<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
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 NO. 1-10004
TIS MORTGAGE INVESTMENT COMPANY
(Exact name of Registrant as specified in its Charter)
Maryland 94-3067889
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
655 Montgomery Street 94111
San Francisco, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 393-8000
______________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X NO____
-------
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at May 14, 1999
--------------------- ---------------------------
$.001 PAR VALUE 8,893,250 SHARES
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY
Index
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) Page Number
<S> <C>
Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
PART 1: FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the 1998 Form 10-K of the registrant (the
"Company"). These statements have been prepared in accordance with the
instructions of the Securities and Exchange Commission Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements.
In the opinion of the Company's management, all material adjustments of a
normal and recurring nature considered necessary for a fair presentation of
results of operations for the interim periods have been included. The results of
consolidated operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
3
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in Thousands except Share Data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Mortgage Related Assets
Residual Interests $ 293 $ 284
Interest Only (IO) Bonds 9 840
Commercial Securitizations 184 184
-------- --------
Total Mortgage Related Assets 486 1,308
-------- --------
Operating Real Estate Assets, net 28,182 20,172
-------- --------
Other Assets
Cash and Cash Equivalents 80 2,767
Restricted Cash 525 140
Accrued Interest and Accounts Receivable, Net 103 33
Amortizable Costs, Net 400 351
Prepaid Expenses 267 285
-------- --------
Total Other Assets 1,375 3,576
-------- --------
Total Assets $ 30,043 $ 25,056
======== ========
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accounts Payable and Accrued Liabilities $ 728 $ 473
Due to Trustee 621 1,218
Accrued Interest Payable 34 116
Notes Payable on Real Estate 19,761 13,794
Short-term Debt -- 667
-------- --------
Total Liabilities 21,144 16,268
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, par value $.001 per share;
100,000,000 shares authorized; 8,105,880 and
8,893,250 shares issued and outstanding on
December 31, 1998 and March 31, 1999,
respectively. 9 8
Additional Paid-in Capital 76,467 74,696
Accumulated Other Comprehensive Income (Loss) 8 (11)
Retained Deficit (67,585) (65,905)
-------- --------
Total Shareholders' Equity 8,899 8,788
-------- --------
Total Liabilities and Shareholders' Equity $ 30,043 $ 25,056
======== ========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts In Thousands except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED ASSETS
Interest Income
Mortgage Certificates, net $ -- $ 1,348
Short-term Investments 6 1
Residual Interests 8 35
Interest Only (IO) Bonds 41 55
Valuation Reserve Reduction -- 110
Gain (Loss) on Sale of Mortgage Related Assets 8 (21)
------------------- -------------------
Income from Mortgage Related Assets 63 1,528
------------------- -------------------
INTEREST AND CMO RELATED EXPENSES
Collateralized Mortgage Obligations
Interest -- 1,510
Administration Fees -- 17
Amortization of Deferred Bond Issuance Costs -- 33
Short-term Debt 1 38
------------------- -------------------
Total Interest and CMO Related Expenses 1 1,598
------------------- -------------------
REAL ESTATE OPERATIONS
Rental and Other Income 852 1,017
Operating and Maintenance Expenses (269) (367)
Interest on Real Estate Notes Payable (437) (423)
Depreciation and Amortization (157) (183)
Property Taxes (74) (82)
------------------- -------------------
Loss from Real Estate Operations (85) (38)
------------------- -------------------
OTHER EXPENSES
General and Administrative Expense 280 266
Repurchase of Common Stock in Excess of Market 1,377 --
------------------- -------------------
Total Other Expenses 1,657 --
Loss Before Minority Interest (1,680) (374)
Minority Interest -- 105
------------------- -------------------
Net Loss ($1,680) ($ 269)
- -----------------------------------------------------------------------------------------------------------------------
Basic Loss per Share ($0.19) ($0.03)
Weighted Average Shares Outstanding 8,631 8,106
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($1,680) ($ 269)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 32 204
Depreciation of Operating Real Estate Assets 157 183
Valuation Reserve Provision -- (856)
Increase in Accrued Interest and Accounts Receivable (83) (103)
Decrease in Prepaid Expenses 29 --
Decrease (Increase) in Other Assets -- (25)
Decrease in Accounts Payable and Accrued Liabilities 179 (359)
Decrease in Accrued Interest Payable (82) (56)
--------------- ---------------
Net Cash Used in Operating Activities (1,448) (1,281)
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net Decrease (Increase) in Restricted Cash (93) (349)
Investment in Real Estate Assets (28) (19)
Principal Reduction in Mortgage Certificates -- 4,035
Principal Reduction (Increase)` in Residual Interests (9) (118)
Principal Reduction in IO Bonds 831 145
Purchase of TISMIC Shares (671) --
Net Cash Received in Purchase of Novato Markets 16 --
Net Increase in Minority Interest in CMO -- 1,531
--------------- ---------------
Net Cash Provided by Investment Activities 46 5,225
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Due to Trustee (600) --
Decrease in Short-term Debt (667) (267)
Increase in Notes Payable on Real Estate 45 --
Principal Payments on Notes Payable on Real Estate (63) (68)
Principal Payments on CMO's -- (3,679)
--------------- ---------------
Net Cash Used in Financing Activities (1,285) (4,014)
--------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,687) (70)
Cash and Cash Equivalents at Beginning of Period 2,767 185
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 80 $ 115
=============== ===============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis Of Presentation
The accompanying interim condensed consolidated financial statements
do not include all of the information and disclosures generally required for
annual financial statements. They include the accounts of the Company, its
wholly-owned subsidiaries and its partnership interests in real estate assets.
All significant intercompany balances and transactions have been eliminated. In
the opinion of management all adjustments of a normal recurring nature
considered necessary for a fair presentation have been made. Operating results
for the quarter ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire year. These condensed consolidated
financial statements should be read in conjunction with the Company's Form 10-K
for the year ended December 31, 1998.
The Company's financial statements have been presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. In addition to the TIS Line
(see Note 8), management is currently evaluating the Company's alternatives to
fund its fiscal 1999 cash requirements. Such alternatives include, among other
things, consideration of (i) the sale of real property, (ii) the sale of
Structured Securities, (iii) reducing general and administrative expenses, (iv)
refinancing existing debt, and (v) entering into joint venture arrangement with
third parties. Management can provide no assurances as to the timing or ultimate
closure of any of the alternatives. These strategies are dependent on the
economic operating environment including volatility of interest rates and the
ability for the California Central Valley apartment rental market to absorb
rental increases. The Company believes that the proceeds from the TIS Line,
together with its on-going real estate operations and mortgage related
investment portfolio will provide sufficient liquidity for it to continue as a
going concern throughout 1999, however, management can provide no assurance with
regard thereto. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities or any other
adjustments that might result from these uncertainties.
Note 2 - Summary of Significant Accounting Policies
Income Taxes - The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended. As a REIT, the Company must
distribute at least 95% of its taxable income to its shareholders. No provision
has been made for income taxes in the accompanying consolidated financial
statements as the Company is not subject to federal income taxes. The loss
reported in the accompanying financial statements may be greater or less than
the taxable loss because some income and expense items are reported in different
periods for income tax purposes. Over the life of a Residual Interest or IO
Bond, total taxable income will equal total financial statement income.
However, the timing of income recognition may differ between the two from year
to year.
Basic Net Loss Per Share - Basic net loss per share is based upon the
weighted average number of shares of Common Stock outstanding. The common
equivalent shares related to the 1995 Stock Option Plan are antidilutive and
therefore are not included in the weighted average number of shares outstanding.
Statement of Cash Flows - For purposes of the statement of cash flows,
the Company considers only highly liquid instruments with original maturities of
three months or less to be cash equivalents. During the three months ended March
31, 1999, the Company acquired real estate and assumed the underlying debt by
issusing shares of the Company's common stock in a non-cash transaction (See
Note 9).
Use of Estimates in the Preparation of Financial Statements - 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 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.
7
<PAGE>
New Accounting Pronouncement - Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is expected to be adopted by the Company effective January 1, 2000.
This statement establishes standards for accounting for derivative instruments
and requires that an entity recognize derivatives as assets or liabilities in
the statement of financial position and measure those assets and liabilities at
fair value. Management has not fully assessed the impact of adoption of the
statement but does not anticipate it will have a significant impact on the
presentation of the Company's statements of financial position.
Note 3 - Residual Interests
Presented below is a schedule of the residual interests owned by the
Company.
RESIDUAL INTERESTS
- ------------------
(In thousands)
<TABLE>
<CAPTION>
Book Value
----------------------------------------------------
Purchase March 31, December 31,
Residual Series Price 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
BT 88-1 $1,537 $ 193 $ 176
LFR-9 2,589 81 89
CMSC I 8,642 14 14
FHLMC 25 4,934 3 3
FHLMC 21 5,361 2 2
- ----------------------------------------------------------------------------------------------------------------------------
Total Residual Interests $ 293 $ 284
============================================================================================================================
</TABLE>
8
<PAGE>
CMO Bonds in Residual Interests - Certain characteristics of the CMO
Bonds in the Company's Residual Interests are on the following tables:
<TABLE>
<CAPTION>
RESIDUAL INTERESTS
- -------------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% Of Issue)
----------------------------------------------------------------------
Name of Issuer TIS Initial Mar. 31, 1999
and Series/ TIS Purchase Principal Principal
CMO Issue Purchase TIS % Price Bond Balance Balance Bond Stated
Date Date Ownership ($000) Class ($000) ($000) Coupon Maturity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Bankers Trust May 29, 1991 99.990% $ 1,537 1-A $ 9,722 $ 0 7.35% Jan 1, 2013
Series 1988-1 1-B 8,017 0 8.50% Apr 1, 2014
(BT 88-1) 1-C 34,769 9,385 8.75% Apr 1, 2018
Feb 16, 1988 1-D 47,492 4,601 8.63% Apr 1, 2018
--------------------------
$ 100,000 $ 13,986
- -------------------------------------------------------------------------------------------------------------------------------
2) L F Rothschild Nov 7, 1990 100.000% $ 2,589 A $ 11,000 $ 0 Zero Coupon Jan 1, 2019
Trust 9 B 22,000 0 Zero Coupon Jan 1, 2019
(LFR-9) C 54,000 5,670 Zero Coupon Jan 1, 2019
Dec 2, 1988 D 32,850 11 Zero Coupon Jan 1, 2019
E 30,000 0 Zero Coupon Jan 1, 2019
R 150 150 Residual Bond Jan 1, 2019
--------------------------
$ 150,000 $ 5,831
- -------------------------------------------------------------------------------------------------------------------------------
3) Collateralized Dec 21, 1988 44.000% $ 4,462 I-1 $ 291,000 $ 0 7.95% Feb 1, 2009
Mortgage Mar 23, 1989 44.000% 4,180 I-2 194,000 0 9.45% May 1, 2013
--------- --------
Securities Corp. Subtotal 88.000% $ 8,642 I-3(Z) 15,000 21,062 9.45% Feb 1, 2017
========= ======== --------------------------
Series I (CMSC I) $ 500,000 $ 21,062
Jan 28, 1987
- -------------------------------------------------------------------------------------------------------------------------------
4) Federal Home Jun 22, 1989 55.000% $ 4,934 25-A $ 105,923 $ 0 9.00% Nov 15, 2018
Loan Mortgage 25-B 51,002 0 9.50% Nov 15, 2005
Corporation 25-C 53,028 0 9.50% Mar 15, 2011
Series 25 25-D 46,414 0 9.50% Feb 15, 2014
(FHLMC 25) 25-E 50,936 0 9.50% May 15, 2016
Dec 1, 1988 25-F 76,167 0 9.50% Dec 15, 2018
25-G 43,940 21,414 9.50% Feb 15, 2020
25-H 72,490 0 7.90% Feb 15, 2020
R 100 4 Residual Bond Feb 15, 2020
--------------------------
$ 500,000 $ 21,418
- -------------------------------------------------------------------------------------------------------------------------------
5) Federal Home Jan 5, 1989 62.500% $ 5,361 21-A $ 140,645 $ 0 8.90% Jan 15, 1998
Loan Mortgage 21-B 216,267 0 8.90% Feb 15, 2004
Corporation 21-C 101,503 0 9.10% Jan 15, 2006
Series 21 21-D 93,376 0 9.25% Jun 15, 2007
(FHLMC 21) 21-E 122,951 0 9.35% Feb 15, 2009
Nov 30, 1988 21-F 240,408 0 9.45% Sep 15, 2011
21-Z 84,750 39,316 9.50% Jan 15, 2020
R 100 4 Residual Bond Jan 15, 2020
--------------------------
$1,000,000 $ 39,320
===============================================================================================================================
</TABLE>
9
<PAGE>
CMO Collateral - The table below sets forth certain characteristics of
the mortgage collateral pledged to secure each CMO in which the Company holds a
Residual Interest.
<TABLE>
<CAPTION>
CMO COLLATERAL
- -----------------------------------------------------------------------------------------------------------------
CMO Collateral Data (100% of Issue)
------------------------------------------------
Weighted Mar.31, 1999 Current Weighted
Average Collateral Weighted Average
Residual Pass- Principal Average Remaining
Residual Interest Type of Through Balance Coupon Months to
Series Type Collateral Rate ($000) Rate Maturity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
BT 88-1 Fixed GNMA 9.00% 12,743 9.50% 196
LFR-9 Fixed FNMA 9.50% 5,663 10.21% 217
CMSC I Fixed FNMA 9.50% 19,985 10.14% 189
FHLMC 25 Fixed FHLMC 9.50% 20,793 10.35% 214
FHLMC 21 Fixed FHLMC 9.50% 38,145 10.22% 217
=================================================================================================================
</TABLE>
Note 4 - Interest Only (IO) Bonds
IO Bonds include both regular IO Bonds and Inverse IO Bonds. On March 4,
1999, the Company sold its interest in its IO Bond, FNMA Series 1992-123 S for
$782,879. This sale generated a gain of approximately $8,000. Presented below is
a schedule of the Company's IO Bonds.
INTEREST ONLY (IO) BONDS
- ------------------------
(In thousands)
<TABLE>
<CAPTION>
Book Value
-------------------------------
Name and Issuer Purchase March 31, December 31,
and Series Price 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA Series 1992-123 Class S $8,203 $ -- $ 809
Pru Home Mtg Corp Series 1992-7 4,776 9 31
- -----------------------------------------------------------------------------
$ 9 $ 840
=============================================================================
</TABLE>
Certain characteristics of the Company's IO Bonds are on the following
table:
<TABLE>
<CAPTION>
INTEREST ONLY BONDS
- --------------------------------------------------------------------------------------------------------------------
Collateral Data (% of IO held by TIS)
----------------------------------------------------------------
Weighted Mar. 31, 1999 Current Weighted
Name of Issuer TIS Average Collateral Weighted Average
and Series/ TIS Purchase Pass Principal Average Remaining
CMO Issue Purchase Price Type of Through Balance Coupon Months to
Date Date ($000) Collateral Rate to IO ($000) Rate Maturity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) Prudential Mar 27, 1992 $ 4,776 NON 0.5652% $ 19,663 8.80% 264
Home Mortgage AGENCY
Corporation
Series 1992-7
March 1, 1992
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
</TABLE>
10
<PAGE>
Note 5 - Operating Real Estate Assets
During the year ended December 31, 1995, the Company acquired four
multifamily housing properties in California's Central Valley. The properties
were purchased either in the form of direct ownership of the real property or in
the form of an interest in a partnership that directly owns the real property.
Capitalized costs differ from the purchase price due to capitalization of
acquisition costs. During 1998, one property was sold.
On February 2, 1999, the Company acquired all the shares of Novato Markets,
Inc. ("Novato") from Pacific Securitization, Inc., ("Pacific"). Novato, through
its wholly owned subsidiary P-SUB I, Inc. ("PSUB-I") owns two shopping centers
in Northern California ( See Note 9).
The carrying value of operating real estate assets at March 31, 1998 and
December 31, 1998 is presented in the following table:
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1999 1998
---------------------------------------------------------------------
<S> <C> <C>
Land $ 5,985 $ 4,120
Buildings and improvements 23,204 16,920
Personal property 917 899
-----------------------------
Total 30,106 21,939
Less accumulated depreciation
and amortization (1,924) (1,767)
-----------------------------
Net $ 28,182 $ 20,172
=============================
</TABLE>
At March 31, 1998, the Company's three multifamily properties had an
overall occupancy of 95%. The shopping centers had 1 vacancy representing 2% of
the total rentable square footage.
Note 6 - Notes Payable on Real Estate
As part of the 1995 acquisition of multifamily residential properties,
existing secured debt totaling $18,675,000 was assumed. In addition, new
secured debt of $1,815,000 was obtained in 1995. In August 1996, the River Oaks
and Four Creeks - II mortgage notes payable matured and were retired using the
proceeds from a new mortgage note in the principal amount of $11,235,000 (the
"Interim Note"). On March 24, 1997, the Company obtained permanent financing
with an insurance company (the "Permanent Financing"). The total loan proceeds
from the Permanent Financing amounted to $17,400,000 and, after certain costs
and fees, were used to retire the then-outstanding principal and interest on the
Interim Note of $11,235,000 and the mortgage note on Villa San Marcos of
$5,965,884. The Permanent Financing comprises three deeds of trust and an
assignment of rents on Four Creeks - II, River Oaks and Villa San Marcos. The
term of each of the underlying Mortgage Loans is ten years with a fixed annual
interest rate of 8.36% for River Oaks and 8.31% for the others The mortgages
comprising the Permanent Financing may not be retired during the first five
years and are subject to a prepayment penalty if prepaid after the fifth year.
On December 23, 1998 the Company sold its interest in River Oaks and the
purchaser assumed the mortgage balance of approximately $6.3 million. The Shady
Lane loan remains in the name of the seller of the property and will continue to
remain so until refinanced. The Company is servicing the debt and receives all
of the economic benefits from Shady Lane.
11
<PAGE>
On February 2, 1999, the Company acquired through the purchase of
stock of Novato Markets, Inc. the ownership of a shopping center located in
Rohnert Park, California, named Mountain Shadows Plaza, and a shopping center in
Petaluma, California, named Midtown Center (See Note 9). These shopping centers
are subject to existing secured debt totaling $5,984,000 at acquisition. This
financing is at a rate of 15.0% of which 10% is paid each month and the
remaining 5.0% accrues to the principal balance of the loan. The maturity date
of this loan is June 1, 1999 and may be extended at the option of the borrower
through June 1, 2000. The Company is planning to refinance this loan prior to
its maturity.
The following table summarizes the debt outstanding on the properties as of
March 31, 1999 and December 31, 1998, respectively.
<TABLE>
<CAPTION>
Interest Monthly
Principal Balance Basis of Rate Principal
-----------------
March 31, December 31, Interest March 31, Due and Interest
Property 1999 1998 Rate 1999 Date Payment
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shady Lane $ 1,285,705 $ 1,292,145 Floating 8.34% Dec. 1, 2004 $ 12,063
Villa San Marcos 6,793,632 6,825,984 Fixed 8.31% Apr. 1, 2007 70,597
Four Creeks - I 1,761,021 1,767,100 Fixed 8.16% Dec. 1, 2005 13,521
Four Creeks - II 3,889,902 3,908,426 Fixed 8.31% Apr. 1, 2007 31,649
Novato Markets 6,030,354 -- Fixed 15.00% June 1, 1999 (1)
- ---------------------------------------------------------------------------------------------------
Total $19,760,614 $13,793,655 $127,830
===================================================================================================
</TABLE>
(1) Payment on the Novato Markets Loan is interest only monthly at a pay
rate of 10% annual interest. Interest accrues to the unpaid balance at a
5% annual rate.
Note 7 - Short-Term Debt
At March 31, 1999 the Company had no short-term borrowings. As of December
31, 1998, short-term borrowings totaled $667,000 and consisted of a repurchase
agreement with Bear Stearns & Co. collateralized by some of the Company's IO
Bonds. The repurchase agreement had an initial term of one month, was renewed
on a month-to-month basis and was paid off on March 4, 1999 in conjunction with
the sale of FNMA 92-123.
Note 8 - Revolving Line of Credit
In April of 1999, the Company entered into a financing agreement with TIS
Financial Services, Inc., (the "Former Manager"), whereby the Former Manager
extended a revolving line of credit of $1,000,000 to the Company (the "TIS
Line"). The Former Manager and the Company have common ownership and executive
officers and as such are related parties. Credit support to the Former Manager
includes guaranteed loans by a bank and a board member of the Company in support
of the TIS Line to the Company. This line is to provide working capital to the
Company. This revolving line of credit is for a term of one year, is at the
rate of prime plus one and one half percent and is partially secured by the
Company's ownership in Bankers Trust series 1988-1 Residual Interest
Certificate. Payment on the line of credit can be accelerated on certain events,
including a change in control of the Company in which certain officers of the
Company are removed or in which a majority of the Board is changed.
12
<PAGE>
Note 9 - Exchange of Shares for Novato Markets
On February 2, 1999, the Company acquired all the shares of Novato Markets,
Inc. from Pacific Securitization, Inc. ("Pacific"), in exchange for 1,613,070
shares of Common Stock (the "Shares") of the Company pursuant to an Agreement
and Plan of Reorganization dated as of February 1, 1999, between the Company and
Pacific. Pacific is indirectly principally owned by Lorraine O. Legg, the
President and Chief Executive Officer and a director of the Company, and
Patricia M. Howe, a director of the Company. Through its wholly-owned
subsidiary, P-SUB I, Inc., Novato owns a shopping center located in Rohnert
Park, California, named Mountain Shadows Plaza, and owns a shopping center
subject to a ground lease in Petaluma, California, named Midtown Center. The
shopping centers have a combined commercial and retail space totaling
approximately 80,000 square feet. Mountain Shadows Plaza consists of three
buildings and is anchored by a large grocery store. Midtown Center consists of a
single building.
The Shares were issued to Pacific under an exemption to the registration
requirements of the Securities Act of 1933, as amended. Accordingly, the shares
are "restricted securities," as defined in Rule 144 of the Securities Act, and
are not freely transferable. The Company granted Pacific one-time demand
registration rights with respect to the Shares for the period beginning June 30,
1999 and ending February 2, 2001. It also granted Pacific piggy-back
registration rights in the event that the Company files a registration statement
under the Securities Act in connection with the proposed offer and sale for cash
of shares of Common Stock by it or by any of its shareholders. The share
exchange is intended to be a tax free reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended.
A summary of the assets acquired is as follows:
<TABLE>
<CAPTION>
Novato
(in thousands) Markets
---------------------------------------------------------
<S> <C>
Current Assets $ 306
Land 1,865
Buildings and improvements 6,106
Personal property & Other 169
-----------------
Total 8,140
Other Assets 81
-----------------
Total Assets 8,527
Current Liabilities 100
Mortgage Debt 5,984
-----------------
Net Purchase Price $ 2,443
=================
</TABLE>
13
<PAGE>
Note 10. Share Purchase from Turkey Vulture Fund XIII, Ltd.
On February 2, 1999, the Company acquired 793,700 shares of its Common
Stock from Turkey Vulture Fund XIII, Ltd. for $1,984,250, 20,000 shares of its
Common Stock from Christopher L. Jarratt for $40,000 and 12,000 shares of its
Common Stock from James G. Lewis for $24,000, pursuant to an Agreement dated as
of February 1, 1999, among the Company, Turkey Vulture Fund, Richard M. Osborne,
Third Capital, LLC, Mr. Jarratt and Mr. Lewis. Turkey Vulture Fund, Third
Capital and Messrs. Osborne, Jarratt and Lewis agreed that, for a period of
seven years, they will not directly or indirectly, among other things, (i)
effect or participate in or in any way assist any other person in effecting or
participating in (a) any acquisition of securities or rights to acquire
securities or assets of the Company or its subsidiaries, (b) any tender or
exchange offer, merger or other business combination involving the Company or
its subsidiaries, (c) any liquidation or other extraordinary transaction with
respect to the Company or its subsidiaries, or (d) any solicitation of proxies
or consents to vote any voting securities of the Company; (ii) form or in anyway
participate in a "group" with respect to the Company; (iii) otherwise act, alone
or in concert with others, to seek to control or influence the management, Board
of Directors or policies of the Company or its subsidiaries; (iv) take any
action to compel the holding of an annual or special meeting of stockholders; or
(v) enter into any discussions or arrangements with any person relating to the
foregoing. The parties also agreed to a mutual general release of all claims
arising out of or relating to the business or affairs of the Company or the
ownership of its stock. Messrs. Osborne, Jarratt and Lewis resigned from the
Company's Board of Directors, effective February 2, 1999. This share purchase
and the acquisition of Novato were approved by the Company's Board of Directors
and, specifically, by directors with no financial interest in either
transaction. The disinterested directors required that the share exchange
transaction be closed as a condition to closing the share purchase transaction.
In accordance with generally accepted accounting principles, the Company
recorded the share purchase transaction by allocating the total cash purchase
amount of $2,048,250 between additional paid-in capital on the accompanying
condensed consolidated balance sheet in the amount of $670,881, representing the
product of the number of shares purchased times the closing price of the
Company's shares on February 1, 1999, with the balance, $1,377,369, charged to
stock purchase expense on the accompanying condensed consolidated statement of
operations for the three months ended March 31, 1999.
Note 11. Funds Due to Trustee
During the fourth quarter of 1998, the Trustee for Bankers Trust Series
1988-1 (the "Trustee"), a nonequity residual interest investment of the Company,
inadvertently deposited approximately $1.2 million in the Company's accounts.
Such amount is reflected within cash and cash equivalents and due to trustee on
the accompanying consolidated balance sheet at December 31, 1998. In March 1999,
the Company repaid $600,000 of such amount to the Trustee. On March 11, 1999,
The Trustee filed an action in the United States District against the Company
for alleged breach of contract, common count and conversion. The complaint
alleged that the Trustee erroneously paid $1.2 million to the Company under the
terms of a mortgage-backed security of which the Company is one of the holders,
and that the Company has failed to repay approximately $600,000 of those monies
despite demand. The complaint requested repayment, prejudgment interest,
attorney's fees and costs. The Company acknowledges that it is required to repay
the remaining $600,000, but denies that it is liable to the Trustee for any
other amounts or that it ever breached any contract, converted monies, or
otherwise acted improperly. On March 23, 1999, the Trustee filed an application
for a writ of attachment, requesting expedited hearing thereon. The Company
opposed the expedited hearing and the Court denied the Trustee's request. On
April 1, 1999, the Trustee filed an amended complaint adding a request for a
constructive trust, and also set the attachment application for regular hearing
on May 11, 1999. The parties engaged in informal settlement discussions, both
before and after the filing of the original complaint. On May 11, 1999 the
Company and the Trustee reached settlement and agreed upon a plan of repayment
of the balance remaining whereby the Company paid $250,000 upon settlement and
agreed to pay the balance in July, 1999.
14
<PAGE>
Note 12. Reporting Comprehensive Income
As of January 1, 1998, the Company adopted FASB Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This
statement established standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income reported on the statement of operations
and changes in the fair value of its available-for-sale investments reported as
a component of shareholder's equity. The following table presents net income
adjusted by the change in unrealized gains or losses on the available-for-sale
investments as a component of comprehensive income.
<TABLE>
<CAPTION>
Three Months ended:
March 31,
1999 1998
----------------- -------------------
<S> <C> <C>
Net loss $ (1,680) $ (269)
Net change in unrealized gains
(losses)
available for sale investments 19 (31)
----------------- -------------------
Comprehensive income (loss) $ (1,661) $ (300)
================= ===================
</TABLE>
Note 13. Segment Data
The Company's operations consist of investments in structured securities
and a portfolio of multifamily residential housing. Each activity represents an
operating segment as defined by Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information and
financial results of each are reported and monitored by the Company. The
investments in structured securities are comprised primarily of mortgage related
assets consisting of both equity and non-equity residual interest instruments
and bond and REMIC based interest only strips. The real estate portfolio
consists of multifamily apartment buildings located in the California Central
Valley region and family shopping centers in Northern California. Units of each
of the apartment buildings are rented to residential tenants on either a month-
to-month basis or for terms of one year or less. The spaces in the family
shopping centers are leased to tenants over various terms.
The accompanying Balance Sheet and Statement of Operations are segregated
according to the related operating segments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
TIS Mortgage Investment Company ("TISMIC") is a Maryland corporation with
three subsidiaries. TIS Mortgage Acceptance Corporation, a Delaware corporation
("TISMAC") was incorporated on May 11, 1988. TIS Property Acquisition Company
("TISPAC"), a Maryland corporation, was incorporated on September 8, 1995.
TISPAC is a wholly-owned subsidiary of the Company for the purpose of owning and
financing real property. In March 1997, as part of the refinancing of two of
the Company's multifamily residential properties and a portion of the Four
Creeks property, title to those properties was vested in TISPAC.
Simultaneously, in March 1997, TISPAC entered into notes secured by mortgages on
those properties. TISPAC is a wholly owned subsidiary of TISMIC and as such is
a Qualified REIT Subsidiary. Accordingly, the accounts of TISPAC are
consolidated with those of the Company. On February 2, 1999 the Company
acquired Novato Markets, Inc., ("Novato") and made it a wholly owned subsidiary
of the Company. Novato was incorporated on July 26, 1956, and it has a wholly
owned subsidiary P-SUB I, Inc., ("P-SUB I") which was incorporated on June 4,
1997.
15
<PAGE>
Until 1994, the Company sought to generate income for distribution to its
shareholders primarily through acquisition of Structured Securities. Structured
Securities include (i) residual interests ("Residual Interests"), principal only
bonds ("PO Bonds") and interest only bonds ("IO Bonds") in collateralized
mortgage obligations ("CMOs"), which entitle the Company to certain cash flows
from collateral pledged to secure such securities; (ii) Mortgage Certificates
("Mortgage Certificates"), which include securities collateralized by or
representing equity interests in Mortgage Loans secured by first liens on single
family residences, multiple family residences or commercial real estate
("Mortgage Loans"); (iii) CMOs; and (iv) Commercial Securitizations ("Commercial
Securitizations"), which include debt obligations that are issued in multiple
classes and are funded as to the payment of interest and principal by a specific
group of Mortgage Loans on multiple family or commercial real estate, accounts
and other collateral. Beginning in 1994, the Company changed its investment
focus from investments in Structured Securities to multifamily real estate
located in California's Central Valley. Accordingly, during 1995, the Company
sold the majority of its investments in Structured Securities and acquired
during 1995 a portfolio of four income-producing residential real estate
properties of which one was sold in 1998. In February of 1999 the Company
acquired Novato Markets and with it acquired two family shopping centers. The
Company expects that the majority of its ongoing assets and operating results
will be related to its investments in real estate and selective development
opportunities.
Two related transactions that closed during the first quarter affected the
financial statements in different ways - the share repurchase described in Note
10 and the exchange of shares for shares of Novato Markets Inc. described in
Note 9. The repurchase of the shares resulted in a charge to income since the
price attributed to those shares was treated as a premium. The exchange of
shares resulted in a premium received by the Company and is reflected as an
increase in balance sheet assets. This accounting, which includes the charge to
income, is in strict adherence to GAAP.
In addition to historical information, this report includes forward-looking
statements regarding management's beliefs, projections and assumptions
concerning future results and events. These forward-looking statements may also
include words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions. Forward-looking statements are not
guarantees. They involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, results from investments of the Company,
the outcome of the contested election of directors at the Company's 1999 annual
meeting of stockholders, fluctuations in interest rates, deterioration in asset
and credit quality, changes in the availability of capital leading to among
other things insufficient cash and liquidity, changes in business strategy or
development plans, general economic or business conditions and the other factors
discussed in "Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on any forward-looking statements, which
speak as of the date hereof. The Company has no intention and undertakes no
obligation to update any forward-looking statement or to publicly announce the
results of any revision of any forward-looking statement to reflect future
developments or events.
RESULTS OF OPERATIONS
The Company had a net loss of $1,680,000 or $0.19 per share, for the
quarter ended March 31, 1999. This compares to a net loss of $269,000, or $0.03
per share, for the quarter ended March 31, 1998. The Company did not pay a
dividend in the first quarter of either year.
There was no interest income from mortgage certificates in the first
quarter of 1999 due to the sale of CMOT 28 during 1998. There was also no
interest expense related to Collateralized Mortgage Obligations, administration
fees or amortization of deferred bond issuance costs in the first quarter due to
this sale of CMOT-28.
Income from Residual Interests and Interest Only bonds was $49,000 in the
three months ended March 31, 1999 as compared to $90,000 in the prior year
period. The decline is due to reductions in carrying values on the assets as
well as the sale of FNMA 92-123 in the first quarter of 1999.
On March 4, 1999, the Company sold its interest in its IO Bond, FNMA Series
1992-123 S for $782,879. This sale generated a gain of approximately $8,000.
The Company used $616,000 of the proceeds to retire its short-term debt.
Real Estate operations generated a loss of $85,000 and $38,000 in the three
months ended March 31, 1999 and 1998, respectively. The major reason for the
decline was due to the sale of River Oaks Apartments in the fourth quarter of
1998 and the inclusion of Novato Markets in two months of the quarter.
For the three months ended March 31, 1999, general and administrative
expense totaled $280,000 as compared to $266,000 in the comparable prior year
period. The increase is primarily attributable to legal expenses incurred in
the first quarter.
The stock purchase expense on the accompanying condensed consolidated
statement of operations for the three months ended March 31, 1999 relates to the
share purchase transaction described in Note 10 to the accompanying financial
statements. In accordance with generally accepted accounting principles, the
Company recorded the share purchase transaction by allocating the total cash
purchase amount of $2,048,250 between additional paid-in capital on the
accompanying condensed consolidated balance sheet in the amount of $670,881,
representing the product of the number of shares purchased times the closing
price of the Company's shares on February 1, 1999, with the balance, $1,377,369,
charged to stock purchase expense.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company uses cash flow from operations to provide working capital to
support its operations and for the payment of dividends to its stockholders, and
uses its other capital resources for the purchase of, mortgage instruments,
multifamily residential properties and other real estate investments.
In April of 1999, the Company entered into a financing agreement with the
Former Manager whereby the Former Manager extended a revolving line of credit of
$1,000,000 to the Company. This line is to provide working capital to the
Company. This revolving line of credit is for a term of one year, is at the
rate of prime plus one and one half percent and is partially secured by the
Company's ownership in Bankers Trust series 1988-1 Residual Interest
Certificate. Payment on the line of credit can be accelerated on certain events,
including a change in control of the Company in which certain officers of the
Company are removed or in which a majority of the Board is changed.
The Company's cash flows for the three months ended March 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Used in Operating Activities $(1,448) $(1,281)
Used in Financing Activities (1,285) (4,014)
Provided by Investment Activities 46 5,225
---------------------------------------------
Net Increase in
Cash and Cash Equivalents ($2,687) ($ 70)
=============================================
</TABLE>
At March 31, 1999, the Company had unrestricted cash and cash
equivalents of $80,000.
Over the twelve months ending December, 1999, scheduled principal
maturities on the notes payable on multifamily real estate amount to $176,000
and are expected to be funded by cash flow from the Company's multifamily
residential properties. During the three months ended March 31, 1999 and 1998,
the income from real estate operations before depreciation and amortization
amounted to $58,000 and $145,000, respectively. The Company has no significant
commitments for capital expenditures relating to the real estate operations over
the twelve months ended December 31, 1999 and anticipates that any capital
expenditures or repair and maintenance activities would be funded from cash
generated from real estate activities. The Company expects to commence
construction on 126 units of apartments to be built on the ten acres of land
adjacent to the Villa San Marcos Apartments in Fresno, California. This
construction is expected to be funded by a construction loan.
The Company expects to retire the approximately $6 million in debt
assumed with the acquisition of Novato Markets prior to its maturity in June of
1999 and replace it with permanent financing however, the Company may, at its
option, extend the current loan to June 1, 2000.
On May 11, 1999 the Company and the Trustee reached settlement and
agreed upon a plan of repayment of the funds balance due to Trustee whereby the
Company paid $250,000 upon settlement and agreed to pay the balance in July,
1999.
17
<PAGE>
The Company's financial statements have been presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. In April 1999, the Company
obtained a $1,000,000 revolving line of credit from the Former Manager of the
Company for working capital purposes. In addition to the TIS Line, management
is currently evaluating the Company's alternatives to fund its fiscal 1999 cash
requirements. Such alternatives include, among other things, consideration of
(i) the sale of real property, (ii) the sale of Structured Securities, (iii)
reducing general and administrative expenses, (iv) refinancing existing debt,
and (v) entering into joint venture arrangements with third parties. Management
can provide no assurances as to the timing or ultimate closure of any of these
alternatives. These strategies are dependant on the economic operating
environment including volatility of interest rates and the ability for the
California Central Valley apartment rental market to absorb rental increases.
The Company believes that the proceeds from the TIS Line, together with its on-
going real estate operations and mortgage related investment portfolio will
provide sufficient liquidity for it to continue as a going concern throughout
1999, however, management can provide no assurance with regard thereto. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities or any other adjustments that might result from
these uncertainties.
YEAR 2000 COMPLIANCE
State of Readiness. The Company utilizes a number of computer software
programs and operating systems across its entire organization, including
applications used in financial business systems and various administrative
functions. To the extent that the Company's software applications contain
source code that is unable to appropriately interpret the upcoming calendar year
"2000" and beyond, some level of modification, or replacement of such
application will be necessary. The Company is in the process of identifying
applications that are not yet "Year 2000" compliant.
Costs of Addressing the Company's Year 2000 Issues. Given information
known at this time about the Company's systems that are non-compliant, coupled
with the Company's ongoing, normal course-of-business efforts to upgrade or
replace critical systems as necessary, management does not expect Year 2000
compliance costs to have any material adverse impact on the Company's liquidity
or ongoing results of operations.
Risks of the Company's Year 2000 Issues. No assurance can be given,
however, that all the Company's systems will be Year 2000 compliant or that
compliance costs or the impact of the Company's failure to achieve substantial
Year 2000 compliance will not have a material adverse impact on the Company's
future liquidity or results of operations.
The Company's Contingency Plan. Management has identified manual operating
procedures for critical operations to address the most reasonably likely worst
case scenarios regarding Year 2000 compliance.
DIVIDEND REINVESTMENT PLAN
The Company has a Dividend Reinvestment and Share Purchase Plan designed to
enable shareholders to have their dividends from the Company automatically
invested in additional shares of the Company. Mellon Securities Trust Company,
which is unaffiliated with the Company, acts as the Plan Administrator. The
purpose of the Plan is to provide shareholders with a convenient and economical
way of investing dividends in additional shares of the Company's Common Stock.
These shares will be purchased on the open market or, at the direction of the
Company's Board of Directors, directly from the Company at a 3% discount from
the open market price. The Company has registered 1,000,000 Common shares for
possible issuance under the Plan. The impact on liquidity from the Dividend
Reinvestment and Share Purchase Plan, if any, is expected to be immaterial.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
Reference is made to Item 7A of the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 for information about market risk, which
Item 7A is incorporated herein by reference. There have been no material changes
in this information.
18
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
-----------------
On March 11, 1999, The Bank of New York ("BNY") filed an action in the United
States District Court for the Northern District of California, Case No. C.99-
1130 MJJ, against the Company for alleged breach of contract, common count and
conversion. The complaint alleged that BNY erroneously paid $1.2 million to the
Company under the terms of a mortgage-backed security of which the Company is
one of the holders, and that the Company has failed to repay approximately
$600,000 of those monies despite demand. The complaint requested repayment,
prejudgment interest, attorneys fees' and costs. The Company acknowledges that
it is required to repay the remaining $600,000, but denies that it is liable to
BNY, a trustee to the Company, for any other amounts or that it ever breached
any contract, converted monies, or otherwise acted improperly. On March 23,
1999, BNY filed an application for a writ of attachment, requesting expedited
hearing thereon. The Company opposed the expedited hearing and the Court denied
BNY's request. On April 1, 1999, BNY filed an amended complaint adding a
request for a constructive trust, and also set the attachment application for
regular hearing on May 11, 1999. The parties engaged in informal settlement
discussions, both before and after the filing of the original complaint. On May
11, 1999 the Company and the Trustee reached settlement and agreed upon a plan
of repayment of the balance remaining whereby the Company paid $250,000 upon
settlement and agreed to pay the balance in July, 1999.
On January 27, 1999, Henry G. Elkins, Jr., who claims to be a shareholder
of the Company, brought an action against the Company in the California Superior
Court, San Francisco, Case No. 300 825, to compel the Company to hold an annual
meeting. On February 12, 1999, the Company voluntarily agreed to a stipulated
order requiring it to hold an annual meeting on or before June 11, 1999, subject
to there being a quorum, and to mail notice of the meeting on or before April
26, 1999. At Mr. Elkins' request, the Superior Court has scheduled a May 27,
1999 hearing to determine whether to hold the Company in contempt or to sanction
it for violation of the stipulated order. The Company believes that it has made
all efforts to comply in good faith with the stipulated order, that it was
effectively prevented from complying with the strict terms of the stipulated
order by delays in the SEC's review of the Company's preliminary proxy materials
and that the Company should not be held in contempt or sanctioned.
On or about April 26, 1999 the Company received a letter from Frederick G.
Tobin purporting to nominate himself and five other individuals for election as
directors. On May 18, 1999, the Company brought an action (which was amended on
May 21, 1999) against Mr. Tobin in federal District Court for the District of
Rhode Island, Case No. CA 99 250L seeking among other things a determination
that Mr. Tobin's nominations are invalid and to enjoin him from soliciting
proxies from the Company's stockholders. The Court declined the Company's
request for a temporary restraining order, but will hear the Company's request
for a preliminary injunction on May 28, 1999.
ITEM 2. Changes in Securities and Use of Proceeds.
------------------------------------------
On February 2, 1999, the Company acquired all the shares of Novato Markets,
Inc. from Pacific Securitization, Inc., in exchange for 1,613,070 shares of
Common Stock of the Company (or approximately 18.1% of its then outstanding
shares), pursuant to an Agreement and Plan of Reorganization dated as of
February 1, 1999, between the Company and Pacific. Pacific is indirectly
principally owned by Lorraine O. Legg, the President and Chief Executive Officer
and a director of the Company, and Patricia M. Howe, a director of the Company.
The Shares were issued to Pacific under a Section 4(2) exemption to the
registration requirements of the Securities Act of 1933, as amended. The
Company valued the shares of Novato at $2,443,000, representing the net asset
value of the underlying real estate assets.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit No.
-----------
10.1 Revolving Credit Agreement, dated as of April, 1999,
between TIS Mortgage Investment Company and TIS
Financial Services, Inc.
10.2 Pledge Agreement, dated as of May, 1999, between TIS
Mortgage Investment Company and TIS Financial
Services, Inc.
27 Financial Data Schedule
(b) During the first quarter of 1999, the Company filed a Current
Report on Form 8-K, on February 17, 1999, covering the Company's issuance of
shares of common stock to Pacific Securitization, Inc., under Item 2 of Form 8-
K, and the Company's repurchase of shares of common stock from Turkey Vulture
Fund XIII, Ltd. and its affiliates, and the appointment of new directors, under
Item 5 of Form 8-K. The Company filed an amendment to this Report, on April 5,
1999, stating that it had determined that financial statements and proforma
financial information on the Pacific Securitization transaction did not need to
be filed under Item 7 of Form 8-K.
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
TIS MORTGAGE INVESTMENT COMPANY
May 24, 1999 BY:/s/ Lorraine O. Legg
- ------------------------- -------------------------------------
Lorraine O. Legg
Date President and Chief Executive Officer
(Principal Executive Officer)
May 24, 1999 BY:/s/ John E. Castello
- ------------------------- -------------------------------------
John E. Castello
Date John E. Castello, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Revolving Credit Agreement, dated as of April, 1999,
between TIS Mortgage Investment Company and TIS
Financial Services, Inc.
10.2 Pledge Agreement, dated as of May, 1999, between TIS
Mortgage Investment Company and TIS Financial
Services, Inc.
27 Financial Data Schedule
<PAGE>
REVOLVING LINE OF CREDIT AGREEMENT
----------------------------------
This Revolving Line of Credit Agreement is made as of April ____, 1999 by
and between TIS Mortgage Investment Company, a Maryland corporation,
("Borrower") and TIS Financial Services Company, a California corporation,
("Lender") with reference to the following facts:
RECITALS
1. Borrower wishes to have access to and Lender is willing to make
available to Borrower a revolving line of credit in the amount of One Million
Dollars ($1,000,000) (the "Line of Credit").
2. Borrower is the registered owner of a 99.99% residual interest in a
pool of mortgage backed certificates guaranteed by the Government National
Mortgage Association as defined in the Certificate attached as Exhibit A to this
Pledge Agreement ("Mortgage Certificates"), which Mortgage Certificates shall be
pledged as security for Borrower's faithful performance of Borrower's
obligations under this Line of Credit Agreement;
3. The parties desire to enter into this Line of Credit Agreement to
provide for the terms and conditions stated below.
NOW, THEREFORE, the parties agree as follows:
I. THE LINE OF CREDIT
A. Nature of the Line of Credit. Lender agrees to make a revolving line of
----------------------------
credit available to Borrower in the amount of One Million Dollars
($1,000,000) (the "Credit Limit") on the terms and conditions set forth
herein, and Borrower accepts such Line of Credit subject to such terms and
conditions of this Agreement. Borrower may request an advance of all or a
part of the Line of Credit at any time while the Line of Credit is
available. Any amount repaid by the Borrower becomes available for the
Borrower to reborrow after the expiration of a hold period for payments by
personal checks of up to eleven business days. If Lender delays the
availability of funds, it will mail to the Borrower a notice within one
business day.
<PAGE>
Page 2 of 10
B. Advances. Advances under the Line of Credit may be in any amount not to
--------
exceed the credit limit remaining available. Advances shall be made by
writing to Lender and requesting the release of available funds.
C. Restrictions on Borrower's Use of the Line of Credit: Borrower agrees that
----------------------------------------------------
this Line of Credit shall only be used for the purposes of normal operating
expenses, improving and/or enhancing the Borrower's existing properties,
other matters associated with the maintenance and upkeep of Borrower's
existing properties or expenses incurred in the normal course of business on
terms and conditions agreed to by the Company.
D. Default. Lender may, in its sole discretion, refuse to make advances
-------
hereunder if an Event of Default has occurred (as defined in Paragraph V.
below).
E. Availability of the Line of Credit. Advances under the Line of Credit will
----------------------------------
be available until the earlier of the following (the "Termination Date"):
(1) the anniversary of the date of this Agreement, unless the Agreement is
renewed by Lender as described in paragraph 1.H below; or (2) the date
Lender terminates the Line of Credit because of an Event of Default pursuant
to Paragraph V; or (3) the date the Line of Credit is cancelled by the
Borrower pursuant to Paragraph III.A. On the Termination Date, no further
advances will be made available to the Borrower.
F. Credit Limit. A credit limit of One Million Dollars ($1,000.000) has been
------------
set on the Line of Credit. The Borrower agrees not to allow the principal
amount that the Borrower owes at any one time under this Agreement to exceed
the Credit Limit. Lender does not have to honor any request for an advance
which, when added to the unpaid balance, would exceed the Credit Limit.
G. Payments.
--------
1. The minimum payment due each month shall be the amount of accrued
interest and shall be due and payable in full on the tenth (10th) day of
each month, or on the next business day if said date falls on a Saturday or
Sunday, or on a holiday on which Lender is closed. In addition, the Borrower
must pay any amounts past due, any amount that exceeds the Credit Limit and
any other charges assessed as described in this Agreement.
2. The entire outstanding principal balance of the Line of Credit, together
with all accrued and unpaid interest thereon, and fees and charges owing in
connection therewith, shall be due and payable in full on the Termination
Date.
<PAGE>
Page 3 of 10
3. All sums received from the Borrower for application to the Line of
Credit shall be applied to the Borrower's obligations under the Line of
Credit in such order as determined by Lender.
H. Renewal. Upon a review of the Borrower's performance under this Agreement
-------
and other credit factors, Lender may, in its sole and absolute discretion,
renew this Agreement under terms and conditions satisfactory to the Borrower
and Lender. Any such renewal will be for a period of one year from the date
of the renewal.
II. INTEREST AND PAYMENTS
A. Payments. The Borrower can pay the balance of the credit outstanding under
this Agreement in full or part at any time without premium or penalty.
Lender may accept partial payments, whether or not marked "paid in full"
without losing our rights under this Agreement.
Payments shall be made to:
TIS Financial Services, Inc.
655 Montgomery Street, Suite 800
San Francisco, California 94111
If Lender receives the payment at the above address by 9:00 a.m. on any
business day, except Saturday or Sunday, Lender will credit the payment to
the amount outstanding under this Agreement as of that day.
C. Interest Rate.
--------------
1. The principal balance outstanding under this Agreement shall bear
interest at a fluctuating interest rate per annum equal to the Prime Rate
as announced by the San Francisco Federal Reserve Bank plus one and one-
half (1 1/2) percentage points, as said Prime Rate may change from time to
time.
2. Computation of Interest and Fees. All computations of interest and fees
made or called for hereunder shall be calculated on the basis of the actual
number of days the unpaid principal balance is outstanding divided by a
365/366 day year as appropriate.
3. Default Rate. At Lender's sole option in each instance, any amount not
paid when due under this Agreement (including interest) shall bear interest
from the due date at the interest rate shown above in Paragraph C. 1. This
may result in compounding of interest.
<PAGE>
Page 4 of 10
D. Promise to Pay Fees and Costs. The Borrower promises to pay according to
-----------------------------
the terms of this Agreement, all amounts outstanding and fees and costs
which may be assessed under this Agreement including reasonable attorneys'
fees (which may include the allocated costs of in-house counsel), court
costs, and collection costs.
E. Loan Fees. Borrower shall pay to Lender Three and One-Half (3 1/2) points
---------
upon Borrower's receiving any of the principal amount of this Line of
Credit.
III. OTHER TERMS
A. Cancellation by the Borrower. The Borrower may cancel this Agreement by
----------------------------
written notice to Lender. The Borrower's request will take effect at the
time it is received by Lender. If there is more than one Borrower, Lender
may treat a request by one of them under this Paragraph as a request by all
of them. At the time of cancellation, the outstanding balance will be
immediately due and payable.
B. Security: Borrower agrees to enter into the Pledge Agreement of even date
--------
as security for the performance of Borrower's obligations under this Line
of Credit.
IV. COVENANTS
The Borrower agrees that so long as credit is available under this Agreement and
until Lender is repaid in full, it will, unless Lender shall otherwise consent
in writing:
A. Insurance. Maintain public liability, property damage and worker's
---------
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses.
B. Records and Reports. Maintain a standard and modern system of accounting in
-------------------
accordance with generally accepted accounting principles or another basis
acceptable to Lender; permit Lender's representatives to have access to and
to examine its properties, books and records at all reasonable times; and
furnish Lender:
1. Promptly, a notice in writing of the occurrence of any event of default
hereunder or of any event which would become an event of default hereunder
upon giving of notice, lapse of time, or both.
2. Financial Statements and other information relating to the affairs of
the Borrower and any guarantors as Lender may request from time to time.
<PAGE>
Page 5 of 10
C. Purpose. Use the proceeds of the credit provided in this Agreement solely
-------
for the purposes of normal operating expenses, improving and/or enhancing
the Borrower's existing properties, other matters associated with the
maintenance and upkeep of Borrower's existing properties or expenses
incurred in the normal course of business on terms and conditions agreed to
by the Company.
D. Compliance with Laws. Comply with the laws, regulations and orders of any
--------------------
government body with authority over the Borrower's business.
E. No Further Encumbrances: Other than a first lien, Borrower shall not incur
-----------------------
any lien or encumbrance on any of Borrower's real estate assets without the
prior written consent of Lender.
V. EVENTS OF DEFAULT
The occurrence of any of the following events of default shall, at Lender's
option, terminate Lender's obligation to extend credit under this Agreement, and
make all sums of principal and interest immediately due and payable without
demand, presentment or notice, all of which are hereby expressly waived and
Lender may exercise all its rights against the Borrower, any guarantor and any
collateral as provided by law.
A. Failure to Pay Indebtedness. Failure to pay when due any obligation of
---------------------------
the Borrower to Lender.
B. Other Defaults. The occurrence of any event of default whether or not
--------------
waived by the obligee under any other indebtedness extended by any
institution or individual to the Borrower.
C. Breach of Covenant. Failure of the Borrower to perform any other term or
------------------
condition of this Agreement binding upon the Borrower.
D. Breach of Warranty. Any of the Borrower's representations or warranties
------------------
made herein or any statement or certificate at any time given pursuant
hereto or in connection herewith shall be false or misleading in any
material respect.
E. Insolvency: Receiver or Trustee. The Borrower, any guarantor of the
--------------------------------
indebtedness of the Borrower to Lender, or general partner of the Borrower
shall become insolvent, or admit its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business.
<PAGE>
Page 6 of 10
F. Judgments, Attachments. Any money judgment, writ, or warrant of attachment,
----------------------
or similar process shall be entered or filed against the Borrower or any
guarantor of any of the Borrower's obligations to Lender or any of its
assets and shall remain unvacated, unbonded or unstayed for a period of ten
days or in any event later than five days prior to the date of any proposed
sale thereunder.
G. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
----------
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the
Borrower, any guarantor of the indebtedness of the Borrower to Lender or
general partner of the Borrower.
H. Material Adverse Change. A material adverse change occurs in the Borrower's
-----------------------
financial condition or the financial condition of any guarantor of the
Borrower's obligations to Lender, which, in the opinion of Lender, would
affect the ability of the Borrower to repay any advances made by Lender
hereunder or any other of the Borrower's obligations hereunder, or of such
guarantor to perform under its guaranty.
I. Guaranty. Any guaranty of the indebtedness of the Borrower to Lender, at
--------
any time after the execution and delivery of such guaranty and for any
reason other than satisfaction in full of all indebtedness incurred
hereunder, ceases to be in full force and effect or is declared to be null
and void; or the validity or enforceability thereof is contested in a
judicial proceeding; or any guarantor denies that it has any further
liability under such guaranty; or any guarantor defaults in any provision of
any guaranty; or any financial information provided by any guarantor is
false or misleading in any material respect.
J. Change of Control. If any officer of Borrower shall resign, be replaced,
-----------------
or is terminated or if any member of the Board of Directors of Borrower
shall resign or be replaced, then Lender, at its sole option, may demand in
writing that all outstanding amounts due pursuant to this Line of Credit
shall be accelerated and shall become immediately due and owing. Lender may
make this demand even though the term of the Line of Credit, or any
extension of the Line of Credit, has not expired.
K. Government Action. Any government authority takes action that Lender
-----------------
believes materially adversely affects the Borrower's or any guarantor's
financial condition or ability to repay.
<PAGE>
Page 7 of 10
VIII. MISCELLANEOUS PROVISIONS
A. Failure or Indulgence Not Waiver. No failure or delay on the part of Lender,
--------------------------------
in the exercise of any power, right or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
B. Other Agreements. Nothing herein shall in any way limit the effect of the
----------------
conditions set forth in any security or other agreement executed by the
Borrower, but each and every condition hereof shall be in addition thereto.
C. Governing Law. The Borrower understands and agrees that this Agreement will
-------------
be governed by and interpreted in accordance with the laws of the State of
California.
D. Severability. If any provision of this Agreement is held to be
------------
unenforceable, such determination shall not affect the validity of the
remaining provisions of this Agreement.
E. Successors and Assigns. This Agreement is binding on the Borrower's and the
----------------------
Lender's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Lender's prior consent.
F. Arbitration
-----------
1. This paragraph concerns the resolution of any controversies or claims
between the Borrower and Lender, including but not limited to those that
arise from: (a) This Agreement (including any renewals, extensions or
modifications of this Agreement); (b) Any document, agreement or procedure
related to or delivered in connection with this Agreement; (c) Any violation
of this Agreement; or (d) Any claims for damages resulting from any business
conducted between the Borrower and Lender, including claims for injury to
persons, property, or business interests (torts).
2. Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
<PAGE>
Page 8 of 10
3. For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy that may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so to dismiss
the arbitration on that basis.
4. If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
5. The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed end enforced.
6. This provision does not limit the right of the Borrower or Lender to:
(a) exercise self-help remedies such as setoff: (b) foreclose against or
sell any real or personal property collateral: or (c) act in a court of law,
before, during or after the arbitration proceeding to obtain (i) an interim
remedy, and/or (ii) additional or supplementary remedies.
7. The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute
a waiver of the right of the Borrower or Lender, including the suing party,
to submit the controversy or claim to arbitration if the other party
contests the lawsuit.
G. Hazardous Waste Indemnification. The Borrower will indemnify and hold
-------------------------------
harmless Lender from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a hazardous
substance. This indemnity will apply whether the hazardous substance is on,
under or about the Borrower's property or operations or property leased to
the Borrower. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel
and staff). The indemnity extends to Lender, its parent, subsidiaries and
all of their directors, officers, employees, agents, successors, attorneys
and assigns. For these purposes, the term "hazardous substances" means any
substance which is or becomes designated as "hazardous" or "toxic" under any
federal, state or local law. This indemnity will survive repayment of the
Borrower's obligations to Lender.
<PAGE>
Page 9 of 10
H. One Agreement. This Agreement and any related security or other agreements
-------------
required by this Agreement collectively: (1) represent the sum of the
understandings and agreements between Lender and the Borrower concerning
this credit; and (2) replace any prior oral or written agreements between
Lender and the Borrower concerning this credit; and (3) are intended by
Lender and the terms agreed to by them. In the event of any conflict between
this Agreement and any other agreements required by this Agreement, this
Agreement will prevail.
I. Change of Terms. Lender may change any term or condition of this Agreement,
---------------
to the extent permitted by law, by providing written notice to the Borrower.
Any such change shall apply to any unpaid balance outstanding under this
Agreement as well as any future transactions under this Agreement.
J. Notice. As required herein, notice to Lender shall be sent to the Lender to
------
be effective when received by Lender, with a copy to Lender's counsel by
facsimile at:
Lender:
-------
TIS Financial Services, Inc
Attention: Lorraine Legg
655 Montgomery Street, Suite 800
San Francisco, California 94111
Facsimile: (415) 393-8006
With a copy to counsel for Lender:
----------------------------------
Leonard P. Mastromonaco, Esq.
Zitrin & Mastromonaco, LLP
445 Bush Street, Suite 600
San Francisco, California 94108
Facsimile: (415) 732-7555
Notice to Borrower shall be sent to Borrower, to be effective when received by
Borrower, with a copy to Borrower's counsel by facsimile at:
Borrower:
---------
TIS Mortgage Investment Company
Attention: Lorraine Legg
655 Montgomery Street, Suite 800
San Francisco, California 94111
Facsimile: (415) 393-8006
<PAGE>
Page 10 of 10
With a copy to counsel for Borrower:
------------------------------------
Daniel E. Titlebaum, Esq.
Heller, Ehrmann, White & McAuliffe
333 Bush Street
San Francisco, California 94104
Facsimile: (415) 772-6268
The Borrower agrees to notify Lender promptly in writing of a change in the
Borrower's mailing address.
K. Costs. If Lender incurs any expense in connection with administering or
-----
enforcing this Agreement, or if Lender takes collection action under this
Agreement, it is entitled to costs and reasonable attorneys' fees, including
any allocated costs of in-house counsel. At Lender's option, Lender may add
these costs to the principal amount outstanding under this Agreement.
L. Attorneys' Fees. In the event of a lawsuit or arbitration proceeding, the
---------------
prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection
with the lawsuit or arbitration proceeding, as determined by the court or
arbitrator.
TIS Financial Services, Inc.,
a California corporation
By: ________________________________________
LORRAINE O. LEGG
President and Chief Executive Officer
TIS Mortgage Investment Company,
a Maryland corporation
By: ________________________________________
LORRAINE O. LEGG
President and Chief Executive Officer
<PAGE>
PLEDGE AGREEMENT
(Mortgage Certificates)
This Pledge Agreement ("Agreement") is made as of this _________ day of May
1999 by TIS Mortgage Investment Company, a Maryland corporation ("Pledgor"), and
TIS Financial Services, Inc., a California corporation ("Lender").
RECITALS
--------
WHEREAS, pursuant to a certain Revolving Line of Credit Agreement of even
date herewith, between Lender and Pledgor, as Borrower, Lender agreed to make
available to Pledgor the sum of One Million Dollars ($1,000,000.00) in the form
of a line of credit ("the Line of Credit");
WHEREAS, Pledgor has agreed to secure Pledgor's obligations in the Line of
Credit by Pledgor's residual 99.99% interest in a pool of mortgage backed
certificates guaranteed by the Government National Mortgage Association as
defined in the Certificate attached as Exhibit A to this Pledge Agreement
("Mortgage Certificates"); and
WHEREAS, as a condition of making the Line of Credit, Lender has required
Pledgor to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing, Pledgor hereby agrees as
follows:
SECTION 1. Definitions. All capitalized terms used in this Agreement, but not
------------
defined herein, shall have the meanings set forth in the Revolving Line of
Credit Agreement.
SECTION 2. Pledge. The Pledgor hereby pledges to Lender, and grants to Lender a
------
security interest in, the Mortgage Certificates.
SECTION 3. Security for Obligations. This Agreement secures the payment of all
------------------------
obligations of the Pledgor now or hereafter existing under the Line of Credit
whether for principal, interest, fees expenses or otherwise, and all obligations
of the Pledgor now or hereafter existing under this Agreement (all such
obligations of the Pledgor being the "Obligations").
SECTION 4. Delivery of Mortgage Certificates. All certificates or instruments
---------------------------------
representing or evidencing the Mortgage Certificates shall be delivered to and
held by or on behalf of Lender.
SECTION 5. Representations and Warranties. The Pledgor represents and warrants
------------------------------
as follows:
Page 1 of 5
<PAGE>
(a) The Pledged Debt has been duly authorized, authenticated, or issued
and delivered, and is the legal, valid and binding obligation of the
issuers thereof, and is not in default.
(b) The Pledgor is the legal and registered owner of the Mortgage
Certificates free and clear of any lien, security interest, option or
other charge or encumbrance except for the security interest created
by this Agreement.
(c) The pledge of the Mortgage Certificates pursuant to this Agreement
creates a valid and perfected first priority security interest of
Pledgor's interest in the Mortgage Certificates, securing the payment
of the Obligations.
SECTION 6. Further Assurances. The Pledgor agrees that at any time and from
------------------
time to time, at the expense of the Pledgor, the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that Lender may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable Lender to exercise and enforce its rights and remedies
hereunder with respect to the Mortgage Certificates.
SECTION 7. Transfers and Other Liens. Without the prior written consent of
-------------------------
Lender, the Pledgor agrees that it will not (i) sell or otherwise dispose of or
grant any option with respect to, the Mortgage Certificates or (ii) create or
permit to exist any lien, security interest, or other charge or encumbrance upon
or with respect to the Mortgage Certificates, except for the security interest
under this Agreement.
SECTION 8. Lender Appointed Attorney-in-Pact. The Pledgor hereby appoints
---------------------------------
Lender as the Pledgor's attorney-in-fact, with full authority, from and after
the occurrence of an Event of Default, in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time, in Lender's
discretion to take any action and to execute any instrument which Lender may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse, and collect all instruments
made payable to the Pledgor representing any principal payment, interest
payment, or other distribution in respect of the Mortgage Certificates or any
part thereof and to give full discharge for the same.
SECTION 9. Lender May Perform. If the Pledgor fails to perform any agreement
------------------
contained herein, Lender may itself perform, or cause performance of such
agreement, and the expenses of Lender incurred in connection therewith shall be
payable by the Pledgor under Section 12 of this Agreement.
Page 2 of 5
<PAGE>
SECTION 10. Transfer by Lender. Lender shall have the right to pledge,
-------------------
hypothecate or other transfer its security interest in the Mortgage Certificates
to any Third Party without the consent of Pledgor.
SECTION 11. Remedies upon Default. If any Event of Default shall have occurred
----------------------
and be continuing:
(a) Lender may exercise in respect of the Mortgage Certificates, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code (the 'Code") in effect in
the State of California at that time, and Lender may also, without
notice except as specified below, sell the Mortgage Certificates or
any part thereof in a reasonably commercial manner.
(b) Any and all proceeds received by Lender in respect of any income, sale
of, collection from, or other realization upon all or any part of the
Mortgage Certificates may, in the discretion of Lender, be held by
Lender as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to Lender pursuant to
Section 12 in whole or in part by Lender against, all or any part of
the Obligations in such order as Lender shall elect. Any surplus of
such cash or cash proceeds held by Lender and remaining after payment
in full of all Obligations shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 12. Expenses The Pledgor will upon demand pay to Lender the amount of
--------
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Lender may incur in connection
with (i) the administration of this Agreement, (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Mortgage Certificates, (iii) the exercise or enforcement of any of the rights of
Lender hereunder, or (iv) the failure by the Pledgor to perform or observe any
of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of Lender and security
--------------------------
interests hereunder and all obligations of the Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Line of Credit or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Line of Credit;
Page 3 of 5
<PAGE>
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or
(d) any other circumstances which might otherwise constitute a defense
available to, or a discharge of the Pledgor.
SECTION 14. Amendments. Etc. No amendment or waiver of any provision of this
----------------
Agreement nor consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 15. Notice. Any notice required to be given by Lender under this
------
Agreement shall be effective immediately upon Borrower's receipt of such notice
to each of the following parties at the following addresses:
Pledgor:
--------
TIS Mortgage Investment Company
Attention: Lorraine Legg
655 Montgomery Street, Suite 800
San Francisco, California 94111
Facsimile: (415) 393-8006
With a copy to counsel for Pledgor:
-----------------------------------
Daniel E. Titlebaum, Esq.
Heller, Ehrmann, White & McAuliffe
333 Bush Street
San Francisco, California 94104
Facsimile: (415) 772-6268
Furthermore, any notice required to be given by Pledgor under this Agreement
shall be effective immediately upon Lender's receipt of such notice to the
following parties at each of the following addresses:
Lender:
-------
TIS Financial Services, Inc
Attention: Lorraine Legg
655 Montgomery Street, Suite 800
San Francisco, California 94111
Facsimile: (415) 393-8006
Page 4 of 5
<PAGE>
With a copy to counsel for Lender:
----------------------------------
Leonard P. Mastromonaco, Esq.
Zitrin & Mastromonaco, LLP
445 Bush Street, Suite 600
San Francisco, California 94108
Facsimile: (415) 732-7555
SECTION 16. Continuing Security Interest: Transfer of Mortgage Certificates.
---------------------------------------------------------------
This Agreement shall create a continuing security interest in the Mortgage
Certificates and shall (i) remain in full force and effect until all of the
indebtedness outstanding under the Line of Credit shall have been paid in full,
(ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure to
the benefit of Lender and its successors, transferees and assigns.
SECTION 17. Governing Law: Terms This Agreement shall be governed by and
--------------------
construed in accordance with the laws of tile State of California. Unless
otherwise defined herein or in the Line of Credit defined in Article 9 of the
Uniform Commercial Code in the State of California are used herein as therein
defined
IN WITNESS WHEREOF, the Pledgor has caused this agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
PLEDGOR:
TIS Mortgage Investment Company,
a Maryland corporation
By: ________________________________________
LORRAINE O. LEGG, President and CEO
Page 5 of 5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 80
<SECURITIES> 486
<RECEIVABLES> 103
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 30,106
<DEPRECIATION> (1,924)
<TOTAL-ASSETS> 30,043
<CURRENT-LIABILITIES> 1,406
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 19,738
<TOTAL-LIABILITY-AND-EQUITY> 30,043
<SALES> 0
<TOTAL-REVENUES> 915
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 781
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> (1,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,680)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
