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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 Commission file number 1-7228
ended December 31, 1999
THE WASHINGTON CORPORATION
(Name of Small Business Issuer in Its Charter)
MARYLAND 52-1157845
(State of Incorporation) (I.R.S. Employer Identification No.)
4550 Montgomery Avenue
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
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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, 1999 were:
$3,598,743
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, 1999, 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 36 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 four
remaining non-income-producing properties, and has obtained appropriate
financing and a long-term lease for its primary income-producing asset.
RECENT DEVELOPMENTS. The following are descriptions of material
developments within the past three years.
TIMBERLAKE
TWC, through a wholly-owned subsidiary, the Nanjemoy Associates
Limited Partnership ("NALP") owned 361 acres in Charles County, Maryland for
future residential development (the "Timberlake Project"). NALP defaulted on its
quarterly interest payments on the purchase money mortgage made to NALP ("PMM")
that was secured by 313 of the 361 acres comprising the Timberlake property. The
principal amount of the PMM was $880,000 and it matured on January 15, 1998. The
PMM was not guaranteed by TWC and the note contained a provision that the holder
will rely solely on the property for repayment of the PMM. This default resulted
in NALP losing 313 of the 361 acres of land due to foreclosure action by the
note holder on February 2, 1999. As a result, the approved preliminary site plan
was voided together with the various entitlements for the development of the
property. For the fiscal year ending December 31, 1998, the net book value of
the property was reduced by the $880,000 principal balance on the PMM, and
$177,449 of accrued interest and real estate taxes. Management has estimated the
value of the remaining property to be $200,000, resulting in an additional
estimated loss on asset valuation of $97,771 for the fiscal year ended December
31, 1999. The remaining 48 acres most likely will be divided into a maximum of
seven lots. The number of lots that can be sold depends on the results of
percolation tests and the issuance of on-site sewage discharge permits by the
state of Maryland. To date, the Company has not taken any steps to obtain
percolation tests or sewage discharge permits.
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 1.07 acres of land and an office
building constructed thereon (the "Arlington Square Project") located in
Arlington, Virginia. The rent from the Arlington Square Project is the Company's
primary source of revenue.
In November 1997, ASLP obtained 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
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Loan"). The interest rate on the Allied Loan was 10% and the Allied Loan also
included a 30% participation for Allied in the net cash flow and net sales
proceeds of ASLP.
From November 1997 to November 25, 1998, ASLP's property was encumbered
by mortgage notes to Allied. The outstanding principal balance on the mortgage
loans accrued interest at a blended rate of 10%, based on the LIBOR rates. The
notes were cash-flow mortgages with all excess cash flow, as defined, being
applied to reduce the principal balance and to fund the required escrows. One of
the mortgage agreements provided for the lender to receive a participation
interest of 30% in the net cash flow and a 30% equity value in the property if
and when it is sold, with such provision to survive any payoff of the mortgage.
On November 25, 1998, the Allied Loan was repaid with proceeds of a
loan obtained by ASLP and secured by the Arlington Square Project from
Metropolitan Life Insurance Company ("MetLife") in the original principal amount
of $21,500,000 (the "MetLife Loan"). At the closing of the MetLife Loan,
$21,500,000 was disbursed to (i) repay the Allied Loan in the amount of
$20,600,000; and (ii) to pay for costs associated with the MetLife Loan in the
amount of $373,477. The MetLife Loan has a fixed interest rate of 6.80% and
matures on December 1, 2010. See "Description of Properties - Arlington Square
Project".
Upon refinancing of the Allied Loan, Allied gave notice of demand for
full payment of its participation interest in the equity value and net cash flow
of the Arlington Square Project. ASLP entered into a forbearance agreement with
Allied which (i) established the value for Allied's participation interest at
$1,850,000 and (ii) established a payment term of 9 1/2 years with interest at
7.5% and monthly payments at $22,739.
On December 31, 1999, the parties to the forbearance agreement entered
into a termination of the forbearance agreement, since all further payment
obligations of the parties are contained in the Amended and Restated Promissory
Note dated as of December 1, 1998, and the related security and guarantee
agreements and amendments thereto.
Approximately 88% of the Company's revenues for fiscal year
1999 were derived from the Arlington Square Project.
AWARD OF BID AND LEASE EXECUTION
On June 22, 1998, the General Services Administration ("GSA"),
an agency of the U.S. Government, executed the lease which contained the
following terms: (i) a firm ten (10) year term beginning October 1, 1998 through
September 30, 2008; and (ii) fixed annual rent of $3,137,043.12 payable at the
rate of $261,420.26 per month in arrears.
In addition, on September 16, 1998, the U.S. Fish and Wildlife Service
executed a ten year lease with ASLP for exclusive use of 231 parking spaces at
the Arlington Square building. The annual rent is $175,000 escalating at 5% per
year.
ELECTION OF DIRECTORS
TWC did not hold an annual or special stockholder's meeting in 1999,
and did not elect directors in 1999.
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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.
On October 25, 1996 at TWC's last 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. These three directors continue to serve.
(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
1.07 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 2008. See "Business Development
- - Award of Bid and Lease Execution." During the year ended December 31, 1999,
approximately 88% of the Company's revenues was derived from income on the
Arlington Square Project. In November 1998, the Arlington Square Project was
refinanced, and in connection therewith, ASLP executed a promissory note and
various other loan documents and TWC entered into a guaranty agreement with
MetLife. See "Description of Properties - Arlington Square Project" and
"Business Development - Recent Developments Refinancing of the Arlington Square
Loan."
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 four parcels of
unimproved land - Timberlake, River Oaks, Winchester, and Port-O-Dumfries. TWC
is currently marketing or considering marketing each of these properties for
sale.
MANAGEMENT OF REAL ESTATE
TWC manages the Arlington Square Project. TWC receives management fees
equal to 5% of
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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. Additional county, state and federal permits will be
required for a purchaser to develop each of the Company's four properties held
for resale and the receipt of such permits and approvals may be a condition of
any purchase contract.
EMPLOYEES
As of December 31, 1999, the Company employed four 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.
The following table summarizes, as of December 31, 1999, 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 46,481 sq. ft. of land with
Square
Project a building of approximately
135,000 sq. ft. in
Arlington County, Va. 74% $21,105,417 12/10 0 12,352,799 2,307,794 $17,193,631 (3)
$ 1,672,613 06/08
Timberlake 48 acres of land zoned
for residential development
located in Charles
County, Md. (1) 100% - 297,771 - (97,771) $ 200,000 (4)
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, 1999.
(3) This amount reflects depreciation, deferred loan closing costs, and
deferred rental concessions.
(4) The value of the Timberlake property was written down an additional
$1,057,449 in 1999, the amount of principal and interest outstanding on a
loan secured by an additional 3.3 of the original 361 acres of the
property, to reflect the foreclosure by the lender on such 313 acres. Also
in 1998, the value of the property was written down $547,122 to reflect
the lower property value.
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PROPERTIES
ARLINGTON SQUARE PROJECT
TWC, directly and through a wholly-owned affiliate, owns a 74% interest
in ASLP. ASLP owns 1.07 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 2008. The terms of the lease require the tenant
to pay base rent plus its proportionate share of certain operating expense
increases. During 1999 and 1998, the Company realized rental income from such
lease and the previous lease amounting to approximately $3,330,000 and
$3,181,000, respectively, per year, or approximately $24.67 and $23.39,
respectively, per rentable square foot based on a BOMA standard. During 1999 and
1998, approximately 88% and 96%, respectively, of the Company's revenues was
derived from the Arlington Square Project.
On November 25, 1998, the Allied Loan was repaid with proceeds
of a loan secured by the Arlington Square Project from MetLife in the original
principal amount of $21,500,000. At the closing of the MetLife Loan, $21,500,000
was disbursed (i) to repay the Allied Loan in the amount of $20,600,000; (ii) to
pay for certain costs associated with the MetLife Loan; and (iii) to fund an
escrow account for future tenant improvements in the amount of $656,000. The
MetLife Loan has a fixed interest rate of 6.80% and matures on December 1, 2010.
See "Description of Properties - Arlington Square Project".
The Allied Loan, closed on November 21, 1997, included a 30%
participation for Allied in the net cash flow and equity of the Arlington Square
Project (the "Allied Participation Interest"). The Allied Participation Interest
survives any repayment of the Allied Loan. Therefore, upon refinancing of the
Allied Loan with the MetLife Loan, the Company entered into a forbearance
agreement with Allied for the repurchase of the Allied Participation Interest.
Under the forbearance agreement, the Company agreed to pay Allied $1,850,000 for
the Allied Participation Interest, payable over 9 1/2 years at 7.5% interest
requiring monthly payments of $22,739. In return, Allied agreed to forbear on
certain of its surviving rights and subordinated its deed of trust to MetLife's
deed of trust.
FORBEARANCE TERMINATION
On December 31, 1999, the parties to the forbearance agreement entered
into a termination of the forbearance agreement, since all further payment
obligations of the parties are contained in the Amended and Restated Promissory
Note dated as of December 1, 1998, and the related security and guarantee
agreements and amendments thereto.
INTEREST PAYMENTS AND AMORTIZATION
The annual interest rate on the outstanding principal balance of the
Metlife Loan in the amount of $21,500,000 is 6.80% payable in monthly principal
and interest payments of $147,058. The note matures on December 1, 2010. The
MetLife Loan is amortized over 26 years with a balloon payment of all remaining
indebtedness after 12 years. Prepayment of the MetLife Loan is not permitted
during the first six years of the term, and is permitted thereafter with a
prepayment penalty.
ESCROW AND RESERVE ACCOUNTS
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The MetLife Loan requires that ASLP fund $20,155 monthly into an escrow
account held by MetLife for the purpose of paying the semi-annual payments of
real estate taxes. ASLP is also required to deposit $12,500 per month into a
Leasing Escrow account held by MetLife 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 METLIFE LOAN
Payment of obligations under the MetLife Loan are secured by (i) the
Deed of Trust, Security Agreement and Fixture Filing, dated November 25, 1998
among ASLP and trustees for the benefit of MetLife (the "MetLife Deed of
Trust"); (ii) the Assignment of Leases dated November 25, 1998 between ASLP and
MetLife; and (iii) the Assignment of Contracts and Agreements dated November 25,
1998, between ASLP and MetLife.
In a Guaranty Agreement dated November 25, 1998, TWC has guaranteed to
MetLife the payment and performance of certain obligations of ASLP under the
Note and the other documentation related to the MetLife Loan. In a separate
Unsecured Indemnity Agreement, dated November 25, 1998, TWC has indemnified
MetLife against any Environmental Claims, as defined in the Unsecured Indemnity
Agreement, which directly or indirectly relate to the Arlington Square Property.
Finally, TWC has entered into a Subordination of Management Agreement dated
November 25, 1998, whereby TWC subordinates all of its rights under the
Management Agreement between TWC and ASLP to any obligations of ASLP to MetLife.
GENERAL INFORMATION
For federal income tax purposes at December 31, 1999, 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>
<S> <C>
Land $ 2,791,072
Building 19,389,512
Tenant improvements 1,587,548
Equipment 29,126
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23,797,258
Less accumulated depreciation (7,077,615)
Total $ 16,719,643
</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 1999 ASLP paid an
aggregate of $212,386 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
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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 1999
and 1998, the Company recorded revenues of $112,807 and $111,285 respectively,
under the lease agreement.
TIMBERLAKE
TWC, through wholly-owned subsidiaries, owns 48 acres for future
residential development in Charles County, Maryland. The Company has no plans
for the future development of the Timberlake property, as its preliminary site
plan was voided by the foreclosure by the note holder on 313 additional acres.
The Company believes that the remaining 48 acres can be divided into a maximum
of seven lots, depending on the results of percolation tests and the issuance of
on-site sewage discharge permits by the State of Maryland. The Company has not
taken any steps to obtain such tests or permits or to otherwise prepare to
divide the property into lots. See "Business Development - Recent Developments -
Timberlake."
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.
The Company has no 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 4550 Montgomery
Avenue, Suite 220 North, Bethesda, Maryland 20814, which expires on January 31,
2004. Currently, TWC's rent obligations under the lease are $22,944 per annum.
The rent increases annually at a rate of 3%.
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,
1999, are fully under lease to tenants until 2008 and 2024, respectively.
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, 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, 1999,
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 1999 or 1998. Consequently, TWC does not have any information concerning
high and low bids on any class of its common stock during 1999 or 1998.
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, 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.
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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, 1998, 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, 1999, the Company's total assets
were reduced by $1,664,000 from $21,118,000 to $19,454,000. Such decrease was
primarily the result of depreciation of operating property and equipment and an
increase in the valuation allowance of $1,155,000 on Timberlake, offset, in
part, by increases in cash and cash equivalents and escrow deposits.
Real estate and development property decreased by $1,155,000
from $1,563,000 at December 31, 1998 to $408,000 at December 31,1999. This
decrease was primarily the result of an increase in the valuation allowance of
$1,155,000 on the Timberlake property.
Operating property and equipment decreased by $772,000 from $17,966,000
at December 31, 1998 to $17,194,000 at December 31, 1999. 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 decreased by $89,000 from $829,000 at
December 31, 1998 to $740,000 at December 31, 1999. Such decrease was primarily
the result of escrow deposits made on the Arlington Square Project.
Escrow deposits increased by $190,000 from $58,000 at December 31, 1998
to $248,000 at December 31, 1999. Such increase was primarily the result of
periodic deposits made to the reserves on the Arlington Square Project.
Other assets increased by $162,000 from $302,000 at December 31, 1998
to $464,000 at December 31, 1999. This increase was the result of an increase in
rent receivable on the Arlington Square Project and build out fees earned by
Arlington Square, Inc.
During the year ended December 31, 1999, the Company's total
liabilities decreased by $1,479,000 from $24,726,000 at December 31, 1998 to
$23,247,000 at December 31, 1999. Such decrease was primarily the result of the
default of the purchase money mortgage on the Timberlake Project and the
subsequent foreclosure.
Notes payable - Arlington Square Project decreased by $451,000 from
$23,350,000 at December 31, 1998 to $22,899,000 at December 31, 1999. Such
decrease was the result of principal payments on the two mortgages.
12
<PAGE>
Other notes and loans payable decreased by $892,000, from $892,000 to
$0, as a result of the default of the purchase money mortgage on the Timberlake
Project and the subsequent foreclosure. (See "Business Development - Recent
Developments - Timberlake").
Accrued interest payable decreased by $180,000 from $311,000 at
December 31, 1998 to $131,000 at December 31, 1999. This decrease was the result
of the default of the purchase money mortgage on the Timberlake Project. (See
"Business Development - Recent Developments - Timberlake").
Accounts payable and other liabilities increased by $45,000 from
$173,000 at December 31, 1998 to $218,000 at December 31, 1999. Such increase
was primarily the result of an increase in accrued expenses.
RESULTS OF OPERATIONS
Revenues increased by $271,000 from $3,328,000 for the year ended
December 31, 1998 to $3,599,000 for the year ended December 31, 1999. Such
increase was primarily the result of an increase in operating property income
and other income.
Operating property rental income increased by $67,000 from $3,181,000
for the year ended December 31, 1998 to $3,248,000 for the year ended December
31, 1999. This increase was the result of increased income received from the
Arlington Square Project, which is the Company's primary source of rental
income.
Other income increased by $212,000 from $23,000 for the year ended
December 31, 1998 to $235,000 for the year ended December 31, 1999. This
increase was attributable to build out fees earned by Arlington Square, Inc.
related to the build-out of the Arlington Square Project.
Total expenses decreased by $1,145,000 from $4,119,000 for the year
ended December 31, 1998 to $2,974,000 for the year ended December 31, 1999. This
decrease is primarily due to a decrease in interest expense, a decrease in
provision for estimated losses on asset valuation adjustments, and a decrease in
general and administrative expenses, offset, by an increase in operating
property expenses and other expenses.
During 1998, the Company recorded a provision for estimated losses on
asset dispositions in the amount of $547,000. For 1999, the Company increased
the provision by an additional $98,000. This provision was due to the reduction
in net realizable value of certain real estate and development properties of the
Company.
Interest expense decreased by $697,000 from $2,256,000 for the year
ended December 31, 1998 to $1,559,000 for the year ended December 31, 1999. This
decrease was the result of a refinancing of the mortgage on the Arlington Square
Project in 1998, and the resulting one-time recognition of the additional
interest liability to the previous mortgage lender.
Operating property expenses increased by $63,000 from $807,000 for the
year ended December 31, 1998 to $870,000 for the year ended December 31, 1999.
This increase is due to an increase in operating expenses relating to the
Arlington Square Project.
13
<PAGE>
General and administrative expenses decreased by $22,000 from $470,000
for the year ended December 31, 1998 to $448,000 for the year ended December 31,
1999. This decrease is due to a decrease in administrative expenses relating to
the Arlington Square Project.
Other expenses decreased by $39,000 from $39,000 for the year ended
December 31, 1998 to $0 for the year ended December 31, 1999. This decrease was
primarily the result of a decrease in consulting fees.
Net income (loss) before depreciation and amortization increased by
$1,415,000 to income of $624,000 for the year ended December 31, 1999 from a
loss of $791,000 for the year ended December 31, 1998. Such increase was a
result of a decrease in total expenses as described above, including an increase
in revenues.
Depreciation and amortization decreased by $604,000 from $1,413,000 for
the year ended December 31, 1998 to $809,000 for the year ended December 31,
1999. This decrease was the result of a one-time amortization for the
un-amortized portion of the loan closing costs from the previous mortgage lender
on the Arlington Square Project in 1998.
Net loss before extraordinary loss decreased by $2,019,000 from a net
loss of $2,204,000 for the year ended December 31, 1998 to a net loss of
$185,000 for the year ended December 31, 1999. This decrease was the result of
the changes in the items described above.
Extraordinary loss decreased by $1,750,000 from $1,750,000 for the year
ended December 31, 1998 to $0 in 1999. The extraordinary loss in 1998 was the
result of a one-time charge incurred on the Arlington Square project as a result
of interim financing. The lender required a participation interest in the
Arlington Square project as a condition of entering into the mortgage agreement.
When the mortgage was refinanced in 1998, the participation interest was valued
at $1,750.000.
LIQUIDITY AND CAPITAL RESOURCES: OUTLOOK
The Company's primary sources of funds for 1999 came from rental income
and property management fees. As of December 31, 1999, the Company had cash and
cash equivalents and escrow deposits totaling approximately $988,000 of which
$248,000 was escrow deposits. The Company expects its primary source of funds
for 2000 to again be rents received on the Arlington Square Project.
During 1999, cash and cash equivalents decreased by $88,000 as compared
to an increase of $606,000 for 1998. The increase in 1998 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. Additionally, it is attributable
to the refinancing of debt that provided cash.
Future sources of funds are anticipated to come from the rents and
property management fees. 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 $168,000 annually. 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.
14
<PAGE>
The Company's primary use of operating funds is anticipated to be for
corporate overhead expenses and principal and interest payments on the ASLP
Notes.
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. These three directors continue to serve.
The Company does not have a plan to address its liquidity problems
other than to continue to try to sell assets held for investment and to continue
to manage and collect rents from the Arlington Square Project. If these attempts
are not successful, or, if the Arlington Square Project were to suffer a
significant setback, 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.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Independent Auditor's Report 17
Consolidated Balance Sheets at December 31, 1999 and 1998 18
Consolidated Statements of Operations for the years ended
December 31, 1999 and December 31, 1998 19
Consolidated Statements of Stockholders' (Deficiency) Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22-29
</TABLE>
16
<PAGE>
700 KING FARM BOULEVARD
ROCKVILLE, MARYLAND 20850
[ARONSON FETRIDGE & WEIGLE LOGO] PHONE 301.231.6200
FAX 301.231.7630
WWW.AFWCPA.COM
INDEPENDENT AUDITOR'S 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, 1999 and
1998, and the related Consolidated Statements of Operations, Stockholders'
Equity and Cash Flows for the years ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required 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, 1999 and 1998, 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 have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 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 13. 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.
/s/ Aronson, Fetridge & Weigle
Rockville, Maryland
March 8, 2000
CERTIFIED PUBLIC ACCOUNTANTS
AND MANAGEMENT CONSULTANTS [MRI LOGO]
- -------------------------------------------------------------------------------
17
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Real estate and development property (Notes 1,2, and 6) $ 408,000 $ 1,563,220
Operating property and equipment, net (Notes 1,2, 5 and 6) 17,193,631 17,965,953
Cash and cash equivalents (Note 1) 740,401 828,893
Escrow deposits (Note 5) 247,964 57,655
Land purchase leaseback (Note 3) 400,000 400,000
Other assets (Note 4) 463,927 301,884
------------ ------------
Total Assets $ 19,453,923 $ 21,117,605
============ ============
LIABILITIES
Note payable - Arlington Square Project (Note 5) $ 22,898,870 $ 23,350,000
Other notes and loans payable (Note 6) 0 891,698
Accrued interest payable 130,758 310,985
Accounts payable and other liabilities 217,707 173,298
------------ ------------
Total Liabilities 23,247,335 24,725,981
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2,3,5,10,11 and 12)
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, $.01 par value; shares issued (Notes 1 and 9)
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 (6,615,301) (6,430,266)
------------ ------------
Total Stockholders' (Deficit) Equity (3,793,411) (3,608,376)
Total Liabilities and Stockholders' (Deficit) Equity $ 19,453,924 $ 21,117,605
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
18
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Operating property rental income (Note 2) $ 3,247,726 $ 3,181,202
Rent from land purchase leaseback (Note 3) 112,807 111,285
Other income 235,491 23,051
Interest income 2,719 12,350
Total revenues 3,598,743 3,327,888
----------- -----------
EXPENSES
Provision for estimated losses on asset value adjustments (Note 2) 97,771 547,122
Interest expense (Notes 5 and 6) 1,558,577 2,255,559
Operating property expenses 870,484 806,651
General and administrative expenses 447,490 470,269
Other expenses 39,000
----------- -----------
Total expenses 2,974,322 4,118,601
----------- -----------
NET (LOSS) INCOME BEFORE DEPRECIATION AND AMORTIZATION
AND EXTRAORDINARY LOSS 624,421 (790,713)
DEPRECIATION AND AMORTIZATION (NOTE 1) 809,456 1,413,746
----------- -----------
NET LOSS BEFORE EXTRAORDINARY LOSS (185,035) (2,204,459)
EXTRAORDINARY LOSS (NOTE 12) 0 (1,750,000)
----------- -----------
NET LOSS (185,035) (3,954,459)
=========== ===========
LOSS PER COMMON SHARE:
Net loss before extraordinary loss ($ 0.11) ($ 1.34)
=========== ===========
Net loss from extraordinary items $ 0.00 ($ 1.07)
=========== ===========
Net loss ($ 0.11) ($ 2.41)
=========== ===========
Weighted average common shares outstanding 1,640,327 1,640,327
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
19
<PAGE>
THE WASHINGTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 17,069 $ 2,804,821 ($2,475,807) $ 346,083
NET LOSS 0 0 (3,954,459) ($3,954,459)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 17,069 2,804,821 (6,430,266) ($3,608,376)
NET LOSS (185,035) ($ 185,035)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 $ 17,069 $ 2,804,821 ($6,615,301) ($3,793,411)
=========== =========== =========== ===========
</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 CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($185,035) ($3,954,459)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Provision for estimated losses on asset value adjustments 97,771 547,122
Depreciation and amortization 743,856 1,414,924
Amortization of deferred rent concessions 65,600 159,557
Amortization of debt discount on participation liability 0 100,000
Extraordinary loss from equity participation 0 1,750,000
Increase in deferred rental concession 0 (656,000)
(Increase) Decrease in other assets (162,043) 53,110
(Decrease)increase in accrued interest payable (2,778) 51,693
Increase in accounts payable and other liabilities 44,409 108,220
---------- ----------
Net cash provided (used) by operating activities 601,780 (425,833)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (37,134) 0
Withdrawals from restricted escrows 201,550 958,710
Deposits to restricted escrows (391,860) (447,017)
---------- ----------
Net cash provided (used) in investing activities (227,444) 511,693
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Curtailments of mortgage loan (451,130) (20,600,000)
Proceeds from mortgage loan 0 21,500,000
Curtailments on notes payable (11,698) (6,311)
Payment of loan fees and settlement costs 0 (373,477)
Net cash used in financing activities (462,828) 520,212
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (88,492) 606,072
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 828,893 222,821
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $740,401 $828,893
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year $1,561,355 $2,103,866
========== ==========
Noncash transactions
During 1998, the Company satisfied an obligation to the mortgage holder for
a 30% participation interest in its real property by establishing the value of
that interest at $1,850,000 and agreeing to pay that obligation on an
installment basis over 9.5 years (Note 5).
During 1999, the Company defaulted on a purchase money mortgage secured by
real estate. The default resulted in a foreclosure of 313 acres of land
recorded on the financial statement at $1,057,449, that was used to satisfy a
$880,000 note payable secured by the property and $177,449 of accrued
interest.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
21
<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"). All significant intercompany transactions have
been eliminated in consolidation. The Company considers its operating activities
to be all within one operating segment.
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. No interest was capitalized during either
of the periods noted above.
OPERATING PROPERTY AND EQUIPMENT - ARLINGTON SQUARE PROJECT
At December 31, 1999 and 1998, 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, 1999 and 1998, operating property and equipment
consisted of:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land, building and equipment $ 23,250,980 $ 23,363,353
Tenant improvements 1,603,452 1,587,548
Deferred rental concessions, net 574,000 639,600
Deferred loan closing costs, net 278,668 310,516
------------ ------------
25,707,100 25,901,017
Less depreciation and amortization (8,513,469) (7,935,064)
------------ ------------
$ 17,193,631 $ 17,965,953
============ ============
</TABLE>
22
<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, 1999 and 1998, deposited funds of $247,964 and
$57,655, primarily for the Arlington Square Project as required by the lender,
were restricted for replacement reserve, and tax and insurance escrows.
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.
ASSET IMPAIRMENT
It is the Company' policy to review long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
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, owned 363 acres
known as Timberlake in Charles County, Maryland at December 31, 1998. During
1998, management assessed the property's net realizable value and recorded a
$547,122 adjustment to income to lower the property value. In February, 1999,
313 acres of this project was foreclosed upon by the lender. Upon foreclosure,
the recorded value of the property was reduced by $1,057,449 which represented
the outstanding principal balance of $880,000 plus accrued interest of $177,449.
Management has estimated the net realizable value of the property's remaining 48
acres to be $200,000, resulting in an estimated loss on asset valuation of
$97,771 for the year ended December 31, 1999.
The Company also owns 16.6 acres, 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, the Company owns 23.21 acres in Memphis, Tennessee zoned
for multi-family
23
<PAGE>
garden apartments and seven townhome lots in Dumfries, Virginia. These
properties are recorded on the balance sheet at an aggregate value of $8,000.
NOTE 3
LAND LEASE
The Company owns 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. As of December 31, 1999, the minimum
lease payments due pursuant to this lease through expiration are as follows:
<TABLE>
<S> <C> <C>
2000 78,000
2001 78,000
2002 78,000
2003 78,000
2004 78,000
Thereafter 1,579,500
----------
$1,969,500
</TABLE>
NOTE 4
OTHER ASSETS
Other assets includes rent receivable from the tenant in the Arlington
Square Project in the amounts of $285,901 and $257,473 at December 31, 1999 and
December 31, 1998, respectively.
NOTE 5
INSTALLMENT OBLIGATIONS - ARLINGTON SQUARE PROJECT
From November 1997 to November 25, 1998, ASLP's property was encumbered
by two mortgage notes to Allied in the amount of $24,300,000. The outstanding
principal balance on the mortgage loans accrued interest at a blended rate of
10%, based on the LIBOR. The notes were cash-flow mortgages with all excess cash
flow, as defined, being applied to reduce the principal balance and to fund the
required escrows. One of the mortgage agreements provided for the lender to
receive a participation interest of 30% in the net cash flow and a 30% equity
value in the property if and when it is sold, with such provision to survive any
payoff of the mortgage.
On November 25, 1998, ASLP refinanced the above described mortgages
with a new mortgage with MetLife in the amount of $21,500,000, secured by a
first deed of trust on the land and building. This note bears interest at 6.8%
and both principal and interest are payable in monthly installments of $147,058
beginning in January 1999, with the outstanding principal of approximately $15.9
million balance due on December 1, 2010.
On December 1, 1998, ASLP entered into a forbearance agreement with
Allied whereby Allied gave notice of demand for full payment of its
participation interest in the equity value of the property and established the
value of that interest at $1,850,000, including Allied's cash flow interest for
the period October 1 through December 31, 1998. Under the agreement, the
partnership is to pay Allied its participation interest in equal monthly
installments of $22,739, including interest at 7.5% over a term of
24
<PAGE>
9 1/2 years. Allied's participation interest is collaterized by a deed of trust
in the real estate and is guaranteed by all of the partners. Each partner's
guarantee is secured by a pledge of its interest in the partnership. Allied
agreed to forebear on certain of its surviving rights from the mortgage note,
including an abatement of its right to the property's net cash flow, provided
all payments under the agreement are paid when due. In addition, Allied
subordinated its deed of trust to the deed of trust of MetLife.
At December 31, 1999, the scheduled future maturities of the
obligations is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ------
<S> <C> <C>
2000 $ 483,819
2001 518,882
2002 556,491
2003 596,833
2004 640,106
Thereafter 20,102,739
-----------
$22,898,870
On December 31, 1999, the parties to the forbearance agreement entered
into a termination of the forbearance agreement, since all further payment
obligations of the parties are contained in the Amended and Restated Promissory
Note dated as of December 1, 1998.
NOTE 6
OTHER NOTES AND LOANS PAYABLE
Other notes and loans payable at December 31, 1999 and 1998 consisted
of the following:
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C> <C>
Notes payable collateralized by real estate bearing interest
at 10%, payable interest only until final
maturity in January, 1998. The real estate securing this
note was foreclosed upon in February 1999 in satisfaction of
this note payable. ---- $ 880,000
Note payable with bank, secured by automobile, bearing interest
at 8.25%, payable in monthly principal and interest payments
of $630, due August 7, 2000. Paid in full in 1999. ---- 11,698
------------ ----------
Total ---- $ 891,698
============ ==========
</TABLE>
25
<PAGE>
NOTE 7
INCOME TAXES
As of December 31, 1999, the Company had tax net operating loss
carryforwards of approximately $18,226,000. The deferred tax asset associated
with these net operating loss carryforwards of approximately $7,290,000 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> <C> <C>
2004 - $1,309,000 2007 - $9,405,000
2005 - 5,652,000 2008 - 1,429,000
2006 - 155,000 2018 - 91,000
2019 - 185,000
</TABLE>
NOTE 8
RELATED PARTY TRANSACTIONS
During 1999 and 1998, the Company engaged a law firm in which one
current director of the Company serves as partner in the firm. During 1999 and
1998, the Company paid $9,636 and $16,033, respectively, in fees to this law
firm. During 1999, the Company paid $20,023 of consulting fees for construction
services to an entity affiliated with another current director.
NOTE 9
COMMON STOCK AND DISTRIBUTIONS
In connection with a reorganization in 1992, the equity interests of
the Company have been 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 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").
26
<PAGE>
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, 1999, the number of common shares outstanding is as
follows:
<TABLE>
<S> <C> <C>
Class A 1,640,327
Class B 21,476
Class C 45,119
NOTE 10
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, 2008. During the years ended December 31, 1999 and 1998, the
Company realized income from this lease of approximately $3,248,000 and
$3,181,000, respectively, or 88% and 96% 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 minimum lease payments due pursuant to this lease at December 31,
1999 are as follows:
<CAPTION>
<S> <C> <C>
2000 $ 3,181,202
2001 3,181,202
2002 3,181,202
2003 3,181,202
2004 3,137,043
Thereafter 12,548,172
-----------
Total $28,410,023
===========
NOTE 11
OFFICE LEASE
In January 1999, the Company executed an operating lease as lessee, for
its office space which expires January 31, 2004. The rent increases annually by
3%. The future annual rents under this lease are:
<CAPTION>
<S> <C> <C>
2000 23,575
2001 24,281
2002 25,006
2003 25,750
2004 2,151
--------
Total $100,763
========
</TABLE>
27
<PAGE>
Rental expense under the Company's office lease agreements was $20,645
and $15,828 for 1999 and 1998, respectively.
NOTE 12
EXTRAORDINARY LOSS
In accordance with Statement of Position 97-1, "Accounting by
participating Mortgage Loan Borrowers" issued by the American Institute if
Certified Public Accountants, during 1998, the Partnership established a
participation liability and a debt-discount for the fair value of the
participation interest with its lender (Note 5).
In 1998, the participation interest in the equity value was converted
to a note and a forbearance agreement was executed dated December 1, 1998 (Note
5). As such, the unamortized portion of the debt-discount, net of the gain on
the conversion of the participation liability, has been recorded as an
extraordinary loss of $1,750,000.
NOTE 13
GOING CONCERN
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.
NOTE 14
NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic net loss per share computations for 1999 and 1998:
<TABLE>
<CAPTION>
1999
----------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic net loss per share
Net loss $ (185,035) 1,706,922 $ (.11)
============ ========= =========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
1999
----------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net loss before extraordinary loss $ (2,204,459)
Basic net loss per share
Net loss before extraordinary loss (2,204,459) 1,706,922 (1.34)
Extraordinary loss (1,750,000) 1,706,922 (1.07)
------------ --------- -----------
Net loss $ (3,954,459) 1,706,922 $ (2.41)
============ ========= ===========
</TABLE>
29
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
30
<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 1999. 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 63 Chairman of the Board of Directors,
Chief Executive Officer and President
Jonathan C. Kinney 54 Director
Jose Ma. C. Castro 44 Director
Geraldine Piatt 64 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
31
<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 1999.
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, 1999 ("Fiscal 1999"), December 31, 1998
("Fiscal 1998") and December 31, 1997 ("Fiscal 1997"):
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 1999 74,000 - - 24,852 (1)
and President
1998 72,843 - - 24,852 (1)
1997 38,111 - - 24,852 (1)
</TABLE>
(1) Since August 1993, TWC has paid the premiums on a life insurance policy for
Mr. Demas ("the Demas Policy"). The amounts shown represent TWC's total annual
payments therefor in Fiscal 1999 and Fiscal 1998. 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 1999, Fiscal 1998, and Fiscal 1997. 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
32
<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 approximately $63,000 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 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 1999.
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, 1999, (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, 1999.
<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
Common Stock 4,116 9.1
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. The authorized New Shares
equal the number of New Shares issued and outstanding. Under the plan of
reorganization, shareholders could claim their New Shares until July 30, 1995,
after which date TWC would have the right to cancel any and all of the unclaimed
New Shares. Because the New Shares have not been registered
33
<PAGE>
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.
34
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of December 31, 1999, 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 Owner(1) 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, 4550 Montgomery
Avenue, Suite 220 North, 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 1999,
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 1999 and Fiscal 1998, the Company paid legal fees of
approximately $9,636 and $16,033 respectively to Bean, Kinney & Korman, P.C.,
the law firm in which Mr. Kinney is partner and stockholder.
35
<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
36
<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, which was filed as Exhibit 10.9
to the Company's Form 10-KSB filed with the Commission on May 8, 1998,
is incorporated herein by reference.
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, which was filed as Exhibit 10.10
to the Company's Form 10-KSB filed with the Commission on May 8, 1998,
is incorporated herein by reference.
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, which was filed as Exhibit 10.11 to the
Company's Form 10-KSB filed with the Commission on May 8, 1998, is
incorporated herein by reference.
10.12 Amended and Restated Agreement of Limited Partnership of Arlington
Square Limited Partnership, which was filed as Exhibit 10.12 to the
Company's Form 10-KSB filed with the Commission on May 8, 1998, is
incorporated herein by reference.
10.13 Assignment of Leases and Rents dated November 20, 1997 by Arlington
Square Limited Partnership to Allied Capital Commercial Corporation,
which was filed as Exhibit 10.13 to the Company's Form 10-KSB filed
with the Commission on May 8, 1998, is incorporated herein by
reference.
10.14 Assignment of Leases and Rents (GSA) dated November 20, 1997 by
Arlington Square Limited Partnership to Allied Capital Commercial
Corporation, which was filed as Exhibit 10.14 to the Company's Form
10-KSB filed with the Commission on May 8, 1998, is incorporated herein
37
<PAGE>
by reference.
10.15 Guaranty by Arlington Square Limited Partnership to Allied Capital
Commercial Corporation, on May 8, 1998, is incorporated herein by
reference. which was filed as Exhibit 10.15 to the Company's Form
10-KSB filed with the Commission.
10.16 Indemnity Agreement dated November 20, 1997 between Arlington Square
Limited Partnership and Allied Capital Commercial Corporation, which
was filed as Exhibit 10.16 to the Company's Form 10-KSB filed with the
Commission on May 8, 1998, is incorporated herein by reference.
10.17 Deed of Trust and Security Agreement "A" dated November 20, 1997
between Arlington Square Limited Partnership and Allied Capital
Commercial Corporation, which was filed as Exhibit 10.17 to the
Company's Form 10-KSB filed with the Commission on May 8, 1998, is
incorporated herein by reference.
10.18 Deed of Trust and Security Agreement "B" dated November 20, 1997
between Arlington Square Limited Partnership and Allied Capital
Commercial Corporation, which was filed as Exhibit 10.18 to the
Company's Form 10-KSB filed with the Commission on May 8, 1998, is
incorporated herein by reference.
10.19 Assignment of Limited Partnership interest of Ashton Glen Associates
dated December 11, 1997 from The Washington Corporation to K-F
Associates, which was filed as Exhibit 10.19 to the Company's Form
10-KSB filed with the Commission on May 8, 1998, is incorporated herein
by reference.
10.20 First Amendment to the Limited Partnership Agreement of Ashton Glen
Associates dated December 11, 1997 which was filed as Exhibit 10.20 to
the Company's Form 10-KSB filed with the Commission on May 8, 1998, is
incorporated herein by reference.
10.21 Promissory Note dated November 25, 1998 in the original principal
amount of $21,500,000 with Arlington Square Limited Partnership as
borrower and Metropolitan Life Insurance Company as holder, which was
filed as Exhibit 10.21 to the Company's Form 10-KSB filed with the
Commission on June 2, 1999, is incorporated herein by reference.
10.22 Deed of Trust, Security Agreement and Fixture Filing from Arlington
Square Limited Partnership to Keith J. Willner and Scott A. Morehouse
as Trustees for the benefit of Metropolitan Life Insurance Company,
dated November 25, 1998, which was filed as Exhibit 10.22 to the
Company's Form 10-KSB filed with the Commission on June 2, 1999, is
incorporated herein by reference.
10.23 Assignment of Leases between Arlington Square Limited Partnership and
Metropolitan Life Insurance Company dated November 25, 1998, which was
filed as Exhibit 10.23 to the Company's Form 10-KSB filed with the
Commission on June 2, 1999, is incorporated herein by reference.
10.24 Assignment of Contracts and Agreements between Arlington Square Limited
Partnership and Metropolitan Life Insurance Company dated November 25,
1998, which was filed as Exhibit 10.24 to the Company's Form 10-KSB
filed with the Commission on June 2, 1999, is
38
<PAGE>
incorporated herein by reference.
10.25 Unsecured Indemnity Agreement among Arlington Square Limited
Partnership, Metropolitan Life Insurance Company and The Washington
Corporation dated November 25, 1998, which was filed as Exhibit 10.25
to the Company's Form 10-KSB filed with the Commission on June 2, 1999,
is incorporated herein by reference.
10.26 Financing Statement dated November 25, 1998 executed by Arlington
Square Limited Partnership as debtor and Metropolitan Life Insurance
Company as secured party, which was filed as Exhibit 10.26 to the
Company's Form 10-KSB filed with the Commission on June 2, 1999, is
incorporated herein by reference.
10.27 Subordination of Management Agreement dated November 25, 1998 by and
among The Washington Corporation, Arlington Square Limited Partnership
and Metropolitan Life Insurance Company, which was filed as Exhibit
10.27 to the Company's Form 10-KSB filed with the Commission on June 2,
1999, is incorporated herein by reference.
10.28 Guaranty Agreement dated November 25, 1998 by and between The
Washington Corporation, Arlington Square Limited Partnership and
Metropolitan Life Insurance Company, which was filed as Exhibit 10.28
to the Company's Form 10-KSB filed with the Commission on June 2, 1999,
is incorporated herein by reference.
10.29 Subordination Agreement dated November 25, 1998, by and among Arlington
Square Limited Partnership, Metropolitan Life Insurance Company and
Allied Capital Commercial Corporation, which was filed as Exhibit 10.29
to the Company's Form 10-KSB filed with the Commission on June 2, 1999,
is incorporated herein by reference.
10.30 Subordination, Non-Disturbance and Attornment Agreement among
Metropolitan Life Insurance Company, Arlington Square Limited
Partnership and United States of America - General Services
Administration dated November 25, 1998, which was filed as Exhibit
10.30 to the Company's Form 10-KSB filed with the Commission on June 2,
1999, is incorporated herein by reference.
10.31 Subordination, Non-Disturbance and Attornment Agreement among
Metropolitan Life Insurance Company, U.S. Fish and Wildlife Service,
and Arlington Square Limited Partnership, dated November 25, 1998,
which was filed as Exhibit 10.31 to the Company's Form 10-KSB filed
with the Commission on June 2, 1999, is incorporated herein by
reference.
10.32 Forbearance Agreement dated December 1, 1998, by and among Arlington
Square Limited Partnership, Arlington Square, Inc., The Washington
Corporation, and Allied Capital Corporation, is attached hereto.
10.33 Amended and Restated Promissory Note dated December 1, 1998, in the
original principal amount of $1,850,000 with Arlington Square Limited
Partnership as borrower and Allied Capital Corporation as holder, is
attached hereto.
10.34 Termination of Forbearance Agreement dated December 31, 1999, by and
among Arlington
39
<PAGE>
Square Limited Partnership, Arlington Square, Inc., The Washington
Corporation, and Allied Capital Corporation, is attached hereto.
10.35 First Modification to Deed of Trust and Security Agreement "B" dated
November 24, 1998, by and between Arlington Square Limited Partnership
and Allied Capital Corporation, is attached hereto.
10.36 Second Modification to Deed of Trust and Security Agreement "B" dated
December 31, 1999, by and between Arlington Square Limited Partnership
and Allied Capital Corporation, is attached hereto.
10.37 Guarantor's Consent and Acknowledgment dated November 24, 1998, by and
between Arlington Square Limited Partnership and Allied Capital
Corporation, is attached hereto.
11. Computation of per share earnings for the years ended December 31, 1999
and 1998 is attached hereto.
21. Subsidiaries of the Registrant as of December 31, 1999 is attached
hereto.
(b) REPORTS ON FORM 8-K. The Company filed no report on Form 8-K during
fourth quarter of 1999.
40
<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: 4/14/00 By: /s/ WILLIAM N. DEMAS
------------------ --------------------------------
William N. Demas
Chairman of the Board of Directors/
President
Date: 4/14/00 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: 4/14/00 By: /s/ WILLIAM N. DEMAS
------------------ --------------------------------
William N. Demas
Chairman of the Board of Directors/
President
Date: 4/14/00 By: /s/ JONATHAN C. KINNEY
------------------ --------------------------------
Jonathan C. Kinney
Director
Date: 4/14/00 By: /s/ JOSE MA. C. CASTRO
------------------ --------------------------------
Jose Ma. C. Castro
Director
41
<PAGE>
EXHIBIT 10.32 FORBEARANCE AGREEMENT
<PAGE>
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of December, 1998 and is by and between ARLINGTON SQUARE LIMITED
PARTNERSHIP, a Virginia limited partnership ("Borrower"); ARLINGTON SQUARE,
INC., THE WASHINGTON CORPORATION, WILLIAM N. DEMAS, JOHN D. WOLF, JONATHAN C.
KINNEY and BARBARA A. KINNEY, as tenants by the entirety, DAVID B. KINNEY and
K-F ASSOCIATES L.C. (individually, a "Guarantor" and collectively, the
"Guarantors"); and ALLIED CAPITAL CORPORATION, a Maryland limited partnership
and successor to Allied Capital Commercial Corporation ("Lender"). The
Borrower, the Lender and the Guarantors are sometimes hereinafter
collectively referred to herein as the "parties."
RECITALS:
R-1. Pursuant to the terms of a Loan Agreement dated November 20, 1997 (the
"Loan Agreement") by and between, among others, Borrower and Lender, and the
documents entered into in connection therewith, Lender made a loan (the "Loan")
to Borrower in the original principal amount of Twenty-four Million three
Hundred Thousand Dollars ($24,300,000.00).
R-2. The Loan was evidenced by two (2) promissory notes dated November 20,
1997 from Borrower to Lender, one of which was in the original principal amount
of $23,300,000.00 ("Note A") and the other was in the original principal amount
of $1,000,000.00 (as modified by Allonge and Modification to Promissory Note
dated April 23, 1998, "Note B").
R-3. Repayment of Note A is secured by, among other things, the lien of that
certain Deed of Trust and Security Agreement "A" dated as of November 20, 1997,
<PAGE>
executed by Borrower to Walker Title and Escrow Company, Inc. as trustee for the
benefit of Lender ("Trustee") and recorded among the official land records of
Arlington County, Virginia (the "Official Land Records") in Deed Book 2860, Page
1501 ("Deed of Trust A") encumbering the real property located at 4401 Fairfax
Drive, Ballston, Virginia 22201 and more particularly described therein at
Exhibit A thereto (the "Property").
R-4. Repayment of Note B is secured by, among other things, the lien of that
certain Deed of Trust and Security Agreement "B" dated as of November 20, 1997,
executed by Borrower to Trustee and recorded among the Official Land Records in
Deed Book 2860, Page 1530 ("Deed of Trust B") encumbering the Property.
R-5. Borrower has this dated borrowed from Metropolitan Life Insurance
Company, a New York corporation (MetLife"), the sum of Twenty-One Million Five
Hundred Thousand Dollars (21,500,000.00) (the "MetLife Loan"), the proceeds of
which have been used primarily to repay all sums due and payable pursuant to
Note A, and Deed of Trust A has been released of record, and to repay the
principal amount of and accrued but unpaid interest under Note B, leaving
Lender's participation interest (the "Participation Interest") in the Property's
net cash flow and the Property's equity value pursuant to Subparagraph 2(g) of
Note B remaining due and payable by Borrower to Lender pursuant to Note B.
R-6. Repayment of the MetLife Loan is secured by, among other things, the
lien of a deed of trust upon the Property (the "MetLife Deed of Trust").
R-7. At the request of MetLife and the Borrower, Lender has subordinated the
lien of Deed of Trust B to the lien of the MetLife Deed of Trust and has entered
into a certain Subordination Agreement with MetLife concerning the MetLife Loan
and the Participation Interest in the Property's net cash flow and equity value
remaining due and
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<PAGE>
payable to Lender pursuant to Note B. In consideration of the foregoing, the
Guarantors, who are all of the Borrower's partners, have, pursuant to a separate
guaranty agreement of even date herewith made by each Guarantor (individually, a
"Guaranty" and collectively, the "Guarantees"), guaranteed to Lender payment in
full of Lender's Participation Interest in the Property's net cash flow and in
the equity value of the Property pursuant to Note B.
R-8. Each Guarantor's liability pursuant to its Guaranty is secured by a
pledge by the Guarantor of all (or fifty percent (50%), as the case may be) of
their respective partnership interests in Borrower pursuant to certain
Partnership Interest Pledge Agreement of even date herewith (individually, a
"Pledge Agreement", and collectively, the "Pledge Agreements"). Each Guarantor's
partnership interests in Borrower that are pledged pursuant to the Pledge
Agreement executed by such Guarantor, and the proceeds thereof and other
collateral more particularly described in the Pledge Agreement executed by such
Guarantor, is referenced to herein as the "Guarantor's Collateral".
R-9. Pursuant to subparagraph 2(g) of Note B, Lender may demand, by written
notice from Lender to Borrower, full and final payment of its Participation
Interest in the equity value of the Property on that date which is eighteen (18)
months from the date hereof.
R-10. The parties hereto acknowledge and agree that: (a) this Agreement shall
constitute Lender's timely written demand on Borrower for full and final payment
by Borrower of Lender's Participation Interest in the equity value of the
Property on that date which is eighteen (18) months from the date hereof (the
"Equity Participation Maturity Date"); (b) the Lender's Participation Interest
in the equity value of the Property is $1,850,000.00 (the "Equity Participation
Amount") and that said sum shall be due and payable in full pursuant to Note B
on the Equity Participation Maturity Date; and (c) each
3
<PAGE>
Guarantor is obligated to pay said sum pursuant to the provisions of the
Guaranty executed by it, and that such obligation is secured by the Guarantor's
Collateral. The Equity Participation Amount is all-inclusive, and includes any
entitlement of Lender to its Participation Interest in the Property's net
cash-flow during the period October 1, 1998 through December 31, 1998, and any
entitlement of Lender to receive any portion of the MetLife Loan proceeds
remaining after paydown of the Loan (as set forth in R-5) and payment of the
other costs and expenses associated with closing of the MetLife Loan.
R-11. The Guarantors and the Borrower have requested that Lender forebear
from seeking to enforce its rights pursuant to the Guarantees and the Pledge
Agreements in the event that Borrower fails to pay in full to Lender the Equity
Participation Amount on or before the Equity Participation Maturity Date.
R-12. Lender has agreed to so forebear on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the above-premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. The foregoing Recitals are hereby incorporated herein by this reference
as through fully set forth in the body of this Agreement.
2. Attached hereto and incorporated herein as Exhibit A is an amortization
schedule pursuant to which the full Equity Participation Amount is to be repaid
by Borrower to Lender over a period, and at an interest rate, acceptable to the
parties.
3. Provided Borrower timely pays to Lender the monthly amounts set forth in
Exhibit A (such amounts being due and payable on the first of each month,
4
<PAGE>
commencing January 1, 1999), Lender agrees hereby that it shall forebear from
enforcing its rights pursuant to the Guarantees and the Pledge Agreements in the
event that Borrower fails to pay in full to Lender the Equity Participation
Amount on or before the Equity Participation Maturity Date.
4. Borrower shall be entitled to a credit against the Equity Participation
Amount for that portion of the monthly amounts paid to Lender by Borrower
pursuant to the provisions hereof, as set forth in Exhibit A.
5. In the event that Borrower shall fail to pay to Lender any of the
amounts set forth in Exhibit A as and when due, Lender's forbearance
obligations hereunder shall automatically cease and terminate without further
notice to Borrower or the Guarantors, provided, however that in the event
that such failure should occur after the Equity Participation Maturity Date,
Lender agrees hereby that it will not seek to enforce its rights pursuant to
the Guarantees and the Pledge Agreements for a period of ninety (90) days
after the date of written notice to Borrower. Any such notice shall be given
to Borrower pursuant to the provisions of the Loan Agreement.
6. Provided Borrower pays to Lender the amounts set forth in Exhibit A as
and when due, Lender hereby agrees to abate Borrower's obligation to pay
Lender's Participation Interest in the Property's net cash flow as and when
required pursuant to Note B. However, in the event that Borrower shall fail to
pay Lender any of the amounts set forth in Exhibit A as and when due, the
abatement of Borrower's obligation to pay Lender's Participation Interest in the
Property's net cash flow pursuant to Note B shall automatically cease and
terminate without further notice to Borrower or the Guarantors, and, from and
after the date of such failure, Borrower shall be obligated to re-commence the
payment of Lender's Participation Interest in the Property's net cash flow as
and when
5
<PAGE>
due pursuant to Note B. The Borrower's obligation to pay Lender's Participation
Interest in the Property's net cash flow pursuant to Note B shall cease and
terminate upon payment in full of the Equity Participation Amount (which shall
include execution and delivery by Borrower to Lender of a promissory note in the
amount of the remaining Equity Participation Amount which replaces Note B and is
approved by MetLife and contains terms and conditions acceptable to Lender), or,
if sooner, the date that Lender (or its affiliate) realizes upon the partnership
interests in Borrower that are pledged by the Guarantors to the Lender pursuant
to the Pledge Agreements through foreclosure or transfer in lieu of foreclosure
thereunder.
7. Unless otherwise set forth herein, initially capitalized terms shall have
the meanings given them by the Loan Agreement. This Agreement may be entered
into in counterparts.
a. This Agreement shall be governed in accordance with the laws of the State
of Maryland.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BORROWER:
Arlington Square Limited Partnership
By: Arlington Square, Inc.
general partner
By: /s/ William N. Demas
--------------------------------
Name: William N. Demas
Title: President
LENDER:
Allied Capital Corporation
By: /s/ Michael J. Crosius
--------------------------------
Name: William N. Demas
Title: President
GUARANTORS:
Arlington Square, Inc.
By: /s/ William N. Demas
--------------------------------
Name: William N. Demas
Title: President
The Washington Corporation
By: /s/ William N. Demas
--------------------------------
Name: William N. Demas
Title: President
[Signatures Continued on Following Page]
7
<PAGE>
By: /s/ William N. Demas
--------------------------------
Name: William N. Demas
/s/ John D. Wolf
By: /s/ William N. Demas
his attorney in fact
--------------------------------
Name: John D. Wolf
By: /s/ Jonathan C. Kinney
--------------------------------
Name: Jonathan C. Kinney, tenant by the
entirety with Barbara A. Kinney
/s/ Barbara A. Kinney
By: /s/ Jonathan C. Kinney
her attorney in fact
--------------------------------
Name: Barbara A. Kinney, tenant by the
entirety with Jonathan C. Kinney
/s/ David B. Kinney
By: /s/ Jonathan C. Kinney
his attorney in fact
--------------------------------
Name: David B. Kinney
K-F Associates L.C.
/s/ David B. Kinney
By: Jonathan C. Kinney
his attorney in fact
--------------------------------
Name: David B. Kinney
Title: Manager
8
<PAGE>
EXHIBIT 10.33 AMENDED AND RESTATED PROMISSORY NOTE
<PAGE>
Allied Loan No. ______________
AMENDED AND RESTATED
PROMISSORY NOTE
$1,850,000.00 As of December 1, 1998
FOR VALUE RECEIVED the undersigned, ARLINGTON SQUARE LIMITED
PARTNERSHIP, a Virginia limited partnership ("Maker"), absolutely and
unconditionally promises to pay to the order of ALLIED CAPITAL CORPORATION, a
Maryland corporation and successor in interest to Allied Capital Commercial
Corporation, its successors and assigns ("Lender"), the principal sum of One
Million Eight Hundred Fifty Thousand and No/100 Dollars ($1,850,000.00), plus
interest on the principal balance at the rate set forth herein, at Lender's
offices or such other place as Lender may designate in writing.
1. AMENDMENT AND RESTATEMENT: This Amended and Restated Promissory
Note (this "Note") constitutes a complete amendment and restatement of that
certain Promissory Note dated November 27, 1997, as modified by Allonge and
Modification to Promissory Note dated April 23, 1998 (the "Original Note"),
and is subject to the terms of a Loan Agreement by and among Maker, Lender,
and certain others dated November 20, 1997 (the "Loan Agreement"). Lender is
entitled to the benefits of the Loan Agreement and all of the exhibits
thereto, and reference is made thereto for a more particular description of
all rights and remedies thereunder. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in the Loan Agreement. All
Maker's obligation pursuant to the Original Note are superseded in their
entirety by this Note.
2. PAYMENTS:
(a) INTEREST RATE. From the date hereof, interest shall accrue on
the unpaid principal hereunder at the annual rate of seven and one-half
percent (7 1/2%).
(b) MONTHLY PAYMENTS OF PRINCIPAL INTEREST. Commencing on January
1, 1999, and continuing on the first day of each successive month thereafter,
consecutive monthly payment of principal and interest shall be due in the
respective monthly amounts set forth in the amortization schedule attached
hereto. (c) MATURITY. If not sooner repaid or accelerated pursuant to the
terms hereof, this Note shall mature on June 1, 2008 ("Maturity Date") at
which time the entire principal balance of this Note, plus all accrued and
unpaid interest due thereon and other sums due hereunder shall be due and
payable in full.
(d) COMPUTATION OF INTEREST. Interest due hereunder shall be
computed on the per annum basis of a 360-day year, for the actual number of
days (including the first day but excluding the last day) elapsed. Upon the
occurrence of any Event of Default (as defined in the Loan Agreement), this
Note shall bear interest during the pendency of such
<PAGE>
Event of Default at a rate of interest equal to the lesser of (i) the
Interest Rate plus three percent (3%) per annum or (ii) the maximum
non-usurious rate allowed from time to time by applicable law (the "Default
Rate").
(e) LATE CHARGE. In the event that any payment of principal or
interest is not actually received by the holder within three (3) Business
Days of the date such payment is due Maker agrees to pay a late charge equal
to ten percent (10%) of the total amount of the delinquent installment.
(f) OTHER PAYMENT PROVISIONS. Maker shall make each payment
hereunder not later than 4:00 P.M. (Eastern time) on the day when due, without
offset, in lawful money of the United States of America to Lender or its
agent, designee or assignee at P.O. Box 630796, Baltimore, Maryland
21263-0796 or pursuant to a wire transfer to Lender's designated bank
account, or at such other place as Lender or its agent, designee or assignee
may from time to time designate in writing. All payments will be applied
first to costs and fees owing hereunder, second to the payment of accrued
interest and the balance to the payment of principal. If the date for any
payment or prepayment hereunder falls on a day which is not a business day,
then for all purposes of this Note the same shall be deemed to have fallen on
the next following business day, and such extension of time shall in such
case be included in the computation of payments of interest.
(g) PREPAYMENT. This Note may be prepaid, in whole or in part, at
any time without premium or penalty. Any partial prepayments shall not
relieve Market of the obligation to pay periodic installments of principal
and/or interest hereunder as and when the same would otherwise fall due.
3. COLLATERAL: This Note is secured, in part, by that certain Deed
of Trust and Security Agreement "B" dated November 20, 1997 and recorded in
Book 2860 at Page 1530 in the Office of the Clerk of the Circuit Court of
Arlington County, Virginia, as amended by a First Modification to Deed of
Trust and Security Agreement "B" dated as of November 24, 1998 and recorded
in the Deed Book 2941 at Page 2132 of said land records and as further
amended by a certain Second Modification to Deed of Trust and Security
Agreement "B" dated December 31, 1999 (collectively, the "Deed of Trust").
4. GUARANTY: This Note is guaranteed by The Washington Corporation,
Arlington Square, Inc., William N. Demas, John D. Wolf, Jonathan C. Kinney
and Barbara A. Kinney (as tenants by the entirety), David B. Kinney, and K-F
Associates L.C. (collectively, the "Guarantors") pursuant to the terms of
those separate Guarantees dated as of November 24, 1998 wherein the
Guarantors jointly and severally guaranteed the due and punctual payment of
the Guaranteed Obligations (as defined therein).
5. [Intentionally Omitted.]
2
<PAGE>
6. JOINT AND SEVERAL LIABILITY: If more than one party signs this
instrument, then all the undersigned shall be jointly and severally liable
hereunder.
7. DEFAULT AND ACCELERATION:
(i) ACCELERATION: Upon Maker's failure to pay any payment of
principal and/or interest due Lender which continues for three (3) days after
written notice from Lender to Maker or the occurrence of any other Event of
Default (other than specified in Section 9.1 (a) of the Loan Agreement), the
entire principal balance hereof and all accrued and unpaid interest thereon
shall at once become due and payable in full, at the option of the holder of
this Note, without presentment, demand, protest or further notice of any kind
(all of which are hereby expressly waived). Maker promises to pay on demand
all costs of collection, including reasonable attorneys' fees, upon the
occurrence of an Event of Default, whether suit be brought or not, with
interest from the date paid at the Default Rate. Lender shall also be
entitled to any other remedies which may be available hereunder, in the Loan
Agreement or under any applicable law.
(j) NO WAIVER. No course of dealing between Lender and any other
party hereto or any failure or delay on the part of Lender in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or
remedies of Lender under this or any other applicable instrument. No single
or partial exercise of any rights or remedies hereunder shall operate as a
waiver or preclude the exercise of any other rights or remedies hereunder.
(k) LENDER'S RIGHTS AND REMEDIES: Upon the occurrence of an Event of
Default, Lender will have the rights and remedies provided herein and in any
other Loan Document (as defined in the Loan Agreement). After deducting all
expenses incidental to or arising from the sale of any collateral, Lender
shall apply the residue of the proceeds thereof to the payment of the
indebtedness, returning the excess, if any, to Maker.
(l) COSTS AND FEES. Maker shall pay all Lender's expenses of any
nature, whether incurred in or out of court, and whether incurred before or
after this Note shall become due at its maturity date or otherwise (including
but not limited to reasonable attorneys' fees and costs) which Lender may
determine to be reasonably necessary or proper in connection with the
satisfaction of the indebtedness evidenced hereby or the preservation,
protection of (including, but not limited to, the maintenance of adequate
insurance) or the realization upon the collateral. All such sums shall be
payable on demand, with interest at the rate set forth in Section 2(a)
hereof, provided that any such costs expended after the occurrence of an
Event of Default shall bear interest at the Default Rate. Lender is
authorized to pay at any time and from time to time any or all of such
expenses, add the
3
<PAGE>
amount of such payment to the amount of principal outstanding and charge
interest thereon at the rate specified herein.
(m) SUCCESSORS' RIGHTS. The purchaser, assignee, transferee or
pledgee of this Note, the collateral, any guaranty and any other document (or
any of them), sold, assigned, transferred, pledged or repledged by Lender,
shall forthwith become vested with and entitled to exercise all the powers
and rights given by this Note as if said purchaser, assignee, transferee or
pledgee were originally named as Lender in this Note.
8. WAIVER: Except as specifically provided for herein and in the Loan
Documents (as defined in the Loan Agreement), Maker waives presentment and
demand for payment, protest and notice of protest and non-payment, all
applicable exemption rights, valuation and appraisement and notice of demand,
and diligence in the bringing of suit or taking of any action to collect any
sums owning hereunder or in proceeding against any of the rights and
collateral securing payment hereof.
9. SEVERABILITY: In the event one or more of the provisions contained
in this Note or any other Loan Document shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Note or such
other Loan Document, but this Note and such other Loan Document shall be
construed as if such invalid, illegal or unenforceable provision had never
been contained herein or therein.
10. DEFINITIONS: The term INDEBTEDNESS as used herein shall mean the
indebtedness evidenced by this Note, including principal, interest and
expenses whether contingent, now due or hereafter to become due, and whether
heretofore or contemporaneously herewith or hereafter contracted.
11. BUSINESS PURPOSE: Maker hereby declares, represents and warrants
that the indebtedness evidenced hereby is made for the purpose of acquiring
or carrying on a business or commercial enterprise.
12. SAVINGS CLAUSE: It is expressly stipulated and agreed to be the
intent of Maker and Lender at all times to comply with applicable state law
or applicable United States federal law (to the extent that it permits Lender
to contract for, charge, take, reserve or receive a greater amount of
interest than under state law) and that this section shall control every
other covenant and agreement in this Note and the other Loan Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under this Note or under any of the
other Loan Documents, or contracted for, charged, taken, reserved or received
with respect to the indebtedness evidenced by this Note and the other Loan
Documents, or if Lender's exercise of the option to accelerate the maturity
of this Note, or if any prepayment by Maker results in Maker
4
<PAGE>
having paid any interest in excess of that permitted by applicable law, then
it is Maker's and Lender's express intent that all excess amounts theretofore
collected by Lender be credited on the principal balance of this Note (or, if
this Note has been or would thereby be paid in full, refunded to Maker), and
the provisions of this Note and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
All sums paid or agreed to be paid to Lender for the use, forbearance and
detention of the indebtedness evidenced hereby and by the other Loan
Documents shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of
such indebtedness does not exceed the maximum rate permitted under applicable
law from time to time in effect and applicable to the indebtedness evidenced
hereby for so long as such indebtedness remains outstanding. Notwithstanding
anything to the contrary contained herein or in any of the other Loan
Documents, it is not the intention of Lender to accelerate the maturity of
any interest that has not accrued at the time of such acceleration or to
collect unearned interest at the time of such acceleration.
13. WAIVER OF TRIAL BY JURY: Maker agrees that any suit, action or
proceeding, whether claim or counterclaim, brought or instituted by Lender on
or with respect to this Note or any event, transaction or occurrence arising
out of or in any way connected with the Loan Agreement or the dealing of the
parties with respect thereto, shall be tried only by a court and not by a
jury. EXCEPT TO THE EXTENT PROHIBITED BY APPLICABLE LAW, MAKER HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY MAKER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE
ACCRUE. LENDER OR ANY PAYEE IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY MAKER.
Maker acknowledges and agrees that Lender would not enter into the Loan
Agreement referenced above if this waiver of jury trial were not part hereof.
14. CONTROLLING LAW: THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND (WITHOUT REGARD TO ANY
CONFLICT OF LAWS PRINCIPLES) AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. MAKER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF MARYLAND IN CONNECTION WITH
ANY PROCEEDING ARISING OUT OF
5
<PAGE>
OR RELATING TO THIS NOTE. Maker agrees that service of any summons or
complaint, and other process which may be served in any action, may be made
by mailing via registered mail or delivering a copy of such process to Maker,
and Maker hereby agrees that this submission to jurisdiction and consent to
service of process are reasonable and made for the express benefit of Lender.
15. ENTIRE AGREEMENT: The provisions of this Note and the Loan
Documents may be amended or revised only an instrument in writing signed by
Maker and Lender. This Note and all the other Loan Documents embody the
final, entire agreement of Maker and Lender in respect to the loan
transaction described herein and therein, and supersede any and all prior
commitments, agreements, representations and understandings, whether written
or oral, relating to the subject matter hereof and thereof and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent
oral agreements or discussions of Maker and Lender. There are no oral
agreements between Maker and Lender.
16. PURPOSE OF LOAN: The Maker warrants and represents that the loan
evidenced hereby is being made for business or investment purposes.
17. SUBORDINATION: Maker acknowledges that the indebtedness
evidenced by this Amended and Restated Note shall be deemed the Junior Note
pursuant to the provisions of that certain Subordination Agreement dated as
of November 25, 1998 by and among the Senior Leader (as defined therein),
maker and Lender and recorded in the office of the Clerk of the Circuit Court
of Arlington County, Virginia at Book 2941 Page 2095.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
as of the day and the year first above written.
MAKER:
ARLINGTON SQUARE LIMITED PARTNERSHIP,
a Virginia limited Partnership
By: Arlington Square, Inc., a Virginia
corporation, general partner
By: /s/ William N. Demas (Seal)
----------------------------
Name: William N. Demas
--------------------------
Title: President
-------------------------
6
<PAGE>
THIS IS TO CERTIFY that this is that certain Amended and Restated
Promissory Note described in the Second Modification to Deed of Trust and
Security Agreement B securing said Promissory Note, said Amended and Restated
Promissory Note and the Second Modification to Deed of Trust and Security
Agreement B having been executed in my presence.
/s/ Carolyn C. Boccabella
------------------------------
Notary Public
CAROLYN C. BOCCABELLA
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 1, 1999
7
<PAGE>
EXHIBIT 10.34 TERMINATION OF FORBEARANCE AGREEMENT
<PAGE>
Exhibit 10.34
TERMINATION
OF
FORBEARANCE AGREEMENT
This termination of forbearance agreement (the "Agreement") is made and
entered into as of the 31st day of December, 1999 and is by and among ARLINGTON
SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership ("Borrower");
ARLINGTON SQUARE, INC., THE WASHINGTON CORPORATION WILLIAM N. DEMAS, JOHN D.
WOLF, JONATHAN C. KINNEY and BARBARA A. KINNEY, as tenants by the entirety,
DAVID B. KINNEY and K-F ASSOCIATES L.C. (individually, a "Guarantor" and
collectively, the "Guarantors"); and ALLIED CAPITAL CORPORATION, a Maryland
limited partnership and successor to Allied Capital Commercial Corporation
("Lender"). The Borrower, the Lender and the Guarantors are sometimes
hereinafter collectively referred to herein as the "parties".
RECITALS:
R-1. Pursuant to separate guarantees dated as of November 24, 1998
(individually, a "Guaranty" and collectively, the "Guarantees"), each of the
Guarantors guaranteed repayment of all sums due pursuant to a certain promissory
note dated November 20, 1997 from Borrower to Lender in the original principal
amount of One Million Dollars ($1,000,000.00) (as modified by Allonge and
Modification to Promissory Note dated April 23, 1998, "Note B").
R-2. Each Guarantor's liability pursuant to the Guaranty executed
by it is secured by a pledge by the Guarantor of all (or fifty percent (50%), as
the case may be) of its partnership interests in the Borrower pursuant to a
certain Partnership Interest Pledge Agreement dated as of November 24, 1998
(individually, a "Pledge Agreement", and collectively, the "Pledge Agreements").
<PAGE>
R-3. Pursuant to that certain Forbearance Agreement dated as of
December 1, 1998, by and between the parties (the "Forbearance Agreement"),
Lender agreed to forbear from seeking to enforce its rights pursuant to the
Guarantees and the Pledge Agreement in the event that Borrower failed to pay
to Lender in full the sum of One Million Eight Hundred and Fifty Thousand
Dollars ($1,850,000.00), which amount represented sums remaining due and
payable pursuant to Note B, by June 1, 2000, as required pursuant to the
provisions of Note B.
R-4. Lender's Agreement to so forbear was upon the condition
that, notwithstanding the provisions of Note B, Borrower repaid said
$1,850,000.00 over the period, at the interest rate and with monthly payments
set forth in an amortization schedule incorporated into the Forbearance
Agreement.
R-5. Note B has since been amended and restated in its entirety
pursuant to an Amended and Restated Promissory Note dated as of December 1,
1998 in the principal amount of One Million Eight Hundred and Fifty Thousand
Dollars ($1,850,000.00) (the "Amended and Restated Note"), pursuant to which
such amount is to be repaid by Borrower to Lender over a period, at an
interest rate and with monthly payments consistent with the amortization
schedule incorporated into the Forbearance Agreement.
R-6. Accordingly, the Forbearance Agreement serves no further
purpose and the parties desire to terminate the Forbearance Agreement on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the above-premises and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. The foregoing Recitals are hereby incorporated herein by this
reference as through fully set forth in the body of this Agreement.
2
<PAGE>
2. Effective the date hereof, the Forbearance Agreement is hereby
terminated. The above notwithstanding, all payments made pursuant to the
Forbearance Agreement shall be credited as having been made pursuant to the
Amended and Restated Note.
3. In the event that Borrower shall fail to timely pay to
Lender any amounts due and payable pursuant to the Amended and Restated Note,
Guarantors hereby acknowledge and agree that Lender may seek to enforce its
rights pursuant to the Guarantees and the Pledge Agreements pursuant to the
provisions thereof, subject however to Lender's agreement that it will not
seek to enforce such rights pursuant to the Guarantees and Pledge Agreements
for a period of ninety (90) days after the date of written notice to Borrower
given pursuant to the provisions of the Loan Agreement dated April 20, 1997
by and among Borrower, Lender, The Washington Corporation and Arlington
Square, Inc. Furthermore, in the event the indebtedness evidenced by the
Amended and Restated Note shall be accelerated for any reason other than
Borrower's failure to pay any payment of principal and/or interest due Lender
which continues for three (3) days after written notice from Lender to
Borrower (a "Non-Monetary Acceleration"), then so long as monthly payments
continue to be timely made to Lender pursuant to Paragraph 2(b) of the
Amended and Restated Note and the required payment at maturity is timely made
pursuant to Paragraph 2(c) of the Amended and Restated Note despite the
Non-Monetary Acceleration, Lender shall forebear from enforcing its rights
pursuant to the Guarantees and the Pledge Agreements. The foregoing shall be
without prejudice to Lender's rights to proceed against any of Borrower's
collateral or other assets upon the occurrence of a Non-Monetary
Acceleration, subject, however, to the provisions of that certain
Subordination Agreement dated November 25, 1998, as amended, by and among
Borrower, Lender and Metropolitan Life Insurance Company (as Senior Lender).
4. This Agreement may be entered into in counterparts.
3
<PAGE>
5. This Agreement shall be governed in accordance with the laws
of the State of Maryland.
In Witness Whereof, the parties hereto have executed this Agreement as
of the date first above written.
BORROWER
Arlington Square Limited Partnership
By: Arlington Square, Inc.
General Partner
By: /s/ William N. Demas
-------------------------------------
Name: William N. Demas
Title: President
LENDER:
Allied Capital Corporation
By: /s/ Michael J. Grisius
-------------------------------------
Name: Michael J. Grisius
Title: Principal
GUARANTORS:
Arlington Square, Inc.
By: /s/ William N. Demas
-------------------------------------
Name: William N. Demas
Title: President
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
The Washington Corporation
By: /s/ William N. Demas
-------------------------------------
Name: William N. Demas
Title: President
/s/ William N. Demas
----------------------------------------
William N. Demas
4
<PAGE>
/s/ John D. Wolf
----------------------------------------
John D. Wolf
/s/ Jonathan C. Kinney
----------------------------------------
Jonathan C. Kinney, tenant by the
entirety with Barbara A. Kinney
/s/ Barbara A. Kinney
----------------------------------------
Barbara A. Kinney, tenant by the
entirety with Jonathan C. Kinney
/s/ David B. Kinney
----------------------------------------
David B. Kinney
K-F Associates L.C.
By: /s/ David B. Kinney
-------------------------------------
Name: David B. Kinney
Title: Manager
5
<PAGE>
EXHIBIT 10.35 FIRST MODIFICATION TO DEED OF TRUST AND
SECURITY AGREEMENT "B"
<PAGE>
THIS DOCUMENT IS BEING RE-RECORDED TO
REFLECT SIGNATURE OF GRANTOR.
FIRST MODIFICATION TO DEED OF TRUST AND SECURITY AGREEMENT "B"
THIS FIRST MODIFCIATION TO DEED OF TRUST AND SECURITY AGREEMENT "B",
(this "Modification"), is made as of the 24th day of November, 1998, by and
between ARLINGTON SQUARE LIMITED PARTNERSHIP, a Virginia limited partnership
("Grantor") having its principal office at c/o The Washington Corporation, 4650
East West Highway, Suite 251, Bethesda, Maryland 20814 and ALLIED CAPITAL
CORPORATION, a Maryland corporation ("Beneficiary") having its principal office
at 1919 Pennsylvania Avenue, N. W., Third Floor, Washington, D.C. 20006.
RECITALS:
Whereas, pursuant to the terms of a certain Loan Agreement dated
November 20, 1997, by and between Grantor and Beneficiary, Grantor previously
obtained a loan ( the "Loan") from Beneficiary in the aggregate principal amount
of Twenty-four Million Three Hundred Thousand and No/100 Dollars
($24,300,000.00); and
Whereas, the Loan was evidenced by (I) a certain Promissory Note dated November
20, 1997 (together with any and all extensions, renewals, modifications and
substitutions thereof or therefor, "Note A") made by Grantor and payable to the
order of Beneficiary in the original principal amount of Twenty-three Million
Three Hundred Thousand and No/100 Dollars ($23,300,000.000, which note was
secured by, among other things, the lien of a certain Deed of Trust and Security
Agreement "A" ("Deed of Trust A") made by Grantor for the benefit of Beneficiary
and recorded on November 21, 1997 in Book 2860 at Page 1501 in the Office of the
Clerk of the Circuit Court of Arlington County, Virginia encumbering the real
property located more particularly described therein and located at 4401 Fairfax
Drive, Ballston, Virginia (the "Real Property"); and (ii) a certain Promissory
Note dated November 20, 1997, as modified by Allonge dated April 23, 1998
(together with any and all extensions, renewals, modification and substitutions
thereof or therefor, "Note B") made by Grantor and payable to the order of
Beneficiary in the original principal amount of One Million and No/100 Dollars
($1,000,000.00), which note evidences Grantor's obligation to repay to
Beneficiary the principal amount thereof and certain other monetary obligations
owing to Beneficiary (including, without limitation, Beneficiary's participation
interest pursuant to subparagraph 2(g) of Note B) more particularly set forth
therein (collectively, the "Other Monetary Obligations") and is secured by,
among other things, the lien of a certain Deed of Trust and Security Agreement
"B" ("Deed of Trust B") made by Grantor for the benefit of Beenficiary and
recorded on November 21, 1997 in Book 2860 at Page 1530 in the Office of the
Clerk of the Circuit Court of Arlington County, Virginia, encumbering the Real
Property as more particularly described therein and on Schedule A attached
hereto; and
WHEREAS, Grantor has repaid all sums due and owing pursuant to Note A and Deed
of Trust A has accordingly been released; and
<PAGE>
WHEREAS, while Grantor has repaid the principal and interest due and payable
pursuant to Note B, the Other Monetary Obligations remain outstanding; and
WHEREAS, Grantor and Beneficiary desire to enter into this Modification to
reflect the pay down of Note B, as described above, and to reflect that Deed of
Trust B continues to secure Grantor's obligation to repay the Other Monetary
Obligations as and when due pursuant to Note B.
WITNESSETH THAT:
NOW THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and the sufficiency of which is hereby acknowledge,
the parties hereto, intending to be legally bound hereby, agree as follows:
1. The foregoing recitals are hereby incorporated herein by this
reference and made a part hereof, with the same force and effect as if fully set
forth herein.
2. Deed of Trust B is hereby modified to reflect that given, the
pay-down of Note B as referenced above, the defined term "Debt", as used in Deed
of Trust B, shall be limited to Grantor's obligation to pay to Beneficiary the
Other Monetary Obligations pursuant to Note B.
3. Except as expressly modified hereby, the terms and provisions
of Deed of Trust B shall be and remain unchanged and in full force and effect,
and as so modified the same are hereby approved, ratified and confirmed.
4. This Modification shall be governed by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties hereto and their respective, heirs, executors, administrators,
personal representatives, successors, and assigns.
5. This Modification may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Modification on the day
and year first above written.
GRANTOR:
ARLINGTON SQUARE LIMITED
PARTNERSHIP, a Virginia limited partnership
By: Arlington Square, Inc., a Virginia
Corporation, its general partner
By: /s/ William N. Demas
-------------------------------------
Name: William N. Demas
Title: President
BENEFICIARY:
ALLIED CAPITAL CORPORATION, a
Maryland Corporation
By: /s/ Michael J. Grisius
-------------------------------------
Name: Michael J. Grisius
Title: Principal
3
<PAGE>
STATE OF MARYLAND )
) ss.:
COUNTY OF Montgomery )
On this 24th day of November, 1998, before me personally came
William N. Demas to me known, who, being by me duly sworn, did depose and say
that s/he is the President of Arlington Square, Inc., general partner of
Arlington Square Limited Partnership, the limited partnership described in and
which executed the within instrument as Grantor; and that s/he signed his name
thereto in such capacity on behalf of said entity as general partner of and on
behalf of said limited partnership.
/s/ Carolyn C. Boccacella
----------------------------------------
Notary Public
My Commission Exprires:
Carolyn C. Boccacella
Notary Public State of Maryland
My Commission Expires November 1, 1999
4
<PAGE>
DISTRICT OF COLUMBIA) ss.:
On this 24th day of November, 1998, before me personally came
Michael J. Griusius to me known, who, being by me duly sworn, did depose
and say that s/he is the Principal of Allied Capital Corporation, the
corporation described in and which executed the within instrument as
Beneficiary; and that s/he signed his name thereto in such capacity on
behalf of said entity.
/s/ Amelia Mitchem
----------------------------------------
Notary Public
My Commission Expires: 10/31/02
5
<PAGE>
Schedule "A"
LEGAL DESCRIPTION
All that certain land situate in Arlington County, Virginia, and more
particularly described as follows:
Parcel A, ARLINGTON SQUARE, as duly dedicated, platted and recorded in Deed Book
2210, page 994, among the land records of Arlington County, Virginia.
6
<PAGE>
Exhibit 10.36 SECOND MODIFICATION TO DEED OF TRUST AND
SECURITY AGREEMENT "B"
<PAGE>
SECOND MODIFICATION TO
DEED OF TRUST AND SECURITY AGREEMENT "B"
THIS SECOND MODIFICATION TO DEED OF TRUST AND SECURITY AGREEMENT "B"
(this "Second Modification"), is made as of the 31st day of December, 1999,
and is by and between ARLINGTON SQUARE LIMITED PARTNERSHIP, a Virginia
limited partnership ("Grantor") having its principal office at c/o The
Washington Corporation, 4550 Montgomery Avenue, Suite 220 North, Bethesda,
Maryland 20814 and ALLIED CAPITAL CORPORATION, a Maryland corporation
("Beneficiary") having its principal office at 1919 Pennsylvania Avenue,
N.W., Third Floor, Washington, D.C. 20006.
Recitals:
WHEREAS, pursuant to the terms of a certain Loan Agreement dated November 20,
1997, by and between Grantor and Beneficiary, Grantor previously obtained a loan
(the "Loan") from Beneficiary in the aggregate principal amount of Twenty-four
Million Three Hundred Thousand and No/100 Dollars ($24,300,000.00); and
WHEREAS, the Loan was evidenced by (i) a certain Promissory Note dated
November 20, 1997 (together with any and all extensions, renewals,
modifications and substitutions thereof or therefor, "Note A") made by
Grantor and payable to the order of Beneficiary in the original principal
amount of Twenty-three Million Three Hundred Thousand and No/100 Dollars
($23,300,000.00), which note was secured by, among other things, the lien of
a certain Deed of Trust and Security Agreement "A" ("Deed of Trust A") made
by Grantor for the benefit of Beneficiary and recorded on November 21, 1997
in Book 2860 at Page 1501 in the Office of the Clerk of the Circuit Court of
Arlington County, Virginia encumbering the real property located more
particularly described therein and located at 4401 Fairfax Drive, Ballston,
Virginia (the "Real Property"); and (ii) a certain Promissory Note dated
November 20,1997, as modified by Allonge dated April 23,1998 (together with
any and all extensions, renewals, modification and substitutions thereof or
therefor, "Note B") made by Grantor and payable to the order of Beneficiary
in the original principal amount of One Million and No/100 Dollars
($1,000,000.00), which note evidenced Grantor's obligation to repay to
Beneficiary the principal amount thereof and certain other monetary
obligations owing to Beneficiary (including, without limitation,
Beneficiary's participation interest pursuant to subparagraph 2(g) of Note B)
more particularly set forth therein (collectively, the "Other Monetary
Obligations") and was secured by, among other things, the lien of a certain
Deed of Trust and Security Agreement "B" made by Grantor for the benefit of
Beneficiary and recorded on November 21, 1997 in Book 2860 at Page 1530 in
the Office of the Clerk of the Circuit Court of Arlington County, Virginia,
as modified by First Modification to Deed of Trust and Security Agreement "B"
dated November 24, 1998 and recorded in Book 2941 at Page 2132 of said
records ("Deed of Trust B"), encumbering the Real Property as more
particularly described therein and on Schedule A attached hereto; and
<PAGE>
WHEREAS, Grantor repaid all sums due and owing pursuant to Note A and Deed of
Trust A has accordingly been released; and
WHEREAS, while Grantor repaid the principal and interest due and payable
pursuant to Note B, the Other Monetary Obligations remained outstanding as of
November 24, 1998; and
WHEREAS, Grantor and Beneficiary have agreed upon the dollar amount of the Other
Monetary Obligations and the payment terms pursuant to which such amount shall
be repaid by Grantor to Beneficiary; and
WHEREAS, Note B has been accordingly amended and restated in its entirety by
that certain Amended and Restated Promissory Note dated as of December 1, 1998
in the principal amount of One Million Eight Hundred and Fifty Thousand Dollars
($1,850,000.00) ("Amended and Restated Note B"); and
WHEREAS, Grantor and Beneficiary desire to enter into this Second Modification
to reflect that Deed of Trust B continues to secure Grantor's obligation to
repay all sums as and when due pursuant to Note B, as amended and restated by
Amended and Restated Note B.
WITNESSETH THAT:
NOW THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and the sufficiency of which is hereby acknowledged,
the parties hereto, intending to be legally bound hereby, agree as follows:
1. The foregoing recitals are hereby incorporated herein by this
reference and made a part hereof, with the same force and effect as if fully set
forth herein.
2. Deed of Trust B is hereby modified to reflect that the defined
term "Debt", as used in Deed of Trust B, shall refer to Grantor's obligation to
pay to Beneficiary amounts due and payable pursuant to Amended and Restated
Note B.
3. Except as expressly modified hereby, the terms and provisions
of Deed of Trust B shall be and remain unchanged and in full force and effect,
and as so modified the same are hereby approved, ratified and confirmed.
4. This Second Modification shall be governed by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties
2
<PAGE>
hereto and their respective, heirs, executors, administrators, personal
representatives, successors, and assigns.
5. This Second Modification may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
6. It is acknowledged and agreed that Deed of Trust B as further
modified hereby constitutes the Junior Trust pursuant to that certain
Subordination Agreement dated as of November 28, 1998 by and among Grantor,
Senior Lender (as defined therein) and Beneficiary and recorded in the Office of
the Clerk of the Circuit Court of Arlington County, Virginia in Book 2941 at
Page 2095.
IN WITNESS WHEREOF, the undersigned have executed this Modification on
the day and year first above written.
GRANTOR:
ARLINGTON SQUARE LIMITED
PARTNERSHIP, a Virginia limited partnership
By: Arlington Square, Inc., a Virginia
corporation, its general partner
By: /s/ William N. Demas
-------------------------------------
Name: William N. Demas
Title: President
BENEFICIARY:
ALLIED CAPITAL CORPORATION, a
Maryland corporation
By: /s/ Michael J. Grisius
-------------------------------------
Name: Michael J. Grisius
Title: Principal
3
<PAGE>
STATE OF Maryland )
) ss.:
COUNTY OF Montgomery )
On this 3rd day of September 1999, before me personally came William
N. Demas to me known, who, being by me duly sworn, did depose and say that he
is the President of Arlington Square, Inc., general partner of Arlington
Square Limited Partnership, the limited partnership described in and which
executed the within instrument as Grantor; and that s/he signed his name
thereto in such capacity on behalf of said entity as general partner of and
on behalf of said limited partnership.
/s/ Carolyn C. Boccabella
-----------------------------------
Notary Public
My Commission Expires:
CAROLYN C. BOCCABELLA
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 1, 1999
DISTRICT OF COLUMBIA) ss.:
On this 8 day of February 2000, before me personally came Michael J.
Grisius, to me known, who, being by me duly sworn, did depose and say that
s/he is the Principal of Allied Capital Corporation, the corporation
described in and which executed the within instrument as Beneficiary; and
that s/he signed his name thereto in such capacity on behalf of said entity.
/s/ Amelia Mitchem
----------------------------------------
Notary Public
My Commission Expires: 10/31/02
4
<PAGE>
Schedule "A"
LEGAL DESCRIPTION
All that certain land situate in Arlington County, Virginia, and more
particularly described as follows:
Parcel A, ARLINGTON SQUARE, as duty dedicated, platted and recorded in Deed
Book 2210, page 994, among the land records of Arlington County, Virginia.
<PAGE>
EXHIBIT 10.37 GUARANTOR'S CONSENT AND ACKNOWLEDGMENT
<PAGE>
GUARANTOR'S CONSENT AND ACKNOWLEDGEMENT
Each of the undersigned has heretofore executed and delivered to Allied
Capital Corporation (the "Lender") its Guaranty dated as of November 24, 1998
(the "Guaranty") pursuant to which the undersigned has guaranteed to Lender
the due and punctual payment by Arlington Square Limited Partnership, a
Virginia limited partnership (the "Debtor"), of all sums due and payable
pursuant that certain Promissory Note made by Debtor and payable to the order
of Lender and dated as of November 20, 1997 in the original principal amount
of One Million Dollars ($1,000,000.00), as modified by that certain Allonge
and Modification to Promissory Note date April 23, 1998 (together with all
extensions, renewals, modifications and substitutions thereof and therefor,
the "Note")
The Debtor and the Lender have agreed to amend and restate the Note in
its entirety pursuant to an Amended and Restated Promissory Note dated as of
December 1, 1998 in the principal amount of One Million Eight Hundred and
Fifty Thousand Dollars ($1,850,000.00) (the "Amended and Restated Note").
Each of the undersigned hereby consents to such modification of the Note and
acknowledges and agrees that its obligations pursuant to the Guaranty
executed by it shall apply to the Note, as amended and restated in its
entirety pursuant to the Amended and Restated Note. Each of the undersigned
further specifically acknowledges and agrees that the term "Guaranteed
Obligations", as used in the Guaranty executed by it, shall mean and refer to
the obligation to pay all sums due and payable by the Debtor pursuant to the
Amended and Restated Note. The provisions of the preceding two sentences
shall be subject to the provisions of that certain Termination of Forbearance
Agreement of even date herewith.
Each of the Undersigned further acknowledges and agrees that its
obligations pursuant to the Guaranty executed by it shall continue to be
secured by that certain Assignment of Partnership Interests as Collateral
dated as of November 24, 1998.
It is acknowledged and agreed that this Guarantor's Consent and
Acknowledgement does not modify in any way the terms and provisions of the
Guaranty, including without limitation, paragraph 17 thereof which provides
limitations on recourse.
This Consent and Acknowledgement may be entered into in counterparts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Guarantor's
Consent and Acknowledgement as of the 31st day of December, 1999.
ARLINGTON SQUARE, INC.
By: /s/ William N. Demas
------------------------------------
Name: William N. Demas
----------------------------------
Title: President
---------------------------------
THE WASHINGTON CORPORATION
By: /s/ William N. Demas
------------------------------------
Name: William N. Demas
----------------------------------
Title: President
---------------------------------
/s/ William N. Demas
---------------------------------------
William N. Demas
/s/ John D. Wolf
---------------------------------------
John D. Wolf
/s/ Jonathan C. Kinney
---------------------------------------
Jonathan C. Kinney, tenant by entirety
/s/ Barbara A. Kinney
---------------------------------------
Barbara A. Kinney, tenant by entirety
/s/ David B. Kinney
---------------------------------------
David B. Kinney
K-F ASSOCIATES, L.C.
By: /s/ David B. Kinney
------------------------------------
Name: David B. Kinney
----------------------------------
Title: Manager
---------------------------------
2
<PAGE>
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
THE WASHINGTON CORPORATION - SUBSIDIARIES
As of December 31, 1999
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Washington Corporation and Subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 740,401
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,452,293
<PP&E> 26,515,100
<DEPRECIATION> 8,513,469
<TOTAL-ASSETS> 19,453,924
<CURRENT-LIABILITIES> 348,465
<BONDS> 22,898,870
0
0
<COMMON> 17,069
<OTHER-SE> (3,810,480)
<TOTAL-LIABILITY-AND-EQUITY> 19,453,924
<SALES> 0
<TOTAL-REVENUES> 3,598,743
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,415,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,558,577
<INCOME-PRETAX> (185,035)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,035)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
