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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-14837
ELMER'S RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
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Oregon 93-0836824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11802 SE Stark 97216 (503) 252-1485
Portland, Oregon (Zip Code) (Registrant's telephone
(Address of principal number, including
executive offices) area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at June 11, 1997: $1,574,293. For purposes of this calculation,
officers and directors are considered affiliates.
Number of shares of Common Stock outstanding at June 20, 1997: 1,404,686.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
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Proxy Statement for 1997 Annual
Meeting of Shareholders Part III
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<PAGE>
TABLE OF CONTENTS
Item of Form 10-K Page
- ----------------- ----
PART I.........................................................................1
Item 1. Business........................................................1
Item 2. Properties......................................................5
Item 3. Legal Proceedings...............................................6
Item 4. Submission of Matters to a Vote of Security Holders.............6
Item 4(a). Executive Officers of the Registrant............................7
PART II ......................................................................7
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.................................7
Item 6. Selected Financial Data.........................................8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................8
Item 8. Financial Statements and Supplementary Data....................11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.........................11
PART III......................................................................11
Item 10. Directors and Executive Officers of the Registrant.............11
Item 11. Executive Compensation.........................................11
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................11
Item 13. Certain Relationships and Related Transactions.................11
PART IV .....................................................................12
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................12
SIGNATURES....................................................................14
<PAGE>
PART I
Item 1. Business
- ------- --------
General
The Company, located in Portland, Oregon, is a franchisor and operator of
full-service, family-oriented restaurants under the names "Elmer's Pancake &
Steak House" and "Elmer's Colonial Pancake & Steak House." The Company is an
Oregon corporation and was incorporated in 1983. Walter Elmer opened the first
Elmer's restaurant in Portland, Oregon in 1960, and the first franchised
restaurant opened in 1966. The Company acquired the Elmer's franchising
operation in January 1984 from the Elmer family. The Company now owns and
operates 11 restaurants and franchises 18 restaurants in six western states.
Company-owned restaurants are located in the Delta Park section of
Portland, Oregon; Beaverton, Gresham, Hillsboro, Medford, Albany and Grants
Pass, Oregon; Palm Springs, California; Boise, Idaho; and Tacoma and Lynnwood,
Washington.
Elmer's Pancake & Steak House
Restaurant Format and Menu The Company franchises or operates a total of 29
full-service, family-oriented restaurants, with a warm, friendly atmosphere and
comfortable furnishings. Most of the restaurants are decorated in a home style
with fireplaces in the dining rooms. They are free standing buildings, ranging
in size from 4,600 to approximately 8,000 square feet with seating capacities
ranging from 120 to 220. A portion of the dining room in most restaurants may
also be used for private group meetings by closing it off from the public dining
areas. Thirteen of the restaurants have a lounge with a seating capacity ranging
from 15 to 75. The normal hours of operation are from 6 a.m. to 10 or 11 p.m.
and to 12 midnight on weekends in restaurants with lounges.
Each restaurant offers full service, with a host or hostess to seat guests
and handle payments, wait staff to take and serve orders, and additional
personnel to clear and reset tables.
The menu offers an extensive selection of items for breakfast, lunch, and
dinner. The Elmer's breakfast menu, which is available all day, contains a wide
variety of selections with particular emphasis on pancakes, waffles, omelettes,
crepes, and other popular breakfast items. Each Elmer's restaurant makes all its
breakfast batters and compotes from scratch and prepares its fruit sauces with
fresh fruits when in season. The lunch menu includes soups made from scratch,
french dips, hamburgers, and sandwiches. Customers at dinner may choose among
steak, seafood, chicken, and, in most restaurants, filet mignon and prime rib.
While most menu selections are standard to all Elmer's restaurants, restaurants
in different areas include on their menus selections that appeal to local
preferences. Breakfast and lunch selections generally range in price from $1.85
to $7.25; dinner selections generally range in price from $5.50 to $13.50. A
special children's menu is offered in most restaurants.
1
<PAGE>
Franchise Operations
Under a franchise agreement a franchisor grants to a franchisee the right
to operate a business in a manner developed by the franchisor. The franchisee
owns the franchised operation independently from the franchisor and, in effect,
buys the right to use the franchisor's name, format, and operational procedures.
Franchisees benefit from a common identification, standardized products, and the
business reputation and services that a franchisor may provide, such as group
advertising, management services, product enhancements, and group buying
programs. The franchisor is able to capitalize on its business concept without,
in many cases, having to invest substantial capital for expanded operations.
Existing Franchisees The existing franchise agreements grant to franchisees
the right to operate an Elmer's restaurant in one specific location for 25
years, renewable generally for an additional 25-year period. When they entered
into franchising agreements, the existing franchisees paid initial franchise
fees of up to $25,000 plus additional fees of up to $10,000 if the restaurant
had a lounge serving alcoholic beverages. Franchisees pay monthly franchise
royalty fees ranging from one to four percent of the gross revenues of their
restaurants. All but one restaurant must contribute one percent of gross
revenues to a common advertising pool if required to do so by the Company. The
non-contributing restaurant is not required to do so under its franchise
agreement.
Prospective Franchisees Prospective new franchisees will pay an initial
franchise fee of $35,000. Initial franchise fees are payable in cash at the
execution of the franchise agreement. Existing franchisees opening new
franchised restaurants may pay a lower initial franchise fee than new
franchisees. For new franchisees, the monthly franchise royalty fee is expected
to be four percent of the gross revenues of the restaurant, with a minimum
monthly fee of $500. A monthly advertising contribution equal to one percent of
the gross revenues of the restaurant will be assessed. It has been the practice
of the Company in recent years to permit existing franchisees to open new
franchises under the royalty rate that applied to the existing franchises owned
by that franchise. See "Services to Franchisees."
A prospective franchisee who assumes operation of a previously unsuccessful
franchised restaurant may be offered a reduced initial franchise fee, deferred
payment of the franchise fee, or other concessions. Pursuant to certain area
franchise agreements, the Company will receive reduced initial franchise fees
and monthly royalty fees from additional restaurants that may be opened in the
areas covered by those agreements. See "Area Franchise Agreements." In
connection with the acquisition of the Elmer's franchising operation in 1984,
the Company also granted Dale Elmer, a former director of the Company, and
members of the Elmer family the right to operate a total of three additional
restaurants at a franchise royalty fee of two percent; no restaurants are being
operated on this basis.
The Company estimates that construction costs for the standard
free-standing building range from approximately $860,000 to $1,060,000, with
actual costs dependent upon local building requirements and construction
conditions, and further based on configuration and parking requirements. The
cost of the land may vary considerably depending upon the quality and size of
the site, surrounding population density and other factors. The cost of
leasehold improvements and restaurant equipment, including kitchen equipment,
furniture, and trade fixtures, is estimated by the Company to range from
approximately $375,000 to $500,000. Inventory and miscellaneous items
2
<PAGE>
such as paper goods, food, janitorial supplies, and other small wares are
estimated initially to cost between approximately $68,300 and $107,500.
There is no typical elapsed time from the signing of a franchise agreement
until a restaurant is open for business, although it normally takes 120 days
from the receipt of the building permits to construct a new restaurant facility.
Most restaurants have opened within 12 months of the date of signing the
franchise agreement. Franchisees bear all costs associated with the development
and construction of their restaurants.
The Company has added three franchises since August 1987. The last
currently operating franchise was added in November 1994.
Area Franchise Agreements Under previous management, the Elmer's
franchising operation granted exclusive area franchise agreements, whereby
independent entities obtained the exclusive rights to develop Elmer's
restaurants within their respective areas. Areas covered by these agreements are
Clackamas County, Oregon; Vancouver, Washington; and Ada and Canyon Counties,
Idaho. The area franchise agreements require the area franchisee to share with
the Company the initial fees and the franchise royalty fees for each new
restaurant in the area. The Company's share of the initial fees ranges from
$2,500 to $12,500 per restaurant, and its share of the franchise royalty fees
ranges from one to two percent of gross revenues per restaurant. There are two
restaurants covered by area franchise agreements. Under the area franchise
agreements, the Company reserves the right to approve each new restaurant
franchisee. The area franchise agreements grant the franchisees the right to use
the Company's name in the particular area and preclude the Company from opening
Company-owned or franchised restaurants in the areas covered by the agreements.
The Company does not intend to enter into similar agreements in the future.
Services to Franchisees The Company makes available to its franchisees
various programs and materials. The Company provides several manuals to assist
franchisees in ongoing operations, including a comprehensive operations manual
describing kitchen operations, floor operations, personnel management, job
descriptions, and other matters. The Company has prepared a recipe book for
franchisees and maintains a complete file of menus from all franchised
restaurants. The Company has also prepared a personnel handbook for its
Company-owned restaurants. The Company has developed and maintains a menu
cost-control program and a labor cost-control program at each of its
Company-owned restaurants and has developed and implemented a training manual
and programs for all positions within the restaurant.
The Company provides both formal and informal ongoing training. At least
one two-day seminar is scheduled each year. At the seminars, franchisees attend
lectures by Company personnel and guest speakers from the industry as well as
participate in group workshops discussing such topics as cost control, promotion
and food presentation.
The Company provides each franchisee with specifications for menu items
selected by the franchisee for inclusion on restaurant menus. The Company,
however, sells no food items or like products to the franchisees, except for
certain minor supplies such as guest checks, gift certificates, and children's
menus. The Company does not require franchisees to purchase products from
designated or approved sources, other than requiring that approved blend coffee
be served in each restaurant. The Company, however, coordinates franchisees'
purchases to obtain volume discounts. Franchisees bear all costs involved in the
operation of their restaurants.
3
<PAGE>
Periodic on-site inspections and audits are conducted to ensure compliance
with Company standards and to aid franchisees in improving their sales and
profitability.
Company-Owned Restaurants
The Company owns and operates 11 Elmer's restaurants, which it has acquired
or built over the last several years. The Company has owned and operated a
restaurant located in the Delta Park section of Portland, Oregon since January
1984. In August 1986, the Company opened a restaurant in Tacoma, Washington. In
January 1987, the Company began operation of a restaurant in Lynnwood,
Washington and assumed operation of an Elmer's restaurant in Grants Pass, Oregon
that was in bank foreclosure. In fiscal 1988, the Company acquired from former
franchisees restaurants in Gresham, Albany, and Medford, Oregon; and Boise,
Idaho. In fiscal 1989, the Company purchased the land and buildings for the
Boise and Gresham restaurants and also purchased, from a former franchisee, an
additional restaurant in Hillsboro, Oregon. In May 1989, the Company acquired a
franchised Elmer's restaurant in Palm Springs, California. In July 1991, the
Company acquired a franchised Elmer's restaurant in Beaverton, Oregon.
Employees
As of March 31, 1997, the Company employed 160 persons on a full-time
basis, of whom 10 were corporate office personnel and 150 were restaurant
personnel. At that date, the Company also employed 483 part-time restaurant
personnel. Employees of franchised Elmer's restaurants are not included in these
figures. None of the Company's employees is covered by collective bargaining
agreements. The Company believes that its employee relations are satisfactory.
Trademarks and Service Marks
The Company has registered the trademarks and service marks "Elmer's
Pancake & Steak House" and "Elmer's Colonial Pancake & Steak House" and the
Elmer's logo with the U.S. Patent and Trademark Office. The service mark
"Elmer's Colonial Pancake & Steak House" has also been registered in certain
states.
The Company grants to each of its Elmer's restaurant franchisees a
nonexclusive right to use the trademarks and service marks in connection with
and at each franchise location.
Advertising and Marketing
Word-of-mouth advertising, new restaurant openings, and the on-premise sale
of promotional products have historically been the primary methods of restaurant
advertising. The Company employs an advertising consultant to assist in
projecting the Elmer's restaurant concept to the general public in the Western
states, primarily through magazines, newspapers, and radio and television
commercials. The Company maintains a common advertising pool with its
franchisees. After production costs for the advertising campaign have been paid
out of the common pool, the remaining money is used for advertising in the
various local areas of the franchised restaurants. The Company-owned restaurants
and 17 of the 18 franchised restaurants are required to participate by
contributing one percent of monthly gross revenues. The non-contributed
franchised restaurant is not required to do so under its franchising agreement.
4
<PAGE>
Competition
The restaurant industry is highly competitive and is often affected by
changes in the tastes and eating habits of the public, by local and national
economic conditions affecting spending habits, and by population and traffic
patterns. The Company competes for potential franchisees with restaurant
franchisors, company-owned restaurants, chains and others. The Company-owned
Elmer's restaurants and the franchised Elmer's restaurants compete for customers
with restaurants from national and regional chains to local establishments. Some
of the Company's competitors are much larger than the Company, having at their
disposal greater capital resources and greater abilities to withstand adverse
business trends. The Company believes that the principal competitive factors in
its favor for attracting both restaurant franchisees and restaurant customers
are Elmer's extensive menu, quality of food, service, and reasonable prices.
Government Regulations
The Company is subject to various federal, state, and local laws affecting
its business. Its restaurants and those of its franchisees are subject to
various health, sanitation, and safety standards; federal and state labor laws;
zoning restrictions; and, in some cases state and local licensing of the sale of
alcoholic beverages and the state licensing of gaming. Federal and state
environmental regulations have not had a major effect on the Company's
operations to date.
The Company is subject to a number of state laws regulating franchise
operations and sales. For the most part, those laws impose registration and
disclosure requirements on the Company in the offer and sale of franchises but,
in certain cases, also apply substantive standards to the relationship between
the Company and the franchisees. The Company is also subject to Federal Trade
Commission regulations covering disclosure requirements and sales of franchises.
Item 2. Properties
- ------- ----------
Headquarters
The Company's corporate offices are located in Portland, Oregon and consist
of an office facility of approximately 5,000 square feet. Lease payments totaled
$33,636 for fiscal 1997. The lease expires November 30, 1998.
Company-Owned Restaurants
Company-Owned Properties The Company owns the real property upon which the
following four Company-owned restaurants are located. All of the properties are
subject to encumbrances in favor of lending institutions.
Approximate Area
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Location Site Restaurant
- -------- ---- ----------
Tacoma, Washington 1.3 acres 6,660 sq. ft.
Lynnwood, Washington 1 acre 6,500 sq. ft.
Gresham, Oregon 1 acre 5,670 sq. ft.
Boise, Idaho 1.3 acres 5,430 sq. ft.
5
<PAGE>
Leased Properties. The Company leases the property upon which the following
seven Company-owned restaurants are located. Each lease contains specific terms
relating to calculation of lease payment, renewal, purchase options, if any, and
other matters.
<TABLE>
<CAPTION>
Approximate Area
----------------
Location Site Restaurant Expiration
- -------- ---- ---------- ----------
<S> <C> <C> <C>
Grants Pass, Oregon 1 acre 6,350 sq. ft. December 31, 2001
Hillsboro, Oregon 1.2 acres 6,350 sq. ft. January 1, 2002
Medford, Oregon 1.25 acres 6,300 sq. ft. February 1, 1998
Albany, Oregon -- 5,460 sq. ft. February 28, 2003
Palm Springs, California 1.3 acres 5,500 sq. ft. April 30, 2007
Portland, Oregon (Delta Park) 1.2 acres 6,350 sq. ft. July 31, 2006
Beaverton, Oregon -- 5,322 sq. ft. August 31, 2006
</TABLE>
Item 3. Legal Proceedings
- ------- -----------------
On July 14, 1995, a former director and employee of the Company filed a
complaint in the Circuit Court of the State of Oregon for the County of
Multnomah against the Company for sex discrimination, breach of contract, fraud,
unpaid wages, retaliation and intentional infliction of emotional distress. On
June 7, 1996, the court granted the Company's motion for summary judgment on all
claims but one breach of contract claim: whether the Company automobile that the
former director and employee used while an employee of the Company was given to
her as a gift. This claim was submitted to binding arbitration and the
arbitrator ruled in favor of the Company. Consequently, judgment on all claims
was entered for the Company. The former director and employee has filed an
appeal contending that the trial court erred in granting summary judgment on the
breach of contract, unpaid wages, retaliation and intentional infliction of
emotional distress claims. Both the plaintiff and the Company have filed their
respective appellate briefs and it is expected that oral argument will occur by
mid-September. If the trial court's ruling is reversed on all claims and the
Company found liable on all claims at retrial, the Company could be liable for
the total amount sought by the plaintiff: approximately $600,000 in actual
damages, $150,000 in punitive damages, attorney's fees and costs. The Company
intends to continue defending this matter vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
6
<PAGE>
Item 4(a). Executive Officers of the Registrant
- ---------- ------------------------------------
As of June 20, 1997, the executive officers and other key personnel of the
Company were as set forth below.
Name Age Position
- ---- --- --------
Anita Goldberg 68 President
Juanita Nelson 61 Controller
The executive officers of the Company are appointed annually for one year
and hold office until their successors are appointed.
Anita Goldberg was appointed President and elected to the Board of
Directors in June 1996 and has served as Director of Franchising for the Company
since September 1984. Before joining the Company, Ms. Goldberg was a
self-employed life insurance salesperson.
Juanita Nelson has served as Controller since March 1985. For more than
five years prior to joining the Company, Mrs. Nelson was the Office Manager of
the Red Lion Inns and Thunderbird Motor Inns corporate office.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- ------- -----------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq SmallCap System.
The following table sets forth the high and low reported sales prices of the
Common Stock in the Nasdaq SmallCap Market for the calendar quarters indicated.
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1997 1996
----------------------- -------------------
High Low High Low
-------- -------- ------- ------
<C> <C> <C> <C> <C>
1st Quarter $3 1/4 $1 13/16 $1 5/8 $1 1/2
2nd Quarter 2 1/4 1 3/4 1 5/8 1 1/2
3rd Quarter 2 25/64 1 7/8 3 3/8 1 1/2
4th Quarter 2 3/8 2 2 9/32 1 7/8
</TABLE>
Prices are as reported by the Nasdaq SmallCap System and reflect
inter-dealer prices, without retail markup, markdown, or commissions and may not
represent actual transactions. Although the Common Stock is traded on the Nasdaq
SmallCap System, there is a relatively low trading volume and, at times, limited
or sporadic quotations.
7
<PAGE>
The Company has not paid cash dividends on its Common Stock. The Company
intends to retain any future earnings to finance growth and does not presently
intend to pay dividends to the holders of Common Stock.
As of May 21, 1997, the Company had 271 shareholders of record.
Item 6. Selected Financial Data
- ------- -----------------------
Elmer's Restaurants, Inc. and Subsidiaries
Selected Financial Data
for the year ended March 31
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $16,112,355 $15,712,033 $15,223,087 $14,276,483 $13,961,841
Net income 452,215 350,622 377,771 159,922 98,737
Per share data:
Net income 0.31 0.23 0.21 0.08 0.05
Total assets 8,108,965 8,028,521 8,137,008 8,285,506 8,566,826
Long-term notes payable,
less current portion 3,338,255 3,687,808 3,573,613 3,822,338 4,080,657
Total liabilities 4,899,555 5,099,689 5,180,012 5,507,048 5,807,731
Total shareholders' equity 3,209,410 2,928,832 2,956,996 2,778,458 2,759,095
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ------- -----------------------------------------------------------
Results of Operations
Revenues
Revenues increased $400,322 (2.5%) for the fiscal year ended March 31, 1997
("1997"), compared to the fiscal year ended March 31, 1996 ("1996") due
primarily to the increased sales volume of the Company's restaurants. Revenues
increased $488,946 (3.2%) for 1996 compared to the fiscal year ended March 31,
1995 ("1995") due primarily to the increased revenues of the Company-owned
restaurants. Revenues from operations were $16,112,355, $15,712,033, and
$15,223,087 for 1997, 1996 and 1995, respectively. There were 11 Company-owned
restaurants at March 31, 1997.
Revenues from franchise operations decreased $25,967 for 1997 due primarily
to decreased supply sales to franchisees. Revenues from franchise operations
increased $74,749 from 1995 to 1996, due primarily to the two new franchised
restaurants that opened during 1995 and increased restaurant sales by
franchisees. Franchise operation revenues totaled $654,637, $680,604 and
$605,855 for 1997, 1996 and 1995, respectively, after elimination of
intercompany transactions (see Note 7 of the Notes to Consolidated Financial
Statements).
8
<PAGE>
The Company began offering video poker to its patrons in certain
restaurants during 1997. The net revenue from video poker was $41,407 in 1997.
No initial license fees were recorded in 1997 or 1996. During 1995 initial
license fees of $25,000 were recorded for a new franchised restaurant in Twin
Falls, Idaho that opened in November 1994.
The low inflation rate over the last three years has not been a significant
factor in the Company's operations.
Operating Costs and Expenses
Cost of restaurant sales increased $228,961 for 1997 compared to 1996 and
$333,293 for 1996 compared to 1995, primarily as a result of increased
restaurant sales. Cost of restaurant sales as a percentage of restaurant sales
amounted to 61.8%, 61.8%, and 61.4% for 1997, 1996 and 1995, respectively.
Depreciation and amortization totaled $699,013 for 1997, a decrease of
$20,698 from 1996, and $719,711 for 1996, a decrease of $3,064 from 1995, each
decrease due primarily to certain assets becoming fully depreciated.
General and administrative expenses increased $11,863 in 1997 over 1996 and
$167,285 in 1996 over 1995, due primarily to the increased cost of managing the
Company-owned restaurants. The increase for 1997 over 1996 was less than that of
1996 over 1995 due to decreased executive compensation and smaller employee
raises. General and administrative expenses as a percentage of revenues were
24.3% for 1997, 24.9% for 1996 and 24.6% for 1995.
Occupancy costs as a percentage of revenues were 6.2% for 1997 and 5.9% for
1996 and 1995. Occupancy costs include leases based on a percentage of the
revenues of certain restaurants.
Income from Operations
Income from operations for 1997 totaled $974,549, an increase of $121,707
(14.3%) from 1996. The increase was due primarily to the increase in sales, the
decreased percentage of the general and administrative expenses and the decrease
in depreciation and amortization expense. Income from operations for 1996
totaled $852,842, a decrease of $40,532 (4.5%) from 1995. The decrease was due
primarily to the increased costs of operating the Company-owned restaurants.
Other Income and Expenses
Interest expense decreased $35,202 to $351,831 for 1997 from $387,033 for
1996, primarily as a result of the reduction of principal balance of outstanding
debt. Interest expense increased $6,641 to $387,033 for 1996, due primarily to
an increase in the interest rates on certain long-term debt.
Interest income for 1997 remained relatively constant and totaled $60,947,
$60,780 and $49,169 for 1997, 1996 and 1995, respectively.
9
<PAGE>
Income Taxes
The tax rate on income for 1997 and 1996 was 33.9%, compared to 33.2% in
1995. The rate fluctuations are primarily the result of depreciation differences
related to assets with different book and tax bases and the utilization of tax
credits.
Liquidity and Capital Resources
The Company's working capital at March 31,1997 totaled $787,574, an
increase of $266,168 from working capital of $521,406 at March 31, 1996. The
increase in working capital resulted primarily through net cash provided by
operations and the replacement of certain notes payable with long-term debt.
Principal sources of funds for the Company's operation and its growth in
recent years have included cash flow from operations and long-term and
short-term debt financing. Funds obtained from debt financing amounted to
approximately $230,000, $2,670,000 and $518,000 for 1997, 1996 and 1995,
respectively. The long-term debt incurred in 1996 was primarily for the
refinancing of two mortgages and the refinancing of certain short-term and
long-term notes payable into two long-term notes payable. The long-term debt
incurred in 1997 and 1995 was due primarily to the acquisition of equipment,
refurbishing of existing restaurants and repurchase of Company stock.
Certain of the Company's loan agreements contain restrictive covenants
pertaining to financial ratios and minimum cash flow coverage. The most
restrictive of these covenants requires the Company to maintain a ratio of
EBIDTA (defined as net income before income taxes, interest expense,
depreciation and amortization) to total interest expense plus the current
maturities of long-term debt during the previous fiscal year of at least 1.3 to
1.0.
Funds provided by operating activities totaled approximately $1,149,000,
$1,130,000 and $1,183,000 in 1997, 1996 and 1995, respectively.
As of March 31, 1997, the Company had approximately $1,679,000 in cash and
cash equivalents. The Company believes that cash and cash equivalents on hand at
March 31, 1997, together with cash generated from operations, will be sufficient
to fund its operations for the ensuing year.
Capital expenditures of approximately $398,500 for 1997, $450,000 for 1996
and $633,000 for 1995 were primarily for the acquisition of equipment for and
improvements to the Company's existing restaurants.
The Company anticipates that capital expenditures for the fiscal year
ending March 31, 1998 will be approximately the same as in 1997 for the
acquisition of equipment for and improvements to the Company's existing
restaurants.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 1 of Notes to
Consolidated Financial Statements.
10
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information required by this item is included on pages F-1 to F-13 of
this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------- ---------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
Information with respect to directors of the Company is included under
"Election of Directors" in the Company's definitive proxy statement for its 1997
Annual Meeting of Shareholders (the "1997 Proxy Statement") filed or to be filed
not later than 120 days after the end of the fiscal year covered by this Report
and is incorporated herein by reference. Information with respect to executive
officers of the Company is included under Item 4(a) of Part I of this Report.
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act is included under "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 1997 Proxy Statement.
Item 11. Executive Compensation
- -------- ----------------------
Information with respect to executive compensation is included under
"Compensation" in the 1997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Information with respect to security ownership of certain beneficial owners
and management is included under "Voting Securities and Principal Shareholders"
and "Election of Directors" in the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Information with respect to certain relationships and related transactions
with management is included under "Certain Transactions" in the 1997 Proxy
Statement.
11
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
Page in
(a)(1) Financial Statements and Schedules this Report
---------------------------------- -----------
Report of Independent Accountants....................................... F-1
Consolidated Balance Sheets at
March 31, 1997 and 1996............................................... F-2
Consolidated Statements of Income
for the years ended March 31, 1997, 1996
and 1995.............................................................. F-3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1997,
1996 and 1995......................................................... F-4
Consolidated Statements of Cash Flows
for the years ended March 31, 1997,
1996 and 1995......................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
No other schedules are included because the required information is
inapplicable or is presented in the financial statements or related notes
thereto.
(a)(2) Exhibits
--------
3.1 Restated Articles of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1988 (the "1988 Form 10-K").
3.2 Bylaws of the Company, as amended. Incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990.
10.1 Area Franchisee - Unit Franchisee Agreement dated July 10, 1978 by and
between Elmer's Colonial Pancake & Steak House, Inc. and Paul H. and
Jacqueline M. Welch, Dale M. and Sandra Lee Elmer. Incorporated by
reference to Exhibit 10.30 of the Company's Registration Statement on
Form S-18, Registration No. 2-98298-S (the "Form S-18 Registration").
10.2 Lease Agreement dated June 18, 1987 by and between Dale M. Elmer and
Sandra Lee Elmer and Elmer's Pancake & Steak House, Inc., and addenda
thereto. Incorporated by reference to Exhibit 10.5 of the Company's
Annual Report on Form 10-K for the
12
<PAGE>
fiscal year ended March 31, 1989 (the "1989 Form 10-K") and Exhibit 10.3
of the December 31, 1991 Form 10-Q.
10.3 Franchise Agreement between the Company and Paul H. Welch and Jacqueline
M. Welch dated March 23, 1993. Incorporated by reference to Exhibit 10.9
of the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993 (the "1993 Form 10-K").
10.4 Franchise Development Option Agreement between the Company and Paul H.
Welch and Jacqueline M. Welch dated May 3, 1993. Incorporated by
reference to Exhibit 10.10 of the 1993 Form 10-K.
10.5 Commercial Loan Note, dated May 18, 1995, issued by the Company to The
Bank of California, N.A. and addendum thereto. Incorporated by reference
to Exhibit 10.9 of the Form 10-K for the fiscal year ended March 31,
1995.
10.6 Loan Agreement, dated December 21, 1995, between the Company and Wells
Fargo Bank, N.A., successor-by-merger to First Interstate Bank of
Oregon, N.A. and the First Amendment thereto, dated as of March 18,
1997, Promissory Note dated December 21, 1995 issued by the Company to
Wells Fargo Bank, N.A., successor-by-merger to First Interstate Bank of
Oregon, N.A. in connection with the Loan Agreement, and Deeds of Trust
given by the Company to Ticor Title Insurance Company, Trustee, for
benefit of Wells Fargo Bank, N.A., successor-by-merger to First
Interstate Bank of Oregon, N.A. in connection with the Loan Agreement.
10.7 Credit Agreement, dated as of March 18, 1997, between the Company and
Wells Fargo Bank, N.A. and Promissory Note dated March 18, 1997, issued
by the Company to Wells Fargo Bank, N.A. in connection with the Credit
Agreement and Promissory Note dated May 17, 1995, issued by the Company
to Wells Fargo Bank, N.A., successor-by-merger to First Interstate Bank
of Oregon, N.A., which is governed by the Credit Agreement.
10.8 Promissory Notes, dated March 31, 1997, issued by Paul H. Welch and
Jacqueline M. Welch to the Company.
10.9 Stock Purchase Agreement, dated as of February 13, 1997, between the
Company and Dale Elmer.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Company
during the last quarter of the fiscal year ended March 31, 1997.
13
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Elmer's Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that Our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
Portland, Oregon
May 11, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1997 and 1996
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 5) $ 1,678,876 $ 1,370,829
Accounts receivable, less allowance for doubtful accounts of
$5,000 in 1697 and 1996 159,904 115,857
Note receivable from related party 69,880
Inventories 203,115 192,028
Prepaid expenses 126,099 149,573
----------- -----------
Total current assets 2,237,874 1,828,287
Property, buildings and equipment, net (Notes 2 and 5) 4,738,012 4,941,410
Intangible assets, net (Notes 3 and 5) 1,062,419 1,159,533
Other assets 70,660 99,291
------------ -----------
Total assets $ 8,108,965 $ 8,028,521
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion (Note 5) $ 495,581 $ 412,831
Accounts payable 631,639 643,905
Accrued payroll and related taxes 192,867 217,830
Accrued expenses 33,754 32,315
Accrued income taxes (Note 4) 96,459
------------ -----------
Total current liabilities 1,450,300 1,306,881
Notes payable - long-term portion (Note 5) 3,338,255 3,687,808
Deferred income taxes (Note 4) 111,000 105,000
------------ -----------
Total liabilities 4,899,555 5,099,689
------------ -----------
Commitments and contingencies (Notes 6 and 8)
Shareholders' equity (Note 8):
Preferred stock, no par value; 500,000 shares authorized;
none issued
Common stock, no par value; 1 0,000,000 shares authorized;
1,404,686 shares in 1997 and 1,499,263 shares in 1996
issued and outstanding 1,518,098 1,620,240
Retained earnings 1,691,312 1,308,592
Total shareholders' equity 3,209,410 2,928,832
----------- -----------
Total liabilities and shareholders' equity $ 8,108,965 $ 8,028,521
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Income
for the years ended March 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Restaurant sales $ 15,416,311 $ 15,031,429 $ 14,592,232
Franchise operations 654,637 680,604 605,855
Lottery 41,407
Initial license fees 25,000
------------ ------------ ------------
16,112,355 15,712,033 15,223,087
------------ ------------ ------------
Costs and expenses:
Cost of restaurant sales:
Food and beverage 4,270,067 4,191,161 4,070,030
Labor and related 5,252,469 5,102,414 4,890,252
Occupancy costs 993,007 934,518 902,554
Depreciation and amortization 699,013 719,711 722,775
General and administrative expenses 3,923,250 3,911,387 744,102
------------ ------------ ------------
15,137,806 14,859,191 14,329,713
------------ ------------ ------------
Income from operations 974,549 852,842 893,374
Other income (expense):
Interest income 60,947 60,780 49,169
Interest expense (Note 5) (351,831) (387,033) (380,392)
Gain on disposition of assets 550 3,533 3,620
------------ ------------ ------------
Income before provision for income taxes 684,215 530,122 565,771
Provision for income taxes (Note 4) (232,000) (179,500) (188,000)
------------ ------------ ------------
Net income $ 452,215 $ 350,622 $ 377,771
============ ============ ============
Net income per share $ 0.31 $ 0.23 $ 0.21
============ ============ ============
Weighted average number of shares outstanding 1,477,812 1,538,253 1,781,892
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1997, 1996 and 1995
Common Stock
------------------------ Retained
Shares Amount Earnings
--------- ---------- ----------
<S> <C> <C> <C>
Balance, March 31, 1994 1,847,218 $1,996,031 $ 782,427
Repurchase and retirement of common stock (119,773) (129,355) (69,878)
Net income 377,771
--------- ---------- ----------
Balance, March 31, 1995 1,727,445 1,866,676 1,090,320
Repurchase and retirement of common stock (228,182) (246,436) (132,350)
Net income 350,622
--------- ---------- ----------
Balance, March 31, 1996 1,499,263 1,620,240 1,308,592
Repurchase and retirement of common stock (94,577) (102,142) (69,495)
Net income 452,215
--------- ---------- ----------
Balance, March 31, 1997 1,404,686 $1,518,098 $1,691,312
========= ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the year's ended March 31, 1997, 1996 and 1995
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 452,215 $ 350,622 $ 377,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 601,899 609,912 611,680
Amortization 97,114 109,799 111,095
Deferred income taxes 6,000 21,500 25,000
Gain on disposition of assets (550) (3,533) (3,620)
Changes in assets and liabilities:
Receivables (113,927) (7,456) 5,327
Inventories (11,087) 20,009 (36,736)
Prepaid expenses 23,474 (35,887) 15,106
Other assets 33,081 (2,330) 30,017
Accounts payable and accrued expenses (35,790) 88,081 26,397
Accrued income taxes 96,459 0,575 20,575
---------- ---------- ---------
Net cash provided by operating activities 1,148,888 1,130,142 1,182,612
---------- ---------- ---------
Cash flows from investing activities:
Additions to property, buildings and equipment (398,501) (450,047) (632,814)
Proceeds from sale of assets 550 3,937 3,620
---------- ---------- ---------
Net cash used in investing activities (397, 951) (446,110) (629,194)
----------- ---------- ---------
Cash flows from financing activities:
Net change in other non-current assets (4,450) (34,355)
Proceeds from notes payable 230,000 2,670,000 517,950
Payments on notes payable (496,803) (2,839,329) (916,958)
Repurchase of common stock (171,637) (378,786) (199,233)
---------- ---------- ---------
Net cash used in financing activities (442,890) (582,470) (598,241)
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 308,047 101,562 (44,823)
Cash and cash equivalents, beginning of year 1,370,829 1,269,267 1,314,090
---------- ---------- ---------
Cash and cash equivalents, end of year $1,678,876 $1,370,829 1,269,287
========== ========== =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 351,203 $ 387,033 $ 390,127
========== ========== =========
Income taxes $ 119,350 $ 188,766 $ 134,596
========== ========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-5
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. The Company and Summary of Significant Accounting Policies:
The Company
Elmer's Restaurants, Inc. (the Company), an Oregon corporation, owns and
operates eleven Elmer's Pancake & Steak House restaurants and sells
franchises that give franchisees the right to operate under the name Elmer's
Pancake & Steak House for a specific restaurant or region. Franchises and
Company owned stores are located throughout the western United States.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions
have been eliminated.
Use of 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.
Disclosure of Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents and accounts receivable approximated fair value as of March 31,
1997 because of the relatively short maturity of these instruments. The
carrying value of notes payable approximated fair value as of March 31,
1997, based upon interest rates available for the same or similar loans.
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
The Company invests its excess cash in interest bearing deposits with major
banks and in U.S. Treasury securities. These investments generally mature
within 90 days and are therefore subject to minimal risk. Management
routinely reviews these investments in order to limit the amount of credit
exposure to any one financial institution.
Inventories
Inventories of food, beverages and restaurant supplies are stated at the
lower of first-in, first-out cost or market.
F-6
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued
Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets. Lives used for calculating depreciation and amortization
rates for the principal asset classifications are as follows: buildings - 35
years; automobiles, furniture, fixtures and equipment - 3 to 7 years;
leasehold improvements - life of lease or applicable shorter period.
Maintenance and repairs are expensed as incurred; renewals and improvements
are capitalized. Upon disposal of assets subject to depreciation, the
related costs and accumulated depreciation are removed and resulting gains
and losses are reflected in the consolidated statements of income.
Intangible Assets
The cost over fair value of net tangible assets of acquired companies
(goodwill) is amortized on a straight-line basis over periods not exceeding
25 years. Other intangible assets are stated at cost and amortized using the
straight-line method over the shorter of the actual life or the period
estimated to be benefited of 3 to 40 years.
Management of the Company reviews the carrying value of capitalized tangible
and intangible assets on a regular basis to reach a judgment concerning
possible permanent impairment of value. These reviews consider, among other
factors: (1) the net realizable value of each major classification of
assets, (2) the cash flow associated with the assets, and (3) significant
changes in the extent or manner in which major assets are used. Management
believes the carrying value of assets is less than the estimated fair value.
Franchise Operations
Initial license fees from individual and area franchise sales are recognized
as revenue when substantially all of the terms and conditions of the
franchise agreement are met. The Company has sold area franchises to several
restaurant operators in various western states. The terms of the agreements
entered into with each franchisee protect the territory for the operator and
provide standard building blueprints, recipes, formulas and methods of food
preparation. The term of the franchise is 25 years. Continuing franchise
fees (based on a percentage of sales) are recognized as income when earned.
F-7
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued Income
Taxes
The Company files consolidated income tax returns with its subsidiaries.
Deferred income taxes are recorded for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to
affect taxable income. Income tax expense is the tax payable for the year
and the change during the year in deferred tax assets and liabilities.
Net Income Per Share
Net income per share is computed on the basis of the weighted average number
of shares of common stock outstanding during the respective periods.
Recent Accounting Pronouncements
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 128, Earnings Per Share (SFAS 128) and
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure (SFAS 129), which are effective for the
Company's fiscal year ending March 31, 1998. Based on the Company's current
capital structure, the adoption of SFAS 128 and SFAS 129 will not affect the
computation of net income per share or the disclosures related to the
Company's capital structure.
2. Property, Buildings and Equipment:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 1,258,439 $ 1,258,439
Buildings 2,425,055 2,397,411
Furniture, fixtures and equipment 6,455,031 6,225,143
Automobiles 81,580 57,028
Leasehold improvements 1,247,473 131,256
11,467,578 11,069,277
Less accumulated depreciation 729,566 127,867
$ 4,738,012 $ 4,941,410
</TABLE>
F-8
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
3. Intangible Assets:
Intangible assets, net of accumulated amortization of $1,156,728 and
$1,059,614 at March 31, 1997 and 1996, respectively, are comprised of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Trademark and franchise registrations and agreements $ 680,298 $ 730,134
Cost over fair value of net tangible assets acquired 347,506 382,497
Other 34,615 46,902
$ 1,062,419 $ 1,159,533
</TABLE>
4. Income Taxes:
The Company's provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currently payable:
Federal $ 172,000 $ 120,000 $ 127,000
State 54,000 38,000 36,000
----------- ----------- -----------
226,000 158,000 163,000
Deferred income taxes 6,000 21,500 25,000
=========== ========== ==========
$ 232,000 $ 179,500 $ 188,000
=========== ========== ==========
</TABLE>
Deferred tax assets and liabilities are recorded for both the expected
future tax impact of differences between the financial statement and tax
basis of assets and liabilities, and for the expected future tax benefit to
be derived from tax loss and tax credit carryforwards. A valuation allowance
is established, when necessary, to reflect the likelihood of realization of
deferred tax assets. No valuation allowance was deemed necessary as a result
of management's evaluation of the likelihood that all of the deferred tax
assets will be realized. The Company has recorded a net deferred tax
liability of $1 1 1,000 and $105,000 at March 31, 1997 and 1996,
respectively, which is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Excess of financial statement fixed assets over tax basis $ (144,000) $ (196,000)
Federal alternative minimum tax credit carryforwards 33,000 91,000
-------------- ------------
$ (111,000) $ (105,000)
============= ============
</TABLE>
F-9
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
4. Income Taxes, Continued:
Income taxes are provided at a rate different from the expected federal tax
rate on income before provision for income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995\
------------ ------------ ------------
<S> <C> <C> <C>
Expected tax $ 233,000 $ 180,000 $ 192,000
Amortization not deductible for income taxes 12,000 12,000 12,000
State taxes, net of federal tax benefits 35,000 25,000 24,000
Tax credits utilized (48,000) (42,500) (14,000)
Other 5,000 (14,000)
------------ ------------ ------------
$ 232,000 $ 179,500 $ 188,000
============ ============ ============
</TABLE>
5. Notes Payable:
<TABLE>
<CAPTION>
<S> <C> <C>
Notes payable to financial institutions, collateralized
by all assets excluding real estate, due at various
dates through June 2000, monthly principal installments
total approximately $30,000 plus interest at rates as
follows:
Prime rate plus 0.5% - 1.0% (prime was 8.25% at March 31,
1997) $1,892,935 $ 2,098,022
Notes payable to financial institutions, collateralized
by real estate, due at various dates through February
2006, monthly installments total $16,204 including
interest at rates as follows:
Average 2 year U.S. Treasury note rate plus 1.75% and 2%
(applicable Treasury rates were 5.81% and 6.36% at
March 31, 1997) 513,332 526,751
Fixed rate of 8.18% 1,338,206 1,367,562
Notes payable to others, collateralized by equipment and
the stock of a subsidiary, due at various dates
through August 2001, interest from 6% to 1 89,363 108,304
3,833,836 4,100,639
Less current portion (495,581) (412,831)
---------- -----------
Long-term portion $3,338,255 $ 3,687,808
========== ===========
</TABLE>
F-10
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
5. Notes Payable, Continued:
Certain notes payable contain restrictive covenants pertaining to financial
ratios and minimum cash flow coverage. The most restrictive covenants
require the Company to maintain a ratio of cash generation (defined as net
income before taxes, interest expense, depreciation and amortization) to
total interest expense plus the prior period current maturities of long-term
debt of at least 1.3 to 1.0 and a maximum of total liabilities to tangible
net worth of 3.25 to 1.0. The Company was in compliance with these covenants
at March 31, 1997.
Future maturities of notes payable for years ending March 31 are as follows:
1998 $ 495,581
1999 930,140
2000 418,082
2001 786,796
2002 53,241
Thereafter 1,149,996
-------------
$ 3,833,836
All interest costs incurred have been expensed.
6. Leases:
Minimum fiscal year rental commitments for the years ending March 31 under
operating leases with noncancelable terms of more than one year, are as
follows.
1998 $ 468,071
1999 340,346
2000 317,922
2001 301,722
2002 253,122
Thereafter 1,163,995
-------------
$ 2,845,178
The leases generally provide for additional rentals based upon a specified
percentage of sales and require the Company to pay certain other costs.
Rental expense on operating leases amounted to $661,419 (including $168,803
of additional rentals) for the year ended March 31, 1997, $642,166
(including $149,648 of additional rentals) for the year ended March 31,
1996, and $625,156 (including $133,438 of additional rentals) for the year
ended March 31, 1995.
F-11
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
6. Leases, Continued:
Total lease payments for the lease of the corporate offices from a
stockholder of the Company were $33,636 for the years ended March 31, 1997
and 1996 and $32,836 for the year ended March 31, 1995.
7. Restaurant and Franchise Operations:
Summary results of operations and other selected financial information from
restaurant operations and franchise operations are presented after
elimination of intercompany transactions:
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Restaurant operations $ 15,416,311 $ 15,031,429 $ 14,592,232
Franchise operations 1,358,776 1,360,729 1,297,546
Intercompany eliminations (704,139) (680,125) (666,691)
Consolidated $ 16,070,948 $ 15,712,033 $ 15,223,087
============= ============= ============
Income from operations:
Restaurant operations $ 545,561 $ 424,480 $ 519,999
Franchise operations 387,581 428,362 373,375
Consolidated $ 933,142 $ 852,842 $ 893,374
Capital and intangible expenditures:
Restaurant operations $ 360,961 $ 361,545 $ 625,677
Franchise operations 37,540 88,502 7,137
Consolidated $ 398,501 $ 450,047 $ 632,814
Depreciation and amortization:
Restaurant operations $ 606,533 $ 642,031 $ 648,115
Franchise operations 92,480 77,680 74,660
Consolidated $ 699,013 $ 719,711 $ 722,775
============= ============= ============
</TABLE>
F-12
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
7. Restaurant and Franchise Operations, Continued:
1997 1996
Assets:
Restaurant operations $ 7,117,727 $ 7,022,734
Franchise operations 991,238 1,005,787
Consolidated $ 8,108,965 $ 8,028,521
============ ============
The number of Company owned stores and operating franchises at March 31 is
as follows:
1997 1996 1995
Company owned stores 11 11 11
Operating franchises 18 18 18
8. Commitments and Contingencies:
The Company entered into employment agreements with its late Chief Executive
Officer and the founders of the original Elmer's Pancake & Steak House. The
agreements provide the following minimum compensation commitments - Chief
Executive Officer - $120,000 per year expiring May 999; Founders - $15,000
per year for life. In accordance with the terms of the agreement with the
late Chief Executive Officer, the Company will continue to provide this
minimum compensation to the successor Chief Executive Officer for a period
of two years after his death. This agreement will expire on May 26, 1998.
The Company had authorized incentive compensation for the late Chief
Executive Officer equal to 10 percent of the Company's annual earnings
(before income taxes and the incentive payment) in excess of $200,000 for
each fiscal year. Incentive compensation expense for the years ended March
31, 1996 and 1995 was $36,680 and $40,641, respectively.
The Company entered into an agreement to repurchase from a stockholder of
the Company a total of 152,153 shares of the Company's stock at a price of
$1.80 per share. Pursuant to this agreement, the Company repurchased 76,076
shares on February 13, 1997. The Company is obligated to repurchase the
remaining 76,077 shares on February 1, 1998.
From time to time, the Company is involved in litigation relating to claims
out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in amounts which it
believes to be adequate. Management believes that it is not presently a
party to any litigation, the outcome of which would have a material adverse
effect on the Company's business or operations.
F-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ELMER'S RESTAURANTS, INC.
Date: June 20, 1997 By ANITA GOLDBERG
--------------------------------------
Anita Goldberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on June 20, 1997.
Signature Title
--------- -----
(1) Principal Executive and
Financial Officer
ANITA GOLDBERG President and Director
---------------------------------
Anita Goldberg
(2) Principal Accounting
Officer
JUANITA NELSON Controller
---------------------------------
Juanita Nelson
(3) Directors
ANITA GOLDBERG Director
---------------------------------
Anita Goldberg
PAUL WELCH Secretary and Director
---------------------------------
Paul Welch
ZADOC (ZED) MERRILL Director
---------------------------------
Zadoc (Zed) Merrill
RUDOLPH MAZUROSKY Director
---------------------------------
Rudolph (Rudy) Mazurosky
14
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page Nos.
- ------- ----------- ----------
3.1 Restated Articles of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended
March 31, 1988 (the "1988 Form 10- K").
3.2 Bylaws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1990.
10.1 Area Franchisee - Unit Franchisee Agreement dated July
10, 1978 by and between Elmer's Colonial Pancake & Steak
House, Inc. and Paul H. and Jacqueline M. Welch, Dale M.
and Sandra Lee Elmer. Incorporated by reference to
Exhibit 10.30 of the Company's Registration Statement on
Form S-18, Registration No. 2-98298-S (the "Form S-18
Registration").
10.2 Lease Agreement dated June 18, 1987 by and between Dale
M. Elmer and Sandra Lee Elmer and Elmer's Pancake & Steak
House, Inc., and addenda thereto. Incorporated by
reference to Exhibit 10.5 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1989
(the "1989 Form 10-K") and Exhibit 10.3 of the December
31, 1991 Form 10-Q.
10.3 Franchise Agreement between the Company and Paul H. Welch
and Jacqueline M. Welch dated March 23, 1993.
Incorporated by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993 (the "1993 Form 10- K").
10.4 Franchise Development Option Agreement between the
Company and Paul H. Welch and Jacqueline M. Welch dated
May 3, 1993. Incorporated by reference to Exhibit 10.10
of the 1993 Form 10-K.
10.5 Commercial Loan Note, dated May 18, 1995, issued by the
Company to The Bank of California, N.A. and addendum
thereto. Incorporated by reference to Exhibit 10.9 of the
Form 10-K for the fiscal year ended March 31, 1995.
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page Nos.
- ------- ----------- ----------
10.6 Loan Agreement, dated December 21, 1995, between the
Company and Wells Fargo Bank, N.A., successor-by-merger
to First Interstate Bank of Oregon, N.A. and the First
Amendment thereto, dated as of March 18, 1997, Promissory
Note dated December 21, 1995 issued by the Company to
Wells Fargo Bank, N.A., successor-by-merger to First
Interstate Bank of Oregon, N.A. in connection with the
Loan Agreement, and Deeds of Trust given by the Company
to Ticor Title Insurance Company, Trustee, for benefit of
Wells Fargo Bank, N.A., successor-by-merger to First
Interstate Bank of Oregon, N.A. in connection with the
Loan Agreement.
10.7 Credit Agreement, dated as of March 18, 1997, between the
Company and Wells Fargo Bank, N.A. and Promissory Note
dated March 18, 1997, issued by the Company to Wells
Fargo Bank, N.A. in connection with the Credit Agreement
and Promissory Note dated May 17, 1995, issued by the
Company to Wells Fargo Bank, N.A., successor-by-merger to
First Interstate Bank of Oregon, N.A., which is governed
by the Credit Agreement.
10.8 Promissory Notes, dated March 31, 1997, issued by Paul H.
Welch and Jacqueline M. Welch to the Company.
10.9 Stock Purchase Agreement, dated as of February 13, 1997,
between the Company and Dale Elmer.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into on this 21st day of December,
1995, by and between FIRST INTERSTATE BANK OF OREGON, N.A. ("Bank") and ELMER'S
RESTAURANTS, INC., an Oregon corporation ("Borrower").
RECITALS
A. Borrower is the owner of the Real Property (as defined below).
B. Borrower desires to borrow One Million Three Hundred Seventy-two
Thousand Five Hundred and 00/100 Dollars ($1,372,500.00) to refinance
restaurants located in Snohomish County and Pierce County, Washington. Bank is
willing to loan Borrower the sum of One Million Three Hundred Seventy-two
Thousand Five Hundred and 00/100 Dollars ($1,372,500.00) on the terms and
conditions set forth in this Agreement, and not otherwise.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, Bank and Borrower agree as follows.
SECTION 1. DEFINITIONS
1.1 Definitions. For the purposes of this Agreement each of the following
terms shall have the meaning specified with respect thereto unless a different
meaning clearly appears from the context:
"Adjacent Property" shall mean any real property which is within 1,000
feet of any border of the Real Property.
"Agreement" shall mean this Loan Agreement, together with any
amendments or supplements to it.
"Assignment of Leases, Rents and Agreements" shall mean the
assignment, whether pursuant to the Trust Deed or otherwise, whereby Borrower
assigns to Bank as additional security for payment of the Loan and for payment
and performance of Borrower's and Guarantor's obligations under the Note, Loan
Agreement, Guaranty, and other Loan Documents, all of Borrower's rights under
any and all Leases and other agreements now or in the future entered into with
respect to the Real Property, and all rents, issues, profits, revenues and
income due and to become due from the Real Property.
"Bank" shall mean First Interstate Bank of Oregon, N.A.
"Banking Business Day" shall mean any weekday Bank is open for
business in Portland, Oregon.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, as
amended, 11 U.S.C. 101, et seq.
"Borrower" shall mean Elmer's Restaurants, Inc., an Oregon
corporation.
"Closing Date" shall mean the date of the Note.
"Collateral" shall mean (a) all of the Real Property, FF&E, accounts,
leases, intangibles and other interests of Borrower which are subject to the
lien and security interest of the Trust Deed; (b) all rights of Borrower
assigned as additional security pursuant to the terms of the and Assignment of
Leases, Rents and Agreements; and (c) any and all other real or personal
property (including but not limited to intangible rights, interests or benefits
inuring to
LOAN AGREEMENT Page 1
<PAGE>
or in favor of Borrower) which are now or in the future in any manner assigned,
pledged, encumbered or otherwise hypothecated in favor of Bank to secure
repayment of the Loan.
"Disabilities Laws" shall mean all applicable federal, state, and
local laws and regulations related to usability of and accessibility to the
property by people with disabilities. The term "Disabilities Laws" includes, but
is not limited to, the Fair Housing Amendments Act of 1988 and the Americans
with Disabilities Act of 1990 and all regulations adopted thereunder.
"Environmental Laws" shall mean any present or future local,
municipal, state or federal law, rule, order, regulation or restriction relating
to environmental protection and pollution control (including but not limited to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 as amended by the Superfund Amendment and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and
Solid Waste Amendments of 1984, the Toxic Substances Control Act, and the
Federal Insecticide, Fungicide and Rodenticide Act and any similar federal or
state statutes and regulations), land use and zoning, energy and industrial
facilities siting, or occupational health and safety.
"Event of Default" shall mean any Event of Default as provided in
Section 6.1 hereof.
"FF&E" shall mean any furnishings, fixtures and equipment now owned or
hereafter acquired which either have been installed or are to be installed and
used in connection with the operation of the Premises or which are or shall be
located on the Premises, including but not limited to those furnishings,
fixtures and equipment which have been purchased or leased or are to be
purchased or leased by Borrower.
"Financing Statements" shall mean the Uniform Commercial Code
financing statements required to be filed with (a) the Office of the Secretary
of State of Washington and (b) the Office of the Recorder of Snohomish County
and Pierce County, Washington, in order to perfect the security interests in
personal property granted to Bank under the Trust Deed and other Loan Documents
in accordance with the requirements of the Uniform Commercial Code as adopted in
Washington.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"Governmental Authority" or "Governmental Authorities" shall mean any
federal, state, regional, county or municipal governmental agency, board,
commission, officer or official whose consent or approval is required or whose
regulations must be followed as a prerequisite to (a) the continued operation
and occupancy of the Premises, or (b) the performance of any act or obligation
or the observance of any agreement, provision or condition of whatever nature
contained in this Agreement or the Loan Documents.
"Guarantor" means any Person who, to induce Bank to make the Loan to
Borrower, guarantees the Loan by executing the Guaranty, or any other guaranty
of any aspect of the Loan.
"Guaranty" means the Continuing Unconditional Guaranty executed by
Elmer's Pancake & Steakhouse, Inc., an Oregon corporation and Annko, Inc., an
Oregon corporation to induce Bank to make the Loan to Borrower, together with
any other guaranty now or in the future executed by any Guarantor and together
with any amendments to any such guaranty.
"Hazardous Substances" shall mean and include all hazardous and toxic
substances, wastes or materials, any pollutants or contaminants (including,
without limitation, petroleum products or crude oil or any fraction thereof,
asbestos and raw materials which include hazardous constituents), or other
similar substances, or materials which are included now or in the future under
or regulated by any Environmental Law.
LOAN AGREEMENT Page 2
<PAGE>
"Lease(s)" shall mean any present or future lease of all or any
portion of the Premises, together with all monies due and to become due under
any such leases.
"Loan" shall mean the Bank's loan of funds to Borrower in an amount
and on the terms and conditions set forth in this Agreement and other Loan
Documents, the terms of repayment of which are more particularly described in
the Note and any extensions, renewals or modifications of the Loan. The term
"Loan" also includes but is not limited to any amounts required to be paid to
Bank by Borrower under this Agreement or other Loan Documents.
"Loan Documents" shall mean this Agreement; the Note; the Trust Deed;
Assignment of Leases, Rents and Agreements; Financing Statements; and all other
instruments and agreements required to be executed in connection with the Loan,
and any amendments or supplements to any such documents.
"Loan Fee" shall mean a nonrefundable loan fee in the amount of
$10,293.75 which Borrower shall pay to Bank on the Closing Date.
"Note" shall mean the promissory note, of even date, executed by
Borrower, in the original principal amount of One Million Three Hundred
Seventy-two Thousand Five Hundred and 00/100 Dollars ($1,372,500.00), payable to
the order of Bank, together with any renewals or extensions of it and together
with any amendments or supplements to it.
"Permitted Encumbrances" shall mean, at any particular time, (a) liens
for taxes, assessments or governmental charges not then due and payable or not
then delinquent, (b) liens created or contemplated by the Loan Documents, and
(c) the liens, encumbrances and restrictions on the Real Property, FF&E and
existing improvements which are otherwise approved in writing by Bank.
"Person" means any individual, firm, corporation, trust, association,
partnership, limited liability company, joint venture, tribunal or other entity.
"Policies of Insurance" shall mean the insurance to be obtained and
maintained by Borrower as provided by the following Section 5.1(a) of this
Agreement.
"Premises" shall mean the Real Property, the FF&E or other property,
both personal and real which now are or in the future are situate upon the Real
Property.
"Prime Rate" shall mean Bank's publicly announced prime rate of
interest in effect from time to time. The Prime Rate is a base rate used to
price some loans. It may not be the lowest rate at which the Bank makes any
loan. Each change in the interest rate shall be effective on the date of each
announced change in Bank's Prime Rate.
"Real Property" shall mean the real property described on Exhibit A,
attached to this Agreement and by this reference incorporated herein and made a
part of it, together with all buildings, structures and other Improvements
situate or to be situated thereon.
"Title Insurance Company" shall mean Chicago Title Insurance Company
and its issuing agent Ticor Title Insurance Company, together with such
reinsurers with direct access as are requested by Bank or other title insurance
company or companies as may be acceptable to Bank.
"Title Insurance Policy" shall mean the ALTA Extended Coverage Lenders
Policy of Title Insurance to be issued on the Closing Date by Title Insurance
Company in the amount of One Million Three Hundred Seventy-two Thousand Five
Hundred and 00/100 Dollars ($1,372,500.00) for the properties located in
Snohomish County and Pierce County, Washington, insuring Bank that each Trust
Deed is a first lien on the Premises without exception as to the condition of
title or priority other than Permitted Encumbrances, together with such
LOAN AGREEMENT Page 3
<PAGE>
endorsements as Bank, in its sole discretion, may require and subject only to
such exceptions as are acceptable to Bank.
"Trust Deed" shall mean the two Commercial Deeds of Trust executed by
Borrower as Grantor and naming Title Insurance Company as Trustee and Bank as
Beneficiary and given for the purpose of securing payment of the Loan and
performance of the terms of the Note, this Agreement, and other Loan Documents,
together with any amendments or supplements to it.
1.2 Other Definitions. Capitalized terms which are not defined above but
are defined elsewhere in this Agreement shall have the same meanings given them
in such provisions of this Agreement. Capitalized terms which are not defined in
this Agreement and are defined in the Trust Deed shall have the same meanings as
are given them in the Trust Deed.
SECTION 2. LOAN
2.1 Amount, Interest and Term of Loan. Loan shall be a non-revolving Loan
and shall be in the principal sum of One Million Three Hundred Seventy-two
Thousand Five Hundred and 00/100 Dollars ($1,372,500.00) and shall bear interest
on so much thereof as shall be advanced pursuant to the terms of the Note, and
the following provisions of this Agreement. The Loan shall mature on the date
specified in the Note.
2.2 The proceeds of Loan will be applied as follows:
(a) To the payment of principal and interest due under the existing
Note(s) for the restaurants located in Snohomish County and Pierce County
Washington; and
(b) To the payment of the expenses and the Loan Fee described in this
Agreement; and
(c) To the payment of such other costs and expenses incurred or to be
incurred in connection with the Premises as Bank may approve. Disbursements for
such costs and expenses shall be made in accordance with this Agreement and the
other Loan Documents and such other terms and conditions as Bank in its sole
discretion may require.
SECTION 3. REPRESENTATIONS AND WARRANTIES BY BORROWER.
Borrower represents and warrants to Bank that:
3.1 Organization and Standing of Borrower. Borrower is a corporation and is
duly organized and validly existing and in good standing under the laws of the
State of Oregon and has all powers and authorization necessary to enable it to
execute and comply with the terms of the Loan Documents. No additional action of
Borrower is requisite to such authorization.
3.2 Title to Real Property. Borrower has on Closing Date good and
marketable title to the Real Property, free and clear of all defects, liens and
encumbrances, except for Permitted Encumbrances.
3.3 No Hazardous Waste. To the best of Borrower's knowledge, after due
inquiry and investigation, except for over-the-counter items used in normal
amounts by Borrower in the ordinary course of business, none of the Real
Property or Adjacent Property (a) has ever been used by previous owners and/or
operators or by Borrower to generate, manufacture, refine, transport, treat,
store, handle or dispose of any Hazardous Substances, and Borrower does not
intend to use any of its real property, including, but not limited to, the Real
Property, for any such purposes, and (b) has ever contained any Hazardous
Substance whether used in construction or stored on the Real Property or
Adjacent Property. In addition, Borrower has no knowledge of any action,
citation, directive, letter or other communication, written or oral, from any
Person, or Governmental Authority concerning any intentional or unintentional
action or
LOAN AGREEMENT Page 4
<PAGE>
omission on Borrower's part which has resulted in the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping of Hazardous
Substances.
3.4 Litigation. Except as disclosed in writing to Bank, there is no
litigation, claim, action, suit or proceeding pending or, to the knowledge of
Borrower, threatened against or affecting Borrower or the Real Property in any
court, or before or by any Governmental Authority which might materially and
adversely affect the financial condition or operations of Borrower and its
Subsidiaries, taken as a whole, or impair the ability of Borrower or such
Subsidiary to perform its obligations hereunder, or under the Note, any of the
Loan Documents, or instrument or agreement required hereunder or which would
result in the imposition of any lien, charge or encumbrance on any property of
Borrower or such Subsidiary in an amount greater than One Hundred Thousand and
00/100 dollars ($100,000.00).
3.5 Compliance by Borrower with Other Instruments. Borrower is not in
violation of or in default with respect to any term, provision, or condition of
any trust deed, mortgage, indenture, security instrument, contract, agreement or
other instrument applicable to Borrower, or by which Borrower is bound, and the
execution, delivery, and performance of and compliance with the Loan Documents
will not result in any such violation or be in conflict with or constitute a
default under any such term, provision or condition, or result in the creation
of any mortgage, lien or charge on any of Borrower's properties or assets not
contemplated by any of the Loan Documents if such default or violation would
result in Borrower's liability in excess of One Hundred Thousand and 00/100
Dollars ($100,000.00). There is no term or provision of any trust deed,
mortgage, indenture, security instrument, contract, agreement or other
instrument applicable to Borrower or by which Borrower is bound which materially
adversely affects the business or prospects or condition (financial or other) of
Borrower or any of Borrower's properties or assets.
3.6 Compliance with Law; Governmental Authorization. The consummation and
performance of each and all of the transactions contemplated by the Loan
Documents will not conflict with or result in a breach of any law, statute,
ordinance, regulation, order, writ, injunction or decree of any court or
Governmental Authority including but not limited to Environmental Laws or
Disabilities Laws.
3.7 Financial Statements. Any tax returns and financial statements
delivered to Bank by Borrower are complete and correct in all material respects
(subject, in the case of interim statements, to year-end adjustments) and fairly
present the respective financial condition of the subjects thereof as of the
respective dates thereof. No materially adverse change has occurred in
Borrower's financial condition reflected as of March 31, 1995.
3.8 Rent Rolls and Operating Statements. Any rent rolls and operating
statements delivered to Bank by Borrower are complete and correct in all
material respects.
3.9 Utility Services. All utility services necessary and adequate for the
operation of the Premises are available at the boundaries of the Real Property,
including, but not limited to, water, storm and sanitary sewer facilities,
electricity, natural gas, if applicable, and telephone facilities.
3.10 Access. Real Property is contiguous to publicly dedicated streets,
roads or highways. Vehicular access from Real Property is permitted to any such
publicly dedicated streets, roads or highways.
SECTION 4. CONDITIONS OF THE BANK'S OBLIGATION.
4.1 Conditions Precedent to Loan. Bank's obligation to make the Loan is
subject to the fulfillment to Bank's satisfaction prior to the Closing Date of
each and every one of the following conditions precedent:
LOAN AGREEMENT Page 5
<PAGE>
(a) Proceedings and Documents. All proceedings taken by Borrower in
connection with Loan shall be in form and substance satisfactory to Bank and its
counsel, and Bank shall have received from Borrower (a) executed original Loan
Documents; (b) properly certified resolutions, duly authorizing the execution
and delivery of the Loan Documents, and the consummation of the transaction
contemplated thereby, (c) such authorizations and other documents as Bank in its
sole discretion may require, and (d) such authenticated copies of any other
documents as Bank may reasonably request.
(b) No Default or Event of Default. There shall exist no conditions
which would constitute an Event of Default or which, after notice or lapse of
time, or both, would constitute an Event of Default.
(c) Environmental Questionnaire. Borrower shall have provided to Bank
a completed environmental questionnaire.
(d) Environmental Transaction Screen. Borrower shall provide to Bank
at Borrowers expense an environmental transaction screen satisfactory to Bank in
Bank's sole discretion prepared to the standards of American Facility for
Testing and Materials. Any exceptions noted in the report shall be promptly
remedied by Borrower at Borrower's expense with satisfactory evidence or
certification acceptable to Bank provided to Bank prior to closing.
(e) Legal Description. Borrower shall have furnished to Bank for its
approval a complete legal description of the Real Property. The Real Property
must be assessed and taxed as an independent parcel.
(f) Title Insurance. Borrower shall have delivered to Bank the Title
Insurance Policy or the commitment from the Title Insurance Company to issue the
Title Insurance Policy in form and substance acceptable to Bank.
(g) Insurance. Borrower shall have in force and shall have delivered
to Bank the Policies of Insurance required by Section 5.1(a) of this Agreement
and by the Trust Deed.
(h) Appraisal. Bank shall have received an appraisal report ordered by
the Bank on the Real Property from an appraiser selected by Bank but at Borrower
expense. The appraisal, including without limitation the value and the valuation
process, shall conform to the Uniform Standards of Professional Appraisal
Practice (USPAP) and must otherwise be in form and substance satisfactory to
Bank, in its sole discretion.
(i) Survey. If so required by the Title Insurance Company, Borrower
shall have furnished to Bank a survey of recent date, prepared and certified as
correct by a registered surveyor satisfactory to Bank, together with a
certification by such surveyor that the Premises lie wholly within the
boundaries of the Real Property without encroachment or violation of any zoning
ordinances, building regulations or setback requirements. Such survey shall
include the legal description of the Real Property, and shall disclose (1) the
location of the perimeter of the Real Property by courses and distances, (2) all
easements and rights-of-way, whether above or underground, (3) the location of
the Premises, (4) the lines of the streets abutting the Real Property and the
width thereof, (5) encroachments, if any, and the extent thereof in feet and
inches upon the Real Property, (6) the relation of the Premises by distance to
the perimeter of the Real Property, the established building lines and the
street lines and (7) access and roadways.
(j) Financial Statements. Borrower and, upon Bank's request, all
tenants who have executed Leases) shall have provided Bank with the latest tax
returns complete with all schedules, including applicable K-1 statements, and
current signed financial statements prior to closing.
(k) Payment of Fees and Expenses. Borrower shall have paid to Bank on
the Closing Date the Loan Fee specified in Section 5.1(i) of this Agreement and
other expenses as
LOAN AGREEMENT Page 6
<PAGE>
may be due and payable and any other fees, including but not limited to attorney
fees and other expenses due to Bank.
SECTION 5. BORROWER'S COVENANTS.
5.1 Borrower's Covenants. Borrower covenants and agrees with Bank as
follows:
(a) Insurance. Borrower shall at all times maintain for itself such
insurance against loss or damage to its tangible property of the kinds
customarily insured against by corporations similarly situated, with reputable
companies or with the United States government or any agency or instrumentality
thereof, in such amounts and by such methods as is customary by corporations
similarly situated, and as to all such insurance covering inventory and
equipment in which Bank has a security interest with loss payable endorsement
(BFU 438) in favor of Bank if form reasonably satisfactory to Bank, and will at
all times maintain or cause to be maintained in full force and effect, with
reputable companies and in such amounts and by such methods as is customary by
corporations similarly situated, public liability insurance against loss or
damage to it for bodily injury or death in or about any premises occupied by it,
and liability insurance against loss or damage to it for bodily injury or death
or injury to property occurring by reason of the operation by it of any motor
vehicle or other equipment. All such policies of insurance shall contain a
provision that the same shall not be canceled nor the coverage modified nor the
limits changed without first giving thirty (30) days written notice thereof to
Bank and that no act or default of Borrower or any other person shall affect the
right of Bank to recover under any such policy or policies in the case of loss
or damage; and a certificate of insurance shall be provided to Bank by mail,
addressed to Bank.
(b) Damage or Destruction. If any portion of the Collateral is damaged
or destroyed by flood, earthquake, fire, wind, other acts of God, by Borrower,
any other Persons, or by any other means, then, unless Borrower is in default or
in violation of any term or provision of the Loan Documents and Bank directs
Borrower to the contrary pursuant to Section 6 of the Trust Deed, Borrower,
within a reasonable time, shall restore the Collateral to the condition in which
it was in prior to such damage or destruction. Borrower shall accomplish such
restoration by the use of funds other than the Loan proceeds; and prior to
commencement of restoration, Borrower shall provide Bank evidence of sufficient
insurance proceeds and/or other funds to complete restoration. If Bank
determines that insurance proceeds will be available for repair of the Premises,
such proceeds shall be held by Bank and disbursed pursuant to the terms and
conditions of this Agreement and other Loan Documents.
(c) Defects. Borrower, upon demand of Bank, promptly will correct any
defect in the Premises.
(d) Without the prior written consent of Bank, Borrower will not
create or suffer to be created, any mechanic's, materialmen's, laborers, tax,
statutory, construction, or other lien or charge upon the Collateral or any part
thereof, except to the extent specifically permitted by the terms of Section 5.4
of the Trust Deed and except liens, security interests or charges approved by
Bank and liens for taxes or assessments not yet payable. If any liens or claims
other than Permitted Encumbrances are filed against the Premises, Bank, at its
election, after fifteen (15) days' written notice to Borrower of its intention
to do so, may pay any or all such liens or claims, or contest the validity of
any of them, paying all costs and expenses of contesting the same, including
reasonable attorney fees unless, within the fifteen-day period, Borrower posts
cash or a bond with a surety and in an amount satisfactory to Bank (or provides
other security acceptable to Bank) to release the Premises from the lien or
claim. Any payment by Bank under this Section shall be payable on Bank's demand
and shall bear interest from the date of expenditure until paid at the default
interest rate provided in the Note or other Loan Documents or, if the Note or
other Loan Documents contain no default rate, then at the interest rate(s) then
borne by the Loan, and shall be secured by the Collateral.
(e) Absence of Hazardous Waste. Borrower shall (1) prevent any Person
from releasing, spilling, leaking, pumping, emitting, pouring, emptying or
dumping any Hazardous
LOAN AGREEMENT Page 7
<PAGE>
Substance into waters or onto the Real Property or from the Real Property to
Adjacent Property and (2) immediately notify Bank in writing should Borrower
become aware of any Hazardous Substance or other environmental problem or
liability with respect to any of Borrower's property, including but not limited
to the Premises. At Bank's request, Borrower, at its own cost and expense, shall
take all actions as shall be necessary or advisable for the clean-up of any such
property, including but not limited to the Premises, including but not limited
to all removal, containment and remedial actions in accordance with all
applicable Environmental Laws (and in all events in a manner satisfactory to
Bank), and shall further pay or cause to be paid at no expense to Bank all
clean-up, administrative, and enforcement costs of applicable Governmental
Authorities which may be asserted against the Premises.
(f) Indemnification of Bank. Borrower will indemnify and hold harmless
Bank and its officers, directors, employees and agents from any and all claims,
liability, loss, damage or expense (including but not limited to attorney fees
and disbursements incurred before, at trial, on appeal or in the event of
threatened litigation) asserted against Bank by any Person, or Governmental
Authority or arising out of or in connection with the development, sale or use
of the Real Property or the Premises, including but not limited to: (1) any
violation of any applicable laws and regulations, including but not limited to
Environmental Laws or Disabilities Laws with respect to the Premises, or any
governmental or judicial claim, order or judgment with respect to the cleanup of
Hazardous Substances or any investigatory or remedial action at or with respect
to the Premises and (2) any breach of any of the warranties, representations and
covenants contained in this Agreement, provided that Borrower shall not be
required to indemnify Bank for its willful misconduct or gross negligence. Bank
may appear in any action or proceeding to defend itself against such claims, and
all costs incurred by Bank in connection therewith, including without limitation
attorney fees, shall be paid by Borrower to Bank upon request without any
requirement of waiting for ultimate outcome of any litigation, claim or other
proceeding. Borrower shall pay such liability, losses, claims, damages and
expenses to Bank as so incurred within thirty (30) days after notice from Bank
itemizing the amounts incurred to the date of such notice. Bank, at its sole
option, shall be entitled to settle or compromise any asserted claim against it,
and such settlement shall be binding upon Borrower for purposes of this
indemnification. Payment thereof by Bank or the payment by Bank of any attorney
fees, judgment or claim successfully asserted against Bank shall constitute an
additional principal advance under Loan, shall bear interest at the default rate
applicable to the Loan, and shall be payable upon demand.
The covenants contained in this Section 5.1(f) are in addition to and
not in lieu of any other indemnification provisions in any other Loan Documents,
shall survive the repayment of the Loan and the delivery of a deed in lieu of
foreclosure to Bank or any successor of Bank and shall survive any foreclosure,
whether judicial or nonjudicial, of the Premises by Bank or any successor of
Bank, and shall be for the benefit of Bank, and any successor to Bank, as holder
of any security interest in the Premises or the Loan, or as owner of the
Premises or any other property of Borrower following foreclosure or the delivery
of a deed in lieu of foreclosure.
(g) Information. Borrower will (1) from time to time upon Bank's
request, but not less than annually, provide to Bank an audited annual financial
statement within 120 days of FYE and Borrower prepared interim financial
statements monthly within 60 days of the end of each month; (2) give Bank
written notice within ten (10) days after Borrower first receives notice of: (A)
any litigation or claims of any kind which might subject Borrower to any
liability in excess of Three Hundred Thousand and 00/100 Dollars ($300,000.00),
whether covered by insurance or not, and (B) all complaints and charges filed by
any Governmental Authority or any other Person affecting the Premises or
Borrower or its business, or impair the security of Bank or adversely affect any
of Bank's rights under this Agreement; (3) promptly notify Bank of any condition
or event which constitutes a breach or Event of Default under any of the Loan
Documents, or any other agreement or instrument executed by Borrower in
connection with the Premises or of any materially adverse change in the
financial condition of such Borrower; and (4) furnish to Bank promptly such data
and information, financial or otherwise, concerning Borrower, as from time to
time may reasonably be requested by Bank. All financial statements
LOAN AGREEMENT Page 8
<PAGE>
shall be prepared in accordance with GAAP, in form and content reasonably
satisfactory to Bank, and certified to be complete and accurate in all material
respects (subject, in the case of interim statements, to year-end adjustments).
(h) Maintenance of Legal Existence. Borrower will maintain its present
legal structure in good standing and shall not amend, modify or terminate its
constituent documents, true and correct copies of which Borrower represents have
been provided to Bank, without prior written approval of Bank.
(i) Expenses. Borrower will pay to Bank upon Bank's demand:
(1) All reasonable out-of-pocket expenses incurred by Bank in
connection with the preparation of the Loan Documents; the making of Loan,
including, but not limited to, closing costs; and the fees and expenses of legal
counsel for Bank, including, but not limited to, reasonable expenses for advice,
counsel and document preparation by Bank's corporate counsel; and
(2) All premiums for the Title Insurance Policy, appraisal fees,
appraisal review fees, survey costs, filing and recording fees, realty tax
service, any and all advances or payments made by Bank pursuant to this
Agreement or any other Loan Document, and other similar expenses and charges in
connection with the Loan. All fees and expenses described in this Section 5.1(i)
are in addition to the Loan Fee.
5.2 Additional Covenants of Borrower. Borrower further covenants and agrees
with Bank as follows:
(a) Appraisal. During the term of the Loan Bank may also require
appraisals acceptable to Bank, ordered by Bank from appraisers acceptable to
Bank, but at Borrower's expense, in order to comply with applicable state or
federal laws or regulations or if Bank reasonably deems it necessary to protect
Bank's interest in the Real Property. If, during the term of the loan, Bank
determines that the appraised value of the Real Property (excluding any value
attributable to furniture, fixtures, and equipment) determined based upon the
most recent appraisal received by Bank and accepted by Bank, indicates that the
loan-to-value ratio is in excess of 79.3% until January 1, 2006, and 75%
thereafter if the Maturity Date of the Note is extended, then Bank may require
Borrower to prepay the outstanding principal balance of the loan in an amount
sufficient so that the loan-to-value ratio upon such prepayment is less than or
equal to 79.3% or 75%, as applicable, of the appraised value of the Real
Property (excluding any value attributable to furniture, fixtures, and
equipment). Any such prepayment shall be applied to the most remote unpaid
installment(s) of principal. Borrower shall pay any such prepayment requirement
within thirty (30) days after written notice from Bank to Borrower specifying
the amount of any such prepayment. Any required prepayment under this Section
5.2(a) shall be without premium or penalty.
(b) Sale of Collateral. Should the loan-to-value ("LTV') increase
above 75% due to the sale of all or a portion of the Collateral, Bank reserves
the right to require the proceeds be applied to the outstanding principal
balance at the time of such sale so that the LTV is equal to or less than 75%.
In the event of a sale of a portion of the Collateral, Bank is obligated to
release that portion of the Collateral if it is determined to the satisfaction
of Bank that a LTV equal to or less than 75% can be maintained. Any required
prepayment under this Section 5.2(b) shall be without premium or penalty.
(c) Leases. Borrower shall enter into any leases of all or any part of
the Premises only with the prior written consent of Bank. Bank shall not be
required to consent to any Lease of all or part of the Premises. However, any
consent, if granted, may be conditioned upon, among other factors, receipt of
financial statements acceptable to Bank from each prospective tenant and receipt
of copy of the Lease in form and substance acceptable to Bank. Borrower shall
provide copies of all Leases which are executed in the future, if any. Terms and
content of each Lease shall be subject to the approval of Bank and all Leases
shall be
LOAN AGREEMENT Page 9
<PAGE>
subordinate to Bank's lien unless otherwise approved by Bank in writing. At
Bank's request, Borrower shall provide to Bank for Bank's approval resolutions
authorizing the execution of each Lease by each tenant and copies of the
tenant's constituent documents and authority to do business in the State of
Washington.
(d) Borrower agrees it will, and will cause its Subsidiaries to,
unless Bank waives compliance in writing, conduct its operations and cause those
of each Subsidiary to be conducted in material compliance with all laws, rules,
orders, regulations, or restrictions of any federal, state, county, municipal,
or local (or foreign, if applicable) government or governmental body or agency
applicable to its and their operations, specifically including but not limited
to any law, rule, order, regulation or restriction relating to ERISA, FLSA,
environmental protection and pollution control (including control, handling,
treatment and disposal of hazardous substances, toxic chemicals, herbicides and
pesticides pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
as amended by the Hazardous and Solid Waste Amendments of 1984, the Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act and any similar state statutes and regulations, including but not limited to
the Oregon State Leaking Underground Storage Act, land use and zoning, energy
and industrial facilities siting, or occupational health and safety, except
where the failure to so comply will not materially and adversely affect Borrower
and its Subsidiaries, taken as a whole.
5.3 Borrower's Financial Covenants. Borrower further covenants and agrees
with Bank as follows:
(a) Borrower shall maintain a minimum Current Ratio of 1.0:1.0 to be
measured quarterly. "Current Ratio" is defined as the ratio of current assets
divided by current liabilities.
(b) Borrower's maximum Debt/Tangible Net Worth shall not be greater
than 4.25:1.0 through March 31, 1996 and shall not be greater than 4.00:1.00
thereafter to be measured quarterly. Tangible Net Worth is defined as the gross
book value of Borrower's assets (exclusive of goodwill, patents, trademarks,
trade names, organization expense, treasury stock, unamortized debt discount and
expense, deferred research and development costs, deferred marketing expenses
and other like intangibles) less (a) reserves applicable thereto and (b) all
liabilities (including accrued but excluding deferred income taxes), other than
indebtedness subordinated, in a manner satisfactory to Bank, to Borrower's
indebtedness to Bank. Except as otherwise provided in this Paragraph, all
computations required hereby shall be made on a consolidated basis in accordance
with generally accepted accounting principles consistently applied.
(c) Borrower's minimum Debt Service Coverage Ratio ("DSCR") shall not
be greater than 1.3:1.0 to be measured at fiscal year end. DSCR is defined as
(net profits after tax, plus depreciation and amortization plus interest)
divided by (prior periods current portion of long term debt plus interest).
(d) Borrower agrees it will not and will cause its Subsidiaries not
to, without the prior written consent of Bank, on a consolidated basis: (a) make
or contract to make capital expenditures (other than acquisition of franchises)
in an amount in excess of Five Hundred Thousand and 00/100 Dollars ($500,000.00)
in any fiscal year, excluding lease rentals; and (b) make franchise acquisitions
aggregating more than Four Hundred Fifty Thousand and 00/100 ($450,000.00) in
any fiscal year Borrower shall submit to Bank, prior to each such acquisition,
projections demonstrating compliance hereto, taking into account consummation of
the acquisition.
(e) Borrower's repurchase of common stock is limited to $525,000.00
through March 31, 1996 and is limited to $350,000.00 for each year thereafter so
long as Borrower is not in violation of any of the covenants contained in this
Loan Agreement or any other loan documents to be measured at fiscal year end.
LOAN AGREEMENT Page 10
<PAGE>
(f) Borrower is prohibited from paying dividends on Borrower's common
stock.
SECTION 6. DEFAULT; REMEDIES ON DEFAULT.
6.1 Events of Default. Any of the following events are an Event of Default:
(a) If Borrower shall fail to pay within five (5) days after it is due
any principal or interest payments required to be made under the Note, this
Agreement, the Trust Deed or other Loan Documents; or
(b) If Borrower shall breach the observance or performance of any
term, warranty, covenant, condition or provision contained in any of the Loan
Documents, or any other agreement or instrument executed by Borrower in
connection with the Premises, and such default shall not have been remedied
within any applicable cure period (which, unless otherwise specified, shall be
30 days after written notice thereof to Borrower from Bank); or
(c) If any Guarantor shall breach the observance or performance of any
term, warranty, covenant, condition or provision contained in the Guaranty or in
any of the other Loan Documents executed by such Guarantor, or any other
agreement or instrument executed by such Guarantor in connection with Premises,
and such breach shall not have been remedied within any applicable cure period;
or
(d) Dissolution, death, termination of existence, insolvency on a
balance sheet basis or business failure of Borrower; the commencement by
Borrower of a voluntary case under the Bankruptcy Code or under any other
federal or state law relating to insolvency or debtor's relief; the filing of an
involuntary petition under the Bankruptcy Code or under any other applicable
federal or state law relating to insolvency or debtor's relief which has not
been dismissed by Borrower within sixty (60) days after such filing; the
appointment or the consent by Borrower to the appointment of a receiver,
trustee, or custodian of Borrower or of any of Borrower's property which
Borrower has not caused to be withdrawn within sixty (60) days after such
appointment; an assignment for the benefit of creditors by Borrower; the making
or suffering by Borrower of a fraudulent transfer under applicable federal or
state law; concealment by Borrower of any of its property in fraud of creditors;
the imposition of a lien through legal proceedings or distraint upon any of the
Premises of Borrower which is not discharged or bonded in the manner permitted
by Section 6.1 above; or Borrower's failure generally to pay its debts as such
debts become due. The Events of Default in this paragraph shall apply and refer
to Borrower, to each of the individuals or entities which are collectively
referred to or comprise "Borrower" and to any Guarantor; or
(e) If there is a sale, transfer, hypothecation, assignment or
conveyance of the Premises or the other Collateral, or any portion thereof or
interest therein by Borrower without Bank's prior written consent, except as
otherwise specifically permitted by the Loan Documents; or
(f) If any representation or warranty made by or on behalf of Borrower
or Guarantor or otherwise in connection with the Loan shall prove to have been
false or incorrect in any material respect on the date as of which made; or
(g) If all or any material portion of the Premises shall be condemned,
seized or appropriated with or without compensation, and Borrower fails to
comply with the provisions of the Trust Deed, this Agreement, or any other Loan
Document concerning condemnation; or
(h) Termination of any Guaranty executed in connection with the Loan;
or
(i) If Borrower or any Guarantor shall fail to pay when due any other
obligation for money borrowed by it in a principal amount of at least Three
Hundred Thousand and 00/100 Dollars ($300,000.00), or if any default shall occur
under any other agreement
LOAN AGREEMENT Page 11
<PAGE>
involving the borrowing of money or the advance of credit in such amount to
which Borrower or any Guarantor may be a party as borrower, if such default
gives to the holder of the obligation concerned the right to accelerate the
indebtedness.
6.2 Bank's Remedies on Default. Upon the occurrence of any Event of
Default, in addition to exercising any remedy available to Bank at law, in
equity or in any other Loan Documents, and without impairing any of Bank's
rights, powers or privileges under this Agreement or other Loan Documents, Bank
may do any or all of the following upon written notice to Borrower (which notice
may be same-day notice):
(a) Accelerate maturity of the Note and demand payment of the
principal sums, or a portion thereof, due thereunder, with interest, advances,
and expenses, and in default of said payment or any part thereof, to bring
action on the Note and/or foreclose the Trust Deed or other Collateral; or
(b) Institute appropriate proceedings to specifically enforce
performance of this Agreement.
6.3 Right to Advance Funds. When any event shall have occurred, whether or
not such event is an Event of Default, which, in reasonable determination of
Bank may endanger the fulfillment of any condition precedent or covenant herein,
Bank may require Borrower to furnish, within ten (10) days after delivery of a
written request by Bank, a bond or other security acceptable to Bank to
eliminate, reduce or indemnify Bank against such danger. In addition, upon the
occurrence of such event, Bank may advance funds or agree to undertake to
advance funds to any Person to eliminate, reduce or indemnify Bank against such
danger. Any such agreement or agreements by Bank shall be in such form and
substance, any funds advanced shall be in such amount and be made at such time
or times and upon such terms and conditions, as Bank, in its sole discretion,
deems appropriate, necessary or desirable to eliminate, reduce or indemnify Bank
against any such danger. Without waiving any default under, or limiting the
generality of any other provisions of this Agreement or other Loan Documents,
Bank may (but shall not be required to) obtain such insurance coverage as it
deems necessary or desirable, covering the Premises, without prior notice to
Borrower upon any failure by Borrower to maintain at all times insurance
coverage acceptable to Bank as required by the terms of the Loan Documents. All
sums paid or agreed to be paid by Bank for any such insurance coverage or
pursuant to any such agreements or undertakings shall be for the account of
Borrower and shall be without prejudice to Borrower's rights, if any, to receive
such funds from the party to whom paid. Borrower shall reimburse Bank, upon
demand, for any sums paid by Bank, together with interest at the default rate
provided in the Note or other Loan Documents, or if no default rate is specified
in the Note or other Loan Documents, then at the interest rate(s) then borne by
the Loan from the date of payment by Bank until date of reimbursement. Such
advances shall be secured by the Collateral.
The following warning is provided pursuant to Oregon law.
WARNING
Unless you provide us with evidence of the insurance coverage as required by our
contract or loan agreement, we may purchase insurance at your expense to protect
our interest. This insurance may, but need not, also protect your interest. If
the collateral becomes damaged, the coverage we purchase may not pay any claim
you make or any claim made against you. You may later cancel this coverage by
providing evidence that you have obtained property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The cost of
this insurance may be added to your contract or loan balance. If the cost is
added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount. The effective date of coverage
may be the date your prior coverage lapsed or the date you failed to provide
proof of coverage.
LOAN AGREEMENT Page 12
<PAGE>
The coverage we purchase may be considerably more expensive than insurance you
can obtain on your own and not satisfy any need for property damage coverage or
any mandatory liability insurance requirements imposed by applicable law.
SECTION 7. MISCELLANEOUS PROVISIONS.
7.1 Notices; Consent of Bank.
(a) All notices, demands or other communications which are required or
permitted to be given or served hereunder shall be in writing and sent by
registered or certified mail addressed as follows:
To Borrower at: Elmer's Restaurants, Inc.
Attn: Juanita Nelson
11802 SE Stark
Portland, OR 97216
To Bank at: First Interstate Bank of Oregon, N.A.
Eastside Commercial Banking Center, MS 630
Attn: Terry Holcomb
PO Box 14809, 612 SE Morrison
Portland, OR 97214
The addresses may be changed from time to time by either party by serving notice
as heretofore provided.
(b) In all events where the consent of Bank is required under the
terms of this Agreement, Bank shall grant or refuse such consent within a
reasonable period of time following the receipt of such request.
7.2 Entire Agreement; Amendments to Agreement; Waivers.
(a) The Loan Documents constitute the entire agreement between the
parties relating to Loan and supersede all other prior or concurrent oral or
written letters, agreements or understandings relating to the Loan.
(b) Neither this Agreement nor any provision hereof may be amended,
waived, discharged or terminated, except by an instrument in writing, signed by
the parties to this Agreement.
(c) No waiver by Bank of any breach of this Agreement nor any
forbearance or delay on the part of Bank in exercising any power or right under
any of the Loan Documents shall be deemed to be or constitute a waiver of any
prior, other, existing or subsequent breach of this Agreement or other Loan
Documents or of any power or right granted to Bank.
7.3 Timeliness; Term of Agreement; Survival of Representations and
Warranties. Time is of the essence of this Agreement. This Agreement shall
continue in full force and effect until the Loan shall have been paid in full
and all obligations of Borrower under the Loan Documents shall have been fully
observed and performed. All representations and warranties contained herein or
in any of the Loan Documents or made in writing by or on behalf of Borrower in
connection with the Loan shall survive the execution and delivery of the Loan
Documents and any investigation at any time made by, through or on behalf of
Bank.
7.4 Remedies, Cumulative. All right, powers and remedies herein given to
Bank are cumulative and not alternative and are in addition to all rights,
powers and remedies available under the other Loan Documents, at law or in
equity.
LOAN AGREEMENT Page 13
<PAGE>
7.5 Severability. Unenforceability for any reason of any provision of this
Agreement shall not limit or impair the operation or validity of any other
provision of this Agreement.
7.6 Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and assigns, and, in
particular, shall inure to the benefit of and be enforceable by the holder or
holders from time to time of the Note or any part thereof or interest therein.
Bank shall have the right to assign its interest in this Agreement to any
subsequent holder or holders of the Note. Borrower shall not assign this
Agreement without the prior written consent of Bank, and any such assignment
shall not release Borrower from liability under this Agreement or any other Loan
Document.
7.7 Joint and Several. If Borrower consists of more than one person or
entity, the obligations imposed upon Borrower under this Agreement shall be
joint and several.
7.8 No Agency Relationship. The execution of this Agreement and the
exercise of any rights hereunder is not intended and shall not be construed to
be a partnership or joint venture between Bank and any of the parties hereto.
Bank is not the agent or representative of Borrower. This Agreement does not
create a contractual relationship with and shall not be construed to make Bank
liable to any contractors, subcontractors, materialmen, laborers or others,
except as otherwise expressly provided by law.
7.9 Actions. Bank shall have the right to commence, appear in or defend any
action or proceeding purporting to affect the rights, duties, or liabilities of
the parties to this Agreement, the Premises or other Collateral or the
disbursement of any Loan Funds. In connection therewith, Bank may incur and pay
reasonable costs and expenses, including, but not limited to, reasonable
attorney fees. Borrower covenants to pay to Bank on demand all such expenses.
7.10 Attorney Fees. In the event any arbitration proceeding or any suit or
action is instituted to enforce or interpret any of the terms of this Agreement,
including, but not limited to, any action or participation by Borrower or Bank
in or in connection with a case or proceeding under the Bankruptcy Code or any
successor statute, the prevailing party shall be entitled to recover all
expenses reasonably incurred at, before and after trial and on appeal and in any
such arbitration proceeding whether or not taxable as costs, including, without
limitation, attorney fees, witness fees (expert and otherwise), deposition
costs, copying charges and other expenses. Whether or not any court action is
involved, all reasonable expenses, including, but not limited to, the costs of
searching records, obtaining title reports, surveyor reports, title insurance,
trustee fees, and attorney fees, incurred by Bank that are necessary or
advisable at any time in Bank's opinion for the protection of its interest or
enforcement of its rights shall be payable on Bank's demand and shall bear
interest from the date of expenditure until paid at the default interest rate
provided in the Note or other Loan Documents or, if the Note or other Loan
Documents contain no default rate, then at the interest rate(s) then borne by
the Loan, and shall be secured by the Collateral.
7.11 Governing Law. The laws of the State of Oregon shall govern in the
interpretation, enforcement and all other aspects of this Agreement.
7.12 Headings of Paragraphs. The headings of paragraphs and subparagraphs
in this Agreement are inserted only for convenience and reference and shall in
no way define, limit or describe the scope or intent of any provision of this
Agreement.
7.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument, and, in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
LOAN AGREEMENT Page 14
<PAGE>
SECTION 8. ARBITRATION
8.1 Binding Arbitration. Upon the demand of any party ("Party/Parties"), to
a Document (as defined below), whether made before the institution of any
judicial proceeding or not more than 60 days after service of a complaint, third
party complaint, cross-claim or counterclaim or any answer thereto or any
amendment to any of the above, any Dispute (as defined below) shall be resolved
by binding arbitration in accordance with the terms of this Arbitration Program.
A "Dispute" shall include any action, dispute, claim or controversy of any kind,
whether founded in contract, tort, statutory or common law, equity, or
otherwise, now existing or hereafter arising between any of the Parties arising
out of, pertaining to or in connection with any agreement, document or
instrument to which this Arbitration Program is attached or in which it appears
or is referenced or any related agreements, documents, or instruments
("Documents"). Any Party who fails to submit to binding arbitration following a
lawful demand by another Party shall bear all costs and expenses, including
reasonable attorneys' fees, (including those incurred in any trial, bankruptcy
proceeding or on appeal) incurred by the other Party in obtaining a stay of any
pending judicial proceeding and compelling arbitration of any Dispute. The
parties agree that any agreement, document or instrument which includes,
attaches to or incorporates this Arbitration Program represents a transaction
involving commerce as that term is used in the Federal Arbitration Act, ("FAA")
Title 9 United States Code. THE PARTIES UNDERSTAND THAT BY THIS AGREEMENT THEY
HAVE DECIDED THAT THEIR DISPUTES SHALL BE RESOLVED BY BINDING ARBITRATION RATHER
THAN IN COURT, AND ONCE DECIDED BY ARBITRATION NO DISPUTE CAN LATER BE BROUGHT,
FILED OR PURSUED IN COURT.
8.2 Governing Rules. Arbitrations conducted pursuant to this Arbitration
Program shall be administered by the American Arbitration Association ("AAA"),
or other mutually agreeable administrator ("Administrator") in accordance with
the terms of this Arbitration Program and the Commercial Arbitration Rules of
the AAA. Proceedings hereunder shall be governed by the provisions of the FAA.
The arbitrator(s) shall resolve all Disputes in accordance with the applicable
substantive law designated in the Documents. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction; provided, however
that nothing herein shall be construed to be a waiver by any party that is a
bank of the protections afforded pursuant to 12 U.S.C. 91 or any similar
applicable state law.
8.3 Preservation of Remedies. No provision of, nor the exercise of any
rights under, this arbitration clause shall limit the right of any Party to: (1)
foreclose against any real or personal property collateral or other security, or
obtain a personal or deficiency award; (2) exercise self-help remedies
(including repossession and setoff rights); or (3) obtain provisional or
ancillary remedies such as injunctive relief, sequestration, attachment,
replevin, garnishment, or the appointment of a receiver from a court having
jurisdiction. Such rights can be exercised at any time except to the extent such
action is contrary to a final award or decision in any arbitration proceeding.
The institution and maintenance of an action as described above shall not
constitute a waiver of the right of any Party to submit the Dispute to
arbitration, nor render inapplicable the compulsory arbitration provisions
hereof. Any claim or Dispute related to exercise of any self-help, auxiliary or
other rights under this paragraph shall be a Dispute hereunder.
8.4 Arbitrator Powers The Parties agree to select a neutral "qualified"
arbitrator or a panel of three "qualified" arbitrators to resolve any Dispute
hereunder. "Qualified" means a practicing attorney, with not less than 10 years
practice in commercial law, licensed to practice in the state of the applicable
substantive law designated in the Documents. A Dispute in which the claims or
amounts in controversy do not exceed $500,000.00, shall be decided by a single
arbitrator. A single arbitrator shall have authority to render an award up to
but not to exceed $500,000.00 including all damages of any kind whatsoever,
costs, fees, attorneys' fees and expenses. Submission to a single arbitrator
shall be a waiver of all Parties' claims to recover more than $500,000.00. A
Dispute involving claims or amounts in controversy exceeding $500,000.00 shall
be decided by a majority vote of a panel of three qualified arbitrators. The
arbitrator(s) shall be empowered to, at the written request of any Party in any
Dispute, (1) to
LOAN AGREEMENT Page 15
<PAGE>
consolidate in a single proceeding any multiple party claims that are
substantially identical or based upon the same underlying transaction; (2) to
consolidate any claims and Disputes between other Parties which arise out of or
relate to the subject matter hereof, including all claims by or against
borrowers, guarantors, sureties and or owners of collateral; and (3) to
administer multiple arbitration claims as class actions in accordance with Rule
23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the
first arbitrator(s) selected in any proceeding shall conduct the consolidated
proceeding unless disqualified due to conflict of interest. The arbitrator(s)
shall be empowered to resolve any dispute regarding the terms of this
arbitration clause, including questions about the arbitrability of any Dispute,
but shall have no power to change or alter the terms of this Arbitration
Program. The prevailing Party in any Dispute shall be entitled to recover its
reasonable attorneys' fees in any arbitration, and the arbitrator(s) shall have
the power to award such fees. The award of the arbitrator(s) shall be in writing
and shall set forth the factual and legal basis for the award.
8.5 Miscellaneous. All statutes of limitation applicable to any Dispute
shall apply to any proceeding in accordance with this arbitration clause. The
Parties agree, to the maximum extent practicable, to take any action necessary
to conclude an arbitration hereunder within 180 days of the filing of a Dispute
with the Administrator. The arbitrator(s) shall be empowered to impose sanctions
for any Party's failure to proceed within the times established herein.
Arbitrations shall be conducted in the state of the applicable substantive law
designated in the Documents. The provisions of this Arbitration Program shall
survive any termination, amendment, or expiration hereof or of the Documents
unless the Parties otherwise expressly agree in writing. Each Party agrees to
keep all Disputes and arbitration proceedings strictly confidential, except for
disclosures of information required in the ordinary course of business of the
Parties or as required by applicable law or regulation. If any provision of this
Arbitration Program is declared invalid by any court, the remaining provisions
shall not be affected thereby and shall remain fully enforceable.
Statutory Notice
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE
BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH
ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY
THE BANK TO BE ENFORCEABLE. BORROWER ACKNOWLEDGES RECEIPT OF A COPY OF THIS
AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first written above.
BORROWER:
ELMER'S RESTAURANTS, INC., an Oregon corporation
By: HERMAN GOLDBERG
-------------------------------------------
Herman Goldberg
Its: President
BANK:
FIRST INTERSTATE BANK OF OREGON, N.A.
By:
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Title:
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LOAN AGREEMENT Page 16
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FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is entered into
as of March 18, 1997, by and between ELMER'S RESTAURANTS, INC., an Oregon
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION,
successor-by-merger to First Interstate Bank of Oregon, N.A. ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Loan Agreement between Borrower and Bank dated as of
December 21, 1995, as amended from time to time ("Loan Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Loan Agreement and have agreed to amend the Loan
Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Loan Agreement
shall be amended as follows:
1. Section 1.1 is hereby amended by deleting the definition of "Prime Rate"
therefrom, and by substituting therefor the following:
"Prime Rate" shall mean at any time the rate of interest most
recently announced within Bank at its principal office as its Prime
Rate, with the understanding that the Prime Rate is one of Bank's base
rates and serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto, and is
evidenced by the recording thereof in such internal publication or
publications as Bank may designate. Each change in the rate of
interest shall become effective on the date each Prime Rate change is
announced within Bank."
2. Section 5.1(g) is hereby amended by deleting "and Borrower prepared
interim financial statements monthly within 60 days of the end of each month"
therefrom, and by substituting therefor the following:
"and Borrower prepared interim financial statements within 60 days
after and as of the end of each fiscal quarter"
3. Section 5.3 is hereby deleted in its entirety, and the following
substituted therefor:
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"5.3 Borrower's Financial Covenants. Borrower further covenants
and agrees with Bank to maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Total Liabilities divided by Tangible Net Worth not at any
time greater than 3.25 to 1.0, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt less
any intangible assets.
(b) EBITDA Coverage Ratio not less than 1.3 to 1.0 as of each
fiscal quarter end, measured on a rolling four-quarter basis and
commencing with Borrower's fiscal quarter ending December 31, 1996,
with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and
amortization expense), and with "EBITDA Coverage Ratio" defined as
EBITDA divided by the aggregate of total interest expense plus the
prior period current maturity of long-term debt and the prior period
current maturity of subordinated debt."
4. Section 6.3 is hereby amended by deleting "Upon the occurrence of any
Event of Default, in addition to exercising any remedy available at law, in
equity or in any other Loan Documents, and without impairing any of Bank's
rights, powers or privileges under this Agreement or any other Loan Documents"
therefrom, and by substituting therefor the following:
"Upon the occurrence of any Event of Default and so long as such Event
of Default is continuing, in addition to exercising any remedy
available at law, in equity or in any other Loan Documents, and
without impairing any of Bank's rights, powers or privileges under
this Agreement or any other Loan Documents (except that Bank shall not
accelerate maturity of the Note if any Event of Default under the Loan
Documents, however defined, is not continuing)"
5. Except as specifically provided herein, all terms and conditions of the
Loan Agreement remain in full force and effect, without waiver or modification.
All terms defined in the Loan Agreement shall have the same meaning when used in
this Amendment. This Amendment and the Loan Agreement shall be read together, as
one document.
6. Borrower hereby remakes all representations and warranties contained in
the Loan Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Loan Agreement, nor any condition, act or event which
with the giving of notice or the passage of time or both would constitute any
such Event of Default.
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UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK, NATIONAL
ASSOCIATION, SUCCESSOR-BY-
ELMER'S RESTAURANTS, INC. MERGER TO FIRST INTERSTATE
BANK OF OREGON, N.A.
By: ANITA GOLDBERG By: TERESA LEWIS
------------------------------ ------------------------------
Anita Goldberg Teresa Lewis
President Relationship Manager
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PROMISSORY NOTE
Palm Springs, California
December 31, 1995
$1,372,500.00
FOR VALUE RECEIVED, the undersigned jointly and severally, ("Borrower")
promise to pay in lawful money of the United States of America to the order of
FIRST INTERSTATE BANK OF OREGON, N.A. ("Bank") the principal sum of ONE MILLION
THREE HUNDRED SEVENTY-TWO THOUSAND FIVE HUNDRED DOLLARS ($1,372,500.00), or so
much thereof as may be advanced, together with interest thereon at the rate of
eight and eighteen one-hundredths percent (8.18%) per annum from the date hereof
in monthly installments as follows:
120 monthly installments of $11,663.63 including principal and interest
shall be paid commencing on February 1, 1996 and on the first day of each
and every calendar month until January 1, 2006 [120th installment date]
(the "Maturity Date") at which time the entire balance of accrued interest
and principal then unpaid shall be due and payable. The interest rate under
this note was calculated based on the interest rate which is 2.5.% per
annum above the current weekly average yield on 10-year Treasury Constant
Maturities ("Index") as published by the Board of Governors on the "Federal
Reserve Statistical Release H.15(519)" or any successor publication.
Interest shall be computed on the basis of a 365- day year or 366-day year,
whichever is applicable and actual days elapsed. All payments shall be made
directly to Bank and the final payment shall be made in immediately
available funds.
Thereafter, should the Maturity Date be extended as provided below, 60
monthly installments of principal and interest shall be paid commencing
February 1, 2006, [121st installment date] and on the first day of each and
every calendar month until January 1, 2011, when the entire principal
balance and accrued interest then unpaid shall be due and payable. Monthly
installments shall be at an interest rate which is 2.5% per annum above the
then current weekly average Index. The interest rate will be based on the
then most recently published weekly average Index as of December 1, 2005
[119th installment date]. In the event 10-year Treasury Constant Maturities
cease being published, the Index shall be the average of the yields
published for the maturities immediately longer and shorter.
EXTENSION:
Provided, however, as long as the Borrower is not in default under the
Note, Commercial Deed of Trust and Security Agreement or any other Loan
Documents, Bank will automatically extend the maturity date of the Note from the
Maturity Date until January 1, 2011. The Note, Commercial Deed of Trust and
Security Agreement and Loan Documents, as so extended shall be on the same terms
and conditions and shall bear the same rates of interest as set forth in the
Note, Commercial Deed of Trust and Security Agreement and any other Loan
Documents and shall continue to be secured by the Commercial Deed of Trust and
Security Agreement, and other collateral securing the Indebtedness.
PREPAYMENT PRIVILEGE:
Prepayment of up to twenty percent (20.0%) of the original loan amount in
any one year and any prepayment required by Bank under Section 5.2(a) or (b) of
the Loan Agreement or Section 10 of the Trust Deed may be paid without penalty.
Should the amount of the prepayment exceed twenty percent (20.0%) of the
original loan amount (and not be required by Bank as set forth above), a two
percent (2.0%) prepayment privilege fee shall be assessed on the amount paid in
excess of twenty percent (20.0%) of the original loan amount. However, if
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the loan is prepaid by another lender, then a two percent (2.0%) prepayment
privilege fee shall be assessed on the total amount prepaid.
Without waiving any default under this Note or any other documents relating to
or securing this Loan, in the event that any payment of principal and/or
interest or portion thereof is not paid within fifteen (15) days after date it
is due, Bank may collect, and the Borrower agrees to pay with such payment, a
"late charge" of two cents ($.02) for each dollar so overdue.
All payments hereunder shall be applied first to interest, then to principal,
then to late charges.
If Borrower shall fail to pay any installment of interest or principal within
five (5) days after the date due, Borrower shall default in the performance of
any obligation hereunder which shall continue for thirty (30) days after written
notice thereof to Borrower from Bank, or an "Event of Default" shall occur under
the Loan Documents, then, at the option of the holder of this Note, with prior
notice (which can be same-day notice), the entire indebtedness represented
hereby shall immediately become due and payable and shall bear interest at the
rate of five percent (5%) per annum above FIRST INTERSTATE BANK OF OREGON,
N.A.'S Prime Rate in effect from time to time, or fifteen percent (15%) per
annum, whichever is higher, provided such interest rate shall not exceed the
maximum rate permitted by law. Failure or delay of the holder to exercise this
option shall not constitute a waiver of the right to exercise the same in the
event of subsequent default, or in the event of continuance of any existing
default after demand for the performance of the terms hereof.
Borrower shall pay upon demand any and all expenses, including reasonable
attorneys fees, incurred or paid by the holder of this Note without suit or
action in attempting to collect funds due under this Note. In the event an
action is instituted to enforce or interpret any of the terms of this Note
including but not limited to any action or participation by Borrower in, or in
connection with, a case or proceeding under the Bankruptcy Code or any successor
statute, the prevailing party shall be entitled to recover all expenses
reasonably incurred at, before and after trial and on appeal whether or not
taxable as costs, including, without limitation, attorney fees, witness fees
(expert and otherwise), deposition costs, copying charges and other expenses.
All parties to this Note hereby waive presentment, dishonor, notice of dishonor,
and protest. All parties hereto hereby consent to, and the holder hereof is
hereby expressly authorized to make, without notice, any and all renewals,
extensions, modifications, or waivers of the time for or the terms of payment of
any sum or sums due hereunder, or under any documents or instruments relating to
or securing this Note, or of the performance of any covenants, conditions or
agreements hereof or thereof or the taking or release of collateral securing
this Note. Any such action taken by the holder of this Note shall not discharge
the liability of any party to this Note.
This Note is issued under and subject to the terms and conditions, including but
not limited to those regarding arbitration, of that certain Loan Agreement, of
even date, between Borrower and Bank. Capitalized terms which are not defined in
this Note but are defined in the Loan Agreement have the meaning given them in
the Loan Agreement.
This Note is made with reference to, and is to be construed in accordance with
the laws of the State of Oregon, and is secured by two (2) Commercial Deeds of
Trust and Security Agreements
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of even date affecting the property situated in Snohomish County and Pierce
County, Washington and other collateral.
BORROWER:
ELMER'S RESTAURANTS, INC., an Oregon
corporation
By: HERMAN GOLDBERG
--------------------------------
Herman Goldberg
Its: President
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AFTER RECORDING, RETURN TO:
First Interstate Bank of Oregon, N.A.
Eastside Commercial Banking Center, MS 630
PO Box 14809, 612 SE Morrison Street
Portland, OR 97214
Attention: Terry Holcomb
COMMERCIAL DEED OF TRUST
THIS COMMERCIAL DEED OF TRUST (the "Trust Deed") is made this 21st day of
December, 1995 among the Grantor, ELMER'S RESTAURANTS, INC., an Oregon
corporation, whose address is 11802 SE Stark, Portland, OR 97216 (the
"Borrower"); TICOR TITLE INSURANCE COMPANY, whose address is 1000 SW Broadway,
Portland, OR 97205 (the "Trustee"); and the Beneficiary, FIRST INTERSTATE BANK
OF OREGON, N.A., whose address is 1300 S.W. Fifth Avenue, P.O. Box 3131,
Portland, Oregon 97208 (the "Bank").
Borrower, in consideration of the indebtedness recited in this Trust
Deed and the trust created by this Trust Deed, irrevocably grants, conveys and
assigns to Trustee, in trust, with power of sale, the following described
property located in the County of Snohomish, State of Washington:
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Lot 4 of the City of Tacoma Short Plat No. 8202020154,
according to the map thereof, recorded February 2, 1982,
in Tacoma, Pierce County, Washington
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together with all buildings, improvements and tenements now or in the future
erected on the property, and all previously or in the future vacated alleys and
streets abutting the property, and all easements, rights, appurtenances, leases,
including, without limitation, the leases or agreements now or hereafter
existing, however evidenced, covering all or any portion of the property,
together with all rents or monies due or to become due thereunder; and together
with all now existing or in the future arising or acquired: (a) revenues,
royalties, mineral, oil and gas rights and profits, water, water rights, and
water stock appurtenant to the property; (b) fixtures, machinery, equipment
located or to be located on the property, including, without limitation,
personal property required for the maintenance and operation of the property
(including, but not limited to, engines, boilers, incinerators, building
materials, and all appliances, escalators and elevators, and related machinery
and equipment, fire prevention and extinguishing apparatus, security and access
control apparatus, communications apparatus, plumbing, plumbing fixtures, water
heaters, paneling, attached floor and wall coverings); (c) estate, interest,
claims or demands, and other general intangibles now or in the future relating
to the property, including, but not limited to, all insurance which the Borrower
now has or may in the future acquire in and to the property, and all present or
future refunds or rebates of taxes or assessments on the property and all
compensation, awards, damages or rights of action arising out of or relating to
any taking of the property described above; (d) present or future plans,
specifications, contracts and agreements for construction of improvements on the
property; (e) Borrower's rights under any payment, performance or other bond in
connection with the construction of any improvements on the property; (f) goods,
instruments, documents of title which now or in the future relate to the
property; (g) deposits, cash or other property now owned or hereafter acquired
by Borrower and which are now or may in the future be delivered to or otherwise
be in the possession of the Bank; (h) replacements, substitutions and additions
to the foregoing; (i) proceeds and products of all of the foregoing. All of the
foregoing shall be deemed to be and remain a part of the property covered by
this Trust Deed. The specific
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enumerations herein shall not exclude the general. All of the property described
above is referred to in this Trust Deed as the "Property."
This Trust Deed is given as security for the following (collectively the
"Indebtedness"): (a) the payment of the indebtedness evidenced by Borrower's
promissory note, of even date, in favor of Bank (the "Note") in the principal
sum of One Million Three Hundred Seventy Two Thousand Five Hundred and 00/100
Dollars ($1,372,500.00), with interest thereon, the balance of which, if not
sooner paid, is due and payable on the Maturity Date as defined in the Note and
all amendments, renewals, extensions and modifications of the Note; (b) the
payment of any future advances, with interest thereon, made by Bank to Borrower
pursuant to this Trust Deed ("Future Advances"); (c) the performance of the
covenants and agreements of Borrower contained in the Loan Agreement, of even
date, between Bank and Borrower and any amendments (collectively the "Loan
Agreement"); (d) the payment of all other sums, with interest thereon, advanced
in accordance with this Trust Deed to protect the security of this Trust Deed;
and (e) the performance of the covenants and agreements of Borrower contained in
this Trust Deed. The terms of the Note and Loan Agreement secured by this Trust
Deed may provide that the interest rate or payment terms or balance due may be
indexed, adjusted, renewed, or renegotiated from time to time. Capitalized terms
which are not defined in this Trust Deed and are defined in the Loan Agreement
shall have the meaning given them in the Loan Agreement.
Borrower and Bank covenant and agree as follows:
1. COVENANT OF TITLE. Borrower covenants that Borrower is lawfully seized
of the estate conveyed by this Trust Deed and has the right to grant, convey and
assign the Property, that the Property is unencumbered, except as disclosed in
writing to and approved by Bank prior to the date of this Trust Deed, and that
Borrower will warrant and defend generally the title to the Property against all
claims and demands, subject to any easements and restrictions acceptable to Bank
and listed in a schedule of exceptions to coverage in any title insurance policy
insuring Bank's interest in the Property.
2. PROMISE TO PAY. Borrower shall pay promptly when due the principal of
and interest on the Indebtedness and any other charges provided in the Note,
this Trust Deed, the Loan Agreement and other documents executed in connection
with the Indebtedness (collectively, with any amendments, the ("Loan
Documents").
3. LATE PAYMENT CHARGES. Bank may charge a late charge on any scheduled
payment which Bank fails to receive within 15 days after the due date, or by the
next business day, if the 15-day period ends on a Saturday, Sunday, or legal
holiday. The amount of the late charge shall be as specified in the Note or Loan
Agreement or, if the Note or Loan Agreement specifies no late charge, then two
percent of the amount of the payment of principal and interest not paid when
due. Such late charge shall in no event exceed the maximum charge, if any,
specified under applicable law. Collection of a late charge shall not constitute
a waiver of or prejudice the Bank's right to pursue any other right or remedy
available on account of the delinquency, including, without limitation, charging
the default rate of interest under the Note.
4. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, or
unless specified to the contrary in the other Loan Documents, each complete
installment payment received by Bank under the Note or this Trust Deed or other
Loan Documents shall be applied by Bank first to payment of reserves, if any,
due under Sections 5 and 6 of this Trust Deed, next to interest due and payable
on the Indebtedness, then to principal due and payable on the Indebtedness and
then to any other charges due and payable pursuant to the terms of the Note,
this Trust Deed, and any other Loan Documents. Upon a breach of any covenant or
agreement of Borrower in the Note, this Trust Deed or other Loan Document, Bank
may apply, in any amount and in any order as Bank shall determine in Bank's sole
discretion, any payments received by Bank under the Note, this Trust Deed or
under the other Loan Documents. Bank, at Bank's option, may reject any partial
payment. Any partial payment which Bank accepts may be held in a noninterest
bearing account until Bank receives funds sufficient to equal a complete
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installment payment, or may be applied to the Indebtedness in any amount and in
any order as Bank may determine in Bank's sole discretion.
5. TAXES AND LIENS; RESERVES.
5.1 Payment. Borrower shall pay when due all taxes and assessments
levied against or on account of the Property, and shall pay when due all claims
for work done on or for services rendered or material furnished to the Property.
Borrower shall maintain the Property free of any liens except for Permitted
Encumbrances as permitted in Section 5.4.
5.2 Evidence of Payment. On Bank's demand, Borrower promptly shall
furnish evidence acceptable to Bank of payment of taxes and assessments and
shall authorize the appropriate county official to deliver to Bank at any time a
written statement of the taxes and assessments against the Property.
5.3 Reserves. At Bank's option, Bank may require Borrower to maintain
with Bank reserves for payment of taxes and assessments. The reserves shall be
created by monthly payments of a sum estimated by Bank to be sufficient to
produce, at least 30 days before the taxes and assessments are due, amounts at
least equal to the taxes and assessments to be paid. If Bank determines that the
reserve funds are insufficient at any time, Borrower shall promptly pay any
deficiency to Bank on its demand. The reserve funds shall be held by Bank in a
deposit account, and the funds may be commingled with other funds held by Bank.
Unless Bank and Borrower agree in writing otherwise or applicable law requires
that Bank pay Borrower interest on the funds, Bank shall not be required to pay
Borrower any interest on the funds. Bank shall apply the reserve funds to pay
the taxes and assessments so long as Borrower is not in breach of any covenant
or agreement of Borrower in this Trust Deed, but only to the extent that funds
are available to do so. Bank does not hold the funds in trust for Borrower and
is not the agent of Borrower for payment of taxes and assessments required to be
paid by Borrower. Upon Borrower's breach of any covenant or agreement of
Borrower in this Trust Deed, Bank may apply, in any amount and in any order as
Bank shall determine in Bank's sole discretion, any reserve funds held by Bank
(i) to pay taxes and assessments which are due or (ii) as a credit against the
Indebtedness.
5.4 Permitted Encumbrances. Attachments, judgments and other similar
liens arising in connection with court proceedings, construction liens and liens
for taxes, assessments or other governmental charges may remain against the
Property under the following circumstances only: (a) there is no Event of
Default or no event which with notice or passage of time or both would become an
Event of Default under the Loan Documents; (b) the Borrower is actively
contesting in good faith and by appropriate proceedings the claims secured by
such liens; and (c) the Borrower shall have provided to Bank a surety bond
acceptable to (or other security acceptable to) Bank in an amount acceptable to
Bank as security for the payment of the claims secured by such liens.
6. HAZARD INSURANCE.
6.1 Policies. Borrower shall keep any improvements now existing or in
the future erected on the Property insured by carriers who are at all times
satisfactory to Bank against loss by fire, hazards included within the term
"extended coverage," flood insurance, if and when from time to time required by
Bank, rent loss, business interruption and such other hazards, casualties,
liabilities and contingencies as Bank shall require from time to time or at any
time during the term of this Trust Deed and in such amounts, on a 100%
replacement cost basis without coinsurance clause, and for such periods as Bank
shall require. On Bank's request, Borrower, at Borrower's expense, shall have an
independent appraiser satisfactory to Bank determine the current replacement
cost of the Property. All insurance policies and renewals thereof shall be in
form and substance acceptable to Bank and shall include a loss payable
endorsement in favor of and in form and substance acceptable to Bank and a
provision that coverage will not be canceled, altered or diminished without a
minimum of 30 days' prior
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written notice to Bank. Bank shall have the right to hold the policies, and
Borrower promptly shall furnish to Bank all renewal notices.
6.2 Payment; Reserves. All premiums on insurance policies shall be
paid by Borrower making payment, when due, directly to the carrier, or in such
other manner as Bank may designate in writing. Prior to the expiration date of
any policy, Borrower shall deliver to Bank a renewal policy in form and
substance satisfactory to Bank and receipts for paid premiums. At Bank's option,
Bank may require Borrower to maintain with Bank reserves for payment of
insurance premiums. The reserves shall be created and held in the same manner as
provided in Section 5.3 for reserves for payment of taxes and assessments.
6.3 Loss. In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to the Bank. Bank may give written notice to
the insurance carrier if Borrower fails to do so within 20 days of the casualty.
Borrower hereby authorizes and empowers Bank as attorney-in-fact for Borrower to
make proof of loss, to adjust and compromise any claim under insurance policies,
to appear in and prosecute any action arising from such insurance policies, to
collect and receive insurance proceeds, and to deduct therefrom Bank's expenses
incurred in the collection of such proceeds; provided, however, that nothing
contained in this Section 6 shall require Bank to incur any expense or take any
action hereunder.
6.4 Application of Proceeds. Borrower authorizes Bank, at Bank's
option, (a) to apply the balance of such proceeds to the payment of the
Indebtedness, whether or not then due, or (b) after deducting Bank's costs and
expenses described above, to hold the balance of such proceeds to be disbursed
to Borrower for the cost of reconstruction or repair of the Property. As long as
Borrower is not in default or in violation of any condition or covenant under
the Loan Documents, Borrower may elect to use the insurance proceeds to
reconstruct or repair the Property as long as the reconstruction or repair of
the Property can be completed in a reasonable time using only insurance proceeds
and additional funds from Borrower. Prior to commencement of the reconstruction
or repair, Borrower shall provide evidence of sufficient funds to complete such
reconstruction or repair. If the insurance proceeds are held by Bank to disburse
to Borrower for the cost of restoration and repair of the Property, the Property
shall be restored to the equivalent of its original condition or such other
condition as Bank may approve in writing. Bank may require that Borrower deposit
with Bank any amount in excess of the insurance proceeds necessary to complete
restoration, which amounts shall be disbursed prior to disbursement of any
insurance proceeds. Unless Bank and Borrower agree in writing otherwise or
applicable law requires that Bank pay Borrower interest on the proceeds, Bank
shall not be required to pay Borrower any interest on the proceeds or any other
sum which Bank may require Borrower to deposit with Bank pursuant to this
Section. Bank, at Bank's option, may condition disbursement of those proceeds on
Bank's approval of plans and specifications for the restoration and repair to be
prepared by an architect satisfactory to Bank, contractor's cost estimates,
architect's certificates, waivers of liens, sworn statements of mechanics and
materialmen and such other evidence of costs, percentage completion of
construction, application of payments, and satisfaction of liens as Bank may
reasonably require. If the insurance proceeds are applied to the payment of the
sums secured by this Trust Deed, any such application of proceeds to principal
shall be applied to the most remote unpaid installment of principal and shall
not extend or postpone the due dates of any payments required under Section 2 or
change the amounts of any such payments. If the Property is sold to Bank
pursuant to Section 22 of this Trust Deed or if Bank otherwise acquires title to
the Property, then in addition to the lien and security interests otherwise
granted to Bank under this Trust Deed, Bank shall have all of the right, title
and interest in and to any insurance policies and unearned premiums thereon and
in and to the proceeds resulting from any damage to the Property prior to such
sale or acquisition.
7. PRESERVATION AND MAINTENANCE OF PROPERTY; ENVIRONMENTAL LAWS;
INDEMNIFICATION.
7.1 Preservation and Maintenance. Borrower:
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(a) shall not commit waste or permit impairment or deterioration
of the Property;
(b) shall not abandon the Property;
(c) unless Bank directs Borrower in writing to the contrary,
shall restore or repair promptly and in a good and workmanlike manner all or any
part of the Property to the equivalent of its original condition, or such other
condition as Bank may approve in writing, in the event of any damage, injury or
loss to the Property, whether or not insurance proceeds are available to cover
in whole or in part the costs of such restoration or repair;
(d) shall keep the Property, including without limitation
improvements, fixtures, equipment, machinery and appliances on the Property in
good repair and shall replace fixtures, equipment, machinery and appliances on
the Property when necessary to keep such items in good repair ordinary wear and
tear excepted, and all of such replacements shall be and are subject to the lien
of this Trust Deed;
(e) shall operate and maintain the Property in compliance with
all applicable laws and regulations and in a manner to ensure maximum rentals;
and
(f) shall give notice in writing to Bank of and, unless otherwise
directed in writing by Bank, appear in and defend any action or proceeding
purporting to affect the Property (including, without limitation, matters
pertaining to land use, zoning and Environmental Laws and Hazardous Substances
and Disabilities Laws as defined below), the security of this Trust Deed or the
rights or powers of Bank. "Disabilities Laws" shall mean all applicable federal,
state and local laws and regulations related to usability of and accessibility
to the Property by people with disabilities. The term "Disabilities Laws"
includes, but is not limited to, the Fair Housing Amendments Act of 1988 and the
Americans with Disabilities Act of 1990 and all regulations adopted thereunder.
Neither Borrower nor any tenant nor other person, without the written approval
of Bank, shall remove, demolish or alter any improvement now existing or in the
future erected on the Property or any fixtures, equipment, machinery or
appliance in or on the Property and in which Bank has any interest by virtue of
this Trust Deed, any security agreement, or any other Loan Document, except when
incident to the replacement of fixtures, equipment, machinery and appliances
with items of like kind, which shall thereupon become subject to the lien of
this Trust Deed.
7.2 Environmental Laws. In this Trust Deed, "Environmental Laws" means
any and all state, federal and local statutes, regulations, and ordinances
relating to the protection of human health or the environment. "Hazardous
Substances" is used in its very broadest sense and refers to materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. "Hazardous
Substances" shall include, without limitation, petroleum products or crude oil
or any fraction thereof and any and all hazardous or toxic substances, materials
or waste as defined by or listed under the Resource Conservation and Recovery
Act, the Toxic Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act, or any other of the Environmental Laws. Borrower
shall cause the Property and all operations on the Property to comply with all
Environmental Laws and orders of any governmental authorities having
jurisdiction under any Environmental Laws. Borrower shall exercise extreme care
in handling Hazardous Substances and shall undertake any and all preventive,
investigatory or remedial action (including without limitation emergency
response, removal, containment and other remedial action) (a) required by any
applicable Environmental Laws or orders by any governmental authority having
jurisdiction under Environmental Laws, or (b) necessary to prevent or minimize
property damage (including, without limitation, damage to Borrower's own
property), personal injury or damage to the environment, or the threat of any
such damage or injury, by releases of or exposure to Hazardous Substances in
connection with the Property or operations on the Property. In the event
Borrower fails to perform any of its obligations under this Section, Bank may
perform (but
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shall not be required to perform) such obligations at Borrower's expense
pursuant to Section 9 of this Trust Deed. In performing any such obligations of
Borrower, Bank shall at all times be deemed to be the agent of Borrower and
shall not by reason of such performance be deemed to be assuming any
responsibility of Borrower under any Environmental Law or to any third party.
7.3 Further Assurances. At any time Bank reasonably requests, Borrower
shall provide to Bank further assurance of Borrower's compliance with this
Section 7. The assurances shall be in form and substance satisfactory to Bank
and may include, but not be limited to, Borrower providing to Bank an
environmental audit from a source acceptable to Bank at Borrower's expense.
7.4 Indemnification. Borrower agrees to indemnify and hold harmless
Bank and its officers, directors, employees and agents, and Bank's successors
and assigns and their officers, directors, employees and agents against any and
all claims, demands, losses, liabilities, costs and expenses (including, without
limitation, attorney fees at trial and on any appeal or petition for review and
in any bankruptcy proceeding) incurred by such person (a) arising out of or
relating to any investigatory or remedial action involving the Property and the
operations conducted on the Property and required by Environmental Laws or
Disabilities Laws or by orders of any governmental authority having jurisdiction
under any Environmental Laws or under Disabilities Laws, or (b) on account of
injury to any person whatsoever or damage to any property arising out of, in
connection with or in any way relating to (i) the violation of any applicable
laws or regulations, including, but not limited to, Disabilities Laws and
Environmental Laws, (ii) the use, treatment, storage, generation, manufacture,
transport, release, spill, disposal or other handling of Hazardous Substances on
the Property or in connection with operations, or (iii) the contamination of any
of the Property by Hazardous Substances by any means whatsoever, and (c) without
in any way limiting the foregoing for any other reason, or on account of, or in
connection with the Property or this Trust Deed, provided that Borrower shall
not be required to indemnify Bank for its willful misconduct or gross
negligence.
7.5 Survival. The covenants contained in this Section 7 shall survive
the repayment of the Indebtedness and the delivery of a deed in lieu of
foreclosure to Bank or any successor of Bank and shall survive any foreclosure,
whether judicial or nonjudicial, of the Property by Bank or any successor of
Bank, and shall be for the benefit of Bank, and any successor to Bank, as holder
of any security interest in the Property or the Indebtedness, or as owner of the
Property or any other property of Borrower following foreclosure or the delivery
of a deed in lieu of foreclosure.
8. USE OF PROPERTY. Unless required by applicable law or unless Bank has
otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Trust Deed
was executed. Borrower shall not initiate or acquiesce in a change in the zoning
classification or comprehensive plan governing the Property without Bank's prior
written consent. Borrower warrants that this Trust Deed is and will at all times
constitute a commercial deed of trust and not a residential deed of trust, as
defined under applicable law. The proceeds of the loan will be used solely for
business purposes.
9. PROTECTION OF BANK'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Trust Deed, or if any action or
proceeding is commenced which affects the Property or title to the Property or
the interest of Bank in the Property, including, but not limited to, eminent
domain, insolvency, code enforcement, violation of any law concerning
environmental protection and pollution control referred to in Section 7 above,
or arrangements or proceedings involving a bankrupt or decedent, then Bank at
Bank's option may make such appearances, disburse such sums and take such action
as Bank deems necessary or advisable, in its sole discretion, to protect Bank's
interest, including, but not limited to, (a) employment of attorneys or other
advisors, (b) entry upon the Property to investigate and make repairs, (c)
procurement of satisfactory insurance, and (d) payment of any tax or liens. Any
amounts disbursed by Bank pursuant to this Section 9, with interest thereon,
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shall become additional Indebtedness of Borrower secured by this Trust Deed.
Unless Borrower and Bank agree in writing to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement until paid at the default rate stated in the Note or the
Loan Documents, or if no default rate is stated in the Note or Loan Documents,
then at the interest rate(s) stated in the Note. Borrower hereby covenants and
agrees that Bank shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the Indebtedness secured by this Trust Deed.
Nothing contained in this Section 9 shall require Bank to incur any expense or
take any action.
The following warning is provided pursuant to Oregon law.
WARNING
Unless you provide us with evidence of the insurance coverage as required by our
contract or loan agreement, we may purchase insurance at your expense to protect
our interest. This insurance may, but need not, also protect your interest. If
the collateral becomes damaged, the coverage we purchase may not pay any claim
you make or any claim made against you. You may later cancel this coverage by
providing evidence that you have obtained property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The cost of
this insurance may be added to your contract or loan balance. If the cost is
added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount. The effective date of coverage
may be the date your prior coverage lapsed or the date you failed to provide
proof of coverage.
The coverage we purchase may be considerably more expensive than insurance you
can obtain on your own and not satisfy any need for property damage coverage or
any mandatory liability insurance requirements imposed by applicable law.
10. INSPECTION AND APPRAISALS. Bank may make or cause to be made reasonable
entries upon the Property to inspect the Property, including, but not limited
to, inspecting any buildings on the Property and inspection and/or environmental
evaluation of the Property. Bank may also require appraisals acceptable to Bank,
ordered by Bank from appraisers acceptable to Bank at Borrower expense, in order
to comply with applicable state or federal laws or regulations or when Bank
reasonably deems it necessary to protect Bank's interest in the Property. If,
during the term of the Loan, Bank determines that the aggregate appraised value
of the real property described in Exhibit A and any other real property securing
the Loan (the "Real Property") (excluding any value attributable to furniture,
fixtures, and equipment) determined based upon the most recent appraisal
received by Bank and accepted by Bank indicates that the loan-to-value ratio is
in excess of 79.3% until January 1, 2006, and 75% thereafter if the Maturity
Date of the Note is extended, then Bank may require Borrower to prepay the
outstanding principal balance of the Loan, or provide additional equity funds
for the Loan in an amount sufficient so that the loan-to-value ratio upon such
prepayment or equity contribution is less than or equal to 79.3% or 75%, as
applicable, of the appraised value of the Real Property (excluding any value
attributable to furniture, fixtures, and equipment). Any such prepayment shall
be applied to the most remote unpaid installment(s) of principal. Any such
equity funds shall be held in the Loan Fund described in the Loan Agreement and
disbursed before any further Loan Funds are disbursed. Borrower shall pay any
such prepayment or equity requirement within thirty (30) days after written
notice from Bank to Borrower specifying the amount of any such prepayment or
equity requirement.
11. BOOKS AND RECORDS. Borrower shall keep and retain at all times at
Borrower's address stated above, or at such other place that Bank may approve in
writing, complete and accurate records of accounts and records adequate to
reflect correctly the results of operations of the Property and copies of all
written contracts, leases and other instruments which affect the Property. Such
books, records, leases and other instruments shall be subject to examination and
inspection at any reasonable time by Bank. Borrower shall comply (and shall
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cause each Guarantor to comply) with all provisions in the Loan Agreement and
other Loan Documents with regard to furnishing to Bank financial information. If
there are no provisions in the Loan Agreement or other Loan Documents, then,
upon Bank's request, but at least annually, Borrower shall furnish to Bank (and
shall cause each guarantor to furnish to Bank) current signed financial
statements, tax returns complete with all schedules, including K-1 statements
for any partnership or S-Corporation in which Borrower (or, if applicable,
Guarantor) has an interest, and a statement of changes in financial position.
Borrower shall also provide to Bank a statement of income and expenses of the
Property. All financial statements shall be in reasonable detail and certified
by Borrower (or, if applicable, by Guarantor) to be complete and correct. If
Bank shall request, all financial statements shall be certified by an
independent certified public accountant. Borrower shall also furnish, together
with the foregoing financial statements, and at any other time at Bank's
request, a rent schedule for the Property, certified by Borrower, showing the
name of each tenant, and for each tenant, the space occupied, the lease
expiration date, the rent payable and the rent paid.
12. CONDEMNATION. Borrower shall promptly notify Bank of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part of the Property, and Borrower shall appear in
and prosecute any such action or proceeding unless otherwise directed by Bank in
writing. Borrower authorizes Bank, at Bank's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Bank's or Borrower's name,
any action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with any such condemnation or other taking. The proceeds of any
award, payment or claim for damages, direct or consequential, in connection with
any condemnation or other taking, whether direct or indirect, of the Property,
or part of the Property, or for conveyances in lieu of condemnation, are hereby
assigned to and shall be paid to Bank.
Borrower authorizes Bank to apply such awards, payments, proceeds or
damages, after the deduction of Bank's expenses incurred in the collection of
such amounts, at Bank's option, to restoration or repair of the Property or to
payment of the Indebtedness, whether or not then due, with the balance, if any,
to Borrower. Unless Borrower and Bank otherwise agree in writing, any
application of proceeds to principal shall be applied to the most remote unpaid
installment of principal and shall not extend or postpone the due date of any
payments required under this Trust Deed or change the amount of any such
payments. Borrower agrees to execute such further evidence or assignment of any
awards, proceeds, damages or claims arising in connection with such condemnation
or taking as Bank may require.
13. BORROWER AND LIEN NOT RELEASED. From time to time, at Bank's option,
upon notice to Borrower but without any need to give notice to or obtain the
consent of Borrower's successors or assigns or of any junior lienholder or
guarantor and without any liability on Bank's part and notwithstanding
Borrower's breach of any covenant or agreement in the Loan Documents (including,
but not limited to, this Trust Deed), Bank may do any or all of the following:
(a) Extend the time for payment of the Indebtedness or any part
of it;
(b) Reduce the payments on the Indebtedness;
(c) Release anyone liable on any part of the Indebtedness;
(d) Accept renewal note or notes for the Indebtedness;
(e) Release from the lien of this Trust Deed any part of the
Property;
(f) Release other or additional security;
(g) Reconvey any part of the Property;
(h) Consent to any map or plat of the Property;
(i) Consent to any easement;
(j) Execute any subordination agreement.
Any action taken by Bank pursuant to the terms of this Section or any
modification of the rate of interest upward or downward, or modification of the
period of amortization of the Note or change in the amount of the monthly
installments payable under the
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Note or other Loan Documents, or any combination thereof, which may extend or
reduce the term of the Note or this Trust Deed or both, shall not affect the
obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Trust Deed and to observe the covenants of Borrower contained in
this Trust Deed, shall not affect the guaranty of any person, corporation,
partnership or other entity for payment of the Indebtedness secured by this
Trust Deed, and shall not affect the lien or priority of lien of this Trust Deed
on the Property. Unless otherwise provided by law, the priority of this Trust
Deed shall not be affected by any change in terms whether or not it adversely
affects subordinate or prior interest holders. Borrower shall pay Bank a service
charge, together with such title insurance premiums and attorney fees as may be
incurred at Bank's option for any such action if taken at Borrower's request.
14. FORBEARANCE BY BANK OR RECEIPT OF AWARDS NOT A WAIVER. Any forbearance
by Bank in exercising any right or remedy under this Trust Deed, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any other right or remedy. The acceptance by Bank of payment of any sum secured
by this Trust Deed after the due date of such payment shall not be a waiver of
Bank's right to either require prompt payment when due of all other sums so
secured or to declare a default or failure to make prompt payment, nor shall
Bank's receipt of any awards, proceeds or damages under this Trust Deed operate
to cure or waive any default in payment of sums secured by this Trust Deed.
15. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Trust Deed is intended
to be a security agreement pursuant to the Uniform Commercial Code of Oregon for
any of the items specified above as part of the Property which, under applicable
law, may be subject to a security interest pursuant to the Uniform Commercial
Code of Oregon, and Borrower hereby grants Bank a security interest in said
items. Borrower agrees that Bank may file this Trust Deed, or a reproduction of
it, in the real estate records, office of the Oregon Secretary of State, or
other appropriate filing index, as a financing statement for any of the items
specified above as part of the Property. Any reproduction of this Trust Deed or
of any other security agreement or financing statement shall be sufficient as a
financing statement. In addition, Borrower agrees to execute and deliver to
Bank, upon Bank's request, any financing statements, as well as extensions,
renewals and amendments of them, and reproductions of this Trust Deed in such
form as Bank may require to perfect a security interest with respect to said
items. Borrower shall pay all costs of filing such financing statements and any
extensions, renewals, amendments and releases of them, and shall pay all costs
and expenses of any record searches for financing statements Bank may require.
Borrower shall notify Bank in writing prior to changing Borrower's name or
moving Borrower's chief executive office or any of the Property secured by this
Trust Deed. Without the prior written consent of Bank, Borrower shall not create
or suffer to be created any other security interest in those items, including,
without limitation, replacements, substitutions and additions to them. Upon
Borrower's breach of any covenant or agreement of Borrower contained in this
Trust Deed, including, but not limited to, the covenants to pay when due all
sums secured by this Trust Deed, Bank shall have the remedies of a secured party
under the Uniform Commercial Code of Oregon and, at Bank's option, may also
invoke the remedies provided in this Trust Deed as to such items. In exercising
any of said remedies, Bank may proceed against the items of real property and
any items of personal property specified above as part of the Property
separately or together and in any order whatsoever, whether by nonjudicial sale
or otherwise, without in any way affecting the availability of Bank's remedies
under the Uniform Commercial Code of Oregon or of the other remedies provided in
this Trust Deed.
16. LEASES OF THE PROPERTY. Borrower shall comply with and observe
Borrower's obligations as landlord under all leases of the Property or any part
thereof. Borrower shall furnish Bank with executed copies of all leases now
existing or in the future made of all or any part of the Property, and all
leases now or in the future entered into will be in form and substance subject
to the prior written approval of Bank. All leases of the Property shall
specifically provide that such leases are subordinate to this Trust Deed; that
the tenant attorns to Bank, such attornment to be effective upon Bank's
acquisition of title to the Property; that the tenant agrees to execute such
further evidences of attornment as Bank may from time to time request; that the
attornment of tenant shall not be terminated by foreclosure; that the
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tenant agrees to execute such estoppel certificates in form and substance
satisfactory to Bank; and that Bank, at Bank's option, may accept or reject such
attornments. Without Bank's written consent, Borrower shall not request or
consent to the subordination of any lease of all or any part of the Property to
any lien subordinate to this Trust Deed. If Borrower becomes aware that any
tenant proposes to do, or is doing, any act or thing which may give rise to any
right of setoff against rent, Borrower shall (i) take such steps as shall be
reasonably calculated to prevent the accrual of any right to a setoff against
rent, (ii) notify Bank thereof and of the amount of said setoffs, and (iii)
within ten (10) days after such accrual, reimburse the tenant who shall have
acquired such right to setoff or take such other steps as shall effectively
discharge such setoff and as shall assure that rents thereafter due shall
continue to be payable without setoff or deduction.
17. ASSIGNMENT OF RENTS. As additional security under this Trust Deed,
Borrower hereby assigns to Bank the leases, rents or agreements concerning the
Property arising in the future, provided that unless there is an event of
default under the Loan Documents, Borrower shall have the right to collect and
retain such rents as they become due and payable. Upon Bank's request, Borrower
shall execute any additional documents requested by Bank to assign to Bank any
leases and all security and other deposits concerning Property. This assignment
is not a delegation or assignment to Bank of Borrower's duties or obligations
under or in connection with the Property. Bank's acceptance of this assignment
does not constitute a promise by it nor does it in any way obligate it to
perform any of Borrower's duties or obligations under or in connection with the
leases, rents or agreements. Borrower hereby agrees to indemnify Bank against
and hold it harmless from any and all liability, loss or damage which it may or
might incur under the leases, rents or agreements or under or by reason of this
assignment and of and from any and all claims and demands whatsoever which may
be asserted against it by any reason of any alleged obligation or undertaking on
Bank's or Borrower's part to perform or discharge any of the terms of the
leases, rents or agreements.
18. FUTURE ADVANCES. Upon request of Borrower, Bank, at Bank's option so
long as this Trust Deed secures Indebtedness held by Bank, may make Future
Advances to Borrower. Such Future Advances, with interest thereon, shall be
secured by this Trust Deed if the loan documentation related to the Future
Advance provides that the Future Advance is to be secured by this Trust Deed.
19. PROHIBITION OF TRANSFER OF PROPERTY OR BENEFICIAL INTERESTS IN
BORROWER; ASSUMPTION. Except as provided in Section 5.2(b) of the Loan
Agreement, without prior written consent of Bank, Borrower shall not transfer or
agree to transfer all or any part of Property or any interest in the Property.
For the purpose of this section, the occurrence of any of the following events,
without limitation, or any agreement to do any of the following, without
limitation, shall be deemed to be a transfer of the Property:
(a) Any sale, contract to sell, conveyance, assignment or other
transfer of, or grant of a mortgage, deed of trust, other lien, or other
security interest in, all or any part of the legal or equitable title to
Property;
If any of the events described above occur, Bank, at Bank's option,
may declare all of the sums secured by this Trust Deed to be immediately due and
payable, and may invoke any of the remedies permitted by this Trust Deed. If
Borrower or a prospective transferee applies to Bank for consent to transfer,
Bank may require such information as may be reasonably necessary for Bank to
assess the prospective transferee's prior business experience, reputation and
financial ability to perform Borrower's obligations under this Trust Deed. As a
condition of its consent to any transfer, Bank in its discretion may impose an
assumption fee, and may increase the interest rate on the Note or under the
other Loan Documents. However, notwithstanding any of the foregoing, Bank, in
its sole discretion, may withhold its consent to any transfer for any reason
whether or not withholding consent is reasonable under the circumstances. Any
consent, if granted, shall not release Borrower or any successor in interest
from personal liability for payment and performance of the Indebtedness, or for
performance of this Trust Deed, the Note or other Loan Documents.
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20. LOAN AGREEMENT PROVISIONS. Borrower agrees to comply with the covenants
and conditions of the Loan Agreement, if any, and all other Loan Documents
executed in connection with the Indebtedness secured by this Trust Deed. If the
terms of this Trust Deed are inconsistent with the terms of the Loan Agreement,
if any, the terms of the Loan Agreement will control.
21. DEFAULT. The following shall constitute events of default:
(a) Failure of Borrower to pay within 5 days after it is due any
portion of the Indebtedness.
(b) Failure of Borrower within the time required by this Trust Deed to
make any payment for taxes, insurance or any other payment necessary to prevent
filing of or discharge of any lien.
(c) Transfer or agreement to transfer any part or interest in the
Property in any manner whatsoever, including, but not limited to, allowing any
lien inferior to this Trust Deed on the Property, or transfer of any other
interest of Borrower as described in Section 19, except for leases entered into
by Borrower subject to Bank's approval as set forth in Section 16 of this Trust
Deed.
(d) Dissolution, death, termination of existence, insolvency or
business failure of Borrower; the commencement by Borrower of a voluntary case
under the federal bankruptcy laws or under any other federal or state law
relating to insolvency or debtor's relief; the filing of an involuntary petition
against Borrower under the federal bankruptcy laws or under any other applicable
federal or state law relating to insolvency or debtor's relief which Borrower
has not caused to be dismissed within 60 days after such filing; the appointment
or the consent by Borrower to the appointment of a receiver, trustee, or
custodian of Borrower or of any of Borrower's property which Borrower has not
caused to be withdrawn within 60 days after such appointment; an assignment for
the benefit of creditors by Borrower; the making or suffering by Borrower of a
fraudulent transfer under applicable federal or state law; concealment by
Borrower of any of its property in fraud of creditors; the imposition of a lien
through legal proceedings or distraint upon any of the property of Borrower or
Borrower's failure generally to pay its debts as such debts become due. The
Events of Default in this paragraph shall apply and refer to Borrower, any
guarantor of the Indebtedness, and to each of the individuals or entities which
are collectively referred to as "Borrower."
(e) Failure of Borrower to make any payment or perform any obligation
under any superior liens or encumbrances, within the time required under those
liens or encumbrances, or commencement of any suit or other action to foreclose
any superior or inferior liens or encumbrances.
(f) Breach or default under the Loan Agreement or any other Loan
Documents, which is not cured within any applicable cure period.
(g) Termination or revocation of any guaranty delivered to Bank in
connection with the Indebtedness.
(h) Failure of Borrower to pay when due any other obligation of
Borrower to Bank for money borrowed by it in the principal amount of at least
Three Hundred Thousand and 00/100 Dollars ($300,000.00), or if any default shall
occur under any present or future agreement from Borrower to Bank involving the
borrowing of money or the advance of credit in such amount to which Borrower may
be a party.
(i) Failure of Borrower to perform any obligations under this Trust
Deed other than those described in the preceding paragraphs (a) through (h) of
this Section, within thirty (30) days after receipt of written notice from Bank
specifying the nature of the default.
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No notice of default and no opportunity to cure shall be required if during
the prior twelve (12) months Bank already has sent a notice to Borrower
concerning default in performance of the same obligation.
22. RIGHTS AND REMEDIES ON DEFAULT.
22.1 Remedies. Upon the occurrence of any event of default and at any
time thereafter, Trustee or Bank may, upon prior written notice (which may be
same-day notice), exercise any one or more of the following rights and remedies:
(a) Bank may declare all sums secured by this Trust Deed
immediately due and payable, including, without limitation, any prepayment
premium which Borrower would be required to pay under the terms of the Note or
Loan Agreement.
(b) The Trustee shall have the right to foreclose by notice and
sale, or Bank shall have the right to foreclose by judicial foreclosure, in
either case in accordance with applicable law.
(c) If this Trust Deed is foreclosed by judicial procedure, Bank
will be entitled to a judgment which will provide that if the foreclosure sale
proceeds are insufficient to satisfy the judgment, execution may issue for the
amount of the unpaid balance of the judgment.
(d) With respect to all or any part of the Property that
constitutes personal property, Bank shall have all rights and remedies of a
secured party under the Uniform Commercial Code of Oregon. Bank shall give
Borrower reasonable prior written notice of the time and place of any public
sale of such property, or of the time after which any private sale or any other
intended disposition is to be made, and Borrower agrees that five days' notice
is reasonable notice.
(e) Bank shall have the right to take possession of the Property
and, with or without taking possession of the Property, collect all the rents
and revenues of the Property in accordance with this Trust Deed and/or in any
other assignment of rents.
(f) Bank shall have the right to have a receiver appointed to
take possession of any or all of the Property, with the power to protect and
preserve the Property, to operate the Property preceding foreclosure or sale, to
collect all the rents and revenues from the Property and apply the proceeds,
over and above cost of the receivership, against the sums due under this Trust
Deed. The receiver may serve without bond if permitted by applicable law. Bank's
right to the appointment of a receiver shall exist whether or not apparent value
of the Property exceeds the sums due under this Trust Deed by a substantial
amount. Employment by Bank shall not disqualify a person from serving as a
receiver.
(g) In the event Borrower remains in possession of the Property
after the Property is sold as provided above or Bank otherwise becomes entitled
to possession of the Property upon default of Borrower, Borrower shall become a
tenant at will of Bank or the purchaser of the Property and shall pay a
reasonable rental for use of the Property while in Borrower's possession.
(h) Bank may apply or set off any and all deposits or other sums
at any time credited by or due from Bank to Borrower without notice and whether
or not other property is considered by Bank to be adequate.
(i) Trustee and Bank shall have any other right or remedy
provided in this Trust Deed, the Note, the Loan Agreement, or any other Loan
Document, or available at law, in equity or otherwise.
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22.2 Rights of Receiver or Bank-in-Possession. Upon taking possession
of all or any part of the Property, the receiver or Bank may:
(a) Use, operate, manage, control and conduct business on the
Property and make expenditures for all maintenance and improvements as in its
judgment are proper;
(b) Collect the income from the Property, including any past due,
and apply such sums to the expenses of use, operation and management, including,
but not limited to, receiver's fees, premiums on receiver's bonds, and
reasonable attorney fees and to the sums secured by this Trust Deed in any order
as Bank shall determine in Bank's sole discretion;
(c) At Bank's option, complete any construction in progress on
the Property, and in that connection pay bills, borrow funds, employ contractors
and make any changes in plans or specifications as Bank deems appropriate.
Bank or the receiver shall be liable to account only for those
rents actually received. If the revenues produced by the Property are
insufficient to pay expenses, the receiver may borrow from Bank (if Bank, in its
sole discretion, agrees to lend) or otherwise, or Bank may borrow or advance,
such sums as the receiver or Bank may deem necessary for purposes stated in this
paragraph. The amounts borrowed or advanced shall bear interest from the date of
expenditure until repaid at the same interest rate as provided in Section 9 of
this Trust Deed. Such sums shall become a part of the Indebtedness secured by
this Trust Deed and shall be payable by Borrower on demand.
22.3 Waiver of Marshaling; Sale of the Property. Notwithstanding the
existence of any other mortgage, deed of trust, other lien or other security
interests in the Property held by Bank or by any other party, Bank shall have
the right to determine the order in which any or all of the Property, real or
personal or mixed, shall be subjected to the remedies provided in this Trust
Deed. Bank shall have the right to determine the order in which any or all
portions of the Indebtedness secured by this Trust Deed are satisfied from the
proceeds realized upon the exercise of the remedies provided in this Trust Deed.
In exercising its rights and remedies, Bank, at Bank's sole discretion, may
cause all or any part of the Property to be sold as a whole or in parcels, and
certain portions of the Property may be sold without selling other portions.
Bank may bid at any public sale on all or any portion of the Property. Borrower,
any party who consents to this Trust Deed and any party who now or in the future
acquires a security interest in the Property and who has actual or constructive
notice of this Trust Deed hereby waives any and all right to require the
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided in this Trust Deed.
22.4 Notice of Sale. Bank shall give Borrower reasonable notice of the
time and place of any public sale of any personal property or of the time after
which any private sale or other intended disposition of the personal property is
to be made. Reasonable notice shall mean notice given in accordance with
applicable law, and may include, without limitation, only notice required for
the nonjudicial sale of the real property.
22.5 Waiver; Election of Remedies; Remedies Cumulative. A waiver by
either party of a breach of a provision of this Trust Deed shall not constitute
a waiver of or prejudice the party's right otherwise to demand strict compliance
with that provision or any other provision. Election by Bank to pursue any
remedy shall not exclude pursuit of any other remedy, and all remedies of Bank
under this Trust Deed are distinct and cumulative and not exclusive to all other
rights or remedies under this Trust Deed or Loan Documents or afforded by law or
equity, and may be exercised concurrently, independently, or successively in any
order whatsoever. An election to make expenditures or take action to perform an
obligation of Borrower shall not affect Bank's right to declare a default and
exercise its remedies under this Trust Deed.
23. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreement contained in this Trust Deed shall bind,
Page 13 - Commercial Deed of Trust
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and the rights under this Trust Deed shall inure to, the respective successors
and assigns of Bank and Borrower. However, nothing in this Trust Deed or other
Loan Documents shall be deemed to permit Borrower to enter into any assignments
or transfers except as specifically permitted pursuant to the preceding
provisions of this Trust Deed. This Trust Deed and the Indebtedness secured
hereby may be assigned in whole or in part or participated in whole or in part
to any person by Bank and without notice to or affecting Borrower's liability
hereunder, and Bank, in connection with such assignment, participation, or
similar arrangement, may make all credit and financial data furnished and to be
furnished by Borrower available to such existing or prospective assignee,
participant or person. If Bank assigns to any assignees, participants or other
persons all of Bank's interest in this Trust Deed and the Indebtedness secured
hereby, then Bank shall be and is released from any obligations under this Trust
Deed and other Loan Documents. All covenants and agreements of Borrower shall be
joint and several. In exercising any rights under this Trust Deed or taking any
actions provided for in this Trust Deed, Bank may act through its employees,
agents or independent contractors as authorized by Bank. The captions and
headings of the sections of this Trust Deed are for convenience only and are not
to be used to interpret or define the provisions of this Trust Deed.
24. NOTICE. Except as specified to the contrary in the Loan Documents and
except for any notice required under applicable law to be given in another
manner, (a) any notice to Borrower provided for in this Trust Deed or in the
Loan Documents shall be given by mailing such notice by certified mail, return
receipt requested, addressed to Borrower at Borrower's address stated above or
at such other address as Borrower may designate by notice to Bank as provided in
this Trust Deed, and (b) any notice to Bank shall be given by certified mail,
return receipt requested, to Bank's address stated in this Trust Deed or to such
other address as Bank may designate by notice to Borrower as provided in this
Trust Deed. Any notice provided for in this Trust Deed or in the Note or other
Loan Documents shall be deemed to have been given to Borrower or Bank on the
date mailed when given in the manner designated in this Trust Deed.
25. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to
assert any statute of limitations as a bar to the enforcement of the lien of
this Trust Deed or to any action brought to enforce the Note, the other Loan
Documents or any other obligation secured by this Trust Deed.
26. RECONVEYANCE. Upon payment of the Indebtedness secured by this Trust
Deed, Bank shall request Trustee to reconvey the Property and shall surrender
this Trust Deed and all notes evidencing Indebtedness secured by this Trust Deed
to Trustee. Trustee shall reconvey the Property without warranty to the person
or persons legally entitled to the Property. Such person or persons shall pay
Trustee's fee and other costs incurred in so reconveying the Property.
27. SUBSTITUTE TRUSTEE. In accordance with applicable law, Bank may from
time to time appoint a successor trustee to any Trustee appointed under this
Trust Deed. Without conveyance of the Property, the successor trustee shall
succeed to all the title, power and duties conferred upon the Trustee in this
Trust Deed and by applicable law.
28. IMPOSITION OF TAX BY STATE. If any state tax to which this Section
applies is enacted subsequent to the date of this Trust Deed, this shall have
the same effect as a default, and Bank may exercise any or all of the remedies
available to it in the event of a default unless the following conditions are
met:
(a) Borrower may lawfully pay the tax or charge imposed by the state
tax without causing any resulting economic disadvantage or increase of tax to
Bank, and
(b) Borrower pays or provides Bank immediately available funds to pay
the tax or charge within thirty (30) days after notice from Bank that the tax
law has been enacted.
The following constitute state taxes to which this Section applies:
Page 14 - Commercial Deed of Trust
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(i) a specific tax upon trust deeds or upon all or any part of the
indebtedness secured by a trust deed;
(ii) a specific tax on a grantor which the taxpayer is authorized or
required to deduct from payments on the indebtedness secured by a trust deed;
(iii) a tax on a trust deed chargeable against the beneficiary or the
holder of the note secured;
(iv) a specific tax on all or any portion of the indebtedness or on
payments of principal and interest made by a grantor.
29. FEDERAL TAX REGULATIONS.
29.1 Report of Real Estate Transaction. Borrower has made or provided
for making, or will make or provide for making, on a timely basis, any reports
or returns required under Section 6045(e) of the Internal Revenue Code of 1986
as amended (the "Internal Revenue Code") (and any similar reports or returns
required by state or local law) relating to the Property, notwithstanding the
fact that the primary reporting responsibility may fall on Bank, counsel for
Bank, or other party. Borrower's obligations under this paragraph will be deemed
to be satisfied if proper and timely reports and returns required under this
paragraph are filed by a title company or real estate broker involved in the
real estate transaction relating to the Property, but nothing contained herein
shall be construed to require such returns or reports to be filed by Bank or
counsel for Bank.
29.2 Nonforeign Certification. Section 1445 of the Internal Revenue
Code provides that a transferee of a U. S. real property interest must withhold
tax if the transferor is a foreign person. To inform Bank that the withholding
of tax will not be required in the event of the disposition of the Property or
improvements pursuant to the terms of this Trust Deed, Borrower hereby
certifies, under penalty of perjury, that:
(a) Borrower is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, as those terms are defined in the Internal
Revenue Code and the regulations promulgated thereunder; and
(b) Borrower's U. S. employer identification number is
93-0836824; and
(c) Borrower's principal place of business is 11802 SE Stark,
Portland, OR 97216.
Bank may disclose the contents of this certification to the Internal Revenue
Service. Borrower acknowledges that any false statement could be punished by
fine, imprisonment or both. Borrower covenants and agrees to execute such
further certificates, which shall be signed under penalty of perjury, as Bank
shall reasonably require. The covenant set forth herein shall survive the
foreclosure of the lien of this Trust Deed or acceptance of a deed in lieu
thereof.
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<PAGE>
30. ATTORNEYS' FEES. In the event suit or action is instituted to enforce
or interpret any of the terms of this Trust Deed, including, but not limited to,
any action or participation by Borrower or Bank in, or in connection with, a
case or proceeding under the Bankruptcy Code or any successor statute, the
prevailing party shall be entitled to recover all expenses reasonably incurred
at, before and after trial and on appeal whether or not taxable as costs,
including, without limitation, attorney fees, witness fees (expert and
otherwise), deposition costs, copying charges and other expenses. Whether or not
any court action is involved, all reasonable expenses, including, but not
limited to, the costs of searching records, obtaining title reports or
appraisals, surveyor reports, title insurance, trustee fees, and attorneys'
fees, incurred by Bank that are necessary or advisable at any time in Bank's
opinion for the protection of its interest or enforcement of its rights shall
become a part of the Indebtedness payable on demand and shall bear interest from
the date of expenditure until paid at the default interest rate provided in the
Note or other Loan Documents or if the Note or other Loan Documents contain no
default rate, then at the interest rate(s) provided for in the Note.
31. GOVERNING LAW; SEVERABILITY. This Trust Deed shall be governed by the
law of the State of Oregon. In the event that any provision or clause of this
Trust Deed, or the Note, or Loan Agreement or other Loan Documents conflicts
with applicable law, such conflict shall not affect other provisions of this
Trust Deed, the Note, the Loan Agreement or other Loan Documents which can be
given effect without the conflicting provision, and to this end, the provisions
of this Trust Deed, the Note, the Loan Agreement and other Loan Documents are
declared to be severable.
32. TIME OF ESSENCE. Time is of the essence in the payment and performance
of the obligations under and secured by this Trust Deed and the other Loan
Documents.
33. CHANGES IN WRITING. Any term of this Trust Deed and any addendum to the
Trust Deed may only be changed, waived, discharged or terminated by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any agreement subsequently
made by Borrower or Bank relating to this Trust Deed shall be superior to the
rights of the holder of any intervening lien or encumbrance.
IN WITNESS WHEREOF, Borrower has executed this Trust Deed or has caused it
to be executed by its duly authorized representative(s).
BORROWER:
ELMER'S RESTAURANTS, INC., an Oregon
corporation
By: HERMAN GOLDBERG
--------------------------------
Herman Goldberg
Its: President
STATE OF ____________________)
)ss:
County of __________________)
The foregoing instrument was acknowledged before me this day of December,
199 by Herman Goldberg, the President of Elmer's Restaurants, Inc., an Oregon
corporation, on behalf of the corporation.
------------------------------------
Notary Public for the State of
My Commission expires:
Page 16 - Commercial Deed of Trust
<PAGE>
REQUEST FOR RECONVEYANCE
To Trustee:
The undersigned is the holder of the Note or Notes secured by this Trust
Deed. Said Note or Notes, together with all other Indebtedness secured by this
Trust Deed, have been paid in full. You are hereby directed to cancel said Note
or Notes and this Trust Deed, which are delivered hereby, and to reconvey,
without warranty, all the estate now held by you under this Trust Deed to the
person or persons legally entitled to that estate.
Date:
----------------------- ------------------------------------
By:
---------------------------------
Title:
------------------------------
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<PAGE>
AFTER RECORDING, RETURN TO:
First Interstate Bank of Oregon, N.A.
Eastside Commercial Banking Center, MS 630
PO Box 14809, 612 SE Morrison Street
Portland, OR 97214
Attention: Terry Holcomb
COMMERCIAL DEED OF TRUST
THIS COMMERCIAL DEED OF TRUST (the "Trust Deed") is made this 21st day of
December, 1995 among the Grantor, ELMER'S RESTAURANTS, INC., an Oregon
corporation, whose address is 11802 SE Stark, Portland, OR 97216 (the
"Borrower"); TICOR TITLE INSURANCE COMPANY, whose address is 1000 SW Broadway,
Portland, OR 97205 (the "Trustee"); and the Beneficiary, FIRST INTERSTATE BANK
OF OREGON, N.A., whose address is 1300 S.W. Fifth Avenue, P.O. Box 3131,
Portland, Oregon 97208 (the "Bank").
Borrower, in consideration of the indebtedness recited in this Trust Deed
and the trust created by this Trust Deed, irrevocably grants, conveys and
assigns to Trustee, in trust, with power of sale, the following described
property located in the County of Snohomish, State of Washington:
--------------------------------------------------------------
Lot 1, Alderwood Square, according to the Plat thereof,
recorded in Volume 46 of Plats, Pages 238 and 239,
records of Snohomish County, Washington.
Situate in the County of Snohomish, State of Washington.
--------------------------------------------------------------
together with all buildings, improvements and tenements now or in the future
erected on the property, and all previously or in the future vacated alleys and
streets abutting the property, and all easements, rights, appurtenances, leases,
including, without limitation, the leases or agreements now or hereafter
existing, however evidenced, covering all or any portion of the property,
together with all rents or monies due or to become due thereunder; and together
with all now existing or in the future arising or acquired: (a) revenues,
royalties, mineral, oil and gas rights and profits, water, water rights, and
water stock appurtenant to the property; (b) fixtures, machinery, equipment
located or to be located on the property, including, without limitation,
personal property required for the maintenance and operation of the property
(including, but not limited to, engines, boilers, incinerators, building
materials, and all appliances, escalators and elevators, and related machinery
and equipment, fire prevention and extinguishing apparatus, security and access
control apparatus, communications apparatus, plumbing, plumbing fixtures, water
heaters, paneling, attached floor and wall coverings); (c) estate, interest,
claims or demands, and other general intangibles now or in the future relating
to the property, including, but not limited to, all insurance which the Borrower
now has or may in the future acquire in and to the property, and all present or
future refunds or rebates of taxes or assessments on the property and all
compensation, awards, damages or rights of action arising out of or relating to
any taking of the property described above; (d) present or future plans,
specifications, contracts and agreements for construction of improvements on the
property; (e) Borrower's rights under any payment, performance or other bond in
connection with the construction of any improvements on the property; (f) goods,
instruments, documents of title which now or in the future relate to the
property; (g) deposits, cash or other property now owned or hereafter acquired
by Borrower and which are now or may in the future be delivered to or otherwise
be in the possession of the Bank; (h) replacements, substitutions and additions
to the foregoing; (i) proceeds and products of all of the foregoing. All of the
foregoing shall be deemed to be and remain a part of the property
Page 1 - Commercial Deed of Trust
<PAGE>
covered by this Trust Deed. The specific enumerations herein shall not exclude
the general. All of the property described above is referred to in this Trust
Deed as the "Property." This Trust Deed is given as security for the following
(collectively the "Indebtedness"): (a) the payment of the indebtedness evidenced
by Borrower's promissory note, of even date, in favor of Bank (the "Note") in
the principal sum of One Million Three Hundred Seventy Two Thousand Five Hundred
and 00/100 Dollars ($1,372,500.00), with interest thereon, the balance of which,
if not sooner paid, is due and payable on the Maturity Date as defined in the
Note and all amendments, renewals, extensions and modifications of the Note; (b)
the payment of any future advances, with interest thereon, made by Bank to
Borrower pursuant to this Trust Deed ("Future Advances"); (c) the performance of
the covenants and agreements of Borrower contained in the Loan Agreement, of
even date, between Bank and Borrower and any amendments (collectively the "Loan
Agreement"); (d) the payment of all other sums, with interest thereon, advanced
in accordance with this Trust Deed to protect the security of this Trust Deed;
and (e) the performance of the covenants and agreements of Borrower contained in
this Trust Deed. The terms of the Note and Loan Agreement secured by this Trust
Deed may provide that the interest rate or payment terms or balance due may be
indexed, adjusted, renewed, or renegotiated from time to time. Capitalized terms
which are not defined in this Trust Deed and are defined in the Loan Agreement
shall have the meaning given them in the Loan Agreement.
Borrower and Bank covenant and agree as follows:
Page 2 - Commercial Deed of Trust
<PAGE>
1. COVENANT OF TITLE. Borrower covenants that Borrower is lawfully seized
of the estate conveyed by this Trust Deed and has the right to grant, convey and
assign the Property, that the Property is unencumbered, except as disclosed in
writing to and approved by Bank prior to the date of this Trust Deed, and that
Borrower will warrant and defend generally the title to the Property against all
claims and demands, subject to any easements and restrictions acceptable to Bank
and listed in a schedule of exceptions to coverage in any title insurance policy
insuring Bank's interest in the Property.
2. PROMISE TO PAY. Borrower shall pay promptly when due the principal of
and interest on the Indebtedness and any other charges provided in the Note,
this Trust Deed, the Loan Agreement and other documents executed in connection
with the Indebtedness (collectively, with any amendments, the "Loan Documents").
3. LATE PAYMENT CHARGES. Bank may charge a late charge on any scheduled
payment which Bank fails to receive within 15 days after the due date, or by the
next business day, if the 15-day period ends on a Saturday, Sunday, or legal
holiday. The amount of the late charge shall be as specified in the Note or Loan
Agreement or, if the Note or Loan Agreement specifies no late charge, then two
percent of the amount of the payment of principal and interest not paid when
due. Such late charge shall in no event exceed the maximum charge, if any,
specified under applicable law. Collection of a late charge shall not constitute
a waiver of or prejudice the Bank's right to pursue any other right or remedy
available on account of the delinquency, including, without limitation, charging
the default rate of interest under the Note.
4. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, or
unless specified to the contrary in the other Loan Documents, each complete
installment payment received by Bank under the Note or this Trust Deed or other
Loan Documents shall be applied by Bank first to payment of reserves, if any,
due under Sections 5 and 6 of this Trust Deed, next to interest due and payable
on the Indebtedness, then to principal due and payable on the Indebtedness and
then to any other charges due and payable pursuant to the terms of the Note,
this Trust Deed, and any other Loan Documents. Upon a breach of any covenant or
agreement of Borrower in the Note, this Trust Deed or other Loan Document, Bank
may apply, in any amount and in any order as Bank shall determine in Bank's sole
discretion, any payments received by Bank under the Note, this Trust Deed or
under the other Loan Documents. Bank, at Bank's option, may reject any partial
payment. Any partial payment which Bank accepts may be held in a noninterest
bearing account until Bank receives funds sufficient to equal a complete
installment payment, or may be applied to the Indebtedness in any amount and in
any order as Bank may determine in Bank's sole discretion.
5. TAXES AND LIENS; RESERVES.
5.1 Payment. Borrower shall pay when due all taxes and assessments
levied against or on account of the Property, and shall pay when due all claims
for work done on or for services rendered or material furnished to the Property.
Borrower shall maintain the Property free of any liens except for Permitted
Encumbrances as permitted in Section 5.4.
5.2 Evidence of Payment. On Bank's demand, Borrower promptly shall
furnish evidence acceptable to Bank of payment of taxes and assessments and
shall authorize the appropriate county official to deliver to Bank at any time a
written statement of the taxes and assessments against the Property.
5.3 Reserves. At Bank's option, Bank may require Borrower to maintain
with Bank reserves for payment of taxes and assessments. The reserves shall be
created by monthly payments of a sum estimated by Bank to be sufficient to
produce, at least 30 days before the taxes and assessments are due, amounts at
least equal to the taxes and assessments to be paid. If Bank determines that the
reserve funds are insufficient at any time, Borrower shall promptly pay any
deficiency to Bank on its demand. The reserve funds shall be held by Bank in a
deposit account, and the funds may be commingled with other funds held by Bank.
Unless Bank and Borrower agree in writing otherwise or applicable law requires
that Bank pay Borrower interest on the
Page 3 - Commercial Deed of Trust
<PAGE>
funds, Bank shall not be required to pay Borrower any interest on the funds.
Bank shall apply the reserve funds to pay the taxes and assessments so long as
Borrower is not in breach of any covenant or agreement of Borrower in this Trust
Deed, but only to the extent that funds are available to do so. Bank does not
hold the funds in trust for Borrower and is not the agent of Borrower for
payment of taxes and assessments required to be paid by Borrower. Upon
Borrower's breach of any covenant or agreement of Borrower in this Trust Deed,
Bank may apply, in any amount and in any order as Bank shall determine in Bank's
sole discretion, any reserve funds held by Bank (i) to pay taxes and assessments
which are due or (ii) as a credit against the Indebtedness.
5.4 Permitted Encumbrances. Attachments, judgments and other similar
liens arising in connection with court proceedings, construction liens and liens
for taxes, assessments or other governmental charges may remain against the
Property under the following circumstances only: (a) there is no Event of
Default or no event which with notice or passage of time or both would become an
Event of Default under the Loan Documents; (b) the Borrower is actively
contesting in good faith and by appropriate proceedings the claims secured by
such liens; and (c) the Borrower shall have provided to Bank a surety bond
acceptable to (or other security acceptable to) Bank in an amount acceptable to
Bank as security for the payment of the claims secured by such liens.
6. HAZARD INSURANCE.
6.1 Policies. Borrower shall keep any improvements now existing or in
the future erected on the Property insured by carriers who are at all times
satisfactory to Bank against loss by fire, hazards included within the term
"extended coverage," flood insurance, if and when from time to time required by
Bank, rent loss, business interruption and such other hazards, casualties,
liabilities and contingencies as Bank shall require from time to time or at any
time during the term of this Trust Deed and in such amounts, on a 100%
replacement cost basis without coinsurance clause, and for such periods as Bank
shall require. On Bank's request, Borrower, at Borrower's expense, shall have an
independent appraiser satisfactory to Bank determine the current replacement
cost of the Property. All insurance policies and renewals thereof shall be in
form and substance acceptable to Bank and shall include a loss payable
endorsement in favor of and in form and substance acceptable to Bank and a
provision that coverage will not be canceled, altered or diminished without a
minimum of 30 days' prior written notice to Bank. Bank shall have the right to
hold the policies, and Borrower promptly shall furnish to Bank all renewal
notices.
6.2 Payment; Reserves. All premiums on insurance policies shall be
paid by Borrower making payment, when due, directly to the carrier, or in such
other manner as Bank may designate in writing. Prior to the expiration date of
any policy, Borrower shall deliver to Bank a renewal policy in form and
substance satisfactory to Bank and receipts for paid premiums. At Bank's option,
Bank may require Borrower to maintain with Bank reserves for payment of
insurance premiums. The reserves shall be created and held in the same manner as
provided in Section 5.3 for reserves for payment of taxes and assessments.
6.3 Loss. In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to the Bank. Bank may give written notice to
the insurance carrier if Borrower fails to do so within 20 days of the casualty.
Borrower hereby authorizes and empowers Bank as attorney-in-fact for Borrower to
make proof of loss, to adjust and compromise any claim under insurance policies,
to appear in and prosecute any action arising from such insurance policies, to
collect and receive insurance proceeds, and to deduct therefrom Bank's expenses
incurred in the collection of such proceeds; provided, however, that nothing
contained in this Section 6 shall require Bank to incur any expense or take any
action hereunder.
6.4 Application of Proceeds. Borrower authorizes Bank, at Bank's
option, (a) to apply the balance of such proceeds to the payment of the
Indebtedness, whether or not then due, or (b) after deducting Bank's costs and
expenses described above, to hold the balance of such proceeds to be disbursed
to Borrower for the cost of reconstruction or repair of the Property. As
Page 4 - Commercial Deed of Trust
<PAGE>
long as Borrower is not in default or in violation of any condition or covenant
under the Loan Documents, Borrower may elect to use the insurance proceeds to
reconstruct or repair the Property as long as the reconstruction or repair of
the Property can be completed in a reasonable time using only insurance proceeds
and additional funds from Borrower. Prior to commencement of the reconstruction
or repair, Borrower shall provide evidence of sufficient funds to complete such
reconstruction or repair. If the insurance proceeds are held by Bank to disburse
to Borrower for the cost of restoration and repair of the Property, the Property
shall be restored to the equivalent of its original condition or such other
condition as Bank may approve in writing. Bank may require that Borrower deposit
with Bank any amount in excess of the insurance proceeds necessary to complete
restoration, which amounts shall be disbursed prior to disbursement of any
insurance proceeds. Unless Bank and Borrower agree in writing otherwise or
applicable law requires that Bank pay Borrower interest on the proceeds, Bank
shall not be required to pay Borrower any interest on the proceeds or any other
sum which Bank may require Borrower to deposit with Bank pursuant to this
Section. Bank, at Bank's option, may condition disbursement of those proceeds on
Bank's approval of plans and specifications for the restoration and repair to be
prepared by an architect satisfactory to Bank, contractors cost estimates,
architect's certificates, waivers of liens, sworn statements of mechanics and
materialmen and such other evidence of costs, percentage completion of
construction, application of payments, and satisfaction of liens as Bank may
reasonably require. If the insurance proceeds are applied to the payment of the
sums secured by this Trust Deed, any such application of proceeds to principal
shall be applied to the most remote unpaid installment of principal and shall
not extend or postpone the due dates of any payments required under Section 2 or
change the amounts of any such payments. If the Property is sold to Bank
pursuant to Section 22 of this Trust Deed or if Bank otherwise acquires title to
the Property, then in addition to the lien and security interests otherwise
granted to Bank under this Trust Deed, Bank shall have all of the right, title
and interest in and to any insurance policies and unearned premiums thereon and
in and to the proceeds resulting from any damage to the Property prior to such
sale or acquisition.
7. PRESERVATION AND MAINTENANCE OF PROPERTY: ENVIRONMENTAL LAWS;
INDEMNIFICATION.
7.1 Preservation and Maintenance. Borrower:
(a) shall not commit waste or permit impairment or deterioration
of the Property;
(b) shall not abandon the Property;
(c) unless Bank directs Borrower in writing to the contrary,
shall restore or repair promptly and in a good and workmanlike manner all or any
part of the Property to the equivalent of its original condition, or such other
condition as Bank may approve in writing, in the event of any damage, injury or
loss to the Property, whether or not insurance proceeds are available to cover
in whole or in part the costs of such restoration or repair;
(d) shall keep the Property, including without limitation
improvements, fixtures, equipment, machinery and appliances on the Property in
good repair and shall replace fixtures, equipment, machinery and appliances on
the Property when necessary to keep such items in good repair ordinary wear and
tear excepted, and all of such replacements shall be and are subject to the lien
of this Trust Deed;
(e) shall operate and maintain the Property in compliance with
all applicable laws and regulations and in a manner to ensure maximum rentals;
and
(f) shall give notice in writing to Bank of and, unless otherwise
directed in writing by Bank, appear in and defend any action or proceeding
purporting to affect the Property (including, without limitation, matters
pertaining to land use, zoning and Environmental Laws and Hazardous Substances
and Disabilities Laws as defined below), the security of this Trust Deed or the
rights or powers of Bank. "Disabilities Laws" shall mean all applicable
Page 5 - Commercial Deed of Trust
<PAGE>
federal, state and local laws and regulations related to usability of and
accessibility to the Property by people with disabilities. The term
"Disabilities Laws" includes, but is not limited to, the Fair Housing Amendments
Act of 1988 and the Americans with Disabilities Act of 1990 and all regulations
adopted thereunder. Neither Borrower nor any tenant nor other person, without
the written approval of Bank, shall remove, demolish or alter any improvement
now existing or in the future erected on the Property or any fixtures,
equipment, machinery or appliance in or on the Property and in which Bank has
any interest by virtue of this Trust Deed, any security agreement, or any other
Loan Document, except when incident to the replacement of fixtures, equipment,
machinery and appliances with items of like kind, which shall thereupon become
subject to the lien of this Trust Deed.
7.2 Environmental Laws. In this Trust Deed, "Environmental Laws" means
any and all state, federal and local statutes, regulations, and ordinances
relating to the protection of human health or the environment. "Hazardous
Substances" is used in its very broadest sense and refers to materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. "Hazardous
Substances" shall include, without limitation, petroleum products or crude oil
or any fraction thereof and any and all hazardous or toxic substances, materials
or waste as defined by or listed under the Resource Conservation and Recovery
Act, the Toxic Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act, or any other of the Environmental Laws. Borrower
shall cause the Property and all operations on the Property to comply with all
Environmental Laws and orders of any governmental authorities having
jurisdiction under any Environmental Laws. Borrower shall exercise extreme care
in handling Hazardous Substances and shall undertake any and all preventive,
investigatory or remedial action (including without limitation emergency
response, removal, containment and other remedial action) (a) required by any
applicable Environmental Laws or orders by any governmental authority having
jurisdiction under Environmental Laws, or (b) necessary to prevent or minimize
property damage (including, without limitation, damage to Borrower's own
property), personal injury or damage to the environment, or the threat of any
such damage or injury, by releases of or exposure to Hazardous Substances in
connection with the Property or operations on the Property. In the event
Borrower fails to perform any of its obligations under this Section, Bank may
perform (but shall not be required to perform) such obligations at Borrower's
expense pursuant to Section 9 of this Trust Deed. In performing any such
obligations of Borrower, Bank shall at all times be deemed to be the agent of
Borrower and shall not by reason of such performance be deemed to be assuming
any responsibility of Borrower under any Environmental Law or to any third
party.
7.3 Further Assurances. At any time Bank reasonably requests, Borrower
shall provide to Bank further assurance of Borrowers compliance with this
Section 7. The assurances shall be in form and substance satisfactory to Bank
and may include, but not be limited to, Borrower providing to Bank an
environmental audit from a source acceptable to Bank at Borrowers expense.
7.4 Indemnification. Borrower agrees to indemnify and hold harmless
Bank and its officers, directors, employees and agents, and Bank's successors
and assigns and their officers, directors, employees and agents against any and
all claims, demands, losses, liabilities, costs and expenses (including, without
limitation, attorney fees at trial and on any appeal or petition for review and
in any bankruptcy proceeding) incurred by such person (a) arising out of or
relating to any investigatory or remedial action involving the Property and the
operations conducted on the Property and required by Environmental Laws or
Disabilities Laws or by orders of any governmental authority having jurisdiction
under any Environmental Laws or under Disabilities Laws, or (b) on account of
injury to any person whatsoever or damage to any property arising out of, in
connection with or in any way relating to (i) the violation of any applicable
laws or regulations, including, but not limited to, Disabilities Laws and
Environmental Laws, (ii) the use, treatment, storage, generation, manufacture,
transport, release, spill, disposal or other handling of Hazardous Substances on
the Property or in connection with operations, or (iii) the contamination of any
of the Property by Hazardous Substances by any means whatsoever, and (c)
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without in any way limiting the foregoing for any other reason, or on account
of, or in connection with the Property or this Trust Deed, provided that
Borrower shall not be required to indemnify Bank for its willful misconduct or
gross negligence.
7.5 Survival. The covenants contained in this Section 7 shall survive
the repayment of the Indebtedness and the delivery of a deed in lieu of
foreclosure to Bank or any successor of Bank and shall survive any foreclosure,
whether judicial or nonjudicial, of the Property by Bank or any successor of
Bank, and shall be for the benefit of Bank, and any successor to Bank, as holder
of any security interest in the Property or the Indebtedness, or as owner of the
Property or any other property of Borrower following foreclosure or the delivery
of a deed in lieu of foreclosure.
8. USE OF PROPERTY. Unless required by applicable law or unless Bank has
otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Trust Deed
was executed. Borrower shall not initiate or acquiesce in a change in the zoning
classification or comprehensive plan governing the Property without Bank's prior
written consent. Borrower warrants that this Trust Deed is and will at all times
constitute a commercial deed of trust and not a residential deed of trust, as
defined under applicable law. The proceeds of the loan will be used solely for
business purposes.
9. PROTECTION OF BANK'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Trust Deed, or if any action or
proceeding is commenced which affects the Property or title to the Property or
the interest of Bank in the Property, including, but not limited to, eminent
domain, insolvency, code enforcement, violation of any law concerning
environmental protection and pollution control referred to in Section 7 above,
or arrangements or proceedings involving a bankrupt or decedent, then Bank at
Bank's option may make such appearances, disburse such sums and take such action
as Bank deems necessary or advisable, in its sole discretion, to protect Bank's
interest, including, but not limited to, (a) employment of attorneys or other
advisors, (b) entry upon the Property to investigate and make repairs, (c)
procurement of satisfactory insurance, and (d) payment of any tax or liens. Any
amounts disbursed by Bank pursuant to this Section 9, with interest thereon,
shall become additional Indebtedness of Borrower secured by this Trust Deed.
Unless Borrower and Bank agree in writing to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement until paid at the default rate stated in the Note or the
Loan Documents, or if no default rate is stated in the Note or Loan Documents,
then at the interest rate(s) stated in the Note. Borrower hereby covenants and
agrees that Bank shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the Indebtedness secured by this Trust Deed.
Nothing contained in this Section 9 shall require Bank to incur any expense or
take any action.
The following warning is provided pursuant to Oregon law.
WARNING
Unless you provide us with evidence of the insurance coverage as required by our
contract or loan agreement, we may purchase insurance at your expense to protect
our interest. This insurance may, but need not, also protect your interest. If
the collateral becomes damaged, the coverage we purchase may not pay any claim
you make or any claim made against you. You may later cancel this coverage by
providing evidence that you have obtained property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The cost of
this insurance may be added to your contract or loan balance. If the cost is
added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount. The effective date of coverage
may be the date your prior coverage lapsed or the date you failed to provide
proof of coverage.
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The coverage we purchase may be considerably more expensive than insurance you
can obtain on your own and not satisfy any need for property damage coverage or
any mandatory liability insurance requirements imposed by applicable law.
10. INSPECTION AND APPRAISALS. Bank may make or cause to be made reasonable
entries upon the Property to inspect the Property, including, but not limited
to, inspecting any buildings on the Property and inspection and/or environmental
evaluation of the Property. Bank may also require appraisals acceptable to Bank,
ordered by Bank from appraisers acceptable to Bank at Borrower expense, in order
to comply with applicable state or federal laws or regulations or when Bank
reasonably deems it necessary to protect Bank's interest in the Property. If,
during the term of the Loan, Bank determines that the aggregate appraised value
of the real property described in Exhibit A and any other real property securing
the Loan (the "Real Property") (excluding any value attributable to furniture,
fixtures, and equipment) determined based upon the most recent appraisal
received by Bank and accepted by Bank indicates that the loan-to-value ratio is
in excess of 79.3% until January 1, 2006, and 75% thereafter if the Maturity
Date of the Note is extended, then Bank may require Borrower to prepay the
outstanding principal balance of the Loan, or provide additional equity funds
for the Loan in an amount sufficient so that the loan-to-value ratio upon such
prepayment or equity contribution is less than or equal to 79.3% or 75%, as
applicable, of the appraised value of the Real Property (excluding any value
attributable to furniture, fixtures, and equipment). Any such prepayment shall
be applied to the most remote unpaid installment(s) of principal. Any such
equity funds shall be held in the Loan Fund described in the Loan Agreement and
disbursed before any further Loan Funds are disbursed. Borrower shall pay any
such prepayment or equity requirement within thirty (30) days after written
notice from Bank to Borrower specifying the amount of any such prepayment or
equity requirement.
11. BOOKS AND RECORDS. Borrower shall keep and retain at all times at
Borrower's address stated above, or at such other place that Bank may approve in
writing, complete and accurate records of accounts and records adequate to
reflect correctly the results of operations of the Property and copies of all
written contracts, leases and other instruments which affect the Property. Such
books, records, leases and other instruments shall be subject to examination and
inspection at any reasonable time by Bank. Borrower shall comply (and shall
cause each Guarantor to comply) with all provisions in the Loan Agreement and
other Loan Documents with regard to furnishing to Bank financial information. If
there are no provisions in the Loan Agreement or other Loan Documents, then,
upon Bank's request, but at least annually, Borrower shall furnish to Bank (and
shall cause each guarantor to furnish to Bank) current signed financial
statements, tax returns complete with all schedules, including K-1 statements
for any partnership or S-Corporation in which Borrower (or, if applicable,
Guarantor) has an interest, and a statement of changes in financial position.
Borrower shall also provide to Bank a statement of income and expenses of the
Property. All financial statements shall be in reasonable detail and certified
by Borrower (or, if applicable, by Guarantor) to be complete and correct. If
Bank shall request, all financial statements shall be certified by an
independent certified public accountant. Borrower shall also furnish, together
with the foregoing financial statements, and at any other time at Bank's
request, a rent schedule for the Property, certified by Borrower, showing the
name of each tenant, and for each tenant, the space occupied, the lease
expiration date, the rent payable and the rent paid.
12. CONDEMNATION. Borrower shall promptly notify Bank of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part of the Property, and Borrower shall appear in
and prosecute any such action or proceeding unless otherwise directed by Bank in
writing. Borrower authorizes Bank, at Bank's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Bank's or Borrower's name,
any action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with any such condemnation or other taking. The proceeds of any
award, payment or claim for damages, direct or consequential, in connection with
any condemnation or other taking, whether direct or indirect, of the Property,
or part of the Property, or for conveyances in lieu of condemnation, are hereby
assigned to and shall be paid to Bank.
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Borrower authorizes Bank to apply such awards, payments, proceeds or
damages, after the deduction of Bank's expenses incurred in the collection of
such amounts, at Bank's option, to restoration or repair of the Property or to
payment of the Indebtedness, whether or not then due, with the balance, if any,
to Borrower. Unless Borrower and Bank otherwise agree in writing, any
application of proceeds to principal shall be applied to the most remote unpaid
installment of principal and shall not extend or postpone the due date of any
payments required under this Trust Deed or change the amount of any such
payments. Borrower agrees to execute such further evidence or assignment of any
awards, proceeds, damages or claims arising in connection with such condemnation
or taking as Bank may require.
13. BORROWER AND LIEN NOT RELEASED. From time to time, at Bank's option,
upon notice to Borrower but without any need to give notice to or obtain the
consent of Borrower's successors or assigns or of any junior lienholder or
guarantor and without any liability on Bank's part and notwithstanding
Borrower's breach of any covenant or agreement in the Loan Documents (including,
but not limited to, this Trust Deed), Bank may do any or all of the following:
(a) Extend the time for payment of the Indebtedness or any part
of it;
(b) Reduce the payments on the Indebtedness;
(c) Release anyone liable on any part of the Indebtedness;
(d) Accept renewal note or notes for the Indebtedness;
(e) Release from the lien of this Trust Deed any part of the
Property;
(f) Release other or additional security;
(g) Reconvey any part of the Property;
(h) Consent to any map or plat of the Property;
(i) Consent to any easement;
(j) Execute any subordination agreement.
Any action taken by Bank pursuant to the terms of this Section or any
modification of the rate of interest upward or downward, or modification of the
period of amortization of the Note or change in the amount of the monthly
installments payable under the Note or other Loan Documents, or any combination
thereof, which may extend or reduce the term of the Note or this Trust Deed or
both, shall not affect the obligation of Borrower or Borrower's successors or
assigns to pay the sums secured by this Trust Deed and to observe the covenants
of Borrower contained in this Trust Deed, shall not affect the guaranty of any
person, corporation, partnership or other entity for payment of the Indebtedness
secured by this Trust Deed, and shall not affect the lien or priority of lien of
this Trust Deed on the Property. Unless otherwise provided by law, the priority
of this Trust Deed shall not be affected by any change in terms whether or not
it adversely affects subordinate or prior interest holders. Borrower shall pay
Bank a service charge, together with such title insurance premiums and attorney
fees as may be incurred at Bank's option for any such action if taken at
Borrower's request.
14. FORBEARANCE BY BANK OR RECEIPT OF AWARDS NOT A WAIVER. Any forbearance
by Bank in exercising any right or remedy under this Trust Deed, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any other right or remedy. The acceptance by Bank of payment of any sum secured
by this Trust Deed after the due date of such payment shall not be a waiver of
Bank's right to either require prompt payment when due of all other sums so
secured or to declare a default or failure to make prompt payment, nor shall
Bank's receipt of any awards, proceeds or damages under this Trust Deed operate
to cure or waive any default in payment of sums secured by this Trust Deed.
15. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Trust Deed is intended
to be a security agreement pursuant to the Uniform Commercial Code of Oregon for
any of the items specified above as part of the Property which, under applicable
law, may be subject to a security interest pursuant to the Uniform Commercial
Code of Oregon, and Borrower hereby grants Bank a security interest in said
items. Borrower agrees that Bank may file this Trust Deed, or a reproduction of
it, in the real estate records, office of the Oregon Secretary of State, or
other appropriate filing index, as a financing statement for any of the items
specified
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above as part of the Property. Any reproduction of this Trust Deed or of any
other security agreement or financing statement shall be sufficient as a
financing statement. In addition, Borrower agrees to execute and deliver to
Bank, upon Bank's request, any financing statements, as well as extensions,
renewals and amendments of them, and reproductions of this Trust Deed in such
form as Bank may require to perfect a security interest with respect to said
items. Borrower shall pay all costs of filing such financing statements and any
extensions, renewals, amendments and releases of them, and shall pay all costs
and expenses of any record searches for financing statements Bank may require.
Borrower shall notify Bank in writing prior to changing Borrower's name or
moving Borrower's chief executive office or any of the Property secured by this
Trust Deed. Without the prior written consent of Bank, Borrower shall not create
or suffer to be created any other security interest in those items, including,
without limitation, replacements, substitutions and additions to them. Upon
Borrower's breach of any covenant or agreement of Borrower contained in this
Trust Deed, including, but not limited to, the covenants to pay when due all
sums secured by this Trust Deed, Bank shall have the remedies of a secured party
under the Uniform Commercial Code of Oregon and, at Bank's option, may also
invoke the remedies provided in this Trust Deed as to such items. In exercising
any of said remedies, Bank may proceed against the items of real property and
any items of personal property specified above as part of the Property
separately or together and in any order whatsoever, whether by nonjudicial sale
or otherwise, without in any way affecting the availability of Bank's remedies
under the Uniform Commercial Code of Oregon or of the other remedies provided in
this Trust Deed.
16. LEASES OF THE PROPERTY. Borrower shall comply with and observe
Borrower's obligations as landlord under all leases of the Property or any part
thereof. Borrower shall furnish Bank with executed copies of all leases now
existing or in the future made of all or any part of the Property, and all
leases now or in the future entered into will be in form and substance subject
to the prior written approval of Bank. All leases of the Property shall
specifically provide that such leases are subordinate to this Trust Deed; that
the tenant attorns to Bank, such attornment to be effective upon Bank's
acquisition of title to the Property; that the tenant agrees to execute such
further evidences of attornment as Bank may from time to time request; that the
attornment of tenant shall not be terminated by foreclosure; that the tenant
agrees to execute such estoppel certificates in form and substance satisfactory
to Bank; and that Bank, at Bank's option, may accept or reject such attornments.
Without Bank's written consent, Borrower shall not request or consent to the
subordination of any lease of all or any part of the Property to any lien
subordinate to this Trust Deed. If Borrower becomes aware that any tenant
proposes to do, or is doing, any act or thing which may give rise to any right
of setoff against rent, Borrower shall (i) take such steps as shall be
reasonably calculated to prevent the accrual of any right to a setoff against
rent, (ii) notify Bank thereof and of the amount of said setoffs, and (iii)
within ten (10) days after such accrual, reimburse the tenant who shall have
acquired such right to setoff or take such other steps as shall effectively
discharge such setoff and as shall assure that rents thereafter due shall
continue to be payable without setoff or deduction.
17. ASSIGNMENT OF RENTS. As additional security under this Trust Deed,
Borrower hereby assigns to Bank the leases, rents or agreements concerning the
Property arising in the future, provided that unless there is an event of
default under the Loan Documents, Borrower shall have the right to collect and
retain such rents as they become due and payable. Upon Bank's request, Borrower
shall execute any additional documents requested by Bank to assign to Bank any
leases and all security and other deposits concerning Property. This assignment
is not a delegation or assignment to Bank of Borrower's duties or obligations
under or in connection with the Property. Bank's acceptance of this assignment
does not constitute a promise by it nor does it in any way obligate it to
perform any of Borrower's duties or obligations under or in connection with the
leases, rents or agreements. Borrower hereby agrees to indemnify Bank against
and hold it harmless from any and all liability, loss or damage which it may or
might incur under the leases, rents or agreements or under or by reason of this
assignment and of and from any and all claims and demands whatsoever which may
be asserted against it by any reason of any alleged obligation or undertaking on
Bank's or Borrower's part to perform or discharge any of the terms of the
leases, rents or agreements.
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18. FUTURE ADVANCES. Upon request of Borrower, Bank, at Bank's option so
long as this Trust Deed secures Indebtedness held by Bank, may make Future
Advances to Borrower. Such Future Advances, with interest thereon, shall be
secured by this Trust Deed if the loan documentation related to the Future
Advance provides that the Future Advance is to be secured by this Trust Deed.
19. PROHIBITION OF TRANSFER OF PROPERTY OR BENEFICIAL INTERESTS IN
BORROWER; ASSUMPTION. Except as provided in Section 5.2(b) of the Loan
Agreement, without prior written consent of Bank, Borrower shall not transfer or
agree to transfer all or any part of Property or any interest in the Property.
For the purpose of this section, the occurrence of any of the following events,
without limitation, or any agreement to do any of the following, without
limitation, shall be deemed to be a transfer of the Property:
(a) Any sale, contract to sell, conveyance, assignment or other
transfer of, or grant of a mortgage, deed of trust, other lien, or other
security interest in, all or any part of the legal or equitable title to
Property;
If any of the events described above occur, Bank, at Bank's option,
may declare all of the sums secured by this Trust Deed to be immediately due and
payable, and may invoke any of the remedies permitted by this Trust Deed. If
Borrower or a prospective transferee applies to Bank for consent to transfer,
Bank may require such information as may be reasonably necessary for Bank to
assess the prospective transferee's prior business experience, reputation and
financial ability to perform Borrower's obligations under this Trust Deed. As a
condition of its consent to any transfer, Bank in its discretion may impose an
assumption fee, and may increase the interest rate on the Note or under the
other Loan Documents. However, notwithstanding any of the foregoing, Bank, in
its sole discretion, may withhold its consent to any transfer for any reason
whether or not withholding consent is reasonable under the circumstances. Any
consent, if granted, shall not release Borrower or any successor in interest
from personal liability for payment and performance of the Indebtedness, or for
performance of this Trust Deed, the Note or other Loan Documents.
20. LOAN AGREEMENT PROVISIONS. Borrower agrees to comply with the covenants
and conditions of the Loan Agreement, if any, and all other Loan Documents
executed in connection with the Indebtedness secured by this Trust Deed. If the
terms of this Trust Deed are inconsistent with the terms of the Loan Agreement,
if any, the terms of the Loan Agreement will control.
21. DEFAULT. The following shall constitute events of default:
(a) Failure of Borrower to pay within 5 days after it is due any
portion of the Indebtedness.
(b) Failure of Borrower within the time required by this Trust Deed to
make any payment for taxes, insurance or any other payment necessary to prevent
filing of or discharge of any lien.
(c) Transfer or agreement to transfer any part or interest in the
Property in any manner whatsoever, including, but not limited to, allowing any
lien inferior to this Trust Deed on the Property, or transfer of any other
interest of Borrower as described in Section 19, except for leases entered into
by Borrower subject to Bank's approval as set forth in Section 16 of this Trust
Deed.
(d) Dissolution, death, termination of existence, insolvency or
business failure of Borrower; the commencement by Borrower of a voluntary case
under the federal bankruptcy laws or under any other federal or state law
relating to insolvency or debtor's relief; the filing of an involuntary petition
against Borrower under the federal bankruptcy laws or under any other applicable
federal or state law relating to insolvency or debtor's relief which Borrower
has not caused to be dismissed within 60 days after such filing; the appointment
or the consent by
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Borrower to the appointment of a receiver, trustee, or custodian of Borrower or
of any of Borrower's property which Borrower has not caused to be withdrawn
within 60 days after such appointment; an assignment for the benefit of
creditors by Borrower; the making or suffering by Borrower of a fraudulent
transfer under applicable federal or state law; concealment by Borrower of any
of its property in fraud of creditors; the imposition of a lien through legal
proceedings or distraint upon any of the property of Borrower or Borrowers
failure generally to pay its debts as such debts become due. The Events of
Default in this paragraph shall apply and refer to Borrower, any guarantor of
the Indebtedness, and to each of the individuals or entities which are
collectively referred to as "Borrower."
(e) Failure of Borrower to make any payment or perform any obligation
under any superior liens or encumbrances, within the time required under those
liens or encumbrances, or commencement of any suit or other action to foreclose
any superior or inferior liens or encumbrances.
(f) Breach or default under the Loan Agreement or any other Loan
Documents, which is not cured within any applicable cure period.
(g) Termination or revocation of any guaranty delivered to Bank in
connection with the Indebtedness.
(h) Failure of Borrower to pay when due any other obligation of
Borrower to Bank for money borrowed by it in the principal amount of at least
Three Hundred Thousand and 00/100 Dollars ($300,000.00), or if any default shall
occur under any present or future agreement from Borrower to Bank involving the
borrowing of money or the advance of credit in such amount to which Borrower may
be a party.
(i) Failure of Borrower to perform any obligations under this Trust
Deed other than those described in the preceding paragraphs (a) through (h) of
this Section, within ten (10) days after receipt of written notice from Bank
specifying the nature of the default.
No notice of default and no opportunity to cure shall be required if during
the prior twelve (12) months Bank already has sent a notice to Borrower
concerning default in performance of the same obligation.
22. RIGHTS AND REMEDIES ON DEFAULT.
22.1 Remedies. Upon the occurrence of any event of default and at any
time thereafter, Trustee or Bank may, upon prior written notice (which may be
same-day notice), exercise any one or more of the following rights and remedies:
(a) Bank may declare all sums secured by this Trust Deed
immediately due and payable, including, without limitation, any prepayment
premium which Borrower would be required to pay under the terms of the Note or
Loan Agreement.
(b) The Trustee shall have the right to foreclose by notice and
sale, or Bank shall have the right to foreclose by judicial foreclosure, in
either case in accordance with applicable law.
(c) If this Trust Deed is foreclosed by judicial procedure, Bank
will be entitled to a judgment which will provide that if the foreclosure sale
proceeds are insufficient to satisfy the judgment, execution may issue for the
amount of the unpaid balance of the judgment.
(d) With respect to all or any part of the Property that
constitutes personal property, Bank shall have all rights and remedies of a
secured party under the Uniform Commercial Code of Oregon. Bank shall give
Borrower reasonable prior written notice of the time and place of any public
sale of such property, or of the time after which any private sale or
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any other intended disposition is to be made, and Borrower agrees that five
days' notice is reasonable notice.
(e) Bank shall have the right to take possession of the Property
and, with or without taking possession of the Property, collect all the rents
and revenues of the Property in accordance with this Trust Deed and/or in any
other assignment of rents.
(f) Bank shall have the right to have a receiver appointed to
take possession of any or all of the Property, with the power to protect and
preserve the Property, to operate the Property preceding foreclosure or sale, to
collect all the rents and revenues from the Property and apply the proceeds,
over and above cost of the receivership, against the sums due under this Trust
Deed. The receiver may serve without bond if permitted by applicable law. Bank's
right to the appointment of a receiver shall exist whether or not apparent value
of the Property exceeds the sums due under this Trust Deed by a substantial
amount. Employment by Bank shall not disqualify a person from serving as a
receiver.
(g) In the event Borrower remains in possession of the Property
after the Property is sold as provided above or Bank otherwise becomes entitled
to possession of the Property upon default of Borrower, Borrower shall become a
tenant at will of Bank or the purchaser of the Property and shall pay a
reasonable rental for use of the Property while in Borrower's possession.
(h) Bank may apply or set off any and all deposits or other sums
at any time credited by or due from Bank to Borrower without notice and whether
or not other property is considered by Bank to be adequate.
(i) Trustee and Bank shall have any other right or remedy
provided in this Trust Deed, the Note, the Loan Agreement, or any other Loan
Document, or available at law, in equity or otherwise.
22.2 Rights of Receiver or Bank-in-Possession. Upon taking possession
of all or any part of the Property, the receiver or Bank may:
(a) Use, operate, manage, control and conduct business on the
Property and make expenditures for all maintenance and improvements as in its
judgment are proper;
(b) Collect the income from the Property, including any past due,
and apply such sums to the expenses of use, operation and management, including,
but not limited to, receiver's fees, premiums on receiver's bonds, and
reasonable attorney fees and to the sums secured by this Trust Deed in any order
as Bank shall determine in Bank's sole discretion;
(c) At Bank's option, complete any construction in progress on
the Property, and in that connection pay bills, borrow funds, employ contractors
and make any changes in plans or specifications as Bank deems appropriate.
Bank or the receiver shall be liable to account only for those
rents actually received. If the revenues produced by the Property are
insufficient to pay expenses, the receiver may borrow from Bank (if Bank, in its
sole discretion, agrees to lend) or otherwise, or Bank may borrow or advance,
such sums as the receiver or Bank may deem necessary for purposes stated in this
paragraph. The amounts borrowed or advanced shall bear interest from the date of
expenditure until repaid at the same interest rate as provided in Section 9 of
this Trust Deed. Such sums shall become a part of the Indebtedness secured by
this Trust Deed and shall be payable by Borrower on demand.
22.3 Waiver of Marshaling; Sale of the Property. Notwithstanding the
existence of any other mortgage, deed of trust, other lien or other security
interests in the Property held by Bank or by any other party, Bank shall have
the right to determine the order in which any or all of the Property, real or
personal or mixed, shall be subjected to the remedies provided in this
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Trust Deed. Bank shall have the right to determine the order in which any or all
portions of the Indebtedness secured by this Trust Deed are satisfied from the
proceeds realized upon the exercise of the remedies provided in this Trust Deed.
In exercising its rights and remedies, Bank, at Bank's sole discretion, may
cause all or any part of the Property to be sold as a whole or in parcels, and
certain portions of the Property may be sold without selling other portions.
Bank may bid at any public sale on all or any portion of the Property. Borrower,
any party who consents to this Trust Deed and any party who now or in the future
acquires a security interest in the Property and who has actual or constructive
notice of this Trust Deed hereby waives any and all right to require the
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided in this Trust Deed.
22.4 Notice of Sale. Bank shall give Borrower reasonable notice of the
time and place of any public sale of any personal property or of the time after
which any private sale or other intended disposition of the personal property is
to be made. Reasonable notice shall mean notice given in accordance with
applicable law, and may include, without limitation, only notice required for
the nonjudicial sale of the real property.
22.5 Waiver; Election of Remedies; Remedies Cumulative. A waiver by
either party of a breach of a provision of this Trust Deed shall not constitute
a waiver of or prejudice the party's right otherwise to demand strict compliance
with that provision or any other provision. Election by Bank to pursue any
remedy shall not exclude pursuit of any other remedy, and all remedies of Bank
under this Trust Deed are distinct and cumulative and not exclusive to all other
rights or remedies under this Trust Deed or Loan Documents or afforded by law or
equity, and may be exercised concurrently, independently, or successively in any
order whatsoever. An election to make expenditures or take action to perform an
obligation of Borrower shall not affect Bank's right to declare a default and
exercise its remedies under this Trust Deed.
23. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreement contained in this Trust Deed shall bind,
and the rights under this Trust Deed shall inure to, the respective successors
and assigns of Bank and Borrower. However, nothing in this Trust Deed or other
Loan Documents shall be deemed to permit Borrower to enter into any assignments
or transfers except as specifically permitted pursuant to the preceding
provisions of this Trust Deed. This Trust Deed and the Indebtedness secured
hereby may be assigned in whole or in part or participated in whole or in part
to any person by Bank and without notice to or affecting Borrower's liability
hereunder, and Bank, in connection with such assignment, participation, or
similar arrangement, may make all credit and financial data furnished and to be
furnished by Borrower available to such existing or prospective assignee,
participant or person. If Bank assigns to any assignees, participants or other
persons all of Bank's interest in this Trust Deed and the Indebtedness secured
hereby, then Bank shall be and is released from any obligations under this Trust
Deed and other Loan Documents. All covenants and agreements of Borrower shall be
joint and several. In exercising any rights under this Trust Deed or taking any
actions provided for in this Trust Deed, Bank may act through its employees,
agents or independent contractors as authorized by Bank. The captions and
headings of the sections of this Trust Deed are for convenience only and are not
to be used to interpret or define the provisions of this Trust Deed.
24. NOTICE. Except as specified to the contrary in the Loan Documents and
except for any notice required under applicable law to be given in another
manner, (a) any notice to Borrower provided for in this Trust Deed or in the
Loan Documents shall be given by mailing such notice by certified mail, return
receipt requested, addressed to Borrower at Borrower's address stated above or
at such other address as Borrower may designate by notice to Bank as provided in
this Trust Deed, and (b) any notice to Bank shall be given by certified mail,
return receipt requested, to Bank's address stated in this Trust Deed or to such
other address as Bank may designate by notice to Borrower as provided in this
Trust Deed. Any notice provided for in this Trust Deed or in the Note or other
Loan Documents shall be deemed to have been given to Borrower or Bank on the
date mailed when given in the manner designated in this Trust Deed.
Page 14 - Commercial Deed of Trust
<PAGE>
25. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to
assert any statute of limitations as a bar to the enforcement of the lien of
this Trust Deed or to any action brought to enforce the Note, the other Loan
Documents or any other obligation secured by this Trust Deed.
26. RECONVEYANCE. Upon payment of the Indebtedness secured by this Trust
Deed, Bank shall request Trustee to reconvey the Property and shall surrender
this Trust Deed and all notes evidencing Indebtedness secured by this Trust Deed
to Trustee. Trustee shall reconvey the Property without warranty to the person
or persons legally entitled to the Property. Such person or persons shall pay
Trustee's fee and other costs incurred in so reconveying the Property.
27. SUBSTITUTE TRUSTEE. In accordance with applicable law, Bank may from
time to time appoint a successor trustee to any Trustee appointed under this
Trust Deed. Without conveyance of the Property, the successor trustee shall
succeed to all the title, power and duties conferred upon the Trustee in this
Trust Deed and by applicable law.
28. IMPOSITION OF TAX BY STATE. If any state tax to which this Section
applies is enacted subsequent to the date of this Trust Deed, this shall have
the same effect as a default, and Bank may exercise any or all of the remedies
available to it in the event of a default unless the following conditions are
met:
(a) Borrower may lawfully pay the tax or charge imposed by the state
tax without causing any resulting economic disadvantage or increase of tax to
Bank, and
(b) Borrower pays or provides Bank immediately available funds to pay
the tax or charge within thirty (30) days after notice from Bank that the tax
law has been enacted.
The following constitute state taxes to which this Section applies:
(i) a specific tax upon trust deeds or upon all or any part of the
indebtedness secured by a trust deed;
(ii) a specific tax on a grantor which the taxpayer is authorized or
required to deduct from payments on the indebtedness secured by a trust deed;
(iii) a tax on a trust deed chargeable against the beneficiary or the
holder of the note secured;
(iv) a specific tax on all or any portion of the indebtedness or on
payments of principal and interest made by a grantor.
29. FEDERAL TAX REGULATIONS.
29.1 Report of Real Estate Transaction. Borrower has made or provided
for making, or will make or provide for making, on a timely basis, any reports
or returns required under Section 6045(e) of the Internal Revenue Code of 1986
as amended (the "Internal Revenue Code") (and any similar reports or returns
required by state or local law) relating to the Property, notwithstanding the
fact that the primary reporting responsibility may fall on Bank, counsel for
Bank, or other party. Borrower's obligations under this paragraph will be deemed
to be satisfied if proper and timely reports and returns required under this
paragraph are filed by a title company or real estate broker involved in the
real estate transaction relating to the Property, but nothing contained herein
shall be construed to require such returns or reports to be filed by Bank or
counsel for Bank.
29.2 Nonforeign Certification. Section 1445 of the Internal Revenue
Code provides that a transferee of a U.S. real property interest must withhold
tax if the transferor is a foreign person. To inform Bank that the withholding
of tax will not be required in the event
Page 15 - Commercial Deed of Trust
<PAGE>
of the disposition of the Property or improvements pursuant to the terms of this
Trust Deed, Borrower hereby certifies, under penalty of perjury, that:
(a) Borrower is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, as those terms are defined in the Internal
Revenue Code and the regulations promulgated thereunder; and
(b) Borrower's U. S. employer identification number is
93-0836824; and
(c) Borrower's principal place of business is 11802 SE Stark,
Portland, OR 97216.
Bank may disclose the contents of this certification to the Internal Revenue
Service. Borrower acknowledges that any false statement could be punished by
fine, imprisonment or both. Borrower covenants and agrees to execute such
further certificates, which shall be signed under penalty of perjury, as Bank
shall reasonably require. The covenant set forth herein shall survive the
foreclosure of the lien of this Trust Deed or acceptance of a deed in lieu
thereof.
30. ATTORNEYS' FEES. In the event suit or action is instituted to enforce
or interpret any of the terms of this Trust Deed, including, but not limited to,
any action or participation by Borrower or Bank in, or in connection with, a
case or proceeding under the Bankruptcy Code or any successor statute, the
prevailing party shall be entitled to recover all expenses reasonably incurred
at, before and after trial and on appeal whether or not taxable as costs,
including, without limitation, attorney fees, witness fees (expert and
otherwise), deposition costs, copying charges and other expenses. Whether or not
any court action is involved, all reasonable expenses, including, but not
limited to, the costs of searching records, obtaining title reports or
appraisals, surveyor reports, title insurance, trustee fees, and attorneys'
fees, incurred by Bank that are necessary or advisable at any time in Bank's
opinion for the protection of its interest or enforcement of its rights shall
become a part of the Indebtedness payable on demand and shall bear interest from
the date of expenditure until paid at the default interest rate provided in the
Note or other Loan Documents or if the Note or other Loan Documents contain no
default rate, then at the interest rate(s) provided for in the Note.
31. GOVERNING LAW; SEVERABILITY. This Trust Deed shall be governed by the
law of the State of Oregon. In the event that any provision or clause of this
Trust Deed, or the Note, or Loan Agreement or other Loan Documents conflicts
with applicable law, such conflict shall not affect other provisions of this
Trust Deed, the Note, the Loan Agreement or other Loan Documents which can be
given effect without the conflicting provision, and to this end, the provisions
of this Trust Deed, the Note, the Loan Agreement and other Loan Documents are
declared to be severable.
32. TIME OF ESSENCE. Time is of the essence in the payment and performance
of the obligations under and secured by this Trust Deed and the other Loan
Documents.
33. CHANGES IN WRITING. Any term of this Trust Deed and any addendum to the
Trust Deed may only be changed, waived, discharged or terminated by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. Any agreement subsequently
made by Borrower or Bank relating to this Trust Deed shall be superior to the
rights of the holder of any intervening lien or encumbrance.
Page 16 - Commercial Deed of Trust
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Trust Deed or has caused it
to be executed by its duly authorized representative(s).
BORROWER:
ELMER'S RESTAURANTS, INC., an Oregon corporation
By: HERMAN GOLDBERG
-----------------------------------
Herman Goldberg
Its: President
STATE OF ____________________)
)ss:
County of ___________________)
The foregoing instrument was acknowledged before me this day of December,
199 by Herman Goldberg, the President of Elmer's Restaurants, Inc., an Oregon
corporation, on behalf of the corporation.
----------------------------------------
Notary Public for the State of
My Commission expires:
Page 17 - Commercial Deed of Trust
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REQUEST FOR RECONVEYANCE
To Trustee:
The undersigned is the holder of the Note or Notes secured by this Trust
Deed. Said Note or Notes, together with all other Indebtedness secured by this
Trust Deed, have been paid in full. You are hereby directed to cancel said Note
or Notes and this Trust Deed, which are delivered hereby, and to reconvey,
without warranty, all the estate now held by you under this Trust Deed to the
person or persons legally entitled to that estate.
Date:
----------------------- -----------------------------------------
By:
--------------------------------------
Title:
-----------------------------------
Page 18 - Commercial Deed of Trust
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of March 18, 1997, by and between ELMER'S
RESTAURANTS, INC., an Oregon corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is indebted to Bank pursuant to that certain Amended and
Restated Loan Agreement dated as of June 7, 1991, entered between Borrower and
First Interstate Bank of Oregon, N.A., to which Bank is the successor by merger,
as amended from time to time (the "1991 Agreement"); and
WHEREAS, Borrower has requested from Bank a new term credit accommodation,
and Bank has agreed to grant said new credit to Borrower on the terms and
conditions contained herein, and on the condition that all Borrower's credits
outstanding under the 1991 Agreement as of the date hereof be subject to said
terms and conditions.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. CANCELLATION OF 1991 AGREEMENT. The 1991 Agreement shall be
cancelled and superseded by this Agreement as of the date first written above.
SECTION 1.2. TERM LOAN A.
(a) Term Loan A. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount
of One Hundred Thirty Thousand Dollars ($130,000.00) ("Term Loan A"), the
proceeds of which shall be used to refinance a short-term loan granted by Bank
to Borrower to finance Borrower's repurchase of stock from Dale Elmer.
Borrower's obligation to repay Term Loan A shall be evidenced by a promissory
note substantially in the form of Exhibit A attached hereto ("Term Note A"), all
terms of which are incorporated herein by this reference.
(b) Repayment. The principal amount of Term Loan A shall be repaid in
accordance with the provisions of Term Note A.
<PAGE>
(c) Prepayment. Borrower may prepay principal on Term Loan A at any
time, in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.3. TERM LOAN B.
(a) Term Loan B. Bank has made a loan to Borrower in the original
principal amount of One Million Three Hundred Nine Thousand Seven Hundred
Seventy-Eight and 21/100 Dollars ($1,309,778.21) ("Term Loan B"), on which the
outstanding principal balance as of the date of this Agreement is $966,741.02.
Subject to the terms and conditions of this Agreement, Bank hereby agrees that
Term Loan B remains in full force and effect. Borrower's obligation to repay
Term Loan B are evidenced by a promissory note substantially in the form of
Exhibit B attached hereto ("Term Note B"), all terms of which are incorporated
herein by this reference. Any reference in Term Note B to any prior loan
agreement between Borrower and Bank shall be deemed a reference to this
Agreement.
(b) Repayment. The principal amount of Term Loan B shall continue to
be repaid in accordance with the provisions of Term Note B.
(c) Prepayment. Borrower may prepay principal on Term Loan B at any
time, in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.4. INTEREST/FEES.
(a) Interest. The outstanding principal balances of Term Loan A and
Term Loan B (each, a "Credit" and collectively, the "Credits") shall bear
interest the rates per annum set forth, respectively, in Term Note A and Term
Note B (collectively, the "Notes").
(b) Computation and Payment. Interest on Term Loan A shall be computed
on the basis of a 360-day year, actual days elapsed, and interest on Term Loan B
shall continue to be computed on the basis of a 365-day or 366-day year, as
applicable, actual days elapsed. Interest on the Credits shall be payable at the
times and place set forth in the Notes.
(c) Term Loan A Fee. Borrower shall pay to Bank a non-refundable fee
for Term Loan A of Six Hundred Fifty Dollars ($650.00), which fee shall be due
and payable in full upon signing this Agreement.
SECTION 1.5. COLLATERAL. As security for all indebtedness of Borrower to
Bank subject hereto, Borrower hereby grants to Bank security interests of first
priority in all Borrower's accounts receivable and other rights to payment,
general intangibles, inventory and equipment. All of the foregoing shall be
evidenced by and subject to the terms of such security agreements, financing
statements and other documents as Bank shall reasonably
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<PAGE>
require, all in form and substance satisfactory to Bank. Borrower shall
reimburse Bank immediately upon demand for all costs and expenses incurred by
Bank in connection with any of the foregoing security, including without
limitation, filing and recording fees and costs of appraisals, audits and title
insurance.
SECTION 1.6. GUARANTIES. All indebtedness of Borrower to Bank under each
Credit shall be guaranteed by each of Annko, Inc. and Elmer's Pancake & Steak
House, Inc., as evidenced by and subject to the terms of guaranties in form and
substance satisfactory to Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Oregon, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
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<PAGE>
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of
Borrower dated September 30, 1996, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects with
all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive
4
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Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from time to time. None of
the operations of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the
environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes from Borrower.
(ii) Corporate Borrowing Resolution from Borrower.
(iii) Corporate Resolution: Guaranty from each guarantor named
herein for each guaranty required by Section 1.6 hereof.
(iv) Certificate of Incumbency from Borrower and from each
guarantor named herein.
(v) All Security Agreements, UCC Financing
Statements and other documents required for
the creation and perfection of the security
interests required by Section 1.5 hereof.
(vi) All guaranties required by Section 1.6 hereof.
(vii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a substantial
or material portion of the assets of Borrower or any such guarantor.
5
<PAGE>
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank
to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date of
the signing of this Agreement and on the date of each extension of credit by
Bank pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in
form and detail satisfactory to Bank:
6
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(a) not later than 120 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by an independent
certified public accountant acceptable to Bank, to include balance sheet and
income statement;
(b) not later than 60 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include
balance sheet and income statement;
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower in excess of $300,000.00
whether or not covered by insurance.
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SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the
definitions herein):
(a) Total Liabilities divided by Tangible Net Worth not at any time
greater than 3.25 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt and
deferred taxes, and with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity plus subordinated debt less any intangible assets.
(b) EBITDA Coverage Ratio not less than 1.3 to 1.0 as of each fiscal
quarter end, measured on a rolling four-quarter basis and commencing with
Borrower's fiscal quarter ending December 31, 1996, with "EBITDA" defined as net
profit before tax plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense, and with "EBITDA Coverage Ratio"
defined as EBITDA divided by the aggregate of total interest expense plus the
prior period current maturity of long-term debt and the prior period current
maturity of subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice to
Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any
condition, event or act which with the giving of notice or the passage of time
or both would constitute an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $300,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.
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SECTION 5.2. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.3. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.4. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except: (a) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (b) additional loans
or advances to and investments in wholly-owned subsidiaries of Borrower.
SECTION 5.5. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except: (a) any of the foregoing in favor of Bank;
(b) any of the foregoing which is existing as of, and disclosed to Bank in
writing prior to, the date hereof; (c) liens for sums not yet due which are
incurred by Borrower in the ordinary course of its business; and (d) purchase
money security interests in equipment.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay within five (5) days following the date
due any principal, interest, fees or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of thirty (30) days
9
<PAGE>
from the first to occur of (i) the date any officer of Borrower first knew of
such default, or (ii) the date Bank gives written notice of such default to
Borrower.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any
guarantor hereunder has incurred any debt or other liability to Bank, or has
incurred any debt or other liability to any other person or entity in a
principal amount of at least Three Hundred Thousand Dollars ($300,000.00), if
such default gives to the holder the right to accelerate the obligation in
default.
(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder; provided however, that the
foregoing shall only constitute an Event of Default hereunder if the related
judgment involves at least Three Hundred Thousand Dollars ($300,000.00) and is
not satisfied or stayed within thirty (30) days following the entry thereof.
(f) Borrower or any guarantor hereunder shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any guarantor
hereunder, or Borrower or any such guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
(g) The dissolution or liquidation of Borrower or any guarantor
hereunder; or Borrower or any such guarantor, or any of their directors or
stockholders, shall take action seeking to effect the dissolution or liquidation
of Borrower or such guarantor.
(h) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower,
other
10
<PAGE>
than transfers of common stock by Anita Goldberg for estate planning purposes to
family trusts or other similar estate planning entities so long as, following
any such transfer, Anita Goldberg directly or indirectly controls shares of the
common stock of Borrower in an amount not less than the number of shares
controlled prior to such transfer.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default and so
long as such Event of Default is continuing: (a) all indebtedness of Borrower
under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option, without notice for any default under
Section 6.1(f) hereof and upon written notice from Bank to Borrower (which may
be same-day notice) for any other default, become immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to
extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any of the
Credits and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may be
exercised at any time by Bank and from time to time after the occurrence of an
Event of Default, are cumulative and not exclusive, and shall be in addition to
any other rights, powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: ELMER'S RESTAURANTS, INC.
PO Box 16938
Portland, OR 97292-0938; or
11802 SE Stark
Portland, OR 97216
11
<PAGE>
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Portland Regional Commercial Banking Office
1300 SW Fifth Avenue
Portland, OR 97201
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, and the preparation of any amendments
and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, any guarantor
hereunder or the business of such guarantor, or any collateral required
hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to the Credits and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter hereof. This Agreement may be
amended or modified only in writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party
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<PAGE>
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other of the Loan Documents to which it
is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
SECTION 7.9. CONTROLLING AGREEMENT. To the extent there exists an express
conflict between any provisions of this Agreement and any provisions of any
other Loan Document, the provisions of this Agreement shall control.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Oregon selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute
13
<PAGE>
being arbitrated. Judgment upon any award rendered in an arbitration may be
entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C.
ss. 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the Oregon State Bar or retired judges of the state or federal
judiciary of Oregon, with expertise in the substantive law applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Oregon, (ii) may grant any remedy or relief that
a court of the state of Oregon could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the same
extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Oregon Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $1,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $1,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $1,000,000. Any
Dispute in which the amount in controversy exceeds $1,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $5,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Oregon, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of
14
<PAGE>
the state of Oregon. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the state of
Oregon.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
ELMER'S RESTAURANTS, INC. NATIONAL ASSOCIATION
By: ANITA GOLDBERG By: TERESA LEWIS
---------------------------------- --------------------------------
Anita Goldberg Teresa Lewis
President Relationship Manager
15
<PAGE>
EXHIBIT A
WELLS FARGO BANK TERM NOTE
$130,000.00 Portland, Oregon
March 18, 1997
FOR VALUE RECEIVED, the undersigned ELMER'S RESTAURANTS, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at Portland RCBO, 1300 SW Fifth Avenue, T-19, Portland, Oregon
97201, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $130,000.00, with interest thereon as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on
the 6th day of each month, commencing April 6, 1997.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
REPAYMENT AND PREPAYMENT:
(a) Repayment. Principal shall be payable on the 6th day of each month in
installments of $2,708.33 each, commencing April 6, 1997, and continuing up to
and including February 6, 2001, with a final installment consisting of all
remaining unpaid principal due and payable in full on March 6, 2001.
(b) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
1 - TERM NOTE
<PAGE>
(c) Prepayment. Borrower may prepay principal on this Note at any time, in
any amount and without penalty. All prepayments of principal shall be applied on
the most remote principal installment or installments then unpaid.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of March 18,
1997, as amended from time to time (the "Credit Agreement"). Any default in the
payment of any installment of principal or interest under this Note within five
(5) days following the date due, or any defined event of default under the
Credit Agreement, shall constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in the
Credit Agreement and so long as such Event of Default is not continuing, the
holder of this Note, at the holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR
2 - TERM NOTE
<PAGE>
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
ELMER'S RESTAURANTS, INC.
By: ANITA GOLDBERG
-----------------------------------
Anita Goldberg
President
3 - TERM NOTE
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$1,309,778.21 Portland, Oregon
May 17, 1995
FOR VALUE RECEIVED, the undersigned promises to pay in lawful money of the
United States of America, to the order of FIRST INTERSTATE BANK OF OREGON, N.A.
("Bank"), at its Eastside Commercial Banking Center ("ESCBC"), the principal sum
of One Million Three Hundred Nine Thousand Seven Hundred Seventy-Eight and
21/100 Dollars ($1,309,778.21), together with interest thereon from the date
hereof at the rate of three-quarters of one percent (0.75%) per annum above
Bank's Prime Rate, fully floating. "Prime Rate" means Bank's publicly announced
prime rate which is a base rate used to price some loans. It may not be the
lowest rate at which Bank makes any loan. Each change in said rate is to become
effective on the effective date of each change announced by Bank. Interest shall
be computed on the outstanding principal amount on the basis of a 365-day or
366-day year, as applicable, and actual days elapsed.
This Note shall be payable in equal, consecutive monthly installments of
principal of Fifteen Thousand Five Hundred Ninety-Two and 60/100 Dollars
($15,592.60), commencing June 10, 1995, and thereafter on the tenth (10th) day
of each month and until May 10, 2000 ("Maturity Date") when the aggregate unpaid
principal amount on this Note, together with unpaid accrued interest thereon,
shall be due and payable in full.
This Note may be prepaid by the undersigned at any time, in whole or in
part, without premium or penalty.
All payments shall be made directly to Bank, and the final payment shall be
made in immediately available funds. All payments hereunder shall be applied
first to interest, then to principal. If the amount paid in any installment be
less than the accrued interest then due, the excess of interest shall be added
to and become part of the principal, and interest shall be charged thereon to
the extent permitted by applicable laws.
Upon the occurrence of an Event of Default (as defined in the Loan
Agreement), then, at the option of the holder of this Note, upon prior written
notice, the entire indebtedness represented hereby shall immediately become due
and payable. Failure or delay of the holder to exercise this option shall not
constitute a waiver of the right to exercise the same in the event of subsequent
default, or in the event of continuance of any existing default after demand for
the performance of the terms hereof.
1 - PROMISSORY NOTE
<PAGE>
Undersigned shall pay upon demand any and all expenses, including
reasonable attorneys' fees, incurred or paid by the holder of this Note after
the occurrence of an Event of Default (or an event which, with the giving of
notice or lapse of time, or both, would become an Event of Default) and so long
as such event is continuing, without suit or action in attempting to collect
funds due under this Note. In the event an action or arbitration is instituted
in connection with the collection of this Note, the prevailing party shall be
entitled to recover, at trial or on appeal or at arbitration, such sums as the
court or arbitrator may adjudge reasonable as attorneys' fees, in addition to
costs and necessary disbursements.
All parties to this Note hereby waive presentment, dishonor, notice of
dishonor, and protest. All parties hereto hereby consent to, and the holder
hereof is hereby expressly authorized to make, without notice, any and all
renewals, extensions, modifications or waivers of the time for or the terms of
payment of any sum or sums due hereunder, or under any documents or instruments
relating to or securing this Note, or of the performance of any covenants,
conditions or agreements hereof or thereof, or the taking or release of
collateral securing this Note. The liability of all parties on this Note shall
not be discharged by any action consented to above taken by any holder of this
Note.
This Note is made with reference to, and is to be construed in accordance
with, the laws of the State of Oregon.
This Note is subject to the terms and conditions of that certain loan
agreement dated as of June 7, 1991, between the undersigned and Bank, as amended
from time to time ("Loan Agreement"), and the repayment of this Note is
guaranteed by the Subsidiaries (as defined in the Loan Agreement) of the
undersigned and is secured by the collateral described in the Security
Agreements (as defined in the Loan Agreement) dated the date hereof and executed
by the undersigned and the Subsidiaries.
ELMER'S RESTAURANT, INC.
By: HERMAN GOLDBERG
------------------------------------
President
2 - PROMISSORY NOTE
<PAGE>
WELLS FARGO BANK TERM NOTE
$130,000.00 Portland, Oregon
March 18, 1997
FOR VALUE RECEIVED, the undersigned ELMER'S RESTAURANTS, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at Portland RCBO, 1300 SW Fifth Avenue, T-19, Portland, Oregon
97201, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $130,000.00, with interest thereon as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on
the 6th day of each month, commencing April 6, 1997.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
REPAYMENT AND PREPAYMENT:
(a) Repayment. Principal shall be payable on the 6th day of each month in
installments of $2,708.33 each, commencing April 6, 1997, and continuing up to
and including February 6, 2001, with a final installment consisting of all
remaining unpaid principal due and payable in full on March 6, 2001.
(b) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
3 - PROMISSORY NOTE
<PAGE>
(c) Prepayment. Borrower may prepay principal on this Note at any time, in
any amount and without penalty. All prepayments of principal shall be applied on
the most remote principal installment or installments then unpaid.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of March 18,
1997, as amended from time to time (the "Credit Agreement"). Any default in the
payment of any installment of principal or interest under this Note within five
(5) days following the date due, or any defined event of default under the
Credit Agreement, shall constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in the
Credit Agreement and so long as such Event of Default is not continuing, the
holder of this Note, at the holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR
4 - PROMISSORY NOTE
<PAGE>
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
ELMER'S RESTAURANTS, INC.
By: ANITA GOLDBERG
----------------------------------
Anita Goldberg
President
5 - PROMISSORY NOTE
PROMISSORY NOTE
$34,092.84 Portland, Oregon
March 31, 1997
Paul H. and Jacqueline M. Welch after date, I (or if more than one maker)
we jointly and severally promise to pay to the order of Elmer's Pancake & Steak
House, Inc. at Portland, Oregon Thirty-Four Thousand Ninety-Two and 84/100
Dollars, with interest thereon at the rate of 7% per annum from Date until paid;
interest to be paid on demand and if not so paid, all principal and interest, at
the option of the holder of this note, to become immediately due and
collectible. Any part hereof may be paid at any time. If this note is placed in
the hands of an attorney for collection, I/we promise and agree to pay holder's
reasonable attorney's fees and collection costs, even though no suit or action
is filed hereon; if a suit or an action is filed, the amount of such reasonable
attorney's fees shall be fixed by the court or courts in which the suit or
action, including any appeal therein, is tried, heard or decided.
PAUL H. WELCH
------------------------------------
Paul H. Welch
JACQUELINE M. WELCH
------------------------------------
Jacqueline M. Welch
Elmer's - Andresen
7105 NE 40th Street
Vancouver, WA 98661
<PAGE>
PROMISSORY NOTE
$35,787.04 Portland, Oregon
March 31, 1997
Paul H. and Jacqueline M. Welch after date, I (or if more than one maker)
we jointly and severally promise to pay to the order of Elmer's Pancake & Steak
House, Inc. at Portland, Oregon Thirty-Five Thousand Seven Hundred Eighty-Seven
and 04/100 Dollars, with interest thereon at the rate of 7% per annum from Date
until paid; interest to be paid on demand and if not so paid, all principal and
interest, at the option of the holder of this note, to become immediately due
and collectible. Any part hereof may be paid at any time. If this note is placed
in the hands of an attorney for collection, I/we promise and agree to pay
holder's reasonable attorney's fees and collection costs, even though no suit or
action is filed hereon; if a suit or an action is filed, the amount of such
reasonable attorney's fees shall be fixed by the court or courts in which the
suit or action, including any appeal therein, is tried, heard or decided.
PAUL H. WELCH
------------------------------------
Paul H. Welch
JACQUELINE M. WELCH
------------------------------------
Jacqueline M. Welch
Elmer's - Mill Plain
11310 SE Mill Plain Blvd.
Vancouver, WA 98634
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated as of February 13,
1997 is between DALE ELMER and SANDRA ELMER ("Sellers") and ELMER'S RESTAURANTS,
INC., an Oregon corporation ("Company" or "Buyer").
1. Sellers agree to sell, transfer and deliver to Buyer and Buyer agrees to
purchase from Sellers 152,153 shares of Company Common Stock (the "Shares") at a
price of $1.80 per Share.
2. The sale of 76,076 of the Shares shall take place at a time agreed upon
by the parties on February 13, 1997 ("First Closing Date"), at the offices of
the Company, 11802 SE Stark Street, Portland, Oregon, or in such other manner as
may be agreed to by the parties.
3. The sale of the remaining 76,077 of the Shares shall take place at a
time agreed upon by the parties on February 1, 1998 ("Second Closing Date"), at
the offices of the Company, 11802 SE Stark Street, Portland, Oregon, or in such
other manner as may be agreed to by the parties.
4. On the First Closing Date, Sellers shall deliver a certificate for the
76,076 of the Shares being sold by such Sellers on the First Closing Date, duly
endorsed in favor of Buyer or accompanied by a stock power duly executed by
Sellers assigning such stock to Buyer, and Buyer shall deliver to Sellers
$136,936.80 in the form of a check payable to the order of Sellers, representing
one-half of the total purchase price to be paid to Sellers.
5. On the Second Closing Date, Sellers shall deliver a certificate for the
76,077 of the Shares being sold by such Sellers on the Second Closing Date, duly
endorsed in favor of Buyer or accompanied by a stock power duly executed by
Sellers assigning such stock to
<PAGE>
Buyer, and Buyer shall deliver to Sellers $136,938.60 in the form of a check
payable to the order of Sellers, representing one-half of the total purchase
price to be paid to Sellers.
6. Buyer represents and warrants that as of the date hereof: (a) Buyer has
filed in a timely manner all reports required to be filed during the twelve
calendar months immediately preceding the date hereof under Sections 13 and 14
of the Securities Exchange Act of 1934 and (b) Buyer has not entered into an
agreement to sell a controlling interest in the Company to any third-party.
7. Sellers represent, warrant and acknowledge to Buyer as follows:
7.1 Sellers initiated the discussions resulting in the parties
entering into this Agreement for sale of the Shares.
7.2 Sellers have good and marketable title to the Shares and have full
power and authority to sell, assign, and transfer the Shares. Buyer will acquire
good and unencumbered title to the Shares free and clear of all liens,
restrictions (other than restrictions imposed by federal and state securities
law), charges, and encumbrances and not subject to any adverse claim.
7.3 Sellers have received and carefully reviewed the Company's Annual
Report on Form 10-K and Annual Report to Shareholders for the fiscal year ended
March 31, 1996, the Proxy Statement for the Shareholders Meeting held on
September 26, 1996, and the Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30 and September 30, 1996.
2
<PAGE>
7.4 Sellers have had an opportunity to discuss the terms of this
transaction and the business of the Company with officers of the Company. 7.5
Sellers acknowledge and understand that from time to time the officers of the
Company have discussed sale of the Company with various parties and, while no
letters of intent or agreements have been signed nor understandings reached,
Sellers acknowledge and understand that such a sale may be consummated in the
future at a price potentially in excess of $1.80 per Share. 7.6 Sellers
acknowledge and agree that the purchase price of $1.80 per Share may not
necessarily reflect the value of the Shares as of this date or some future date,
or the price per Share for which the Company may be sold in the future. 8.
Sellers covenant and agree with Buyer as follows: 8.1 Subsequent to the First
Closing Date, Sellers shall not sell or otherwise dispose of the 76,077 of the
Shares remaining subject to the Agreement, except in accordance with the
Agreement on the Second Closing Date. 8.2 Immediately following the First
Closing Date, Sellers shall instruct the Company's transfer agent ("Agent") to
issue a new certificate representing the 76,077 of the Shares remaining subject
to this Agreement bearing a legend stating that the Shares are subject to this
Agreement and their transfer is restricted thereby in the form attached hereto
as Exhibit A. Sellers agree that the Company may also instruct the Agent to stop
transfer on such certificate representing the 76,077 of the Shares remaining
subject to the Agreement if such certificate is submitted to the Agent for
transfer.
3
<PAGE>
8.3 Sellers will treat and hold as confidential any information
concerning the business and affairs of the Company that is not already generally
available to the public ("Confidential Information") and refrain from using any
of the Confidential Information except in connection with this Agreement.
9. Sellers and Buyer each agree to indemnify, hold harmless, and defend the
other from and against, and reimburse the other with respect to, any and all
losses, damages, liabilities, costs, expenses, and deficiencies, including
interest, penalties and reasonable attorneys' fees, costs and expenses, incurred
by the other by reason of or arising out of or in connection with: (a) the
breach or inaccuracy of any representation, warranty or acknowledgment contained
herein and (b) the nonfulfillment of any covenant or agreement (including this
indemnity provision) contained herein.
10. This Agreement embodies the entire agreement and understanding of the
parties in relation to the subject matter hereof and supersedes any and all
prior understandings, agreements or representations, warranties or
acknowledgments whether written or oral, in regard to such matters.
11. The Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Oregon without giving effect to any choice or
conflict of law provision or rule (whether of the State of Oregon or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Oregon.
12. Notwithstanding the other provisions of this Agreement, including
Sections 1 and 3 hereof, neither Buyer nor Sellers shall be obligated to sell or
purchase the 76,077 Shares to be purchased on the Second Closing Date if, prior
to that date, Buyer shall have
4
<PAGE>
entered into a definitive agreement pursuant to which shareholders of Buyer
shall receive for their shares of common stock of Buyer consideration valued in
excess of $1.80 per share.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DALE M. ELMER
-----------------------------------------
Dale M. Elmer
SANDRA LEE ELMER
-----------------------------------------
Sandra Lee Elmer
ELMER'S RESTAURANTS, INC.,
an Oregon corporation
By: ANITA GOLDBERG
-------------------------------------
Anita Goldberg, President
5
<PAGE>
EXHIBIT A
Transfer of the shares represented by this certificate is restricted by the
terms of an agreement between the Corporation and certain of its shareholders, a
copy of which can be obtained by the record holder of this certificate from the
Secretary of the Corporation.
6
EXHIBIT 22.1
SUBSIDIARIES
The following list sets forth the name of each subsidiary of the Company.
The Company owns 100 percent of the outstanding stock of each of the companies
listed.
Place of
Company Incorporation
------- -------------
Elmer's Pancake & Steak House, Inc. Oregon
Annko, Inc. Oregon
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,366,285
<SECURITIES> 0
<RECEIVABLES> 208,593
<ALLOWANCES> (5,000)
<INVENTORY> 197,929
<CURRENT-ASSETS> 1,937,758
<PP&E> 11,069,277
<DEPRECIATION> 6,127,867
<TOTAL-ASSETS> 8,028,521
<CURRENT-LIABILITIES> 1,306,881
<BONDS> 3,687,808
0
0
<COMMON> 1,620,240
<OTHER-SE> 1,308,592
<TOTAL-LIABILITY-AND-EQUITY> 8,028,521
<SALES> 15,031,429
<TOTAL-REVENUES> 680,604
<CGS> 9,293,575
<TOTAL-COSTS> 14,859,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,033
<INCOME-PRETAX> 530,122
<INCOME-TAX> 179,500
<INCOME-CONTINUING> 350,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350,622
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
