: Raymond J. Harbert
Title:Chairman and Title: Chairman
Chief Executive Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CROWN
NORTHCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS
OF MARCH 31, 1998 AND THE THREE MONTHS ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,374,170
<SECURITIES> 0
<RECEIVABLES> 1,746,063
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,337,205
<PP&E> 2,906,557
<DEPRECIATION> 858,157
<TOTAL-ASSETS> 16,822,731
<CURRENT-LIABILITIES> 1,983,179
<BONDS> 2,426,061
2,000,000
0
<COMMON> 110,310
<OTHER-SE> 8,952,370
<TOTAL-LIABILITY-AND-EQUITY> 16,822,731
<SALES> 0
<TOTAL-REVENUES> 1,892,250
<CGS> 0
<TOTAL-COSTS> 1,797,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,657
<INCOME-PRETAX> 0
<INCOME-TAX> 19,400
<INCOME-CONTINUING> 3,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,770
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
