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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, 1998 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
Portland, Oregon 97216 (503) 252-1485
(Address of principal (Zip Code) (Registrant's telephone
executive offices) number, including
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. _____
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at June 10, 1998: $1,837,268. For purposes of this calculation,
officers and directors are considered affiliates. _____
Number of shares of Common Stock outstanding at June 10, 1998: 1,311,109.
Documents Incorporated by Reference
Part of Form 10-K into
Document which incorporated
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Proxy Statement for 1998
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............................6
PART II........................................................................7
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters .........................................7
Item 6. Selected Financial Data.........................................7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................8
Item 8. Financial Statements and Supplementary Data....................10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................10
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....................................................................15
<PAGE>
PART I
Item 1. Business
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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 some 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 $68,000 and $108,000.
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 acquired or
built from 1984 to 1991. 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, 1998, the Company employed 204 persons on a full-time
basis, of whom 11 were corporate office personnel and 193 were restaurant
personnel. At that date, the Company also employed 266 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
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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 1998. 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 except for the Gresham,
Oregon property.
Approximate Area
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Location Site Restaurant
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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
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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. May 31, 2003
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
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Item 4(a). Executive Officers of the Registrant
As of June 10, 1998, the executive officers and other key personnel of the
Company were as set forth below.
Name Age Position
- ---- --- --------
Anita Goldberg 69 President
Juanita Nelson 62 Secretary and 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 and as Secretary
since February 1998. 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.
6
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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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 fiscal year quarters
indicated.
<TABLE>
<CAPTION>
Years Ended March 31,
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1998 1997
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High Low High Low
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<S> <C> <C> <C> <C>
1st Quarter $ 2 1/2 $ 2 1/16 $ 3 1/4 $ 1 13/16
2nd Quarter 3 1/8 2 3 1/4 1 3/4
3rd Quarter 4 1/2 2 7/8 2 25/64 1 7/8
4th Quarter 6 3 7/8 2 3/8 2
</TABLE>
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.
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 20, 1998, the Company had 228 shareholders of record.
Item 6. Selected Financial Data
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Elmer's Restaurants, Inc. and Subsidiaries
Selected Financial Data
for the year ended March 31
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $16,596,397 $16,112,355 $15,712,033 $15,223,087 $14,276,483
Net income 529,779 452,215 350,622 377,771 159,922
Net income per share 0.38 0.31 0.23 0.21 0.08
Total assets 8,180,610 8,108,965 8,028,521 8,137,008 8,285,506
Long-term notes payable,
less current portion 3,061,284 3,338,255 3,687,808 3,573,613 3,822,338
Total liabilities 4,673,273 4,899,555 5,099,689 5,180,012 5,507,048
Total shareholders' equity 3,507,337 3,209,410 2,928,832 2,956,996 2,778,458
</TABLE>
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Results of Operations
Revenues
Revenues increased $484,042 (3.0%) for the fiscal year ended March 31, 1998
("1998"), compared to the fiscal year ended March 31, 1997 ("1997"), due
primarily to increased restaurant sales and video poker revenues of the
Company's restaurants. Revenues increased $400,322 (2.5%) for 1997 compared to
the fiscal year ended March 31, 1996 ("1996"), due primarily to the increased
revenues of the Company-owned restaurants. Revenues from restaurant sales and
franchise operations were $16,417,225, $16,070,948 and $15,712,033 for 1998,
1997 and 1996, respectively. The Company began offering video poker to its
patrons in certain restaurants during 1997. The net revenues from video poker
were $179,172 in 1998 and $41,407 in 1997. There were eleven Company-owned
restaurants at March 31, 1998.
Revenues from franchise operations increased $5,437 for 1998 due primarily
to increased franchise fees resulting from increased revenues by franchisees.
Revenues from franchise operations decreased $25,967 for 1997 due primarily to
decreased supply sales to franchisees. Franchise operation's revenues totaled
$660,074, $654,637 and $680,604 for 1998, 1997 and 1996, respectively, after
elimination of intercompany transactions (see Note 8 of the Notes to
Consolidated Financial Statements).
Operating Costs and Expenses
Cost of restaurant sales, for food and beverage costs, decreased $6,364
(.2%) from $4,270,067 for 1997 to $4,263,703 for 1998 and labor and related
costs increased $238,221 (4.5%) to $5,490,690 for 1998 compared to $5,252,469
for 1997, each due primarily to minimum wage increases passed by the federal and
various state governments. Cost of restaurant sales, for food and beverage
costs, increased $78,906 (1.9%) for 1997 compared to 1996, and labor and related
costs increased $150,055 (2.9%) for 1997 compared to 1996, each primarily as a
result of increased restaurant sales. Cost of restaurant sales, as a percentage
of restaurant sales, amounted to 61.9% for 1998 and 61.8% for 1997 and 1996,
respectively.
Depreciation and amortization totaled $679,455 for 1998, a decrease of
$19,558 from 1997, and $699,013 for 1997, a decrease of $20,698 from 1996. Each
year's decrease was due primarily to certain assets becoming fully depreciated.
General and administrative expenses increased $183,753 in 1998 over 1997
and $11,863 in 1997 over 1996, due primarily to the increased cost of management
of the Company-owned restaurants, including increased executive compensation.
General and administrative expenses as a percentage of revenues were 24.7% for
1998, 24.3% for 1997 and 24.9% for 1996.
Occupancy costs as a percentage of revenues were 6.0% for 1998, 6.2% for
1997 and 5.9% for 1996. Occupancy costs include leases based on a percentage of
the revenues of certain leased restaurants.
8
<PAGE>
Income from Operations
Income from operations for 1998 totaled $1,056,764, an increase of $82,215
(8.4%) from 1997, and income from operations for 1997 totaled $974,549, an
increase of $121,707 (14.3%) from 1996. The increased income from operations was
due to increased video poker revenues.
Other Income and Expenses
Interest income for 1998 increased $5,278 over 1997 to $66,225, primarily
due to higher average cash balances available for investment. Interest income
for 1997 and 1996 totaled $60,947 and $60,780, respectively.
Interest expense decreased $27,253 to $324,578 for 1998 from 1997, and
decreased $35,202 to $351,831 for 1997 from 1996, primarily as a result of the
reduction of the principal balance of outstanding debt.
Income Taxes
The tax rate on income for 1998 was 33.7% compared to 33.9% for 1997 and
1996.
Liquidity and Capital Resources
The Company's working capital at March 31, 1998 totaled $842,859, an
increase of $55,285 from working capital of $787,574 at March 31, 1997. The
increase in working capital resulted primarily through net cash provided by
operations and the refinancing of mortgages payable with long-term debt.
Principal sources of funds for the Company's operation in recent years have
included cash flow from operations and long-term and short-term debt financing.
Funds obtained from debt financing amounted to $630,000, $230,000 and $2,670,000
in 1998, 1997 and 1996, respectively. The long-term debt incurred in 1998 was
for the refinancing of two mortgages which matured, the debt incurred in 1997
was due primarily to the acquisition of equipment, refurbishing of existing
restaurants and repurchase of Company stock, and 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.
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 cash
generation (defined as income before income taxes, interest, depreciation and
amortization) to current maturities of long-term debt of at least 1.5 to 1.0 and
a maximum of total liabilities to tangible net worth of 3.25 to 1.0.
Funds provided by operating activities totaled approximately $1,361,600,
$1,149,000 and $1,130,000 in 1998, 1997 and 1996, respectively.
9
<PAGE>
As of March 31, 1998, the Company had approximately $1,875,000 in cash and
cash equivalents. The Company believes that cash and cash equivalents on hand at
March 31, 1998, together with funds from operations, will be sufficient to fund
its operations for the ensuing year.
Capital expenditures of approximately $550,000, $398,500 and $450,000 for
1998, 1997 and 1996, respectively, were primarily for the acquisition of
equipment for and improvements to the Company's existing restaurants.
The Company anticipates that capital expenditures for the acquisition of
equipment and for improvements to the Company's existing restaurants for the
fiscal year ending March 31, 1999 will be approximately the same as in 1998.
The Company has reviewed its computer systems in order to evaluate
necessary modifications for the year 2000. The Company does not anticipate that
it will incur material expenditures to complete any such modifications and does
not anticipate any significant disruptions to its operations.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 1 of Notes to
Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
The information required by this item is included on pages F-1 to F-15 of
this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- -----------------------------------------------------------------------
Not applicable.
10
<PAGE>
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 1998
Annual Meeting of Shareholders (the "1998 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 1998 Proxy Statement.
Item 11. Executive Compensation
- -------------------------------
Information with respect to executive compensation is included under
"Compensation" in the 1998 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 1998 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 1998 Proxy
Statement.
11
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------------------------------------------------------------------------
(a)(1) Financial Statements and Schedules Page in
---------------------------------- this Report
-----------
Report of Independent Accountants.........................................F-1
Consolidated Balance Sheets at
March 31, 1998 and 1997.................................................F-2
Consolidated Statements of Income
for the years ended March 31, 1998, 1997
and 1996................................................................F-3
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1998,
1997 and 1996...........................................................F-4
Consolidated Statements of Cash Flows
for the years ended March 31, 1998,
1997 and 1996...........................................................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").
12
<PAGE>
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.
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. Incorporated by
reference to Exhibit 10.6 of the Form 10-K for the fiscal year
ended March 31, 1997.
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.
10.10 Letter Agreement dated March 23, 1998, between the Company and
Wells Fargo Bank, N.A., Promissory Note dated March 30, 1998,
issued by the Company to Wells Fargo Bank, N.A., and Deed of
Trust and Assignment of Rents and Leases dated as of March 23,
1998, given by the Company to Wells Fargo Bank (Arizona), N. A.,
Trustee, for the benefit of Wells Fargo Bank. N.A.
13
<PAGE>
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, 1998.
14
<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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.
Portland, Oregon
May 15, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Elmer's Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and 1997
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 6) $ 1,875,136 $ 1,678,876
Accounts receivable, less allowance for doubtful accounts of
$5,000 in 1998 and 1997 140,717 159,904
Notes receivable, current portion (Note 2) 81,033 69,880
Inventories 216,537 203,115
Prepaid expenses 101,425 126,099
------------- -------------
Total current assets 2,414,848 2,237,874
Property, buildings and equipment, net (Notes 3 and 6) 4,696,507 4,738,012
Intangible assets, net (Notes 4 and 6) 973,643 1,062,419
Note receivable, long-term portion 16,709
Other assets 78,903 70,660
------------- -------------
Total assets $ 8,180,610 $ 8,108,965
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion (Note 6) $ 405,266 $ 495,581
Accounts payable 612,107 631,639
Accrued payroll and related taxes 311,782 192,867
Accrued expenses 47,447 33,754
Accrued income taxes (Note 5) 195,387 96,459
------------- -------------
Total current liabilities 1,571,989 1,450,300
Notes payable - long-term portion (Note 6) 3,061,284 3,338,255
Deferred income taxes (Note 5) 40,000 111,000
------------- -------------
Total liabilities 4,673,273 4,899,555
------------- -------------
Commitments and contingencies (Notes 7 and 9)
Shareholders' equity:
Preferred stock, no par value; 500,000 shares authorized;
none issued
Common stock, no par value; 10,000,000 shares authorized;
1,311,109 shares and 1,404,686 shares issued and
outstanding in 1998 and 1997, respectively 1,417,034 1,518,098
Retained earnings 2,090,303 1,691,312
------------- -------------
Total shareholders' equity 3,507,337 3,209,410
------------- -------------
Total liabilities and shareholders' equity $ 8,180,610 $ 8,108,965
============= =============
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, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Restaurant sales $ 15,757,151 $ 15,416,311 $ 15,031,429
Franchise operations 660,074 654,637 680,604
Lottery 179,172 41,407
-------------- -------------- --------------
16,596,397 16,112,355 15,712,033
-------------- -------------- --------------
Costs and expenses:
Cost of restaurant sales:
Food and beverage 4,263,703 4,270,067 4,191,161
Labor and related 5,490,690 5,252,469 5,102,414
Occupancy costs 998,782 993,007 934,518
Depreciation and amortization 679,455 699,013 719,711
General and administrative expenses 4,107,003 3,923,250 3,911,387
-------------- -------------- --------------
15,539,633 15,137,806 14,859,191
-------------- -------------- --------------
Income from operations 1,056,764 974,549 852,842
Other income (expense):
Interest income 66,225 60,947 60,780
Interest expense (Note 6) (324,578) (351,831) (387,033)
Gain on disposition of assets 368 550 3,533
-------------- -------------- --------------
Food and beverage 4,263,703 4,270,067 4,191,161
Labor and related 5,490,690 5,252,469 5,102,414
Occupancy costs 998,782 993,007 934,518
Depreciation and amortization 679,455 699,013 719,711
General and administrative expenses 4,107,003 3,923,250 3,911,387
-------------- -------------- --------------
15,539,633 15,137,806 14,859,191
-------------- -------------- --------------
Income from operations 1,056,764 974,549 852,842
Other income (expense):
Interest income 66,225 60,947 60,780
Income before provision for income taxes 798,779 684,215 530,122
Provision for income taxes (Note 5) (269,000) (232,000) (179,500)
-------------- -------------- --------------
Net income $ 529,779 $ 452,215 $ 350,622
============== ============== ==============
Net income per share $ 0 $ 0 $ 0
============== ============== ==============
Weighted average number of shares outstanding 1,385,676 1,477,812 1,538,253
============== ============== ==============
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, 1998, 1997 and 1996
Common Stock
------------------------------- Retained
Shares Amount Earnings
------------- ------------- -------------
<S> <C> <C> <C>
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
Repurchase and retirement of common stock (93,577) (101,064) (130,788)
Net income 529,779
------------- ------------- -------------
Balance, March 31, 1998 1,311,109 $ 1,417,034 $ 2,090,303
============= ============= =============
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 years ended March 31, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 529,779 $ 452,215 $ 350,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 590,679 601,899 609,912
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
Other assets 9,162 33,081 (2,330)
Accounts payable and accrued expenses 113,076 (35,790) 88,081
Accrued income taxes 98,928 96,459 (20,575)
-------------- -------------- --------------
Net cash provided by operating activities 1,361,609 1,148,888 1,130,142
-------------- -------------- --------------
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
-------------- -------------- --------------
Cash flows from investing activities:
Additions to property, buildings and equipment (550,006) (398,501) (450,047)
Proceeds from sale of assets 1,200 550 3,937
-------------- -------------- --------------
Net cash used in investing activities (548,806) (397,951) (446,110)
-------------- -------------- --------------
Cash flows from financing activities:
Net change in other non-current assets (17,405) (4,450) (34,355)
Proceeds from notes payable 630,000 230,000 2,670,000
Payments on notes payable (997,286) (496,803) (2,839,329)
Repurchase of common stock (231,852) (171,637) (378,786)
-------------- -------------- --------------
Net cash used in financing activities (616,543) (442,890) (582,470)
-------------- -------------- --------------
Net increase in cash and cash equivalents 196,260 308,047 101,562
Cash and cash equivalents, beginning of year 1,678,876 1,370,829 1,269,267
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 1,875,136 $ 1,678,876 $ 1,370,829
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid for:
Amortization 88,776 97,114 109,799
Deferred income taxes (71,000) 6,000 21,500
Gain on disposition of assets (368) (550) (3,533)
Changes in assets and liabilities:
Receivables (8,675) (113,927) (7,456)
Inventories (13,422) (11,087) 20,009
Prepaid expenses 24,674 23,474 (35,887)
Interest $ 325,206 $ 351,203 $ 387,033
============== ============== ==============
Income taxes $ 247,711 $ 119,350 $ 188,766
============== ============== ==============
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,
1998 and 1997 because of the relatively short maturity of these
instruments. The carrying value of notes payable approximated fair value as
of March 31, 1998 and 1997, based upon interest rates and terms 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.
Lottery
The Company offers video poker to its patrons in certain restaurants. The
net revenue earned from video poker is recorded in the Company's financial
statements as Lottery revenue when received.
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
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
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per
Share, effective for fiscal periods ending after December 15, 1997. This
Statement simplifies the standards for computing earnings per share (EPS)
previously found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable with international EPS standards. This statement requires
restatement of all prior period data presented. The primary differences
between the provisions of SFAS No. 128 and previous authoritative
pronouncements are exclusion of common stock equivalents in the
determination of basic EPS and the market price at which common stock
equivalents are calculated in the determination of diluted EPS. Basic EPS
is computed using the weighted average number of shares of common stock
outstanding for the period. Diluted EPS is computed using the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. The adoption of this statement
did not have any impact on previously reported EPS.
Impact of Recently Issued Accounting Standards
In June 1997, FASB issued SFAS No. 130, Comprehensive Income. SFAS No. 130
becomes effective in 1998 and requires reclassification of previously
issued financial statements for comparative purposes. SFAS No. 130 requires
that changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be shown
in a statement of comprehensive income. Management does not expect the
adoption to have a material effect on the consolidated financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires selected segment information
in quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its
major customers. The statement is effective for fiscal years beginning
after December 15, 1997 and may modify the disclosure of certain segment
information for the Company.
F-8
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. The Company and Summary of Significant Accounting Policies, Continued:
Impact of Recently Issued Accounting Standards, Continued
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
About Pensions and Other Postretirement Benefits. This statement revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
The statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. The statement also permits
reduced disclosures for nonpublic entities. This statement is effective for
fiscal years beginning after December 15, 1997. Management does not expect
the adoption to have any effect on the consolidated financial statements.
2. Notes Receivable:
Notes receivable from a franchisee and officer/director
of the Company, due on demand, interest at 7%, without
collateral $ 69,880
Note receivable from a franchisee, monthly payments of
$1,120, including interest at 10%, without collateral 27,862
------------
97,742
Current portion 81,033
------------
Long-term portion $ 16,709
------------
3. Property, Buildings and Equipment:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 1,258,439 $ 1,258,439
Buildings 2,448,527 2,425,055
Furniture, fixtures and equipment 6,886,948 6,455,031
Automobiles 81,580 81,580
Leasehold improvements 1,332,385 1,247,473
-------------- --------------
12,007,879 11,467,578
Less accumulated depreciation (7,311,372) (6,729,566)
-------------- --------------
$ 4,696,507 $ 4,738,012
-------------- --------------
</TABLE>
F-9
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
4. Intangible Assets:
Intangible assets, net of accumulated amortization of $1,245,504 and
$1,156,728 at March 31, 1998 and 1997, respectively, are comprised of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Trademark and franchise registrations and agreements $ 630,151 $ 680,298
Cost over fair value of net tangible assets acquired 312,515 347,506
Other 30,977 34,615
-------------- -------------
$ 973,643 $ 1,062,419
-------------- -------------
</TABLE>
5. Income Taxes:
The Company's provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Currently payable:
Federal $ 297,000 $ 172,000 $ 120,000
State 43,000 54,000 38,000
------------ ------------ ------------
340,000 226,000 158,000
Deferred income taxes (71,000) 6,000 21,500
------------ ------------ ------------
$ 269,000 $ 232,000 $ 179,500
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
5. Income Taxes, Continued:
Deferred income tax assets and liabilities are recorded for both the
expected future tax impact of differences between the financial statement
and income 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 income tax assets. No valuation
allowance was deemed necessary as a result of management's evaluation of
the likelihood that all of the deferred income tax assets will be realized.
The Company has recorded a net deferred tax liability of $40,000 and
$111,000 at March 31, 1998 and 1997, respectively, which is comprised of
the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Excess of financial statement fixed assets over tax basis $ (81,000) $ (144,000)
Expenses not currently deductible for tax 41,000
Federal alternative minimum tax credit carryforwards 33,000
------------ -------------
$ (40,000) $ (111,000)
------------ -------------
</TABLE>
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>
1998 1997 1996
<S> <C> <C> <C>
Expected tax $ 272,000 $ 233,000 $ 180,000
Amortization not deductible for income taxes 12,000 12,000 12,000
State taxes, net of federal tax benefits 28,000 35,000 25,000
Tax credits utilized (50,000) (48,000) (42,500)
Other 7,000 5,000
------------ ------------ ------------
$ 269,000 $ 232,000 $ 179,500
------------ ------------ ------------
</TABLE>
F-11
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
6. Notes Payable:
<TABLE>
<CAPTION>
1998 1997
<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 $34,000 plus interest at rates as follows:
Prime rate plus 0.5% - 0.75% (prime was 8.50% at
March 31, 1998) $ 1,457,995 $ 1,892,935
Notes payable to financial institutions,
collateralized by real estate, due at various dates
through February 2008, monthly installments total
$16,204 including interest at rates as follows:
513,332
Average 2 year U.S. Treasury note rate plus
1.75% and 2%
Fixed rate of 8.18% 1,306,533 1,338,206
Fixed rate of 8.25% 630,000
Note payable to others, collateralized by stock of
a subsidiary, due August 2001, interest at 10%
72,022 89,363
------------- -------------
3,466,550 3,833,836
Less current portion (405,266) (495,581)
------------- -------------
Long-term portion $ 3,061,284 $ 3,338,255
------------- -------------
</TABLE>
F-12
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, 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, 1998. Future maturities of notes payable for years
ending March 31 are as follows:
1999 $ 405,266
2000 402,694
2001 902,803
2002 81,516
2003 79,430
Thereafter 1,594,881
-----------
$ 3,466,590
-----------
All interest costs incurred during the years ended March 31, 1998, 1997 and
1996 have been expensed during the respective periods.
7. 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:
1999 $ 492,518
2000 481,307
2001 458,882
2002 450,882
2003 413,435
Thereafter 1,173,040
-----------
$ 3,470,064
-----------
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 $674,552 (including $182,034
of additional rentals) for the year ended March 31, 1998, $661,419
(including $168,803 of additional rentals) for the year ended March 31,
1997, and $642,166 (including $149,648 of additional rentals) for the year
ended March 31, 1996.
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, 1998,
1997 and 1996.
F-13
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
8. 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,
---------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Restaurant operations $ 15,936,323 $ 15,457,718 $ 15,031,429
Franchise operations 1,393,275 1,358,776 1,360,729
Intercompany eliminations (733,201) (704,139) (680,125)
------------- ------------- -------------
Consolidated $ 16,596,397 $ 16,112,355 $ 15,712,033
============= ============= =============
Income from operations :
Restaurant operations $ 612,723 $ 586,968 $ 424,480
Franchise operation s 444,041 387,581 428,362
------------- ------------- -------------
Consolidated $ 1,056,764 $ 974,549 $ 852,842
------------- ------------- -------------
Capital and intangible expenditures:
Restaurant operations $ 521,913 $ 360,961 $ 361,545
Franchise operations 28,093 37,540 88,502
------------- ------------- -------------
Consolidated $ 550,006 $ 398,501 $ 450,047
------------- ------------- -------------
Depreciation and amortization:
Restaurant operations $ 587,248 $ 606,533 $ 642,031
Franchise operations 28,093 37,540 88,502
------------- ------------- -------------
Franchise operations 92,207 92,480 77,680
------------- ------------- -------------
Consolidated $ 679,455 $ 699,013 $ 719,711
============= ============= =============
</TABLE>
F-14
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
8. Restaurant and Franchise Operations, Continued:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets:
Restaurant operations $ 7,307,145 $ 7,117,727
Franchise operations 873,465 991,238
------------- -------------
Consolidated $ 8,180,610 $ 8,108,965
============= =============
</TABLE>
The number of Company owned stores and operating franchises at March 31 is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Company owned stores 11 11 11
Operating franchises 18 18 18
</TABLE>
9. 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 1999;
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 has authorized incentive compensation for the Chief Executive
Officer equal to 10% 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, 1998 and 1996
was $66,531 and $36,680, respectively. This agreement was not in effect
during the year ended March 31, 1997.
F-15
<PAGE>
Elmer's Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, Continued
From time to time, the Company is involved in litigation relating to claims
arising 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-16
<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 12, 1998 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 12, 1998.
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 Director
- ----------------------------------
Paul Welch
ZADOC (ZED) MERRILL Director
- ----------------------------------
Zadoc (Zed) Merrill
RUDOLPH MAZUROSKY Director
- ----------------------------------
Rudolph (Rudy) Mazurosky
15
<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. Incorporated by reference to
Exhibit 10.6 of the Form 10-K for the fiscal year ended March 31,
1997.
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.
10.10 Letter Agreement dated March 23, 1998, between the Company and Wells
Fargo Bank, N.A., Promissory Note dated March 30, 1998, issued by
the Company to Wells Fargo Bank, N.A., and Deed of Trust and
Assignment of Rents and Leases dated as of March 23, 1998, given by
the Company to Wells Fargo Bank (Arizona), N. A., Trustee, for the
benefit of Wells Fargo Bank. N.A.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
Portland RCBO
1300 S.W. Fifth Avenue T-13
Portland, OR
March 23, 1998
Elmer's Restaurants, Inc.
P.O. Box 16595
Portland, OR 97216
Dear Sir:
This letter is with respect to that certain credit accommodation (the
"Loan") to be granted to Elmer's Restaurants, Inc. ("Borrower") by Wells Fargo
Bank, National Association ("Bank"), as evidenced by and subject to the terms of
a promissory note substantially in the form of Exhibit A attached hereto (the
"Note"), all terms of which are incorporated herein by this reference.
The initial rate of interest applicable to the Note shall be fixed on the
date of disbursement at one and sixty-five hundredths percent (1.65%) above the
Money Market Funds Rate in effect on said date. Further, the amount of each
initial installment of principal and interest payable on the Note shall be set
on the date of disbursement based on a 15-year amortization schedule.
Borrower has executed the Note with the rate of interest and repayment
schedule left blank. By signing below, Borrower hereby authorizes Bank to
complete the Note on the date of disbursement by inserting the interest rate
applicable to the Note and the amount of each installment of principal and
interest due under the Note, all in accordance with the terms of this letter.
Borrower further agrees that Bank's commitment to grant the Loan shall terminate
on April 15, 1998.
<PAGE>
Elmer's Restaurants, Inc.
March 23, 1998
Page 2
Bank shall send Borrower a copy of the completed Note as soon as possible
after the date of disbursement.
Sincerely,
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: DARRELL SUTHERLAND
-------------------------------------
Darrell Sutherland
Vice President
The undersigned, the Borrower named in the foregoing letter, hereby agrees
to all provisions thereof and authorizes Bank to complete the Note in accordance
with the terms set forth therein.
Acknowledged and agreed as of March 30, 1998.
Elmer's Restaurants, Inc.
By: ANITA GOLDBERG
-----------------------------------
Anita Goldberg
President
<PAGE>
PROMISSORY NOTE
$630,000.00 Portland, Oregon
March 30, 1998
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 S.W. Fifth Avenue T-13, Portland, Oregon,
or 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 Six Hundred Thirty Thousand Dollars ($630,000.00), with interest thereon as
set forth herein.
INTEREST:
(a) Interest. Interest on the outstanding principal balance of this Note
shall accrue for the first five (5) years from the date of this Note at the rate
of eight and one-quarter percent (8.25%) per annum (computed on the basis of a
360-day year, actual days elapsed). Such interest rate shall be adjusted as of
the fifth anniversary date of the date of this Note (the "Adjustment Date") to a
fixed rate equal to one and sixty-five hundredths percent (1.65%) above the
Money Market Funds Rate in effect on the Adjustment Date.
(b) Money Market Funds Rate. "Money Market Funds Rate" means the rate per
annum which Bank estimates and quotes to its borrowers as the rate, adjusted for
reserve requirements, federal deposit insurance and any other amount which Bank
deems appropriate, at which funds in the amount of a loan and for a period of
time comparable to the term of such loan are available for purchase in the money
market on the date such loan is made, with the understanding that the Money
Market Funds Rate is Bank's estimate only and that Bank is under no obligation
to actually purchase and/or match funds for any transaction. This rate is not
fixed by or related in any way to any rate that Bank quotes or pays for deposits
accepted through its branch system.
(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 four percent (4%) above
the rate of interest from time to time applicable to this Note.
REL; Principal/Interest
Together; MMFR; 5-year Interest Adjustments 032098
<PAGE>
REPAYMENT AND PREPAYMENT:
(a) Repayment. Principal and interest shall be payable on the 15th day of
each month, commencing April 15, 1998, and continuing up and to and including
January 15, 2008, with a final installment consisting of all remaining unpaid
principal and accrued interest due and payable in full on February 15, 2008. The
initial monthly installments of principal and interest due under this Note shall
be Six Thousand One Hundred Fifty-three and 95/100 Dollars ($6,153.95) each. The
amount of said monthly installments shall be adjusted as of the Adjustment Date,
if necessary, to an amount which would amortize the then outstanding principal
balance of this Note over the then remaining term of the original amortization
schedule used for this Note at the interest rate applicable on the Adjustment
Date. Such adjustment shall not imply any change in the maturity date of this
Note, which shall remain as specified above.
(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.
(c) Prepayment. Borrower may prepay principal on this Note in any amount
and without penalty during the fifteen (15) days immediately prior to the
Adjustment Date or the maturity date hereof. Borrower may, at any other time,
prepay principal on this Note in the minimum amount of Ten Thousand Dollars
($10,000.00); provided however, that if the outstanding principal balance of
this Note is less than said amount, the minimum prepayment amount shall be the
entire outstanding principal balance hereof. In consideration of Bank providing
this prepayment option to Borrower, of if this Note shall become due and payable
at any time other than during the fifteen (15) days immediately prior to the
Adjustment Date or the maturity date hereof by acceleration or otherwise,
Borrower shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which the Adjustment Date or said maturity date occurs,
calculated as follows for each such month:
(i) Determine the amount of interest which would have
accrued each month on (A) the amount prepaid at the
Money Market Funds Rate in effect on the date of
funding of this Note had it remained outstanding
until the Adjustment Date or (B) if the Adjustment
Date has already occurred, the amount prepaid at the
Money Market Funds Rate in effect on the Adjustment
Date had this Note remained outstanding until the
maturity date hereof, in each case taking into
account regularly scheduled amortization.
REL; Principal/Interest
Together; MMFR; 5-year Interest Adjustments 032098
2
<PAGE>
(ii) Subtract from the amount determined in (i) above the
amount of interest which would have accrued for the
same month on the amount prepaid for the remaining
term until the Adjustment Date or the maturity date
hereof, whichever is next to occur, at the Money
Market Funds Rate in effect on the date of prepayment
for new loans made for such term and in a principal
amount equal to the amount prepaid, in each case
taking into account regularly scheduled amortization.
(iii) If the result obtained in (ii) for any month is
greater than zero, discount that difference by the
Money Market Funds Rate used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2.00%)
above the Prime Rate in effect from time to time (computed on the basis of a
360-day year, actual days elapsed). 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 on any such past due prepayment fee shall become
effective on the date each Prime Rate change is announced within Bank.
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 or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
REL; Principal/Interest
Together; MMFR; 5-year Interest Adjustments 032098
3
<PAGE>
MISCELLANEOUS:
(a) Remedies. Upon the sale, transfer, hypothecation, assignment or other
encumbrance, whether voluntary, involuntary or by operation of law, of all or
any interest in any real property securing this Note, or upon the occurrence of
any Event of Default, 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. 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
REL; Principal/Interest
Together; MMFR; 5-year Interest Adjustments 032098
4
<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
<PAGE>
Recording Requested By,
And when recorded return to:
WELLS FARGO BANK,
NATIONAL ASSOCIATION
201 3rd Street, 8th Floor
San Francisco, CA 94163
Attention: Loan Documentation #03834
- --------------------------------------------------------------------------------
DEED OF TRUST
AND ASSIGNMENT OF RENTS AND LEASES
THIS DEED OF TRUST AND ASSIGNMENT (this "Deed of Trust") is executed as of March
23, 1998, by ELMER'S RESTAURANTS, INC., an Oregon corporation ("Grantor"), to
WELLS FARGO BANK (ARIZONA), NATIONAL ASSOCIATION ("Trustee"), for the benefit of
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Beneficiary").
ARTICLE I. GRANT IN TRUST
1.01 Grant. For the purposes and upon the terms and conditions in this Deed of
Trust, Grantor irrevocably grants, conveys and assigns to Trustee, in trust for
the benefit of Beneficiary, with power of sale and right of entry and
possession, Grantor's interest in: (a) all real property located in ADA County,
Idaho, and described on Exhibit A attached hereto and which real property is
within a city or village or is 20 acres or less in size; (b) all easements,
rights-of-way and rights used in connection with or as a means of access to any
portion of said real property; (c) all tenements, hereditaments and
appurtenances thereof and thereto; (d) all right, title and interest of Grantor,
now owned or hereafter acquired, in and to any land lying within the
right-of-way of any street, open or proposed, adjoining said real property, and
any and all sidewalks, alleys and strips and gores of land adjacent to or used
in connection with said real property; (e) all buildings, improvements and
landscaping now or hereafter erected or located on said real property; (f) all
development rights, governmental or quasi-governmental licenses, permits or
approvals, zoning rights and other similar rights or interests which relate to
the development, use or operation of, or that benefit or are appurtenant to,
said real property; (g) all mineral rights, oil and gas rights, air rights,
water or water rights, including without limitation, all wells, canals, ditches
and reservoirs of any nature and all rights thereto, appurtenant to or
associated with said real property, whether decreed or undecreed, tributary or
non-tributary, surface or underground, appropriated or unappropriated, and all
shares of stock in any water, canal, ditch or reservoir company, and all well
permits, water service contracts, drainage rights and other evidences of any
such rights; and (h) all interest or estate which Grantor now has or may
hereafter acquire in said real property and all additions and accretions
thereto, and all awards or payments made for the taking of all or any portion of
said real property by eminent domain or any proceeding or purchase in lieu
thereof, or any damage to any portion of said real property (collectively, the
"Subject Property"). The listing of specific rights or property shall not be
interpreted as a limitation of general terms.
DEED OF TRUST With Assignment of Rents (02/98), Page 1
<PAGE>
1.02 Address. The address of the Subject Property (if known) is: 1385 South
Capitol Blvd., Boise, ID 83706. Neither the failure to designate an address nor
any inaccuracy in the address designated shall affect the validity or priority
of the lien of this Deed of Trust on the Subject Property as described on
Exhibit A. In the event of any conflict between the provisions of Exhibit A and
said address, Exhibit A shall control.
ARTICLE II. OBLIGATIONS SECURED
2.01 Obligations Secured. Grantor makes this grant and assignment for the
purpose of securing the following obligations (each, a "Secured Obligation" and
collectively, the "Secured Obligations"):
(a) payment to Beneficiary of all sums at any time owing and performance of all
other obligations arising under or in connection with that certain promissory
note ("Note") dated as of March 23, 1998, in the maximum principal amount of
$630,000.00, with interest as provided therein, executed by ELMER'S RESTAURANT,
INC. and payable to Beneficiary or its order on or before March 15, 2008,
together with the payment and performance of any other indebtedness or
obligations incurred in connection with the credit accommodation evidenced by
the Note, whether or not specifically referenced therein; and
(b) payment and performance of all obligations of Grantor under this Deed of
Trust, together with all advances, payments or other expenditures made by
Beneficiary or Trustee as or for the payment or performance of any such
obligations of Grantor; and
(c) payment and performance of all obligations, if any, and the contracts under
which they arise, which any rider attached to and recorded with this Deed of
Trust recites are secured hereby; and
(d) payment and performance of all future advances and other obligations that
the then record owner of the Subject Property may agree to pay and/or perform
(whether as principal, surety or guarantor) for the benefit of Beneficiary, when
any such advance or other obligation is evidenced by a writing which recites
that it is secured by this Deed of Trust; and
(e) all modifications, extensions and renewals of any of the Secured Obligations
(including without limitation, (i) all modifications, extensions or renewals at
a different rate of interest, or (ii) deferrals or accelerations of the required
principal payment dates or interest payment dates or both, in whole or in part),
however evidenced, whether or not any such modification, extension or renewal is
evidenced by a new or additional promissory note or notes.
2.02 Obligations. The term "obligations" is sued herein in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities heretofore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, joint or
several, including without limitation, all principal, interest, charges,
including prepayment charges and late charges, and loan fees at any time
accruing or assessed on any Secured Obligation.
DEED OF TRUST With Assignment of Rents (02/98), Page 2
<PAGE>
2.03 Incorporation. All terms of the Secured Obligations are incorporated herein
by this reference. All persons who may have or acquire an interest in the
Subject Property are hereby deemed to have notice of the terms of the Secured
Obligations and to have notice, if provided therein, that: (a) the Note or any
other Secured Obligation may permit borrowing, repayment and reborrowing; and
(b) the rate of interest on one or more of the Secured Obligations may vary from
time to time.
ARTICLE III. ASSIGNMENT OF RENTS
3.01 Assignment. For the purposes of and upon the terms and conditions set forth
herein, Grantor irrevocably assigns to Beneficiary all of Grantor's right, title
and interest in, to and under all leases, licenses, rental agreements and other
agreements of any kind relating to the use or occupancy of any of the Subject
Property, whether existing as of the date hereof or at any time hereafter
entered into, together with all guarantees of and security for any tenant's or
lessee's performance thereunder, and all amendments, extensions, renewals and
modifications thereto (each, a "Lease" and collectively, the "Leases"), together
with any and all other rents, issues and profits of the Subject Property
(collectively "Rents"). This Assignment shall not impose upon Beneficiary any
duty to produce Rents from the Subject Property, nor cause Beneficiary to be:
(a) a "mortgagee in possession" for any purpose; (b) responsible for performing
any of the obligations of the lessor or landlord under any Lease; or (c)
responsible for any waste committed by any person or entity at any time in
possession of the Subject Property or any part thereof, or for any dangerous or
defective condition of the Subject Property, or for any negligence in the
management, upkeep, repair or control of the Subject Property. This is an
absolute assignment, not an assignment for security only, and Beneficiary's
right to Rents is not contingent upon and may be exercised without possession of
the Subject Property. Grantor agrees to execute and deliver to Beneficiary,
within five (5) days of Beneficiary's written request, such additional documents
as Beneficiary or Trustee may reasonably request to further evidence the
assignment to Beneficiary of any and all Leases and Rents.
3.02 Protection of Security. To protect the security of this Assignment, Grantor
agrees:
(a) At Grantor's sole cost and expense: (i) to perform each obligation to be
performed by the lessor or landlord under each Lease and to enforce or secure
the performance of each obligation to be performed by the lessee or tenant under
each Lease; (ii) not to modify any Lease in any material respect, nor accept
surrender under or terminate the term of any Lease; (iii) not to anticipate the
Rents under any Lease; and (iv) not to waive or release any lessee or tenant of
or from any Lease obligations. Grantor assigns to Beneficiary all of Grantor's
right and power to modify the terms of any Lease, to accept a surrender under or
terminate the term of or anticipate the Rents under any Lease, and to waive or
release any lessee or tenant of or from any Lease obligations, and any attempt
on the part of Grantor to exercise any such rights or powers without
Beneficiary's prior written consent shall be a breach of the terms hereof.
(b) At Grantor's sole cost and expense, to defend any action in any manner
connected with any Lease or the obligations thereunder, and to pay all costs of
Beneficiary or Trustee, including reasonable attorneys' fees, in any such action
in which Beneficiary or Trustee may appear.
DEED OF TRUST With Assignment of Rents (02/98), Page 3
<PAGE>
(c) That, should Grantor fail to do any act required to be done by Grantor under
a Lease, then Beneficiary or Trustee, but without obligation to do so and
without notice to Grantor and without releasing Grantor from any obligation
hereunder, may make or do the same in such manner and to such extent as
Beneficiary or Trustee deems necessary to protect the security hereof, and, in
exercising such powers, Beneficiary or Trustee may employ attorneys and other
agents, and Grantor shall pay necessary costs and reasonable attorneys' fees
incurred by Beneficiary or Trustee, or their agents, in the exercise of the
powers granted herein. Grantor shall give prompt notice to Beneficiary or
Trustee, or their agents, in the exercise of the powers granted herein. Grantor
shall give prompt notice to Beneficiary of any default by any lessee or tenant
under any Lease, and of any notice of default on the part of Grantor under any
Lease received from a lessee or tenant thereunder, together with an accurate and
complete copy thereof.
(d) To pay to Beneficiary immediately upon demand all sums expended under the
authority hereof, including reasonable attorneys' fees, together with interest
thereon at the highest rate per annum payable under any Secured Obligation, and
the same, at Beneficiary's option, may be added to any Secured Obligation and
shall be secured hereby.
3.03 License. Beneficiary confers upon Grantor a license ("License") to collect
and retain the Rents as, but not before, they come due and payable, until the
occurrence of any Default. Upon the occurrence of any Default, the License shall
be automatically revoked, and Beneficiary or Trustee may, at Beneficiary's
option and without notice, either in person or by agent, with or without
bringing any action, or by a receiver to be appointed by a court: (a) enter,
take possession of, manage and operate the Subject Property or any part thereof;
(b) make, cancel, enforce or modify any Lease; (c) obtain and evict tenants, fix
or modify Rents, and do any acts which Beneficiary or Trustee deems proper to
protect the security hereof; and (d) either with or without taking possession of
the Subject Property, in its own name, sue for or otherwise collect and receive
all Rents, including those past due and unpaid, and apply the same in accordance
with the provisions of this Deed of Trust. The entering and taking possession of
the Subject Property, the collection of Rents and the application thereof as
aforesaid, shall not cure or waive any Default, nor waive, modify or affect any
notice of default hereunder, nor invalidate any act done pursuant to any such
notice. The License shall not grant to Beneficiary or Trustee the right to
possession, except as provided in this Deed of Trust.
ARTICLE IV. RIGHTS AND DUTIES OF THE PARTIES
4.01 Title. Grantor warrants that, except as disclosed to Beneficiary prior to
the date hereof in a writing which refers to this warranty, Grantor lawfully
possesses and holds fee simple title to, or if permitted by Beneficiary in
writing a leasehold interest in, the Subject Property without limitation on the
right to encumber, as herein provided, and that this Deed of Trust is a valid
lien on the Subject Property and all of Grantor's interest therein.
4.02 Taxes and Assessments. Subject to the right, if any, of Grantor to contest
payment of the following pursuant to any other agreement between Grantor and
Beneficiary, Grantor shall pay prior to delinquency all taxes, assessments,
levies and charges imposed: (a) by any public or quasi-public authority or
utility company which are or which may become alien upon or cause a loss in
value of the Subject Property or any interest therein; or (b) by any public
authority upon Beneficiary by reason of its interest in any Secured Obligation
or in the Subject Property, or by reason of any payment made to Beneficiary
pursuant to any Secured Obligation;
DEED OF TRUST With Assignment of Rents (02/98), Page 4
<PAGE>
provided however, that Grantor shall have no obligation to pay any income taxes
of Beneficiary. Promptly upon request by Beneficiary, Grantor shall furnish to
Beneficiary satisfactory evidence of the payment of all of the foregoing.
Beneficiary is hereby authorized to request and receive from the responsible
governmental and nongovernmental personnel written statements with respect to
the accrual and payment of any of the foregoing.
4.03 Performance of Secured Obligations. Grantor shall promptly pay and perform
each Secured Obligation when due.
4.04 Liens, Encumbrances and Charges. Grantor shall immediately discharge any
lien on the Subject Property not approved by Beneficiary in writing. Except as
otherwise provided in any Secured Obligation or other agreement with
Beneficiary, Grantor shall pay when due all obligations secured by or reducible
to liens and encumbrances which shall now or hereafter encumber the Subject
Property, whether senior or subordinate hereto, including without limitation,
any mechanics' liens.
4.05 Insurance. Grantor shall insure the Subject Property against loss or damage
by fire and such other risks as Beneficiary shall from time to time require.
Grantor shall carry public liability insurance, flood insurance as required by
applicable law and such other insurance as Beneficiary may reasonably require,
including without limitation, business interruption insurance or loss of rental
value insurance. Grantor shall maintain all required insurance at Grantor's
expense, under policies issued by companies and in form and substance
satisfactory to Beneficiary. Neither Beneficiary nor Trustee, by reason of
accepting, rejecting, approving or obtaining insurance, shall incur any
liability for: (a) the existence, nonexistence, form or legal sufficiency
thereof; (b) the solvency of any insurer; or (c) the payment of losses. All
policies and certificates of insurance shall name Beneficiary as loss payee, and
shall provide that the insurance cannot be terminated as to Beneficiary except
upon a minimum of ten (10) days' prior written notice to Beneficiary.
Immediately upon
any request by Beneficiary, Grantor shall deliver to Beneficiary the original of
all such policies or certificates, with receipts evidencing annual prepayment of
the premiums.
4.06 Tax and Insurance Impounds. At Beneficiary's option and upon its demand,
Grantor shall, until all Secured Obligations have been paid in full, pay to
Beneficiary monthly, annually or as otherwise directed by Beneficiary an amount
estimated by Beneficiary to be equal to: (a) all taxes, assessments, levies and
charges imposed by any public or quasi-public authority or utility company which
are or may become a lien upon the Subject Property and will become due for the
tax year during which such payment is so directed; and (b) premiums for fire,
other hazard and mortgage insurance next due. If Beneficiary determines that
amounts paid by Grantor are insufficient for the payment in full of such taxes,
assessments, levies and/or insurance premiums, Beneficiary shall notify Grantor
of the increased amount required for the payment thereof when due, and Grantor
shall pay to Beneficiary such additional amount within thirty (30) days after
notice from Beneficiary. All amounts so paid shall not bear interest, except to
the extent and in the amount required by law. So long as there is no Default,
Beneficiary shall apply said amounts to the payment of, or at Beneficiary's sole
option release said funds to Grantor for application to and payment of, such
taxes, assessments, levies, charges and insurance premiums. If a Default exists,
Beneficiary at its sole option may apply all or any part of said amounts to any
Secured Obligation and/or to cure such Default, in which event Grantor shall be
required to restore all amounts so applied, as well as to cure any Default not
cured by such application. Grantor hereby grants and transfers to Beneficiary a
security interest in all amounts so paid and held in
DEED OF TRUST With Assignment of Rents (02/98), Page 5
<PAGE>
Beneficiary's possession, and all proceeds thereof, to secure the payment and
performance of each Secured Obligation. Upon assignment of this Deed of Trust,
Beneficiary shall have the right to assign all amounts collected and in its
possession to its assignee, whereupon Beneficiary and Trustee shall be released
from all liability with respect thereto. The existence of said impounds shall
not limit Beneficiary's rights under any other provision of this Deed of Trust
or any other agreement, statute or rule of law. Within ninety-five (95) days
following full repayment of all Secured Obligations (other than as a consequence
of a foreclosure or conveyance in lieu of foreclosure of the liens and security
interests securing any Secured Obligation), or at such earlier time as
Beneficiary in its discretion may elect, the balance of all amounts collected
and in Beneficiary's possession shall be paid to Grantor, and no other party
shall have any right of claim thereto.
4.07 Damages; Insurance and Condemnation Proceeds.
(a) (i) All awards of damages and all other compensation payable directly or
indirectly by reason of a condemnation or proposed condemnation (or transfer in
lieu thereof) for public or private use affecting the Subject Property; (ii) all
other claims and awards for damages to or decrease in value of the Subject
Property; (iii) all proceeds of any insurance policies payable by reason of loss
sustained to the Subject Property; and (iv) all interest which may accrue on any
of the foregoing, are all absolutely and irrevocably assigned to and shall be
paid to Beneficiary. At the absolute discretion of Beneficiary, whether or not
its security is or may be impaired, but subject to applicable law if any, and
without regard to any requirement contained in any other Section hereof,
Beneficiary may apply all or any of the proceeds it receives to its expenses in
settling, prosecuting or defending any such claim and apply the balance to the
Secured Obligations in any order, and release all or any part of the proceeds to
Grantor upon any conditions Beneficiary may impose. Beneficiary may commence,
appear in, defend or prosecute any assigned claim or action, and may adjust,
compromise, settle and collect all claims and awards assigned to Beneficiary;
provided however, that in no event shall Beneficiary be responsible for any
failure to collect any claim or award, regardless of the cause of the failure.
(b) At its sole option, Beneficiary may permit insurance or condemnation
proceeds held by Beneficiary to be used for repair or restoration but may impose
any conditions on such use as Beneficiary deems necessary.
4.08 Maintenance and Preservation of Subject Property. Subject to the provisions
of any Secured Obligation, Grantor covenants:
(a) to keep the Subject Property in good condition and repair;
(b) except with Beneficiary's prior written consent, not to remove or demolish
the Subject Property, nor alter, restore or add to the Subject Property, nor
initiate or acquiesce in any change in any zoning or other land
classification which affects the Subject Property;
(c) to restore promptly and in good workmanlike manner any portion of the
Subject Property which may be damaged or destroyed, unless Beneficiary requires
that all of the insurance proceeds be used to reduce the
Secured Obligations as provided in Section 4.07 hereof;
DEED OF TRUST With Assignment of Rents (02/98), Page 6
<PAGE>
(d) to comply with and not to suffer violation of any or all of the following
which govern acts or conditions on, or otherwise affect the Subject Property:
(i) laws, ordinances, regulations, standards and judicial and administrative
rules and orders; (ii) covenants, conditions, restrictions and equitable
servitudes, whether public or private; and (iii) requirements of insurance
companies and any bureau or agency which establishes standards of insurability;
(e) not to commit or permit waste of the Subject Property; and
(f) to do all other acts which from the character or use of the Subject Property
may be reasonably necessary to maintain and preserve its value.
4.09 Hazardous Substances; Environmental Provisions. Grantor represents and
warrants to Beneficiary as follows:
(a) Except as disclosed to Beneficiary in writing prior to the date hereof, the
Subject Property is not and has not been a site for the use, generation,
manufacture, storage, treatment, disposal, release or threatened release,
transportation or presence of any substances which are "hazardous substances,"
"hazardous wastes," "hazardous materials" or "toxic substances" under the
Hazardous Materials Laws, as defined below, and/or other applicable
environmental laws, ordinances and regulations (collectively, the "Hazardous
Materials").
(b) The Subject Property is in compliance with all laws, ordinances and
regulations relating to Hazardous Materials (collectively, the "Hazardous
Materials Laws"), including without limitation, the Clean Air Act, the Federal
Water Pollution Control Act, the Federal Resource Conservation and Recovery Act
of 1976, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Toxic Substances Control Act and the Occupational Safety and Health Act,
as any of the same may be amended, modified or supplemented from time to time,
and any other applicable federal, state or local environmental laws, and any
rules or regulations adopted pursuant to any of the foregoing.
(c) There are no claims or actions pending or threatened against Grantor or the
Subject Property by any governmental entity or agency, or any other person or
entity, relating to any Hazardous Materials or pursuant
to any Hazardous Materials Laws.
(d) Grantor hereby agrees to defend, indemnify and hold harmless Beneficiary,
its directors, officers, employees, agents, successors and assigns, from and
against any and all losses, damages, liabilities, claims, actions, judgments,
court costs and legal or other expenses (including without limitation,
attorneys' fees and expenses) which Beneficiary may incur as a direct or
indirect consequence of the use, generation, manufacture, storage, treatment,
disposal, release or threatened release, transportation or presence of Hazardous
Materials in, on, under or about the Subject Property. Grantor shall pay to
Beneficiary immediately upon demand any amounts owing under this indemnity,
together with interest from the date of demand until paid in full at the highest
rate of interest applicable to any Secured Obligation. GRANTOR'S DUTY AND
OBLIGATION TO DEFEND, INDEMNIFY AND HOLD HARMLESS BENEFICIARY SHALL SURVIVE THE
CANCELLATION OF THE SECURED OBLIGATIONS AND THE RELEASE, RECONVEYANCE OR PARTIAL
RECONVEYANCE OF THIS DEED OF TRUST.
DEED OF TRUST With Assignment of Rents (02/98), Page 7
<PAGE>
(e) Grantor shall immediately advise Beneficiary in writing upon Grantor's
discovery of any occurrence or condition on the Subject Property, or on any real
property adjoining or in the vicinity of the Subject Property that does or could
cause all or any part of the Subject Property, to be contaminated with any
Hazardous Materials or otherwise be in violation of any Hazardous Materials
Laws, or cause the Subject Property to be subject to any restrictions on the
ownership, occupancy, transferability or use thereof under any Hazardous
Materials Laws.
4.10 Protection of Security. Grantor shall, at Grantor's sole expense: (a)
protect, preserve and defend the Subject Property and Grantor's title and right
to possession of the Subject Property against all adverse claims; (b) if
Grantor's interest in the Subject Property is a leasehold interest or estate,
pay and perform in a timely manner all obligations to be paid and/or performed
by the lessee or tenant under the lease or other agreement creating such
leasehold interest or estate; and (c) protect, preserve and defend the security
of this Deed of Trust and the rights and powers of Beneficiary and Trustee under
this Deed of Trust against all adverse claims. Grantor shall give Beneficiary
and Trustee prompt notice in writing of the assertion of any claim, the filing
of any action or proceeding, or the occurrence of any damage, condemnation offer
or other action relating to or affecting the Subject Property and, if Grantor's
interest in the Subject Property is a leasehold interest or estate, of any
notice of default or demand for performance under the lease or other agreement
pursuant to which such leasehold interest or estate was created or exists.
4.11 Acceptance of Trust; Powers and Duties of Trustee. Trustee accepts this
trust when this Deed of Trust is executed. From time to time, upon written
request of Beneficiary and, to the extent required by applicable law
presentation of this Deed of Trust for endorsement, and without affecting the
personal liability of any person for payment of any indebtedness or performance
of any of the Secured Obligations, Beneficiary, or Trustee at Beneficiary's
direction, may, without obligation to do so or liability therefor and without
notice: (a) reconvey all or any part of the Subject Property from the lien of
this Deed of Trust; (b) consent to the making of any map or plat of the Subject
Property; and (c) join in any grant of easement thereon, any declaration of
covenants and restrictions, any extension agreement or any agreement
subordinating the lien or charge of this Deed of Trust. Trustee or Beneficiary
may from time to time apply to any court of competent jurisdiction for aid and
direction in the execution of the trusts and the enforcement of the rights and
remedies available under this Deed of Trust, and may obtain orders or decrees
directing, confirming or approving acts in the execution of said trusts and the
enforcement of said rights and remedies. Trustee has no obligation to notify any
party of any pending sale or any action or proceeding (including, but not
limited to, actions in which Grantor, Beneficiary or Trustee shall be a party)
unless held or commenced and maintained by Trustee under this Deed of Trust.
Trustee shall not be obligated to perform any act required of it under this Deed
of Trust unless the performance of the act is requested in writing and Trustee
is reasonably indemnified against all losses, costs, liabilities and expenses in
connection therewith.
4.12 Compensation; Exculpation; Indemnification.
(a) Grantor shall pay all Trustee's fees and reimburse Trustee for all expenses
in the administration of this trust, including reasonable attorneys' fees.
Grantor shall pay Beneficiary reasonable compensation for services rendered
concerning this Deed of Trust, including without limitation, the providing of
any statement of amounts owing under any Secured Obligation. Beneficiary shall
not directly or indirectly be liable to Grantor or any other person as a
consequence of: (i) the exercise of any rights, remedies or powers granted to
Beneficiary
DEED OF TRUST With Assignment of Rents (02/98), Page 8
<PAGE>
in this Deed of Trust; (ii) the failure or refusal of Beneficiary to perform or
discharge any obligation or liability of Grantor under this Deed of Trust or any
Lease or other agreement related to the Subject Property; or (iii) any loss
sustained by Grantor or any third party as a result of Beneficiary's failure to
lease the Subject Property after any Default or from any other act or omission
of Beneficiary in managing the Subject Property after any Default unless such
loss is caused by the willful misconduct or gross negligence of Beneficiary; and
no such liability shall be asserted or enforced against Beneficiary, and all
such liability is hereby expressly waived and released by Grantor.
(b) Grantor shall indemnify Trustee and Beneficiary against, and hold them
harmless from, any and all losses, damages, liabilities, claims, causes of
action, judgments, court costs, attorneys' fees and other legal expenses, costs
of evidence of title, costs of evidence of value, and other expenses which
either may suffer or incur: (i) by reason of this Deed of Trust; (ii) by reason
of the execution of this trust or the performance of any act required or
permitted hereunder or by law; (iii) as a result of any failure of Grantor to
perform Grantor's obligations; or (iv) by reason of any alleged obligation or
undertaking of Beneficiary to perform or discharge any of the representations,
warranties, conditions, covenants, or other obligations contained in any other
document related to the Subject Property, including without limitation, the
payment of any taxes, assessments, rents or other lease obligations, liens,
encumbrances or other obligations of Grantor under this Deed of Trust. Grantor's
duty to indemnify Trustee and Beneficiary shall survive the payment, discharge
or cancellation of the Secured Obligations and the release or reconveyance, in
whole or in part, of this Deed of Trust.
(c) Grantor shall pay all indebtedness arising under this Section 4.12
immediately upon demand by Trustee or Beneficiary, together with interest
thereon from the date of demand until paid in full at the highest rate per annum
payable under any Secured Obligation. Beneficiary may, at its option, add any
such indebtedness to any Secured Obligation.
4.13 Substitution of Trustees. From time to time, by a writing signed and
acknowledged by Beneficiary and recorded in the Office of each Recorder of the
County in which the Subject
Property is situated,
Beneficiary may appoint another trustee to act in the place and stead of Trustee
or any successor. Such writing shall set forth the recordation date and any
recording or other information required by law. The recordation of such
instrument of substitution shall discharge Trustee herein named and shall
appoint the new trustee as the trustee hereunder with the same effect as if
originally named Trustee herein. A writing recorded pursuant to the provisions
of this Section 4.13 shall be conclusive proof of the proper substitution of
such new Trustee.
4.14 Due on Sale or Encumbrance. Except as permitted by the provisions of any
Secured Obligation or applicable law, if the Subject Property or any interest
therein shall be sold, transferred (including without limitation, where
applicable, through sale or transfer of a majority or controlling interest of
the corporate stock, or any general partnership, limited liability company or
other similar interests of Grantor), mortgaged, assigned, encumbered or leased,
whether voluntarily, involuntarily or by operation of law (each of which actions
and events is called a "Transfer"), without Beneficiary's prior written consent,
THEN Beneficiary may, at its sole option, declare all Secured Obligations
immediately due and payable in full. Grantor shall notify Beneficiary in writing
of each Transfer within ten (10) business days of the date thereof.
DEED OF TRUST With Assignment of Rents (02/98), Page 9
<PAGE>
4.15 Releases, Extensions, Modifications and Additional Security. Without notice
to or the consent, approval or agreement of any persons or entities having any
interest at any time in the Subject Property or in any manner obligated under
any Secured Obligation (each, an "Interested Party"), Beneficiary may, from time
to time, release any Interested Party from liability for the payment of any
Secured Obligation, take any action or make any agreement extending the maturity
or otherwise altering the terms or increasing the amount of any Secured
Obligation, accept additional security, and enforce, waive, subordinate or
release all or a portion of the Subject Property or any other security for any
Secured Obligation. None of the foregoing actions shall release or reduce the
personal liability of any Interested Party, nor release or impair the priority
of the lien of this Deed of Trust upon the Subject Property.
4.16 Reconveyance. Upon Beneficiary's written request, and solely to the extent
required by applicable law upon surrender of this Deed of Trust and every note
or other instrument setting forth any Secured Obligations to Trustee for
cancellation, Trustee shall reconvey, without warranty, the Subject Property, or
that portion thereof then covered hereby, from the lien of this Deed of Trust.
The recitals of any matters or facts in any reconveyance executed hereunder
shall be conclusive proof of the truthfulness thereof. To the extent permitted
by law, the reconveyance may describe the grantee as "the person or persons
legally entitled thereto." Neither Beneficiary nor Trustee shall have any duty
to determine the rights of persons claiming to be rightful grantees of any
reconveyance. When the Subject Property has been fully reconveyed, the last such
reconveyance shall operate as a reassignment of all future Rents to the person
or persons legally entitled thereto. Upon Beneficiary's demand, Grantor shall
pay all costs and expenses incurred by Beneficiary in connection with any
reconveyance.
4.17 Subrogation. Beneficiary shall be subrogated to the lien of all
encumbrances, whether or not released of record, paid in whole or in part by
Beneficiary pursuant to this Deed of Trust or by the proceeds of any Secured
Obligation.
4.18 Grantor Different From Obligor ("Third Party Grantor"). As used in this
Section 4.18, the term "Obligor" shall mean each person or entity obligated in
any manner under any of the Secured Obligations; and the term "Third Party
Grantor" shall mean (1) each person or entity included in the definition of
Grantor herein and which is not an Obligor under all of the Secured Obligations,
and (2) each person or entity included in the definition of Grantor herein if
any Obligor is not included in said definition.
(a) Representations and Warranties. Each Third Party Grantor represents and
warrants to Beneficiary that: (i) this Deed of Trust is executed at an Obligor's
request; (ii) this Deed of Trust complies with all agreements between each Third
Party Grantor and any Obligor regarding such Third Party Grantor's execution
hereof; (iii) Beneficiary has made no representation to any Third Party Grantor
as to the creditworthiness of any Obligor; and (iv) each Third Party Grantor has
established adequate means of obtaining from each Obligor on a continuing basis
financial and other information pertaining to such Obligor's financial
condition. Each Third Party Grantor agrees to keep adequately informed from such
means of any facts, events or circumstances which might in any way affect such
Third Party Grantor's risks hereunder. Each Third Party Grantor further agrees
that Beneficiary shall have no obligation to disclose to any Third Party Grantor
any information or material about any Obligor which is acquired by Beneficiary
in any manner. The liability of each Third Party Grantor hereunder shall be
reinstated and revived, and the rights of Beneficiary shall continue if and to
the extent that for any reason any amount at any time paid on account of any
Secured Obligation is rescinded or
DEED OF TRUST With Assignment of Rents (02/98), Page 10
<PAGE>
must otherwise be restored by Beneficiary, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, all as though such
amount had not been paid. The determination as to whether any amount so paid
must be rescinded or restored shall be made by Beneficiary in its sole
discretion; provided however, that if Beneficiary chooses to contest any such
matter at the request of any Third Party Grantor, each Third Party Grantor
agrees to indemnify and hold Beneficiary harmless from and against all costs and
expenses, including reasonable attorneys' fees, expended or incurred by
Beneficiary in connection therewith, including without limitation, in any
litigation with respect thereto.
(b) Waivers.
(i) Each Third Party Grantor waives any right to require Beneficiary to: (A)
proceed against any Obligor or any other person; (B) marshal assets or proceed
against or exhaust any security held from any Obligor or any other person; (C)
give notice of the terms, time and place of any public or private sale of
personal property security held from any Obligor or any other person, or
otherwise comply with any other provisions of Section 9504 of the Idaho Uniform
Commercial Code; (D) take any action or pursue any other remedy in Beneficiary's
power; or (E) make any presentment or demand for performance, or give any notice
of nonperformance, protest, notice of protest or notice of dishonor hereunder or
in connection with any obligations or evidences of indebtedness held by
Beneficiary as security for or which constitute in whole or in part the Secured
Obligations, or in connection with the creation of new or additional
obligations.
(ii) Each Third Party Grantor waives any defense to its obligations hereunder
based upon or arising by reason of: (A) any disability or other defense of any
Obligor or any other person; (B) the cessation or limitation from any cause
whatsoever, other than payment in full, of any Secured Obligation; (C) any lack
of authority of any officer, director, partner, agent or any other person acting
or purporting to act on behalf of any Obligor which is a corporation,
partnership or other type of entity, or any defect in the formation of any such
Obligor; (D) the application by any Obligor of the proceeds of any Secured
Obligation for purposes other than the purposes represented by any Obligor to,
or intended or understood by, Beneficiary or any Third Party Grantor; (E) any
act or omission by Beneficiary which directly or indirectly results in or aids
the discharge of any Obligor or any portion of any Secured Obligation by
operation of law or otherwise, or which in any way impairs or suspends any
rights or remedies of Beneficiary against any Obligor; (F) any impairment of the
value of any interest in any security for the Secured Obligations or any portion
thereof, including without limitation, the failure to obtain or maintain
perfection or recordation of any interest in any such security, the release of
any such security without substitution, and/or the failure to preserve the value
of, or to comply with applicable law in disposing of, any such security; or (G)
any modification of any Secured Obligation, in any form whatsoever, including
without limitation the renewal, extension, acceleration or other change in time
for payment of, or other change in terms of, any Secured Obligation or any
portion thereof, including increase or decrease of the rate of interest thereon.
Until all Secured Obligations shall have been paid in full, no Third Party
Grantor shall have any right of subrogation, and each Third Party Grantor waives
any right to enforce any remedy which Beneficiary now has or may hereafter have
against any Obligor or any other person, and waives any benefit of, or any right
to participate in, any security now or hereafter held by Beneficiary. Each Third
Party Grantor further waives all rights and defenses it may have arising out of:
(1) any election of remedies by Beneficiary, even though that election of
remedies, such as a non-judicial foreclosure with respect to any security for
any portion of the Secured Obligations, destroys such Third Party Grantor's
rights of subrogation or such Third Party Grantor's rights to proceed against
any Obligor for reimbursement; or (2) any
DEED OF TRUST With Assignment of Rents (02/98), Page 11
<PAGE>
loss of rights any Third Party Grantor may suffer by reason of any rights,
powers or remedies of any Obligor in connection with any anti-deficiency laws or
any other laws limiting, qualifying or discharging any Obligor's obligations,
whether by operation of law or otherwise, including any rights any Third Party
Grantor may have to a fair market value hearing to determine the size of a
deficiency following any trustee's foreclosure sale or other disposition of any
security for any portion of the Secured Obligations.
(iii) If any of said waivers is determined to be contrary to any applicable law
or public policy, such waiver shall be effective to the extent permitted by
applicable law or public policy.
ARTICLE V. DEFAULT PROVISIONS
5.01 Default. The occurrence of any of the following shall constitute a
"Default" under this Deed of Trust: (a) Grantor shall fail to observe or perform
any obligation or agreement contained herein; (b) any representation or warranty
of Grantor herein shall prove to be incorrect, false or misleading in any
material respect when made; or (c) any default in the payment or performance of
any obligation, or any defined event of default, under any provisions of the
Note or any other contract, instrument or document executed in connection with,
or with respect to, any Secured Obligation.
5.02 Rights and Remedies. Upon the occurrence of any Default and, so long as
such Default is continuing, and at any time thereafter, Beneficiary and Trustee
shall have all the following rights and remedies:
(a) With or without notice, to declare all Secured Obligations immediately due
and payable in full.
(b) With or without notice, without releasing Grantor from any Secured
Obligation and without becoming a mortgagee in possession, to cure any Default
of Grantor and, in connection therewith: (i) to enter upon the Subject Property
and to do such acts and things as Beneficiary or Trustee deems necessary or
desirable to protect the security of this Deed of Trust, including without
limitation, to appear in and defend any action or proceeding purporting to
affect the security of this Deed of Trust or the rights or powers of Beneficiary
or Trustee hereunder; (ii) to pay, purchase, contest or compromise any
encumbrance, charge, lien or claim of lien which, in the judgment of either
Beneficiary or Trustee, is senior in priority to this Deed of Trust, the
judgment of Beneficiary or Trustee being conclusive as between the parties
hereto; (iii) to obtain, and to pay any premiums or charges with respect to, any
insurance required to be carried hereunder; and (iv) to employ, counsel,
accountants, contractors and other appropriate persons to assist them.
(c) To commence and maintain an action or actions in any court of competent
jurisdiction to foreclose this Deed of Trust as a mortgage or to obtain specific
enforcement of the covenants of Grantor under this Deed of Trust, and Grantor
agrees that such covenants shall be specifically enforceable by injunction or
any other appropriate equitable remedy and that for the purposes of any suit
brought under this subsection, Grantor waives the defenses of laches and any
applicable statute of limitations.
(d) To apply to a court of competent jurisdiction for and obtain appointment of
a receiver of the Subject Property as a matter of strict right and without
regard to: (i) the adequacy of the security for the repayment of the Secured
Obligations; (ii) the existence of a declaration that the Secured Obligations
are immediately due and payable; or (iii) the filing of a notice of default; and
Grantor consents to such appointment.
DEED OF TRUST With Assignment of Rents (02/98), Page 12
<PAGE>
(e) To take and possess all documents, books, records, papers and accounts of
Grantor or the then owner of the Subject Property; to make or modify Leases of,
and other agreements with respect to, the Subject Property upon such terms and
conditions as Beneficiary deems proper; and to make repairs, alterations and
improvements to the Subject Property deemed necessary, in Trustee's or
Beneficiary's judgment, to protect or enhance the security hereof.
(f) To execute or cause Trustee to execute a written notice of such Default and
of its election to cause the Subject Property to be sold to satisfy the Secured
Obligations.. Trustee shall give and record such notice as the law then requires
as a condition precedent to a trustee's sale. When the minimum period of time
required by law after such notice has elapsed, Trustee, without notice to or
demand upon Grantor, except as otherwise required by law, shall sell the Subject
Property at the time and place of sale fixed by it in the notice of sale, at one
or several sales, either as a whole or in separate parcels and in such manner
and order, all as directed by Beneficiary in its sole discretion, at public
auction to the highest bidder for cash, in lawful money of the United States,
payable at the time of sale. Except as required by law, neither Grantor nor any
other person or entity shall have the right to direct the order in which the
Subject Property is sold. Subject to requirements and limits imposed by law,
Trustee may postpone any sale of the Subject Property by public announcement at
such time and place of sale, and from time to time may postpone such sale by
public announcement at the time and place fixed by the preceding postponement.
Trustee shall deliver to the purchaser at such sale a deed conveying the Subject
Property or portion thereof so sold, but without any covenant or warranty,
express or implied. The recitals in said deed of any matters or facts shall be
conclusive proof of the truthfulness thereof. Any person, including Trustee,
Grantor or Beneficiary, may purchase at such sale.
(g) To resort to and realize upon the security hereunder and any other security
now or later held by Beneficiary concurrently or successively and in one or
several consolidated or independent judicial actions or lawfully taken
non-judicial proceedings, or both, and to apply the proceeds received to payment
of the Secured Obligations, all in such order and manner as Beneficiary shall
determine in its sole discretion.
(h) Upon sale of the Subject Property at any judicial or non-judicial
foreclosure, Beneficiary may credit bid (as determined by Beneficiary in its
sole discretion) all or any portion of the Secured Obligations. In determining
such credit bid, Beneficiary may, but is not obligated to, take into account all
or any of the following: (i) appraisals of the Subject Property as such
appraisals may be discounted or adjusted by Beneficiary in its sole underwriting
discretion; (ii) expenses and costs incurred by Beneficiary with respect to the
Subject Property prior to foreclosure; (iii) expenses and costs which
Beneficiary anticipates will be incurred with respect to the Subject Property
after foreclosure, but prior to resale, including without limitation, costs of
structural reports and other due diligence, costs to carry the Subject Property
prior to resale, costs of resale (e.g., commissions, attorneys' fees, and
taxes), Hazardous Materials clean-up and monitoring, deferred maintenance,
repair, refurbishment and retrofit, and costs of defending or settling
litigation affecting the Subject Property; (iv) declining trends in real
property values generally and with respect to properties similar to the Subject
Property; (v) anticipated discounts upon resale of the Subject Property as a
distressed or foreclosed property; (vi) the existence of additional collateral,
if any, for the Secured Obligations; and (vii) such other factors or matters
that Beneficiary deems appropriate. Grantor acknowledges and agrees that: (A)
Beneficiary is not required to use any or all of the foregoing factors to
determine the amount of its credit bid; (B) this Section does not impose upon
Beneficiary any additional obligations that are not imposed by law at the time
the credit bid is made; (C) the amount of Beneficiary's credit bid need not have
any relation to any loan-to-
DEED OF TRUST With Assignment of Rents (02/98), Page 13
<PAGE>
value ratios specified in any agreement between Grantor and Beneficiary or
previously discussed by Grantor and Beneficiary; and (D) Beneficiary's credit
bid may be, at Beneficiary's sole discretion, higher or lower than any appraised
value of the Subject Property.
5.03 Application of Foreclosure Sale Proceeds. After deducting all costs, fees
and expenses of Trustee, and of this trust, including costs of evidence of title
and attorneys' fees in connection with a sale, all proceeds of any foreclosure
sale shall be applied first, to payment of all Secured Obligations (including
without limitation, all sums expended by Beneficiary under the terms hereof and
not then repaid, with accrued interest at the highest rate per annum payable
under any Secured Obligation), in such order and amounts as Beneficiary in its
sole discretion shall determine; and the remainder, if any, to the person or
persons legally entitled thereto.
5.04 Application of Other Sums. All Rents or other sums received by Beneficiary
hereunder, less all costs and expenses incurred by Beneficiary or any receiver,
including reasonable attorneys' fees, shall be applied to payment of the Secured
Obligations in such order as Beneficiary shall determine in its sole discretion;
provided however, that Beneficiary shall have no liability for funds not
actually received by Beneficiary.
5.05 No Cure or Waiver. Neither Beneficiary's, Trustee's or any receiver's entry
upon and taking possession of the Subject Property, nor any collection of Rents,
insurance proceeds, condemnation proceeds or damages, other security or proceeds
of other security, or other sums, nor the application of any collected sum to
any Secured Obligation, nor the exercise of any other right or remedy by
Beneficiary, Trustee or any receiver shall impair the status of the security of
this Deed of Trust, or cure or waive any breach, Default or notice of default
under this Deed of Trust, or nullify the effect of any notice of default or sale
(unless all Secured Obligations and any other sums then due hereunder have been
paid in full and Grantor has cured all other Defaults), or prejudice Beneficiary
or Trustee in the exercise of any right or remedy, or be construed as an
affirmation by Beneficiary of any tenancy, lease or option of the Subject
Property or a subordination of the lien of this Deed of Trust.
5.06 Costs, Expenses and Attorneys' Fees. Grantor agrees to pay to Beneficiary
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including court costs and reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Beneficiary's in-house
counsel), expended or incurred by Trustee or Beneficiary pursuant to this
Article V, 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 Beneficiary or any
other person) relating to Grantor or in any way affecting any of the Subject
Property or Beneficiary's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Grantor with interest
from the date of demand until paid in full at the highest rate per annum payable
under any Secured Obligation.
5.07 Power to File Notices and Cure Defaults. Grantor hereby irrevocably
appoints Beneficiary and its successors and assigns as Grantor's true
attorney-in-fact to perform any of the following powers, which agency is coupled
with an interest: (a) to execute and/or record any notices of completion,
cessation of labor, or any other notices that Beneficiary deems appropriate to
protect Beneficiary's interest; and (b) upon the occurrence of any event, act or
omission which with the giving of notice or the passage of time, or both, would
constitute a Default, to perform any obligation of Grantor hereunder; provided
however, that Beneficiary, as such
DEED OF TRUST With Assignment of Rents (02/98), Page 14
<PAGE>
attorney-in-fact, shall only be accountable for such funds as are actually
received by Beneficiary, and Beneficiary shall not be liable to Grantor or any
other person or entity for any failure to
act under this Section.
5.08 Remedies Cumulative; No Waiver. All rights, powers and remedies of
Beneficiary and Trustee hereunder are cumulative and are in addition to all
rights, powers and remedies provided by law or in any other agreements between
Grantor and Beneficiary. No delay, failure or discontinuance of Beneficiary in
exercising any right, power or remedy hereunder 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.
ARTICLE VI. MISCELLANEOUS PROVISIONS
6.01 No Merger. No merger shall occur as a result of Beneficiary's acquiring any
other estate in, or any other lien on, the Subject Property unless Beneficiary
specifically consents to a merger in writing.
6.02 Execution of Documents. Grantor agrees, upon demand by Beneficiary or
Trustee, to execute any and all documents and instruments required to effectuate
the provisions hereof.
6.03 Right of Inspection. Beneficiary or its agents or employees may enter onto
the Subject Property at any reasonable time for the purpose of inspecting the
Subject Property and ascertaining Grantor's compliance with
the terms hereof.
6.04 Notices. All notices, requests and demands which Grantor or Beneficiary is
required or may desire to give to the other party must be in writing, delivered
to Beneficiary at the following address:
WELLS FARGO BANK, NATIONAL ASSOCIATION
1300 S.W. Fifth Avenue T-13
Portland, OR 97201
Attention: Manager
and to Grantor at its address set forth at the signature lines below, or at such
other address as either party shall designate by written notice to the other
party in accordance with the provisions hereof.
6.05 Successors; Assignment. This Deed of Trust shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto; provided however, that this
Section does not waive the provisions of Section 4.14 hereof. Beneficiary
reserves the right to sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in, Beneficiary's rights and benefits
under the Note, any and all other Secured Obligations and this Deed of Trust. In
connection therewith, Beneficiary may disclose all documents and information
which Beneficiary now has or hereafter acquires relating to the Subject
Property, all or any of the Secured Obligations and/or Grantor and, as
applicable, any partners, joint venturers or members of Grantor, whether
furnished by any Grantor or otherwise.
DEED OF TRUST With Assignment of Rents (02/98), Page 15
<PAGE>
6.06 Rules of Construction. (a) When appropriate based on the identity of the
parties or other circumstances, the masculine gender includes the feminine or
neuter or both, and the singular number includes the plural; (b) the term
"Subject Property" means all and any part of or interest in the Subject
Property; (c) all Section headings herein are for convenience of reference only,
are not a part of this Deed of Trust, and shall be disregarded in the
interpretation of any portion of this Deed of Trust; (d) if more than one person
or entity has executed this Deed of Trust as "Grantor," the obligations of all
such Grantors hereunder shall be joint and several; and (e) all terms of Exhibit
A, and each other exhibit and/or rider attached hereto and recorded herewith,
are hereby incorporated into this Deed of Trust by this reference.
6.07 Severability of Provisions. If any provision of this Deed of Trust shall be
held to 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
Deed of Trust.
6.08 Recourse to Separate Property. Any married person who executes this Deed of
Trust as a Grantor and who is obligated under any Secured Obligation agrees that
any money judgment which Beneficiary or Trustee obtains pursuant to the terms of
this Deed of Trust or any other obligation of that married person secured by
this Deed of Trust may be collected by execution upon that person's separate
property, and any community property of which that person is a manager.
6.09 Governing Law. This Deed of Trust shall be governed by and construed in
accordance with the laws of the State of Idaho.
6.10 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 hereof. 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, this Deed of Trust and each other document, contract and
instrument required hereby or now or hereafter delivered to Beneficiary in
connection herewith (collectively, the "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 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 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 Documents.
The arbitration shall be conducted at a location in Idaho selected by the AAA or
other administrator. If there is any inconsistency between the terms hereof and
any such rules,
DEED OF TRUST With Assignment of Rents (02/98), Page 16
<PAGE>
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 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 Idaho State Bar or retired judges of the state or federal
judiciary of Idaho, 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 Idaho; (ii) may grant any remedy or relief that
a court of the state of Idaho 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 Idaho
Rules of Civil Procedure or other applicable law. Any Dispute in which the
amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 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 $25,000,000, 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
Idaho; 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 the state of
Idaho. 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 Idaho.
DEED OF TRUST With Assignment of Rents (02/98), Page 17
<PAGE>
(f) Real Property. Notwithstanding anything herein to the contrary, no Dispute
shall be submitted to arbitration unless: (i) Beneficiary specifically elects in
writing to proceed with the arbitration; or (ii) all parties to the arbitration
waive any rights or benefits that might accrue to them by virtue of the single
action rule statute of Idaho, thereby agreeing that all Secured Obligations, and
all mortgages, liens and security interests securing any of the Secured
Obligations, shall remain fully valid and enforceable.
(g) 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 Documents or the subject matter of the Dispute shall
control. The arbitration provision shall survive termination, amendment or
expiration of any of the Documents or any relationship between the parties.
IN WITNESS WHEREOF, Grantor has executed this Deed of Trust as of the date first
set forth above.
Grantor(s) Address(es):
ELMER'S RESTAURANT, INC. _________________________________________
By: ANITA GOLDBERG
------------------------------
ANITA GOLDBERG
PRESIDENT
FORM No. 24 - ACKNOWLEDGMENT- STEVENS-NESS LAW PUB. CO.,
CORPORATION PORTLAND, ORE.
- --------------------------------------------------------------------------------
STATE OF OREGON, )
) ss.
County of Multnomah ) On this 30th day of March, 1998, before
me appeared ________________________ and Anita Goldberg both to me personally
known, who being duly sworn, did say that she, the said President is the
________ President, and he, the said ____________________________ is the
__________________ Secretary _______________ of Elmer's Restaurant Inc the
within named Corporation, and that the seal affixed to said instrument is the
corporate seal of said Corporation, and that the said instrument was signed and
sealed in behalf of said Corporation by authority of its Board of Directors, and
________________________ and __________________________ acknowledge said
instrument to be the free act and deed of said Corporation.
DEED OF TRUST With Assignment of Rents (02/98), Page 18
<PAGE>
IN TESTIMONY WHEREOF, I have hereunto set
my hand and affixed my official seal the
day and year last above written.
LOUISE A. HALLMAN
-----------------------------------------
Notary Public for Oregon.
My Commission expires ___________________
DEED OF TRUST With Assignment of Rents (02/98), Page 19
<PAGE>
AG.
--------------
Please Initial
EXHIBIT A
(Description of Property)
Exhibit A to Deed of Trust and Assignment of Rents and Leases executed by
ELMER'S RESTAURANTS, INC., an Oregon corporation, as Grantor, to WELLS FARGO
BANK (ARIZONA), NATIONAL ASSOCIATION, as Trustee, for the benefit of WELLS FARGO
BANK, NATIONAL ASSOCIATION, as Beneficiary, dated as of March 23, 1998.
Description of Property
The land referred to in this commitment is in the State of IDAHO, County of ADA,
and is described as follows:
Lot 1 in Block 1 and Lot 1 in Block 2 of CAPITOL PARK, according to the Official
Plat thereof, filed in Book 53 of Plats at Pages 4728-4729, records of Ada
County, Idaho.
DEED OF TRUST; EXHIBIT A (03/97), Page A-1
EXHIBIT 22.1
SUBSIDIARIES
The Company owns 100 percent of the outstanding stock of Elmer's Pancake &
Steak House, Inc., an Oregon corporation.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,875,136
<SECURITIES> 0
<RECEIVABLES> 145,717
<ALLOWANCES> (5,000)
<INVENTORY> 216,537
<CURRENT-ASSETS> 1,937,758
<PP&E> 12,007,879
<DEPRECIATION> 7,311,372
<TOTAL-ASSETS> 8,180,610
<CURRENT-LIABILITIES> 1,571,989
<BONDS> 1,936,533
0
0
<COMMON> 1,417,034
<OTHER-SE> 2,090,303
<TOTAL-LIABILITY-AND-EQUITY> 8,180,610
<SALES> 15,757,151
<TOTAL-REVENUES> 16,596,397
<CGS> 9,754,393
<TOTAL-COSTS> 15,539,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324,578
<INCOME-PRETAX> 798,779
<INCOME-TAX> 269,000
<INCOME-CONTINUING> 529,779
<DISCONTINUED> 0
<EXTRAORDINARY> 368
<CHANGES> 0
<NET-INCOME> 529,779
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
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