U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______.
Commission File Number 0-16376
TIMBERLINE SOFTWARE CORPORATION
(Name of small business issuer in its charter)
Oregon 93-0748489
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 S.W. Nimbus Avenue,
Beaverton, Oregon 97008
(Address of principal executive offices) (Zip code)
(503) 626-6775
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
(Title of class)
Check whether the issuer (1) 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB, or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $35,240,078
At March 13, 1998, 7,009,340 shares of common stock of the registrant were
outstanding. On such date, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $99,091,266.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement dated March 20, 1998, prepared in
connection with the Annual Meeting of Shareholders to be held on April 28, 1998
are incorporated by reference into Part III of this Report.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
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PART I
Item 1. Description of Business
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General
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Timberline(R) Software Corporation (the "Company" or "Timberline") was
incorporated in Oregon in 1979. The Company changed its name from Timberline
Systems, Inc. in 1986.
Timberline develops, markets, and supports accounting and management information
computer software primarily for the construction and property management
industries. The software is designed to work on stand alone microcomputers
(commonly referred to as personal computers or "PCs") or in a network of
microcomputers. Timberline also provides a range of support services for users
of its software, including annual maintenance and support contracts, classroom
training at its corporate headquarters and at various sites throughout the
United States, and on-site training and consulting.
Software Products
- -----------------
The Company's software operates primarily in Microsoft(R) Windows(R) and
Microsoft MS-DOS(R) operating environments. Timberline's Windows-based software
products are also compatible with other Open Database Connectivity
(ODBC)-compliant applications. ODBC, a data exchange methodology developed by
Microsoft that has been accepted as an industry standard, allows users to
directly access information stored in Timberline data format with other
databases, word processing and spreadsheet programs for greater productivity.
Companies, like Timberline, that develop computer software have received a
significant amount of attention recently as to whether the software they develop
is "year 2000 compliant." This issue has arisen due to the fact that many
software programs were designed to make date calculations based on the last two
digits of the year. With the year 2000 approaching, transactions with dates
commencing in the year 2000 may be identified as transactions commencing in the
year 1900, which may cause incorrect calculations or processing failures.
Timberline's complete suite of current Windows-based product is year 2000
compliant, and modifications to our installed DOS-based products are complete
and currently being tested.
The Company maintains three software product lines - construction accounting,
estimating and property management. Prior to October 1996, the Company also sold
software specifically designed for the architects and engineers industry.
Construction Accounting
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Timberline's construction accounting software products are composed of three
different levels of software. The Medallion(R) line of software was first
released in 1984 and operates only in the DOS operating environment. The
Medallion line was designed specifically for the home builder/remodeler and
small to medium-sized general and specialty contractors.
Due to the popularity of the Windows environment and the Company's introduction
of Gold Collection(TM) - Standard Edition Software in June 1996, as discussed
below, Medallion software sales have decreased significantly and are no longer a
significant source of software sales to the Company.
Gold Collection - Extended Edition was released in October 1992 and operates in
the Windows operating environment. This line of software was designed
specifically to handle the accounting and management information needs for
medium to large-sized construction companies and for other users with more
advanced accounting and management information requirements. The Company
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believes that it was the first major software company to develop software for
construction companies utilizing the advanced capabilities of the Windows
operating environment.
In June 1996, the Company released Gold Standard, an integrated accounting
management system for the small to medium-sized construction companies developed
to work with Microsoft Windows 95. The software was developed to give the
Company's Medallion users an upgrade path to take advantage of the technology
that is now available and to address a segment of the construction market which
needed an accounting and management information system that used
state-of-the-art technology, without the additional advanced features available
in the Gold Extended software products.
All three levels of software are designed around a core set of
accounting-oriented applications (such as General Ledger, Job Cost, Accounts
Payable, Accounts Receivable and Payroll). Additional features were added to the
software to meet the industry-specific needs of construction companies. The
various applications are fully integrated allowing for data entered into one
application to be accessed and entered electronically into another application.
Gold Standard and Gold Extended have additional features and capabilities for
users with more complex needs, including executive inquiry and customized
summary reporting capabilities.
An Equipment Cost software application for Gold Extended was released at the end
of 1995 and is also available for Gold Standard. This application is critical to
equipment-intensive construction companies. With the release of this
application, Timberline believes it is able to meet the accounting and
management information needs of the heavy/highway segment of the construction
industry.
In December 1997, the Company released its Account Receivable and Contracts
software product for its Gold Extended and Standard product lines. The Company
anticipates releasing its Billing software product during the first six months
of 1998. These are applications that the Company's current users and prospective
users have been requesting that the Company develop since Gold Extended was
initially released in 1992. The Company believes that these applications will
attract new users to Timberline because the Company is now able to provide a
more complete accounting and management information solution.
Estimating
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Estimating software allows an estimator to compile a bid on construction
projects based on certain parameters such as the architectural design, building
materials required and material and labor costs. In 1987, Timberline introduced
the Precision Collection(R), a family of integrated estimating software
applications. The Precision Collection is currently designed around two core
estimating products - Precision Estimating - Standard Edition and Precision
Estimating - Extended Edition. Precision Estimating Standard, released in June
1996, replaced the Company's older entry and mid-level DOS-based estimating
products. Designed specifically for Microsoft Windows 95 and Microsoft Windows
NT platforms, this estimating software is designed to allow an estimator to make
fast, accurate estimates on software that the Company believes is fairly easy to
learn and to use, while taking advantage of Windows-based technology. Precision
Estimating Extended offers a more comprehensive and sophisticated approach to
the estimating process, from the first conceptual estimate to the final bill of
materials. In September 1997, the Company released a completely re-designed,
Windows-based version of Precision Estimating Extended to replace the older DOS
version. This new group of software products is fully interoperable with the
Precision Standard products.
To complement its estimating software products, the Company also sells databases
and other software it has developed and those developed by others, which allow
estimators to be more productive and to develop more comprehensive estimates.
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The core estimating product also interfaces with the Company's Job Cost
accounting application. Through interfaces developed by Timberline, the core
estimating product can be linked to Autodesk's AutoCAD(R) applications and to
scheduling software developed by Microsoft and Primavera Systems, Inc.
Property Management
- -------------------
The Company's property management software is an accounting and management
information system used by managers of residential and commercial properties. It
provides information to the managers regarding revenues and expenses of various
properties and generates financial reports about the properties to the various
owners, as well as reports containing other tenant and lease information about
the properties. In March 1997, the Company released its Gold Collection for
Property Management. This is lease-based accounting software designed to work on
Microsoft Windows 95 and Microsoft Windows NT platforms. Unlike traditional,
tenant-based or unit-based software programs, Timberline's software is designed
to focus on the lease document itself, which allows the software to adapt to
many various types of lease arrangements. Prior to the release of this suite of
software applications, the Company's software for the property management
industry was Property Management Gold, which was designed to work on IBM(R)
OS/2(R) and Microsoft Windows NT platforms. The Company no longer offers this
line of software to new users since the release of the Gold Collection for
Property Management.
The Company also had a DOS-based software product for residential property
managers, called SitePro, which was released in 1992. This software was designed
specifically for on-site managers of residential properties to enable them to
track financial and tenant information. This information could then be
electronically transferred to the home office for compilation and review with
other managed properties. In September 1997, the Company entered into an
agreement with Computer Language Research, Inc. ("CLR") to provide a migration
path for users of SitePro to CLR's year 2000-compliant property management
software system. As a result, Timberline no longer distributes SitePro to new
users, but will continue to support current SitePro users through 1998. SitePro
sales have not been a significant source of revenue for the Company.
Architects and Engineers
- ------------------------
Prior to October 1996, the Company sold software designed specifically for
architectural and engineering firms. The software provided the basic accounting
information along with the capability to generate billing information on a
project basis. Initially released in 1987, the software, called AEasy and AEasy
Plus, was developed by an outside software developer using the Company's
software standards and tools. The Company paid royalties to the developer based
on the quantity of software sold.
In September 1996, the Company sold this software, its architects and engineers
user base, and other rights and obligations to a non-affiliated, privately-held
company. According to the terms of the agreement, the Company received an
initial payment for the items listed above and will receive royalties on future
service fee revenue and software sales. The Company believes that the sale had
no significant effect on its business.
Customer Support Services
- -------------------------
Users of the Company's software may purchase maintenance and support services
from the Company. Maintenance contracts allow the user to obtain program changes
and enhancements as they are released. Support contracts allow the user to
obtain telephone access to the Company's customer support department for
answering application-related questions. In addition, users may pay a fee to
attend classes on the use of the Company's software, to obtain customized
training at the user's place of business and for other consulting services.
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These service fees are a significant percentage of the Company's total revenue.
In 1997, 1996, and 1995, service fees comprised 44, 45 and 44 percent,
respectively, of total revenue. The Company is committed to maintaining a high
level of quality related to customer support services. At the end of 1997, 38
percent of the Company's employees were directly associated with customer
support.
Sales/Distribution
- ------------------
The Company licenses its software products and sells its services primarily in
the United States. The Company also licenses its software products into Canada,
Australia, New Zealand, and other foreign countries. Revenue from foreign
countries has not been significant, comprising less than 10 percent of the
Company's total revenue.
Product distribution is primarily handled by value added dealers and
distributors. The Company also maintains a direct sales force to complement its
dealer channel and to handle sales to national accounts and other large
companies.
Timberline maintains a telemarketing staff for selling maintenance and support
service contracts and classroom training to its user base. On-site consulting
fees are generated from requests for services from the users to the Company's
sales and customer support staff.
Unfilled orders for software products at December 31, 1997 and 1996 were not
significant. The Company typically ships software products within three days of
receipt of the order.
Production
- ----------
The principal materials and components used in the Company's software products
are computer media and user manuals. For each product, the Company prepares
masters of the software on computer diskettes or CD-ROM's and of the user
manuals. Substantially all copies of the software and user manuals are made by
outside vendors. The Company also relies on outside vendors to provide software
assembly and shipping services.
Competition
- -----------
The software market is highly competitive and subject to change because of the
rapid technological changes in the computer industry. The number of software
vendors with which the Company competes varies from product to product and from
region to region within the United States. The Company believes that it is the
major supplier of construction accounting and estimating software in the
construction industry and is also one of the leading suppliers of accounting and
management information software in the property management industry. The Company
believes that there are barriers to entry into its segment of the software
market. First, the sophisticated programs it develops require a wide range of
industry knowledge and programming specialization. In addition, the nature of
the software requires a company of a certain size capable of supporting the
software, including training in a number of geographical regions, as well as
providing continuing support, maintenance and upgrades of the software. However,
should a decision be made by the larger, well-known software developers to enter
this segment of the market, such competitors are considerably larger, more
diversified, and have greater financial and other resources and enjoy greater
brand recognition for their products than the Company.
The Company believes that its emphasis on producing high quality software
products that are flexible and user-friendly enables the Company to compete
effectively. In addition, the Company believes it provides very responsive
customer support service to its end users, which enhances the marketability of
its products.
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Product Protection
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The Company regards its software as proprietary and attempts to protect it by
relying upon copyrights, trade secret laws, internal nondisclosure agreements
and transferability restrictions incorporated into its software license
agreements. The Company provides its software products under a perpetual paid-up
license agreement. Title does not transfer to the customer. Program source
listings are not released, which the Company believes further protects
unauthorized transfers of the Company's proprietary information, as well as the
confidentiality of the Company's trade secrets. The Company also uses a
combination of software programming and hardware devices to protect some of its
products from unauthorized use or duplication. Despite these restrictions, it
may be possible for competitors or users to copy aspects of the Company's
products or to obtain information which the Company regards as proprietary. The
Company has no patents. Although the Company's competitive position may be
adversely affected by unauthorized use of its proprietary information, the
Company believes that the rapid pace of technological change in the computer
industry makes intellectual property protection of less significance than such
factors as the knowledge and experience of management personnel and the
Company's ability to develop, enhance, support and market its products.
Third parties may assert infringement or other claims against the Company with
respect to any existing or future products. Litigation to protect the Company's
proprietary information or to determine the validity of any third-party claims
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not such litigation is
determined in favor of the Company.
Research and Development
- ------------------------
Timberline is continually in the process of developing new software and
enhancing its existing software products in order to meet the changing needs of
its current users and the market place. At the end of 1997, 33 percent of the
Company's employees were directly associated with product development. Product
development expenses were $7,264,000, $5,647,000, and $5,564,000 in 1997, 1996
and 1995, respectively. Of that total, $6,222,000, $4,905,000, and $4,967,000
and were incurred in 1997, 1996 and 1995, respectively, on research and
development on new software products. An additional $927,000, $1,127,000, and
$70,000, respectively, of product development expenses on new software products
were capitalized in those same years.
Employees
- ---------
At December 31, 1997, the Company had 312 employees, of which 308 were
full-time. None of the employees are represented by unions, or subject to
collective bargaining. Timberline's business is heavily dependent on retaining
and attracting highly skilled employees. As such, the Company has an employee
benefits program that includes group health, dental, disability and life
insurance plans, paid vacations and holidays, leave privileges, and educational
reimbursement. The Company also has a pension plan under the provisions of
section 401(k) of the Internal Revenue Code in which the Company is currently
matching a certain percentage of the employee's contribution to the plan, and an
informal profit sharing plan covering all employees. Additionally, the Company
has stock option and stock incentive plans from which it may grant stock options
and incentives to certain key individuals. The Company believes its relationship
with its employees is good.
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Item 2. Description of Property
- --------------------------------
The Company leases its corporate headquarters and also leases small regional
offices for some of its sales and consulting and training service functions. The
Company's main offices are located in a 51,000 square foot office and production
facility in Beaverton, Oregon. The lease on this facility expires in October
1998. The Company leases 12,000 square feet of additional office space near its
corporate headquarters. The lease on this office space expires in April 2003.
The Company's regional offices are leased under short-term lease arrangements in
the following metropolitan areas: Los Angeles, CA; New York, NY; Concord, NC;
and Jacksonville, FL.
The Company believes that all of its leased facilities are modern facilities in
good condition and are adequate for its immediate needs.
During 1997, the Company acquired land for the site of its new corporate
headquarters in Beaverton, Oregon, which is located close to its present
location. The Company has commenced construction of its new headquarters, which
is expected to be completed during the fourth quarter of 1998. The new facility
is expected to be approximately 89,000 square feet and should be adequate to
meet the Company's needs for the foreseeable future.
Item 3. Legal Proceedings
- -------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Report, the Company is not a party to any legal proceedings the adverse
outcome of which would, in management's opinion, have a material adverse effect
on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
In May 1996, the Company had three-for-two common stock split. In November,
1997, the Company had a five-for-four stock split. All information regarding
common stock and per share amounts in this Report have been retroactively
restated to reflect these changes.
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
TMBS. The table below shows the high and low sales prices for 1997 and 1996 as
reported in Nasdaq's monthly Summary of Activity Report. Such quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
1997 High Low
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First quarter $ 8 7/10 $ 6 1/5
Second quarter 7 3/5 5 3/5
Third quarter 11 4/5 6 2/5
Fourth quarter 19 3/4 10
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1996 High Low
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First quarter $ 6 $ 4 4/15
Second quarter 9 2/5 5 7/15
Third quarter 8 3/5 5 4/5
Fourth quarter 7 1/2 6 1/10
As of March 13, 1998, there were 295 shareholders of record. Based upon the
number of requests for the Company's proxy materials for its 1998 annual meeting
of shareholders, the Company believes that there were approximately 4,001
beneficial shareholders as of that date.
In October 1994, the Company declared its first quarterly cash dividend of $.01
per share and declared cash dividends totaling $.12 and $.09 per share in 1997
and 1996, respectively. The Company anticipates declaring and paying quarterly
cash dividends in the future.
In connection with the construction of its new corporate office headquarters,
the Company has entered into a loan agreement with a bank to borrow up to
$9,750,000. As of December 31, 1997, there were no borrowings under that
agreement. The loan agreement requires that the Company maintain certain minimum
working capital and tangible net worth levels, which could restrict the amount
of retained earnings that are available for payment of dividends. Under the most
restrictive requirements of the loan agreement, unrestricted retained earnings
at December 31, 1997, amounted to $1,339,000.
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Item 6. Management's Discussion and Analysis or Plan of Operation
- ------------------------------------------------------------------
Results of Operations
- ---------------------
1997 Compared to 1996
Net revenue increased 23 percent to $35,240,000 in 1997 from $28,659,000 in
1996. The two major components of net revenue, computer software sales and
service fees, both increased in 1997. Software sales increased 26 percent to
$18,928,000 in 1997 compared to $14,983,000 in 1996. Software sales increased in
all of the Company's current product lines. Construction Accounting software
sales increased 28 percent in 1997 over 1996, primarily due to the continuing
increase in sales of Gold Collection-Extended Edition, and sales of Gold
Collection-Standard Edition, which was released in June 1996. Estimating
software sales increased 25 percent due to increased sales of Precision
Collection-Standard Edition, which was released in June 1996 and the release of
Precision Collection-Extended Edition at the end of September 1997. Property
Management software sales increased 72 percent due to sales of Gold Collection
for Property Management, which was released at the end of March 1997. There were
no Architects & Engineers software sales in 1997, as that product line was sold
to an unrelated entity in September 1996.
Total software sales represented 54 percent of net revenue in 1997 compared to
52 percent in 1996. In terms of revenue mix, Construction Accounting and
Estimating sales represented 92 percent of software sales in 1997 and 1996.
Property Management software sales represented eight percent of software sales
in 1997 compared to five percent in 1996. Architects & Engineers sales
represented three percent of software sales in 1996. International (non-U.S.)
software sales, as a percentage of software sales, remained constant at six
percent for 1997 and 1996 and is composed primarily of sales from Australia and
Canada. The Company believes that software sales, as a percentage of net
revenue, will continue at approximately the same level in 1998 as it did in
1997.
Going forward into 1998, the Company plans to combine its Construction
Accounting and Property Management product lines into a single product group,
called the Accounting product group, to more closely reflect the way in which
the Company currently manages its operations. The Company operates with two main
product groups, Accounting and Estimating, and will report its operations on
that basis commencing in 1998.
Service fees from maintenance, support, training and consulting, which
represented 44 percent and 45 percent of net revenue in 1997 and 1996,
respectively, increased 19 percent to $15,354,000 in 1997 from $12,956,000 in
1996. The increase in service fees was principally due to the continuing
increase in the Company's user base through new product sales. Maintenance and
support fees, which accounted for 80 percent of service fees in 1997, increased
19 percent over 1996 levels. Consulting fees increased 32 percent in 1997 over
1996, while training fees remained fairly constant. The Company anticipates that
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service fees will continue to represent a significant, but not necessarily an
increasing, percentage of net revenue.
Cost of revenue consists primarily of software documentation, assembly and
shipping costs, royalties paid to outside developers, amortization of
capitalized software development costs, and cost of facilities and outside
services for training and consulting. Cost of revenue, as a percentage of net
revenue, decreased to 10 percent in 1997 from 12 percent in 1996. The decrease
in this percentage was primarily due to lower documentation and assembly costs
associated with software sales and software releases to users on annual software
maintenance contracts. This decrease was partially offset by an increase in the
amount of amortization related to capitalized software development costs as a
result of major new products released in 1996 and 1997. The Company believes
that cost of revenue will remain relatively constant as a percentage of net
revenue in 1998.
Operating expenses increased 12 percent to $25,135,000 in 1997 from $22,490,000
in 1996. The largest increase came in the area of product development, which
increased 29 percent to $7,264,000 in 1997 from $5,647,000 in 1996. This
increase was primarily due to increased personnel costs, additional personnel to
develop online help and training materials for the new software products and an
increase in outside developers' costs. Additionally, capitalized software
development costs declined in 1997 compared to 1996. Capitalized software
development costs amounted to $927,000 in 1997 compared to $1,127,000 in 1996.
The Company believes that product development expenses will continue to increase
in the coming year.
Customer support expenses increased five percent to $6,744,000 in 1997 from
$6,403,000 in 1996. The slight increase was primarily due to increased personnel
costs and equipment-related expenses. The increase in expenses was offset by a
reduction in customer support personnel during the first four months of 1997. As
the demand for support and consulting services increased during the year,
primarily due to Gold Extended and Standard Construction Accounting software
sales, the Company found it necessary to increase its customer support personnel
to handle the increased volume. The Company believes customer support expenses
in 1998 will increase at a higher rate than it did in 1997, due primarily to an
expected continuance of an increase in demand for support and consulting
services.
Sales and marketing expenses decreased one percent to $6,351,000 in 1997 from
$6,397,000 in 1996. As a percentage of net revenue, sales and marketing expenses
decreased to 18 percent in 1997 from 22 percent in 1996. The decrease was
primarily due to a decline in the number of sales and marketing personnel and
lower trade show expenses. This was partially offset by an increase in
advertising costs and commissions to direct sales personnel. The Company
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believes that sales and marketing expenses, as a percentage of net revenue, will
continue at approximately the same level in 1998 as it did in 1997.
General and administrative expenses increased 18 percent to $4,776,000 in 1997
from $4,044,000 in 1996. As a percentage of net revenue, these expenses remained
relatively constant at approximately 14 percent in both 1997 and 1996. The
increase in expenses was primarily due to an increase in personnel and
equipment-related costs, higher insurance and outside service costs, and an
increase in the provision for doubtful accounts.
1996 Compared to 1995
Net revenue increased 15 percent to $28,659,000 in 1996 from $24,819,000 in
1995. The two major components of net revenue, computer software sales and
service fees, both increased in 1996. Software sales increased 12 percent to
$14,983,000 in 1996 compared to $13,435,000 in 1995. The increase was primarily
due to the introduction in mid-year of two new software products designed for
Microsoft Windows 95 and Windows NT. The first, Gold Standard, combined with
continued strong sales of Gold Extended to increase Construction Accounting
sales by 24 percent over 1995. The second, Precision Standard, enabled the
Company to achieve a 10 percent increase in sales of Estimating software. These
increases were offset in part by decreased Property Management and Architects &
Engineers software sales. The Company reduced sales efforts of its current
Property Management software products while it continued to develop a product
for the Windows environment. This product was released in early 1997. The
decline in sales of Architects & Engineers software was primarily due to the
sale of the product line to an unrelated entity in September 1996.
Software sales, as a percentage of net revenue, declined slightly in 1996 to 52
percent compared to 54 percent in 1995. In terms of revenue mix, Construction
Accounting and Estimating sales represented 92 percent of software sales in 1996
compared to 86 percent in 1995. Property Management software sales decreased as
a percentage of total software sales to five percent from eight percent in 1995.
Software sales to architects and engineers decreased to three percent of
software sales in 1996 compared to six percent in 1995. International software
sales, as a percentage of software sales, remained constant at six percent in
1996 and 1995.
Service fees from maintenance, support, training and consulting increased 19
percent to $12,956,000 in 1996 compared to $10,927,000 in 1995. As a percentage
of net revenue, service fees increased slightly to 45 percent in 1996 from 44
percent in 1995. All categories of service fee revenue increased in 1996.
Maintenance and support, which accounted for 79 percent of total service fees in
1996, grew 15 percent in 1996 over 1995. The increase was due primarily to the
Company's growing customer base. Service fees from training and consulting
increased 34 percent over 1995.
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Cost of revenue as a percentage of net revenue, increased to 12 percent in 1996
from 11 percent in 1995. The increase was due to a significant increase in
training and consulting costs, partially offset by lower costs and royalties
associated with software sales.
Operating expenses increased 13 percent to $22,490,000 in 1996 from $19,895,000
in 1995. The largest increases were in compensation costs related to personnel
additions in the customer support and product development areas. Customer
support expenses increased 23 percent to $6,403,000 in 1996 from $5,200,000 in
1995, primarily due to additional personnel required to handle the increased
demand for telephone support, consulting and training services resulting from
increased sales of the Company's Windows-based software products.
Product development expenses increased only one percent to $5,647,000 in 1996
versus $5,564,000 in 1995, primarily due to a significant increase in
capitalized software development costs. Capitalized software development costs
amounted to $1,127,000 in 1996 compared to $70,000 in 1995. Costs capitalized in
1996 were related to the development of the Gold Construction Accounting
Standard and Precision Standard products released in June 1996 and the Gold
Property Management Windows-based software released in 1997. These costs are
amortized to cost of revenue over the estimated life of the software after the
software products have been released for sale. Without the effect of the
capitalization of these expenses, product development expenses increased 20
percent to $6,774,000 in 1996 compared to $5,634,000 in 1995. The increase was
primarily due to expenses related to both additional personnel and the use of
outside software developers to maintain the Company's existing software products
and to develop and test new Windows-based software products.
Sales and marketing expenses increased 23 percent to $6,397,000 in 1996 compared
to $5,221,000 in 1995, but as a percentage of net revenue, increased to 22
percent in 1996 compared to 21 percent in 1995. The increase was primarily due
to increases in marketing personnel and advertising and product marketing
expenses related to the release of the new Windows-based software products in
June 1996. General and administrative expenses increased three percent to
$4,044,000 in 1996 compared to $3,910,000 in 1995, but as a percentage of net
revenue, declined to 14 percent in 1996 from 16 percent in 1995. The increase in
expenses was primarily due to increased personnel, equipment costs and
professional services, offset in part by a decrease in the provision for
doubtful accounts. The provision in 1995 included the write-off of a large
receivable from a Canadian company that went bankrupt in that year.
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Other Income and Income Taxes
Other income (expense) is composed primarily of investment income on cash, cash
equivalents, and temporary investments. Investment income increased 18 percent
in 1997 compared to 1996 and increased 14 percent in 1996 compared to 1995. The
increase was primarily due to an increase in investable funds. This was offset
in part in 1996 by lower interest rates as the Company invested more heavily in
debt securities that were exempt from federal income taxes. The Company
anticipates a decline in other income in 1998 due to the expected use of cash
and investment balances to partially fund the construction of the Company's new
corporate headquarters, which is currently in progress and expected to be
completed in the latter part of 1998.
Provision for income taxes. The Company's effective income tax rate was 35
percent, 28 percent and 29 percent in 1997, 1996 and 1995, respectively. The
lower rates in 1996 and 1995 were primarily due to research and development tax
credits, which amounted to $326,000 and $231,000 in 1996 and 1995, respectively.
The research and development tax credit in 1997 amounted to $251,000, but did
not have as great of an effect on the effective tax rate as in prior years due
to the significant increase in pre-tax income in 1997 compared to 1996 and 1995.
For further analysis of the provision for income taxes, see Note 6 of Notes to
Financial Statements. The Company anticipates the effective tax rate for 1998 to
be at or above the 1997 level.
YEAR 2000 COMPLIANT ISSUE
Many companies that use and/or develop computer software are addressing the
potential problem that may exist if their software is not "year 2000 compliant."
The potential problem that exists with some computer software is that it will
not process transactions properly for dates commencing in the year 2000. This is
due to the fact that many software programs were designed to make date
calculations based on the last two digits of the year. As a result, dates in the
year 2000 may be identified as dates in the year 1900, which may cause incorrect
calculations or cause the transaction to not even be processed.
The Company has been aware of this problem for many years and has been
addressing it, both for its software that is being developed for sale to users
and for software used in its own internal applications. The Company's complete
suite of current Windows-based products is year 2000 compliant, and
modifications to our installed DOS-based products are complete and currently
being tested. As for software that is used in its own internal applications, the
Company has determined that all of its major applications are already, or are in
the process of being, year 2000 compliant. The Company does not believe that
there will be any adverse effect on the Company's financial condition or results
of operations as a result of the year 2000 compliant issue.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $8,686,000 in 1997 compared to $3,644,000
and $3,449,000 in 1996 and 1995, respectively. The increase in 1997 was due
primarily to the increased profitability of the Company's operations. Working
capital has increased to $4,339,000 at December 31, 1997 from $1,325,000 at
December 31, 1996, primarily due to the increase in cash, cash equivalents, and
temporary investments. This was partially offset by increases in accounts
payable, deferred revenues and accrued employee expenses, which are discussed
below. Cash, cash equivalents, and temporary investments, which represented 40
percent of total assets at December 31, 1997, increased $5,669,000 since
December 31, 1996, primarily due to an increase in cash provided by operations
and a reclassification of investments from long-term to short-term. Prior to
1997, investments were previously classified in the held-to-maturity category,
and accordingly, many of the investments were classified as long-term
investments, based on their maturity date. However, the investments have been
transferred into the available-for-sale category because these investments may
not be held to maturity. Accordingly, these investments have been classified as
current assets. Net accounts receivable at December 31, 1997 increased $609,000
since December 31, 1996. This increase was primarily due to an increase in sales
in the month of December 1997 compared to the same period in 1996.
Net property and equipment and purchased software increased $4,324,000 since
December 31, 1996. Exclusive of depreciation and amortization expense related to
such assets, which amounted to $1,500,000 in 1997, property and software
additions during 1997 amounted to $5,836,000. Over $4,643,000 has been expended
to date for the acquisition of land for the site of the Company's new corporate
headquarters and initial planning, design, excavation and construction costs for
the new headquarters. The remaining costs were primarily for the purchase of new
computer equipment, and the upgrade of the telecommunication system. The Company
has budgeted expenditures for equipment and software in 1998 amounting to
$1,700,000, which is expected to be funded through current cash and investment
balances and cash provided by operations. The construction of the new corporate
headquarters will be funded through a combination of existing cash and
investment balances, and construction loans. The Company anticipates that the
new corporate headquarters will be completed during the fourth quarter of 1998.
During 1998 or 1999, the Company believes that the construction loan will be
converted into a mortgage loan sometime after completion of the project.
Net capitalized software costs increased $524,000 since December 31, 1996.
Exclusive of amortization of capitalized software costs, which amounted to
$403,000 in 1997, capitalized software costs for the year amounted to $927,000.
Capitalized software costs were primarily related to the Gold Collection for
Property Management, released in March 1997, Precision Extended software
14
<PAGE>
products released at the end of September 1997, Gold Accounts Receivable and
Contracts software products released in December 1997 and a Gold Billing
software product to be released during the first part of 1998. The Company
expects to capitalize additional software development costs in 1998, but it
expects that the amount capitalized will be less than in 1997.
Accounts payable at December 31, 1997 increased $676,000 since December 31,
1996, primarily due to construction costs payable on the Company's new corporate
headquarters. Income taxes payable increased $166,000, primarily due to taxes
owed for 1997. Deferred revenues increased $1,541,000 since December 31, 1996,
primarily due to increased billings for annual maintenance and support services.
Revenue from annual maintenance and support service billings are recognized
monthly over the terms of the contracts. Accrued employee expenses increased
$719,000 since December 31, 1996, primarily due to accrued profit sharing
expenses. Deferred income taxes increased $219,000 since December 31, 1996,
primarily due to the establishment of additional deferred tax liability on the
increase in net capitalized software costs.
The Company's Board of Directors approved a three-for-two stock split effective
in May 1996 and a five-for-four stock split effective in November 1997. All
common share and per share amounts have been restated to reflect these stock
splits. Total dividends paid in 1997 were $833,000, or $.12 per share, and were
$625,000, or $.09 per share in 1996. The Company plans to continue to pay
quarterly cash dividends.
In connection with the construction of its new corporate office headquarters,
the Company has entered into a loan agreement with a bank to borrow up to
$9,750,000. As of December 31, 1997, there were no borrowings under that
agreement. The loan agreement requires that the Company maintain certain minimum
working capital and tangible net worth levels, which could restrict the amount
of retained earnings that are available for payment of dividends. Under the most
restrictive requirements of the loan agreement, unrestricted retained earnings
at December 31, 1997, amounted to $1,339,000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which established standards for reporting comprehensive income and its
components. This additional reporting requirement will become effective for the
Company during the year ending December 31, 1998. There would not be a
significant difference between net income and comprehensive income for the years
ended December 31, 1997, 1996 and 1995.
15
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for disclosure
about operating segments in annual financial statements and selected information
about those operating segments in interim financial statements. It also
established standards for related disclosure about products and services,
geographic areas, and major customers. The new standard will become effective
for the Company for the year ending December 31, 1998. The Company believes that
any segment information required to be disclosed under SFAS No. 131 will provide
expanded disclosure of operating statement and balance sheet items. The Company
has not yet completed its analysis of the specific additional information that
will be required under this new standard.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. This SOP will become effective for the Company
during the year ending December 31, 1998. The Company believes that its current
revenue recognition policy on software transactions is substantially in
compliance with this SOP and that there would not be any material change in its
methodology or the timing of recognizing revenue on software transactions in
subsequent years as a result of this pronouncement.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, without limitation, press releases, oral
statements made with the approval of an authorized executive officer of the
Company, and filings with the Securities and Exchange Commission. The words or
phrases "anticipates," "believes," "expects," "will continue," "estimates,"
"projects," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.
The Company's forward-looking statements are subject to certain risks, trends
and uncertainties that could cause actual results to vary materially from
anticipated results, including, without limitation, the following: delays in new
product releases, delays in acceptance of the Company's products in the
marketplace, failures by the Company's outside vendors to perform as promised,
changes in the software operating system for which the Company's products are
written, or increased competition and changes in general market conditions.
16
<PAGE>
Item 7. Financial Statements
- -----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Shareholders
Timberline Software Corporation
Beaverton, Oregon
We have audited the accompanying balance sheets of Timberline Software
Corporation as of December 31, 1997 and 1996 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Timberline Software Corporation as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
January 23, 1998
17
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
December 31,
1997 1996
====================================================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,050,283 $ 3,128,703
Temporary investments 5,195,332 1,447,521
Accounts receivable, less allowance for
doubtful accounts (1997, $198,968;
1996, $178,674) 4,302,984 3,693,679
Other receivables 233,075 156,839
Inventories 241,178 308,751
Other current assets 793,422 905,545
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 15,816,274 9,641,038
Property and equipment - net 7,484,744 3,266,616
Capitalized software costs, less accumulated
amortization (1997, $476,895;
1996, $544,040) 1,634,050 1,110,023
Purchased software, less accumulated amortization
(1997, $701,520; 1996, $564,314) 708,875 602,774
Investments -- 3,319,147
Other assets 110,344 102,629
- ------------------------------------------------------------------------------------------------------------------------------------
$25,754,287 $18,042,227
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,439,604 $ 763,645
Accrued commissions/royalties 179,806 193,915
Income taxes payable 166,074 --
Deferred revenues 7,503,197 5,962,047
Accrued employee expenses 1,861,582 1,143,052
Other current liabilities 327,509 253,627
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 11,477,772 8,316,286
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued rent expense 45,600 65,124
Deferred income taxes 965,000 746,000
Commitments
Shareholders' equity:
Common stock, no par value Authorized - 8,000,000 shares
Issued - 1997, 6,978,332 shares; 1996,
6,831,791 shares 372,183 364,368
Additional paid in capital 2,906,405 2,282,129
Unrealized net gain on investments 17,043 --
Retained earnings 9,970,284 6,268,320
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 13,265,915 8,914,817
- ------------------------------------------------------------------------------------------------------------------------------------
$25,754,287 $18,042,227
====================================================================================================================================
See notes to financial statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
Years ended December 31,
1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C>
Net revenue:
Computer software $18,927,615 $14,983,122 $13,435,099
Service fees 15,353,730 12,955,886 10,927,227
Other 958,733 720,023 457,039
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue 35,240,078 28,659,031 24,819,365
- ------------------------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of revenue 3,605,168 3,513,987 2,836,423
Customer support 6,744,441 6,402,503 5,200,135
Product development 7,264,227 5,647,251 5,564,245
Sales and marketing 6,350,683 6,396,532 5,220,686
General and administrative 4,775,956 4,043,543 3,909,731
- ------------------------------------------------------------------------------------------------------------------------------------
Total cost and expenses 28,740,475 26,003,816 22,731,220
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 6,499,603 2,655,215 2,088,145
Other income (expense):
Interest income and other 487,703 401,333 359,323
Interest expense (17,060) (2,925) (725)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,970,246 3,053,623 2,446,743
Provision for income taxes 2,435,000 870,000 714,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,535,246 $ 2,183,623 $ 1,732,743
====================================================================================================================================
Basic earnings per share $ 0.66 $ 0.33 $ 0.27
====================================================================================================================================
Diluted earnings per share $ 0.64 $ 0.31 $ 0.25
====================================================================================================================================
Dividends per share $ 0.12 $ 0.09 $ 0.06
====================================================================================================================================
See notes to financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended December 31,
1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,535,246 $ 2,183,623 $ 1,732,743
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,905,856 1,253,780 1,165,932
Deferred income taxes 155,000 420,000 14,000
Net change in:
Accounts receivable (609,305) (507,942) 303,784
Other receivables (76,236) (75,814) 3,341
Inventories 67,573 17,560 (110,656)
Accounts payable 675,959 201,023 (81,923)
Accrued commissions/royalties (14,109) (64,483) 91,855
Income taxes payable 166,074 (79,427) (509,258)
Deferred revenues 1,541,150 624,074 823,289
Accrued employee expenses 718,530 (5,179) 172,312
Accrued rent expense (19,524) 8,233 (20,088)
Other (360,198) (331,830) (136,616)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,686,016 3,643,618 3,448,715
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment and
purchased software (5,246,242) (2,297,752) (902,025)
Capitalized software costs (926,706) (1,126,761) (69,671)
Proceeds from investments 4,115,000 6,250,000 5,000,000
Purchase of investments (4,516,621) (7,577,668) (4,954,718)
Other - net 11,324 10,300 38,654
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,563,245) (4,741,881) (887,760)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (833,282) (625,161) (377,455)
Common stock issued 632,091 995,594 421,520
Common stock reacquired --- --- (160,098)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (201,191) 370,433 (116,033)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,921,580 (727,830) 2,444,922
Cash and cash equivalents, beginning of
the year 3,128,703 3,856,533 1,411,611
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year $ 5,050,283 $ 3,128,703 $ 3,856,533
====================================================================================================================================
Supplemental information:
Cash paid during the year for income taxes $ 1,674,215 $ 544,725 $ 1,059,859
====================================================================================================================================
See notes to financial statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Statements of Shareholders' Equity
Additional Unrealized
Common Stock Paid In Net Gain On Retained
Shares Issued Amount Capital Investments Earnings Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 6,410,529 $ 341,904 $ 897,690 $ -- $ 3,504,457 $ 4,744,051
Common stock issued 125,722 6,705 265,415 272,120
Income tax benefit on
stock options exercised 149,400 149,400
Common stock reacquired (50,679) (2,703) (7,508) (149,887) (160,098)
Dividends declared
($.06 per share) (377,455) (377,455)
Net income for the year 1,732,743 1,732,743
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 6,485,572 345,906 1,304,997 -- 4,709,858 6,360,761
Common stock issued 346,219 18,462 840,832 859,294
Income tax benefit on
stock options exercised 136,300 136,300
Dividends declared
($.09 per share) (625,161) (625,161)
Net income for the year 2,183,623 2,183,623
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 6,831,791 364,368 2,282,129 -- 6,268,320 8,914,817
Common stock issued 146,541 7,815 364,976 372,791
Income tax benefit on
stock options exercised 259,300 259,300
Unrealized gain on
investments, net of
income taxes 17,043 17,043
Dividends declared
($.12 per share) (833,282) (833,282)
Net income for the year 4,535,246 4,535,246
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 6,978,332 $ 372,183 $2,906,405 $ 17,043 $ 9,970,284 $13,265,915
====================================================================================================================================
See notes to financial statements.
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND LINE OF BUSINESS:
Line of business and credit risks: The Company develops and markets computer
software programs primarily for the construction and property management
industries. The Company sells its products and services primarily to customers
and to authorized dealers throughout the United States. Credit is granted to
certain customers and dealers generally without collateral. An allowance for
doubtful accounts is provided based on historical experience and anticipated
losses.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of 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.
Financial instruments: The carrying amount reported in the balance sheet for
cash and cash equivalents, temporary investments, accounts receivable, accounts
payable and other current assets and liabilities approximates fair value because
of the immediate or short-term maturity of these financial instruments.
Revenue recognition: Revenue from the "license to use" computer software
programs is generally recognized at the point of shipment. Revenue from service
fees is generated from the sale of computer software maintenance and support
contracts, training classes, consulting and other support services. Revenue from
maintenance and support contracts is recognized ratably over the period the
service is provided. Revenue from other service fees is recognized at the time
the service is provided.
Software development costs: Costs of developing computer software are
capitalized when technological feasibility has been established for the computer
software product. These costs are amortized over a two- to five-year period.
Costs capitalized for the development of computer software were $927,000 in
1997, $1,127,000 in 1996 and $70,000 in 1995.
Amortization of capitalized computer software development costs was
approximately $403,000 in 1997, $262,000 in 1996, and $304,000 in 1995. Expenses
incurred on research and development of computer software products were
$6,222,000 in 1997, $4,905,000 in 1996 and $4,967,000 in 1995.
Cash and cash equivalents: Cash and cash equivalents include cash on hand, cash
deposited with banks and financial institutions, money market funds and highly
liquid debt instruments purchased with original maturity dates of three months
or less.
22
<PAGE>
Investments: Prior to 1997, temporary investments represented debt securities
which had maturity dates ranging from over three months to a year from the
purchase date and non-current investments represented debt securities with
maturity dates over one year from the purchase date. The Company classified both
categories of investments as "held to maturity" and accordingly recorded these
investments at amortized cost, which approximated fair value.
During 1997, the Company transferred the above investments from the "held to
maturity" category to the "available for sale" category, because these
investments may not be held to maturity. The Company may use some of these
investments to finance a portion of the Company's new corporate headquarters,
which is currently under construction, or for some other purposes as additional
funds are needed. Accordingly, the investments have been recorded at fair value.
The net unrealized gain or loss on these investments is included as a separate
component of shareholders' equity.
Inventories: Inventories consist of marketing literature and of software
components, primarily software manuals and media ready for assembly. Inventories
are stated at the lower of average cost or market.
Property and equipment: Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets ranging from two to ten years.
Accrued rent expense: Rent expense on operating leases with scheduled rent
increases is recognized on a straight-line basis over the lease term. Accrued
rent expense represents the excess of rent charged to expense over the amount of
scheduled rent paid.
Earnings per share: In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share," which established new standards for computing and
presenting earnings per share (EPS) to entities having publicly held common
stock and potential common stock. SFAS No. 128 replaces the presentation of
primary EPS with the dual presentation of a basic EPS and diluted EPS on the
Company's statements of operations and, accordingly, EPS have been restated for
all years presented. The Company computes basic EPS by dividing net income by
the weighted-average number of common shares outstanding and diluted EPS by
dividing net income by the sum of the weighted-average number of common shares
outstanding and the dilutive effect of stock options and warrants outstanding as
if such options and warrants were exercised or converted into common shares. The
Company's computation of diluted EPS is essentially the same as the computation
of primary EPS, which was presented prior to the adoption of SFAS No. 128.
There were no adjustments to net income in computing diluted earnings per share
for the years ended December 31, 1997, 1996 and 1995. A reconciliation of the
23
<PAGE>
common shares used in the denominator for computing basic and diluted EPS for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average shares outstanding, used in
computing basic EPS 6,916,636 6,674,098 6,432,842
Effect of dilutive securities:
Warrants --- 18,947 127,471
Stock options 195,402 370,749 239,160
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding, and the
effect of dilutive securities, used in
computing diluted EPS 7,112,038 7,063,794 6,799,473
====================================================================================================================================
</TABLE>
Recent accounting pronouncements: In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which established standards for reporting
comprehensive income and its components. This additional reporting requirement
will become effective for the Company during the year ending December 31, 1998.
There would not be a significant difference between net income and comprehensive
income for the years ended December 31, 1997, 1996 and 1995.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for disclosure
about operating segments in annual financial statements and selected information
about those operating segments in interim financial statements. It also
established standards for related disclosure about products and services,
geographic areas, and major customers. The new standard will become effective
for the Company for the year ending December 31, 1998. The Company believes that
any segment information required to be disclosed under SFAS No. 131 will provide
expanded disclosure of operating statement and balance sheet items. The Company
has not yet completed its analysis of the specific additional information that
will be required under this new standard.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. This SOP will become effective for the Company
during the year ending December 31,1998. The Company believes that its current
revenue recognition policy on software transactions is substantially in
compliance with this SOP and that there would not be any material change in its
methodology or the timing of recognizing revenue on software transactions in
subsequent years as a result of this pronouncement.
Reclassifications: Certain reclassifications have been made in the 1996 and 1995
financial statements to conform to the 1997 presentation.
24
<PAGE>
NOTE 2 INVESTMENTS:
Investments at December 31, 1997 and 1996 are composed of the following:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997:
Debt securities issued by the U.S. Treasury and
other U.S. government agencies $3,581,570 $3,598,868
Debt securities issued by states of the United States
and political subdivisions of the States 1,586,719 1,596,464
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments $5,168,289 $5,195,332
====================================================================================================================================
1997 net unrealized gain on investments $ 27,043
====================================================================================================================================
1996:
Debt securities issued by the U.S. Treasury and
other U.S. government agencies $2,547,724 $2,549,213
Debt securities issued by states of the United States
and political subdivisions of the states 2,218,944 2,231,974
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments $4,766,668 $4,781,187
====================================================================================================================================
1996 net unrealized gain on investments $ 14,519
====================================================================================================================================
</TABLE>
NOTE 3 PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 and 1996 is composed of the
following:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,432,568 $ ---
Tenant Improvements 545,922 532,002
Furniture and fixtures 1,077,504 1,042,170
Machinery and equipment 6,404,396 5,662,428
Construction in progress 2,210,805 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Total 12,671,195 7,236,600
Less accumulated depreciation and amortization 5,186,451 3,969,984
- ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment - net $ 7,484,744 $3,266,616
====================================================================================================================================
</TABLE>
25
<PAGE>
NOTE 4 CONSTRUCTION LOAN:
In connection with the construction of the Company's new corporate headquarters,
the Company has entered into a construction loan agreement with a bank to borrow
up to $9,750,000. Interest accrues at the bank's prime interest rate and
borrowings under this loan agreement are secured with a security interest in the
site of the new corporate headquarters. Borrowings, including interest, are to
be repaid by May 1999, with an option to extend the final payment of the loan to
November 1999. The Company also has the option to convert the construction loan
into a 10-year term loan at the termination date of the construction loan. There
were no borrowings under this loan agreement as of December 31, 1997. The new
headquarters is expected to be completed in the latter part of 1998.
The loan agreement requires that the Company maintain certain minimum working
capital and tangible net worth levels. As of December 31, 1997, the Company had
unrestricted retained earnings of $1,339,000 after meeting these requirements.
NOTE 5 COMMON STOCK:
In April 1996 and 1995, the Company's Board of Directors approved three-for-two
stock splits, effective in May 1996 and 1995, respectively. In October 1997, the
Company's Board of Directors approved a five-for-four stock split, effective in
November 1997. All prior common stock and per share data amounts have been
retroactively adjusted to reflect these changes.
In March 1994, the Company issued warrants to purchase 281,250 shares of its
common stock at $3.733 per share to a large national account as part of a joint
marketing agreement to promote the Company's software products. In 1996, all of
those warrants were exercised.
As of December 31, 1997, the Company has three stock-based compensation plans.
Two nearly identical plans, adopted in 1987 and 1989, are non-qualified stock
option plans for its officers and key employees. Under these plans, the Company
may grant options for up to 632,813 shares of common stock. Options may not be
granted under the 1987 plan and the 1989 plan after 1997 and 1999, respectively.
As of December 31, 1997, 190,623 shares are reserved under these plans, of which
there are 190,005 options outstanding.
In 1993, the Company's shareholders approved an incentive stock plan for the
main purpose of retaining and attracting the services of selected Company
directors, officers, employees and non-employees. The plan provides for the
granting of various stock options, stock appreciation rights, and stock bonuses.
As of December 31, 1997, only non-qualified stock options have been granted
under this plan. Awards under this plan may not be granted after 2003. As of
December 31, 1997, 483,993 shares are reserved under this plan, of which there
are 436,856 options outstanding. All of the plans are administered by a
committee of the Company's Board of Directors which determines the terms and
conditions of the various grants awarded under these plans. Under these plans,
26
<PAGE>
the non-qualified stock options granted generally have an exercise price equal
to the market price of the Company's common stock on the date of grant. 20
percent of the options granted vest at the date of the grant to the optionee and
an additional 20 percent vest each year thereafter until the options are fully
vested. The options expire 10 years after the date of grant.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which encouraged (but did not
require) that stock-based compensation cost be recognized and measured by the
fair value of the equity instrument awarded. The Company did not change its
method of accounting for its stock-based compensation plans and will continue to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for these plans.
Accordingly, no compensation cost has been recognized for these plans in the
financial statements. If compensation cost on stock options granted after 1994
under these plans had been determined based on the fair value of the options
granted as of the grant date in a method consistent with that described in SFAS
No. 123, the Company's net income and diluted earnings per share would have been
reduced to the pro forma amounts indicated below for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $4,535,000 $2,184,000 $1,733,000
Net income, pro forma 4,214,000 2,018,000 1,627,000
Diluted earnings per share, as reported 0.64 0.31 0.25
Diluted earnings per share, pro forma 0.59 0.29 0.24
The pro forma amounts do not consider the effect of options granted prior to
1995 that vest in subsequent years. The pro forma amounts may also not be
indicative of the effects on reported net income for future years, due to the
effect of options vesting over a period of years and the awarding of stock
compensation awards in future years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995:
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Annual dividend yield 1.1% 1.4% 1.4%
Risk-free interest rate per annum 6.2% 6.4% 5.9%
Expected annual volatility 87.4% 87.9% 87.9%
Expected lives of options (years) 7.0 7.0 7.0
</TABLE>
27
<PAGE>
A summary of the status of the Company's stock option plans as of December 31,
1997, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 609,179 $3.418 633,586 $3.056 576,865 $2.231
Granted 183,662 9.106 49,750 6.927 204,382 4.804
Exercised (146,541) 2.544 (64,969) 2.452 (125,722) 2.164
Forfeited (19,439) 5.799 (9,188) 4.114 (21,939) 2.756
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 626,861 $5.218 609,179 $3.418 633,586 $3.056
====================================================================================================================================
Options exercisable
at year-end 382,568 404,586 369,254
Weighted-average
fair value of
options granted $ 6.694 $ 4.999 $ 3.449
during the year
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------- ----------------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Average
Range of Number of Life Exercise Number of Exercise
Exercise Prices Options (years) Price Options Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.644 - 2.667 243,386 4.52 $ 2.320 238,885 $ 2.315
4.733 - 6.700 273,313 8.34 5.334 118,801 5.074
7.400 - 12.125 110,162 9.70 11.330 24,882 10.981
- ------------------------------------------------------------------------------------------------------------------------------------
$1.644 - 12.125 626,861 7.10 $ 5.218 382,568 $ 3.736
====================================================================================================================================
</TABLE>
NOTE 6 INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effect of
significant items comprising the Company's net deferred tax liability as of
December 31, 1997 and 1996 are as follows:
28
<PAGE>
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property and equipment $ 335,000 $ 339,000
Capitalized software cost 637,000 433,000
Maintenance costs 70,000 102,000
Other 24,000 13,000
- ------------------------------------------------------------------------------------------------------------------------------------
1,066,000 887,000
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts 77,000 70,000
Employee expenses not currently deductible 40,000 36,000
Accrued rent expense 18,000 25,000
Other 36,000 26,000
- ------------------------------------------------------------------------------------------------------------------------------------
171,000 157,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 895,000 $ 730,000
====================================================================================================================================
The net deferred tax liability is classified in the balance sheet as follows:
Deferred income taxes $ 965,000 $ 746,000
Deferred tax assets included in other current
assets (70,000) (16,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 895,000 $ 730,000
====================================================================================================================================
The provision for income taxes is composed of the following:
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Current:
Federal $1,949,000 $ 350,000 $ 575,000
State 331,000 100,000 125,000
Deferred:
Federal 125,000 338,000 12,000
State 30,000 82,000 2,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,435,000 $ 870,000 $ 714,000
====================================================================================================================================
A reconciliation of the difference between the provision for income taxes and
the income taxes computed at the federal statutory rate is summarized below:
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes based on federal
statutory rate $2,370,000 $1,038,000 $ 832,000
State tax, net of federal tax
benefit 230,000 112,000 84,000
Research and development credits (251,000) (326,000) (231,000)
Other 86,000 46,000 29,000
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $2,435,000 $ 870,000 $ 714,000
====================================================================================================================================
</TABLE>
29
<PAGE>
Research and development credits in 1996 and 1995 include additional amounts
which have been made available from prior years as a result of a change in tax
regulations. This reduced the Company's provision for income taxes for the years
ended December 31, 1996 and 1995, by $180,000 and $150,000 respectively.
NOTE 7 COMMITMENTS:
The Company leases its corporate headquarters under a non-cancelable lease
expiring in 1998. The lease provides for payment by the Company of property
taxes, maintenance and other operating costs. The Company has the option of
renewing the lease for two additional five-year terms. In 1996, the Company
commenced a lease on additional office space for expansion of its corporate
offices. This lease expires in 2003. The Company also leases equipment and other
office facilities under non-cancelable operating leases. Total rent expense
under these leases was $986,000, $884,000 and $711,000 in 1997, 1996 and 1995,
respectively.
Future minimum rentals under these leases as of December 31, 1997, are as
follows:
Year ending December 31,
1998 $ 771,000
1999 269,000
2000 245,000
2001 216,000
2001 208,000
Thereafter 52,000
- --------------------------------------------------------------------------------
Total $1,761,000
- --------------------------------------------------------------------------------
Future minimum rental payments have not been reduced by future minimum sublease
rental income of $926,000 from a non-cancelable sublease.
The Company has entered into an agreement for construction of its new corporate
headquarters. Total cost of the new headquarters is estimated at $12,300,000, of
which $2,211,000 has been expended as of December 31, 1997.
NOTE 8 EMPLOYEE BENEFIT PLAN:
The Company has a retirement plan, under the provisions of Section 401(k) of the
Internal Revenue Code, covering substantially all employees. Under the terms of
the plan, employees may make contributions computed on a percentage of pay. The
Company may match employee contributions up to a set percentage of pay. The
Company may, at its discretion, make an additional year-end contribution out of
profits. Contributions by the Company under the plan were $393,000 in 1997,
$376,000 in 1996 and $304,000 in 1995.
30
<PAGE>
NOTE 9 QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Basic Diluted
Net Cost and Net Earnings Earnings per
Revenue Expenses Income per Share Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
1st quarter $ 7,507,695 $ 7,101,066 $ 331,895 $ .05 $ .05
2nd quarter 8,224,968 6,752,511 982,860 .14 .14
3rd quarter 8,795,292 7,158,371 1,237,286 .18 .17
4th quarter 10,712,123 7,728,527 1,983,205 .28 .28
1996
1st quarter $ 6,678,197 $ 6,034,417 $ 452,858 $ .07 $ .07
2nd quarter 6,813,126 6,031,586 542,550 .08 .08
3rd quarter 6,945,025 6,710,977 338,015 .05 .05
4th quarter 8,222,683 7,226,836 850,200 .12 .12
</TABLE>
31
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
32
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
With Section 16(a) of the Exchange Act
- --------------------------------------
There is hereby incorporated by reference the information under the captions
"Election of Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act" in the Company's definitive Proxy Statement filed pursuant to
Regulation 14A with the Securities and Exchange Commission on or about March 20,
1998.
Item 10. Executive Compensation
- --------------------------------
There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Company's definitive Proxy Statement filed
pursuant to Regulation 14A with the Securities and Exchange Commission on or
about March 20, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
There is hereby incorporated by reference the information under the caption
"Voting Securities and Principal Holders Thereof" in the Company's definitive
Proxy Statement filed pursuant to Regulation 14A with the Securities and
Exchange Commission on or about March 20, 1998.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
None.
33
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
a. Exhibits
Articles of Incorporation and Bylaws
------------------------------------
3(i) - Amended and Restated Articles of Incorporation
(Incorporated by reference to Exhibit 3.1 of Annual Report
on Form 10-K for the year ended December 31, 1990)
3(ii) - Amended and Restated Bylaws (Incorporated by reference
to Exhibit 3(ii) of Quarterly Report on Form 10-QSB for
the three months ended March 31, 1997)
Material Contracts
------------------
* 10.1 - 1987 Non-Qualified Stock Option Plan (Incorporated by
reference to Exhibit 10.1 of Annual Report on Form 10-K
for the year ended December 31, 1990)
* 10.1(a) - Amendment No. 1 to 1987 Non-Qualified Stock Option Plan
(Incorporated by reference to exhibit 10.1(a) of Form
10-KSB for the year ended December 31, 1995)
* 10.2 - 1989 Non-Qualified Stock Option Plan (Incorporated by
reference to Exhibit 10.2 of Annual Report on Form
10-K for the year ended December 31, 1990)
* 10.2(a) - Amendment No. 1 to 1989 Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10.2(a) of Form
10-KSB for the year ended December 31, 1995)
10.3 - Form of Indemnification Agreement and signature pages for
all indemnitees (Incorporated by reference to Exhibit 10.3
of Annual Report on Form 10-K for the year ended
December 31, 1990)
* 10.4 - Timberline Employees' Retirement Plan (Incorporated by
reference to Exhibit 10.4 of Annual Report on Form 10-K
for the year ended December 31, 1990)
* 10.5 - First and Second amendments to Timberline Software
Corporation Employees' Retirement Plan (Incorporated by
reference to Exhibit 10.5 of Annual Report on Form 10-K
for the year ended December 31, 1992)
* 10.5(a) - Article A - Appendix to Basic Plan Document of Timberline
Software Corporation Employees' Retirement Plan
(Incorporated by reference to Exhibit 10.5(a) of Annual
Report on Form 10-KSB for the year ended December 31,
1994)
* 10.5(b) - Article B - Appendix to Basic Plan Document of Timberline
Software Corporation Employees' Retirement Plan
(Incorporated by reference to Exhibit 10.5(b) of Annual
Report on Form 10-KSB for the year ended December 31,
1995)
34
<PAGE>
* 10.5(c) - Third Amendment to Timberline Software Corporation
Employees' Retirement Plan (Incorporated by reference to
Exhibit 10.1(c) of Form 10-KSB for the year ended
December 31, 1995)
* 10.5(d) - Fourth Amendment to Timberline Software Corporation
Employees' Retirement Plan
* 10.6 - 1993 Stock Incentive Plan (Incorporated by reference to
Exhibit 10 of Quarterly Report on Form 10-Q for the
three months ended June 30, 1993)
10.7 - Warrant Agreement by and between the Company and
McDonald's Corporation dated as of March 10, 1994
(Incorporated by reference to Exhibit 10.1 of Quarterly
Report on Form 10-QSB for the three months ended
June 30, 1994)
10.8 - Construction Loan Agreement dated as of December 1, 1997
between the Company and Pacific One Bank
10.9 - Deed of Trust, Line of Credit Instrument dated as of
December 1, 1997 between the Company and Pacific One Bank
10.10 - Promissory Note in the amount of $9,750,000.00 dated as of
December 1, 1997
* Management contract or compensatory plan or arrangement
Consents
--------
23 - Independent Auditors' Consent
Miscellaneous
27.1 - Financial Data Schedule for the year ended December 31,
1997
27.2 - Financial Data Schedule for the three, six and nine months
ended March 31, 1997, June 30, 1997, and September 30,
1997, respectively, and for the year ended December 31,
1996
27.3 - Financial Data Schedule for the three, six and nine months
ended March 31, 1996, June 30, 1996, and September 30,
1996, respectively, and for the year ended December 31,
1995
b. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1997.
35
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TIMBERLINE SOFTWARE CORPORATION
by /s/ Thomas P. Cox 3/18/98
--------------------------------- ----------------------------
Thomas P. Cox Date
Senior Vice President-Finance
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ John Gorman 3/18/98
- ---------------------------------------- -----------------------------
John Gorman Date
Chief Executive Officer and
Chairman of the Board of Directors
/s/ Curtis L. Peltz 3/18/98
- ---------------------------------------- -----------------------------
Curtis L. Peltz Date
President, Chief Operating Officer
and Director
/s/ Thomas P. Cox 3/18/98
- ---------------------------------------- -----------------------------
Thomas P. Cox Date
Senior Vice President-Finance
Chief Financial Officer
/s/ Leslie F. Clarke, II 3/18/98
- ---------------------------------------- -----------------------------
Leslie F. Clarke, II Date
Executive Vice President, Director
/s/ James A. Meyer 3/18/98
- ---------------------------------------- -----------------------------
James A. Meyer Date
Director
/s/ Donald L. Tisdel 3/18/98
- ---------------------------------------- -----------------------------
Donald L. Tisdel Date
Director
/s/ Carl C. Asai 3/18/98
- ---------------------------------------- -----------------------------
Carl C. Asai Date
Controller
<PAGE>
TIMBERLINE SOFTWARE CORPORATION
-------------------------------
FORM 10-KSB FOR YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
EXHIBIT INDEX*
--------------
10.5(d) - Fourth Amendment to Timberline Software Corporation
Employees' Retirement Plan
10.8 - Construction Loan Agreement dated as of December 1, 1997
between the Company and Pacific One Bank
10.9 - Deed of Trust, Line of Credit Instrument dated as of
December 1, 1997 between the Company and Pacific One Bank
10.10 - Promissory Note in the amount of $9,750,000.00 dated as of
December 1, 1997
Consents
--------
23 - Independent Auditors' Consent
Miscellaneous
-------------
27.1 - Financial Data Schedule for the year ended December 31,
1997
27.2 - Financial Data Schedule for the three, six and nine months
ended March 31, 1997, June 30, 1997, and September 30,
1997, respectively, and for the year ended December 31,
1996
27.3 - Financial Data Schedule for the three, six and nine months
ended March 31, 1996, June 30, 1996, and September 30,
1996, respectively, and for the year ended December 31,
1995
* See item 13(a) of this Annual Report for a list of all exhibits, including
those incorporated by reference.
FOURTH AMENDMENT
TO
TIMBERLINE SOFTWARE CORPORATION
EMPLOYEES' RETIREMENT PLAN
The Chairman announced that the only order of business was the consideration by
the Board of amendments to Section(s) 3.01(k)(3)(iv) and 3.01(k)(4)(iv) of the
Corporation's existing retirement plan. The Chairman further explained that the
Corporation could make the necessary amendments by replacing certain pages of
the plan's adoption agreement. The Chairman then circulated the proposed
amendments to the Directors. After a brief discussion of the proposed
amendments, motion was made, seconded and it was unanimously:
RESOLVED, that the Corporation adopt the amendments to Sections
3.01(k)(3)(iv) and 3.01(k)(4)(iv) of the Corporation's retirement plan
circulated at this meeting, the amendments to be effective for the plan
year commencing January 1, 1997. To effect the amendments, the
Secretary will substitute amended page(s) 11 and 12 of the plan's
adoption agreement in circulation for the corresponding page(s)
presently within the adoption agreement. The Secretary will retain one
copy of the page(s) removed as a part of the permanent record of the
Corporation.
Dated: 6/9/97
-------------
Employer: Trustee:
/s/ Thomas P. Cox /s/ Nicolette D. Johnston
- ------------------------------- -----------------------------
Timberline Software Corporation Administrative Committee
<PAGE>
Part III. [Options (k) and (l)]. Special rules for Code ss.401(k) Arrangement.
(Choose (k) or (l), or both, as applicable)
-------------------------------------------
[x] (k) Salary Reduction Agreements. The following rules and restrictions
apply to an Employee's salary reduction agreement:
(Make a selection under (1), (2) (3) and (4))
---------------------------------------------
(1) Limitation on amount. The Employee's salary reduction
contributions: (Choose (i) or at least one of (ii) or (iii))
---------------------------------------------
[ ] (i) No maximum limitation other than as provided in
the Plan.
[x] (ii) May not exceed 15% of Compensation for the Plan
Year, subject to the annual additions limitation
described in Part 2 of Article III and the 402(g)
limitation described in Section 14.07 of the Plan.
[ ] (iii) Based on percentages of Compensation must
equal at least .
---------------------------
(2) An employee may revoke, on a prospective basis, a salary reduction
agreement: Choose (i), (ii),(iii) or (iv))
-------------------------------
[ ] (i) Once during any Plan Year but not later than
of the Plan Year.
-------------------
[ ] (ii) As of any Plan Entry Date.
[x] (iii) As of the first day of any month.
[ ] (iv) (Specify, but must be at least once per Plan
---------------------------------------------
Year) .
----- ----------------------------------
(3) An employee who revokes his salary reduction agreement may file a
new salary reduction agreement with an effective date:
(Choose (i), (ii), (iii) or (iv))
---------------------------------
[ ] (i) No earlier than the first day of the next Plan
Year.
[ ] (ii) As of any subsequent Plan Entry Date.
[ ] (iii) As of the first day of any month subsequent
to the month in which he revoked an Agreement.
[x] (iv) (Specify, but must be at least once per Plan
----------------------------------------------
Year following the Plan Year of revocation) As of the
-----------------------------------------------------
first subsequent January 1 or July 1.
-------------------------------------
(4) A Participant may increase or may decrease, on a prospective
basis, his salary reduction percentage or dollar amount:
Choose (i), (ii), (iii) or (iv))
--------------------------------
[ ] (i) As of the beginning of each payroll period.
[ ] (ii) As of the first day of each month.
[ ] (iii) As of any Plan Entry Date.
[ ] (iv) (Specify, but must permit an increase or
--------------------------------------------
decrease at least once per Plan Year) As of January 1
-----------------------------------------------------
or July 1.
----------
<PAGE>
[x] (1) Cash or deferred contributions. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a
Participant may elect to receive directly in cash not more than the
following portion (or, if less, the 402(g) limitation described in
Section 14.07 of the Plan) of his proportionate share of that cash or
deferred contribution: (Choose (1) or (2))
-------------------
[ ] (1) All or any portion.
[ ] (2) %.
----------------------------
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06 and
the elections under this Adoption Agreement Section 3.04.
Part I. [Options (a) through (d)]. Special Accounting Elections.
(Choose whichever elections are applicable to the Employer's Plan)
------------------------------------------------------------------
[x] (a) Matching Contributions Account. The Advisory Committee will
allocate matching contributions to a Participant's:
(Choose (1) or (2); (3) is available only in addition to (1))
-------------------------------------------------------------
[x] (1) Regular Matching Contributions Account.
[ ] (2) Qualified Matching Contributions Account.
[ ] (3) Except, matching contributions under Option(s) of
Adoption Agreement Section 3.01 are allocable to the Qualified
Matching Contributions Account.
[x] (b) Special Allocation Dates for Salary Reduction Contributions.
The Advisory Committee will allocate salary reduction contributions as
of the Accounting Date and as of the following additional allocation
dates: January 1.
---------
[ ] (c) Special Allocation Dates for Matching Contributions. The Advisory
Committee will allocate matching contributions as of the Accounting
Date and as of the following additional allocation dates:
--------------
.
------------------------------------------------------
[x] (d) Designated Qualified Nonelective Contributions - Definition
of Participant. For purposes of allocating the designated
qualified nonelective contribution, "Participant" means:
(Choose (1) (2) or (3))
-----------------------
[ ] (1) All Participants.
[x] (2) Participants who are Nonhighly Compensated Employees for
the Plan Year.
[ ] (3) (Specify):
----------------------------------------------.
Part II. Method of Allocation - Nonelective Contribution. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for
CONSTRUCTION LOAN AGREEMENT
- --------------------------------------------------------------------------------
Borrower: Timberline Software Corporation Lender: Pacific One Bank
9600 S.W. Nimbus Avenue P.O. Box 40108
Beaverton, Oregon 97008 Portland, Oregon 97240-0108
- --------------------------------------------------------------------------------
THIS CONSTRUCTION LOAN AGREEMENT between Timberline Software Corporation
("Borrower") and Pacific One Bank ("Lender") is made and executed on the
following terms and conditions. Borrower has applied to Lender for loans in the
total principal amount of Nine Million Seven Hundred Fifty Thousand and 00/100
Dollars ($9,750,000.00) in order to construct the Improvements on the Real
Property described below. Lender is willing to lend the loan amount to Borrower
solely under the terms and conditions specified in this Agreement and in the
Related Documents, to each of which Borrower agrees. Borrower understands and
agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements as set forth in this
Agreement, and (b) all such Loans shall be and remain subject to the following
terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of December 1, 1997, and shall
continue thereafter until all Indebtedness has been paid in full and all other
obligations of Borrower hereunder have been performed in full and the parties
terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Construction Loan Agreement,
as this Construction Loan Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Construction Loan Agreement from time to time.
Architecture Contract. The words "Architecture Contract" mean the
contract between Borrower and Mahlum & Nordfors Smith Gordon Architects,
PC, who designed the Project.
Borrower. The word "Borrower" means Timberline Software Corporation.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
Construction Contract. The words "Construction Contract" mean and include
the contract between Borrower and Westwood Swinerton Construction, the
general contractor for the Project, and any subcontracts with
subcontractors, materialmen, laborers, or any other person or entity for
performance of work on the Project or the delivery of materials to the
Project.
Current Assets. The words "Current Assets" mean assets owned by Borrower
that will be converted into cash in the normal course of business within
one year.
Current Liabilities. The words "Current Liabilities" mean liabilities
that will be paid in the normal course of business within one year by
expending current assets or otherwise.
Debt Service Ratio. The words "Debt Service Ratio" mean net profits, plus
depreciation and amortization, divided by the current maturity of long
term debt.
<PAGE>
Event of Default. The words "Event of Default" mean and include any of
the Events of Default set forth below in the section titled "Events of
Default."
Grantor. The word "Grantor" means and includes each and all of the
persons or entities granting a Security Interest in any Collateral for
the Indebtedness, including without limitation all Borrowers granting
such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation all
guarantors, sureties, and accommodation parties.
Improvements. The word "Improvements" means and includes without
limitation all existing and future buildings, structures, facilities,
fixtures, additions, and similar construction on the Property.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether Borrower
may be liable individually or jointly with others; whether Borrower may
be obligated as a guarantor, surety, or otherwise; whether recovery upon
such Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means Pacific One Bank, its successors and
assigns.
Loan. The word "Loan" means the Note and any other loans made to Borrower
under this Agreement and the Related Documents as described below.
Loan Fund. The words "Loan Fund" mean the undisbursed proceeds of the
Loan under this Agreement together with any equity funds or other
deposits required from Borrower under this Agreement.
Note. The word "Note" means the promissory note or credit agreement dated
December 1, 1997, in the original principal amount of Nine Million Seven
Hundred Fifty Thousand and 00/100 Dollars ($9,750,000.00) from Borrower
to Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of, and substitutions for the
promissory note or agreement.
Plans and Specifications. The words "Plans and Specifications" mean the
plans and specifications for the Project which have been approved and
initialed by Lender, together with such changes and additions as may be
approved by Lender in writing.
Project. The word "Project" means the construction and completion of all
Improvements contemplated by this Agreement, including without limitation
the erection of the building or structure, installation of equipment and
fixtures, landscaping, and all other work necessary to make the Property
usable and complete for the intended purposes. The Project includes the
following work: an office building containing approximately 88,000 square
feet.
Project Documents. The words "Project Documents" mean the Plans and
Specifications, all studies, data and drawings relating to the Project,
whether prepared by or for Borrower, the Construction Contract, the
Architecture Contract, and all other contracts and agreements relating to
the Project or the construction of the Improvements.
Property. The word "Property" means the Real Property together with all
Improvements, all equipment, fixtures, and other articles of personal
property now or subsequently attached or affixed to the real property,
together with all accessions, parts, and additions to, all replacements
of, and all substitutions for any of such property, and all proceeds
(including insurance proceeds and refunds of premiums) from any sale or
other disposition of such property.
<PAGE>
Real Property. The words "Real Property" mean the real property located
in Washington County, State of Oregon, and legally described as:
Lots 6 and 7, CORPORATE CENTER AT CORNELL OAKS, recorded January
26, 1995 in Plat Book 95, Pages 27 through 32, recorded as
Document No. 95005969, situated in the County of Washington and
State of Oregon.
TOGETHER WITH a non-exclusive right, privilege and easement for
ingress and egress of pedestrian and vehicular traffic as
disclosed by Easement Agreement recorded August 5, 1997,
Recorder's Fee No.
97071989.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance
acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
LOAN. The Loan shall be in the principal sum of Nine Million Seven Hundred Fifty
Thousand and 00/100 Dollars ($9,750,000.00) and shall bear interest on so much
of the principal sum as shall be advanced pursuant to the terms of this
Agreement and the Related Documents. The Loan shall bear interest on each
Advance from the date of the Advance in accordance with the terms of the Note.
Borrower shall use the proceeds of the Loan solely for the payment of (a) the
costs of constructing the Improvements and equipping the Project in accordance
with the Construction Contract; (b) other costs and expenses incurred or to be
incurred in connection with the construction of the Improvements as Lender in
its sole discretion shall approve; and (c) if permitted by Lender, interest due
under the Note, including all expenses and all loan and commitment fees
described in this Agreement.
FEES AND EXPENSES. Whether or not the Project shall be consummated, Borrower
shall assume and pay upon demand all out-of-pocket expenses incurred by Lender
in connection with the preparation of loan documents and the making of the Loan,
including without limitation the following: (a) all closing costs, fees, and
disbursements; (b) all expenses of Lender's legal counsel; and (c) all title
examination fees, title insurance premiums, appraisal fees, survey costs,
required fees, and filing and recording fees.
CONSTRUCTION PRIOR TO RECORDING OF SECURITY DOCUMENT. In the event Borrower
permits any work or materials to be furnished in connection with the Project
prior to execution of this Agreement, no Loan Funds shall be advanced until (a)
Borrower has signed the Related Documents; (b) Lender's mortgage or deed of
trust and other Security Interests in the Property have been duly recorded and
perfected; and (c) Lender has been provided evidence, satisfactory to Lender,
that Borrower has obtained all insurance required under this Agreement or any
Related Agreement and that Lender's liens on the Property and Improvements are
valid perfected first liens, subject only to such exceptions, if any, acceptable
to Lender.
<PAGE>
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of
the date of this Agreement and as of the date of each disbursement of Loan
proceeds:
Organization. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently
engaged or presently proposes to engage.
Authorization. The execution, delivery, and performance of this Agreement
by Borrower, to the extent to be executed, delivered or performed by
Borrower, have been duly authorized by all necessary action by Borrower;
do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a
violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
Litigation and Claims. No litigation or claim (including those for unpaid
taxes) against Borrower is pending or threatened which may materially
adversely affect Borrower's financial condition, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events,
if any, that have been disclosed to and acknowledged by Lender in
writing.
Title to Property. Borrower has, or on the date of first disbursement of
Loan proceeds will have, good and marketable title to the Property free
and clear of all defects, liens, and encumbrances, excepting only liens
for taxes, assessments, or governmental charges or levies not yet
delinquent or payable without penalty or interest, and such liens and
encumbrances as may be approved in writing by the Lender.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing or intended to protect human
health or the environment ("Environmental Laws"). Except as disclosed to
and acknowledged by Lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of Borrower's
Property, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, or about the Property. (b) Borrower
has no knowledge of, or reason to believe that there has been (i) any
use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance by any prior
owners or occupants of the Property, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(c) Neither Borrower nor any tenant, contractor, agent or other
authorized user of the Property shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
or about the Property; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation Environmental
Laws. Borrower authorizes Lender and its agents to enter upon the
Property to make such inspections and tests as Lender may deem
appropriate to determine compliance of the Property with this section of
the Agreement. Any inspections or tests made by Lender shall be for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the Property for
hazardous waste. Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
<PAGE>
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the Property, whether or not
the same was or should have been known to Borrower, or as a result of a
violation of any Environmental Laws. The provisions of this section of
the Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the satisfaction of this Agreement and
shall not be affected by Lender's acquisition of any interest in the
Property, whether by foreclosure or otherwise.
Project Costs. The Project costs are true and accurate estimates of the
costs necessary to complete the Improvements in a good and workmanlike
manner according to the Plans and Specifications presented by Borrower to
Lender, and Borrower shall take all steps necessary to prevent the actual
cost of the Improvements from exceeding the Project costs.
Utility Services. All utility services appropriate to the use of the
Project after completion of construction are available at the boundaries
of the Property.
Access. The Property is contiguous to publicly dedicated streets, roads,
or highways providing access to the Property.
Assessment of Property. The Property is and will continue to be assessed
and taxed as an independent parcel by all governmental authorities.
Compliance with Governing Authorities. Borrower has examined and is
familiar with all the easements, covenants, conditions, restrictions,
reservations, building laws, regulations, zoning ordinances, and federal,
state, and local requirements affecting the Project. The Project will at
all times and in all respects conform to and comply with the requirements
of such easements, covenants, conditions, restrictions, reservations,
building laws, regulations, zoning ordinances, and federal, state, and
local requirements.
Survival of Representation and Warranties. Borrower understands and
agrees that Lender is relying upon the above representations and
warranties in making the above referenced Loan to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such
time as Borrower's Loan and Note shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is
the last to occur.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement.
Borrower's Payment. Borrower shall have first paid from its own funds the
sum of Three Million Nine Hundred Eighty-Five Thousand and 00/100 Dollars
($3,985,000.00) toward construction of the Project.
Compliance with Commitment Letter. Borrower shall have fully complied
with that Construction/Term Loan Commitment Letter between Borrower and
Lender dated July 17, 1997. In the event there is a conflict between the
terms of the Commitment Letter and the terms of this Construction Loan
Agreement or the Related Documents, the terms of the Construction Loan
Agreement or Related Documents shall prevail.
Approval of General Contractor. Lender shall have approved the general
contractor employed in connection with the construction of the
Improvements. Lender shall have the right to communicate with any person
to verify the facts disclosed by any application for any Advance, or for
any other purpose.
Plans, Specifications, and Permits. Lender shall have received and
accepted a complete set of Plans and Specifications setting forth all
Improvements for the Project, and Borrower shall have furnished to Lender
copies of all permits and requisite approvals of any governmental body
necessary for the construction and use of the Project.
Architecture and Construction Contracts. Borrower shall have furnished in
form and substance satisfactory to Lender an executed copy of the
Architecture Contract and an executed copy of the Construction Contract.
<PAGE>
Support Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following support documents for the Loan: Assignment of
Architecture Contract and Assignment of Construction Contract. Budget and
Schedule of Estimated Advances. Lender shall have approved detailed
budget and cash flow projections of total Project costs and a schedule of
the estimated amount and time of disbursements of each Advance.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of the Loan documents, and the
consummation of the Project, and such other authorizations and other
documents as Lender in its sole discretion may require.
Survey. If requested by Lender, Borrower shall have furnished to Lender a
survey of recent date, prepared and certified by a qualified surveyor and
providing that the Improvements, if constructed in accordance with the
Plans and Specifications, shall lie wholly within the boundaries of the
Property without encroachment or violation of any zoning ordinances,
building codes or regulations, or setback requirements, together with
such other information as Lender in its sole discretion may require.
Zoning. Borrower shall have furnished evidence satisfactory to Lender
that the Property is duly and validly zoned for the construction,
maintenance, and operation of the Project.
Soils Test. Borrower shall have provided Lender with test of the
Property's soil. This report, prepared by an engineering firm acceptable
to Lender must indicate that the soil conditions of the Property are
sufficient to support the Project.
Hazardous Substance Report. Borrower shall have provided Lender with a
report showing that the Property is free from hazardous substances. This
report must be prepared by an environmental services company acceptable
to Lender. The report should detail a site reconnaissance, research into
appropriate environmental agency files, and a summary of findings and
recommendations. A 50-year history of Property title and uses will also
be provided.
Title Insurance. Borrower shall have provided to Lender an ALTA Lender's
extended coverage policy of title insurance with such endorsements as
Lender may require, issued by a title insurance company acceptable to
Lender and in a form, amount, and content satisfactory to Lender,
insuring or agreeing to insure that the Mortgage or Deed of Trust on the
Property is or will be upon recordation a valid first lien on the
Property free and clear of all defects, liens, encumbrances, and
exceptions except those as specifically accepted by Lender in writing. If
requested by Lender, Borrower shall provide to Lender, at Borrower's
expense, a foundation endorsement to the title policy upon the completion
of each foundation for the Improvements, showing no encroachments, and
upon completion an endorsement which insures the lien-free completion of
the Improvements.
Insurance. Unless waived by Lender in writing, Borrower shall have
delivered to Lender the following insurance policies or evidence thereof:
(a) an all risks course of construction insurance policy covering the
Improvements issued in an amount and by a company acceptable to Lender,
containing a loss payable or other endorsement satisfactory to Lender
insuring Lender as mortgagee, together with such other endorsements as
may be required by Lender, including stipulations that coverages will not
be cancelled or diminished without at least thirty (30) days' prior
written notice to Lender; (b) flood insurance if required by Lender or
applicable law; and (c) all other insurance required by this Agreement or
by the Related Documents.
WARNING
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Unless Borrower provides Lender with evidence of the insurance
coverage as required herein, Lender may purchase insurance at
Borrower's expense to protect Lender's interest. This insurance
may, but need not, also protect Borrower's interest. If the
Collateral becomes damaged, the coverage Lender purchases may not
pay any claim Borrower makes or any claim made against Borrower.
Borrower may later cancel this coverage by providing evidence that
Borrower has obtained property coverage elsewhere.
<PAGE>
Borrower is responsible for the cost of any insurance purchased by
Lender. The cost of this insurance may be added to the Note
balance. If the cost is added to the Note balance, the interest
rate on the Note will apply to this added amount. The effective
date of coverage may be the date Borrower's prior coverage lapsed
or the date Borrower failed to provide proof of coverage. The
coverage Lender purchases may be considerably more expensive than
insurance Borrower can obtain on Borrower's own and may not
satisfy any need for property damage coverage or any mandatory
liability insurance requirements imposed by applicable law.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
expenses specified in this Agreement as are then due and payable.
Satisfactory Construction. All work usually done at the stage of
construction for which disbursement is requested shall have been done in
a good and workmanlike manner and all materials and fixtures usually
furnished and installed at that stage of construction shall have been
furnished and installed, all in compliance with the Plans and
Specifications. Borrower shall also have furnished to Lender Property
inspection reports and such other proofs as Lender may reasonably require
to establish the progress of the work, compliance with applicable laws,
freedom of the Property from liens, and the basis for the requested
disbursement.
Certification. Borrower shall have furnished to Lender a certification by
an engineer, architect, or other qualified inspector acceptable to Lender
that the construction of the Improvements has complied and will continue
to comply with all applicable statutes, ordinances, codes, regulations,
and similar requirements, including but not limited to the Americans with
Disabilities Act of 1990.
Lien Waivers. Borrower shall have obtained and attached to each
application for an Advance, including the Advance to cover final payment
to the general contractor, executed acknowledgments of payments of all
sums due and releases of mechanic's and materialmen's liens, satisfactory
to Lender, from any party having lien rights, which acknowledgments of
payment and releases of liens shall cover all work, labor, equipment,
materials done, supplied, performed, or furnished prior to such
application for an Advance.
Lack of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this
Agreement.
DISBURSEMENT OF LOAN PROCEEDS. The following provisions relate to the
disbursement of funds from the Loan Fund.
Application for Advances. Each application shall be stated on a standard
AIA payment request form or other form approved by Lender, executed by
Borrower, certified by Mahlum & Nordfors Smith Gordon Architects, PC, and
supported by such evidence as Lender shall reasonably require. Borrower
shall apply only for disbursement with respect to work actually done by
the general contractor and for materials and equipment actually
incorporated into the Project. Each application for an Advance shall be
deemed a certification of Borrower that as of the date of such
application, all representations and warranties contained in the
Agreement are true and correct, and that Borrower is in compliance with
all of the provisions of this Agreement. Only one Loan draw will be
allowed each month and all draws shall comply with the Lender's Standard
Construction Loan Procedures dated June 3, 1996 and any subsequent
amendments thereto.
Loan To Value. Unless waived by Lender in writing, the ratio of the
amount of the Loan to the value of the Property as completed shall not
exceed seventy-five percent (75%). The term "value" as used herein shall
be defined by Lender in its sole discretion unless agreed to the contrary
by Lender in writing.
Payments. At the sole option of Lender, Advances may be paid in the joint
names of Borrower and the general contractor, subcontractor(s), or
supplier(s) in payment of sums due under the Construction Contract. At
its sole option, Lender may directly pay the general contractor and any
subcontractors or other parties the sums due under the Construction
Contract. Borrower appoints Lender as its attorney-in-fact to make such
payments. This power shall be deemed to be coupled with an interest,
shall be irrevocable, and shall survive an Event of Default under this
Agreement.
<PAGE>
Projected Cost Overruns. If Lender at any time determines in its sole
discretion that the amount in the Loan Fund is insufficient, or will be
insufficient, to complete fully and to pay for the Project, then within
ten (10) days after receipt of a written request and supporting
documentation from Lender, Borrower shall deposit in the Loan Fund an
amount equal to the deficiency as determined by Lender. The judgment and
determination of Lender under this section shall be final and conclusive.
Outside Project Audits. Lender may require in its sole discretion outside
project audits with costs to be borne by Borrower as a condition
precedent to any disbursement of funds from the Loan Fund.
Final Payment to General Contractor. Upon completion of the Project and
fulfillment of the Construction Contract to the satisfaction of Lender
and provided sufficient Loan Funds are available, Lender shall make an
Advance to cover the final payment due to the general contractor upon
delivery to Lender of endorsements to the ALTA title insurance policy
following the posting of the completion notice, as provided under
applicable law. Construction shall not be deemed complete for purposes of
final disbursement unless and until Lender shall have received all of the
following:
(a) Evidence satisfactory to Lender that all work under the
Construction Contract requiring inspection by any
governmental authority with jurisdiction has been duly
inspected and approved by such authority, that a certificate
of occupancy has been issued, and that all parties
performing work have been paid, or will be paid, for such
work;
(b) A certification by Mahlum & Nordfors Smith Gordon
Architects, PC, Chris Foster and any other engineer,
architect, or other qualified inspector acceptable to and
required by Lender that the Improvements have been completed
substantially in accordance with the Plans and
Specifications and the Construction Contract and in
conformance with all applicable statutes, ordinances, codes,
regulations, and similar requirements, that direct
connection has been made to all utilities set forth in the
Plans and Specifications, and that the Project is ready for
occupancy; and
(c) Acceptance of the completed Improvements by Lender
and Borrower.
Notwithstanding any other provision of this Agreement to the contrary,
Lender may retain up to five percent (5.00%) of the original Loan amount
to be paid as the final payment to the general contractor upon
satisfaction of the conditions set forth above.
Construction Default. If Borrower fails in any respect to comply with the
provisions of this Agreement or if construction ceases before completion
regardless of the reason, Lender, at its option, may refuse to make
further Advances, may accelerate the Indebtedness under the terms of the
Note, and without thereby impairing any of its rights, powers, or
privileges, may enter into possession of the construction site and
perform or cause to be performed any and all work and labor necessary to
complete the Improvements, substantially in accordance with the Plans and
Specifications.
Damage or Destruction. If any of the Property or Improvements is damaged
or destroyed by casualty of any nature, within sixty (60) days thereafter
Borrower shall restore the Property and Improvements to the condition in
which they were before such damage or destruction with funds other than
those in the Loan Fund. Lender shall not be obligated to make
disbursements under this Agreement until such restoration has been
accomplished.
Right to Advance Funds. When any event occurs that Lender determines in
good faith may endanger completion of the Project or the fulfillment of
any condition or covenant in this Agreement, Lender may require Borrower
to furnish, within ten (10) days after delivery of a written request,
adequate security to eliminate, reduce, or indemnify Lender against, such
danger. In addition, upon such occurrence, Lender in its sole discretion
may advance funds or agree to undertake to advance funds to any party to
eliminate, reduce, or indemnify Lender against, such danger or to
complete the Project. All sums paid by Lender pursuant to such agreements
or undertakings shall be for Borrower's account and shall be without
<PAGE>
prejudice to Borrower's rights, if any, to receive such funds from the
party to whom paid. All sums expended by Lender in the exercise of its
option to complete the Project or protect Lender's interests shall be
payable to Lender on demand together with interest from the date of the
Advance at the rate applicable to the Loan. In addition, any Advance of
funds under this Agreement, including without limitation direct
disbursements to the general contractor or other parties in payment of
sums due under the Construction Contract, shall be deemed to have been
expended by or on behalf of Borrower and to have been secured by the
Mortgage or Deed of Trust on the Property.
LIMITATION OF RESPONSIBILITY. The making of any Advance by Lender shall not
constitute or be interpreted as either (a) an approval or acceptance by Lender
of the work done through the date of the Advance, or (b) a representation or
indemnity by Lender to any party against any deficiency or defect in the work or
against any breach of any contract. Inspections and approvals of the Plans and
Specifications, the Improvements, the workmanship and materials used in the
Improvements, and the exercise of any other right of inspection, approval, or
inquiry granted to Lender in this Agreement are acknowledged to be solely for
the protection of Lender's interests, and under no circumstances shall they be
construed to impose any responsibility or liability of any nature whatsoever on
Lender to any party. Neither Borrower nor any contractor, subcontractor,
materialman, laborer, or any other person shall rely, or have any right to rely,
upon Lender's determination of the appropriateness of any Advance. No
disbursement or approval by Lender shall constitute a representation by Lender
as to the nature of the Project, its construction, or its intended use for
Borrower or for any other person, nor shall it constitute an indemnity by Lender
to Borrower or to any other person against any deficiency or defects in the
Project or against any breach of any contract.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all litigation and
claims and all threatened litigation and claims affecting Borrower or any
Guarantor which could materially affect the financial condition of
Borrower or the financial condition of any Guarantor.
. Maintain a standard modern system of accounting administered in
accordance with generally accepted accounting principles. Lender shall
have the right to examine the books of account of Borrower to the extent
that they pertain to this Agreement and the Property, and to discuss the
affairs, finances, and accounts of Borrower to such extent, all at such
reasonable times and intervals as Lender may desire. Borrower will
furnish to Lender, (i) within one hundred twenty (120) days after and as
of the close of each fiscal year, the year-end financial statements of
Borrower, including a balance sheet and a statement of earnings (income
and loss) from Borrower's business, as requested by Lender, in detail
satisfactory to Lender; (ii) upon an Event of Default, and within twenty
(20) days following Lender's request therefor, all such financial
information as may be necessary or appropriate for Lender's determination
of Borrower's net operating income and debt service with all such
financial information being prepared and certified as accurate by
Borrower; (iii) from time to time, upon Lender's request, tenant rent
rolls, leasing summary reports and cash flow projections (or updates
thereof), setting forth the status of all existing and anticipated leases
or subleases affecting the Property and Borrower's best estimate of the
revenues to be obtained and the expenses to be incurred in connection
with the operation of the Property for the following one-year period; and
(iv) within thirty (30) days after and as of the close of each quarter of
each fiscal year, the quarter-end financial statements of Borrower,
including a balance sheet and statement of earnings (income and loss)
from Borrower's business and from the Property, as requested by Lender,
in detail satisfactory to Lender. In addition to the above, Borrower
shall furnish Lender with, as soon as available, but in no event later
than one hundred twenty (120) days after the end of each fiscal year,
copies of Borrower's tax returns.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may reasonably request from time to time.
Construction of the Project. Commence construction of the Project no
later than December 1, 1997, and cause the Improvements to be constructed
and equipped in a diligent and orderly manner and in strict accordance
with the Plans and Specifications approved by Lender, the Construction
Contract, and all applicable laws, ordinances, codes, regulations, and
<PAGE>
rights of adjoining or concurrent property owners, and be completed to
the satisfaction of Lender no later than May 1, 1999 (unless extended
pursuant to the extension option provision of the Note).
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth. Maintain a minimum Tangible Net Worth plus
Subordinated Debt of not less than Seven Million and 00/100
Dollars ($7,000,000.00).
Minimum Working Capital. Maintain minimum working capital of not
less than Three Million and 00/100 Dollars ($3,000,000.00).
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities equal to or in excess of 1.10:1.00.
Debt Service Ratio. Maintain a minimum Debt Service ratio of
1.50:1.00.
Except as provided above, all computations made to determine compliance
with the requirements contained in this paragraph shall be made in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
The above covenants shall be measured quarterly.
Loan Proceeds. Use the Loan funds solely for payment of bills and
expenses directly related to the Project.
Workers' Compensation Coverage. Provide to Lender proof of the general
contractor's compliance with all applicable workers' compensation laws
and regulations with regard to all work performed on the Project.
Defects. Upon demand of Lender, promptly correct any defect in the
Improvements or any departure from the Plans and Specifications not
approved by Lender before further work shall be done upon the portion of
the Improvements affected.
Project Claims and Litigation. Promptly inform Lender of (a) all material
adverse changes in the financial condition of the general contractor; (b)
any litigation and claims, actual or threatened, affecting the Project or
the general contractor, which could materially affect the successful
completion of the Project or the ability of the general contractor to
complete the Project as agreed; and (c) any condition or event which
constitutes a breach or default under any of the Related Documents or any
contract related to the Project.
Payment of Claims and Removal of Liens. (a) Cause all claims for labor
done and materials and services furnished in connection with the
Improvements to be fully paid and discharged in a timely manner, (b)
diligently file or procure the filing of a valid notice of completion of
the Improvements, or such comparable document as may be permitted under
applicable lien laws, (c) diligently file or procure the filing of a
notice of cessation, or such comparable document as may be permitted
under applicable lien laws, upon the happening of cessation of labor on
the Improvements for a continuous period of thirty (30) days or more, and
(d) take all reasonable steps necessary to remove all claims of liens
against the Property, the Improvements or any part of the Property or
Improvements, or any rights or interests appurtenant to the Property or
Improvements. Upon Lender's request, Borrower shall make such demands or
claims upon or against laborers, materialmen, subcontractors, or other
persons who have furnished or claim to have furnished labor, services, or
materials in connection with the Improvements, which demands or claims
shall under the laws of the State of Oregon require diligent assertions
of lien claims upon penalty of loss or waiver thereof. Borrower shall,
within ten (10) days after the filing of any claim of lien that is
disputed or contested by Borrower, provide Lender with a surety bond
issued by a surety acceptable to Lender sufficient to release the claim
of lien or deposit with Lender an amount satisfactory to Lender for the
possibility that the contest will be unsuccessful. If Borrower fails to
remove any lien on the Property or Improvements or provide a bond or
deposit pursuant to this provision, Lender may pay such lien, or may
contest the validity of the lien, and Borrower shall pay all costs and
expenses of such contest, including Lender's reasonable attorneys' fees.
Taxes and Claims. Pay and discharge when due all of Borrower's
indebtedness, obligations, and claims that, if unpaid, might become a
lien or charge upon the Property or Improvements; provided, however, that
Borrower shall not be required to pay and discharge any such
indebtedness, obligation, or claim so long as (a) its legality shall be
<PAGE>
contested in good faith by appropriate proceedings, (b) the indebtedness,
obligation, or claim does not become a lien or charge upon the Property
or Improvements, and (c) Borrower shall have established on its books
adequate reserves with respect to the amount contested in accordance with
generally accepted accounting practices. If the indebtedness, obligation,
or claim does become a lien or charge upon the Property or Improvements,
Borrower shall remove the lien or charge as provided in the preceding
paragraph. Performance. Perform and comply with all terms, conditions,
and provisions set forth in this Agreement and in all other instruments
and agreements between Borrower and Lender, and in all other loan
agreements now or hereafter existing between Borrower and any other
party. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.
Additional Assurances. Make, execute, and deliver to Lender such Security
Agreements, instruments, documents, and other agreements reasonably
necessary to document and secure the Loan and to perfect Lender's
Security Interests in the Property and Improvements.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Loans, Acquisitions and Guaranties. (a) Loan money or assets other than
in the ordinary course of business, (b) purchase or acquire any interest
in any other enterprise or entity other than in the ordinary course of
business, or (c) incur any obligation as surety or guarantor other than
in the ordinary course of business.
Modification of Contract. Make or permit to be made any modification of
the Construction Contract.
Liens. Create or allow to be created any lien or charge upon the Property
or the Improvements.
GENERAL PROJECT PROVISIONS. The following provisions relate to the construction
and completion of the Project:
Change Orders. All requests for changes in the Plans and Specifications
involving total extra costs in excess of one percent (1%) of total
Project costs must be in writing, signed by Borrower and the architect,
and delivered to Lender for its approval. Borrower will not permit the
performance of any work pursuant to any change order or modification of
the Construction Contract or any subcontract without the written approval
of Lender. Borrower will obtain any required permits or authorizations
from governmental authorities having jurisdiction before approving or
requesting a new change order.
Purchase of Materials; Conditional Sales Contracts. No materials,
equipment, fixtures, or articles of personal property placed in or
incorporated into the Project shall be purchased or installed under any
Security Agreement or other agreement whereby the seller reserves or
purports to reserve title or the right of removal or repossession, or the
right to consider such items as personal property after their
incorporation into the Project, unless otherwise authorized by Lender in
writing.
Lender's Right of Entry and Inspection. Lender and its agents shall have
at all times the right of entry and free access to the Property and the
right to inspect all work done, labor performed, and materials furnished
with respect to the Project. Lender shall have unrestricted access to and
the right to copy all records, accounting books, contracts, subcontracts,
bills, statements, vouchers, and supporting documents of Borrower
relating in any way to the Project. Borrower agrees to pay on demand all
of Lender's out-of-pocket expenses for periodic inspections, reviews, or
reports that Lender, in its sole discretion, deems necessary and
appropriate for disbursement of the Loan Fund.
Lender's Right to Stop Work. If Lender in good faith determines that any
work or materials do not conform to the approved Plans and Specifications
or sound building practices, or otherwise depart from any of the
requirements of this Agreement, Lender may require the work to be stopped
and withhold disbursements until the matter is corrected. In such event,
Borrower will promptly correct the work to Lender's satisfaction. No such
action by Lender will affect Borrower's obligation to complete the
Improvements on or before the completion date required herein. Lender is
under no duty to supervise or inspect the construction or examine any
books and records. Any inspection or examination by Lender is for the
<PAGE>
sole purpose of protecting Lender's security and preserving Lender's
rights under this Agreement. No default of Borrower will be waived by any
inspection by Lender. In no event will any inspection by Lender be a
representation that there has been or will be compliance with the Plans
and Specifications or that the construction is free from defective
materials or workmanship.
Indemnity. Borrower shall indemnify and hold Lender harmless from any and
all claims asserted against Lender or the Property by any person, entity,
or governmental body, or arising out of or in connection with the
Property, Improvements, or Project. Lender shall be entitled to appear in
any action or proceeding to defend itself against such claims, and all
costs incurred by Lender in connection with such defense, including
attorneys' fees, shall be paid by Borrower to Lender. Lender shall, in
its sole discretion, be entitled to settle or compromise any asserted
claims against it, and such settlement shall be binding upon Borrower for
purposes of this indemnification. All amounts paid by Lender under this
paragraph shall be secured by the Mortgage or Deed of Trust on the
Property, shall be deemed an additional principal Advance under the Loan,
payable upon demand, and shall bear interest at the rate applicable to
the Loan.
Publicity. Lender may display a sign at the construction site informing
the public that Lender is the construction lender for the Project
provided Lender complies with all applicable laws and regulations. During
construction, any sign placed on the Property will specify Lender as
providing construction financing. Lender may obtain other publicity in
connection with the Project through press releases, including a
description of the Property, Project, occupancy and rentals, and
participation in ground-breaking and opening ceremonies and similar
events.
Actions. Lender shall have the right to commence, appear in, or defend
any action or proceeding purporting to affect the rights, duties, or
liabilities of the parties to this Agreement, or the disbursement of
funds from the Loan Fund. In connection with this right, Lender may incur
and pay reasonable costs and expenses, including, but not limited to,
attorneys' fees, for both trial and appellate proceedings. Borrower
covenants to pay to Lender on demand all such expenses, together with
interest from the date Lender incurs the expense at the rate specified in
the Note, and Lender is authorized to disburse funds from the Loan Fund
for such purposes.
RIGHT OF SETOFF. To the extent any such accounts exist, Borrower grants to
Lender a contractual possessory security interest in, and hereby assigns,
conveys, delivers, pledges, and transfers to Lender all Borrower's right, title
and interest in and to, Borrower's accounts with Lender (whether checking,
savings, or some other account), including without limitation all accounts held
jointly with someone else and all accounts Borrower may open in the future,
excluding however all Keogh, and trust accounts. Borrower authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all sums owing on
the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment within
ten (10) days of when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower or Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in any other agreement
between Lender and Borrower or Grantor. If any failure, other than a
failure to pay money, is curable and if Borrower or Grantor, as the case
may be, has not been given a notice of a similar breach within the
preceding twelve (12) months, it may be cured (and no Event of Default
will have occurred) if Borrower or Grantor, as the case may be, after
receiving written notice from Lender demanding cure of such failure: (a)
cures the failure within thirty (30) days; or (b) if the cure requires
more than thirty (30) days, immediately initiates steps sufficient to
cure the failure and thereafter continues and completes all reasonable
and necessary steps sufficient to produce compliance within ninety (90)
days after notice is sent.
False Statements. Any warranty, representation, or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
<PAGE>
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral document to create a valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, insolvency, appointment of a receiver for any part of
Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower. The death of
Borrower (or any member or partner of Borrower) shall also constitute an
event of default hereunder. Lender may, at its option, permit the
deceased's estate to assume unconditionally the obligations arising under
the Note in a manner reasonably satisfactory to Lender, and, in so doing,
cure the event of default.
Creditor Proceedings. Commencement of foreclosure, whether by judicial
proceeding, self-help, repossession or any other method, by any creditor
of Borrower or any creditor of any Grantor against any collateral
securing the Indebtedness. This includes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender. However,
this Event of Default shall not apply if there is a good faith dispute by
Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor
proceeding, and if Borrower or Grantor gives Lender written notice of the
creditor proceeding and furnishes reserves or a surety bond for the
creditor proceeding satisfactory to Lender.
Events Affecting Guarantor. Any Guarantor seeks, claims, or otherwise
attempts to limit, modify, or revoke such Guarantor's guaranty with
Lender or any of the preceding events occurs with respect to any
Guarantor of any of the Indebtedness or such Guarantor dies or becomes
incompetent. Lender, at its option, may, but shall not be required to,
permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Insecurity. Lender, in good faith, deems itself insecure.
Breach of Construction Contract. The Improvements are not constructed in
accordance with the Plans and Specifications or in accordance with the
terms of the Construction Contract.
Cessation of Construction. Prior to the completion of construction of the
Improvements and equipping of the Project, the construction of the
Improvements or the equipping of the Project is abandoned or work thereon
ceases for a period of more than ten (10) days for any reason, or the
Improvements are not completed for purposes of final payment to the
general contractor prior to the completion date represented by Borrower
to Lender, regardless of the reason for the delay.
Transfer of Property. Sale, transfer, hypothecation, assignment, or
conveyance of the Property or the Improvements or any portion thereof or
interest therein by Borrower or any Grantor without Lender's prior
written consent.
Condemnation. All or any material portion of the Property is condemned,
seized, or appropriated without compensation, and Borrower does not
within thirty (30) days after such condemnation, seizure, or
appropriation, initiate and diligently prosecute appropriate action to
contest in good faith the validity of such condemnation, seizure, or
appropriation.
EFFECT OF AN EVENT OF DEFAULT; REMEDIES. Upon the occurrence of any Event of
Default and at any time thereafter, Lender may, at its option, but without any
obligation to do so, and in addition to any other right Lender may have, do any
one or more of the following without notice to Borrower: (a) Cancel this
Agreement; (b) Institute appropriate proceedings to enforce the performance of
this Agreement; (c) Withhold further disbursement of Loan Funds; (d) Expend
funds necessary to remedy the default; (e) Take possession of the Property and
continue construction of the Project; (f) Accelerate maturity of the Note and/or
Indebtedness and demand payment of all sums due under the Note and/or
Indebtedness; (g) Bring an action on the Note and/or Indebtedness; (h) Foreclose
the Mortgage or Deed of Trust on the Property in any manner available under law;
and (i) Exercise any other right or remedy which it has under the Note or
Related Documents, or which is otherwise available at law or in equity or by
statute.
<PAGE>
COMPLETION OF IMPROVEMENTS BY LENDER. If Lender takes possession of the
Property, it may take any and all actions necessary in its judgment to complete
construction of the Improvements, including but not limited to making changes in
the Plans and Specifications, work, or materials and entering into, modifying or
terminating any contractual arrangements, subject to Lender's right at any time
to discontinue any work without liability. If Lender elects to complete the
Improvements, it will not assume any liability to Borrower or to any other
person for completing the Improvements or for the manner or quality of
construction of the Improvements, and Borrower expressly waives any such
liability. Borrower irrevocably appoints Lender as its attorney-in-fact, with
full power of substitution, to complete the Improvements, at Lender's option,
either in Borrower's name or in its own name. In any event, all sums expended by
Lender in completing the construction of the Improvements will be considered to
have been disbursed to Borrower and will be secured by the collateral for the
Loan. Any such sums that cause the principal amount of the Loan to exceed the
face amount of the Note will be considered to be an additional Loan to Borrower,
bearing interest at the Note rate and being secured by the collateral. For these
purposes, Borrower assigns to Lender all of its right, title and interest in and
to the Project Documents; however Lender will not have any obligation under the
Project Documents unless Lender expressly hereafter agrees to assume such
obligations in writing. Lender will have the right to exercise any rights of
Borrower under the Project Documents upon the occurrence of an Event of Default.
All rights, powers, and remedies of Lender under this Agreement are cumulative
and alternative, and are in addition to all rights which Lender may have under
applicable law.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Agency. Nothing in this Agreement shall be construed to constitute the
creation of a partnership or joint venture between Lender and Borrower or
any contractor. Lender is not an agent or representative of Borrower.
This Agreement does not create a contractual relationship with and shall
not be construed to benefit or bind Lender in any way with or create any
contractual duties by Lender to any contractor, subcontractor,
materialman, laborer, or any other person.
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
MULTNOMAH COUNTY, THE STATE OF OREGON. LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OREGON.
Arbitration. Except as provided below, Lender and Borrower agree that all
disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Agreement or otherwise,
including without limitation contract and tort disputes, shall be
arbitrated pursuant to the then effective arbitration rules of the
Arbitration Service of Portland, Inc., or the then effective commercial
arbitration rules of the American Arbitration Association, whichever
organization is selected by the party which first initiates arbitration
by filing a claim in accordance with the filing rules of the organization
selected. Notwithstanding the above, Lender's actions to take or dispose
of any Collateral shall not be prohibited by this arbitration agreement
nor constitute a waiver of this arbitration provision as to all other
disputes. This includes, without limitation, obtaining injunctive relief
or a temporary restraining order; foreclosing by notice and sale under
any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code.
Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right, concerning any
Collateral, including any claim to rescind, reform, or otherwise modify
any agreement relating to the Collateral, shall also be arbitrated,
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Judgment upon any award rendered
by any arbitrator may be entered in any court having jurisdiction.
<PAGE>
Nothing in this Agreement shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes.
Authority to File Notices. Borrower appoints and designates Lender as its
attorney-in-fact to file for record any notice that Lender deems
necessary to protect its interest under this Agreement. This power shall
be deemed coupled with an interest and shall be irrevocable while any sum
or performance remains due and owing under any of the Related Documents.
Maintenance of Depository Relationship. Borrower shall, at all times
while any portion of the Note remains unpaid, maintain a depository
relationship with Lender, or a subsidiary or affiliate of Lender, unless
the same is contrary to state or federal law or regulation.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
Lender's Right to Sell Participations in the Loan. Lender may at any time
sell, assign, transfer, negotiate, grant participations in, or otherwise
dispose of, to any one or more other lenders (hereinafter called
"Participants") all or any part of the indebtedness of Borrower at any
time outstanding under the Note, this Agreement, or any of the Related
Documents (collectively, the "Loan Documents"). Borrower acknowledges and
agrees that any such disposition will give rise to an obligation of
Borrower to each Participant and that, in such event, each Participant
shall, for all purposes hereof, be entitled to the benefits of the Loan
Documents and all other documents, instruments, and agreements therein
described, as its interest may appear. Borrower shall, from time to time
at the request of Lender, execute and deliver, or cause to be executed
and delivered, to Lender or to such party or parties (including any
Participant) as Lender may designate, any and all such further
instruments as may in the opinion of Lender be necessary or desirable to
give full force and effect to such disposition, including, but not
limited to, a new note or new notes to be issued in exchange for the Note
and such estoppel certificates or other instruments as may be requested
from Borrower to evidence the continuing validity of the Loan Documents
and the absence of any default by Lender thereunder. Notwithstanding the
foregoing, Borrower acknowledges that no Participant shall be deemed a
direct lender or co-lender with Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses, including attorneys' fees, incurred in connection
with this Agreement or in connection with the Loans made pursuant to this
Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
legal expenses, whether or not there is a lawsuit, including attorneys'
fees for arbitration and bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Entire Agreement. This Agreement and the Related Documents constitute all
of the agreements between the parties relating to the Project and
supersede all other prior or concurrent oral or written agreements or
understandings relating to the Project.
Notices. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower agrees to keep Lender informed
at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
<PAGE>
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and
delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
Time of the Essence. Time is of the essence hereof.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under
this Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent in subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement. Where
any one or more of the parties are corporations or partnerships or
limited liability companies, it is not necessary for Lender to inquire
into the powers of any of the parties or of the officers, directors,
partners, members, or agents acting or purporting to act on their behalf.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDER TO
BE ENFORCEABLE.
EACH BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS CONSTRUCTION
LOAN AGREEMENT, AND EACH BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
AS OF DECEMBER 1, 1997.
BORROWER:
Timberline Software Corporation
By: /s/ Thomas P. Cox
-------------------------------
Its: Senior Vice President
------------------------------
LENDER:
Pacific One Bank
By: /s/ Karen I. Rambeau
-------------------------------
Authorized Officer
RECORDATION REQUESTED BY:
Pacific One Bank
P.O. Box 40108
Portland, Oregon 97240-0108
WHEN RECORDED MAIL TO:
Pacific One Bank
P.O. Box 40108
Portland, Oregon 97240-0108
SEND TAX NOTICES TO:
Timberline Software Corporation
9600 S.W. Nimbus Avenue
Beaverton, Oregon 97008
SPACE ABOVE THIS LINE IS FOR RECORDER'S USE ONLY
- --------------------------------------------------------------------------------
DEED OF TRUST
LINE OF CREDIT INSTRUMENT
LINE OF CREDIT INSTRUMENT. (a) This Deed of Trust is a LINE OF CREDIT
INSTRUMENT. (b) The maximum principal amount to be advanced pursuant to the Note
is Nine Million Seven Hundred Fifty Thousand and 00/100 Dollars ($9,750,000.00).
(c) The term of the credit agreement commences on the date of this Deed of Trust
and ends no later than November 1, 2009. (d) The maximum principal amount to be
advanced pursuant to the Note may be exceeded by advances necessary to complete
construction of previously agreed upon improvements on the Real Property.
THIS DEED OF TRUST IS DATED , December 1,1997, among Timberline Software
Corporation, whose address is 9600 S.W. Nimbus Avenue, Beaverton, Oregon 97008
(referred to below as "Grantor"); Pacific One Bank, whose address is P.O. Box
40108, Portland, Oregon 97240-0108 (referred to below sometimes as "Lender" and
sometimes as "Beneficiary"); and Valerie T. Auerbach, whose address is 121 SW
Morrison, Suite 600, Portland, Oregon 97204 (referred to below as "Trustee").
CONVEYANCE AND GRANT. For valuable consideration, Grantor conveys to Trustee for
the benefit of Lender as Beneficiary all of Grantor's right, title, and interest
in and to the following described real property, together with all existing or
subsequently erected or affixed buildings, improvements and fixtures; all
easements, rights of way, and appurtenances; all water, water rights and ditch
rights (including stock in utilities with ditch or irrigation rights); and all
other rights, royalties, and profits relating to the real property, including
without limitation all minerals, oil, gas, geothermal and similar matters,
located in Washington County, State of Oregon (the "Real Property"):
Lots 6 and 7, CORPORATE CENTER AT CORNELL OAKS, recorded January 26,
1995 in Plat Book 95, Pages 27 through 32, recorded as Document No.
95005969, situated in the County of Washington and State of Oregon.
TOGETHER WITH a non-exclusive right, privilege and easement for
ingress and egress of pedestrian and vehicular traffic as disclosed
by Easement Agreement recorded August 5, 1997, Recorder's Fee No.
97071989.
Grantor presently assigns to Lender (also known as Beneficiary in this Deed of
Trust) all of Grantor's right, title, and interest in and to all present and
future leases of the Property and all Rents from the Property. In addition,
Grantor grants Lender a Uniform Commercial Code security interest in the Rents
and the Personal Property defined below.
DEFINITIONS. The following words shall have the following meanings when used in
this Deed of Trust. Terms not otherwise defined in this Deed of Trust shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
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references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Beneficiary. The word "Beneficiary" means Pacific One Bank, its successors
and assigns. Pacific One Bank also is referred to as "Lender" in this Deed
of Trust.
Borrower. The word "Borrower" means Timberline Software Corporation.
Timberline Software Corporation is also referred to herein as Grantor.
Deed of Trust. The words "Deed of Trust" mean this Deed of Trust among
Grantor, Lender, and Trustee, and includes without limitation all
assignment and security interest provisions relating to the Personal
Property and Rents.
Grantor. The word "Grantor" means any and all persons and entities
executing this Deed of Trust, including without limitation Timberline
Software Corporation.
Guarantor. The word "Guarantor" means and includes without limitation, any
and all guarantors, sureties, and accommodation parties in connection with
the Indebtedness.
Improvements. The word "Improvements" means and includes without
limitation all existing and future improvements, fixtures, buildings,
structures, mobile homes affixed on the Real Property, facilities,
additions and other construction on the Real Property.
Indebtedness. The word "Indebtedness" means all principal and interest
payable under the Note and any amounts expended or advanced by Lender to
discharge obligations of Grantor or expenses incurred by Trustee or Lender
to enforce obligations of Grantor under this Deed of Trust, together with
interest on such amounts as provided in the Note.
Lender. The word "Lender" means Pacific One Bank, its successors and
assigns.
Note. The word "Note" means the Note dated December 1, 1997, in the
principal amount of Nine Million Seven Hundred Fifty Thousand and 00/100
Dollars ($9,750,000.00) from Borrower to Lender, together with all
renewals, extensions, modifications, refinancings, and substitutions for
the Note. The rate of interest on the Note is subject to indexing,
adjustment, renewal, or renegotiation.
Personal Property. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned
by Grantor, which are now or hereafter attached or affixed to the Real
Property; together with all accessions, parts, and additions to, all
replacements of, and all substitutions for, any of such property; and
together with all proceeds (including without limitation all insurance
proceeds and refunds of premiums) from any sale or other disposition of
the Property.
Property. The word "Property" means collectively the Real Property and the
Personal Property.
Real Property. The words "Real Property" mean the property, interests and
rights described above in the "Conveyance and Grant" section.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
Rents. The word "Rents" means all present and future rents, revenues,
income, issues, royalties, profits, and other benefits derived from the
Property.
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Trustee. The word "Trustee" means Valerie T. Auerbach and any substitute
or successor trustees.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST
IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT OF THE
INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF GRANTOR UNDER THE
NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST,
INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN THE RENTS AND
PERSONAL PROPERTY, IS ALSO GIVEN TO SECURE ANY AND ALL OBLIGATIONS OF GRANTOR
UNDER THAT CERTAIN CONSTRUCTION LOAN AGREEMENT BETWEEN GRANTOR AND LENDER OF
EVEN DATE HEREWITH. ANY EVENT OF DEFAULT UNDER THE CONSTRUCTION LOAN AGREEMENT,
OR ANY OF THE RELATED DOCUMENTS REFERRED TO THEREIN, SHALL ALSO BE AN EVENT OF
DEFAULT UNDER THIS DEED OF TRUST. THE NOTE AND THIS DEED OF TRUST ARE GIVEN AND
ACCEPTED ON THE FOLLOWING TERMS:
GRANTOR'S REPRESENTATION AND WARRANTY. Grantor warrants that Grantor has the
full power and right to enter into this Deed of Trust and to hypothecate the
Property.
GRANTOR'S WAIVERS. Grantor waives all rights or defenses arising by reason of
any "one action" or "anti-deficiency" law, or any other law which may prevent
Lender from bringing any action against Grantor, including a claim for
deficiency to the extent Lender is otherwise entitled to a claim for deficiency,
before or after Lender's commencement or completion of any foreclosure action,
either judicially or by exercise of a power of sale.
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Deed of Trust,
Borrower shall pay to Lender all Indebtedness secured by this Deed of Trust as
it becomes due, and Borrower and Grantor shall strictly perform all their
respective obligations under the Note, this Deed of Trust, and the Related
Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Grantor and Borrower agree that
Grantor's possession and use of the Property shall be governed by the following
provisions:
Possession and Use. Until the occurrence of an Event of Default, Grantor
may (a) remain in possession and control of the Property, (b) use, operate
or manage the Property, and (c) collect any Rents from the Property. The
following provisions relate to the use of the Property or to other
limitations on the Property. THIS INSTRUMENT WILL NOT ALLOW USE OF THE
PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE
LAWS AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE
PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE
APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES AND
TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS
DEFINED IN ORS 30.930.
Duty to Maintain. Grantor shall maintain the Property in tenantable
condition and promptly perform all repairs, replacements, and maintenance
necessary to preserve its value.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Deed of
Trust, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Grantor represents and warrants
to Lender that: (a) During the period of Grantor's ownership of the
Property, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, or about the Property; (b) Grantor
has no knowledge of, or reason to believe that there has been, except as
previously disclosed to and acknowledged by Lender in writing, (i) any
use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance by any prior owners
or occupants of the Property or (ii) any actual or threatened litigation
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or claims of any kind by any person relating to such matters; and (c)
Except as previously disclosed to and acknowledged by Lender in writing,
(i) neither Grantor nor any tenant, contractor, agent or other authorized
user of the Property shall use, generate, manufacture, store, treat,
dispose of, or release any hazardous waste or substance on, under, or
about the Property and (ii) any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations
and ordinances, including without limitation those laws, regulations, and
ordinances described above. Grantor authorizes Lender and its agents to
enter upon the Property to make such inspections and tests as Lender may
deem appropriate to determine compliance of the Property with this section
of the Deed of Trust. Any inspections or tests made by Lender shall be for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Grantor or to any
other person. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Property for
hazardous waste. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of
the Deed of Trust or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release occurring prior to
Grantor's ownership or interest in the Property, whether or not the same
was or should have been known to Grantor. The provisions of this section
of the Deed of Trust, including the obligation to indemnify, shall survive
the payment of the Indebtedness and the satisfaction and reconveyance of
the lien of this Deed of Trust and shall not be affected by Lender's
acquisition of any interest in the Property, whether by foreclosure or
otherwise.
Nuisance, Waste. Grantor shall not cause, conduct or permit any nuisance
nor commit, permit, or suffer any stripping of or waste on or to the
Property or any portion of the Property. Specifically without limitation,
Grantor will not remove, or grant to any other party the right to remove,
any timber, minerals (including oil and gas), soil, gravel or rock
products without the prior written consent of Lender.
Removal of Improvements. Grantor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Grantor to make arrangements satisfactory to Lender to replace
such Improvements with Improvements of at least equal value.
Lender's Right to Enter. Lender and its agents and representatives may
enter upon the Real Property at all reasonable times to attend to Lender's
interests and to inspect the Property for purposes of Grantor's compliance
with the terms and conditions of this Deed of Trust.
Compliance with Governmental Requirements. Grantor shall promptly comply
with all laws, ordinances, and regulations, now or hereafter in effect, of
all governmental authorities applicable to the use or occupancy of the
Property. Grantor may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Grantor has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Property are not jeopardized. Lender may require Grantor
to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender's interest.
Duty to Protect. Grantor agrees neither to abandon nor leave unattended
the Property. Grantor shall do all other acts, in addition to those acts
set forth above in this section, which from the character and use of the
Property are reasonably necessary to protect and preserve the Property.
ADA/FHAA Compliance. So long as this Deed of Trust remains outstanding,
Grantor will, at its own cost and expense, in respect of the Property and
in respect of Grantor's business activities at or within the Property: (a)
comply with all requirements of the federal Americans with Disabilities
Act (the "ADA") and the federal Fair Housing Amendments Act of 1988 (the
"FHAA") and the rules and regulations promulgated thereunder (the
"Rules"), to the extent applicable to Grantor's ownership, management,
operation, leasing, use, construction, reconstruction, repair, remodeling,
rehabilitation, or alteration of the Property or any part thereof; (b)
immediately provide to Lender written notice (and copies of) any and all
notices of actual, potential, or alleged violations of the ADA, the FHAA,
or the Rules and any and all governmental investigations or regulatory
actions instituted or threatened against Grantor or the Property or
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Grantor's business activities at or within the Property regarding the ADA,
the FHAA, or the Rules; and (c) furnish to Lender, from time to time
whenever reasonably requested by Lender, a Compliance Assessment, in form
and substance reasonably satisfactory to Lender, prepared by an architect
or engineer with skill, experience, and reputation acceptable to Lender,
in the field of compliance with the ADA or the FHAA, as applicable.
Reappraisals. Lender shall have the right to obtain at Grantor's cost and
expense reappraisals of the Property from any licensed or certified
appraiser designated by Lender, from time to time (a) whenever such
reappraisal may be required by any law, rule, or regulation applicable to
the conduct of Lender's business, or may be requested or directed by any
governmental authority charged with the administration of such law, rule,
or regulation or Lender's compliance therewith, whether or not such
request or direction has the force of law, or (b) whenever Lender has
reasonable cause to believe that the then-current loan-to-value ratio
applicable to the loan or loans secured by the Property exceed the
original loan-to-value ratio approved by Lender with respect to such loan
or loans, or (c) whenever reasonably deemed appropriate by Lender
following the occurrence or during the continuation of an Event of
Default. Lender may use the results of such reappraisal to evaluate and
restructure such loan or loans if necessary in Lender's reasonable
discretion.
DUE ON SALE - CONSENT BY LENDER. Lender may, at its option, declare immediately
due and payable all sums secured by this Deed of Trust upon the sale or
transfer, without the Lender's prior written consent, of all or any part of the
Real Property, or any interest in the Real Property. A "sale or transfer" means
the conveyance of Real Property or any right, title or interest therein; whether
legal or equitable; whether voluntary or involuntary; whether by outright sale,
deed, installment sale contract, land contract, contract for deed, leasehold
interest with a term greater than five (5) years, lease-option contract, or by
sale, assignment, or transfer of any beneficial interest in or to any land trust
holding title to the Real Property, or by any other method of conveyance of Real
Property interest. However, this option shall not be exercised by Lender if such
exercise is prohibited by federal law or by Oregon law. Notwithstanding anything
to the contrary set forth above, in the event Lender allows an assumption of the
Note upon a sale or transfer, Lender shall be entitled to, in addition to any
other fees and requirements imposed by Lender in its sole discretion, an
assumption fee equal to one percent (1%) of the Note balance at the time of the
assumption.
TAXES AND LIENS. The following provisions relating to the taxes and liens on the
Property are a part of this Deed of Trust.
Payment. Grantor shall pay when due (and in all events prior to
delinquency) all taxes, special taxes, assessments, charges (including
water and sewer), fines and impositions levied against or on account of
the Property, and shall pay when due all claims for work done on or for
services rendered or material furnished to the Property. Grantor shall
maintain the Property free of all liens having priority over or equal to
the interest of Lender under this Deed of Trust, except for the lien of
taxes and assessments not due, except for the existing indebtedness
referred to below, and except as otherwise provided in this Deed of Trust.
Right To Contest. Grantor may withhold payment of any tax, assessment, or
claim in connection with a good faith dispute over the obligation to pay,
so long as Lender's interest in the Property is not jeopardized. If a lien
arises or is filed as a result of nonpayment, Grantor shall within fifteen
(15) days after the lien arises or, if a lien is filed, within fifteen
(15) days after Grantor has notice of the filing, secure the discharge of
the lien, or if requested by Lender, deposit with Lender cash or a
sufficient corporate surety bond or other security satisfactory to Lender
in an amount sufficient to discharge the lien plus any costs and
attorneys' fees or other charges that could accrue as a result of a
foreclosure or sale under the lien. In any contest, Grantor shall defend
itself and Lender and shall satisfy any adverse judgment before
enforcement against the Property. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Evidence of Payment. Grantor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of the taxes and assessments against the
Property.
Notice of Construction. Grantor shall notify Lender at least fifteen (15)
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days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien, or other lien could be asserted on account of the
work, services, or materials and the cost exceeds $25,000.00. Grantor will
upon request of Lender furnish to Lender advance assurances satisfactory
to Lender that Grantor can and will pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to insuring the
Property are a part of this Deed of Trust.
Maintenance of Insurance. Grantor shall procure and maintain policies of
fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements
on the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender, together with such other insurance, including but not limited to
hazard, liability, business interruption, and boiler insurance, as Lender
may reasonably require. Policies shall be written in form, amounts,
coverages and basis reasonably acceptable to Lender and issued by a
company or companies reasonably acceptable to Lender. Grantor will deliver
to Lender the policies or certificates of insurance in form satisfactory
to Lender, including stipulations that coverages will not be cancelled or
diminished without at least thirty (30) days' prior written notice to
Lender. Should the Real Property at any time become located in an area
designated by the Director of the Federal Emergency Management Agency as a
special flood hazard area, Grantor agrees to obtain and maintain Federal
Flood Insurance to the extent such insurance is required and is or becomes
available, for the term of the loan and for the full unpaid principal
balance of the loan, or the maximum limit of coverage that is available,
whichever is less.
Application of Proceeds. Grantor shall promptly notify Lender of any loss
or damage to the Property if the estimated cost of repair or replacement
exceeds $25,000.00. Lender may make proof of loss if Grantor fails to do
so within fifteen (15) days of the casualty. If this Deed of Trust is not
in default for any reason other than damage to or loss of the Property,
and if the estimated value (as determined by Lender in its reasonable
discretion) of the Property after repair, restoration, or replacement is
equal to or greater than the value of the Property on the date of this
Deed of Trust, Lender shall receive the proceeds and apply the proceeds to
the repair, restoration, and replacement of the Property. If this Deed of
Trust is in default for any reason other than damage to the Property, or
if the estimated value (as determined by Lender in its reasonable
discretion) of the Property after repair, restoration, or replacement is
less than the value of the Property on the date of this Deed of Trust,
Lender may, at its election, receive and retain the proceeds and apply the
same to the reduction of the Indebtedness and/or the payment of any lien
affecting the Property. If the proceeds are applied to repair, restoration
and replacement, Grantor shall repair or replace the damaged or destroyed
Improvements in a manner satisfactory to Lender. Lender shall, upon
satisfactory proof of such expenditure, pay or reimburse Grantor from the
proceeds for the reasonable cost of repair or restoration if Grantor is
not in default under this Deed of Trust. Any proceeds which have not been
disbursed within 180 days after their receipt and which Lender has not
committed to the repair or restoration of the Property shall be used first
to pay any amount owing to Lender under this Deed of Trust, then to pay
accrued interest, and the remainder, if any, shall be applied to the
principal balance of the Indebtedness. If Lender holds any proceeds after
payment in full of the Indebtedness, such proceeds shall be paid to
Grantor as Grantor's interests may appear.
Unexpired Insurance at Sale. Any unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property covered by this
Deed of Trust at any trustee's sale or other sale held under the
provisions of this Deed of Trust, or at any foreclosure sale of such
Property.
WARNING
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Unless Grantor provides Lender with evidence of the insurance
coverage as required herein, Lender may purchase insurance at
Grantor's expense to protect Lender's interest. This insurance may,
but need not, also protect Grantor's interest. If the Property
becomes damaged, the coverage Lender purchases may not pay any claim
Grantor makes or any claim made against Grantor. Grantor may later
cancel this coverage by providing evidence that Grantor has obtained
property coverage elsewhere.
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Grantor is responsible for the cost of any insurance purchased by
Lender. The cost of this insurance may be added to the Note balance.
If the cost is added to the Note balance, the interest rate on the
Note will apply to this added amount. The effective date of coverage
may be the date Grantor's prior coverage lapsed or the date Grantor
failed to provide proof of coverage.
The coverage Lender purchases may be considerably more expensive
than insurance Grantor can obtain on Grantor's own and may not
satisfy any need for property damage coverage or any mandatory
liability insurance requirements imposed by applicable law.
TAX AND INSURANCE RESERVES. Subject to any limitations set by applicable law and
provided Grantor defaults in the payment of taxes or insurance as required
herein, Lender may require Grantor to maintain with Lender reserves for payment
of annual taxes, assessments, and insurance premiums, which reserves shall be
created by advance payment or monthly payments of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before due, amounts at
least equal to the taxes, assessments, and insurance premiums to be paid. If
fifteen (15) days before payment is due the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall
be held by Lender as a general deposit from Grantor, which Lender may satisfy by
payment of the taxes, assessments, and insurance premiums required to be paid by
Grantor as they become due. Lender shall have the right to draw upon the reserve
funds to pay such items, and Lender shall not be required to determine the
validity or accuracy of any item before paying it. Nothing in the Deed of Trust
shall be construed as requiring Lender to advance other monies for such
purposes, and Lender shall not incur any liability for anything it may do or
omit to do with respect to the reserve account. All amounts in the reserve
account are hereby pledged to further secure the Indebtedness, and Lender is
hereby authorized to withdraw and apply such amounts on the Indebtedness upon
the occurrence of an Event of Default. Lender shall not be required to pay any
interest or earnings on the reserve funds unless required by law or agreed to by
Lender in writing. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the taxes and assessments
required to be paid by Grantor.
EXPENDITURES BY LENDER. If Grantor fails to comply with any provision of this
Deed of Trust or if any action or proceeding is commenced that would materially
affect Lender's interests in the Property, Lender on Grantor's behalf may, but
shall not be required to, take any action that Lender deems appropriate. Any
amount that Lender expends in so doing will bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the date of repayment
by Grantor. All such expenses, at Lender's option, will (a) be payable on
demand, (b) be added to the balance of the Note and be apportioned among and be
payable with any installment payments to become due during either (i) the term
of any applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at the Note's
maturity. This Deed of Trust also will secure payment of these amounts. The
rights provided for in this paragraph shall be in addition to any other rights
or any remedies to which Lender may be entitled on account of the default. Any
such action by Lender shall not be construed as curing the default so as to bar
Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to ownership of
the Property are a part of this Deed of Trust.
Title. Grantor warrants that: (a) Grantor holds good and marketable title
of record to the Property in fee simple, free and clear of all liens and
encumbrances other than those set forth in the Real Property description
or in any title insurance policy, title report, or final title opinion
issued in favor of, and accepted by, Lender in connection with this Deed
of Trust, and (b) Grantor has the full right, power, and authority to
execute and deliver this Deed of Trust to Lender.
Defense of Title. Subject to the exception in the paragraph above, Grantor
warrants and will forever defend the title to the Property against the
lawful claims of all persons. In the event any action or proceeding is
commenced that questions Grantor's title or the interest of Trustee or
Lender under this Deed of Trust, Grantor shall defend the action at
Grantor's expense. Grantor may be the nominal party in such proceeding,
but Lender shall be entitled to participate in the proceeding and to be
represented in the proceeding by counsel of Lender's own choice, and
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Grantor will deliver, or cause to be delivered, to Lender such instruments
as Lender may request from time to time to permit such participation.
Compliance With Laws. Grantor warrants that the Property and Grantor's use
of the Property complies with all existing applicable laws, ordinances,
and regulations of governmental authorities.
CONDEMNATION. The following provisions relating to condemnation proceedings are
a part of this Deed of Trust. Application of Net Proceeds. If all or any
part of the Property is condemned by eminent domain proceedings or by any
proceeding or purchase in lieu of condemnation, Lender may at its election
require that all or any portion of the net proceeds of the award be
applied to the Indebtedness or the repair or restoration of the Property.
The net proceeds of the award shall mean the award after payment of all
reasonable costs, expenses, and attorneys' fees, Trustee or Lender in
connection with the condemnation.
Proceedings. If any proceeding in condemnation is filed, Grantor shall
promptly notify Lender in writing, and Grantor shall promptly take such
steps as may be necessary to defend the action and obtain the award.
Grantor may be the nominal party in such proceeding, but Lender shall be
entitled to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Grantor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The following
provisions relating to governmental taxes, fees and charges are a part of this
Deed of Trust:
Current Taxes, Fees and Charges. Upon request by Lender, Grantor shall
execute such documents in addition to this Deed of Trust and take whatever
other action is requested by Lender to perfect and continue Lender's lien
on the Real Property. Grantor shall reimburse Lender for all taxes, as
described below, together with all expenses incurred in recording,
perfecting or continuing this Deed of Trust, including without limitation
all taxes, fees, documentary stamps, and other charges for recording or
registering this Deed of Trust.
Taxes. The following shall constitute taxes to which this section applies:
(a) a specific tax upon this type of Deed of Trust or upon all or any part
of the Indebtedness secured by this Deed of Trust; (b) a specific tax on
Borrower which Borrower is authorized or required to deduct from payments
on the Indebtedness secured by this type of Deed of Trust; (c) a tax on
this type of Deed of Trust chargeable against the Lender or the holder of
the Note; and (d) a specific tax on all or any portion of the Indebtedness
or on payments of principal and interest made by Borrower.
Subsequent Taxes. If any tax to which this section applies is enacted
subsequent to the date of this Deed of Trust, this event shall have the
same effect as an Event of Default (as defined below), and Lender may
exercise any or all of its available remedies for an Event of Default as
provided below unless Grantor either (a) pays the tax before it becomes
delinquent, or (b) contests the tax as provided above in the Taxes and
Liens section and deposits with Lender cash or a sufficient corporate
surety bond or other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions relating to
this Deed of Trust as a security agreement are a part of this Deed of Trust.
Security Agreement. This instrument shall constitute a security agreement
to the extent any of the Property constitutes fixtures or other personal
property, and Lender shall have all of the rights of a secured party under
the Uniform Commercial Code as amended from time to time.
Security Interest. Upon request by Lender, Grantor shall execute financing
statements and take whatever other action is requested by Lender to
perfect and continue Lender's security interest in the Rents and Personal
Property. In addition to recording this Deed of Trust in the real property
records, Lender may, at any time and without further authorization from
Grantor, file executed counterparts, copies or reproductions of this Deed
of Trust as a financing statement. Grantor shall reimburse Lender for all
expenses incurred in perfecting or continuing this security interest. Upon
default, Grantor shall assemble the Personal Property in a manner and at a
<PAGE>
place reasonably convenient to Grantor and Lender and make it available to
Lender within three (3) days after receipt of written demand from Lender.
Addresses. The mailing addresses of Grantor (debtor) and Lender (secured
party), from which information concerning the security interest granted by
this Deed of Trust may be obtained (each as required by the Uniform
Commercial Code), are as stated on the first page of this Deed of Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating to
further assurances and attorney-in-fact are a part of this Deed of Trust.
Further Assurances. At any time, and from time to time, upon request of
Lender, Grantor will make, execute and deliver, or will cause to be made,
executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled, or rerecorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation statements,
instruments of further assurance, certificates, and other documents as
may, in the sole opinion of Lender, be necessary or desirable in order to
effectuate, complete, perfect, continue, or preserve (a) the obligations
of Grantor and Borrower under the Note, this Deed of Trust, and the
Related Documents, and (b) the liens and security interests created by
this Deed of Trust on the Property, whether now owned or hereafter
acquired by Grantor. Unless prohibited by law or agreed to the contrary by
Lender in writing, Grantor shall reimburse Lender for all costs and
expenses incurred in connection with the matters referred to in this
paragraph.
Attorney-in-Fact. If Grantor fails to do any of the things referred to in
the preceding paragraph, Lender may do so for and in the name of Grantor
and at Grantor's expense. For such purposes, Grantor hereby irrevocably
appoints Lender as Grantor's attorney-in-fact for the purpose of making,
executing, delivering, filing, recording, and doing all other things as
may be necessary or desirable, in Lender's sole opinion, to accomplish the
matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Borrower pays all the Indebtedness when due, terminates the
line of credit, and otherwise performs all the obligations imposed upon Grantor
under this Deed of Trust, Lender shall execute and deliver to Trustee a request
for full reconveyance and shall execute and deliver to Grantor suitable
statements of termination of any financing statement on file evidencing Lender's
security interest in the Rents and the Personal Property. Grantor shall pay
Lender a reasonable reconveyance fee for said reconveyance.
DEFAULT. Each of the following, at the option of Lender, shall constitute an
event of default ("Event of Default") under this Deed of Trust:
Default on Indebtedness. Failure of Borrower to make any payment within
ten (10) days of when due on the Indebtedness.
Default on Other Payments. Failure of Grantor within the time required by
this Deed of Trust to make any payment for taxes or insurance, or any
other payment necessary to prevent filing of or to effect discharge of any
lien.
Compliance Default. Failure of Grantor or Borrower to comply with any
other term, obligation, covenant or condition contained in this Deed of
Trust, the Note or in any of the Related Documents. If such a failure is
curable and if Grantor or Borrower has not been given a notice of a breach
of the same provision of this Deed of Trust within the preceding twelve
(12) months, it may be cured (and no Event of Default will have occurred)
if Grantor or Borrower, after Lender sends written notice demanding cure
of such failure: (a) cures the failure within thirty (30) days; or (b) if
the cure requires more than thirty (30) days, immediately initiates steps
sufficient to cure the failure and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance within
ninety (90) days after notice is sent.
Breaches. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Grantor or Borrower under this Deed of Trust,
the Note or the Related Documents is, or at the time made or furnished
was, false in any material respect.
<PAGE>
Insolvency. The insolvency of Grantor or Borrower, appointment of a
receiver for any part of Grantor or Borrower's property, any assignment
for the benefit of creditors, the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor or Borrower, or the
dissolution or termination of Grantor or Borrower's existence as a going
business (if Grantor or Borrower is a business). Except to the extent
prohibited by federal law or Oregon law, the death of Grantor or Borrower
(or a member or partner of Grantor or Borrow) also shall constitute an
Event of Default under this Deed of Trust. Lender may, at its option,
permit the deceased's estate to assume unconditionally the obligations
arising under the Note in a manner reasonably satisfactory to Lender, and,
in so doing, cure the Event of Default.
Foreclosure, etc. Commencement of foreclosure, whether by judicial
proceeding, self-help, repossession or any other method, by any creditor
of Grantor against any of the Property. However, this subsection shall not
apply in the event of a good faith dispute by Grantor as to the validity
or reasonableness of the claim which is the basis of the foreclosure,
provided that Grantor gives Lender written notice of such claim and
furnishes reserves or a surety bond for the claim satisfactory to Lender.
Breach of Other Agreement. Any breach by Grantor or Borrower under the
terms of any other agreement between Grantor or Borrower and Lender that
is not remedied within any grace period provided therein, including
without limitation any agreement concerning any indebtedness or other
obligation of Grantor or Borrower to Lender, whether existing now or
later.
Events Affecting Guarantor. Any Guarantor seeks, claims, or otherwise
attempts to limit, modify, or revoke such Guarantor's guaranty with Lender
or any of the preceding events occurs with respect to any Guarantor of any
of the Indebtedness or such Guarantor dies or becomes incompetent. Lender,
at its option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
Insecurity. Lender in good faith deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default and
at any time thereafter, Trustee or Lender, at its option, may exercise any one
or more of the following rights and remedies, in addition to any other rights or
remedies provided by law:
Accelerate Indebtedness. Lender shall have the right at its option to
declare the entire Indebtedness immediately due and payable, including any
prepayment penalty which Borrower would be required to pay.
Foreclosure. With respect to all or any part of the Real Property, the
Trustee shall have the right to foreclose by notice and sale, and Lender
shall have the right to foreclose by judicial foreclosure, in either case
in accordance with and to the full extent provided by applicable law. If
this Deed of Trust is foreclosed by judicial foreclosure, Lender will be
entitled to a judgment which will provide that if the foreclosure sale
proceeds are insufficient to satisfy the judgment, execution may issue for
the amount of the unpaid balance of the judgment.
UCC Remedies. With respect to all or any part of the Personal Property,
Lender shall have all the rights and remedies of a secured party under the
Uniform Commercial Code.
Collect Rents. Lender shall have the right, without notice to Grantor or
Borrower, to take possession of and manage the Property and collect the
Rents, including amounts past due and unpaid, and apply the net proceeds,
over and above Lender's costs, against the Indebtedness. In furtherance of
this right, Lender may require any tenant or other user of the Property to
make payments of rent or use fees directly to Lender. If the Rents are
collected by Lender, then Grantor irrevocably designates Lender as
Grantor's attorney-in-fact to endorse instruments received in payment
thereof in the name of Grantor and to negotiate the same and collect the
proceeds. Payments by tenants or other users to Lender in response to
Lender's demand shall satisfy the obligations for which the payments are
made, whether or not any proper grounds for the demand existed. Lender may
<PAGE>
exercise its rights under this subparagraph either in person, by agent, or
through a receiver.
Appoint Receiver. Lender shall have the right to have a receiver appointed
to take possession of all or any part of the Property, with the power to
protect and preserve the Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the Property and apply
the proceeds, over and above the cost of the receivership, against the
Indebtedness. The receiver may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Property exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person
from serving as a receiver.
Tenancy at Sufferance. If Grantor remains in possession of the Property
after the Property is sold as provided above or Lender otherwise becomes
entitled to possession of the Property upon default of Grantor, Grantor
shall become a tenant at sufferance of Lender or the purchaser of the
Property and shall, at Lender's option, either (a) pay a reasonable rental
for the use of the Property, or (b) vacate the Property immediately upon
the demand of Lender.
Other Remedies. Trustee or Lender shall have any other right or remedy
provided in this Deed of Trust or the Note or by law.
Notice of Sale. Lender shall give Grantor reasonable notice of the time
and place of any public sale of the Personal Property or of the time after
which any private sale or other intended disposition of the Personal
Property is to be made. Reasonable notice shall mean notice given at least
ten (10) days before the time of the sale or disposition. Any sale of
Personal Property may be made in conjunction with any sale of the Real
Property.
Sale of the Property. To the extent permitted by applicable law, Grantor
and Borrower hereby waive any and all rights to have the Property
marshalled. In exercising its rights and remedies, the Trustee or Lender
shall be free to sell all or any part of the Property together or
separately, in one sale or by separate sales. Lender shall be entitled to
bid at any public sale on all or any portion of the Property.
Waiver; Election of Remedies. A waiver by any party of a breach of a
provision of this Deed of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to demand strict compliance with
that provision or any other provision. Election by Lender to pursue any
remedy provided in this Deed of Trust, the Note, in any Related Document,
or provided by law shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation
of Grantor or Borrower under this Deed of Trust after failure of Grantor
or Borrower to perform shall not affect Lender's right to declare a
default and to exercise any of its remedies.
Attorneys' Fees; Expenses. If Lender institutes any suit or action to
enforce any of the terms of this Deed of Trust, Lender shall be entitled
to recover such sum as the court may adjudge reasonable as attorneys' fees
at trial and on any appeal. Whether or not any court action is involved,
all reasonable expenses incurred by Lender which in Lender's opinion are
necessary at any time for the protection of its interest or the
enforcement of its rights shall become a part of the Indebtedness payable
on demand and shall bear interest at the Note rate from the date of
expenditure until repaid. Expenses covered by this paragraph include,
without limitation, however subject to any limits under applicable law,
Lender's attorneys' fees whether or not there is a lawsuit, including
attorneys' fees for arbitration and bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals and
any anticipated post-judgment collection services, the cost of searching
records, obtaining title reports (including foreclosure reports),
surveyors' reports, appraisal fees, title insurance, and fees for the
Trustee, to the extent permitted by applicable law. Grantor also will pay
any court costs, in addition to all other sums provided by law.
Rights of Trustee. Trustee shall have all of the rights and duties of
Lender as set forth in this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions relating to the
powers and obligations of Trustee are part of this Deed of Trust.
<PAGE>
Powers of Trustee. In addition to all powers of Trustee arising as a
matter of law, Trustee shall have the power to take the following actions
with respect to the Property upon the written request of Lender and
Grantor: (a) join in preparing and filing a map or plat of the Real
Property, including the dedication of streets or other rights to the
public; (b) join in granting any easement or creating any restriction on
the Real Property; and (c) join in any subordination or other agreement
affecting this Deed of Trust or the interest of Lender under this Deed of
Trust.
Obligations to Notify. Trustee shall not be obligated to notify any other
party of a pending sale under any other trust deed or lien, or of any
action or proceeding in which Grantor, Lender, or Trustee shall be a
party, unless the action or proceeding is brought by Trustee.
Trustee. Trustee shall meet all qualifications required for Trustee under
applicable law. In addition to the rights and remedies set forth above,
with respect to all or any part of the Property, the Trustee shall have
the right to foreclose by notice and sale, and Lender shall have the right
to foreclose by judicial foreclosure, in either case in accordance with
and to the full extent provided by applicable law. Successor Trustee.
Lender, at Lender's option, may from time to time appoint a successor
Trustee to any Trustee appointed hereunder by an instrument executed and
acknowledged by Lender and recorded in the office of the recorder of the
county in which the Real Property is situated. The instrument shall
contain, in addition to all other matters required by state law, the names
of the original Lender, Trustee, and Grantor, the book and page where this
Deed of Trust is recorded, and the name and address of the successor
trustee, and the instrument shall be executed and acknowledged by Lender
or its successors in interest. The successor trustee, without conveyance
of the Property, shall succeed to all the title, power, and duties
conferred upon the Trustee in this Deed of Trust and by applicable law.
This procedure for substitution of trustee shall govern to the exclusion
of all other provisions for substitution.
NOTICES TO GRANTOR AND OTHER PARTIES. Any notice under this Deed of Trust shall
be in writing and shall be effective when actually delivered or, if mailed,
shall be deemed effective when deposited in the United States mail first class,
registered mail, postage prepaid, directed to the addresses shown near the
beginning of this Deed of Trust. Any party may change its address for notices
under this Deed of Trust by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address. All
copies of notices of foreclosure from the holder of any lien which has priority
over this Deed of Trust shall be sent to Lender's address, as shown near the
beginning of this Deed of Trust. For notice purposes, Grantor agrees to keep
Lender and Trustee informed at all times of Grantor's current address.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Deed of Trust:
Amendments. This Deed of Trust, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Deed of Trust. No alteration of or amendment
to this Deed of Trust shall be effective unless given in writing and
signed by the party or parties sought to be charged or bound by the
alteration or amendment.
Accounts and Records. Grantor will maintain a standard modern system of
accounting administered in accordance with generally accepted accounting
principles. Lender shall have the right to examine the books of account of
Grantor to the extent that they pertain to this Deed of Trust and the
Property, and to discuss the affairs, finances, and accounts of Grantor to
such extent, all at such reasonable times and intervals as Lender may
desire. Grantor will furnish to Lender, (i) within one hundred twenty
(120) days after and as of the close of each fiscal year, the year-end
financial statements of Grantor, including a balance sheet and a statement
of earnings (income and loss) from Grantor's business, as requested by
Lender, in detail satisfactory to Lender; (ii) upon an Event of Default
and within twenty (20) days following Lender's request therefor, all such
financial information as may be necessary or appropriate for Lender's
determination of Grantor's net operating income and debt service with all
such financial information being prepared and certified as accurate by
Grantor; (iii) from time to time, upon Lender's request, tenant rent
rolls, leasing summary reports and cash flow projections (or updates
thereof), setting forth the status of all existing and anticipated leases
or subleases affecting the Property and Grantor's best estimate of the
revenues to be obtained and the expenses to be incurred in connection with
the operation of the Property for the following one-year period; and (iv)
<PAGE>
within thirty (30) days after and as of the close of each quarter of each
fiscal year, the quarter-end financial statements of Grantor, including a
balance sheet and statement of earnings (income and loss) from Grantor's
business and from the Property, as requested by Lender, in detail
satisfactory to Lender. In addition to the above, Grantor shall furnish
Lender with, as soon as available, but in no event later than one hundred
twenty (120) days after the end of each fiscal year, copies of Grantor's
tax returns.
Applicable Law. THIS DEED OF TRUST HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS
OF MULTNOMAH COUNTY, THE STATE OF OREGON. LENDER AND GRANTOR HEREBY WAIVE
THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR GRANTOR AGAINST THE OTHER. THIS DEED OF TRUST
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OREGON.
Arbitration. Except as provided below, Lender and Borrower agree that all
disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Deed of Trust or otherwise,
including without limitation contract and tort disputes, shall be
arbitrated pursuant to the then effective arbitration rules of the
Arbitration Service of Portland, Inc., or the then effective commercial
arbitration rules of the American Arbitration Association, whichever
organization is selected by the party which first initiates arbitration by
filing a claim in accordance with the filing rules of the organization
selected. Notwithstanding the above, Lender's actions to take or dispose
of any Property shall not be prohibited by this arbitration agreement nor
constitute a waiver of this arbitration provision as to all other
disputes. This includes, without limitation, obtaining injunctive relief
or a temporary restraining order; foreclosing by notice and sale;
obtaining a writ of attachment or imposition of a receiver; or exercising
any rights relating to personal property, including taking or disposing of
such property with or without judicial process pursuant to Article 9 of
the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any Property, including any claim to rescind, reform, or
otherwise modify any agreement relating to the Property, shall also be
arbitrated, provided however that no arbitrator shall have the right or
the power to enjoin or restrain any act of any party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Deed of Trust shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes.
Caption Headings. Caption headings in this Deed of Trust are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Deed of Trust.
Lender's Right to Sell Participations in the Loan. Lender may at any time
sell, assign, transfer, negotiate, grant participations in, or otherwise
dispose of, to any one or more other lenders (hereinafter called
"Participants") all or any part of the indebtedness of Grantor at any time
outstanding under the Note, this Deed of Trust, or any of the Related
Documents (collectively, the "Loan Documents"). Grantor acknowledges and
agrees that any such disposition will give rise to an obligation of
Grantor to each Participant and that, in such event, each Participant
shall, for all purposes hereof, be entitled to the benefits of the Loan
Documents and all other documents, instruments, and agreements therein
described, as its interest may appear. Grantor shall, from time to time at
the request of Lender, execute and deliver, or cause to be executed and
delivered, to Lender or to such party or parties (including any
Participant) as Lender may designate, any and all such further instruments
as may in the opinion of Lender be necessary or desirable to give full
force and effect to such disposition, including, but not limited to, a new
note or new notes to be issued in exchange for the Note and such estoppel
certificates or other instruments as may be requested from Grantor to
evidence the continuing validity of the Loan Documents and the absence of
any default by Lender thereunder. Notwithstanding the foregoing, Grantor
acknowledges that no Participant shall be deemed a direct lender or
co-lender with Lender.
Maintenance of Depository Relationship. Grantor shall, at all times while
<PAGE>
any portion of the Note remains unpaid, maintain a depository relationship
with Lender, or a subsidiary or affiliate of Lender, until completion of
the initial construction project and receipt of an occupancy certificate.
Merger. There shall be no merger of the interest or estate created by this
Deed of Trust with any other interest or estate in the Property at any
time held by or for the benefit of Lender in any capacity, without the
written consent of Lender.
Multiple Parties; Corporate Authority. All obligations of Grantor and
Borrower under this Deed of Trust shall be joint and several, and all
references to Borrower shall mean each and every Borrower, and all
references to Grantor shall mean each and every Grantor. This means that
each of the Borrowers signing below is responsible for all obligations in
this Deed of Trust. Where any one or more of the parties are corporations
or partnerships or limited liability companies, it is not necessary for
Lender to inquire into the powers of any of the parties or of the
officers, directors, partners, members, or agents acting or purporting to
act on their behalf.
Severability. If a court of competent jurisdiction finds any provision of
this Deed of Trust to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Deed of Trust in all other respects shall remain valid and
enforceable.
Successors and Assigns. Subject to the limitations stated in this Deed of
Trust on transfer of Grantor's interest, this Deed of Trust shall be
binding upon and inure to the benefit of the parties, their successors and
assigns. If ownership of the Property becomes vested in a person other
than Grantor, Lender, without notice to Grantor, may deal with Grantor's
successors with reference to this Deed of Trust and the Indebtedness by
way of forbearance or extension without releasing Grantor from the
obligations of this Deed of Trust or liability under the Indebtedness.
Time Is of the Essence. Time is of the essence in the performance of this
Deed of Trust.
Waivers and Consents. Lender shall not be deemed to have waived any rights
under this Deed of Trust (or under the Related Documents) unless such
waiver is in writing and signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a waiver of such
right or any other right. A waiver by any party of a provision of this
Deed of Trust shall not constitute a waiver of or prejudice the party's
right otherwise to demand strict compliance with that provision or any
other provision. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor or Borrower, shall constitute a waiver of any
of Lender's rights or any of Grantor or Borrower's obligations as to any
future transactions. Whenever consent by Lender is required in this Deed
of Trust, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent
is required.
COMMERCIAL DEED OF TRUST. Grantor agrees with Lender that this Deed of Trust is
a commercial deed of trust and that Grantor will not change the use of the
Property without Lender's prior written consent.
EACH GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF TRUST,
AND EACH GRANTOR AGREES TO ITS TERMS.
GRANTOR:
Timberline Software Corporation
By: /s/ Thomas P. Cox
----------------------------
Its: Senior Vice President
---------------------------
<PAGE>
CORPORATE ACKNOWLEDGMENT
STATE OF OREGON )
) ss.
County of WASHINGTON )
On this first day of December, 1997, before me, a Notary Public in and
for said state, personally appeared Thomas P. Cox, Senior Vice President of
Timberline Software Corporation, known to me to be the person who executed the
within DEED OF TRUST on behalf of said corporation and acknowledged to me that
he/she/they executed the same for the purposes therein stated.
/s/Ronald M. Osmond
-------------------------------
Notary Public for Oregon
My Commission Expires: July 5, 1999
REQUEST FOR FULL RECONVEYANCE
(To be used only when obligations have been paid in full)
To: , Trustee
--------------------------------
The undersigned is the legal owner and holder of all Indebtedness secured by
this Deed of Trust. All sums secured by this Deed of Trust have been fully paid
and satisfied. You are hereby directed, upon payment to you of any sums owing to
you under the terms of this Deed of Trust or pursuant to any applicable statute,
to cancel the Note secured by this Deed of Trust (which is delivered to you
together with this Deed of Trust), and to reconvey, without warranty, to the
parties designated by the terms of this Deed of Trust, the estate now held by
you under this Deed of Trust. Please mail the reconveyance and Related Documents
to: .
Date: Beneficiary:
---------------- -------------------
By:
----------------------------
Its:
---------------------------
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Borrower: Timberline Software Corporation Lender:Pacific One Bank
9600 S.W. Nimbus Avenue P.O. Box 40108
Beaverton, Oregon 97008 Portland, Oregon 97240-0108
- --------------------------------------------------------------------------------
Principal Amount: $9,750,000.00 Initial Rate:8.5% Date of Note:December 1, 1997
PROMISE TO PAY. Timberline Software Corporation ("Borrower") promises to pay to
Pacific One Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Nine Million Seven Hundred Fifty Thousand and
00/100 Dollars ($9,750,000.00) or so much as may be outstanding, together with
interest on each of the unpaid outstanding principal balances from the date of
disbursement until paid in full.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
A. Interim Construction Loan
-------------------------
Borrower shall make seventeen (17) consecutive monthly interest only
payments, beginning December 1, 1997 and on that day for each month
thereafter, with interest calculated on the unpaid principal balance
at the Pacific One Bank Prime Rate described below, and a final
payment of principal and interest due on May 1, 1999 (the "Interim
Construction Loan"). This final payment will be for all principal and
accrued interest not yet paid, together with any other unpaid amounts
under this Note. The monthly payment amount will change with each
change in the interest rate. The interest rate will be adjusted with
each change in the Pacific One Bank Prime Rate.
Borrower shall be entitled to one (1) six (6) month extension of the
final payment due date on this Interim Construction Loan, provided all
of the following conditions are satisfied: (1) Before May 1, 1999,
Borrower shall have delivered to Lender a notice in writing of
Borrower's intent to exercise said extension option (the "Notice");
(2) Borrower shall have delivered to Lender the sum of Ten Thousand
and 00/100 Dollars ($10,000.00) for the extension option, which
payment must accompany the Notice; (3) No default shall exist under
this Note, or any other agreement between Lender and Borrower,
including but not limited to the Construction Loan Agreement
("Agreement"), Deed of Trust, Commercial Security Agreement, Hazardous
Waste Warranty and Indemnification Agreement, and Assignment of Rents
executed in connection with this Note; and (4) Borrower shall continue
to timely make monthly interest only payments on the first day of each
month during the extension period, with a final payment of all
principal and interest due at the expiration of the extension period.
B. Conversion to Term Loan
-----------------------
Provided all of the following conditions are satisfied: (a) all
conditions and covenants set forth in the Agreement between the
parties hereto are satisfied and the Project (as that term is defined
in the Agreement) is fully completed and accepted by Lender no later
than May 1, 1999 (as such date may be extended pursuant to any
exercised extension option as provided for above); (b) Borrower has
paid a Term Loan fee in full equal to one-half percent (0.50%) of the
Note balance at the time of conversion; and (c) Borrower is not in
default under this Note, the Agreement or any other agreement between
the Lender and Borrower; then Lender shall convert the balance due
under the Interim Construction Loan but no more than Nine Million
<PAGE>
Seven Hundred Fifty Thousand and 00/100 Dollars ($9,750,000.00) into a
term loan (the "Term Loan"). Borrower shall pay the Term Loan by
making one hundred nineteen (119) monthly payments of principal and
interest commencing the first day of the first full month following
the conversion of the Interim Construction Loan into the Term Loan
(the "Conversion Date"), with interest calculated on the unpaid
principal balance from the Conversion Date at an interest rate of one
hundred sixty-six bases points (T-bill + 1.66%) over the Treasury Bill
rate described below, and a final payment of principal and interest
due ten (10) years from the Conversion Date. This final payment will
be for all principal and accrued interest not yet paid, together with
any other unpaid amounts under this Note. The monthly payment amount
will change with each adjustment in the interest rate, based on the
Note amount outstanding, remaining amortization period of a
twenty-five (25) year amortization schedule (which amortization
schedule commences on the Conversion Date), and interest rate. The
interest rate for this Term Loan will be adjusted on the Conversion
Date and on the fifth anniversary of the Conversion Date.
Interest on this Note is computed on a 365/365 simple interest basis; that is,
by applying the ratio of the annual interest rate over the number of days in a
year, times the outstanding principal balance, times the actual number of days
the principal balance is outstanding. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in writing.
Unless otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to any unpaid collection costs and late
charges, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is Pacific One Bank
Prime Rate as to the Interim Construction Loan, and the index as to the Term
Loan, if applicable, is the weekly average yield on United States Treasury
securities ("Treasury Bills") adjusted to a constant maturity of five (5) years,
as made available by the Federal Reserve Board (referred to collectively as the
"Index") most recent to the Index adjustment date. The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate or rates to be applied to the unpaid
principal balance of this Note will be the rate or rates set forth above in the
"Payment" section. Whenever increases occur in the interest rate, Lender, at its
option, may do one or both of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, and (b)
increase Borrower's payments to cover accruing interest.
PREPAYMENT PENALTY. During the Interim Construction Loan term only, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is due.
Borrower shall pay a prepayment premium equal to three percent (3.0%) of the
outstanding note balance at the time of prepayment if prepayment occurs during
the first year of the Term Loan and if the source of the prepayment funds is a
loan or loans from another lending institution or institutions. Borrower shall
pay a prepayment premium equal to two percent (2.0%) of the outstanding note
balance at the time of prepayment if prepayment occurs during the second year of
the Term Loan and if the source of the prepayment funds is a loan or loans from
another lending institution or institutions. Borrower shall pay a prepayment
premium equal to one percent (1.0%) of the outstanding note balance at the time
of prepayment if prepayment occurs after the second year of the Term Loan and if
the source of the prepayment funds is a loan or loans from another lending
institution or institutions. For the purposes of this provision, "lending
institution" shall mean any entity that loans money in the ordinary course of
business. Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower's obligation to continue to make payments under the
payment schedule. Rather, they will reduce the principal balance due and may
result in Borrower's making fewer payments.
LATE CHARGE: If a payment is 15 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within ten (10) days of when due. (b)
Borrower breaks any promise Borrower has made to Lender, or Borrower fails to
perform promptly at the time and strictly in the manner provided in this Note or
<PAGE>
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. If any such default is curable and if Borrower has not been
given notice of a breach of the same provision within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower, after Lender sends written notice demanding cure of such failure, (i)
cures the failure within thirty (30) days; or (ii), if the cure requires more
than thirty (30) days, immediately initiates steps sufficient to cure the
failure and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance within ninety (90) days. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
dissolves or becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Borrower (or any
member or partner of Borrower) dies or becomes incompetent. Lender may, at its
option, permit the deceased's estate to assume unconditionally the obligations
arising under this Note in a manner reasonably satisfactory to Lender, and, in
so doing, cure the event of default. (g) Any guarantor of this Note seeks,
claims, or otherwise attempts to limit, modify, or revoke such guarantor's
guaranty with Lender or any of the events of default occur with respect to any
guarantor of this Note or any guarantor dies or become incompetent. Lender may,
at its option, permit the deceased guarantor's estate to assume unconditionally
the obligations arising under this Note in a manner satisfactory to Lender, and,
in so doing, cure the event of default. (h) Lender in good faith deems itself
insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the interest rate
on this Note to five percentage (5.00%) points over the interest rate in effect
at the time of the default, and (b) add any unpaid accrued interest to principal
and such sum will bear interest therefrom until paid at the rate provided in
this Note (including any increased rate). The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone else to
help collect this Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for arbitration and bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Oregon. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF MULTNOMAH COUNTY, THE STATE OF OREGON. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
RIGHT OF SETOFF. To the extent any such accounts exist, Borrower grants to
Lender a contractual possessory security interest in, and hereby assigns,
conveys, delivers, pledges, and transfers to Lender all Borrower's right, title
and interest in and to, Borrower's accounts with Lender (whether checking,
savings, or some other account), including without limitation all accounts held
jointly with someone else and all accounts Borrower may open in the future,
excluding however all Keogh and trust accounts. Borrower authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
COLLATERAL. This Note is secured by, in addition to any other collateral, a Deed
of Trust and an Assignment of Rents to a trustee in favor of Lender on real
property located in Washington County, State of Oregon, all the terms and
conditions of which are hereby incorporated and made a part of this Note.
ARBITRATION. Except as provided below, Lender and Borrower agree that all
disputes, claims and controversies between them, whether individual, joint, or
class in nature, arising from this Note or otherwise, including without
limitation contract and tort disputes, shall be arbitrated pursuant to the then
<PAGE>
effective arbitration rules of the Arbitration Service of Portland, Inc., or the
then effective commercial arbitration rules of the American Arbitration
Association, whichever organization is selected by the party which first
initiates arbitration by filing a claim in accordance with the filing rules of
the organization selected. Notwithstanding the above, Lender's actions to take
or dispose of any collateral securing this Note shall not be prohibited by this
arbitration agreement nor constitute a waiver of this arbitration provision as
to all other disputes. This includes, without limitation, obtaining injunctive
relief or a temporary restraining order; foreclosing by notice and sale under
any deed of trust or mortgage; obtaining a writ of attachment or imposition of a
receiver; or exercising any rights relating to personal property, including
taking or disposing of such property with or without judicial process pursuant
to Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral securing this Note, including
any claim to rescind, reform, or otherwise modify any agreement relating to the
collateral securing this Note, shall also be arbitrated, provided however that
no arbitrator shall have the right or the power to enjoin or restrain any act of
any party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Note shall preclude any party
from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
LINE OF CREDIT. This Note evidences a straight line of credit for the Interim
Construction Loan only. Once the total amount of principal has been advanced,
Borrower is not entitled to further loan advances. Borrower agrees to be liable
for all sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender,
regardless of the fact that persons other than those authorized to borrow have
authority to draw against the accounts. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs.
GENERAL PROVISIONS. Time is of the essence hereof. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew, extend (repeatedly and
for any length of time) or modify this loan, or release any party or guarantor
or collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All obligations of Borrower under
this Note shall be joint and several, and all references to Borrower herein
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations in this Note.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDER TO
BE ENFORCEABLE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
Timberline Software Corporation
By: /s/ Thomas P. Cox
----------------------------
Its: Senior Vice President
---------------------------
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Timberline Software Corporation
Beaverton, Oregon
We consent to the incorporation by reference in Registration Statements Nos.
33-46716 and 33-69820 on Form S-8 of our report dated January 23, 1998 appearing
in this Annual Report on Form 10-KSB of Timberline Software Corporation for the
year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TIMBERLINE SOFTWARE CORPORATION'S FINANCIAL STATEMENTS CONTAINED IN ITS
ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 5,050,283
<SECURITIES> 5,195,332
<RECEIVABLES> 4,501,952
<ALLOWANCES> 198,968
<INVENTORY> 241,175
<CURRENT-ASSETS> 15,816,274
<PP&E> 12,671,195
<DEPRECIATION> 5,186,451
<TOTAL-ASSETS> 25,754,287
<CURRENT-LIABILITIES> 11,477,772
<BONDS> 0
0
0
<COMMON> 372,183
<OTHER-SE> 12,893,732
<TOTAL-LIABILITY-AND-EQUITY> 25,754,287
<SALES> 18,927,615
<TOTAL-REVENUES> 35,240,078
<CGS> 3,605,168
<TOTAL-COSTS> 17,613,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,060
<INCOME-PRETAX> 6,970,246
<INCOME-TAX> 2,435,000
<INCOME-CONTINUING> 4,535,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,535,246
<EPS-PRIMARY> .66
<EPS-DILUTED> .64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TIMBERLINE SOFTWARE CORPORATION'S RESPECTIVE FINANCIAL STATEMENTS
FOR THE RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 1,480,628 3,542,888 4,604,905 3,128,703
<SECURITIES> 6,893,510 5,865,268 749,908 1,447,521
<RECEIVABLES> 4,155,120 3,426,947 3,560,395 3,872,353
<ALLOWANCES> 161,139 166,407 176,407 178,674
<INVENTORY> 250,416 267,645 275,148 308,751
<CURRENT-ASSETS> 13,772,267 14,273,441 10,329,786 9,641,038
<PP&E> 10,897,293 7,846,746 7,561,739 7,236,600
<DEPRECIATION> 4,785,656 4,397,415 4,222,332 3,969,984
<TOTAL-ASSETS> 22,160,996 19,753,382 18,411,881 18,042,227
<CURRENT-LIABILITIES> 9,695,605 8,546,006 8,442,176 8,316,286
<BONDS> 0 0 0 0
371,060 369,883 364,928 0
0 0 0 0
<COMMON> 0 0 0 364,368
<OTHER-SE> 11,080,850 9,926,131 8,764,534 8,550,449
<TOTAL-LIABILITY-AND-EQUITY> 22,160,996 19,753,382 18,411,881 18,042,227
<SALES> 24,527,956<F1> 15,732,664<F1> 7,507,695<F1> 14,983,122
<TOTAL-REVENUES> 24,527,956 15,732,664 7,507,695 28,659,031
<CGS> 2,671,372 1,830,906 923,556 3,513,987
<TOTAL-COSTS> 13,008,191 8,527,829 4,324,320 15,563,741
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 2,925
<INCOME-PRETAX> 3,838,041 2,086,755 509,895 3,053,623
<INCOME-TAX> 1,286,000 772,000 178,000 870,000
<INCOME-CONTINUING> 2,552,041 1,314,755 331,895 2,183,623
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,552,041 1,314,755 331,895 2,183,623
<EPS-PRIMARY> .37<F2> .19<F2> .05<F2> .33<F2>
<EPS-DILUTED> .36<F2> .18<F2> .05<F2> .31<F2>
<FN>
<F1> Amount includes revenue from services which is not separately presented for
interim reports.
<F2> Reflects a five-for-four stock split paid in November 1997 and the adoption
in fourth quarter 1997 of SFAS No. 128, a new standard for presenting and
computing both basic and diluted earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TIMBERLINE SOFTWARE CORPORATION'S RESPECTIVE FINANCIAL STATEMENTS
FOR THE RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 1,194,629 1,868,071 4,434,955 3,856,533
<SECURITIES> 3,091,832 3,671,928 3,462,194 3,439,000
<RECEIVABLES> 2,930,435 3,531,095 2,968,536 3,411,646
<ALLOWANCES> 178,674 239,054 245,759 225,909
<INVENTORY> 292,030 384,448 305,551 326,311
<CURRENT-ASSETS> 8,529,534 10,288,877 11,759,868 11,502,796
<PP&E> 7,106,401 6,666,092 6,010,839 5,738,256
<DEPRECIATION> 3,921,123 3,761,989 3,564,320 3,374,494
<TOTAL-ASSETS> 16,567,737 16,789,559 14,904,996 14,384,888
<CURRENT-LIABILITIES> 7,823,707 8,399,412 7,790,870 7,609,236
<BONDS> 0 0 0 0
360,238 356,215 345,906 0
0 0 0 0
<COMMON> 0 0 0 345,906
<OTHER-SE> 7,661,787 7,293,093 6,329,351 6,014,855
<TOTAL-LIABILITY-AND-EQUITY> 16,567,737 16,789,559 14,904,996 14,384,888
<SALES> 20,436,345<F1> 13,491,323<F1> 6,678,197<F1> 13,435,099
<TOTAL-REVENUES> 20,436,345 13,491,323 6,678,197 24,819,365
<CGS> 2,540,034 1,664,201 807,885 2,836,423
<TOTAL-COSTS> 11,158,549 6,964,731 3,529,439 13,600,803
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 725
<INCOME-PRETAX> 1,960,423 1,620,408 740,858 2,446,743
<INCOME-TAX> 627,000 625,000 288,000 714,000
<INCOME-CONTINUING> 1,333,423 995,408 452,858 1,732,743
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,333,423 995,408 452,858 1,732,743
<EPS-PRIMARY> .20<F2> .15<F2> .07<F2> .27<F2>
<EPS-DILUTED> .19<F2> .14<F2> .07<F2> .25<F2>
<FN>
<F1> Amount includes revenue from services which is not separately presented for
interim reports.
<F2> Reflects a five-for-four stock split paid in November 1997 and the adoption
in fourth quarter 1997 of SFAS No. 128, a new standard for presenting and
computing both basic and diluted earnings per share.
</FN>
</TABLE>
