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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the Transition period from ________________________
Commission File Number 0-9097
THE PEREGRINE REAL ESTATE TRUST
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2255677
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 ETHAN WAY, SUITE 200, SACRAMENTO, CALIFORNIA 95825
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (916) 929-8244
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Each Class
Common Shares of Beneficial Interest
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.
[ X ]
There is no active trading market for Peregrine's Common Shares of Beneficial
Interest.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
As of March 15, 1997, there were 4,881,122 outstanding Common Shares of
Beneficial Interest. As of March 15, 1997, there were 2,320,540 outstanding
Common Shares of Beneficial Interest held by non-affiliates of the registrant.
Since there is no active trading market for the registrant's Common Shares of
Beneficial Interest, no aggregate market value may be given with respect to such
shares.
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THE PEREGRINE REAL ESTATE TRUST
<TABLE>
<S> <C> <C>
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PART I PAGE
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Item 1. Business 1-10
Item 2. Properties 11-12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
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PART II
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Item 5. Market for Registrant's Common Shares of Beneficial Interest Equity
and Related Security Holder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16-24
Item 8. Financial Statements and Supplementary Data 25-67
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 68
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PART III
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Item 10. Trustees and Executive Officers of the Registrant 69-71
Item 11. Executive Compensation 71-73
Item 12. Security Ownership of Certain Beneficial Owners and Management 74-77
Item 13. Certain Relationships and Related Transactions 78
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 79-80
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</TABLE>
(i)
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PART I
Item 1. Business
(a) Introduction
The Peregrine Real Estate Trust ("Peregrine") is a California business
trust headquartered in Sacramento, California. As of December 31, 1996,
Peregrine's assets included nineteen commercial properties located primarily in
the Sacramento area, three hotel properties located in Northern California, one
parcel of vacant land located in the Sacramento area, a partnership interest in
a general partnership, three mortgage notes secured by real property, and a 76%
stock ownership interest in the California Real Estate Investment Trust
("CalREIT"). At December 31, 1996, CalREIT's assets included two commercial
properties (one located in Sacramento, California and one located in Kirkland,
Washington), three mortgage notes secured by real property, and a portfolio of
diversified, unleveraged pools of U.S. Government Agency mortgage-backed
securities. Subsequent to December 31, 1996, Peregrine's interest in CalREIT
was sold for $20,222,000 in cash. Peregrine and its subsidiary, CalREIT, are
collectively referred to as the "Trust".
Peregrine emerged from bankruptcy under a Plan of Reorganization in
October 1994. As such, 1996 represented Peregrine's second full year of
operations since the application of "fresh start" accounting upon Peregrine's
emergence from bankruptcy on October 7, 1994.
(b) Background and Summary of Bankruptcy Proceedings
Chapter 11 Proceedings. On August 2, 1993, Commonwealth Equity Trust ("CET")
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. The case was heard in the United States Bankruptcy Court for
the Eastern District of California, Sacramento Division, as In re Commonwealth
Equity Trust Case No. 93-26727-C-11.
Plan of Reorganization. On June 9, 1994, Peregrine, formerly CET; a lender group
including the Prudential Insurance Company of America, the Pacific Mutual Life
Insurance Company, ORIX USA Corporation, and Trust Company of the West ("TCW"),
(collectively the "Senior Lender Group"); the Official Committee of Holders of
Equity Interests; and the Official Committee of Creditors Holding Unsecured
Claims filed with the Bankruptcy Court the Third Amended Plan of Reorganization
(the "Plan") which was confirmed as modified on August 8, 1994.
The Effective Date of the Plan (the date on which Peregrine emerged
from bankruptcy) was October 7, 1994. Peregrine is under the jurisdiction of the
U.S. Bankruptcy Court until entry of a final decree, an event now expected to
occur in 1997.
The Plan provided for inter alia: (a) the restructuring of virtually
all of Peregrine's secured and unsecured debt; (b) the reduction in the number
of Common Shares of Beneficial Interest held by current shareholders at the time
from approximately 25,100,000 (old) CET shares to approximately 2,334,000 (new)
Peregrine shares (effectively a reverse stock split); and the issuance of
approximately 2,550,000 new Common Shares of Beneficial Interest plus a new
class of Redeemable Convertible Preferred Shares (see Senior Lender Group -
Redeemable Convertible Preferred Stock discussed below) of Peregrine to the
Senior Lender
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Group. As of the Effective Date, the Senior Lender Group became the owner of a
majority of the Common Shares of Beneficial Interest and all of the Redeemable
Convertible Preferred Shares. The Senior Lender Group also received Restructured
Secured Notes Payable in the aggregate original principal amount of $40,000,000
(see Senior Lender Group - Restructured Notes Payable discussed below).
The Plan also required that Peregrine obtain a $10,000,000 working
capital line of credit (the "Line of Credit") to which the Senior Lender Group
agreed to subordinate. The Line of Credit, which is secured by certain of
Peregrine's real property, was obtained prior to the Effective Date (See Line
of Credit discussed below).
Senior Lender Group. Peregrine's obligation of approximately $80,000,000 to the
Senior Lender Group was satisfied in the Plan by the issuance to the Senior
Lender Group of the following securities:
(i) Common Shares of Beneficial Interest equal to approximately 52% of the total
outstanding Common Shares of Beneficial Interest represented by 2,550,001
shares. Subsequently, pursuant to the Plan, old CET shares that remained
unexchanged as of October 7, 1995, were converted to new Peregrine shares and
redistributed among Peregrine shareholders of record at December 31, 1995. As a
result, as of March 15, 1997, the Senior Lender Group owned directly or
indirectly 2,560,582 Common Shares of Beneficial Interest.
(ii) Redeemable Convertible Preferred Stock (the "Preferred Shares" or
"Preferred Stock") in the original face amount of $22,500,000, represented by
11,250,000 originally issued preferred shares, which carry a dividend of 10% per
annum. Dividends are payable in kind through October 1, 1998, by means of
additional shares of Preferred Stock issued quarterly; thereafter, dividends are
payable quarterly in cash. The Preferred Stock automatically converts into
Common Shares of Beneficial Interest pursuant to an established formula if any
dividend payment is not made in full when due. If all dividends were paid in
kind through October 1, 1998, no additional Common Shares of Beneficial Interest
were issued, and the Preferred Stock converted to Common Shares of Beneficial
Interest on October 1, 1998, the Senior Lender Group would, as a result of that
conversion, acquire 77% of the total number of Common Shares of Beneficial
Interest outstanding, thereby bringing its total holdings to approximately 89%.
The Preferred Stock is redeemable in cash on October 1, 2000, however
it may be redeemed earlier under certain circumstances including the sale of all
or substantially all the assets of Peregrine.
(iii) Restructured Notes Payable in the amount of $40,000,000, which bear
interest at 8.5% per annum and which are due on October 1, 2000. Interest was
payable in kind through September 30, 1996, by means of Interest Deferral Notes
issued quarterly. Since September 30, 1996, interest has been payable monthly in
cash, with the first payment commencing November 1, 1996.
The Interest Deferral Notes accrue interest at 8.5% per annum from the
date of issuance. Interest payments, both on principal and the deferred
interest, accrued through September 30, 1996, and have been payable monthly in
cash since September 30, 1996, with the first payment commencing November 1,
1996.
The Restructured Notes Payable and the Interest Deferral Notes
(collectively the "Senior Lender Group Notes Payable" or "Senior Lender Group
Notes") are collateralized, generally by all interests of Peregrine in real and
personal property and are subordinated only to certain liens which are specified
in the Plan and are due October 1, 2000. The Senior Lender Group Notes contain
certain covenants and restrictions including the mandatory prepayment of
principal in the amount of 80% of any net proceeds
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Peregrine receives from the sale of the collateral for the Senior Lender Group
Notes and from other specified sources.
Line of Credit. Pursuant to the Plan, a Line of Credit in the original maximum
amount of $10,000,000 was arranged. The Line of Credit is collateralized by a
first lien on certain of Peregrine's properties. It is a revolving line and
bears interest at 2.25% over the prime rate defined in the Agreement. The Line
of Credit matures on October 7, 1997. In June 1996, in accordance with the
Agreement, the Line of Credit was reduced to a maximum amount of $8,600,000, as
a result of the release of certain collateral.
Capital Constraints. The post-confirmation financial projections included in
the Plan, which were prepared by CET's management in consultation with its
financial advisors, included a number of assumptions related to expected future
cash inflows which have not been achieved and outflows which have exceeded such
projections. Such items include, but are not limited to the following:
- Cash inflows from the commercial properties and hotels have been
lower than projected due to, among other things, the bankruptcy
filings of several tenants and overly aggressive assumptions used
in the projections as to the lease-up, occupancy, and rental
rates of the Sacarmento market.
- The Plan assumed certain property values and levels of capital
expenditures which have not been met; for example, since the date
of confirmation, the Trust has recorded aggregate valuation
allowances on its investment portfolio totaling approximately
$14,000,000 (see Note 8 to consolidated financial statements),
and has estimated the total capital expenditures required for its
hotel portfolio to be more than projected in the Plan.
- The financial projections included in the Plan envisioned annual
dividend payments from Peregrine's subsidiary, CalREIT; however,
no such dividends were paid subsequent to the Effective Date of
the Plan.
- Payments on pre-petition liabilities and payments to
professionals for fees incurred in connection with the bankruptcy
have exceeded the amounts included in the financial projections.
As discussed above, the capital structure resulting from the Plan
limits Peregrine's ability to raise new capital, to incur additional
indebtedness, other than the $10,000,000 Line of Credit provided for in the
Plan, or to generate sufficient cash flow for future operations from asset
dispositions.
Both the variances from the financial projections included in the Plan
and the capital structure resulting from the Plan (herein referred to as
"Capital Constraints") have had an adverse affect on the financial condition,
results of operations, and liquidity of Peregrine. In addition, the Capital
Constraints have impacted Peregrine's ability to move forward with its plans to
maintain and refurbish the commercial and hotel properties in its portfolio.
The Senior Lender Group Notes, as restructured by the Plan (as
discussed above), provide that 80% of all net proceeds generated from the
disposition of assets be paid to the Senior Lender Group to reduce Peregrine's
indebtedness on the Senior Lender Group Notes. Although the Plan does not allow
Peregrine to retain more than 20% of the net proceeds from asset dispositions,
during 1996, Peregrine requested the Senior Lender Group to allow it to retain
more than 20% of the net proceeds from certain asset dispositions which were to
be used for capital expenditures related to the refurbishment of the Park
Terrace Inn in Redding, California, and for the payment of professional fees
incurred in connection with the bankruptcy proceedings. The Senior Lender Group
did not grant Peregrine's request for additional proceeds to complete the
refurbishments at the hotel. Peregrine was allowed to retain
approximately $1,700,000 in additional proceeds for payment against the
oustanding professional fees related to the bankruptcy proceedings of
approximately $2,800,000.
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Organization. Peregrine is governed by a Restated Declaration of Trust dated
October 7, 1994. The Restated Declaration of Trust gives the Board of Trustees
the power to borrow money on behalf of Peregrine; to make loans to other
persons; to invest in the securities of other issuers under certain
circumstances; to make investments in property; to purchase outstanding shares
of Peregrine for such consideration as they deem advisable; to issue an annual
report to shareholders; to issue debt securities; to allocate investments
between direct and indirect ownership; and to exercise other powers in
connection with Peregrine's operations. The Trustees can also make decisions
regarding investment and sales activities without the prior approval of
shareholders.
CET's status as a qualified REIT for federal income tax purposes was
terminated as of the beginning of its fiscal year ended September 30, 1993.
Unless Peregrine seeks and is granted a waiver from the Internal Revenue
Service, it may not obtain REIT status prior to its fifth taxable year ended
after September 30, 1993.
Transition Period. For purposes of this report, the Transition Period is defined
as the period from October 7, 1994, the Effective Date of the Plan, through
December 31, 1994.
(c) Business in 1996
Overview. During 1996, Peregrine owned and operated a portfolio of investments
that included real property, partnership interests, mortgage notes, and a 76%
stock ownership interest in CalREIT. Efforts continued to be placed on
improving property operations while simultaneously exploring alternative
operating strategies for the future to maximize shareholder value. The
immediate priority continued to be to meet Peregrine's debt obligations,
including its obligations to make cash interest payments on the Senior Lender
Group Notes commmencing November 1, 1996. To achieve this objective, emphasis
remained on maximizing the income stream from the commercial and hotel
properties and the select disposition of real estate assets with negative cash
flows and/or which require significant capital expenditures beyond the
resources available to Peregrine.
In January 1996, Peregrine retained the services of an investment banking
firm to assist management and the Board of Trustees in its review
and analysis of strategic operating alternatives. The investment bankers
reviewed and analyzed Peregrine's organizational structure and its entire
investment portfolio, including its 76% stock ownership interest in CalREIT
and CalREIT's strategic growth plans, and presented its findings and
recommendations to Peregrine's management and Board of Trustees in March 1996.
Following this review, as well as a review of strategic options realistically
available to Peregrine, in light of among other things, the factors discussed
above under CAPITAL CONSTRAINTS, and the inability to sell assets and reinvest
in higher yielding investments or make capital improvements to existing assets
under the terms of the Senior Lender Group Notes, the Board of Trustees
determined to (1) continue its strategy of disposing of real estate assets with
negative cash flows and/or which require significant capital expenditures
beyond the resources availiable to Peregrine, (2) seek to dispose of its 76%
ownership interest in CalREIT, and (3) commence discussions with the Senior
Lender Group, as lender and controlling shareholder, regarding a modification
of the terms of the Senior Lender Group Notes to allow for the reinvestment of
additional proceeds from the sale of CalREIT or other asset dispositions, into
higher yielding investments or capital improvements to existing assets, or for
a one time distribution of a portion of such proceeds to Peregrine's public
shareholders in connection with a merger, business combination, or other
transaction. Pursuant to this strategy, during 1996, Peregrine took the action
described in the following section with respect to its property porfolio and
also engaged its investment banker to market and sell its 76% ownership
interest in CalREIT. On January 3, 1997, Peregrine sold its interest in
CalREIT for $20,222,000 in cash, a premium of approximately $1,500,000 over
the book value of Peregrine's CalREIT shares. However, except for $1,700,000
in additional proceeds to be used for the payment of professional fees, no
agreement or understanding could be reached with the Senior Lender Group as to
reinvestment or alternative uses of cash proceeds from the sale of CalREIT, or
from other asset dispositions, during 1996, apart from the mandatory paydowns
of the Senior Lender Group Notes.
Peregrine's Property Portfolio. During 1996, Peregrine sold the following
properties: Sierra Oaks Shopping Center in Roseville, California, Timberlake
Medical Building in Sacramento, California, and the Park Terrace Inn Hotel in
Redding, California. Also during 1996, pursuant to the Plan of Reorganization,
Peregrine disposed of three of its four parcels of vacant land located in
Sacramento, California, by quit-claim deed to the holders of certain secured
bond claims against the parcels.
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During 1996, Peregrine filed a notice of default and commenced
foreclosure proceedings against one delinquent mortgage note which was
collateralized by three industrial buildings in Corona, California. In September
1996, Peregrine acquired the three properties in a public auction for the value
of the outstanding obligations.
At the end of 1996, Peregrine's real estate portfolio was comprised of
nineteen commercial properties, located primarily in the Sacramento area, three
hotels located in Northern California, and one parcel of vacant land in
Sacramento. The commercial property portfolio included seven light industrial
properties, two mini-storage facilities, six suburban office buildings, and four
retail shopping centers encompassing approximately 1,051,000 net rentable square
feet in total.
Management continued its efforts to improve the physical and operating
condition of its commercial properties by completing repairs and deferred
maintenance, controlling property expenses, and improving both occupancy levels
and collections of rent. The Sacramento metropolitan area, where the majority of
Peregrine's commercial properties are located, continued to experience soft
market conditions in 1996; however, the market showed improvements over 1995,
and continues to show improvements in 1997. Despite improvements in occupancy
levels, Peregrine's office building located at 3900 Lennane Drive in Sacramento,
California (also known as the System Integrators Building), continued to be
vacant during 1996. Management continued its efforts to sell the property and/or
restructure the debt related to the property during 1996; however, Peregrine has
been unable to sell the property and the lender refused to restructure the debt
to a manageable level. In February 1997, after consent from both the Senior
Lender Group and Foothill Capital Corporation (the lender on the Line of
Credit), Peregrine ceased debt service payments. In March 1997, Peregrine was
notified that the lender has initiated foreclosure proceedings against the note.
The unpaid balance of the note at the time of default was approximately
$2,493,000, of which approximately $2,380,000 is subject to recourse. The
carrying value of the property which collateralizes the note was $1,895,000 at
December 31, 1996.
The weighted average occupancy for Peregrine's commercial property
portfolio at the end of 1996 was approximately 83% as compared to approximately
75% at the end of 1995.
In 1996, Peregrine's hotels continued to be operated by independent
hotel management companies who employ and oversee all staffing, operations and
union negotiations at the hotels. In early 1996, following a determination by
the Trustees of the strategic importance and growth prospects of its four hotel
properties, emphasis was placed on completing the required $6,500,000 in
refurbishments necessary to comply with Holiday Inn standards, increasing
occupancy, and managing operating expenses. Included in the capital expenditure
budget was approximately $3,500,000 for refurbishments at The Park Terrace Inn
in Redding, California, which had been closed since late 1995. After
management's determination that Peregrine would be unable to complete the
refurbishments at the Redding hotel due to the Capital Constraints, Peregrine
sought a waiver from its Senior Lender Group to retain greater than 20% of the
net proceeds generated from the disposition of certain assets in order to
complete the necessary refurbishments; however, the request was denied and, as
a result, the property was sold in October 1996. Peregrine's three other
hotels, which are licensed Holiday Inn franchises, required a total of
$3,000,000 in refurbishments at the beginning of 1996 in order to comply with
Holiday Inn standards. During 1996, due to Capital Contraints, Peregrine was
only able to complete $1,200,000 of the required $3,000,000 in refurbishments.
As a result of not having completed the required refurbishments within the time
frame specified by Holiday Inn, Peregrine received a 30-day notice of default
under the Holiday Inn License Agreements (the "Notice of Default") for its
Chico and Sacramento hotels in February 1997. The terms of the Notice of
Default require that Peregrine complete the refurbishment work within 30 days
or the License Agreements with Holiday Inn will be terminated and the hotels
will be removed from
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the Holiday Inn system. Management has negotiated with Holiday Inn and has
obtained a 30-day extension of time to April 15, 1997, in which to review the
refurbishment plans and budgets and to develop an action plan to complete the
refurbishments required. Should the refurbishment plan not meet Holiday Inn's
requirements, or should Holiday Inn decide not to grant an extension of time in
which to complete the refurbishments, the License Agreements could be
terminated on or after April 15, 1997. Management intends to develop an action
plan that is acceptable to Holiday Inn and to seek an extension of time in
which to complete the required refurbishments. In addition, as a result of the
sale of its 76% ownership interest in CalREIT on January 3, 1997, Peregrine
believes it has the necessary resources to complete the required refurbishments
and plans to proceed. In the event that management is unable to reach an
agreement with Holiday Inn and the License Agreements are terminated, Peregrine
could be subject to termination fees estimated at approximately $500,000 and
$800,000 for Chico and Sacramento, respectively. In addition, under the terms
of its Line of Credit Agreement, the loss of the Holiday Inn License Agreements
could constitute an event of default, unless Peregrine is able to replace the
Holiday Inn License Agreements with comparable license agreements within 180
days from the date on which the Holiday Inn License Agreements are terminated.
The loss of the Holiday Inn License Agreements could also constitute an event
of default under the terms of the Senior Lender Group Note Agreement.
Peregrine's three Holiday Inns have an aggregate of 552 guestrooms. The
weighted average occupancy for the Holiday Inns was approximately 67% during
1996 as compared to approximately 65% during 1995.
At December 31, 1996, the book value for Peregrine's real estate
portfolio was $68,827,000. On that date, the portfolio was encumbered by
$27,094,000 of first mortgage indebtedness, in addition to the Senior Lender
Group Notes and the Line of Credit obligation.
CalREIT's Property Portfolio. Throughout 1996, CalREIT continued to monetize its
assets as part of its strategy to expand and improve shareholder value through
merger or acquisition. During 1996, two of CalREIT's four commercial properties,
the Redfield Commerce Center in Scottsdale, Arizona, and the Bekins Storage
Facility in Pasadena, California, were sold. Despite improvements in operations
and the implementation of a lease arrangement financially favorable to CalREIT,
the Casa Grande Motor Inn in Arroyo Grande, California was unable to generate
sufficient cash flow to cover its debt service requirements. After a refusal by
the lender to restructure the terms of the debt, CalREIT allowed the property to
be foreclosed upon in the first quarter of 1996.
At the end of 1996, CalREIT's real estate portfolio was comprised of two
commercial properties, the Fulton Square Shopping Center in Sacramento,
California, and Totem Square, a mixed-use retail property located in Kirkland,
Washington. A contract for the sale of these two properties was in place at
December 31, 1996, and subsequent to year end both properties were sold.
The weighted average occupancy for CalREIT's commercial property
portfolio at the end of 1996 was approximately 77% as compared to approximately
90% at the end of 1995.
At December 31, 1996, the book value for CalREIT's real estate portfolio
was $8,585,000. On that date, the portfolio was encumbered by $4,283,000 of
first mortgage indebtedness.
Partnership Interests. At the beginning of 1996, Peregrine was a partner in
Placer Ranch Partners, a limited partnership in which Peregrine owned a 31%
limited partnership interest. The partnership owned an
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undeveloped parcel of land in the Stanford Ranch area of Rocklin, California.
During the first quarter of 1996, the general partner of the partnership
exercised a Put/Call Option, which required that Peregrine sell its interest in
the partnership to the general partner or purchase the general partner's
interest. In July 1996, after investigation and analysis, and due to Capital
Constraints, Peregrine sold its 31% partnership interest to the general
partner.
Peregrine is also a partner in CR Properties, a general partnership in
which it owns a 50% interest. CR Properties is a limited partner in a
partnership which owns an office building in Sacramento, California. In 1996, as
in previous years, the partnership continued to generate net losses which, in
accordance with the partnership agreement, were allocated 100% to the other
partner. As a limited partner, CR Properties has no contingent liabilities. At
December 31, 1996, Peregrine's investment in CR Properties was carried at a book
value of $0 due to previous write-downs.
Peregrine's Mortgage Note Portfolio. At the beginning of 1996, Peregrine had
five notes in its mortgage note portfolio. During the year, one of the notes was
paid in full prior to its maturity date, and one note was foreclosed upon,
resulting in the acquisition of three industrial buildings in Corona,
California. At year end, Peregrine had three mortgage notes remaining in its
portfolio, all of which originated from property dispositions prior to 1996 and
represent first and second mortgages collateralized by real property located in
California. At the end of 1996, the book value of Peregrine's mortgage note
portfolio totaled $720,000. At such time, $385,000 (net of write downs of
$275,000) was delinquent.
CalREIT's Mortgage Note Portfolio. At the beginning of 1996, CalREIT had seven
notes in its mortgage note portfolio. Pursuant to its strategy to monetize
assets, during 1996, CalREIT marketed and sold four of the notes. The three
remaining mortgage notes, which are classified as "held for sale", are
collateralized by mortgages on real property and had a book value of $1,576,000
at December 31, 1996.
Marketable Securities. During 1996, CalREIT invested the proceeds generated from
the sale of its commercial properties and mortgage notes in diversified,
unleveraged pools of U.S. Government Agency mortgage-backed securities which
satisfy REIT asset qualification requirements. At December 31, 1996, CalREIT's
investment portfolio of marketable securities, which was classified as "held for
sale" had a book value of $14,115,000, which approximated fair value at that
date.
Investment in CalREIT. At December 31, 1996, Peregrine owned 6,959,593, or
approximately 76%, of CalREIT's 9,137,335 outstanding common shares of
beneficial interest. As discussed above, at December 31, 1996, CalREIT's
investment portfolio consisted of two commercial real estate properties with a
total book value of $8,585,000, three mortgage notes with a book value of
$1,576,000, and a portfolio of diversified, unleveraged pools of U.S. Government
Agency mortgage-backed securities with a book value of $14,115,000. At year end,
CalREIT was 17% leveraged, reflecting outstanding mortgage debt obligations of
$5,169,000. CalREIT's shares, which are traded on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol CT, were held by approximately
1,700 shareholders-of-record at December 31, 1996. The net book value of CalREIT
totaled $24,471,000, or approximately $2.68 per CalREIT common share of
beneficial interest at December 31, 1996. During 1996, CalREIT shares traded
between $1.13 and $2.88. On January 3, 1997, Peregrine sold its 76% stock
ownership interest in CalREIT for $20,222,000, or approximately $2.91 per share
of CalREIT previously held by Peregrine, to a third party, CalREIT Investors
Limited Partnership. The decision to sell CalREIT was made by management and the
Board of Trustees of Peregrine during 1996, and was based primarily on the
following considerations: (1) CalREIT had not paid any dividends during the
last two years and had no immediate plans to pay dividends in the near term;
therefore, Peregrine's
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investment in CalREIT was not generating cash flow that could be used for other
purposes; (2) Peregrine's debt service requirements, including interest on its
Senior Lender Group Notes, which beginning on November 1, 1996, was required to
be paid in cash, were resulting in severe capital constraints; (3) the
extensive analysis performed by its investment banker relating to Peregrine's
investment in CalREIT indicated that the shares owned by Peregrine were at
their maximum potential value; (4) CalREIT's management had not developed a
credible growth plan, and (5) potential buyers would be interested in CalREIT's
New York Stock Exchange listing.
1996 Financial Overview - Consolidated Basis. Total revenues for Peregrine and
CalREIT on a consolidated basis (the "Trust") in 1996 were $25,582,000 and total
operating expenses were $31,329,000. The consolidated net loss in 1996 was
($7,705,000). The net loss attributable to Common Shares of Beneficial Interest
for the Trust in 1996 was ($10,576,000) or ($2.17) per Common Share of
Beneficial Interest, which includes the net loss plus the effects of Preferred
Stock dividends, discounts on Preferred Stock dividends, and the accretion of
discounts on Preferred Stock dividends.
The Trust ended the year 1996 with $5,972,000 in unrestricted cash, of
which $4,698,000 was held by CalREIT and unavailable to Peregrine for operating,
working capital, or other purposes.
As of December 31, 1996, Peregrine's tax loss carryforward totaled
approximately $81,858,000 for federal and $36,368,000 for California.
In 1996, interest on the Trust's long-term first mortgage notes totaled
$3,454,000, of which $119,000 was deferred and added to the principal balance.
Interest and fees on the Line of Credit totaled $918,000 ($844,000 of interest
and $74,000 in fees) in 1996, which was satisfied by an increase in the
outstanding balance. Interest on the Senior Lender Group Notes totaled
$3,814,000 in 1996, of which $2,844,000 was satisfied through the issuance of
additional Interest Deferral Notes. At December 31, 1996, total long-term first
mortgage notes of the Trust were $32,263,000, the outstanding balance on the
Line of Credit was $8,583,000, and total debt obligations to the Senior Lender
Group were $44,467,000. Accrued and unpaid interest at December 31, 1996
totaled $19,000 on long-term first mortgages and $325,000 on the Senior Lender
Group Notes.
In accordance with the Plan, dividends on the Senior Lender Group's
Redeemable Convertible Preferred Stock were paid in-kind throughout 1996. During
the year, dividends of $2,688,000 were paid in-kind through the issuance of an
additional 1,345,000 Preferred Shares, bringing the total number of Preferred
Shares held by the Senior Lender Group to 14,073,000 as of December 31, 1996.
A more detailed discussion of the Trust's financial performance,
results of operations and alternative going-forward operating strategies is
included in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(d) Management of the Trust's Investments
Peregrine is a self-administered business trust. The President and
Chief Executive Officer of Peregrine is Joseph M. Mock. On June 1, 1996, Mr.
Mock assumed his position from John McMahan (Chairman of the Board of Trustees),
who served as Interim Chief Executive Officer from January 15, 1996, when the
Board of Trustees terminated the employment of Frank A. Morrow, who had served
as both Peregrine's Chief Executive Officer and as a member of the Board of
Trustees since October 1994. As a result of the termination of Frank A. Morrow
as Peregrine's Chief Executive Officer in January 1996, Peregrine
8
<PAGE> 12
utilized the services of certain of its independent Trustees in connection with
its analysis of alternative operating strategies, asset dispositions, and
day-to-day management activities (see Item 13 - Certain Relationships and
Related Transactions). In February 1996, Mr. Morrow resigned as a
Trustee of Peregrine but continued to serve as the Chairman of the Board
of Trustees and Chief Executive Officer of CalREIT.
All management services are provided by employees of Peregrine,
professional property management companies, or independent contractors. As of
December 31, 1996, Peregrine had seven full-time employees.
CalREIT is a self-administered real estate investment trust ("REIT").
During 1996, all strategic and investment decisions for CalREIT were made by the
five members of the Board of Trustees of CalREIT. During 1996, Frank A. Morrow
served as Chairman of the Board of Trustees and Chief Executive Officer of
CalREIT. Simultaneously with the closing of Peregrine's sale of its CalREIT
stock on January 3, 1997, John McMahan, who serves as Chairman of the Board of
Peregrine, resigned as a Trustee of CalREIT.
During 1996, CalREIT had no employees. Management services were
provided by professional management companies, independent contractors, and by
the employees of Peregrine. Peregrine receives a reimbursement of costs pursuant
to a cost-allocation agreement for providing these services. In January 1997,
after Peregrine's sale of its 76% stock ownership interest in CalREIT, the
cost-allocation agreement was terminated.
(e) Uninsured Losses from Seismic Activity
All of the Trust's properties are located in areas that are subject to
earthquake activity. The Trust's insurance policies for these properties cover
losses from fires after an earthquake, but they do not cover damage directly
caused by earthquakes or other seismic activity. The Trust has not obtained
earthquake insurance for these properties because such policies have been
unavailable from insurers. In the event that uninsured losses resulting from
earthquake or other seismic activity should occur, the Trust could lose its
capital invested in the affected property, as well as the anticipated future
revenues from such property, and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss could
materially and adversely affect the business of Peregrine and its financial
condition and results of operations.
(f) Potential Environmental Risks
Investments in real property create a potential for environmental
liability on the part of the owner of, or any mortgage lender on, such real
property. If hazardous substances are discovered on or emanating from any of the
Trust's properties, the owner or operator of the property (including the Trust)
may be held strictly liable for all costs and liabilities relating to such
hazardous substances. The Trust currently carries no insurance for environmental
liabilities.
9
<PAGE> 13
(g) Executive Officers of the Registrant
The Executive Officer of Peregrine is listed below:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Joseph M. Mock 57 President, Chief Executive Officer, and
Principal Accounting Officer
</TABLE>
The principal business experience and affiliations of the Executive Officer are
as follows:
Joseph M. Mock, President, Chief Executive Officer, and Principal Accounting
Officer. Prior to joining Peregrine as President, Chief Executive Officer, and
Principal Accounting Officer, in June 1996, Mr. Mock served as Executive Vice
President and Chief Operating Officer of Landsing Pacific Fund, Inc., a public
REIT, from October 1993 to February 1996. From September 1987 to October 1993,
Mr. Mock was a principal in Byron Partners, Inc., a real estate consulting firm
specializing in the management and disposition of real estate owned and loan
workouts for financial institutions. Prior to forming Byron Partners, Inc., Mr.
Mock was a Vice President of Portfolio Management for Eastdil Realty, Inc.,
providing asset management services to pension funds. Mr. Mock also spent 17
years with Grubb & Ellis Co., a real estate services company, filling a number
of roles including tenures as broker, Senior Vice President of Asset
Management, Vice President of Administration, and Vice President of Business
Development. Mr. Mock graduated from the University of California at Berkeley
with a degree in Labor and Industrial Relations.
10
<PAGE> 14
- --------------------------------------------------------------------------------
ITEM 2: PROPERTIES
- --------------------------------------------------------------------------------
The following table sets forth certain information relating to properties owned
by Peregrine and CalREIT at December 31, 1996. All of the properties are
suitable for the purpose for which they are designed and are being used.
<TABLE>
<CAPTION>
Date of Ownership Square Total Adjusted
Direct Equity Investments Acquisition Percentage Feet Cost (1) Encumbrances(2)
- -------------------------------------------------- ----------- ---------- ------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
RETAIL SHOPPING CENTERS:
Regency Plaza, Sacramento, California 5/85 100% 141,965 $11,106,000 $8,846,000
University Village, Sacramento, California 12/86 100% 82,882 7,905,000 7,715,000
TGIF Sunrise Hills, Citrus Heights, California 1/87 100% 8,500 1,536,000 -
Sunrise Hills, Citrus Heights, California 1/89 100% 81,499 5,921,000 4,325,000
* Totem Square, Kirkland, Washington 11/90 47% 125,611 7,370,000 4,283,000
* Fulton Square, Sacramento, California (3) 5/91 76% 35,493 1,215,000 -
-------------- -----------
Total Retail Shopping Centers 35,053,000 25,169,000
-------------- -----------
OFFICE BUILDINGS:
One Sunrise Park, Rancho Cordova, California 8/83 100% 43,747 1,799,000 -
16th and K Streets, Sacramento, California 8/87 100% 39,753 3,127,000 -
Town Center Garden Office Park, Signal Hill,
California 12/87 100% 93,693 4,605,000 -
Hurley Ethan Office Park I, Sacramento,
California 4/88 100% 36,645 2,117,000 1,312,000
Hurley Ethan Office Park II, Sacramento,
California 6/88 100% 38,683 2,678,000 2,401,000
3900 Lennane Drive, Sacramento, California 5/88 100% 45,000 1,909,000 2,495,000
-------------- -----------
Total Office Buildings 16,235,000 6,208,000
-------------- -----------
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 5/88 100% 144,332 2,867,000 -
11167 Trade Center Drive, Rancho Cordova, California 5/88 100% 57,650 983,000 -
Parkway Center, El Dorado Hills, California 1/88 100% 45,332 1,483,000 -
Mallory Service Building, Walnut Creek, California 10/88 100% 21,752 1,017,000 -
Commerce Street, Corona, California 9/96 100% 11,535 399,000 -
Consumer Circle, Corona, California 9/96 100% 11,900 386,000 -
Pomona Road, Corona, California 9/96 100% 28,850 966,000 -
-------------- -----------
Total Industrial Buildings 8,101,000 -
-------------- -----------
</TABLE>
11
<PAGE> 15
- --------------------------------------------------------------------------------
ITEM 2: PROPERTIES (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date of Ownership Square Total Adjusted
Direct Equity Investments Acquisition Percentage Feet Cost (1) Encumbrances(2)
- -------------------------------------------------- ----------- ---------- ------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
MINI-STORAGE FACILITIES:
Burbank Mini-Warehouse, Santa Rosa, California 4/85 100% 72,200 1,479,000 -
Downtown Mini Storage, Sacramento, California (3) 3/88 100% 44,825 1,329,000 -
----------- -----------
Total Mini-Storage Facilities 2,808,000 -
----------- -----------
LAND:
Florin Perkins, Sacramento, California 6/91 100% 60,026 30,000 -
----------- -----------
Total Land 30,000 -
----------- -----------
HOTELS:
Chico Holiday Inn, Chico, California 9/86 100% 87,000 3,199,000 -
Sacramento Holiday Inn, Sacramento, California 9/86 100% 139,800 10,255,000 -
Walnut Creek Holiday Inn, Walnut Creek, California 3/85 100% 78,470 3,717,000 -
----------- -----------
Total Hotels 17,171,000 -
----------- -----------
$79,398,000 $31,377,000
=========== ===========
</TABLE>
(1) Total cost, including reorganization values of Peregrine properties,
before accumulated depreciation, adjusted for impairment losses in
accordance with Statement of Financial Accounting Standards No. 121.
(2) All of the above properties are pledged as collateral, subject to
existing liens, for the restructured debt.
(3) Land on which asset is constructed is subject to a ground lease.
* Denotes CalREIT properties. Ownership perecentage reflects Peregrine's
ownership percentage of the property based on its 76% ownership
percentage of CalREIT.
12
<PAGE> 16
Item 3. Legal Proceedings
The shareholder lawsuits and other material litigation to which Peregrine (then
known as CET) was a party prior to and during the bankruptcy proceedings were
resolved and settled in connection with the Plan of Reorganization, which the
Bankruptcy Court confirmed. Nineteen professional firms and companies (the
"Professionals") who rendered services to CET or other interested parties during
CET's bankruptcy case filed fee applications with the Bankruptcy Court. In
September 1996, the Bankruptcy Court issued an order (the "Order") awarding fees
to some of those Professionals. Five Professionals appealed the Order; those
appeals are pending before the U.S. District Court for the Eastern District of
California. One Professional filed a motion for reconsideration, which is
pending before the Bankruptcy Court.
Peregrine is a defendant in a case filed by MDC REIT Holdings, L.L.C. ("MDC") in
California state court on December 24, 1996. MDC alleges that Peregrine breached
a certain stock purchase agreement pursuant to which Peregrine was to have sold
to MDC certain shares of the common shares of beneficial interest of CalREIT
that were owned by Peregrine. MDC is seeking damages it allegedly incurred in
excess of $900,000, and recovery of its attorney fees, costs, and interest.
Management believes, and has been advised by its counsel, that MDC's claims are
without merit. Peregrine has answered the complaint, denying any breach of the
stock purchase agreement and asserting numerous affirmative defenses to MDC's
claims. The consolidated financial statements do not include an accrual for any
losses related to the complaint.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during 1996.
13
<PAGE> 17
PART II
Item 5. Market for the Registrant's Common Shares of Beneficial Interest Equity
and Related Security Holder Matters
Market
Peregrine's Common Shares of Beneficial Interest have traded on the
Over-the-Counter Bulletin Board market system under the symbol PGRNS since its
emergence from bankruptcy in October 1994, and its issuance of new Peregrine
Common Shares of Beneficial Interest was completed. Peregrine's Common Shares of
Beneficial Interest were not actively traded during 1995 or 1996. The following
table sets forth the high and low closing quotations for the shares during the
four quarters of 1995 and 1996, as reported by Nasdaq. The Over-the-Counter
market quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
First Quarter n/a n/a
Second Quarter $1.50 $1.00
Third Quarter 1.00 0.63
Fourth Quarter 0.63 0.13
</TABLE>
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
First Quarter $0.50 $0.18
Second Quarter 0.50 0.06
Third Quarter 0.09 0.03
Fourth Quarter 0.10 0.04
</TABLE>
Holders
As of March 15, 1997, there were approximately 13,400 shareholders-of-record of
Peregrine's Common Shares of Beneficial Interest. In addition, there were
approximately 2,500 shareholders whose shares were held by depositories in
street and nominee names.
Dividends
Peregrine paid no cash dividends on its Common Shares of Beneficial Interest in
1995 or 1996, and is substantially restricted under the terms of the Senior
Lender Group Notes and Line of Credit from making any cash distributions
to shareholders in the foreseeable future.
14
<PAGE> 18
Item 6. Selected Financial Data
The following represents selected financial data for The Peregrine Real Estate
Trust and the California Real Estate Investment Trust, on a consolidated basis,
for the years ended December 31, 1996 and 1995, the Transition Period, and the
years ended September 30, 1994 and 1993. The data should be read in conjunction
with other financial statements and related notes included elsewhere herein.
Numbers below are shown in the thousands except for per share data.
<TABLE>
<CAPTION>
Commonwealth Equity Trust
----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, Transition September 30, September 30,
1996 1995 Period 1994 1993
---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Operating results:
Revenue(1) $ 27,162 $ 26,893 $ 6,806 $ 32,858 $ 19,585
Net loss from continuing
operations $ (7,892) $ (15,331) $ (1,338) $ (23,000) $ (71,997)
Extraordinary item $ 187 $ 598 $ -- $ -- $ --
Net loss(2) $ (7,705) $ (14,733) $ (1,338) $ (23,000) $ (71,997)
Net loss attributable to Common
Shares of Beneficial
Interest(2), (3) $ (10,576) $ (17,264) $ (1,894) $ (23,000) $ (71,997)
Net loss per Common Share
of Beneficial Interest
before extraordinary item $ (2.21) $ (3.66) $ (0.39) $ (0.92) $ (2.87)
Extraordinary item per Commmon
Share of Beneficial Interest $ 0.04 $ 0.12 $ -- $ -- $ --
Net loss per share
attributable to Common Shares
of Beneficial Interest(2), (3) $ (2.17) $ (3.54) $ (0.39) $ (0.92) $ (2.87)
Financial Position:
Total Assets $ 104,726 $ 121,793 $ 142,121 $ 140,186 $ 169,213
Long-term Obligations(4) $ 111,578 $ 115,064 $ 114,478 $ 122,963 $ 140,173
</TABLE>
(1) Includes net gains (losses) from foreclosure or sale of investments of
$1,580, ($184), $12, $688, and ($7,130), for the years ended December 31, 1996
and 1995, the Transition Period, and the years ended September 30, 1994 and
1993, respectively.
(2) Includes valuation losses of ($4,278), ($9,526), ($119), ($3,413), and
($53,089), for the years ended December 31, 1996 and 1995, the Transition
Period, and the years ended September 30, 1994 and 1993, respectively.
(3) Includes net loss plus the effects of Preferred Stock dividends, discounts
on Preferred Stock dividends, and the accretion of discounts on Preferred Stock
dividends.
(4) Includes long-term notes payable collateralized by deeds of trust on rental
properties, Senior Lender Group Notes Payable, the outstanding balance on the
Line of Credit, and outstanding Redeemable Convertible Preferred Stock.
15
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in the Form 10-K. Peregrine
adopted "fresh start" accounting rules as of the beginning of the Transition
Period (October 7 through December 31, 1994). Results during 1996, 1995, and the
Transition Period serve as benchmark data for all future comparisons but are not
comparable to prior periods.
In addition to historical information, the Form 10-K contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, such as those pertaining to
Peregrine's ability to fund its operations or otherwise satisfy capital
requirements, both in the short and long term; to undertake property repairs,
maintenance, improvements, refurbishments, or other capital expenditures; and to
negotiate satisfactory terms with creditors, licensors, franchisors, or others.
Forward-looking statements involve numerous risks and uncertainties. The
following factors, among others discussed herein, could cause results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements: increased interest rates and operating costs,
deteriorating market conditions affecting occupancy or lease rates, difficulties
in finding buyers for property dispositions, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate laws, real property taxes, and governmental regulation, as well as
general economic trends and the factors discussed below under the heading
Overview. Readers are cautioned not to place undue reliance on forward-looking
statements, which reflect management's analysis only as of the date hereof.
Peregrine assumes no obligation to update forward-looking statements. Readers
should refer to Peregrine's reports to be filed from time to time with the
Securities and Exchange Commission pursuant to the Exchange Act.
Overview
During the twelve months ended December 31, 1996, Peregrine owned and operated a
portfolio of investments that included real property, partnership interests,
mortgage notes, and a 76% stock ownership interest in CalREIT. In 1996,
Peregrine continued to concentrate its efforts on improving property operations,
while simultaneously exploring alternative operating strategies for the future.
The immediate priority continued to be to meet Peregrine's debt obligations. To
achieve this objective, emphasis remained on maximizing the income stream from
the commercial and hotel properties and the select disposition of real estate
assets with negative cash flows and/or which require significant capital
expenditures beyond the resources available to Peregrine.
Peregrine's management also continued to explore alternative longer term
strategies to maximize shareholder value, including analysis of current and
expected property valuations, regional and industry market trends and potential
long-term growth opportunities in single and multi-tenant buildings, retail
centers and hotel properties. In addition, during 1996, Peregrine continued to
analyze operating, disposition and other strategies relating to its 76% stock
ownership interest in CalREIT, and on January 3, 1997, Peregrine sold its
interest in CalREIT for $20,222,000, or approximately $2.91 per share of CalREIT
previously held by Peregrine, which resulted in a gain of $1,012,000 during the
first quarter of 1997. The assessment of long-term strategies, which is expected
to continue through 1997, includes consideration of financing or restructuring
alternatives relating to Peregrine's first mortgage debt and its long-term
secured
16
<PAGE> 20
debt to the Senior Lender Group. Under the terms of the Senior Lender Group
Notes, 80% of the net proceeds from the disposition of assets must be paid to
the Senior Lender Group, thus restricting Peregrine from reinvesting in higher
yielding investments or making capital improvements to existing assets.
The Senior Lender Group Notes accrued interest in-kind through September 1996,
and have required cash interest payments since that date. On January 3, 1997,
in accordance with the terms of Senior Lender Group Notes, 80% of the net
proceeds from the sale of Peregrine's ownership interest in CalREIT was paid to
the Senior Lender Group, reducing the balance outstanding from $44,467,000 to
$28,889,000. Peregrine's future debt service obligations are approximately
$2,903,000 per year on its first mortgage debt (excluding CalREIT's first
mortgage debt) and approximately $2,456,000 per year on the Senior Lender Group
Notes. In addition, $28,145,000 at face value in Preferred Stock, also held by
the Senior Lender Group, will accrue dividends in kind through September 1998,
and will require cash dividend payments of approximately $3,353,000 per year
commencing in October 1998. It is anticipated, however, that Peregrine will be
unable to pay the Preferred Stock dividends in cash commending in October 1998,
and as a result the Preferred Stock will automatically convert to Common
Shares of Beneficial Interest.
Peregrine believes that the following factors have adversely affected, and in
the future, could adversely affect its financial condition, results of
operations, and liquidity:
- - The capital structure of Peregrine resulting from the confirmed Plan of
Reorganization, including the leverage resulting from the Senior Lender
Group Notes, the first mortgage debt, and the Preferred Stock, plus the
associated present and future debt service and dividend obligations;
- - The additional $1,800,000 in estimated capital improvements required to
complete the refurbishments of Peregrine's hotel properties in
accordance with Holiday Inn franchise standards, that, if not completed,
will result in the termination of the Holiday Inn License Agreements and
will have a material adverse affect on hotel operations;
- - Peregrine's general and administrative expenses, including the costs
associated with its estimated 16,000 shareholder base and the ongoing
costs of being a public company;
- - The limited sources and amount of funds currently available to Peregrine
from operations, its revolving Line of Credit, which matures on October
7, 1997, and from property dispositions, after payment of associated
indebtedness, and the inability of Peregrine to raise capital from third
parties in light of, among other things, its debt and capital structure,
operating history and contingent liabilities as discussed above; and
- - The overall lack of synergy and investment quality of Peregrine's real
estate portfolio.
For additional information regarding certain of the Trust's financial
commitments and contingencies, see Note 13 to consolidated financial statements.
The Pro-Forma Financial Statements presented in Note 2 to consolidated financial
statements are presented in order to illustrate the possible scope of the change
in historical financial position and results of operations resulting from
Peregrine's sale of its 76% stock ownership interest in CalREIT and to serve as
benchmark data for all future comparisons.
17
<PAGE> 21
Liquidity and Capital Resources
The Trust's unrestricted cash totaled $5,972,000 on December 31, 1996, up from
$5,079,000 at December 1995, of this amount, $4,698,000 was held by CalREIT at
December 31, 1996, and unavailable to Peregrine for operating, working capital,
or other purposes. In 1996, the Trust's principal source of funds was from
operating income, proceeds from the sale of certain investments, proceeds from
principal and interest payments on mortgage notes receivable, and borrowings
from the revolving Line of Credit in the maximum amount of $8,600,000. At
December 31, 1996, $17,000 remained available through the Line of Credit. No
dividends were paid by CalREIT in 1996 or 1995.
Debt service paid on the Trust's first mortgage notes totaled $3,452,000 in
1996, and $4,902,000 in 1995. Peregrine's debt service requirements on such
notes in 1997 are approximately $2,903,000. Interest on the Senior Lender Group
Notes was approximately $3,814,000 and $3,596,000, in 1996 and 1995,
respectively, of which approximately $2,844,000 and $3,596,000, respectively,
was satisfied through the issuance of Interest Deferral Notes. In 1997, the
interest on the Senior Lender Group Notes will be required to be paid in cash
on a monthly basis, with aggregate interest payable during 1997 currently
estimated at $2,456,000 based on $28,889,000 principal outstanding.
At December 31, 1996, Peregrine's short and long term cash commitments include
approximately $1,800,000 to refurbish its hotel properties in early 1997 in
accordance with Holiday Inn franchise standards; the maturity of the Line of
Credit in October 1997; debt service payments on its first mortgage notes of
approximately $2,903,000 per year; interest on the Senior Lender Group Notes
currently estimated at $2,456,000 per year; cash dividend payments of
approximately $3,300,000 per year on the Preferred Stock commencing in October
1998; and repayment of principal on the Senior Lender Group Notes Payable in
October 2000.
Based on cash flows form operations, its revolving Line of Credit, and its 20%
share of the net proceeds received from its disposition of its 76% stock
ownership interest in CalREIT on January 3, 1997, Peregrine anticipates that it
will be able to fund its day-to-day business operaions, and meet its debt
service obligations on its first mortgage notes and Senior Lender Group Notes
through the next twelve months. Management plans to seek an extension of the
maturity date on its Line of Credit, with its current lender; however, if
unable to do so, management will seek an alternative source from which to
obtain a new operating line of credit. Peregrine's Line of Credit contains a
financial covenant, among others, which requires that Peregrine maintain a
specific tangible net worth, as defined in the Agreement, measured on a fiscal
quarter-end basis. While Peregrine was in compliance with the covenant at
December 31, 1996, it is anticipated that during the first half of 1997,
Peregrine will be unable to meet the financial covenant due to anticipated net
losses, and will require a waiver in relation to the covenant from the lender.
Failure to renew or obtain a new operating line of credit would have a material
adverse affect on the financial position and operations of Peregrine.
Management also expects to be able to fund the $1,800,000 in refurbishments at
its hotel properties from existing resources; absent this expenditure or absent
an agreement with Holiday Inn for an extension of time to complete the
refurbishments, the hotel properties will lose their Holiday Inn licenses, the
result of which will be a decline in occupancy levels and room rental rates,
which would have a material adverse impact on Peregrine's overall financial
performance.
To meet its long-term debt service requirements, Peregrine's management is
considering numerous alternatives, including asset dispositions, capital
restructuring, and debt financing alternatives. However, because of the
factors discussed in the OVERVIEW above, including the capital and debt
structure and the limited flexibility provided under the terms of the Senior
Lender Group Notes, there can be no assurance that sources of funds to meet
these requirements, or continue operations over the longer term, can be found.
It is presently anticipated that Peregine will be unable to pay the Preferred
Stock dividends in cash commencing in October 1998, and as a result the
Preferred Stock will automatically convert to Common Shares of Beneficial
Interest in accordance with the Preferred Stock Agreement, thereby substantially
diluting the ownership interests of current holders of Common Shares of
Beneficial Interest.
18
<PAGE> 22
Results of Operations
Commercial Property Occupancy. At December 31, 1996 and 1995, overall weighted
average occupancy levels for the Trust's properties is shown below:
<TABLE>
<CAPTION>
Occupancy at December 31,
------------------------------
Property Type 1996 1995
------------- ---- ----
<S> <C> <C>
Retail Shopping Centers 82% 80%
Office Buildings 75% 65%
Industrial Buildings 90% 72%
Mini-Storage Facilities 94% 93%
CalREIT Properties 77% 90%
</TABLE>
Note: The weighted average occupancy is calculated by multiplying the occupancy
by its square footage and dividing by the total square footage in the portfolio.
The overall weighted average for Peregrine's entire commercial property
portfolio (excluding CalREIT) as of December 31, 1996, was 83% compared to 75%
at the end of 1995.
Hotel Occupancy. Overall weighted average occupancy for Peregrine's three
Holiday Inn franchises was 67% in 1996 versus 65% in 1995.
<TABLE>
<CAPTION>
Occupancy
-------------------------
1996 1995
---- ----
<S> <C> <C>
Holiday Inn Chico 64% 61%
Holiday Inn Sacramento 70% 65%
Holiday Inn Walnut Creek 68% 71%
Park Terrace Inn - Redding n/a 20%
CalREIT's Casa Grande Motor Inn n/a 52%
</TABLE>
Note: The Park Terrace Inn was closed in October 1995 when redevelopment work at
the property commenced, and CalREIT's Casa Grande Motor Inn was allowed to be
foreclosed upon by the lender in February 1996.
Peregrine Asset Dispositions. During 1996, Peregrine sold the Sierra Oaks
Shopping Center in Roseville, California, the Timberlake Medical Building in
Sacramento, California, the Park Terrace Inn Hotel in Redding, California, and
its partnership interest in Placer Ranch Partners. Also during 1996, pursuant to
the Plan of Reorganization, Peregrine disposed of three of its four parcels of
vacant land located in Sacramento, California, by quit-claim deed to the holders
of certain secured bond claims against the parcels.
One mortgage note held by Peregrine, with a book value of $1,200,000, was
foreclosed upon in September 1996, resulting in the acquisition of three
industrial buildings in Corona, California. The properties were recorded at
their estimated fair market value at the date of foreclosure. Also during 1996,
one mortgage note, held by Peregrine, with a face value of $2,240,000, was paid
in full prior to its maturity date.
19
<PAGE> 23
After the close of the year, on January 3, 1997, Peregrine sold its 76% stock
ownership interest in CalREIT to a third party, CalREIT Investors Limited
Partnership. The sale price of Peregrine's investment was $20,222,000, or
approximately $2.91 per share of CalREIT previously held by Peregrine.
CalREIT Asset Dispositions. At the end of 1995, CalREIT's four commercial
properties were readied for sale as part of its corporate strategy to reposition
the company. Leasing, capital and tenant improvement expenditures were approved
as they related to their impact on potential sale prices. As of the end of 1996,
the Redfield Commerce Center in Scottsdale, Arizona, and the Bekins Storage
Facility in Pasadena, California, had been sold and its two remaining
properties, the Fulton Square Shopping Center in Sacramento, California, and the
Totem Square Shopping Center in Kirkland, Washington, were under contract for
sale. In February 1996, because of its limited financial potential and inability
to service its debt, CalREIT transferred ownership of the Casa Grande Motor Inn
property back to the lender pursuant to a foreclosure proceeding. Also during
1996, certain of CalREIT's mortgage notes were packaged for sale and
disposition. In total, four of CalREIT's seven mortgage notes were sold in 1996.
Revenues
Total consolidated revenues were $25,582,000 in 1996, down $1,495,000, or 6%,
from total consolidated revenues of $27,077,000 in 1995.
Hotel Revenues. Consolidated hotel revenues decreased $164,000, or 1%, to
$12,652,000 in 1996 from $12,816,000 in 1995. The decrease is attributable to a
decrease of $1,006,000, resulting from the close of the Park Terrace Inn in
October 1995, and the sale of the hotel in October 1996; and a decrease of
$46,000, attributable to the absence of revenue from CalREIT's Casa Grande
Motor Inn due to foreclosure by the lender in February 1996; partially offset
by an increase of $888,000, attributable to an overall increase in occupancies
and room rates at Peregrine's Holiday Inn hotels (Chico, Sacramento, and
Walnut Creek).
Rental Revenues. Consolidated rental revenues were down $1,000,000, or 8%, from
$12,495,000 in 1995, to $11,495,000 in 1996. The decrease is attributable to
various increases and decreases in rental revenues at the commercial properties.
The most significant decreases were: a decrease of $341,000 at the Regency Plaza
Shopping Center, which resulted from the loss of tenants who filed for
bankruptcy and terminated their leases; a loss of $388,000, resulting from
System Integrators, Inc., who was the sole tenant in one of Peregrine's office
buildings, which abandoned its lease; and the combined absence of revenues of
$883,000 from the Sierra Oaks Shopping Center, the Timberlake Medical Building,
the Woodland Medical Building, the Redfield Commerce Center, and the Bekins
Storage Facility, as a result of the sale of these properties in 1996 or 1995.
The most significant increases which partially offset the above decreases were:
an increase of $144,000 at 11135 Trade Center Drive, resulting from an expansion
by the Franchise Tax Board of the office space leased; an increase of $116,000
at the Sunrise Hills Shopping Center, which resulted from a lease buyout by a
former tenant; an increase of $59,000 at the Mini-Storage Facilities, resulting
from increased occupancies; an increase of $83,000 at Parkway Center, resulting
from an expansion by the U.S. Postal Service of the office space leased, and
increases in
20
<PAGE> 24
rental rates; an increase of $100,000 at University Village Shopping Center due
primarily to increased occupancy; and $60,000 in rental revenue at the three
properties in Corona, California, which were acquired in September 1996, through
foreclosure of a mortgage note.
Interest Revenues. Consolidated interest revenues decreased $331,000, or 19%, to
$1,435,000 in 1996, down from $1,766,000 in 1995. This decrease is primarily
attributable to the loss of interest on CalREIT's mortgage notes, which were
sold in 1996; and the loss of interest on Peregrine's mortgage note in the face
amount of $2,240,000, which was paid off in 1996; partially offset by interest
earned on marketable securities and cash accounts which increased as a result of
CalREIT's asset sales during 1996.
Expenses
Total consolidated expenses were $31,329,000 in 1996, down $1,036,000, or 3%,
from total consolidated expenses of $32,365,000 in 1995. The decrease is
attributable to a decrease of $952,000 in consolidated operating expenses, a
decrease of $832,000 in consolidated depreciation expense, and a decrease of
$347,000 in consolidated interest expense; partially offset by an increase of
$201,000 in consolidated commercial and hotel property management fees and an
increase of $894,000 in consolidated general and administrative expenses.
Operating expenses. Consolidated operating expenses for the hotels decreased
$540,000, or 5%, from $10,964,000 in 1995, to $10,424,000 in 1996. The
decrease is primarily attributable to a decrease of $838,000 in operating
expenses at the Park Terrace Inn due to the closure of the hotel for
refurbishment in October 1995, and the sale of the hotel in October 1996;
partially offset by a net increase in operating expenses of $287,000 at the
Chico, Sacramento, and Walnut Creek Holiday Inns attributable primarily to the
overall increased occupancy during 1996.
Consolidated operating expenses for the commercial properties decreased
$412,000, or 10%, in 1996, to $3,874,000, down from $4,286,000 in 1995. The
decrease is primarily attributable to decreases at the Sierra Oaks Shopping
Center, the Timberlake Medical Building, the Woodland Medical Building, the
Redfield Commerce Center, and the Bekins Storage Facility, as a result of the
sale of these properties in 1996 or 1995.
Commercial and Hotel Property Management Fees. Consolidated commercial and hotel
property management fees increased $201,000, or 32%, in 1996, from $634,000 in
1995, to $835,000. The increase is attributable to an increase of $154,000 in
management fees at the hotels in 1996, which is primarily the result of
contracting with outside management companies in late 1995 to operate the
hotels. In addition, management fees at the commercial properties increased
$47,000 in 1996, primarily the result of increased cash collections. Property
management fees at the commercial properties are based upon cash collections of
rents and other charges from the tenants. Property management fees at the hotels
are based upon gross revenues generated at the hotels and increases in net
operating income from the base year specified in the management agreement.
Depreciation and Amortization Expense. Consolidated depreciation and
amortization expense decreased $832,000, or 22%, to $2,931,000 in 1996, down
from $3,763,000 in 1995. The decrease is attributable to properties sold in
1995, as well as the cessation of depreciation on assets of Peregrine and
CalREIT that were classified as held for sale during the year.
21
<PAGE> 25
Interest Expense. Consolidated interest expense decreased $347,000, or 4%,
from $8,524,000 in 1995, to $8,177,000 in 1996. The decrease is primarily
attributable to a decrease of $860,000 on first mortgages, resulting from
monthly principal paydowns and payoffs which resulted from the sale of the
underlying assets; partially offset by an increase in interest on the Senior
Lender Group Notes of $218,000, resulting primarily from an increase in the
note balance due to the deferral of interest; and an increase of $326,000 in
interest on the Line of Credit due to a higher average balance outstanding
during 1996.
General and Administrative Expenses. Consolidated general and administrative
expenses increased $894,000, or 21%, to $5,088,000 in 1996, up from $4,194,000
in 1995. The increase is due to the net effects of increases and decreases in
various expense categories. The most significant increases are: the termination
fee paid by Peregrine to Frank A. Morrow pursuant to his personal services
contract when he was terminated as Chief Executive Officer in January 1996;
fees paid by Peregrine in connection with the analysis of strategic operating
alternatives; consulting fees paid to the Trustees of Peregrine related to
strategic operating alternatives, asset dispositions, and day-to-day
management activities following the termination of Peregrine's Chief
Executive Officer in January 1996; additional fees paid by CalREIT to its
Trustees in connection with strategic growth activities; costs incurred by
CalREIT in connection with the packaging and sale of its mortgage notes;
increased legal fees resulting from Peregrine's continuing resolution of the
professional fees related to the bankruptcy proceedings; and the on-going
administrative costs for both Peregrine and CalREIT associated with being a
public company and servicing its shareholders. Many of the administrative costs
to service Peregrine's large shareholder base and to meet public company
regulatory requirements are fixed costs. As a result, Peregrine expects its
general and administrative expenses to continue to be disproportionately high
compared to the size of its asset base.
Reorganization Items
In September 1996, the Bankruptcy Court issued its Final Memorandum on Fee
Applications (the "Memorandum") and an Order on Final Fee Applications (the
"Order") which awarded certain amounts to most of the professional fee
applicants (the "Professionals") and ordered one of the Professionals to
disgorge certain amounts that had previously been paid by CET. In October 1996,
some of the Professionals (the "Appellants") filed appeals from the Bankruptcy
Court's Order. Peregrine has entered into separate settlement agreements with
each of the Appellants which resulted in a forgiveness of debt in some instances
and the recording of a receivable in one instance.
In 1995, the reorganization expense resulted from an additional accrual in the
amount of $1,000,000, which was recorded to increase the total accrued
professional fees related to the bankruptcy proceedings from $2,000,000 to
$3,000,000, to reflect management's revised estimate of the professional fees
owed. The additional accrual in the amount of $1,000,000, increased the total
professional fees incurred in connection with the bankruptcy proceedings to
$9,500,000.
Gain (Loss) on Foreclosure or Sale of Investments
In 1996, the Trust recorded consolidated gains (net of losses) on the
foreclosure or sale of investments of $1,580,000, as compared to a consolidated
loss (net of gains) of $184,000 in 1995. In 1996, the amount is comprised of
several gains and losses recorded upon the foreclosure or sale of properties and
mortgage notes, and the recognition of a portion of a gain deferred from the
sale of a property in a previous period. In July 1996, Peregrine's partnership
interest in Placer Ranch Partners was sold for $2,739,000, resulting in a gain
of $129,000. In September 1996, Peregrine foreclosed upon a mortgage note
collateralized by
22
<PAGE> 26
three separate properties located in Corona, California. The properties were
recorded at their estimated fair market value at the date of foreclosure which
resulted in a gain of $448,000. CalREIT sold the Redfield Commerce Center in
March 1996, for $1,118,000, resulting in a gain of $299,000. During the second
quarter of 1996, CalREIT sold a mortgage note collateralized by a first deed of
trust on an office building/commercial building in Phoenix, Arizona, for
$6,735,000, resulting in a gain of $430,000, and sold a mortgage note
collateralized by a second deed of trust on a commercial building in Pacheco,
California, for $592,000, resulting in a gain of $30,000. In the third quarter
of 1996, CalREIT sold two additional mortgage notes, one collateralized by a
first deed of trust on an office building in Scottsdale, Arizona, for $753,000,
and one collateralized by a second deed of trust on an office/industrial
building in Sunnyvale, California, for $2,000,000, resulting in gains of
$115,000 and $357,000, respectively. The Sierra Oaks Shopping Center was sold by
Peregrine in April 1996, for $6,000,000, and resulted in a loss of $63,000. In
August 1996, the Timberlake Medical Building was sold for $550,000, and resulted
in a loss of $38,000. The Park Terrace Inn was sold in October 1996, for
$2,550,000, and resulted in a loss of $18,000. CalREIT's Bekins Storage Facility
was sold in May 1996, for $3,125,000, resulting in a loss of $164,000. During
1996, Peregrine recognized $55,000 in gains, which had been deferred in
connection with the sale of a property in a previous period. No gains or losses
were recorded upon Peregrine's transfer of the vacant land parcels to the
bondholders or upon the foreclosure of CalREIT's Casa Grande Motor Inn, as the
value of the respective properties was equal to the value of corresponding debt.
In addition, no gain or loss was recorded upon the early payoff of Peregrine's
mortgage note in the face value of $2,240,000, as the book value of the note was
equal to the face value of the note, which was paid in full.
Valuation Losses
In 1996, the Trust reported total consolidated valuation losses of $4,278,000,
attributable to continued impairments in the value of its assets resulting from
current physical conditions of the assets and changed market conditions. A
valuation loss of $1,390,000 was recorded during the first quarter to reduce
Peregrine's partnership investment in Placer Ranch Partners to its estimated
fair value. In addition, a valuation loss of $295,000 was recorded in March
1996, against the Timberlake Medical Building in order to reduce to its book
value to estimated fair value. During the fourth quarter, Peregrine recorded
valuation losses of $427,000 and $423,000, against Regency Plaza Shopping Center
and the Hurley Ethan Office Park I, respectively. During 1996, CalREIT recorded
valuation losses of $994,000 and $749,000, against Fulton Square Shopping Center
and Totem Square Shopping Center, respectively.
If adverse economic conditions continue to impact Peregrine's property
operations, particularly in the Sacramento market area, or if the hotel
properties do not complete their refurbishing programs, more valuation losses
are anticipated.
Extraordinary Item, Forgiveness of Debt
Peregrine benefited from a forgiveness of debt related to the extinguishment of
certain debt related to the bankruptcy proceedings of $187,000 and $598,000, in
1996 and 1995, respectively.
Dividends
Peregrine made no cash distributions during 1996 or 1995. In addition, Peregrine
is substantially restricted from and does not anticipate making any cash
distributions to shareholders in the foreseeable future.
23
<PAGE> 27
Significant Changes in the Economic Environment
Changing interest rates are not expected to have a significant effect on
Peregrine's operations in 1997, as most of Peregrine's debt obligations are
at fixed interest rates. The effect of inflation on Peregrine's operations and
properties is varied. In recent years, rental rates and real estate values have
decreased which has had a material impact on both revenues and asset values;
however, during 1996 and into 1997, both rental rates and real estate values
have increased; therefore, the effect of inflation is not expected to have a
significant effect on Peregrine's operations in 1997.
24
<PAGE> 28
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
Consolidated Financial Statements
Report of Independent Accountants 26-27
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29-30
Consolidated Statements of Changes in
Redeemable Convertible Preferred Stock and
Shareholders' Equity (Deficit) Accounts Attributable
to Common Shares of Beneficial Interest 31-33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35-67
Schedule III - Real Estate and Accumulated Depreciation 81-85
Schedule IV - Mortgage Loans on Real Estate 86-87
</TABLE>
25
<PAGE> 29
COOPERS AND LYBRAND LETTERHEAD
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
The Peregrine Real Estate Trust
We have audited the consolidated balance sheets of The Peregrine Real Estate
Trust (Peregrine) and Subsidiary (Trust) as of December 31, 1996 and 1995, and
the related consolidated statements of operations, changes in redeemable
convertible preferred stock and shareholders' equity (deficit) accounts
attributable to common shares of beneficial interest and cash flows for the
years ended December 31, 1996 and 1995, and the period from October 7, 1994 to
December 31, 1994 (the Transition Period), and the consolidated statement of
changes in redeemable convertible preferred stock and shareholders' equity
(deficit) accounts attributable to common shares of beneficial interest for
the period from October 1, 1994 to October 7, 1994. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
As discussed in Note 1, the Peregrine's plan of reorganization was confirmed on
August 8, 1994, and became effective on October 7, 1994. As described in Note
21, Peregrine implemented fresh start accounting as required by Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," as of October 7, 1994. The implementation of fresh start
accounting as a result of the Peregrine's emergence from Chapter 11 materially
changed the amounts reported in the consolidated financial statements of the
Trust as of and for the periods ended October 7, 1994 and prior. As a result of
the reorganization and the implementation of fresh start accounting, assets and
liabilities have been recorded at fair values and certain obligations related to
the claims of creditors have been reduced or reclassified to reflect their
actual settlement amounts as determined by the plan of reorganization.
<PAGE> 30
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Peregrine Real Estate Trust and Subsidiary at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995, the Transition Period, and the period from
October 1, 1994 to October 7, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole present fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements and financial statement
schedules have been prepared assuming Peregrine will continue as a going
concern. As discussed in the last section of Note 13 to the consolidated
financial statements, Peregrine has reported continuing losses from operations
since emergence from bankruptcy, and must fund interest payable to the Senior
Lender Group and certain required hotel improvements. Peregrine believes it will
not maintain compliance in 1997 with the tangible net worth covenant arising
under its Line of Credit Facility, which is near capacity at December 31, 1996,
and matures in October 1997. Additionally, Peregrine has received notices of
default under its license agreements related to two of its hotels, which if not
cured may result in the loss of the Holiday Inn franchise licenses. Loss of the
hotel licenses may lead to defaults under the Line of Credit and Senior Lender
Note Agreements, and to substantial losses related to asset impairment and
certain license termination costs. Peregrine is also a defendant in a case
wherein the plaintiff alleges damages and other costs in excess of $900,000.
These matters raise substantial doubt about Peregrine's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 13. The consolidated financial statements and financial
statement schedules do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ COOPERS & LYBRAND L.L.P.
Sacramento, California
March 19, 1997
<PAGE> 31
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
ASSETS
<S> <C> <C>
Investments:
Rental properties, net of accumulated depreciation of $1,986,000 and
$6,001,000 at December 31, 1996 and 1995, respectively,
and valuation allowance of $12,963,000 at December 31, 1995 $ 77,412,000 $ 94,500,000
Partnership interests -- 4,000,000
Notes receivable, net of deferred gains of $319,000 and $1,237,000
at December 31, 1996, and 1995, respectively, and
valuation allowance of $8,229,000 at December 31, 1995 2,296,000 14,627,000
Marketable securities available-for-sale 14,115,000 --
------------- -------------
93,823,000 113,127,000
Cash 5,972,000 5,079,000
Restricted cash 986,000 185,000
Rents, accrued interest, and other receivables, net of allowance of $1,153,000
and $1,040,000 at December 31, 1996 and 1995, respectively 1,706,000 1,354,000
Other assets, net of valuation allowance of $310,000 at December 31, 1995 2,239,000 2,048,000
------------- -------------
Total assets $ 104,726,000 $ 121,793,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 32,263,000 $ 42,703,000
Senior Lender Group Notes Payable 44,467,000 43,441,000
Line of credit 8,583,000 5,526,000
Accounts payable and accrued liabilities 3,446,000 6,126,000
Other liabilities 343,000 547,000
------------- -------------
Total Liabilities 89,102,000 98,343,000
------------- -------------
Commitments and contingencies (Note 13 to consolidated financial statements.)
Minority interest 5,759,000 5,858,000
------------- -------------
Redeemable Convertible Preferred Stock: 25,000,000 shares authorized; 14,073,000
and 12,728,000 shares issued and outstanding at December 31, 1996 and 1995,
respectively; net of unaccreted discount of $1,881,000 and $2,063,000 at
December 31, 1996 and 1995, respectively; liquidation preference of
$28,146,000 and $25,457,000 at December 31, 1996 and 1995, respectively 26,265,000 23,394,000
------------- -------------
Common Shares of Beneficial Interest: 50,000,000 shares authorized; 4,881,000
shares outstanding at December 31, 1996 and 1995 13,356,000 13,356,000
Unrealized holding losses on marketable securities available-for-sale (22,000) --
Accumulated deficit (29,734,000) (19,158,000)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 104,726,000 $ 121,793,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 32
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31, Transition
1996 1995 Period
---- ---- ------
<S> <C> <C> <C>
Revenues:
Hotel $ 12,652,000 $ 12,816,000 $ 3,226,000
Rent 11,495,000 12,495,000 3,230,000
Interest 1,435,000 1,766,000 338,000
------------ ------------ -----------
25,582,000 27,077,000 6,794,000
------------ ------------ -----------
Expenses:
Hotel operating expenses 10,424,000 10,964,000 2,728,000
Commercial property operating expenses 3,874,000 4,286,000 1,572,000
Commercial and hotel property management 835,000 634,000 92,000
Depreciation and amortization 2,931,000 3,763,000 831,000
Interest 8,177,000 8,524,000 1,897,000
General and administrative 5,088,000 4,194,000 916,000
------------ ------------ -----------
31,329,000 32,365,000 8,036,000
------------ ------------ -----------
(Loss) before reorganization
items, gain (loss) on foreclosure
or sale of investments, valuation
losses, extraordinary item and
minority interest (5,747,000) (5,288,000) (1,242,000)
Reorganization items 454,000 (1,000,000) --
------------ ------------ -----------
(Loss) before gain (loss) on foreclosure
or sale of investments, valuation
losses, extraordinary item and
minority interest (5,293,000) (6,288,000) (1,242,000)
Gain (loss) on foreclosure or sale of
investments, net 1,580,000 (184,000) 12,000
------------ ------------ -----------
(Loss) before valuation losses,
extraordinary item and minority
interest (3,713,000) (6,472,000) (1,230,000)
Valuation losses (4,278,000) (9,526,000) (119,000)
------------ ------------ -----------
(Loss) before extraordinary item
and minority interest (7,991,000) (15,998,000) (1,349,000)
Extraordinary item, forgiveness of debt 187,000 598,000 --
------------ ------------ -----------
(Loss) before minority interest (7,804,000) (15,400,000) (1,349,000)
Minority interest 99,000 667,000 11,000
------------ ------------ -----------
Net loss $ (7,705,000) $(14,733,000) $(1,338,000)
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 33
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
STATEMENTS OF OPERATIONS (Continued)
----------
Loss per Common Share of Beneficial Interest:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
---- ---- ------
<S> <C> <C> <C>
Net loss $ (7,705,000) $(14,733,000) $(1,338,000)
Preferred Stock dividends, net of discount (2,516,000) (2,242,000) (488,000)
Accretion of discount on Preferred Stock (355,000) (289,000) (68,000)
------------ ------------ -----------
Net loss attributable to Common Shares of
Beneficial Interest $(10,576,000) $(17,264,000) $(1,894,000)
============= ============= ============
Loss per Common Share of Beneficial Interest
before extraordinary item $ (2.21) $ (3.66) $ (0.39)
Extraordinary item per Common Share of Beneficial
Interest 0.04 0.12 --
------------ ------------ -----------
Net loss per share attributable to Common Shares of
Beneficial Interest $ (2.17) $ (3.54) $ (0.39)
============= ============= ============
Weighted average number of Common Shares of
Beneficial Interest outstanding 4,881,000 4,883,000 4,884,000
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 34
<TABLE>
<CAPTION>
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT) ACCOUNTS ATTRIBUTABLE TO COMMON SHARES OF BENEFICIAL INTEREST
PERIOD FROM OCTOBER 1, 1994 TO OCTOBER 7, 1994
----------
Redeemable Convertible Shareholders' Equity (Deficit) Attributable to
Preferred Stock Common Shares of Beneficial Interest
---------------------------- ------------------------------------------------
Shares of Beneficial Interest
Pre-Reorganization
Number Amount Number Amount
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at October 1, 1994* - $ - 25,093,000 $ 25,093,000
Exchange of Pre-Reorganization
Common Shares of Beneficial
Interest for Post-Reorganization
Common Shares of Beneficial
Interest - - (25,093,000) (25,093,000)
Issuance of Redeemable Convertible
Preferred Stock 11,250,000 22,500,000 - -
Discount on Redeemable Convertible
Preferred Stock - (2,193,000) - -
Issuance of Post-Reorganization
Common Shares of Beneficial
Interest - - - -
Net income for the Period
October 1 through
October 6, 1994 - - - -
Fresh start adjustments - - - -
---------------------------- ----------------------------------
Balance at October 7, 1994 11,250,000 $ 20,307,000 - $ -
---------------------------- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit) Attributable to Common Shares of Beneficial Interest
-----------------------------------------------------------------------------------------
Unrealized
Holding
Losses on
Marketable Accumulated Accumulated
Shares of Beneficial Interest Additional Securities Deficit Deficit
Post-Reorganization Paid-In Available- Pre- Post-
Number Amount Capital For-Sale Reorganization Reorganization
-------------- ------------- -------------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1994* - $ - $219,848,000 $ - $(258,140,000) $ -
Exchange of Pre-Reorganization
Common Shares of Beneficial
Interest for Post-Reorganization
Common Shares of Beneficial
Interest 2,334,000 6,376,000 18,479,000 - - -
Issuance of Redeemable Convertible
Preferred Stock - - - - - -
Discount on Redeemable Convertible
Preferred Stock - - - - - -
Issuance of Post-Reorganization
Common Shares of Beneficial
Interest 2,550,000 6,963,000 - - - -
Net income for the Period
October 1 through - - - - 19,813,000 -
October 6, 1994
Fresh start adjustments - - (238,327,000) - 238,327,000 -
-----------------------------------------------------------------------------------------
Balance at October 7, 1994 4,884,000 $13,339,000 $ - $ - $ - $ -
-----------------------------------------------------------------------------------------
</TABLE>
*Commonwealth Equity Trust (Debtor-In-Possession)
31
<PAGE> 35
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT) ACCOUNTS ATTRIBUTABLE
TO COMMON SHARES OF BENEFICIAL INTEREST
PERIOD FROM OCTOBER 7, 1994 TO DECEMBER 31, 1995
----------
<TABLE>
<CAPTION>
Redeemable Convertible Shareholders' Equity (Deficit) Attributable
Preferred Stock to Common Shares of Beneficial Interest
---------------------------------- --------------------------------------------
Shares of Beneficial Interest
Pre-Reorganization
Number Amount Number Amount
-------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at October 7, 1994 11,250,000 $20,307,000 - $ -
Net loss for the Period October 7
through December 31, 1994 - - - -
Issuance of dividend-in-kind on
Redeemable Convertible Preferred
Stock 266,000 532,000 - -
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - (44,000) - -
Accretion of discounts on Redeemable
Convertible Preferred Stock - 68,000 - -
----------------------------------- -----------------------------
Balance at December 31, 1994 11,516,000 20,863,000 - -
Net loss - - - -
Adjustments related to the buyout of old
CET shares and fractional rounding - - - -
Issuance of dividend-in-kind on
Redeemable Convertible Preferred
Stock 1,212,000 2,425,000 - -
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - (183,000) - -
Accretion of discounts on Redeemable
Convertible Preferred Stock - 289,000 - -
----------------------------------- -----------------------------
Balance at December 31, 1995 12,728,000 $23,394,000 - $ -
----------------------------------- -----------------------------
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit) Attributable to Common Shares of Beneficial Interest
--------------------------------------------------------------------------------------
Unrealized
Holding
Losses on
Marketable Accmulated Accumulated
Shares of Beneficial Interest Additional Securities Deficit Deficit
Post-Reorganization Paid-In Available- Pre- Post-
Number Amount Capital For-Sale Reorganization Reorganization
---------- ----------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 7, 1994 4,884,000 $13,339,000 $ - $ - $ - $ -
Net loss for the Period October 7
through December 31, 1994 - - - - - (1,338,000)
Issuance of dividend-in-kind on
Redeemable Convertible Preferred Stock - - - - - (532,000)
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - - - - - 44,000
Accretion of discounts on Redeemable
Convertible Preferred Stock - - - - - (68,000)
-----------------------------------------------------------------------------------------
Balance at December 31, 1994 4,884,000 13,339,000 - - - (1,894,000)
Net loss - - - - - (14,733,000)
Adjustments related to the buyout of old
CET shares and fractional rounding (3,000) 17,000 - - - -
Issuance of dividend-in-kind on
Redeemable Convertible Preferred Stock - - - - - (2,425,000)
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - - - - - 183,000
Accretion of discounts on Redeemable
Convertible Preferred Stock - - - - - (289,000)
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 4,881,000 $13,356,000 $ - $ - $ - $(19,158,000)
-----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 36
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT) ACCOUNTS ATTRIBUTABLE TO COMMON SHARES OF
BENEFICIAL INTEREST PERIOD FROM DECEMBER 31, 1995 TO DECEMBER 31, 1996
----------
<TABLE>
<CAPTION>
Redeemable Convertible Shareholders' Equity (Deficit) Attributable
Preferred Stock to Common Shares of Beneficial Interest
------------------------------------ -------------------------------------------------
Shares of Beneficial Interest
Pre-Reorganization
Number Amount Number Amount
--------------- -------------------- -------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995 12,728,000 $23,394,000 - $ -
Net loss - - - -
Issuance of dividend-in-kind on
Redeemable Convertible Preferred
Stock 1,345,000 2,690,000 - -
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - (174,000) - -
Accretion of discounts on Redeemable
Convertible Preferred Stock - 355,000 - -
Unrealized holding losses on marketable
securities available-for-sale - - - -
------------------------------- ------------------------------
Balance at December 31, 1996 14,073,000 $26,265,000 - $ -
=============================== ==============================
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit) Attributable to Common Shares of Beneficial Interest
----------------------------------------------------------------------------------------
Unrealized
Holding
Losses on
Marketable Accumulated Accumulated
Shares of Beneficial Interest Additional Securities Deficit Deficit
Post-Reorganization Paid-In Available- Pre- Post-
Number Amount Capital For-Sale Reorganization Reorganization
---------- ----------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,881,000 $13,356,000 $ - $ - $ - $(19,158,000)
Net loss - - - - - (7,705,000)
Issuance of dividend-in-kind on
Redeemable Convertible Preferred Stock - - - - - (2,690,000)
Discount on Redeemable Convertible
Preferred Stock dividend-in-kind - - - - - 174,000
Accretion of discounts on Redeemable
Convertible Preferred Stock - - - - - (355,000)
Unrealized holding losses on marketable
securities available-for-sale - - - (22,000) - -
--------------------------------------------------------------------------------------
Balance at December 31, 1996 4,881,000 $13,356,000 $ - $(22,000) $ - $(29,734,000)
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 37
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
----------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,705,000) $(14,733,000) $(1,338,000)
------------ ------------ -----------
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Interest and fees added to principal balance of debt 3,881,000 4,258,000 928,000
Depreciation and amortization 2,931,000 3,763,000 831,000
(Gain) loss on foreclosure or sale of
investments, net (1,580,000) 184,000 (12,000)
Minority interest in net loss (99,000) (667,000) (11,000)
Extraordinary item, forgiveness of debt (187,000) (598,000) --
Valuation losses 4,278,000 9,526,000 119,000
Changes in other assets and liabilities:
(Increase) decrease in rents, accrued interest,
and other receivables (343,000) (55,000) 58,000
(Increase) decrease in other assets (719,000) (335,000) 640,000
(Decrease) increase in accounts payable and
accrued liabilities (2,178,000) (641,000) (5,497,000)
(Decrease) increase in other liabilities (190,000) 162,000 (285,000)
------------ ------------ -----------
Total adjustments 5,794,000 15,597,000 (3,229,000)
------------ ------------ -----------
Net cash (used in) provided by
operating activities (1,911,000) 864,000 (4,567,000)
------------ ------------ -----------
Cash flows from investing activities:
Proceeds from sale of investments 20,062,000 99,000 --
Improvements to rental and hotel properties (2,513,000) (2,353,000) (181,000)
Purchase of office equipment (15,000) -- --
Purchase of marketable securities (15,849,000) -- --
Principal collections on notes receivable 54,000 2,030,000 86,000
Principal collections on marketable securities 1,712,000 -- --
Increase in notes receivable -- -- (175,000)
------------ ------------ -----------
Net cash provided by (used in)
investing activities 3,451,000 (224,000) (270,000)
------------ ------------ -----------
Cash flows from financing activities:
Principal payments on long-term notes payable (166,000) (430,000) (72,000)
Principal payments on Senior Lender Group
Notes Payable (1,818,000) (1,024,000) --
Borrowings on Line of Credit, net 2,138,000 395,000 4,410,000
(Increase) decrease in restricted cash (801,000) 132,000 (204,000)
------------ ------------ -----------
Net cash (used in) provided by
financing activities (647,000) (927,000) 4,134,000
------------ ------------ -----------
Net increase (decrease) in cash 893,000 (287,000) (703,000)
Cash, beginning of period 5,079,000 5,366,000 6,069,000
------------ ------------ -----------
Cash, end of period $ 5,972,000 $ 5,079,000 $ 5,366,000
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 38
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings
Organization
The Peregrine Real Estate Trust ("Peregrine") was organized under the
laws of the State of California pursuant to a Declaration of Trust dated July
31, 1973, and reorganized under a Restated Declaration of Trust dated October 7,
1994, which gave effect to the reorganization of Peregrine under Chapter 11 of
the United States Bankruptcy Code. Commencing September 1, 1993, Peregrine
became self-administered.
At the end of 1996, Peregrine owned nineteen commercial properties
located primarily in the Sacramento area, three hotel properties located in
Northern California, one parcel of vacant land located in the Sacramento area, a
partnership interest, three mortgage notes secured by real property, and a 76%
stock ownership interest in the California Real Estate Investment Trust
("CalREIT"). At the end of 1996, CalREIT's assets included two commercial
properties, three mortgage notes secured by real property, and a portfolio of
diversified, unleveraged pools of U.S. Government Agency mortgage-backed
securities. Subsequent to December 31, 1996, Peregrine's interest in CalREIT
was sold for $20,222,000 in cash.
Change in Fiscal Year
Effective December 31, 1994, Peregrine changed its fiscal year end from
September 30 to December 31. Accordingly, after filing its Form 10-K for the
year ended September 30, 1994, Peregrine filed a Transition Report for the three
months ended December 31, 1994. The Transition Period, for the purposes of these
financial statements, is the period from October 7, 1994, through December 31,
1994.
Principles of Consolidation
For the year ended December 31, 1996 and 1995, and the Transition
Period, the consolidated financial statements include the accounts of Peregrine
and its majority-owned subsidiary, CalREIT, a real estate investment trust
("REIT") in which Peregrine owns a greater than 50% interest.
Herein, Peregrine and its subsidiary CalREIT, on a consolidated basis,
are referred to as the "Trust".
Plan of Reorganization Under Chapter 11 Proceedings
On August 2, 1993, Peregrine filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which case was heard in the
United States Bankruptcy Court for the Eastern District of California,
Sacramento Division, as In re Commonwealth Equity Trust Case No. 93-26727-C-11.
The proximate cause of Peregrine's filing a petition for reorganization was its
falling out of compliance with a restructuring agreement entered into on July
17, 1992 with a lender group for which Pacific Mutual Life Insurance Company
acted as agent. CalREIT did not file for protection under Chapter 11.
35
<PAGE> 39
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Plan of Reorganization Under Chapter 11 Proceedings, continued
On June 9, 1994, Peregrine, the lender group, including Prudential
Insurance Company of America, Pacific Mutual Life Insurance Company, ORIX USA
Corporation, and Trust Company of the West ("TCW"), for which Pacific Mutual
Life Insurance Company acted as agent (collectively the "Senior Lender Group"),
the Official Committee of Holders of Equity Interests (the "Equity Holders
Committee"), and the Official Committee of Creditors Holding Unsecured Claims
(the "Creditors Committee"), (collectively, the "Proponents") filed with the
Court the Third Amended Plan of Reorganization which was subsequently modified
by the First, Second, Third and Fourth Set of Plan Modifications, filed on July
13, 1994, July 20, 1994, July 29, 1994 and August 2, 1994, respectively. The
Third Amended Plan of Reorganization as modified (the "Plan") was confirmed in
all respects on August 8, 1994.
The Effective Date of the Plan (the date on which Peregrine emerged
from bankruptcy) was October 7, 1994. Peregrine is under the jurisdiction of the
United States Bankruptcy Court until entry of a final decree which is expected
to occur in 1997.
The Plan provided for inter alia: (a) the restructuring of virtually
all of the Peregrine's secured and unsecured debt; (b) the reduction in the
number of Common Shares of Beneficial Interest held by current shareholders from
approximately 25,100,000 ("old") shares to 2,334,000 ("new") shares (effectively
a reverse stock split); and the issuance of 2,550,000 new Common Shares of
Beneficial Interest, as well as a new class of Redeemable Convertible Preferred
Stock, of the Trust to the Senior Lender Group. The authorized number of new
Common Shares of Beneficial Interest is 50,000,000. From the Effective Date, the
Senior Lender Group owns a majority of the new Common Shares of Beneficial
Interest and all of the new Redeemable Convertible Preferred Stock. The Senior
Lender Group also received Restructured Secured Notes in the aggregate original
principal amount of $40,000,000.
The Plan provides for the reservation of 150,000 new Common Shares of
Beneficial Interest for options for Trustees who are neither employees nor
management of Peregrine. Presently, 100,000 of these shares are reserved
for the current independent Trustees.
The Plan also provides that Peregrine, at the discretion of the Board of
Trustees, may adopt a stock option plan under which management may be granted
options exercisable into a maximum of five percent of the Common Shares of
Beneficial Interest, on a fully diluted basis.
The Plan also required that Peregrine obtain a $10,000,000 working
capital line of credit (the "Line of Credit") to which the Senior Lender Group
agreed to subordinate. The Line of Credit, which is collateralized by certain of
Peregrine's real property, was obtained prior to the Effective Date.
36
<PAGE> 40
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Senior Lender Group
Peregrine's obligation of approximately $80,000,000 to the Senior
Lender Group was satisfied in the Plan by the issuance to the Senior Lender
Group of the following securities:
(a) Common Shares of Beneficial Interest equal to approximately 52% of the
total outstanding Common Shares of Beneficial Interest.
(b) Redeemable Convertible Preferred Stock (the "Preferred Shares" or
"Preferred Stock") in the original face amount of $22,500,000, which carries a
dividend of 10% per annum. Dividends are payable in kind through October 1,
1998, by means of additional shares of Preferred Stock issued quarterly;
thereafter, dividends are payable quarterly in cash. The Preferred Stock
automatically converts into Common Shares of Beneficial Interest pursuant to an
established formula if any dividend payment is not made in full when due. If all
dividends were paid in kind through October 1, 1998, no other Common Shares of
Beneficial Interest were issued and the Preferred Stock were converted to Common
Shares of Beneficial Interest on October 1, 1998, the Senior Lender Group would,
on account of that conversion, acquire approximately 77% of the total Common
Shares of Beneficial Interest outstanding after the conversion, bringing their
total holdings to approximately 89% of the outstanding shares.
The Preferred Stock is redeemable in cash (total redemption amount of
$28,146,000 at December 31, 1996) on October 1, 2000, but in certain
circumstances, including the sale of all or substantially all the assets of
Peregrine, may be redeemed earlier.
The Preferred Stock has been recorded at a discount to its face amount
of $28,146,000, based on an imputed rate of return of 12%.
(c) Restructured Notes Payable in the amount of $40,000,000 which bear
interest at 8.5% per annum and which are due on October 1, 2000. Interest was
payable in kind through September 30, 1996, by means of Interest Deferral Notes
issued quarterly. Since September 30, 1996, interest has been payable monthly
in cash, with the first payment commencing November 1, 1996.
The Interest Deferral Notes accrue interest at 8.5% per annum, from the
date of issuance. Interest payments, both on principal and the interest accrued
through September 30, 1996, and were payable monthly in cash since September 30,
1996, with the first payment commencing November 1, 1996.
The Restructured Notes Payable and Interest Deferral Notes
(collectively, the "Senior Lender Group Notes Payable" or "Senior Lender Group
Notes") are collateralized generally by all interests of Peregrine in real and
personal property and are subordinated only to certain liens which are specified
in the Plan and are due October 1, 2000. The Senior Lender Group Notes contain
certain covenants and restrictions and limit Peregrine's ability to incur
additional indebtedness and provide for the mandatory prepayment of principal in
the amount of 80% of the net proceeds from the sale of the collateral for the
Senior Lender Group Notes and from
37
<PAGE> 41
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Senior Lender Group, continued
other specified sources. In addition, there are covenants related to events or
conditions which could have or result in a material adverse effect as defined in
the applicable agreement.
Line of Credit
Pursuant to the Plan, a Line of Credit in the original maximum amount
of $10,000,000 was arranged. The Line of Credit, collateralized by a first lien
on certain of Peregrine's properties, is a revolving facility and bears interest
at 2.25% over the prime rate defined in the Agreement (totaling 10.50% at
December 31, 1996). The Line of Credit matures on October 7, 1997. In June 1996,
upon the release of certain collateral, the Line of Credit was reduced from an
original maximum amount of $10,000,000 to a new maximum amount of $8,600,000, in
accordance with the terms of the Agreement. At December 31, 1996 and 1995,
$8,583,000 and $5,526,000, respectively, were outstanding on the Line of Credit.
The weighted average interest rate on the Line of Credit was approximately
10.52% and 11.08% during 1996 and 1995, respectively.
The Line of Credit contains a financial covenant, among other terms
customary to such facilities, which requires that Peregrine maintain a Tangible
Net Worth, as defined in the Agreement, of at least $8,000,000, measured on a
fiscal quarter-end basis. In addition, there are covenants for the Line of
Credit related to material impairments of collateral, as defined, and
involuntary bankruptcy.
At December 31, 1996, Peregrine was in compliance with the Line of
Credit's Tangible Net Worth Covenant; however, it is anticipated that during the
first half of 1997 Peregrine will be unable to meet the financial covenant due
to anticipated net losses and will require a waiver in relation to the covenant
from the lender.
Management plans to seek an extension of the maturity date on its Line
of Credit with its current lender. However, if unable to do so, management will
look for an alternative source from which to obtain a new operating line of
credit. Any extension of the current Line of Credit or alternative source of
funding will be subject to the approval of the Senior Lender Group; however,
there can be no assurance that such approval, if requested, will be granted.
Fresh Start Accounting
In accounting for the effects of the reorganization, Peregrine
implemented Statement of Position 90-7 (SOP 90-7), "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." Fresh start accounting as
defined by SOP 90-7 was applicable because pre-reorganization shareholders
received less than 50% of Peregrine's new Common Shares of Beneficial Interest
and the reorganization value of the assets of the reorganized Peregrine was less
than the total of all post-petition liabilities and allowed claims.
Under the principles of fresh start accounting, all of Peregrine's
assets and liabilities were restated to reflect their reorganization value which
approximated fair value at the date of the reorganization, October 7, 1994.
38
<PAGE> 42
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Fresh Start Accounting, continued
As a result of the implementation of fresh start accounting, the
consolidated statements of operations of the Trust after the consummation of the
Plan are not comparable to the Trust's consolidated statements of operations for
prior periods.
The reorganization value of Peregrine's assets was primarily the
estimated fair value of Peregrine's property and interest in CalREIT. The
aggregate property value was reached through the use of an eleven year cash flow
analysis discounted at rates generally ranging from 12% to 15% and assuming a
ten year holding period. The discounted cash flow analysis also included an
estimate of terminal value, which was determined using the discounted value of
estimated net operating income of each of the respective properties beginning in
the year following the holding period. This analysis relied on estimates of
future property performance and the various market factors including the supply,
demand and price of competing product. Estimates were also made as to property
lease-up, required capital expenditures and similar matters.
The interest in CalREIT was valued based on an income capitalization
approach, without any control premium being attributed to Peregrine's majority
ownership position in CalREIT. The income capitalization approach was also used
to value the assets underlying the notes receivable to determine the value of
each note.
Rental Properties
At December 31, 1996 and 1995, the Trust's rental properties are
recorded at reorganization value net of accumulated depreciation and impairment
losses ("valuation losses") recognized since the Effective Date, unless they are
CalREIT assets, in which case they are carried at cost, net of accumulated
depreciation and impairment losses recognized. The valuation allowance for
possible investment losses at December 31, 1996 and 1995, represents the excess
of the carrying value of individual properties over their appraised or estimated
fair value (less estimated selling costs if held for sale).
In 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," (SFAS 121) was issued. SFAS 121 requires that an impairment be
recognized to reduce the carrying amount of long-lived assets (including certain
identifiable intangibles) to their estimated fair value whenever events or
changes circumstances indicate that such carrying amount may not be recoverable.
After an impairment is recognized, the reduced carrying amount of the asset is
accounted for as it new cost. The Trust adopted the provisions of SFAS 121 on
January 1, 1996. At that date, all previously recorded valuation losses and
accumulated depreciation were combined with the cost of the asset; and the
resulting amount is accounted for as its new cost. Generally, fair values are
estimated using discounted cash flow, direct capitalization, and market
comparison analyses.
39
<PAGE> 43
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Rental Properties, continued
Impairment losses (valuation losses) are recorded after consideration
of various external factors, particularly overbuilt real estate markets
resulting in declining lease rates which adversely affect real estate. A gain or
loss will be recorded to the extent that the amounts ultimately realized from
property sales differ from those currently estimated. In the event economic
conditions for real estate continue to decline, additional valuation losses may
be recognized in the near term.
The allowance for depreciation and amortization has been calculated
under the straight-line method based upon the estimated useful lives of the
properties. CalREIT assets lives range from 30 to 40 years. As of the Effective
Date, new useful lives were estimated for all Peregrine rental properties. These
lives range from 24 to 34 years. Expenditures for maintenance, repairs and
betterments which do not materially prolong the normal useful life of an asset
are charged to operations as incurred. Expenditures which prolong the useful
life of an asset are capitalized and depreciated.
Real estate acquired by cancellation of indebtedness or foreclosure is
recorded at fair market value at the date of acquisition.
No depreciation is taken on assets classified as "held-for-sale".
Partnership Interests
Partnership investments of 20% to 50% are accounted for by the equity
method. Under this method, the investments are recorded at initial cost and
increased for partnership income and decreased for partnership losses and
distributions.
Marketable Securities
Statement of Financial Accounting Standards 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115) requires that at
the date of acquisition and at each reporting date, debt and equity securities
be classified as "held-to-maturity", "trading", or "available-for-sale".
Investments in debt securities in which the Trust has the positive intent and
ability to hold to maturity are required to be classified as "held-to-maturity".
"Held-to-maturity" securities are required to be stated at cost and adjusted for
amortization of premiums and discounts to maturity in the consolidated balance
sheet. Investments in debt and equity securities that are not classified as
"held-to-maturity" and equity securities that have readily determinable fair
values are to be classified as "trading" or "available-for-sale" and are
measured at fair value in the consolidated balance sheet. Securities that are
bought and held principally for the purpose of selling them in the near term are
to be classified as "trading". Unrealized holding gains and losses for "trading"
securities are included in earnings. Investments that are not classified as
"held-to-maturity" or "trading" securities are classified as
"available-for-sale". Unrealized holding gains and losses for
"available-for-sale" securities are excluded from earnings and reported as a
separate component of consolidated shareholders' equity until realized.
40
<PAGE> 44
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Marketable Securities, continued
The Trust complies with the provisions of SFAS 115, accordingly, the
Trust determines the appropriate classification at the time of purchase and
re-evaluates such designation at each balance sheet date.
At December 31, 1996, the Trust's marketable securities (which are held
by CalREIT) are classified as "available-for-sale" and are measured at fair
value in the balance sheet. Unrealized holding gains and losses are excluded
from earnings and reported as a separate component of consolidated shareholders'
equity (deficit) until realized.
Other Assets
The Trust amortizes leasing commissions on a straight-line basis over
the lives of the leases to which they relate. Financing costs are amortized over
the lives of the loans or other financial instruments to which they relate.
Corporate furniture, fixtures, and equipment in excess of $500 are capitalized
and depreciated on a straight-line basis over their estimated useful lives.
Income Taxes
In 1977, Peregrine elected to be and was taxed as a REIT through the
year ended September 30, 1992. A REIT is not taxed on that portion of its
taxable income which is distributed to shareholders, provided that at least 95%
of its real estate investment trust taxable income is distributed and subject to
certain other requirements.
During the year ended September 30, 1993, Peregrine did not qualify to
be taxed as a REIT. The termination of its REIT status is effective as of
October 1, 1992. Peregrine may not be eligible to re-elect to be taxed as a REIT
prior to its fifth taxable year ended after September 30, 1993.
The Trust has adopted Statement of Financial Accounting Standards No.
109 (SFAS 109) "Accounting for Income Taxes." SFAS 109 requires the use of the
liability method of accounting for income taxes. Deferred taxes are recorded
based on the differences between financial statement and income tax bases of
assets and liabilities and available loss or credit carryforwards. A "Valuation
Allowance" is recorded against deferred tax assets unless it is more likely than
not that the asset will be realized in the future.
Cash
The Trust invests its cash and restricted cash in demand deposits with
banks with strong credit ratings. Bank balances in excess of federally insured
amounts totaled $7,267,000 and $5,500,000 as of December 31, 1996 and 1995,
respectively. The Trust has not experienced any losses on these deposits.
41
<PAGE> 45
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Sales of Real Estate
The Trust complies with the provisions of Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" (SFAS 66).
Accordingly, the recognition of gains on certain transactions are deferred until
such transactions have complied with the criteria for full profit recognition
under the Statement.
Interest Income Recognition
The Trust recognizes interest income on notes receivable when it is
estimated that the fair value of the collateral related to the note is adequate.
Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
In 1995, Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation", (SFAS 123) was issued. SFAS 123
requires either recognition or disclosure of a hypothetical charge for stock
options. SFAS 123 also establishes fair value-based accounting and reporting
standards for stock-based compensation plans. The statement defines a fair
value-based method of accounting for employee stock options or similar equity
instruments and allows parties to elect to continue to measure compensation
costs using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", (APB Opinion 25). SFAS 123 requires, for those electing to remain
with the APB Opinion 25 accounting method, pro forma disclosure of net income
(loss) as if the fair value-based method had been applied.
Peregrine has elected to continue to account for stock-based compensation under
the provisions of APB Opinion 25 and adopt the disclosure-only provisions of
SFAS 123. Accordingly, the compensation costs of stock options are measured
using the intrinsic value-based method, whereby the excess, if any, of the fair
value of Peregrine's stock at the date of the grant over the amount an employee
must pay to acquire the stock represents compensation cost. Had compensation
costs for Peregrine's stock-based compensation been determined using fair value
of the options at the grant date, as prescribed by SFAS 123, Peregrine's net
loss would be unchanged for the years ending December 31, 1996 and 1995, and
the Transition Period as the fair value of Peregrine's stock options was below
the option price.
42
<PAGE> 46
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Net Loss Per Share
Net loss per Common Share of Beneficial Interest has been computed based on the
weighted-average number of Common Shares of Beneficial Interest outstanding
during the years ended December 31, 1996 and 1995, and the Transition Period,
of 4,881,000, 4,883,000, and 4,884,000, respectively. For purposes of
determining average number of shares outstanding and net loss per Common Share
of Beneficial Interest for the Transition Period, October 1, 1994, is treated
as the Effective Date. Common Shares of Beneficial Interest equivalents are
anti-dilutive for the year ended December 31, 1996 and 1995, and the Transition
Period, and are not considered in calculating net loss per Common Share of
Beneficial Interest.
In February 1997, Statement of Financial Accounting Standard No. 128,
"Earnings Per Share", (SFAS 128) was issued. SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS"). SFAS
128 is designed to improve the EPS information presented in the consolidated
financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. This statement is effective for consolidated
financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. The adoption of
SFAS 128 is not expected to have a material impact on the financial statements
of Peregrine.
Reclassifications
Certain reclassifications have been made in the presentation of the
December 31, 1995, and Transition Period consolidated financial statements to
conform to the 1996 presentation.
2. Pro Forma Financial Statements
As further discussed in Note 23 to consolidated financial statements,
on January 3, 1997, Peregrine sold its 76% stock ownership interest in CalREIT
for $20,222,000, or approximately $2.91 per share of CalREIT previously held by
Peregrine to a third party, CalREIT Investors Limited Partnership, which
resulted in the recognition of a gain of $1,012,000 during the first quarter of
1997. The following Pro-Forma Financial Statements reflect adjustments to the
historical consolidated financial statements for the period ending December 31,
1996, to reflect Peregrine's sale of its 76% stock ownership interest in CalREIT
as if it had been consummated on January 1, 1996, and are presented in order to
illustrate the possible scope of the change in historical financial position and
results of operations caused by the transaction:
43
<PAGE> 47
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Pro Forma Financial Statements, continued
THE PEREGRINE REAL ESTATE TRUST
PRO-FORMA BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
Consolidated Pro-Forma
Historical Adjustments Pro-Forma
------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Investments:
Rental properties, net of accumulated depreciation $ 77,412,000 $ (8,585,000) (a) $ 68,827,000
Notes receivable, net of deferred gains 2,296,000 (1,576,000) (a) 720,000
Marketable securities available-for-sale 14,115,000 (14,115,000) (a) --
Investment in CalREIT -- 19,049,000 (a) --
(19,049,000) (b)
------------- ------------- -------------
93,823,000 (24,276,000) 69,547,000
Cash 5,972,000 (4,698,000) (a) 6,105,000
4,591,000 (b)
240,000 (c)
Restricted cash 986,000 -- 986,000
Rents, accrued interest, and other receivables, net of allowance 1,706,000 (707,000) (a) 1,030,000
31,000 (a)
Other assets 2,239,000 (355,000) (a) 1,424,000
(460,000) (b)
------------- ------------- -------------
Total assets $ 104,726,000 $ (25,634,000) $ 79,092,000
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 32,263,000 $ (5,169,000) (a) $ 27,094,000
Senior Lender Group Notes Payable 44,467,000 (15,631,000) (b) 27,803,000
(1,033,000) (c)
Line of credit 8,583,000 -- 8,583,000
Accounts payable and accrued liabilities 3,446,000 (295,000) (a) 3,029,000
(122,000) (c)
Other liabilities 343,000 (70,000) (a) 273,000
------------- ------------- -------------
Total liabilities 89,102,000 (22,320,000) 66,782,000
Commitments and contingencies (Note 13 to consolidated
financial statements.)
Minority interest 5,759,000 (5,759,000) (a) --
------------- ------------- -------------
Redeemable Convertible Preferred Stock, net of unaccreted
discounts 26,265,000 -- 26,265,000
------------- ------------- -------------
Common Shares of Beneficial Interest 13,356,000 -- 13,356,000
Unrealized holding losses on marketable securities (22,000) 22,000 (a) --
Accumulated deficit (29,734,000) 315,000 (a) (27,311,000)
713,000 (b)
1,395,000 (c)
------------- ------------- -------------
Total liabilities and shareholders' equity (deficit) $ 104,726,000 $ (25,634,000) $ 79,092,000
============= ============= =============
</TABLE>
44
<PAGE> 48
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Pro Forma Financial Statements, continued
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
PRO-FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Consolidated
Historical Pro-Forma
1996 Adjustments 1996
------------- ----------- -------------
<S> <C> <C> <C>
Revenues:
Hotel $ 12,652,000 $ -- $ 12,652,000
Rent 11,495,000 (2,019,000) (a) 9,476,000
Interest 1,435,000 (1,136,000) (a) 299,000
------------- ------------- -------------
25,582,000 (3,155,000) 22,427,000
------------- ------------- -------------
Expenses:
Hotel operating expenses 10,424,000 -- 10,424,000
Commercial property operating expenses 3,874,000 (685,000) (a) 3,189,000
Commercial and hotel property management 835,000 (96,000) (a) 739,000
Depreciation and amortization 2,931,000 (64,000) (a) 2,867,000
Interest 8,177,000 (547,000) (a) 6,235,000
(1,395,000) (c)
General and administrative 5,088,000 (1,503,000) (a) 3,585,000
------------- ------------- -------------
31,329,000 (4,290,000) 27,039,000
------------- ------------- -------------
(Loss) before reorganization item, gain
(loss) on foreclosure or sale of
investments, valuation losses and
minority interest (5,747,000) 1,135,000 (4,612,000)
Reorganization item 454,000 -- 454,000
------------- ------------- -------------
(Loss) before gain (loss) on foreclosure or
sale of investments, valuation losses,
and minority interest (5,293,000) 1,135,000 (4,158,000)
Gain (loss) on foreclosure of sale of
investments 1,580,000 (1,068,000) (a) 512,000
------------- ------------- -------------
(Loss) before valuation losses and minority
interest (3,713,000) 67,000 (3,646,000)
Valuation losses (4,278,000) 1,743,000 (a) (2,535,000)
------------- ------------- -------------
(Loss) before minority interest (7,991,000) 1,810,000 (6,181,000)
Minority interest 99,000 (99,000) (a) --
------------- ------------- -------------
Loss from continuing operations $ (7,892,000) $ 1,711,000 $ (6,181,000)
============= ============= =============
</TABLE>
45
<PAGE> 49
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Pro Forma Financial Statements, continued
THE PEREGRINE REAL ESTATE TRUST
PRO-FORMA STATEMENT OF OPERATIONS (Continued)
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Consolidated
Historical Pro-Forma
1996 Adjustments 1996
------------- ----------- -----------
<S> <C> <C> <C>
Loss from continuing operations $ (7,892,000) $1,711,000 $(6,181,000)
Preferred Stock dividends, net of discount (2,516,000) -- (2,516,000)
Accretion of discount on Preferred Stock (355,000) -- (355,000)
------------ ---------- -----------
Loss from continuing operations attributable to
Common Shares of Beneficial Interest $(10,763,000) $1,711,000 $(9,052,000)
============ ========== ===========
Loss from continuing operations per Common
Share of Beneficial Interest $ (2.21) $ 0.35 $ (1.86)
============ ========== ===========
Weighted average number of Common Shares
of Beneficial Interest outstanding 4,881,000 4,881,000 4,881,000
</TABLE>
(a) Adjustment to eliminate the net assets, income and expenses of
CalREIT, eliminate the minority interest investment in CalREIT, to record
Peregrine's equity investment in CalREIT, and to record the amount receivable
from CalREIT.
(b) Adjustment to record the sale of the equity investment in
CalREIT.
(c) Adjustment to record the interest savings on the Senior
Lender Group Notes Payable resulting from the reduction of debt with the
application of 80% of the net proceeds from the sale of CalREIT, as required by
the Note Agreement.
The excess of the total proceeds of $20,222,000, over the related
transaction costs of $460,000 and Peregrine's Pro-Forma investment in CalREIT at
January 1, 1996, of $19,049,000, totaling $713,000, has not been reflected in
the Pro-Forma Statement of Operations.
3. Related-Party Transactions
Peregrine and CalREIT are both self-administered. However, they share
certain costs, including personnel costs, for which CalREIT reimburses Peregrine
pursuant to a cost allocation agreement based on respective asset values. During
1996 and 1995, reimbursable costs charged by Peregrine to CalREIT approximated
$247,000 and $435,000, respectively. During the Transition Period, reimbursable
costs charged by Peregrine to CalREIT approximated $300,000; $200,000 of which
relates to the period prior to October 7, 1994.
46
<PAGE> 50
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. Related-Party Transactions, continued
Such reimbursements have been offset against the amount due to CalREIT
and are eliminated in the consolidation. At December 31, 1996 and 1995,
Peregrine had amounts due from CalREIT aggregating $31,000 and $45,000,
respectively.
In January 1997, following Peregrine's sale of its 76% stock ownership
interest in CalREIT, the cost allocation agreement between Peregrine and CalREIT
was terminated.
As a result of the termination of Frank A. Morrow as Peregrine's Chief
Executive Officer in January 1996, Peregrine utilized the services of certain of
its independent Trustees in connection with its analysis of alternative
operating strategies, asset dispositions, and day-to-day management activities.
In connection with the consulting services performed, the following amounts were
paid to such Trustees (or affiliated companies) during 1996, in addition to the
quarterly fees and meeting fees paid to the Trustees ("Normal Trustee Fees"):
<TABLE>
<S> <C>
The McMahan Group (John McMahan, Trustee) $69,000
John F. Salmon, Trustee $49,000
The Presidio Group (Kenneth T. Seeger, Trustee) $41,000
Snell&Co (Roger D. Snell, Trustee) $10,000
</TABLE>
No amounts were paid to the Peregrine Trustees (or affiliated
companies) during 1995 or the Transition Period other than Normal Trustee Fees.
During 1996, CalREIT paid $140,000 in compensation to one of its
independent Trustees, Elliot G. Steinberg, in connection with CalREIT's
strategic growth activities, and accrued $180,000 in deferred compensation for
1996, to Frank A. Morrow, Chairman of the Board and Chief Executive Officer,
which was paid in March 1997.
No amounts were paid to the CalREIT Trustees during 1995 or the
Transition Period other than Normal Trustee Fees.
4. Restricted Cash
At December 31, 1996, cash of $986,000 was restricted. Such funds which
represent the balance of the net proceeds from the sale of certain assets of
Peregrine, are being held in an escrow account for the benefit of the Senior
Lender Group. At December 31, 1995, cash of $185,000 was restricted pending
final settlement of property taxes owed to the county relating to the sale of
the Woodland Medical Office Building in Milpitas, California. During 1996, 80%
of this amount was distributed to the Senior Lender Group in accordance with the
agreement, upon resolution of the property tax issue.
47
<PAGE> 51
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. Rental Properties
At December 31, 1996 and 1995, the Trust's consolidated rental property
portfolio at reorganization value or adjusted cost included retail shopping
centers, $35,053,000 and $47,947,000, respectively; office buildings,
$16,235,000 and $18,053,000, respectively; industrial buildings, $8,101,000 and
$13,727,000, respectively; mini-storage facilities, $2,808,000 and $2,888,000,
respectively; land, $30,000 and $182,000, respectively; and hotels, $17,171,000
and $30,667,000, respectively.
Under fresh start accounting, all Peregrine rental properties were
adjusted at the Effective Date to reorganization value which is different than
tax basis.
Peregrine's noncancellable operating leases at December 31, 1996,
provide for minimum rental income during each of the next five years of
$6,948,000, $6,182,000, $4,939,000, $4,087,000, and $2,599,000, respectively,
and $4,401,000 thereafter. Certain of the leases increase periodically based on
changes in the Consumer Price Index.
Contingent rental income was $28,000, $27,000, and $8,000 during 1996,
1995, and the Transition Period, respectively.
At December 31, 1996, 3900 Lennane Drive and CalREIT's two directly
owned properties with total carrying values of $1,895,000 and $8,585,000,
respectively, were classified as held for sale.
6. Partnership Interests
Peregrine is a partner in CR Properties, a general partnership, in
which Peregrine owns a 50% interest. CR Properties is a limited partner in a
partnership which owns an office building in Sacramento, California. No portion
of the CR Properties partnership loss has been recognized in the Trust's
consolidated financial statements for the year ended December 31, 1996 and 1995,
and the Transition Period as the partnership agreement specifies that net losses
shall be allocated 100% to the other partner. As CR Properties has a limited
partnership interest, it has no contingent liability with respect to the office
building debt.
<TABLE>
<S> <C>
Investment in CR Properties general partnership, at the
Peregrine's reorganization value $ --
--------
</TABLE>
At the beginning of 1996, Peregrine was a partner in Placer Ranch
Partners, a limited partnership in which Peregrine owned a 31% limited
partnership interest. The Partnership owned an undeveloped parcel of land in the
Stanford Ranch area of Rocklin, California. During the first quarter of 1996 the
General Partner exercised a Put/Call Option. In accordance with the terms of the
Agreement, the Put/Call Option required that Peregrine sell its interest to the
General Partner or purchase the General Partners interest. In July 1996, after
investigation and analysis, and due to Capital Constraints, Peregrine sold its
31% interest to the General Partner for $2,739,000, which resulted in the
recognition of a $129,000 gain.
48
<PAGE> 52
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. Notes Receivable
In order to facilitate sales of real estate, the Trust has accepted
partial payment in the form of notes receivable collateralized by deeds of
trust. As of December 31, 1996 and 1995, the Trust had long-term notes
receivable collateralized by deeds of trust in the face amounts of $8,778,000
and $24,093,000, respectively. Generally the notes are collateralized by real
estate properties in California.
The notes are to be repaid from the cash flow of the property or
proceeds from the sale or refinancing of the property. At December 31, 1996,
Peregrine had two notes totaling $660,000 which were delinquent, against which
it had recorded an allowance of $275,000. Interest income recognized by
Peregrine on these delinquent notes was $39,000, $43,000 and $11,000 and cash
received on the notes was $58,000, $41,000 and $86,000 for the years ended
December 31, 1996 and 1995, and the Transition Period, respectively.
Contractually scheduled principal collections on Peregrine's note portfolio in
the face amount of $1,075,00 over the next five years, excluding delinquent
notes, are as follows:
<TABLE>
<S> <C>
1997 $ 5,000
1998 6,000
1999 6,000
2000 7,000
2001 8,000
Thereafter 383,000
---------
$ 415,000
=========
</TABLE>
The Trust's notes bear interest at rates ranging from 7.63% to 11.50%
as of December 31, 1996. For 1996, the overall effective rate was approximately
8.50%.
At December 31, 1996, all notes receivable directly owned by CalREIT
with a carrying value of $1,576,000, were classified as held for sale.
8. Valuation Allowances
Based on a review of its investments, the Trust has provided for
valuation allowances as set forth below. Adverse economic factors, particularly
over-built real estate markets resulting in declining lease renewal rates, were
the primary causes of these valuation losses. If such adverse economic factors
continue, additional valuation loss provisions may be required in the near term.
In the event that Peregrine's License Agreements with Holiday Inn are
terminated, additional valuation allowances against the hotels may be necessary
in the near term.
The Trust adopted the provisions of SFAS 121 on January 1, 1996. At
that date, all previously recorded valuation losses (and accumulated
depreciation) were combined with the cost of the asset; and the resulting amount
is accounted for as its new cost.
49
<PAGE> 53
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Valuation Allowances, continued
Analysis of changes in the allowance for possible losses on real estate
investments, partnership interests, notes receivable, and rents, accrued
interest and other receivables for the years ended December 31, 1996 and 1995,
and the Transition Period follow.
Under fresh start accounting, all separately stated valuation
allowances as of the Effective Date were eliminated. Peregrine's assets and
liabilities were restated to reflect their reorganization value which
approximated fair value at the date of reorganization, October 7, 1994.
Therefore, in the "Transition Period" column below, the beginning balances in
each of the categories reflect the then cumulative valuation allowances on
rental properties, the then cumulative valuation allowances and deferred gains
on notes receivable and the then cumulative allowance for bad debt losses on
rents and interest receivable for CalREIT only.
The detail is set forth below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ -----------
<S> <C> <C> <C>
Rental Properties
Allowance for valuation losses on rental
property investments:
Beginning balance $ 12,963,000 $ 5,863,000 $ 71,257,000
Fresh start adjustment -- -- (65,463,000)
------------ ----------- ------------
Adjusted beginning balance 12,963,000 5,863,000 5,794,000
Provision for valuation losses 2,888,000 7,100,000 69,000
SFAS 121 adjustments (15,851,000) -- --
------------ ----------- ------------
Ending balance $ -- $12,963,000 $ 5,863,000
============ =========== ============
Partnership Investments
Allowance for valuation losses on
partnership investments:
Beginning balance $ -- $ -- $ 17,429,000
Fresh start adjustment -- -- (17,429,000)
------------ ----------- ------------
Adjusted beginning balance -- -- --
Provision for valuation losses 1,390,000 -- --
SFAS 121 adjustments (1,390,000) -- --
------------ ----------- ------------
Ending balance $ -- $ -- $ --
============ =========== ============
</TABLE>
50
<PAGE> 54
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Valuation Allowances, continued
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
----------- ----------- -----------
<S> <C> <C> <C>
Notes Receivable
Allowance for valuation losses, unaccreted
discounts and deferred gains on notes
receivable:
Beginning balance $ 9,466,000 $ 7,317,000 $ 7,773,000
Fresh start adjustment -- -- (579,000)
----------- ----------- -----------
Adjusted beginning balance 9,466,000 7,317,000 7,194,000
Provision for valuation losses -- 2,426,000 --
Deferral of gains -- -- 135,000
Recognition of deferred gains (55,000) (66,000) (12,000)
Amounts charged against
allowance for losses -- (211,000) --
SFAS 121 adjustments (9,092,000) -- --
----------- ----------- -----------
Ending balance $ 319,000 $ 9,466,000 $ 7,317,000
=========== =========== ===========
Rents, Accrued Interest, and Other Receivables
Allowance for bad debt losses on rents,
accrued interest, and other receivables:
Beginning balance $ 1,040,000 $ 285,000 $ 2,555,000
Fresh start adjustment -- -- (2,434,000)
----------- ----------- -----------
Adjusted beginning balance 1,040,000 285,000 121,000
Provision for losses 841,000 1,391,000 198,000
Recoveries (24,000)
Amounts charged against
allowance for losses (704,000) (636,000) (34,000)
----------- ----------- -----------
Ending balance $ 1,153,000 $ 1,040,000 $ 285,000
=========== =========== ===========
</TABLE>
In addition, the Trust has established an allowance for valuation
losses on other assets in the amount of $0 at December 31, 1996 and $310,000 at
December 31, 1995.
51
<PAGE> 55
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
9. Investment in Marketable Securities
At December 31, 1996, CalREIT had $14,115,000 invested in U.S.
Government mortgage-backed securities classified as "available-for-sale".
In accordance with SFAS 115, the Trust determines the appropriate
classification at the time of purchase and re-evaluates such designation at each
balance sheet date.
At December 31, 1996, CalREIT's "available-for-sale" securities
consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Federal National Mortgage Association,
adjustable rate interest currently at 7.783%,
due April 1, 2024 $ 2,879 $ -- $ (34) $ 2,845
Federal Home Loan Mortgage Corporation,
adjustable rate interest currently at 7.625%,
due June 1, 2024 967 -- (10) 957
Federal National Mortgage Association,
adjustable rate interest currently at 7.292%,
due April 1, 2025 732 -- (4) 728
Federal National Mortgage Association,
adjustable rate interest currently at 6.144%,
due May 1, 2026 3,260 -- (5) 3,255
Federal National Mortgage Association,
adjustable rate interest currently at 6.116%,
due June 1, 2026 6,299 31 -- 6,330
------- ---- -------- -------
$14,137 $ 31 $ (53) $14,115
======= ==== ======== =======
</TABLE>
The maturity dates above are not necessarily indicative of expected
maturities as principal is often prepaid on such instruments.
Interest income recognized during 1996 on CalREIT's marketable
securities available-for-sale was $392,000.
52
<PAGE> 56
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. Long-Term Notes Payable
At December 31, 1996 and 1995, the Trust had long-term notes payable,
other than the Senior Lender Group Notes Payable and the Line of Credit, most of
which were collateralized by first deeds of trust on rental properties, with an
aggregate net book value of $38,695,000 and $52,468,000, respectively. Pursuant
to the Reorganization Plan, Peregrine's long-term notes payable collateralized
by first deeds of trust, with a face value of $27,094,000 at December 31, 1996,
are due in installments extending to the year 2008, with interest rates ranging
from 8.50% to 10.00%. Contractually scheduled principal payments related to
these long-term notes during each of the next five years, are $338,000,
$369,000, $405,000, $445,000, $488,000, respectively, and $25,049,000
thereafter. Peregrine's Senior Lender Group Notes Payable totaling $44,467,000
at December 31, 1996, (reduced to $28,889,000 on January 3, 1997, upon the
application of the proceeds from the sale of CalREIT), are due October 1, 2000.
During 1996, Peregrine's office building at 3900 Lennane Drive,
Sacramento, California continued to be vacant despite efforts to lease the
property. In addition, management continued its efforts to either sell the
property or restructure debt due to the negative cash flow resulting from the
required debt service payments (including tax impounds) of approximately $25,000
per month. All efforts to lease or sell the property or restructure the debt to
a manageable level failed. In February 1997, after consent from both the Senior
Lender Group and Foothill Capital Corporation (the lender on the Line of
Credit), Peregrine ceased debt service payments. In March 1997, Peregrine was
notified that the lender has initiated foreclosure proceedings against the note.
The unpaid balance of the note at the time of default was approximately
$2,493,000, of which approximately $2,380,000 is subject to recourse.
Under the Plan of Reorganization, the principal amount of Peregrine's
long-term notes payable collateralized by first deeds of trust remained
undiminished, and in some cases increased by accrued interest and professional
fees. Moreover, the terms of the notes were altered, in some cases materially,
as to interest rates, due dates and periodic payments.
11. Distributions
No cash distributions were made to holders of Common Shares of
Beneficial Interest for the years ended December 31, 1996 and 1995, and the
Transition Period.
Under the terms of the agreement with respect to the Senior Lender
Group Notes Payable, Peregrine is substantially restricted from and does not
anticipate making any distributions to shareholders in the foreseeable future.
53
<PAGE> 57
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
12. Statements of Cash Flows Supplemental Information
In connection with the sale or foreclosure of investments, Peregrine
entered into various non-cash transactions as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ ----------
<S> <C> <C> <C>
Sales price less selling costs $27,655,000 $ 5,174,000 $ 3,098,000
Notes receivable (20,000) (2,240,000) (1,144,000)
Notes payable assumed by buyer
or paid through escrow (7,304,000) (2,380,000) --
Other liabilities assumed by buyer
or applied to the sale price (187,000) (455,000) (1,954,000)
Liabilities incurred in connection with
foreclosure of mortgage notes (82,000) -- --
----------- ------------ -----------
Net cash received $20,062,000 $ 99,000 $ --
----------- ------------ -----------
Carrying value of property and
notes receivable sold $23,754,000 $ 5,150,000 $ 3,023,000
----------- ------------ -----------
Carrying value of other assets
written off at the time of the sale $ 66,000 $ 138,000 $ 18,000
----------- ------------ -----------
Other liabilities incurred in connection
with foreclosure of mortgage notes $ 22,000 $ -- $ --
----------- ------------ -----------
</TABLE>
CalREIT's Casa Grande Motor Inn which was collateralized by notes
payable of $3,089,000 was foreclosed upon during the year ended 1996. The
carrying value of the assets was equal to the carrying value of the debt;
therefore, no gain or loss on foreclosure was recorded. One property which
collateralized notes payable of $2,764,000 was foreclosed upon during the year
ended December 31, 1995, causing a loss of $73,000.
Three parcels of land located in Sacramento with a carrying value of
$152,000 were returned to the bond holders in lieu of foreclosure during the
year ended December 31, 1996. Sixteen parcels with a carrying value of
$1,215,000 were returned to the bond holder in lieu of foreclosure during the
year ended December 31, 1995. No gain or loss was recorded on these
transactions, as the value of the land was equal to the value of the
liabilities.
54
<PAGE> 58
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
12. Statements of Cash Flows Supplemental Information, continued
During the years ended December 31, 1996 and 1995, and the Transition
Period, the outstanding balance on the Line of Credit was increased by $918,000,
$662,000, and $59,000, respectively for interest and expenses incurred during
the year.
Additionally, on March 31, June 30, and September 30, 1996, Peregrine
issued Interest Deferral Notes at 8.5% per annum in the principal amount of
$933,000, $944,000, and $967,000, respectively, as payment in kind for the
interest then due on the Senior Lender Group Notes Payable. On March 31, June
30, September 30, and December 31, 1996, Peregrine also issued Preferred Stock
in the face amount of $643,000, $660,000, $684,000, and $703,000, respectively
as payment in kind for the dividend then due on the outstanding Preferred Stock.
In 1995, Interest Deferral Notes issued as payment in kind were in the principal
amounts of $867,000, $885,000, $913,000, and $931,000, on March 31, June 30,
September 30, and December 31, respectively. Preferred Stock Dividends issued as
payment in kind were in the face amount of $576,000, $597,000, $618,000, and
$634,000, respectively, on March 31, June 30, September 30, and December 31,
1995. During the Transition Period ending December 31, 1994, Interest Deferral
Notes in the principal amount of $869,000 were issued as interest payment in
kind on the Senior Lender Group Notes and Preferred Stock in the face amount of
$532,000 was issued as dividends in kind on the outstanding Preferred Stock.
During 1996, the long-term first mortgage note on Peregrine's office
building at 3900 Lennane Drive was increased by $119,000 of deferred interest.
Interest paid for the years ended December 31, 1996 and 1995, and the
Transition Period was $4,979,000, $4,472,000, and $2,206,000, respectively.
13. Commitments and Contingencies
Unused Line of Credit
At December 31, 1996, approximately $17,000 of the Line of Credit, the
maximum amount of which is $8,600,000, was unused.
Leases
Peregrine is obligated under land leases to the year 2019. For each of
the next five years the minimum annual payment under the leases is $35,000, and
$651,000 thereafter. Total ground lease expense was $38,000, $35,000, and $9,000
during the years ended December 31, 1996 and 1995, and the Transition Period,
respectively.
55
<PAGE> 59
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Commitments and Contingencies, continued
Leases, continued
During 1995, CalREIT entered into a three year, non-cancelable
operating lease for facilities in San Francisco, California. Rent expense under
the operating lease was $40,000 in 1996 and $30,000 in 1995.
Litigation
At December 31, 1996, Peregrine and CalREIT were a party to a number of
lawsuits. Most involved ordinary disputes common in the real property management
business and amounts immaterial to the overall financial condition of Peregrine
and CalREIT.
The shareholder lawsuits and other material litigation to which
Peregrine was a party to prior to and during the bankruptcy proceedings were
resolved and settled in connection with the Plan of Reorganization; however,
claims against Peregrine for the payment of approximately $279,000 in fees for
professional services rendered during the bankruptcy proceedings remain pending.
At December 31, 1996, Peregrine is a defendant in a case filed by MDC
REIT Holdings, L.L.C. ("MDC") in California state court, on December 24, 1996.
MDC alleges that Peregrine breached a certain stock purchase agreement pursuant
to which Peregrine was to have sold to MDC certain shares of the Common Shares
of Beneficial Interest of CalREIT that were owned by Peregrine. MDC is seeking
damages it allegedly incurred in excess of $900,000, and recovery of its
attorney fees, costs, and interest. Management believes, and has been advised by
its counsel, that MDC's claims are without merit. Peregrine has answered the
complaint, denying any breach of the stock purchase agreement and asserting
numerous affirmative defenses to MDC's claims. The consolidated financial
statements do not include an accrual for any losses related to the complaint.
Financial Status of The Peregrine Real Estate Trust
The following matters raise substantial doubt about Peregrine's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
o Subsequent to its emergence from bankruptcy on October 7, 1994,
Peregrine has incurred cumulative losses through December 31, 1996,
of approximately $24,000,000, which includes valuation losses
against investments of approximately $14,000,000.
56
<PAGE> 60
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Commitments and Contingencies, continued
Financial Status of The Peregrine Real Estate Trust, continued
o At December 31, 1996, Peregrine estimates that additional capital
expenditures of approximately $1,800,000 will be required during
1997 to complete the refurbishments of its hotel properties in order
to comply with Holiday Inn franchise requirements. As a result of
not completing the required refurbishments within the time frame
specified by Holiday Inn, Peregrine received a 30-day notice of
default under the Holiday Inn License Agreements (the "Notice of
Default") for its Chico and Sacramento hotels in February 1997. The
terms of the Notice of Default require that Peregrine complete the
refurbishment work within 30 days or the License Agreements with
Holiday Inn will be terminated and the hotels will be removed from
the Holiday Inn system. In the event that management is unable to
reach an agreement with Holiday Inn and the License Agreements are
terminated, Peregrine could be subject to termination fees estimated
at approximately $500,000 and $800,000 for Chico and Sacramento,
respectively. In addition, under the terms of its Line of Credit
Agreement, the loss of the Holiday Inn License Agreements could
constitute an event of default unless Peregrine is able to replace
the Holiday Inn License Agreements with comparable license
agreements within 180 days from the date on which the Holiday Inn
License Agreements are terminated. The loss of the Holiday Inn
License Agreements could also constitute an event of default under
the terms of the Senior Lender Note Agreement.
o Peregrine began paying interest in cash to its Senior Lender Group
in November 1996 and estimates that payments in 1997 will be
approximately $2,500,000.
o The Line of Credit matures on October 7, 1997.
o At December 31, 1996, Peregrine was in compliance with the Line of
Credit's Tangible Net Worth Covenant; however, it is anticipated
that during the first half of 1997, Peregrine will be unable to meet
the financial covenant due to anticipated net losses.
o At December 31, 1996, Peregrine was a defendant in a case filed by
MDC REIT Holdings, L.L.C. ("MDC") in California state court, on
December 24, 1996, as described above.
57
<PAGE> 61
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Commitments and Contingencies, continued
Financial Status of The Peregrine Real Estate Trust, continued
Management's plans with respect to the matters noted above are as
follows:
o Management has developed a plan to meet these near term obligations,
which includes maximizing the income stream from the both the
commercial properties and hotels and the select disposition of real
estate and other assets with negative cash flows and/or which
require significant capital expenditures beyond the resources
available to Peregrine. Upon the disposition of assets, 80% of any
net proceeds realized are required to be distributed to the Senior
Lender Group as payment against the Senior Lender Group Notes. On
January 3, 1997, Peregrine sold its 76% stock ownership interest in
CalREIT for $20,222,000 and in accordance with the terms of the
Restructured Note Agreement $15,631,000 was distributed to the
Senior Lender Group. The distribution of the net proceeds from the
sale of CalREIT was applied first to the unpaid accrued interest of
$53,000, the balance of the distribution was applied towards the
outstanding debt reducing the balance from $44,467,000 to
$28,889,000. The remainder of the net proceeds, $4,591,000 is
available to Peregrine for operating and capital improvement needs.
o Management has negotiated with Holiday Inn and has obtained a 30-day
extension of time to April 15, 1997, in which to review the
refurbishment plans and budgets and develop an action plan to
complete the refurbishments required. Should the refurbishment plans
not meet Holiday Inn's requirements, or should Holiday Inn decide
not to grant an extension of time in which to complete the required
refurbishments, the License Agreements could be terminated on or
after April 15, 1997. Management intends to develop an action plan
that is acceptable to Holiday Inn and seek an extension of time in
which to complete the required refurbishments. As a result of the
sale of its 76% ownership interest in CalREIT on January 3, 1997,
Peregrine believes it has the necessary resources to complete the
required refurbishments and plans to proceed.
o Management plans to seek an extension of the maturity date on its
Line of Credit with the current lender. However, if unable to do so,
management will look for an alternative source from which to obtain
a new operating line of credit. Any extension of the current Line
of Credit or alternative source of funding will be subject to the
approval of the Senior Lender Group; however, there can be no
assurance that such approval, if requested, will be granted.
o Management expects it will seek a waiver of the anticipated
financial covenant violation on the Line of Credit from its lender.
o Management believes, and has been advised by its counsel, that MDC's
claims are without merit, as discussed above.
58
<PAGE> 62
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
14. Gain (Loss) on Foreclosure or Sale of Investments:
Components of the gain (loss) on foreclosure or sale of investments for
the years ended December 31, 1996 and 1995, and the Transition Period were as
follows:
<TABLE>
<CAPTION>
(in thousands)
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ ----------
Components
<S> <C> <C> <C>
Sale of investment in Placer Ranch Partnership $ 129 $ -- $ --
Sale of Timberlake Medical Building (38) -- --
Sale of Park Terrace Inn (18) -- --
Foreclosure of Java Investments Note 448 -- --
Sale of Fountain View Office Building Note 115 -- --
Sale of Aster Avenue Industrial Complex Note 357 -- --
Sale of Sierra Oaks Shopping Center (63) -- --
Sale of Bekins Storage Facility (164) -- --
Sale of Pavilions at Mesa Note 430 -- --
Sale of Spacesaver Mini-Storage Note 30 -- --
Sale of Redfield Commerce Center 299 -- --
Sale of Milpitas Medical Building -- (508) --
Sale of Northridge Land -- 81 --
Sale of System Integrators Office Building -- 396 --
Sale of Sheri Liou Investments Note -- (74) --
Sale of Alston-Florin Perkins Note -- (72) --
Foreclosure of 425 University Ave. Office Building -- (73) --
Recognition of deferred gains 55 66 12
------- ------ -------
$ 1,580 $ (184) $ 12
======= ====== =======
</TABLE>
59
<PAGE> 63
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
Revenues $ 6,520,000 $ 6,421,000 $ 6,265,000 $ 6,376,000
============ ============ ========== =============
Reorganization items $ -- $ -- $ -- $ 454,000
============ ============ ========== =============
Gain (loss) on foreclosure or
sale of investments, net $ 299,000 $ 233,000 $ 608,000 $ 440,000
============ ============ ========== =============
Loss before extraordinary item $ (3,234,000) $ (1,894,000) $(1,351,000) $ (1,413,000)
============ ============ ========== =============
Net loss $ (3,234,000)(1) $ (1,894,000)(2) $(1,200,000)(3) $ (1,377,000)(4)
============ ============ ========== =============
Net loss attributable to Common Shares of
Beneficial Interest(6) $ (3,915,000) $ (2,597,000) $(1,932,000) $ (2,132,000)
============ ============ ========== =============
Loss per Common Share of Beneficial
Interest before extraordinary item $ (0.80) $ (0.53) $ (0.43) $ (0.45)
Extraordinary item per Common Share
of Beneficial Interest -- -- 0.03 0.01
------------ ------------ ---------- -------------
Net loss per share attributable to
Common Shares of Beneficial Interest $ (0.80) $ (0.53) $ (0.40) $ (0.44)
============ ============ ========== =============
</TABLE>
60
<PAGE> 64
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. Selected Quarterly Financial Data (Unaudited), continued
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
Revenues $ 6,853,000 $ 7,269,000 $ 6,618,000 $ 6,337,000
=========== =========== =========== ============
Reorganization items $ -- $ -- $ -- $ (1,000,000)
=========== =========== =========== ============
(Loss) gain on foreclosure or
sale of investments, net $ (7,000) $ (499,00$ -- $ 322,000
=========== =========== =========== ============
Loss before extraordinary item $ (829,000) $(1,653,000) $(1,554,000) $(11,295,000)
=========== =========== =========== ============
Net loss $ (761,000) $(1,327,000) $(1,296,000) $(11,349,000)(5)
=========== =========== =========== ============
Net loss attributable to Common Shares
of Beneficial Interest(6) $(1,357,000) $(1,947,000) $(1,944,000) $(12,016,000)
=========== =========== =========== ============
Loss per Common Share of Beneficial
Interest before extraordinary item $ (0.29) $ (0.47) $ (0.45) $ (2.45)
Extraordinary item per Common Share
of Beneficial Interest 0.01 0.07 0.05 (0.01)
----------- ----------- ----------- ------------
Net loss pershare attributable to
Common Shares of Beneficial Interest $ (0.28) $ (0.40) $ (0.40) $ (2.46)
=========== =========== =========== ============
</TABLE>
(1) Includes ($1,685,000) of valuation losses.
(2) Includes ($559,000) of valuation losses.
(3) Includes ($1,184,000) of valuation losses.
(4) Includes ($850,000) of valuation losses.
(5) Includes ($9,526,000) of valuation losses.
(6) Includes net loss plus the effects of Preferred Stock dividends, discounts
on Preferred Stock dividends, and the accretion of discounts on Preferred
Stock dividends.
61
<PAGE> 65
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
16. Fair Value of Financial Instruments
In 1994, the Trust adopted Statement of Financial Accounting Standards
No. 107, "Disclosure About Fair Value of Financial Instruments" (SFAS 107). SFAS
107 requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Trust.
The estimated fair value of the Trust's financial instruments including
cash, notes receivable, and rents, accrued interest, and other receivables at
December 31, 1996 is approximately the same as their carrying amounts. It is not
practicable to determine the fair value of Peregrine's Preferred Stock with a
face value of $26,265,000 at December 31, 1996, due to the unusual nature of the
instrument. It is not practical to determine the fair value of the Trust's
long-term notes payable collateralized by deeds of trust on rental properties,
Peregrine's Senior Lender Group Notes Payable, or Peregrine's Line of Credit
with face values of $32,263,000, $44,467,000, and $8,583,000, respectively at
December 31, 1996, due to the Trust's financial condition at December 31, 1996.
17. Stock Option Plan
During the Transition Period, Peregrine adopted a stock option plan
(the "Stock Option Plan") which provides the members of the Board of Trustees an
opportunity to purchase Common Shares of Beneficial Interest. The aggregate
number of Common Shares of Beneficial Interest which may be issued upon exercise
of all options granted under the Stock Option Plan shall not exceed 150,000. At
December 31, 1996, 1995, and 1994, options for the purchase of 80,000, 53,332,
and 26,664 shares, respectively, were outstanding under the Stock Option Plan,
all of which were exercisable. In February 1997, options for the purchase of
6,666 shares were issued by Peregrine to Roger D. Snell, upon the commencement
of his services as a Trustee.
Under the terms of the Stock Option Plan, options may be granted to members of
the Board of Trustees who are not full time employees or officers of Peregrine
or any subsidiary of Peregrine. The option price granted under the Stock Option
Plan shall be the greater of (1) the fair market value of the Common Shares of
Beneficial Interest on the Effective Date, October 7, 1994, or (2) two dollars.
Each option which has been granted to date under the Stock Option Plan has been
granted at an exercise price of two dollars per share. On the Effective Date,
each participant was granted an initial option to purchase 6,667 Common Shares
of Beneficial Interest. Thereafter, each participant whose commencement of
services is after the Effective Date shall be granted an initial option to
purchase 6,666 Common Shares of Beneficial Interest as of the date of
62
<PAGE> 66
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
17. Stock Option Plan, continued
the participant's commencement of service. Each participant shall also be
granted additional options to purchase 6,667 Common Shares of Beneficial
Interest on each of the next two anniversaries of the grant date of the initial
option. No options were exercised during 1996, 1995 or during the Transition
Period. Under the terms of the Stock Option Plan, options expire on the tenth
anniversary of their grant date. The weighted average remaining contractual life
of options under grant at December 31, 1996, was approximately nine years.
The Plan of Reorganization provides that Peregrine, at the discretion
of the Board of Trustees, may adopt a stock option plan under which management
may be granted options exercisable into a maximum of five percent of the Common
Shares of Beneficial Interest, on a fully diluted basis. No such plan has been
adopted.
18. Income Taxes
The income tax effect of temporary differences between financial and
income tax reporting that give rise to a significant portion of the deferred
income tax assets under the provision of SFAS 109 is as follows:
<TABLE>
<CAPTION>
Transition
1996 1995 Period
------------ ------------ ------------
<S> <C> <C> <C>
NOL carryforward $ 29,956,000 $ 26,760,000 $ 26,813,000
Fixed assets 17,474,000 20,254,000 21,688,000
Investments 15,555,000 18,429,000 17,661,000
Notes receivable 32,000 248,000 232,000
Capital loss carryforward 10,684,000 6,067,000 3,962,000
Other 272,000 832,000 918,000
----------- ----------- -----------
73,973,000 72,590,000 71,274,000
Less valuation allowance
(Note 1 to consolidated
financial statements) (73,973,000) (72,590,000) (71,274,000)
----------- ----------- -----------
Net $ -- $ - $ --
=========== =========== ===========
</TABLE>
63
<PAGE> 67
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Income Taxes, continued
At December 31, 1996, the Trust had tax net operating loss
carryforwards ("NOL's") which may be applied against future taxable income and
which expire as follows:
<TABLE>
<CAPTION>
Year Federal California
---- ------- ----------
<S> <C> <C>
1997 $ 655,000 $ 313,000
1998 655,000 313,000
1999 655,000 313,000
2000 655,000 9,199,000
2001 -- 6,942,000
2002 -- 11,092,000
2003 -- 8,196,000
2006 5,874,000 --
2007 30,012,000 --
2008 16,387,000 --
2010 13,574,000 --
2011 13,391,000 --
----------- -----------
$81,858,000 $36,368,000
=========== ===========
</TABLE>
As required by SOP 90-7, any future benefit realized from NOL's which
arose before the Effective Date of the Plan will be reported as a direct
addition to paid-in capital.
The Trust's alternative minimum tax operating loss carryforwards are
substantially the same as its NOL's at December 31, 1996
19. Reorganization Items
For the year ending December 31, 1996, reorganization income represents
the accrual of a receivable related to professional fees in connection with the
bankruptcy proceedings.
For the year ending December 31, 1995, reorganization expense
represents an additional accrual to of professional fees related to the
Bankruptcy to adjust the amount previously recorded to the total estimated
amount due.
20. Extraordinary Item, Forgiveness of Debt
Peregrine benefited from a forgiveness of debt related to the
extinguishment of certain debt related to the bankruptcy proceedings of $187,000
and $598,000, in 1996 and 1995, respectively.
64
<PAGE> 68
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
21. Fresh Start Balance Sheet of The Peregrine Real Estate Trust
(Peregrine Only)
The effect of the Plan of Reorganization on The Peregrine Real
Estate Trust's (formerly Commonwealth Equity Trust) balance sheet as of
October 7, 1994, is as follows:
<TABLE>
<CAPTION>
The Peregrine
Adjustments to Record Real Estate
Confirmation of Plan Trust's
--------------------------------------------- Reorganized
Pre- Debt Exchange Fresh Balance Sheet,
Confirmation(1) Discharge(2) of Stock(3) Start(4) October 7, 1994
------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments:
Rental properties, net $ 91,823,000 $ -- $ -- $ 5,036,000 $ 96,859,000
Investment in CalREIT 21,196,000 -- -- -- 21,196,000
Other Investments 6,449,000 -- -- -- 6,449,000
------------- ----------- ------------ ------------ ------------
119,468,000 -- -- 5,036,000 124,504,000
Cash 2,833,000 -- -- -- 2,833,000
Other assets 2,612,000 -- -- 833,000 3,445,000
------------- ----------- ------------ ------------ ------------
Total assets $ 124,913,000 $ -- $ -- $ 5,869,000 $130,782,000
============= =========== =========== ============ ============
Liabilities and Shareholders' Equity (Deficit):
Liabilities:
Liabilities subject to compromise:
Liabilities subject to compromise $ 123,340,000 $(74,402,000) $ -- $(48,938,000) $ --
Due to CalREIT, subject to compromise 623,000 (121,000) -- (502,000) --
------------- ----------- ------------ ------------ ------------
Total liabilities subject to compromise 123,963,000 (74,523,000) -- (49,440,000) --
------------- ----------- ------------ ------------ ------------
Liabilities not subject to compromise:
Long-term notes payable, collateralized
by deeds of trust on rental properties -- -- -- 39,573,000 39,573,000
Senior Lender Group Notes Payable -- 40,000,000 -- -- 40,000,000
Post petition accounts payable and
accrued expenses 14,149,000 (7,142,000) 238,000 10,318,000 17,563,000
------------- ----------- ------------ ------------ ------------
Total liabilities not subject to compromise 14,149,000 32,858,000 238,000 49,891,000 97,136,000
------------- ----------- ------------ ------------ ------------
138,112,000 (41,665,000) 238,000 451,000 97,136,000
------------- ----------- ------------ ------------ ------------
Redeemable Convertible Preferred Stock -- 20,307,000 -- -- 20,307,000
Common Shares of Beneficial Interest -
pre-reorganization 25,093,000 -- (25,093,000) -- --
Common Shares of Beneficial Interest -
post-reorganization -- 6,963,000 6,376,000 -- 13,339,000
Additional paid-in capital 219,848,000 -- 18,479,000 (238,327,000) --
Accumulated deficit (258,140,000) 14,395,000 -- 243,745,000 --
------------- ----------- ------------ ------------ ------------
Total liabilities and shareholders' equity $ 124,913,000 $ -- $ -- $ 5,869,000 $130,782,000
============= =========== =========== ============ ============
</TABLE>
65
<PAGE> 69
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
21. Fresh Start Balance Sheet of The Peregrine Real Estate Trust (Peregrine
Only), continued
(1) Amounts as reported as of September 30, 1994, the Trust's
previous fiscal year-end.
Operations from October 1, 1994 through October 6, 1994, prior
to the application of fresh start accounting and prior to the
Effective Date, are described in Note 17 to consolidated
financial statements.
(2) Adjustments to record settlement amounts on pre-petition
Lender Group debt and unsecured liabilities, and resulting net
forgiveness of debt.
(3) Represents amounts exchanged with holders of
pre-reorganization Common Shares of Beneficial Interest.
(4) Adjustments of accounts to reorganization value, and
reclassifications of certain amounts from liabilities subject
to compromise to various post-reorganization uncompromised
liabilities.
22. Selected Pre-Reorganization Financial Data
Selected financial data during the period from October 1, 1994 through
October 6, 1994, which was prior to the Effective Date and prior to application
of fresh start accounting, is as follows:
- - Loss before extraordinary item and minority interest was not material
and has been included in the Consolidated Statement of Operations for
the Transition Period ended December 31, 1994.
- - Extraordinary items amounted to $19,813,000, and included $14,395,000
and $5,418,000 and related to accounting adjustments for forgiveness of
debt and fresh start adjustments of accounts to reorganization value,
respectively ($0.79 per pre-reorganization share).
- - Net income was $19,813,000 ($0.79 per pre-reorganization share).
- - Cash flows were not material and have been included in the Consolidated
Statement of Cash Flows for the Transition Period ended December 31,
1994.
23. Subsequent Events
On January 3, 1997, Peregrine sold its 76% stock ownership interest in
CalREIT for $20,222,000 or approximately $2.91 per share of CalREIT previously
held by Peregrine to a third party, CalREIT Investors Limited Partnership, which
resulted in the recognition of a gain of $1,012,000 during the first quarter of
1997. In accordance with the terms of the Senior Lender Group Note Agreement,
$15,631,000 was distributed to the Senior Lender Group. The distribution of the
net proceeds from the sale of CalREIT was applied first to the unpaid accrued
interest of $53,000; the balance of the distribution was applied towards the
outstanding debt
66
<PAGE> 70
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
23. Subsequent Events, continued
reducing the balance from $44,467,000 to $28,889,000. The remainder of the net
proceeds, $4,591,000 is available to Peregrine for operating and capital
improvement needs.
Despite improvements in occupancy levels, the Trust's office building
located at 3900 Lennane Drive in Sacramento, California, continued to be vacant
during 1996. The Trust continued its efforts to sell the property and/or
restructure the debt during 1996, however, the Trust has been unable to sell the
property and the lender refused to restructure the debt to a manageable level.
In February 1997, after consent from both the Senior Lender Group and Foothill
Capital Corporation (the lender on the Line of Credit), Peregrine ceased debt
service payments. In March 1997, Peregrine was notified that the lender has
initiated foreclosure proceedings against the note. The unpaid balance of the
note at the time of default was approximately $2,493,000, of which approximately
$2,380,000 is subject to recourse. The carrying value of the property which
collateralizes the note was $1,895,000 at December 31, 1996.
During 1996, emphasis remained on completing the refurbishments
necessary to comply with Holiday Inn standards, however, due to Capital
Constraints, Peregrine was only able to complete $1,200,000 of the required
$3,000,000 in refurbishments. As a result of not completing the required
refurbishments within the time frame specified by Holiday Inn, Peregrine
received a 30-day notice of default under the Holiday Inn License Agreements
(the "Notice of Default") for its Chico and Sacramento hotels in February 1997.
The terms of the Notice of Default require that Peregrine complete the
refurbishment work within 30 days or the License Agreements with Holiday Inn
will be terminated and the hotels will be removed from the Holiday Inn system.
Management has negotiated with Holiday Inn and has obtained a 30-day extension
of time to April 15, 1997 in which to review the required. Should the
refurbishment plan not meet Holiday Inn's requirements, or Holiday Inn decide
not to grant an extension of time in which to complete the refurbishemtns, the
License Agreements could be terminated on or after April 15, 1997. However,
management believes that it will be able to develop an action plan that is
acceptable to Holiday Inn and obtain an extension of time in which to complete
the required refurbishments. As a result of the sale of its 76% ownership
interest in CalREIT on January 3, 1997, Peregrine believes it has the necessary
resources to complete the required refurbishments and plans to proceed. In the
event that management is unable to reach an agreement with Holiday Inn and the
License Agreements are terminated, Peregrine could be subject to termination
fees estimated at approximately $500,000 and $800,000 for Chico and Sacramento,
respectively. In addition, under the terms of its Line of Credit Agreement, the
loss of the Holiday Inn License Agreements could constitute an event of default
unless Peregrine is able to replace the Holiday Inn License Agreements with
comparable license agreements within 180 days from the date on which the Holiday
Inn License Agreements are terminated. The loss of the Holiday Inn License
Agreements could also constitute an event of default under the terms of the
Senior Lender Note Agreement.
In February 1997, a majority of the holders of Peregrine's Preferred
Stock exercised their rights under the Preferred Stock Agreement and elected
Roger D. Snell as the fifth member to the Board of Trustees (the "Preferred
Designee"), filling the vacancy created when Frank A. Morrow resigned in
February 1996. In accordance with the Stock Option Plan, Mr. Snell was granted
options to purchase 6,666 Common Shares of Beneficial Interest upon commencement
of his services.
67
<PAGE> 71
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
68
<PAGE> 72
PART III
Item 10. Trustees and Executive Officers of the Registrant
(a) Executive Officers. See "Executive Officer of the Registrant," in
Part I of this report.
(a) Trustees. The Restated Declaration of Trust provides that, so long
as any Preferred Shares are outstanding, Peregrine is to be managed by a Board
of five Trustees, four of whom are to be elected by the holders of Common Shares
of Beneficial Interest, and one of whom is to be elected by holders of Preferred
Shares. At the time of the reorganization, five Trustees were designated, but
due to the resignation of Frank A. Morrow in February 1996, the Board was
composed of four Trustees for the remainder of 1996. In February 1997, the
holders of the Preferred Shares elected Roger D. Snell as the fifth Trustee. At
the next annual shareholders meeting the holders of the Common Shares of
Beneficial Interest will have the right to elect four Trustees, to serve until
the next annual shareholders meeting or until their successors are elected and
qualified.
The following table sets forth certain information as of March 15,
1997, with respect to the Trustees of Peregrine:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John McMahan 59 Chairman of the Board of Trustees
John F. Salmon 51 Secretary and Trustee
E. Lawrence Hill, Jr. 46 Trustee
Kenneth T. Seeger 47 Trustee
Roger D. Snell 41 Trustee
</TABLE>
There are no arrangements or understandings between any Trustee and any other
person pursuant to which the Trustee was selected as a Trustee except with
respect to Mr. Snell, who was selected by the holders of the Preferred Shares as
the Preferred Designee, as permitted in the Plan and the Restated Declaration of
Trust. There are no family relationships among any of the Trustees. Mr. McMahan
served on the Board of Trustees of CalREIT during 1996, and resigned on January
3, 1997, when Peregrine sold its 76% stock ownership interest in CalREIT.
69
<PAGE> 73
The principal occupations and affiliations of the Trustees are as follows:
John McMahan, Chairman of the Board. Mr. McMahan has served as a
Trustee and Chairman of the Board of Peregrine since September 1994. Mr. McMahan
is President of the McMahan Group, a San Francisco-based real estate management
firm founded in 1994. Between 1990 and 1994, Mr. McMahan served as the Chief
Executive Officer of Mellon/McMahan Real Estate Advisors, Inc., which grew into
one of the country's largest real estate investment advisors. Mr. McMahan also
served as a Vice President of Booz, Allen & Hamilton, Inc., a management
consulting firm from 1970 to 1973. He is a faculty member at the Haas Graduate
School of Business at the University of California at Berkeley. Mr. McMahan has
published many articles on real estate investment and has been active in
several national real estate organizations, including the National Association
of Real Estate Investment Trusts. Mr. McMahan graduated from the University of
Southern California and received an MBA degree in 1961 from the Harvard
Graduate School of Business. He serves on the board of BRE Properties, Inc.,
has served on the board of California Real Estate Investment Trust, and has
been chairman of The National Association of Real Estate Investment Managers.
John F. Salmon, Secretary and Trustee. Mr. Salmon, has served as a
Trustee since September 1994, and has served as Secretary since January 1996,
and has been a San Francisco-based commercial real estate consultant since
1994. From 1989 to 1994, he served in Sacramento as Director of the Governor's
Office of Asset Management of the State of California. While in that position,
he established procedures for reviewing the state's sizable real estate
holdings, developed real property operating and disposition proposals for the
Administration and the Legislature, redirected the state's office leasing
policies and counseled state government agencies on institutional facility and
asset management strategies. Prior to joining the Governor's Office, Mr. Salmon
was the Vice President, Property Development and Sales of Santa Fe Pacific
Realty Corporation (now Catellus Development Corporation) in San Francisco.
There he managed the land planning, building development and property
disposition activities of the company's three million acre, 18-state real estate
portfolio. Mr. Salmon graduated from the University of Notre Dame in 1967 with a
BBA degree in Accounting, and received a JD degree from the University of
Illinois in 1971.
E. Lawrence Hill, Jr., Trustee. Mr. Hill, who has served as a Trustee
since September 1994, is the founder and President of Hickey & Hill, Inc., a
13-year old turnaround and workout specialty firm based in the San Francisco bay
area. Mr. Hill's firm has worked with a variety of clients including
high-technology, banking and real estate companies requiring near and/or long
term rescue. His real estate clients have included hotel, mixed-use light
industrial, residential and retail property owners. Successful turnarounds
managed by his company have used various restructuring, recapitalization and
reorganization strategies. Prior to founding his own company in 1984, Mr. Hill
was a Vice President with the Bank of California in its Workout and
Restructuring Department. In this capacity, for more than five years, he managed
approximately one-third of the bank's non-performing assets implementing
appropriate hold/sell plans for each property. Mr. Hill received a BS degree and
an MS degree in engineering from Stanford University in 1974. He currently
serves as interim Chief Executive Officer of Carlos Murphy's, Inc.
Kenneth T. Seeger, Trustee. Mr. Seeger, who has served as a Trustee
since September 1994, has been the president of The Presidio Group, Inc., TPG
Management, Inc., and Residences, Inc., all of which are real estate asset
management and development companies based in the San Francisco Bay Area, since
1994. Between August 1985 and November 1993, Mr. Seeger was responsible for all
finance and acquisition activities for Southwest Diversified/Coscan Partners, a
major Irvine-based development company. His real estate development projects
have included both residential and commercial properties throughout California
and in Arizona. Prior to that, from 1979 to 1985, Mr. Seeger was a Senior Vice
President with The Fox Group
70
<PAGE> 74
of Companies where he was responsible for all project financing and a member
of that firm's Investment Advisory Committee. He also has had considerable
experience in risk management, income-property operations and new business
development. Mr. Seeger graduated from the Wharton School at the University of
Pennsylvania in 1972. He is a full member of the Urban Land Institute, is a
past member of the Pacific Rim Urban Planning and Development Council and has
served on the Advisory Board of the School of Real Estate at the University of
California at Berkeley.
Roger D. Snell, Trustee. Mr. Snell, who was approved as a Trustee in February
1997, is the founder and principal of Snell&Co, a firm focused on real estate
investments, advisory, and development. Prior to founding Snell&Co in 1996, he
was President and Chief Executive Officer of Pacific Gateway Properties, from
1992 to 1995, where he led the turnaround of this troubled company listed on the
American Stock Exchange. He was also a member of the Board of Directors and
acting Chairman. Between 1989 and 1992, Mr. Snell was a Partner with Paragon
Group, a national development company. He started Paragon's Northern California
operations, directing the development of $275 million worth of projects as well
as, the turnaround of 1.3 million square feet of properties on behalf of
institutional and private clients. Prior to joining Paragon Group, he served as
a project manager for Transpacific Development Company ("TDC"), where he
directed $100 million worth of development projects, ranging from high-rise
office to high-cube distribution. Before TDC, Mr. Snell acquired investment
properties and development opportunities for the Grosvenor Estate of England.
Mr. Snell has a BS degree in Business Administration from University of
California at Berkeley and an MBA from the Harvard Business School. He is an
active member of the Urban Land Institute and the Young Presidents Organization.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
Peregrine's Trustees and executive officers, and persons who own more than ten
percent (10%) of a registered class of its equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
certain changes in ownership of all equity securities of Peregrine.
To Peregrine's knowledge, based solely on review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended December 31, 1996, Peregrine's officers,
Trustees, and greater than ten percent shareholders complied with the applicable
Section 16(a) filing requirements.
Item 11. Executive Compensation
The following Summary Compensation Table shows compensation paid by
Peregrine from the effective date of the reorganization in 1994 until the end of
fiscal 1996 to each person serving in the capacity of Chief Executive Officer of
Peregrine during 1996. No other executive officer of Peregrine received annual
compensation in excess of $100,000 during 1996. Mr. Morrow served as Chief
Executive Officer of Peregrine through January 15, 1996, at which time his
services were terminated. Mr. McMahan served as Interim Chief Executive Officer
from the date of Mr. Morrow's termination through May 31, 1996, when Peregrine
hired Mr. Mock to fill the position.
71
<PAGE> 75
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTIOM> Long-Term
Compensation
------------
Number of
Securities
Name and Other Annual Underlying All Other
Principal Position Period Salary Bonus Compensation Options Compensation
------------------ ------ ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Mock June 1, 1996 to
Chief Executive Officer December 31, 1996 $105,000 None None None None
John McMahan January 16, 1996 to
Interim Chief Executive May 31, 1996 $67,500 None None 6,667 Shares(1) $64,000(2)
Officer 1995 None None None 6,667 Shares(1) $63,000(3)
October 7, 1994 to
December 31, 1994 None None None 6,666 Shares(1) $ 7,000(4)
Frank A. Morrow(5) January 1, 1996 through
Chief Executive Officer January 15, 1996 $192,500(6) None $212,500(7) None None
1995 $300,000 None None None None
October 7, 1994 to
December 31, 1994 $ 70,000 None None None None
</TABLE>
(1) Amount represents options granted by Peregrine.
(2) Amount represents compensation received for serving as a Trustee of
Peregrine ($34,000) and CalREIT ($30,000) during 1996.
(3) Mr. McMahan did not serve as an Executive Officer during 1995. The
amount represents compensation received for serving as a Trustee of Peregrine
($35,000) and CalREIT ($28,000) during 1995.
(4) Mr. McMahan did not serve as an Executive Officer during the Transition
Period October 7, 1994 to December 31, 1994. The amount represents compensation
received for serving as a Trustee of Peregrine during the Transition Period.
(5) Mr. Morrow was engaged at the time of the Effective Date of the Plan of
Reorganization on October 7, 1994 and his employment was terminated on January
15, 1996. Accordingly, compensation information is provided from the date of
engagement until the end of fiscal 1996.
(6) The amount includes $12,500 in salary paid by Perigrine to Mr. Morrow
for his services as Chief Executive Officer of Peregrine. The amount also
includes $180,000 in deferred compensation accrued by CalREIT during 1996 for
Mr. Morrow in connection with his services as Chief Executive Officer of
CalREIT, which was paid in March 1997.
(7) Amount represents severance pay paid by Peregrine.
Summary Table of Options Granted to Executive Officers in 1996
<TABLE>
<CAPTION>
Percent of Potential Realizable Value
Number Total Options at Assumed Annual Rates of
of Granted to Stock Price Appreciation
Securities Employees in for Option Term*
Name and Position Granted Fiscal Year Exercise Price Expiration Date 5% 10%
- ----------------- ------- ----------- -------------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
John McMahan 6,667 100% $2.00/Share October 7, 2006 None None
Interim Chief
Executive Officer
</TABLE>
* The potential realizable value of the options at an assumed 5% and 10%
appreciation rate is below the exercise price of $2.00 per share.
72
<PAGE> 76
Compensation of Trustees
During 1996, 1995, and 1994 (after the Effective Date of the Plan) each
independent Trustee (Trustees who are not full-time employees of Peregrine or
any subsidiary of Peregrine) was paid $5,000 per quarter, $1,000 for each
full-day Board of Trustees meeting attended, and $500 for each half-day meeting,
telephone meeting, or special committee meeting attended ("Normal Trustee
Fees"). In addition, each Trustee was reimbursed for out-of-pocket expenses.
Under the terms of Peregrine's Stock Option Plan, during 1996 each
independent Trustee was granted options to purchase 6,667 Common Shares of
Beneficial Interest. The exercise price in each case was $2.00 per share. These
options vest on their grant date and are exercisable at anytime during the
option period, which expires on the tenth anniversary of the option grant date.
No outstanding options were exercised under the Stock Option Plan during 1996,
1995, or 1994. Pursuant to the Stock Option Plan, Mr. Snell was granted options
to purchase 6,666 Common Shares of Beneficial Interest upon his commencement
of service in February 1997.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Joseph M. Mock currently serves as President, Chief Executive Officer,
and Principal Accounting Officer of Peregrine. Mr. Mock's employment began on
June 1, 1996, and pursuant to an employment agreement he receives a monthly
salary of $15,000. If terminated without cause prior to expiration of his
employment agreement on May 31, 1997, Mr. Mock is entitled to receive severance
pay equal to three months salary.
John McMahan served as Peregrine's Interim Chief Executive Officer from
January 16, 1996 through May 31, 1996 and received a monthly salary of $15,000
for his services.
The Chief Executive Officer of Peregrine during 1995 and the beginning
of 1996, Frank A. Morrow, was engaged at the time of the reorganization in
October 1994 pursuant to a personal services contract (the "Services Contract")
between Peregrine, Mr. Morrow, and a management company of which Mr. Morrow is a
principal. The terms of the Services Contract were approved by the Bankruptcy
Court. Pursuant to the terms of the Services Contract, Mr. Morrow received a
monthly salary of $25,000. The Services Contract was terminated by Peregrine on
January 15, 1996, and pursuant to its terms, Mr. Morrow was entitled to and
received a severance payment equal to $212,500.
73
<PAGE> 77
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 15, 1997
with respect to the beneficial ownership of the outstanding Common Shares of
Beneficial Interest and Preferred Shares by (i) all persons known by Peregrine
to own more than five percent of either class of shares, or to be a member of a
group that owns more than five percent of either class of shares, (ii) by each
officer described in the Summary Compensation Table (the "Named Executive
Officers"), and (iii) by the Trustees and Named Executive Officers as a group:
<TABLE>
<CAPTION>
Name and Address of Shares
Title of Class Beneficial Owner Beneficially Owned Percent of Class
-------------- ------------------- ------------------ ----------------
<S> <C> <C> <C>
Redeemable Convertible Pacific Mutual Life Insurance Company
Preferred Shares c/o Ronn Cornelius
700 Newport Center Drive
Newport Beach, CA 92660
3,747,682 26.6%
The Prudential Insurance Company of America
c/o Richard Greenwood
Corporate Finance Group, 9th Floor
Four Gateway Center
100 Mulberry Center
Newark, NJ 07102-4069
1,143,043 8.1%
Gateway Recovery Trust
c/o Richard Greenwood
The Prudential Insurance Company of America
Corporate Finance Group
Four Gateway Center
100 Mulberry Center
Newark, N.J. 07102-4069
2,604,639 18.5%
ORIX USA Corp.
c/o Arnold Kawano
780 Third Avenue, Floor #48
New York, NY 10017 562,153 4.0%
Weyerhaeuser Company Master Retirement
Trust(1)
c/o Richard Masson
Oaktree Capital Management
550 South Hope Street, Floor #22 541,353 3.8%
Los Angeles, CA 90071
</TABLE>
74
<PAGE> 78
<TABLE>
<CAPTION>
Name and Address of Shares
Title of Class Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C> <C>
Redeemable Convertible TCW Special Credits Fund IV(1)
Preferred Shares c/o Richard Masson
Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 1,744,358 12.4%
TCW Special Credits Plus Fund(1)
c/o Richard Masson
Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 1,864,660 13.3%
TCW Special Credits Trust IV(1)
c/o Richard Masson
Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 1,503,758 10.7%
TCW Special Credits Trust IVA(1)
c/o Richard Masson
Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 360,902 2.6%
---------- -----
Total 14,072,548 100.0%
========== =====
</TABLE>
(1) Shares held by Sanwa Bank in the street name Salkeld & Co.
75
<PAGE> 79
<TABLE>
<CAPTION>
Name and Address of Shares
Title of Class Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C> <C>
Common Shares of Beneficial Pacific Mutual Life Insurance Company
Interest c/o Ronn Cornelius
700 Newport Center Drive
Newport Beach, CA 92660
681,913 13.9%
The Prudential Insurance Company
of America
c/o Richard Greenwood
Corporate Finance Group, 9th Floor
Four Gateway Center
100 Mulberry Center
Newark, NJ 07102-4069 207,983 4.2%
Gateway Recovery Trust
c/o Richard Greenwood
The Prudential Insurance Company of America
Corporate Finance Group
Four Gateway Center
100 Mulberry Center
Newark, N.J. 07102-4069
473,929 9.7%
ORIX USA Corp.
c/o Arnold Kawano
780 Third Avenue, Floor #48
New York, NY 10017 102,287 2.1%
Weyerhaeuser Company Master
Retirement Trust
Richard Masson
c/o Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 98,502 2.0%
TCW Special Credits Plus Fund
Richard Masson
c/o Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 339,286 6.9%
TCW Special Credits Fund IV
Richard Masson
c/o Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 317,396 6.5%
</TABLE>
76
<PAGE> 80
<TABLE>
<CAPTION>
Name and Address of Shares
Title of Class Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C> <C>
Common Shares of Beneficial TCW Special Credits Trust IV
Interest Richard Masson
c/o Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 273,618 5.6%
TCW Special Credits Fund IVA
Richard Masson
c/o Oaktree Capital Management
550 South Hope Street, Floor #22
Los Angeles, CA 90071 65,668 1.3%
John McMahan 20,000 (1) *
John F. Salmon 20,000 (1) *
E. Lawrence Hill, Jr. 20,000 (1) *
Kenneth T. Seeger 20,000 (1) *
Roger D. Snell 6,666 (2) *
Named Officers and Trustees as a Group 86,666 (3) 1.7%
(7 persons)
</TABLE>
* Less than 1%.
(1) Includes options to purchase of 20,000 Common Shares of Beneficial
Interest held by the respective Trustee, all of which are immediately
exercisable.
(2) Includes options to purchase 6,666 Common Shares of Beneficial Interest
held by Mr. Snell, all of which are immediately exercisable.
(3) Includes options to purchase 86,666 Common Shares of Beneficial Interest,
all of which are immediately exercisable.
No other Named Executive Officers directly or beneficially own Common Shares of
Beneficial Interest.
77
<PAGE> 81
Item 13. Certain Relationships and Related Transactions
As a result of the termination of Frank A. Morrow as Peregrine's Chief
Executive Officer in January 1996, Peregrine utilized the services of certain of
its independent Trustees in connection with its analysis of alternative
operating strategies, asset dispositions, and day-to-day management activities.
In connection with the consulting services performed, the following amounts were
paid to such Trustees (or affiliated companies) during 1996, in addition to
Normal Trustee Fees:
<TABLE>
<S> <C>
The McMahan Group (John McMahan, Trustee) $69,000
John F. Salmon, Trustee $49,000
The Presidio Group (Kenneth T. Seeger, Trustee) $41,000
Snell&Co (Roger D. Snell, Trustee) $10,000
</TABLE>
During 1996, CalREIT paid $140,000 in compensation to one of its
independent Trustees, Elliot G. Steinberg, in connection with CalREIT's
strategic growth activities.
78
<PAGE> 82
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
<S> <C> <C>
Included in Part II of this report:
Report of Independent Accountants 26-27
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29-30
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Shareholders' Equity (Deficit) Accounts
Attributable to Common Shares of Beneficial Interest 31-33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35-67
(a) (2) Consolidated Financial Statement Schedules and Exhibits Filed
Schedule III Real Estate and Accumulated Depreciation 81-85
Schedule IV Mortgage Loans on Real Estate 86-87
</TABLE>
The statements and schedules referred to above should be read in conjunction
with the consolidated financial statements with notes thereto included in Part
II of this Form 10-K. Schedules not included in this item have been omitted
because they are not applicable or because the required information is
presented in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
Peregrine filed a Current Report on Form 8-K on September 30, 1996, reporting
under Item 5 of such Form, the execution of a Stock Purchase Agreement with MDC
REIT Holdings, L.L.C. for the sale of Peregrine's 76% stock ownership interest
in the California Real Estate Investment Trust.
Peregrine filed a Current Report on Form 8-K on January 17, 1997, reporting
under Item 2 of such Form, the execution and consummation of a Stock Purchase
Agreement with CalREIT Investors Limited Partnership for the sale of Peregrine's
76% stock ownership interest in the California Real Estate Investment Trust,
which occurred on January 3, 1997.
79
<PAGE> 83
(c) Exhibits
Exhibit
Number Description
3.1(a) Restated Declaration of Trust of the Peregrine Real Estate
Trust(1)
3.1(b) Bylaws of the Peregrine Real Estate Trust(1)
10.1 Second Amended and Restated Note Agreement dated September 27,
1994, by and among Commonwealth Equity Trust, the Noteholders
named therein, and The Prudential Insurance Company of America
as Agent for the Noteholders(1)
10.2 Loan and Security Agreement dated October 6, 1994, between
Commonwealth Equity Trust and Foothill Capital Corporation(1)
10.3 Redeemable Convertible Preferred Stock Purchase Agreement dated
as of October 1, 1994, by and among the Peregrine Real Estate
Trust, Pacific Mutual Life Insurance Company, The Prudential
Insurance Company of America, PRUCO Life Insurance Company,
ORIX USA Corporation, Weyerhaeuser Company Master Retirement
Trust, TCW Special Credits Fund IV, TCW Special Credits Plus
Fund, TCW Special Credits Trust IV, and TCW Special Credits
Trust IVA(1)
10.4 Registration Rights Agreement dated as of October 1, 1994, by
and among The Peregrine Real Estate Trust, Pacific Mutual
Insurance Company, The Prudental Insurance Company of America,
PRUCO Life Insurance Company, ORIX USA Corporation,
Weyerhaeuser Company Master Retirement Trust, TCW Special
Credits Fund IV, TCW Special Credits Plus Fund, TCW Special
Credits Trust IV, and TCW Special Credits Trust IVA(1)
10.5 Services and Confidentiality Agreement dated October 1, 1994,
between commonwealth Equity Trust and FAMA Management, Inc.(1)
10.6 Third Amended Plan of Reorganization of Commonwealth Equity
Trust(2)
10.7 Stock Purchase Agreement, dated as of January 3, 1997, by and
between The Peregrine Real Estate Trust and CalREIT Investors
Limited Partnership(3)
10.8 Form of Indemnification Agreement(4)
10.9 The Peregrine Real Estate Trust Trustee Stock Option Plan
10.10 Employment Agreement between The Peregrine Real Estate Trust
and Joseph M. Mock, dated June 1, 1996
10.11 First Amendment to Employment Agreement between The Peregrine
Real Estate Trust and Joseph M. Mock, dated December 1, 1996
27 Financial Data Schedule
(1) Incorporated herein by reference to Peregrine's Report on Form 8-K
dated October 7, 1994.
(2) Incorporated herein by reference to Peregrine's Report on Form 8-K
dated August 25, 1994.
(3) Incorporated herein by reference to Peregrine's Report on Form 8-K
dated January 17, 1997.
(4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
period ended September 30, 1996.
80
<PAGE> 84
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 Page 1 Part A
<TABLE>
<CAPTION>
Column A Column B Column C Column D
- ------------------------------------- ------------------------------------------------------------------------------------------
Cost Capitalization and
Write-Downs Subsequent
..Initial Cost to Trust.. ..to Acquisition..
Buildings,
Improvements
and Personal Carrying
Description Encumbrances Land Property Improvements(1) Cost
<S> <C> <C> <C> <C> <C>
RETAIL SHOPPING CENTERS:
Regency Plaza, Sacramento, California $ 8,846,000 $4,200,000 $ 7,056,000 $(150,000) $ -
University Village, Sacramento, California 7,715,000 877,000 6,142,000 886,000 -
TGIF Sunrise Hills, Citrus Heights, California - 450,000 1,125,000 (39,000) -
Sunrise Hills, Citrus Heights, California 4,325,000 2,316,000 3,192,000 413,000 -
* Totem Square, Kirkland, Washington 4,283,000 3,175,000 5,793,000 (1,598,000) -
* Fulton Square, Sacramento, California - Leased 3,536,000 (2,321,000) -
------------- ---------- ----------- ----------- -----
Total Retail Shopping Centers 25,169,000 11,018,000 26,844,000 (2,809,000) -
------------- ---------- ----------- ----------- -----
OFFICE BUILDINGS:
One Sunrise Park, Rancho Cordova, California - 356,000 1,092,000 351,000 -
16th and K Streets, Sacramento, California - 388,000 2,677,000 62,000 -
Town Center Garden Office Park, Signal Hill, California - 1,293,000 3,313,000 (1,000) -
Hurley Ethan Office Park I, Sacramento, California 1,312,000 410,000 1,237,000 470,000 -
Hurley Ethan Office Park II, Sacramento, California 2,401,000 827,000 1,391,000 460,000 -
3900 Lennane Drive, Sacramento, California 2,495,000 427,000 1,530,000 (48,000) -
------------- ---------- ----------- ----------- -----
Total Office Buildings 6,208,000 3,701,000 11,240,000 1,294,000 -
------------- ---------- ----------- ----------- -----
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California - 567,000 1,739,000 561,000 -
11167 Trade Center Drive, Rancho Cordova, California - 402,000 567,000 14,000 -
Parkway Center, El Dorado Hills, California - 233,000 1,048,000 202,000 -
Mallory Service Building, Walnut Creek, California - 852,000 154,000 11,000 -
Commerce Street, Corona, California - 132,000 267,000 - -
Consumer Circle, Corona, California - 128,000 258,000 - -
Pomona Road, Corona, California - 309,000 657,000 - -
------------- ---------- ----------- ----------- -----
Total Industrial Buildings - 2,623,000 4,690,000 788,000 -
------------- ---------- ----------- ----------- -----
</TABLE>
(Continued)
81
<PAGE> 85
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 Page 2 Part A
<TABLE>
<CAPTION>
Column A Column B Column C
- --------------------------------------------------------------------------------- -------------------
...Initial Cost to Trust.
Buildings,
Improvements
and Personal
Description Encumbrances Land Property
<S> <C> <C> <C>
MINI-STORAGE FACILITIES:
Burbank Mini-Warehouse, Santa Rosa, California - 475,000 980,000
Downtown Mini Storage, Sacramento, California - Leased 1,340,000
-------------- ---------- ----------
Total Mini-Storage Facilities - 475,000 2,320,000
-------------- ---------- ----------
LAND:
Florin Perkins, Sacramento, California - 30,000 -
-------------- ---------- ----------
Total Land - 30,000 -
-------------- ---------- ----------
HOTELS:
Chico Holiday Inn, Chico, California - 480,000 4,337,000
Sacramento Holiday Inn, Sacramento, California - 2,297,000 5,719,000
Walnut Creek Holiday Inn, Walnut Creek, California - 1,099,000 1,812,000
-------------- ---------- ----------
Total Hotels - 3,876,000 11,868,000
-------------- ---------- ----------
Total Investment in Real Estate $31,377,000 $21,723,000 $56,962,000
============= =========== ===========
PARTNERSHIPS:
CR Properties, Sacramento, California $ - $ - $ -
============= =========== ===========
Total Investment in Partnerships - - $ -
============= =========== ===========
Total Investment in Real Estate and Partnerships $31,377,000 $21,723,000 $56,962,000
============= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column D
-------------------------------------------------
Cost Capitalization and
Write-Downs Subsequent
....to Acquisition....
Improvements (1) Carrying Cost
<S> <C> <C>
MINI-STORAGE FACILITIES:
Burbank Mini-Warehouse, Santa Rosa, California 24,000 -
Downtown Mini Storage, Sacramento, California (11,000) -
---------- ------
Total Mini-Storage Facilities 13,000 -
---------- ------
LAND:
Florin Perkins, Sacramento, California - -
---------- ------
Total Land - -
---------- ------
HOTELS:
Chico Holiday Inn, Chico, California (1,618,000) -
Sacramento Holiday Inn, Sacramento, California 2,239,000 -
Walnut Creek Holiday Inn, Walnut Creek, California 806,000 -
---------- ------
Total Hotels 1,427,000 -
---------- ------
Total Investment in Real Estate $ 713,000 $ -
========== ======
PARTNERSHIPS:
CR Properties, Sacramento, California $ - $ -
========== ======
Total Investment in Partnerships $ - $ -
========== ======
Total Investment in Real Estate and Partnerships $ 713,000 $ -
========== ======
</TABLE>
82
<PAGE> 86
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 Page 1 Part B
<TABLE>
<CAPTION>
Column A Column E
- ------------------------------------------------------------------- -------------------------------------------------
Gross Amount at Which
............Carried at Close of Period........
Buildings and
Description Land Improvements Total (2)
----------- ---- ------------ ---------
<S> <C> <C> <C>
RETAIL SHOPPING CENTERS:
Regency Plaza, Sacramento, California $4,200,000 $ 6,906,000 $11,106,000
University Village, Sacramento, California 877,000 7,028,000 7,905,000
TGIF Sunrise Hills, Citrus Heights, California 450,000 1,086,000 1,536,000
Sunrise Hills, Citrus Heights, California 2,316,000 3,605,000 5,921,000
* Totem Square, Kirkland, Washington 3,175,000 4,195,000 7,370,000
* Fulton Square, Sacramento, California Leased 1,215,000 1,215,000
---------- ----------- ----------
Total Retail Shopping Centers 1,018,000 24,035,000 35,053,000
---------- ----------- ----------
OFFICE BUILDINGS:
One Sunrise Park, Rancho Cordova, California 356,000 1,443,000 1,799,000
16th and K Streets, Sacramento, California 388,000 2,739,000 3,127,000
Town Center Garden Office Park, Signal Hill, California 1,293,000 3,312,000 4,605,000
Hurley Ethan Office Park I, Sacramento, California 410,000 1,707,000 2,117,000
Hurley Ethan Office Park II, Sacramento, California 827,000 1,851,000 2,678,000
3900 Lennane Drive, Sacramento, California 427,000 1,482,000 1,909,000
---------- ----------- ----------
Total Office Buildings 3,701,000 12,534,000 16,235,000
---------- ----------- ----------
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 567,000 2,300,000 2,867,000
11167 Trade Center Drive, Rancho Cordova, California 402,000 581,000 983,000
Parkway Center, El Dorado Hills, California 233,000 1,250,000 1,483,000
Mallory Service Building, Walnut Creek, California 852,000 165,000 1,017,000
Commerce Street, Corona, California 132,000 267,000 399,000
Consumer Circle, Corona, California 128,000 258,000 386,000
Pomona Road, Corona, California 309,000 657,000 966,000
---------- ----------- ----------
Total Industrial Buildings 2,623,000 5,478,000 8,101,000
---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
--------------- ------------- ----------- --------------
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation (3) Construction Acquired Computed
----------- ---------------- ------------ -------- --------
<S> <C> <C> <C> <C>
RETAIL SHOPPING CENTERS:
Regency Plaza, Sacramento, California $ - 1986 5/85 31 Years
University Village, Sacramento, California 21,000 1975 12/86 32 Years
TGIF Sunrise Hills, Citrus Heights, California 35,000 1984 1/87 32 Years
Sunrise Hills, Citrus Heights, California 139,000 1981 1/89 34 Years
* Totem Square, Kirkland, Washington - 1981 11/90 40 Years
* Fulton Square, Sacramento, California - 1980 5/91 40 Years
---------
Total Retail Shopping Centers 195,000
---------
OFFICE BUILDINGS:
One Sunrise Park, Rancho Cordova, California 103,000 1982 8/83 24 Years
16th and K Streets, Sacramento, California 90,000 1987 8/87 33 Years
Town Center Garden Office Park, Signal Hill, California 130,000 1983 12/87 33 Years
Hurley Ethan Office Park I, Sacramento, California - 1978 4/88 34 Years
Hurley Ethan Office Park II, Sacramento, California 137,000 1981 6/88 34 Years
3900 Lenane Drive, Sacramento, California 14,000 1984 5/88 34 Years
---------
Total Office Buildings 474,000
---------
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 195,000 1984 5/88 34 Years
11167 Trade Center Drive, Rancho Cordova, California 23,000 1984 5/88 34 Years
Parkway Center, El Dorado Hills, California 80,000 1985 1/88 33 Years
Mallory Service Building, Walnut Creek, California 5,000 1970 10/88 34 Years
Commerce Street, Corona, California 3,000 1982 9/96 30 Years
Consumer Circle, Corona, California 3,000 1981 9/96 30 Years
Pomona Road, Corona, California 7,000 1981 9/96 30 Years
---------
Total Industrial Buildings 316,000
---------
</TABLE>
(Continued)
83
<PAGE> 87
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996 Page 2 Part B
<TABLE>
<CAPTION>
Column A Column E
- ----------------------------------------------------------------------------------------------------------------
Gross Amount at Which
.................Carried at Close of Period....................
Buildings and
Description Land Improvements Total (2)
- ----------- ---- ------------ ---------
<S> <C> <C> <C>
MINI-STORAGE FACILITIES:
Burbank Mini-Warehouse,
Santa Rosa, California 475,000 1,004,000 1,479,000
Downtown Mini Storage,
Sacramento, California Leased 1,329,000 1,329,000
------------- ------------- -------------
Total Mini-Storage Facilities 475,000 2,333,000 2,808,000
------------- ------------- -------------
LAND:
Florin Perkins,
Sacramento, California 30,000 - 30,000
------------- ------------- -------------
Total Land 30,000 - 30,000
------------- ------------- -------------
HOTELS:
Chico Holiday Inn, Chico,
california 480,000 2,719,000 3,199,000
Sacramento Holiday Inn,
Sacramento, California 2,297,000 7,958,000 10,255,000
Walnut Creek Holiday Inn,
Walnut Creek, California 1,099,000 2,618,000 3,717,000
------------- ------------- -------------
Total Hotels 3,876,000 13,295,000 17,171,000
------------- ------------- -------------
Total Investment in Real Estate $ 21,723,000 $ 57,675,000 $ 79,398,000
============= ============= =============
PARTNERSHIPS:
CR Properties,
Sacramento, California $ - $ - $ -
------------- ------------- -------------
Total Investment in
Partnerships $ - $ - $ -
============= ============= =============
Total Investment in Real Estate
and Partnerships $ 21,723,000 $ 57,675,000 $ 79,398,000
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
------------------- ------------- -------------- --------------
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation (3) Construction Acquired Computed
- ----------- ------------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
MINI-STORAGE FACILITIES:
Burbank Mini-Warehouse,
Santa Rosa, California 42,000 1984 4/85 30 Years
Downtown Mini Storage,
Sacramento, California 44,000 1980 3/88 33 Years
----------
Total Mini-Storage Facilities 86,000
----------
LAND:
Florin Perkins,
Sacramento, California - n/a 6/91 n/a
----------
Total Land -
----------
HOTELS:
Chico Holiday Inn, Chico,
California 305,000 1972/1979 9/86 32 Years
Sacramento Holiday Inn,
Sacramento, California 432,000 1978 9/86 32 Years
Walnut Creek Holiday Inn,
Walnut Creek, California 178,000 1987 3/85 33 Years
----------
Total Hotels 915,000
----------
Total Investment in Real Estate $1,986,000
==========
PARTNERSHIPS:
CR Properties,
Sacramento, California $ -
----------
Total Investment in
Partnerships $ -
==========
Total Investment in Real Estate
and Partnerships $1,986,000
==========
</TABLE>
(1) The Trust records impairment losses which represent the excess of the
carrying value of individual properties over their estimated fair
value. Various external factors, particularly the lack of credit
available to purchasers of real estate and overbuilt real estate
markets have adversely affected real estate and necessitated the
adjustments. Improvements are shown net of impairment losses recognized
to date.
(2) Represents total cost of assets after impairment losses recognized to
date.
(3) The Trust adopted the provisions of SFAS 121 on January 1, 1996. At
that date all recorded valuation losses and accumulated depreciation
were combined with the cost of the assets; the resulting amount is
accounted for as the new cost of the asset which is being depreciated
over its new estimated useful life.
* Denotes properties owned by CalREIT.
84
<PAGE> 88
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliation of total real estate carrying values for the year ended December
31, 1996 and 1995, and the Transition Period are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ ----------
<S> <C> <C> <C>
ASSET RECONCILIATION:
Balance, beginning of period $100,501,000 $114,579,000 $142,183,000
Fresh start adjustment - - (24,691,000)
------------ ------------ ------------
Adjusted balance, beginning of period 100,501,000 114,579,000 117,492,000
Additions:
Fair market value of assets acquired through
foreclosure 1,751,000 - -
Improvements 2,514,000 2,465,000 181,000
Reclassification from other assets 7,000 - -
Deductions:
Real estate sold (12,920,000) (6,476,000) (3,025,000)
Foreclosures/insubstance foreclosures (3,181,000) (2,967,000) -
Valuation losses (2,888,000) (7,100,000) (69,000)
SFAS 121 adjustments (1) (6,386,000) - -
------------ ------------ ------------
Balance, end of period $ 79,398,000 $100,501,000 $114,579,000
============= ============ ============
ACCUMULATED DEPRECIATION
RECONCILIATION:
Balance, beginning of period $ 6,001,000 $ 2,812,000 $ 31,746,000
Fresh start adjustment - - (29,728,000)
------------- ------------ ------------
Adjusted beginning balance 6,001,000 2,812,000 2,018,000
Additions:
Depreciation 2,439,000 3,292,000 807,000
Deductions:
Accumulated depreciation on
real estate sold (68,000) (103,000) (13,000)
SFAS 121 adjustments (1) (6,386,000) - -
------------- ------------ ------------
Balance, end of period $ 1,986,000 $ 6,001,000 $ 2,812,000
============= ============ ============
</TABLE>
(1) The Trust adopted the provisions of SFAS 121 on January 1, 1996. At
that date all recorded valuation losses and accumulated depreciation
were combined with the cost of the assets; the resulting amount is
accounted for as the new cost of the asset.
85
<PAGE> 89
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by
Deeds of Trust)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------- -------- --------
Final
Interest Maturity
Description Rate Date Periodic Payment Terms
-------------- ---------- -------- ----------------------
<S> <C> <C>
FIRST DEEDS OF TRUST:
Office/Retail Building, Fullerton,
California 9.50% 2004 Monthly principal and interest
payments of $3,713
* Retail Building, Tempe,
Arizona 9.50% 2012 Monthly principal and interest
payments of $9,249
SECOND DEEDS OF TRUST:
Industrial Building, Corona,
California 11.00% 1993 Monthly interest only payments
Commercial Office Building,
San Francisco, California 11.50% 1996 Monthly interest only payments
* Commercial Building, Tempe,
Arizona 8.00% 2000 Monthly 4% interest only payments
* Office/Retail Complex, Fountain 50% of excess cash flows applied to
Valley, California 7.63% 2014 interest and then principal
</TABLE>
<TABLE>
<CAPTION>
Column E Column F Column G Column H
-------- -------- ------------------------------- ------------------
Valuation Write Carrying Principal Amount of
Face Amount Downs and Amount of Loans Subject to
Prior of Notes Deferred Notes Delinquent Principal
Liens Receivable Gains(2) Receivable(1) or Interest
-------- ---------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Office/Retail Building, Fullerton,
California N/A $ 415,000 $80,000 $335,000 None
* Retail Building, Tempe,
Arizona N/A 889,000 - 889,000 None
SECOND DEEDS OF TRUST:
Industrial Building, Corona,
California $1,293,000 275,000 275,000 - $ 275,000
Commercial Office Building,
San Francisco, California 2,660,000 385,000 - 385,000 385,000
* Commercial Building, Tempe,
Arizona 913,000 360,000 239,000 121,000 None
* Office/Retail Complex, Fountain
Valley, California 6,623,000 6,454,000 5,888,000 566,000 None
---------------------------------------------------------------------------------
$11,489,000 $8,778,000 $6,482,000 $2,296,000 $ 660,000
=================================================================================
</TABLE>
(1) Represents carrying amount of notes after valuation allowance and
deferred gains.
(2) The Trust establishes allowances for possible investment losses which
represent the excess of the face amount of the note over the estimated
fair value of the property collateralizing the note. In addition,
deferred gains have been recorded against notes receivable when
required under SFAS 66 (Note 1). Such write downs in no way limit the
obligation of the borrower to comply with the terms of the note.
* Denotes mortgages owned by CalREIT.
86
<PAGE> 90
THE PEREGRINE REAL ESTATE TRUST AND SUBSIDIARY
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
A summary of activity for note receivable collateralized by deeds of trust for
the years ended December 31, 1996 and 1995, and the Transition Period are as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Transition
1996 1995 Period
------------ ------------ ----------
<S> <C> <C> <C>
Balance, beginning of period $ 14,627,000 $ 16,914,000 $ 15,804,000
Additions:
New loans - 2,240,000 1,319,000
Recognition of deferred gain 55,000 66,000 12,000
Deductions:
Collections of principal (54,000) (2,030,000) (86,000)
Collections of principal from prepayments (2,240,000) - -
Book value of notes receivable sold (8,892,000) - -
Book value of notes receivable foreclosed upon (1,200,000) - -
Deductions from loss on prepayment
of notes receivable - (137,000) -
Deductions from valuation losses
and deferred gains on notes receivable - (2,426,000) (135,000)
------------ ------------ ------------
Balance, end of period $ 2,296,000 $ 14,627,000 $ 16,914,000
============ ============ ============
</TABLE>
87
<PAGE> 91
Signatures
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 31, 1997 /s/ Joseph M. Mock
- ------------- --------------------------
Date Joseph M. Mock
President, Chief Executive Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities and 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.
March 31, 1997 /s/ John McMahan
- -------------- --------------------------
Date John McMahan
Chairman of the Board
March 31, 1997 /s/ John F. Salmon
- -------------- --------------------------
Date John F. Salmon
Secretary and Trustee
March 31, 1997 /s/ E. Lawrence Hill, Jr.
- -------------- --------------------------
Date E. Lawrence Hill, Jr.
Trustee
March 31, 1997 /s/ Kenneth T. Seeger
- -------------- --------------------------
Date Kenneth T. Seeger
Trustee
March 31, 1997 /s/ Roger D. Snell
- -------------- --------------------------
Date Roger D. Snell
Trustee
88
<PAGE> 1
EXHIBIT 10.9
THE PEREGRINE REAL ESTATE TRUST
TRUSTEE STOCK OPTION PLAN, 1994
1. PURPOSE
The purpose of this The Peregrine Real Estate Trust Trustee Stock Option
Plan, 1994 is to promote the interests of PRET and its shareholders by
providing additional incentive to the members of PRET's Board of Trustees whose
judgment, initiative and efforts contribute to PRET's successful operation. By
encouraging ownership of its Common Stock, PRET seeks to motivate eligible
members of the Board by giving them an increased proprietary interest in PRET
and its success. This Plan is intended to enable PRET to attract and compete
with other enterprises for the services of the best possible members of the
Board. The Plan provides eligible Board members an opportunity to purchase
shares of Common Stock pursuant to Options. Options granted pursuant to the
Plan shall not constitute "incentive stock options" within the meaning of
Section 422 of the Code.
This Plan is intended to constitute a "formula plan" and Participants are
intended to be "disinterested administrators" of other plans maintained by PRET
for purposes of Rule 16b-3 of the Exchange Act.
2. CERTAIN DEFINITIONS
The following terms used in this Plan are defined as follows:
2.1 "ADDITIONAL OPTION" means any Option other than an Initial Option.
2.2 "ADMINISTRATOR" means PRET's chief financial officer or such other
person as is appointed by the Board to serve as Administrator.
2.3 "BANKRUPTCY COURT" means the United States Bankruptcy Court, Eastern
District of California (Sacramento Division).
2.4 "BOARD" means PRET's Board of Trustees as elected and constituted
from time to time.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
2.6 "COMMENCEMENT OF SERVICE" means the date of election of each
Participant to his or her first term as a Trustee.
2.7 "COMMON STOCK" means PRET's common stock.
<PAGE> 2
2.8 "EFFECTIVE DATE" means the date on which this Plan becomes effective
pursuant to Section 8.1 hereof.
2.9 "EFFECTIVE DATE OF REORGANIZATION" means the date on which PRET's
Third Amended Plan of Reorganization, as Modified, becomes effective, i.e.
October 1, 1994, pursuant to the order of the Bankruptcy Court.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as now in
effect or hereafter amended.
2.11 "EXERCISE PRICE" means the Option Price multiplied by the number of
shares of Common Stock purchased pursuant to exercise of an Option.
2.12 "EXPIRATION DATE" means the 10th anniversary of the Grant Date or, if
earlier, the termination of an Option pursuant to Section 6.4 or 7.2 hereof.
2.13 "FAIR MARKET VALUE" means (a) if the Common Stock is then listed on
an established stock exchange or exchanges, the last reported sales price per
share prior to the date on which an Option is granted on the principal exchange
on which the Common Stock is traded, as reported in The Wall Street Journal; or
(b) if the Common Stock is not then listed on an exchange, the average of the
last reported closing bid and asked prices per share for the Common Stock in
the over-the-counter market as quoted on NASDAQ prior to the date of grant; or
(c) if the Common Stock is not then listed on an exchange or listed on NASDAQ,
an amount determined in good faith by the Administrator.
2.14 "GRANT DATE" means the date on which an Option grant takes effect
pursuant to Section 6.2 hereof.
2.15 "INITIAL OPTION" means an Option received by a Participant as of the
Effective Date or thereafter as of a Participant's Commencement of Service.
2.16 "NON-QUALIFIED STOCK OPTION" means an Option to purchase shares of
PRET's Common Stock which is not an "incentive stock option" as defined in
Section 422A of the Code.
2.17 "OPTION" or "OPTIONS" means a Non-Qualified Stock Option or Options
granted pursuant to this Plan.
2.18 "OPTION AGREEMENT" means the written Stock Option Agreement which
evidences the terms and conditions of each Option granted to a Participant.
2.19 "OPTION PERIOD" means the period during which an Option may be
exercised as defined in Section 6.3 hereof.
2
<PAGE> 3
2.20 "OPTION PRICE" means the purchase price for each share of Common Stock
subject to an Option.
2.21 "PARTICIPANT" means a member of PRET's Board of Trustees who is not a
full-time employee or officer of PRET or any subsidiary of PRET, and therefor
is eligible pursuant to Article 5 hereof to receive Options under this Plan.
2.22 "PERMANENT DISABILITY" or "PERMANENTLY DISABLED" means a physical or
mental impairment as defined in Section 22(e)(3) of the Code.
2.23 "PLAN" means this The Peregrine Real Estate Trust Trustee Stock
Option Plan, 1994.
2.24 "PRET" means The Peregrine Real Estate Trust, a California real
estate investment trust, formerly known as Commonwealth Equity Trust.
2.25 "SECURITIES ACT" means the Securities Act of 1933, as now in effect
or hereafter amended.
2.26 "TRUSTEE" means each member of the Board.
3. ADMINISTRATION
This Plan shall be administered by the Administrator. The Administrator's
responsibilities under this Plan shall be limited to taking all legal actions
necessary to document the Options provided for herein, to maintain appropriate
records and reports regarding such Options, and to take all acts authorized or
required by this Plan.
4. SHARES OF STOCK SUBJECT TO THE PLAN
The stock available for grant of Options under this Plan shall be shares
of PRET's authorized but unissued Common Stock. Subject to adjustment as
provided in Article 7 hereof, the aggregate number of shares of Common Stock
which may be issued upon the exercise of all Options granted under this Plan
shall not exceed one hundred fifty thousand (150,000) shares of Common Stock.
If any Option granted under this Plan expires or terminates for any reason, the
unpurchased or unissued shares subject to such expired or terminated Option
shall again be available for the grant of Options under this Plan, as if no
Option previously had been granted with respect to such shares.
5. ELIGIBILITY
Eligibility under the Plan is limited to members of PRET's Board of
Trustees who are not full-time employees or officers of PRET or any subsidiary
of PRET.
3
<PAGE> 4
6. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
6.1 Option Price. The Option Price of the Common Stock covered by each
Option granted under this Plan shall be the greater of (1) the fair market
value of the Common Stock on the Effective Date, or (2) Two Dollars ($2.00) per
share.
6.2 Number of Shares and Grant Dates. On the Effective Date, each
Participant shall be granted an Initial Option to purchase 6,666 shares of
Common Stock. Thereafter, each Participant whose Commencement of Services is
after the Plan Effective Date shall be granted an Initial Option to Purchase
6,666 shares of Common Stock as of the date of the Participant's Commencement
of Service. Each Participant shall also be granted Additional Options to
purchase 6,667 shares of Common Stock on each of the next two anniversaries of
the Grant Date of the Initial Option. The Initial Options and the Additional
Options shall be vested upon their respective Grant Dates.
6.3 Option Periods. An Option shall be exercisable only during the
Option Period. Each Option Period shall commence on the Grant Date and shall
end at the close of business on the Expiration Date. Each Option granted to a
Participant will terminate on the earlier of (i) the date on which a
Participant ceases to be a Participant, subject to the provisions of Section
6.4, or, (i) the Expiration Date.
6.4 Disability or Death. If a Participant dies or becomes Permanently
Disabled while he or she is a Participant, any Option or unexercised portion
thereof granted to such Participant, to the extend exercisable by such
Participant on the date of death or Permanent Disability, may be exercised by
the Participant, or if the Participant is then deceased, by the Participant's
personal representative, heirs, or legatees, at any time prior to the
expiration of one (1) year from the date on which the Participant ceases to be
a Participant, at which time any such Option or Options shall expire and
terminate.
6.5 Exercise of Option. Subject to the provisions of this Article 6, the
Participant may, at any time, exercise an Option with respect to all or any
part o the shares of Common Stock then subject to such Option by giving PRET
written notice of exercise, specifying the number of shares as to which the
Option is being exercised. Such notice shall be addressed to the Administrator
at PRET's principal office, and shall be effective when actually received (by
personal delivery, fax or other delivery) by the Administrator. Such notice
shall be accompanied by an amount equal to the Exercise Price of such shares,
in the form of any one or combination of the following: cash or cash
equivalents, or shares of Common Stock valued at the Fair Market Value of such
shares. Shares of Common Stock acquired by the Participant through exercise of
an Option may be surrendered in payment of the Exercise Price of Options;
provided, however, that any Common Stock surrendered in payment must have been
(a) held by the Participant for more than six (6) months at the time of
surrender or (b) acquired under an Option granted not less than six (6) months
prior to the time of surrender. Payment in full of the Exercise Price need not
accompany the written notice of
4
<PAGE> 5
exercise if the notice directs that the stock certificate or certificates for
the shares for which the Option is exercised be delivered to a licensed broker
acceptable to PRET as the agent for the individual exercising the Option and, at
the time such stock certificate or certificates are delivered, the broker
tenders cash (or cash equivalent acceptable to PRET) equal to the Exercise Price
to PRET.
6.6 No Stockholder Rights Under Option. Neither a Participant nor any
person entitled to exercise a Participant's rights in the event of a
Participant's death shall have any of the rights of a stockholder with respect
to the shares of Common Stock subject to an Option unless and until the
certificates for such shares have been issued by PRET upon the exercise of the
Option.
6.7 Continuation of Service. Nothing in this Plan shall confer upon any
person any right to continue as a Trustee or interfere in any way with PRET's
right to terminate such relationship.
6.8 Withholding. PRET shall have the right to withhold, or require a
Participant to remit to PRET, an amount sufficient to satisfy any applicable
federal, state or local withholding tax requirement imposed with respect to
exercise of the Option or Options. To the extent permissible under applicable
tax, securities and other laws, the Participant may satisfy a tax withholding
requirement by directing PRET to apply shares of Common Stock to which the
Participant is entitled as a result of the exercise of an Option to satisfy
withholding requirements under this Section 6.8.
6.9 Fractional Shares. PRET shall not be required to issue fractional
shares upon the exercise of an Option under any circumstances.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR REORGANIZATION OF PRET
7.1 Adjustment Upon Changes in Capitalization. If the number of issued
and outstanding shares of Common Stock of PRET changes as a result of a stock
split, reverse stock split, payment of a stock dividend, recapitalization, or
any other change in the capital structure of PRET, PRET may appropriately
adjust (a) the maximum number of shares which may be issued under this Plan,
(b) the number of shares subject to each outstanding Option, and (c) the price
per share of each Option (but not the total price thereof), so that upon
exercise of the Option the Participant will receive the same number of shares he
or she would have received had the Participant been the holder of all shares
subject to his or her outstanding Options immediately before the effective date
of such change in the number of issued shares of PRET's Common Stock. Such
adjustment shall not result in the issuance of fractional shares.
7.2 Adjustment Upon Reorganization. In the event of a complete
liquidation of PRET, or a merger, reorganization or consolidation of PRET with
any other corporation in which PRET is not the surviving corporation, or PRET
becomes a wholly-owned subsidiary of another corporation, any unexercised
Option theretofore granted under this Plan shall be
5
<PAGE> 6
deemed cancelled unless the surviving corporation in any such merger,
reorganization or consolidation elects to assume the Options under the Plan or
to issue substitute Options in place thereof; provided, however, that
notwithstanding the foregoing, if such Options otherwise were to be cancelled
in accordance with the foregoing, each Participant shall have the right,
exercisable during a thirty (30) day period, ending on the fifth day prior to
such liquidation, merger, or consolidation, to exercise the Participant's
Options in whole or in part.
7.3 Authority to Adjust; Effect of Adjustments. The foregoing
adjustments may be made by PRET and transacted by the Administrator. The grant
of an Option pursuant to this Plan shall not affect in any way the right or
power of PRET to make adjustments, reclassifications, reorganizations or
changes in its capital structure; to merge, consolidate or dissolve to change
its business structure; or to liquidate, sell or transfer all or any part of
its business or assets.
8. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION.
8.1 Adoption. This Plan shall be effective as of the date on which
PRET's Restated Declaration of Trust is recorded in the official records of
Sacramento County. The Board may seek shareholder approval of this Plan if it
deems it necessary.
8.2 Amendment. Subject to the limitation of Section 8.4 below, the Board
may at any time suspend or terminate this Plan, or may amend it from time to
time in such respects as the Board may deem advisable; provided, however, that
the Board shall not amend this Plan in the following respects without the
approval of shareholders then sufficient to approve this Plan in the first
instance; (a) to materially increase the benefits provided hereunder; (b) to
increase the maximum number of shares which may be granted; (c) to change the
designation or class of persons eligible to receive Options under this Plan.
8.3 Suspension or Termination of Plan. No Option may be granted during
any suspension or after the termination of this Plan, and no amendment,
suspension or termination of this Plan shall, without the Participant's
consent, alter or impair any rights or obligations under any Option Agreement
previously entered into under this Plan. This Plan shall terminate ten (10)
years after the Effective Date unless previously terminated pursuant to Section
7.2 above or by the Board pursuant to this Article 8.
8.4 Restriction on Amendment. Notwithstanding the provisions of Section
8.2 above, this Plan shall not be amended more than once in any six (6) month
period other than to comport with the changes in the Code, the Employee
Retirement Income Security Act of 1974, or the rules promulgated thereunder.
9. SECURITIES LAWS
9.1 Compliance with Securities Laws. The granting of Options and the
issuance of shares upon exercise thereof shall be subject to compliance with
all of the applicable
6
<PAGE> 7
requirements of Federal and State laws with respect to the issuance and sale of
Securities, including without limitation, compliance with the requirements of
the Securities Act of 1933, as amended, and any rules and regulations adopted
thereunder. At the time of exercise of any Option, PRET will require the
Participant to execute any documents or take any action which may be then
necessary to comply with the Securities Act of 1933 and the rules and
regulations adopted thereunder, or any other applicable Federal or State laws
for the purpose of regulating the sale and issuance of securities, and PRET may,
if it deems it necessary, include provisions in any Option Agreement to ensure
such compliance. PRET may, from time to time, change its requirements with
respect to enforcing compliance with Federal and State securities laws,
including the request for, and enforcement of, letters of investment intent,
such requirements to be determined by PRET in its judgment as necessary to
ensure compliance with said laws. These changes may be made with respect to any
particular Option or shares issued upon the exercise thereof prior to or after
the exercise of such Option. PRET shall not be obligated to issue any shares
upon the exercise of any Option unless such issuance, in the judgment of the
board, is in full compliance with all applicable laws, governmental rules and
regulations.
9.2 Exemption. The intent of this Plan is to qualify for the exemption
provided for by Rule 16b-3 under the Exchange Act. To the extent any provision
of this Plan does not comply with the requirements of Rule 16b-3, it shall be
deemed inoperative and shall not affect the validity of this Plan. In the
event Rule 16b-3 is revised or replaced, the Administrator may exercise
discretion in modifying this Plan in any respect necessary to satisfy the
requirements of the revised exemption or its replacement.
10. INDEMNIFICATION.
10.1 Indemnification of Administrator. To the extent permitted by
applicable law, the Administrator shall be indemnified and held harmless by
PRET against and from any and all costs, laws, liabilities or expenses that may
be imposed upon or reasonably incurred by the Administrator in connection with
or resulting from any claim, action, suit or proceeding to which the
Administrator may be a party or in which the Administrator may be involved by
reason of any action taken or failure to act under this Plan, and against and
from any and all amounts paid by the Administrator (with PRET's written
approval) and the settlement thereof, or paid by the Administrator in
satisfaction of a judgment in any such action, suit or proceeding except a
judgment in favor of PRET; subject, however, to the conditions upon the
institution of any claim, action, suit or proceeding against the Administrator,
that the Administrator shall give PRET an opportunity in writing, at its own
expense, to handle and defend the same before the Administrator undertakes to
handle and defend it on the Administrator's own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which the
Administrator may be entitled as a matter of law or otherwise, or any other
power PRET may have to indemnify the Administrator or hold the Administrator
harmless.
10.2 No Liability. The Administrator and each officer and employee of
PRET shall be fully justified in reasonably relying or acting upon any
information furnished in connection
7
<PAGE> 8
with the administration of this Plan by PRET or any employee of PRET. In no
event shall any person who is or shall have been the Administrator, or an
officer or employee of PRET, be liable for any determination made or other
action taken or any omission to act in reliance upon any such information, or
for any information (including furnishing of information) taken or any failure
to act, if in good faith.
8
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of June 1, 1996 by and between THE PEREGRINE REAL ESTATE TRUST ("Company"), and
JOSEPH M. MOCK ("Executive").
WHEREAS, Executive has extensive experience in the management of
commercial real estate and has been an executive manager of one or more real
estate trusts.
WHEREAS, Company is a California real estate trust.
WHEREAS, Company desires to employ Executive, and Executive desires to
be employed by Company, on the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
1. Term. The "Term" of Executive's employment shall commence on June 1,
1996 and shall terminate pursuant to Section 7 of this Agreement.
2. Duties. Executive shall be employed by Company as its President and
Chief Executive Officer. Executive shall report to the Company's Board of
Trustees (the "Board") and perform the duties specified in the job description
attached hereto as Exhibit A, together with such other duties, consistent with
duties customarily assigned a President and Chief Executive Officer, that the
Board may from time to time direct. Executive shall devote Executive's full
business time and best efforts to Company and to the performance of Executive's
employment duties under this Agreement. Executive shall be based in Company's
offices in Sacramento, California. During the Term, Executive shall not,
except for management of Executive's personal financial affairs, engage in any
other business, nor serve in any position with any other corporation or entity,
without the prior written consent of the Board.
3. Salary. During the Term, Executive shall receive a salary of Fifteen
Thousand Dollars ($15,000) per month ("Salary"). Salary shall be paid twice
monthly on Company's customary payroll dates.
4. Benefits. During the Term, Executive shall be entitled to receive
insurance and such other benefits as are generally provided by Company to its
executive employees. Executive shall accrue vacation at the rate of one and
one half (1 1/2) days per month of employment, commencing June 1, 1996.
<PAGE> 2
5. Expenses. During the Term, Company shall pay or reimburse Executive
for reasonable expenses incurred by Executive in performing Executive's duties
under this Agreement in accordance with Company policy. Expenses for travel
from Executive's home to Company's offices in Sacramento, and Executive's
lodging expenses in Sacramento, shall not be reimbursable.
6. Taxes; Withholdings. All compensation payable by Company to
Executive under this Agreement which is or may become subject to withholding
under the Internal Revenue Code of 1986, as amended, or other pertinent laws or
regulations, shall be reduced for all applicable income and employment taxes
required to be withheld.
7. Termination of Employment.
7.1 Termination by Either Party Without Cause. Executive's
employment may be terminated at any time, with or without cause, during the
Term by either Executive or Company, by notice delivered to the other party.
In the event of termination by Company, termination shall be effective upon the
date specified in a notice delivered to Executive. In the event of termination
by Executive, termination shall be effective upon the date specified in a
notice delivered to Company at least one month prior to such date; provided,
that Company, upon receipt of notice from Executive, may elect to terminate
Executive's employment at an earlier time.
7.2 Termination by Company for Good Cause. Notwithstanding any
other provision of this Agreement, Company may terminate Executive's employment
at any time, with or without prior notice, for Good Cause. Termination for
Good Cause shall be effective upon the date specified in a notice of
termination delivered to Executive. "Good Cause" means (a) any act or omission
of gross negligence, willful misconduct, dishonesty, or fraud by Executive in
the performance of Executive's duties hereunder, (b) the failure or refusal of
Executive, after the receipt of written notice by Executive, to perform the
duties or to render the services assigned to Executive from time to time by the
Board, (c) the charging or indictment of Executive in connection with a felony
or any misdemeanor involving dishonesty or moral turpitude, (d) the material
breach by Executive of this Agreement or the breach of Executive's fiduciary
duty or duty of trust to Company, or (e) any other act or omission by Executive
either in disregard of Company's policies or conduct which may, in the Board's
sole discretion, cause material loss, damage or injury to Company, its property,
reputation or employees.
7.3 Termination Upon Death or Disability. Executive's
employment shall automatically be terminated upon Executive's death or total
disability.
8. Compensation Upon Termination.
8.1 Upon Termination Without Cause. In the event of
termination by Company pursuant to Section 7.1 of this Agreement, Executive
shall receive Salary through the period ending on the later of (a) the date of
termination specified in Company's termination notice, (b) the date which is
one month after the date of delivery of Company's termination
2
<PAGE> 3
notice or (c) August 31, 1996. In the event of termination by Executive
pursuant to Section 7.1 of this Agreement, Executive shall receive Salary
through the period ending on the date which is one month after the date of
delivery of Executive's termination notice, whether or not Company elects to
continue Executive's employment through that period.
8.2 Upon Termination With Good Cause or Upon Death or
Disability. In the event of termination of Executive's employment pursuant to
either Section 7.2 or Section 7.3 of this Agreement, Company shall not be
obligated, from and after the date of termination, to provide to Executive any
compensation or other benefits, except for unpaid Salary earned by Executive
for service through the date of termination.
9. Arbitration. In the event any dispute, controversy or claim arises
under this Agreement (a "Dispute"), the Dispute shall be settled by arbitration
in San Francisco, California, by an arbitration conducted in accordance with
the Rules of Commercial Arbitration of the American Arbitration Association
(the "AAA") or its successor. There shall be one arbitrator, familiar with
executive employment issues, appointed pursuant to the Rules of the AAA.
Reasonable attorneys' fees, costs, and expenses, together with expert witness
fees and costs, are to be awarded by the arbitrator to the prevailing party.
The decision of the arbitrator shall be conclusive and binding upon the
parties, and judgment upon the award rendered by the arbitrator may be entered
in any court of competent jurisdiction.
10. Miscellaneous.
10.1 All notices and any other communications permitted or required
under this Agreement must be in writing and shall be effective (a) on the first
business day after delivery in person, or (b) on the first business day after
prepaid deposit with a commercial courier or delivery service for overnight
delivery. All notices must be properly addressed and delivered to the parties
at the addresses set forth below:
If to Company:
John McMahan
The McMahan Group, Inc.
One Embarcadero Center, Suite 2930
San Francisco, CA 94111
If to Executive:
Joseph M. Mock
200 Camellia Lane
Lafayette, CA 94549
or at such other addresses as either party may subsequently designate by
written notice given in the manner provided in this Section 10.1.
3
.
<PAGE> 4
10.2 This Agreement contains the full and complete understanding of
the parties with respect to the subject matter hereof and supersedes all prior
representations, promises, agreements, and warranties, whether oral or written,
regarding such subject matter.
10.3 This Agreement shall be governed by and interpreted according to
the laws of the State of California, without regard to choice of laws
provisions.
10.4 This Agreement shall inure to the benefit of and be binding upon
any successors or assigns of Company. This Agreement shall not be assignable
by Executive.
10.5 The captions of the various sections of this Agreement are
inserted only for convenience and shall not be considered in construing this
Agreement.
10.6 This Agreement can be modified, amended, or any of its terms
waived only by a writing signed by both parties.
10.7 If any provision of this Agreement shall be held invalid,
illegal, or unenforceable, the remaining provisions of the Agreement shall
remain in full force and effect, and the invalid, illegal, or unenforceable
provision(s) shall be limited or eliminated only to the extent necessary to
remove such invalidity, illegality, or unenforceability in accordance with the
applicable law at that time.
10.8 No remedy made available to Company by any of the provisions of
this Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute, or
otherwise.
10.9 This Agreement may be executed in one or more counterparts. Any
copy of this Agreement with the original signatures of all parties approved
shall constitute an original.
10.10 Executive understands that this Agreement has been drafted by
counsel for Company, and Executive represents that he has had the opportunity to
consult independent counsel with respect to the terms of this Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.
COMPANY: THE PEREGRINE REAL ESTATE TRUST
By:____________________________
Name:__________________________
Its:___________________________
EXECUTIVE: JOSEPH M. MOCK
_______________________________
5
<PAGE> 6
Exhibit A
Executive's Job Description
Peregrine Real Estate Trust
President and Chief Executive Officer
The CEO will refine and implement Company's strategic plan as defined by
the Board. This will include (1) developing operating plans and budgets for
each property, (2) negotiating and supervising the liquidation of assets as it
becomes desirable to do so, (3) providing the internal staff with the support
and direction necessary for their success and (4) maintaining and enhancing
relationships with Company's shareholders, lender group, the bankruptcy court,
and the Sacramento community. Inherent in this responsibility is recommending
modifications to Company's strategy to the Board, when appropriate. The CEO
will be available to attend all Board meetings, at the request of the Board.
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "First Amendment")
is made and entered into as of December 1, 1996 by and between THE PEREGRINE
REAL ESTATE TRUST ("Company") and JOSEPH M. MOCK ("Executive").
WHEREAS, the Company and Executive are parties to an Employment
Agreement dated as of June 1, 1996 (the "Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as it
relates to compensation payable by the Company to Executive upon termination of
employment without cause.
NOW, THEREFORE, the parties agree as follows:
1. Section 8.1 of the Employment Agreement is hereby amended and
restated to read in its entirety as follows:
"8.1 Upon Termination Without Cause. In the event of
termination by Company pursuant to Section 7.1 of this
Agreement ("Termination by Either Party Without Cause"), the
Executive shall be entitled to receive Salary (a) through the
period ending on the date which is three months after the date
of termination specified in the Company's termination notice,
provided that such date of termination occurs on or before May
31, 1997 or (b) through the date of termination specified in
the Company's termination notice, if such date of termination
occurs after May 31, 1997. In the event of termination by
Executive pursuant to Section 7.1 of this Agreement, Executive
shall receive Salary through the effective date of such
termination."
2. As amended hereby, the Employment Agreement shall remain in
full force in effect.
<PAGE> 2
IN WITNESS WHEREOF, this First Amendment has been executed as of the
date specified in the first paragraph.
COMPANY: THE PEREGRINE REAL ESTATE TRUST
- -------
By: ______________________
Name: ______________________
Its: ______________________
EXECUTIVE: JOSEPH M. MOCK
- ---------
_______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,958
<SECURITIES> 14,115
<RECEIVABLES> 5,474
<ALLOWANCES> (1,472)
<INVENTORY> 0
<CURRENT-ASSETS> 27,314
<PP&E> 79,398
<DEPRECIATION> (1,986)
<TOTAL-ASSETS> 104,726
<CURRENT-LIABILITIES> 9,548
<BONDS> 85,313
26,265
0
<COMMON> 13,356
<OTHER-SE> (29,756)
<TOTAL-LIABILITY-AND-EQUITY> 104,726
<SALES> 0
<TOTAL-REVENUES> 27,715
<CGS> 0
<TOTAL-COSTS> (15,133)
<OTHER-EXPENSES> (8,019)
<LOSS-PROVISION> (4,278)
<INTEREST-EXPENSE> (8,177)
<INCOME-PRETAX> (7,892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 187
<CHANGES> 0
<NET-INCOME> (7,705)
<EPS-PRIMARY> (2.17)<F1>
<EPS-DILUTED> (2.17)
<FN>
<F1>COMMON SHARES OF BENEFICIAL INTEREST EQUIVALENTS WERE ANTI-DILUTIVE. THE
FIGURES PRESENTED ABOVE ARE SIMPLE EPS AND INCLUDE THE EFFECTS OF STOCK
DIVIDENDS, DISCOUNTS AND ACCRETION OF DISCOUNTS ON REDEEMABLE CONVERTIBLE
PREFERRED STOCK.
</FN>
</TABLE>
