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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-7228
THE WASHINGTON CORPORATION
(Name of Small Business Issuer in Its Charter)
Maryland 52-1157845
(State of Incorporation) (I.R.S. Employer Identification No.)
4650 East-West Highway
Bethesda, Maryland 20814
(Address of principal executive offices)
(301) 657-3640
(Issuer's telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $.01 par value per share
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The registrant's revenues for the fiscal year ended December 31, 1997 were:
$3,238,902
The Registrant has been unable to ascertain any market for the Registrant's
securities, and, therefore, the Registrant believes that the best estimate of
the market value of its voting stock held by non-affiliates is $0 at the present
time.
As of December 31, 1997, the number of shares outstanding of each class of the
registrant's classes of common stock were as follows:
1,640,327 shares of Class A Common Stock
21,476 shares of Class B Common Stock
45,119 shares of Class C Common Stock
EXHIBITS BEGIN ON PAGE 37 1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
The Washington Corporation (individually, "TWC" and together with its
affiliates that are consolidated with it for financial reporting purposes, the
"Company"), a Maryland corporation, was founded in 1979. The Company's
operations consist of the ownership of real estate, both income-producing and
unimproved, and office building management, primarily in the metropolitan
Washington, D.C. area. The Company has been pursuing a plan to divest its
non-income-producing properties and to obtain appropriate financing and a
long-term lease for its primary income-producing asset.
Recent Developments
NationsBank Note
In 1992, pursuant to its plan of reorganization, TWC entered into and
delivered to NationsBank the NationsBank Note in the original principal amount
of $500,000, with an interest rate of 9% per annum and maturity date of December
31, 1997. The remaining balance of the NationsBank Note in the amount of
$182,567 was paid in full on December 19, 1997 out of the proceeds of the Allied
Loan (see "Refinancing of the Arlington Square Loan" below). The NationsBank
Note was secured by the River Oaks property and by the proceeds of certain
capital transactions. (See "Description of Property-River Oaks").
Timberlake
TWC defaulted on the quarterly interest payment on the purchase money
mortgage ("PMM") that is secured in part by the Timberlake property. The
quarterly payments were due and payable on April 15, 1997, July 15, 1997,
October 15, 1997, January 15, 1998 and April 15, 1998 in the amount of $22,000
for each payment or an aggregate amount of $110,000. The principal amount of the
PMM is $880,000 and matured on January 15, 1998. The PMM, a loan to Nanjemoy
Associates Limited Partnership ("NALP"), wholly owned by TWC, is not guaranteed
by TWC. TWC and the holders of the PMM are discussing a restructuring of the
loan that would extend the maturity and allow TWC to accrue a portion of the
interest payments. If an agreement is not reached, the note holders could
foreclose on that portion of the property, approximately 313 acres, that is
security for the PMM. This would result in TWC losing 313 of the 361 acres of
land owned by NALP. In this event, the approved preliminary site plan would be
voided together with the various entitlements for the development of the
property. It is uncertain how the remaining 48 acres could be developed.
Refinancing of the Arlington Square Loan
TWC, directly and through an affiliate, Arlington Square, Inc., a
wholly-owned subsidiary of TWC ("ASI"), owns a 74% interest in Arlington Square
Limited Partnership ("ASLP"). ASLP owns 1.75 acres of land and an office
building constructed thereon (the "Arlington Square Project") located in
Arlington, Virginia that secures a loan (the "ASLP Loan") made by a lender (the
"Lender") to ASLP in the original principal amount of $23,000,000. The ASLP Loan
matured on November 21, 1993, but the
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maturity was subsequently extended to November 21, 1996 (the "First Loan
Extension") under the terms and conditions of a Note Modification and
Restatement Agreement (the "NMRA") and various agreements executed in connection
therewith, each dated as of December 29, 1993, between ASLP and the Lender
(collectively the "Loan Modification and Extension Agreements"). The ASLP Loan
matured on November 21, 1996, but the maturity was again extended to November
21, 1997 (the "Second Loan Extension"). In connection with the Second Loan
Extension, ASLP: (i) paid a restructuring fee of $50,979 to the Lender which was
due at the maturity of the First Loan Extension; (ii) deposited $16,000 to
establish a reserve in order to pay for anticipated costs relating to a possible
extension of the current lease (the "Refurbishing Reserve"); and (iii) incurred
approximately $52,597 in legal and other costs. Outstanding principal balances
on the ASLP Loan totaled $20,362,749 at December 31, 1996. The ASLP Loan matured
on November 21, 1997.
On November 21, 1997, the ASLP Loan was repaid with proceeds of a loan,
secured by the Arlington Square Project, from Allied Capital Commercial
Corporation ("Allied") in the original principal amount of $24,300,000 (the
"Allied Loan"). At the closing of the Allied Loan, $20,600,000 was disbursed to
(i) repay the ASLP Loan in the amount of $19,856,494; (ii) to pay for costs
associated with the Allied Loan in the amount of $243,506; and (iii) to deposit
$500,000 in an escrow account under Allied's control to be used to pay for
anticipated tenant improvements that would be required under the terms of a new
ten year lease to an agency of the U.S. Government. The interest rate on the
Allied Loan is 10% and the Allied Loan also includes a 30% participation for
Allied in the net cash flow or net sales proceeds of ASLP. See "Description of
Properties - Arlington Square Project".
Approximately 95% of the Company's revenues for fiscal year 1997 were
derived from the Arlington Square Project.
Sale of Ashton Glen
During 1997, TWC sold its 5% limited partnership interest in Ashton
Glen Associates Limited Partnership ("AGALP") which was the Company's entire
interest in AGALP. AGALP owns and operates a HUD assisted apartment complex
containing 128 garden apartment units located in Manassas, Virginia.
Election of Directors
TWC did not hold an annual or special stockholder's meeting in 1997,
and did not elect directors and 1997.
TWC's Amended and Restated Charter ("Charter") provides that the number
of directors of TWC shall be seven (7), consisting of: (i) five (5) directors
("Class A Directors") elected by the holders of TWC's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), voting separately as a class;
and (ii) two (2) directors (the "Class B and Class C Directors") elected by
holders of TWC's Class B Common Stock, par value $.01 per share (the "Class B
Common Stock"), and Class C Common Stock, par value $.01 per share (the "Class C
Common Stock"), voting together as a single class. In addition, under Maryland
Law, TWC is required to have at least three (3) directors. Under TWC's Bylaws,
two (2) directors, at least one of which is a Class A Director, constitute a
quorum for a Board of Directors meeting and the vote of a majority of the Class
A Directors participating at such meeting is necessary for TWC's Board of
Directors to act.
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On October 25, 1996 at TWC's annual stockholders meeting, William N.
Demas, formerly a Class B and Class C Director was elected as a Class A Director
and Jose Ma. C. Castro was elected as a Class B and Class C Director to fill the
position held by Mr. Demas. Jonathan C. Kinney was also re-elected as a Class B
and Class C Director.
Submission of Bid - Arlington Square
On October 17, 1997, the General Services Administration ("GSA"), an
agency of the U.S. Government, published a Solicitation for Offers ("SFO") to
lease office space in Northern Virginia for various purposes under the advanced
requisition programs. On November 7, 1997, ASLP offered to lease to GSA for a
fixed term of ten (10) years 100% of the existing office space in the Arlington
Square Building.
On February 20, 1998, ASLP submitted its Best and Final Offer ("BAFO")
to GSA. The BAFO contained the following terms: (i) a firm ten (10) year term
beginning October 1, 1998 through September 30, 2008; (ii) fixed annual rent of
$3,137,043.12 payable at the rate of $261,420.26 per month in arrears; and (iii)
should the Government and ASLP prior to June 1, 1998 enter into either a
modification to this lease, or to a separate government lease, to a ten-year
firm lease for all of the 231 available parking spaces located in the building's
garage at the annual rent of $175,000.00 payable monthly at the rate of
$14,583.33 in arrears subject to a 5% escalation per year, then ASLP agrees to
reduce the rate for this lease from $3,137,043.12 per annum to $3,066,190.90 per
annum (subject to adjustment and/or escalation as separately set forth in this
lease) for the first five years of the ten-year firm lease term for the leased
premises governed by this lease. Such ten-year firm lease term for such 231
available parking spaces shall not be either terminable, renewable, or subject
to annual government funding or appropriation.
Subsequent Activities
On or about March 4, 1998, GSA verbally notified ASLP that they intend
to award a new ten (10) year lease for the Arlington Square Building subject to
resolving some clarifications. On March 31, 1998, ASLP submitted a signed lease
to GSA for final review. As of April 20, 1998, GSA has not executed the lease.
(b) BUSINESS OF THE REGISTRANT
The Company's operations consist of the ownership of real estate, both
income-producing and unimproved land, and the management of these real estate
assets.
Ownership of Income-Producing Properties
TWC, directly and through ASI, owns a 74% interest in ASLP. ASLP owns
1.75 acres of land and an office building constructed thereon located in
Arlington, Virginia. The building is leased to an agency of the U.S. Government
under a ten year lease expiring in September of 1998. During the year ended
December 31, 1997, approximately 95% of the Company's revenues was derived from
income on the Arlington Square Project. In November 1997, the Arlington Square
Project was refinanced, and in connection therewith, TWC and its wholly-owned
subsidiary, Arlington Square, Inc., entered into a loan agreement and a guaranty
agreement with Allied. See "Description of Properties - Arlington Square
Project." In early 1998, the Company was notified that it was awarded a
long-term lease for the
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Arlington Square Project. See "Business Development - Subsequent Events."
TWC also owns a parcel of land which is leased to Fort Washington Inn
Associates ("FWIA"), a non-affiliate of the Company, until March of 2024. The
land is improved with a 222-room Holiday Inn which is owned by FWIA. TWC
receives base rent plus overage rent under the lease both of which are paid
monthly. See "Description of Properties - Fort Washington."
Ownership of Land
TWC, through wholly-owned subsidiaries, currently owns 363 acres for
future residential development in Charles County, Maryland, known as
Timberlake. TWC is currently marketing the property for sale. See
"Description of Properties - Timberlake."
Management of Real Estate
TWC manages the Arlington Square Project. TWC receives management fees
equal to 3% of monthly revenues of the Arlington Square Project. See
"Description of Properties - Arlington Square Project".
Competition
The Washington area real estate market has fully recovered from most of
the problems associated with the early 1990's, however, many market segments are
still depressed, particularly for the sale of unimproved land. The Company must
compete with other owners of real property that is now or will be for sale. The
lack of buyers and financing make the sale of real estate extremely difficult.
Management believes this condition is expected to continue for the foreseeable
future. The value of improved property, such as the Arlington Square Project,
has stabilized in recent years.
Regulatory Approvals
In the past, when the Company acquired land for development, certain
regulatory approvals and permits were required to either improve, develop, lease
or sell the property. Approval of the preliminary site plan for Timberlake from
the Charles County Planning Commission was received during 1994. Additional
county, state and federal permits will be required for a purchaser to develop
the property and the receipt of such may be a condition of any purchase
contract.
Employees
As of December 31, 1997, the Company employed five full-time persons
and one part-time person. Two of the Company's employees work at the Arlington
Square Project as the Chief Engineer and the Assistant Engineer.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's operations involve ownership of income-producing
properties and unimproved land. The Company currently owns four principal
properties and leases its corporate headquarters.
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The following table summarizes, as of December 31, 1997, the Company's
ownership interests in its four principal properties and in two properties of
secondary importance. More detailed disclosure relating to the principal
properties follows immediately after the table.
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THE WASHINGTON CORPORATION AND SUBSIDIARIES
REAL ESTATE PROPERTIES OWNED
<TABLE>
<CAPTION>
ENCUM-
BRANCES
PERCEN- INCLUDING COSTS WRITE UP/
TAGE ACCRUED LOAN CAPITALIZED (DOWN) TO NET
OWNER- INTEREST MATURITY SUBSEQUENT TO FAIR BOOK
NAME DESCRIPTION SHIP AND TAXES DATE LAND PURCHASE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arlington Square 46,481 sq. ft. of land with
Project a building of approximately
135,000 sq. ft. in
Arlington County, Va. 74% $20,774,959 12/00 2,533,038 12,352,799 3,625,120 $18,510,957(3)
Timberlake 363 acres of land zoned
for residential development
located in Charles
County, Md. (1) 100% $ 964,334 01/98 1,370,545 999,177 (466,100) $1,903,622
Ft. Washington 7.3 acres of land with a
222-room hotel located in
Ft. Washington, Pa. (2) 100% - 400,000 - - $ 400,000
River Oaks 16.6 acres of land zoned
for commercial development
located in Prince William
County, Va. 100% - 1,821,670 520,220 (2,141,890) $200,000
Winchester 23.21 acres of land zoned
for multi-family garden
apartments located in
Memphis, Tn. 100% - 100,000 - (95,000) 5,000
Port-O- 7 townhouse lots totaling
Dumfries approximately 19,436 sq. ft.
located in Dumfries, Va. 100% - 14,829 - (11,829) 3,000
</TABLE>
(1) This property is owned by an wholly owned subsidiary of TWC.
(2) The lease on this property is subordinated to a first mortgage secured by
the land and the leasehold which consists of a 222-room Holiday Inn. The
Company has no payment obligation on the loan which had a balance of $0
as of December 31, 1997.
(3) This amount reflects depreciation, deferred loan closing costs, and
deferred rental concessions.
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PROPERTIES
Arlington Square Project
TWC, directly and through a wholly-owned affiliate, owns a 74% interest
in ASLP. ASLP owns 1.75 acres of land and an office building containing 135,000
gross square feet constructed thereon located in Arlington, Virginia. The
building is 100% leased to an agency of the U.S. Government under a ten year
lease expiring in September of 1998. The terms of the lease require the tenant
to pay base rent plus its proportionate share of certain operating expense
increases. During 1997 and 1996, the Company realized rental income from such
lease amounting to approximately $3,142,000 and $3,121,000, respectively, per
year, or approximately $23.25 and $23.10, respectively, per rentable square foot
based on a BOMA standard. During 1997 and 1996, approximately 95% and 97%,
respectively, of the Company's revenues was derived from the Arlington Square
Project.
The ASLP Loan matured on November 21, 1993, but the maturity was
subsequently extended to November 21, 1996 (the "First Loan Extension") under
the terms and conditions of a Note Modification and Restatement Agreement (the
"NMRA") and various agreements executed in connection therewith, each dated as
of December 29, 1993, between ASLP and the Lender (collectively the "Loan
Modification and Extension Agreements"). The ASLP Loan matured on November 21,
1996, but the maturity was subsequently extended to November 21, 1997 (the
"Second Loan Extension"). In connection with the Second Loan Extension, ASLP:
(i) paid a restructuring fee of $50,979 to the Lender which was due at the
maturity of the First Loan Extension; (ii) deposited monthly $16,000 to
establish a reserve in order to pay for anticipated costs relating to a possible
extension of the current lease (the "Refurbishing Reserve"); and (iii) incurred
approximately $52,597 in legal and other costs. Outstanding principal balances
on the ASLP Loan totaled $20,362,749 at December 31, 1996. The ASLP Loan matured
on November 21, 1997.
On November 21, 1997, the ASLP Loan was repaid with the proceeds of the
Allied Loan, secured by the Arlington Square Project, from Allied in the
original principal amount of $24,300,000. At the closing of the Allied Loan,
pursuant to a loan agreement among Allied, ASLP, ASI, and TWC (the "Loan
Agreement"), $20,600,000 was disbursed pursuant to two promissory notes (the
"Notes"), a first lien in the amount of $19,600,000 and a second lien in the
amount of $1,000,000 (i) to repay the ASLP Loan in the amount of $19,856,454;
(ii) to pay for costs associated with the Allied Loan in the amount of $243,506;
and (iii) to deposit $500,000 in an escrow account under Allied's control to be
used to pay for anticipated tenant improvements ("T.I. Reserve") that would be
required under the terms of a new ten year lease to an agency of the U.S.
Government.
The undisbursed portion of the Allied Loan (the "Holdback") in the
amount of $3,700,000 is to be disbursed under certain conditions and only in the
event that a new ten year lease to an agency of the U. S. Government is not
awarded to ASLP and consummated. In such event, the Holdback will be used, in
part, to pay for the operating costs of the building including interest on the
Allied Loan once the U.S. Government vacates the premises. The balance of the
Holdback, together with tenant improved reserves held by ASLP (see "Escrow and
Reserve Accounts") will be used to pay for the tenant improvements, commissions
and marketing expenses associated with leasing the Arlington Square Building to
private tenants.
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Interest Payments and Amortization
The annual interest rate on the outstanding principal balance of the
Allied Loan in the amount of $20,600,000 is 10% paid monthly. The note matures
on December 1, 2000. In addition to the monthly interest, Allied will receive a
carried interest (the "Additional Interest") in the Arlington Square Building in
the amount of 30% of net cash flow and net sales proceeds. See "Additional
Interest" . There is no amortization of the principal amount of the loan and
there is no pre-payment penalties if the loan is repaid prior to maturity.
Additional Interest
Several months prior to maturity of the ASLP Loan, the lender, Fuji
Bank, informed ASLP that no further extensions would be granted. As an incentive
to provide a new loan to ASLP to repay the ASLP Loan that was due to mature on
November 21, 1997, Allied required that ASLP grant to it a participation in the
net cash flow (defined below) and in the net cash proceeds from a sale or
refinance of the Arlington Square Project. In addition to the fact that the ASLP
Loan would not be extended by Fuji Bank, the other conditions that gave rise to
this demand extend from the fact that i) the lease with the U.S. Government was
due to mature on September 30, 1998 and that the possibility existed that the
Arlington Square Building would be 100% vacant; ii) that ASLP or TWC did not
have sufficient capital to cover the operating deficits that would result from a
vacant building; and iii) that the appraisal furnished by an independent
appraiser was approximately equal to the proposed loan amount. These conditions
remained at December 31, 1997.
Beginning at the closing of the Allied Loan, Allied would receive
periodically 30% of ASLP's net cash flow which is defined in the loan agreement
as all gross receipts less i) normal operating expenses; ii) interest paid
monthly at 10% per annum; and iii) escrow payments for taxes and insurance.
Allied will also receive 30% of the equity value of the property resulting from
the sale or refinancing of the property. The equity value of the property at any
time shall be an amount equal to the fair market value of the property less
normal transaction costs, less the then outstanding principal balance of the
loan. For this purpose, the fair market value of the property shall be its gross
sales price in a bona fide arm's-length sale transaction or its appraised value
in a refinancing transaction or at the maturity date.
The Additional Interest will survive the repayment of the Allied Loan.
In the event that the U.S. Government does not execute a new ten year lease with
ASLP and the $3,700,000 Holdback is funded, then the Allied Additional Interest
will increase to 80% of net cash flow and net proceeds of a sale or refinancing.
Escrow and Reserve Accounts
The Allied Loan requires that ASLP fund an escrow account for the
purpose of paying the annual insurance premium and the semi-annual payments of
real estate taxes held by Allied by making monthly payments of $19,397. ASLP is
required to deposit $16,000 per month into a T.I. Reserve account held by Allied
for the purpose of accumulating the funds that may be required to pay for any
improvement required under the terms of a new ten year lease with the U.S.
Government.
Agreements Securing Payment of the Loan
Payment of obligations under the Allied Loan are secured by (i) the
Deeds of Trust; (ii) a certain
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Assignment of Landlord's Interest in Rents and Lease dated as of November 20,
1997; (the "Assignment of Rents") (iii) the tax and insurance escrow; and (iv)
the T.I. Reserve.
In addition, TWC, ASI and ASLP have jointly and severally guaranteed to
Allied the due and punctual payment of the Guaranteed Obligations under the Loan
Agreement and a separate Guaranty entered into in connection with the Allied
Loan. The Guaranteed Obligations include (a) any and all sums due and payable
pursuant to the Notes, provided, however, that such obligations shall arise only
in the event that any of the following shall occur: (i) ASLP's failure to comply
with provisions of the loan documents prohibiting the sale or further
encumbrance (but only in the event of an encumbrance in excess of $10,000.00 in
the aggregate) of the property; (ii) ASLP's, ASI's, or TWC's attempt to
interfere with Allied's exercise of any of its collection and/or enforcement
rights under any of the loan documents following the occurrence of an event of
default; (iii) ASLP's failure to comply with the provisions of the loan
documents prohibiting commission of waste; or (iv) a breach by ASLP of any of
the environmental provisions of the loan agreement and/or any other loan
document; and (b) any deficiency, loss, damage or expense (including reasonable
attorneys' fees) arising pursuant to either of the Notes and/or the other loan
documents which are suffered or incurred as a result of ASLP's failure to
perform its obligation to properly account to Allied for, or misapplication of,
any proceeds of insurance or condemnation proceeds, rents, security deposits or
other revenues of the property.
General Information
For federal income tax purposes at December 31, 1997, the basis of the
Arlington Square Project, including, the land, building, tenant improvements on
the project and equipment (including asset adjustments under Section 754 of the
Internal Revenue Code of 1986, as amended) are stated as follows:
<TABLE>
<CAPTION>
<S> <C>
Land $ 2,791,072
Building 19,355,790
Tenant improvements 1,588,127
Equipment 28,898
-----------
23,763,887
Less accumulated depreciation (5,722,127)
-----------
Total $18,041,760
-----------
-----------
</TABLE>
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets. Building and tenant improvements are depreciated
over 31.5 and 39 years respectively, and equipment is depreciated over seven
years. The realty tax rate on the project is .986%, and in 1997 ASLP paid an
aggregate of $210,443 in realty taxes.
Fort Washington
TWC owns a fee simple interest in a parcel of land on which a 222-room
hotel is built. The property is located in Ft. Washington, Pennsylvania.
Pursuant to a certain Lease Agreement dated March 24, 1974, TWC, as landlord, is
paid an annual minimum rent of $66,000, plus one percent of gross room sales,
but not less than $1,000 a month. The lease provides that upon termination of
the lease on March 29, 2024, the property together with all improvements thereon
shall accrue to the landlord free and clear of all liens. The Company believes
that the Fort Washington property is adequate for its present use. During 1997
and 1996, the Company recorded revenues of $102,860 and $102,779 respectively,
under the lease agreement.
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Timberlake
TWC, through wholly-owned subsidiaries, owns 363 acres for future
residential and retail development in Charles County, Maryland. The land secures
a loan with an outstanding principal balance of $880,000, and accrued unpaid
interest of $110,000, which matures on January 15, 1998. The Company defaulted
on its quarterly interest payments on this loan. See "Business Development -
Recent Developments - Timberlake." The interest rate on this loan was 10% per
annum. The Company has received a one year extension of its amended preliminary
site plan which now expires on April 5, 1999 and is marketing the property for
sale. Additional county, state and federal permits will be required to develop
the property and the receipt of such may be a condition of any purchase
contract.
River Oaks
TWC, through a wholly-owned subsidiary, owns 100% of the partnership
interests of Four Year Trail Limited Partnership. The partnership owns 16.6
acres of land located in Prince William County, Virginia, known as River Oaks.
On December 19, 1997, the Company paid off the NationsBank Note which was
secured in part by River Oaks. See "Business Development - Recent Developments -
NationsBank Note." The Company has no further obligations on this property
except for the periodic payment of real estate taxes.
Company Headquarters
TWC has an operating lease for its office space at 4650 East-West
Highway, Suite 251, Bethesda, Maryland 20814, which expires on February 28,
1999. Currently, TWC's rent obligations under the lease are $15,800 per annum.
The rent increases annually at a rate of 5%.
Competition
The real estate market in the Washington Area has fully recovered from
most of the problems associated with the early 1990's, however, many market
segments are still depressed, particularly for the sale of unimproved land. When
it attempts to sell its properties, the Company must compete with other owners
of real property that is for sale. The lack of buyers and financing makes the
sale of the Company's properties extremely difficult. The value of the Arlington
Square Project has stabilized in recent years.
Competition for tenants to lease land and office space is also very
strong, however, the Company's two principal income producing properties, the
Arlington Square Project and the Fort Washington property, as of December 31,
1997, are fully under lease to tenants until 1998 and 2024, respectively. In
early 1998, the Company was verbally notified of an award of a long-term lease
for the Arlington Square Project which will begin in September 1998. See
"Business Development - Recent Developments - Subsequent Events".
Insurance
In the opinion of management of the Company, all of the Company's
primary real estate assets are adequately covered by insurance.
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Investment Policies
No limitations exist on the percentage of the Company's assets which
may be invested in any one investment, or type of investment, although approval
by the shareholders of a majority of the outstanding shares of Class A, Class B
and Class C Common Stock, voting jointly as a class, is required before a sale
or other disposition of all or substantially all of the assets of the Company or
any material subsidiary.
Management's objective for the foreseeable future is to retain the
income-producing properties and to prepare for sale all non-income-producing
real estate assets. In the foreseeable future, the Company contemplates no new
investments in real estate, interests in real estate, real estate mortgages or
securities of or interests in entities primarily engaged in real estate
activities. In addition, during such period, the Company does not intend to
acquire other assets during such period, either primarily for possible capital
gain or primarily for income.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Under TWC's Amended and Restated Charter, filed July 30, 1992 with the
Maryland Department of Assessments and Taxation ("TWC's Charter"), TWC has three
classes of common stock: Class A Common Stock, Class B Common Stock, and Class C
Common Stock (Class A, B and C Common Stock collectively referred to herein as
the "New Common Stock"). At the present time, there is no established public
trading market for any class of the New Common Stock. As of December 31, 1997,
there were 123 record holders of the Class A Common Stock, 418 record holders of
the Class B Common Stock, and 16 record holders of the Class C Common Stock.
TWC has been unable to ascertain any market for TWC's common stock
during 1997 or 1996. Consequently, TWC does not have any information concerning
high and low bids on any class of its common stock during 1997 or 1996.
TWC has not paid any dividends or distributions on its common stock
since 1990.
Under TWC's Charter and except as may otherwise be required by law,
holders of Class A Common Stock are entitled to receive 100% of all dividends
and other distributions (the "Dividend Preference") made by TWC in respect of
its capital stock until such time as dividends and other distributions paid to
the holders of Class A Common Stock equal, in aggregate, to approximately
$5,500,000 (the "First Trigger").
Following the First Trigger, if it occurs, the holders of Class A
Common Stock are to receive approximately 98.6%, and holders of Class B Common
Stock are to receive the remaining approximate 1.4%, of all dividends and other
distributions paid in respect of TWC's capital stock until such time as the
Dividend Preference paid to the holders of Class A Common Stock equal 100% of
the Allowed Class 7 Claims (the "Second Trigger"). Until the occurrence of the
Second Trigger, if any, the holders of Class C Common Stock have no right to
receive any dividends in respect of Class C Common Stock.
In addition, under the Charter, the Class A Common Stock has an
aggregate liquidation preference in an amount equal to approximately $11,000,000
reduced (but not below zero) by the aggregate amount of dividends and other
distributions paid to the holders of the Class A Common Stock.
Under the Charter, following the Second Trigger, if it occurs, all
outstanding shares of Class A Common Stock, Class B Common Stock and Class C
Common Stock will automatically be converted into a single class of common stock
(the "Single Class Common Stock"). Upon such conversion, the holders of Class B
Common Stock and the holders of the Class C Common Stock will receive an
aggregate of 25% of the outstanding shares of the Single Class Common Stock,
such 25% to be allocated pro rata based on the number of shares of Class B
Common Stock and Class C Common Stock outstanding at the time of such
conversion. Except as otherwise provided in the Charter or required by law, upon
the occurrence of the Second Trigger: (i) shares of the Single Class Common
Stock will rank pari passu and will share equally, share for share, in any
dividends or other distributions made by TWC,
13
<PAGE>
and will be identical in all respects; and (ii) the holders of the Single Class
Common Stock will be entitled to one vote per share on all matters submitted for
shareholder vote.
Following the Second Trigger, if it occurs, TWC is required to provide
the holders of outstanding shares of Class A Common Stock, Class B Common Stock
and Class C Common Stock with a quarterly statement (which may be contained in
reports periodically filed by TWC with the Securities and Exchange Commission or
regularly provided by TWC to its shareholders) of the then-current amount of the
Dividend Preference and other distributions theretofore paid to the holders of
Class A Common Stock. As of December 31, 1997, the then-current amount of the
Dividend Preference was approximately $11,000,000. The aggregate amount of the
Dividend Preference paid to holders of the Class A Common Stock was $0.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Material Changes in Financial Condition
During the year ended December 31, 1997, the Company's total assets
were reduced by $327,000 from $22,495,000 to $22,168,000. Such decrease was
primarily the result of depreciation of operating property and equipment and the
sale of partnership interests as well as an additional valuation allowance of
$100,000 on Timberlake, offset, in part, by increases in cash and cash
equivalents and escrow deposits.
Operating property and equipment decreased by $432,000 from $18,943,000
at December 31, 1996 to $18,511,000 at December 31, 1997. Such decrease was
primarily the result of depreciation and the amortization of deferred rent
concessions on the Arlington Square Project, offset, in part, by the
capitalization of repair costs on the Arlington Square Project.
Cash and cash equivalents increased by $82,000 from $141,000 at
December 31, 1996 to $223,000 at December 31, 1997. Such increase was primarily
the result of the accrual of interest on the Timberlake Property. While the
Company is negotiating with the lender, interest is not being paid.
Escrow deposits increased by $397,000 from $172,000 at December 31,
1996 to $569,000 at December 31, 1997. Such increase was primarily the result of
periodic deposits made to the reserves on the Arlington Square Project, offset,
in part, by the use of escrow funds for costs related to the Arlington Square
Project. As a result of the Arlington Square mortgage refinancing on November
21, 1997, the reserves were increased by $252,973. These reserves are to be used
for the payment of certain capital expenditures, semi-annual payments of real
estate taxes and the annual payment of insurance as well as escrowed funds for
capital improvements. See "Description of Properties - Arlington Square
Project".
Equity in and advances to unconsolidated partnerships decreased by
$279,000 from $279,000 on December 31, 1996 to $5 on December 31, 1997. Such
decrease was the result of the sale of the equity interest in Ashton Glen.
During the year ended December 31, 1997, the Company's total
liabilities increased by $77,000 from $21,745,000 at December 31, 1996 to
$21,822,000 at December 31, 1997. Such increase was primarily the result of an
increase in note payable - Arlington Square Project and accrued interest
payable, offset, in part, by a decrease in other notes and loans payable.
14
<PAGE>
Note payable - Arlington Square Project increased by $237,000 from
$20,363,000 at December 31, 1996 to $20,600,000 at December 31, 1997. Such
increase was the result of the refinancing of the ASLP Loan on November 21,
1997.
Other notes and loans payable decreased from $1,062,000 at December 31,
1996 to $898,000 at December 31, 1997. This decrease was the result of the
payoff of the NationsBank Note, offset by a note for the purchase of an
automobile.
Accrued interest payable increased by $136,000 from $123,000 at
December 31, 1996 to $259,000 at December 31, 1997. This increase was the result
of an increase in accrued interest payable on the Timberlake Note.
Accounts payable and other liabilities decreased by $133,000 from
$198,000 at December 31, 1996 to $65,000 at December 31, 1997. Such decrease was
primarily the result of an increase in operating property income and other
income.
Results of Operations
Revenues increased by $119,000 from $3,252,000 for the year ended
December 31, 1996 to $3,371,000 for the year ended December 31, 1997. Such
increase was primarily the result of an increase in operating property income
and other income, offset, partially, by loss on sale of investments.
Operating property rental income increased by $92,000 from $3,113,000
for the year ended December 31, 1996 to $3,205,000 for the year ended December
31, 1997. This increase was the result of income the Company received from the
Arlington Square Project, which is the Company's primary source of rental
income.
Other income decreased by $12,000 from $12,000 for the year ended
December 31, 1996 to $0 for the year ended December 31, 1997. The reduction was
attributable to no additional management fees in 1997.
The equity interest in net income from partnership investments
decreased by $21,000 from $24,000 for the year ended December 31, 1996 to $3,000
for the year ended December 31, 1997. This decrease was primarily the result of
a reduction in distributions from joint ventures.
The net loss on sale of investments increased by $73,000 for the year
ended December 31, 1997 from $0 for the year ended December 31, 1996. The loss
to $73,000 was the result of the sale of a limited partnership interest in
Ashton Glen Limited Partnership.
Total expenses increased by $355,000 from $2,465,000 for the year ended
December 31, 1996 to $2,820,000 for the year ended December 31, 1997. This
increase is primarily due to a provision to reduce assets to fair market value,
an increase in general and administrative expenses and other expenses,
partially, offset, by a decrease in operating property expenses.
During 1997, the Company recorded a provision for estimated losses on
asset dispositions in the amount of $100,000. This provision was due to the
writedown to net realizable value of certain real estate and development
properties of the Company.
15
<PAGE>
Interest expense increased by $204,000 from $1,332,000 for the year
ended December 31, 1996 to $1,536,000 for the year ended December 31, 1997. This
increase was the result of a refinancing of the ASLP Note.
Operating property expenses decreased by $254,000 from $938,000 for the
year ended December 31, 1996 to $684,000 for the year ended December 31, 1997.
This decrease is due to a decrease in operating expenses relating to the
Arlington Square Project.
General and administrative expenses decreased by $32,000 from $152,000
for the year ended December 31, 1996 to $120,000 for the year ended December 31,
1997. This decrease was primarily the result of a write off of previously
accrued professional fees.
Other expenses increased by $48,000 from $43,000 for the year ended
December 31, 1996 to $91,000 for the year ended December 31, 1997. This increase
was primarily the result of an increase in consulting fees.
Net income before depreciation and amortization decreased by $235,000
to $551,000 for the year ended December 31, 1997 from $786,000 for the year
ended December 31, 1996. Such decrease was a result of an increase in total
expenses as described above, offset, in part, by an increase in revenues.
Depreciation and amortization increased by $84,000 from $870,000 for
the year ended December 31, 1996 to $954,000 for the year ended December 31,
1997. This increase was the result of an increase in depreciation on the
Arlington Square Project.
Net loss increased by $319,000 from a net loss of $84,000 for the year
ended December 31, 1996 to a net loss of $403,000 for the year ended December
31, 1997. This increase was the result of the changes in the items described
above.
Liquidity and Capital Resources: Outlook
The Company's primary sources of funds for 1997 came from rental
income, distributions the Company received from affiliated partnerships and
property management fees. As of December 31, 1997, the Company had cash and cash
equivalents and escrow deposits totaling approximately $792,000 of which
$569,000 was escrow deposits. The Company expects its primary source of funds
for 1998 to again be rents received on the Arlington Square Project.
During 1997, cash and cash equivalents increased by $82,000 as compared
to an increase of $43,000 for 1996. The increase in 1997 was primarily due to
decreased interest payments on the Timberlake Notes, a reduction in real estate
taxes and a reduction in general and administrative expenses, offset, in part,
by an increase in operating property expenses.
Future sources of funds are anticipated to come from the rents,
property management fees and distributions from affiliated partnerships.
However, distributions from affiliated partnerships are no longer a significant
portion of the Company's cash flow. The Company has tried without success to
sell its remaining assets.
TWC's agreement to manage the Arlington Square Project provides for
management fees approximating $96,000 annually. In addition, TWC receives
approximately $150,000 annually to
16
<PAGE>
reimburse TWC for certain costs and fees. See "Description of Properties -
Arlington Square Project". The continued ownership of the Arlington Square
Project is necessary to provide the Company with sufficient cash for operations.
The Company's primary use of operating funds is anticipated to be for
corporate overhead expenses, principal payments on the ASLP Note and
expenditures for the Company's Timberlake Project located in Charles County,
Maryland. The Company is currently marketing this property for sale.
The Company also no longer receives property management fees from the
management of any shopping centers. The sale of the general partnership
interests in prior years has resulted in the cancellation of these management
contracts.
The absence of such management fees will increase the Company's liquidity
problems.
On October 25, 1996 at TWC's annual stockholders meeting, William N.
Demas, formerly a Class B and Class C Director was elected as a Class A Director
and Jose Ma. C. Castro was elected as a Class B and Class C Director to fill the
position held by Mr. Demas. Jonathan C. Kinney was also re-elected as a Class B
and Class C Director. The Board of Directors, as elected during the October 25,
1996 stockholders meeting, ratified the actions of TWC taken during the period
January 20, 1994 to October 25, 1996 and approved the Second Loan Extension. See
"Business of the Registrant Recent Developments - Election of Directors".
The Company does not have a plan to address its liquidity problems
other than to continue to seek to have creditors extend the maturity of their
notes and to seek to have creditors exchange their debt on certain properties
for equity in the property securing their debt. The Company will also, to the
extent if necessary, attempt to delay payment for certain services until
properties are sold. If these attempts are not successful, the Company may be
forced to sell its remaining properties for significantly less than recorded
values and/or seek protection from its creditors under the Bankruptcy Code.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
Independent Auditor's Report 19
Consolidated Balance Sheets at December 31, 1997 and 1996 20
Consolidated Statements of Operations for the years ended
December 31, 1997 and December 31, 1996 21
Consolidated Statements of Stockholders' Equity (Deficiency 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24-30
</TABLE>
18
<PAGE>
[LETTERHEAD]
Independent Auditors' Report
Board of Directors and Shareholders
THE WASHINGTON CORPORATION
Bethesda, Maryland
We have audited the accompanying Consolidated Balance Sheets of THE
WASHINGTON CORPORATION and Subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related Consolidated Statements of Operations,
Stockholders' Equity and Cash Flows. These consolidated statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Washington Corporation and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements as of December 31, 1997 have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 12 to the financial statements, the Company has incurred
continuing losses from operations and has been unable to dispose of certain
of its real estate assets. As a result, the Company may not be able to
continue to meet its obligations as they come due. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 12. The eventual outcome of these matters are not presently determinable
and the consolidated financial statements do not include any adjustments that
might be necessary should the Company be unable to continue in existence.
[SIGNATURE]
Rockville, Maryland
March 18, 1998
6116 Executive Boulevard, Fifth Floor
Rockville, Maryland 20852
Phone (301)231-6200
Fax (301)231-7630
Internet http://www.2fwpa.com
19
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Real estate and development property (Notes 1,2, and 7) $2,110,342 $2,210,342
Operating property and equipment, net (Notes 1,2, 6 and 7) 18,510,957 18,943,228
Cash and cash equivalents (Note 1) 222,821 140,918
Escrow deposits (Note 6) 569,348 172,355
Land purchase leaseback (Note 4) 400,000 400,000
Equity in and advances to unconsolidated partnerships (Note 3) 5 279,072
Other assets (Note 5) 354,989 349,033
------------ ------------
Total Assets $22,168,462 $22,494,948
LIABILITIES
Note payable - Arlington Square Project (Note 6) $20,600,000 $20,362,749
Other notes and loans payable (Note 7) 898,009 1,061,706
Accrued interest payable 259,292 122,974
Accounts payable and other liabilities 65,078 197,938
------------ ------------
Total Liabilities 21,822,379 21,745,367
COMMITMENTS AND CONTINGENCIES (Notes 2,4,6,11,12 and 13)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; shares issued (Notes 1 and 10)
Class A - 1,640,327 shares 16,403 16,403
Class B - 21,476 shares 215 215
Class C - 45,119 shares 451 451
Additional paid-in capital 2,804,821 2,804,821
Accumulated deficit (2,475,807) (2,072,309)
Total Stockholders' Equity 346,083 749,581
------------ ------------
Total Liabilities and Stockholders' Equity $22,168,462 $22,494,948
------------ ------------
------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
20
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
REVENUES
<S> <C> <C>
Operating property rental income (Note 11) $3,205,248 $3,112,733
Rent from land purchase leaseback (Note 4) 102,860 102,779
Other income 0 12,000
Equity interest in net income from partnership
investments 3,437 23,860
Interest income 774 175
Loss on sale of investments (Note 3) (73,417) 0
------------ ------------
Total revenues 3,238,902 3,251,547
------------ ------------
EXPENSES
Provision for estimated losses on asset value adjustments (Note 2) 100,000 0
Interest expense (Notes 6 and 7) 1,535,665 1,332,216
Operating property expenses 824,040 937,626
General and administrative expenses 119,837 152,241
Other expenses 108,519 43,249
------------ ------------
Total expenses 2,688,061 2,465,332
NET INCOME BEFORE DEPRECIATION AND AMORTIZATION 550,841 786,215
DEPRECIATION AND AMORTIZATION (NOTE 1) 954,339 870,467
------------ ------------
NET LOSS (403,498) (84,252)
------------ ------------
LOSS PER COMMON SHARE:
Net loss (0.24) (0.05)
------------ ------------
Weighted average common shares outstanding 1,706,922 1,706,922
------------ ------------
------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
21
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ----------- ------------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $17,069 $2,804,821 ($1,988,057) $833,833
NET LOSS 0 0 (84,252) ($84,252)
-------- ----------- ------------- --------
BALANCE, DECEMBER 31, 1996 17,069 2,804,821 (2,072,309) $749,581
NET LOSS (403,498) ($403,498)
-------- ----------- ------------- --------
BALANCE, DECEMBER 31, 1997 $17,069 $2,804,821 ($2,475,807) $346,083
-------- ----------- ------------- --------
-------- ----------- ------------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements
22
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($403,498) ($84,252)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for estimated losses on asset value adjustments 100,000 0
Depreciation and amortization 954,339 870,467
Amortization of deferred rental concessions 190,932 190,931
Loss on sale of investments 73,417 0
Decrease in other assets (5,956) (23,634)
Decrease (increase) in interest payable 136,318 (1,972)
(Increase) decrease in accounts payable and other liabilities (132,860) 38,875
----------- ------------
Net cash provided by operating activities 912,692 990,415
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of partnership 180,000 0
Purchase of fixed assets (116,175) (145,068)
Withdrawals from restricted escrows 172,355 0
Deposits to restricted escrows (569,348) (54,221)
----------- ------------
Net cash used in investing activities (333,168) (199,289)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of mortgage loan (20,362,749) 0
Proceeds from mortgage loan 20,600,000 0
Proceeds from note payable 20,000 0
Principal payments on notes payable (183,697) (754,420)
Payment of loan fees and settlement costs (596,825) 0
Distributions from partnerships 25,650 6,737
----------- ------------
Net cash used in financing activities (497,621) (747,683)
NET CHANGE IN CASH AND CASH EQUIVALENTS 81,903 43,443
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 140,918 97,475
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 222,821 140,918
----------- ------------
----------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year 1,289,347 1,333,686
----------- ------------
----------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated statements include the accounts of The
Washington Corporation ("TWC") and all entities over 50% owned by TWC
(collectively, the "Company"). Investments in 5% to 50% owned ventures and
partnerships are accounted for using the cost or equity method. As appropriate,
all significant intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION AND DEFERRED RENTAL CONCESSIONS
Profit on the sale of real estate is recognized at the time the sale is
settled. Rental income from leases, with scheduled rental increases during their
lease terms, is recognized for financial reporting purposes on a straight-line
basis net of amortization of deferred rental concessions.
REAL ESTATE AND DEVELOPMENT PROPERTY EXPENSES
The Company records its real estate and development property at the
lower of accumulated cost or estimated net realizable value. The Company follows
the policy of charging, as current expenses, the holding costs of real estate
such as taxes, insurance and interest, to the extent the properties are not
currently being developed. Direct development and engineering costs are
capitalized as part of property cost. Interest expense totaled $1,535,665 and
$1,332,216 for the years ended December 31, 1997 and 1996, respectively. No
interest was capitalized during either of the periods noted above.
OPERATING PROPERTY AND EQUIPMENT - ARLINGTON SQUARE PROJECT
At December 31, 1997 and 1996, operating property and equipment is
stated at the net "fresh start" value of $23,000,000, less related accumulated
depreciation and amortization of related intangibles. For "fresh start"
reporting purposes, the Arlington Square Project was revalued to an amount equal
to the original amount of the non-recourse debt secured by the property.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. Buildings and related improvements are depreciated
over 31.5 and 39 years, respectively. Tenant improvements are amortized using
the straight-line method over the lesser of the term of the life of the
respective lease or the useful life of the improvements. Deferred rental
concessions are amortized over the term of the lease.
At December 31, 1997 and 1996, operating property and equipment
consisted of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land, building and equipment $23,069,531 $22,960,483
Tenant improvements 1,587,548 1,587,548
Deferred rental concessions, net 143,157 334,089
Deferred loan closing costs, net 580,242 88,592
---------- ----------
25,380,478 24,970,712
Less depreciation and amortization (6,869,521) (6,027,484)
---------- ----------
$18,510,957 $18,943,228
---------- ----------
---------- ----------
</TABLE>
24
<PAGE>
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents. The Company periodically has cash balances which may exceed
federally insured limits. The Company does not believe that this results in any
significant credit risk.
ESCROW DEPOSITS
At December 31, 1997 and 1996, deposited funds of $569,348 and
$172,355 were restricted for replacement reserve, and tax and insurance escrows,
primarily for the Arlington Square Project as required by the lender.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIC NET LOSS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standard
No. 128, Earnings Per Share. The adoption of this Standard had no effect on
current period or previously reported net loss per share. The basic net loss per
common share is computed by dividing the net loss by the weighted average number
of common shares outstanding during the period. The weighted average number of
common shares outstanding is comprised of all classes of common stock.
ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standard Board issued Statement
of Financial Accounting No. 130 Reporting Comprehensive Income. This standard
requires the reporting of the components of comprehensive income, which includes
net income, and is effective for years beginning after December 15, 1997. The
Company believes that had the standard been adopted for the year ended December
31, 1997, that the presentation would not differ significantly from the
presentation contained in its Statement of Operations.
NOTE 2
REAL ESTATE AND DEVELOPMENT PROPERTY
Residential development efforts in the past included the acquisition of
raw land for the development of planned sites or finished building lots for sale
to homebuilders. The Company, through a wholly-owned subsidiary, currently owns
363 acres known as Timberlake in Charles County, Maryland. The Company is
currently marketing the property. During 1995, management assessed the
property's net realizable value and has recorded a $366,100 adjustment to income
to lower the property value from $2,368,442 to $2,002,342. Management reassessed
the property value in 1997 and determined that an additional $100,000 reserve
was necessary to adjust the property to fair market value.
25
<PAGE>
The Company also owns a property, known as River Oaks, that was
intended to be a retail development site in Prince William County, Virginia.
Pursuant to its Chapter 11 reorganization plan, the lender has released its debt
and security interest on the property in exchange for the Company's release of
the lender's development obligations. The property had been revalued in "fresh
start" accounting to $200,000.
In addition, in 1995, the Company recorded an adjustment of $81,472 to
reduce other development properties to their net realizable value of $8,000.
NOTE 3
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
RESIDENTIAL PARTNERSHIPS
The Company owned a 5% limited partnership interest in a 128-unit HUD
assisted apartment complex that was recorded at $278,644 at December 31, 1996.
The Company sold its partnership interest in 1997 for $180,000. Payments of
$25,656 and $30,750 were received from this project during 1997 and 1996,
respectively.
NOTE 4
LAND PURCHASE LEASEBACK
The Company owns a land purchase leaseback representing a fee simple
interest in land underlying a hotel located in Ft. Washington, Pennsylvania. The
property had an original cost and current value of $400,000. The minimum annual
rent under the lease which expires in 2024 is $66,000 plus one percent of gross
room sales of the property, but not less than $1,000 a month. The Company's
lease on the property was subordinated to a first trust loan, however, the loan
was fully repaid at December 31, 1996. The minimum lease payments due pursuant
to this lease through expiration are as follows:
<TABLE>
<S> <C>
1998 78,000
1999 78,000
2000 78,000
2001 78,000
2002 78,000
Thereafter 1,735,500
----------
$2,125,500
----------
----------
</TABLE>
NOTE 5
OTHER ASSETS
Other assets includes rent receivable from the tenant in the Arlington
Square Project in the amounts of $335,422 and $334,089 at December 31, 1997 and
December 31, 1996, respectively.
NOTE 6
NOTE PAYABLE - ARLINGTON SQUARE PROJECT
From January 1, 1997 to November 21, 1997, the Partnership was
encumbered by a mortgage to
26
<PAGE>
the Fuji Bank. The outstanding principal balance on the mortgage loan accrued
interest at a blended rate of 6.63%, based on the LIBOR rates. The note was a
cash-flow mortgage with all excess cash flow, as defined in the note agreement,
being applied to reduce the principal balance and to fund the required escrows.
On November 21, 1997, the Partnership refinanced the mortgage note with
Allied Capital Corporation and is currently obligated on a $20,600,000 mortgage
note secured by a first and second deed of trust on the land and building. This
note bears interest at 10%, is payable in monthly installments of $171,667
(interest only) beginning in January 1998 with the outstanding principal due on
December 1, 2000. The lender will receive a participation interest of 30% on the
net cash flow and a 30% equity value in the property if and when the property is
sold. The participation interest and equity value will stay in full force and
effect if the property should ever be refinanced.
The lender requires two restricted cash accounts be maintained; a
tenant improvement leasing escrow for future capital and tenant improvements and
a tax and insurance escrow for the payment of property taxes and property
insurance. The tenant improvement leasing escrow for $500,000 was established at
settlement and is funded by monthly payments of $16,000 beginning in January
1998. The tax and insurance escrow for $69,348 is funded by monthly payments of
$19,397 beginning in January 1998. At December 31, 1997, these restricted cash
accounts had an aggregate balance of $569,348.
NOTE 7
OTHER NOTES AND LOANS PAYABLE
Other notes and loans payable at December 31, 1997 and 1996 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Notes payable collateralized by real estate bearing interest
at 10%, payable interest only until final maturity in January,
1998. As of the date of this report,
the note is in default. $ 880,000 $ 880,000
Note payable to NationsBank ("NationsBank") in the
original amount of $500,000, secured by various
properties and partnership interests, principal
amounts payable to the extent of 100% of the proceeds from the
sale of certain company assets. The note was paid in full in
December 1997.
Note payable with bank, secured by -- 181,706
automobile, bearing interest at 8.25%, payable in
monthly principal and interest payments of
$630, due August 7, 2000.
18,009 --
----------- -----------
Total $ 898,009 $1,061,706
----------- -----------
----------- -----------
</TABLE>
27
<PAGE>
At December 31, 1997, the scheduled future maturities of the note is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ----------
<S> <C>
1998 $886,272
1999 6,848
2000 4,889
----------
TOTAL $898,009
----------
----------
</TABLE>
NOTE 8
INCOME TAXES
As of December 31, 1997, the Company had tax net operating loss
carryforwards of approximately $18,002,000. The deferred tax asset associated
with these net operating loss carryforwards of approximately $7,201,000 is
offset by the valuation allowance applied to the deferred tax asset. The net
operating losses for income tax reporting purposes will expire as follows:
<TABLE>
<S> <C> <C>
2004 - $1,361,000 2007 - $9,405,000
2005 - 5,652,000 2008 - 1,429,000
2006 - 155,000
</TABLE>
NOTE 9
RELATED PARTY TRANSACTIONS
During 1997 and 1996, the Company engaged a law firm in which one
current director of the Company serves as partner in the firm. During 1997 and
1996, the Company paid $21,804 and $13,220, respectively, in fees to this law
firm. In addition, the parking garage at the Arlington Square Project is managed
by an entity affiliated with this director of the Company.
NOTE 10
COMMON STOCK AND DISTRIBUTIONS
In connection with the reorganization in 1992, the equity interests of
the Company were restructured as follows:
Unsecured creditors with pre-confirmation claims totaling approximately
$11,000,000 exchanged their interests for 1,675,163 shares of the Class A Common
Stock, representing 100% of such class.
Pre-confirmation shareholders of the Company (other than controlling
shareholders as defined in the Plan) exchanged 610,736 shares of Old Common
Stock for 24,429 shares of the Class B Common Stock, representing 100% of such
class.
Controlling shareholders of the Company exchanged their 1,134,225,
shares of Old Common Stock for 45,369 shares of the Class C Common Stock,
representing 100% of such class.
Under the terms of the Plan, holders of the Class A Common Stock will
receive 100% of all
28
<PAGE>
dividends paid by the Company in respect of its capital stock until such time as
the cumulative dividends and other distributions paid to holders of Class A
Common Stock equal 50% of the allowed Class 7 bankruptcy claims of approximately
$11,000,000 (the "First Trigger").
Following the First Trigger, the holders of the Class A Common Stock
will receive approximately 98.6% (with Class B stockholders receiving 1.4%) of
all dividends paid in respect of the Company's capital stock until such time as
the cumulative dividends and other distributions paid to holders of Class A
Common Stock equal 100% of the allowed Class 7 bankruptcy claims (the "Second
Trigger").
Following the Second Trigger, all outstanding shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock will automatically convert
into a single class of common stock.
The holders of Class A Common Stock also have an aggregate liquidation
preference of an amount equal to the amount of Class 7 bankruptcy claims allowed
in the Company's Chapter 11 case. All dividends or distributions made with
respect to the Class A Common Stock shall reduce the liquidation preference
dollar for dollar.
As of December 31, 1997, the number of new common shares outstanding is
as follows:
<TABLE>
<S> <C>
Class A 1,640,327
Class B 21,476
Class C 45,119
</TABLE>
NOTE 11
LESSOR ARRANGEMENTS
The Company, through its 74% interest in ASLP, owns a building which is
100% leased to an agency of the U.S. Government under a ten year lease expiring
in September, 1998. During the years ended December 31, 1997 and December 31,
1996, the Company realized income from this lease of approximately $3,142,000
and $3,121,000, respectively, or 95% and 97% of total revenues, respectively.
The terms of the lease require the tenant to pay base rent plus its
proportionate share of increases in certain operating expenses. The GSA has
verbally notified ASLP that they intend to award a new ten-year lease on the
property. As of the date of this report, no lease agreement has been executed.
NOTE 12
OFFICE LEASE
In January 1994, the Company executed an operating lease as lessee, for
its office space which expires February 28, 1999. The rent is increased annually
at 5%. The future annual rents under this lease are:
<TABLE>
<S> <C>
1998 19,283
1999 3,239
-------
Total $22,522
=======
</TABLE>
Rental expense under the Company's office lease agreements was $17,096
and $18,961 for 1997 and 1996, respectively.
29
<PAGE>
NOTE 13
GOING CONCERN ISSUES
The Company has continued to incur losses and has been unable to
liquidate certain of its real estate assets in a timely manner and is facing
certain liquidity problems in the near future if these assets cannot be
disposed. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management does not have a formal plan to address
these possible liquidity problems although they will continue to monitor and
reduce administrative costs and/or attempt to delay payment for certain services
until properties are sold. If these attempts are not successful, the Company may
be forced to sell its remaining properties for significantly less than the
recorded values and/or seek protection from its creditors under the Bankruptcy
Code. The eventual outcome of these matters cannot be determined. The
accompanying financial statements do not include any adjustments to assets or
recorded liabilities of the Company if it is forced to liquidate prematurely and
sales of assets and settlement of liabilities are not conducted in the normal
course of business.
30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors of the Company
TWC's Bylaws require no less than two (2) directors, at least one of
which is a Class A Director, shall constitute a quorum for a Board of Directors
meeting and the vote of a majority of the Class A Directors participating at
such meeting is necessary for the Board to act. The Board of Directors is
composed of one (1) Class A Director and two (2) Class B Directors. On October
25, 1996, William N. Demas, formerly a Class B and Class C Director was elected
as a Class A Director and Jose Ma. C. Castro was elected as a Class B and Class
C Director to fill the position held by Mr. Demas. Jonathan C. Kinney continues
to serve as a Class B and C Director. All three directors are elected to serve
until the next annual meeting of shareholders or the next special meeting of
shareholders called for the election of directors, and until their successors
have been elected and qualified. TWC did not hold an annual or special meeting
of shareholders in 1997. See "Description of Business - Business Development -
Recent Developments."
TWC's executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
William N. Demas 61 Chairman of the Board of Directors,
Chief Executive Officer and President
Jonathan C. Kinney 52 Director
Jose Ma. C. Castro 42 Director
Geraldine Piatt 62 Secretary
</TABLE>
William N. Demas has been Chairman of the Board of Directors, Chief
Executive Officer and President of TWC since it was established in 1979. Mr.
Demas served as Chairman of the Board of Directors and Chief Executive Officer
of Capital Mortgage Investors, TWC's predecessor, from 1969 to 1979.
Jonathan C. Kinney has served as a director of TWC since 1982. Mr.
Kinney is a partner at the law firm of Bean, Kinney & Korman, P.C., which has
served as the Company's counsel in various corporate and real estate
transactions since 1984.
Jose Ma. C. Castro has served part-time as the Controller of the
Company since 1995. Mr. Castro also currently serves as a project accountant
with the engineering firm of ICF Kaiser International, Inc., a position he has
held since 1993. Mr. Castro previously served as the Controller of the Company
from 1988 through May 1993.
Geraldine Piatt has served as the Secretary of the Company since 1992.
Ms. Piatt also serves as
32
<PAGE>
property management administrator since 1989.
Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that directors and officers of a registrant and
persons owning more than ten percent of such registrant's equity securities
registered under Section 12 of the Securities Exchange Act file reports of
ownership and changes in ownership ("Section 16 Filings") with the Securities
and Exchange Commission (the "SEC"). The SEC requires that copies of all such
Section 16 Filings be furnished by the filers to the registrant. TWC has not
received any Section 16 Filings during Fiscal 1997.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual
compensation earned by the President and Chief Executive Officer of TWC (the
"Named Executive Officer") for services rendered to TWC in all capacities for
the fiscal years ended December 31, 1997 ("Fiscal 1997"), December 31, 1996
("Fiscal 1996") and December 31, 1995 ("Fiscal 1995"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------------------
Other All
Annual Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- ---------------------------- ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William N. Demas, Chief
Executive Officer 1997 36,843 - - 24,852 (1)
and President
1996 38,111 - - 24,852 (1)
1995 77,091 - - 24,852 (1)
</TABLE>
- -------------------
1 Since August 1993, TWC has paid the premiums on a term life insurance policy
for Mr. Demas ("the Demas Policy"). The amounts shown represent TWC's total
annual payments therefor in Fiscal 1997 and Fiscal 1996. In both years, TWC
reduced Mr. Demas's base salary by the amount equal to the costs of the Demas
Policy.
TWC has not granted stock options, restricted stock awards, or share
appreciation rights during Fiscal 1997, Fiscal 1996, and Fiscal 1995. Since its
reorganization in 1992, TWC has not had a long-term incentive plan or pension
plan. However, in 1992, TWC established a noncontributory Salary Reduction SEP
on behalf of its employees (including Mr. Demas), pursuant to which employees,
at their election, may defer a percentage of their annual salaries.
Employment Agreement with William N. Demas
On July 30, 1992, William N. Demas entered into an agreement with TWC
providing for his employment as President and Chief Executive Officer of TWC
(the "Employment Agreement"). The Employment Agreement expired on July 30, 1995.
Since the expiration of the Employment Agreement on July 30, 1995,
Mr. Demas has
33
<PAGE>
been acting as the President and Chief Executive Officer of TWC without a
written employment agreement. Mr. Demas has been serving in such positions for a
base salary of $60,000 per year and performs such services on a part-time basis,
not to exceed 25 hours per week. In addition, Mr. Demas receives as benefits
health insurance and reimbursement of expenses incurred on behalf of TWC.
In addition, since August 1993, in lieu of paying Mr. Demas' full
salary, TWC has paid the monthly premiums on a term life insurance policy for
Mr. Demas.
Compensation of Directors
In accordance with TWC's Bylaws, directors may be reimbursed for any
reasonable expenses incurred in connection with their service on the Board of
Directors. There are no other arrangements pursuant to which directors of TWC
are compensated for services as director. Messrs. Demas, Kinney and Castro did
not seek or receive any reimbursement for their expenses in Fiscal 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The following table shows with respect to each person or entity known
by TWC to be the beneficial owner of more than 5% of any class of TWC's voting
securities as of December 31, 1997, (i) the number of shares so owned, and (ii)
the percentage of all shares represented by such ownership (based upon the
number of shares outstanding in the class) as of December 31, 1997.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Class of ---------------------------
Stock # of Shares % of Class(1)
- -------- ----------- -------------
<S> <C> <C> <C>
Class A Kevin E. Foley, 410,618 24.7
Common Stock Deputy Superintendent of Insurance of the State of New
York, as Agent of the Rehabilitator of Executive Life
Insurance of New York(2)
Class A AIF II, L.P.(3) 325,242 19.6
Common Stock
Class A Lion Advisors, L.P.(3) 325,242 19.6
Common Stock
Class C The Antonelli Creditors Liquidating Trust 18,206 40.1
Common Stock
Class C Andrea Kinney Greene 4,116 9.1
Common Stock
Class C David B. Kinney 5,326 11.7
Common Stock
Class C David H. Kinney 4,154 9.2
Common Stock
</TABLE>
- -------------------
1 For purposes of this table and the table set forth immediately below, under
the heading "Directors and Executive Officers", the percentage of shares owned
by each shareholder listed is based on the number of Class A Common Stock,
Class B Common Stock and Class C Common Stock (the "New Shares") that have
been authorized pursuant to TWC's plan of reorganization. If claimed by TWC's
shareholders, the authorized New Shares will equal the number of New Shares
issued and outstanding. Under the plan of reorganization, shareholders may
claim their New Shares until July 30, 1995, after which date TWC will have the
right to cancel any and all of the unclaimed New Shares. Because the
34
<PAGE>
New Shares have not been registered under the Securities Act of 1933,
shareholders are not required to file statements with the SEC under section
13(d) and 13(g) concerning their beneficial ownership of such shares. The
information set forth in the table is based principally upon information
provided by the Company's transfer agent and plan of reorganization.
2 Mr. Foley's address is 123 Williams Street, New York, NY 10038-3889.
3 The address for AIF II, L.P. and Lion Advisors, L.P. c/o Apollo Advisors, L.P.
is 1999 Avenue of the Stars, Suite 1050, Los Angeles, CA 90067.
4 The address for the trust is the Antonelli Liquidating Trust c/o Bailey Realty
Corporation, 1130 Connecticut Avenue, N.W., Washington, D.C. 20036.
5 Andrea Kinney Greene, the sister of Jonathan Kinney who is a director of TWC,
owns approximately 4,116 shares of Class C Common Stock. In addition, Andrea
Kinney Greene, as custodian for her children, holds approximately 132 shares
of Class B Common Stock. The address provided to TWC by Andrea Kinney Greene
is Route 2, Box 782, Purcellville, VA 22132.
6 This total includes approximately 584 shares of Class C Common Stock over
which David B. Kinney has voting and investment powers in his capacity as
general partner of K-F Associates, a Virginia limited partnership, which
interests are owned by members of the Kinney Family. David B. Kinney is the
father of Jonathan C. Kinney. The address provided to TWC by David B. Kinney
is 754 Walker Road, 2nd Floor, Great Falls, VA 22066.
7 Mr. David H. Kinney is the brother of Jonathan C. Kinney. The address provided
to TWC by David H. Kinney is 1056 Manning Street, Great Falls, VA 22066.
35
<PAGE>
Directors and Executive Officers
The following table sets forth, as of December 31, 1997, information
with respect to beneficial ownership of TWC's capital stock by (i) the Named
Executive Officers, (ii) each director and (iii) all directors and executive
officers of TWC as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of Class
Beneficial Owner1 Title of Class Beneficial Ownership Outstanding
----------------- -------------- -------------------- -----------
<S> <C> <C> <C>
William N. Demas Class A Common Stock 7,608 *
Class C Common Stock 8,982(2) 19.8
Jonathan C. Kinney Class A Common Stock 523(3) *
Class C Common Stock 4,564(4) 10.1
Jose Ma. C. Castro Class A Common Stock 198 *
Directors and Officers as a Group Class A Common Stock 8,131 *
(2 persons) Class C Common Stock 13,546 29.9
</TABLE>
- -------------------
* Less than 1% of outstanding shares of the Class
1 The address for each director and officer is c/o TWC, 4650 East-West Highway,
Suite 251, Bethesda, Maryland 20814.
2 This total includes 1,340 shares of Class C Common Stock which Mr. Demas owns
with his wife in joint tenancy; however, it does not include approximately 440
shares of Class C Common Stock beneficially owned by Mr. Demas' daughter Edith
Demas. In addition, Mr. Demas, as custodian for his children, Amy, James and
Sarah Demas, holds 164 shares of Class B Common Stock.
3 Mr. Kinney disclaims beneficial ownership of these shares of Class A Common
Stock which are held by Bean, Kinney & Korman, P.C., a law firm in which Mr.
Kinney is a stockholder.
4 This total includes 8 shares of Class C Common Stock which are held by Mr.
Kinney's wife and 146 shares of Class C Common Stock held by Mr. Kinney as a
limited partner in K-F Associates, a limited partnership which interests are
owned by members of the Kinney Family. Mr. Kinney disclaims beneficial
ownership of shares held by K-F Associates. In addition, Mr. Kinney, as
custodian for his children, David N.A. and Rachael W.K. Kinney, holds 232
shares of Class B Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kinney and certain members of Mr. Kinney's family (collectively,
the "Kinney Family") have a 16% ownership interest (6% of which is Mr. Kinney's
personal holding) in ASLP, a limited partnership in which the Company is the
general partner. Mr. Demas has a 7% ownership interest in ASLP. In Fiscal 1997,
Messrs. Demas and Kinney and the Kinney Family received no partnership
distributions from their limited partnership interests and do not expect to
receive any in the foreseeable future. See "Description of Properties -
Arlington Square Project.
In Fiscal 1997 and Fiscal 1996, the Company paid legal fees of
approximately $21,804 and $13,220 respectively to Bean, Kinney & Korman, P.C.,
the law firm in which Mr. Kinney is partner and stockholder.
36
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 The Company's Amended and Restated Charter, filed with the Maryland
Department of Assessments and Taxation on July 30, 1992, which was
filed as Exhibit 2.2 to the Company's Registration Statement on Form
8-A filed with the Commission on August 10, 1992, is incorporated
herein by reference.
3.2 The Company's Bylaws, dated as of July 30, 1992, which were filed as
Exhibit 2.3 to the Company's Registration Statement on Form 8-A filed
with the Commission on August 10, 1992, are incorporated by reference.
4.1 The Second Amended Joint Plan of Reorganization of The Washington
Corporation, Carlin Springs Associates Limited Partnership, Second Fair
Ridge Associates Limited Partnership and Wilson-Randolph Limited
Partnership, dated May 28, 1992, as modified, which was filed as
Exhibit 2.1 to the Company's Report on Form 8-K filed with the
Commission on July 29, 1992, Commission File No. 0-20518, is
incorporated herein by reference.
4.2 The Registration Rights Agreement, dated as of July 30, 1992, by and
among the Company and certain holders of the Company's Class A Common
Stock which was filed as Exhibit 4.4 to the Company's Form 10-Q filed
with the Commission on August 14, 1992, Commission File No. 0-20518, is
incorporated herein by reference.
10.1 Agreement of Limited Partnership of Arlington Square Limited
Partnership dated September 17, 1985, by and among TWC Properties
Partnership and the limited partners, which was filed as Exhibit 10.1
to the Company's report on Form 10-KSB filed with the Commission April
6, 1995, is incorporated herein by reference.
10.2 The U. S. Government Lease of Real Property (Arlington Square Project)
dated May 13, 1988 including Riders 1, 2 and 3 which was filed as
Exhibit 10 to the Company's Form 10-K filed with the Commission on
March 29, 1990, Commission File No. 0-20518, is incorporated herein by
reference.
10.3 The Lease Agreement dated March 24, 1974 between the Company and Fort
Washington Inn Associates, which was filed as Exhibit 10.5 to the
Company's Form 10-KSB filed with the Commission April 6, 1993, is
incorporated herein by reference.
10.4 The Stock Purchase Agreement dated November 1, 1994 relating to the
sale of 2900 South Glebe, Inc, between The Washington Corporation and
William N. Demas, which was filed as Exhibit 10.5 to the Company's Form
10-KSB filed with the Commission on April 6, 1995, is incorporated
herein by reference.
10.5 The First Amendment to Agreement of Limited Partnership of Arlington
Square Limited Partnership dated December 14, 1990, by and among TWC
Properties Partnership, William N. Demas, John D. Wolf and The Ballston
Corporation, which was filed as Exhibit 10.8 to the Company's report on
Form 10-KSB filed with the Commission April
37
<PAGE>
6, 1995, is incorporated herein by reference.
10.6 The Second Amendment to Agreement of Limited Partnership of Arlington
Square Limited Partnership dated March 8, 1991, by and among TWC
Properties Partnership, William N. Demas, John D. Wolf, The Ballston
Corporation and Arlington Square, Inc., which was filed as Exhibit 10.9
to the Company's report on Form 10-KSB filed with the Commission April
6, 1995, is incorporated herein by reference.
10.7 The Third Amendment to Agreement of Limited Partnership of Arlington
Square Limited Partnership dated March 8, 1991, between TWC Properties
Partnership, William N. Demas, John D. Wolf, The Ballston Corporation,
Arlington Square Incorporated, Jonathan C. Kinney, David B. Kinney and
Barbara A. Kinney evidencing the transfer of a 16% partnership interest
in ASLP to Jonathan C. Kinney, David B. Kinney and Barbara A. Kinney,
which was filed as Exhibit 10.1 to the Company's Form 10-KSB filed with
the Commission on April 13, 1993, is incorporated herein by reference.
10.8 The Fourth Amendment to Agreement of Limited Partnership of Arlington
Square Limited Partnership dated January 1, 1993, by and among TWC
Properties Partnership, Arlington Square, Inc., and The Washington
Corporation, is incorporated herein by reference.
10.9 Promissory Note in the original principal amount of $23,000,000 dated
November 20, 1997 between Arlington Square Limited Partnership and
Allied Capital Commercial Corporation is attached hereto.P.
10.10 Promissory Note in the original principal amount of $1,000,000 dated
November 20, 1997 between Arlington Square Limited Partnership and
Allied Capital Commercial Corporation is attached hereto. P.
10.11 Loan Agreement in the amount of $24,300,000 dated November 20, 1997
between Arlington Square Limited Partnership and Allied Capital
Commercial Corporation is attached hereto. P.
10.12 Amended and Restated Agreement of Limited Partnership of Arlington
Square Limited Partnership is attached hereto. P.
10.13 Assignment of Leases and Rents dated November 20, 1997 by Arlington
Square Limited Partnership to Allied Capital Commercial Corporation is
attached hereto. P.
10.14 Assignment of Leases and Rents (GSA) dated November 20, 1997 by
Arlington Square Limited Partnership to Allied Capital Commercial
Corporation is attached hereto. P.
10.15 Guaranty by Arlington Square Limited Partnership to Allied Capital
Commercial Corporation is attached hereto. P.
10.16 Indemnity Agreement dated November 20, 1997 between Arlington Square
Limited Partnership and Allied Capital Commercial Corporation is
attached hereto. P.
10.17 Deed of Trust and Security Agreement "A" dated November 20, 1997
between Arlington Square
38
<PAGE>
Limited Partnership and Allied Capital Commercial Corporation is
attached hereto. P.
10.18 Deed of Trust and Security Agreement "B" dated November 20, 1997
between Arlington Square Limited Partnership and Allied Capital
Commercial Corporation is attached hereto. P.
10.19 Assignment of Limited Partnership interest of Ashton Glen Associates
dated December 11, 1997 from The Washington Corporation to K-F
Associates is attached hereto. P.
10.20 First Amendment to the Limited Partnership Agreement of Ashton Glen
Associates dated December 11, 1997 is attached hereto. P.
11. Computation of per share earnings for the years ended December 31,
1997 and 1996 is attached hereto.
21. Subsidiaries of the Registrant as of December 31, 1997 is attached
hereto.
(b) Reports on Form 8-K. The Company filed no report on Form 8-K during
fourth quarter of 1997.
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE WASHINGTON CORPORATION
Date: By: /s/William N. Demas
--------------------- -----------------------------------
William N. Demas
Chairman of the Board of Directors/
President
Date: By: /s/Jose Ma. C. Castro
--------------------- -----------------------------------
Jose Ma. C. Castro
Controller
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date: By: /s/ William N. Demas
--------------------- -----------------------------------
William N. Demas
Chairman of the Board of Directors/
President
Date: By: /s/ Jonathan C. Kinney
--------------------- -----------------------------------
Jonathan C. Kinney
Director
Date: By: /s/ Jose Ma. C. Castro
--------------------- -----------------------------------
Jose Ma. C. Castro
Director
40
<PAGE>
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
41
<PAGE>
THE WASHINGTON CORPORATION - SUBSIDIARIES
As of December 31, 1997
<TABLE>
<CAPTION>
State of
Formation or Date of
Subsidiary Incorporation Formation
---------- ------------- ---------
<S> <C> <C>
Arlington Square Limited Partnership Maryland 09/17/85
Four Year Trail Limited Partnership Virginia 09/16/87
Nanjemoy Associates Limited Partnership Maryland 01/11/88
TWC Development Corporation Maryland 04/08/85
TWC Real Estate, Inc. Virginia 04/15/85
Arlington Square, Inc. Virginia 02/28/91
Four Year Trail, Inc. Virginia 02/28/91
</TABLE>
42
