<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1993
Commission File No. 0-18071
________________
INDUSTRIAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
Oregon 93-1013278
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2121 S.W. Broadway
Suite 100
Portland, Oregon 97201
(Address of principal executive offices, including zip code)
(503)228-2111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at February 14, 1994 was $3,046,875.
Outstanding at
Class February 14, 1994
----- -----------------
Class A, Without Par Value 1,875,000 shares
Class B, Without Par Value 5,625,000 shares
(The number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date)
The Index to Exhibits appears on Page 29.
Part III is incorporated by reference from the Annual Proxy Statement filed in
connection with the Annual Meeting of Shareholders to be held in 1994.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business - General . . . . . . . . . . . . . . . . . . . . 3
Nonperforming Portfolio . . . . . . . . . . . . . . . . . 4
Investment Activities . . . . . . . . . . . . . . . . . . 5
Financing . . . . . . . . . . . . . . . . . . . . . . . . 5
Competition . . . . . . . . . . . . . . . . . . . . . . . 5
Employees . . . . . . . . . . . . . . . . . . . . . . . . 5
Management Information Systems . . . . . . . . . . . . . . 5
Historical Business Discussion . . . . . . . . . . . . . 5
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . 7
Item 4.1. Executive Officers of Registrant . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements . . . . . . . . . . . . . . . . . . 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 28
PART III
Item 10. Directors and Executive Officers of the Registrant . . . 28
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 28
Item 13. Certain Relationships and Related Transactions . . . . . 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 29
Page 2
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PART I
ITEM 1. BUSINESS.
GENERAL
Industrial Funding Corp. ("Industrial" or the "Company"), an Oregon
corporation organized in October 1989, services a nonperforming lease portfolio
through asset collection and disposition activities through its operating
subsidiary, Industrial Leasing Corporation ("Industrial Leasing"). In addition
to collection activities, Industrial also manages an investment portfolio and
current legal proceedings pending against the Company. The change in
Industrial's business activities is the result of the sale of substantially all
of the Company's assets in May 1993. The sale significantly changed the
operations and business focus of the Company from its previous historical
activities.
In 1990 and 1991, the Company experienced a significant increase in the
level of its over 30 days past due small-ticket lease receivables, resulting in
operating losses during those years. The level of operating losses caused the
Company to be in violation of certain financial covenants contained in the
Company's credit agreements. The Company was required to restructure its entire
indebtedness under the terms of a Restructuring Agreement among the Company and
its senior and subordinated lenders effective on February 24, 1992.
The constraints imposed under the Restructuring Agreement severely impacted
the Company's operations, potential profitability, strategic opportunities and
the potential return to shareholders. The Company investigated various
alternatives which included a run-off of the lease portfolios and liquidation,
and a sale of the Company or its assets. After extensive negotiation, on
December 11, 1992, the Company entered into a definitive Agreement of Purchase
and Sale of Assets with ILC Acquisition Corp., (the "Purchaser") providing for
the sale of substantially all of the Company's assets (the "Asset Sale"), and
the Asset Sale was approved by the Company's shareholders on May 17, 1993. A
detailed discussion of the Asset Sale is contained in the Company's May 17, 1993
Proxy Statement.
On May 27, 1993, the Company completed the Asset Sale. Assets sold as a
result of the Asset Sale included the active lease portfolio valued at $83.8
million, cash and restricted cash of $15.6 million, and certain other assets
valued at $3.1 million. In consideration for the assets, Industrial received
$20.2 million in cash, a Purchase Note (the "Purchase Note") in the preliminary
principal amount of $19.6 million, payment by the Purchaser of Industrial's
remaining senior and subordinated debt in the amount of $61.5 million and the
assumption by ILC Acquisition Corp. of certain other liabilities valued at $1.2
million.
The final value of the Purchase Note was adjusted to $19.0 million,
effective September 22, 1993, which reflected adjustments resulting from an
audit of the Company's closing balance sheet. The Purchase Note has a three-
year term with semi-annual principal and interest payments payable each May 27
and November 27. The interest rate on the Purchase Note is 6 percent per annum.
The Purchase Note also supports representations and warranties made by
Industrial in connection with the sale. If an indemnification obligation arises
as a result of the Asset Sale, the Purchaser has the right to offset such
obligation under the Purchase Note. On November 29, 1993, the Company received
$3.7 million of principal and interest obligations pursuant to the terms of the
Purchase Note from the Purchaser.
Page 3
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Prior to the Asset Sale, the Company provided small-ticket capital
equipment lease financing to smaller businesses. Industrial's lease portfolio
was widely diversified as to equipment type, lessee and location. The small-
ticket leasing market is generally defined as leases covering capital equipment
with original equipment cost of up to $250,000 and with three to five year
terms. Industrial also owned and managed a "mid-ticket" equipment leasing
portfolio. Effective April 1989, the Company ceased originating mid-ticket
leases. Prior to the Asset Sale, Industrial originated leases principally
through four sales offices located on the West Coast of the United States.
These offices were all closed prior to the Asset Sale.
As of November 30, 1993, the total assets of the Company were comprised of
the following: (i) $7.4 million in cash; (ii) $18.3 million in short-term
investments; (iii) $15.9 million Purchase Note; and (iv) $3.1 million in
nonperforming and other assets. In addition, at the end of the same period,
pursuant to the indemnification obligation as a result of the Asset Sale, the
Company had received an indemnification claim from the Purchaser in the amount
of approximately $39,500. The Company has disputed this amount and has
requested arbitration in order to resolve the dispute.
In September 1993, the Company's Board of Directors initiated a review of
strategic alternatives that may be available to the Company as a result of the
Asset Sale. The Board's review will include consideration of various options,
including but not limited to the adoption of a plan of liquidation.
The Company maintains a staff of 15 employees and expects that staffing
levels will decline as the level of nonperforming assets decreases. It is
anticipated that expenses associated with the defense of the securities
litigation will continue to range from $1.5 million to $2.0 million per annum.
Since revenue items will only consist of income generated by the available cash
balance and the Purchase Note, the Company anticipates that expenses will exceed
income and a loss from operations will result until the litigation against the
Company is resolved.
NONPERFORMING PORTFOLIO
The Company had a write-off policy whereby those leases that were either
seriously delinquent or otherwise impaired were written down to their net
realizable value. The revised value was reflected as nonperforming assets on
the Company's balance sheet. The nonperforming assets were specifically
excluded from the Asset Sale. The Company continues to carry its nonperforming
portfolio at its net realizable value.
As of May 31, 1993, the fiscal quarter end immediately following the Asset
Sale, the aggregate value of the nonperforming assets, as reflected on the
financial statements of the Company, was $5.7 million. As assets written down
to their net realizable value cannot be written up, the Company applies all cash
proceeds received to reduce the aggregate book value of the nonperforming
assets. During the first six months after the closing of the Asset Sale, the
Company, through the application of cash recoveries, reduced the book value of
the nonperforming assets to $3.0 million as of November 30, 1993, a reduction of
approximately 47 percent.
Page 4
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The Company will continue its collection efforts so long as the performance
is deemed by management to be cost effective. If the ultimate recovery of cash
is less than the book value of the nonperforming assets, a loss will occur. If
the collection efforts result in recovery of the entire book value, any
additional recoveries will be recorded as a gain. The Company is unable to
predict with certainty whether its recovery efforts will result in a gain or
loss.
INVESTMENT ACTIVITIES
At the closing of the Asset Sale, the Company received cash proceeds of
$20.2 million. The Company invested these funds in a combination of short-term
and mid-term government securities, either directly, through investment in
government security bond funds, or through financial advisors. The Company
accounts for these funds at the lower of cost or current market value.
FINANCING
As a result of the Asset Sale, all of the senior and subordinated long-term
debt in the amount of $61.5 million as of May 27, 1993, was repaid. The Company
currently has no available short-term or long-term debt facilities.
COMPETITION
Due to the change in the nature of the Company's business, Industrial no
longer competes in providing financial services.
EMPLOYEES
The Company had 15 employees at November 30, 1993, who were primarily
engaged in collection activities. In addition to the collection and equipment
remarketing staff, the Company employs two accounting personnel and a company
manager. The Company believes that its relationship with its employees is
excellent.
MANAGEMENT INFORMATION SYSTEMS
Industrial maintains accounting records through a personal computer based
general ledger software system. The Company has also contracted with Parrish
Financial Servicing Company, L.P. to provide specific software and database
services associated with the management of the nonperforming portfolio. This
contractual arrangement, which commenced May 26, 1993, is for an initial term of
twelve months.
HISTORICAL BUSINESS DISCUSSION
For detailed information regarding historical activities of the Company,
see Industrial's Annual Report on Form 10-K for the period ended November 30,
1992.
Page 5
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ITEM 2. PROPERTIES.
The Company's office is located in a leased facility in Portland, Oregon
comprising a total of approximately 6,000 square feet. The Company's lease has
a two-year term expiring May 27, 1995. Prior to May 27, 1993, the Company
leased 52,500 square feet under the terms of a master lease with an expiration
of August 31, 2000. On May 27, 1993, this master lease was terminated by the
Company in exchange for a payment in the amount of $800,000. This termination
of the master lease closed simultaneously with the completion of the Asset Sale.
During the first five months of the fiscal year ended November 30, 1993, the
Company terminated all leases associated with its former sales offices located
in Washington and California.
ITEM 3. LEGAL PROCEEDINGS.
There is litigation pending against the Company, Industrial Leasing, the
Company's previous majority shareholder First City and certain of its former
affiliates and subsidiaries, certain directors, certain former directors and
officers, its independent auditor, and the underwriters of the December 8, 1989,
initial public offering. The class action lawsuits, WADE ET. AL. V. INDUSTRIAL
ET. AL., filed January 1992, and a related case BOWER ET. AL. V. BELZBERG ET.
AL., filed February 1992, allege violations of federal securities law. The WADE
lawsuit also alleges violations under California state law. These lawsuits were
filed in the United States District Court for the Northern District of
California, and allege that plaintiffs were damaged as a result of alleged
misstatements and omissions in documents disseminated in connection with the
initial public offering and in subsequent communications and public filings by
the Company, through February 1991. The Company has retained legal counsel to
defend against these actions. The lawsuits are in the early stages of
discovery, and therefore management is unable to determine their probable
impact. However, as the plaintiffs allege damages of approximately $22.5
million, the lawsuits could have a material effect on results of operations and
financial condition of the Company, if adversely determined.
As a result of the sale of substantially all of Industrial Leasing's assets
on May 27, 1993, plaintiffs moved the court for a preliminary injunction
restraining the Company from withdrawing, transferring, pledging or disposing of
any funds or assets received in connection with the Asset Sale, and further
moved the court to supervise the transfer of any such assets. The court denied
plaintiffs' injunction motions. In so doing, the court stated that plaintiffs
were likely to prevail on their Section 11 claims and that, in the absence of
the requested injunction, there was a possibility plaintiffs would be
irreparably harmed. The preliminary findings of the court, however, will not
control the ultimate determination of liability in connection with the
plaintiffs' Section 11 claim. Subsequently, plaintiffs filed an appeal with the
Ninth Circuit Court of Appeals. It is not known when the Court of Appeals will
review the appeal.
On October 6, 1993, the trial judge ordered the WADE and BOWER cases to a
settlement magistrate, in an attempt to facilitate a settlement of the
securities litigation. A settlement conference was held on January 6, 1994,
before the magistrate, with the parties and their counsel. Another settlement
conference is scheduled before the magistrate on April 5, 1994. There can be no
assurance, however, that the securities litigation will be resolved by a
settlement between the parties.
On December 14, 1993, the court certified the WADE lawsuit as a class
action.
The court has ordered a jury trial of the WADE action to begin in
September, 1994.
Page 6
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The Company has filed a lawsuit against two insurance carriers, demanding
coverage against American Home under a directors and officers liability policy
in the amount of approximately $5 million (Canadian), and against Continental
Insurance under a general liability policy and umbrella policy of approximately
$4 million (Canadian) and $16 million (Canadian), respectively. American Home
and Continental have each filed answers denying liability. Continental has also
filed a counterclaim against the Company, demanding reimbursement of the
attorney fees and costs it advanced to the Company in connection with the
defense of the securities class action lawsuits under a reservation of rights.
As of September 30, 1993, Continental has advanced the Company attorney fees and
costs in the amount of $560,667, which represents approximately 17 percent of
the legal costs incurred to date by the Company in defense of the class action
lawsuit.
In January 1993, Alex. Brown & Sons and Piper Jaffray, Inc., the
underwriters of the Company's initial public offering, filed an action against
the Company, demanding that the Company pay the underwriters' attorney fees and
costs associated with their defense of the securities litigation, in accordance
with the Underwriting Agreement entered into by the Company. The court has
granted the underwriterers' motion for summary judgment, on July 9, 1993, and
ordered the Company to pay the underwriters' costs and legal fees as they are
incurred. The Company has filed an appeal with the Ninth Circuit Court of
Appeals. The Company has been advised that as of November 30, 1993, the total
amount of expenses incurred by the underwriters was approximately $357,000.
The Company is also a defendant in various lawsuits resulting from normal
business activity. In the opinion of management, the disposition of all other
such litigation currently pending will not have a material effect on the
financial position or results of operation of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 17, 1993, the Company held its annual meeting and the shareholders
of the Company approved the following proposals: (i) the sale of substantially
all of the operating assets of Industrial Leasing pursuant to the Asset Sale
between ILC Acquisition Corp. and Industrial Leasing; (ii) the election of
Messrs. Alan R. Hibben, Brent S. Belzberg, Richard L. Doege, John J. Estok, and
K. Peter Zech to the Board of Directors; and (iii) the selection of Deloitte &
Touche as the Company's independent certified public accountants. The table
below shows the results of the shareholder voting:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
I) Approval of the Asset Sale 56,255,350 1,869,650 (1) 0
II) Election of Directors
Brent S. Belzberg 56,255,350 0 0
Richard L. Doege 56,255,350 0 0
John J. Estok 56,255,350 0 0
Alan R. Hibben 56,255,350 0 0
K. Peter Zech 56,255,350 0 0
III) Approval of Independent Accountants 56,255,350 0 0
<FN>
(1) Under Oregon law, a nonvote is considered a vote against a proposal.
</TABLE>
Page 7
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ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.
The name, age and current office of the executive officer of Industrial,
who is to serve until the next annual meeting of the Board of Directors or his
early resignation, are set forth below. Also indicated is the date when such
person commenced serving as an executive officer of Industrial.
<TABLE>
<CAPTION>
Officer
Name Age Since Position with the Company
- - - ---- --- ----- -------------------------
<S> <C> <C> <C>
John J. Estok 44 1991 President, Chief Executive Officer, Director
</TABLE>
PART II
ITEM 5. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
Industrial's Class A Common Stock is traded in the over-the-counter market
and reported on Nasdaq under the ticker symbol "IFDCA." On December 6, 1993,
the Company was informed by the National Association of Securities Dealers, that
pursuant to its bylaws, the Company did not meet the requirements to continue
inclusion under the Nasdaq National Market due to its failure to maintain a
sustained bid price of $1 per share during the preceding 6 month period. On
December 22, 1993, at the Company's request, the Company was removed from the
National Market, and hereafter will be included in the Nasdaq Small
Capitalization Market.
The Company has never paid dividends on its outstanding common or preferred
stock and does not expect to pay cash dividends on its outstanding common stock.
As of November 30, 1993, the accumulated but undeclared dividends with respect
to the preferred stock were $5.2 million. The Company intends to redeem its
preferred stock as soon as the litigation is resolved, assuming funds are then
available.
On November 30, 1993, there were approximately 112 holders of record of the
Class A Common Stock of Industrial.
CLASS A COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
For the Quarterly High Low
Period Ended Sales Price Sales Price
- - - ------------ ----------- -----------
<S> <C> <C>
November 30, 1993 $1.000 $0.750
August 31, 1993 1.000 0.750
May 31, 1993 1.125 0.875
February 28, 1993 1.375 1.125
November 30, 1992 $1.375 $0.875
August 31, 1992 1.375 1.000
May 31, 1992 1.430 1.125
February 28, 1992 1.438 0.750
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Years Ended November 30,
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue $10,323 $27,519 $40,221 $51,408 $38,235
Income (loss) before
income taxes (benefit) (1,336) (14,084) (1) (34,381) (2) (7,548) (2) 6,289
Net income (loss) 1,299 (6,140) (21,144) (4,348) 5,003
Net income (loss) per share (0.08) (1.07) (3.00) (0.58) 0.89
Cash dividends per common share 0.00 0.00 0.00 0.00 0.00
Weighted average common
shares outstanding 7,500,000 7,500,000 7,500,000 7,458,000 5,625,000
BALANCE SHEET DATA:
Total assets $44,595 $47,065 (3) $266,455 $364,079 $311,342
Long-term debt 0 0 (4) 205,062 176,934 148,504
Book value per common share 3.38 3.46 4.54 7.54 7.20
Redeemable preferred stock (5) 18,604 16,694 14,784 0 0
Common shareholders' equity 25,372 25,983 34,033 56,530 40,497
CASH FLOW DATA:
Lease Volume:
Small-ticket $2,773 $10,745 $22,112 $161,409 $145,339
Mid-ticket 0 0 0 0 15,497
--------- ---------- ---------- ---------- ----------
Total lease volume $2,773 $10,745 $22,112 $161,409 $160,836
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
<FN>
(1) In the fourth quarter of 1992, the Company reflected the sale of
substantially all of the assets of its wholly-owned subsidiary, Industrial
Leasing Corporation, and recorded a loss on sale of assets of $17.3
million.
(2) The Company continued to experience an increase in the level of
delinquencies in its small-ticket lease portfolio. Accordingly, a provision
for credit loss expense of $39.9 million and $19.1 million was recorded in
1991 and 1990, respectively, to adjust the allowance for credit loss to a
level management considered adequate at November 30, 1991 and 1990.
(3) In contemplation of the Asset Sale, $107.9 of liabilities at November 30,
1992 were reclassified to net assets held for sale. Total assets would have
been $155.0 million.
(4) $105.8 of long-term debt was reclassified to net assets held for sale at
November 30, 1992.
(5) The redeemable preferred stock is held by IFC Holdings Inc., a majority
shareholder of the Company.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is a discussion of the Company's financial condition and
results of operations. This discussion should be read in conjunction with the
audited financial statements appearing under Item 8 herein.
Subsequent to the Asset Sale, the Company has managed the collection of its
remaining assets, has invested the financial assets at market rates, and has
managed legal proceedings currently pending against the Company. The Company
intends to redeem its preferred stock as soon as the litigation is resolved,
assuming funds are then available.
In September 1993, the Company's Board of Directors initiated a review of
strategic alternatives that may be available to the Company as a result of the
Asset Sale. The Board will consider various options, including, but not limited
to, the adoption of a plan of liquidation.
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RESULTS OF OPERATIONS
FISCAL 1993 COMPARED TO FISCAL 1992
As a result of the Asset Sale on May 27, 1993, management believes
performance and results of operations are not comparable with the results
achieved during the preceding fiscal year. Revenue for the period of May
28, 1993 through November 30, 1993 consisted primarily of earnings on
investments and interest earned on the Purchase Note. Net selling, general and
administrative expenses for the same period consisted primarily of payroll and
collection costs and costs to defend the securities litigation.
Total revenue, which consisted of net lease revenue, gain on sale of
equipment and other income prior to the completion of the Asset Sale on May 27,
1993, in addition to interest and investment income after that date, was $10.3
million in 1993, compared to $27.5 million a year earlier.
Total expenses for fiscal 1993 were $11.6 million as compared to $41.6
million a year earlier. Since all of the Company's senior and subordinated debt
was retired at the close of the Asset Sale, the Company had no interest expense
after May 27, 1993. Total expenses included a loss on sale for the period ended
November 30, 1993, of $1.3 million, as compared to $17.3 million for fiscal
1992. Loss on sale expenses reflected additional closing costs and the
adjustment made to the Purchase Note as a result of the completion of the
closing date balance sheet.
The Asset Sale resulted in a loss for tax purposes. Furthermore, the
Company determined that it had adequate net operating loss carryforwards and
other deductions such that no income tax liability would result. Consequently,
the Company eliminated $2.7 million in deferred tax obligations associated with
the assets sold, and therefore reported net income for the fiscal year ended
November 30, 1993 of $1.3 million compared to a loss of $6.1 million a year
earlier. After accretion for dividend obligations associated with the Preferred
Stock, the Company reported a loss per common share of $0.08 for the period
ended November 30, 1993, compared to a loss of $1.07 per share a year earlier.
FISCAL 1992 COMPARED TO FISCAL 1991
New lease volume was $10.7 million in 1992 compared to $22.1 million a year
earlier. Repeat business with existing lessees was estimated to account for 27%
of new lease volume in 1992 compared to 21% in 1991. Although the new marketing
and credit policies implemented by the Company in 1991 achieved certain results
the Company was seeking, specifically, improved delinquency performance (1.8%
over 30 days delinquent at November 30, 1992 for leases funded since March 1991
compared to 12.4% over 30 days delinquent at November 30, 1992 for leases funded
prior to March 1991), new lease volume was at lower than anticipated levels of
$17 million to $21 million. As a result of the new marketing and credit policies
and the high sales staff turnover of 70% in 1992, the Company had difficulties
generating sufficient levels of new business. The Company did not sacrifice
improved performance characteristics for higher levels of lease volume
Total revenue, which consisted of net lease revenue, gain on sale of
equipment and other revenue, was $27.5 million in 1992 compared to $40.2 million
in 1991. Net lease revenue was $22.4 million in 1992 compared to $36.0 million
in 1991. The decline in net lease revenue resulted from lease receivable run-
off, reduced levels of new business volume, early lease write-offs and
terminations. The Company's lease receivables averaged $185.0 million in 1992
compared to $290.0 million in 1991. Gain on sale of equipment was $2.6
Page 10
<PAGE>
million in 1992 compared to $2.0 million in 1991. Other revenue, comprised
primarily of finance charges on past due accounts and interest income, was $2.5
million in 1992 compared to $2.2 million in 1991.
Net selling, general and administrative expenses as a percentage of total
revenue were 33.0% in 1992, up from 24.0% in 1991. The percentage increase was
primarily the result of a decrease in total revenue. Actual selling, general
and administrative operating expenses, excluding expenses associated with the
class action lawsuit, declined by approximately $2.0 million. Expenses
associated with the securities lawsuit filed in January 1992 were $1.5 million
in 1992.
The provision for credit loss was $215,000 in 1992 compared to $39.9
million in 1991. The substantial decrease was primarily due to a $24.3 million
provision for credit loss expense recorded in the fourth quarter of 1991 to
cover write-offs and estimated future losses of the Company's lease portfolio at
November 30, 1991, and a reduction in the level of small-ticket delinquent
receivables in 1992. The provision for credit loss recorded during 1992 related
to an estimate of future credit losses associated with new lease volume funded
during that period. The allowance for credit loss was maintained at a level
considered adequate to provide for potential credit losses based upon
management's assessment of various factors affecting the quality of the
portfolio including loss experience, review of problem credits, aging of the
portfolio and general business conditions.
Small-ticket delinquent receivables (over 30 days past due) were 10.6% of
small-ticket lease receivables, or $12.7 million, at November 30, 1992, compared
to 14.8%, or $28.7 million, a year earlier. Nonperforming assets were 16.2% of
total assets at November 30, 1992 compared to 5.0% a year earlier. In
contemplation of the Asset Sale, $107.9 million of liabilities at November
30, 1992 were reclassified to net assets held for sale. Prior to the
reclassification, nonperforming assets as a percent of total assets was 4.9%.
In 1992, the Company wrote-down $18.7 million of lease receivables to their net
realizable value compared to $21.0 million in 1991. The Company believes that
the substantial improvement in small-ticket delinquent receivables over 30 days
past due was in part due to improved economic conditions throughout the United
States, a more seasoned collections staff, improvements in collection procedures
and enhancements to the reporting capabilities of its automated receivable
management system.
Interest expense as a percentage of total revenue was 54.5% in 1992
compared to 58.2% of total revenue in 1991. The Company's level of debt
declined significantly in 1992, from $205.1 million to $105.8 million, as a
result of a restructuring agreement which was executed in February 1992. The
reduced level of debt has resulted in lower interest expense as a percentage of
total revenue in 1992 compared to 1991. The average interest rate was 9.9% in
1992 compared to 10.0% in 1991.
The Company did not record any reorganization costs in 1992. In 1991, the
Company recorded reorganization costs of $1.7 million. These costs reflected
the estimated selling, general and administrative expenses and one-time costs
associated with closing six sales offices and a reduction of corporate operating
staff.
Page 11
<PAGE>
In 1992, the Company recorded an estimated loss on sale of assets of $17.3
million. See Note 1 of the Notes to Consolidated Financial Statements appearing
under Item 8 herein.
Net loss per share was $1.07 in 1992 compared to net loss per share of
$3.00 in 1991 (see Exhibit 11.1). The weighted average common shares
outstanding were 7,500,000 for both years.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1993, the principal amount of $61.5 million of long-term debt
was retired by the Company. In addition to the principal amount, interest
payments of approximately $538,000 and exit fees of approximately $325,000 were
paid by the Company to its senior and subordinated note holders.
During the fourth quarter ended November 30, 1993, the Company received the
first principal payment on the Purchase Note in the amount of approximately $3.2
million. Additional interest income was also received and is reflected as other
revenue on the Company's financial statements for the period ended November 30,
1993.
The Company has no available short-term or long-term debt facilities. The
Company believes that its present cash position will allow it to manage the
collection of the remaining assets, and defend the legal proceedings against the
Company.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 "ACCOUNTING FOR INCOME TAXES". This
statement supersedes Statement No. 96 and is effective for the Company's fiscal
year beginning December 1, 1993. Statement No. 109, like Statement 96, uses the
liability method to reflect the tax effect of differences between taxable income
and pretax financial income and adjusts deferred tax liabilities or assets for
changes in tax rates in the period such law is enacted. The Company currently
records taxes in accordance with Statement No. 96. The Company does not expect
that Statement No. 109, once adopted, will have a material effect on the
Company's financial statements.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 "ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN". This statement requires that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. This Statement applies to financial statements for fiscal years
beginning after December 15, 1994. The Company does not expect that this
statement, once adopted, will have a material effect on the Company's financial
statements.
Page 12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Industrial Funding Corp.
We have audited the accompanying consolidated balance sheets of Industrial
Funding Corp. and its subsidiary as of November 30, 1993 and 1992, and the
related consolidated statement of income, shareholders' equity, and cash flows
for each of the three years in the period ended November 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its subsidiary
at November 30, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended November 30, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, the
Company is a defendant in litigation relating to alleged violations of federal
securities laws. The ultimate outcome of the litigation cannot presently be
determined. Accordingly, no provision for any loss that may result upon
resolution of this matter has been made in the accompanying financial
statements.
DELOITTE & TOUCHE
Portland, Oregon
January 12, 1994
Page 13
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL FUNDING CORP.
- - - ---------------------------------------------------------------------------------------
Consolidated Balance Sheets
ASSETS
NOVEMBER 30, NOVEMBER 30,
--------------------------
(DOLLARS IN THOUSANDS) 1993 1992
- - - ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and temporary investments $6,586 -
Restricted cash 800 -
Short-term investments 18,260 -
Note receivable 15,869 -
Net assets held for sale - $39,458
Nonperforming assets 3,025 7,607
Other assets 55 -
--------------------------
Total Assets $44,595 $47,065
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $619 $2,331
Deferred income taxes - 2,057
--------------------------
Total liabilities 619 4,388
COMMITMENTS AND CONTINGENCIES (Note 9)
- -
REDEEMABLE PREFERRED STOCK
Series A Cumulative Preferred Stock (without par value,
134,310 shares issued and outstanding - at redemption
and liquidation value of $100 per share)
18,604 16,694
SHAREHOLDERS' EQUITY:
Preferred stock (10,000,000 shares authorized, 134,310
redeemable preferred shares outstanding) - -
Common stock:
Class A (20,000,000 no par value shares authorized,
1,875,000 outstanding) 20,381 20,381
Class B (10,000,000 no par value shares authorized,
5,625,000 outstanding) 27,831 27,831
Accumulated deficit (22,840) (22,229)
--------------------------
Total shareholders' equity 25,372 25,983
--------------------------
TOTAL $44,595 $47,065
--------------------------
--------------------------
</TABLE>
SEE NOTES TO CONSOLIDATE FINANCIAL STATEMENTS
Page 14
<PAGE>
INDUSTRIAL FUNDING CORP.
Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
-----------------------------------
(Dollars in Thousands Except Per Share Data) 1993 1992 1991
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Net lease Revenue $7,374 $22,406 $36,016
Gain on sale of equipment 1,102 2,630 2,044
Other revenue 1,847 2,483 2,161
----------------------------------
Total revenue 10,323 27,519 40,221
----------------------------------
EXPENSES:
Net selling, general and administrative 6,456 9,072 9,649
Provision for credit loss 54 215 39,903
Interest expense 3,821 15,000 23,411
Reorganization costs - - 1,639
Loss on sale of assets 1,328 17,316 -
----------------------------------
Total expenses 11,659 41,603 74,602
----------------------------------
LOSS BEFORE INCOME TAX BENEFIT (1,336) (14,084) (34,381)
INCOME TAX BENEFIT (2,635) (7,944) (13,237)
-----------------------------------
NET INCOME (LOSS) $1,299 ($6,140) ($21,144)
-----------------------------------
-----------------------------------
NET LOSS PER COMMON SHARE (Exhibit 11.1) ($0.08) ($1.07) ($3.00)
-----------------------------------
-----------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 15
<PAGE>
<TABLE>
INDUSTRIAL FUNDING CORP.
- - - ---------------------------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------
RETAINED
CLASS A CLASS B EARNINGS
PREFERRED COMMON COMMON (ACCUMULATED
(DOLLARS IN THOUSANDS) STOCK STOCK STOCK DEFICIT) TOTAL
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1990 - $20,381 $27,831 $8,318 $56,530
Issuance of redeemable preferred stock $13,431
Preferred stock dividends accreted 1,353 - - (1,353) (1,353)
Net loss - - - (21,144) (21,144)
------------------------------------------------------
BALANCE, NOVEMBER 30, 1991 14,784 20,381 27,831 (14,179) 34,033
Preferred stock dividends accreted 1,910 - - (1,910) (1,910)
Net loss - - - (6,140) (6,140)
------------------------------------------------------
BALANCE, NOVEMBER 30, 1992 16,694 20,381 27,831 (22,229) 25,983
Preferred stock dividends accreted 1,910 - - (1,910) (1,910)
Net income - - - 1,299 1,299
------------------------------------------------------
BALANCE, NOVEMBER 30, 1993 $18,604 $20,381 $27,831 $(22,840) $25,372
------------------------------------------------------
------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 16
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL FUNDING CORP.
Consolidated Statements of Cash Flow
FOR THE YEARS ENDED
NOVEMBER 30,
--------------------------------------
(DOLLARS IN THOUSANDS) 1993 1992 1991
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTVITIES:
Net income (loss) $1,299 ($6,140) ($21,144)
Adjustments to reconcile net income (loss) to net cash:
Depreciation and amortization 1,807 7,303 9,601
Provision for credit loss 54 215 39,903
Gain on sale of equipment (1,102) (2,630) (2,044)
Increase in restricted cash (800) - -
Decrease in other assets 176 1,057 1,154
Unrealized loss on short-term investments 210 - -
Decrease in deferred income taxes (2,057) (7,093) (13,436)
Decrease in income taxes payable - (250) (1,045)
Decrease in accounts payable and other liabilities (2,659) (588) (6,093)
Loss on sale of assets 1,328 17,316 -
Other (15) 172 971
--------------------------------------
Total adjustments (3,058) 15,502 29,011
--------------------------------------
Net cash (used in) provided by operating activities (1,759) 9,362 7,867
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on lease receivables 27,697 73,206 82,905
Payments received on sale of equipment 11,239 24,654 16,399
Principal payments received on note receivable 3,174 - -
Cash received on sale of assets (net of $12,829 cash sold) 7,356 - -
Increase in short term investments (18,470) - -
Purchase of equipment to be financed (2,773) (10,745) (22,112)
Initial direct costs - deferred (130) (885) (1,932)
Purchase of property and equipment (81) (143) (517)
--------------------------------------
Net cash provided by investing activities 28,012 86,087 74,743
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (44,311) (99,264) (66,802)
Borrowing on long-term debt - - 895
Deferred financing costs - (1,168) (870)
Net proceeds from issuance of capital stock - - 10,000
(Increase) decrease in restricted cash 23,478 (5,526) (16,191)
--------------------------------------
Net cash used in financing activities (20,833) (105,958) (72,968)
--------------------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS 5,420 (10,509) 9,642
CASH AND TEMP. INVESTMENTS AT BEGINNING OF PERIOD 1,166 11,675 2,033
--------------------------------------
CASH AND TEMP. INVESTMENTS AT END OF PERIOD $6,586 $1,166 $11,675
--------------------------------------
--------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid $3,890 $13,917 $27,486
Income taxes paid (refunded) (650) (600) 936
Non-cash - payment of income taxes - - 3,431
Non-cash - preferred stock dividends accreted 1,910 1,910 1,353
Non-cash - note receivable from sale of assets 19,043 - -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Industrial Funding Corp. (the "Company"), a majority owned subsidiary of
IFC Holdings Inc. ("IFC Holdings"), was incorporated in October 1989, as a
holding company formed for the purpose of owning Industrial Leasing Corporation
("Industrial Leasing"). During 1992, First City Realty Investment Corp.
("FCRIC"), the Company's previous majority shareholder, transferred all of its
interest in the Company to IFC Holdings. The accompanying consolidated financial
statements include all of the accounts of the Company and its wholly-owned
subsidiary. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Until May 27, 1993, the business of the Company was providing capital
equipment lease financing to small businesses. At that time, the Company
completed a sale of substantially all of the assets of Industrial Leasing (the
"Asset Sale"), to ILC Acquisition Corp., a wholly-owned subsidiary of Parrish
Equipment Partner L.P. ("Parrish"), in a transaction approved by shareholders of
the Company on May 17, 1993.
Subsequent to the sale, Company activities include: collection of the
remaining assets; investment of financial liquid assets; and management of legal
proceedings against the Company. The Company will review other strategic
alternatives that may become available from time to time, including but not
limited to, the adoption of a plan of liquidation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING FOR LEASES. Prior to the Asset Sale, for financial reporting
purposes, the Company's leases were classified as direct financing leases and
were accounted for in accordance with Statement of Financial Accounting
Standards No. 13. The Company had two types of direct financing leases: Fair
Market Value (FMV) and Purchase Upon Termination (PUT) leases. FMV leases were
recorded with end of lease estimated residual values, PUT leases had guaranteed
residuals as lessees had committed to purchase the equipment at the end of the
lease terms. The guaranteed lease residuals were included with the minimum
lease payments receivable.
The Company accounted for its investment in direct financing leases by
recording as an asset the total minimum lease payments receivable plus the
estimated residual value of the leased equipment, if applicable, less the
unearned lease income. The unearned lease income represented the excess of the
total minimum lease payments receivable plus the estimated residual value over
the cost of the related equipment.
REVENUE RECOGNITION. Prior to the Asset Sale, the Company recognized
unearned lease income as lease revenue over the term of the lease by the
sum-of-the-months digits method on leases booked prior to September 1, 1989 and
by the interest method on leases booked subsequent to September 1, 1989 on its
small-ticket portfolio and by the interest method on its mid-ticket portfolio.
Revenue was recognized on an accrual basis.
INITIAL DIRECT COSTS OF LEASES. Prior to the Asset Sale, the Company
deferred certain initial direct costs of originating leases and recognized these
costs over the lives of the related leases as a reduction of their yields.
Page 18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NON-ACCRUAL LEASES. Prior to the Asset Sale, the Company ceased income
recognition when a lease receivable became 90 days past due, or when other
conditions may have adversely affected collectibility of the receivable.
SHORT-TERM INVESTMENTS. Short-term investments consist of mutual funds
which are recorded at the lower of average cost or market. Aggregate net
unrealized investment losses are included in results of operations.
NONPERFORMING ASSETS. Nonperforming assets consists primarily of equipment
held for sale on equipment repossessed, leases which are more than 180 days past
due, and lease deficiencies which represent the remaining balance due to the
Company after proceeds from the equipment sale have been applied to the
outstanding lease receivable. The nonperforming assets are valued at their
estimated net realizable value.
DEPRECIATION. Depreciation of property and equipment is provided over the
estimated useful life of the respective assets on a straight-line basis.
Accumulated depreciation was $1,515,000 as of November 30, 1992.
CASH FLOW STATEMENT. For purposes of reporting cash flows, cash and
temporary investments includes cash in banks and temporary investments with an
original maturity of three months or less. Certain items presented in the
statement of cash flows for the year ended November 30, 1992 are presented in
the balance sheet as net assets held for sale at November 30, 1992.
ACCOUNTING FOR INCOME TAXES. Under federal income tax laws, the Company is
not part of a controlled group and files its tax return separately. For
financial statement purposes, the federal income tax provision is computed as
if the Company were filing separately.
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 96, "ACCOUNTING FOR INCOME TAXES". The Company uses the liability
method to reflect the tax effect of differences between taxable income and
pre-tax financial income and adjusts deferred tax liabilities or assets for
changes in tax rates in the period such law is enacted.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 "ACCOUNTING FOR INCOME TAXES". This
statement supersedes Statement No. 96 and is effective for the Company's fiscal
year beginning December 1, 1993. Statement No. 109, like Statement No. 96, uses
the liability method as discussed above. The Company does not expect that this
statement, once adopted, will have a material effect on the Company's financial
statements.
For income tax purposes, FMV leases are accounted for by the operating
method. Rental payments are recognized as income when they are received, and
the cost of the leased equipment acquired is depreciated over its designated
useful life. Deferred taxes are provided on the difference between income
recognized for financial reporting purposes and income reported for tax
purposes. For PUT leases, the equipment is treated as sold for tax purposes
with the Company supplying the financing. Therefore, there is no difference
between income recognition for financial reporting purposes and income reported
for tax purposes.
RECLASSIFICATION. Certain reclassifications have been made to fiscal 1991
financial statements to conform to the fiscal 1992 presentation.
Page 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SHORT-TERM INVESTMENTS
At November 30, 1993, short-term investments in mutual funds consist of the
following:
<TABLE>
<CAPTION>
MUTUAL FUNDS
(DOLLARS IN THOUSANDS)
Market Carrying
Cost Value Value
---- ----- -----
<S> <C> <C> <C>
U.S. Government Agency Securities $15,917 $15,720 $15,720
U.S. Government Obligations 2,553 2,540 2,540
</TABLE>
At November 30, 1993, short-term investments, with an original cost of
$18,000,000 plus $469,844 of dividends reinvested during the year, were recorded
at market. To reduce the carrying amount of the short-term investments to
market, the Company recorded a valuation allowance of $210,000 with a
corresponding charge to net income.
At November 30, 1993, gross unrealized losses were $210,000.
NOTE 4. NOTE RECEIVABLE
As part of the sale of substantially all of Industrial Leasing's assets to
ILC Acquisition Corp., on May 27, 1993, the Company received a note in the
amount of $19,043,000 bearing interest at 6 percent per annum. The note is
payable in six equal semi-annual installments of $3,174,000, plus accrued
interest, beginning November 27, 1993.
NOTE 5. NET ASSETS HELD FOR SALE
The amounts included in net assets held for sale at November 30, 1992, are
as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Cash and temporary investments $1,166
Restricted cash 26,251
Net investment in lease portfolio 116,318
Property and equipment 3,129
Other assets 519
Long-term debt (95,798)
Subordinated debt (10,000)
Other liabilities (2,127)
------
Total $39,458
-------
-------
</TABLE>
Page 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. RESTRICTED CASH
Restricted cash at November 30, 1993 collateralizes underwriter's defense
costs for securities litigation. The balance represents the level of cash
required to maintain a level of security to support underwriter's defense costs
as ordered by the District Court of Northern California. See Note 9,
Commitments and Contingencies.
NOTE 7. LONG-TERM DEBT
As of May 27, 1993, all the Company's long-term debt was retired as a
result of the Asset Sale. For an additional discussion of the Company's
previous debt structure, see the Annual Report on Form 10-K for the fiscal year
ended November 30, 1992.
NOTE 8. INCOME TAXES
The Company's effective combined state and federal income tax benefit rate
was (197.2%), (56.4%), and (38.5%) for the years ended November 30, 1993, 1992,
and 1991, respectively. The difference between taxes calculated at the federal
statutory tax rate and the recorded tax benefit was as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) For the Years Ended November 30,
--------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate 35% 34% 34%
Computed federal income tax benefit ($468) ($4,789) ($11,690)
Adjustment in tax resulting from:
Allocation of purchase price - (47) (70)
Elimination of deferred taxes previously provided (2,057) (2,685) -
Other (70) - (278)
----- ----- ------
Federal income tax benefit (2,595) (7,521) (12,038)
State income tax benefit, net of federal
income tax benefit (40) (423) (1,199)
------ ------ -------
Total income tax benefit ($2,635) ($7,944) ($13,237)
------ ------ -------
------ ------ -------
</TABLE>
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) For the Years Ended November 30,
--------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Taxes currently provided:
Federal - - $68
State - - -
Deferred income taxes:
Leasing income recognition differences ($2,635) (7,557) (13,595)
Other - (387) 290
------ ------ ------
Total income tax benefit ($2,635) ($7,944) ($13,237)
------ ------ -------
------ ------ -------
</TABLE>
The Asset Sale resulted in a loss for tax purposes. Furthermore, the
Company has determined that it has adequate net operating loss carryforwards and
other deductions such that no income tax liability will result. As all timing
differences have now been eliminated as a result of the Asset Sale, the Company
has reviewed its deferred tax obligations, and has
Page 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
concluded that no future income tax obligations exist as of November 30, 1993.
Consequently, the results of the year ended November 30, 1993, have been
adjusted to reverse all outstanding deferred tax obligations previously
recorded.
As discussed in Note 1, during 1992 the Company's previous majority
shareholder transferred all of its interest in the Company to IFC Holdings.
This resulted in a change in ownership for federal and state income tax
purposes, which could limit the use in future years of net operating losses and
other tax credit carryforwards. The amount which will be usable in any one year
is limited to the value of the Company at the time of the change in ownership
multiplied by the interest rate on federal long-term exempt securities at that
date. At November 30, 1993 and 1992, the Company had $2.4 million and $4.1
million, respectively, of net operating loss carryforwards for tax purposes.
NOTE 9. COMMITMENTS AND CONTINGENCIES
There is litigation pending against the Company, Industrial Leasing, the
Company's previous majority shareholder, First City and certain of its former
affiliates and subsidiaries, certain directors, certain former directors and
officers, its independent auditor, and the Underwriters of the December 8, 1989
initial public offering. The class action lawsuits, WADE ET. AL. V. INDUSTRIAL
ET. AL., filed January 1992, and a related case, BOWER ET. AL. V. BELZBERG ET.
AL., filed February 1992, allege violations of federal securities law. The WADE
lawsuit also alleges violations under California state law. These lawsuits were
filed in the United States District Court for the Northern District of
California, and allege that plaintiffs were damaged as a result of alleged
misstatements and omissions in documents disseminated in connection with the
initial public offering and in subsequent communications and public filings by
the Company, through February 1991. The Company has retained legal counsel to
defend against these actions. The lawsuits are in the early stages of
discovery, and therefore management is unable to determine their probable
impact. However, as the plaintiffs allege damages of approximately $22.5
million, the lawsuits could have a material effect on the results of operations
and financial condition of the Company, if adversely determined.
As a result of the sale of substantially all of Industrial Leasing's assets
on May 27, 1993, plaintiffs moved the court for a preliminary injunction
restraining the Company from withdrawing, transferring, pledging or disposing of
any funds or assets received in connection with the Asset Sale, and further
moved the court to supervise the transfer of any such assets. The court denied
plaintiffs injunction motions. In so doing, the court stated that plaintiffs
were likely to prevail on their Section 11 claims and that, in the absence of
the requested injunction, there was a possibility plaintiffs would be
irreparably harmed. The preliminary findings of the court, however, will not
control the ultimate determination of liability in connection with the
plaintiffs' Section 11 claim. Subsequently, plaintiffs filed an appeal with the
Ninth Circuit Court of Appeal. It is not known when the Court of Appeal will
review the appeal.
On October 6, 1993, the trial judge ordered the WADE and BOWER cases to a
settlement magistrate, in an attempt to facilitate a settlement of the
securities litigation. A settlement conference was held on January 6, 1994
before the magistrate, with the parties and their counsel. Another settlement
conference is scheduled before the magistrate on April 5, 1994. There can be no
assurance, however, that the securities litigation will be resolved by a
settlement between the parties.
Page 22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 14, 1993, the court certified the WADE lawsuit as a class
action.
The court has ordered a jury trial of the WADE action to begin in
September, 1994.
The Company has filed a lawsuit against two insurance carriers, demanding
coverage against American Home for coverage under a directors liability policy
in the amount of approximately $5 million (Canadian), and against Continental
Insurance under a general liability policy and umbrella policy of approximately
$4 million (Canadian) and $16 million (Canadian), respectively. American Home
and Continental have each filed answers denying liability. Continental has also
filed a counterclaim against the Company, demanding reimbursements of the
attorney fees and costs it advanced to the Company in connection with the
defense of the securities class action lawsuits under a reservation of rights.
As of September 30, 1993, Continental has advanced the Company attorney fees and
costs in the amount of $560,667, which represents approximately 17 percent of
the legal costs incurred to date by the Company in defense of the class action
lawsuit.
In January 1993, the underwriters of the Company's initial public offering
filed an action against the Company, demanding that the Company pay the
underwriters' attorney fees and costs associated with their defense of the
securities litigation, in accordance with the Underwriters Agreement entered
into by the Company. The court has granted the underwriters motion for summary
judgment, on July 9, 1993, and ordered the Company to pay the underwriters costs
and legal fees as they are incurred. The Company has filed an appeal with the
Ninth Circuit Court of Appeals. The Company has been advised that as of
November 30, 1993, the total amount of expenses incurred by the underwriters was
approximately $357,000. Such amount has not been accrued as the Company, based
in part on discussions with counsel, believe that any liability related to the
matter is unlikely to occur.
The Company is also a defendant in various lawsuits resulting from normal
business activity. In the opinion of management, the disposition of all other
such litigation currently pending will not have a material effect on the
financial position or results of operations of the Company.
The Company had noncancellable operating leases for office space. The cost
to terminate these leases has been recorded as part of the loss on sale of
assets at November 30, 1992.
The Company entered into a noncancellable operating lease for office space
on May 27, 1993. This lease expires on May 27, 1995. Future minimum lease
payments under this lease are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Year ended:
November 30, 1994 $83
November 30, 1995 41
TOTAL RENT EXPENSE WAS AS FOLLOWS:
November 30, 1993 $369
November 30, 1992 450
November 30, 1991 869
</TABLE>
Page 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SHAREHOLDERS' EQUITY
COMMON AND PREFERRED STOCK. The Company's authorized capital consists of
20,000,000 shares of Class A Common Stock, without par value, 10,000,000 shares
of Class B Common Stock, without par value, and 10,000,000 shares of preferred
stock, without par value. The Class A Common Stock has one vote per share and
the Class B Common Stock has 10 votes per share.
In March 1991, the Company issued 134,310 shares of Series A Cumulative
Preferred Stock ("Shares") of the Company to FCRIC for $10,000,000 in cash and
the forgiveness of $3,431,000 of indebtedness owing by the Company arising from
federal income taxes of the Company paid by FCRIC in fiscal years ended prior to
November 30, 1990. Under the terms of the issuance, cash dividends on the
Shares accrue quarterly at a rate of $14.22 per share per annum. Dividends are
cumulative. The Company may, at anytime and at its option, redeem all or any
part of the shares at a redemption price of $100 per share plus all accrued and
unpaid dividends. The holder of the redeemable preferred stock may, at its
option, redeem the stock after March 15, 1996. In the event of any liquidation,
whether voluntary or otherwise, each holder is entitled to receive an amount of
$100 per share plus all accrued but unpaid dividends before any distribution
shall be made to the holders of the common stock. The Shares are not convertible
into any other securities of the Company, including Class A or Class B Common
Stock. The accreted preferred stock dividends totaled $5.2 million, $3.3
million and $1.4 million as of November 30, 1993, 1992 and 1991, respectively.
STOCK OPTION PROGRAMS. In October 1989, the Company adopted two stock
option plans for selected key executives and employees and directors,
authorizing options to acquire 450,500 shares of Class A Common Stock. In April
1992, the directors' plan was amended and authorized an additional 72,000 shares
of stock for a total of 100,000 shares available under the plan. At November
30, 1992, the total shares Class A Common Stock reserved for issuance under the
plans was 522,500.
There are six different vesting plans within both stock options plans. The
following sets forth the activity relating to the stock options granted under
the plans.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING UNDER THE 1989 PLANS
Number Exercise
of Shares Price
--------- -----
<S> <C> <C>
Outstanding at 11/30/91 27,000 $2.55 - $12.25
Granted during Fiscal year 1992 476,000 $0.75 - $1.13
Canceled during Fiscal year 1992 (10,000) $12.25
------
Outstanding at 11/30/92 493,000
Granted during Fiscal year 1993 0
Canceled during Fiscal year 1993 (223,000) $1.13 - $12.25
-------
Outstanding at 11/30/93 270,000 $0.75 - $1.19
-------
-------
Exercisable at 11/30/92 108,400 $0.75 - $12.25
Exercisable at 11/30/93 150,600 $0.75 - $1.19
</TABLE>
Page 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1989, the Company also adopted a stock option plan for key
executives authorizing options to acquire 135,000 shares of Class B Common
Stock. All options previously granted were canceled and no options are
outstanding as of November 30, 1993.
NOTE 11. PENSION PLAN
Industrial Leasing had a Savings and Profit Sharing Plan covering
substantially all employees. The plan provided for employees to contribute up
to 10 percent of their salary to the plan under Section 401(k) of the Internal
Revenue Code, and the Company could match up to 3 percent of the employee's
compensation. The plan was terminated effective December 31, 1992, and, as a
result, all Company contributions are 100 percent vested. The plan was fully
funded and all benefits were distributed in 1993. The impact of the plan
termination on the financial statements was not material. The total plan
expenses were $9,000, $38,000, and $85,000 in fiscal 1993, 1992 and 1991,
respectively.
NOTE 12. CONDENSED FINANCIAL STATEMENT INFORMATION OF REGISTRANT
INDUSTRIAL FUNDING CORP. (PARENT COMPANY ONLY)
- - - ------------------------------------------------------------------------------
Condensed Balance Sheets
<TABLE>
<CAPTION>
ASSETS
November 30,
------------
(DOLLARS IN THOUSANDS) 1993 1992
---- ----
<S> <C> <C>
Investment in subsidiary $43,976 $42,677
------- -------
TOTAL $43,976 $42,677
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Redeemable Preferred Stock $18,604 $16,694
Common Stock:
Class A 20,381 20,381
Class B 27,831 27,831
Retained deficit (22,840) (22,229)
------ ------
Total shareholders' equity 25,372 25,983
------ ------
TOTAL $43,976 $42,677
------- -------
------- -------
</TABLE>
INDUSTRIAL FUNDING CORP. (PARENT COMPANY ONLY)
- - - -------------------------------------------------------------------------------
Condensed Statements of Income
<TABLE>
<CAPTION>
For the Years Ended November 30,
(DOLLARS IN THOUSANDS) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net income (loss) from subsidiary $1,299 ($6,140) ($21,144)
------ ------ -------
</TABLE>
Page 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDUSTRIAL FUNDING CORP. (PARENT COMPANY ONLY)
- - - -------------------------------------------------------------------------------
Condensed Statements of Cash Flow
<TABLE>
<CAPTION>
For the Years Ended November 30,
--------------------------------
(DOLLARS IN THOUSANDS) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) from subsidiary $1,299 ($6,140) ($21,144)
------ -------- ---------
Net cash provided by (used in) operating activities 1,299 (6,140) (21,144)
Cash Flows From Investing Activities:
Decrease (increase) in invest. in subsidiary (1,299) 6,140 11,144
------- ----- ------
Net cash provided by (used in) investing activities (1,299) 6,140 11,144
------- ----- ------
Cash Flows From Financing Activities:
Net proceeds from issuance of capital stock - - 10,000
----- ----- ------
Net cash provided by financing activities - - 10,000
----- ----- ------
Increase in Cash and Temp. Investments - - -
Cash and Temp. Investments at Beg. of Year - - -
Cash and Temp. Investments at End of Year - - -
----- ----- -----
Supplemental Disclosures:
Non-cash payment of income taxes - $3,431
Non-cash preferred stock dividends accreted $1,910 $1,910 $1,353
</TABLE>
NOTE 13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
February 28, May 31, August 31, November 30,
------------ ------- ---------- ------------
<S> <C> <C> <C> <C>
1993
- - - ----
Revenues $5,439 $3,915 $484 $485
Income (loss) before income taxes (benefit) 888 (265) (1,233) (726)
Net income (loss) 588 2,311 (1,031) (569)
Net income (loss) per common share 0.01 0.24 (0.20) (0.13)
1992
- - - ----
Revenues $7,459 $7,519 $6,340 $6,201
Income (loss) before income taxes (benefit) 672 1,015 723 (16,494) (1)
(Net income (loss) 413 624 445 (7,622)
Net income (loss) per common share (0.01) 0.02 0.00 (1.08)
<FN>
(1) In the fourth quarter of 1992, the Company reflected the sale of
substantially all of the assets of its wholly-owned subsidiary, Industrial
Leasing, and recorded a loss on sale of assets of $17.3 million.
</TABLE>
Page 26
<PAGE>
MANAGEMENT'S REPORT
To The Shareholders of Industrial Funding Corp.:
The management of Industrial Funding Corp. has prepared and is responsible
for the financial statements and related financial data contained in this
report. The financial statements were prepared in accordance with generally
accepted accounting principles and by necessity include certain amounts
determined using management's best estimates and judgments.
The financial statements have been audited by independent accountants who
were appointed by the Board for fiscal 1993. Their audit was made in
accordance with generally accepted auditing standards and included a review of
internal accounting controls, for the purpose of providing a basis for reliance
thereon in connection with their audit of the financial statements.
Management of the Company has established and maintains an internal control
structure that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of fraudulent
financial reporting. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal control must be related to
the benefit derived. The internal control structure is continually monitored
for compliance.
The Board of Directors, through its Audit Committee, is responsible for
reviewing and monitoring the financial statements and accounting practices.
The Audit Committee meets annually with management and the independent
accountants to ensure that each is properly discharging its duties.
Independent accountants have full and free access to, and meet with the Audit
Committee, with or without the presence of management.
JOHN ESTOK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 10, 1994
Page 27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No information is required to be reported under this item.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14 (the "Annual Proxy Statement") no later than 120 days after the
end of the fiscal year covered by this Report, and certain information included
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Annual Proxy Statement.
The information concerning the Company's executive officers required by
this Item is incorporated by reference to the Section in Part 1, Item 4.1
hereof entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
Company's Annual Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to the
Company's Annual Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to the
Company's Annual Proxy Statement.
Page 28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) List of Documents Filed.
(1) Financial statements, Industrial Funding Corp. (included in Item 8).
Independent Auditors' Report dated January 12, 1994.
Consolidated balance sheets November 30, 1993 and 1992.
Consolidated statements of income for the three years ended November
30, 1993.
Consolidated Statements of shareholders' equity for the three years
ended November 30, 1993.
Consolidated statements of cash flows for the three years ended
November 30, 1993.
Notes to consolidated financial statements.
(2) Schedules supporting consolidated financial statements:
Independent Auditors' Report
Schedule VIII. Valuation and qualifying accounts for the two years
ended November 30, 1992.
Schedule IX. Short-term borrowings for the year ended November 30,
1991.
All other schedules have been omitted because of the absence of
conditions under which they are required or because the required
information is included elsewhere in the financial statements.
(3) Exhibits. Those exhibits indicated by an asterisk (*) are
incorporated by reference to the same exhibit number unless otherwise
noted as follows: (A) incorporated herein by reference to Registration
Statement on Form S-1 filed on October 27, 1989 and amended on
December 5, 1989 (File No. 33-31784)); (B) incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1990 as filed March 11, 1991; (C) incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1991 as filed February 28, 1992;
(D) incorporated herein by reference to the Company's Report on Form 8
as filed May 5, 1992; (E) incorporated herein by reference to the
Company's Report on Form 10-K for the period ended November 30, 1992,
as filed February 25, 1993.
3.1* (A) Form of Restated Articles of Incorporation of the Company.
3.2* (A) Form of Bylaws of the Company.
4.1* (D) Restructuring Agreement dated as of February 24, 1992, by
and among Industrial Leasing Corporation, the Purchasers of
the Original Note Agreements, the Term Lenders, the
Commercial Paper Lenders, and the Subordinated Lender.
Page 29
<PAGE>
4.2* (C) Statement of Designation of Series and Determination of
Rights and Preferences of Series A Cumulative Preferred
Stock dated March 15, 1991. (Exhibit 4.8.)
4.3* [E] Amendment to Restructuring Agreement dated January 11, 1993.
10.1* (A) Interest Rate and Currency Exchange Swap Agreement dated
October 18, 1989, by and between Industrial Leasing
Corporation and Algemene Bank Nederland N.V.. (Exhibit
10.3.)
10.2* (A) Revolving Credit and Term Loan Agreement dated as of March
8, 1988, by and between First City Credit Corp. ("FCC") and
First Bank, as amended by Amendment No. 1 thereto dated as
of May 31, 1989 and Amendment No. 2 thereto dated as of
October 20, 1989, as assumed, agreed to and accepted by the
Company, as further amended by a letter agreement, dated
October 23, 1989. (Exhibit 10.12.)
10.3* (A) Consent and Waiver Agreement regarding Revolving Credit and
Term Loan Agreement dated as of October 20, 1989, among FCC,
First City Equipment Finance Corp., First City Equipment
Credit Corp., RNB Leasing Inc., the Company and First Bank.
(Exhibit 10.13.)
10.4* (A) Consolidated, Amended and Restated Security Agreement dated
as of October 20, 1989, by FCC, the Washington Subsidiaries,
the Company and First Bank. (Exhibit 10.14.)
10.5* (A) Security Agreement dated as of October 20, 1989, by the
Company in favor of First Bank. (Exhibit 10.15.)
10.6* (B) Office Lease dated June 15, 1990, by and between A.L.
McCormick, as landlord, and the Company, as tenant, for the
Company's headquarters in Portland, Oregon. (Exhibit 10.16.)
10.7* (A) Industrial Funding Corp. 1989 Stock Option Plan. (Exhibit
10.18.)
10.8* (E) Industrial Funding Corp. Amended Directors' Nonqualified
Stock Option Plan.
10.9* (A) Form of Incentive Stock Option Agreement. (Exhibit 10.32.)
10.11*(A) Form of Non-Qualified Stock Option Agreement. (Exhibit
10.33.)
10.12*(B) Interest Rate Swap Agreement dated as of June 30, 1987, by
and between Industrial Leasing Corporation and First Bank.
(Exhibit 10.35.)
Page 30
<PAGE>
10.13*(C) Employment agreement from the Company to John J. Estok dated
November 8, 1991. (Exhibit (10.26.)
10.14*(C) Industrial Funding Corp. 1992 Savings and Profit Sharing
Plan. (Exhibit 10.27.)
10.15*[E] Industrial Funding Corp. Agreement of Purchase and Sale of
Assets. (Exhibit 10.18.)
10.16 Revised employment agreement from the Company to John J.
Estok dated July 1, 1993.
10.17 Lease agreement of the Company related to its primary
operating facilities in Portland, Oregon dated May 27, 1993.
11.1 Exhibit 11.1 is a statement of computation of per share
earnings that includes the preferred stock dividend amount.
22.1*(A) Schedule of Subsidiaries.
23.1 Independent Auditor's consent related to Form S-8.
Registration Statement No. 33-63514 filed with the
Securities and Exchange Commission on May 28, 1993.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the fourth quarter ended November 30,
1993.
Page 31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on February 10, 1994.
INDUSTRIAL FUNDING CORP.
/s/ JOHN J. ESTOK
---------------------------------
John J. Estok
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on February 10, 1994, on behalf
of the Registrant and in the capacities indicated.
Signatures Title
- - - ---------- -----
/s/ JOHN J. ESTOK President, Chief Executive Officer,
- - - ------------------------- Director
John J. Estok (Principal Executive Officer)
/s/ BRENT S. BELZBERG Chairman of the Board of Directors
- - - -------------------------
Brent S. Belzberg
/s/ RICHARD L. DOEGE Director
- - - -------------------------
Richard L. Doege
/s/ ALAN R. HIBBEN Director
- - - -------------------------
Alan R. Hibben
/s/ K. PETER ZECH Director
- - - -------------------------
K. Peter Zech
Page 32
<PAGE>
Supplemental Schedules Supporting Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
Industrial Funding Corp.:
We have audited the consolidated financial statements of Industrial Funding
Corp. and subsidiary as of November 30, 1993 and 1992 and for each of the three
years in the period ended November 30, 1993, and have issued our report thereon
dated January 12, 1994, which report includes an explanatory paragraph as to an
uncertainty because of litigation relating to alleged violations of federal
securities laws; such consolidated financial statements and report are included
elsewhere on this Form 10-K. Our audits also included the consolidated
financial statement schedules of Industrial Funding Corp. and subsidiary,
listed in Item 14. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE
Portland, Oregon
January 12, 1994
<PAGE>
<TABLE>
INDUSTRIAL FUNDING CORP.
- - - --------------------------------------------------------------------------------
Schedule VIII - Valuation and Qualifying Accounts
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
(DOLLARS IN THOUSANDS) 1992 1991
- - - --------------------------------------------------------------------------------
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSS:
Balance at beginning of period $30,363 $11,495
Provision charged to expense 215 39,903
Write-offs of receivables to their net realizable
value, net of recoveries (14,569) (21,035)
Transfer to net assets held for sale (16,009) 0
------------ ------------
Balance at end of period $0 $30,363
------------ ------------
------------ ------------
</TABLE>
Note: In addition to the above, a $4,000 write down was taken directly against
the nonperforming assets.
<PAGE>
INDUSTRIAL FUNDING CORP.
- - - -----------------------------------------------------------------------
Schedule IX - Short-term Borrowings
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
NOVEMBER 30,
1991
-----------
<S> <C>
Notes payable to banks:
Balance at end of period -
Weighted average interest rate -
Maximum amount outstanding
during the period $54,873
Average monthly amount
outstanding during the period 15,255
Weighted monthly average interest
rate during the period 9.80%
Commercial paper:
Balance at end of period -
Weighted average interest rate -
Maximum amount outstanding
during the period $58,461
Average monthly amount
outstanding during the period 34,956
Weighted monthly average interest
rate during the period 8.70%
</TABLE>
<PAGE>
EXHIBIT 10.16
<PAGE>
July 1, 1993
PERSONAL AND CONFIDENTIAL
- - - -------------------------
Mr. John J. Estok
3204 NW 125th Place
Portland, OR 97229
Dear John:
This letter sets forth the terms and conditions upon which Industrial
Funding Corp. and Industrial Leasing Corporation (together, the "Employer) agree
to employ John J. Estok ("Employee"), commencing on July 1, 1993.
1.0 Position and Term
-----------------
1.1 Position
--------
The Employee will be President and Chief Executive Officer of the
Employer. The Employee will report to the Board of Directors of the Employer
and shall operate from the Employer's head office, currently located in
Portland, Oregon.
1.2 Term
----
Unless sooner terminated as hereinafter provided, the term of
Employee's employment shall commence with the date of this letter and shall
continue for a period of thirteen (13) months.
2.0 Duties and Employee's Commitment
--------------------------------
2.1 Duties
------
The Employee shall: (a) manage, supervise and conduct the business and
affairs of the Employer, including, without Stations the collection of the
Employer's lease portfolio, the collection of that certain Purchase Price Note
issued in connection with the Agreement of Purchase and Sale of Assets, dated as
of December 10, 1992, between ILC Acquisition Corp. and Industrial Leasing
Corporation, and the management and supervision of all litigation to which the
Employer or industrial Leasing are parties; (b) report to and keep its Board of
Directors fully apprised in all respects; and (c) carry out such other
<PAGE>
Mr. John J. Estok
July 1, 1993
Page 2
duties, tasks and responsibilities as its Board of Directors may from time to
time assign to him, consistent with his position as President and Chief
Executive Officer of the Employer.
2.2 Commitment of Employee
----------------------
Employee shall commit such time and efforts to the performance of his
duties as Employee, in his reasonable discretion, shall deem necessary to
perform and fulfill such duties; provided, however, that Employee shall commit
not less than 40 hours per week to the performance and fulfillment of his duties
during each month for a period of three (3) months commencing on the date of
this letter and shall commit not less than 20 hours per week to the performance
and fulfillment of his duties during each month thereafter. It is understood
that, after October 1, 1993, Employee does not agree to work exclusively for
Employer, but may, so long as it does not interfere with the performance of his
duties or is not in derogation of his fiduciary duties to Employee, contract to
do work for other parties.
3.0 Compensation and Benefits
-------------------------
3.1 Base Salary
-----------
The Employee shall receive a base salary of US$7,500 per month,
payable in accordance with the usual payroll practices of the Employer.
3.2 Severance Prepayment
--------------------
In addition to payment of a base salary, the Employer shall pay to the
Employee severance prepayment in three (3) equal installments of US$100,000 on
that date four months after the effective date of this Employment Agreement, on
that date eight months after the effective date of this Employment Agreement and
on that date 12 months after the effective date of this Employment Agreement
(each such date, a "Severance Prepayment Date"); provided, however, that if
Employee shall have terminated his employment with the Employer for any reason
or if Employer shall have terminated Employee for just cause or misconduct
before any Severance Prepayment Date, then Employee shall not be entitled to any
severance prepayment installment payable after such date of termination. The
severance prepayment provided in this Section 3.2 shall be in full satisfaction
of all severance obligations of the Employer to the Employee and Employee shall
be entitled to no other payments or benefits upon the termination of Employee's
employment except as provided herein.
<PAGE>
Mr. John J. Estok
July 1, 1993
Page 3
3.3 Performance Incentive Payment
-----------------------------
In addition to payment of a base salary and severance prepayment
installments, the Employee shall be eligible for an incentive payment as
described in Appendix A hereto.
3.4 Withholding
-----------
The Employee acknowledges that the Employer shall withhold from all
base salary, severance prepayment installments and incentive payments due to the
Employee all applicable withholding taxes and statutory deductions.
3.5 Benefits
--------
The Employee shall be entitled to receive employee benefits, including
participation in a medical and dental benefits plan and life and disability
insurance plan, commensurate with those generally available to employees of the
Employer. In this regard, the Employer hereby waives in favor of the Employee
the standard benefit eligibility waiting periods.
3.6 Vacation
--------
The Employee shall be entitled to no vacation during the term of
Employer's employment of Employee except for such vacation hours identified in
Appendix B hereto. At any time on or before the termination of Employee's
employment, the Employee shall enjoy the right to payment for any accrued but
unused vacation hours at the rate set forth in Appendix B.
4.0 Expenses
--------
The Employer shall pay or reimburse the Employee for all travel and
out-of-pocket expenses reasonably incurred or paid by the Employee and the
performance of his duties, subject to receipt of such supporting documentation
as the Employer may reasonably require. Such payments or reimbursement shall be
made quarterly to Employee upon review and approval of such supporting
documentation by Employer's Board of Directors.
<PAGE>
Mr. John J. Estok
July 1, 1993
Page 4
5.0 Termination by Employer
-----------------------
5.1 Just Cause or Willful Misconduct
--------------------------------
Notwithstanding anything to the contrary herein, the Employee's
employment may be terminated at any time by the Employer without prior notice
and without any further obligation to the Employee for just cause or willful
misconduct.
5.2 Other Cases
-----------
For any reason other than just cause or Employee's Misconduct,
Employee's employment may be terminated at any time by the Employer upon
provision of sixty (60) days of prior written notice by the Employer to the
Employee; provided, however, that on the date of such termination Employer shall
pay to Employee any unpaid severance prepayment installments in the amounts
prescribed in Section 3.2 hereof.
5.3 Termination Benefits
--------------------
Provided that Employer has not terminated the Employee's employment
for just cause or willful misconduct or that the Employee has not terminated his
employment in accordance with Section 6.0 hereof: (a) the Employer shall
continue the Employee's participation in the Employer's medical and dental
benefits plans, at the Employer's expense, to and until that date eighteen (18)
months after the date hereof; and (b) the Employer shall, if such relocation is
completed on or before that date eighteen (18) months after the date hereof
relocate the Employee and family to any Canadian destination, at the Employer's
reasonable expense.
6.0 Termination by Employee
-----------------------
The Employee's employment may be terminated at any time by the
Employee upon provision of sixty (60) days prior written notice by the Employee
to the Employer; provided, however, that if Employee shall terminate his
employment prior to any severance Prepayment Date, Employee shall not be
entitled to any severance prepayment installment payable after such date of
termination.
7.0 Amendments
----------
This agreement may not be modified or amended in whole or in part
except by written instrument signed by both the Employer and Employee.
<PAGE>
Mr. John J. Estok
July 1, 1993
Page 5
8.0 Applicable Law
--------------
This agreement shall be governed by and construed in accordance with
the laws of the State of Oregon.
9.0 Entire Agreement
----------------
This letter constitutes the entire agreement between the parties with
reference to the employment of the Employee by the Employer There are no
promises, representations, collateral agreements or understandings between the
parties in connection with such subject matter except as specifically set forth
in this agreement.
10.0 Interpretation
--------------
In the event that any provision of this agreement shall be deemed void
and invalid by a court of competent jurisdiction, the remaining provisions shall
be and remain in full force and effect.
11.0 Acknowledgment
--------------
The Employee acknowledges that: he has had sufficient time to
thoroughly consider this agreement; he has read and understands its terms; he
has been given an opportunity to obtain independent legal and professional
advice; and he has entered this agreement voluntarily and without any pressure.
Please confirm your acceptance of this offer of employment by signing
and returning the attached duplicate copy.
Yours very truly,
INDUSTRIAL FUNDING CORP
Alan R. Hibben
Chairman
Accepted this _____ day of July, 1993.
________________________________
John J. Estok
<PAGE>
EXHIBIT 10.17
<PAGE>
OFFICE LEASE
------------
2121 S.W. Broadway
Portland, Oregon
Basic Lease Information
-----------------------
Date: May 27, 1993
Landlord: Walter R. Castro, Jr., as Trustee of the A. L. McCormick 1991 Trust
Tenant: Industrial Leasing Corporation, an Oregon corporation
Premises (Section 1.1): 6,009 square feet on the first floor of the Building,
83 square feet of storage space in the Building (location to be designated
by Landlord), and 16 unreserved parking spaces in the parking area of the
Building
Building (Section 1.1): 2121 S.W. Broadway, Portland, Oregon
Term (Section 2.1): 2 years
Commencement Date (Section 2.1): May 27, 1993
Expiration Date (Section 2.1): May 26, 1995
Base Rent (Section 3.1(a)): $6,926.81 per month
Base Expense Amount (Section 3.1(b)): $318,750 per year
Security Deposit (Section 3.4): $6,926.81
Liability Insurance (Section 10.2): Two million dollars ($2,000,000)
Landlord's Address (Section 22.1): 100 Larkspur Landing Circle, Suite 218,
Larkspur, California 94939, Attn: Walter R. Castro, Jr.
Tenant's Address (Section 22.1): 2121 S.W. Broadway, Portland, Oregon 97201,
Attn: President; all notices sent to Tenant shall also be sent to Bogle &
Gates, 1400 KOIN Center, 222 S.W. Columbia, Portland, Oregon 97201, Attn:
Byron W. Milstead, Esq.
Exhibit A - Floor Plan Outlining the Premises
-i-
<PAGE>
Exhibit B - Rules and Regulations
The foregoing BASIC LEASE INFORMATION is incorporated in and made a part of
the Lease to which it is attached. If there is any conflict between the BASIC
LEASE INFORMATION and the Lease, the Lease shall control.
INDUSTRIAL LEASING CORPORATION,
an Oregon corporation
/s/ Walter R. Castro, Jr.
--------------------------------
By /s/ Walter R. Castro, Jr.
_______________________________ as Trustee of the A. L.
McCormick 1991 Trust
Title PRESIDENT / CEO
_______________________
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
Article Page
- - - ------- ----
1 Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 Operating Expenses and Property Taxes . . . . . . . . . . . . . . . . 5
5 Other Taxes Payable by Tenant . . . . . . . . . . . . . . . . . . . . 7
6 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8 Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . 9
9 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11 Compliance With Legal Requirements. . . . . . . . . . . . . . . . . . 14
12 Assignment or Sublease. . . . . . . . . . . . . . . . . . . . . . . . 14
13 Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . 17
14 Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15 Events of Default and Remedies. . . . . . . . . . . . . . . . . . . . 18
16 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . 21
17 Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
18 Subordination, Merger and Sale. . . . . . . . . . . . . . . . . . . . 23
19 Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 24
20 Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
21 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
22 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
23 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exhibit A - Floor Plan Outlining the Premises
Exhibit B - Rules and Regulations
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<PAGE>
OFFICE LEASE
------------
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION,
by and between the landlord specified in the BASIC LEASE INFORMATION
("Landlord") and the tenant specified in the BASIC LEASE INFORMATION ("Tenant"),
W I T N E S S E T H:
ARTICLE 1
---------
Premises
--------
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the covenants hereinafter set forth, to
all of which Landlord and Tenant hereby agree, the office space on the floor
specified in the BASIC LEASE INFORMATION (the "Premises"), as outlined on the
floor plan attached hereto as Exhibit A, in the building specified in the BASIC
LEASE INFORMATION (the "Building"), which includes the land on which the
Building is located. Landlord and Tenant hereby agree that, for purposes of this
Lease, the Premises shall be deemed to consist of 6,009 square feet and the
Building shall be deemed to consist of 51,000 square feet. Tenant shall have the
right to use eighty-three (83) square feet of storage space (the "Storage
Space") in the Building and sixteen (16) parking spaces (the "Parking Spaces")
in the parking area of the Building. Tenant shall have the right to use, in
common with others, the entrances, lobbies, stairs and elevators of the Building
for access to the Premises. All of the windows and outside decks, balconies and
walls of the Building and any space in the Premises used for shafts, stacks,
pipes, conduits, ducts, electric or other utilities, sinks or other Building
facilities, and the use thereof and access thereto through the Premises for the
purposes of operation, maintenance and repairs, are reserved to Landlord.
Landlord shall designate in writing the area in the Building to be used by
Tenant for the Storage Space. Tenant shall use the Storage Space solely for
storage purposes. Tenant shall use the Parking Spaces solely for parking motor
vehicles of Tenant's officers, employees, invitees and licensees on an
unreserved, nonexclusive basis in common with other tenants of the Building.
1.2 No easement for light, air or view is included with or appurtenant to
the Premises. Any diminution or shutting off of light, air or view by any
structure which may hereafter be erected (whether or not constructed by
Landlord) shall in no way affect this Lease or impose any liability on Landlord.
1.3 Tenant shall accept the Premises "as is" on the Commencement Date.
Landlord shall have no obligation to construct or install any improvements in or
on the Premises.
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<PAGE>
Tenant acknowledges that it has inspected the Premises prior to the date of this
Lease and is fully aware of the condition thereof. Tenant's possession of the
Premises shall constitute Tenant's acknowledgment that the Premises are in all
respects in the condition in which Landlord is required to deliver the Premises
to Tenant under this Lease. Tenant may remove any of the improvements that
exist in the Premises as of the date hereof and may use any removed materials in
constructing new improvements in the Premises.
ARTICLE 2
---------
Term
----
2.1 The term of this Lease shall be the term specified in the BASIC LEASE
INFORMATION, which shall commence on the commencement date specified in the
BASIC LEASE INFORMATION (the "Commencement Date,,) and, unless sooner terminated
as hereinafter provided, shall end on the expiration date specified in the BASIC
LEASE INFORMATION (the "Expiration Date").
2.2 Subject to the provisions of this Section 2.2, Tenant shall have the
right to extend the term of this Lease for one (1) year (the "Extended Term").
The Extended Term shall commence on the first day after the Expiration Date and,
unless sooner terminated as hereinafter provided, shall end one (1) year
thereafter. Tenant may exercise such right only by giving Landlord written
notice of exercise of such right at least six (6) months before the Expiration
Date and only if no Event of Default (as hereinafter defined) exists under this
Lease when Tenant exercises such right. If Tenant fails to exercise such right
in accordance with this Section 2.2, such right shall terminate. If Tenant
exercises such right in accordance with this Section 2.2, the term of this Lease
shall be extended for the Extended Term.
ARTICLE 3
---------
Rent
----
3.1 Tenant shall pay to Landlord the following amounts as rent for the
Premises:
(a) During the term of this Lease (and any extension for the Extended Term
pursuant to Section 2.2 hereof), Tenant shall pay to Landlord, as base monthly
rent, the amount of monthly rent for the Premises specified in the BASIC LEASE
INFORMATION (the "Base Rent"), prorated on the basis of actual days in the month
for any fractional month.
(b) During each calendar year or part thereof during the term of this
Lease, Tenant shall pay to Landlord, as additional
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<PAGE>
monthly rent, eleven and seventy-eight hundredths percent (11.78%) of the amount
of the total dollar increase, if any, in all Operating Expenses (as hereinafter
defined) paid or incurred by Landlord in such calendar year or part thereof over
the Base Expense Amount.
(c) Throughout the term of this Lease, Tenant shall pay, as additional
rent, all other amounts of money and charges required to be paid by Tenant under
this Lease, whether or not such amounts of money or charges are designated
"additional rent." As used in this Lease, "rent,' shall mean and include all
Base Rent, additional monthly rent and additional rent payable by Tenant in
accordance with this Lease.
3.2 The additional monthly rent payable pursuant to Section 3.1(b) hereof
shall be calculated and paid in accordance with the following procedures:
(a) On or before the Commencement Date and thereafter on or before the
first day of each calendar year during the term of this Lease, or as soon
thereafter as practicable, Landlord shall give Tenant written notice of
Landlord's estimate of the amount payable under Section 3.1(b) hereof for the
balance of the first calendar year after the Commencement Date or for the
ensuing calendar year. On or before the first day of each month during such
balance of the first calendar year and during each such ensuing calendar year,
Tenant shall pay to Landlord equal monthly installments of such estimated amount
with respect to such balance of the first calendar year and one-twelfth of such
estimated amount with respect to each such ensuing calendar year. If such
notice is not given for any calendar year, Tenant shall continue to pay on the
basis of the prior year's estimate until the month after such notice is given,
and subsequent payments by Tenant shall be based on Landlord's current estimate.
If at any time it appears to Landlord that the amount payable under Section
3.1(b) hereof for the current calendar year will vary from Landlord's estimate,
Landlord may, by giving written notice to Tenant, revise Landlord's estimate for
such year, and subsequent payments by Tenant for such year shall be based on
such revised estimate.
(b) Within ninety (90) days after the end of each calendar year, Landlord
shall give Tenant a written statement of the amount payable under Section 3.1(b)
hereof for such calendar year certified by Landlord. If such statement shows an
amount owing by Tenant that is less than the estimated payments for such
calendar year previously made by Tenant, Landlord shall credit the excess to the
next succeeding monthly installments payable under Section 3.1(b) hereof. If
such statement shows an amount owing by Tenant that is more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of such statement.
Tenant or Tenant's authorized agent or representative shall have the right to
inspect the books of
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<PAGE>
Landlord relating to Operating Expenses, after giving reasonable prior written
notice to Landlord and during the business hours of Landlord at Landlord's
office in the Building or at such other location as Landlord may designate, for
the purpose of verifying information relating to Operating Expenses. Failure by
Landlord to give any notice or statement to Tenant under this Section 3.2 shall
not waive Landlord's right to receive, or Tenant's obligation to pay, the
amounts payable by Tenant under Section 3.1(b) hereof.
(c) If the term of this Lease commences on a day other than the first day
of a calendar year or ends on a day other than the last day of a calendar year,
the amounts payable by Tenant under Section 3.1(b) hereof applicable to the
calendar year in which such term begins or ends, as the case may be, shall be
prorated according to the ratio which the number of days in such calendar year
from and including the first day of the term or to and including the end of the
term, as the case may be, bears to three hundred sixty-five (365). Termination
of this Lease shall not affect the obligations of Landlord and Tenant pursuant
to Section 3.2(b) hereof to be performed after such termination.
3.3 Tenant shall pay all Base Rent and additional monthly rent under
Section 3.1 hereof to Landlord, in advance, on or before the first day of each
and every calendar month during the term of this Lease. Tenant shall pay all
rent to Landlord without notice, demand, deduction or offset, in lawful money of
the United States of America, at the address of Landlord specified in the BASIC
LEASE INFORMATION, or to such other person or at such other place as Landlord
may from time to time designate in writing.
3.4 Upon signing this Lease, Tenant shall pay to Landlord (a) an amount
equal to the Base Rent for the first month of the term of this Lease, which
amount Landlord shall apply to the Base Rent for such first month, and (b) the
amount of the security deposit specified in the BASIC LEASE INFORMATION (the
"Security Deposit"). The Security Deposit shall be held by Landlord as security
for the performance by Tenant of all of the covenants of this Lease to be
performed by Tenant, and Tenant shall not be entitled to interest thereon. If
an Event of Default (as hereinafter defined) occurs, then Landlord shall have
the right, but no obligation, to apply the Security Deposit, or so much thereof
as may be necessary, to cure any such Event of Default by Tenant. If Landlord
applies the Security Deposit or any part thereof to cure any such Event of
Default by Tenant, then Tenant shall immediately pay to Landlord the sum
necessary to restore the Security Deposit to the full amount required by this
Section 3.4. Any remaining portion of the Security Deposit shall be returned to
Tenant upon termination of this Lease. Upon termination of the original
Landlord's or any successor owner's interest in the Premises or the Building,
the original Landlord or such successor owner
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<PAGE>
shall be released from further liability with respect to the Security Deposit
upon the original Landlord's or such successor owner's delivery of the Security
Deposit, or any remaining portion thereof, to the transferee of the Landlord or
the successor owner and upon written notice to Tenant of the transfer and the
transferee's name and address.
ARTICLE 4
---------
Operating Expenses and Property Taxes
-------------------------------------
4.1 As used in this Lease, "Operating Expenses" shall mean all reasonable
costs and expenses paid or incurred by Landlord in connection with the
ownership, management, operation, maintenance or repair of the Building or
providing services in accordance with this Lease, including the following:
Property Taxes (as defined in Section 4.2 hereof) premiums and other charges for
all property, earthquake, rental value, liability and other insurance carried by
Landlord; water and sewer charges or fees; license, permit and inspection fees;
electricity, chilled water, air conditioning, gas, fuel, steam, heat, light,
power and other utilities; sales, use and excise taxes on goods and services
purchased by Landlord; management fees and expenses; equipment lease payments;
repairs to and maintenance of the Building, including Building systems and
accessories thereto and repair and replacement of worn-out or broken equipment,
facilities, parts and installations, but excluding the replacement of major
Building systems; janitorial, window cleaning, security, guard, extermination,
water treatment, garbage and waste disposal, rubbish removal, plumbing and other
services; inspection or service contracts for elevator, electrical, mechanical
and other Building equipment and systems; supplies, tools, materials and
equipment; accounting, legal and other professional fees and expenses; painting
the exterior or the public or common areas of the Building and the cost of main-
taining the sidewalks, landscaping and other common areas of the Building; the
cost, reasonably amortized as determined by Landlord, with interest at the prime
rate or reference rate publicly announced by Bank of America (or its successor)
on the unamortized balance, of all furniture, fixtures, draperies, carpeting and
personal property (excluding paintings, sculptures or other works of fine art)
furnished by Landlord in common areas or public corridors of the Building; all
costs and expenses resulting from compliance with any laws, ordinances, rules,
regulations or orders applicable to the Building; all costs and expenses of
contesting by appropriate legal proceedings any matter concerning managing,
operating, maintaining or repairing the Building, or the validity or
applicability of any law, ordinance, rule, regulation or order relating to the
Building, or the amount or validity of any Property Taxes, reasonable
depreciation as determined by Landlord on all machinery, fixtures and equipment
(including window washing machinery) used in the management, operation,
maintenance or repair of the Building
-5-
<PAGE>
all capital improvements made acquired by Landlord that are labor-saving or
energy-saving efficiency in the management, of the Building, or to reduce that
are reasonably necessary and on window coverings provided by Landlord; and the
cost, reasonably amortized as determined by Landlord, with interest at such
prime rate or reference rate on the unamortized balance, of to the Building or
capital assets designed or intended to be a device, or to improve economy or
operation, maintenance or repair any item of Operating Expenses, or to comply
with any conservation program or required by any law, ordinance, rule,
regulation or order. Operating Expenses shall not include depreciation on the
Building (except as described above), real estate brokers' commissions, interest
(except as described above), capital items (except as described above) or fines
or penalties assessed against Landlord or expenses incurred by Landlord for its
grossly negligent or willful violation of any law, ordinance, rule or regulation
concerning operation of the Building. The determination of Operating Expenses
shall be in accordance with generally accepted accounting principles applied on
a consistent basis.
4.2 As used in this Lease, "Property Taxes" shall mean all taxes,
assessments, excises, levies, fees and charges (and any tax, assessment, excise,
levy, fee or charge levied wholly or partly in lieu thereof or as a substitute
therefor or as an addition thereto) of every kind and description, general or
special, ordinary or extraordinary, foreseen or unforeseen, secured or
unsecured, whether or not now customary or within the contemplation of Landlord
and Tenant, that are levied, assessed, charged, confirmed or imposed by any
public or government authority on or against, or otherwise with respect to, the
Building or any part thereof or any personal property used in connection with
the Building. Property Taxes shall not include net income (measured by the
income of Landlord from all sources or from sources other than solely rent),
franchise, documentary transfer, inheritance or capital stock taxes of Landlord,
unless levied or assessed against Landlord in whole or in part in lieu of, as a
substitute for, or as an addition to any Property Taxes. If any assessment can
be paid on an installment basis under the Bancroft Bonding Act, ORS 223.205, et
seq., or any similar statute, then, upon request from Tenant, Landlord shall
elect to pay such assessment in installments and only those installments due
during, or allocable to, the term of this Lease shall be included in Operating
Expenses. Property Taxes shall not include any tax, assessment, excise, levy,
fee or charge paid by Tenant pursuant to Section 5.1 hereof. If Tenant wishes
to challenge any tax or assessment levied against the Building, Landlord shall,
at the sole cost and expense of Tenant, cooperate with such challenge in any
reasonable manner. Landlord may continue to pay any such tax or assessment
during the pendency of any challenge and Tenant shall receive its proportional
share of any refund thereof.
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<PAGE>
ARTICLE 5
---------
Other Taxes Payable by Tenant
-----------------------------
5.1 In addition to all monthly rent and other charges to be paid by Tenant
under this Lease, Tenant shall reimburse Landlord upon demand for all taxes,
assessments, excises, levies, fees and charges, including all payments related
to the cost of providing facilities or services, whether or not now customary or
within the contemplation of Landlord and Tenant, that are payable by Landlord
and levied, assessed, charged, confirmed or imposed by any public or government
authority upon, or measured by, or reasonably attributable to (a) the Premises,
(b) the cost or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises or the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of whether
title to such improvements is vested in Tenant or Landlord, (c) any rent payable
under this Lease, including, without limitation, any gross income tax or excise
tax levied by any public or government authority with respect to the receipt of
any such rent, (d) the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or (e) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. Such taxes, assessments, excises,
levies, fees and charges shall not include net income (measured by the income of
Landlord from all sources or from sources other than solely rent), franchise,
documentary transfer, inheritance or capital stock taxes of Landlord, unless
levied or assessed against Landlord in whole or in part in lieu of, as a
substitute for, or as an addition to any such taxes, assessments, excises,
levies, fees and charges. All taxes, assessments, excises, levies, fees and
charges payable by Tenant under this Section 5.1 shall be deemed to be, and
shall be paid as, additional rent.
ARTICLE 6
---------
Use
---
6.1 The Premises shall be used for general office purposes and no other
purpose. Tenant shall not do or permit to be done in, on or about the Premises,
nor bring or keep or permit to be brought or kept therein, anything which is
prohibited by or will in any way conflict with any law, ordinance, rule,
regulation or order now in force or which may hereafter be enacted, or which is
prohibited by any insurance policy carried by Landlord for the Building, or will
in any way increase the existing rate of, or cause a cancellation of, or affect
any insurance for the Building. Tenant shall not bring or keep, or permit to be
brought or kept, in the Premises or the Building any toxic or hazardous
substance, material or waste or any other contaminant or pollutant. Tenant
shall not do or permit anything to be done
-7-
<PAGE>
in or about the Premises which will in any way obstruct or interfere with the
rights of Landlord or other tenants of the Building, or injure or annoy them.
Tenant shall not use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable activity, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises or commit or suffer to be committed
any waste in, on or about the Premises. Tenant shall not bring or keep in the
Premises any furniture, equipment, materials or other objects which overload the
Premises or any portion thereof in excess of fifty (50) pounds per square foot
live or dead load, which is the normal, load bearing capacity of the floors of
the Building.
ARTICLE 7
---------
Services
--------
7.1 Landlord shall supply the Premises during reasonable and usual
business hours, as determined by Landlord and subject to the Rules and
Regulations (as hereinafter defined) established by Landlord, with normal
electricity for lighting and the operation of desk top office machines, normal
heating, ventilating and air conditioning reasonably required for the use and
occupancy of the Premises, and normal water for lavatory and drinking purposes.
Landlord shall also furnish normal elevator service to the Premises at all
times, and lighting replacement for Building standard lights, restroom supplies
and window washing when needed, as determined by Landlord and subject to the
Rules and Regulations. Landlord shall maintain the current level of security
service for the Building (not Tenant or the Premises) and normal janitor service
to the Premises during the times and in the manner that such services are
customarily furnished in comparable office buildings in the area. Landlord
shall not be liable for any criminal acts of others or for any direct,
consequential or other loss or damage related to any malfunction, circumvention
or other failure of such security service. Landlord shall not be in default
under this Lease or be liable for any damage or loss directly or indirectly
resulting from, nor shall the rent be abated or a constructive or other eviction
be deemed to have occurred by reason of, any installation, use or interruption
of use of any equipment in connection with the furnishing of any of the
foregoing services, any failure to furnish or delay in furnishing any such
services when such failure or delay is caused by accident or breakdown or any
condition beyond the reasonable control of Landlord or by the making of repairs
or improvements to the Premises or to the Building, or any limitation,
curtailment, rationing or restriction on use of water, electricity, gas or any
resource or form of energy serving the Premises or the Building, whether such
results from mandatory restrictions or voluntary compliance with guidelines.
Landlord shall use reasonable efforts to correct any interruption in the
furnishing of such services.
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<PAGE>
7.2 If Tenant uses heat generating machines, equipment or computers or
lighting other than Building standard lights in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right to install supplementary air conditioning units in the Premises
and Tenant shall pay to Landlord the cost thereof, including the costs of
installation, operation, maintenance and repair thereof, as reasonably
determined by Landlord, upon billing by Landlord. If Tenant installs lighting
requiring power in excess of that required for normal office use in the Building
or equipment or computers requiring power in excess of that required for normal
desk top office equipment, Tenant shall pay to Landlord, upon billing by
Landlord, the cost of such excess, as reasonably determined by Landlord. Tenant
shall pay to Landlord, upon billing by Landlord, the cost of all additional
services, electricity, power and energy consumed by Tenant, in excess of the
amount that would reasonably be incurred for a normal business office operating
during reasonable and usual business hours, as a result of the operation of
Tenant's computers or equipment, the number of hours Tenant operates, or any
other feature of the conduct of Tenant's business in the Premises, all as
reasonably determined by Landlord based on the actual additional cost incurred
by Landlord. All costs payable by Tenant under this Section 7.2 shall be deemed
to be, and shall be paid as, additional rent.
ARTICLE 8
---------
Maintenance and Repairs
-----------------------
8.1 Landlord shall maintain and repair the structural elements and the
public and common areas of the Building, such as plazas, lobbies, stairs,
corridors and restrooms, the roof and exterior elements of the Building, and the
elevator, plumbing, mechanical (heating, ventilating and air conditioning) and
electrical systems of the Building and keep such areas, elements and systems in
reasonably good order and condition. Any damage in or to any such areas,
elements or systems caused by Tenant or any agent, officer, employee,
contractor, licensee or invitee of Tenant shall be repaired by Landlord at
Tenant's expense and Tenant shall pay to Landlord, upon billing by Landlord, as
additional rent, the cost of such repairs incurred by Landlord.
8.2 Subject to Landlord's obligations under Section 8.1 hereof, Tenant
shall, at all times during the term of this Lease and at Tenant's sole cost and
expense, maintain and repair the Premises and every part thereof and all
equipment, fixtures and improvements therein and keep all of the foregoing clean
and in good order and operating condition, ordinary wear and tear and damage
thereto by fire or other casualty excepted. Tenant hereby waives all rights to
make repairs at the expense of Landlord or in lieu thereof to vacate the
Premises. Subject to
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<PAGE>
Section 9.2 hereof, Tenant shall, at the end of the term of this Lease,
surrender to Landlord the Premises and all alterations, additions, fixtures and
improvements therein or thereto in the same condition as when received, ordinary
wear and tear and damage thereto by fire or other casualty excepted.
ARTICLE 9
---------
Alterations
-----------
9.1 Tenant shall not make any alterations, additions or improvements in or
to the Premises or any part thereof, or attach any fixtures or equipment
thereto, without Landlord's prior written consent. Notwithstanding the
preceding sentence, Tenant may make such alterations, additions or improvements
without Landlord's consent only if the total cost of such alterations, additions
or improvements is five thousand dollars ($5,000) or less and such alterations,
additions or improvements will not affect in any way the structural, exterior or
roof elements of the Building or the elevator, mechanical, electrical, plumbing
or life safety systems of the Building, but Tenant shall give prior written
notice of any such alterations, additions or improvements to Landlord. All
alterations, additions and improvements in or to the Premises to which Landlord
consents shall be made by Tenant at Tenant's sole cost and expense as follows:
(a) Tenant shall submit to Landlord, for Landlord's written approval,
which approval shall not be unreasonably withheld, complete plans and
specifications for all work to be done by Tenant. Such plans and specifications
shall be prepared by responsible licensed architects and engineers approved in
writing by Landlord, which approval shall not be unreasonably withheld, shall
comply with all applicable codes, laws, ordinances, rules and regulations, shall
not adversely affect the Building shell or core or any systems, components or
elements of the Building, shall be in a form sufficient to secure the approval
of all government authorities with jurisdiction over the Building, and shall be
otherwise satisfactory to Landlord in Landlord's reasonable discretion. Tenant
shall notify Landlord in writing of the licensed architects and engineers whom
Tenant proposes to engage to prepare such plans and specifications. Landlord
shall notify Tenant promptly in writing whether Landlord approves or disapproves
such architects and engineer(s), but such approval shall not be unreasonably
withheld.
(b) Landlord shall notify Tenant promptly in writing whether Landlord
approves or disapproves such plans and specifications and, if Landlord
disapproves such plans and specifications, Landlord shall describe the reasons
for disapproval. Tenant may submit to Landlord revised plans and specifications
for Landlord's prior written approval. Tenant shall pay all costs, including
the fees and expenses of the licensed archi-
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<PAGE>
tect(s) and engineer(s), in preparing such plans and specifications.
(c) All changes in the plans and specifications approved by Landlord shall
be subject to Landlord's prior written approval. If Tenant wishes to make any
such change in such approved plans and specifications, Tenant shall have
Tenant's architect(s) and engineer(s) prepare plans and specifications for such
change and submit them to Landlord for Landlord's written approval. Landlord
shall notify Tenant in writing promptly whether Landlord approves or disapproves
such change and, if Landlord disapproves such change, Landlord shall describe
the reasons for disapproval. Tenant may submit to Landlord revised plans and
specifications for such change for Landlord's written approval. After
Landlord's written approval of such change, such change shall become part of the
plans and specifications approved by Landlord.
(d) Tenant shall pay for all work (including the cost of all utilities,
permits, fees, taxes, and property and liability insurance premiums in
connection therewith) required to make the alterations, additions and
improvements. Tenant shall engage responsible licensed contractors) approved in
writing by Landlord to perform all work. Tenant shall notify Landlord in writ-
ing of the licensed contractors) whom Tenant proposes to engage for the work.
Landlord shall notify Tenant promptly in writing whether Landlord approves or
disapproves such contractors), but such approval shall not be unreasonably
withheld. All contractors and other persons shall at all times be subject to
Landlord's control while in the Building. Tenant shall pay to Landlord any
reasonable additional direct costs (beyond the normal services provided to
tenants in the Building) and shall reimburse Landlord for all reasonable
expenses incurred by Landlord in connection with the review, approval and
supervision of any alterations, additions or improvements made by Tenant,
provided that, upon request from Tenant, Landlord shall, prior to incurring any
such costs, provide Tenant with a written notice and estimate thereof. Tenant
shall notify Landlord within five (5) business days if Tenant objects to any
such estimate. Under no circumstances shall Landlord be liable to Tenant for
any damage, loss, cost or expense incurred by Tenant on account of Tenant's
plans and specifications, Tenant's contractors or subcontractors, design of any
work, construction of any work, or delay in completion of any work.
(e) Tenant shall give written notice to Landlord of the date on which
construction of any work will be commenced at least five (5) days prior to such
date. Tenant shall cause all work to be performed by the licensed contractors)
approved in writing by Landlord in accordance with the plans and specifications
approved in writing by Landlord and in full compliance with all applicable
codes, laws, ordinances, rules and regulations. Tenant shall keep the Premises
and the Building free from mechanics', materialmen's and all other liens arising
out
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<PAGE>
of any work performed, labor supplied, materials furnished or other obligations
incurred by Tenant. Tenant shall promptly and fully pay and discharge all
claims on which any such lien could be based. Tenant shall have the right to
contest the amount or validity of any such lien, provided Tenant gives prior
written notice of such contest to Landlord, prosecutes such contest by
appropriate proceedings in good faith and with diligence, and, upon request by
Landlord, furnishes such bond as may be required by law to protect the Premises
and the Building from such lien. Landlord shall have the right to post and keep
posted on the Premises any notices that may be provided by law or which Landlord
may deem to be proper for the protection of Landlord, the Premises and the
Building from such liens, and to take any other action Landlord deems necessary
to remove or discharge liens or encumbrances at the expense of Tenant.
9.2 All alterations, additions, fixtures and improvements, including
carpeting, whether temporary or permanent in character, made in or to the
Premises by Landlord or Tenant, shall become part of the Building and Landlord's
property. Upon termination of this Lease, Landlord shall have the right, at
Landlord's option, to retain all such alterations, additions, fixtures and
improvements in the Premises, without compensation to Tenant, or to remove all
such alterations, additions, fixtures and improvements from the Premises at
Landlord's expense. All movable furniture, equipment, trade fixtures,
computers, office machines and other personal property shall remain the property
of Tenant. Upon termination of this Lease, Tenant shall, at Tenant's expense,
remove all such movable furniture, equipment, trade fixtures, computers, office
machines and other personal property from the Building and repair all damage
caused by any such removal. Termination of this Lease shall not affect the
obligations of Tenant pursuant to this Section 9.2 to be performed after such
termination.
ARTICLE 10
----------
Insurance
---------
10.1 Landlord shall not be liable to Tenant, and Tenant hereby waives all
claims against Landlord, for any damage to or loss or theft of any property or
for any bodily or personal injury, illness or death of any person in, on or
about the Premises or the Building arising at any time and from any cause
whatsoever, except to the extent caused by the negligence or willful misconduct
of Landlord. Tenant shall indemnify and defend Landlord against and hold
Landlord harmless from all claims, demands, liabilities, damages, losses, costs
and expenses, including reasonable attorneys, fees and disbursements, arising
from or related to any use or occupancy of the Premises, or any condition of the
Premises, or any default in the performance of Tenant's obligations, or any
damage to any property (including property of employees and
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<PAGE>
invitees of Tenant) or any bodily or personal injury, illness or death of any
person (including employees and invitees of Tenant) occurring in, on or about
the Premises or any part thereof arising at any time and from any cause
whatsoever (except to the extent caused by the negligence or willful misconduct
of Landlord) or occurring in, on or about any part of the Building other than
the Premises when such damage, bodily or personal injury, illness or death is
caused by any act or omission of Tenant or its agents, officers, employees,
contractors, invitees or licensees. This Section 10.1 shall survive the
termination of this Lease with respect to any damage, bodily or personal injury,
illness or death occurring prior to such termination.
10.2 Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, obtain and keep in force comprehensive general
liability insurance, including contractual liability (specifically covering this
Lease), fire legal liability, and premises operations, with a minimum combined
single limit in the amount specified in the BASIC LEASE INFORMATION per
occurrence for bodily or personal injury to, illness of, or death of persons and
damage to property occurring in, on or about the Premises or the Building.
Tenant shall, at Tenant's sole cost and expense, be responsible for insuring
Tenant's furniture, equipment, fixtures, computers, office machines and personal
property.
10.3 All insurance required under this Article 10 and all renewals thereof
shall be issued by good and responsible companies qualified to do and doing
business in the State of Oregon. Each policy shall expressly provide that the
policy shall not be canceled or altered without thirty (30) days' prior written
notice to Landlord and shall remain in effect notwithstanding any such
cancellation or alteration until such notice shall have been given to Landlord
and such period of thirty (30) days shall have expired. All liability insurance
under this Article 10 shall name Landlord and any other parties designated by
Landlord as an additional insured, shall be primary and noncontributing with any
insurance which may be carried by Landlord, shall afford coverage for all claims
based on any act, omission, event or condition that occurred or arose (or the
onset of which occurred or arose) during the policy period, and shall expressly
provide that Landlord, although named as an insured, shall nevertheless be
entitled to recover under the policy for any loss, injury or damage to Landlord.
Upon the issuance thereof, Tenant shall deliver each such policy or a certified
copy and a certificate thereof to Landlord for retention by Landlord. If Tenant
fails to insure or fails to furnish to Landlord upon notice to do so any such
policy or certified copy and certificate thereof as required, Landlord shall
have the right from time to time to effect such insurance for the benefit of
Tenant or Landlord or both of them and all premiums paid by Landlord shall be
payable by Tenant as additional rent on demand.
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<PAGE>
10.4 Tenant waives on behalf of all insurers under all policies of
property, liability and other insurance (excluding workers' compensation) now or
hereafter carried by Tenant insuring or covering the Premises, or any portion or
any contents thereof, or any operations therein, all rights of subrogation which
any insurer might otherwise, if at all, have to any claims of Tenant against
Landlord. Landlord waives on behalf of all insurers under all policies of
property, liability and other insurance (excluding workers' compensation) now or
hereafter carried by Landlord insuring or covering the Building or any portion
or any contents thereof, or any operations therein, all rights of subrogation
which any insurer might otherwise, if at all, have to any claims of Landlord
against Tenant. Landlord and Tenant each shall, prior to or immediately after
the date of this Lease, procure from each of the insurers under all policies of
property, liability and other insurance (excluding workers' compensation) now or
hereafter carried by such party insuring or covering the Premises, or any
portion or any contents thereof, or any operations therein, a waiver of all
rights of subrogation which the insurer might otherwise, if at all, have to any
claims of Tenant against Landlord or Landlord against Tenant, as the case may
be, as required by this Section 10.4.
ARTICLE 11
----------
Compliance With Legal Requirements
----------------------------------
11.1 Tenant shall, at Tenant's sole cost and expense, promptly comply with
all laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in force,
with all requirements of any board of fire underwriters or other similar body
now or hereafter constituted, and with all directions and certificates of
occupancy issued pursuant to any law by any governmental agency or officer,
insofar as any thereof relate to or are required by the condition, use or
occupancy of the Premises or the operation, use or maintenance of any personal
property, fixtures, machinery, equipment or improvements in the Premises, but
Tenant shall not be required to make structural changes unless structural
changes are related to or required by Tenant's acts or use of the Premises or by
improvements made by or for Tenant.
ARTICLE 12
----------
Assignment or Sublease
----------------------
12.1 Tenant shall not, directly or indirectly, without the prior written
consent of Landlord (which consent shall not be unreasonably withheld), assign
this Lease or any interest herein or sublease the Premises or any part thereof,
or permit the use or occupancy of the Premises by any person or entity other
than
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<PAGE>
Tenant. Tenant shall not, directly or indirectly, without the prior written
consent of Landlord, pledge, mortgage or hypothecate this Lease or any interest
herein. This Lease shall not, nor shall any interest herein, be assignable as
to the interest of Tenant involuntarily or by operation of law without the prior
written consent of Landlord. Any of the foregoing acts without such prior
written consent of Landlord shall be void and shall, at the option of Landlord,
constitute a default that entitles Landlord to terminate this Lease. Without
limiting or excluding other reasons for withholding Landlord's consent, Landlord
shall have the right to withhold consent if the proposed assignee or subtenant
or the use of the Premises to be made by the proposed assignee or subtenant is
prohibited by this Lease or if it is not demonstrated to the satisfaction of
Landlord that the proposed assignee or subtenant has good business and moral
character and reputation and is financially able to perform all of the
obligations of Tenant under this Lease. Tenant agrees that the instrument by
which any assignment or sublease to which Landlord consents is accomplished
shall expressly provide that the assignee or subtenant will perform all of the
covenants to be performed by Tenant under this Lease (in the case of a sublease,
only insofar as such covenants relate to the portion of the Premises subject to
such sublease) as and when performance is due after the effective date of the
assignment or sublease and that Landlord will have the right to enforce such
covenants directly against such assignee or subtenant. Any purported assignment
or sublease without an instrument containing the foregoing provisions shall be
void. Tenant shall in all cases remain liable for the performance by any
assignee or subtenant of all such covenants.
12.2 If Tenant wishes to assign this Lease or sublease all or any part of
the Premises, Tenant shall give written notice to Landlord identifying the
intended assignee or subtenant by name and address and specifying all of the
terms of the intended assignment or sublease. Tenant shall give Landlord such
additional information concerning the intended assignee or subtenant (including
complete financial statements and a business history) or the intended assignment
or sublease (including true copies thereof) as Landlord requests. For a period
of thirty (30) days after such written notice is given by Tenant, Landlord shall
have the right, by giving written notice to Tenant, (a) to consent in writing to
the intended assignment or sublease, unless Landlord determines not to consent,
or (b) to enter into an assignment of this Lease or a sublease of the Premises,
as the case may be, with Tenant upon the terms set forth in such written notice,
or (c) in the case of an assignment of this Lease or a sublease of substantially
the entire Premises for substantially the balance of the term of this Lease, to
terminate this Lease, which termination shall be effective as of the date on
which the intended assignment or sublease would have been effective if Landlord
had not exercised such termination right. If Landlord elects to enter into an
assignment of this Lease or a sublease of the Premises or to terminate this
Lease,
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<PAGE>
Landlord may enter into a new lease or agreement covering the Premises or any
portion thereof with the intended assignee or subtenant on such terms as
Landlord and such assignee or subtenant may agree, or enter into a new lease or
agreement covering the Premises or any portion thereof with any other person or
entity. In such event, Tenant shall not be entitled to any portion of the
profit, if any, which Landlord may realize on account of such new lease or
agreement. If Landlord elects to terminate this Lease, then from and after the
date of such termination, Landlord and Tenant each shall have no further
obligation to the other under this Lease with respect to the Premises except for
matters occurring or obligations arising hereunder prior to the date of such
termination.
12.3 If Landlord consents in writing, Tenant may complete the intended
assignment or sublease subject to the following covenants: (a) the assignment or
sublease shall be on the same terms as set forth in the written notice given by
Tenant to Landlord, (b) no assignment or sublease shall be valid and no assignee
or subtenant shall take possession of the Premises or any part thereof until an
executed duplicate original of such assignment or sublease, in compliance with
Section 12.1 hereof, has been delivered to Landlord, (c) no assignee or
subtenant shall have a right further to assign or sublease, and (d) one half of
all "excess rent" (as hereinafter defined) derived from such assignment or
sublease shall be paid to Landlord. Such excess rent shall be deemed to be, and
shall be paid by Tenant to Landlord as, additional rent. Tenant shall pay such
excess rent to Landlord immediately as and when such excess rent becomes due and
payable to Tenant. As used in this Section 12.3, "excess rent" shall mean the
amount by which the total money and other economic consideration to be paid by
the assignee or subtenant as a result of an assignment or sublease, whether
denominated rent or otherwise, exceeds, in the aggregate, the total amount of
rent which Tenant is obligated to pay to Landlord under this Lease (prorated to
reflect the rent allocable to the portion of the Premises subject to such
assignment or sublease), less only the reasonable costs paid by Tenant for
additional improvements installed in the portion of the Premises subject to such
assignment or sublease by Tenant at Tenant's sole cost and expense for the
specific assignee or subtenant in question and reasonable leasing commissions
paid by Tenant in connection with such assignment or sublease, without deduction
for carrying costs due to vacancy or otherwise. Such costs of additional
improvements and leasing commissions shall be amortized without interest over
the term of such assignment or sublease unless, with respect to such additional
improvements, such additional improvements have a useful life greater than the
term of such assignment or sublease, in which case such additional improvements
shall be amortized without interest over their useful life.
12.4 No assignment or sublease whatsoever shall release Tenant from
Tenant's obligations and liabilities under this
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<PAGE>
Lease or alter the primary liability of Tenant to pay all rent and to perform
all obligations to be paid and performed by Tenant. The acceptance of rent by
Landlord from any other person or entity shall not be deemed to be a waiver by
Landlord of any provision of this Lease. Consent to one assignment or sublease
shall not be deemed consent to any subsequent assignment or sublease. If any
assignee, subtenant or successor of Tenant defaults in the performance of any
obligation to be performed by Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
ARTICLE 13
----------
Rules and Regulations
---------------------
13.1 Tenant shall faithfully observe and comply with the rules and
regulations (the "Rules and Regulations") set forth in Exhibit B attached hereto
and, after notice thereof, all modifications thereof and additions thereto from
time to time made in writing by Landlord. Landlord shall only modify the Rules
and Regulations to the extent reasonably necessary to maintain the character of
the Building. If there is any conflict, this Lease shall prevail over the Rules
and Regulations and any modifications thereof or additions thereto. Landlord
shall not be liable to Tenant or responsible for the noncompliance by any other
tenant or occupant of the Building with any Rules and Regulations.
ARTICLE 14
----------
Entry by Landlord
-----------------
14.1 Landlord shall have the right, after reasonable notice to Tenant, to
enter the Premises at any time to (a) inspect the Premises, (b) exhibit the
Premises to prospective purchasers, lenders or tenants, (c) determine whether
Tenant is performing all of Tenant's obligations, (d) supply any service to be
provided by Landlord, (e) post notices of nonresponsibility, and (f) make any
repairs to the Premises, or make any repairs to any adjoining space or utility
services, or make any repairs, alterations or improvements to any other portion
of the Building, provided all such work shall be done as promptly as reasonably
practicable and so as to cause as little interference to Tenant as reasonably
practicable. Tenant waives all claims for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned by such entry.
All locks for all doors in, on or about the Premises (excluding Tenant's vaults,
safes and similar special security areas designated in writing by Tenant) shall
be keyed to the master system for the Building. Landlord shall at all times
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<PAGE>
have a key to unlock all such doors and Landlord shall have the right to use any
and all means which Landlord may deem proper to open such doors in an emergency
to obtain entry to the Premises. Any entry to the Premises obtained by Landlord
by any of such means shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
ARTICLE 15
----------
Events of Default and Remedies
------------------------------
15.1 The occurrence of any one or more of the following events ("Event of
Default") shall constitute a breach of this Lease by Tenant:
(a) Tenant fails to pay any Base Rent or additional monthly rent under
Section 3.1 hereof as and when such rent becomes due and payable and such
failure continues for more than five (5) days after Landlord gives written
notice thereof to Tenant; provided, however, that after the second such failure
in a calendar year, only the passage of time, but no further notice, shall be
required to establish an Event of Default in the same calendar year; or
(b) Tenant fails to pay any additional rent or other amount of money or
charge payable by Tenant hereunder as and when such additional rent or amount or
charge becomes due and payable and such failure continues for more than ten (10)
days after Landlord gives written notice thereof to Tenant; provided, however,
that after the second such failure in a calendar year, only the passage of time,
but no further notice, shall be required to establish an Event of Default in the
same calendar year; or
(c) Tenant fails to perform or breaches any other agreement or covenant of
this Lease to be performed or observed by Tenant as and when performance or
observance is due and such failure or breach continues for more than ten (10)
days after Landlord gives written notice thereof to Tenant; provided, however,
that if, by the nature of such agreement or covenant, such failure or breach
cannot reasonably be cured within such period of ten (10) days, an Event of
Default shall not exist as long as Tenant commences with due diligence and
dispatch the curing of such failure or breach within such period of ten (10)
days and, having so commenced, thereafter prosecutes with diligence and dispatch
and completes the curing of such failure or breach; or
(d) Tenant (i) is generally not paying its debts as they become due, (ii)
files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganiza-
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<PAGE>
tion or arrangement or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy, insolvency or other debtors' relief law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers of Tenant or of any substantial part of Tenant's property,
or (v) takes action for the purpose of any of the foregoing; or
(e) Without consent by Tenant, a court or government authority enters an
order, and such order is not vacated within thirty (30) days, (i) appointing a
custodian, receiver, trustee or other officer with similar powers with respect
to Tenant or with respect to any substantial part of Tenant's property, or (ii)
constituting an order for relief or approving a petition for relief or
reorganization or arrangement or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy, insolvency or other debtors'
relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or
liquidation of Tenant; or
(f) This Lease or any estate of Tenant hereunder is levied upon under any
attachment or execution and such attachment or execution is not vacated within
thirty (30) days; or
(g) Tenant abandons the Premises.
15.2 If an Event of Default occurs, Landlord shall have the right at any
time to give a written termination notice to Tenant and, on the date specified
in such notice, Tenant's right to possession shall terminate and this Lease
shall terminate. Upon such termination, Landlord shall have the right to
recover from Tenant:
(a) The worth at the time of award of all unpaid rent which had been
earned at the time of termination;
(b) The worth at the time of award of the amount by which all unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided;
(c) The worth at the time of award of the amount by which all unpaid rent
for the balance of the term of this Lease after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; and
(d) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. The "worth at the time of award" of the amounts
referred to in clauses (a) and (b) above shall be computed by allowing interest
at the maximum annual interest rate allowed by
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<PAGE>
law for business loans (not primarily for personal, family or household
purposes) not exempt from the usury law at the time of termination or, if there
is no such maximum annual interest rate, at the rate of eighteen percent (18%)
per annum. The "worth at the time of award" of the amount referred to in clause
(c) above shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%). For the purpose of determining unpaid rent under clauses (a), (b) and (c)
above, the rent reserved in this Lease shall be deemed to be the total rent
payable by Tenant under Articles 3 and 5 hereof.
15.3 Even though Tenant has breached this Lease, this Lease shall continue
in effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord shall have the right to enforce all its rights and
remedies under this Lease, including the right to recover all rent as it becomes
due under this Lease. Acts of maintenance or preservation or efforts to relet
the Premises or the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.
15.4 The remedies provided for in this Lease are in addition to all other
remedies available to Landlord at law or in equity by statute or otherwise.
15.5 All agreements and covenants to be performed or observed by Tenant
under this Lease shall be at Tenant's sole cost and expense and without any
abatement of rent. If Tenant fails to pay any sum of money to be paid by Tenant
or to perform any other act to be performed by Tenant under this Lease, Landlord
shall have the right, but shall not be obligated, and without waiving or
releasing Tenant from any obligations of Tenant, to make any such payment or to
perform any such other act on behalf of Tenant in accordance with this Lease.
All sums so paid by Landlord and all necessary incidental costs shall be deemed
additional rent hereunder and shall be payable by Tenant to Landlord on demand,
together with interest on all such sums from the date of expenditure by Landlord
to the date of repayment by Tenant at the maximum annual interest rate allowed
by law for business loans (not primarily for personal, family or household
purposes) not exempt from the usury law at the date of expenditure or, if there
is no such maximum annual interest rate, at the rate of eighteen percent (18%)
per annum. Landlord shall have, in addition to all other rights and remedies of
Landlord, the same rights and remedies in the event of the nonpayment of such
sums plus interest by Tenant as in the case of default by Tenant in the payment
of rent.
15.6 If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any movable furniture, equipment, trade fixtures or
personal property belonging
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<PAGE>
to Tenant and left in the Premises shall be deemed to be abandoned, at the
option of Landlord, and Landlord shall have the right to sell or otherwise
dispose of such personal property in any commercially reasonable manner.
ARTICLE 16
----------
Damage or Destruction
---------------------
16.1 If the Building or the Premises, or any part thereof, is damaged by
fire or other casualty before the Commencement Date or during the term of this
Lease, and this Lease is not terminated pursuant to Section 16.2 hereof,
Landlord shall repair such damage and restore the Building and the Premises to
substantially the same condition in which the Building and the Premises existed
before the occurrence of such fire or other casualty and this Lease shall,
subject to this Section 16.1, remain in full force and effect. If such fire or
other casualty damages the Premises or common areas of the Building necessary
for Tenant's use and occupancy of the Premises and if such damage is not the
result of the negligence or willful misconduct of Tenant or Tenant's agents,
officers, employees, contractors, licensees or invitees, then, during the period
the Premises are rendered unusable by such damage, Tenant shall be entitled to a
reduction in Base Rent in the proportion that the area of the Premises rendered
unusable by such damage bears to the total area of the Premises. Landlord shall
not be obligated to repair any damage to, or to make any replacement of, any
movable furniture, equipment, trade fixtures or personal property in the
Premises. Tenant shall, at Tenant's sole cost and expense, repair and replace
all such movable furniture, equipment, trade fixtures and personal property.
Such repair and replacement by Tenant shall be done in accordance with Article 9
hereof. Tenant hereby waives the benefit of any statute permitting Tenant to
terminate this lease in the event of damage or destruction of the Premises.
16.2 If the Building or the Premises, or any part thereof, is damaged by
fire or other casualty before the Commencement Date or during the term of this
Lease and (a) such fire or other casualty occurs during the last twelve (12)
months of the term of this Lease and the repair and restoration work to be
performed by Landlord in accordance with Section 16.1 hereof cannot, as
reasonably estimated by Landlord, be completed within two (2) months after the
occurrence of such fire or other casualty, or (b) the insurance proceeds
received by Landlord in respect of such damage are not adequate to pay the
entire cost, as reasonably estimated by Landlord, of the repair and restoration
work to be performed by Landlord in accordance with Section 16.1 hereof, or (c)
the repair and restoration work to be performed by Landlord in accordance with
Section 16.1 hereof cannot, as reasonably estimated by Landlord, be completed
within six (6) months after the occurrence of such fire or other
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<PAGE>
casualty, then, in any event, Landlord, or Tenant in the case of circumstances
referred to in clauses (a) and (c) of this Section 16.2, shall have the right,
by giving written notice to the other within sixty (60) days after the
occurrence of such fire or other casualty, to terminate this Lease as of the
date of such notice. If neither party exercises the right to terminate this
Lease in accordance with this Section 16.2, Landlord shall repair such damage
and restore the Building and the Premises in accordance with Section 16.1 hereof
and this Lease shall, subject to Section 16.1 hereof, remain in full force and
effect. A total destruction of the Building shall automatically terminate this
Lease effective as of the date of such total destruction.
ARTICLE 17
----------
Eminent Domain
--------------
17.1 If any part, but less than all, of the Premises is taken by exercise
of the power of eminent domain before the Commencement Date or during the term
of this Lease, Landlord and, if a substantial portion of the Premises is taken
and the remaining portion of the Premises is not reasonably suitable for
Tenant's purposes, Tenant each shall have the right, by giving written notice to
the other within thirty (30) days after the date of such taking, to terminate
this Lease. If either Landlord or Tenant exercises such right to terminate this
Lease in accordance with this Section 17.1, this Lease shall terminate as of the
date of such taking. If neither Landlord nor Tenant exercises such right to
terminate this Lease in accordance with this Section 17.1, this Lease shall
terminate as to the portion of the Premises so taken as of the date of such
taking and shall remain in full force and effect as to the portion of the
Premises not so taken, and the Base Rent and the additional rent shall be
reduced as of the date of such taking in the proportion that the area of the
Premises so taken bears to the total area of the Premises. If all of the
Premises is taken by exercise of the power of eminent domain before the
Commencement Date or during the term of this Lease, this Lease shall terminate
as of the date of such taking.
17.2 If all or any part of the Premises is taken by exercise of the power
of eminent domain, all awards, compensation, damages, income, rent and interest
payable in connection with such taking shall, except as expressly set forth in
this Section 17.2, be paid to and become the property of Landlord, and Tenant
hereby assigns to Landlord all of the foregoing. Without limiting the
generality of the foregoing, Tenant shall have no claim against Landlord or the
entity exercising the power of eminent domain for the value of the leasehold
estate created by this Lease or any unexpired term of this Lease. Tenant shall
have the right to claim and receive directly from the entity exercising the
power of eminent domain only the share of any award
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determined to be owing to Tenant for the taking of improvements installed in the
portion of the Premises so taken by Tenant at Tenant's sole cost and expense
based on the unamortized cost actually paid by Tenant for such improvements, for
the taking of Tenant's movable furniture, equipment, trade fixtures and personal
property, for loss of goodwill, for interference with or interruption of
Tenant's business, or for removal and relocation expenses.
17.3 Notwithstanding Sections 17.1 and 17.2 hereof to the contrary, if the
use of all or any part of the Premises is taken by exercise of the power of
eminent domain during the term of this Lease on a temporary basis for a period
less than the term of this Lease remaining after such taking, this Lease shall
continue in full force and effect, Tenant shall continue to pay all of the rent
and to perform all of the covenants of Tenant in accordance with this Lease, to
the extent reasonably practicable under the circumstances, and the condemnation
proceeds in respect of such temporary taking shall be paid to Tenant.
17.4 As used in this Article 17, a "taking" means the acquisition of all or
part of the Premises for a public use by exercise of the power of eminent domain
or conveyance of the Premises to a public authority under threat of the exercise
of such power and the taking shall be considered to occur as of the earlier of
the date on which possession of the Premises (or part so taken) by the entity
exercising the power of eminent domain is authorized as stated in an order for
possession or the date on which title to the Premises (or part so taken) vests
in the entity exercising the power of eminent domain.
ARTICLE 18
----------
Subordination, Merger and Sale
------------------------------
18.1 This Lease shall be subject and subordinate at all times to the lien
of all mortgages and deeds of trust securing any amount or amounts whatsoever
which may now exist or hereafter be placed on or against the Building or on or
against Landlord's interest or estate therein, all without the necessity of
having further instruments executed by Tenant to effect such subordination.
Notwithstanding the foregoing, in the event of a foreclosure of any such
mortgage or deed of trust or of any other action or proceeding for the
enforcement thereof, or of any sale thereunder, this Lease shall not be
terminated or extinguished, nor shall the rights and possession of Tenant
hereunder be disturbed, if no Event of Default then exists under this Lease, and
Tenant shall attorn to the person who acquires Landlord's interest hereunder
through any such mortgage or deed of trust. Tenant agrees to execute,
acknowledge and deliver upon demand such further instruments evidencing such
subordination of this Lease to the lien of all such mortgages and deeds of trust
as may reasonably be required by Landlord, but Ten-
-23-
<PAGE>
ant's covenant to subordinate this Lease to mortgages or deeds of trust
hereafter executed is conditioned upon each such senior mortgage or deed of
trust, or a separate subordination agreement, containing the commitments
specified in the preceding sentence.
18.2 The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.
18.3 If the original Landlord hereunder, or any successor owner of the
Building, sells or conveys the Building, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original Land-
lord, or such successor owner, shall automatically be released therefrom, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
ARTICLE 19
----------
Estoppel Certificate
--------------------
19.1 At any time and from time to time, Tenant shall, within ten (10) days
after written request by Landlord, execute, acknowledge and deliver to Landlord
a certificate certifying: (a) that this Lease is unmodified and in full force
and effect (or, if there have been modifications, that this Lease is in full
force and effect as modified, and stating the date and nature of each
modification); (b) the Commencement Date and the Expiration Date determined in
accordance with Article 2 hereof and the date, if any, to which all rent and
other sums payable hereunder have been paid; (c) that no notice has been
received by Tenant of any default by Tenant hereunder which has not been cured,
except as to defaults specified in such certificate; (d) that Landlord is not in
default under this Lease, except as to defaults specified in such certificate;
and (e) such other matters as may be reasonably requested by Landlord or any
actual or prospective purchaser or mortgage lender. Any such certificate may be
relied upon by Landlord and any actual or prospective purchaser or mortgage
lender of the Building or any part thereof. At any time and from time to time,
Tenant shall, within ten (10) days after written request by Landlord, deliver to
Landlord copies of all current financial statements (including, without
limitation, a balance sheet, an income statement, and an accumulated retained
earnings statement), annual reports, and other financial and operating
information and data of Tenant prepared by Tenant in the course of Tenant's
business. Unless available to the public, Landlord shall disclose such
financial statements, annual reports and other information or data only to
-24-
<PAGE>
actual or prospective purchasers or mortgage lenders of the Building or any part
thereof, and otherwise keep them confidential unless other disclosure is
required by law.
ARTICLE 20
----------
Holding Over
------------
20.1 If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a Base Rent
equal to one hundred fifty percent (150%) of the Base Rent in effect at the
expiration of the term of this Lease pursuant to Article 3 hereof, payable in
advance on or before the first day of each month. Such month to month tenancy
may be terminated by either Landlord or Tenant by giving thirty (30) days'
written notice of termination to the other at any time.
ARTICLE 21
----------
Waiver
------
21.1 The waiver by Landlord or Tenant of any breach of any covenant in this
Lease shall not be deemed to be a waiver of any subsequent breach of the same or
any other covenant in this Lease, nor shall any custom or practice which may
grow up between Landlord and Tenant in the administration of this Lease be
construed to waive or to lessen the right of Landlord or Tenant to insist upon
the performance by Landlord or Tenant in strict accordance with this Lease. The
subsequent acceptance of rent hereunder by Landlord or the payment of rent by
Tenant shall not waive any preceding breach by Tenant of any covenant in this
Lease, nor cure any Event of Default, nor waive any forfeiture of this Lease or
unlawful detainer action, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's or Tenant's knowledge of such
preceding breach at the time of acceptance or payment of such rent.
ARTICLE 22
----------
Notices
-------
22.1 All requests, approvals, consents, notices and other communications
given by Landlord or Tenant under this Lease shall be properly given only if
made in writing and either deposited in the United States mail, postage prepaid,
certified with return receipt requested, or delivered by hand (which may be
through a messenger or recognized delivery or courier service) and addressed as
follows: To Landlord at the address of Landlord specified in the BASIC LEASE
INFORMATION, or at such
-25-
<PAGE>
other place as Landlord may from time to time designate in a written notice to
Tenant; and to Tenant at the address of Tenant specified in the BASIC LEASE
INFORMATION, or at such other place as Tenant may from time to time designate in
a written notice to Landlord, with a copy to the person and at the address
identified in the BASIC LEASE INFORMATION. Such requests, approvals, consents,
notices and other communications shall be effective on the date of receipt
(evidenced by the certified mail receipt) if mailed or on the date of delivery
if hand delivered.
ARTICLE 23
----------
Miscellaneous
-------------
23.1 The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. The words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation." Tenant shall
indemnify and defend Landlord against and hold Landlord harmless from all
claims, demands, liabilities, damages, losses, costs and expenses, including
reasonable attorneys' fees and disbursements, arising out of or resulting from
any failure by Tenant to perform any of its obligations or any breach by Tenant
of any of its representations or warranties in accordance with this Lease. If
there is more than one Tenant, the obligations hereunder imposed upon Tenant
shall be joint and several. Time is of the essence of this Lease and each and
all of its provisions. Submission of this instrument for examination or signa-
ture by Tenant does not constitute a reservation of or option for lease, and it
is not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant. Subject to Article 12 hereof, this Lease shall benefit and
bind Landlord and Tenant and the personal representatives, heirs, successors and
assigns of Landlord and Tenant. Tenant shall not use the name of the Building
for any purpose whatsoever other than as the address of Tenant at the Premises.
If any provision of this Lease is determined to be illegal or unenforceable,
such determination shall not affect any other provision of this Lease and all
such other provisions shall remain in full force and effect. If Tenant requests
the consent or approval of Landlord to any assignment, sublease or other action
by Tenant, Tenant shall pay to Landlord on demand, as additional rent, all costs
and expenses, including reasonable attorneys, fees and disbursements, incurred
by Landlord in connection therewith. This Lease shall be governed by and
construed in accordance with the laws of the State of Oregon.
23.2 Tenant acknowledges that the late payment by Tenant of any monthly
installment of Base Rent or additional monthly rent will cause Landlord to incur
costs and expenses, the exact amount of which is extremely difficult and
impractical to fix. Such costs and expenses will include administration and
collec-
-26-
<PAGE>
tion costs and processing and accounting expenses. Therefore, if any monthly
installment of Base Rent or additional monthly rent is not received by Landlord
within ten (10) days after such installment is due, Tenant shall immediately pay
to Landlord a late charge equal to five percent (5%) of such delinquent
installment. Landlord and Tenant agree that such late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered by Tenant's failure to make timely payment. In
no event shall such late charge be deemed to grant to Tenant a grace period or
extension of time within which to pay any monthly rent or prevent Landlord from
exercising any right or enforcing any remedy available to Landlord upon Tenant's
failure to pay each installment of monthly rent due under this Lease in a timely
fashion, including the right to terminate this Lease. All amounts of money
payable by Tenant to Landlord hereunder, if not paid when due, shall bear
interest from the due date until paid at the maximum annual interest rate
allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at such due date or, if there
is no such maximum annual interest rate, at the rate of eighteen percent (18%)
per annum.
23.3 If there is any legal action or proceeding between Landlord and Tenant
to enforce this Lease or to protect or establish any right or remedy under this
Lease, the unsuccessful party to such action or proceeding shall pay to the
prevailing party all costs and expenses, including reasonable attorneys' fees
and disbursements, incurred by such prevailing party in such action or
proceeding and in any appeal in connection therewith. If such prevailing party
recovers a judgment in any such action, proceeding or appeal, such costs,
expenses and attorneys' fees and disbursements shall be included in and as a
part of such judgment.
23.4 Exhibit A (Floor Plan Outlining the Premises) and Exhibit B (Rules and
Regulations) are attached to and made a part of this Lease.
23.5 Tenant and each person executing this Lease on behalf of Tenant
represents and warrants to Landlord that (a) Tenant is a duly formed and validly
existing corporation under the laws of the State of Oregon, (b) Tenant is
qualified to do business in Oregon, (c) Tenant has full corporate right, power
and authority to enter into this Lease and to perform all of Tenant's
obligations hereunder, and (d) each person signing this Lease on behalf of the
corporation is duly and validly authorized to do so.
23.6 There are no oral agreements, or written agreements, between Landlord
and Tenant affecting this Lease except for that certain Agreement dated as of
the date hereof and that certain Termination Agreement dated as of the date
hereof, both between Landlord and Tenant, and this Lease supersedes and cancels
any
-27-
<PAGE>
and all other previous negotiations, arrangements, brochures, offers, agreements
and understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease. There are no representations between Landlord and Tenant or between any
real estate broker and Tenant other than those expressly set forth in this Lease
and all reliance with respect to any representations is solely upon
representations expressly set forth in this Lease. This Lease may not be
amended or modified in any respect whatsoever except by an instrument in writing
signed by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Office Lease as
of the date first hereinabove written.
INDUSTRIAL LEASING CORPORATION,
an Oregon corporation
/s/ Walter R. Castro, Jr.
----------------------------------
Walter R. Castro, Jr.
as Trustee of the A. L.
McCormick 1991 Trust
By /s/
_______________________________
Title PRESIDENT / CEO
_______________________
-28-
<PAGE>
EXHIBIT A
---------
Floor Plan Outlining the Premises
---------------------------------
<PAGE>
EXHIBIT A
---------
Floor Plan Outlining the Premises
---------------------------------
Exhibit A refers to a floor plan drawing of the premises leased by Industrial
Leasing Corporation. The leased space is comprised of approximately 6,000
square feet and includes offices, workstations, a central reception area and a
kitchen/eating area.
<PAGE>
EXHIBIT B
---------
Rules and Regulations
---------------------
1. COMMON AREAS. The sidewalks, halls, passages, exits, entrances,
elevators and stairways of the Building shall not be obstructed by Tenant or
used for any purpose other than for ingress to and egress from the Premises. The
halls, passages, exits, entrances, elevators and stairways are not for the
general public and Landlord shall in all cases have the right to control and
prevent access thereto of all persons (including, without limitation, messengers
or delivery personnel not wearing uniforms) whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation or interests
of the Building. Neither Tenant nor any agent, employee, contractor, invitee or
licensee of Tenant shall go upon the roof of the Building. Landlord shall have
the right at any time, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement or location of entrances or passageways, doors or doorways,
corridors, elevators, stairs, toilets and common areas of the Building.
2. SIGNS. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Premises shall be inscribed, painted, affixed
or otherwise displayed by Tenant on any part of the Building or the Premises
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. All approved signs or lettering shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved by
Landlord.
3. PROHIBITED USES. The Premises shall not be used for the storage of
merchandise held for sale to the general public or for lodging. No cooking
shall be done or permitted on the Premises except that private use by Tenant of
microwave ovens and Underwriters' Laboratory-approved equipment for brewing
coffee, tea, hot chocolate and similar beverages will be permitted, provided
that such use is in accordance with all applicable federal, state and municipal
laws, codes, ordinances, rules and regulations. Tenant shall not place any load
on the floors of the Building exceeding fifty (50) pounds per square foot, live
or dead load. Tenant shall not use electricity for lighting, machines or
equipment in excess of four (4) watts per square foot.
4. JANITORIAL SERVICE. Tenant shall not employ any person other than the
janitor of Landlord for the purpose of cleaning the Premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of Landlord,
no persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the Premises. Tenant shall not cause any
unnecessary labor by reason of Tenant's
Exhibit B-1
<PAGE>
carelessness or indifference in the preservation of good order and cleanliness.
Landlord shall not be responsible to Tenant for any loss of property in the
Premises, however occurring, or for any damage done to the effects of Tenant by
the janitor or any other employee or any other person.
5. KEYS. Landlord will furnish Tenant without charge with two (2) keys
to each door lock provided in the Premises by Landlord. Landlord may make a
reasonable charge for any additional keys. Tenant shall not have any such keys
copied or any keys made. Tenant shall not alter any lock or install a new or
additional lock or any bolt on any door of the Premises. Tenant, upon the
termination of this Lease, shall deliver to Landlord all keys to doors in the
Building.
6. MOVING PROCEDURES. Landlord shall designate appropriate entrances for
deliveries or other movement to or from the Premises of equipment, materials,
supplies, furniture or other property, and Tenant shall not use any other
entrances for such purposes. All moves shall be scheduled and carried out
during nonbusiness hours of the Building. All persons employed and means or
methods used to move equipment, materials, supplies, furniture or other property
in or out of the Building must be approved by Landlord prior to any such
movement. Landlord shall have the right to prescribe the maximum weight, size
and position of all equipment, materials, furniture or other property brought
into the Building. Heavy objects shall, if considered necessary by Landlord,
stand on a platform of such thickness as is necessary properly to distribute the
weight. Landlord will not be responsible for loss of or damage to any such
property from any cause, and all damage done to the Building by moving or
maintaining such property shall be repaired at the expense of Tenant.
7. NO NUISANCES. Tenant shall not use or keep in the Premises or the
Building any kerosene, gasoline or inflammable or combustible fluid or material
other than limited quantities thereof reasonably necessary for the operation or
maintenance of office equipment. Tenant shall not use any method of heating or
air conditioning other than that supplied by Landlord. Tenant shall not use or
keep or permit to be used or kept any foul or noxious gas or substance in the
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, or interfere in any way with other tenants
or those having business in the Building, nor shall any animals be brought or
kept in the Premises or the Building.
B. CHANGE OF ADDRESS. Landlord shall have the right, exercisable without
notice and without liability to Tenant, to change the name or street address of
the Building or the room or suite number of the Premises.
Exhibit B-2
<PAGE>
9. BUSINESS HOURS AND ACCESS TO BUILDING. Landlord establishes the hours
of 8 A.M. to 6 P.M. Monday through Friday and 8 A.M. to 12 noon on Saturday,
except union holidays and legal holidays, as reasonable and usual business hours
for the purposes of Sections 7.1 and 7.2 of this Lease. If Tenant requests
electricity or heat or air conditioning or any other services during any other
hours or on any other days, and if Landlord is able to provide the same, Tenant
shall pay Landlord such reasonable charge based on actual cost as Landlord shall
establish from time to time for providing such services during such hours. Any
such charges which Tenant is obligated to pay shall be deemed to be additional
rent under this Lease. Landlord reserves the right to exclude from the
Building during the evening, night and early morning hours beginning at 6 P.M.
and ending at 8 A.M. Monday through Friday, and at all hours on Saturdays,
Sundays, union holidays and legal holidays, all persons who do not present
identification acceptable to Landlord. Tenant shall provide Landlord with a
list of all persons authorized by Tenant to enter the Premises and shall be
liable to Landlord for all acts of such persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In the case of invasion, mob, riot, public
excitement or other circumstances rendering such action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building during
the continuance of the same by such action as Landlord may deem appropriate,
including closing doors.
10. BUILDING DIRECTORY. The directory of the Building will be provided
for the display of the name and location of Tenant and a reasonable number of
the principal officers and employees of Tenant at the expense of Tenant.
Landlord reserves the right to restrict the amount of directory space utilized
by Tenant.
11. WINDOW COVERINGS. No curtains, draperies, blinds, shutters, shades,
screens or other coverings, hangings or decorations shall be attached to, hung
or placed in, or used in connection with any window of the Building without the
prior written consent of Landlord. In any event, with the prior written consent
of Landlord, such items shall be installed on the office side of Landlord's
standard window covering and shall in no way be visible from the exterior of the
Building. Tenant shall keep window coverings closed when the effect of sunlight
(or the lack thereof) would impose unnecessary loads on the Building's air
conditioning systems.
12. FOOD AND BEVERAGES. Tenant shall not obtain for use in the Premises
ice, drinking water, food, beverage, towel or other similar services, except at
such reasonable hours and under such reasonable regulations as may be
established by Landlord.
Exhibit B-3
<PAGE>
13. PROCEDURES WHEN LEAVING. Tenant shall ensure that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant and its employees leave the Premises so as
to prevent waste or damage. For any default or carelessness in this regard,
Tenant shall be liable and pay for all damage and injuries sustained by Landlord
or other tenants or occupants of the Building. On multiple-tenancy floors,
Tenant shall keep the doors to the Building corridors closed at all times except
for ingress and egress.
14. BATHROOMS. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be paid by Tenant if caused by Tenant or its
agents, employees, contractors, invitees or licensees.
15. PROHIBITED ACTIVITIES. Except with the prior written consent of
Landlord, Tenant shall not sell at retail newspapers, magazines, periodicals,
theatre or travel tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on or permit or allow any
employee or other person to carry on the business of stenography, typewriting,
printing or photocopying or any similar business in or from the Premises for the
service or accommodation of occupants of any other portion of the Building, nor
shall the Premises be used for manufacturing of any kind, or any business or
activity other than that specifically provided for in this Lease.
16. NO ANTENNA. Tenant shall not install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls of the Building. No
television or radio or recorder shall be played in such a manner as to cause a
nuisance to any other tenant.
17. VEHICLES. There shall not be used in any space, or in the public
halls of the Building, either by Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord approves. No other vehicles of any kind shall be brought
by Tenant into the Building or kept in or about the Premises.
18. TRASH REMOVAL. Tenant shall store all its trash and garbage within
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of office building trash and
garbage in the city or county in which the Building is located without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made
Exhibit B-4
<PAGE>
only through entryways and elevators provided for such purposes and at such
times as Landlord shall designate. Tenant shall crush and flatten all boxes,
cartons and containers. Tenant shall pay extra charges for any unusual trash
disposal.
19. NO SOLICITING. Canvassing, soliciting, distribution of handbills or
any other written material and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent the same.
20. SERVICES. The requirements of Tenant will be attended to only upon
application in writing at the office of the Building. Personnel of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special instructions from Landlord.
21. WAIVER. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and Regulations
in favor of any other tenant or tenants, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any or all of the tenants of
the Building.
22. SUPPLEMENTAL TO LEASE. These Rules and Regulations are in addition
to, and shall not be construed to in any way modify or amend, in whole or in
part, the covenants of this Lease.
23. AMENDMENTS AND ADDITIONS. Landlord reserves the right to make such
other rules and regulations, and to amend or repeal these Rules and Regulations,
as in Landlord's judgment may from time to time be desirable for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
Exhibit B-5
<PAGE>
<TABLE>
INDUSTRIAL FUNDING CORP.
- - - -----------------------------------------------------------------------------------------------------
Exhibit 11.1
<CAPTION>
For the Years Ended
November 30,
---------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $1,299 ($6,140) ($21,144)
Cumulative preferred stock dividend (1,910) (1,910) (1,353)
---------------------------------------------
Loss on common stock ($611) ($8,050) ($22,497)
Average number of common
shares outstanding 7,500,000 7,500,000 7,500,000
---------------------------------------------
Loss per common share ($0.08) ($1.07) ($3.00)
---------------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We Consent to the incorporation by reference in Registration Statement No. 33-
63514 of Industrial Funding Corp. on Form S-8 of our reports dated January 12,
1994, which expresses an unqualified opinion and includes an explanatory
paragraph relating to an uncertainty because of litigation relating to alleged
violations of federal securities laws, appearing in this Annual Report on Form
10-K of Industrial Funding Corp. for the year ended November 30, 1993.
DELOITTE & TOUCHE
Portland, Oregon
February 22, 1994
<PAGE>
February 22, 1994
Deloitte & Touche
3900 U.S. Bancorp Tower
111 SW Fifth Avenue
Portland, Oregon 97204
The following representations, made to the best of our knowledge and belief, are
being provided to you in connection with your review of financial and accounting
matters of Industrial Funding Corp. and subsidiary as to transactions and events
after November 30, 1993 and to the date of this letter, your review having been
performed in connection with the filing of Form 10-K to be incorporated into a
previously filed Form S-8 filed by the Company and with the Securities and
Exchange Commission on or about February 23, 1994:
1. The audited financial statements and schedules included in the annual
report on Form 10-K for the year ended November 30, 1993 presents fairly the
financial position, results of operations, and cash flows of the Company for the
periods given.
2. No events have occurred subsequent to November 30, 1993 that have a
material effect on the financial statements or that should be disclosed in order
to keep those statements from being misleading except which have been
appropriately recorded or disclosed in the financial statements.
3. The Company has made available to you (a) all financial records and related
data that would have a bearing on the purpose of your review and (b) all minutes
of the meetings of stockholders, directors, and committees of directors, or
summaries of actions of recent meetings for which minutes have not yet been
prepared.
4. In connection with your audit of the Company's annual financial statements
for the year ended November 30, 1993, we have previously provided
representations to you dated January 12, 1994. No matters have since come to
our attention that would cause us to believe that any of those representations
are no longer true.
We understand that you have not attempted to audit any of the records or
transactions subsequent to November 30, 1993, but you have performed certain
limited procedures, principally those called for by AICPA Statement on Auditing
Standards No. 37, FILINGS UNDER FEDERAL SECURITIES STATUTES.
/s/ John J. Estok
- - - ----------------------------------------------
John J. Estok
President and Chief Executive Officer
/s/ John W. Pitt
- - - ----------------------------------------------
John W. Pitt
Vice President and General Accounting Manager
