<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-23911
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 91-1851535
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1776 SW MADISON STREET, PORTLAND, OR 97205
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(503) 223-5600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 1, 1998
Common Stock, par value $.0001 per 11,500,000 Shares
share
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<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
FORM 10-Q
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1.Interim Financial Statements (Unaudited)........................... 3
Consolidated Statement of Financial Condition at June 30, 1998......... 3
Consolidated Statement of Operations for the three months ended June
30, 1998.............................................................. 4
Consolidated Statement of Changes in Stockholders' Equity for the three
months ended
June 30, 1998......................................................... 5
Consolidated Statement of Cash Flows for the three months ended June
30, 1998.............................................................. 6
Notes to Consolidated Financial Statements............................. 7
Item 2.Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations...................................................... 13
Item 3.Quantitative and Qualitative Disclosures about Market Risk......... 17
PART II--OTHER INFORMATION
Item 1.Legal Proceedings.................................................. 18
Item 2.Changes in Securities.............................................. 18
Item 3.Defaults Upon Senior Securities.................................... 18
Item 4.Submission of Matters to a Vote of Security Holders................ 18
Item 5.Other Information.................................................. 18
Item 6.Exhibits and Reports on Form 8-K................................... 18
Signature................................................................. 19
</TABLE>
2
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
(DOLLARS
IN
THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents........................................... $ 56,188
Securities available for sale, at fair value........................ 249,454
Loans, net.......................................................... 36,319
Discount loans, net................................................. 15,437
Investment in real estate, net...................................... 76,419
Due from affiliate, net............................................. 3,038
Accrued interest receivable......................................... 2,890
Other assets........................................................ 2,163
--------
$441,908
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings............................................. $230,637
Other borrowings.................................................. 45,222
Accounts payable and accrued liabilities.......................... 2,802
Dividends payable................................................. 3,105
--------
Total liabilities............................................... 281,766
--------
Commitments and Contingencies (See Note 11)
Stockholders' Equity:
Preferred stock, $.0001 par value; 25,000,000 shares authorized;
no shares issued and outstanding................................. --
Common stock, $.0001 par value; 200,000,000 shares authorized;
11,500,000 shares issued and outstanding......................... 1
Additional paid-in capital........................................ 166,980
Distributions in excess of earnings............................... (63)
Accumulated other comprehensive income............................ (6,776)
--------
Total stockholders' equity...................................... 160,142
--------
$441,908
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
3
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
NET INTEREST INCOME:
Loans and discounted loans............................. $ 1,324
Securities............................................. 3,606
Other investments...................................... 160
----------
Total interest income................................ 5,090
Interest expense....................................... 1,501
----------
Net interest income.................................. 3,589
----------
INCOME FROM REAL ESTATE INVESTMENTS, NET:
Operating income:
Rental income........................................ 949
Other................................................ 119
----------
1,068
----------
Operating expense:
Interest expense..................................... 348
Rental operations.................................... 182
Depreciation......................................... 175
----------
705
----------
Income from real estate investments, net........... 363
----------
OPERATING EXPENSES:
Management fees paid to affiliate...................... 602
Servicing fees paid to affiliate....................... 48
Loan expenses paid to affiliate........................ 85
Other.................................................. 175
----------
910
----------
NET INCOME............................................... $ 3,042
==========
EARNINGS PER SHARE:
Basic.................................................. $ 0.27
Diluted................................................ $ 0.27
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.................................................. 11,252,941
Diluted................................................ 11,253,452
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
4
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------------
COMMON STOCK ADDITIONAL DISTRIBUTIONS ACCUMULATED OTHER
----------------- PAID-IN- IN EXCESS COMPREHENSIVE
SHARES AMOUNT CAPITAL OF EARNINGS INCOME TOTAL
---------- ------ ---------- ------------- ----------------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE at April 1,
1998................... -- $ -- $ 2 $ -- $ -- $ 2
Issuance of common
stock.................. 11,500,000 1 166,978 -- -- 166,979
Net income.............. -- -- -- 3,042 -- 3,042
Change in unrealized
loss on securities
available for sale..... -- -- -- -- (6,776) (6,776)
--------
Total comprehensive
income................. -- -- -- -- -- (3,734)
Dividends............... -- -- -- (3,105) -- (3,105)
---------- ----- -------- ------- ------- --------
BALANCE at June 30,
1998................... 11,500,000 $ 1 $166,980 $ (63) $(6,776) $160,142
========== ===== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statement.
5
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 3,042
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation........................................ 175
Amortization of premiums and discounts, net......... (284)
Change in:
Due from affiliate, net.............................. (3,038)
Accrued interest receivable.......................... (2,890)
Other assets......................................... (2,163)
Accounts payable and accrued liabilities............. 2,802
--------
Net cash used in operating activities............... (2,356)
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale............. (256,285)
Purchase of loans..................................... (37,946)
Purchase of discount loans............................ (17,878)
Principal payments received on loans.................. 4,131
Investment in real estate............................. (76,346)
Other................................................. 28
--------
Net cash used in investing activities............... (384,296)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.............................. 280,846
Repayments on borrowings.............................. (4,987)
Proceeds from issuance of common stock, net of offer-
ing costs............................................ 166,979
--------
Net cash provided by financing activities........... 442,838
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 56,186
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 2
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 56,188
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
Cash paid for interest................................ $ 1,319
NONCASH FINANCING ACTIVITIES--
Common stock dividends declared but not paid.......... $ 3,105
Additions to investment in real estate acquired in
settlement of loans.................................. 276
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
6
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--BASIS OF PRESENTATION
The accompanying interim consolidated financial statements are unaudited and
have been prepared in conformity with the requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), particularly Rule 10-01 thereof, which governs the
presentation of interim financial statements. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements.
The accompanying consolidated financial statements include the accounts of
Wilshire Real Estate Investment Trust Inc. and its four wholly-owned
subsidiaries, including Wilshire Real Estate Partnership L.P., ("WREP"),
Wilshire Real Estate Partnership 1998-1 LLC, Wilshire Real Estate Partnership
1998-1 Member Inc., and Wilshire Real Estate Partnership Island Limited Ltd.
("WREIT" or the "Company"). Intercompany accounts have been eliminated in
consolidation.
In the opinion of management, all adjustments generally comprised of normal
recurring accruals necessary for the fair presentation of the interim
financial statements have been included. Operating results for the three
months ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
NOTE 2--ORGANIZATION AND RELATIONSHIPS
WREIT was incorporated in the State of Maryland on October 24, 1997. The
Company was initially formed with a capital investment of $2.0; prior to April
1998, the Company had substantially no operating activity. In April 1998, the
Company was capitalized with the sale of 11,500,000 shares of common stock,
par value $.0001 per share, at a price of $16.00 per share (the "Offering").
Total net proceeds of the Offering after underwriting and offering expenses
were $166,979.
The Company has entered into a management agreement with Wilshire Real
Estate Service Corporation ("WRSC"), a wholly owned subsidiary of Wilshire
Financial Services Group Inc. ("WFSG"), under which WRSC advises the Company
on various facets of its business and manages its day-to-day operations,
subject to the supervision of the Company's Board of Directors. WFSG currently
owns 990,000 shares, or 8.6%, of the Company's outstanding common stock and
has options to purchase an additional 1,135,000 shares (25% of which vest each
year over the next four years) at an exercise price of $16.00 per share. For
its services, WRSC receives a base management fee of 1% per annum of the first
$1.0 billion of average invested assets, as defined in the related agreement,
0.75% of the next $500 million of average invested assets and 0.50% of average
invested assets above to $1.5 billion, payable quarterly. In addition, WRSC
receives incentive compensation in an amount equal the dollar amount by which
funds from operations ("FFO"), as adjusted, exceeds the general ten-year
Treasury rate plus 5% per annum. Finally, WRSC is entitled to receive
reimbursements of all due diligence costs and reasonable out-of-pocket
expenses.
7
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting financial condition and cash flows, cash and cash
equivalents include cash and amounts due from banks, federal funds sold and
securities with original maturities less than 90 days.
SECURITIES AVAILABLE FOR SALE
Certain mortgage-backed securities and other securities are designated as
assets available for sale. Securities available for sale are carried at fair
value with the net unrealized gains or losses reported within accumulated
other comprehensive income. Unrealized losses on securities that reflect a
decline in value that is other than temporary, if any, are charged to
earnings. At disposition, the realized net gain or loss is included in
earnings on a specific identification basis. The amortization of premiums and
accretion of discounts are computed using the interest method after
considering actual and estimated prepayment rates, if applicable. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between prepayments originally anticipated
and amounts actually received plus anticipated for future prepayments.
LOANS, DISCOUNTED LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company acquires performing, sub-performing and non-performing loan
portfolios, for prices generally at or below face value (i.e., unpaid
principal balances plus accrued interest). Nonperforming loans are generally
acquired at deep discounts to face value and are classified as discounted
loans in the consolidated statement of financial condition. Loans other than
discounted loans are classified as loans.
Discounted loans are presented in the consolidated statement of financial
condition net of unamortized discounts and allowance for loan losses
established for those loans. For each pool of loans acquired by the Company,
purchased discounts are allocated into (a) valuation allowances for estimated
losses against face value on specific loans ("specific valuation allowances")
and (b) portions of the discounts available for accretion to interest income.
If total cash received on a pool of loans exceeds original estimates, excess
specific valuation allowances are recorded as additional discount accretion on
the cost-recovery method. The allocated specific valuation allowances are
included in the allowance for loan losses. Where appropriate, discounts are
accreted into interest income on a cash basis.
Loans, other than discounted loans, are presented in the consolidated
statement of financial condition in substantially the same manner as
discounted loans. Interest income is recognized on an accrual basis. Deferred
fees and costs are recognized in interest income over the life of the loan
using a method that approximates the interest method.
The Company evaluates loans (whether classified as loans or discounted
loans) for impairment. Commercial and multi-family real estate loans are
considered to be impaired, for financial reporting purposes, when it is
probable that the Company will be unable to collect all principal or interest
due, according to the contractual terms of the loan agreement. Specific
valuation allowances are established, either at acquisition or through
provisions for losses, as described above, for impaired loans based on the
adequacy of discounted expected future cash flows or the fair value of the
underlying real estate collateral for collateral dependent loans.
8
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All specific valuation allowances established for pools of loans and
discounted loans are recorded in the allowance for loan losses. The allowance
for each pool is decreased by the amount of loans charged off and is increased
by the provision for estimated losses on loans and recoveries of previously
charged-off loans. The allowance for each pool is maintained at a level
believed adequate by management to absorb probable losses. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio, previous loan loss experience, current economic conditions,
volume, growth and composition of the portfolio and other relevant factors.
Actual losses may differ from management's estimates.
It is the Company's policy to establish an allowance for uncollectible
interest on performing loans that are past due more than 90 days or sooner
when, in the judgment of management, the probability of collection of interest
is deemed to be insufficient to warrant further accrual. Upon such a
determination, those loans are placed on non-accrual status and deemed to be
non-performing. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is reversed by a charge to interest income.
INVESTMENT IN REAL ESTATE
Real estate purchased directly or acquired in settlement of loans is
originally recorded at the lower of fair value less estimated costs to sell,
or purchase price. Any excess of net loan cost basis over the fair value less
estimated selling costs of real estate acquired through foreclosure is charged
to the allowance for loan losses. Any subsequent operating expenses or income,
reductions in estimated fair values, as well as gains or losses on disposition
of such properties, are recorded in current operations.
INCOME TAXES
The Company qualifies as a Real Estate Investment Trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A
REIT will generally not be subject to federal income taxation on that portion
of its income that qualifies as REIT taxable income to the extent that it
distributes at least 95 percent of its taxable income to its shareholders and
complies with certain other requirements. Accordingly, no provision has been
made for federal income taxes for the Company and its subsidiaries in the
accompanying consolidated financial statements.
EARNINGS PER SHARE
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS").
SFAS No. 128 replaces primary EPS with basic EPS, and fully diluted EPS with
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed in a similar manner
as fully diluted EPS, and reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
NOTE 4--RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB recently issued SFAS No. 129, "Disclosure of Information about
Capital Structure" and SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 129 applies to all entities that
issue any securities other than ordinary common stock and continues the
existing requirement of disclosure of the pertinent rights and privileges of
all securities. SFAS No. 131 establishes standards for the way that public
entities report information about operating segments in annual financial
statements and requires the reporting of selected information about operating
segments in interim financial reports issued to shareholders.
9
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SFAS Nos. 129 and 131 are effective for fiscal years beginning after December
15, 1997 and were adopted by the Company. The adoption of SFAS Nos. 129 or 131
did not have a material impact on the financial position or results of
operations of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
consolidated statement of financial condition as either an asset or liability
measured at its fair value. The Statement requires that changes in the fair
value of a derivative be recognized currently in earnings unless specific
hedge accounting criteria are met. Such special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the consolidated statement of operations, and requires that a
company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company's management does not
anticipate that the adoption of SFAS No. 133 will have a material impact on
the financial position or results of operations of the Company.
NOTE 5--SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses, and fair market
values on securities available for sale as of June 30, 1998 are shown below.
Fair market value estimates were determined by management using available
market prices.
<TABLE>
<S> <C>
Gross amortized cost............................................... $256,230
Gross unrealized gains............................................. 731
Gross unrealized losses............................................ (7,507)
--------
Fair market value.................................................. $249,454
========
</TABLE>
Included in securities available for sale are mortgage backed securities and
$20 million of 13% WFSG Series B Notes due in 2004.
The Company expects to receive payments on securities over periods that are
considerably shorter than the contractual maturities of the securities, which
range from 6 to 30 years.
NOTE 6--LOANS AND DISCOUNTED LOANS
The Company's loans are comprised of loans and discounted loans. Following
is a summary of each loan category by type:
<TABLE>
<CAPTION>
DISCOUNTED
LOANS LOANS
------- ----------
<S> <C> <C>
Real estate loans:
One to four units....................................... $ 409 $ 1,222
Over four units......................................... 21,763 4,421
Commercial.............................................. 31,387 18,514
Land.................................................... 197 3,545
------- -------
Total loans secured by real estate.................... 53,756 27,702
------- -------
Less:
Allowance for loan losses............................... 1 7,214
Discount on purchased loans and deferred fees........... 17,436 5,051
------- -------
$36,319 $15,437
======= =======
</TABLE>
10
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of June 30, 1998, the unpaid principal balance of loans with adjustable
rates of interest were $52,004 and loans with fixed rates of interest were
$29,454. Adjustable-rate loans are generally indexed to U.S. Treasury Bills,
the Federal Home Loan Bank's Eleventh District Cost of Funds Index, London
Interbank Offer Rate or the Prime Lending Rate and are subject to limitations
on the timing and extent of adjustment. Rates on the majority of loans adjust
within six months of changes in the index.
At June 30, 1998, loans with an unpaid principal balance of approximately
$59,189 were pledged to secure credit line borrowings included in short-term
borrowings (see Note 7).
NOTE 7--SHORT-TERM BORROWINGS
Short-term borrowings at June 30, 1998 include repurchase agreements and
line of credit borrowings. Proceeds from the various credit facilities are
used primarily for the acquisition of mortgage-backed securities and loan
pools. Following is information about short-term borrowings:
<TABLE>
<CAPTION>
REPURCHASE LINE OF
AGREEMENTS CREDIT
---------- -------
<S> <C> <C>
Average balance during the period........................ $ 84,378 $ 7,595
Highest amount outstanding during the period............. $198,086 $32,551
Average interest rate--during the period................. 6.971% 6.656%
Average interest rate--end of period..................... 6.899% 6.656%
Carrying value of pledged assets......................... $227,710 $44,628
</TABLE>
As of June 30, 1998, the Company had committed lines of credit, including
repurchase agreements totaling $230.6 million and uncommitted lines of credit
totaling $500 million.
NOTE 8--OTHER BORROWINGS
At June 30, 1998, the Company had $45.2 million of other borrowings, which
were used to finance the acquisition of real estate investments. The loans had
a weighted average interest rate of 8.00%. At June 30, 1998, certain
investments in real estate with a carrying amount of $63.6 million were
pledged as collateral against these loans. Maturities of these borrowings
range from 1998 to 2023.
NOTE 9--INVESTMENT IN REAL ESTATE
At June 30, 1998, the Company's investment in real estate was comprised of the
following:
<TABLE>
<S> <C>
Office Buildings:
Land.............................................................. $18,828
Building and improvements......................................... 54,482
Less: Accumulated depreciation.................................... (175)
-------
73,135
Other real estate owned, net........................................ 3,284
-------
$76,419
=======
</TABLE>
11
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment in real estate is recorded at cost less accumulated depreciation
(which in the opinion of management is less than the net realizable value of
the property). The Company reviews its investment in real estate for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Depreciation is computed on a
straight-line basis over the estimated useful life of the asset as follows:
<TABLE>
<S> <C>
Buildings and improvements........................... 35 years
Tenant improvements.................................. lesser of lease term or
useful life
Furniture, fixtures and equipment.................... 7 years
</TABLE>
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant renovations are capitalized and amortized over their
expected useful lives. Fees and costs incurred in the successful negotiation
of leases are deferred and amortized on a straight-line basis over the terms
of the respective leases. Rental income is reported on the straight-line basis
over the terms of the respective leases.
NOTE 10--COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires companies to report all changes in equity during a period,
except those relating to investment by owners and distributions to owners, in
the financial statement for the period in which such charges are recognized.
Comprehensive income for the three months ended June 30, 1998, encompasses net
income and unrealized losses on available for sale securities, as presented
below:
<TABLE>
<S> <C>
Net income.......................................................... $ 3,042
Other comprehensive loss:
Unrealized losses on available for sale securities, net........... (6,776)
-------
Total comprehensive loss............................................ $(3,734)
=======
</TABLE>
NOTE 11--COMMITMENTS & CONTINGENCIES
At June 30, 1998, outstanding commitments totaled $278.8 million and was
comprised of $160.0 million related to the acquisition of European loan pools,
$80 million related to the acquisition of U.S. commercial loans, $10.2 million
related to commercial real estate, and $28.6 million of subordinate interests
in commercial mortgage-backed securities.
Each commitment is subject to various closing conditions including, but not
limited to, completion of satisfactory due diligence efforts, the negotiation
of definitive purchase and sales agreements and/or conditions the borrowers or
sellers must satisfy prior to the Company's funding the transactions.
12
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Wilshire Real Estate Investment Trust Inc. and Subsidiaries (the "Company")
is a Maryland corporation that was formed in October 1997 and has elected to
be taxed as a real estate investment trust ("REIT"). In April 1998, the
Company consummated its initial public offering (the "Offering") of 11,500,000
shares of common stock, with net proceeds to the Company of approximately
$167.0 million. The Company has increased its asset base to $441.9 million at
June 30, 1998, including, $227.7 million of mortgage-related securities, $76.4
million of real estate, $51.8 million of domestic and international commercial
loans, and $21.8 million in other securities.
The following discussion of the Company's results of operations, changes in
financial condition, and capital resources and liquidity should be read in
conjunction with the Interim Consolidated Financial Statements and related
Notes included in Item 1 hereof.
FUNDS FROM OPERATIONS
Most industry analysts, including the Company, consider funds from
operations ("FFO") an appropriate supplementary measure of operating
performance of a REIT. In general, FFO adjusts net income for non-cash charges
such as depreciation, and certain amortization expenses and most non-recurring
gains and losses. However, FFO does not represent cash provided by operating
activities in accordance with generally accepted accounting principles
("GAAP") and should not be considered an alternative to net income as an
indication of the results of the Company's performance or to cash flows as a
measure of liquidity.
In 1995, the National Association of Real Estate Investment Trusts
("NAREIT") established new guidelines clarifying its definition of FFO and
requested that REITs adopt this new definition beginning in 1996. The Company
computes FFO in accordance with the definition recommended by NAREIT. For the
three months ended June 30, 1998, the Company's FFO was $3.2 million or $0.29
per diluted weighted average common share. The following table provides the
calculation of the Company's FFO:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
Net income............................................ $3,042
Real estate related depreciation...................... 175
------
FFO................................................. $3,217
======
FFO per common share................................ $ .29
</TABLE>
RESULTS OF OPERATIONS
The Company consummated the Offering and commenced operations on April 6,
1998. The Company's net income for the three months ended June 30, 1998
amounted to $3.0 million, or $0.27 per diluted share, which is attributable
primarily to interest income from mortgage-backed securities, loans and
discounted loans. In addition, the Company is engaged in a variety of real
estate investment activities.
13
<PAGE>
Interest Income. The following tables set forth information regarding the
total amount of income from interest-earning assets and the resultant average
yields. Information is based on daily average balances during the reported
period.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, 1998
----------------------------
AVERAGE INTEREST ANNUALIZED
BALANCE INCOME YIELD
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan portfolios................................. $ 45,038 $1,324 12.5%
Mortgage-backed securities
available for sale............................. 132,004 3,149 10.1
Other securities available
for sale....................................... 17,248 457 11.2
Other investments............................... 14,207 160 4.8
-------- ------ ----
Total......................................... $208,497 $5,090 10.4%
======== ====== ====
</TABLE>
Interest Expense. The following table sets forth information regarding the
total amount of interest expense associated with interest-bearing liabilities
and the resultant average rates. Information is based on daily average
balances during the reported period.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, 1998
----------------------------
AVERAGE INTEREST ANNUALIZED
BALANCE EXPENSE YIELD
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings........................... $ 91,973 $1,501 6.9%
Other borrowings................................ 17,483 348 8.4
-------- ------ ---
Total......................................... $109,456 $1,849 7.2%
======== ====== ===
</TABLE>
Real Estate Operations. Such income represents income generated from the
Company's investment in various office buildings, retail stores, and other
commercial property located in Oregon and California. During the three months
ended June 30, 1998, operating income was comprised primarily of $1.1 million
in gross rental and other income earned on such investments. Additionally,
expenses incurred on real estate investments include $0.3 million of interest
expense, $0.2 million of rental operations and $0.2 million of depreciation
expense.
Operating Expenses. Management fees of $0.6 million for the three months
ended June 30, 1998, respectively, were comprised solely of the 1% (per annum)
base management fee paid to Wilshire Real Estate Service Corporation ("WRSC"),
a wholly owned subsidiary of Wilshire Financial Services Group Inc. ("WFSG")
for the period (as provided pursuant to the management agreement between WRSC
and the Company). WRSC earned no incentive fee for this period. In addition to
the management fee, the Company incurred loan service fees and expenses of
$0.1 million during the three months ended June 30, 1998, which were paid by
WRSC on behalf of the Company and for which WRSC was subsequently reimbursed
by the Company. Other expenses were comprised of professional services,
insurance premiums and other sundry expenses.
CHANGES IN FINANCIAL CONDITION
From April 1, 1998 to June 30,1998, total assets increased to $441.9
million. This increase was primarily comprised of $56.2 million of cash and
cash equivalents, $249.5 million of securities available for sale, $76.4
million of investments in real estate and $51.8 million of loans and discount
loans. Total liabilities increased to $281.8 million during the period,
primarily as a result of $230.6 million of short-term borrowings associated
with mortgage-backed securities, $45.2 million of other borrowings on
investment in real estate, $3.1 million of declared but unpaid dividends, $0.6
million unpaid management fees due WRSC and $0.1 million of unpaid loan
servicing fees and expenses incurred in connection with the servicing of the
loan portfolios of the Company.
14
<PAGE>
Securities Available for Sale. At June 30, 1998, securities available for
sale include mortgage-backed securities with an aggregate market value of
$227.7 million, net of unrealized losses and $20.0 million of WFSG's 13%
Series B Notes.
During the three months ended June 30, 1998, the Company purchased 117
subordinated residential mortgage-backed securities from 18 different issuers
for an aggregate purchase price of approximately $234.5 million. The weighted
average rating of these securities is BB.
The balance of mortgage-backed securities available for sale of $227.7
million at June 30, 1998 was the result of $95.0 million of initial purchases,
$139.5 million of additional purchases, offset in part, by $6.8 of net
unrealized losses.
Loan Portfolio. During the three months ended June 30, 1998, the Company
acquired U.S. and international commercial real estate loans with an unpaid
principal balance of $53.8 million. At June 30, 1998 all loans were current
and are serviced by an affiliate of WFSG.
Discount Loan Portfolio. During the quarter ended June 30, 1998, the Company
acquired U.S. and international commercial real estate loans with an unpaid
principal balance of $27.7 million. The balance of discount loans is $15.4
million at June 30, 1998, and are also serviced by an affiliate of WFSG.
The following table sets forth certain information relating to the payment
status of loans in the Company's discount loan portfolio at June 30, 1998:
<TABLE>
<CAPTION>
UNPAID PRINCIPAL
BALANCE
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Past due less than 31 days......................... $12,992
Past due 31 to 89 days............................. 898
Past due 90 days or greater........................ 13,813
-------
$27,703
=======
</TABLE>
Allowances for Loan Losses. The Company maintains an allowance for loan
losses at a level that management considers adequate to provide for potential
losses based upon an evaluation of known and inherent risks. At June 30, 1998,
no provisions for loan losses had been provided.
Investment in Real Estate. During the three months ended June 30, 1998, the
Company acquired approximately $73.3 million of properties located in
California, Oregon and the United Kingdom.
For additional information regarding investments in real estate see Note 3
to the Interim Consolidated Financial Statements included in Item 1 hereof.
Short-Term Borrowings. Short-term borrowings increased by approximately
$230.6 million during the three months ended June 30, 1998, resulting
primarily from the use of repurchase agreements to fund the purchase of
securities. Interest rates on borrowings under these facilities are based on
overnight to 30-day London Interbank Offer Rate ("LIBOR") rates.
Other Borrowings. At June 30, 1998, the Company had $45.2 million of other
borrowings, which financed the acquisition of real estate investments. The
loans had a weighted average interest rate of 8.4%. At June 30,
15
<PAGE>
1998, certain investments in real estate with a carrying amount of $63.6
million were pledged as collateral against these loans.
Stockholders' Equity. Stockholders' equity increased to $160.1 million from
April 1, 1998 to June 30, 1998. The increase in stockholders' equity during
this period was attributable to net proceeds of $167.0 million from the
Offering, net income of $3.0 million, unrealized losses on securities
available for sale of $6.8 million and $3.1 million of dividends on common
stock. See the Consolidated Statement of Changes in Stockholders' Equity in
the Interim Consolidated Financial Statements included in Item 1 hereof.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, fund
investments, loan acquisition and lending activities and for other general
business purposes. The primary sources of funds for cash flow consist of
repurchase facilities and other secured borrowings and maturities and
principal payments on loans and securities and proceeds from sales thereof.
The Company's operating activities used cash flows of $2.4 million during
the three months ended June 30, 1998. During this period, cash resources from
operating activities were provided primarily by net income, offset by
activities in due from affiliates, accrued interest receivable, other assets,
and accounts payable and accrued liabilities.
The Company's investing activities used cash flows totaling $384.3 million
during the three months ended June 30, 1998. During this period, cash flows
from investing activities were used primarily to purchase the Company's
interest-earning and other operating assets consisting of securities available
for sale, loans and investments in real estate.
The Company's financing activities provided $442.8 million during the three
months ended June 30, 1998 and consisted of $167.0 million net proceeds from
the Offering and $275.9 of net short-term and other borrowings.
As discussed above, the Company has outstanding commitments of $278.8
million, subject to various closing conditions, and is currently engaged in
due diligence with respect to a variety of investments.
Given the Company's rapid rate of current growth and assuming that the
Company continues to experience such growth, management believes that
additional debt and/or equity financing may be required to sustain this level
of growth once all proceeds have been invested from the Offering. There can be
no assurance that any such additional debt or equity financing will be
available to the Company on financially attractive terms in the future.
OTHER
Many existing computer software programs use two digits to identify the year
in date fields and, as such, could fail or create erroneous results by or at
the Year 2000. The Company and its loan servicer utilize a number of software
systems to service mortgage loans and manage mortgage assets. The Company has
made and will continue to make investments in its software systems and
applications to ensure the Company is Year 2000 compliant. In addition, the
Company has taken steps to ensure that its servicer, the vendors it utilizes
in various capacities and the institutions with which it interfaces are also
taking the necessary steps to become Year 2000 compliant. This process is
expected to be essentially complete by mid-1999. The financial impact of
becoming Year 2000 compliant has not been and is not expected to be material
to the Company or its results of operations.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED HEREIN AND CERTAIN STATEMENTS CONTAINED IN
FUTURE FILINGS BY THE COMPANY WITH THE SEC, ARE NOT IN THE COMPANY'S PRESS
16
<PAGE>
RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR SHAREHOLDER COMMUNICATIONS MAY
NOT BE, BASED ON HISTORICAL FACTS AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FORWARD-
LOOKING STATEMENTS WHICH ARE BASED ON VARIOUS ASSUMPTIONS (SOME OF WHICH ARE
BEYOND THE COMPANY'S CONTROL) MAY BE IDENTIFIED BY REFERENCE TO A FUTURE
PERIOD OR PERIODS, OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "WILL," "BELIEVE," "EXPECT," "ANTICIPATE," "CONTINUE," OR SIMILAR TERMS
OR VARIATIONS ON THOSE TERMS, OR THE NEGATIVE OF THOSE TERMS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN FORWARD-LOOKING STATEMENTS DUE
TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE RELATED TO THE
ECONOMIC ENVIRONMENT, PARTICULARLY IN THE MARKET AREAS IN WHICH THE COMPANY
OPERATES, COMPETITIVE PRODUCTS AND PRICING, FISCAL AND MONETARY POLICIES OF
THE U.S. GOVERNMENT, CHANGES IN PREVAILING INTEREST RATES, ACQUISITIONS AND
THE INTEGRATION OF ACQUIRED BUSINESSES, CREDIT RISK MANAGEMENT,
ASSET/LIABILITY MANAGEMENT, THE FINANCIAL AND SECURITIES MARKETS AND THE
AVAILABILITY OF AND COSTS ASSOCIATED WITH SOURCES OF LIQUIDITY. THE COMPANY
DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
It is the objective of the Company to attempt to control risks associated
with interest rate movements. In general, management's strategy is to limit
the Company's exposure to earnings variations and variations in the value of
assets and liabilities as interest rates change over time. The Company's asset
and liability management strategy is formulated and monitored by WRSC
regularly to review, among other things, the sensitivity of the Company's
assets and liabilities to interest rate changes, the book and market values of
assets and liabilities, unrealized gains and losses, including those
attributable to hedging transactions, purchase and securitization activity,
and maturities of investments and borrowings.
The Company has utilized interest only securities ("IOs") to offset maturity
extension risk in the Company's loan and securities portfolio in the event
that the Company encounters slower than anticipated prepayments. Accordingly,
if the underlying mortgage collateral prepays (including prepayments as a
result of default and repurchases by the seller) at a rate faster than
anticipated, the weighted average life of the IO will be reduced, and the
market value of the IO adversely affected. Conversely, if the underlying
mortgage collateral prepays at a rate slower than anticipated, the weighted
average life of the IO will be extended, with a consequent positive effect on
the market value of the IO. Should interest rates remain at their present low
levels, or decline further, the risk of faster than anticipated prepayment
rates could increase.
The Asset and Liability Committee is authorized to utilize a wide variety of
off-balance sheet financial techniques to assist them in the management of
interest rate risk. These techniques include interest rate swap agreements,
pursuant to which the parties exchange the difference between fixed-rate and
floating-rate interest payments on a specified principal amount (referred to
as the "notional amount") for a specified period without the exchange of the
underlying principal amount. Interest rate swap agreements are utilized by the
Company to protect against the narrowing of the interest spread between fixed
rate loans and associated liabilities funding those loans. At June 30, 1998,
the Company had no interest rate swap agreements in place.
17
<PAGE>
WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The registrant is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the period
covered by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<C> <S>
Exhibit 10.1 Purchase and Sale Agreement
Exhibit 11 Statement re Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT HAS CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
Wilshire Real Estate Investment
Trust Inc.
Date: August 14, 1998
/s/ Lawrence A. Mendelsohn
By: _________________________________
LAWRENCE A. MENDELSOHN
PRESIDENT
/s/ Chris Tassos
By: _________________________________
CHRIS TASSOS
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
19
<PAGE>
EXHIBIT 10.1
PURCHASE AND
SALE AGREEMENT
--------------
This PURCHASE AND SALE AGREEMENT (the "AGREEMENT") is entered into as of
this 17 day of April, 1998, by and among WREP 1998-1 LLC, A DELAWARE LIMITED
LIABILITY COMPANY (the "PURCHASER"), G.I. JOE'S, INC., an Oregon corporation
(the "SELLER"), and PD PROPERTIES, L.L.C., an Oregon limited liability company
("PD").
RECITALS
--------
A. Seller owns fee title or (as to the Gresham property) a ground
leasehold estate in certain real property, the legal descriptions of which are
attached as Exhibit A, which are currently improved with retail stores,
warehouses and offices operated by Seller (each such property, together with all
improvements located thereon, is hereinafter individually referred to as a
"PROPERTY", and all such properties collectively referred to as the
"PROPERTIES").
B. PD and an affiliate of Purchaser previously entered into a letter
commitment dated February 10, 1998, concerning a prospective bridge financing
and option to acquire the Properties, which is being superseded by this
Agreement.
C. Purchaser desires to acquire all of the Property from Seller and
simultaneously lease the same to Seller, upon and subject to the terms of this
Agreement and a Lease Agreement ("LEASE") in the form attached hereto as Exhibit
C, to be entered into by Purchaser as landlord/lessor and Seller as
tenant/lessee, with PD as one of the guarantors of such Lease.
D. Seller is willing to sell and convey all of the Properties to
Purchaser and to simultaneously lease the same from Purchaser, on and subject to
the terms, covenants and conditions of this Agreement and the Lease.
AGREEMENT
---------
1. PURCHASE AND SALE OF THE PROPERTY. Seller agrees to sell the Properties to
---------------------------------
Purchaser, and Purchaser agrees to purchase the Properties from Seller, on the
terms and conditions set forth in this Agreement. The Properties consists of:
(a) All of the land described in EXHIBIT A attached hereto (the
"LAND") and all easements, rights and interests appurtenant thereto, if
any;
(b) All of the improvements and fixtures (which excludes the
inventory, display cases, equipment, furniture, fixtures and equipment
("FF&E") and other personal
-1-
<PAGE>
property of Seller, but includes, without limitation, all fire and safety
systems and other fixtures and equipment as part of the improvements that
are necessary to operate the improvements in accordance with applicable law
as building structures) currently situated on the Land (the
"IMPROVEMENTS"); and
(c) All of Seller's rights in all of the following intangible
property now or hereafter existing with respect to the Property (the
"INTANGIBLE PROPERTY"); provided, however, the Intangible Property and all
payments and proceeds derived therefrom may be retained and used by Seller
so long as the Lease (defined below) remains in effect:
(1) All plans and specifications, all building permits and other
permits required in connection with the construction of the
Improvements and all warranties, guaranties and sureties now or
hereafter received in connection with the construction of the
Improvements, if any, including, without limitation, all rights
of Seller under any plans, specifications, drawings and permits
and all architectural, engineering or construction contracts with
respect to the Improvements and all additions and alterations
thereto;
(2) All licenses, permits, approvals and certificates of occupancy
relating to the zoning, land use, ownership, operation,
occupancy, construction or maintenance of the Improvements
running to or in favor of the Seller or the Improvements, and all
deposits to governmental authorities relating to the Seller or
the Improvements;
(3) All service and maintenance contracts and equipment leases in
connection with or used by the Seller (if any) in the operation
of the Improvements for any lawful use (as opposed to Seller's
particular use in its business) and which are accepted by
Purchaser; and
(4) All accounts, books, records, studies, documents, tests, surveys,
assessments, audits, appraisals, contracts, contract rights,
claims and warranties related to the Property, but excluding any
of the foregoing which relate to Seller's business conducted from
the Property and any insurance policies and insurance policy
proceeds.
2. PURCHASE PRICE. The total purchase price for all of the Property (the
--------------
"PURCHASE PRICE") is Twenty-Eight Million Four Hundred Fifty Thousand Dollars
($28,450,000). Subject to the adjustments, credits and holdbacks set forth in
this Agreement, the entire purchase price shall be paid to the Seller on the
Closing Date (defined below). The parties have agreed on an allocation of the
total Purchase Price to the Properties, as shown on the schedule attached as
Exhibit D ("ALLOCATION SCHEDULE").
-2-
<PAGE>
3. PURCHASER'S CONTINGENCIES
-------------------------
3.1 SUBMISSION OF REVIEW INFORMATION. After the date of mutual execution
--------------------------------
of this Agreement (said execution date being hereinafter referred to as the
"EFFECTIVE DATE"), Seller shall submit to Purchaser true and complete copies of
the following information ("SELLER'S REPORTS"), all of which shall be subject to
Purchaser's review and approval prior to the Closing Date provided below:
(a) Seller's Organizational Documents. The entity documents for
---------------------------------
Seller. Such documents shall include Seller's articles of incorporation,
bylaws, an incumbency certificate certified by its secretary which
identifies its current directors and officers and a current certificate of
good standing issued by the Oregon Corporation Division/Secretary of State.
(b) Seller's Authorizations. Corporate resolutions adopted by
-----------------------
Seller's Board of Directors authorizing Seller's execution and delivery of
this Agreement and the Lease.
(c) Seller's Financial Statements. An updated financial statement or
-----------------------------
confirmation in form and substance satisfactory to Purchaser that Seller's
financial statements provided to Purchaser in connection with the Loan
remain accurate in all material respects.
(d) Title Report. Current title report(s) (collectively, the "TITLE
------------
REPORT") showing the status of and all exceptions to title and containing
the title company's commitment to issue the title insurance policy or
policies to be provided by Seller to Purchaser in connection with this
transaction and the related financing transaction by Purchaser as
borrower/grantor and Credit Suisse First Boston Mortgage Capital LLC or its
affiliates ("LENDER") to be secured by the Property (the "LOAN").
(e) Environmental Questionnaire. An environmental questionnaire
---------------------------
relating to the Land and Improvements in a form provided by Purchaser or
Lender (if required), and completed by Seller.
(f) Environmental Assessment. Such environmental assessments or
------------------------
updates of environmentals as Purchaser and Lender may require, which
reflect the current environmental status of the Land and Improvements and
the property adjacent thereto, including the current condition of the soils
and groundwater including, an assessment by one or more qualified
registered professional engineers, hydrologists, or other scientists that
there exists no evidence of past or ongoing release at, upon, under, or
within, or of past or ongoing migration from neighboring lands to, the
Property, of hazardous materials and there exists no evidence that asbestos
or asbestos-containing materials,
-3-
<PAGE>
polychlorinated biphenyl's (PCBs), radon gas, or urea formaldehyde foam
insulation is present (the "ASSESSMENTS").
(g) Remediation Confirmation. Confirmation in form and substance
------------------------
satisfactory to Purchaser that all monitoring and further assessments
recommended in the Assessments have been completed and that the results
thereof verify that no hazardous substances, wastes or materials regulated
by any federal or state environmental laws ("ENVIRONMENTAL LAWS") exist in
concentrations above the legal maximum limits and to the extent any
remediation of the Land or the Improvements have been undertaken the same
have been completed and accepted by the governing agency.
(h) Summary of Capital Repairs and Rights of Recoupment or Abatement.
----------------------------------------------------------------
A summary of all capital repairs, improvements and alterations made to the
Improvements within the ninety (90) day period immediately before the
closing date, and/or that are required of Purchaser as landlord/lessor
under the Lease or that are subject to rights of reimbursement, offset or
recoupment by Seller from Purchaser after the date of the closing of the
purchase (the "CLOSING DATE"), and/or any "free rent" or reduced rent or
other rights of reimbursement, offset, abatement or recoupment under the
Lease that would be applicable after the Closing Date, together with
evidence satisfactory to Purchaser that all of the costs thereof have been
paid or that the parties have reserved from disbursement of proceeds to
Seller sufficient funds to pay for such work or to reimburse Seller for any
such rights of reimbursement, offset, recoupment or abatement.
(i) Litigation Confirmation. If there is any current litigation or
-----------------------
claims made against or involving Seller or with respect to the Property
which are pending or threatened, a written disclosure by Seller summarizing
the nature of such litigation or claims, or, with respect to any claims
which have been filed or served, Seller will deliver (on Purchaser's
request) a complete copy of the complaints, answers and any amendments
thereof.
(j) Citations. All notices of violations and citations, including
---------
any criminal citations or allegations of criminal activity on or about the
Property, currently pending or which have been received by Seller with
respect to any of the Properties prior to Closing Date.
(k) Additional Reports. Such other reports, tests, information and
------------------
data as Purchaser may reasonably request prior to the Closing Date, if any.
3.2 PURCHASER'S REPORTS. In addition to Seller's Reports, Purchaser shall
--------------------
obtain and shall have the right to obtain and approve any other reports
regarding Seller or the Property (the "PURCHASER'S REPORTS"), including, without
limitation, the following, IF AND TO THE EXTENT required by Purchaser:
--------------------
-4-
<PAGE>
(a) Appraisal. An appraisal confirming that the current fair market
---------
value of the Property is not less than the Purchase Price.
(b) Survey. A survey or update to survey, certified to Purchaser and
------
Lender (to the extent such certification to Lender is required in
connection with the Loan), in form sufficient to satisfy Lender's
requirements and to obtain the issuance of the Title Policy.
(c) UCC Report. The UCC Report (defined below).
----------
(d) Structural Inspection Report. A certification by an engineering
----------------------------
firm as to (a) the adequacy of the structural design and mechanical
specifications of the improvements, and (b) the adequacy and quality of the
improvements and the materials and workmanship employed therein.
(e) Disability Laws. Evidence or an updated certificate from an
---------------
engineer or the appropriate governmental agency, in form and substance
acceptable to Purchaser, that no work on the Property is presently required
to place them in compliance with The Americans with Disabilities Act of
1990.
(f) Litigation Report. A report provided by commercial litigation
-----------------
service, if required by Purchaser, which identifies any litigation or other
adversarial proceedings involving Seller or the Property.
3.3 SUPPLEMENTAL INFORMATION. Seller agrees that to the extent Seller
------------------------
obtains any other information, reports, assessments or data, if any, which in
any manner relate to or amend any of the Seller's Reports, or if Seller becomes
aware that any information contained in any of Seller's or Purchaser's Reports
becomes incorrect in any material respect, Seller shall promptly furnish
Purchaser with such additional reports or amendments or contrary or conflicting
information.
3.4 PURCHASER'S INSPECTION RIGHTS. In addition to reviewing the Seller's
-----------------------------
and Purchaser's Reports (collectively, the "DUE DILIGENCE REPORTS"), Purchaser
shall have the right, prior to the Closing Date and at Purchaser's expense, to
inspect the Property and any other books and records related to the Property
from time to time; provided, however, any intrusive tests into the Land or
--------
Improvements shall require Seller's prior written approval, which approval shall
not be unreasonably withheld, conditioned or delayed. Pursuant to Section 3.6,
Seller shall reimburse Purchaser for the reasonable out-of-pocket costs of such
inspections. Except for any damage caused by wrongful misconduct or negligence
by Purchaser or its contractors or agents, any restoration of the Property to
substantially the same condition immediately preceding such inspection shall be
undertaken and paid for by Seller. In no event shall Purchaser be liable or
-5-
<PAGE>
responsible for the contents or results of any reports or the discovery of any
information resulting from its inspections.
3.5 PAYMENTS FOR DUE DILIGENCE REPORTS. All costs and expenses of all of
----------------------------------
the Due Diligence Reports and other tests, inspections and studies of the
Property for which Seller is liable under this Agreement shall be paid by Seller
when due or reimbursed to Purchaser within five (5) days after written demand
therefor, regardless of whether this sale closes.
3.6 SELLERS'S EXPENSE REIMBURSEMENTS. Seller agrees that Seller shall
--------------------------------
reimburse Purchaser for up to $100,000 of its actual out-of-pocket expenses paid
to unrelated third parties in good faith in connection with this Agreement. Such
costs may include, but shall not be limited to, fees paid to Purchaser's
consultants, brokers, accountants, attorneys, assessors, appraisers, surveyors,
architects, title companies and planners (collectively, "PURCHASER'S SERVICE
PROVIDERS"). Seller's obligations under this Section shall survive a
cancellation, forfeiture or termination of this Agreement.
3.7 OTHER HOLDBACKS AND FUNDED RESERVES. The parties will holdback at
-----------------------------------
closing, or will place into a funded reserve, any additional amounts required by
Lender as holdbacks or reserves under the Loan (for property taxes, insurance,
tenant improvement and leasing commissions, seismic, capital expenditures, and
other matters), which will be in accordance with the schedule attached or to be
attached as Exhibit E (the "EXPENSE SCHEDULE").
3.8 REMOVAL OF INSPECTION CONTINGENCIES. The following procedure shall be
-----------------------------------
employed in connection with Purchaser's removal of its inspection contingencies:
(a) Purchaser shall have until the Closing Date (the "REVIEW PERIOD")
within which to accept the Property. If, by the end of the Review Period,
Purchaser has not notified Seller in writing that Purchaser accepts the
Property in its then current condition, this Agreement shall automatically
terminate. This Agreement thereafter shall be null and void and neither
party shall have any obligation to the other except as otherwise stated
herein.
(b) If Purchaser elects, Purchaser may offer Seller the opportunity
to correct any items Purchaser determines to be unacceptable at Seller's
expense by providing Seller with written notice prior to the end of the
Review Period of what must be corrected, by what dates and in what manner.
The foregoing includes any requirement to adjust the purchase price if the
appraisal obtained by Purchaser indicates that the current fair market
value of the Property is less that the purchase price stated herein.
(c) Within five (5) days after Seller is given such notice Seller
shall notify Purchaser in writing of whether and to the extent Seller will
effect and pay for such corrections or agree to such purchase price
adjustment. Unless otherwise stated in
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<PAGE>
Purchaser's notice, any such items which are in the nature of repairs,
alterations, corrections or remediations shall be completed prior to the
Closing Date. If Seller fails to give such notice within said five (5)
days, Seller will be deemed to have refused to agree to such corrections
and purchase price adjustment.
(d) Within five (5) days after Seller gives such notice (or after the
last day of the period within which such notice is to be given if it is
not), Purchaser may elect to (i) cancel this Agreement, or (ii) agree to
waive its contingencies as provided in this Section. The failure of
Purchaser to give such notice within such five (5) day period shall be
deemed an election to cancel this Agreement. If this Agreement is not so
canceled Seller shall promptly commence and proceed with diligence to
completion prior to the Closing Date with the correction of the items which
Seller agreed to undertake in its notice to Purchaser.
4. SELLER'S TITLE TO THE PROPERTY.
------------------------------
4.1 TITLE REPORT. Seller shall, at Seller's expense, provide a Title
------------
Report on each Property from a title insurance company approved by Purchaser
(the "TITLE AGENT"). The Title Report shall include a commitment for an extended
ALTA form of owner's (or with respect to the Gresham Property ground leased by
Seller, a leasehold) policy of title insurance (collectively, the "TITLE
POLICY"). The Title Report shall be accompanied by legible copies of all special
exceptions listed therein and shall confirm the willingness of the Title Agent
to issue such endorsements as Purchaser may require after review of the Title
Reports (the "ENDORSEMENTS").
Purchaser shall have until the end of the Review Period in which to notify
Seller in writing of Purchaser's disapproval of any exceptions shown in the
Title Report, other than any liens to be satisfied by Seller by the Closing
Date.
4.2 UCC SEARCH. Purchaser may, at Seller's expense, obtain from a
----------
commercial search service a report disclosing the existence of any UCC financing
statements or liens recorded or filed against any portion of the Property (the
"UCC REPORT"). Purchaser shall notify Seller as to whether it objects to any
security interests or liens reflected in the UCC Report. Seller will cause any
security interests that are encumbrances against the buildings or Property to be
released (other than any security interests that encumber only the furniture,
fixtures and equipment of Seller and other assets that Seller is not selling to
Purchaser).
4.3 TITLE DEFECTS. If Purchaser does not elect to cancel this Agreement,
-------------
Purchaser's objections to the disapproved exceptions Seller elects not to
eliminate shall be deemed waived and the Property shall be conveyed to the
Purchaser with such defects without credit against the purchase price. The
foregoing notwithstanding, Seller agrees that except for the lien for any
nondelinquent taxes and the lien for any nondelinquent special assessments
accepted by
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<PAGE>
Purchaser, it shall cause all monetary liens against the Property which are not
accepted by Purchaser to be released of record by the Closing Date.
5. SELLER'S REPRESENTATIONS.
------------------------
5.1 CONTENT OF REPRESENTATIONS. Seller represents, warrants and covenants
--------------------------
to Purchaser as follows:
(a) Delivery of Seller's Reports. Except to the extent otherwise
----------------------------
expressly waived by Purchaser in writing, Seller shall deliver all of
Seller's Reports and any amendments or corrections thereof to Purchaser as
and when required by this Agreement.
(b) Accuracy of Seller's Reports. To the best of Seller's knowledge,
----------------------------
all of the Seller's Report Seller has provided and hereafter provides to
Purchaser in connection with this Agreement are and shall be true and
accurate in all material respects.
(c) No Additional Title Defects. There are no title defects in or
---------------------------
encumbrances against the Property which will not be shown in the Title
Report, no person has any adverse, prescriptive rights or rights of
possession except as stated in this Agreement, and no encroachments exist
upon or from the Land.
(d) No Violation of Zoning and Other Laws. The existing use and
-------------------------------------
condition of the Property is not a nonconforming use and does not violate
any subdivision, zoning, building, health, environmental, personal
disabilities, fire or safety statute, ordinance, regulation or code in any
material respect. As of the date hereof, neither Seller nor, to the best of
Seller's knowledge, any of Seller's agents and employees have received any
written notice from any governmental agency alleging violations of any
building codes, building or use restrictions, zoning ordinances, rules and
regulations. All licenses, permits and other approvals required for the
construction and operation of the Improvements have been issued and are in
good standing. If, between the date of this Agreement and the Closing Date
Seller receives any written notice or written citation of any alleged
violation of any statute, code or ordinance with respect to the Property or
Seller's use thereof, it shall promptly provide Purchaser with a true and
correct copy thereof.
(e) No Litigation. There is no pending or threatened litigation or
-------------
administrative action with respect to Seller or, to the best of Seller's
knowledge, the Property.
(f) Eminent Domain. There is no pending or contemplated eminent
--------------
domain, condemnation or other governmental taking of the Property or any
portion thereof.
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<PAGE>
(g) Access to Property. The Property has vehicular and pedestrian
------------------
access to public rights of way.
(h) Separate Tax Parcel. The Land and Improvements constitute a
-------------------
separate tax parcel or parcels which does or do not include any other
property.
(i) Assessments. To the best of Seller's knowledge, there are no
-----------
special or general assessments which are in addition to those which will be
disclosed in the Title Report which have been levied against or are
proposed for the Property.
(j) No Breach of Agreements. This Agreement and the consummation of
-----------------------
the transaction evidenced by this Agreement will not violate any other
agreement to which Seller is a party or their respective organizational
documents, or any law, statute or ordinance which is binding upon the
Property or Seller.
(k) Contract Default. Three exist no material defaults under any
----------------
management, maintenance or service contracts executed in connection with
the Property.
(l) Nonforeign Status. Seller warrants that it is not a "foreign
-----------------
person" as defined in Section 1445 of the Internal Revenue Code of 1954, as
amended. Seller shall deliver to Purchaser at Closing a Certificate of
Nonforeign Status setting forth Seller's address and United States taxpayer
identification number and certifying that it is not a foreign person as so
defined.
(m) Executory Agreements. Attached to this Agreement as EXHIBIT B is
--------------------
the list of all management, service and maintenance and equipment leases
for the Property (the "SERVICE CONTRACTS"), together with their expiration
dates or the notice period which must precede their termination. To the
best of Seller's knowledge, no default exists under any of the Service
Contracts and all Service Contracts are currently in full force and effect.
(n) Government Obligations. There are no unperformed obligations
----------------------
which are currently due relative to the Property to any governmental or
quasi-governmental body or authority. All water and sewer hook-up fees and
other fees payable in connection with the annexation, zoning or improvement
of the Land and which are now due have been paid.
(o) Utility Services. The Improvements are serviced by public
----------------
electric, gas, water, sewer and telephone utilities sufficient to operate
full-time Seller's current business in and from the Improvements and there
exist no unpaid connection, hook-up or similar charges with respect
thereto. All utilities serving the Improvements are on meters which do not
monitor any other property.
-9-
<PAGE>
(p) Environmental Matters. No portion of the Property lies within a
---------------------
designated wetland or other environmentally sensitive area. Except as
stated in the Assessments, Seller has not caused nor, to the best of
Seller's knowledge, has any other person caused, any hazardous substance,
waste or material to be used, generated, stored or disposed of on or
transported to or from the Land or Improvements in violation of any
Environmental Laws, nor have any underground storage tanks or transformers
existed on or under the Land nor are there any asbestos-containing
materials present in the Improvements. Except as stated in the Assessments,
there are presently no hazardous waste, substance or material on, under or
within the Property. For the purposes of this Agreement, "HAZARDOUS
SUBSTANCE, WASTE OR MATERIAL" shall mean petroleum-based products,
asbestos, asbestos-containing material, lead paint, PCBs and all other
hazardous substances, wastes or substances which are so defined in any
Environmental Laws.
(q) Condition of Improvements. There are no material defects in any
-------------------------
portion of the Improvements and the Improvements are not infested with
termite or other insects or animals. Conditions caused by ordinary wear and
tear and depreciation and which ordinarily arise during the course of
owning and operating Seller's business at the Property shall not be
considered material defects for the purposes of this representation.
(r) Insurability of Property. Seller has not received any formal or
------------------------
informal notice from any insurance company of any defect or inadequacies in
the Property which would adversely affect the insurability of the
Improvements or which would increase the cost of any insurance beyond that
which would ordinarily and customarily be charged for insuring comparable
property used for similar purposes in the vicinity of the Property.
(s) Soil Conditions. The surface and subsurface condition of the
---------------
Land is such that it will support the Improvements without present need for
additional subsurface excavation, fill, footing, caissons or other
installations, and the Improvements have been constructed in a manner which
is compatible with the soil conditions at the time of construction.
(t) No Other Adverse Conditions. There are no other facts,
---------------------------
circumstances or conditions which could have a material, adverse impact
upon the physical condition, value or permitted use of the Property or
Seller's ability to perform its obligations under this Agreement or which
would be likely to cause any other representation hereto to become
incorrect in any material respect.
5.2 SELLER'S KNOWLEDGE. To the extent that any of the foregoing
------------------
representations are limited "TO THE BEST OF SELLER'S KNOWLEDGE" (or words of
similar effect), such knowledge shall (i) include the knowledge of the
principals of Seller that have been involved in the negotiation
-10-
<PAGE>
of this Agreement or that are regularly involved in the operation or management
of real estate of Seller, and (ii) will presume and assume familiarity by Seller
with Seller's records and files.
5.3 SURVIVAL OF WARRANTIES. All of Seller's warranties in this Agreement
----------------------
shall be deemed given only as of the date of this Agreement, but shall be
updated in a certificate provided to Purchaser at and as of the Closing Date.
6. CONDITIONS TO CLOSING.
---------------------
6.1 PURCHASER'S CONDITIONS. Purchaser's obligation to close this
----------------------
transaction is subject to the satisfaction of all the following conditions:
(a) Seller's Compliance. Seller's fulfillment of each of its
-------------------
obligations under this Agreement in all material respects, including,
without limitation, the delivery of all of the Seller's Reports to
Purchaser within the Report Period.
(b) Seller's Representations. The continuing accuracy of all of
------------------------
Seller's warranties and representations in this Agreement in all material
respects, including the lack of discovery of any fact or circumstance of
which Seller did not have knowledge on the date Seller executes this
Agreement (regardless of whether such fact or circumstance arose or was
discovered thereafter).
(c) Status of Title. The absence of any monetary lien or other
---------------
material defect in title to the Property which was not permitted by this
Agreement or approved in writing by Purchaser.
(d) Permitted Uses. The absence of any material violation of any
--------------
applicable statute, law or regulation regarding the physical condition of
the Property or Seller's use thereof for its current business purpose or of
any change in any laws or statutes which materially affect the Seller's
ability to use the Property for its current business purposes.
(e) Hazardous Waste. The absence of Purchaser's discovery of any
---------------
hazardous material, waste or substance on or about the Property (i) which
was not reported to Purchaser in writing at least ten (10) days prior to
the end of the Review Period, (ii) which violates any applicable statute,
law or ordinance, and (iii) the cost of the abatement, removal or disposal
of which, to the full extent required by any applicable statue, law or
ordinance or which, in Purchaser's reasonable judgment, is needed to avoid
additional contamination or pollution of the Property or any adjoining
property, is likely to exceed Ten Thousand Dollars ($10,000).
(f) Material Condemnation. The absence of any condemnation or the
---------------------
institution of condemnation proceedings which results in the taking of any
of the
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<PAGE>
Improvements with a value of more than Ten Thousand Dollars ($10,000), or a
reduction in the number of any parking spaces below the minimum level required
by law for the current use of the Property or the Property becoming a
nonconforming use under applicable law. If this transaction closes, Seller
shall assign to Purchaser on the Closing Date all condemnation awards and rights
to awards which were not used by Seller to pay the costs of any restorations of
the Land or Improvements necessitated by any such condemnation.
(g) Material Casualty. The absence of any material damage by casualty to
-----------------
the Improvements which has not been repaired by Seller by the Closing Date. For
the purposes hereof, a "MATERIAL DAMAGE BY CASUALTY" shall be deemed any damage
by fire or other casualty which has not been repaired and paid for by the
Closing Date and for which the estimated cost of the remaining repairs exceeds
Ten Thousand Dollars ($10,000). If the Improvements suffer any material damage
by casualty Purchaser shall have the right and option to terminate this
Agreement within fifteen (15) days after the date Purchaser is notified of the
casualty in writing or by the Closing Date, whichever first occurs. Seller shall
also have the right to cancel this Agreement if such material damage by casualty
is not covered by Seller's insurance policy unless Purchaser is willing to
reduce the purchase price by the amount estimated to be necessary to pay the
labor and material costs to restore the damage. If Purchaser does not elect to
terminate this Agreement by such date, this transaction shall close without
increase or decrease in the purchase price, Seller shall proceed to effect such
repairs to return the damaged portions of the Property to the condition existing
immediately prior to the casualty and shall complete the same as soon as
reasonably possible prior to or after the Closing Date and shall be entitled to
all insurance proceeds which are paid because of the casualty. If the estimated
cost to repair any damage by casualty as of the Closing Date is less than Ten
Thousand dollars ($10,000), Purchaser shall not have the right to terminate this
Agreement because of such casualty and Seller shall promptly proceed to effect
the repairs as stated above. All repair cost estimates referred to in this
paragraph shall be made by reference to a fixed price construction contract
which Seller shall obtain as promptly as is reasonably possible after the date
of the casualty.
(h) Seller's Financial Condition. If there occurs any material adverse
----------------------------
change in the financial condition of Seller, as indicated in the financial
statements approved by the Purchaser, or if Seller generally becomes unable to
pay its debts as they become due, make any assignment for the benefit of
creditors or file or have filed against it any bankruptcy or other insolvency
proceeding. Any reduction in the net worth of Seller by more than ten percent
(10%) from that which is reflected in a financial statement approved by
Purchaser shall be deemed a material adverse change for the purpose of this
Section.
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<PAGE>
(i) Execution and Delivery of Lease. If the Lease is not executed or
-------------------------------
delivered by Seller for any reason.
6.2 SELLER'S CONDITIONS. Seller's obligation to close this transaction is
-------------------
subject to Purchaser's fulfillment of each of its obligations under this
Agreement.
6.3 FAILURE OF CLOSING CONDITIONS. In the event any one or more of the
-----------------------------
above conditions is not satisfied as of the Closing Date, or if the party whom
such condition is intended to benefit reasonably determines that the same are
not capable of being so satisfied by the Closing Date, such party may:
(a) waive such condition by so advising the other party in writing,
whereupon this sale shall close in accordance with the terms hereof and the
purchase price shall be adjusted if and to the extent the condition relates
to a misrepresentation by the other party to this Agreement and the waiving
party incurs or reasonably expects to incur any expense to remedy or
satisfy any of such conditions;
(b) extend the Closing Date for up to thirty (30) days and, to the
extent constituting a misrepresentation or default of the other party,
require the other party to satisfy the condition to the extent feasible or
if capable of being satisfied by monetary payment; or
(c) elect to cancel this Agreement, in which event, and except to the
extent the parties' remedies are otherwise limited by this Agreement, the
nonperforming party, if any, shall continue to be liable to the other party
hereto for its damages and expenses caused by such failure or inability to
close this transaction with all conditions satisfied.
7. CLOSING.
-------
7.1 CLOSING DATE. This transaction will be closed on a date selected by
------------
Purchaser and reasonably acceptable to Seller, after the execution and delivery
to the Escrow Agent of the Seller's deed and the Lease, the deposit of the
purchase price and the fulfillment of the other closing obligations (the
"CLOSING"). The date on which the Closing occurs is referred to as the "CLOSING
DATE."
7.2 MANNER AND PLACE OF CLOSING. This transaction will be closed at the
---------------------------
offices of the Title Agent in Portland, Oregon, or in the office of the Seller's
counsel, or by such other person as the parties may mutually agree to in
writing. Closing shall take place in the manner and in accordance with the
provisions set forth in this Agreement.
7.3 PRORATIONS, ADJUSTMENTS.
-----------------------
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<PAGE>
(a) All ad valorem real property taxes and special assessments,
insurance premiums, utility expenses and obligations under all repair and
maintenance contracts shall be paid by Seller as and when due and shall
continue to be paid by Seller pursuant to the terms of the Lease. Any such
expense or rights of recoupment, abatement or offset will be prorated and
adjusted and adequate reserves or holdbacks set up to cover the expense, or
right of recoupment, abatement or offset, in a manner satisfactory to
Purchaser.
(b) Seller shall pay all documentary and conveyance excise and sales
taxes (including, without limitation, the entire Washington County
documentary tax) in connection with this sale and the Lease and the
recording fees for Seller's deed. Subject to the limits set forth in
Section 3.6, to the extent not previously paid by Seller, Seller shall pay
or reimburse Purchaser for all Seller's Reports, Purchaser's Reports,
Purchaser's Service Providers and all other third-party costs incurred by
Purchaser in connection with this Agreement. To the extent not paid at
Closing, Seller shall pay such costs or reimburse Purchaser therefor upon
demand after Closing.
(c) Seller shall pay the premium(s) for Purchaser's owner's title
insurance policy and all of the Endorsements.
(d) Subject to the limits set forth in Section 3.6, Seller shall pay
all other costs, expenses, fees and charges incurred in connection with the
Closing, including all of Purchaser's attorneys' fees and expenses for the
negotiation, documentation and closing of this transaction at such
attorneys' standard hourly rate.
(e) At closing, the Title Agent shall hold back an amount equal to
120% of estimates of costs for improvements that will be required for
seismic modifications and other repairs to the Property that have been
identified as of the Closing Date, if any, to be held and disbursed in
accordance with such escrow instructions as may be acceptable to Purchaser,
Seller and Title Agent.
7.4 EVENTS OF CLOSING. This transaction will be closed on the Closing
-----------------
Date as follows:
(a) If there have been any changes in Seller's warranties under this
Agreement, Seller will provide a written disclosure of the matters that
have arisen that are inconsistent with the warranties of Seller in this
Agreement.
(b) Seller shall provide Purchaser with the Certificate of Nonforeign
Status as provided in I.R.C. (S) 1445.
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<PAGE>
(c) Seller shall provide Purchaser with the written opinion of legal
counsel(s) for Seller, in form and substance satisfactory to Purchaser and
its counsel, to the effect that: (i) Seller is a duly organized and validly
existing corporation, with full authority to enter into and perform this
Agreement and the Lease; (ii) this Agreement and the Lease have been duly
executed by a person properly authorized to do so on behalf of Seller;
(iii) to the best of such counsel's knowledge, this Agreement does not
violate the terms or provisions of any other contract or agreement to which
Seller is a party; (iv) such counsel has no knowledge of any pending or
threatened litigation or citations relating to the Seller or the Property;
(v) to the best of such counsel's knowledge, the Land and Improvements
comply with all applicable laws, ordinances and regulations, including all
environmental laws; and (vi) subject to such assumptions and exceptions as
may be approved by Purchaser's counsel, this Agreement and the Lease are
enforceable against Seller in accordance with their terms.
(d) Seller shall assign to Purchaser any insurance proceeds and
condemnation awards as and to the extent required by this Agreement.
(e) The Title Agent shall calculate the expenses to be paid at Closing
and the parties shall be charged and credited accordingly.
(f) Purchaser shall pay the entire purchase price to Seller in cash,
as adjusted the charges, credits and holdbacks set forth in this Agreement.
(g) Any liens to be paid by Seller at closing shall be paid and
satisfied of record at Seller's expense.
(h) The existing lease of the Gresham Property by Seller, as lessee,
shall be assigned to Purchaser, by warranty assignment of lease, and the
Lease will constitute a sublease under such underlying lease.
(i) Seller shall convey the real property to Purchaser or its
affiliated entity (as Purchaser direst) by statutory warranty deed, subject
only to the matters accepted by Purchaser in writing pursuant to this
Agreement.
(j) Seller shall convey the Intangible Property to Purchaser by good
and sufficient assignment
(k) Purchaser and Seller shall execute and deliver the Lease.
(l) The Title Agent shall be committed to issuing the policy herein
described upon recordation of the closing documents.
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<PAGE>
(m) The Title Agent shall record the Seller's deed and assignment of
lease to Purchaser.
7.5 TITLE INSURANCE. As soon as possible after the Closing Date, Seller
---------------
shall furnish Purchaser an extended ALTA form of owner's (as to Gresham,
leasehold) policy of title insurance in the amount of the Purchase Price with
the Endorsements, subject only to the Title Agent's standard preprinted
exceptions for such form and except for the matters accepted by Purchaser in
writing pursuant to this Agreement.
7.6 LEASE. Concurrently with the closing of this sale, Purchaser and
-----
Seller shall execute one or more leases covering all of the Properties from
Purchaser, as landlord, to Seller, as tenant, on the terms and in the form of
the Lease attached hereto as EXHIBIT C. The rent under each such Lease will be
in accordance with the Allocation Schedule attached as EXHIBIT D. Each Lease
will be guaranteed by PD and the other guarantors shown on the Guaranty attached
to the Lease.
7.7 COMMITMENT FEE. Seller agrees that a commitment fee in the amount set
--------------
forth on the Expense Schedule attached as Exhibit E will be owed to Purchaser at
Closing. Seller agrees to pay the commitment fee to Purchaser within 12 months
of the Closing Date, at the closing of an initial public offering by Seller, or
at the closing of a sale of 10% of the common or preferred stock of Seller,
whichever occurs first.
8. DEFAULTS AND FAILURE TO CLOSE.
-----------------------------
8.1 SELLER'S REMEDIES. If Purchaser fails to complete this purchase
-----------------
without legal excuse, Seller shall have the right to recover the greater of the
expense reimbursements paid by Seller pursuant to Section 3 of this Agreement or
Ten Thousand Dollars ($10,000), either of such sums being hereby specifically
agreed to be liquidated damages; that such amount constitutes the parties' best
reasonable attempt to estimate Seller's actual and consequential damages that
would be incurred in the event of such default; that any such damages would be
extremely difficult and impractical to quantify; and that such damages are
expressly intended to and shall constitute Seller's sole and exclusive remedy
for such default.
8.2 PURCHASER'S REMEDIES. If this transaction fails to close because of
--------------------
Seller's fault or Seller's inability to close, Purchaser shall be entitled to
such remedies for breach of contract as may be available under applicable law,
including (without limitation) the remedy of specific performance of this
Agreement and the Lease and the right to recover its actual and consequential
damages. Purchaser shall also have the right to enjoin any violations of
Seller's covenants herein.
8.3 DEFAULTS. Except for Seller's obligation to provide Seller's Reports
--------
to Purchaser within the Report Period or the parties' wrongful failure to close
or to satisfy any condition to
-16-
<PAGE>
closing by the required Closing Date, no party shall be deemed in default under
this Agreement unless such party is given written notice of its failure to
comply with this Agreement and such failure continues for a period of ten (10)
days following the date such notice is given.
8.4 COSTS AND ATTORNEYS' FEES. In the event suit, action, arbitration or
-------------------------
mediation is instituted to interpret or enforce the terms of this Agreement, the
prevailing party shall be entitled to recover from the other party such sum as
the court, arbitrator or mediator may adjudge reasonable as costs and expert
witness and attorneys' fees at trial, on any appeal, and on any petition for
review, in addition to all other sums provided by law.
9. CONDUCT OF BUSINESS.
-------------------
9.1 CONTRACTS. From the date of this Agreement until the Closing Date,
---------
Seller shall perform all of its obligations as and when required by any
agreements or contracts with respect to the Property and shall continue to
operate the Property in accordance with customary and prudent management and
operating standards and practices and will take no steps or actions which it
knows would be detrimental to the value or future potential of the Property.
9.2 INSURANCE. Seller shall continue to maintain its current casualty and
---------
liability insurance policies on the Property until the Closing Date.
9.3 LEASES. Between the date of this Agreement and the Closing Date Seller
------
shall not enter into any leases of the Property or any portion thereof without
Purchaser's prior written consent.
9.4 PROPERTY MAINTENANCE. Seller agrees to maintain and repair the
--------------------
Property between the date of this Agreement and the Closing Date so as to cause
the same to be delivered to Purchaser in substantially the same conditions
existing as of end the Review Period, ordinary wear and tear excepted. Prior to
the Closing Date, Seller shall promptly notify Purchaser regarding any item of
repair, replacement or maintenance of which Seller becomes aware and which
requires an expenditure in excess of Five Thousand Dollars ($5,000).
9.5 BOOKS AND RECORDS. Seller agrees to continue to maintain its current
------------------
books and records relating to the Property, plus such additional records as
Purchaser may reasonably require.
9.6 NO MARKETING. Seller shall not offer the Property for sale or solicit
------------
or accept offers to purchase the Property or any portion thereof so long as this
Agreement is in effect.
10. INDEMNIFICATION.
---------------
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<PAGE>
10.1 SELLER'S INDEMNIFICATION. Seller agrees to defend, indemnify and hold
------------------------
Purchaser harmless from and against and reimburse Purchaser for all claims,
damages, losses and attorneys' fees which are caused by Seller's failure to
perform any obligation under any lease or contract for the Property prior to the
Closing Date or for which Seller is responsible in accordance with the terms of
this Agreement.
10.2 SURVIVAL OF INDEMNIFICATION. The indemnifications contained in this
---------------------------
Section shall survive the closing of this transaction.
11. LEGAL RELATIONSHIPS.
-------------------
11.1 PARTIES' AUTHORITY. The act, instruction, waiver, consent, knowledge
------------------
and giving and receipt of notices of or by _________________ and _____________
[indicate person(s) authorized to bind Seller] shall be deemed that of Seller,
and Purchaser shall have no duty to inquire into such person's authority.
11.2 DESCRIPTION OF TRANSACTION. This Agreement creates only the
--------------------------
relationship of seller and buyer and no joint venture, partnership or other
joint undertaking is intended hereby, and neither party hereto shall have any
rights to make any representations or incur any obligations on behalf of the
other. Neither Seller nor Purchaser has authorized any agent to make any
representations, admit any liability or undertake any obligation on its behalf.
No party is executing this Agreement on behalf of an undisclosed principal, and
no third party is intended to be benefitted by this contract. No entity or
person who controls, is controlled by or under the common control with Purchaser
shall be liable for Purchaser's acts, omissions or obligations hereunder unless
and to the extent such liability is expressly undertaken in a guaranty or other
agreement executed by the party to be charged. The parties agree that this
Agreement involves only the sale and lease of the Property, that Purchaser is
not acquiring any business or ongoing liability of Seller, and except to the
limited extent assumed by Purchaser in writing, Purchaser shall have no
successor liability to any employee, agent or other person with whom Seller has
contracted or to whom Seller is liable. The parties hereto specifically intend
that this Agreement and the Lease constitute a true sale and lease of the
Property and is not a financing transaction, and Seller shall convey and
Purchaser shall acquire fee simple absolute title to the Property on the Closing
Date and all residual interests therein which exist upon the termination or
expiration of the Lease.
11.3 REAL ESTATE COMMISSIONS. Each party shall indemnify, defend and hold
-----------------------
the other harmless against all claims made for any commission or finder's fee in
connection herewith to which the indemnified party did not agree in writing.
11.4 INDEMNIFIED PARTIES. Any indemnification contained in this Agreement
-------------------
for the benefit of Purchaser shall extend to Purchaser's officers, employees,
and agents.
-18-
<PAGE>
11.5 ASSIGNMENTS AND SUCCESSORS. Seller shall not assign this Agreement or
--------------------------
Seller's right and obligation to execute the Lease without Purchaser's prior
written consent in each instance. Subject to the foregoing, this Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
12. CONSTRUCTION OF AGREEMENT.
-------------------------
12.1 CONSIDERATION. Seller and Purchaser agree that while Purchaser retains
-------------
the right to disapprove of any of the Due Diligence Reports or the results of
Property-related tests of inspections as stated in this Agreement and as a
result elect not to purchase the Property, Seller and Purchaser will each be
incurring certain nonreimbursable expenses and foregoing other transactional
opportunities and that such provides sufficient consideration for the
enforceability of this Agreement and each of the parties hereto waives any right
to claim or allege that there exists insufficient consideration therefor.
12.2 TAX AND ACCOUNTING CONSEQUENCES. Each of the parties hereto
--------------------------------
acknowledges and agrees that neither party has made any representation as to how
this Agreement, the Lease or any given income, expense, liability, deduction, or
credit related thereto shall be treated or characterized for any federal, state
or local income or other tax or accounting purposes, and each party shall rely
solely upon its own tax advisors and accountants with respect thereto. Neither
this Agreement nor the Lease is or shall be conditioned upon how this
transaction or any portion thereof or any interests in the Property are treated
for any tax or accounting purposes under any past, existing or future tax
statute, ordinance, regulation or standard.
12.3 NOTICES. Notices under this Agreement shall be in writing and if
-------
personally delivered or telefaxed shall be effective when received. If mailed, a
notice shall be deemed effective on the second day after deposited as registered
or certified mail, postage prepaid, directed to the other party. Notices shall
be delivered, mailed or telefaxed to the following address and telephone
numbers:
Seller: G. I. JOE'S INC.
Attention: Norm Daniels
c/o 9725 SW Beaverton Hillsdale Hwy., Suite 350
Beaverton, Oregon 97005-3366
Telefax No.: (503) 350-0672
WITH A COPY TO:
Josselson, Potter & Roberts
53 SW Yamhill Street
Portland, Or 97204
Attention: Irving W. Potter
Telefax: (503) 227-0171
-19-
<PAGE>
Purchaser: WREP 1998-1 LLC
1776 SW Madison Street
Portland, Oregon 97205
Attn: Peter O'Kane, Peter Menefee and William D. Schaub
Telefax No.: (503) 776-6599
with a copy to:
--------------
Stoel Rives /LLP/
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Attn: David W. Green and Mark H. Peterman
Telefax No.: (503) 220-2480
Any person may change its address for notices by at least five (5) days' advance
written notice to the other.
12.4 TIME OF ESSENCE. Except as otherwise specifically provided in this
---------------
Agreement, time is of the essence of each and every provision of this Agreement.
12.5 INVALIDITY OF PROVISIONS. If any provision of this Agreement, or any
------------------------
instrument to be delivered by Purchaser at closing pursuant to this Agreement,
is declared invalid or is unenforceable for any reason, such provision shall be
deleted from such document and shall not invalidate any other provision
contained in the document.
12.6 NEUTRAL CONSTRUCTION. This Agreement has been negotiated with each
--------------------
party having the opportunity to consult with legal counsel and shall not be
construed against either party.
12.7 CAPTIONS. The captions of the Sections are used solely for convenience
--------
and are not intended to alter or confine the provisions of this Agreement.
12.8 WAIVER. The failure of any party at any time to require performance of
------
any provision of this Agreement shall not limit the party's right to enforce
such provision. Waiver of any breach of any provision shall not be a waiver of
any succeeding breach of the provision or a waiver of the provision itself or
any other provision.
12.9 SUBSEQUENT MODIFICATIONS. This Agreement and any of its terms may only
------------------------
be changed, waived, discharged or terminated by a written instrument signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
-20-
<PAGE>
12.10 SATURDAY, SUNDAY AND LEGAL HOLIDAYS. If the time for performance of
-----------------------------------
any of the terms, conditions and provisions hereof shall fall on a Saturday,
Sunday or legal holiday, then the time of such performance shall be extended to
the next business day thereafter.
12.11 VENUE. In any action brought to interpret or enforce any of the
-----
provisions of this Agreement, the venue of the same shall be laid in any county
in which the Property is located or in Multnomah County, Oregon, at the option
of the person instituting the suit.
12.12 APPLICABLE LAW. This Agreement shall be construed, applied and
--------------
enforced in accordance with the laws of the State of Oregon. All sums referred
to in this Agreement shall be calculated by and payable in the lawful currency
of the United States.
12.13 NO OFFER. The presentation and negotiation of this Agreement shall
--------
not be construed as an offer by Purchaser to acquire the Property or obligate
either party unless and until this Agreement has been executed by both parties.
12.14 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
----------------
the parties with respect to Seller's sale of the Property to Purchaser and
supersedes and replaces all written and oral agreements previously made or
existing between the parties.
12.15 COUNTERPARTS. This Agreement may be executed simultaneously or in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same contract.
[NO MORE TEXT ON THIS PAGE]
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
SELLER: PURCHASER:
G. I. JOE'S, INC., WREP 1998-1 LLC,
AN OREGON CORPORATION A DELAWARE LIMITED LIABILITY COMPANY
By /s/ Norman Daniels By /s/ Peter O'Kane
--------------------------------- ----------------------------------
Printed Name: NORMAN DANIELS Printed Name: PETER O'KANE
----------------- ------------------
Its President Its SVP
--------------------------- ----------------------------
PD:
PD PROPERTIES, L.L.C.
By /s/ Daniel J. Alderman
---------------------------------
Printed Name: DANIEL J. ALDERMAN
----------------------
Its MANAGER
--------------------------------
-22-
<PAGE>
EXHIBIT A
Legal description
300 NW EASTMAN AVENUE
GRESHAM, OREGON
A tract of land situate in the Northeast one-quarter of Section 9 and
Northwest one-quarter of Section 10, Township 1 South, Range 3 East, of the
Willamette Meridian, in the City of Gresham, County of Multnomah and State
of Oregon, being more particularly described as follows, to-wit:
Beginning at the Southwest corner of the plat of CLANAHAN'S ADDITION marked
by a one and one-quarter inch (1 1/4") iron pipe; thence North
89(degrees)44'39" East along the South line of the plat of CLANAHAN'S
ADDITION a distance of 66.65 feet to the most Easterly Northeast corner of
a parcel conveyed to Real Property Resources, Inc. (RPR) from the
International Church of the Foursquare Gospel, said corner is marked by a
5/8-inch iron rod; thence South 0(degrees)08'04" East along the Easterly
line of said (RPR) parcel a distance of 15.67 feet to the true point of
beginning of the herein described tract, located on the centerline of a
30.00 feet wide driving aisle; thence South 0(degrees)08'04" East along the
Easterly line of said RPR parcel a distance of 305.00 feet; thence South
89(degrees)51'56" West a distance of 315.00 feet to the centerline of a
30.00 feet wide driving aisle; thence South 0(degrees)08'04" East along the
centerline of said driving aisle, parallel with the East line of said RPR
parcel, a distance of 131.00 feet; thence South 89(degrees)51'56" West a
distance of 196.80 feet to the center of a 30.00 feet wide driving aisle;
thence North 0(degrees)08'04" West along the centerline of said driving
aisle, parallel with the East line of said RPR parcel a distance of 421.00
feet; thence South 89(degrees)51'56" West a distance of 210.46 feet to a
point on the Easterly right-of-way line of Northwest Eastman Avenue; thence
North 0(degrees)25'51" East along said Easterly right-of-way line a
distance of 15.00 feet to a point of intersection with the centerline of a
30.00 feet wide driving aisle; thence North 89(degrees)51'56" East along
said driving aisle centerline a distance of 722.11 feet to the point of
beginning.
15600 SE MCLOUGHLIN BLVD.
OAK GROVE, OREGON
A part of the S.H Walker Donation Land Claim, a part of Tract 1, SPAULDING
ACRES, a part of Tracts 17, 19 and all of Tract 18, CONCORD, in the County
of Clackamas and State of Oregon, more particularly described as follows;
BEGINNING at the intersection of the Easterly right of way line of Oregon
State Highway 99 E. (McLoughlin Blvd.) and the Northerly right of way line
of Concord Avenue; thence North 28(degrees)05' West, along the Easterly
right of way line of said Highway 1073.28 feet to a 5/8-inch iron rod in
the Southeasterly line of Risley Avenue; thence tracing said Southeasterly
line North 52(degrees)59'20" East 473.78 feet to a 5/8-inch iron rod in the
Southwesterly line of Olive Avenue, as it presently exists; thence tracing
the said Southwesterly line of Olive Avenue, as presently exists, South
40(degrees)07'39" East 410.24 feet to a 5/8-inch iron rod: thence South
37(degrees)00'37" East 291.92 feet; along the Southwesterly right of way
line of Olive Avenue, as it exists, to an iron rod at the most Northerly
corner of a tract conveyed to School District No. 28, by deed recorded in
Book 36, Page 311, Deed Records of Clackamas County; thence South
62(degrees)51'43" West 106.72 feet to the most Northerly corner of the said
Walker Donation Land Claim; thence South 27(degrees)19'14" East along the
Northeasterly line of said Donation Land Claim, 214.82 feet to an iron rod;
thence South 66(degrees)26'22" West 263.74 feet to an iron rod; thence
South 27(degrees)19'14" East 250 feet to the Northerly right of way line of
Concord Avenue; thence South 66(degrees)26'38" West 231 feet to the place
of beginning.
Exhibit A - Page 1
<PAGE>
TOGETHER WITH that portion of vacated Olive Avenue which attached thereto
pursuant to vacation thereof by Ordinance No. 77-879 of Clackamas County a
certified copy of which recorded June 20, 1977 as Recorder's Fee No. 77 23737.
EXCEPTING THEREFROM a tract of land in Lots 17 and 18, CONCORD, in the County
of Clackamas and State of Oregon, being more particularly described as
follows:
BEGINNING at the intersection of the Easterly right of way line of Oregon
State Highway 99 E. (McLoughlin Blvd.) and the Southeasterly line of Risley
Avenue; thence tracing said Southeasterly line North 52 degrees 59'20" East a
distance of 150 feet to a point; thence South 28 degrees 05' East parallel
with the Easterly line of said McLoughlin Blvd., a distance of 200 feet to a
point; thence South 52 degrees 59'20" West parallel with the Southeasterly
line of Risley Avenue 150 feet to a point on the Easterly line of McLoughlin
Blvd.; thence North 28 degrees 05' West along said Easterly line 200 feet to
the point of beginning.
ALSO EXCEPTING THEREFROM a tract of land in the East one-half of Section 12,
Township 2 South, Range 1 East, of the Willamette Meridian, in the County of
CLackamas and State of Oregon, further described as follows:
BEGINNING at a point in the Southeasterly line of Risley Avenue that is 150.00
feet Northeasterly from the intersection of said line with the Northeasterly
line of McLoughlin Blvd.; thence North 52 degrees 59'20" East along the
Southeasterly line of Risley Avenue 323.78 feet to an iron rod at the
intersection of said line with the Southwesterly line of Olive Avenue as it
presently exists; thence South 40 degrees 07'39" East along said Southwesterly
line of Olive Avenue as it presently exists, 410.24 feet to a 5/8-inch iron
rod; thence South 37 degrees 00'37" East along the Southwesterly line of Olive
Avenue, as it presently exists, 125.56 feet; thence South 63 degrees 55' West
574.96 feet to a point in the Northeasterly line of McLoughlin Blvd.; thence
North 28 degrees 05' West along said Northeasterly line 251.39 feet to a point
that is 200.00 feet Southeasterly from the intersection of said line with the
Southeasterly line of Risley Avenue; thence North 52 degrees 59'20" East,
parallel with the Risley Avenue, 150.00 feet; thence North 28 degrees 05'
West, parallel with McLoughlin Blvd., 200.00 feet to the place of beginning.
17799 SW BOONES FERRY ROAD
LAKE OSWEGO, OREGON
A parcel of land in the Southwest quarter of the Northwest quarter of Section
18, Township 2 South, Range 1 East, of the Willamette Meridian, in the County
of Clackamas and State of Oregon, said parcel being a portion of Lots 26 and
27, ROSEWOOD Subdivision, said parcel being more particularly described as
follows:
BEGINNING at a point on the North line of Lot 27 which bears North 89 degrees
02'37" West a distance of 276.04 feet from a 1/2-inch iron rod at the
Northeast corner of said Lot 27; running thence South 0 degrees 04'27" East a
distance of 186.60 feet, parallel with the East line of Lot 27; thence South
89 degrees 55'33" West a distance of 89.39 feet; thence South 0 degrees 04'27"
East a distance of 412.47 feet; thence South 89 degrees 55'33" West a distance
of 292.08 feet to a point that is 40.00 feet Easterly from (when measured at
right angles) the West line of Section 18, as measured from the West quarter
corner and the Northwest corner of Section 18; thence North 0 degrees 03'38"
West, parallel with the West line of said Section 18, a distance of 605.93
feet to the North line of Lot 26, ROSEWOOD; thence South 89 degrees 02'37"
East, along the North line of Lots 26 and 27, a distance of 381.39 feet to the
point of beginning.
Exhibit A - Page 2
<PAGE>
9805 SW Boeckman Road
Wilsonville, Oregon
A tract of land in the South half of the Southwest quarter of Section 11,
Township 3 South, Range 1 West, of the Willamette Meridian, in the City of
Wilsonville, County of Clackamas and State of Oregon, said tract being a
portion of those tracts of land conveyed to Edward W. Boeckman as recorded
in Book 106, Page 316, Deed Records, and Ernst A. Boeckman, Jr. as recorded
in Book 106, Page 317, Deed Records; said tract is described as follows:
BEGINNING at a 5/8 inch iron rod on the North line of that 25.00 foot wide
tract of land conveyed to the City of Wilsonville, for road purposes, as
recorded as Recorder's Fee No. 72-33376, Film Records, said beginning point
bears South 89(degrees)34'52" West 1330.42 feet and North 00(degrees)27'08"
West 25.00 feet from the quarter corner on the South line of Section 11,
said beginning point also being on the Easterly line of that Transmission
Line Easement conveyed to the United States of America as recorded in Book
522, Page 49 and in Book 515, Page 231, Deed Records; thence North
00(degrees)27'08" West 1292.97 feet along the East line of said easement to
a 5/8 inch iron rod on the South line of that tract of land conveyed to
George F. Boeckman as recorded in Book 105, Page 454, Deed Records; thence
North 89(degrees)28'53" East 556.25 feet along the said South line of
George Boeckman tract to a 5/8 inch iron rod on the Westerly line of the
Oregon Electric Railway Company right of way; thence following the Westerly
line thereof, South 32(degrees)07'22" East 337.01 feet to a 5/8 inch iron
rod at a point of curve; thence on a 2639.93 foot radius curve to the right
1083.79 feet along the arc (the long chord bears South 21(degrees)11'24"
East 1077.23 feet) to a 5/8 inch iron rod on the North line of the
aforesaid City of Wilsonville tract; thence South 89(degrees)34'52" West
1114.63 feet to the point of beginning.
EXCEPTING THEREFROM the Southerly 18 feet conveyed to the City of
Wilsonville for roadway purposes by instrument recorded February 27, 1979
as Fee No. 79-8026, Clackamas County Records.
ALSO EXCEPTING the Westerly 31 feet dedicated to the City of Wilsonville
for road purposes, said dedication parcel being more particularly described
as follows:
A tract of land in the South half of the Southwest quarter of Section 11,
Township 3 South, Range 1 West, of the Willamette Meridian, in the County
of Clackamas and State of Oregon, said tract being a portion of those
tracts of land conveyed to Edward W. Boeckman as recorded in Book 106, Page
316, Deed Records and Ernst A. Boeckman, Jr., as recorded in Book 106, Page
317, Deed Records; said tract is described as follows:
Beginning at a 5/8 inch iron rod on the North line of that 25.00 foot wide
tract of land conveyed to the City of Wilsonville, for road purposes, as
recorded as Recorder's Fee No.72-33376, Film Records, said beginning point
bears South 89(degrees)34'52" West 1330.42 feet and North 00(degrees)27'08"
West 25.00 feet from the quarter corner on the South line of Section 11,
said beginning point also being on the Easterly line of that Transmission
Line Easement conveyed to the United States of America as recorded in Book
522, Page 49, and in Book 515, Page 231, Deed Records; thence North
00(degrees)27'08" West 1292.97 feet along the East line of said easement to
a 5/8 inch iron rod on the South line of that tract of land conveyed to
George F. Boeckman as recorded in Book 105, Page 454, Deed Records; thence
North 89(degrees)28'53" East 31.00 feet along the said South line of the
George Boeckman tract; thence South 00(degrees)27'08" East 1293.02 feet to
the North line of the aforesaid City of Wilsonville tract; thence South
89(degrees)34'52" West 31.00 feet to the point of beginning.
Exhibit A - Page 3
<PAGE>
255 LANCASTER DRIVE NE
SALEM, OREGON
Parcel 2 of PARTITION PLAT NO. 93-106, recorded November 3, 1993 in Reel 1117 at
Page 580, Marion County, Oregon.
275 LANCASTER DRIVE NE
SALEM, OREGON
Parcel 1 of PARTITION PLAT NO. 93-106, recorded November 3, 1993 in Reel 1117 at
Page 580, Marion County, Oregon.
EXHIBIT A - PAGE 4
<PAGE>
EXHIBIT B
LIST OF SERVICE CONTRACTS (IF ANY ARE BINDING ON PURCHASER)
-----------------------------------------------------------
NONE
B-1
<PAGE>
EXHIBIT C
FORM OF THE LEASE
-----------------
C-1
<PAGE>
EXHIBIT D
ALLOCATION SCHEDULE
-------------------
D-1
<PAGE>
EXHIBIT E
EXPENSE SCHEDULE
----------------
D-2
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
Diluted earnings per share:
Net income available to common shareholders........... $ 3,042
Average number of shares outstanding.................. 11,252,941
Net effect of dilutive stock options-based on treasury
stock method......................................... 511
----------
Total average shares................................ 11,253,452
==========
Diluted earnings per share............................ $ 0.27
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE 30, 1998 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 56,188
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 249,454
<INVESTMENTS-MARKET> 249,454
<LOANS> 51,756
<ALLOWANCE> 0
<TOTAL-ASSETS> 441,908
<DEPOSITS> 0
<SHORT-TERM> 230,637
<LIABILITIES-OTHER> 5,907
<LONG-TERM> 45,222
0
0
<COMMON> 166,981
<OTHER-SE> (6,839)
<TOTAL-LIABILITIES-AND-EQUITY> 441,908
<INTEREST-LOAN> 1,324
<INTEREST-INVEST> 3,606
<INTEREST-OTHER> 160
<INTEREST-TOTAL> 5,090
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 1,501
<INTEREST-INCOME-NET> 3,589
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 910
<INCOME-PRETAX> 3,042
<INCOME-PRE-EXTRAORDINARY> 3,042
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,042
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
