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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No.: 0-22936
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Crown Northcorp, Inc.
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(Name of small business issuer in its charter)
Delaware 22-3172740
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(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) (Zip Code)
(614) 488-1169
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
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NONE
Securities registered under Section 12(g) of the Exchange Act:
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Common Stock, par value $.01 per share
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
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. X
---
Issuer's revenues for the fiscal year ended December 31, 1997 were
$10,540,317.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 16, 1998 was $11,339,438.
As of December 31, 1997 the issuer had 10,790,899 shares of its common
stock outstanding.
Transitional Small Business Disclosure Format. Yes No X
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CROWN NORTHCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
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PART I. PAGES
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Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 4
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security-Holders......... 5
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.... 6
Item 6. Management's Discussion and Analysis or Plan of Operation... 8
Item 7. Financial Statements........................................ F-1 thru F-20
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 16
PART III.
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
Of the Exchange Act......................................... 16
Item 10. Executive Compensation...................................... 18
Item 11. Security Ownership of Certain Beneficial Owners
and Management.............................................. 20
Item 12. Certain Relationships and Related Transactions.............. 24
Item 13. Exhibits, List and Reports on Form 8-K...................... 24
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PART I
ITEM 1. - DESCRIPTION OF BUSINESS
BUSINESS OVERVIEW
Crown NorthCorp, Inc. (the "Company") is an international speciality
financial services company providing access to capital to owners and
operators of commercial real estate and risk management services to investors
seeking high yields through commercial real estate-related investments. The
Company offers comprehensive services to commercial real estate markets
including commercial mortgage loan origination, loan servicing and
third-party asset management.
The Company was formed in August 1994 through the combination of Crown
Revenue Services, Inc. ("Crown") and NorthCorp Realty Advisors, Inc.
("NorthCorp"). Crown and NorthCorp were both formed in 1990. The Company is
incorporated under the laws of the state of Delaware. In May 1995,
stockholders of the Company approved a proposal to officially change the name
of the Company to Crown NorthCorp, Inc.
Corporate headquarters for the Company is in Columbus, Ohio. The Company
also has offices in Atlanta, Georgia; Dallas, Texas; McLean, Virginia;
London, England and Copenhagen, Denmark. At December 31, 1997, the Company
had 60 full-time employees.
The Company, since its inception, has primarily derived its revenues from
servicing contracts providing for the management and disposition of real
estate and loan assets, the servicing of individual loans and loan
portfolios, receivership administration, due diligence reviews, loan
underwriting, the management of various corporate and partnership interests
and, more recently, the origination of commercial mortgage loans. Fees the
Company has received have been primarily comprised of ongoing management and
disposition fees associated with transactions and incentive fees based on the
overall performance of a contract or pool of assets.
In June 1997, the Company adopted a strategic business plan under which the
Company has reorganized into business units corresponding to its core
business segments: Third Party Asset Management, Loan Servicing, Mortgage
Loan Origination and European Operations. Implementation of this plan is a
significant step in the Company's continuing transition from its historic
roots as an asset management contractor to a firm positioned to deliver
financial services at all points in the life cycle of a commercial real
estate asset including acquisition, financing, servicing, management,
securitization and disposition.
THIRD PARTY ASSET MANAGEMENT. In recent years, the Company has primarily
derived revenues from asset management and disposition contracts with various
private-sector firms. 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 or interests. The Company typically manages
and repositions such assets pending disposition or securitization. The
Company's third-party asset management activities also include due diligence
reviews, asset underwriting and land management. Contracts with one customer,
an investment banking firm, accounted for 34% of 1997 revenues.
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These contracts generally have no set expiration dates and provide for
additions of assets by addenda, each with its own compensation structure.
Compensation generally includes ongoing management and disposition fees.
Additionally, some contracts provide the opportunity for incentive-based
compensation at the end of an engagement based upon stipulated return
criteria.
Prior to 1996, the Company derived most of its revenues from public-sector
contracts, primarily with the Federal Deposit Insurance Corporation ("FDIC")
and the Resolution Trust Corporation ("RTC"). As issues related to the
massive failures of banks and thrifts were resolved, business from these
agencies steadily declined. The Company currently does not have any
public-sector contracts and does not anticipate that such contracts will be a
primary source of revenue in the foreseeable future.
Utilizing the combined resources of all of its business units, the Company is
seeking to expand its third party asset management services. Strategic
Realty Capital Corp. ("SRC"), a newly organized Maryland corporation formed
to operate as a real estate investment trust ("REIT") filed on March 24, 1998
a registration statement with the Securities and Exchange Commission ("SEC")
for an underwritten public offering. SRC plans to invest in high-yield
lending and investment opportunities in commercial and multifamily real
property-related assets, including interim loans, mezzanine interests and
subordinated interests in commercial mortgage backed securities. The Company
intends to co-sponsor the offering together with affiliates of both
ContiFinancial Corporation, a leading consumer and commercial finance company
("Conti") and Harbert Management Corporation, a privately held diversified
investment management company ("Harbert"). SRC would enter into a management
agreement with the Company under which the Company to manage the business and
investment affairs of SRC. In addition, the Company, together with Conti and
Harbert, would agree to offer certain high-yield lending and investment
opportunities to SRC before pursuing such opportunities for their own
account. The registration statement for SRC's offering has not yet become
effective. There can be no assurance that the offering will become effective
or that it will occur at any particular time or on any particular terms. See
"Item 5 - Market for Common Equity and Related Stockholder Matters" and "Item
11 - Security Ownership of Certain Beneficial Owners and Management."
LOAN SERVICING. Throughout its history, the Company has devoted substantial
resources to the development and maintenance of computer systems for the
delivery of financial services. Utilizing these systems, the Company
services loans and other real estate interests for both individual investors
and securitizations. Standard and 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. 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 recently 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. The Company believes that its
commitment to the development and maintenance of computer and servicing
systems has been a key factor in securing these favorable ratings. Continued
enhancement of its capabilities as a rated servicer is an important component
of the Company's business development activities.
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MORTGAGE LOAN ORIGINATION. During 1997, the Company expanded its business
through the development of a commercial loan origination capability. The
Company is a loan correspondent for the conduit program of ContiTrade
Services L.L.C., an affiliate of Conti ("ContiTrade"). Under this program,
the Company originates qualifying multifamily and commercial loans which
ContiTrade purchases at closing under a funding facility ContiTrade is
providing to the Company. ContiTrade then holds the loans pending later
placement into a securitization. The Company retains servicing rights with
respect to these loans and has the opportunity to share in profits upon the
sale of the loans into a securitization.
In late 1996 and early 1997, the Company acquired Merchants Mortgage
Corporation ("Merchants") and Reinlein/Lieser/McGee ("R/L/M"), which were
servicers of multifamily loans for the Delegated Underwriting and Servicing
Program ("DUS") administered by the Federal National Mortgage Association
("FNMA"). Through these acquisitions, the Company has begun refinancing
loans in these two portfolios under a limited license from FNMA.
The Company intends to continue to build its commercial loan origination
capability and believes that loan origination will be an increasingly
important source of the Company's revenues in the future.
EUROPEAN OPERATIONS. In addition to managing assets and interests throughout
the United States, the Company has commenced business operations in Europe.
Since September 1997, a Danish subsidiary of the Company, in a joint venture
with Catella, a leading property advisory firm in Sweden, has been 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 has offices in Copenhagen, Denmark and London,
England through which it is attempting to expand its European operations.
STRATEGIC ACQUISITIONS AND ALLIANCES
The Company continues to utilize strategic alliances and acquisitions to
expand its businesses. Over the past year, the Company has developed two
important new alliances. Between March 1997 and January 1998, an affiliate
of Harbert invested $5 million in the Company in exchange for common and
convertible preferred stock. In March 1998, an affiliate of Conti invested
$2 million in the Company in exchange for convertible preferred stock. Two
senior executives of Harbert and one senior executive of Conti serve on the
Company's Board of Directors. Pursuant to voting agreements executed in
conjunction with these investments, Harbert, Conti and their respective
affiliates may be deemed to control the Company. See "Item 5 - Market for
Common Equity and Related Stockholder Matters" and "Item 11 - Security
Ownership of Certain Beneficial Owners and Management."
Acquisitions have also been a means for the Company to expand its businesses.
Recent examples include the acquisition of Merchants and R/L/M and the
acquisition in 1996 of Eastern Realty Corporation and affiliated entities
("Eastern") which expanded the Company's capabilities in asset management and
land management.
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COMPETITIVE ENVIRONMENT
The commercial real estate industry tends to be cyclical. Historically, much
of the Company's business has focused on the management and disposition of
distressed assets. As the supply of these assets has declined during the
relatively strong economic times of recent years, the Company has sought to
expand its presence in other segments of the commercial real estate markets
corresponding to the cyclical nature of the industry. For example, in 1997,
the Company commenced the origination of commercial mortgage loans. The
Company has also expanded its capabilities to act as a rated servicer for
performing as well as non-performing assets. While it has been able to
diversify and expand its services to the commercial real estate industry, the
Company faces substantial competitive pressures as it continues to attempt to
implement its strategic business plan.
In recent years, the commercial real estate markets have undergone
significant consolidation. In part because of this process, many of the
Company's competitors are significantly larger and better capitalized than
the Company. Overall, competitors in the commercial real estate markets
currently have significant capital resources to deploy for new business
opportunities. These resources within the industry affect the Company's
business prospects and potential profitability in several ways. In the area
of mortgage loan origination, by way of example, the large amount of capital
currently available in the industry for commercial mortgage lending tends to
limit a lender's ability to increase profitability through increases in rates
and fees offered to borrowers.
The availability of capital is also a factor as the Company seeks to acquire
additional loan servicing business. Servicing opportunities, particularly
those associated with securitizations, are typically awarded to those
servicers willing to invest in the asset or portfolio. The Company's
relatively small capital resources, when compared to those of many of its
competitors, limit the ability of the Company to pursue many of these
servicing opportunities. Additionally, the significant capital available in
the industry for servicing acquisitions tends to increase the prices paid for
servicing opportunities. Concomitantly, profit margins for servicing
opportunities have narrowed. Increased prices may adversely affect the
ability of the Company to acquire and service portfolios profitably.
In 1997, the Company continued and accelerated the efforts begun in 1996 to
effect the transition of the Company into a firm offering comprehensive
services to the commercial real estate industry. Capital resources of the
Company were augmented through strategic alliances with Harbert and Conti.
The Company's operations were restructured to focus on core business and to
reduce operating expenses. Operating losses were reduced. Through these
efforts, the Company believes it has enhanced its ability to compete in the
markets for financial services. Nevertheless, for the Company to return to
profitable operations, it must continue to seek to execute its strategic
business plan and develop additional capital resources in a highly
competitive environment.
ITEM 2. - DESCRIPTION OF PROPERTY
OFFICES
The Company owns a building in Columbus, Ohio which serves as its corporate
headquarters. The headquarters is subject to the lien of a six-month,
adjustable-rate industrial revenue bond. See "Note
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5 - Notes and Bonds Payable -to the Consolidated Financial Statements." The
Company also leases office space in Atlanta, Georgia, Dallas, Texas, McLean,
Virginia, London, England and Copenhagen Denmark. See "Note 6 - Leases - to
the Consolidated Financial Statements."
INVESTMENT POLICIES
Third-party asset management is a principal business of the Company. In
conducting this business, the Company manages interests in real estate,
including real estate mortgages, for the account of others. The Company
generally does not invest in real estate, interests in real estate and real
estate mortgages for its own account.
Another principal business of the Company is originating commercial mortgage
loans. The Company, as a loan correspondent for ContiTrade's conduit
program, originates qualifying multifamily and commercial loans which
ContiTrade purchases at closing. ContiTrade retains ownership of the loans
pending securitization, with the Company retaining servicing rights with
respect to the loans. The Company also has a limited license to refinance
certain loans for sale to FNMA under the DUS Program. The Company retains a
portion of the credit risk on loans originated under the DUS Program. See
"Note 11 - Contingencies - to the Consolidated Financial Statements."
Generally, the Company does not originate or invest in commercial mortgage
loans for its own account.
The Company anticipates that, during 1998, it will invest cash of $2 million
in SRC. Additionally, the Company anticipates that it will grant SRC
warrants to acquire up to two million shares of the common stock of the
Company, par value $.01 per share (the "Common Stock"). In exchange for its
investment, the Company expects to receive common stock of SRC in a private
placement in conjunction with an initial public offering of that stock. The
Company also anticipates that it will receive options to purchase common
stock of SRC at the initial public offering price. The amount of any
investment the Company makes in SRC may be limited by laws and regulations
governing the operation of REITs. Affiliates of Conti and Harbert, together
with Tucker Holding Company, Ltd., a holding company controlled by Ronald E.
Roark, Chairman and Chief Executive Officer of the Company ("Tucker"), have
agreed that, upon the closing of the public offering contemplated by the
registration statement filed by SRC, they will vote the Common Stock they
hold in favor of a merger of the Company with SRC under certain terms and
conditions. See "Item 11 - Security Ownership of Certain Beneficial Owners
and Management."
From time to time, as part of its program of strategic acquisitions, the
Company makes equity investments in entities which hold interests in
partnerships or joint ventures. The Company from time to time also purchases
the rights to service certain assets.
ITEM 3. - 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 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Common Stock trades under the symbol "ASET" on the OTC Bulletin Board
administered by the National Association of Securities Dealers, Inc. ("NASD").
Records maintained by the National Quotation Bureau show the following with
respect to high and low bid prices for the Common Stock:
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Quarter Ended High Low
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March 31, 1996 $.50 $.37
June 30, 1996 $.63 $.49
September 30, 1996 $.63 $.63
December 31, 1996 $.64 $.63
March 31, 1997 $.95 $.63
June 30, 1997 $2.4375 $.85
September 30, 1997 $3.875 $2.875
December 31, 1997 $3.25 $1.75
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
At March 16, 1998, there were approximately 2,800 holders of record of shares
of the Common Stock.
During its 1997 and 1996 fiscal years, the Company made no payments of cash
dividends or returns of capital on common shares other than dividends of
$581,491 in 1996 to the holder of the minority interest in CSW Associates,
Inc. ("CSW"), a firm which had certain asset management and disposition
contracts with the FDIC and the RTC. The Company acquired a controlling
interest in CSW in 1995 and disposed of that interest in 1996.
The Company does not anticipate paying dividends on the Common Stock in the
foreseeable future. Instead, management anticipates that earnings will be
used in the operations of the Company.
At December 31, 1997, the Company has 30,000,000 authorized shares of the
Common Stock and 1,000,000 shares of preferred stock.
SERIES AA PREFERRED
The Company and Harbert Equity Fund I, L.L.C., an affiliate of Harbert
("Harbert Fund") are parties to a certain stock purchase agreement dated as
of March 7, 1997 (the "Harbert SPA"). On
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December 31, 1997, the Company and the Harbert Fund entered into Amendment
No. 2 to the Harbert SPA (the "Harbert SPA Amendment") whereby the Company
issued one share of Series AA Convertible Preferred Stock (the "Series AA
Preferred") in exchange for $3,647,185 cash. The Series AA Preferred was
issued to Harbert Fund without registration pursuant to the exemptions
contained in Section 4(2) of the Securities Act and Rule 506 thereunder based
upon the accreditation of the purchaser and the size of the offering, among
other things. The share of Series AA Preferred has a liquidation preference
of $3,647,185, plus a 12% cumulative dividend thereon from January 26, 1998.
The Series AA Preferred carries a non-cumulative dividend of 5% simple
interest per annum. The share of Series AA Preferred is convertible in to
3,473,510 shares of the Common Stock at any time at the option of the holder
or at the option of the Company upon the occurrence of certain Trigger
Events. These "Trigger Events" are, first, the closing of the public
offering contemplated by the registration statement filed by SRC (or the
closing of a comparable fund opportunity) and second, the Company achieving
certain specified commercial loan origination volumes (the "Trigger Events").
If the Trigger 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 until such time as the Trigger Events do occur. See "Item 11 -
Security Ownership of Certain Beneficial Owners and Management" and "Note 13
- - Subsequent Events - to the Consolidated Financial Statements."
SERIES BB PREFERRED
Effective March 3, 1998, the Company and ContiWest Corporation, an affiliate
of Conti ("ContiWest") entered into a stock purchase agreement (the "Conti
SPA"). Pursuant to the Conti SPA, the Company issued one share of Series BB
Convertible Preferred Stock (the "Series BB Preferred") in exchange for $2
million cash and a warrant to purchase up to 200,000 shares of the Common
Stock at a price of $2 per share. These warrants may vest and expire
annually over an indefinite number of years based upon the Company's earnings
per share, as reported in its annual report, and the continued availability
to the Company of a funding facility under ContiTrade's securitization
program. The Series BB Preferred was issued to ContiWest without
registration pursuant to the exemptions contained in Section 4(2) of the
Securities Act and Rule 506 thereunder based upon the accreditation of the
purchaser and the size of the offering, among other things. The share of
Series BB Preferred has a liquidation preference of $2,000,000, plus a 12%
cumulative dividend thereon from March 3, 1998. The share of Series BB
Preferred Stock is convertible into one million shares of the Common Stock at
any time at the option of the holder or at the option of the Company upon the
occurrence of the Trigger Events. See "Item 11 - Security Ownership of
Certain Beneficial Owners and Management" and "Note 13 - Subsequent Events -
to the Consolidated Financial Statements."
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ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
HIGHLIGHTS
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. The Company continues to develop its
business lines to grow both its historic, core businesses such as asset
management and loan servicing, as well as newer, related businesses such as
mortgage loan origination. The Company plans to significantly expand its
third-party asset management services by serving as manager of SRC. 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 is currently operating at a loss. Management anticipates that
these losses 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.
- - 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
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mortgage lending industry has numerous competitors with large amounts of
capital available for mortgage lending. The ContiTrade loan 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 SRC closes and becomes effective, the
Company will be unable to derive benefits either from a management
agreement with SRC or from any investment in SRC.
BUSINESS OUTLOOK
In 1998, management anticipates continuing the initiatives implemented with
its strategic business plan in June 1997. Pursuant to this plan, the Company
continues to reposition its core businesses, such as third-party asset
management and loan servicing, and to develop new, related businesses such as
mortgage loan origination. This repositioning is resulting in a shift in the
composition of the Company's revenues. Historically, the Company has derived
its primary revenues from third-party asset management activities. The
Company anticipates that mortgage loan origination will now be a primary
source of its revenues. Third-party asset management as well as loan
servicing will continue to be important sources of revenue for the Company.
The Company will also continue to seek to expand its revenue base through
European Operations and other activities related to its basic business units.
Mortgage loan origination is a new business unit for the Company. In 1997,
the Company became a loan correspondent in ContiTrade's conduit lending
program. Under this program, ContiTrade purchases qualifying multifamily and
commercial loans from the Company at closing under a funding facility.
ContiTrade then holds the loans for later sale into securitization programs.
The Company retains servicing rights to the loans and has an opportunity to
share in profits upon the sale of loans into a securitization. The Company
is also refinancing certain loans in the acquired Merchants and R/L/M
portfolios under a limited license in the FNMA DUS Program. 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 originations will become a primary source of the Company's
revenues.
Third-party asset management has historically been a core business of the
Company. While, in 1997, the Company's principal investment banking client
placed a large number of assets under the Company's management into a
securitization, that client continues to enter into additional asset
management engagements with the Company. Currently, the asset management
activities of the
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Company typically include the management of large individual assets, such as
loans secured by hotels or office buildings, or portfolios of commercial real
estate assets pending a client's securitization or disposition of those
assets. The Company intends to continue to develop and expand its activities
in this area. In addition, if an offering as contemplated by the
registration statement filed by SRC becomes effective and closes, then
management anticipates that the Company will derive a portion of its future
revenues from the fees earned from providing management services with respect
to the assets and operations of SRC pursuant to a comprehensive management
agreement. The Company's asset management unit will devote substantial
resources to this engagement with SRC. If the public offering contemplated by
the registration statement filed by SRC does not become effective and close,
management will seek to expand its asset management services through other
means. Management believes that asset management will continue to be an
important source of revenue for the Company.
The Company holds "above average" ratings as a special servicer from S&P and
Fitch, the second highest ratings available from each agency. Utilizing its
capabilities as a rated servicer, the Company is actively seeking to acquire
servicing rights to additional assets. The Company is also seeking to expand
its capabilities to act as a rated servicer in all facets of securitized
transactions.
In 1997 the Company entered into a joint venture to provide asset management,
financial and advisory services to an investment group which acquired an
interest in a large portfolio of real estate assets from an agency of the
Swedish government. The Company continues to pursue acquisitions of asset
portfolios and operating entities overseas and expects revenues from European
Operations to increase.
To return to operating profitability, the Company must continue to develop
and expand revenues both in its new business operations as well as its
historic, core businesses. Additionally, the Company must sustain the
benefits realized from the restructuring plan implemented in 1997. There can
be no assurance, however, that the Company will successfully implement any or
all elements of its strategic business plan, that implementation will occur
at any particular time or that implementation will produce any particular
financial results.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1996
Although total revenues decreased slightly in 1997 from 1996, revenue
components changed significantly, with management fees decreasing by
approximately $2.4 million in 1997. Asset management contracts with various
clients, including investment banking firms and partnerships, continue 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 fee structures associated with its former public-sector
contracts to revenue streams under private-sector contracts which generally
provide for lower ongoing fees with the opportunity for additional,
incentive-based compensation at the end of an engagement. In 1997, the
Company had public-sector contract revenues of approximately $1.1 million, or
10% of total revenues, compared to approximately $5.3 million, or 50% of
total revenues, in 1996. 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
other sources almost entirely
10
<PAGE>
offset the decrease in management fees. These new revenue sources include:
loan origination activities, corporate acquisitions, European development
activities, new revenue sources developed from equity investments in
partnerships and joint ventures and loan servicing. 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.
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. The gross contract value of assets
under management were $852 million and $950 million at December 31, 1997 and
1996, respectively. Management fee revenues decreased $2,377,047 to
$3,414,713 in 1997 from $5,791,760 in 1996 and reflect the general cyclical
recovery of the commercial real estate sector of the economy. The decrease
in management fee revenues for 1997 versus 1996 was specifically reflected in
decreases in both private- and public-sector contract revenues. The decrease
in private-sector contract revenues, as detailed below, 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. Additionally, management fees decreased because of
contracts being resolved and being replaced with contracts providing for
generally lower ongoing management fees. Approximately 6% of management fees
were attributable to public-sector contracts in 1997 compared to 16% in 1996.
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 $232,233 to
$3,450,523 in 1997 from $3,218,290 in 1996. Approximately 26% of the fees
were from public-sector contracts in 1997 compared to approximately 87% in
1996. Disposition fees increased primarily from disposition fees on a large
number of assets under the Company's management that were placed into a
securitized transaction by an investment-banking client. The Company received
disposition fees of $1,150,000 as a result of this transaction.
Certain contracts provide for incentive fees if the Company achieves net cash
collections in excess of thresholds established in the contracts. Incentive
fees increased $364,479, to $1,669,691 in 1997 from $1,305,212 in 1996.
Approximately 70% of the 1997 fees were due to one private-sector contract
threshold being attained. The incentive levels in 1996 were primarily based
on public-sector contracts.
Mortgage origination revenues of $522,985 reflect the generation of fees from
mortgage origination and the gain on sale of loans resulting from the
commencement of commercial mortgage loan origination activities.
Loan servicing fees-net reflect loan servicing fees primarily generated from
FNMA DUS loan portfolios obtained through the acquisitions of Merchants and
R/L/M net of amortization of acquired servicing rights associated with those
acquisitions.
11
<PAGE>
Interest income increased $352,985 to $418,015 in 1997 from $65,030 in 1996.
The increase is attributed to earnings on invested restricted cash balances
resulting from the Merchants and R/L/M acquisitions, unrestricted interest
earnings on certain loan escrows associated with the FNMA DUS Program and
interest paid on certain asset management contracts settled in 1997.
The equity in income (losses) from partnerships was primarily from a joint
venture performing asset management, financial and advisory services to an
investment group that acquired an interest in a portfolio of real estate
assets from the Swedish government. Additionally, the Company recorded
equity earnings attributable to investments obtained through the acquisition
of Eastern.
Other revenues generally consist of fees for accounting, due diligence and
consulting services.
Personnel expenses, insurance, professional and other expenses, and occupancy
expenses decreased approximately $2.9 million, or 25%, to $8.9 million in
1997 from $11.8 million in 1996. The decreases were primarily caused by the
disposition of CSW in July 1996, and by the operational restructuring
resulting from the expiration of the Company's public-sector contracts.
Also, as a result of the implementation of the Company's strategic business
plan in 1997, the Company exited certain non-core businesses and closed
offices. Because of these factors, staffing was significantly reduced and
other expense components were restructured to reduce overall expenses.
Management expects certain operating expenses for targeted revenue
activities, such as loan origination, to increase with the change in lending
volume.
Personnel expenses include salaries, related payroll taxes and benefits,
travel and living expenses, and professional development expenses. Personnel
expenses decreased $1,989,984, or 22%, to $6,958,227 for 1997 from $8,948,211
for 1996. The decreases were primarily caused by the disposition of CSW in
July 1996 and by operational restructuring as a result of the expiration of
the Company's public-sector contracts and implementation of its strategic
business plan. Because of these factors, staffing was reduced significantly
from 1996, with resultant decreases in salaries, payroll taxes and benefits
expenses.
Insurance, professional and other operating expenses decreased $690,233 or
39%, to $1,064,087 for 1997 from $1,754,320 for 1996. Corresponding with the
disposition of CSW and the corporate restructuring addressed above, other
occupancy, insurance and other expense components, including equipment leases
and other services were restructured to reduce overall expenses.
Occupancy expenses decreased $245,571, or 22%, to $862,155 in 1997 from
$1,107,726 in 1996. The decrease is generally attributed to the disposition
of CSW in 1996, and the closure and downsizing of offices resulting from
implementation of the strategic business plan.
Interest expense increased $102,900 to $344,024 for 1997 from $241,124 for
1996. The increase primarily results from debt incurred for the R/L/M
acquisition.
Amortization and depreciation decreased $463,236 to $346,754 for 1997 from
$809,990 for 1996. The decrease in amortization and depreciation expenses
for 1997 primarily reflects the impacts of 1996 transactions charging off
approximately $1,226,000 of unamortized goodwill of consolidated subsidiaries
in 1996.
12
<PAGE>
Abandoned acquisition expenses primarily reflect legal, accounting, and
other professional fees incurred by the Company, directly or through
contractual commitments, for due diligence conducted in conjunction with
four abandoned corporate acquisitions.
In June 1997, management implemented a restructuring plan for the Company's
operations which, among other items, encompassed consolidating offices and
exiting certain lines of business. The Company expects to incur total
restructuring charges of approximately $494,400, all of which were recorded
in the second quarter of 1997. Management expects to complete the
restructuring plan by the end of the first quarter of 1998. The Company
intends to use available cash to fund these expenditures.
The employment contract settlement of $206,563 in 1997 reflects a
non-recurring charge representing the lump sum, final settlement of incentive
compensation payments otherwise due over time to a former employee.
The loss on sale of subsidiary in 1997 primarily represents the loss on the
sale of the Company's 100% interest in Prime Tempus, Inc. In connection with
the June 1997 restructuring. The loss on sale of subsidiary in 1996
represents the loss on the sale of its 80% interest in CSW and the write-off
of related unamortized goodwill from the CSW acquisition.
The minority interest expense reflects the 20% of CSW's operations not owned
by the Company.
The income tax benefit of $217,170 for the year ended December 31, 1997
generally reflects taxes on book income at the statutory federal income tax
rate giving effect to the net effects of deductions for deferred loan
servicing and non-deductible foreign losses and amortization.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Cash and cash equivalents increased $148,860 to $735,940 at December 31, 1997
from $587,080 at December 31, 1996. The Company had aggregate bank credit
facilities of $750,000, of which none was outstanding at December 31, 1997.
In April 1997, the Company repaid bank borrowings of $950,000 outstanding at
March 31, 1997 with a portion of the funds from the collection of the federal
tax refund due the Company for the year ending December 31, 1996. Also, in
April 1997, the Company obtained a new bank letter of credit to secure its
obligations under a Six-Month Adjustable Rate Industrial Revenue Bond for a
building which serves as the Company's headquarters. The Company is in
compliance with all covenants of the letter of credit.
Pursuant to the Harbert SPA, as amended, 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
Harbert SPA Amendment pursuant to which the Harbert Fund purchased one share
of the Series AA Preferred on the terms and conditions set forth in the
Harbert SPA Amendment. See "Note 13 - Subsequent Events - to the Consolidated
Financial Statements."
13
<PAGE>
In March 1998, the Company and ContiWest entered into the Conti SPA whereby
Conti invested $2 million in exchange for one share of Series BB Preferred on
the terms and conditions set forth in the Conti SPA, and a warrant for
200,000 shares of the Common Stock. See "Note 14 - Subsequent Events - to
the Consolidated Financial Statements."
The Company anticipates that it will invest $2 million in SRC and grant SRC
warrants to acquire up to two million shares of the Common Stock. In
exchange, the Company expects to receive common stock of SRC in a private
placement in conjunction with an initial public offering of that stock and
stock options in SRC. The Company intends to use cash from private
investment capital infusions to fund this investment.
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. 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 from operating activities increased $728,648 to $1,064,639 for 1997
from $335,991 in 1996. Although the Company incurred a net loss in 1997, the
impact of the net loss was offset by the net change in working capital
components. Working capital component changes for 1997 primarily consist of
the collection of a tax refund receivable and increases in current
liabilities. As previously discussed, during 1996, the Company incurred
non-cash charges to write-off its investment in CSW. The charges were offset
by a net decrease in cash provided from the net change in working capital
components; primarily relating to the payment in 1996 of 1995 tax liabilities.
Cash flows used in investing activities increased to $1,520,871 for 1997 from
$315,147 in 1996. The change was primarily from net cash paid for the R/L/M
Acquisition which was offset in part by the use of restricted cash and cash
distributions received from partnerships and joint ventures. The
distributions from partnerships and joint ventures were from the Company's
interests in a European joint venture performing asset management, financial
and advisory services to an investment group, and from entities acquired with
the Eastern acquisition in October 1996.
Cash flows from financing activities increased to $605,092 for 1997 from
$290,698 in 1996. The increase is generally attributable to the receipt of
net proceeds from the issuance of equity shares, primarily to the Harbert
Fund. The change was partially offset by the change in net borrowings, with
the Company reducing debt during 1997 while incurring debt during 1996.
14
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
The consolidated financial statements filed with this item are listed below:
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets, December 31, 1997 and 1996............... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996............................................ F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997 and 1996................................ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996............................................ F-7
Notes to Consolidated Financial Statements for the years
ended December 31, 1997 and 1996...................................... F-9
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders of
Crown NorthCorp, Inc. and Subsidiaries
We have audited the accompanying historical consolidated balance sheets of
Crown NorthCorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Crown NorthCorp, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
We have also examined the pro forma adjustments reflecting the sale of Series
AA and Series BB Preferred Stock as described in Note 13 and the application
of those adjustments to the historical amounts in the accompanying pro forma
consolidated balance sheet of Crown NorthCorp, Inc. and subsidiaries as of
December 31, 1997. Our examination was made in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
sale of Series AA and Series BB Preferred Stock occurred at an earlier date.
F-2
<PAGE>
In our opinion, the accompanying pro forma consolidated balance sheet of
Crown NorthCorp. Inc. and subsidiaries as of December 31, 1997 gives
appropriate effect to the pro forma adjustments necessary to reflect the sale
of the Series AA and Series BB Preferred Stock as described in Note 13 and
the pro forma column reflects the proper application of those adjustments to
the historical financial statements.
March 6, 1998 (except for Note 13 as to
which the date is March 24, 1998)
F-3
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSETS 1997 1996
---- ----
HISTORICAL PRO FORMA HISTORICAL
------------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 735,940 $ 6,306,625 $ 587,080
Accounts receivable - net of allowance of $30,000
in 1997 and $20,000 in 1996 1,672,306 1,672,306 1,235,009
Income tax refund receivable 96,345 96,345 1,211,129
Prepaid expenses and other assets 178,938 178,938 153,990
----------- ---------- ---------
Total current assets 2,683,529 8,254,214 3,187,208
PROPERTY AND EQUIPMENT - Net 2,014,746 2,014,746 2,007,642
RESTRICTED CASH 4,550,766 4,550,766 3,668,604
GOODWILL - Net of accumulated amortization of $183,945
in 1997 and $262,665 in 1996 503,833 503,833 353,613
OTHER ASSETS:
Loan servicing rights - net of accumulated
amortization of $81,555 in 1997 963,981 963,981 244,787
Investments in partnerships and joint ventures 383,094 383,094 308,834
Contract incentive fee receivable 188,069 188,069
Other 132,595 132,595 163,901
----------- ---------- ---------
Total other assets 1,667,739 1,667,739 717,522
----------- ---------- ---------
TOTAL $11,420,613 $16,991,298 $9,934,589
----------- ---------- ---------
----------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued compensation, benefits and payroll taxes $ 608,738 $ 608,738 $ 305,485
Current portion of long-term obligations 394,500 394,500 1,097,458
Accrued abandoned acquisition expenses 307,054 307,054
Accounts payable 229,002 229,002 247,157
Application and commitment fee deposits 218,032 218,032
Accrued profit sharing plan contribution 120,000 120,000
Accrued expenses - other 265,685 265,685 94,584
----------- ---------- ---------
Total current liabilities 2,143,011 2,143,011 1,744,684
LONG-TERM OBLIGATIONS:
Notes and bonds payable - less current portion 2,563,550 2,563,550 2,180,694
Allowance for loan losses 1,250,000 1,250,000 1,261,485
Deferred tax liability 74,517 74,517
Other 61,204 61,204 -
----------- ---------- ---------
Total long-term obligations 3,949,271 3,949,271 3,442,179
REDEEMABLE PREFERRED STOCK 2,000,000 2,000,000 2,500,000
SHAREHOLDERS' EQUITY:
Common stock 108,310 108,310 88,269
Convertible preferred stock:
Series AA - - -
Series BB
Series A (liquidation preference - $450,000
plus unpaid dividends) - - 5
Additional paid-in capital 4,209,752 9,780,437 2,793,125
Accumulated deficit (976,367) (976,367) (616,937)
Treasury stock, at cost (13,364) (13,364) (16,736)
----------- ---------- ---------
Total shareholders' equity 3,328,331 8,899,016 2,247,726
----------- ---------- ---------
TOTAL $11,420,613 $16,991,298 $9,934,589
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Management fees $ 3,414,713 $ 5,791,760
Disposition fees 3,450,523 3,218,290
Incentive fees 1,669,691 1,305,212
Mortgage origination 522,985
Loan servicing fees 501,945
Interest income 418,015 65,030
Equity in income (losses) from partnerships 212,468 (3,173)
Other 349,977 261,639
------------ -----------
Total revenues 10,540,317 10,638,758
------------ -----------
EXPENSES:
Personnel 6,958,227 8,948,211
Insurance, professional and other 1,064,087 1,754,320
Occupancy 862,155 1,107,726
Interest 344,024 241,124
Amortization and depreciation 346,754 809,990
Abandoned acquisition expenses 758,881
Restructuring expenses 494,409
Employment contract settlement 206,563
Loss on sale of subsidiary 66,976 2,104,567
Minority interest 177,171
------------ -----------
Total expenses 11,102,076 15,143,109
------------ -----------
LOSS BEFORE INCOME TAXES (561,759) (4,504,351)
INCOME TAX BENEFIT (217,170) (1,237,422)
------------ -----------
NET LOSS $ (344,589) $ (3,266,929)
------------ -----------
------------ -----------
LOSS PER SHARE, BASIC AND DILUTED $ (0.04) $ (0.40)
------------ -----------
------------ -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 9,991,330 8,202,932
------------ -----------
------------ -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK
SERIES A RETAINED EXCESS
COMMON STOCK -------------------- ADDITIONAL EARNINGS PURCHASE TOTAL
SHARES SHARES PAID-IN (ACCUMULATED PRICE OF TREASURY STOCK SHAREHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT) SUBSIDIARY SHARES AMOUNT EQUITY
--------- --------- --------- --------- ---------- ------------ ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER
31, 1995 8,250,000 $ 82,500 $2,192,772 $ 2,658,461 $ (53,742) (50,221) $ (16,736) $4,863,255
Amortization
of excess
purchase of
subsidiary 53,742 53,742
Issuance of
common stock 576,924 5,769 369,231 375,000
Issuance of
preferred
stock 450 $ 5 231,122 231,127
Dividends
paid -
Series A
Preferred (8,469) (8,469)
Net loss for
the year
ended
December 31,
1996 (3,266,929) (3,266,929)
--------- --------- --------- --------- ---------- ------------ ---------- --------- --------- ----------
BALANCE,
DECEMBER
31, 1996 8,826,924 88,269 450 5 2,793,125 (616,937) 0 (50,221) (16,736) 2,247,726
Issuance of
common
stock 1,436,012 14,360 1,382,835 1,397,195
Conversion
of preferred
stock 560,135 5,602 (450) (5) (5,597)
Dividends
paid -
Series A
Preferred 7,911 79 14,762 (14,841)
Issuance of
treasury
shares 24,627 10,128 3,372 27,999
Net loss for
the year
ended
December 31,
1997 (344,589) (344,589)
--------- --------- --------- --------- ---------- ------------ ---------- --------- --------- ----------
BALANCE,
DECEMBER
31, 1997 10,830,982 $108,310 0 $ 0 $4,209,752 $ (976,367) $ 0 (40,093) $ (13,364) $3,328,331
---------- --------- --------- --------- ---------- ------------ ---------- --------- --------- ----------
---------- --------- --------- --------- ---------- ------------ ---------- --------- --------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (344,589) $(3,266,929)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 346,754 809,990
Decrease in reserve for loan losses (371,485)
Equity in loss (income) from investment in
partnerships and joint ventures (212,468) 3,173
Loss on disposal of property and equipment 71,731 47,779
Loss on sale of subsidiary 66,976 2,104,567
Minority interest 177,171
Deferred income tax (credit) (40,525)
Other 8,358 76,919
Change in operating assets and liabilities -
net of effects from purchases and
divestitures of subsidiaries:
Accounts receivable (446,167) 3,885,174
Income tax refund receivable 1,114,784 (1,211,129)
Loan servicing rights (247,310)
Prepaid expenses and other assets (84,636) 19,483
Accounts payable and accrued expenses 1,162,691 (2,269,682)
----------- -----------
Net cash provided by operating
activities 1,064,639 335,991
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 476,573
Distributions from partnerships and joint
ventures 357,308 82,146
Net cash acquired in (paid for) corporate
acquisitions and mergers (1,606,855) 168,776
Net cash disposed in corporate divestitures (36,056) (71,674)
Purchase of property and equipment (334,257) (283,996)
Investment in partnerships and joint ventures (219,100) (156,010)
Purchase of loan servicing rights (158,484)
Other (54,389)
----------- -----------
Net cash used in investing activities (1,520,871) (315,147)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable (5,213,388) (1,716,848)
Proceeds from notes payable 4,893,286 2,536,393
Issuance of common stock 1,425,194 138,607
Redemption of Series B preferred stock (500,000)
Distributions to minority interest (581,491)
Other (85,963)
----------- -----------
Net cash provided by financing
activities 605,092 290,698
----------- -----------
NET INCREASE IN CASH DURING THE YEAR 148,860 311,542
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 587,080 275,538
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 735,940 $ 587,080
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL INFORMATION
CASH PAID FOR INTEREST $ 271,858 $ 261,117
----------- -----------
----------- -----------
CASH PAID FOR INCOME TAXES $ 1,350,000
-----------
-----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
CORPORATE ACQUISITIONS:
Accounts receivable $ 16,983 $ 40,592
Property and equipment - net 2,368
Restricted cash 1,358,735 3,298,653
Other assets 591,137 508,553
Accounts payable and accrued expenses (26,330)
Loan loss reserve (360,000) (1,261,485)
----------- -----------
Net assets acquired, net of acquired cash 1,606,855 2,562,351
Amount financed - preferred stock (2,731,127)
----------- -----------
Net cash (acquired in) paid for
corporate acquisitions $ 1,606,855 $ (168,776)
----------- -----------
----------- -----------
CORPORATE DIVESTITURE:
Accounts receivable $ 25,853 $ 606,323
Property and equipment, net 7,926 204,267
Goodwill 1,170,000
Other assets 321 258,137
Accounts payable (3,180) (95,000)
Minority interest (110,834)
----------- -----------
Net assets disposed, excluding cash 30,920 2,032,893
Disposed cash 36,056 71,674
----------- -----------
Loss on sale of subsidiary $ 66,976 $ 2,104,567
----------- -----------
----------- -----------
PAYMENT OF NOTE PAYABLE BY ISSUANCE OF
COMMON STOCK $ 236,393
-----------
-----------
PAYMENT OF PREFERRED DIVIDENDS BY ISSUANCE OF
COMMON STOCK $ 14,841
-----------
-----------
PAYMENT OF BOARD OF DIRECTORS' FEES BY
ISSUANCE OF TREASURY STOCK $ 27,999
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Crown NorthCorp and its majority
owned subsidiaries (collectively, the Company). All significant
intercompany balances and transactions have been eliminated.
BUSINESS DESCRIPTION - The Company is a specialty financial services
company providing access to capital to owners and operators of
commercial real estate, and risk management services to investors
seeking high yields through commercial real estate related investments.
The Company offers comprehensive services to commercial real estate
markets including commercial mortgage loan origination, loan servicing
and third party asset management and advisory services. Assets managed
are located throughout the United States and Europe and include
commercial and residential real estate, performing and nonperforming
real estate and commercial loans, partnership investments and other
miscellaneous assets.
CONCENTRATIONS - Public sector contracts accounted for approximately 9%
and 50% of revenues for 1997 and 1996, respectively, and approximately
0% and 50% of total accounts receivable at December 31, 1997 and 1996,
respectively. Private sector contracts with one customer accounted for
34% and 24% of revenues for 1997 and 1996, respectively, and
approximately 19% and 15% of total accounts receivable at December 31,
1997 and 1996, respectively. Certain private sector contracts are
generally cancelable by the contractor with 30 days notice.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments with an original maturity of three months or less to be cash
equivalents.
DEPRECIATION - Property and equipment are recorded at cost. Depreciation
is computed using the straight-line method over estimated useful lives
of five to forty years.
GOODWILL - The excess purchase price over the fair value of identifiable
assets acquired is recorded as goodwill in the accompanying financial
statements. Goodwill is being amortized over its estimated life of 4 to
10 years using the straight-line method. At each balance sheet date, a
determination is made by management to ascertain whether the goodwill
has been impaired based on several criteria, including, but not limited
to, sales trends, undiscounted operating cash flows and other operating
factors.
LOAN SERVICING RIGHTS - The Company records an asset upon the sale of a
loan with servicing retained and allocates the cost of the loan to the
servicing rights and to the loans based on their relative fair values.
The resulting gain on sale of loans is included in mortgage origination.
The Company also purchases mortgage servicing rights and records such
rights at the cost to purchase.
The cost of loan servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of loan
servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current
market interest rate.
F-9
<PAGE>
LOAN SERVICING FEES - Loan servicing fees are recognized as earned under
the terms of the related servicing contract.
INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES - The Company's general
partner and Joint Venture investments (ranging from 1% to 50%) are
carried at cost, adjusted for the Company's proportionate share of
undistributed earnings and losses because the Company exercises
significant influence over their operating and financial activities.
ALLOWANCE FOR LOAN LOSSES - In connection with the acquisitions of
Merchants Mortgage Corporation at December 31, 1996 and of
Reinlein/Lieser/McGee Holding Corporation in January 1997 (see Note 2),
the Company established an allowance for loan losses to provide for
estimated losses in the acquired mortgage portfolios serviced (see Note
11). The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). The factors utilized
by management in its periodic evaluation of the adequacy of the
allowance include, but are not limited to, the following: the present
and prospective financial condition of the borrowers and the values of
any underlying collateral, evaluation of the loan portfolio in
conjunction with historical loss experience, portfolio composition, and
current and projected economic conditions. Changes in economic
conditions and economic prospects of borrowers can occur quickly and, as
a result, impact the estimates made by management.
MANAGEMENT FEES - Management fees are recorded as services required
under the contracts 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. Upon each disposition, withdrawal or addition of an asset or
asset group, the management fee is adjusted to reflect the change in
aggregate value of the assets. Management fees are calculated on a daily
basis as set forth in the contracts.
DISPOSITION FEES - Disposition and bonus fees, less retainages, are
recorded as revenue when the disposition of an asset has been
consummated and the gross proceeds from the disposition have been
received by the asset owner. 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. The Resolution Trust
Corporation retained a portion of all disposition fees earned. The
retainage receivable of $680,533 at December 31, 1996 was collected in
1997. There is no retainage receivable at December 31, 1997.
INCENTIVE FEES - Certain contracts provide for incentive fees if the
Company achieves net cash collections in excess of thresholds
established in the contracts. Upon substantial achievement of related
thresholds, long-term contract revenues are recognized on the
percentage-of-completion method based on assets realized relative to
total contract assets, net of any anticipated losses. Billings for
long-term contracts are rendered periodically, as permitted by contract
terms.
MORTGAGE ORIGINATION FEES - Beginning in 1997, the Company receives fees
to originate and process certain loans. Upon closing the loan, the
Company immediately sells the loan and recognizes origination fees as
income.
ABANDONED ACQUISITIONS - Abandoned acquisition expenses primarily
reflect legal, accounting, and other professional fees incurred by the
Company, directly or through contractual commitments, for due diligence
conducted in conjunction with four abandoned corporate acquisitions
INCOME TAXES - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or
F-10
<PAGE>
settled. As changes in the tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
LOSS PER COMMON SHARE - Loss per share is computed based on the loss
applicable to common stock after deducting Series A Preferred stock
dividends divided by the weighted average number of common shares
outstanding during the period. As the Company had net losses in 1997
and 1996 there are no potential common shares to be included in the
computation of diluted per-share amount, in accordance with Statement
of Financial Accounting Standards No. 128 "Earnings per Share", issued
in February 1997.
EMPLOYMENT CONTRACT SETTLEMENT - During 1997 the Company settled the
employment contract with an individual. The entire agreed upon
settlement of $206,563, including benefits and the Company's share of
taxes, was paid during the year.
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARD - Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information", issued in June 1997, amended Financial Accounting
Standards Board Statement No. 14 "Financial Reporting for Segments of a
Business Enterprise" to require financial information to be reported on
the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. The Company will, as
required, adopt this statement effective for the year beginning January
1, 1998. The statement will affect the financial statement presentation
of the Company. The Company does not anticipate the statement impacting
the financial position, results of operation or cash flows of the Company.
RECLASSIFICATIONS - Certain reclassifications of prior year amounts have
been made to conform with current year presentation.
2. ACQUISITIONS AND DISPOSITIONS
In January 1997, the Company acquired the stock of Reinlein/Lieser/McGee
Holding Corporation (R/L/M) and R/L/M Employee Benefit Corporation for
approximately $1,129,000, financed primarily through two bank loans
(with scheduled monthly payments of principal and interest through
February 1, 2002). A portion of the purchase price, $200,000, has been
placed in escrow and is recoverable by the Company if subsequent R/L/M
losses exceed a stipulated amount. The acquisition was accounted for
using the purchase method of accounting, and the excess purchase price
over net identifiable assets acquired, approximately $240,000, was
allocated to goodwill and is being amortized over 10 years. The results
of operations have been reflected in the financial statements since
January 1997. R/L/M is a servicer of multifamily loans for the
Delegated Underwriting and Servicing Program ("DUS") administered by the
Federal National Mortgage Association ("FNMA").
On December 31, 1996 the Company acquired 100% of the stock of Merchants
Mortgage Corporation (Merchants) for approximately 2,000 shares of the
Company's Series B Preferred Stock, and 500 shares of the Company's
Series C Convertible Preferred Stock. The acquisition was accounted for
using the purchase method of accounting, and the results of operations
have been reflected in the financial statements since that date.
Merchants is a servicer of multifamily loans for the DUS program
administered by FNMA.
F-11
<PAGE>
Effective October 1996, the Company acquired 100% of the stock and
membership interests in Eastern Realty Corporation and affiliates
(Eastern), a land management company, for $168,776 cash, 450 shares of
Series A Convertible Preferred Stock, and warrants for the issuance of
149,300 shares of common stock of the Company. The acquisition was
accounted for using the purchase method of accounting and the results of
operations have been reflected in the financial statements since that
date.
The Company acquired 80% of CSW Associates, Inc. (CSW), in June 1995 for
approximately $953,000 cash and $1,270,000 in notes payable to the
former shareholders. The CSW acquisition was accounted for using the
purchase method which resulted in the Company recording goodwill of
approximately $1,730,000. Effective July 31, 1996, the Company sold its
80% interest in CSW for a nominal amount to a shareholder and recorded a
loss on the sale of approximately $2,104,600, which included the
write-off of approximately $1,170,000 of goodwill.
Effective October 1, 1995, the Company acquired 100% of the outstanding
capital stock of Prime Tempus, Inc. for $173,911 cash (net of cash
acquired). Effective June 30, 1997, the Company sold its interest in
Prime Tempus for a nominal amount and recorded a loss on the sale of
approximately $67,000.
The following unaudited pro forma consolidated results of operations
have been prepared as if the acquisitions and dispositions had occurred
at the beginning of 1996:
<TABLE>
<S> <C>
Revenues $ 11,812,000
Expenses 12,200,000
-------------
Loss before taxes (388,000)
Income tax (credit) (107,000)
-------------
Net loss $ (281,000)
-------------
-------------
Loss per share, basic and diluted $ (0.03)
-------------
-------------
</TABLE>
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the transactions been in effect for
the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 271,845 $ 271,845
Building and improvements 1,137,112 1,132,473
Furniture and equipment 1,397,760 1,696,313
---------- ----------
Total property and equipment 2,806,717 3,100,631
Less accumulated depreciation (791,971) (1,092,989)
---------- ----------
Property and equipment - net $2,014,746 $2,007,642
---------- ----------
---------- ----------
</TABLE>
F-12
<PAGE>
4. RESTRUCTURING EXPENSE
In June 1997, management implemented a restructuring plan for the
Company's operations which, among other items, encompassed consolidating
offices and exiting certain lines of business. The Company expects to
incur total restructuring charges of approximately $494,000, which was
recorded in 1997. Included in accrued expenses at December 31, 1997 is
$85,000 of restructuring expense not paid in 1997. Management expects
to complete the restructuring plan over the first quarter 1998. The
Company intends to use available cash to fund these expenditures.
5. NOTES AND BONDS PAYABLE
At December 31, 1997, the Company has available a $750,000 line of
credit under a commercial revolving note, expiring April 1998, bearing
interest at the bank's prime rate of interest plus .25% (8.75% at
December 31, 1997). There were no borrowings outstanding on the line.
Long-term debt consists of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Six Month Adjustable Rate Industrial Development
Revenue Bonds, annual principal payments and
semi-annual interest payments, 3.7% and 3.9%
interest rate at December 31, 1997 and 1996,
respectively, based on terms of the indenture,
due April 2015. $1,330,000 $1,365,000
Installment Note payable, prime plus 0.5% (9.0% at
December 31, 1997), monthly payments of $23,021
plus interest, remaining principal and interest
due February 1, 2002 1,128,050
Installment Note payable, prime (8.5% at December
31, 1997), monthly interest only payments through
February 1998, monthly payments of $8,333
principal plus interest from March 1998 through
January 2002, remaining principal and interest
due February 2002. 500,000
Note payable - bank, bank's prime rate plus 0.5%
(8.75% at December 31, 1996), repaid in 1997 1,163,152
Note payable - bank, bank's prime rate plus 0.25%
(8.5% at December 31, 1996), repaid in 1997 750,000
---------- ----------
Total 2,958,050 3,278,152
Less current portion 394,500 1,097,458
---------- ----------
Long-term debt $2,563,550 $2,180,694
---------- ----------
---------- ----------
</TABLE>
The Six Month Adjustable Rate Industrial Revenue Bonds are secured by a
$1,498,500 letter of credit collateralized by a first mortgage on the
land and building (which serves as corporate headquarters) and a
restricted cash escrow account ($335,686 and $369,951 at December 31,
1997 and 1996, respectively) required under the bond indenture.
F-13
<PAGE>
The installment notes payable and line of credit are collateralized by
cash deposits of $2,715,080, loan servicing rights, and other non-cash
benefits from the mortgages acquired in the Merchants and R/L/M
acquisitions (see Note 2).
The scheduled sinking fund redemption and principal repayments related
to the notes and bonds are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1998 $ 394,500
1999 416,256
2000 416,256
2001 421,256
2002 184,782
Thereafter 1,125,000
----------
Total 2,958,050
Less current portion 394,500
----------
Total long-term portion $2,563,550
----------
----------
</TABLE>
At December 31, 1997, the fair value of the Company's long-term debt
approximates its recorded value, based on current market interest rates
and remaining maturities.
6. LEASES
The Company, in its operations, leases office facilities and equipment.
All leases in effect at December 31, 1997, which expire on various dates
through 1999, have been classified as operating leases. Rent expense
was approximately $316,000 and $563,000 in 1997 and 1996, respectively.
The future minimum operating lease payments as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
EQUIPMENT OFFICES
--------- -------
<S> <C> <C>
Year ending December 31:
1998 $ 191,844 $ 107,241
1999 53,480 89,859
---------- ----------
Total $ 245,324 $ 197,100
---------- ----------
---------- ----------
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company conducts some of its operations through various joint
ventures and other partnership forms which are principally accounted for
using the equity method. Included in the Company's revenues for 1997
and 1996 are equity in income (loss) of related companies of
approximately $212,500 and ($3,200), respectively. The Company also
provides services for the ventures and included in revenues for 1997 and
1996 are management, incentive, retainer and disposition fees of
approximately $1,141,000 and $47,700, respectively, related thereto.
During 1997 and 1996, the Company performed servicing, consulting and
accounting services for various companies affiliated with the
Controlling Shareholder. The Company generated revenues of
approximately $7,000 in 1997 and $86,000 in 1996 from these services.
F-14
<PAGE>
During 1997 and 1996 the Company paid approximately $27,000 and $28,000,
respectively, to affiliates of the Controlling Shareholder for
miscellaneous services.
8. SHAREHOLDERS' EQUITY
At December 31, 1997 and 1996, the Company has 30,000,000 authorized
shares of its $.01 par value common stock (Common Stock) and 1,000,000
authorized shares of preferred stock.
In December 1996 the Company issued 576,924 shares of its Common Stock
to an unaffiliated entity for $138,607 cash and the extinguishment of
$236,393 of unsecured debt.
In October 1996, in connection with the Eastern acquisition, the Company
issued 450 shares of Series A Convertible preferred stock (the "Series A
Preferred"), with a par value of $.01 per share. In June 1997, all of
the 450 outstanding shares of the Series A Preferred were converted into
560,135 newly issued shares of Common Stock. Additionally, 7,911 newly
issued shares of Common Stock were issued as payment for the cumulative
dividend due on the Series A Preferred.
In December 1996, in connection with the Merchants' acquisition, the
Company issued 2,000 shares of Series B Non-Voting, Non-Convertible
Preferred Stock ( the "Series B Preferred"), with a par value of $.01
per share. No dividends of any type are to be paid on the shares. The
liquidation value of each Series B Preferred share is $1,000. During
1997 the Company redeemed 500 shares for $500,000. The Company is
obligated to redeem the following number of shares on each date as
follows:
<TABLE>
<CAPTION>
SHARES TO BE REDEEMED AMOUNT REDEMPTION DATE
<S> <C> <C> <C>
600 $ 600,000 December 31, 1998
900 900,000 December 31, 1999
---- ----------
Total 1500 $1,500,000
---- ----------
---- ----------
</TABLE>
The Company is required to maintain a restricted cash balance
($1,500,000 at December 31, 1997) in a non-interest bearing account,
which is controlled by the Series B Preferred shareholder, used to
secure the Company's obligation to redeem the shares. The Company has
also pledged to the shareholder certain additional funds in the event
that funds in the deposit account are not maintained at certain
designated levels. All or part of the outstanding shares of Series B
Preferred stock are subject to redemption at the option of the Company
at a price equal to the redemption price.
In December 1996, also in connection with the Merchants' acquisition,
the Company issued 500 shares of Series C Non-Voting, Convertible
Preferred Stock (the "Series C Preferred"), with a par value of $.01 per
share. The shareholder is entitled to non-cumulative quarterly cash
dividends at the rate of 8% per annum on the liquidation preference.
The liquidation preference is $1,000 per Series C Preferred share. Each
Series C Preferred share is convertible into 666.67 fully paid shares of
Common Stock. The shares can be converted, at the option of the holder,
during a 45 day conversion period after the 30 day period in which the
average Common Stock closing share price equals or exceeds $1.50. The
F-15
<PAGE>
shares can be redeemed, at the option of the Company, following the
expiration of the conversion period at a conversion price equal to the
liquidation preference plus the full amount of any unpaid, declared
dividends. The Company is required to redeem the Series C Preferred
shares as follows:
<TABLE>
<CAPTION>
SHARES TO BE REDEEMED AMOUNT REDEMPTION DATE
<S> <C> <C> <C>
250 $250,000 December 31, 2001
250 250,000 December 31, 2002
---- --------
Total 500 $500,000
---- --------
---- --------
</TABLE>
During 1996 the Company issued warrants entitling the holders to purchase
403,983 shares of Common Stock at prices ranging from $0.63 to $1.00 per
share over periods ranging from 18 months to 5 years after issuance.
During 1997 the Company issued warrants to an employee entitling the
holder to purchase up to 1,000,000 shares of Common Stock at $1.05 per
share. The warrants may vest and expire annually through 2003 pursuant
to a schedule based on the anniversary dates of an employment agreement
and the Company achieving annual plan goals. As of December 31, 1997,
100,000 shares have been purchased under the warrants, and there are no
exercisable warrants.
A stock option plan for the outside directors of the Company was
approved by the Company's shareholders in 1995. Under the plan, each
outside director may be granted options for 100,000 shares of the
Company's Common Stock at an option price equal to the Common Stock's
market value on the date of the grant. The options vest over a
four-year period if the Company achieves certain stock price thresholds.
No options have been granted under this plan as of December 31, 1997.
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation." This new standard defines a fair value
based method of accounting for an employee stock option or similar
equity instrument. This statement gives entities a choice of
recognizing related compensation expense by adopting the new fair value
method or to continue to measure compensation using the intrinsic value
approach under Accounting Principals Board (APB) Opinion No. 25, the
former standard. If the former standard for measurement is elected,
SFAS No. 123 requires supplemental disclosure to show the effects of
using the new measurement criteria. The Company continues to use the
measurement prescribed by APB Opinion No. 25, and accordingly, this
pronouncement does not affect the Company's financial position or
results of operations. Based on an estimated volatility of 75%, a
weighted average of one year and a discount rate of 6%, compensation
cost under SFAS 123 would have been aprpoximately $25,000 higher than
reported in the Consolidated Statement of Operations, resulting in a
net loss of $361,000 (net of taxes) and a loss per share, basic and
diluted, of $.04 for the year ended December 31, 1997.
9. BENEFIT PLANS
The Company sponsors a defined contribution retirement plan for certain
of its employees who had attained the age of 21 and had provided six
months of service. The Company matches 25% of the first 4% of the
employees' contributions and employer contributions were $36,248 and
$53,094 in 1997 and 1996, respectively.
The Company has a profit sharing stock retirement plan (the "Plan")
covering U.S. employees. The Plan is designed to provide employees with
increased ownership of the Company's stock. The number of shares
allocated to the Plan is discretionary. At December 31, 1997, the
Company has accrued
F-16
<PAGE>
$120,000 for its contribution to the Plan, which will represent
approximately 200,000 shares of common stock.
10. INCOME TAXES
For the years ended December 31, 1997 and 1996, the components of income
tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current $(225,528) $(1,196,897)
Deferred 8,358 (40,525)
--------- -----------
Total income tax (benefit) expense $(217,170) $(1,237,422)
--------- -----------
--------- -----------
</TABLE>
The income tax (benefit) expense differs from the amount computed by
applying the statutory Federal income tax rate of 34% to pretax earnings
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income tax (benefit) expense at statutory rate $ (190,999) $(1,531,479)
Non-deductible foreign losses 76,177
Non-deductible amortization 15,854 102,069
Adjustment to non-deductible capital loss
on sale of subsidiary (106,350)
Minority interest in income of subsidiary 60,238
Non-deductible capital loss on sale of subsidiary 160,178
Other - net (11,852) (28,428)
----------- -----------
Total income tax (benefit) expense $ (217,170) $(1,237,422)
----------- -----------
----------- -----------
</TABLE>
The Company has approximately $213,000 of operating loss carryforwards
available at December 31, 1997. The carryforwards expire in 2002.
Included in loss before taxes are losses of $224,000 from a subsidiary
with operations in Europe.
F-17
<PAGE>
At December 31, 1997 and 1996 the Company had recorded a net deferred
tax asset as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Assets:
Current:
Collection allowance $ 10,200 $ 6,790
Items not currently deductible and other 74,711
Long-term:
Depreciation and amortization 11,962
Loss carryforward 72,447
----------- -----------
Total assets 157,358 18,752
----------- -----------
Liabilities - long-term:
Depreciation and amortization (19,048)
Deferred loan servicing (109,467)
Other (18,449)
----------- -----------
Total liabilities (146,964)
----------- -----------
Net deferred tax asset $ 10,394 $ 18,752
----------- -----------
----------- -----------
</TABLE>
11. 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.
LOAN LOSSES - The Company has a loss sharing agreement related to the
Federal National Mortgage Association - Delegated Underwriting and
Servicing ("FNMA-DUS") program. Losses from FNMA-DUS program mortgage
loan defaults are shared between the Company and FNMA. The Company's
maximum loss exposure under the FNMA-DUS was approximately $27 million
and $24 million at December 31, 1997 and 1996, respectively. The
Company's FNMA-DUS program loan servicing portfolio was approximately
$129 million and $114 million at December 31, 1997 and 1996,
respectively, for loans on properties located primarily in the Midwest
which mature between 1998 and 2006. Under the terms of the program, the
Company is responsible for the first portion of loss on any co-insured
loan, with the percentage determined by the loan program. Individual
loans have letters of credit in favor of FNMA, which may be drawn upon
to cover collateral deficiencies. At December 31, 1997 and 1996,
approximately $3.1 million and $4.6 million in letters of credit were
available. The Company has recorded an allowance for loan losses for
its anticipated losses from its FNMA-DUS program mortgage loans of
$1,250,000 and $1,261,485 at December 31, 1997 and 1996, respectively.
12. MORTGAGE SERVICING FOR OTHERS
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage
loans serviced for others was approximately $890 million and $1,002
million at December 31, 1997 and 1996, respectively.
F-18
<PAGE>
Custodial escrow balances maintained in connection with the foregoing
loan servicing, excluded from the accompanying consolidated balance
sheet, were approximately $141 million and $12 million at December 31,
1997 and 1996, respectively.
Mortgage servicing rights of $800,749 and $244,787 were capitalized in
1997 and 1996, respectively. Amortization of mortgage servicing rights
was $81,555 in 1997.
13. SUBSEQUENT EVENTS
In March 1997, the Company entered into a stock purchase agreement (the
"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. The Company received $3,647,185 for the sale of
the series AA Preferred and incurred costs of $40,200.
In March 1998, the Company entered into a stock purchase agreement (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 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.
The Company received $2,000,000 for the sale of the Series BB Preferred
and incurred costs of $36,300.
The effect of the above transactions (an increase in cash and preferred
stock) are reflected in the pro forma consolidated balance sheet as of
December 31, 1997 to show the effect on the balance sheet as if the
transactions had occurred on such date.
F-19
<PAGE>
The Company is a cosponsor of Strategic Realty Capital Corp. (SRCC)
which on March 24, 1998 filed with the securities exchange commission to
register shares in an initial public offering. SRCC is a real estate
investment trust and will make high-yield commercial and multifamily
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.
* * * * * *
F-20
<PAGE>
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
The Company currently has six Directors, one of which is also an executive
officer of the Company. All Directors of the Company hold office until the
next annual meeting of the stockholders and until their successors have been
duly elected and qualified.
Harold E. Cooke, Jack Koczela and Jay N. Rollins have entered into employment
contracts with the Company. All other officers of the Company do not serve a
term of years but serve at the pleasure of the Board of Directors.
The directors and executive officers of the Company as of March 16, 1998 are
as follows.
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
Ronald E. Roark 47 Chairman, Chief Executive
Officer and Director
Harold E. Cooke 47 President and Chief Operating Officer
John Everets 51 Director
Gordon V. Smith 65 Director
Raymond J. Harbert 39 Director
Michael D. Luce 45 Director
Scott M. Mannes 39 Director
Grace Jenkins 45 Executive Vice President
Jay N. Rollins 37 Executive Vice President
Jack Koczela 43 Executive Vice President
Richard A. Brock 48 Senior Vice President,
Treasurer and Chief
Financial Officer
William R. Stanley 44 Senior Vice President
Dean Melchi 45 Vice President
Stephen W. Brown 47 Secretary
</TABLE>
Set forth below are the principal occupations and affiliations during the
last five years of the directors and executive officers. All information is
as of March 16, 1998.
RONALD E. ROARK has served as Chairman of the Board of Directors of the Company
since August 4, 1994 and as Chief Executive Officer of the Company since
September 13, 1994. He served as
16
<PAGE>
Acting President and Chief Operating Officer from August 31, 1996 to April
21, 1997. Since June, 1991, he has served as President of Crown. Since
1979, he has been President of REE, Inc. and R.E. Roark Companies. In May,
1993, an affiliate of his acquired control of a majority interest in Ohio
Financial Service Corporation and he became Chairman of the Board of
Directors.
HAROLD E. COOKE has served as President and Chief Operating Officer of the
Company since April 22, 1997. Prior to joining the Company, he served as a
senior vice president of the Real Estate Financing Group of the investment
banking firm of Donaldson, Lufkin & Jenrette from January 1996 to April 21,
1997. From 1980 until December 1995 he worked for the investment banking
firm of Credit Suisse First Boston as Director of Public Finance, Chief
Financial Officer and Director of Commercial Mortgage Corporation as well as
Vice President of the Mortgage Finance Department.
JOHN EVERETS has served as a Director of the Company since September 13,
1994. He has been Chairman of the Board and Chief Executive Officer of HPSC,
Inc. since July 1993 and a Director of that company since 1983. From January
1990 to July 1993, he was Chairman of the Board of T.O. Richardson Co., Inc.
Mr. Everets also served as Chairman of the Connecticut Development Authority
from 1991 to July 1994. Mr. Everets is a Director of Dairy Mart Convenience
Stores, Inc. and the Eastern Company.
GORDON V. SMITH has served as a Director of the Company since October 1,
1996. He has been Chairman of the Board of Miller and Smith Holding, Inc.
since 1964. From 1985 to 1994, he served as Chairman and Chief Executive
Officer of Providence Savings and Loan Association, F.A. He served as
Chairman of Eastern from 1993 until October 1, 1996. Mr. Smith has served as
a Director of Bank Plus since 1996.
RAYMOND J. HARBERT has served as a Director of the Company since March 7,
1997, serving as one of Harbert's designees on the Board of Directors. Mr.
Harbert has been President and Chief Executive Officer of Harbert Corporation
since July 1990. Prior to that time, he served as Vice President of the
Harbert Corporation and as President of Harbert Properties Corporation.
MICHAEL D. LUCE has served as a Director of the Company since March 7, 1997,
serving as one of Harbert's designees on the Board of Directors. Since 1995,
Mr. Luce has served as Executive Vice President and Chief Financial Officer
of Harbert Corporation and Harbert. Mr. Luce also serves as President of The
Seque Group, Inc. Until 1995, he served as Senior Managing Director of the
Investment Banking Department of Bear, Stearns & Co.
SCOTT M. MANNES has served as a Director of the Company since March 3, 1998,
serving as Conti's designee on the Board of Directors. Mr. Mannes has been
Executive Vice President of Conti since July 1997, prior to which he had been
Senior Vice President since October 1995. He joined ContiFinancial Services
in September 1990 and was appointed Managing Director in August 1992. He was
appointed Co-President of ContiFinancial Services in July 1997.
GRACE JENKINS has served as Executive Vice President of the Company since March
6, 1997. She served as a Vice President of the Company from September 13, 1994
to that date. She has been a
17
<PAGE>
Vice President of Crown since September 1993. Since November 1991, she has
served Crown in various capacities related to administration and management
information systems.
JAY N. ROLLINS has served as Executive Vice President of the Company since
October 1, 1996. Mr. Rollins has served as President of Eastern 1993. From
1989 until 1993, he was Director of Finance at NVR, L.P.
JACK KOCZELA has served as Executive Vice President of the Company since
March 6, 1997 and as Managing Director of Crown NorthCorp Euro A/S since its
founding in July 1996. From November 1990 until February 1996, he served as
Principal and Managing Director, New Business Development, for JCF Partners.
RICHARD A. BROCK has served Senior Vice President and Chief Financial
Officer since March 6, 1997. He has served as Treasurer since September 13,
1994, from which date he also served as Vice President and Acting Chief
Financial Officer. Since January 1991, he has served as Acting Chief
Financial Officer of Crown and, since January 1992, has been a Vice
President. From 1984 to January 1991, Mr. Brock was corporate director of
investment management for Cardinal Industries, Inc.
WILLIAM R. STANLEY has served as Senior Vice President of the Company since
March 6, 1997. He was elected Vice President of the Company in November
1996. Mr. Stanley directs the Company's asset management activities and was
responsible for establishing the Company's Atlanta office in 1991.
DEAN MELCHI has served as Vice President of the Company since March 6, 1997.
Prior to that time, he served as Director of Special Projects for the Company
from April 1995. From 1992 until August 1994, he was Manager of Real Estate
Properties for Textron Financial Corporation. From 1985 until 1992, he was
the Vice President of Ward Financial.
STEPHEN W. BROWN has served as Secretary of the Company since September 13,
1994 and as Corporate Counsel since August 1996. Since March 1992, he has
served Crown in various asset management capacities and as a legal counsel.
From December 1990 until February 1992, he worked for the RTC in resolving
the affairs of Mid-America Federal Savings and Loan Association.
ITEM 10. - EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer, each of the four most highly compensated executive
officers other than the Chief Executive Officer and one former executive
officer for the three years ended December 31, 1995, 1996 and 1997.
18
<PAGE>
<TABLE>
<CAPTION>
Year Ended All Other
Name and Title December 31 Salary Bonus Compensation
- -------------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C>
Ronald E. Roark, 1997 $300,000 $0 $0
Chairman & Chief Executive 1996 $300,000 $200,000 $0
Officer(1) 1995 $300,000 $0 $0
Harold E. Cooke, 1997 $196,324 $0 $0
President & Chief Operating 1996 $0 $0 $0
Officer (2) 1995 $0 $0 $0
Jay N. Rollins, 1997 $125,000 $27,228 $0
Executive Vice President(3) 1996 $100,774 $93,299 $0
1995 $ 90,000 $71,765 $0
Jack Koczela, 1997 $125,000 $30,000 $44,411
Executive Vice President(4) 1996 $65,924 $15,821 $0
1995 $0 $0 $0
Dean W. Melchi, 1997 $110,000 $11,028 $0
Vice President(5) 1996 $86,852 $0 $0
1995 $49,875 $0 $0
Tacie J. Fox(6) 1997 $207,215 $0 $0
1996 $125,000 $85,898 $0
1995 $95,000 $12,000 $0
</TABLE>
(1) Mr. Roark has served as Chairman and CEO of the Company since
August 4, 1994 and September 13, 1994 respectively. The
Company pays family medical coverage premiums, an automobile
allowance and disability insurance premiums on his behalf.
(2) Mr. Cooke has served as President and COO of the Company since
April 22, 1997. The Company and Mr. Cooke have entered into
an employment agreement effective April 22, 1997 and
terminating April 21, 2002 providing for an annual salary of
$250,000 plus additional, performance-based bonuses. The
agreement grants Mr. Cooke warrants to purchase up to
1,000,000 shares of Crown's Common Stock at $1.05 per share.
These warrants may vest and expire annually through April 21,
2003 pursuant to a schedule based upon anniversary dates of
the employment agreement and the Company achieving annual plan
goals. The Company pays family medical coverage premiums on
his behalf.
(3) Mr. Rollins was elected Executive Vice President of the
Company upon the Eastern acquisition October 1, 1996. The
information for Mr. Rollins prior to that date is that of
Eastern. The Company and Mr. Rollins have entered into an
19
<PAGE>
employment agreement effective October 1, 1996 and terminating
December 31, 1998 providing for an annual salary of $125,000,
additional performance-based bonuses and warrants to purchase
up to 125,000 shares of the Common Stock at $1.00 per share. A
$500 monthly car allowance and family medical coverage
premiums are paid on his behalf by the Company.
(4) Mr. Koczela has served as Executive Vice President of the
Company since March 6, 1997. He resides in Copenhagen,
Denmark and administers the Company's European Operations.
The Company and Mr. Koczela have entered into an employment
contract for a two-year term ending June 20, 1998 providing
for an annual salary of $125,000, a bonus of $60,000 paid
ratably over the two-year term of the contract attributable to
starting the Company's operations in Europe and certain other
payments associated with relocation, tuition, housing and tax
equalization expenses incident to his living abroad.
(5) Mr. Melchi has served as a Vice President of the Company since
March 6, 1997.
(6) Ms. Fox served as an Executive Vice President of the Company
from September 13, 1994 until September 5, 1996. The
information for Ms. Fox for 1997 represents the lump-sum,
final settlement of incentive compensation payments otherwise
due over time.
Each Director who was not an employee of the Company was paid an annual
retainer of $12,000, payable quarterly; $500 for each meeting of the Board of
Directors and $500 for each committee meeting such Director attended, plus
expenses. Effective June 30, 1997, the Company makes retainer and attendance
payments to Directors quarterly in the form of Common Stock based on the
closing price of the Common Stock on the last trading day of a quarter.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth security ownership information regarding the
Common Stock as of March 16, 1998 by: (i) each person known by the Company to
own beneficially more than 5% of the shares of the Common Stock; (ii) each
Director of the Company; (iii) each of the executive officers of the Company
named in Item 10 above and (iv) all directors and executive officers of the
Company as a group. Except as otherwise noted below, each of the
shareholders identified in the table has sole voting and investment power
over the shares beneficially owned by each such shareholder. Also, unless
otherwise indicated, the address of each beneficial owner is in care of the
Company, 1251 Dublin Road, Columbus, Ohio 43215.
<TABLE>
<CAPTION>
Approximate
Number of Shares Percent
Name and Title of Common Stock of Class
- -------------- --------------- -----------
<S> <C> <C>
Harbert Equity Fund I, L.L.C.(1) 4,809,524 30.8%
Ronald E. Roark(2)(3) 4,229,300 27.1%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Approximate
Number of Shares Percent
Name and Title of Common Stock of Class
- -------------- --------------- -----------
<S> <C> <C>
Tucker Holding Company, Ltd.(2) 4,207,500 26.9%
ContiWest Corporation(4) 1,000,000 6.4%
Asdale Limited(5) 976,924 6.3%
The Gordon V. and Helen
C. Smith Foundation(6) 937,374 6.0%
Gordon V. Smith(6) 937,374 6.0%
John Everets(7) 4,282 -- (12)
Raymond J. Harbert(1)(8) 4,809,524 30.8%
Michael D. Luce(1)(8) 4,809,524 30.8%
Scott M. Mannes(5)(9) 1,000,000 6.4%
Harold E. Cooke(10) 300,000 1.9%
Jay N. Rollins(11) 219,660 1.4%
Jack Koczela 22,000 -- (12)
Dean W. Melchi 7,075 -- (12)
All directors and executive
officers as a group
(10 persons) 11,506,399 73.6%
</TABLE>
1) The mailing address for Harbert Equity Fund I, L.L.C. ("Harbert Fund") is
c/o Harbert, One Riverchase Parkway South, Birmingham, Alabama 35244. The
Harbert Fund holds 1,336,014 shares of the Common Stock and one share of
Series AA Preferred, which is convertible into 3,473,510 shares of the
Common Stock. See "Item 5 - Market for Common Equity and Related
Stockholder Matters - Series AA Preferred." If the Series AA Preferred
is still outstanding on June 30, 1998 and both Trigger Events have not
occurred, then the Harbert Fund shall have the right to designate a
majority of the Company's Board of Directors. This right shall continue
until both Trigger Events occur. Under these circumstances, the Harbert
Fund may be deemed to control the Company.
(2) Tucker holds 4,207,500 shares of the Common Stock. Until January 27,
1997, Mr. Roark held an 80% ownership interest in Tucker and Louis J.
Castelli, formerly the President and Chief Operating Officer of the
Company, held a 20% ownership interest. On that date, Messrs. Roark and
Castelli entered into a securities purchase agreement whereby Mr. Roark
agreed to purchase Mr. Castelli's remaining ownership interest in Tucker
for a total of $400,000. The remaining balance of $187,500 is due in
three equal annual installments on or before September 1, 2000. Tucker
has pledged 391,296 shares of the Common Stock to secure the remaining
obligations under this agreement.
(3) Includes (a) 4,207,500 shares held by Tucker, (b) 4,600 shares held by
his wife and 17,200 shares held by Trident Air Services, Inc., of which
Mr. Roark is president.
21
<PAGE>
(4) The mailing address for Conti is 277 Park Ave., 38th Floor, New York, New
York 10172. Conti holds one share of Series BB Preferred, which is
convertible into 1,000,000 shares of Common Stock. See "Item 5 - Market
for Common Equity and Related Stockholder Matters - Series BB Preferred."
Pursuant to the Conti SPA, Mr. Mannes has been elected to the Company's
Board of Directors.
(5) The mailing address for Asdale Limited is 44 Lowndes Street, London SW1X
9HX, England.
(6) The mailing address for The Gordon V. and Helen C. Smith Foundation
("Smith Foundation") and Mr. Smith is c/o Miller and Smith Holding, Inc.,
1568 Springhill Road, McLean, Virginia 22102. Mr. Smith holds 316,609
shares of the Common Stock and warrants to acquire 82,088 shares of the
Common Stock at an exercise price of $.75 per share on or before October
1, 1999. The Smith Foundation holds 538,677 shares of the Common Stock.
Mr. Smith, as President of the Smith Foundation, may be deemed the
beneficial owner of such shares. Mr. Smith disclaims such beneficial
ownership.
(7) The mailing address for Mr. Everets is c/o HPSC, Inc., 60 State Street,
35th Floor, Boston, Massachusetts 02109.
(8) Messrs. Harbert and Luce, as executive officers of Harbert, Manager of
Harbert Fund, may be deemed the beneficial owners of such shares. Messrs.
Harbert and Luce disclaim such beneficial ownership.
(9) The mailing address for Mr. Mannes is c/o Conti, 277 Park Avenue, 38th
Floor, New York, New York 10172. Mr. Mannes, as an executive officer of
Conti, may be deemed the beneficial owner of such shares. Mr. Mannes
disclaims such beneficial ownership.
(10) Mr. Cooke holds 100,000 shares of the Common Stock, warrant to acquire
100,000 shares of the Common Stock at an exercise price of $1.05 based on
the Company achieving its annual plan goals for 1997 and warrants to
acquire 100,000 shares of the Common Stock at an exercise price of $1.05
per share on or after April 22, 1998.
(11) Mr. Rollins holds 113,510 shares of the Common Stock, warrants to acquire
22,816.08 shares of the Common Stock at an exercise price of $.75 per
share on or before October 1, 1999 and warrants to acquire 83,334 shares
of the Common Stock at an exercise price of $1 per share on or before
December 31, 1998.
(12) Less than 1%.
VOTING AGREEMENTS
Mr. Roark and Tucker (collectively, the "Tucker Parties") and the Harbert Fund
have entered into a voting agreement dated as of March 7, 1997, as amended (the
"Harbert Voting Agreement"). For a period of up to five years, the Tucker
Parties agree to vote all shares of the Common Stock
22
<PAGE>
beneficially owned by them for such nominees for election as Directors of the
Company as the Harbert Fund is entitled to designate for nomination.
Similarly, the Harbert Fund agrees to vote all shares of the Common Stock
beneficially owned by it for the election of Mr. Roark as a director of the
Company. Additionally, if both Trigger Events do not occur on or before June
30, 1998, the Tucker Parties have agreed to vote all shares of the Common
Stock beneficially owned by them as the Harbert Fund directs on any matters
submitted to the stockholders of the Company until such time as both Trigger
Events occur. Pursuant to the Harbert Voting Agreement, for so long as the
Series AA Preferred is outstanding, the Tucker Parties have also agreed to
certain voting and disposition restrictions on the Common Stock they hold.
Under these restrictions, the Tucker Parties will not vote their Common Stock
in favor of a transaction which would lead to a person who is not a Permitted
Control Person acquiring control of the Company. The Tucker Parties also
will not sell their Common Stock to a person who is not a Permitted Control
Person. A "Permitted Control Person," as defined in the Harbert Voting
Agreement, includes the Tucker Parties and their affiliates, the Harbert Fund
and its affiliates and such other parties as the Tucker Parties and the
Harbert Fund may designate from time to time. The Tucker Parties and the
Harbert Fund have designated Conti and its affiliates as a Permitted Control
Person. Under the terms of the Harbert Voting Agreement, the Harbert Fund,
Conti and their respective affiliates may be deemed to control the Company.
ContiWest, the Tucker Parties and the Harbert Fund have entered into a voting
agreement whereby, for so long as ContiWest is entitled to designate a
nominees for election as a Director of the Company, each of ContiWest, the
Tucker Parties and the Harbert Fund agrees to vote all shares of the Common
Stock beneficially owned by them for the election of each other's nominees
for election as Directors.
OTHER CHANGE-OF-CONTROL ARRANGEMENTS PERTAINING TO SRC
ContiWest, Harbert and the Tucker Parties have agreed that, upon the closing
of the public offering contemplated by the registration statement filed by
SRC, they will vote the Common Stock they hold in favor of a merger of the
Company with SRC under certain terms and conditions. These conditions are:
the independent directors of SRC (those directors not affiliated with the
Company, Harbert or Conti) must make the merger proposal during the period
from the second to the fifth anniversary of the closing of the offering; the
Company's management agreement with SRC must be in effect; the proposal is
submitted to a vote of the Company's stockholders; and the amount per share
is supported by a fairness opinion from an investment banking firm.
Consummation of the merger is subject to the determination by the Company's
Board of Directors that their approval of the merger is consistent with their
fiduciary duty. Due to certain restrictions on the ability of REITs to
generate certain types of income and hold certain assets, SRC may not be able
to proceed with a merger proposal as set forth above.
ContiWest, Harbert and the Tucker Parties have also each agreed to enter into
an agreement with SRC, effective upon the closing of the public offering
contemplated by the registration statement filed by SRC, granting SRC a right
of first refusal to purchase any Common Stock each may wish to sell. SRC's
right of first refusal will last so long as the Company's management
agreement with SRC remains in effect. Due to certain restrictions on the
ability of REITs to hold ownership interests in other entities, SRC may not
be able to exercise its purchase rights under these agreements. If it does
exercise its rights in any case, however, SRC may be deemed to control the
Company.
23
<PAGE>
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and 1996, the Company performed servicing, consulting and
accounting services for various companies affiliated with Mr. Roark. The
Company generated revenues of approximately $7,000 in 1997 and $86,000 in
1996 from these services.
During 1997 and 1996, the Company paid approximately $27,000 and $28,000 to
affiliates of Mr. Roark for miscellaneous services.
ITEM 13. - EXHIBITS, LIST AND REPORTS ON FORM 8-K
a) The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
3.3 Restated Certificate of Incorporation Incorporated by reference to Crown
NorthCorp, Inc.'s Form 8-K filed
June 6, 1995.
3.4 Bylaws Incorporated by reference to Crown
NorthCorp, Inc.'s Form 10-KSB filed
March 29, 1996.
4.1 Certificate of Designation for Incorporated by reference to Crown
Convertible Preferred Stock, par value NorthCorp, Inc's Form 10-QSB
$.01 per share, of Crown NorthCorp, filed November 14, 1996.
Inc.
4.2 Certificate of Designation for Series B Incorporated by reference to Crown
Preferred Stock, par value $.01 per share, NorthCorp, Inc.'s Form 8-K filed
of Crown NorthCorp, Inc. January 24, 1997
4.3 Certificate of Designation for Series C Incorporated by reference to Crown
Convertible Preferred Stock, par value NorthCorp, Inc.'s Form 8-K filed
$.01 per share, of Crown NorthCorp, January 24, 1997.
Inc.
4.4 Certificate of Designation for Series AA Incorporated by reference to Crown
Convertible Stock, par value $.01 NorthCorp, Inc.'s Form 8-K filed
per share, of Crown NorthCorp, Inc. February 20, 1998.
4.5 Certificate of Designation for Series BB Filed herewith
Convertible Preferred Stock, par value
$.01 per share, of Crown NorthCorp, Inc.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
10.46 Stock Purchase Agreement dated Incorporated by reference to Crown
December 31, 1996 by and among Crown NorthCorp, Inc.'s Form 8-K filed
NorthCorp, Inc., CNC/DUS Newco, Inc. January 24, 1997.
and National City Corporation.
10.47 Amendment to Stock Purchase Agreement Incorporated by reference to Crown
dated January 9, 1997 by and among NorthCorp, Inc.'s Form 8-K filed
Crown NorthCorp, Inc., CNC/DUS January 24, 1997.
Newco, Inc. and National City Corporation.
10.48 Stock Purchase Agreement dated May Incorporated by reference to Crown
22, 1996 by and among Crown NorthCorp, Inc.'s Form 8-K filed
NorthCorp, Inc., CNC/DUS Newco, January 24, 1997.
Inc., Reinlein/Leiser, McGee Holding
Corporation, R/L/M Employee Benefit
Corporation, Karl H. Reinlein, George
F. Lieser and John R. McGee.
10.49 Amendment to Stock Purchase Agreement Incorporated by reference to Crown
dated January 9, 1997 by and NorthCorp, Inc.'s Form 8-K filed
among Crown NorthCorp, Inc., CNC/ January 24, 1997.
DUS Newco, Inc., Reinlein/Lieser/
McGee Holding Corporation, R/L/M
Employee Benefit Corporation, Karl H.
Reinlein, George F. Lieser and John R.
McGee.
10.50 Promissory Note, dated January 10, Incorporated by reference to Crown
1997, by the Crown NorthCorp, Inc. NorthCorp, Inc.'s Form 8-K filed
in favor of The Fifth Third Bank of January 24, 1997
Columbus.
10.51 Cash security agreement, dated January Incorporated by reference to Crown
10, 1997, by the Crown NorthCorp, Inc. NorthCorp, Inc.'s Form 8-K filed
in favor of The Fifth Third Bank of January 24, 1997.
Columbus.
10.52 Promissory Note, dated January 10, Incorporated by reference to Crown
1997, by the Crown NorthCorp, Inc NorthCorp, Inc.'s Form 8-K filed
in favor of The Fifth Third Bank of January 24, 1997.
Columbus.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
10.53 Non-cash collateral security agreement, Incorporated by reference to Crown
dated January 10, 1997, by the Crown NorthCorp, Inc.'s Form 8-K filed
NorthCorp, Inc., in favor of The Fifth January 24, 1997.
Third Bank of Columbus.
10.54 Letter of credit demand note, dated Incorporated by reference to Crown
January 10, 1997, by Crown NorthCorp, NorthCorp, Inc.'s Form 8-K filed
in favor of The Fifth Third Bank of January 24, 1997.
Columbus.
10.55 LC Security Agreement, dated January Incorporated by reference to Crown
10, 1997, by Crown NorthCorp, Inc. NorthCorp, Inc.'s Form 8-K filed
in favor of The Fifth Third Bank of January 24, 1997.
Columbus.
10.56 Registration Rights Agreement, dated Incorporated by reference to Crown
December 30, 1996, by Crown NorthCorp, Inc.'s Form 8-K filed
NorthCorp, Inc. and Asdale Limited. January 24, 1997.
10.57 Stock Purchase Agreement dated March Incorporated by reference to Crown
7, 1997 by and between Harbert Equity NorthCorp, Inc.'s Form 10-QSB
Fund I, LLC and Crown NorthCorp, Inc. filed May 14, 1997.
10.58 Escrow Agreement dated March 7, 1997 Incorporated by reference to Crown
by and among Harbert Equity Fund I, NorthCorp, Inc.'s Form 10-QSB
LLC, AmSouth Bank of Alabama and filed May 14, 1997.
Crown NorthCorp, Inc.
10.59 Voting Agreement dated March 7, 1997 Incorporated by reference to Crown
by and among Ronald E. Roark, Tucker NorthCorp, Inc.'s Form 10-QSB
Holding Company, Ltd. and Harbert filed May 14, 1997.
Equity Fund I, LLC.
10.60 Registration Rights Agreement dated Incorporated by reference to Crown
March 7, 1997 by and between Harbert NorthCorp, Inc.'s Form 10-QSB
Equity Fund I, LLC and Crown filed May 14, 1997.
NorthCorp, Inc.
10.61 Promissory Note dated March 27,1997 Incorporated by reference to Crown
by Crown NorthCorp, Inc. in favor of NorthCorp, Inc.'s Form 10-QSB
The Fifth Third Bank of Columbus. filed May 14, 1997.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
10.62 Promissory Note dated March 27, 1997 Incorporated by reference to Crown
by Crown NorthCorp, Inc. in favor of NorthCorp, Inc.'s Form 10-QSB
The Fifth Third Bank of Columbus. filed May 14, 1997.
10.63 Security Agreement dated March 27, Incorporated by reference to Crown
1997 by Crown NorthCorp, Inc. in NorthCorp, Inc.'s Form 10-QSB
favor of The Fifth Third Bank of filed May 14, 1997.
Columbus.
10.64 Promissory Note dated March 27, 1997 Incorporated by reference to Crown
by Crown NorthCorp, Inc. in favor of NorthCorp, Inc.'s Form 10-QSB
The Fifth Third Bank of Columbus. filed May 14, 1997.
10.65 Collateral assignment of 1996 federal Incorporated by reference to Crown
federal income tax refund by Crown NorthCorp, Inc.'s Form 10-QSB
NorthCorp, Inc. in favor of The Fifth filed May 14, 1997.
Third Bank of Columbus.
10.66 Employment Agreement between Crown Incorporated by reference to Crown
NorthCorp, Inc. and Harold E. Cooke. NorthCorp, Inc.'s Form 10-QSB
filed August 14, 1997.
10.67 Amendment No. 2 Stock Purchase Agreement Incorporated by reference to Crown
dated as of January 26, 1998 to be NorthCorp, Inc.'s Form 8-K filed
effective as of December 31, 1997 between February 20, 1998.
and among Harbert Equity Fund I, LLC,
Crown NorthCorp, Inc. and, with respect
to Section 5 thereto, Ronald E. Roark and
Tucker Holding Company, Ltd.
10.68 Amendment No. 1 to Registration Rights Incorporated by reference to Crown
Agreement, dated as of December NorthCorp, Inc.'s Form 8-K filed
31, 1997, by and between Harbert Equity February 20, 1998.
Fund I, LLC and Crown NorthCorp, Inc.
10.69 Amendment No. 1 to Voting Agreement Incorporated by reference to Crown
as of December 31, 1997 by and among NorthCorp, Inc.'s Form 8-K filed
Harbert Equity Fund I, LLC, Ronald E. February 20, 1998.
and Tucker Holding Company, Ltd.
10.70 Stock Purchase Agreement dated March 3, Filed herewith.
1998 by and among Crown NorthCorp,
Inc., and ContiWest Corporation.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
- ------ ------- ----------------
<S> <C> <C>
10.71 Registration Rights Agreement dated March Filed herewith.
3, 1998 by and among Crown NorthCorp, Inc.
and ContiWest Corporation.
10.72 Voting Agreement dated March 3, 1998 Filed herewith
by and among Ronald E. Roark, Tucker
Holding Company, Ltd., Harbert Equity
Fund I, LLC and ContiWest Corporation.
21.2 Subsidiaries of Crown NorthCorp, Filed herewith
Inc.
27. Financial Data Schedule Filed herewith
</TABLE>
b) Reports on Form 8-K
-------------------
None
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Crown NorthCorp, Inc.
Date: March 26, 1998 By: /s/ Ronald E. Roark
----------------------------
Ronald E. Roark
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 26, 1998 By: /s/ Ronald E. Roark
----------------------------
Ronald E. Roark
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 26, 1998 By: /s/ Richard A. Brock
----------------------------
Richard A. Brock
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial Officer)
Date: March 26, 1998 By: /s/ Ray L. Druseikis
----------------------------
Ray L. Druseikis
Controller
(Principal Accounting Officer)
Date: March 26, 1998 By: /s/ John Everets
----------------------------
John Everets
Director
Date: March 26, 1998 By: /s/ Gordon V. Smith
----------------------------
Gordon V. Smith
Director
Date: March 26, 1998 By: /s/ Raymond J. Harbert
----------------------------
Raymond J. Harbert
Director
S-1
(Go to S-2)
<PAGE>
Date: March 26, 1998 By: /s/ Michael D. Luce
----------------------------
Michael D. Luce
Director
Date: March 26, 1998 By: /s/ Scott M. Mannes
----------------------------
Scott M. Mannes
Director
S-2
<PAGE>
INDEX TO EXHIBITS
3.3 Restated Certificate of Incorporation. (1)
3.4 Bylaws.(2)
4.1 Certificate of Designation for Series A Convertible Preferred Stock, par
value $.01 per share, of Crown NorthCorp, Inc.(3)
4.2 Certificate of Designation for Series B Preferred Stock, par value $.01
per share, of Crown NorthCorp, Inc.(4)
4.3 Certificate of Designation for Series C Convertible Preferred Stock, par
value $.01 per share, of Crown NorthCorp, Inc.(4)
4.4 Certificate of Designation for Series AA Convertible Stock, par value
$.01 per share, of Crown NorthCorp, Inc.(5)
4.5 Certificate of Designation for Series BB Convertible Preferred Stock,
par value $.01 per share, of Crown NorthCorp, Inc.(6)
10.46 Stock Purchase Agreement dated December 31, 1996 by and among Crown
NorthCorp, Inc., CNC/DUS Newco, Inc. and National City Corporation.(7)
10.47 Amendment to Stock Purchase Agreement dated January 9, 1997 by and among
Crown NorthCorp, Inc., CNC/DUS Newco, Inc. and National City
Corporation.(7)
10.48 Stock Purchase Agreement dated May 22, 1996 by and among Crown
NorthCorp, Inc., CNC/DUS Newco, Inc., Reinlein/Lieser/McGee Holding
Corporation, R/L/M Employee Benefit Corporation, Karl H. Reinlein,
George F. Lieser and John R. McGee.(7)
10.49 Amendment to Stock Purchase Agreement dated January 9, 1997 by and among
Crown NorthCorp, Inc., CNC/DUS Newco, Inc., Reinlein/Lieser/McGee
Holding Corporation, R/L/M Employee Benefit Corporation, Karl H.
Reinlein, George F. Lieser and John R. McGee.(7)
10.50 Promissory note, dated January 10, 1997, by the Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.(7)
10.51 Cash security agreement, dated January 10, 1997, by the Crown NorthCorp,
Inc. in favor of The Fifth Third Bank of Columbus.(7)
10.52 Promissory note, dated January 10, 1997, by the Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.(7)
10.53 Non-cash collateral security agreement, dated January 10, 1997, by the
Crown NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus.(7)
10.54 Letter of credit demand note, dated January 10, 1997, by Crown
NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus.(7)
<PAGE>
10.55 LC Security Agreement, dated January 10, 1997, by Crown NorthCorp, Inc.
in favor of The Fifth Third Bank of Columbus.(7)
10.56 Registration Rights Agreement, dated December 30, 1996, between Crown
NorthCorp, Inc. and Asdale Limited.(7)
10.57 Stock Purchase Agreement dated March 7, 1997 by and between Harbert
Equity Fund I, L.L.C. and Crown NorthCorp, Inc.(8)
10.58 Escrow Agreement dated March 7, 1997 by and among Harbert Equity Fund I,
L.L.C., AmSouth Bank of Alabama and Crown NorthCorp, Inc.(8)
10.59 Voting Agreement dated March 7, 1997 by and among Ronald E. Roark,
Tucker Holding Company, Ltd. and Harbert Equity Fund I, L.L.C.(8)
10.60 Registration Rights Agreement dated March 7, 1997 by and between Harbert
Equity Fund I, L.L.C. and Crown NorthCorp, Inc.(8)
10.61 Promissory note dated March 27, 1997 by Crown NorthCorp, Inc. in favor
of The Fifth Third Bank of Columbus.(8)
10.62 Promissory note dated March 27, 1997 by Crown NorthCorp, Inc. in favor of
the Fifth Third Bank of Columbus.(8)
10.63 Security Agreement dated March 27, 1997 by Crown NorthCorp, Inc. in
favor of The Fifth Third Bank of Columbus.(8)
10.64 Promissory note dated March 27, 1997 by Crown NorthCorp, Inc. in favor
of The Fifth Third Bank of Columbus.(8)
10.65 Collateral assignment of 1996 federal income tax refund by Crown
NorthCorp, Inc. in favor of The Fifth Third Bank of Columbus.(8)
10.66 Employment Agreement between Crown NorthCorp, Inc. and Harold E.
Cooke.(9)
10.67 Amendment No. 2 Stock Purchase Agreement dated as of January 26, 1998 to
be effective as of December 31, 1997 between and among Harbert Equity
Fund I, LLC, Crown NorthCorp, Inc. And, with respect to Section 5
thereto, Ronald E. Roark and Tucker Holding Company, Ltd.(5)
10.68 Amendment No. 1 to Registration Rights Agreement dated as of December
31, 1997, by and between Harbert Equity Fund I, LLC and Crown NorthCorp,
Inc.(5)
10.69 Amendment No. 1 to Voting Agreement as of December 31, 1997 by and among
Harbert Equity Fund I, LLC, Ronald E. Roark, and Tucker Holding Company,
Ltd.(5)
10.70 Stock Purchase Agreement dated March 3, 1998 by and among Crown
NorthCorp, Inc. and ContiWest Corporation.(6)
<PAGE>
10.71 Registration Rights Agreement dated March 3, 1998 by and among Crown
NorthCorp, Inc. and ContiWest Corporation.(6)
10.72 Voting Agreement dated March 3, 1998 by and among Ronald E. Roark,
Tucker Holding Company, Ltd., Harbert Equity Fund I, LLC and ContiWest
Corporation.(6)
21.2 Subsidiaries of Crown NorthCorp, Inc.(6)
27. Financial Data Schedule.(6)
- --------------------------------------------
(1) Incorporated by reference to Crown NorthCorp, Inc.'s Form 8-K
filed June 6, 1995.
(2) Incorporated by reference to Crown NorthCorp, Inc.'s Form 10-KSB
filed March 29, 1996.
(3) Incorporated by reference to Crown NorthCorp, Inc., Form 10-QSB
filed November 14, 1996.
(4) Incorporated by reference to Crown NorthCorp, Inc.'s Form 8-K
filed January 24, 1997.
(5) Incorporated by reference to Crown NorthCorp's, Inc.'s Form 8-K
filed February 20, 1998.
(6) Filed herewith.
(7) Incorporated by reference to Crown NorthCorp, Inc.'s Form 8-K
filed January 24, 1997.
(8) Incorporated by reference to Crown NorthCorp, Inc.'s Form 10-QSB
filed May 14, 1997.
(9) Incorporated by reference to Crown NorthCorp, Inc.'s Form 10-QSB
filed August 14, 1997.
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION
OF
SERIES BB CONVERTIBLE PREFERRED STOCK
PAR VALUE $.01 PER SHARE
OF
CROWN NORTHCORP, INC.
The undersigned, being the Chief Financial Officer of Crown NorthCorp,
Inc., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY that
set forth below are resolutions duly adopted by the Board of Directors of the
Corporation at a meeting held on February 13, 1998 creating a series of the
Corporation's preferred stock, par value $.01 per share, designated "Series
BB Convertible Preferred Stock":
A. DESIGNATION. There shall be a series of Preferred Stock to be known as
Series BB Convertible Preferred Stock, par value $.01 per share (hereinafter
referred to as "Series BB Preferred Stock"), consisting of one authorized
share. After the issuance of the Series BB Preferred Stock and until the
redemption or retirement of all outstanding shares thereof, the Corporation
shall not authorize or issue any shares of common or preferred stock having
rights or preferences with respect to liquidation, dividends, or redemption
that are senior to the rights and preferences of the Series BB Preferred
Stock with respect to such matters without having obtained the prior written
consent of two-thirds of the holders thereof.
B. LIQUIDATION IN GENERAL. In the event of a Liquidation (as defined
below), the holders of record of the Series BB Preferred Stock (to the extent
that such stock has not then been redeemed or converted) shall be entitled to
be paid in full the sum of $2,000,000 per share, plus an amount, expressed in
dollars, equal to a twelve percent (12%) cumulative dividend on the sum of
$2,000,000 from the date that the Series BB Preferred Stock is issued until
the date on which the Liquidation occurs (collectively, the "Liquidation
Preference"), before assets of the Corporation shall be distributed among or
paid over to the holders of the Common Stock, par value $.01 per share, of
the Corporation (the "Common Stock") or other shares ranking junior to the
Series BB Preferred Stock ("Junior Securities") in the distribution of assets
or upon the Liquidation of the Corporation and, upon payment in full of the
Liquidation Preference, the Series BB Preferred Stock shall be deemed to be
satisfied in full for all purposes whatsoever. Written notice of a
Liquidation, stating a payment date and the place where such payments shall
be made, shall be given to the holders of record of the Series BB Preferred
Stock, such notice to be addressed to each such holder at such holder's
address as shown on the records of the Corporation. The (i) liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, (ii) Corporation's consolidation or merger with any other entity
or group of entities in which the stockholders of the Corporation prior to
such transaction do not own at least a majority of the voting capital stock
of the surviving entity after the merger or consolidation, or (iii)
Corporation's sale or transfer of all or substantially all of the
Corporation's assets, shall be deemed a "Liquidation" within the meaning of
the provisions of this Section B.
The Series BB Preferred Stock shall rank in respect of the distribution of
assets or upon the Liquidation of the Corporation, subject to the last
sentence of this paragraph, on a parity with the Corporation's Series B
Non-Voting, Non-Convertible Preferred Stock, par value $0.01 per share
<PAGE>
(the "Series B Preferred Stock"), the Corporation's Series C Non-Voting,
Convertible Preferred Stock, par value $0.01 per share (the "Series C
Convertible Preferred Stock"), the Corporation's Series AA Convertible
Preferred Stock, par value $.01 per share (the "Series AA Preferred Stock"),
and any other Senior Securities (as defined below). If upon any Liquidation,
the net assets available for distribution to the holders of shares of the
Series B Preferred Stock, Series C Convertible Preferred Stock, Series AA
Preferred Stock, Series BB Preferred Stock, and subsequent series of
Preferred Stock issued with rights equivalent to the Series B Preferred
Stock, Series C Convertible Preferred Stock, Series AA Preferred Stock, and
Series BB Preferred Stock (collectively referred to herein as "Senior
Securities") shall be insufficient to pay the holders of all of the
outstanding shares of the Senior Securities the full amounts to which they
respectively shall be entitled, the holders of such shares, without regard to
classes or series, shall share in any distribution of assets in proportion to
the amounts respectively due to them on payment in full. In the event of a
Liquidation resulting from the Corporation's consolidation or merger with any
other entity or group of entities in which the stockholders of the
Corporation prior to such transaction do not own at least a majority of the
voting capital stock of the surviving entity after the merger or
consolidation, or the sale or transfer of all or substantially all of the
Corporation's assets, the Series BB Preferred Stock shall rank in respect of
the distribution of assets prior to any other Senior Securities whose terms
do not specifically include within the definition of "Liquidation" such
consolidations, mergers, or asset sales.
C. CONVERSION RIGHTS.
(i) AT THE OPTION OF THE HOLDERS OF RECORD. All, and not less than
all, of the Series BB Preferred Stock will be convertible at the
option of the holders of record thereof at any time into 1,000,000
shares of the Common Stock, reflecting a conversion ratio of one share
of the Series BB Preferred Stock for 1,000,000 shares of the Common
Stock (the "Conversion Ratio").
(ii) AT THE OPTION OF THE CORPORATION. All, and not less than
all, of the Series BB Preferred Stock will be convertible at the
option of the Corporation into 1,000,000 shares of the Common Stock
upon the occurrence of both of the Trigger Events (as hereinafter
defined), reflecting the Conversion Ratio. As used herein, the term
"Trigger Events" means (a) the consummation of the initial public
offering of the CHC Commercial Holdings, Inc. REIT (the "REIT") or the
completion of another fund opportunity as contemplated by Section
3.3(a) of the Stock Purchase Agreement, dated as of March 7, 1997,
between and among the Corporation and Harbert Equity Fund I, L.L.C.,
in which ContiWest Corporation ("Conti") and its affiliates have an
interest that is economically similar to their interest in the REIT as
agreed by the Corporation and Conti and its affiliates as of March 3,
1998, and (b) the Corporation's average commercial loan origination
volume for the then preceding three calendar months equals at least
$16.7 million per month.
(iii) CONVERSION PROCEDURES. Such holders shall exercise their
conversion right by giving written notice of their exercise by
overnight courier to the Corporation at its principal executive
office, and the Corporation shall exercise its conversion right by
giving written notice of its exercise by overnight courier to such
holders at their
2
<PAGE>
address set forth on the Corporation's books and records. Any such
exercise shall be effective on the date that the pertinent exercise
notice is so sent. Within fifteen business days after any such
notice is sent, such holders shall deliver certificates representing
the Series BB Preferred Stock, duly endorsed in blank for transfer
with signatures guaranteed, to the Corporation at its principal
executive office, whereupon the Corporation will instruct its transfer
agent to issue such shares of Common Stock in the name of such holders
and to deliver certificates representing such shares to the holders
at their address set forth on the Corporation's books and records.
No shares of Series BB Preferred Stock which have been converted into
Common Stock after the original issuance thereof shall be outstanding
or shall ever again be reissued, sold, or transferred.
D. REDEMPTION RIGHTS. The Corporation will have the right, but not the
obligation, to redeem the Series BB Preferred Stock, in compliance with
applicable law and all agreements and instruments by which it is bound, at
any time upon 30 days' (such 30 days being referred to herein as the
"Redemption Period") prior written notice to the holders of record of the
Series BB Preferred Stock (the date for which such redemption is so noticed
being referred to herein as the "Redemption Date") at their address on the
records of the Corporation, for a redemption price equal to the sum of (a)
$2,000,000, plus (b) an amount, expressed in dollars, equal to a twelve
percent (12%) cumulative dividend on the sum of $2,000,000 from the date that
the Series BB Preferred Stock is issued until the day that it is so redeemed
(the "Redemption Price"). Such holders will have the right, but not the
obligation, to convert all, but not less than all, of the Series BB Preferred
Stock during the Redemption Period pursuant to the preceding paragraph C(i).
On the applicable redemption date, the holders of the Series BB Preferred
Stock will deliver certificates representing the shares of Series BB
Preferred Stock to be redeemed to the Corporation, duly endorsed for transfer
in blank, along with such other documents and instruments as the Corporation
may reasonably request, and the Corporation will pay to such holders the
Redemption Price. In the event that any Redemption Date is not a business
day, then the related redemption shall occur on the next following business
day. The Redemption Price shall be payable in cash, by certified check, or
by wire transfer of immediately available funds to an account designated in
writing by such holders. No shares of Series BB Preferred Stock which have
been so redeemed after the original issuance thereof shall be outstanding or
shall ever again be reissued, sold, or transferred.
E. VOTING RIGHTS. The Series BB Preferred Stock shall not have any voting
rights with respect to directors of the Corporation or any other matter
requiring stockholder approval except as set forth below and as otherwise
required by the laws of the State of Delaware. For so long as all of the
Series BB Preferred Stock is outstanding, the holder thereof shall have the
right to designate one individual to serve as a Director of the Corporation;
PROVIDED, HOWEVER, that the foregoing right shall irrevocably terminate upon
the earlier of (a) the date that Conti does not own and hold of record at
least 1,000,000 shares of the Common Stock (such ownership and record
holdings being deemed to include, for this purpose, the right to acquire
shares of the Common Stock by conversion of the Series BB Preferred Stock or
by warrant) or (b) the date that the credit facility created under that
certain Program Agreement, dated as of July 1, 1997, between the Corporation
and ContiTrade Services LLC ("ContiTrade") is cancelled, terminated, not
renewed, or substantially reduced by ContiTrade; PROVIDED FURTHER, HOWEVER,
that to accomplish such designation, the Corporation may choose to expand its
Board of Directors and appoint individuals designated by such holder to fill
3
<PAGE>
resulting vacancies in lieu of the resignation of existing Directors of the
Corporation; and PROVIDED FURTHER, HOWEVER, that Conti shall not be entitled
to designate any individual (x) with respect to whom, if then a Director of
the Corporation, the Corporation would be required to make disclosures
pursuant to, among other things, Item 401(f) of Regulation S-K in any of its
periodic reports or proxy statements filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, or (y) who does not agree in writing to
serve as a Director of the Corporation.
F. PREEMPTIVE RIGHTS. The holders of Series BB Preferred Stock shall have
no preemptive rights.
G. NOTICE OF RECORD DATE. In the event of any taking by the Corporation of
a record of holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase, or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall mail to each holder of the
Series BB Preferred Stock, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend or distribution.
H. ADJUSTMENT OF NUMBER OF SHARES OF COMMON STOCK.
(a) STOCK DIVIDENDS; STOCK SPLITS. If the number of shares of Common
Stock outstanding at any time after the date of issuance of the
Series BB Preferred Stock is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up
of shares of Common Stock, then immediately after the record date
fixed for the determination of holders of shares of Common Stock
entitled to receive such stock dividend or the effective date of
such subdivision or split-up, as the case may be, the Conversion
Ratio shall be appropriately reduced so that the holder of any
shares of Series BB Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock which
such holder would have owned immediately following such action
had such shares of Series BB Preferred Stock been converted
immediately prior thereto.
(b) COMBINATION OF SHARES. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series
BB Preferred Stock is decreased by a combination of the
outstanding shares of Common Stock, then immediately after the
effective date of such combination, the Conversion Ratio shall be
appropriately increased so that the holder of any shares of the
Series BB Preferred Stock thereafter converted shall be entitled
to receive the number of shares of Common Stock which such holder
would have owned immediately following such action had such
shares of Series BB Preferred Stock been converted immediately
prior thereto.
(c) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, AND MERGER. In
case of any reorganization of the Company (or any other
corporation the stock or other securities of which are at the
time receivable on the conversion of the Series BB Preferred
Stock) after the date that the Series BB Preferred Stock is
issued, or in case, after such date, the
4
<PAGE>
Company (or any such other corporation) shall consolidate with
or merge into another corporation or convey all or substantially
all of its assets to another corporation or reclassify any of
its equity securities, then and in each such case holders of
the Series BB Preferred Stock, upon the conversion of the
Series BB Preferred Stock as provided herein at any time after
the consummation of such reorganization, reclassification,
consolidation, merger, or conveyance, shall be entitled to
receive, upon the conversion of the Series BB Preferred Stock,
such stock, other securities, or other property that such holders
would have received if such Holders had converted the Series BB
Preferred Stock immediately prior to such reorganization,
reclassification, consolidation, merger, or conveyance.
(d) ISSUANCE OF SHARES OF COMMON STOCK. From the date that the
Series BB Preferred Stock is issued to and through the date
that the Series BB Preferred Stock is converted in its
entirety into Common Stock (the "Dilution Protection Period"),
if at any time the Corporation issues or sells (a "Dilution
Event") any shares of Common Stock or any other class of
voting common stock for per share consideration less than the
average per share consideration deemed to be paid by Conti for
Common Stock by virtue of its purchase of the Series BB
Preferred Stock (assuming solely for such purpose that by its
purchase of the Series BB Preferred Stock, Conti had purchased
1,000,000 shares of the Common Stock for a purchase price per
share of $2.00, in each case as adjusted to reflect any of the
events described in the preceding paragraphs (a), (b), and (c)
above) (the lowest such per share consideration so paid to the
Corporation during the Dilution Protection Period being
referred to herein as the "Dilution Share Price"), in each
case other than with respect to an employee stock option plan
for employees of the Corporation and its subsidiaries or
pursuant to obligations, contracts, or other arrangements
existing on March 3, 1998, then the number of shares of Common
Stock that holders of the Series BB Preferred Stock will
receive upon conversion of the Series BB Preferred Stock shall
be equal to the quotient of (a) $2,000,000, divided by (b) the
Dilution Share Price, with the Conversion Ratio being
appropriately adjusted to reflect the foregoing, and subject
to readjustment of each of the foregoing quantities and
amounts in order to give effect to the events described in the
immediately preceding paragraphs (a), (b), and (c) .
I. RESERVATION OF SHARES. The Corporation shall at all times reserve and
keep available, free from preemptive rights, out of its treasury shares or
its authorized but unissued shares of Common Stock, for the purpose of
effecting the conversion of the Series BB Preferred Stock, the full number of
shares of Common Stock then deliverable upon the conversion of all of the
Series BB Preferred Stock then outstanding.
J. ISSUE TAX. The issuance of certificates representing shares of Common
Stock upon conversion of Series BB Preferred Stock shall be made without
charge to the holders thereof for any issuance, stock transfer, or
documentary stamp tax in respect thereof; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in the name other than that of the record holder of the Series BB
Preferred Stock that is being converted.
5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation has been executed as
of February ____, 1998.
/s/ Richard A. Brock
---------------------------------------
Name: Richard A. Brock
Title: Chief Financial Officer
/s/ Stephen W. Brown
-------------------------------
Name: Stephen W. Brown
Title: Secretary
6
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of March __,
1998, is between and among CONTIWEST CORPORATION, a Nevada corporation with
offices at 277 Park Avenue, 38th Floor, New York, New York 10172 (the
"Purchaser"), and CROWN NORTHCORP, INC., a Delaware corporation with offices
at 1251 Dublin Road, Columbus, Ohio 43215 (the "Seller").
WITNESSETH:
WHEREAS, the Purchaser desires to purchase from the Seller, and the
Seller desires to sell to the Purchaser, one share of the Series BB
Convertible Preferred Stock, par value $.01 per share, of the Seller (the
"Seller Preferred Stock"), and a warrant to purchase shares of the Common
Stock, par value $.01 per share, of the Seller on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the adequacy, sufficiency, and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE PURCHASE AND SALE
SECTION 1.1. TERMS OF THE PURCHASE AND SALE. On the basis of and in
reliance upon the representations and warranties set forth in Section 2.1 and
Article III, and subject to the terms and conditions set forth herein:
(a) The Seller shall issue at the Closing (as hereinafter defined) to
the Purchaser a certificate registered in the name of the Purchaser for one
share (the "Closing Share") of Seller Preferred Stock.
(b) The Seller shall issue at the Closing to the Purchaser a warrant
(the "Warrant") to purchase up to 200,000 additional shares of the Common
Stock, par value $.01 per share, of the Seller ("Seller Common Stock") in the
form attached as Exhibit A hereto and hereby made a part hereof.
(c) As consideration for the Closing Share and the Warrant, the
Purchaser shall deliver at the Closing to the Seller $2,000,000 in cash, by
certified check, or by wire transfer of immediately available funds to an
account designated in writing by the Seller. The parties hereto agree that
(i) the consideration for the Closing Share shall be $1,999,990, and (ii) the
consideration for the Warrant shall be $10.
1
<PAGE>
SECTION 1.2. THE CLOSING. The closing of the transactions contemplated
by Section 1.1 (the "Closing") shall take place at such place and time on or
before March ____, 1998 as the Purchaser and the Seller agree.
SECTION 1.3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO
CONSUMMATE THE TRANSACTIONS TO BE CONSUMMATED HEREUNDER AT THE CLOSING. The
obligations of the Purchaser to consummate the transactions to be consummated
hereunder at the Closing are subject to the following conditions (unless
waived by the Purchaser in its discretion):
(a) ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All
representations and warranties of the Seller contained in Article II of this
Agreement shall be true and correct as of the Closing; as of the Closing the
Seller shall have performed and complied with all covenants and agreements
and satisfied all conditions required to be performed and complied with by
the Seller at or before such time by this Agreement; and the Purchaser shall
have received a certificate executed by the Chairman of the Board and Chief
Executive Officer of the Seller, dated the Closing Date, to that effect,
substantially in the form of Exhibit B.
(b) OPINION OF COUNSEL. The Seller shall have delivered to the
Purchaser on the Closing Date the favorable opinions of each of Powell,
Goldstein, Frazer & Murphy LLP, counsel to the Seller and Stephen W. Brown,
Secretary of the Seller, each dated as of such date, collectively addressing
matters customarily addressed by counsel to an issuer with respect to
transactions of this type as determined by the Purchaser and the Seller, and
each in the form agreed upon by the Purchaser and the Seller, each in each
case acting reasonably and in good faith.
(c) OTHER CLOSING DOCUMENTS. The Seller shall have delivered to the
Purchaser on or prior to the Closing such other documents as the Purchaser
may reasonably request in order to enable the Purchaser to determine whether
the conditions to its obligations under this Agreement have been met and
otherwise to carry out the provisions of this Agreement.
(d) LEGAL ACTION. A party other than the Seller, the Purchaser, or any
of their respective affiliates shall not have instituted or threatened any
legal proceeding relating to, or seeking to prohibit or otherwise challenge
the consummation of, the transactions contemplated by this Agreement or any
of the other agreements, instruments, and other documents executed or to be
executed and delivered pursuant hereto or in connection therewith
(collectively, and including this Agreement, the "Operative Documents"), or
to obtain substantial damages with respect thereto.
(e) NO GOVERNMENTAL ACTION. There shall not have been any action
taken, or any law, rule, regulation, order, or decree proposed, promulgated,
enacted, entered, enforced, or deemed applicable to the transactions
contemplated by this Agreement or any of the other agreements, instruments,
and other documents executed and delivered pursuant hereto or in connection
herewith (collectively, the "Operative Documents"), by any federal, state,
local, or other governmental authority or by any court or other tribunal,
including the entry of a
2
<PAGE>
preliminary or permanent injunction, which, in the reasonable judgment of the
Purchaser, (i) makes any of the transactions contemplated by this Agreement
illegal, (ii) results in a material delay in the ability of the Purchaser to
consummate any of the transactions contemplated by this Agreement, (iii)
imposes limitations on the ability of the Purchaser effectively to exercise
full rights of ownership of the Closing Share and, when issued in accordance
with the Warrant, the shares of Seller Common Stock issuable upon exercise of
the Warrant (the "Warrant Shares"), including the right to vote, when issued
in accordance with the Warrant, the Warrant Shares, on all matters properly
presented to the stockholders of the Seller, or (iv) otherwise prohibits,
restricts, or materially delays consummation of any of the transactions
contemplated by this Agreement.
(f) "BLUE-SKY" LAW COMPLIANCE. The Seller shall have received such
consents, approvals, registrations, qualifications, and other authorizations
from the state securities authorities having jurisdiction over the state in
which the Purchaser then resides as shall be necessary for the Seller to
legally issue the Closing Share and the Warrant to the Purchaser under the
state securities laws of such state.
(g) CONTRACTUAL CONSENTS NEEDED. The Seller shall have obtained at or
prior to the Closing all consents, if any, required for the consummation of
the transactions to be consummated hereunder at the Closing from any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Seller or any of its consolidated subsidiaries or
consolidated affiliates (each, a "Subsidiary", and collectively, the
"Subsidiaries") is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject, or from any
governmental body, authority, or tribunal.
SECTION 1.4. CONDITIONS TO THE OBLIGATION OF THE SELLER TO CONSUMMATE
THE TRANSACTIONS TO BE CONSUMMATED HEREUNDER AT THE CLOSING. The obligations
of the Seller to consummate the transactions to be consummated hereunder at
the Closing are subject to the following conditions (unless waived by the
Seller in its discretion):
(a) ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All
representations and warranties of the Purchaser contained in Article III of
this Agreement shall be true and correct as of the Closing; as of the Closing
the Purchaser shall have performed and complied with all covenants and
agreements and satisfied all conditions required to be performed and complied
with by the Purchaser at or before such time by this Agreement; and the
Seller shall have received a certificate executed by Authorized Signatories
of the Purchaser, dated the date of the Closing, to that effect,
substantially in the form of Exhibit C.
(b) OPINION OF COUNSEL. The Purchaser shall have delivered to the
Seller on the date of the Closing the favorable opinion of the Chief Counsel
of the Purchaser, dated as of such date, addressing the matters customarily
addressed by counsel to the purchaser with respect to transactions of this
type as agreed by the Purchaser and the Seller and in the form agreed upon by
the Seller and the Purchaser, each in each case acting reasonably and in good
faith.
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(c) OTHER CLOSING DOCUMENTS. The Purchaser shall have delivered to the
Seller at or prior to the Closing such other documents, including, without
limitation, an Investors Questionnaire, as the Seller may reasonably request
in order to enable the Seller to determine whether the conditions to its
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
(d) LEGAL ACTION. A party other than the Seller, the Purchaser, or
any of their respective affiliates shall not have instituted or threatened
any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the transactions contemplated by the Operative
Documents or in connection therewith, or to obtain substantial damages with
respect thereto.
(e) NO GOVERNMENTAL ACTION. There shall not have been any action
taken, or any law, rule, regulation, order, or decree proposed, promulgated,
enacted, entered, enforced, or deemed applicable to the transactions
contemplated by any of the Operative Documents, by any federal, state, local,
or other governmental authority or by any court or other tribunal, including
the entry of a preliminary or permanent injunction, which, in the reasonable
judgment of the Seller, (i) makes any of the transactions contemplated by
this Agreement illegal, (ii) results in a material delay in the ability of
the Seller to consummate any of the transactions contemplated by this
Agreement, or (iii) otherwise prohibits, restricts, or materially delays
consummation of any of the transactions contemplated by this Agreement.
(f) "BLUE-SKY" LAW COMPLIANCE. The Seller shall have received such
consents, approvals, registrations, qualifications, and other authorizations
from the state securities authorities having jurisdiction over the state in
which the Purchaser then resides as shall be necessary for the Seller to
legally issue the Closing Shares and the Warrant to the Purchaser under the
state securities laws of such state.
(g) CONTRACTUAL CONSENTS NEEDED. The Seller shall have obtained on or
prior to the Closing all consents required for the consummation of the
transactions to be consummated hereunder at the Closing from any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Seller or any Subsidiary is a party, or to which
any of them or any of their respective businesses, properties, or assets are
subject, or of any governmental body, authority, or tribunal.
(h) FAIRNESS OPINION. The Board of Directors of the Seller shall have
obtained the favorable opinion of Delta Financial Group Incorporated as to,
among other things, the fairness, from a financial point of view, of the
transactions contemplated hereby to the stockholders of the Seller, which
opinion shall be in form and substance satisfactory to the Board of Directors
of the Seller (the "Fairness Opinion").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 2.1. REPRESENTATIONS AND WARRANTIES. The Seller represents and
warrants to the Purchaser as of the Closing as follows:
(a) ORGANIZATION AND QUALIFICATION. The Seller owns, either directly
or through one or more Subsidiaries, all the outstanding shares of capital
stock of the Subsidiaries. All of the Subsidiaries are listed on Schedule
2.1(a). Other than the Subsidiaries, neither the Seller nor any Subsidiary
has a consolidated subsidiary or consolidated affiliate corporation or owns
any material interest in any other person, firm or entity ("Person") except
as set forth on Schedule 2.1(a). Schedule 2.1(a) also correctly sets forth
as to the Seller and as to each Subsidiary its place of incorporation or
organization, principal place of business, jurisdictions in which it is
qualified to do business, and the business which it currently conducts; and
as to each Subsidiary its authorized capitalization (if applicable), its
shares of capital stock or other equity interests outstanding, and the record
and beneficial owner of those shares. Each of Seller and each of the
Subsidiaries is a corporation, limited partnership, or limited liability
company duly organized, validly existing, and in good standing under the laws
of its jurisdiction of incorporation or organization, with all requisite
power and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other governmental authorities
and all courts and other tribunals, to own, lease, license, and use its
properties and assets and to carry on the business in which it is now
engaged, in each case except for such consents, authorizations, approvals,
orders, licenses, certificates, permits, declarations, and filings, the
absence of which, individually or in the aggregate, could not reasonably be
expected to have a material and adverse effect upon the business, financial
condition, or results of operation of the Seller and the Subsidiaries, taken
as a whole (a "Material Adverse Effect"). Each of the Seller and each of the
Subsidiaries is duly qualified to transact the business in which it is
engaged and is in good standing as a foreign corporation in every
jurisdiction in which its ownership, leasing, licensing, or use of property
or assets or the conduct of its business makes such qualification necessary,
except where the absence of such qualification or good standing could not
reasonably be expected to have a Material Adverse Effect.
(b) CAPITALIZATION. The authorized capital stock of the Seller
consists of (i) 30,000,000 shares of Seller Common Stock, of which 10,790,899
shares are outstanding as of the date hereof (excluding the Closing Shares),
and (ii) 1,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"), of which (A) 1,500 shares of Series B Preferred Stock,
par value $.01 per share, (B) 500 shares of Series C Convertible Preferred
Stock, par value $.01 per share, and (C) 1 share of Series AA Convertible
Preferred Stock, par value $.01 per share, are outstanding as of the date
hereof and are convertible as set forth on Schedule 2.1(b). Each of such
outstanding shares of Seller Common Stock and each outstanding share of each
outstanding series of Preferred Stock is duly authorized, validly issued,
fully paid, and nonassessable, and was not issued in violation of any
applicable law or of any preemptive right of stockholders. All persons who,
to the Knowledge of the Seller (as hereinafter defined), own of record or
beneficially five percent or more of any class or series
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of capital stock of the Seller are set forth on Schedule 2.1(b). Except for
this Agreement and as set forth on Schedule 2.1(b), there is no commitment,
plan, or arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any share of capital stock of the Seller
or of any Subsidiary or any security or other instrument convertible into,
exercisable for, or exchangeable for capital stock of the Seller or of any
Subsidiary. Except as set forth on Schedule 2.1(b), there is outstanding no
security or other instrument convertible into or exchangeable for capital
stock of the Seller or of any Subsidiary. As used herein, "Knowledge of the
Seller" means the actual knowledge of any one or more of Ronald E. Roark,
Harold E. Cooke, Stephen W. Brown, or Richard Brock, assuming that each
possesses the actual knowledge that an officer or director with their
responsibilities would possess after reasonable inquiry into the applicable
matter.
(c) FINANCIAL CONDITION. The Seller has delivered to the Purchaser
true and correct copies of the following: audited consolidated balance
sheets of the Seller as of December 31, 1996 (the "Last Balance Sheet) and
December 31, 1995; audited consolidated statements of income, consolidated
statements of retained earnings, and consolidated statements of cash flows of
the Seller for the years ended December 31, 1996 and December 31, 1995; and
the unaudited consolidated balance sheet (the "Unaudited Balance Sheet"),
consolidated statement of income, consolidated statement of retained
earnings, and consolidated statement of cash flows of the Seller for the nine
months ended September 30, 1997 (collectively the "Financial Statements").
Each such consolidated balance sheet presents fairly the financial condition,
assets, liabilities, and stockholders' equity of the Seller and its
consolidated subsidiaries as of its date; each such consolidated statement of
income and consolidated statement of retained earnings presents fairly the
results of operations of the Seller and its consolidated subsidiaries for the
period indicated; and each such consolidated statement of cash flows presents
fairly the information purported to be shown therein, in each case subject in
the case of such unaudited consolidated balance sheet, consolidated statement
of income, consolidated statement of retained earnings, and consolidated
balance sheet to changes resulting from year-end audit adjustments. The
financial statements referred to in this Section 2.1(c) have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved except as otherwise
permitted by GAAP or, with respect to financial statement footnotes, the
rules and regulations of the Securities and Exchange Commission (the
"Commission") and are in accordance with the books and records of the Seller
and its consolidated subsidiaries. Except as set forth on Schedule 2.1(c),
since September 30, 1997 (the "Reference Date"):
(i) There has at no time been a material adverse change in the
business, financial condition, or results of operations of the Seller and its
consolidated subsidiaries, considered as a whole (including, without
limitation, any adverse change in the rating of the Seller as a special
servicer by any nationally recognized rating agency);
(ii) Except as required by the terms of any outstanding series of
Preferred Stock, neither the Seller nor any Subsidiary has authorized,
declared, paid, or effected any dividend or liquidating or other distribution
in respect of its capital stock or other outstanding
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equity interests or any direct or indirect redemption, purchase, or other
acquisition of any stock of the Seller or any equity interest of any
Subsidiary;
(iii) The operations and business of the Seller and each
Subsidiary have been conducted in all respects only in the ordinary course;
and
(iv) Neither the Seller nor any Subsidiary has suffered an
extraordinary loss (whether or not covered by insurance) or waived any right
of material value.
(d) TAX AND OTHER LIABILITIES. Neither the Seller nor any Subsidiary
has any liability of any nature, whether accrued, absolute, known, unknown,
contingent or otherwise, including without limitation liabilities for
federal, state, local, or foreign taxes and penalties, interest, and
additions to tax ("Taxes") and liabilities to customers or suppliers, other
than the following:
(i) Liabilities for which full provision has been made on the
Unaudited Balance Sheet; and
(ii) Other liabilities arising since the Reference Date and prior
to the Closing in the ordinary course of business which are not inconsistent
with the representations and warranties of the Seller set forth in this
Article II. Without limiting the generality of the foregoing, the amounts set
up as provisions for Taxes on the Unaudited Balance Sheet are sufficient for
all accrued and unpaid Taxes of the Seller and the Subsidiaries, whether or
not due and payable and whether or not disputed, under tax laws, as in effect
on September 30, 1997 (the "Unaudited Balance Sheet Date"), for the period
ended on such date and for all fiscal periods prior thereto. Each of Seller
and each of the Subsidiaries has filed all federal, state, local, and foreign
tax returns required to be filed by it; has delivered to the Purchaser a true
and correct copy of each such return which was filed in the past three years;
has paid (or has established on the Unaudited Balance Sheet a reserve for)
all Taxes, assessments, and other governmental charges payable or remittable
by it or levied upon it or its properties, assets, income, or franchises
which are due and payable, in each case as of the Reference Date; and has
delivered to the Purchaser a true and correct copy of any report as to
adjustments received by it from any taxing authority during the past three
years and a statement as to any litigation, governmental or other proceeding
(formal or informal), or investigation pending, threatened, or in prospect
with respect to any such report or the subject matter of such report. Except
as set forth in Schedule 2.1(d), neither the Seller nor any Subsidiary is a
party to any contract or commitment to guarantee the payment or performance
of any liability or other obligation by any other Person, or pursuant to
which the Seller or any Subsidiary is or may become liable for the
indebtedness or other obligations of any other Person. Except as set forth
on Schedule 2.1(d), Seller is not a party to any currently effective tax
sharing agreement or arrangement or a control person for tax purposes of any
Person other than the Subsidiaries.
(e) LITIGATION AND CLAIMS. Except as set forth on Schedule 2.1(e),
there is no litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation pending or, to the Knowledge of the
Seller, threatened or in prospect (or any
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basis therefor to the Knowledge of the Seller) with respect to the Seller,
any Subsidiary, or any of their respective businesses, properties, or assets.
None of the matters disclosed on Schedule 2.1(e) could reasonably be
expected to have a Material Adverse Effect. Neither the Seller nor any
Subsidiary is affected by any current or threatened strike or other labor
disturbance nor to the Knowledge of the Seller is any union attempting to
represent any employee of the Seller or of any Subsidiary as collective
bargaining agent. Neither the Seller nor any Subsidiary is in violation of,
or in default with respect to, any law, rule, regulation, order, judgment, or
decree, which violation or default could reasonably be expected to have a
Material Adverse Effect; nor to the Knowledge of the Seller is the Seller or
any Subsidiary required to take any action in order to avoid such violation
or default.
(f) PROPERTIES.
(i) Each of the Seller and each of the Subsidiaries has good and
marketable title in fee simple absolute to all real properties and good title
to all other properties and assets used in its business or owned by it
(except such real and other properties and assets as are held pursuant to
leases or licenses described in Schedule 2.1(f)), free and clear of all
liens, mortgages, security interests, pledges, charges, and encumbrances
(except such as are listed on Schedule 2.1(f)).
(ii) Set forth on Schedule 2.1(f) is a true, correct, and
complete list of all real and other properties and assets owned by the Seller
and the Subsidiaries or leased or licensed by the Seller or by any Subsidiary
from or to a third party, including with respect to such properties and
assets owned by the Seller or by any Subsidiary a statement of cost, book
value and (except for land) reserve for depreciation of each item for tax
purposes, and net book value of each item for financial reporting purposes,
and, with respect to such properties and assets leased or licensed by the
Seller or by any Subsidiary, a description of such lease or license. All
such real and other properties and assets owned by the Seller or by any
Subsidiary are reflected on the Last Balance Sheet (except for acquisitions
subsequent to December 31, 1996 (the "Last Balance Sheet Date"). All real
and other tangible properties and assets owned, leased, or licensed by the
Seller or by any Subsidiary are in good and usable condition (ordinary wear
and tear excepted), except for such properties and assets as are obsolete.
(iii) The real and other properties and assets owned by the Seller
and each Subsidiary or leased or licensed by the Seller or such Subsidiary
from a third party constitute all such properties and assets which are
necessary to the business of the Seller or such Subsidiary as currently
conducted.
(iv) The current use, occupancy and operation of the real
properties owned by the Seller or any Subsidiary (the "Real Properties"), and
all aspects of the improvements thereon and thereto (the "Real Properties
Improvements"), are in compliance in all material respects with all
applicable federal, state and local laws and regulations and with all private
restrictive covenants of record, and to the Knowledge of the Seller there is
not any proposed change therein that would affect any of the Real Properties
or its use, occupancy or operation. All Real Property Improvements are
located within the lot lines (and within the mandatory
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set-backs from such lot lines established by applicable law or otherwise) and
not over areas subject to easements or rights of way. All Real Property
Improvements are in good condition and repair, suited for the operation of
the business of the Seller or the relevant Subsidiary.
(g) CONTRACTS AND OTHER INSTRUMENTS. Schedule 2.1(g) accurately and
completely sets forth the information required to be contained therein
regarding all contracts, agreements, instruments, leases, licenses,
arrangements, or understandings with respect to the Seller and each
Subsidiary, identifying whether the matter disclosed therein relates to the
Seller or to a Subsidiary named therein. The Seller has furnished to the
Purchaser (i) the certificate of incorporation (or other charter or
organizational document) and by-laws (or other governing document) of the
Seller and each Subsidiary and all amendments thereto, as currently in
effect, and (ii) the following: (a) true and correct copies of all
contracts, agreements, and instruments referred to in Schedule 2.1(g); and
(ii) true and correct copies of all leases and licenses referred to in
Schedule 2.1(g). Neither the Seller, any Subsidiary, nor (to the Knowledge
of the Seller) any other party to any such contract, agreement, instrument,
lease, or license is now or expects in the future to be in violation or
breach of, or in default with respect to complying with, any material term
thereof; each such contract, agreement, instrument, lease, or license that is
material to the business of the Seller is in full force and effect and is the
legal, valid, and binding obligation of the parties thereto and (subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is enforceable as to them in
accordance with its terms; and each such contract, agreement, instrument,
lease or license that is not material to the business of the Seller is, to
the Knowledge of the Seller, in full force and effect and is the legal,
valid, and binding obligation of the parties thereto and (subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is enforceable as to them in
accordance with its terms. Each of the Seller and each of the Subsidiaries
enjoy peaceful and undisturbed possession under all leases and licenses under
which it is operating. Neither the Seller nor any Subsidiary is in violation
or breach of, or in default with respect to, any term of its certificate of
incorporation (or other charter or organizational document) or by-laws (or
other governing document). Neither the Seller nor any Subsidiary is a member
of a customer or user organization or of a trade association.
(h) EMPLOYEES.
(i) Except as set forth on Schedule 2.1(h), neither the Seller
nor any Subsidiary has, or contributes to, any pension, profit-sharing,
option, other incentive plan, or any other type of Employee Benefit Plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits. The Seller has furnished to the
Purchaser: (A) true and correct copies of all documents evidencing plans,
obligations, or arrangements referred to in Schedule 2.1(h) (or true and
correct written summaries of such plans, obligations, or arrangements to the
extent not evidenced by documents) and true and correct copies of all
documents evidencing trusts, summary plan descriptions, and any other
summaries or descriptions relating to any such plans; and (B) the two most
recent annual
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reports (Form 5500's), if any, including all schedules thereto and the most
recent annual and periodic accounting of related plan assets with respect to
each Employee Benefit Plan.
(ii) All Accrued Liabilities (for contributions or otherwise)
(as defined in this Section 2.1(h)(ii)) of the Seller or any Subsidiary as of
the Closing Date to each Employee Benefit Plan and with respect to each
obligation to or customary arrangement with employees for bonuses, incentive
compensation, vacations, severance pay, insurance, or other benefits have
been paid or accrued for all periods ending prior to the date of the Closing
and no payment to any Employee Benefit Plan or with respect to any such
obligation or arrangement since the Last Balance Sheet Date has been
disproportionately large compared to prior payments. For purposes of the
preceding sentence, "Accrued Liabilities" shall include a pro rata
contribution to each Employee Benefit Plan or with respect to each such
obligation or arrangement for that portion of a plan year or other applicable
period which commences prior to and ends after the Closing Date, and Accrued
Liabilities for any portion of a plan year or other applicable period shall
be determined by multiplying the liability for the entire such year or period
by a fraction, the numerator of which is the number of days preceding the
date of the Closing in such year or period and the denominator of which is
the number of days in such year or period, as the case may be.
(iii) There has been no violation of the reporting and disclosure
requirements imposed either under ERISA or the Internal Revenue Code of 1986,
as amended, or its predecessor statute (the "Code") for which a penalty has
been or may be imposed with respect to any Employee Benefit Plan of the
Seller or of any Subsidiary and which could reasonably be expected to have a
Material Adverse Effect. No Employee Benefit Plan or related trust of the
Seller or any Subsidiary has any material liability of any nature, accrued or
contingent, including without limitation liabilities for Taxes (other than
for routine payments to be made in due course to participants and
beneficiaries, except as set forth in Schedule 2.1(h)) which liabilities
could reasonably be expected to have a Material Adverse Effect. There has
been no violation by any Employee Benefit Plan of the Seller or any
Subsidiary, which is a group health plan within the meaning of Section
162(i)(3) of the Code with the applicable requirements of Section 162(k) of
the Code. Other than the health care continuation requirements of Section
162(k) of the Code, neither the Seller nor any Subsidiary has any obligation
to provide post-retirement medical benefits or life insurance coverage to any
current or former employees. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation
pending, threatened, or in prospect (or any basis therefor to the Knowledge
of the Seller) with respect to any Employee Benefit Plan or related trust or
with respect to any fiduciary, administrator, or sponsor (in its capacity as
such) of any Employee Benefit Plan, which could reasonably be expected to
have a Material Adverse Effect. No Employee Benefit Plan or related trust
and no such obligation or arrangement is in material violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or
decree, which violation or default could reasonably be expected to have a
Material Adverse Effect nor to the Knowledge of the Seller is the Seller, any
Subsidiary, any Employee Benefit Plan, or any related trust required to take
any action in order to avoid violation or default. No event has occurred or
is threatened or about to occur which would constitute a prohibited
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transaction under Section 406 of ERISA and which could reasonably be expected
to have a Material Adverse Effect.
(iv) Each Pension Plan maintained for the employees of the Seller
or of any Subsidiary has been qualified, from its inception, under Section
401(a) of the Code and any related trust has been an exempt trust for such
period under Section 501 of the Code. Each Pension Plan has been operated in
accordance with its terms, except where the failure to so operate could not
reasonably be expected to have a Material Adverse Effect. No investigation
or review by the Internal Revenue Service is currently pending or (to the
Knowledge of the Seller) is contemplated in which the Internal Revenue
Service has asserted or may assert that any Pension Plan is not qualified
under Section 401(a) of the Code or that any related trust is not exempt
under Section 501 of the Code. No assessment of any federal taxes has been
made or (to the Knowledge of the Seller) is contemplated against the Seller,
any Subsidiary, or any related trust of any Pension Plan and nothing has
occurred which would result in the assessment of unrelated business taxable
income under the Code. Form 5500's have been timely filed with respect to
all Pension Plans.
(v) Neither the Seller nor any Subsidiary currently contributes
to or since December 31, 1994 has effectuated either a complete or partial
withdrawal from any multi-employer Pension Plan within the meaning of Section
3(37) of ERISA or sponsored or otherwise maintained a Pension Plan subject to
Title IV of ERISA.
(vi) Schedule 2.1(h) contains a true and correct statement of the
names, relationship with the Seller or any Subsidiary, current rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and aggregate annual
compensation as of January 1, 1998 of each director, officer, or other
employee of the Seller or of any Subsidiary whose aggregate compensation
currently exceeds the rate of $75,000 per annum. Since January 1, 1998,
neither the Seller nor any Subsidiary has changed the rate of compensation of
any of its directors, officers, or employees, nor has any Employee Benefit
Plan or program been instituted or amended to increase benefits thereunder.
(i) QUESTIONABLE PAYMENTS. Neither the Seller, any Subsidiary, nor any
director, officer, employee, or other person associated with the Seller or
any Subsidiary when acting on behalf of the Seller or any Subsidiary, has,
directly or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Seller or any Subsidiary;
made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment; given any favor or gift which is not deductible for federal
income tax purposes; or made any bribe, kickback, or other payment of a
similar or comparable nature, whether lawful or not, to any person or entity,
private or public, regardless of form, whether in money, property, or
services, to obtain
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favorable treatment in securing business or to obtain special concessions, or
to pay for favorable treatment for business secured or for special
concessions already obtained.
(j) AUTHORITY TO SELL. The Seller has all requisite power and
authority to execute, deliver, and perform this Agreement and each of the
Operative Documents to which the Seller is a party. All necessary corporate
proceedings of the Seller have been duly taken to authorize the execution,
delivery, and performance of this Agreement and each of the Operative
Documents to which the Seller is a party by the Seller. Each of this
Agreement and each of the Operative Documents to which the Seller is a party
has been duly authorized, executed, and delivered by the Seller, constitutes
the legal, valid, and binding obligation of the Seller, and is enforceable
against it in accordance with its terms. Except as set forth on Schedule
2.1(j), no consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state, local,
or other governmental authority or any court or other tribunal is required by
the Seller or any Subsidiary for the execution, delivery, or performance of
this Agreement or any of the other Operative Documents to which the Seller is
a party, by the Seller. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Seller
or any Subsidiary is a party, or to which it or any of their respective
businesses, properties, or assets are subject, is required for the execution,
delivery, or performance of this Agreement or any of the other Operative
Documents to which the Seller is a party (except such consents referred to in
Schedule 2.1(j)); and the execution, delivery, and performance of this
Agreement and each of the Operative Documents to which the Seller is a party
will not (if the consents referred to in Schedule 2.1(j) are obtained prior
to the Closing) violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any
party to terminate or call a default under, entitle any party to rights and
privileges that such party was not receiving or ntitled to receive
immediately before this Agreement or any of the Operative Documents (if now
executed) were executed under, or create any obligation on the part of the
Seller or any Subsidiary that it was not paying or obligated to pay
immediately before this Agreement or any of the Operative Documents (if now
executed) were executed under, any term of any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or violate or
result in a breach of any term of the certificate of incorporation (or other
charter or organizational document) or by-laws (or other governing document)
of the Seller or any Subsidiary, or (if each of the conditions precedent set
forth herein or in a schedule hereto are satisfied) violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on the Seller or any Subsidiary or to which it or any of its
respective businesses, properties, or assets are subject. Upon their
issuance pursuant hereto, the Closing Share and the Warrant, and upon their
issuance in accordance with the Warrant, the Warrant Shares, will be validly
authorized, validly issued, fully paid, and nonassessable and will not have
been issued in violation of any preemptive right of stockholders, and the
Purchaser will then have good title to the Closing Share and the Warrant, and
upon their issuance in accordance with the Warrant, the Warrant Shares, free
and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts other than as set forth in the
Operative Documents. Assuming the accuracy of the representations and
warranties made by the Purchaser pursuant to Article III, the issuance of the
Closing Share and the Warrant to the Purchaser hereunder will be exempt from
registration
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under the Securities Act and will comply with the state securities laws of
the State of New York.
(k) INTELLECTUAL PROPERTY RIGHTS. Neither the Seller nor any
Subsidiary owns any patents, patent applications and registrations,
trademarks, trademark applications and registrations, copyright applications
and registrations, trade names or industrial designs. The Seller and the
Subsidiaries license computer software as listed on Schedule 2.1(k), and to
the Knowledge of the Seller neither the Seller nor any of the Subsidiaries is
in violation of any of such licenses. The Seller and the Subsidiaries own
computer software as listed on Schedule 2.1(k), and the conduct of the
business of the Seller and the Subsidiaries and the use of such software does
not infringe upon, and neither the Seller nor any Subsidiary has received any
notice, complaint, threat, or claim alleging infringement of, any patent,
trademark, trade name, copyright, industrial design, trade secret, or any
other intellectual property right or proprietary right of any Person.
(l) INSURANCE. The Seller and the Subsidiaries are the respective
owners of the insurance policies set forth on Schedule 2.1(l), which policies
provide adequate coverage to insure the assets, properties, and businesses of
the Seller and the Subsidiaries against such risks and in such amounts as are
prudent and customary for companies similar to the Seller and the
Subsidiaries, and all of such policies are in full force and effect.
(m) RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
2.1(m), neither the Seller nor any Subsidiary is directly a party to any oral
or written contract, agreement, lease, or arrangement with, or commitment to,
any Related Party (as defined below). Except as set forth on Schedule
2.1(m), no Related Party directly or indirectly owns or controls any assets
or properties used in the business of the Seller or any Subsidiary, and no
Related Party, directly or indirectly, engages in or has any significant
interest in any business which is a competitor, customer, or supplier of the
Seller or any Subsidiary. As used herein, the term "Related Party" means,
collectively, (A) any Person which, to the Knowledge of the Seller, owns 5%
or more of any class of the outstanding securities of the Seller or any
Subsidiary, (B) any director, officer, or employee of the Seller or any
Subsidiary, or (C) any Person in which any director or officer of the Seller
or any Subsidiary or any Person referred to in clause (A) above is a partner
or member, or holds a 5% or more equity interest.
(n) ENVIRONMENTAL CONDITIONS. To the Knowledge of the Seller:
(i) There is no existing or pending Environmental Law (as
hereinafter defined) with a future compliance date that will require
operational changes, business practice modifications, or capital expenditures
at any Real Property or Real Property Improvements;
(ii) All hazardous substances and solid waste on, in, or under
any Real Property or Real Property Improvements, wherever located, have been
properly removed and disposed of, and no past or current disposal, discharge,
spill, or other release of, or treatment, transportation, or other handling
of hazardous materials or solid waste on, in or under any Real
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Property or Real Property Improvements, will subject the Seller or any
Subsidiary to corrective or compliance action or any other liability; and
(iii) There are no currently pending or overtly threatened legal
action or administrative proceedings or orders, judgments, decrees, or
rulings against or involving the Seller or any Subsidiary relating to any
alleged past or ongoing violation of any Environmental Law, nor is the Seller
or any Subsidiary subject to any liability for any such past or ongoing
violation.
As used herein, "Environmental Law" means any federal, state, local, or
municipal statute, rule, regulation, or ordinance ("Law") relating to health,
safety, or the environment, including, without limitation, any Law relating
to the manufacture, generation, processing, distribution, application, use,
treatment, transport or handling, storage of, or emissions, discharges,
releases, or threatened releases into the environment of, pollutants,
contaminants, hazardous substances, petroleum products, chemicals or
industrial waste, other solids, liquids, gases, or wastes, heat, light,
noise, radiation, electro-magnetic fields and other forms of matter and
energy of every kind and nature and the proper containment and disposal of
the same.
(o) DISCLOSURE. Neither this Agreement or any of the Operative
Documents, nor any other written document, description, certificate, or
statement furnished to the Purchaser by or on behalf of the Seller pursuant
hereto or thereto, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact, necessary to
make the statements contained herein and therein not misleading in light of
the circumstances under which they have been or will be made.
(p) BROKERAGE FEES. Neither the Seller nor any Subsidiary has created
any liability of any Person for any brokerage or finders fee in connection
with the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Purchaser represents
and warrants to the Seller as of the Closing as follows:
(a) ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
with all requisite power and authority to own, lease, license, and use its
properties and assets and to carry on the business in which it is now engaged
and to own securities issued by the Seller as herein contemplated. The
Purchaser is duly qualified to do business as a foreign corporation and is in
good standing in the State of New York. The Purchaser resides in the State
of New York, and is an affiliate of ContiFinancial Corporation.
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<PAGE>
(b) AUTHORITY TO BUY. The Purchaser has all requisite power and
authority to execute, deliver, and perform this Agreement and each of the
other Operative Documents to which it is or is to be a party. All necessary
proceedings of the Purchaser have been duly taken to authorize the execution,
delivery, and performance of this Agreement and each of the other Operative
Documents to which the Purchaser is or is to be a party by the Purchaser.
This Agreement and each of the Operative Documents to which the Purchaser is
a party has been duly authorized, executed, and delivered by the Purchaser,
is the legal, valid, and binding obligation of the Purchaser, and is
enforceable against the Purchaser in accordance with its terms.
(c) NON-DISTRIBUTIVE INTENT. The Purchaser is an "accredited investor"
(as defined in Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act")). The Purchaser is acquiring the securities to be acquired
by it at the Closing for its own account (and not for the account of others)
for investment and not with a view to the resale or other distribution
thereof. The Purchaser will not sell or otherwise dispose of such securities
(whether pursuant to a liquidating dividend or otherwise) without
registration under the Securities Act or an exemption therefrom, and the
certificate or certificates representing such securities may contain a legend
to the foregoing effect and all legends necessary or desirable, in the
judgment of the Purchaser, pursuant to any applicable state securities law,
rule, or regulation. The Purchaser understands that it may not sell or
otherwise dispose of such Shares in the absence of either a registration
statement under the Securities Act or an exemption from the registration
provisions of the Securities Act.
(d) INVESTMENT COMPANY. The Purchaser is not subject to regulation as
an investment company under the Investment Company Act of 1940, as amended.
(e) BROKER FEES. Neither the Purchaser nor any of its subsidiaries or
parents has created any liability of any Person for any brokerage or finders
fee in connection with the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS OF THE SELLER
The Seller covenants to the Purchaser as follows:
SECTION 4.1. FURNISH FUTURE INFORMATION. After the Closing, the Seller
shall deliver to the Purchaser the following so long as the Purchaser owns
any of the Closing Share, the Warrant, or the Warrant Shares:
(a) within 45 days after the end of each of the first three quarterly
fiscal periods in each fiscal year of the Seller, a consolidated balance
sheet of the Seller and its consolidated subsidiaries as at the end of such
period, and a consolidated statement of income, consolidated statement of
retained earnings, and consolidated statement of cash flows of Seller and its
consolidated subsidiaries for such period, in each case prepared from the
books and records of
15
<PAGE>
the Seller and its consolidated subsidiaries in accordance with generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods involved except as permitted by GAAP or, with respect to financial
statement footnotes, by the applicable rules and regulations of the
Commission, setting forth in each case in comparative form the figures for
the corresponding period of the previous fiscal year, all in reasonable
detail, subject to changes resulting from year-end audit adjustments;
(b) within 90 days after the end of each fiscal year of the Seller, a
consolidated balance sheet of the Seller and its consolidated subsidiaries as
at the end of such year, and a consolidated statement of income, consolidated
statement of retained earnings, and consolidated statement of cash flows of
the Seller and its consolidated subsidiaries for such year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
in reasonable detail, such consolidated financial statements to be audited by
and to be accompanied by an opinion of the Seller's independent certified
public accountants of recognized national standing, which opinion shall state
that such consolidated financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and that
the audit by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards;
(c) promptly upon their becoming available, copies of all financial
statements, reports, notices, and proxy statements sent by the Seller to its
stockholders, all regular and periodic reports filed by the Seller with any
securities exchange or with the Commission, and all press releases; and
(d) with reasonable promptness, such other material and public
information and data with respect to the Seller or any of its Subsidiaries as
from time to time may be requested by the Purchaser.
SECTION 4.2. REASONABLE BEST EFFORTS. Each of the Seller and the
Purchaser agrees to cooperate and to use its reasonable best efforts to cause
the conditions precedent to the Closing to be satisfied in a timely manner.
Without limiting the generality of the foregoing, the Seller shall use its
reasonable best efforts to obtain the Fairness Opinion and, in the event of
the termination or revocation of the Fairness Opinion prior to Closing, to
obtain a substitute fairness opinion as soon as reasonably practicable.
SECTION 4.3. RESERVATION OF AUTHORIZED SHARES. From the date hereof
through the Closing hereunder and until the expiration or surrender of the
Warrant, the Seller shall continuously hold in reserve sufficient shares of
Seller Common Stock to consummate the Closing and to perform its obligations
under the Warrant.
SECTION 4.4. USE OF PROCEEDS. The Seller agrees that the proceeds
received by the Seller as a result of the transactions contemplated hereby
will be set aside and utilized by the Seller, at the direction of the Board
of Directors of the Seller, pursuant to specific appropriations only for the
following purposes: to expand the Corporation's commercial mortgage
origination capabilities by the addition of personnel, the acquisition of
mortgage
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banking firms, or other means; to complete a real estate investment trust or
other fund opportunity in which Purchaser and its affiliates have an interest
that is economically similar to their interest in the CHC Commercial
Holdings, Inc. REIT as agreed by the Seller and the Purchaser and its
affiliates on the date hereof; and, to the extent of up to $500,000 of such
proceeds, to fund the Corporation's commercial mortgage origination
operations as in existence on the date hereof.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser covenants to the Seller as follows:
SECTION 5.1. COMPLIANCE WITH SECURITIES LAWS. The Purchaser agrees to
make all filings required to be made by it under the Securities Exchange Act
of 1934 (the "Exchange Act")with respect to its holdings of securities issued
by the Seller on a timely basis.
SECTION 5.2. CHANGE OF RESIDENCE AND PRINCIPAL EXECUTIVE OFFICE. The
Purchaser agrees to promptly notify the Seller of any change in the state of
its residence or any change in the state that its principal executive office
is located prior to the Closing.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION BY THE SELLER. The Seller hereby agrees
to defend, indemnify and hold harmless the Purchaser, its affiliates,
subsidiaries, and parent entities, and their respective past, current, and
future officers, directors, employees, counsel, agents, and equity holders,
and each person, if any, who controls, controlled, or will control any of
them within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act (the "Purchaser Indemnitees"), from and against any and
all losses, liabilities, damages (other than consequential or punitive
damages), costs and expenses whatsoever (including but not limited to
reasonable attorneys' fees of one counsel (and the costs of one local counsel
in each jurisdiction requiring local representation) and any and all expenses
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any claims
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in
connection with any misrepresentation or breach of any warranty made by the
Seller contained in any Operative Document. The foregoing agreement to
indemnify shall be in addition to any liability the Seller may otherwise
have, including without limitation liabilities arising out of any Operative
Document.
SECTION 6.2. INDEMNIFICATION BY THE PURCHASER. The Purchaser hereby
agrees to defend, indemnify and hold harmless the Seller, its subsidiaries
and affiliates, and their respective past, current, and future officers,
directors, employees, counsel, agents, and equity holders, and each person,
if any, who controls, controlled, or will control any of them within
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<PAGE>
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act (the "Seller Indemnitees"), from and against any and all losses,
liabilities, damages (other than consequential or punitive damages), costs
and expenses whatsoever (including but not limited to reasonable attorneys'
fees of one counsel (and the costs of one local counsel in each jurisdiction
requiring local representation) and any and all expenses whatsoever incurred
in investigating, preparing, or defending against any litigation, commenced
or threatened, or any claim whatsoever, and any claims whatsoever, and any
and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any
misrepresentation or breach of any warranty made by the Purchaser contained
in any Operative Document. The foregoing agreement to indemnify shall be in
addition to any liability the Purchaser may otherwise have, including without
limitation liabilities arising out of any Operative Document.
SECTION 6.3. METHOD OF ASSERTING CLAIMS. In the event that any claim
or demand for which the Seller could be liable to a Purchaser Indemnitee
hereunder is asserted or sought to be collected from a Purchaser Indemnitee
by a third party, the Purchaser Indemnitee shall promptly notify the Seller
in writing of such claim or demand, specifying the nature of such claim or
demand and the amount or estimated amount thereof to the extent then
feasible, which estimate shall not be conclusive of the final amount of such
claim and demand (the "Claim Notice"). The Seller shall have 20 days from
the date that such Claim Notice is made hereunder (the "Notice Period") to
notify the Purchaser Indemnitee in writing (A) whether or not it disputes its
liability to the Purchaser Indemnitee hereunder with respect to such claim or
demand, and (B) notwithstanding any such dispute, whether or not it desires,
at its sole cost and expense, to defend the Purchaser Indemnitee against such
claim or demand.
(a) If the Seller disputes its liability with respect to such claim or
demand or the amount thereof (whether or not the Seller desires to defend the
Purchaser Indemnitee against such claim or demand as provided in subsections
(b) and (c) below), such dispute shall be resolved in compliance with Section
6.5. Pending the resolution of any dispute by the Seller of its liability
with respect to any claim or demand, such claim or demand shall not be
settled without the prior written consent of the Purchaser Indemnitee.
(b) In the event that the Seller notifies the Purchaser Indemnitee
within the Notice Period that it desires to defend the Purchaser Indemnitee
against such claim or demand then, except as hereinafter provided, the Seller
shall have the right to defend the Purchaser Indemnitee by appropriate
proceedings, which proceedings shall be promptly settled or prosecuted by it
to a final conclusion in such a manner as to avoid any risk of the Purchaser
Indemnitee becoming subject to liability for any other matter; PROVIDED,
HOWEVER, that the Seller shall not, without the prior written consent of the
Purchaser Indemnitee, consent to the entry of any judgment against the
Purchaser Indemnitee or enter into any settlement or compromise which does
not include, as an unconditional term thereof, the giving by the claimant or
plaintiff to the Purchaser Indemnitee of a release, in form and substance
satisfactory to the Purchaser Indemnitee, from all liability or obligations
in respect of such claim or litigation. If the Purchaser Indemnitee desires
to participate in, but not control, any such defense or settlement, it may do
so at its sole cost and expense through counsel of its
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choice. If, in the reasonable opinion of the Purchaser Indemnitee, any such
claim or demand or the litigation or resolution of any such claim or demand
involves an issue or matter which could have a material adverse effect on the
business, operations, assets, properties, or prospects of the Purchaser
Indemnitee, then the Purchaser Indemnitee shall have the right to control the
defense or settlement of any such claim or demand and its reasonable costs
and expenses shall be included as part of the indemnification obligation of
the Seller hereunder; PROVIDED, HOWEVER, that the Purchaser Indemnitee shall
not settle any such claim or demand without the prior written consent of the
Seller, which consent shall not be unreasonably delayed or withheld. If the
Purchaser Indemnitee should elect to exercise such right, the Seller shall
have the right to participate in, but not control, the defense or settlement
of such claim or demand at its sole cost and expense.
(c) (i) If the Seller elects not to defend the Purchaser Indemnitee
against such claim or demand, whether by not giving the Purchaser Indemnitee
timely notice as provided above or otherwise, then the amount of any such
claim or demand, or, if the same may be defended by the Seller or by the
Purchaser Indemnitee (but the Purchaser Indemnitee shall not have any
obligation to defend any such claim or demand), then that portion thereof as
to which such defense is unsuccessful, in each case shall be conclusively
deemed to be a liability of the Seller hereunder unless the Seller has
disputed its liability to the Purchaser Indemnitee as provided in subsection
(a) above, in which case such dispute shall be resolved as provided in
Section 6.5.
(ii) In the event that a Purchaser Indemnitee should have a claim
or demand against the Seller that does not involve a claim or demand being
asserted or sought to be collected from it by a third party, the Purchaser
Indemnitee shall promptly send a Claim Notice with respect to such claim to
the Seller. If the Seller disputes its liability with respect to such claim
or demand, such dispute shall be resolved in accordance with Section 6.5; if
the Seller does not notify the Purchaser Indemnitee within the Notice Period
that it disputes such claim, the amount of such claim shall be conclusively
deemed a liability of the Seller hereunder.
(d) All claims for indemnification by a Seller Indemnitee hereunder
shall be asserted and resolved utilizing the procedures set forth above,
substituting in the appropriate place "Seller Indemnitee" for "Purchaser
Indemnitee" and variations thereof and "Purchaser" for "Seller."
SECTION 6.4. PAYMENT. Upon the determination of the liability under
Section 6.1, 6.2, or 6.3, the appropriate party shall pay to the other, as
the case may be, within 10 days after such determination, the amount of any
claim for indemnification made hereunder. In the event that the indemnified
party is not paid in full for any such claim pursuant to the foregoing
provisions promptly after the other party's obligation to indemnify has been
determined in accordance herewith, it shall have the right, notwithstanding
any other rights that it may have against any other person or entity, to
setoff the unpaid amount of any such claim against any amounts owed by it
under any of the Operative Documents. Upon the payment in full of any claim,
either by setoff or otherwise, the entity making payment shall be subrogated
to the rights of the indemnified party against any person or entity with
respect to the subject matter of such claim.
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SECTION 6.5. MEDIATION. Subject to Section 6.6, the parties hereto
agree to attempt in good faith to resolve any controversy or claim arising
out of or relating to this Agreement or any of the Operative Documents by
mediation in such manner as shall be chosen by the parties hereto; provided,
however, that nothing shall prevent the parties from settling any dispute by
mutual agreement at any time; and provided further, however, that either
party hereto shall be entitled to litigate any such dispute before a court of
competent jurisdiction, except as otherwise provided herein, in the event
that such dispute is not resolved in such mediation within 30 days after such
mediation commences.
SECTION 6.6. OTHER RIGHTS AND REMEDIES NOT AFFECTED. The
indemnification rights of the parties hereunder are independent of and in
addition to such rights and remedies as the parties may have at law or in
equity or otherwise for any misrepresentation, breach of warranty, or failure
to fulfill any agreement or covenant hereunder on the part of any party
hereto, including without limitation the right to seek specific performance,
rescission, or restitution, none of which rights or remedies shall be
affected or diminished hereby.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. FURTHER ACTIONS At any time and from time to time, each
party agrees, at its or his expense, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the
purposes of this Agreement.
SECTION 7.2. AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of the
provisions of this Agreement may not adequately be compensated by money
damages, any party shall be entitled, in addition to any other right or
remedy available to it, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to the issuance of such
an injunction and to the ordering of specific performance.
SECTION 7.3. SURVIVAL. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive the
Closing and any delivery of any purchase price by the Purchaser, irrespective
of any investigation made by or on behalf of any party, as follows:
(a) the representations and warranties of the Seller relating to Taxes,
ERISA, the Foreign Corrupt Practices Act, and environmental laws, rules and
regulations shall survive until the expiration of the applicable statute of
limitation;
(b) all other representations and warranties contained herein shall
survive the Closing when made for a period of two (2) calendar years after
such Closing; and
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(c) all other provisions of the Operative Documents shall survive until
the expiration of the applicable statute of limitations.
SECTION 7.4. MODIFICATION. This Agreement and the Exhibits and
Schedules hereto and the other Operative Documents set forth the entire
understanding of the parties with respect to the subject matter hereof,
supersede all existing agreements among them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party
(except as otherwise provided in Section 7.5).
SECTION 7.5. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested (in which case it shall be deemed to
be given five days after mailing) or by Federal Express, Express Mail, or
similar overnight delivery or courier service (in which case it will be
deemed to be given upon actual receipt by the recipient) or delivered (in
person or by telecopy, telex, or similar telecommunications equipment)
against receipt to the party to whom it is to be given at the address of such
party set forth below (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 7.5):
If to the Purchaser:
ContiWest Corporation
277 Park Avenue
38th Floor
New York, New York 10172
Attn: Chief Counsel
Fax: 212-207-2937
With a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10172
Attn: Lauris G. L. Rall, Esq.
Fax: 212-912-7751
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If to the Seller:
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Attn: Stephen W. Brown, Esq.
Fax: 614-488-9780
With a copy to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Jonathan R. Shils, Esq.
Fax: 404-572-6999
SECTION 7.6. WAIVER. Any waiver by any party of a breach of any term
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of that term or of any breach of any other term of this
Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions will not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must
be in writing.
SECTION 7.7. BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Seller, the Purchaser, and their
respective successors and assigns, and shall inure to the benefit of each
Purchaser Indemnitee, Seller Indemnitee, and their respective successors and
assigns (if not a natural person) and his assigns, heirs, and personal
representatives (if a natural person).
SECTION 7.8. NO THIRD PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement (except as provided in Section 7.7).
SECTION 7.9. SEPARABILITY. If any provision of this Agreement is
invalid, illegal, or unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
SECTION 7.10. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 7.11. COUNTERPARTS; GOVERNING LAW. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which
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together shall constitute one and the same instrument. It shall be governed
by and construed in accordance with the laws of the State of Delaware,
without giving effect to conflict of laws.
SECTION 7.12. ASSIGNMENTS. This Agreement may be assigned by operation
of law without the consent of any party hereto. This Agreement may be
assigned by the Purchaser to its affiliate without the consent of the Seller.
This Agreement may not otherwise be assigned by any party hereto without the
prior written consent of the other party hereto, which consent shall not be
unreasonably delayed or withheld.
SECTION 7.13 TERMINATION OF PRIOR AGREEMENT. The parties hereto hereby
irrevocably terminate that certain Stock Purchase Agreement, dated as of
October 2, 1997, between and among the Seller and the Purchaser, and agree
that such Stock Purchase Agreement shall be of no force and effect whatsoever.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
CONTIWEST CORPORATION
[SEAL]
By: /s/ Peter Abeles
------------------------------------
Name: Peter Abeles
Title: President
By: /s/ Robert E. Riedl
------------------------------------
Name: Robert E. Riedl
Title: Vice President, Treasurer
& Secretary
CROWN NORTHCORP, INC.
[SEAL]
By: /s/ Ronald E. Roark
------------------------------------
Name: Ronald E. Roark
Title: Chairman & CEO
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<PAGE>
EXHIBIT A
FORM OF WARRANT
<PAGE>
WARRANT
W-__ MARCH 3, 1998
THE SECURITIES REPRESENTED BY THIS WARRANT AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE
SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR
PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933
ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES AND THE
SECURITIES ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED
OR ASSIGNED, NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT; AND IN
THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF ANY SUCH SECURITIES.
WARRANT TO PURCHASE UP TO 200,000 SHARES OF COMMON STOCK
1. GRANT OF WARRANT.
(a) Subject to the provisions of this Warrant including, without
limitation, Section 1 (c), Crown NorthCorp, Inc., a Delaware corporation (the
"Company"), hereby agrees that CONTIWEST CORPORATION or its successors or
permitted assigns (the "Holder") is entitled, subject to the provisions of
this Warrant, to purchase from the Company, at any time or from time to time,
during the period commencing on the date hereof, up to 200,000 fully paid and
non-assessable shares of Common Stock at a price of $2.00 per share (the
"Exercise Price").
(b) The term "Common Stock" means the Common Stock, par value $.01
per share, of the Company as constituted on March 3, 1998 (the "Grant Date"),
together with any other equity securities that may be issued by the Company
in substitution therefor. The number of shares of Common Stock to be
received upon the exercise of this Warrant may be adjusted from time to time
as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter referred to as
"Warrant Stock." The term "Company" means and includes the corporation named
above as well as (i) any successor corporation resulting from the merger or
consolidation of such corporation with another corporation, or (ii) any
corporation to which such corporation has transferred its property or assets
as an entirety or substantially as an entirety.
(c) Notwithstanding any provision of this Warrant to the contrary,
the Holder's rights to purchase Warrant Shares hereunder shall vest and
expire in accordance with the following schedule, with the effect that the
Holder shall not have the right to purchase any Warrant Shares with respect
to which such rights have not vested in accordance with the following
schedule or with respect to which such rights have terminated in accordance
with the following schedule:
(i) The Holder shall have the right to purchase 20,000
shares of the Common Stock, as adjusted pursuant hereto, commencing upon the
release date of the first Annual Report on Form 10-KSB of the Company
released after the Grant Date reporting that the Company
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has been profitable for any of its fiscal years occurring after the Company's
fiscal year ended December 31, 1997, which right shall terminate at 5:00
p.m., E.S.T., on the date that is one year after the date that such right so
vests.
(ii) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company has been
profitable for any of its fiscal years occurring after the Company's fiscal
year ended December 31, 1997, provided that the credit facility created under
that certain Program Agreement, dated as of July 1, 1997, between the Company
and ContiTrade Services L.L.C. (the "Warehouse Facility") has not then been
cancelled, terminated, not renewed, or substantially reduced by ContiTrade
Services L.L.C. ("Conti") (unless such action results from a default or
material breach of such credit facility by the Company) which right shall
terminate at 5:00 p.m., E.S.T., on the date that is one year after the date
that such right so vests.
(iii) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 15 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, which right shall terminate at 5:00 p.m., E.S.T., on the date that is
one year after the date that such right so vests.
(iv) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 15 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, provided that the Warehouse Facility has not then been cancelled,
terminated, not renewed, or substantially reduced by Conti (unless such
action results from a default or material breach of such credit facility by
the Company), which right shall terminate at 5:00 p.m., E.S.T., on the date
that is one year after the date that such right so vests.
(v) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 30 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, which right shall terminate at 5:00 p.m., E.S.T., on the date that is
one year after the date that such right so vests.
(vi) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 30 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, provided that the Warehouse Facility has not the been cancelled,
terminated, not renewed, or substantially reduced by Conti (unless such
action results from a default or material breach of such credit facility by
the
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Company), which right shall terminate at 5:00 p.m., E.S.T., on the date that
is one year after the date that such right so vests.
(vii) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 40 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, which right shall terminate at 5:00 p.m., E.S.T., on the date that is
one year after the date that such right so vests.
(viii) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 40 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, provided that the Warehouse Facility has not then been cancelled,
terminated, not renewed, or substantially reduced by Conti (unless such
action results from a default or material breach of such credit facility by
the Company), which right shall terminate at 5:00 p.m., E.S.T., on the date
that is one year after the date that such right so vests.
(ix) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB of
the Company released after the Grant Date reporting that the Company had
earnings per share of the Common Stock of at least 50 cents during any of its
fiscal years occurring after the Company's fiscal year ended December 31,
1997, which right shall terminate at 5:00 p.m., E.S.T., on the date that is
one year after the date that such right so vests.
(x) The Holder shall have the right to purchase an
additional 20,000 shares of the Common Stock, as adjusted pursuant hereto,
commencing upon the release date of the first Annual Report on Form 10-KSB
released after the Grant Date reporting that the Company had earnings per
share of the Common Stock of at least 50 cents during any of its fiscal years
occurring after the Company's fiscal year ended December 31, 1997, provided
that the Warehouse Facility has not then been cancelled, terminated, not
renewed, or substantially reduced by Conti (unless such action results from a
default or material breach of such credit facility by the Company), which
right shall terminate at 5:00 p.m. E.S.T., on the date that is one year after
the date that such right so vests.
Notwithstanding any provision of this Warrant to the contrary,
however, the rights granted hereunder and to vest pursuant to subsections
(ii), (iv), (vi), (viii), and (x) of Section 1(c), whether or not vested,
shall irrevocably terminate in their entirety upon the first actual
cancellation, termination, non-renewal, or substantial reduction of the
Warehouse Facility by Conti (unless such action results from a default or
material breach of such credit facility by the Company).
2. EXERCISE OF WARRANT. Subject to the limitations set forth in
Sections 1(c) and 5 hereof, this Warrant may be exercised in whole or in part
at any time or from time to time during
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the period commencing on the date hereof, to the extent permitted by Section
1(c) hereof, by presentation and surrender of this Warrant to the Company at
its principal office, or at the office of its stock transfer agent, if any,
with the Warrant Exercise Form attached hereto duly executed and accompanied
by payment (either in cash, by certified or official bank check, payable to
the order of the Company, or by wire transfer of immediately available funds
to an account designated in writing by the Company) of the Exercise Price for
the number of shares specified in such form. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder.
Upon receipt by the Company of this Warrant, together with the Exercise
Price, at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall
not then be actually delivered to the Holder.
3. RESERVATION OF SHARES. The Company will at all times reserve for
issuance and delivery all shares of Common Stock issuable upon exercise of this
Warrant. All such shares shall be duly authorized and, when issued upon such
exercise, shall be validly issued, fully paid and non-assessable and free of all
preemptive rights. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant, but the Company shall pay the
Holder an amount equal to the applicable Exercise Price multiplied by such
fraction in lieu of each fraction of a share otherwise called for upon any
exercise of this Warrant.
4. ADJUSTMENTS.
(a) CAPITAL ADJUSTMENTS. In case at any time or from time to time
after the Grant Date the holders of Common Stock of the Company (or any
shares of stock or other securities at the time receivable upon the exercise
of this Warrant) shall have received, or, on or after the record date fixed
for the determination of eligible shareholders, shall become entitled to
receive, without payment therefor,
(1) other or additional stock or other securities or property by
way of dividend (other than ordinary dividends payable in
cash out of the Company's earnings), or
(2) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off,
reclassification, combination of shares, or similar
corporate rearrangement,
(other than additional shares of Common Stock of the Company, or any other stock
or securities into which such Common Stock shall have been changed, or any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stick or securities, issued as a stock dividend or stock-split,
adjustments in respect of which shall be covered by the terms of Section 4(c) or
4(d)), then and in each such case Holder, upon the exercise hereof as provided
herein, shall be entitled to receive the amounts of stock and other securities
and property (including cash in the cases referred to above) which such Holder
would hold on the date of such exercise if on
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<PAGE>
the Grant Date he had been the holder of record of the number of shares of
the Common Stock of the Company called for on the face of this Warrant, as
adjusted in accordance herewith, and had thereafter, during the period from
the Grant Date, to and including the date of such exercise, retained such
shares and/or all other or additional stock and other securities and property
(including cash in the cases referred to above) receivable by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by Sections 4(a) and (b).
(b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, AND MERGER. In
case of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) after the Grant Date, or in case, after such date, the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case Holder, upon the exercise hereof as provided herein at any
time after the consummation of such reorganization, consolidation, merger, or
conveyance, shall be entitled to receive, upon the exercise of this Warrant,
such stock, other securities, or other property that it would had received if
such Holder had exercised this Warrant immediately prior to the consummation of
such reorganization, consolidation, merger, or conveyance, all subject to
further adjustment as provided in Sections 4(a), 4(c), and 4(d); in each case,
the terms of this Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after such
consummation.
(c) ADJUSTMENT FOR ISSUE OR SALE OF COMMON STOCK AT LESS THAN
PURCHASE PRICE. In case at any time or from time to time on or after the Grant
Date the Company shall issue or sell shares of its Common Stock (other than
those excepted by Section 4(c)(6) and other than by subdivision or combination
of the outstanding Common Stock) for a consideration per share less than the
Exercise Price (or, if an adjusted Exercise Price shall be in effect by reason
of an adjustment under this Section 4(c) or Section 4(d) as provided below, then
less such adjusted Exercise Price), then (i) the Exercise Price then in effect
shall be reduced to a number equal to the quotient of (x) the product obtained
by multiplying the number of shares of Common Stock of the Company outstanding
immediately prior to such issuance or sale by the Exercise Price (or, if an
adjusted Exercise Price shall be in effect by reason of a previous adjustment
under this Section 4(c) or Section 4(d), by such adjusted Exercise Price),
divided by (y) the number of shares of Common Stock outstanding immediately
after such purchase and sale, and (ii) in each such case Holder, upon the
exercise hereof as provided herein, shall be entitled to receive, in lieu of the
shares of Common Stock theretofore receivable upon the exercise of this Warrant,
a number of shares of Common Stock determined by (I) dividing the Exercise Price
then in effect, as adjusted as a result of such sale, into (II) the product
obtained by multiplying the number of shares of Common Stock called for on the
face of this Warrant, as adjusted in accordance herewith, by the Exercise Price
in effect immediately prior to such adjustment caused by such purchase and sale.
For the purpose of this Section 4(c), the following paragraphs (1) to
(6) shall be applicable:
(1) ISSUANCE OR SALE OF CONVERTIBLE SECURITIES. In case at
any time after the Grant Date the Company shall issue or sell any
stock or other securities of the Company directly or indirectly
convertible into or exchangeable for Common Stock
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<PAGE>
("Convertible Securities"), there shall be determined the price per
share for which Common Stock is issuable upon the conversion or
exchange thereof, such determination to be made by dividing (a) the
total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof by
(b) the maximum number of shares of Common Stock of the Company
issuable upon conversion or exchange of all of such Convertible
Securities, and such issue or sale shall be deemed to be an issue
or sale for cash (as of the date of issue or sale of such
Convertible Securities) of such maximum number of shares of Common
Stock at the price per share so determined.
If such Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of
additional consideration, if any, payable to the Company, or in the
rate of exchange, upon the conversion or exchange thereof, the
adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be readjusted (but to no greater extent than
originally adjusted) to reflect the same.
If any rights of conversion or exchange evidenced by such Convertible
Securities shall expire without having been exercised, the adjusted
Exercise Price shall forthwith be readjusted (but to no greater extent
than originally adjusted) to be the adjusted Exercise Price which
would have been in effect had an adjustment been made on the basis
that the only shares of Common Stock issued or sold were those issued
upon conversion or exchange of such Convertible Securities, and that
they were issued or sold for the consideration actually received by
the Company upon such conversion or exchange, plus the consideration,
if any, actually received by the Company for the issue or sale of
such of the Convertible Securities as were actually converted or
exercised.
(2) GRANT OF RIGHTS OR OPTIONS FOR CONVERTIBLE SECURITIES.
In case any time after the Grant Date the Company shall grant any
rights or options to subscribe for purchase or otherwise acquire
Common Stock, there shall be determined the price per share for
which Common Stock is issuable upon the exercise of such rights or
options, such determination to be made by dividing (a) the total
amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration payable to the
Company upon the exercise of such rights or options, by (b) the
maximum number of shares of Common Stock of the Company issuable
upon the exercise of such rights or options; and the granting of
such rights or options shall be deemed to be an issue or sale for
cash (as of the date of the granting of such rights or options) of
such maximum number of shares of Common Stock at the price per
share so determined.
If such rights or options shall by their terms provide for an increase
or increases, with the passage of time, in the amount of additional
consideration payable to the
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<PAGE>
Company upon the exercise thereof, the adjusted Exercise Price
shall, forthwith upon any such increase becoming effective, be
readjusted (but to no greater extent than originally adjusted) to
reflect the same.
If such rights or options shall expire without having been exercised,
the adjusted Exercise Price shall forthwith be readjusted (but to no
greater extent than originally adjusted) to be the adjusted Exercise
Price which would have been in effect had an adjustment been made on
the basis that the only shares of the Common Stock so issued and sold
were those issued or sold upon the exercise of such rights or options
and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such
rights or options, whether or not exercised.
(3) GRANT OF RIGHTS OR OPTIONS FOR CONVERTIBLE SECURITIES.
In case at any time after the Grant Date the Company shall grant
any rights or options to subscribe for, purchase, or otherwise
acquire Convertible Securities, such Convertible Securities shall
be deemed, for purposes of Section 4(c)(2), to have been issued and
sold (as of the actual date of the issue or sale of such rights or
options) for the total amount received or receivable by the Company
as consideration for the granting of such rights or options plus
the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of such rights or options.
If such rights or options shall by their terms provide for an increase
or increases, with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise thereof, the
adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be readjusted (but to no greater extent than
originally adjusted) to reflect the same.
If any such rights or options shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be adjusted
(but to no greater extent than originally adjusted) to be the
adjusted Exercise Price which would have been in effect had an
adjustment been made upon the basis that the only Convertible
Securities so issued or sold were those issued and sold upon the
exercise of such rights or options and that they were issued or
sold for the consideration actually received by the Company for
such exercise, plus the consideration, if any, actually received by
the Company for the granting of all such rights or options, whether
or not exercised.
(4) DILUTION IN CASE OF OTHER STOCK OR SECURITIES. In case any
shares of stock or other securities, other than Common Stock of the
Company, shall at the time be receivable upon the exercise of this
Warrant, and in case any additional shares of such stock or any
additional such securities (or any stock or any additional securities
convertible into or exchangeable for any such stock or securities)
shall be issued or sold for a consideration per share such as to
dilute the purchase rights evidenced by this Warrant, then and in each
such case the adjusted exercise Price shall forthwith be adjusted,
substantially in the manner provided for above in this
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Section 4(c), so as to protect the holders of this Warrant against
the effect of such dilution.
(5) DETERMINATION OF CONSIDERATION. Upon any issuance or
sale for a consideration other than cash, or a consideration part
of which is other than cash, of any shares of Common Stock or
Convertible Securities or any rights or options to subscribe for,
purchase, or otherwise acquire any Common Stock or Convertible
Securities, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of
Directors of the Company. In case any Common Stock or Convertible
Securities or any rights or options to subscribe for, purchase, or
otherwise acquire any Common Stock or Convertible Securities shall
be issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, the
consideration for the issue or sale of such Common Stock or
Convertible Securities or such other rights or options shall be
deemed to be the portion of such consideration allocated thereto by
the Board of Directors of the Company.
No adjustment pursuant to this Section 4(c) shall be made by reason
of the issuance of (a) shares of Common Stock issued pursuant to
the Company's stock option plans, stock purchase arrangements, or
employment agreements with officers, directors, or employees of the
Company, as currently in effect or as in effect in the future,
approved by the Board of Directors of the Company, (b) shares of
Common Stock issuable upon the conversion of preferred stock of the
Company outstanding on the Grant Date, (c) shares of Common Stock
issuable upon the exercise of options and warrants to purchase the
Company's Common Stock outstanding on the Grant Date, or (d) any
shares of Common Stock issuable upon exercise of any Warrant issued
pursuant to the Stock Purchase Agreement, dated as of March 3,
1998, between and among ContiWest Corporation and the Company.
(6) EXCEPTED ISSUES AND SALES. No adjustment pursuant to this
Section 4(c) shall be made by reason of the issuance of (a) shares of
Common Stock issued pursuant to the Company's stock option plans,
stock purchase arrangements, or employment agreements with officers,
directors, or employees of the Company, as currently in effect or as
in effect in the future, approved by the Board of Directors of the
Company, (b) shares of Common Stock issuable upon the conversion of
preferred stock of the Company outstanding on the Grant Date, (c)
shares of Common Stock issuable upon the exercise of options and
warrants to purchase the Company's Common Stock outstanding on the
Grant Date, or (d) any shares of Common Stock issuable upon exercise
of any Warrant issued pursuant to the Stock Purchase Agreement, dated
as of March 3, 1998, between and among ContiWest Corporation and the
Company.
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(d) STOCK SPLIT AND REVERSE STOCK SPLIT. If the Company at any
time or from time to time after the Grant Date effects a subdivision of the
outstanding Common Stock, the Exercise Price (or the adjusted Exercise Price)
then in effect immediately before that subdivision shall be proportionately
decreased and the number of shares of Common Stock theretofore receivable
upon the exercise of this Warrant shall be proportionately increased. If the
Company at any time or from time to time after the Grant Date combines the
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price (or adjusted Exercise Price) then in effect immediately before
that combination shall be proportionately increased and the number of shares
of Common Stock theretofore receivable upon the exercise of this Warrant
shall be proportionately decreased. Each adjustment under this Section 4(d)
shall become effective at the close of business on the date the subdivision
or combination becomes effective.
(e) NOTICE TO WARRANT HOLDER OF ADJUSTMENT. Whenever the number
of shares of Warrant Stock or the Exercise Price is adjusted as herein
provided, the Company shall cause to be mailed to the Holder in accordance
with the provisions of this Section 4 a notice (i) stating that an event
giving rise to an adjustment hereunder has occurred, (ii) setting forth the
adjusted number of shares of Warrant Stock and the adjusted Exercise Price
and (iii) showing in reasonable detail the computations and the facts upon
which such adjustments are based.
5. RESTRICTIONS ON EXERCISE IMPOSED BY FEDERAL AND STATE SECURITIES
LAWS. The Holder hereby acknowledges that neither this Warrant nor any of the
securities that may be acquired upon exercise of this Warrant have been
registered or qualified under the 1933 Act or under the securities laws of
any state. The Holder acknowledges that, upon exercise of this Warrant, the
securities to be issued upon such exercise may be subject to applicable
federal and state securities (or other) laws requiring registration,
qualification or approval of governmental authorities before such securities
may be validly issued or delivered upon notice of such exercise. The Holder
agrees that the issuance of such securities may be deferred until the
issuance or sale of such securities shall be lawful in all respects. The
restrictions imposed by this Section 5 upon the exercise of this Warrant
shall cease and terminate as to any particular shares of Warrant Stock (i)
when such securities shall have been effectively registered and qualified
under the 1933 Act and all applicable state securities laws and disposed of
in accordance with the registration statement covering such securities, or
(ii) when such restrictions are no longer required in order to insure
compliance with the 1933 Act and all applicable state securities laws.
6. LEGENDS. Unless (i) the shares of Warrant Stock have been
registered under the 1933 Act, or (ii) in the opinion of counsel for the
Company such legend is no longer required in order to ensure compliance with
the 1933 Act and all applicable state securities laws, upon exercise of any
of the Warrants and the issuance of any of the shares of Warrant Stock, all
certificates representing such shares shall bear on the face thereof
substantially the following legend:
The securities represented by this certificate have not been
registered or qualified under the Securities Act of 1933, as
amended (the "1933 Act"), or under the provisions of any applicable
state securities laws, but have been acquired by the registered
holder hereof for purposes of investment and in reliance on
statutory exemptions under the 1933 Act, and under any applicable
state securities laws. These securities may not be sold, pledged,
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transferred or assigned, except in a transaction which is exempt
under provisions of the 1933 Act and any applicable state
securities laws or pursuant to an effective registration statement.
7. NOTICES OF RECORD DATE, ETC. In case:
(a) The Company shall establish a record date for the holders of
its Common Stock for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or to
receive any other right;
(b) Of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, any share exchange
for shares of capital stock of another corporation or any conveyance of all
or substantially all of the assets of the Company to another corporation;
(c) Of any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(d) The Company shall enter into a letter of intent or agreement
with respect to a transaction by which all of the outstanding shares of
Common Stock of the Company are to be acquired by a third party;
then the Company shall mail or cause to be mailed to each Holder at the time
outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or
rights, and stating the amount and character of such dividend, distribution
or rights, (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up is
to take place, and the time, if any is to be fixed, as to which the holders
of record of Common Stock shall be entitled to exchange their shares for
securities or other property deliverable upon the completion of such
transaction, or (iii) the closing of the acquisition by a third party of all
of the outstanding shares of Common Stock. Such notice shall be mailed as
soon as practicable after the occurrence or likelihood of such event is
publicly disclosed.
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8. TRANSFER AND ASSIGNMENT.
(a) Except as set forth in Section 8(b), neither this Warrant nor
any rights hereunder may be assigned, transferred, pledged or hypothecated in
any way (whether by operation of law or otherwise). This Warrant shall not
be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Warrant contrary to the provisions of this Agreement shall be null and void
and without legal effect.
(b) The Holder may assign or transfer this Warrant in whole or in
part; provided, however, that prior to such assignment or transfer the Holder
provides to the Company evidence reasonably satisfactory to the Company that
the proposed transfer will be effected in compliance with all applicable
laws, including without limitation federal and state securities laws.
9. NOTICES. All notices required hereunder must be in writing and
shall be deemed given when telefaxed, delivered personally or within three
days after mailing when mailed by certified or registered mail, return
receipt requested, if to the Company, at 1251 Dublin Road, Columbus, Ohio
43215, or at such other address of which the Holder has been advised by
notice hereunder, and if to the Holder, at the address for the registered
Holder as it appears on the books of the Company, or at such other address of
which the Company has been advised by notice hereunder.
10. RIGHTS AS A SHAREHOLDER. The Holder shall have no rights as a
shareholder with respect to any shares covered by this Warrant until the date
of issuance of such shares.
11. LOST OR DESTROYED WARRANT. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date. The Holder agrees with the Company that this Warrant is
issued, and all the rights hereunder shall be held subject to, all of the
conditions, limitations and provisions set forth herein.
12. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the
State of Delaware, without reference to the conflict of law principles
thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, as of the day and
year first above written.
CROWN NORTHCORP, INC.
By:
----------------------------------------
Print Name:
--------------------------------
Title:
-------------------------------------
[CORPORATE SEAL]
Attest:
----------------------------
Print Name:
------------------------
Title:
-----------------------------
-12-
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing __________ shares of Common Stock of Crown NorthCorp,
Inc., a Delaware corporation, and hereby makes payment of $____________ in
payment therefor.
-------------------------------------------
Signature
-------------------------------------------
Signature, if jointly held
Date:
---------------
******************************************************************************
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant)
Name
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
Social Security or Taxpayer Identification Number
-----------------------------
******************************************************************************
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers unto __________________________________________________________
NAME (PLEASE TYPEWRITE OR PRINT IN BLOCK LETTERS)
the right to purchase Common Stock of Crown NorthCorp, Inc., a Delaware
corporation, represented by this Warrant to the extent of shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint
______________________________, Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Dated:
--------------
Signature
----------------------------------
Signature, if jointly held
-----------------
<PAGE>
EXHIBIT B
SELLER'S OFFICER'S CERTIFICATE
Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed thereto in that certain Stock Purchase Agreement,
dated as of March ____, 1998, between and among ContiWest Corporation and
Crown NorthCorp, Inc. (the "Stock Purchase Agreement").
The undersigned, being the Chairman of the Board and Chief Executive
Officer of CROWN NORTHCORP, INC., a Delaware corporation (the "Seller"), DOES
HEREBY CERTIFY, in the name and on behalf of the Company, as follows:
1. All representations and warranties of the Seller contained in
Article II of the Stock Purchase Agreement are true and correct as of the
date hereof.
2. As of the date hereof, the Seller has performed and complied with
all covenants and agreements, and satisfied all conditions required to be
performed and complied with, by the Seller at or before the date hereof by
the Stock Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has set his hand hereunto, in the
name and on behalf of the Company, as of March ____, 1998.
CROWN NORTHCORP, INC.
By:
------------------------------------
Ronald E. Roark
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT C
PURCHASER'S OFFICER'S CERTIFICATE
Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed thereto in that certain Stock Purchase Agreement,
dated as of March ____, 1998, between and among ContiWest Corporation and
Crown NorthCorp, Inc. (the "Stock Purchase Agreement").
Each of the undersigned, each being an Authorized Signatory of CONTIWEST
CORPORATION, a Nevada corporation (the "Purchaser"), DOES HEREBY CERTIFY, in
the name and on behalf of the Purchaser, as follows:
1. As of the date hereof, all representations and warranties of the
Purchaser contained in Article III of the Stock Purchase Agreement are true
and correct as of the date hereof.
2. As of the date hereof, the Purchaser has performed and complied
with all covenants and agreements, and satisfied all conditions required to
be performed and complied with, by the Purchaser at or before the date hereof
by the Stock Purchase Agreement.
3. The Purchaser is an "accredited investor," as defined in Rule
501(a) under the Securities Act, because it is a corporation with assets in
excess of $5,000,000.
4. The Purchaser is purchasing the Closing Share for its own account,
for investment purposes only, and without a view toward the resale or
distribution thereof.
5. The Purchaser's chief executive office and principal place of
business is located in the State of New York.
6. The Seller has made available to the Purchaser a reasonable time
before the Closing the opportunity to ask questions of and receive answers
concerning the Seller and the terms and conditions of the transaction to be
consummated at the Closing.
<PAGE>
IN WITNESS WHEREOF, the undersigned has set his hand hereunto, in the
name and on behalf of the Company, as of March ____, 1998.
CONTIWEST CORPORATION
By:
------------------------------------
Name:
Title: Authorized Signatory
By:
------------------------------------
Name:
Title: Authorized Signatory
-2-
<PAGE>
EXHIBIT 10.71
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
March __, 1998, is by and among CONTIWEST CORPORATION, a Nevada corporation
(the "Purchaser"), and CROWN NORTHCORP, INC., a Delaware corporation (the
"Company").
WITNESSETH:
WHEREAS, the Purchaser desires to purchase one share of the Preferred
Stock and the Warrant from the Company on the date hereof; and
WHEREAS, the Company desires to encourage the Purchaser to purchase such
securities by granting to the Holders certain registration rights relating
thereto;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt, adequacy, and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. The following terms shall have the
following meanings:
"CERTIFICATE OF INCORPORATION" means the Restated Certificate of
Incorporation of the Company, as amended and as in effect on the date hereof.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"COMMISSION" means the Securities and Exchange Commission or any similar
federal agency then having jurisdiction to enforce the Securities Act and other
federal securities laws.
" EXERCISE SHARES" means the shares of Common Stock issuable upon
exercise of the Warrant.
"HOLDERS" means the owners of the Registrable Securities at the time of
determination.
"NASD" means the National Association of Securities Dealers, Inc. or any
successor corporation thereto.
"MARKET PRICE," with respect to any security, means:
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<PAGE>
(a) if such security is traded on a securities exchange or through
Nasdaq National Market, the average of the closing prices of such security on
such exchange over the thirty-day period ending three days prior to the date
of determination;
(b) if such security is actively traded over-the counter, the average of
the closing bid or sales prices (whichever is applicable) of such security
over the thirty-day period ending three days prior to the date of
determination;
(c) If there is no active public market for such security, the fair
market value thereof as mutually determined by the Company and the Holders of
the securities at issue; PROVIDED, HOWEVER, that if the Company and such
Holders are unable to reach agreement as to such fair market value within 15
business days after such security is to be valued hereunder, then such fair
market value shall be conclusively determined as expeditiously as practicable
thereafter by an independent investment bank designed by mutual agreement of
the Company and such holders holding at least 50% of such securities at
issue; PROVIDED, HOWEVER, that if the Company and such holders fail to agree
upon the selection of such investment banker within 10 additional business
days, then such investment banker will be selected in a mediation proceeding
pursuant to Section 7(h).
"PERSON" means an individual or a corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or any agency or political
subdivision thereof), or other entity of any kind.
"PREFERRED STOCK" means the Series BB Convertible Preferred Stock, par
value $.01 per share, of the Company.
"REGISTRABLE SECURITIES," collectively, means (i) the Shares, (ii) any
shares of Common Stock hereafter distributed to the Holders by the Company as
a stock dividend or otherwise thereon, and (iii) any equity securities of the
Company convertible into, or exercisable or exchangeable for, any of the
shares of Common Stock identified in the foregoing clauses (i) through (ii);
PROVIDED, HOWEVER, that any such securities shall cease to be Registrable
Securities when (i) such securities shall have been registered under the
Securities Act, the Registration Statement with respect to the sale of such
securities shall have become effective under the Securities Act, and such
securities shall have been disposed of pursuant to such effective
registration statement, (ii) such securities shall have been otherwise
transferred, if new certificates or other evidences of ownership for them not
bearing a legend restricting further transfer and not subject to any stop
transfer order or other restrictions on transfer shall have been delivered by
the Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or
any state securities law then in force, or (iii) such securities shall cease
to be outstanding.
"REGISTRATION PERIOD," with respect to any registration of Registrable
Securities, has the meaning ascribed thereto in Section 2(c)(1).
2
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rule and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
"SHARES" mean the shares of Common Stock issuable upon conversion of the
Preferred Stock, and the Exercise Shares.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, limited liability company membership interests,
participations, or other equivalents (regardless of how designated) of or in
a corporation, partnership, or equivalent entity, whether voting or
non-voting, including, without limitation, common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a-1 of the
General Rules and Regulations promulgated by the Commission under the
Securities Exchange Act).
"STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement,
dated as of even date herewith, between and among the Company and the
Purchaser.
"SUBSTANTIAL MARKET VALUE SECURITIES" shall mean Reduction Securities
not then saleable at the time of determination under Rule 144 of the
Securities Act and having a Market Price equal to or in excess of $250,000 at
the time of determination.
"WARRANT" means the Warrant No. ___, issued by the Company on the date
hereof, exercisable for the Exercise Shares.
SECTION 2. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. From and after the earlier of the date that
is one calendar year after the date hereof, after receipt of a written
request from the Holders owning 50% of the Registrable Securities of each
class requesting that the Company effect the registration of all or a portion
of the Registrable Securities and specifying the intended method or methods
of disposition thereof (a "Holder Notice"), the Company shall, as
expeditiously as is possible, use its reasonable commercial efforts to effect
the registration for sale under the Securities Act of all shares of
Registrable Securities which the Company has been so requested to register by
such Holders, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of such
Registrable Securities so registered; PROVIDED, HOWEVER, that the Company
shall not be required to effect more than one (1) registration of any
Registrable Securities pursuant to this Section 2(a) except as otherwise
expressly provided herein.
3
<PAGE>
If the managing underwriter of a proposed public offering shall advise
the Company in writing that, in its opinion, the distribution of the
Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company or such
other registering security holders would materially and adversely affect the
distribution of such securities by the Company or such registering security
holders, then the Company may require all selling security holders (other
than the Company) to reduce the amount of securities each intended to
distribute through such offering on a pro rata basis; PROVIDED, HOWEVER, that
if the Company requires such reduction, and if Holders requesting such
registration pursuant to this Section 2(a) are unable to include in such
registration Registable Securities that they requested be included in such
registration in the related Holder Notice that constitute Substantial Market
Value Securities, due to such pro rata reduction (the Registrable Securities
that such Holder so requested to be included in such registration that were
not included in such registration due to such pro rata reduction being
referred to herein as the "Reduction Shares", and the registration in which
such reduction occurred being referred to herein as a "Failed Registration"),
then subject to the other provisions hereof applicable to a demand
registration the Holders of the Reduction Shares shall have the right,
exercisable commencing on the day that is two calendar months after the
termination of the Registration Period relating to the Failed Registration by
written notice sent to the Company by Holders of 50% of the Reduction Shares
(a "Repurchase/Register Notice"), to require the Company to elect (at the
Company's option) to either register the Reduction Shares otherwise pursuant
to this Section 2(a) or, if the foregoing offer to sell or resulting sale is
then lawful, to repurchase the Reduction Shares at the higher of (i) the
price per share for which Registrable Securities were actually sold in the
Failed Registration, or (ii) the Market Price on the date the
Repurchase/Register Notice is sent to the Company in compliance with this
Agreement; PROVIDED, HOWEVER, that the Holders shall not be deemed hereby or
thereby to have made any offer to sell to the Company that does not comply
with applicable law and the Company shall not be entitled or deemed to be
entitled to repurchase such Reduction Shares or to be offered the right to or
solicit the right to repurchase such Reduction Shares or deemed to have bid
for such Reduction Shares hereby or thereby if such repurchase, offer, or bid
would violate any applicable securities law; and PROVIDED FURTHER, HOWEVER,
that any such repurchase shall occur at such time within three calendar
months after the date that the Company receives the related
Repurchase/Register Notice subject to the other provisions of this
Section 2(a), and otherwise at such time and place as the Company may
determine, and each of the parties hereto agrees to execute and deliver such
agreements, instruments, and other documents, and to take such other actions,
as may be necessary or desirable to effect any such repurchase in compliance
with all applicable laws. The Company shall respond to such
Repurchase/Register Notice by written notice to the Purchaser within 30
business days after its receipt of the Repurchase/Register Notice (an
"Election Notice"), which Election Notice shall set forth whether the Company
desires to so register such Reduction Shares or to repurchase such Reduction
Shares; PROVIDED, HOWEVER, that the Company shall be deemed to have elected
to register such Reduction Shares if it does not give such notice within such
30 business day period. If the Company so elects to repurchase such
Reduction Shares, and if the Market Price requires an agreement of the
Company and such holders as to the fair market value of such Reduction
Shares, the consummation of such repurchase shall not be required to be
consummated until as soon as
4
<PAGE>
practicable after such fair market value has been determined as set forth in
the definition of Market Price set forth herein.
(b) INCIDENTAL REGISTRATION. If the Company at any time proposes to
file on its behalf and/or on behalf of any of its security holders (the
"registering security holders") a Registration Statement under the Securities
Act on any form (other than a Registration Statement on Form S-4 or S-8 or
any successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the
Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common
Stock or any other class of equity security of the Company, it will give
written notice to the Purchaser and each other Holder of record known to it
at least 45 days before the initial filing with the Commission of such
Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares
of Registrable Securities as the Holders owning 50% or more of the
Registrable Securities of each class may request.
The Holders owning 50% or more of the Registrable Securities of each
class may advise the Company in writing within 20 days after the date of such
receipt of such offer from the Company, setting forth the amount of
Registrable Securities for which registration is so requested. The Company
shall thereupon include in such filing the number of shares of Registrable
Securities for which registration is so requested, subject to the next
sentence, and shall use its reasonable commercial efforts to effect
registration under the Securities Act of such shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that, in its opinion, the distribution of the Registrable Securities
requested to be included in the registration concurrently with the securities
being registered by the Company or such registering security holder would
materially and adversely affect the distribution of such securities by the
Company or such registering security holder, then all selling security
holders (other than the Company) shall reduce the amount of securities each
intended to distribute through such offering on a pro rata basis.
Notwithstanding any provision of this Agreement to the contrary, the
Holders and the Purchaser, collectively, shall be entitled to include shares
of Registrable Securities in any registration of Stock pursuant to this
Section 2(b) on a maximum of three occasions.
(c) REGISTRATION PROCEDURES. If the Company is required by the
provisions of Section 2(a) or Section 2(b) to use its reasonable commercial
efforts to effect the registration of any of its securities under the
Securities Act, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such securities and use its reasonable commercial
efforts to cause such Registration Statement to become and remain effective
for a period of time required for the disposition of such securities by the
selling Holders, but not to exceed 180 days; provided, however that such time
shall be extended by the length of any period(s) during which such Holders
must suspend
5
<PAGE>
sales in order to permit the filing and effectiveness of any amendment or
supplement to the Registration Statement necessitated by an event not
precipitated by a Holder (such period, as it may be so extended with respect
to any registration, is referred to herein as the "Registration Period" with
respect to such registration);
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of any securities covered by such
Registration Statement until the end of the related Registration Period;
(iii) furnish to each selling Holder such number of copies of a
summary prospectus or other prospectus (including any amendments or
supplements to any Registration Statement), including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as such Holder may reasonably request;
(iv) use its reasonable commercial efforts to register or qualify
the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States
and Puerto Rico as the selling Holders shall request (PROVIDED, HOWEVER, that
the Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified
or to file any general consent to service of process), and do such other
reasonable acts and things as may be required of it to enable such Holders to
consummate the disposition in such jurisdiction of the securities covered by
such Registration Statement;
(v) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Securities;
(vi) otherwise use its reasonable commercial efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, but not
less than 18 months after the effective date of the Registration Statement,
an earnings statement covering the period of at least 12 months beginning
with the first full month after the effective date of such Registration
Statement, which earnings statements shall satisfy the provisions of Section
11(a) of the Securities Act; and
(vii) promptly notify the Holders in writing of any amendment or
supplement to any related registration statement, the effectiveness of any
such registration statement, the issuance by the Commission of any stop order
with respect to any such registration statement, and any other correspondence
issued by the Commission with respect to any such registration statement or
any other action taken by the Commission with respect thereto.
6
<PAGE>
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 2 in respect of the securities which
are to be registered at the request of any Holder that such Holder furnishes
to the Company such information regarding the securities held by such Holder
and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required under the Securities Act in
connection with the action taken by the Company and that such Holder shall
execute such agreements, instruments, and other documents in connection with
such registration (including, without limitation, an escrow agreement
relating to such securities) as the Company may reasonably request.
SECTION 3. REGISTRATION EXPENSES. All expenses incurred in complying
with Section 2 of this Agreement, including, without limitation, all
registration and filing fees (including all expenses incident to filing with
the NASD), printing expenses, fees and disbursements of counsel for the
Company, expense of any special audits incident to or required by such
registration, time charges of Company personnel, and expenses of complying
with the securities or blue sky laws of any jurisdictions pursuant to Section
2(c), shall be paid by the Company, except that:
(a) all such expenses in connection with any amendment or supplement to
the Registration Statement or prospectus filed more than 120 days after the
effective date of such Registration Statement because any Holder has not
effected the disposition of the securities it requested to be registered
(other than Reduction Shares) shall be paid by such Holder; PROVIDED,
HOWEVER, that such 120 day period shall be extended by the length of any
period(s) during which the selling Holders must suspend sales to permit the
filing and effectiveness of any amendment or supplement to the Registration
Statement necessitated by an event not precipitated by any Holder;
(b) the Company shall not be liable for any fees, discounts, or
commissions to any underwriter in respect of the securities sold by any of
the Holders; and
(c) the Company shall only be liable in any offering for any fees or
expenses of one counsel to all selling security holders in such offering.
SECTION 4. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any
registration of any Registrable Securities under the Securities Act pursuant
to this Agreement, the Company shall indemnify and hold harmless the Holders,
their directors and officers, and each other Person (including each
underwriter) who participated in the offering of such Registrable Securities
and each other Person, if any, who controls a Holder or such participating
person within the meaning of the Securities Act, against any losses, claims,
damages, or liabilities, joint or several, to which any of the Holders or any
such director or officer or participating person or controlling person may
become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained, on the effective date thereof, in
any Registration Statement under which such
7
<PAGE>
securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Holders or such director,
officer, or participating person or controlling person for any legal or any
other expenses reasonably incurred by such Person in connection with
investigating or defending any such loss, claim, damage, or liability;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, or liability arises out of or
is based upon any alleged untrue statement or alleged omission made (x) in
such Registration Statement, preliminary prospectus, prospectus, or amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Holder, any other selling
security holder other than the Company, or such underwriter specifically for
use therein, or (y) in such Registration Statement, preliminary prospectus,
or amendment or supplement but corrected in such final prospectus if the
Company complied with its obligations pursuant to Section 2(c)(iii) with
respect to the related selling Holder but such final prospectus was not
delivered to the Person alleging such loss, claim, damage, or liability.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder or such director, officer,
or participating person or controlling Person, and shall survive the transfer
of such securities by the Holder.
(b) The Purchaser and each other Holder, by its acceptance of any of
the Registrable Securities, agrees to indemnify and hold harmless the
Company, its directors and officers, and each other Person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages, or liabilities, joint or several, to which the
Company or any such director or officer or any such Person may become subject
under the Securities Act or any other statute or at common law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon information in writing provided to the Company
by or on behalf of such Holder specifically for use in the following
documents (and not corrected by or on behalf of such Holder in a written
notice actually received by the Company prior to the effective date thereof),
in any Registration Statement under which securities were registered under
the Securities Act at the request of the Holder, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto.
(c) If the indemnification provided for in this Section 4 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities, or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
or expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and the indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities,
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a
8
<PAGE>
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party
or indemnified parties, as well as the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities, and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4(c) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not also guilty of such fraudulent
misrepresentation.
SECTION 5. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit
the sale of restricted securities (as that term is used in Rule 144 or any
successor rule under the Securities Act) to the public without registration,
the Company agrees to:
(a) make and keep public information available pursuant to Rule 144(c)
under the Securities Act;
(b) use its reasonable commercial efforts to file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Securities Exchange Act at any time after it
has become subject to such reporting requirements; and
(c) so long as the Purchaser owns any restricted securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (or any successor
rule), and of the Securities Act and the Securities Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as the Purchaser may reasonably
request in availing itself of any rule or regulation of the Commission
allowing the Purchaser to sell any such securities without registration.
SECTION 6. MISCELLANEOUS
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified, or supplemented,
and waivers or consents to departure from the provisions thereof may not be
given, without the prior written consent of the parties hereto.
9
<PAGE>
(b) NOTICES. Any notice, demand, request, consent, approval,
declaration, or other communication hereunder to be made pursuant to the
provisions of this Agreement, shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(i) If to any Holder or to the Purchaser:
ContiWest Corporation
277 Park Avenue
38th Floor
New York, New York 10172
Attn: Chief Counsel
With a copy to:
Thacher Proffitt & Wood
TwoWorld Trade Center
New York, New York 10048
Attn: Lauris G. L. Rall, Esq.
(ii) If to the Company:
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Attn: Stephen W. Brown, Esq.
With a copy to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Jonathan R. Shils, Esq.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery, or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) business days
after the same shall have been deposited in the United States mail.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties hereto. This
10
<PAGE>
Agreement may be assigned by the Company to any successor to the Company
without the consent of any Holder. The rights of the Company pursuant to
Section 2(a) to repurchase Reduction Shares may be assigned, in whole or in
part, without the consent of any Holder; PROVIDED, HOWEVER, that the Company
shall remain liable for the performance of its obligations under Section
2(a). This Agreement may not otherwise be assigned by the Company without the
prior written consent of the Purchaser, which consent shall not be
unreasonably delayed or withheld. Subject to compliance with any applicable
securities laws, the Purchaser may assign all or any part of its rights
hereunder in connection with any transfer, assignment, sale or conveyance of
all or any portion of its Registrable Securities.
(d) HEADINGS. The headings in this Agreement are for convenience of
reference only, and shall not limit or otherwise affect the meaning thereof.
(e) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware, without regard to the conflict of law provisions thereof.
(f) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
(g) ENTIRE AGREEMENT. This Agreement represents the complete agreement
and understanding of the parties in respect of the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
(h) MEDIATION. The parties hereto agree to attempt in good faith to
resolve any controversy or claim arising out of or relating to this Agreement
by mediation in such manner as shall be chosen by the parties hereto;
provided, however, that nothing shall prevent the parties from settling any
dispute by mutual agreement at any time; and provided further, however, that
either party hereto shall be entitled to litigate any such dispute before a
court of competent jurisdiction in the event that such dispute is not
resolved in such mediation within 30 days after such mediation commences.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONTIWEST CORPORATION
By: /s/ Peter Abeles
------------------------------------
Name: Peter Abeles
Title: President
By: /s/ Robert E. Riedl
------------------------------------
Name: Robert E. Riedl
Title: Vice President, Treasurer
& Secretary
CROWN NORTHCORP, INC.
By: /s/ Ronald E. Roark
------------------------------------
Name: Ronald E. Roark
Title: Chairman & CEO
12
<PAGE>
EXHIBIT 10.72
VOTING AGREEMENT
This VOTING AGREEMENT, dated as of March __, 1998, is between and among
RONALD E. ROARK, an individual with an office at 1251 Dublin Road, Columbus,
Ohio 43215 ("Roark"), TUCKER HOLDING COMPANY, LTD., an Ohio limited liability
company with an office at 1251 Dublin Road, Columbus, Ohio 43215 ("Tucker"),
CONTIWEST CORPORATION, a Nevada corporation with an office at 277 Park
Avenue, 38th Floor, New York, New York 10172 ("Conti"), and HARBERT EQUITY
FUND I, L.L.C., a Georgia limited liability company with an office at One
Riverchase Parkway South, Birmingham, Alabama 35244 ("Harbert").
W I T N E S S E T H :
WHEREAS, Roark and Tucker (collectively, the "Tucker Parties")
beneficially own shares of the Common Stock, par value $.01 per share (the
"Stock"), of Crown NorthCorp, Inc., a Delaware corporation (the "Company");
and
WHEREAS, Conti intends to acquire the Series BB Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Series BB
Preferred Stock") pursuant to that certain Stock Purchase Agreement, dated as
of even date herewith, between and among Conti and the Company (the "Stock
Purchase Agreement"); and
WHEREAS, Harbert beneficially owns shares of the Common Stock and
the Series AA Convertible Preferred Stock, par value $.01 per share, of the
Company (the "Series AA Preferred Stock"), and has rights to designate a
number of individuals for election as directors of the Company pursuant to
that certain Stock Purchase Agreement, dated as of March 7, 1997, between and
among the Company and Harbert, as amended to date (as so amended, the
"Harbert Stock Purchase Agreement") and pursuant to the Certificate of
Designation establishing the Series AA Preferred Stock, as filed with the
Secretary of State of the State of Delaware on January 21, 1988 (the "Series
AA Certificate of Designation"); and
WHEREAS, Harbert and the Roark Parties are parties to that certain
Voting Agreement, dated as of March 7, 1997, between and among Harbert,
Roark, and Tucker, as amended to date (as so amended, the "Harbert Voting
Agreement"), whereby (i) each of the Tucker Parties has agreed, among other
things, to vote its shares in accordance with the provisions of the Harbert
Voting Agreement to more fully effectuate certain provisions of the Harbert
Stock Purchase Agreement and the Series AA Certificate of Designation, under
which Harbert is entitled to designate a number of individuals for election
as directors of the Company, and for other purposes, and (ii) Harbert and its
affiliates have agreed, among other things, to vote its shares in accordance
with the provisions of the Harbert Voting Agreement for the continued
election of Roark as a Director of the Company; and
1
<PAGE>
WHEREAS, Conti desires that each of the Tucker Parties and Harbert
agree to vote its shares in accordance with the provisions of this Agreement
to more fully effectuate certain provisions of the Certificate of Designation
establishing the Series BB Preferred Stock, as filed with the Secretary of
State of the State of Delaware on March __, 1998 (the "Certificate of
Designation"), under which Conti is entitled to designate one individual for
election as a director of the Company; and
WHEREAS, Harbert desires that Conti vote its shares in accordance
with the provisions of this Agreement to more fully effectuate certain
provisions of the Harbert Stock Purchase Agreement and the Series AA
Certificate of Designation, under which Harbert is entitled to designate a
number of individuals for election as a director of the Company; and
WHEREAS, the Tucker Parties desire that Conti and its affiliates
agree to vote their shares in accordance with the provisions of this
Agreement for the continued election of Roark as a director of the Company;
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the adequacy, sufficiency, and receipt of
which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms used herein but not
otherwise defined herein shall have the meaning ascribed thereto in the Stock
Purchase Agreement.
SECTION 2. VOTING AGREEMENT OF THE TUCKER PARTIES WITH RESPECT TO
CONTI. Each of the Tucker Parties, severally and not jointly, agrees:
(a) To vote all shares of securities issued by the Company
and entitled to vote in the election of directors ("Voting
Securities") beneficially owned by him or it for the
election of such nominee for election as a director of the
Company as Conti is entitled to designate pursuant to the
Certificate of Designation;
(b) To cause (x) each of the members of Roark's immediate
family, (y) each entity controlled by any Tucker Party, and
(z) each trust of which Roark is a grantor (collectively,
the "Roark Affiliates"), to vote all Voting Securities
beneficially owned by him, her, or it for the election as a
director of the Company of such nominee for election as a
director of the Company as Conti is entitled to designate
for nomination as such pursuant to the Certificate of
Designation;
2
<PAGE>
(c) In the event a director so designated for nomination by
Conti ceases to be a director for any reason before his term
expires, to vote all shares of Voting Securities
beneficially owned by him or it in favor of another person
designated by Conti for election as a director of the
Company to the extent Conti is then entitled to designate
another person for election as a director of the Company
pursuant to the Certificate of Designation; and
(d) In the event a director of the Company so designated
for nomination by Conti ceases to be a director of the
Company for any reason before his or her term expires, to
cause each of the Roark Affiliates to vote all shares of
Voting Securities owned by him, her, or it in favor of
another individual designate for nomination by Conti for
election as a director of the Company to the extent that
Conti is then entitled to designated another person for
election as a director of the Company pursuant to the
Certificate of Designation.
Notwithstanding the foregoing, however, to the extent that the Tucker
Parties beneficially own, but collectively do not possess the sole power to
vote or direct the voting of any such Voting Securities from time to time
(the shares as to which the Tucker Parties do not so possess such voting
power being referred to herein as "Non-Exclusive Tucker Shares"), they shall
be obligated to use their reasonable commercial efforts to cause such
Non-Exclusive Tucker Shares to be voted in compliance with the foregoing.
SECTION 3. VOTING AGREEMENT OF CONTI WITH RESPECT TO ROARK. Conti
agrees:
(a) To vote all shares of Voting Securities beneficially
owned by it for the election of Roark as a director of the
Company;
(b) To cause each Person controlling it, controlled by it, or
under common control with it (collectively, the "Conti
Affiliates") to vote all shares of Voting Securities owned
by him, her, or it for the election of Roark as a director
of the Company;
(c) In the event that Roark ceases to be a director for any
reason before his term as such expires, to vote all shares
of Voting Securities beneficially owned by it in favor of
another individual nominated by Roark or, in the event of
Roark's death or incapacity, his heirs, legatees, executors,
successors, guardians, legal representatives, or
administrators, as the case may be, beneficially owning at
least a majority of the Voting Securities beneficially owned
by Roark immediately
3
<PAGE>
prior to his death or incapacity, for election as a director
of the Company; and
(d) In the event that Roark ceases to be a director of the
Company for any reason before his term as such expires, to
cause each of the Conti Affiliates to vote all shares of
Voting Securities owned by him, her, or it in favor of
another individual nominated by Roark or, in the event of
Roark's death or incapacity, his heirs, legatees, executors,
successors, guardians, legal representatives, or
administrators, as the case may be, beneficially owning at
least a majority of the Voting Securities beneficially owned
by Roark immediately prior to his death or incapacity, for
election as a director of the Company.
Notwithstanding the foregoing, however, to the extent that Conti and the
Conti Affiliates (collectively, the "Conti Parties") collectively
beneficially own but do not possess the sole power to vote or direct the
voting of any such Voting Securities from time to time (the shares as to
which the Conti Parties do not so possess such voting power being referred to
herein as "Non-Exclusive Conti Shares"), then Conti shall be obligated to use
its reasonable commercial efforts to cause such Non-Exclusive Conti Shares to
be voted in compliance with the foregoing.
SECTION 4. VOTING AGREEMENT OF HARBERT WITH RESPECT TO CONTI. Harbert
agrees:
(a) To vote all shares of Voting Securities beneficially
owned by it for the election as a director of the Company of
such nominee for election as a director of the Company as
Conti is entitled to designate for nomination as such
pursuant to the Certificate of Designation;
(b) To cause each Person controlling it, controlled by it,
or under common control with it (collectively, the "Harbert
Affiliates") to vote all shares of Voting Securities
beneficially owned by him, her, or it for the election as a
director of the Company of such nominee for election as a
director of the Company as Conti is entitled to designate
for nomination as such pursuant to the Certificate of
Designation;
(c) In the event a director of the Company so designated
for nomination by Conti ceases to be a director of the
Company for any reason before his or her term as such
expires, to vote all shares of Voting Securities owned by it
in favor of another individual designated for nomination by
Conti for election as
4
<PAGE>
a director of the Company to the extent Conti is then
entitled to designate such other individual for nomination
for election as a director of the Company pursuant to the
Certificate of Designation; and
(d) In the event a director of the Company so designated
for nomination by Conti ceases to be a director of the
Company for any reason before his or her term as such
expires, to cause each of the Harbert Affiliates to vote all
shares of Voting Securities owned by him, her, or it in
favor of another individual designated for nomination by
Conti for election as a director of the Company to the
extent Conti is then entitled to designate such other
individual for nomination as a director of the Company
pursuant to the Certificate of Designation.
Notwithstanding the foregoing, however, to the extent that Harbert and
the Harbert Affiliates collectively beneficially own but do not possess the
sole power to vote or direct the voting of any such Voting Securities from
time to time (the shares as to which Harbert and the Harbert Affiliates do
not so possess such voting power being referred to herein as "Non-Exclusive
Harbert Shares"), they shall be obligated to use their reasonable best
efforts to cause such Non-Exclusive Harbert Shares to be voted in
compliance with the foregoing.
SECTION 5. VOTING AGREEMENT OF CONTI WITH RESPECT TO HARBERT. Conti
agrees:
(a) To vote all shares of Voting Securities beneficially
owned by it for the election as a director of the Company of
such nominees for election as a director of the Company as
Harbert is entitled to designate for nomination as such
pursuant to the Harbert Stock Purchase Agreement, the Series
AA Certificate of Designation, or both, as the case may be;
(b) To cause each of the Conti Affiliates to vote all
shares of Voting Securities beneficially owned by him, her,
or it for the election as a director of the Company of such
nominees for election as a director of the Company as
Harbert is entitled to designate for nomination as such
pursuant to the Harbert Stock Purchase Agreement, the Series
AA Certificate of Designation, or both, as the case may be;
(c) In the event a director of the Company so designated
for nomination by Harbert ceases to be a director of the
Company for any reason before his or her term as such
expires, to vote all shares of Voting Securities owned by it
in favor of another
5
<PAGE>
individual designated for nomination by Harbert for
election as a director of the Company to the extent Harbert
is then entitled to designate such other individual for
nomination for election as a director of the Company
pursuant to the Harbert Stock Purchase Agreement or the
Series AA Certificate of Designation, as the case may be;
and
(d) In the event a director of the Company so designated for
nomination by Harbert ceases to be a director of the Company
for any reason before his or her term as such expires, to
cause each of the Conti Affiliates to vote all shares of
Voting Securities owned by him, her, or it in favor of
another individual designated for nomination by Harbert for
election as a director of the Company to the extent Harbert
is then entitled to designate such other individual for
nomination as a director of the Company pursuant to the
Harbert Stock Purchase Agreement or the Series AA
Certificate of Designation, as the case may be.
Notwithstanding the foregoing, however, to the extent that Conti and
the Conti Affiliates collectively beneficially own but do not possess the
sole power to vote or direct the voting of any such Voting Securities from
time to time , they shall be obligated to use their reasonable commercial
efforts to cause such Non-Exclusive Conti Shares to be voted in compliance
with the foregoing.
SECTION 6. LEGENDS. Within thirty days after (i) with respect to
Voting Securities currently beneficially owned by them, the date hereof, and
(ii) with respect to Voting Securities of which they subsequently acquire
beneficial ownership, the date of such acquisition, the Tucker Parties,
Conti, and Harbert will, and the Tucker Parties will cause the Roark
Affiliates to, and Conti will cause the Conti Affiliates to, and Harbert will
cause the Harbert Affiliates to, deliver certificates representing the Voting
Securities beneficially owned by them to the Company for imprinting with the
following legend (which legend shall be removed, with respect to any of such
Voting Securities, upon the sale, assignment, or other transfer of such
Voting Securities to a Person not subject to the purview of this Agreement):
"The shares of such Voting Securities represented by this
certificate are subject to restrictions on voting, as provided in a
Voting Agreement dated as of March __, 1998, between and among
ContiWest Corporation, Tucker Holding Company, Ltd., Ronald E. Roark,
and Harbert Equity Fund I, L.L.C., a copy of which is on file with the
Secretary of the Company."
SECTION 7. SECRETARY TO RETAIN COPY. A copy of this Agreement shall be
filed with the Secretary of the Company.
6
<PAGE>
SECTION 8. STOCK CHANGES. The provisions of this Agreement shall be
deemed to apply equally to any share of Stock or other securities distributed
in respect of shares of Stock.
SECTION 9. FURTHER ACTIONS. At any time and from time to time each
party agrees, at its or his expense, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the
purposes of this Agreement.
SECTION 10. AVAILABILITY OF EQUITABLE REMEDIES. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, in addition to any other right or
remedy available to him, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and
to the ordering of specific performance.
SECTION 11. MODIFICATION. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all existing agreements among them concerning such subject matter
(except for the Harbert Voting Agreement), and may be modified only by a
written instrument duly executed by each party.
SECTION 12. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement. Except as otherwise specifically provided in
this Agreement, any notice given by certified mail shall be deemed given at
the time of certification thereof except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
SECTION 13. WAIVER. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement. Any
waiver must be in writing.
SECTION 14. BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and the
respective successors and assigns of the corporate parties hereto and the
respective assigns, heirs, and personal representatives of the individual
parties hereto.
SECTION 15. NO THIRD PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
7
<PAGE>
SECTION 16. SEPARABILITY. If any provision of this Agreement is
invalid, illegal, or unenforceable, the balance of this Agreement shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
SECTION 17. HEADINGS. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 18. PRONOUNS. Any masculine personal pronoun shall be
considered to mean the corresponding feminine or neuter personal pronoun, as
the context requires.
SECTION 19. COUNTERPARTS; GOVERNING LAW. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to conflict of laws.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first written above.
TUCKER HOLDING COMPANY, LTD.
By: /s/ Ronald E. Roark
------------------------------------
Name: Ronald E. Roark
Title: Managing Member
/s/ Ronald E. Roark
---------------------------------------
RONALD E. ROARK
CONTIWEST CORPORATION
By: /s/ Peter Abeles
------------------------------------
Name: Peter Abeles
Title: President
By: /s/ Robert E. Riedl
------------------------------------
Name: Robert E. Riedl
Title: Vice President, Treasurer
& Secretary
HARBERT EQUITY FUND I, L.L.C.
BY: HARBERT MANAGEMENT CORPORATION,
MANAGER
By: /s/ Michael D. Luce
------------------------------------
Name: Michael D. Luce
Title: Executive Vice President & CFO
<PAGE>
March __, 1998
Crown NorthCorp, Inc.
1251 Dublin Road
Columbus, Ohio 43215
Ladies and Gentlemen:
As you know, we have the right to nominate one individual for election
as a director of Crown NorthCorp, Inc., a Delaware corporation (the
"Company"), pursuant to the Certificate of Designation establishing the
Series BB Convertible Preferred Stock, par value $.01 per share, of the
Company, as filed with the Secretary of State of the State of Delaware on
March __, 1998 (the "Certificate of Designation"). We hereby agree to
nominate Scott M. Mannes for election as a director of the Company pursuant
to the Certificate of Designation from and after the date hereof until we
have appointed in writing a successor to replace Mr. Mannes, for so long as
(i) we are so entitled to nominate an individual for election as a Director
of the Company pursuant to the Certificate of Designation, and (ii) Mr.
Mannes is not disqualified from such nomination pursuant to the Certificate
of Designation.
<PAGE>
Crown NorthCorp, Inc.
Page Two
March __, 1998
Moreover, at the time when we are no longer entitled to nominate one
individual for election as a director of the Company pursuant to the
Certificate of Designation, we agree to promptly cause any individual so
nominated by us who then is serving as a director of the Company to promptly
resign as a director of the Company.
CONTIWEST CORPORATION
By:
------------------------------------
Name:
Title: Authorized Signatory
By:
------------------------------------
Name:
Title: Authorized Signatory
<PAGE>
EXHIBIT 21.2
SUBSIDIARIES OF CROWN NORTHCORP, INC.
Crown Revenue Services, Inc., an Ohio corporation, is a wholly owned
subsidiary of Crown NorthCorp, Inc.
Crown Properties, Inc., an Ohio corporation, is a wholly owned subsidiary of
Crown Revenue Services, Inc.
CNC Holding Corp., a Delaware corporation, is a wholly owned subsidiary of
Crown NorthCorp, Inc.
Eastern Realty, L.L.C., a Virginia limited liability company, with 99% of the
membership interests owned by CNC Holding Corp., and 1% owned by Crown
Revenue Services, Inc.
Crown NorthCorp Euro A/S, a Danish corporation, is a wholly owned subsidiary
of CNC Holding Corp.
Crown NorthCorp Limited, a corporation organized under the laws of England
and Wales, is a wholly owned subsidiary of CNC Holding Corp.
Eastern Realty Corporation, a Virginia corporation, is a wholly owned
subsidiary of CNC Holding Corp.
Eastern Baltimore, Inc., a Virginia corporation, is a wholly owned subsidiary
of CNC Holding Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CROWN
NORTHCORP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 735,940
<SECURITIES> 0
<RECEIVABLES> 1,702,306
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,683,529
<PP&E> 2,806,717
<DEPRECIATION> 791,971
<TOTAL-ASSETS> 11,420,613
<CURRENT-LIABILITIES> 2,143,011
<BONDS> 2,563,550
2,000,000
0
<COMMON> 108,310
<OTHER-SE> 3,220,021
<TOTAL-LIABILITY-AND-EQUITY> 11,420,613
<SALES> 0
<TOTAL-REVENUES> 10,540,317
<CGS> 0
<TOTAL-COSTS> 9,247,384
<OTHER-EXPENSES> 1,526,829
<LOSS-PROVISION> (16,161)
<INTEREST-EXPENSE> 344,024
<INCOME-PRETAX> (561,759)
<INCOME-TAX> (217,170)
<INCOME-CONTINUING> (344,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (344,589)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
