<PAGE> 1
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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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 [ ]
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, 1999 were
$5,455,216.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant as of March 24, 2000 was $955,456.
As of March 24, 2000 the issuer had 10,579,060 shares of its common
stock outstanding.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE> 2
CROWN NORTHCORP, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. PAGES
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<S> <C> <C>
Item 1. Description of Business..................................................... 1
Item 2. Description of Property..................................................... 3
Item 3. Legal Proceedings........................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......................... 4
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.................... 4
Item 6. Management's Discussion and Analysis........................................ 5
Item 7. Financial Statements........................................................ F-1 thru F-18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................... 13
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.......................... 13
Item 10. Executive Compensation..................................................... 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management............................................................. 17
Item 12. Certain Relationships and Related Transactions............................. 18
Item 13. Exhibits and Reports on Form 8-K........................................... 19
</TABLE>
<PAGE> 3
PART I
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ITEM 1. - DESCRIPTION OF BUSINESS
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BUSINESS OVERVIEW
Crown NorthCorp, Inc is a financial services firm providing comprehensive
services to the commercial real estate industry. Third-party asset management
and loan servicing are principal businesses of the company. Crown also provides
mortgage banking and financial advisory services.
The company is incorporated under the laws of the state of Delaware and was
formed in 1994 through the combination of Crown Revenue Services, Inc. and
NorthCorp Realty Advisors. Crown's corporate headquarters is in Columbus, Ohio.
The company also has offices in Atlanta, Georgia; Austin and Dallas, Texas; and
Chantilly, Virginia. At December 31, 1999, the company had 37 full-time
employees.
The company's primary revenues are from servicing contracts pursuant to which
Crown provides management services for commercial real estate and loan assets,
the servicing of individual loans and loan portfolios, due diligence reviews,
asset underwriting, risk management services and the administration of various
corporate and partnership interests. Under these agreements, Crown's revenues
may include recurring management or servicing fees, disposition fees associated
with transactions and incentive fees based on the overall performance of
particular assets under management.
THIRD-PARTY ASSET MANAGEMENT. Crown manages loan and real estate assets for
clients which include investment banking firms, partnerships and investment
consortiums. Among the services it provides are risk management, in-depth asset
analysis and underwriting and land management. A substantial portion of the
assets under the company's management are large commercial real estate loans
secured by interests in hotels, office buildings, shopping centers and
multifamily properties. In many cases, a client asks Crown to reposition or
rehabilitate an asset to enhance its value or prepare it for disposition.
Crown's asset management contracts are generally for indefinite terms and
provide for the management of additional assets from time to time under varying
compensation methods. Contracts with one customer, an investment banking firm,
accounted for 33% of 1999 revenues.
LOAN SERVICING. The company services loans and other real estate interests for
both individual clients and investors in securitized transactions. The company's
highly developed servicing systems and procedures have resulted in favorable
ratings from two nationally recognized rating agencies, Standard and Poor's
Corporation and Fitch IBCA. Operating as a rated servicer, the company services
a wide range of commercial real estate interests, including many complex
financing arrangements. Crown's servicing capabilities are a fundamental element
of all of the company's businesses.
1
<PAGE> 4
CAPITAL STRUCTURE
Throughout its history, many of the company's competitors in the financial
services industry have been significantly larger and better capitalized than
Crown. In 1999, the company took several actions related to its capital
structure. It retained an investment banking firm to help it explore strategic
and financial alternatives. Crown sold its corporate headquarters to increase
liquidity, reduce operating expenses and remove owned real estate from its
balance sheet. See "Note 3 - Property and Equipment - to the Consolidated
Financial Statements." It also sold its European operations to increase
liquidity, reduce operating costs and concentrate financial and human resources
on the company's domestic asset management and servicing businesses. See "Note 2
- - Discontinued Operations and Dispositions - to the Consolidated Financial
Statements." These actions led to a series of transactions closed in December
1999 whereby the company, using a combination of cash on hand and borrowed
funds, redeemed its Series AA, Series BB and Series B preferred stock and
settled certain other obligations. See "Item 6 - Management's Discussion and
Analysis." These closings also terminated all voting agreements affecting
Crown's common stock as well as all agreements pertaining to the composition of
the company's Board of Directors. While these transactions resulted in
significant expenses and reduced the size of the company, Crown believes it is
now better positioned to grow and develop its core businesses and to seek
strategic alliances or capital investments related to those businesses.
RECENT DEVELOPMENTS
In conjunction with the December 1999 transactions to change the capital
structure of the company, Crown augmented its asset management, financial
advisory and mortgage banking services by assuming the assets and operations of
DRS Realty Services, Inc., a commercial real estate services company. The
executive officers of DRS have become executive officers of Crown. See "Item 9 -
Directors, Executive Officers, Promoters and Control Persons."
Over the past three years, the company had limited authorization to refinance
multifamily loans under Fannie Mae's Delegated Underwriting and Servicing
Program. The company sold its interests in this program in December 1999. Cash
that had been used to collateralize Crown's obligations under the DUS Program
was then used in January 2000 to repay debt incurred in the capital
restructuring pursuant to the terms of that financing facility. This repayment
substantially reduced the company's liquidity. This limited liquidity constrains
the company's operations.
Within the constraints of its limited financial capacity, Crown has begun to
further develop its mortgage banking and financial advisory business. Operations
in these areas are designed to complement and grow the company's servicing and
asset management businesses. For example, Crown, either directly or in
conjunction with strategic partners, will seek to originate commercial real
estate loans for sale to correspondents, with Crown retaining the servicing for
those loans.
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COMPETITIVE ENVIRONMENT
As noted above, many of Crown's competitors are much larger and better
capitalized than the company. While the company feels the quality of its asset
management services and rated servicing systems are effective competitive tools,
the company's business prospects and potential profitability are nevertheless
significantly affected by its ability to align with capital partners and to
attract new capital. Until it obtains additional capital resources, for example,
Crown will be unable to make the investments in asset portfolios that are often
required to secure new asset management or servicing business. Crown, though, is
actively seeking to obtain new business through means that do not require the
commitment of capital.
In summary, Crown believes that the steps it has taken to restructure its
capitalization, develop additional capacity in its core business operations and
reduce operating expenses increase the likelihood that the company will return
to profitable operations in the foreseeable future. The expenses attributable to
the capital restructuring and related transactions significantly affected 1999
operating results. Repayment of debt associated with the capital restructing has
substantially reduced Crown's liquidity. The company believes, though, it is now
better prepared to attempt to expand business in each of its core business lines
and to attract capital resources necessary to compete for financial service
business.
ITEM 2. - DESCRIPTION OF PROPERTY
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OFFICES
Crown sold its corporate headquarters in Columbus, Ohio in May 1999 and now
leases a portion of the space in the building. See "Note 3 - Property and
Equipment - to the Consolidated Financial Statements." The company also leases
office space in Atlanta, Georgia and Dallas and Austin, Texas and has assumed
DRS' obligations under a lease of office space in Chantilly, Virginia. See "Note
5 - Leases - to the Consolidated Financial Statements."
INVESTMENT POLICIES
REAL ESTATE; INTERESTS IN REAL ESTATE; ENTITIES PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES . A principal business of Crown is third-party asset management. The
company conducts this business by managing real estate and interests in real
estate for the account of others. Generally, the company does not invest in real
estate, real estate interests or entities--including partnerships and joint
ventures--engaged in real estate activities for its own account. It will,
though, make such investments as management believes to be necessary and prudent
to secure or retain asset management business. For example, in 1998, in
conjunction with entering into an asset management agreement for the Telereit
transaction in Sweden, Crown invested approximately $2.5 million in exchange for
an indirect ownership interest in Telereit Holding AB. The company recovered
this investment in 1999 as part of the disposition of its European operations.
Crown must expand its capital base before making similar investments in the
future.
3
<PAGE> 6
REAL ESTATE MORTGAGES. The company generally does not originate or invest in
commercial mortgage loans for its own account. Crown has in the past originated
loans which were purchased at closing by a loan conduit program. This conduit
program ceased operations in 1998. Crown also had a limited license to refinance
certain loans for sale to Fannie Mae under that agency's DUS Program with Crown
retaining a portion of the credit risk for the loans. Crown sold its DUS
business in December 1999. In the future, Crown intends to engage in commercial
real estate mortgage brokerage or banking activities for the account of others
that complement and support the company's asset management and loan servicing
business.
Crown from time to time seeks to acquire the rights to service mortgage loan
assets through the negotiated purchase of or successful bid for the servicing
rights themselves. Here again, Crown does not anticipate engaging in this
activity until it increases its capital resources through strategic alliances or
other means.
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.
PART II
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ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------------------------
COMMON STOCK
The company's common stock trades under the symbol "ASET" on the OTC Bulletin
Board administered by the National Association of Securities Dealers, Inc.
Records maintained by the National Quotation Bureau show the following high and
low bid prices for the common stock:
QUARTER ENDED HIGH LOW
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March 31, 1998 $3.25 $1.625
June 30, 1998 $3.25 $1.75
September 30, 1998 $2.375 $1.50
December 31, 1998 $1.75 $1.00
March 31, 1999 $1.31 $.93
June 30, 1999 $1.18 $.31
September 30, 1999 $.375 $.18
December 31, 1999 $.31 $.03
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<PAGE> 7
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
At March 24, 2000, there were approximately 2,630 holders of record of shares of
the common stock.
During its 1999 and 1998 fiscal years, the company made no payments of cash
dividends or returns of capital on common shares.
The company does not anticipate paying dividends on the common stock in the
foreseeable future. Instead, management anticipates that any earnings will be
used in the operations of the company.
At December 31, 1999, Crown had 30,000,000 authorized shares of common stock and
1,000,000 authorized shares of preferred stock.
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------------
THE COMPANY'S BUSINESSES
The company derives its primary revenues from the financial services it offers
to owners and operators of commercial real estate interests. These revenues
include third-party asset management and disposition fees, loan servicing fees,
fees for due diligence or underwriting reviews, incentive fees based on the
overall performance of a contract or pool of assets and interest income. While
Crown curtailed mortgage lending operations in 1999, it intends to become more
active in mortgage lending for correspondents. Crown utilizes strategic
acquisitions and alliances to expand and diversify its core business lines as
well as to provide access to capital resources. Management continues to actively
pursue strategic alliances and other transactions that would maximize the value
of the company's core businesses and expand its capital base.
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," "in the future"
or comparable language. 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.
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<PAGE> 8
Among the risk factors that could materially and adversely affect the future
operating results of the company are:
- - If Crown cannot improve its liquidity through profitable operations,
increased revenues, reduced expenses or other means, its ability to
operate will be impaired.
- - Crown is operating at a loss. These losses will continue until the
company is able to realize additional revenues in some or all of its
business lines.
- - The company may not develop sufficient capital resources through
profitable operations, the raising of additional capital or other means
to more successfully compete with larger and better capitalized
competitors.
- - 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, liquidity and profitability.
- - The company presently derives approximately one-third of its revenues
from one customer. If this customer relationship is terminated or
reduced, this may adversely affect the company's revenues, liquidity
and profitability.
- - The company currently operates as a rated servicer. If the company no
longer were to receive 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.
OUTLOOK
Crown intends to continue to offer the commercial real estate industry a
comprehensive array of financial services, including third-party asset
management, loan servicing, mortgage banking and financial advisory services. To
better position itself to deliver these services, the company has taken actions
to reduce its size, simplify its capital structure and to augment its core
business units. Presently, though, the company has limited liquidity and capital
resources. To continue to operate, the company must increase its liquid assets
and capital through revenues from new business, investments in the company by
strategic partners or both.
The company continues to derive significant revenues from third-party asset
management. During 1999, Crown's principal investment banking client continued
to place additional assets with the company for management. In 1999, Crown also
undertook significant asset management work for a shareholder. The company's
asset management activities generally include work on large commercial real
estate assets such as loans secured by hotels, office buildings, shopping
centers and multifamily projects. In many cases, these assets are not performing
according to their terms at the time they are assigned to Crown. For the
foreseeable future, the company anticipates that it will continue to derive its
primary revenues
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from third party asset management contracts. Crown is actively seeking ways to
increase revenues in this area.
Loan servicing has been and will remain a core business of the company.
Generally, Crown services the assets placed with it for management. The company
believes its renewed emphasis on mortgage banking activities will provided
additional sources of loan servicing business. Other opportunities to grow
servicing business lie in negotiated transactions, competitive bidding and
investments in assets to be serviced. In the latter case, Crown's limited
capital resources require that it align itself with sources of capital or a
strategic partner to pursue such opportunities.
Crown continues to maintain favorable servicer ratings with both Standard and
Poor's Corporation and Fitch IBCA. The company believes that its ability to
operate as a rated servicer is of significant marketing value as Crown seeks to
secure additional management and servicing business. The company intends to
continue to devote substantial resources to maintaining its capabilities as a
rated servicer.
In August 1999, Crown sold its European operations to increase liquidity, reduce
operating costs and concentrate financial and human resources on domestic asset
management and servicing opportunities in commercial real estate markets. The
company believes that profitable financial services opportunities exist in
Europe and it will explore these as sufficient resources become available. At
this time, Royal Investments Corp. ("Royal"), a company wholly owned by Mr.
Roark is doing business in Europe and is funding Crown's salary and benefits
expenses for Mr. Roark. See "Item 12 - Certain Relationships and Related
Transactions."
While mortgage banking activities were curtailed during 1999 following the
termination of a loan conduit program in which the company participated, Crown
is again developing its loan origination capabilities as a means to expand asset
management and servicing business. The company intends to originate commercial
mortgage loans for sale to third parties and to retain the servicing rights to
those loans.
Crown intends to return to profitability primarily by increasing revenues from
its core asset management and servicing businesses. It is more actively
marketing its capabilities as a rated servicer and is developing its commercial
loan origination capability. Additionally, Crown has taken steps to reduce
operating costs by selling certain assets and moving certain offices and will
continue to evaluate means to control operating expenses. Crown recognizes,
however, that the foregoing efforts may not be sufficient to overcome continued
operating deficits. Therefore, Crown is actively seeking a merger partner or
strategic alliance that could enhance the company's capital, revenues or
liquidity. There can be no assurance, however, that Crown's actions will produce
the intended results or lead to profitable operations.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998.
Total revenues from continuing operations decreased $459,021 to $5.5 million in
1999 from $5.9 million in 1998, with the largest decreases being attributable to
management and incentive
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fees and the cessation of the mortgage origination activities in 1998.
Private-sector asset management contracts with various clients, including
investment banking firms and partnerships, continue to provide a significant
portion of the company's revenue. Disposition fees increased $279,824 due to the
sale of several large assets in the fourth quarter. Crown is continuing its
efforts to increase the revenues it receives from its core asset management
business and related activities.
Management fees are recorded as services required under a contract are performed
and, as defined in the applicable contracts, are derived either from percentages
of the aggregate value of assets under management or from original base monthly
amounts. Management fees increased $533,522 to $2,635,394 in 1999 from
$2,101,872 in 1998. The book value of assets under management increased to $1.4
billion at December 31, 1999 as compared to $993 million at December 31, 1998.
Generally, completed and discontinued contracts are being replaced with
contracts yielding lower fees.
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 $279,824 to $970,389 in 1999
from $691,015 in 1998. Disposition fees of $160,000 realized in the fourth
quarter of 1999 were from an asset in which Crown had an equity interest.
Certain contracts provide for incentive fees if the company achieves net cash
collections in excess of thresholds established in the contracts. Incentive fees
decreased $682,064 to $159,811 in 1999 from $841,875 in 1998. The decrease was
attributable to the resolution in 1998 of a number of assets under an
incentive-based contract.
Loan servicing fees primarily reflect loan servicing fees generated from Fannie
Mae and Ginnie Mae loan portfolios. Loan servicing fees decreased $142,674 to
$293,342 in 1999 from $436,016 in 1998. This decrease primarily was due to
payoffs of serviced loans.
Mortgage origination fees decreased by $631,216 to ($1,001) in 1999 from
$630,215 in 1998. The decrease was due to the curtailment of these activities in
1998 following the termination of a loan conduit program in which the company
participated.
Other fees primarily include interest income and net servicing revenues. Other
fees increased $378,514 to $427,028 in 1999 from $48,514 in 1998. This increase
was predominantly due to earned interest and brokerage fees related to cash
management.
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Operating and administrative expense changes were as follows:
<TABLE>
<CAPTION>
1999 1998 $ CHANGE % CHANGE
---- ---- -------- --------
<S> <C> <C> <C> <C>
Personnel $4,423,627 $4,373,634 $49,993 1
Insurance, Professional and $1,090,881 $640,156 $450,472 70
Other
Occupancy $679,944 $752,696 ($72,752) (10)
Amortization and $354,113 $320,093 $34,020 11
Depreciation
Special non-recurring
charges $1,642,684 $658,986 $983,698 149
Total $8,191,249 $6,745,565 $1,444,684 21
</TABLE>
Operating and administrative expenses increased approximately $1.44 million to
$8.19 million in 1999 from $6.75 million in 1998. Increases in personnel
expenses were primarily due to payment of certain severance and accrued vacation
expenses associated with the reduction of personnel.
Insurance, professional and other costs increased by $450,472 to $1,090,881 in
1999 from $640,156 in 1998. Included in this category are (i) a loss of $51,156
due to foreign currency transactions related to the European operations sold in
the third quarter 1999 and (ii) a gain of $30,263, representing the current
year's allocation of the total gain of $259,410 to be recognized from the sale
leaseback transaction in May 1999 involving the company's headquarters. Costs
incurred in 1998 were $1,314,156, which costs were reduced by $674,000 in 1998
to reflect favorable credit experience with the company's loan servicing
portfolio under the Fannie Mae Program.
Occupancy cost decreased $72,752 to $679,944 in 1999 from $752,696 in 1998. The
decrease was primarily attributable to the sale of the corporate headquarters.
Amortization and depreciation expenses increased $34,020 to $354,113 in 1999
from $320,093 in 1998. While depreciation of real property was eliminated upon
the headquarters sale in May 1999, the company began amortizing over a
three-year period capitalized development costs of computer software used in its
business.
Special, non-recurring expenses of $1,642,684 were incurred in 1999 in
conjunction with the redemption of three series of preferred stock and the
settlement of certain other obligations. This sum includes: loan, advisory,
legal and other professional fees associated with the restructuring; the
settlement of the employment contract of the former President and Chief
Operating Officer of the company; a payment in settlement of the company's
obligations to an investment banking firm; and various other expenses the
company incurred during its exploration of strategic and financial alternatives.
Loss from continuing operations before interest expense increased by $1,904,705
to $2,736,033 in 1999 from $831,328 in 1998 primarily because of the special,
non-recurring charges of $1,642,684.
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Interest expense decreased $17,658 to $213,985 in 1999 from $231,643 in 1998.
The overall decrease was primarily caused by reduced bank borrowings because of
additional cash resources available from the prior year's issuance of the Series
AA Preferred and the Series BB Preferred.
Discontinued operations losses totaling $125,315 represent the net loss from the
disposition of European operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $278,308 to $2,210,451 in 1999 from
$1,932,143 in 1998. In January 2000, the company repaid the remaining $1,680,000
balance of a credit facility pursuant to the terms of that facility. This
repayment substantially reduced the company's liquidity. The company presently
has no bank credit facilities. Crown is actively pursuing such facilities to
enhance its liquidity and operating capacity. The company is also seeking to
improve its liquidity by generating new business revenues, raising additional
capital or entering into strategic alliances with capital partners.
Crown is incurring operating cash deficits and is funding those deficits using
cash resources on hand. For the foreseeable future, the company expects to fund
current operations with cash provided by operations and the establishment of
bank credit facilities. In 1999, Crown improved its liquidity through the sale
of certain assets. The company does not anticipate being able to employ similar
strategies for the foreseeable future. Crown continues to attempt to develop new
sources of revenue, to expand revenues from its existing client base and to
reduce operating expenses. As noted above, the company is also seeking
additional capital resources as a means of funding or eliminating operating
deficits.
HISTORICAL CASH FLOWS
Cash increased $278,308 in 1999 compared to a $1.2 million increase in 1998. The
1999 amount increased primarily because $1.7 million in restricted cash was
reclassified as a cash equivalent. Operating accounts and overnight investments
decreased by $1.5 million in 1999, primarily due to the redemption of the Series
AA and BB Preferred and the 1999 operating loss, including recapitalization
costs.
Cash flows from operating activities required the use of funds of $1,316,781 in
1999. Operating activities used $1,192,819 in 1998. As discussed above, during
1999, Crown incurred a significantly larger net operating loss than in 1998. In
1999, $1,642,684 in cash was used to defray recapitalization costs.
Investing activities provided cash of $8,271,163 in 1999. Similar activities
utilized cash of $1,465,878 in 1998. The change was due primarily to the
availability of $3,706,106 in previously restricted cash, $1,548,214 from the
sale of the headquarters building, $488,687 from the sale of the Fannie Mae DUS
loan portfolio and $3,055,652 from the sale of the company's European
operations. See "Note 2 - Discontinued Operations and Dispositions - to the
Consolidated Financial Statements."
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Financing activities used $6,686,235 in cash in 1999. In 1998, financing
activities were a source of $3,935,723 of cash. The 1999 uses included
$4,111,236 for principal payments on notes payable and $4,099,999 for redemption
of Series AA Preferred and Series BB Preferred. Proceeds from notes receivable
from affiliate generated $2,425,000 in cash. In addition, in the fourth quarter
of 1999, the company redeemed the remaining $900,000 of Series B Preferred by
utilizing the same amount of restricted cash on hand.
YEAR 2000 OPERATIONS
As 2000 approached, there was significant concern among users of data processing
systems that certain computer components may incorrectly interpret dates beyond
1999, which could cause computer system failures or errors. Crown assessed both
its proprietary and third-party computer systems and applications and determined
they presented no Year 2000 processing issues. In fact, Crown's computer
hardware and software did perform without disruption as Year 2000 processing
began. The company has continued normal computer processing without significant
costs attributable to Year 2000 issues.
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ITEM 7. - FINANCIAL STATEMENTS
- ---------------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................................................. F-1
Consolidated Balance Sheets, December 31, 1999 and 1998................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998.............................................................................. F-3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999 and 1998....................................................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998............................................................................. F-5
Notes to Consolidated Financial Statements for the years
ended December 31, 1999 and 1998....................................................................... F-7
</TABLE>
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INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Crown NorthCorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Crown NorthCorp,
Inc. and subsidiaries as of December 31, 1999 and 1998, 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
in the United States of America. 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, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, in 1998 the Company changed
its method of accounting for costs of computer software developed or obtained
for internal use to conform with Statement of Position 98-1.
/s/ Deloitte & Touche LLP
March 24, 2000
F-1
<PAGE> 16
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,210,451 $ 1,932,143
Receivables:
Accounts receivable trade - net of allowance of $135,000 in 1999 and $100,000 in 1998 454,036 1,161,749
Affiliated entities 32,130 408,026
Prepaid expenses and other assets 93,859 122,794
Net assets of discontinued operations 21,767
------------ ------------
Total current assets 2,790,476 3,646,479
PROPERTY AND EQUIPMENT - Net 268,794 1,696,210
RESTRICTED CASH 500,000 4,206,106
GOODWILL - Net of accumulated amortization of $251,304 in 1999 and $253,976 in 1998 189,974 433,802
OTHER ASSETS:
Investments in partnerships and joint ventures 81,212 2,998,788
Loan servicing rights - net of accumulated amortization of $93,629 in 1999 and $316,848 in 1998 434,326 972,028
Capitalized software cost - net of accumulated amortization of $129,422 in 1999 and $72,932 in
1998 410,696 400,837
Contract incentive fee receivable 19,496 92,209
------------ ------------
Total other assets 945,730 4,463,862
------------ ------------
TOTAL $ 4,694,974 $ 14,446,459
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 200,000 $ 630,286
Accrued breakup fees 250,000
Accounts payable 96,033 187,946
Accrued settlement 146,810
Accrued compensation, benefits and payroll taxes 510,500
Accrued expenses - other 202,074 263,566
------------ ------------
Total current liabilities 894,917 1,592,298
LONG-TERM OBLIGATIONS:
Notes and bonds payable - less current portion 1,680,000 2,170,225
Notes payable - affiliates 765,725
Allowance for loan losses 500,000 576,000
Deferred gain on sale leaseback 229,146
Other 34,000
------------ ------------
Total long-term obligations 2,409,146 3,545,950
REDEEMABLE PREFERRED STOCK 500,000 1,400,000
SHAREHOLDERS' EQUITY:
Common stock 112,609 110,651
Convertible preferred stock:
Series AA
Series BB
Additional paid-in capital 6,068,208 9,993,864
Accumulated deficit (5,222,853) (2,147,520)
Accumulated other comprehensive income (loss) (48,457)
Treasury stock, at cost (67,053) (327)
------------ ------------
Total shareholders' equity 890,911 7,908,211
------------ ------------
TOTAL $ 4,694,974 $ 14,446,459
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 17
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Management fees $ 2,635,394 $ 2,101,872
Disposition fees 970,389 691,015
Incentive fees 159,811 841,875
Loan servicing fees 293,342 436,016
Mortgage origination 630,215
Interest income 753,485 793,438
Income from partnerships and joint ventures 215,767 371,292
Other 427,028 48,514
------------ ------------
Total revenues 5,455,216 5,914,237
------------ ------------
OPERATING AND ADMINISTRATIVE EXPENSES:
Personnel 4,423,627 4,373,634
Insurance, professional and other 1,090,881 640,156
Occupancy 679,944 752,696
Amortization and depreciation 354,113 320,093
Special non-recurring charges, net 1,642,684 658,986
------------ ------------
Total operating and administrative expenses 8,191,249 6,745,565
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE INTEREST EXPENSE (2,736,033) (831,328)
INTEREST EXPENSE 213,985 231,643
------------ ------------
LOSS FROM CONTINUING OPERATIONS (2,950,018) (1,062,971)
DISCONTINUED OPERATIONS:
Loss from operations (11,606) (108,182)
Loss on sale (113,709)
------------ ------------
NET LOSS $ (3,075,333) $ (1,171,153)
============ ============
LOSS PER SHARE, BASIC AND DILUTED:
Continuing operations $ (0.26) $ (0.32)
Discontinued operations:
Loss from operations (0.01)
Loss on sale (0.01)
------------ ------------
Total loss per share $ (0.27) $ (0.33)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 11,200,022 11,000,743
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 18
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------------------------
Common Stock Series AA Series BB
--------------------------- --------------------- --------------------
Shares Shares Shares
Issued Amount Issued Amount Issued Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 10,830,982 $108,310
Comprehensive loss:
Net loss
Foreign currency translation adjustment
Total comprehensive loss
Issuance of common stock 234,138 2,341 1
Issuance of preferred stock
Issuance of treasury shares 1
---------- -------- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1998 11,065,120 110,651 1 $ 1 $
Comprehensive loss:
Net loss
Foreign currency translation adjustment
Total comprehensive loss
Issuance of common stock 195,824 1,958
Shares reacquired (1) (1)
Issuance of treasury shares
---------- -------- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1999 11,260,944 $112,609 $ $
========== ======== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-In Accumulated Comprehensive Treasury Stock Shareholders'
Capital Deficit Income (Loss) Shares Amount Equity
---------- ----------- ------------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 4,209,752 $ (976,367) (40,093) $(13,364) $ 3,328,331
Comprehensive loss:
Net loss (1,171,153) (1,171,153)
Foreign currency translation adjustment ---------- $(48,457) (48,457)
--------- -----------
Total comprehensive loss (1,171,153) 48,457 (1,219,610)
Issuance of common stock 196,159 198,500
Issuance of preferred stock 5,576,048 5,576,048
Issuance of treasury shares 11,905 39,683 13,037 24,942
----------- ----------- --------- ---------- -------- -----------
BALANCE, DECEMBER 31, 1998 9,993,864 (2,147,520) (48,457) (410) (327) 7,908,211
Comprehensive loss:
Net loss (3,075,333) (3,075,333)
Foreign currency translation adjustment ----------- 48,457 48,457
--------- -----------
Total comprehensive loss (3,075,333) 48,457 (3,026,876)
Issuance of common stock 107,617 109,575
Shares reacquired (4,132,997) 1,481,663 (167,002) (4,299,999)
Issuance of treasury shares 99,724 800,000 100,276 200,000
----------- ----------- --------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1999 $6,068,208 $(5,222,853) $ (682,073) $(67,053) $ 890,911
========== =========== ========= ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 19
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,950,018) $(1,062,971)
Foreign currency translation adjustment 48,457
----------- -----------
Total comprehensive net loss (2,901,561) (1,062,971)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 571,402 594,678
Decrease in reserve for loan losses (76,000) (674,000)
Equity in income from investment in partnerships and joint ventures 135,256 (360,891)
Loss on abandoned offering 819,061
Accretion of deferred gain (30,263)
Gain on sale of DUS portfolio (142,698)
Deferred income taxes 10,394
Payment of board of directors fees by issuance of common stock 109,575 72,500
Change in operating assets and liabilities - net of effects from purchases
and divestitures of subsidiaries:
Accounts receivable 1,083,609 290,600
Income tax refund receivable 96,345
Loan servicing rights (135,546)
Prepaid expenses and other assets 234,994 5,233
Accounts payable and accrued expenses (301,095) (848,222)
----------- -----------
Net cash used in continuing operating activities (1,316,781) (1,192,819)
Net cash provided by (used in) discontinued operating activities 10,161 (32,366)
----------- -----------
Net cash used in operating activities (1,306,620) (1,225,185)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 3,706,106 344,660
Distributions from partnerships and joint ventures (75,389) 53,989
Investment in partnerships and joint ventures (1,425,464)
Increase in other assets (253,696)
Purchase of property and equipment (140,455) (77,573)
Proceeds from sale of corporate office 1,548,214
Proceeds from sale of DUS portfolio 488,687
Proceeds from sale of discontinued operations 2,744,000
Purchase of loan servicing rights (107,794)
----------- -----------
Net cash provided by (used in) investing activities 8,271,163 (1,465,878)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock - net 5,576,048
Issuance of common stock 200,000 150,942
Principal payments on notes payable (4,111,236) (2,553,206)
Proceeds from notes payable 2,225,000 2,181,000
Redemption of redeemable preferred stock (900,000) (600,000)
Redemption of Series AA preferred stock (3,299,999)
Redemption of Series BB preferred stock (800,000)
Abandoned offering costs (819,061)
----------- -----------
Net cash provided by (used in) financing activities (6,686,235) 3,935,723
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (48,457)
----------- -----------
NET INCREASE IN CASH DURING THE YEAR 278,308 1,196,203
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,932,143 735,940
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,210,451 $ 1,932,143
=========== ===========
REDEMPTION OF PREFERRED STOCK THROUGH NOTE PAYABLE $ 200,000
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 20
CROWN NORTHCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
1999 1998
SUPPLEMENTAL INFORMATION:
CASH PAID FOR INTEREST $149,379 $219,083
======== ========
See notes to consolidated financial statements.
F-6
<PAGE> 21
CROWN NORTHCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 comprehensive asset management and risk management
services to owners and operators of commercial real estate interests.
Assets managed are located throughout the United States and Canada and
include commercial and residential real estate, performing and
nonperforming real estate and commercial loans, partnership investments
and other miscellaneous assets.
DISCONTINUED OPERATIONS - The Company sold its European operations. See
(Note 2).
LOSS FROM OPERATIONS - The Company incurred a net loss from continuing
operations of approximately $2,950,000 and $1,171,000 in 1999 and 1998,
respectively. Should losses continue to occur, the Company will continue
to have difficulty satisfying liabilities as they come due. Management has
taken actions to reduce its size, simplify its capital structure and
increase its core business units. Accordingly, management believes that
the Company will be able to return to profitable operations, realize its
assets and satisfy its liabilities in the normal course of business.
CONCENTRATIONS - Private-sector contracts with one customer accounted for
33% and 25% of revenues for 1999 and 1998, respectively, and approximately
23% and 15% of total accounts receivable at December 31, 1999 and 1998,
respectively. Certain private-sector contracts are generally cancelable
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.
Fair values are estimated using discounted cash flows based on a current
F-7
<PAGE> 22
market interest rate. 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. The
carrying amount of loan servicing rights approximates the fair value.
CAPITALIZED SOFTWARE COST - In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use"
which the Company adopted in 1998. This statement provides guidance on
accounting for costs of computer software developed or obtained for
internal use. Capitalized software costs are amortized using a straight
line basis over 4 to 5 years. During 1999 and 1998, the Company
capitalized costs of approximately $66,000 and $275,000, respectively, for
computer software developed for internal use. Net of amortization,
adoption of this statement reduced 1998 net loss and net loss per share
from continuing operations by approximately $250,000 and $.02,
respectively.
LOAN SERVICING FEES - Loan servicing fees are recognized as earned under
the terms of the related servicing contract.
INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES - Certain of 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.
RESERVE FOR LOAN LOSSES - The Company established an allowance for loan
losses to provide for estimated losses in the acquired mortgage portfolios
serviced. The Company sold the mortgage portfolio in December 1999 (see
Note 2). The reserve balance at December 31, 1999 was established to
offset losses incurred or sustained by the purchaser by reason of or
associated with the mortgage loans.
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.
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.
F-8
<PAGE> 23
MORTGAGE ORIGINATION FEES - 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.
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 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 for 1999 and 1998 is computed as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net loss from continuing operations $(2,950,018) $(1,062,971)
Series AA convertible preferred stock
dividends at issuance (1,997,268)
Series BB convertible preferred stock
dividends at issuance (500,000)
----------- -----------
Net loss applicable to common stock (2,950,018) (3,560,239)
Weighted average shares outstanding 11,200,022 11,000,743
----------- -----------
Loss per share from continuing operations $ (0.26) $ (0.32)
=========== ===========
</TABLE>
As the Company incurred net losses in 1999 and 1998 there are no potential
common shares to be included in the computation of diluted per-share
amounts, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share".
MANAGEMENT ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 - SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998 and
will require adoption beginning January 1, 2001. This new statement
establishes accounting and reporting standards for derivative instruments
and for hedging activities, and requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and to
measure such instruments at fair value. The Company does not anticipate
the statement materially impacting its financial position, results of
operations or cash flows.
RECLASSIFICATIONS - Certain reclassifications of prior year amounts have
been made to conform with current year presentation.
F-9
<PAGE> 24
2. DISCONTINUED OPERATIONS AND DISPOSITIONS
In August 1999, the Company sold its European segment which had interests
in HMR Sweden, L.L.C., Catella/Crown NorthCorp Joint Venture AB and a
related asset management contract for total consideration of approximately
$3,500,000. The selling price was payable in cash and the cancellation of
indebtedness to an affiliate of a shareholder-director of approximately
$980,000, of which $726,000 was paid from sale proceeds and the remaining
amount due in the form of a note payable. The remaining funds were
substantially used to pay down long-term debt (see Note 4). The sale
resulted in a loss of $113,709 ($.01 per share). Revenues for the European
segment were approximately $450,000 and $1,065,00 in 1999 and 1998,
respectively.
In December 1999, the Company sold its portfolio of loans serviced under
the Fannie Mae Delegated Underwriting and Servicing Program (DUS) for net
proceeds of $488,687. Pursuant to the sale agreement, $500,000 must be
retained as a cash reserve, to offset losses incurred or sustained by the
purchaser by reason of or associated with the mortgage loans. These funds
must be held in an escrow account until all of the mortgage loans have
been paid off. The transaction resulted in a gain on sale of $142,968.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 and
1998:
1999 1998
Land $ 271,845
Building and improvements 1,137,112
Furniture and equipment $ 1,323,742 1,276,877
----------- -----------
Total property and equipment 1,323,742 2,685,834
Less accumulated depreciation (1,054,948) (989,624)
----------- -----------
Property and equipment - net $ 268,794 $ 1,696,210
=========== ===========
In May 1999, the Company sold its corporate headquarters for net
proceeds of approximately $1,548,214. On that same date, the Company
entered into a lease of a portion of the space in the building. Pursuant
to the lease, the Company makes annual rental payments of approximately
$160,000 for an initial term of five years, provided however, that the
Company may terminate the lease upon six months' notice under certain
terms and conditions. The transaction resulted in a deferred gain of
$259,410 which is being accreted to income over the initial lease term
as a reduction of rent expense. The Company recognized an accreted
income of $30,263 in 1999.
F-10
<PAGE> 25
4. NOTES AND BONDS PAYABLE
Long-term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Promissory Note -14% at December 31, 1999,
due November 24, 2004 $ 1,680,000
Six-Month Adjustable Rate Industrial Development Revenue
Bonds, annual principal payments and semi-annual interest payments, 3.65%
interest rate at December 31, 1998
based on terms of the indenture, due April 2015, paid off in 1999 $ 1,295,000
Convertible Secured Promissory Note - affiliate, interest based upon cash flow
with a floor rate of 6.5%, periodic
payments of principal and interest, due on August 31, 2008 paid off in 1999 979,754
Installment Note payable, prime plus 0.5% to 8.25% at
December 31, 1998), monthly payments of $23,021 plus
interest, remaining principal and interest due February 1, 2002, paid 874,815
off in 1999
Installment Note payable-prime (7.75% at December 31, 1998),
due February 2002, paid off in 1999 416,667
Promissory Note for preferred redemption to former shareholders,
prime (8.5% at December 31, 1999) due December 22, 2000, see Note 8 200,000
----------- -----------
Total 1,880,000 3,566,236
Less current portion 200,000 630,286
----------- -----------
Long-term debt $ 1,680,000 $ 2,935,950
=========== ===========
</TABLE>
The scheduled sinking fund redemption and principal repayments of
long-term debt are as follows:
Year ending December 31:
2000 $ 200,000
2004 1,680,000
----------
Total 1,880,000
----------
Less current portion 200,000
Total long-term portion $1,680,000
==========
At December 31, 1999 and 1998, the fair value of the Company's long-term
debt approximates its recorded value, based on current market interest
rates and remaining maturities. The Company subsequently repaid the
$1,680,00 promissory note in 2000 with the proceeds from cash on hand at
December 31, 1999.
5. LEASES
The Company, in its operations, leases office facilities and equipment.
All leases in effect at December 31, 1999, which expire on various dates
through 2004, have been classified as operating leases. Rent expense was
approximately $425,000 and $412,000 in 1999 and 1998, respectively.
F-11
<PAGE> 26
The future minimum operating lease payments as of December 31, 1999 are as
follows:
Equipment Offices
Year ending December 31:
2000 $ 117,342 $ 175,150
2001 9,676 173,800
2002 160,000
2003 160,000
2004 63,560
--------- ---------
Total $ 127,018 $ 732,510
========= =========
6. RELATED PARTY TRANSACTIONS
In August 1999, the Company sold its interests in HMR., an affiliate
controlled by a director-shareholder of the Company (See Note 2). The
Company purchased the equity investment in 1998 for approximately $2.5
million in exchange for a 14.23% ownership interest in HMR. The Company
funded its investment through a combination of cash on hand and a loan
($980,392) from another affiliate controlled by the director-shareholder.
HMR has 13.09% ownership in Telereit Holding AB (Telereit) a Swedish real
estate investment trust which holds approximately $614 million in a
portfolio of assets in Sweden. In consideration of the
director-shareholder's investment in Telereit and the loan from the
affiliate controlled by the director-shareholder, the Company agreed to
pay 25% of its management and disposition fees and 75% of its incentive
fees received under the asset management agreement, net of the Company's
expenses, to the director-shareholder. The Company had an interest in an
asset management agreement with Telereit which the Company also sold in
August 1999 (see Note 2). During 1999 and 1998, the Company paid no amount
to the director-shareholder under the agreement. During 1999 and 1998, the
Company recorded income from its investment in the partnership of $2,140
and $94,704, respectively.
In 1999, in connection with the sale of the Company's European segment,
the indebtedness of approximatley $980,000, payable to an affiliate
controlled by the director-shareholder was cancelled (see Note 2). The
note accrued interest in an amount equal to the greater of 6.5% per annum
on the outstanding principal amount or an amount based on cash
distributions. During 1999 and 1998, the Company paid interest of $37,350
and $38,893, respectively, for an effective rate of interest of 11.9%.
Under the terms of a pledge agreement the note was secured by a portion of
the Company's interest in the affiliate. A bank, on behalf of the Company,
issued letters of credit aggregating approxi- mately $625,000 to partially
secure Telereit's obligations under a credit facility. During 1999, the
letters of credit were returned to the bank. The Company maintained a
restricted cash account, approximately $640,000 at December 31, 1998,
related to the letters of credit.
The Company conducts some of its operations through various joint ventures
and other partnership forms that are principally accounted for using the
equity method. Included in the Company's revenues for 1999 and 1998 are
equity in income (loss) of related companies of approximately $213,600 and
$276,600, respectively. The Company also provides services for the
ventures and included in revenues for 1999 and 1998 are management,
incentive, retainer and disposition fees of approximately $160,000 and
$902,000, respectively, related thereto.
Payments to members of the Board of Directors were made in the form of
common stock issuances totaling $109,575 and $72,500 in 1999 and 1998,
respectively.
F-12
<PAGE> 27
7. SHAREHOLDERS' EQUITY
At December 31, 1999 and 1998, 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 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
agreed to purchase 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 liquidation preference was $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 had the option to convert the Series AA
Preferred into 3,473,510 shares of the Common Stock at any time. The
quoted price per common share at the date of issuance of the Series AA
Preferred was $1.625, resulting in an effective dividend upon issuance of
$1,997,268. In December 1999, the Company redeemed the Series AA
Preferred and acquired the common stock held by Harbert Fund in exchange
for a payment to Harbert Fund of $3,300,000 in cash and $200,000 in the
form of a one-year promissory note from the Company guaranteed by a
director of the Company.
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 at $2 per share. The warrant was to vest and
expire based upon the occurrence of certain stipulated events. The
liquidation preference was $2,000,000, plus a 12% cumulative dividend from
the issuance date. The holders of the Series BB Preferred had the option
to convert the Series BB Preferred into 1,000,000 shares of the Common
Stock at any time. The quoted price per common share at the date of
issuance of the Series BB Preferred was $2.50, resulting in an effective
dividend upon issuance of $500,000. In December 1999, the Company redeemed
the Series BB Preferred and acquired the common stock held by Conti and
Conti forfeited its warrants, all in exchange for a payment to cash of
$800,000.
In December 1996, in connection with an acquisition, the Company issued
2,000 shares of Series B Non-Voting, Non-Convertible Redeemable Preferred
Stock (the "Series B Preferred"), with a par value of $.01 per share. No
dividends of any type were to be paid on the shares. The liquidation value
of each Series B Preferred share was $1,000. During 1998 the Company
redeemed 600 shares for $600,000. The Company redeemed the remaining 900
shares for $900,000 in December 1999.
F-13
<PAGE> 28
In December 1996, also in connection with an acquisition, the Company
issued 500 shares of Series C Non-Voting, Convertible Redeemable 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 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:
SHARES TO BE REDEEMED AMOUNT REDEMPTION DATE
250 $ 250,000 December 31, 2001
250 250,000 December 31, 2002
--- ---------
Total 500 $ 500,000
=== =========
During 1996, primarily in connection with certain business acquisitions,
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
1998, 39,683 warrants were exercised at $0.63 per share. During 1999,
274,300 warrants expired or were forfeited and at December 31, 1999,
65,700 warrants are exercisable. No warrants were exercised in 1999. The
weighted average exercise price was $0.73 and $0.83 at December 31, 1999
and 1998, respectively.
During 1998, the Company issued warrants to an employee entitling the
holder to purchase up to 25,000 shares of common stock at $1.44 per share.
As of December 31, 1999 and 1998 there are 25,000 exercisable warrants
which expire November 30, 2003.
During 1998, the Company issued warrants to an employee entitling the
holder to purchase up to 50,000 shares of common stock at $2 per share.
The warrants vest annually and expire December 1, 2003. Any unvested
shares at the date of a change in control of the Company vest immediately.
During 1999 the Company issued additional warrants entitling the holder to
purchase up to 25,000 shares of common stock at $1.3125 per share. The
warrants expire in December 2003. At December 31, 1999 and 1998, the
number of exercisable warrants was 45,000 and 10,000, respectively.
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 were to 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. At December 31, 1998, there
were 200,000 exercisable warrants. In 1999, all exercisable warrants and
rights to warrants were forfeited.
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
F-14
<PAGE> 29
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, 1999.
The Company applies Accounting Principals Board ("APB") Opinion No. 25 and
related interpretations in accounting for its stock options. Based on an
estimated volatility of 146%, a weighted average life of 5.2 years (4.9
years in 1998), and a discount rate of 6%, compensation cost, under the
method of determination per SFAS 123, would have been approximately $2,700
and $40,000 higher than reported in the consolidated statements of
operations, resulting in a net loss from continuing operations of
$3,078,000 and $1,127,000 and a loss per share, basic and diluted, of
$0.27 and $0.34, for 1999 and 1998, respectively.
8. 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 $24,391 and $28,561 in 1999
and 1998, 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. No amounts were awarded under the Plan in
1999 or 1998.
9. INCOME TAXES
For the year ended December 31, 1998, the components of income tax expense
consisted of the following:
Current $ (10,394)
Deferred 10,394
---------
Total income tax (benefit) expense $ 0
=========
F-15
<PAGE> 30
The income tax (benefit) expense differs from the amount computed by
applying the statutory Federal income tax rate of 34% to pretax earnings
(loss) from continuing operations as follows:
1999 1998
Income tax benefit at statutory rate $(1,045,613) $ (398,192)
Non-deductible foreign losses 42,607 51,963
Non-deductible amortization 15,980 15,980
Non-deductible meals and entertainment 7,516 15,161
Valuation allowance 1,296,300 269,900
Other - net (316,790) 45,188
----------- ----------
Total income tax benefit $ 0 $ 0
=========== ==========
The Company has approximately $4,498,000 of operating loss carryforwards
available at December 31, 1999 which expire in varying amounts from 2002
thru 2019.
Included in loss before taxes is a loss of $153,000 in 1998, from a
subsidiary with operations in Europe.
At December 31, 1999 and 1998 the Company had recorded a net deferred tax
asset as follows:
1999 1998
Assets:
Current:
Collection allowance $ 45,900 $ 34,000
Long-term:
Loss carryforward 1,529,000 421,000
Other 18,300 8,600
Valuation allowance (1,566,200) (269,900)
----------- -----------
Total assets 27,000 193,700
----------- -----------
Liabilities - long-term:
Depreciation and amortization (52,700)
Deferred loan servicing (27,000) (141,000)
----------- -----------
Total liabilities (27,000) (193,700)
----------- -----------
Net deferred tax asset $ 0 $ 0
=========== ===========
F-16
<PAGE> 31
10. 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.
11. 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 $1,406 million and $1,234
million at December 31, 1999 and 1998, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, excluded from the accompanying consolidated balance sheet, were
approximately $44.6 million and $102 million at December 31, 1999 and
1998, respectively.
Mortgage servicing rights of $243,340 were capitalized in 1998 (none in
1999). Amortization of mortgage servicing rights was $191,713 and $235,293
in 1999 and 1998, respectively.
12. SEGMENT INFORMATION
The Company presently operates in one segment as determined in accordance
with SFAS No. 131 "Disclosures about Segment of an Enterprise and Related
Information".
In 1998 the Company's management recognized three primary business
segments: domestic asset management, domestic mortgage origination, and
European operations. The segments were created in July 1997 in connection
with a restructuring of the Company. Effective December 31, 1998 the
Company and the conduit program funding sponsor terminated the Company's
correspondent lending relationship and the Company ceased its domestic
mortgage origination operations. The European operation segment was
discontinued in 1999 (see Note 2).
The accounting policies for the business segments were the same as those
described in the summary of significant accounting policies. There were no
intersegment sales. The Company evaluated performance based on operating
earnings of the respective business units.
Summarized financial information concerning the Company's reportable
segments for 1998 is shown in the following table:
<TABLE>
<CAPTION>
DOMESTIC DOMESTIC
ASSET MORTGAGE EUROPEAN
MANAGEMENT ORIGINATION OPERATIONS OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Revenues $ 5,291,522 $ 622,715 $ $ 5,914,237
(Loss) earnings before income tax 225,668 (629,653) $(658,986) (1,062,971)
Interest income 783,376 10,062 793,438
Interest expense 185,626 46,017 231,643
Amortization and depreciation 478,421 86,625 29,632 354,113
Assets 10,730,414 3,718,579 14,446,459
</TABLE>
F-17
<PAGE> 32
The amount in "Other" in the table above represents the net abandoned
offering expense, abandoned acquisition credit and the restructuring
credit which could not be allocated to any identified business segment.
13. SPECIAL CHARGES
The following special charges were incurred by the Company during the
years presented:
1999 1998
Officer severance $ 450,000
Loan and breakup fees 510,000
Professional fees 489,183
Abandoned offering expenses $ 819,061
Abandoned acquisition and restructuring
credits (Note) (160,075)
Other 193,501
---------- ---------
Total special charges, net $1,642,684 $ 658,98
========== =========
On December 22, 1999 the Company entered into an agreement with its
former President and Chief Operating Officer which called for his
resignation from all positions with the Company, the extinguishment of
related warrants to acquire stock of the Company and mutual releases for
a settlement of $450,000.
Additionally, the Company incurred expenses related to loan fees and
professional fees associated with the 1999 restructuring of the
Company.
The Company was a cosponsor of Strategic Realty Capital Corp. (SRCC), a
real estate investment trust (REIT). On March 24, 1998 SRCC filed with
the Securities Exchange Commission to register shares in an initial
public offering. Due to the unfavorable market conditions for publicly
traded REITs, the offering has been cancelled. The charge of $819,061
reflects the Company's portion of expenses related to SRCC's planned
public offering pursuant to a cost-sharing arrangement with the
co-sponsors. The Company funded the costs from cash reserves and amounts
due from the co-sponsors. During 1998 the Company recognized a $100,000
credit which reflected a negotiated settlement of contractual expenses
accrued under an expense reimbursement agreement.
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 incurred
total restructuring charges of $494,409, which was recorded in 1997. The
restructuring plan was completed during the first quarter 1998 with
losses being less than anticipated. As a result the Company recognized a
restructuring credit of $60,075 in 1998.
F-18
<PAGE> 33
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 three directors. 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.
James F. Russell II, Kevin C. Donahue and Sam Stern have entered into employment
contracts with the company for five-year terms beginning January 1, 2000. All
other officers of Crown do not serve a term of years but serve at the pleasure
of the Board of Directors. In addition, Crown has entered into an agreement with
Grace Jenkins calling for payments under certain circumstances in the event of a
change of control of the company.
The directors and executive officers of the company as of March 28, 2000 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- ----- ---------------------
<S> <C> <C>
Ronald E. Roark 49 Chairman and Director
James F. Russell II 51 President and Chief Executive Officer
Kevin C. Donahue 42 Executive Vice President and Chief Operating Officer
Sam Stern 47 Executive Vice President, Treasurer and Chief Financial Officer
Gordon V. Smith 67 Director
David K. Conrad 44 Director
Grace Jenkins 47 Executive Vice President
Richard A. Brock 50 Senior Vice President
Stephen W. Brown 49 Secretary
</TABLE>
Set forth below are the principal occupations and affiliations during at least
the last five years of the directors and executive officers. All information is
as of March 28, 2000.
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 from
September 13, 1994 to March 28, 2000. He served as Acting President and Chief
Operating Officer from August 31, 1996 to April 21, 1997. Since 1995 he has
served as President of Royal and, since 1979, has been President of Brookville
Associates, Inc.
JAMES F. RUSSELL II was appointed the company's President and Chief Executive
Officer on
13
<PAGE> 34
March 28, 2000. He served as President and Chief Executive Officer of DRS
beginning in March 1999. From 1995 through 1998, Mr. Russell was Group Vice
President of WMFG National Commercial Lending Division. From 1991 to 1995, he
was a Tax Principal in the Real Estate Services Group of Arthur Andersen LLP.
KEVIN C. DONAHUE was appointed the company's Executive Vice President and Chief
Operating Officer effective March 28, 2000. He served as Executive Vice
President and Chief Operating Officer of DRS beginning in March 1999. From 1996
through 1998, Mr. Donahue served as Director of New Business Development for
J.E. Robert Companies. From 1994 to 1996, he served as Crown's Director of
Acquisitions and Due Diligence.
SAM STERN was appointed the company's Executive Vice President, Treasurer and
Chief Financial Officer effective March 28, 2000. He served in similar
capacities with DRS beginning in March 1999. From 1995 to 1998, Mr. Stern served
as a Portfolio Manager for J.E. Robert Companies. In 1993 and 1994, he was a
Senior Asset Manager with Ameribanc Savings Bank FSB.
GORDON V. SMITH has served as a director of Crown 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. Mr. Smith has served as a director of Bank
Plus since 1996 and as its Chairman since 1998.
DAVID K. CONRAD has served as a director of Crown since January 5, 2000. Mr.
Conrad is a partner in the law firm of Bricker & Eckler LLP and has been
affiliated with that firm since 1980. The firm provides legal services to the
company.
GRACE JENKINS has served as Executive Vice President of Crown since March 6,
1997. She served as a Vice President of the company from September 13, 1994 to
that date. Since November 1991, she has served Crown in various capacities
related to administration and management information systems.
RICHARD A. BROCK has served as Senior Vice President of Crown since March 6,
1997. He was Chief Financial Officer from that date to September 1, 1999. He
also served as Treasurer from September 13, 1994 to September 1, 1999. He has
served Crown in various financial and asset management capacities since 1991.
STEPHEN W. BROWN has served as Secretary of Crown 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.
ITEM 10. - EXECUTIVE COMPENSATION
- ------------------------------------
The following table sets forth information for the year ended December 31, 1999
with respect to the Chief Executive Officer, each of the four most highly
compensated executive officers other than the Chief Executive Officer and
certain other individuals.
14
<PAGE> 35
<TABLE>
<CAPTION>
YEAR ENDED ALL OTHER
NAME DECEMBER 31 SALARY BONUS COMPENSATION
---- ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald E. Roark, 1999 $300,000 $0 $10,000
Chairman and 1998 $300,000 $0 $10,000
CEO (1) 1997 $300,000 $0 $10,000
Grace Jenkins, 1999 $113,716 $25,000 $10,000
Executive Vice President(2) 1998 $103,716 $0 $10,000
1997 $98,905 $0 $10,000
Richard A. Brock, Senior 1999 $111,573 $20,000 $10,000
Vice President 1998 $104,930 $0 $10,000
1997 $105,452 $0 $10,000
Ray L. Druseikis, 1999 $99,144 $0 $6,950
Treasurer, Controller 1998 $89,311 $0 $5,400
and Chief Financial 1997 $80,059 $0 $0
Officer (3)
Stephen W. Brown, 1999 $70,568 $0 $2,933
Secretary and Corporate 1998 $67,368 $0 $2,800
Counsel 1997 $65,040 $0 $2,710
Harold E. Cooke, 1999 $750,843 $0 $10,000
President and 1998 $227,400 $150,000 $10,000
COO (4) 1997 $196,324 $0 $10,000
John S. Koczela, 1999 $152,949 $75,000 $7,916
Executive Vice 1998 $184,807 $20,000 $61,701
President (5) 1997 $125,000 $30,000 $44,411
</TABLE>
(1) Mr. Roark has served as Chairman of the company since August 4, 1994
served as its CEO from September 13, 1994 through March 28, 2000. The
company pays family medical coverage premiums, an automobile allowance
and disability insurance premiums on his behalf. Royal is funding
Crown's salary and benefit expenses for Mr. Roark. See "Item 12 -
Certain Relationships and Related Transactions ." Mr. Roark's annual
salary was reduced to $200,000, commencing January 1, 2000.
15
<PAGE> 36
(2) Ms Jenkins has served as Executive Vice President of Crown since March
6, 1997. The company and Ms. Jenkins have entered into an agreement
effective January 1, 1999 providing for a performance-based bonus,
warrants to purchase up to 75,000 shares of common stock at prices
ranging from $1.3125 to $2.00 per share and for continued salary
payments for up to one year in the event of a change of control of
Crown.
(3) Mr. Druseikis served as Treasurer, Controller and Chief Financial
Officer of Crown until his resignation February 11, 2000.
(4) Mr. Cooke served as President and COO of the company from April 22,
1997 until December 22, 1999. The figure for 1999 includes a payment of
$450,000 from the company to Mr. Cooke in settlement of his employment
contract.
(5) Mr. Koczela served as Executive Vice President of Crown from March 6,
1997 to September 3, 1999, administering the company's European
operations. Mr. Koczela holds warrants to purchase 25,000 shares of
common stock at $1.4375 per share.
Each director who is not an employee of Crown is paid an annual retainer of
$12,000, payable quarterly, $500 for each meeting of the Board of Directors and
$500 for each committee meeting attended, plus expenses. 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 day of a
quarter.
16
<PAGE> 37
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 28, 2000 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>
NAME NUMBER OF SHARES APPROXIMATE
---- OF COMMON STOCK PERCENT OF CLASS
---------------- ----------------
<S> <C> <C>
Ronald E. Roark (1)(2) 4,629,300 43.4%
Tucker Holding Company, Ltd. (2) 4,207,500 39.4%
Asdale Limited (3) 976,924 9.1%
The Gordon V. and Helen C. Smith Foundation (4) 1,795,100 16.8%
Gordon V. Smith (4) 1,795,100 16.8%
David K. Conrad (5) 500 (9)
Grace Jenkins (6) 55,000 (9)
Richard A. Brock (7) 25,000 (9)
Stephen W. Brown (8) 10,000 (9)
James F. Russell II ----- -----
Kevin C. Donahue ----- -----
Sam Stern ----- -----
All directors and executive officers as a group 6,514,900 61%
(9 persons)
</TABLE>
(1) Includes (a) 4,207,500 shares held by Tucker Holding Company, Ltd., of
which Mr. Roark is the managing member, (b) 400,000 shares held by
Royal, of which Mr. Roark is president, as trustee and (c) 4,600 shares
held by his wife and (d) 17,200 shares held by Trident Air Services,
Inc., of which Mr. Roark is president.
(2) Tucker holds 4,207,500 shares of 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 $62,500 is due
on or before September 1, 2000. Tucker has pledged 130,432 shares of
common stock to secure the remaining obligations under this agreement.
(3) The mailing address for Asdale Limited is 44 Lowndes Street, London
SW1X 9HX, England.
17
<PAGE> 38
(4) The mailing address for The Gordon V. and Helen C. Smith Foundation and
Mr. Smith is c/o Miller and Smith Holding, Inc., 1568 Springhill Road,
McLean, Virginia 22102. Mr. Smith holds 1,256,423 shares of common
stock. The Smith Foundation holds 538,677 shares of 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.
(5) The mailing address for Mr. Conrad is c/o Bricker & Eckler LLP, 100
South Third Street, Columbus, Ohio 43215.
(6) Represents warrants to acquire 10,000 shares of common stock at $.63
per share, 20,000 shares of common stock at $2.00 per share and 25,000
shares at $1.3125 per share.
(7) Represents warrants to acquire 25,000 shares of common stock at $.63
per share.
(8) Represents warrants to acquire 10,000 shares of common stock at $.63
per share.
(9) Less than 1%.
TERMINATION OF CERTAIN AGREEMENTS
VOTING AGREEMENTS. Mr. Roark and Tucker had entered into voting agreements with
the holders of the company's Series AA and Series BB Convertible Preferred
Stock. Those agreements terminated when the company redeemed those series in
December 1999.
AGREEMENT REGARDING COMPOSITION OF BOARD OF DIRECTORS. Under the terms of the
Series AA Preferred and the voting agreement referred to above, the holder of
that series had the right to designate a majority of Crown's Board of Directors.
That right terminated with the redemption of that series in December 1999.
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------------------------------------------------------------
In conjunction with entering into an asset management agreement with Telereit
Holding AB for a portfolio of assets in Sweden and placing the transaction,
Crown in 1998 made an equity investment in Telereit Holding through HMR Sweden,
L.L.C., an affiliate of a director-shareholder. HMR Sweden, in turn, invested in
Telereit Holding. In August 1999, HMR Sweden transferred to Crown, in complete
redemption of Crown's interests in HMR, those shares and owner's debt
representing Crown's equity investment in Telereit Holding. As part of its
disposition of European operations, Crown sold those shares and owner's debt to
Catella Holding AB for $3,470,000 cash. From the proceeds of sale, the company
repaid MarRay Investments, LLC, another affiliate of that director-shareholder,
$979,754 in satisfaction of indebtedness the company incurred in conjunction
with its investment in Telereit. The company also paid the director-shareholder
from the proceeds the sum of $726,000 in satisfaction of the company's
obligations to it under a certain payment of fees agreement
18
<PAGE> 39
entered into between the director-shareholder and Crown in consideration of
HMC's investment in Telereit and the loan from MarRay.
Also in conjunction with the sale of European operations, Crown entered into an
agreement with Royal Investments Corp., a company wholly owned by Mr. Roark.
Pursuant to this agreement, Royal acquired for no consideration Crown's European
operations that remained after the sale to Telereit, which consisted primarily
of non-operating companies. Royal funds Crown's salary and benefit expenses for
Mr. Roark. See "Item 10 - Executive Compensation."
In December 1999, Crown redeemed the Series AA Preferred with a payment of $3.3
million cash and delivery of a $200,000 promissory note. Mr. Smith has
guaranteed Crown's obligations under this note.
The company conducts some of its operations through joint ventures and
partnerships and provides certain services to those entities. See "Note 7 -
Related Party Transactions - to Consolidated Financial Statements."
ITEM 13. - EXHIBITS 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 Filed herewith.
3.4 Bylaws Filed herewith.
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 per NorthCorp, Inc.'s Form 8-K
filed share, of Crown NorthCorp, Inc. February 20, 1998.
</TABLE>
19
<PAGE> 40
<TABLE>
<S> <C> <C>
4.5 Certificate of Designation for Series BB Incorporated by reference to
Crown Convertible Preferred Stock, par value NorthCorp, Inc.'s Form
10-KSB filed $.01 per share, of Crown March 30, 1998.
NorthCorp, Inc.
10.79 Purchase and sale agreement between Incorporated by reference to Crown
Crown NorthCorp, Inc. and Catella NorthCorp, Inc.'s Form 10-QSB filed
Boardroom Consulting AB November 22, 1999.
10.80 Purchase and sale agreement between Incorporated by reference to Crown
Crown NorthCorp, Inc. and Catella NorthCorp, Inc.'s Form 10-QSB filed
Holding AB November 22, 1999.
10.81 Crown NorthCorp, Inc.'s receipt of Filed herewith.
various documents from Harbert Equity
Fund I, L.L.C.
10.82 Purchase and sale agreement between Filed herewith.
ContiWest Corporation and Crown
NorthCorp, Inc.
21.4 Subsidiaries of Crown NorthCorp, Inc. Filed herewith.
27 Financial Data Schedule Filed herewith.
b) REPORTS ON FORM 8-K
-------------------
None
</TABLE>
20
<PAGE> 41
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 29, 2000 By: /s/ James F. Russell II
------------------------------
James F. Russell II
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 29, 2000 By: /s/ Ronald E. Roark
------------------------------
Ronald E. Roark
Chairman of the Board
Date: March 29, 2000 By: /s/ James F. Russell II
------------------------------
James F. Russell II
President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 29, 2000 By: /s/ Sam Stern
------------------------------
Sam Stern
Executive Vice President,
Treasurer and Chief Financial
Officer
(Principal Accounting Officer)
S-1
<PAGE> 42
Date: March 29, 2000 By: /s/ Stephen W. Brown
------------------------------
Stephen W. Brown
Secretary
Date: March 29, 2000 By: /s/ David K. Conrad
------------------------------
David K. Conrad
Director
Date: March 29, 2000 By: /s/ Gordon V. Smith
------------------------------
Gordon V. Smith
Director
S-2
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INDEX TO EXHIBITS
-----------------
3.3 Restated Certificate of Incorporation. (1)
3.4 Bylaws. (1)
4.2 Certificate of Designation for Series B Preferred Stock, par value $.01
per share, of Crown NorthCorp, Inc. (2)
4.3 Certificate of Designation for Series C Convertible Preferred Stock,
par value $.01 per share, of Crown NorthCorp, Inc. (2)
4.4 Certificate of Designation for Series AA Convertible Preferred Stock,
par value $.01 per share, of Crown NorthCorp, Inc. (3)
4.5 Certificate of Designation for Series BB Convertible Preferred Stock,
par value $.01 per share, of Crown NorthCorp, Inc. (4)
10.79 Purchase and sale agreement between Crown NorthCorp, Inc. and Catella
Boardroom Consulting AB (5)
10.80 Purchase and sale agreement between Crown NorthCorp, Inc. and Catella
Holding AB (5)
10.81 Crown NorthCorp, Inc.'s receipt of various documents from Harbert
Equity Fund I, L.L.C. (1)
10.82 Purchase and sale agreement between ContiWest Corporation and Crown
NorthCorp, Inc. (1)
21.4 Subsidiaries of Crown NorthCorp, Inc. (1)
27 Financial Data Schedule (1)
- -----------
(1) Filed herewith.
(2) Incorporated by reference to Crown NorthCorp, Inc.'s Form 8-K filed
January 24, 1997.
(3) Incorporated by reference to Crown NorthCorp, Inc.'s Form 8-K filed
February 20, 1998.
(4) Incorporated by reference to Crown NorthCorp, Inc.'s Form 10-KSB filed
March 30, 1998.
(5) Incorporated by reference to Crown NorthCorp, Inc.'s Form 10-QSB filed
November 22, 1999.
<PAGE> 1
Exhibit 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
NORTHCORP REALTY ADVISORS, INC.
Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware
NorthCorp Realty Advisors, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
(a) The name of the Corporation is NorthCorp Realty Advisors, Inc. The
Corporation was originally incorporated under the name of "CMIN MERGER CO.", and
the original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on May 22, 1992.
(b) This Restated Certificate of Incorporation restates, integrates and
further amends the provisions of the Certificate of Incorporation of the
Corporation, as heretofore amended, and was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
(c) The text of the Certificate of Incorporation, as heretofore
amended, is hereby restated, integrated, and further amended to read in its
entirety as follows:
FIRST: The name of the corporation is Crown NorthCorp, Inc. (the
"Corporation").
SECOND: The address of the Corporation=s registered office in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
19801. The name of the Corporation=s registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock which the Corporation
shall have authority to issue is thirty-one million (31,000,000), consisting of
thirty million (30,000,000) shares of Common Stock, par value $.01 per share
("Common Stock") and one million
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(1,000,000) shares of Preferred Stock, par value $.01 per share ("Preferred
Stock").
(b) Shares of Preferred Stock may be issued from
time to time in one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly designated. The voting
powers, preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof, if any, of
each such series may differ from those of any and all other series of Preferred
Stock at any time outstanding, and the Board of Directors is hereby expressly
granted authority to fix, by resolution or resolutions, the designation, number,
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions thereof, of
each such series, including but without limiting the generality of the
foregoing, the following:
1. The distinctive designation of, and the
number of shares of Preferred Stock that shall constitute, such series, which
number (except where otherwise provided by the Board of Directors in the
resolution establishing such series) may be increased or decreased (but not
below the number of shares of such series then outstanding) from time to time by
like action of the Board of Directors;
2. The rights in respect of dividends, if any,
of such series of Preferred Stock, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other class or classes or
any other series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or noncumulative;
3. The right, if any, of the holders of such
series of Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the same or any
other class or classes of capital stock of the Corporation, and the terms and
conditions of such conversion or exchange;
4. Whether or not shares of such series of
Preferred Stock shall be subject to redemption, and the redemption price or
prices and the time or times at which, and the terms and conditions on which,
shares of such series of Preferred Stock may be redeemed;
5. The rights, if any, of the holders of such
series of Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation or in the event of any merger or
consolidation of or sale of assets by the Corporation;
6. The terms of any sinking fund or redemption
or repurchase or purchase amount, if any, to be provided for shares of such
series of Preferred Stock;
7. The voting powers, if any, of the holders
of any series of Preferred
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Stock generally or with respect to any particular matter, which may be less
than, equal to or greater than one vote per share; and
8. Such other powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, as the Board of Directors
shall determine.
(c) Except as otherwise required by law, and except for the
voting powers, if any, granted to the holders of any one or more series of
Preferred Stock pursuant to a resolution or resolutions adopted by the Board of
Directors pursuant to paragraph (b) of this Article FOURTH, no holder of any
series of Preferred Stock shall have any voting power whatsoever.
(d) Except as may otherwise be required by law, and subject to
the voting rights, if any, of the holders of any one or more series of Preferred
Stock issued in accordance with paragraph (b) of this Article FOURTH, each
holder of Common Stock shall have one vote in respect of each share of Common
Stock held on all matters voted upon by the stockholders.
(e) The authorized number of shares of Common Stock and of
Preferred Stock may, without a class vote of either thereof, be increased or
decreased from time to time by the affirmative vote of the holders of a majority
of the combined voting power of the then-outstanding shares of all classes and
series of stock of the Corporation entitled to vote generally in the election of
directors ("Voting Stock").
FIFTH: The business and affairs of the Corporation shall be
conducted and managed by, or under the direction of, the Board of Directors.
Subject to the right, if any, of the holders of any one or more series of
Preferred Stock issued in accordance with paragraph (b) of Article FOURTH of
this Restated Certificate of Incorporation separately to elect additional
directors, the total number of directors constituting the entire Board of
Directors shall be not less than one (1) nor more than nine (9), with the
then-authorized number of directors being fixed from time to time by or pursuant
to a resolution passed by the Board of Directors.
SIXTH: To the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, the Corporation shall indemnify
any person who was or is made or is threatened to be made a party or is
otherwise involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or non-profit entity, including
service with respect to employee benefit plans, against all expenses, liability,
and loss reasonably incurred or suffered by such person, and the corporation
shall advance expenses (including attorney=s fees) to such person.
Notwithstanding the foregoing, the Corporation shall be required to indemnify a
person and advance expenses to such person in connection with a proceeding (or
part thereof) commenced by such person only if
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<PAGE> 4
the commencement of such proceeding (or part thereof) was authorized by the
Board of Directors. The rights conferred on any person by this Article SIXTH
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of this Restated Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
SEVENTH: A director of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter by amended. Any repeal or
modification of the first sentence of this Article SEVENTH shall not adversely
affect any right or protection of a director of the Corporation existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
EIGHTH: The Corporation reserves the right at any time, and
from time to time, to amend, alter, repeal or rescind any provision contained in
this Restated Certificate of Incorporation in the manner now or hereafter
prescribed by law, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon the stockholders, directors or any other
persons whomsoever by and pursuant to this Restated Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this Article EIGHTH.
IN WITNESS WHEREOF, NorthCorp Realty Advisors, Inc. has caused
this Restated Certificate of Incorporation to be signed by Stephen W. Brown, its
Secretary, this 25th day of May, 1995.
NorthCorp Realty Advisors, Inc.
By: /s/ Stephen W. Brown
-----------------------------
Title: Secretary
4
<PAGE> 1
Exhibit 3.4
CROWN NORTHCORP, INC.
BYLAWS
ARTICLE I
OFFICES
-------
Section 1.1 REGISTERED OFFICE IN DELAWARE
The registered office of the corporation required by Section
131 of the General Corporation Law of the State of Delaware (the "GCL") shall be
in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2 OTHER OFFICES
The corporation may have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS" MEETING
---------------------
Section 2.1 PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Section 2.2 ANNUAL MEETINGS
Annual meetings of stockholders shall be held within 150 days
of the close of the corporation"s fiscal year, or at such other date and time as
shall be designated from time to time by the Board of Directors, at which the
stockholders shall elect a Board of Directors, and transact such other business
as may properly be brought before the meeting.
Section 2.3 SPECIAL MEETINGS
Subject to the provisions of the Restated Certificate of
Incorporation, special meetings of the stockholders, for any purpose or
purposes, may be called only by the Chairman of the Board, the President or the
Board of Directors, and special meetings of stockholders may not be called by
any other person or persons or in any other matter.
<PAGE> 2
Section 2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS
2.4.1 Written notice of each meeting of stockholders, annual
or special, shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by the GCL, the written
notice of any meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote at
such meeting. If mailed, such notice shall be deemed to be given when deposited
in the mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation. An affidavit of mailing of any notice
or report, executed by the Secretary, Assistant Secretary or any transfer agent
of the corporation, shall be prima facie evidence of the facts stated therein.
2.4.2 Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and,
except as otherwise provided in this section, notice need not be given of any
such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. It the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 2.5 WAIVER OF NOTICE
Notice of a meeting need not be given to any stockholder who
signs a written waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such stockholder or that the meeting is not lawfully
called or convened. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 2.6 ACTION WITHOUT MEETING
2.6.1 Unless otherwise provided in the Restated Certificate of
Incorporation of this corporation, any action which may be taken at any annual
or special meeting of stockholders may be taken without a meeting, and without
prior notice, if a consent in writing, setting forth the action so taken, is
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that directors may not be elected by written consent except
by unanimous written consent of all shares entitled to vote for the election of
directors.
2.6.2 Any stockholder giving a written consent, or the
stockholder"s proxyholders, or a transferee of the shares or a personal
representative of the stockholder or their
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respective proxyholders, may revoke the consent by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the Corporation.
Section 2.7 QUORUM
2.7.1 Except as otherwise provided by law, the Restated
Certificate of Incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum.
2.7.2 The stockholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 2.8 VOTING RIGHTS
Except as otherwise provided by the Restated Certificate of
Incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question. Voting at meetings of stockholders
need not be by written ballot. At all meetings of stockholders for the election
of directors, a plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by law, the
Restated Certificate of Incorporation or these Bylaws, be decided by the
affirmative vote of the holders of a majority in voting power of the shares of
stock which are present in person or by proxy and entitled to vote thereon.
Section 2.9 PROXIES
Each stockholder entitled to vote at a meeting of stockholders
may authorize person or persons to act for him by proxy, but no such proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. A proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument revoking the proxy or another proxy bearing a later date
with the Secretary of the corporation.
Section 2.10 MANNER OF CONDUCTING MEETINGS
The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the chairman
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<PAGE> 4
of any meeting of stockholders shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) rules and procedures for maintaining order at the
meeting and the safety of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the corporation, their
duly authorized and constituted proxies or such other persons as the chairman of
the meeting shall determine; (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 2.11 INSPECTORS OF ELECTION
At all elections of directors, or in any other case in which
inspectors may act, two inspectors of election shall be appointed by the
Chairman of the meeting, except as otherwise provided by law. The inspectors of
election shall take and subscribe an oath faithfully to execute the duties of
inspectors at such meeting with strict impartiality, and according to the best
of their ability, and shall take charge of the polls and after the vote shall
have been taken shall make a certificate of the result thereof. No director or
candidate for the office of director shall be appointed as an inspector.
Section 2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The Secretary shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting either at a place within
in the city where the meeting is to be held, which place shall be specified in
the notice of meeting, or, if not so specified, at the place where the meeting
is to be held. The list also shall be produced and kept at the place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 2.13 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS
2.13.1 Annual Meetings of Stockholders.
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(a) Nominations of persons for election to the
Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(i) pursuant to the corporation"s notice of meeting delivered pursuant to
Section 2.4 of these Bylaws, (ii) by or at the direction of the Chairman of the
Board or the Board of Directors or (iii) by any stockholder of the corporation
who is entitled to vote at the meeting, who complied with the procedures set
forth in this Bylaw and who was a stockholder of record at the time such notice
is delivered to the Secretary of the corporation.
(b) For nominations or other business to be
properly brought before an annual meeting by a stockholder pursuant to clause
(iii) of Section 2.13.1(a) of this Bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder"s notice shall be delivered to the Secretary at the principal
executive offices of the corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year"s annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder"s
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person"s written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation"s books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(c) Notwithstanding anything in the second
sentence of Section 2.13.1(b) of this Bylaw to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
corporation is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increase Board of Directors
made by the corporation at least eighty days prior to the first anniversary of
the preceding year"s annual meeting, a stockholder"s notice required by this
Bylaw shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the tenth day following the day on which such public
announcement is first
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made by the corporation.
2.13.2 Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation"s notice of meeting pursuant to Section 2.4 of these Bylaws.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the corporation"s notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the corporation who is entitled to vote
at the meeting, who complies with the notice procedures set forth in this Bylaw
and who is a stockholder of record at the time such notice is delivered to the
Secretary of the corporation. Nominations by stockholders of persons for
election to the Board of Directors may be made at such a special meeting of
stockholders if the stockholder"s notice as required by Section 2.13.1(b) of
this Bylaw shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting.
2.13.3 General.
(a) Only persons who are nominated in
accordance with the procedures set forth in this Bylaw shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Bylaw. Except as otherwise provided by law, the
Restated Certificate of Incorporation or these Bylaws, the chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that such defective
proposal or nomination shall be disregarded.
(b) For purposes of this Bylaw, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of
this Bylaw, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
corporation"s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
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ARTICLE III
DIRECTORS
---------
Section 3.1 POWERS
Subject to the provisions of the GCL and any limitations in
the Restated Certificate of Incorporation relating to actions required to be
authorized or approved by the stockholders, the business affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
Section 3.2 AUTHORIZED NUMBER
The number of directors of this Corporation shall be not less
than one (1) and not more than nine (9) until changed in accordance with the
following provision of this Section 3.2. The exact number so fixed may be
changed from time to time, within the limits specified in the Restated
Certificate of Incorporation, by resolution adopted by the Board of Directors.
Directors need not be stockholders.
Section 3.3 ELECTION AND TENURE OF OFFICE
Subject to the provisions of the Restated Certificate of
Incorporation and Section 3.4 of these Bylaws, directors shall be elected at the
annual meeting of stockholders. Directors shall hold office until the election
and qualification of their successors or until their earlier resignation or
removal.
Section 3.4 VACANCIES
Subject to the provisions of the Restated Certificate of
Incorporation, newly created directorships resulting from any increase in the
authorized number of directors, and any vacancies on the Board of Directors
resulting from death, resignation, disqualification or removal may be filled
only by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office until the
next annual meeting of stockholders, and until such director"s successor shall
have been duly elected and qualified, subject to his or her earlier death,
disqualification, resignation or removal.
Section 3.5 RESIGNATION
3.5.1 Any directors may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary or the Board
of Directors of the corporation. The notice shall be effective upon delivery
unless a later date is specified therein. If a
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resignation of a director is effective at a future time, a successor may be
elected to take office when the resignation becomes effective.
3.5.2 No reduction of the number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Section 3.6 MEETINGS AFTER ANNUAL STOCKHOLDERS" MEETINGS
Immediately following each annual meeting of stockholders, the
Board of Directors shall hold a regular meeting at the place where said annual
meeting has been held or at such other place as shall be fixed by the Board of
Directors, to elect officers and to transact other proper business. Call and
notice of such regular meetings are hereby dispensed with.
Section 3.7 OTHER REGULATIONS
Regular meetings of the Board of Directors may be held at such
times and at such places within or without the State of Delaware as may be
determined from time to time by the Board of Directors. No notice need be given
of such regular meetings, except that notice shall be given to each director (as
for a special meeting) of the resolution establishing regular meeting dates,
which notice shall contain the date, time and place of the regular meetings.
Section 3.8 SPECIAL MEETINGS - NOTICES
3.8.1 Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of the Board or
the President or any two directors.
3.8.2 Special meetings of the Board of Directors shall be held
upon at least four (4) days' notice by mail or 24 hours' notice delivered
personally or by telephone, telegram or other electronic communication. A notice
need not specify the purpose of any meeting of the Board of Directors.
3.8.3 Notice by mail shall be deemed given at the time a
written notice is deposited in the United States mails, first class postage
prepaid, addressed to the director at his address as it is shown upon the
records of the corporation, or, if it is not so shown on such records and is not
readily ascertainable, at the principal executive office of the corporation.
Notice by telegram shall be deemed given when it is actually transmitted by the
telegram company, addressed as in the preceding sentence. Notice by telephone,
telecopy or other electronic communication shall be deemed given when it is so
communicated to the director or to a person at the office of the director who
the person giving the notice has reason to believe will promptly communicate it
to the director.
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<PAGE> 9
Section 3.9 TELEPHONIC MEETING
Members of the Board of Directors, or any committee designated
by the Board, may participate in a meeting of the Board or such committee by
means of conference telephone or similar communications equipment, by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this bylaw shall constitute presence in
person at such meeting.
Section 3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who
signs a written waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director or that the meeting is not lawfully called
or convened. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 3.11 ACTION AT A MEETING
A majority of the authorized number of directors present in
person constitutes a quorum of the Board of Directors for the transaction of
business at a meeting. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, unless a greater number is required by law, by the
Restated Certificate of Incorporation or by the Bylaws.
Section 3.12 ADJOURNMENT
A majority of the directors present at a meeting, whether or
not a quorum is present, may adjourn the meeting to another time and place. If
the meeting is adjourned for more than 24 hours, at least two (2) days' notice
by mail or 24 hours' notice delivered personally or by telephone or telegraph,
stating the time and place at which the meeting will reconvene, shall be given
to each director who was not present at the time of the adjournment. Notice by
mail, telephone or telegraph shall be deemed given as provided in section 3.8.3.
Section 3.13 ORGANIZATION
Meetings of the Board of Directors shall be presided over by
the Chairman of the Board, if any, or in his absence, by the Vice Chairman of
the Board, if any, or in his absence by the President if he is also a director,
or in their absence by a chairman chosen at the meeting. The Secretary shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
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Section 3.14 ACTION BY UNANIMOUS WRITTEN CONSENT
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all of the members of the Board of
Directors shall individually or collectively consent in writing to such action.
Such written consent or consents shall be filed with the minutes of the
proceedings of the Board of Directors. Such action by written consent shall have
the same force and effect as an unanimous vote of such directors.
Section 3.15 INTERESTED DIRECTORS
No contract or transaction between the corporation and one or
more of its directors or officers or between the corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (a) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (b)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by a vote of the stockholders; or (c) the contract or transaction is fair as to
the corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
Section 3.16 COMPENSATION
The directors may be paid their expenses of attending each
meeting of the Board of Directors. In addition, the Board of Directors may from
time to time, in its discretion, pay to directors fixed compensation for
attendance at each meeting of the Board of Directors or may pay a stated fee or
other compensation for services as a director. No such payment shall preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor; Members of special or standing committees may be allowed
like reimbursement and compensation for attending committee meetings.
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ARTICLE IV
COMMITTEES
----------
Section 4.1 COMMITTEES
The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided by law and to the extend
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it.
Section 4.2 COMMITTEE RULES
Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules, each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to Article II of these Bylaws.
Section 4.3 COMMITTEE RECORDS
Each committee shall keep regular minutes of its meetings and
shall report the same to the Board of Directors when required.
ARTICLE V
OFFICERS
--------
Section 5.1 OFFICERS
The officers of the corporation shall be a Chairman of the
Board or a President or both, one or more Vice Presidents, a Secretary, a Chief
Financial Officer and such other officers with such titles as shall be
determined by the Board of Directors and with such duties as shall be delegated
to them by the Board of Directors or any supervisory officer. Any number of
offices
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may be held by the same person.
Section 5.2 ELECTION, REMOVAL AND RESIGNATION
Officers shall be chosen by the Board of Directors and shall
serve and shall be subject to removal, with or without cause, at the pleasure of
the Board of Directors, subject to the rights, if any, of officers under
contracts of employment with the corporation. Any officer may resign at any time
upon written notice to the corporation without prejudice to the rights, if any,
of the corporation under any contract to which the officer is a party.
Section 5.3 CHAIRMAN OF THE BOARD
The Chairman of the Board, if there be such officer, shall, if
present, preside at all meetings of the Board of Directors and the stockholders
and shall exercise and perform such other powers and duties as may be assigned
from time to time to the Chairman of the Board by the Board of Directors.
Whenever there is no President of the corporation, the Chairman of the Board
shall have the powers and duties of the President.
Section 5.4 PRESIDENT
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and, subject to the control of the Board of Directors, shall
supervise, direct and control the business and affairs of the corporation. In
the absence of the Chairman of the Board or if there be none, he shall preside
at all meetings of the stockholders and, provided the President is also a
director, at all meetings of the Board of Directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation and such other powers and duties as may be prescribed by the Board
of Directors or the Bylaws.
Section 5.5 VICE PRESIDENTS
The Vice Presidents shall have such powers and perform such
duties as from time to time may be prescribed for them by the Board of
Directors, the Chairman of the Board, the President or any other officer
supervising such Vice Presidents. In the absence or disability of the President
and Chairman of the Board, a Vice President designated by the Board of Directors
shall substitute for and assume the duties, powers and authority of the
President.
Section 5.6 SECRETARY AND ASSISTANT SECRETARY
5.6.1 The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders, shall record or cause to be
recorded all votes and minutes thereof, shall give notice of each meeting of the
stockholders and Board of Directors requiring notice and
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shall perform such other duties as may be prescribed by the Board of Directors,
the chairman of the Board or President. The Secretary shall keep in safe custody
the seal of the corporation, and, when authorized by the Board of Directors,
shall affix the same to any instrument.
5.6.2 The Assistant Secretary shall perform such corporate
secretarial duties as may be prescribed by the Board of Directors, the Chairman
of the Board, the President or the Secretary, and in absence or disability of
the Secretary shall substitute for and assume the duties, powers and authority
of the Secretary.
Section 5.7 CHIEF AND SUBORDINATE FINANCIAL OFFICERS
5.7.1 The Chief Financial Officer shall keep and maintain or
cause to be kept and maintained adequate and correct accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital and retained
earnings. The books of account shall be open to inspection by all directors at
all reasonable times. The Chief Financial Officer shall deposit or cause to be
deposited all monies and other valuables in the name and to the credit of the
corporation with such depositories as may be designated by the Board of
Directors. The Chief Financial Officer shall disburse or cause to be disbursed
the funds of the corporation as may be ordered by the Board of Directors. The
Chief Financial Officer shall supervise the subordinate financial officers.
5.7.2 The subordinate financial officers, which may be a
Treasurer, a Controller and one or more Assistant Treasurers and Assistant
Controllers, shall perform such duties and exercise such powers as shall be
delegated to them by the Board of Directors, the Chairman of the Board, the
President and the Chief Financial Officer.
Section 5.8 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS
In addition to the foregoing powers and duties specifically
prescribed for the respective officers, the Board of Directors may from time to
time by resolution impose or confer upon any of the officers such additional
duties and powers as the Board of Directors may see fit and/or determine the
order of seniority among the officers. Any such resolution may be final, subject
only to further action by the Board of Directors, or the resolution may grant
such discretion, as the Board of Directors deems appropriate, to the Chairman of
the Board or to the President (or in his absence the Vice President serving in
his place) to impose or confer additional duties and powers and to determine the
order of seniority among officers. The Board of Directors, the Chairman of the
Board or the President may designate any officer or officers to substitute for
and assume the duties, powers and authority of any absent officer or officers in
any instances not provided for above.
Section 5.9 COMPENSATION
The officers of this corporation shall receive such
compensation as shall be fixed
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from time to time by the Board of Directors, except that the Board of Directors
may delegate to any officer or officers the power to fix the compensation of any
other officer or officers. No officer shall be prevented from receiving
compensation by reason of the fact that the officer is also a director of the
corporation.
Section 5.10 LOANS AND GUARANTEES
The corporation may lend money to, or guaranty any obligation
of, or otherwise assist any officer or other employee of the corporation of its
subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of a majority of the
disinterested directors (even though the disinterested directors may be less
than a quorum), such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured or secured in such manner as the majority
of disinterested directors (even if the disinterested directors are less than a
quorum) shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE VI
CORPORATE RECORDS AND AUTHORIZATIONS
------------------------------------
Section 6.1 RECORDS
6.1.1 The corporation shall keep, at its principal executive
office or at the office of its transfer agent or registrar, (a) adequate and
correct books and records of account, (b) minutes of the proceedings of the
stockholders, Board of Directors and committees of the Board of Directors, and
(c) a record of its shareholders giving the names and addresses of all
shareholders and the number and class of shares held by each.
6.1.2 Any records maintained by the corporation in the regular
course of its business, including its stock ledger, books of account and minute
books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
Section 6.2 CHECKS, DRAFTS, ETC.
All checks, drafts, or other orders for payment of money,
notes or other evidences of indebtedness, issued in the name of, or payable to,
the corporation, shall be signed or endorsed
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by such person or persons and in such manner as shall be determined from time to
time by resolution of the Board of Directors.
Section 6.3 EXECUTION OF CONTRACTS
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers or agent or agents to enter into
any contract or execute and instrument in the name of and on behalf of the
corporation. Such authority may be general, or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent or employee
shall have any power or authority to, bind the corporation by any contract or
engagement, or pledge its credit or render it liable for any purpose or in any
amount; provided, however, that nothing contained in this section shall be
construed to prevent any officer of the corporation from performing his regular
duties in the ordinary course of business pursuant to the authority granted to
said officer by Article V of these Bylaws.
Section 6.4 VOTING OF SHARES OF OTHER CORPORATION
All shares of any other corporation standing in the name of
this corporation shall be voted, and all rights incidental thereto exercised, as
directed by written consent or resolution of the Board of Directors expressly
referring thereto. Such rights may be delegated by the Board of Directors to the
President or any Vice President, or any other person expressly appointed by the
Board of Directors. Such authority may be exercised by the designated officers
in person, or by any other person authorized so to do proxy or power of attorney
duly executed by such officers.
Section 6.5 DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by law and, subject to the Restated
Certificate of Incorporation, subject to any contractual restrictions to which
the corporation is then subject. If a dividend is declared, the stock transfer
books shall not be closed, but a record date shall be set by the Board of
Directors on which hate the transfer agent or, where no transfer agent is
appointed, the Secretary will take a record of all stockholders entitled to the
dividend without actually closing the books for transfers of stock.
ARTICLE VII
STOCK CERTIFICATES AND TRANSFER OF SHARES
-----------------------------------------
Section 7.1 STOCK CERTIFICATES
7.1.1 Every holder of stock shall be entitled to have a
certificate signed by or in
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the name of the corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or a Vice President, and by the Chief
Financial Officer, Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the corporation, certifying the number of shares owned
by him in the corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be an officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
7.1.2 If the corporation is authorized to issue more than one
class of stock, or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class of stock; provided, however, that except as
otherwise provided in Section 202 of the GCL, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests, the powers, designations, preferences and relative,
participating, optional or other special rights or each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 7.2 TRANSFER ON THE BOOKS
Upon (a) the surrender to the Secretary or transfer agent of
the corporation of a certificate representing shares of stock in the
corporation, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer and (b) delivery to the corporation of
evidence sufficient to indicate that the transfer of such shares would not be in
violation of the Restated Certificate of Incorporation or Bylaws, any legend
appearing on said certificated or any applicable law, it shall be the duty of
the corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 7.3 STOLEN, LOST OR DESTROYED CERTIFICATES
The Board of Directors or any officer designated by the Board
of Directors may direct a new certificate or certificates to be issue in place
of any certificate or certificates theretofore issued by the corporation alleged
to have been stolen, lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate for shares so stolen, lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors or such officer, as a condition precedent to the issuance
thereof, may require the person claiming such stolen, lost or destroyed
certificate or certificates to give the corporation a bond or other adequate
security sufficient to indemnify it against claim that may be made against it,
including any expense or liability, on account of the alleged loss, theft or
destruction of any such
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certificate or the issuance of such new certificate.
Section 7.4 TRANSFER AGENTS AND REGISTRARS
The Board of Directors may appoint one or more transfer agents
or transfer clerks, and one or more registrars, who may be the same person, and
may be the Secretary of the corporation, or an incorporated bank or trust
company, either domestic or foreign, who shall be appointed at such times and
places as the requirements of the corporation may necessitate and the Board of
Directors may designate.
Section 7.5 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
In order that the corporation may determine the stockholders
entitled to notice of or vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty or less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record is fixed: (1) the record date for
determination stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action of the Board of Directors is required by law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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ARTICLE VIII
CORPORATE SEAL
--------------
The corporate seal shall have the inscribed thereon the name
of the corporation, the year of its organization, the state of incorporation and
the words "Corporate Seal".
ARTICLE IX
AMENDMENTS TO BYLAWS
--------------------
Section 9.1 BY STOCKHOLDERS
The stockholders of the corporation may make or adopt
additional Bylaws and may adopt, amend, alter, repeal or rescind any provision
of these Bylaws upon the affirmative cote of a majority of all outstanding
shares entitled to vote at a duly held meeting at which a quorum is present or
represented by proxy.
Section 9.2 BY DIRECTORS
Subject to the provision of Section 9.1, the Board of
Directors may alter, amend, repeal or rescind any provision of these Bylaws or
may adopt new Bylaws.
Section 9.3 RECORDS OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be
filed in the book of minutes with the original Bylaws. If any Bylaw is repealed,
the fact of repeal and the date on which the repeal was enacted shall be stated
in said book.
ARTICLE X
INTERPRETATION
--------------
Reference in these Bylaws to any provision of the GCL shall
be deemed to include all amendments thereof.
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ARTICLE XI
INDEMNIFICATION OF DIRECTORS OFFICERS,
--------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
Section 11.1 RIGHT TO INDEMNIFICATION. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans (an "indemnitee"), against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
indemnitee. The corporation shall be required to indemnify an indemnitee in
connection with a proceeding (or part thereof) commenced by such indemnitee only
if the commencement of such proceeding (or part thereof) by the indemnitee was
authorized by the Board of Directors of the corporation.
Section 11.2 PREPAYMENT OF EXPENSES. The corporation shall pay
the expenses (including attorneys' fees) incurred by an indemnitee in defending
any proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article XI or otherwise.
Section 11.3 CLAIMS. If a claim for indemnification or payment
of expenses under this Article XI is not paid in full within sixty days after a
written claim therefor by the indemnitee has been received by the corporation,
the indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the indemnitee was not entitled to the requested indemnification
or payment of expenses under applicable law.
Section 11.4 NONEXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Article XI shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, these Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 11.5 OTHER INDEMNIFICATION. The corporation's
obligation, if any, to
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indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or non-profit enterprise.
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Exhibit 10.81
RECEIPT
The undersigned hereby acknowledges receipt of the Quit Claim
Assignment of Rights to Common Stock, the Power of Attorney to Transfer Stock,
together with an Affidavit of Lost Stock Certificate with respect to Certificate
No. FTB5025 of Crown NorthCorp, Inc., a Quit Claim Assignment relating to
Strategic Realty Capital Corp., and the following certificates for shares of
Crown NorthCorp, Inc., with executed blank Powers of Attorney To Transfer Stock,
attached:
<TABLE>
<CAPTION>
CERTIFICATE NO. CLASS SHARES
- --------------- ----- ------
<S> <C> <C>
AA-1 Series AA Convertible Preferred 1
NC3223 Common 1,000,000
FTB5013 Common 140,255
FTB5014 Common 10,681
</TABLE>
CROWN NORTHCORP, INC.
By: /s/ H. E. Cooke
----------------------
Its: President & COO
----------------------
Date: December 22, 1999
<PAGE> 1
Exhibit 10.82
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered
into as of this _22___ day of December, 1999 by and between ContiWest
Corporation, a Nevada corporation ("ContiWest") and Crown NorthCorp, Inc., a
Delaware corporation ("Crown").
BACKGROUND INFORMATION
----------------------
A. ContiWest holds certain securities of Crown, warrants to acquire
additional securities of Crown and certain other interests as further defined
and described herein.
B. ContiWest and Crown want for Crown to acquire these securities,
warrants and other interests on the terms and conditions set forth in this
Agreement.
THEREFORE, the parties agree as follows:
STATEMENT OF AGREEMENT
----------------------
1. SECURITIES; WARRANTS; SRCC RIGHTS. ContiWest owns and holds one
share of the Series BB Convertible Preferred Stock of Crown (the "Series BB
Preferred") and 44,908 shares of the common stock of Crown (the "Common
Stock")(the Series BB Preferred and the Common Stock are sometimes collectively
referred to as the "Securities"). ContiWest also owns and holds Warrant No.
W-011 issued by Crown to purchase up to 200,000 shares of the common stock of
Crown (the "Warrant"). Finally, ContiWest, or one or more of its affiliates,
holds certain legal or beneficial rights, title or interests in and to Strategic
Realty Capital Corp., a Maryland corporation (the "SRCC Rights").
2. PURCHASE AND SALE. Concurrently with the execution and delivery of
this Agreement, ContiWest shall sell, transfer and assign to Crown the
Securities, the Warrant and the SRCC Rights and Crown shall purchase and accept
Securities, the Warrant and the SRCC Rights from ContiWest in exchange for the
consideration itemized on Schedule 2 (the "Consideration").
3. DELIVERIES WITH THIS AGREEMENT. Concurrently with the execution and
delivery of this Agreement, the parties shall make the following deliveries:
(a) CONTIWEST TO CROWN.
(1) With respect to the Series BB Preferred, stock powers endorsed in
blank in the form appearing on Schedule 3.1.
<PAGE> 2
(2) With respect to the Common Stock and the Warrant, a quit claim
assignment in the form appearing on Schedule 3.2.
(3) With respect to the SRCC Rights, a quit claim assignment in the
form appearing on Schedule 3.3.
(b) CROWN TO CONTIWEST. The Consideration.
4. FULL AND FINAL SETTLEMENT; RELEASE. The parties hereto understand
and agree that this Agreement represents a full and final settlement between the
parties with respect to the Securities, the Warrant and the SRCC Rights and
therefore, in consideration of this Agreement, ContiWest and Crown, for and on
behalf of themselves and their respective affiliates, each hereby releases and
forever discharges the other (and their respective affiliates, officers,
directors, employees, agents and representatives) of and from any and all claims
either now has or hereafter could claim against the other with respect to the
Securities, the Warrant and the SRCC Rights, including without limitation any
costs or liabilities owing to third parties by SRCC; provided that nothing
contained herein shall affect the rights of (a) any party to the Master Mortgage
Loan Purchase and Servicing Agreement dated July 1, 1997 between Crown and
ContiTrade Services, L.L.C. or (b) Scott Mannes with respect to his service as a
director of Crown and any indemnification obligations that may arise and be
owing to him from Crown.
IN WITNESS WHEREOF, the parties have hereto set their hands as of the
date first written above.
CONTIWEST CORPORATION
By: /s/ Joy B. Tolbert
---------------------------------
Name: Joy B. Tolbert
Title: Vice President
By: /s/ Todd Hart
---------------------------------
Name: Todd Hart
Title: Asst. Vice President
CROWN NORTHCORP, INC.
By: /s/ Stephen W. Brown
---------------------------------
Name: Stephen W. Brown
Title: Secretary
2
<PAGE> 3
SCHEDULE 2
$800,000 cash
3
<PAGE> 4
SCHEDULE 3.1
POWER OF ATTORNEY TO TRANSFER STOCK
For value received, the undersigned hereby sells, assigns and transfers
to ____ _____________________________________ one (1) share of Series BB
Convertible Preferred Stock of Crown NorthCorp, Inc. represented by Certificate
No. BB-1, and hereby irrevocably constitutes and appoints ____________________
as Attorney to transfer the said shares on the books of Crown NorthCorp, Inc.
with full power of substitution.
Dated: December , 1999
-
CONTIWEST CORPORATION
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
4
<PAGE> 5
SCHEDULE 3.2
QUIT CLAIM ASSIGNMENT
---------------------
FOR VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, ContiWest Corporation, a Nevada corporation ("ContiWest") hereby
assign to Crown NorthCorp, Inc., a Delaware corporation ("Crown"), without
recourse (i) any and all right to receive shares 44,908 shares of the common
stock of Crown presently issued to ContiWest in book-entry form and (ii) all of
ContiWest's right title and interest in and to Warrant No. W-011 issued by Crown
to purchase up to 200,000 shares of the common stock of Crown.
Dated: December , 1999
-
CONTIWEST CORPORATION
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
3
<PAGE> 6
SCHEDULE 3.3
QUIT CLAIM ASSIGNMENT
---------------------
FOR VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, ContiFinancial Corporation, for and on behalf of itself and its
affiliates, including but not limited to ContiWest Corporation and ContiTrade
Services, L.L.C. (collectively "Conti") hereby assigns to Crown NorthCorp, Inc.,
a Delaware corporation, without recourse, all of Conti's right, title and
interest, whether legal or beneficial, in and to Strategic Realty Capital Corp.,
a Maryland corporation.
Dated: December , 1999
-
CONTIFINANCIAL CORPORATION
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
6
<PAGE> 1
Exhibit 21.4
SUBSIDIARIES OF CROWN NORTHCORP, INC.
------------------------------------
Crown Revenue Services, Inc., an Ohio corporation, is 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 company, with 99% of the membership
interests owned by CNC Holding Corp., and 1% owned by Crown Revenue Services,
Inc.
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>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CROWN
NORTHCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS
OF DECEMBER 31, 1999 AND THE YEAR ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,210,451
<SECURITIES> 0
<RECEIVABLES> 591,036
<ALLOWANCES> 135,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,790,476
<PP&E> 1,323,742
<DEPRECIATION> 1,054,948
<TOTAL-ASSETS> 4,694,474
<CURRENT-LIABILITIES> 894,917
<BONDS> 1,680,000
500,000
0
<COMMON> 112,609
<OTHER-SE> 890,911
<TOTAL-LIABILITY-AND-EQUITY> 4,694,474
<SALES> 0
<TOTAL-REVENUES> 5,455,216
<CGS> 0
<TOTAL-COSTS> 8,191,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 68,070
<INTEREST-EXPENSE> 213,985
<INCOME-PRETAX> (3,075,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,075,333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,075,333)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
