As filed with the Securities and Exchange Commission on October 1, 1996
Registration No. 333-1304
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
WEST COAST REALTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
5933 West Century Boulevard x Ninth Floor
Los Angeles, California 90045
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
PHILIP N. GAINSBOROUGH
5933 West Century Boulevard x Ninth Floor
Los Angeles, California 90045
(NAME AND ADDRESS OF AGENT FOR SERVICE)
--------------------
Copies to:
PETER R. PANCIONE, ESQ.
Gipson Hoffman & Pancione
1901 Avenue of The Stars, Suite 1100
Los Angeles, California 90067
<PAGE>
WEST COAST REALTY INVESTORS, INC.
Cross Reference Sheet Pursuant to Item 1(a)
(By reference to Regulation S-K Item 501(b))
Item Number and Caption Location in Prospectus
1. Forepart of Registration Cover Page
Statement and Outside
Front Cover Page of
Prospectus
2. Inside Front and Outside Cover Page; Back Cover
Back Cover Pages of
Prospectus
3. Summary Information, Risk Prospectus Summary;
Factors and Ratio of The Company; Risk Factors
Earnings to Fixed Charges
4. Determination of Offering Price Plan of Distribution
5. Dilution Not Applicable
6. Selling Security Holders Management's Discussion
of Financial Condition
7. Plan of Distribution Cover Page; Description
of Common Stock; Plan of
Distribution
8. Use of Proceeds Compensation of Advisor
and Affiliates; Estimated
Use of Proceeds; Investment
Objectives and Policies
9. Selected Financial Data Selected Financial Data
10. Management's Discussion and Management's Discussion and
Analysis of Financial Analysis of Financial
Condition and Results of Condition and Results of
Operations Operations
<PAGE>
11. General Information as Cover Page; The Company;
to Registrant Management; Summary of
Organization Documents
12. Policy with Respect Investment Objectives and
to Certain Activities Policies; Summary of
Organization Documents;
Description of Common Stock
13. Investment Policies Investment Objectives and
of Registrant Policies; Summary of
Organization Documents
14. Description of Real Estate Real Property Investments
15. Operating Data Selected Financial Data
16. Tax Treatment of Registrant Prospectus Summary;
and its Security Holders Tax Consequences
17. Market Price of Not Applicable
and Dividends on the
Registrant's Common
Equity and Related
Stockholder Matters
18. Description of Registrant's Cover Page; Description
Securities of Common Stock
19. Legal Proceedings Not Applicable
20. Security Ownership of Description of Common Stock
Certain Beneficial Owners
21. Directors and Executive Management
Officers
<PAGE>
22. Executive Compensation Compensation of Advisor and
Affiliates; Management
23. Certain Relationships and Compensation of Advisor
Related Transactions and Affiliates;
Conflicts of Interest;
Management
24. Selection, Management and Investment Objectives and
Custody of Registrant's and Policies; Conflicts
Investments of Interest; Management
Services Provided
by the Advisor; Summary of
Organization Documents
25. Policies with Respect to Conflicts of Interest;
Certain Transactions Investment Objectives and
Policies; Summary of
Organization Documents
26. Limitations of Liability Risk Factors; Summary of
Organization Documents
27. Financial Statements Financial Statements
and Information
28. Interests of Named Experts Legal Matters; Experts
29. Disclosure of Commission Summary of Organization
Position on Indemnification Documents
for Securities Act Liabilities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission
Registration Fee...............................................$ 5,517
NASD Filing Fee................................................ 2,100
Accounting Fees and Expenses................................... 95,000
Blue Sky Fees and Expenses..................................... 35,000
Legal Fees and Expenses........................................ 100,000
Investor/Dealer Printed Materials.............................. 100,000
Prospectus Printing............................................ 100,000
Mailgrams, Western Union,
Postage and Miscellaneous................................... 62,383
Total ................................................... $500,000
Item 31. Sales to Special Parties.
Not Applicable.
Item 32. Recent Sales of Unregistered Securities.
On October 30, 1989, 1,000 shares of Registrant's Common Stock were sold
for cash (without commissions) to Registrant's Advisor, West Coast Realty
Advisors, Inc., pursuant to the exemption from registration under Section 4(2)
of the Securities Act of 1933, as amended.
Item 33. Indemnification of Directors and Officers.
The Registrant has the power to indemnify its directors, officers,
employees, and certain other persons against liability for certain acts
pursuant to Section 145 of the Delaware Corporations Code. Indemnification
of the directors, officers, employees and agents is provided for in the
Certificate of Incorporation and the Bylaws of the Registrant and is
incorporated herein by reference to Exhibits 3.1, 3.1.1, 3.2, 3.2.1 and
3.2.2 filed herewith.
Item 34. Treatment of Proceeds from Stock Being Returned.
Not applicable.
Item 35. Financial Statements and Exhibits.
(a) Financial Statements:
<PAGE>
SUPPLEMENT NO. 4 TO PROSPECTUS DATED MAY 7, 1996.
This supplement ("Supplement") to the Prospectus ("Prospectus") updates the
Prospectus of West Coast Realty Investors, Inc. (the "Company") dated May 7,
1996. This Supplement is part of and must accompany the Prospectus.
The date of this supplement is August 20, 1996.
This Supplement amends and supersedes the corresponding sections of the
Prospectus and Supplements Numbers 1, 2, and 3 to such Prospectus; however,
subject to the qualification above, the Prospectus continues to control the
terms of the offering, and all provisions thereof not supplemented or amended
hereby remain pertinent to the offering and are incorporated herein by
reference. Accordingly, current subscribers and prospective investors should
read both the Prospectus and this Supplement No. 4 very carefully. All
capitalized items used in this Supplement have the same meaning ascribed to
them in the Prospectus unless otherwise indicated herein.
The following supplements the "Dividends " portion of INVESTMENT OBJECTIVES
AND POLICIES section of the Prospectus, beginning on page 23.
Dividends totaling $532,290 have been paid in 1996, for shareholders of record
in 1996. It is estimated that between 35% and 40% of these dividends will
constitute a return of capital when all of 1996 is completed. These 1996
dividends are summarized below:
Record Date Per Outstanding Total
Date Paid Share Shares Dividend
------ ---- ----- ------------ --------
01/01/96 4/15/96 $0.0600 1,325,404 $79,524
02/01/96 4/15/96 0.0600 1,371,794 82,308
03/01/96 4/15/96 0.0600 1,401,664 84,100
04/01/96 7/15/96 0.0666 1,413,736 94,155
05/01/96 7/15/96 0.0666 1,437,098 95,711
06/01/96 7/15/96 0.0666 1,448,836 96,492
The following supplements or amends the "MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION RESULTS OF OPERATIONS" Section of the Prospectus, beginning on page
37.
As of August 20, 1996, the Company has raised $14,462,708 in capital from
prior offerings and $494,100 from the current offering (which were released
from an escrow account on August 12, 1996). An additional, $95,500 has
been raised from the sale of shares in the current offering; these funds
have been deposited into an escrow account, and shares will be issued at
a later date as provided for by the terms of this offering.
<PAGE>
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
Operations for the six months ended June 30, 1996 represents a full six months
of rental operations for the Blockbuster Video Building, Fresno Village
Shopping Center, OPTO-22 Building, Riverside Marketplace, Brea, Technology
Drive and Safeguard Building properties. In contrast the first six months
of 1995 included only 1 1/2 months of operations for the Safeguard Building
and no operations for Technology Drive.
The net income for the six months ended June 30, 1996 continued to be
significantly larger than the prior six months ended June 30, 1995 amount due
to the raising of additional funds and investment of such funds in additional
properties in May 1995 and October 1996. The Company did not have any
adverse events that significantly impacted net income during the six months
ending June 30, 1996, and all properties that have been purchased by the
Company have operated at levels equal to expectations. All tenants were
current on their lease obligations.
For the six months ending June 30, 1996, rental revenue increased $462,915
(67%) due to a full six months ownership of the Technology Drive and
Safeguard Business Systems properties. Interest income decreased $23,244
(31%), due primarily to lower cash and cash equivalents and investments in
government securities balances in the first six months of 1996 as compared
to the first six months of 1995.
Operating expenses increased $24,429 (51 %) as a reflection of the additional
properties owned during the six months ending June 30, 1996. Interest expense
increased $173,378 (71%) as a reflection of the additional debt taken on in
connection with additional property acquisition and refinancing activities.
Despite the increase in debt, the Company is below the maximum 50% debt limit
allowed by the Company's by-laws (debt was 47% of property cost (as defined in
the by-laws) at June 30, 1996). General and administrative costs increased
$13,380 (37%) due to higher accounting, consulting fees, taxes and general
insurance expense costs related to the Company (due to the Company's larger
size). Depreciation and amortization expense increased $79,844 (73%) as the
result of the ownership of additional properties during the six months ending
June 30, 1996 as compared to the six months ending June 30, 1995. Net income
of $385,127 as of June 30, 1996 is $90,653 (31 %) higher than the six months
ending June 30, 1995.
The weighted average number of shares outstanding at June 30, 1996 was
1,385,908 vs. 1,038,625 in 1995. Despite the increase in the number of
shares outstanding, the net income per share for the first six months of
the year remained unchanged at $.28 at June 30, 1996 and 1995. The
Company did not realize an improvement in net income per share due to a
larger percentage of the Company's assets being invested in relatively
lower yielding money market investments as opposed to income-producing
real estate during the second quarter of 1996, compared to the second
quarter of 1995. In addition, depreciation expense on funds used to
purchase property served to lower net income.
In summary, the operating performance of the Company continued to improve as
additional funds were raised, additional property was acquired, and all
properties were operated profitably.
The following supplements and amends the "Liquidity and Capital Resources "
Section of the Prospectus, beginning on page 40.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company declared dividends
totaling $532,290, compared to dividends of $366,900 declared for the six
months ended June 30, 1995. Cash basis income for the six months ended
June 30, 1996 was $574,600. This was derived by adding depreciation and
amortization expense to net income. Thus, cash distributions this six
months ending June 30, 1996 were $42,310 less than cash basis net income.
In comparison, distributions in the six months ending June 30, 1995 were
$34,854 less than cash basis income. In either event, the Company expects
to qualify as a REIT in 1996, and liquidity of the Company continues to be
strong.
Cash resources increased $932,713 during the six months ending June 30, 1996
compared to a $589,417 for the six months ending June 30, 1995. This was the
result of normal amounts of financing, and operating activities that were
expected to take place during the six months ending June 30, 1996. For the
six months ending June 30, 1996, cash provided by operating activities was
$349,596 with the largest contributors being $574,600 in cash basis income
and $12,886 decrease in other assets (primarily due to the write-off of
prepaid insurance) offset by a $166,667 decrease in accounts payable
(primarily attributable to a decrease in normal trade payables) and a
$51,514 increase in accounts receivable (increase in deferred rent
receivable due to recognition of rental income on a "straight-line" basis
over the life of tenant leases). In contrast, during the six months ending
June 30, 1995, $1,763,191 was provided by operating activities. This
resulted primarily from cash basis income of $404,103 (net income plus
depreciation expense), plus $1,229,963 in proceeds received in liquidation
of investment in government securities account. There were no investing
activities for the six months ending June 30, 1996. In contrast, $4,901,485
was used in investing activities for the six months ending June 30, 1995,
resulting from the purchase of the Safeguard Building in May 1995. For
the six months ending June 30, 1996, financing activities provided an
additional $583,117 in cash resources to the Company via the sale of
additional shares in the Company ($921,924 in net proceeds), less cash
dividends paid and payable of $252,924 and $85,883 in repayments on notes
payable. In contrast, $3,727,711 was provided by financing activities for
the six months ended June 30, 1995. This resulted primarily from $2,276,750
in proceeds borrowed for the purchase of the Safeguard Building in May 1995,
plus $1,823,469 from the sale of additional shares in the Company, offset
by cash dividends paid and payable of $347,401 and $25,107 in repayments on
notes payable.
<PAGE>
Management uses cash as its primary measure of the Company's liquidity. The
amount of cash that represents adequate liquidity for a real estate investment
company, is dependent on several factors. Among them are:
1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising,
acquisition, operating or disposition phase); and
4. Shareholders dividends.
The Company is adequately liquid and management believes it has the ability to
generate sufficient cash to meet both short-term and long-term liquidity need,
based upon the above four points.
The first point refers to the risk of the Company's investments. At June 30,
1996, the Company's excess funds were invested in a short-term money market
fund. The purchase of rental properties have been made either entirely with
cash or the use of moderate leverage. During the six months ended June 30,
1996, notes payable pertaining to property acquisitions by the Company did not
increase, while cash used in principal repayments of notes totaled $85,883.
Although the notes are set up on an amortization schedule allowing for the
repayment of principal over time, most of the principal on the notes is due in
balloon payments that come due in the years 2003 through 2005. The Company is
aware that prior to the time that these large payments come due, refinancing
of the loans or the sale of the property(ies) will be necessary in order to
protect the interests of the Company's shareholders. Furthermore, most of the
properties' tenants are nationally known retailers or well-established
business under long-term leases.
As to the second point, the Company's properties are in good condition without
significant deferred maintenance obligations and are leased through
"triple-net" leases, which reduces the Company's risk pertaining to
excessive maintenance and operating costs.
As to the third point, the Company was liquid at June 30, 1996 since the
Company is still operating in the "money-raising" stage. Virtually all
funds raised were invested in a short-term money market fund. As of
June 30, 1996, the Company has allocated approximately $430,000 towards
a "reserve" fund (3% of gross funds raised, as disclosed in the Company's
latest prospectus), $287,000 of cash held pending distribution to investors,
$50,000 of cash to be used for current mortgage and accounts payable
commitments, $109,000 in tenant security deposits, and the
balance--$1,507,000-- expected to be invested in future property
acquisitions. The Company's operations generated $574,600 in net operating
cash flow in the six months ending June 30, 1996 (net income plus
depreciation expense). Thus, the Company is generating significant amounts
of cash flow currently and could choose to withhold payment of all or a
portion of dividends, if necessary, in order to rebuild cash balances. The
Company could do these actions and still be able to qualify as a Real
Estate Investment Trust under the rules of the Internal Revenue Service Code.
<PAGE>
Fourth, the amount of dividends to shareholders was made at a level consistent
with the amount of net income available after application of expenses. The
Advisor is careful not to make distributions in excess of the income
available. The Advisor expects to increase the level of dividends as
additional funds are raised, and overhead expenses are allocated over a
large base of investors' funds.
Inflation and changing prices have not had a material effect on the
Company's operations.
The Company currently has no external sources of liquidity, other than funds
that potentially could be received from the sale of additional shares.
The Company currently has no material capital commitments (other than the
Java City acquisition described elsewhere in this document).
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of
1990 and 1993 did not have a material impact on the Company's operations.
The following amends the "MANAGEMENT" section on pages 42 and 44 of the
Prospectus, concerning the Directors and Officers of West Coast Realty
Investors, Inc., West Coast Realty Advisors, and West Coast Realty Management.
(These changes are precipitated by the retirement of Mr. Haas, and the
resignation of Mr. McGaughey as Treasurer of West Coast Realty Management in
order to assume unrelated duties within Associated Financial Group).
The Directors and Officers of the Company are:
NAME POSITION
Philip N. Gainsborough....Director and Chairman of the Board
W. Thomas Maudlin, Jr.................Director and President
Neal E. Nakagiri...................................Secretary
Michael G. Clark....................Vice President/Treasurer
James W. Coulter................................Director (1)
George Young....................................Director (1)
Steve Bridges...................................Director (1)
(1) Independent Director
The principal executive officers, directors, and key employees
of the Advisor are as follows:
NAME POSITION
Philip N. Gainsborough....Director and Chairman of the Board
W. Thomas Maudlin, Jr.................Director and President
Neal E. Nakagiri...................................Secretary
Michael G. Clark......................Director and Treasurer
<PAGE>
The principal executive officers. directors, and key employees of the
Property Manager are:
Philip N. Gainsborough....Director and Chairman of the Board
James E. Prock........................Director and President
W. Thomas Maudlin, Jr...........................Director (1)
Murli Sujanani.....................................Secretary
David Vazquez......................................Treasurer
(1) AFG owns 75% and Mr. Maudlin owns 25% of the capital stock of West Coast
Realty Management, Inc.
Additional description of occupations of Messrs. Sujanani and Vazquez are
noted below:
Murli Sujanani (Born 1950) has served as Senior Vice President/Investment
Research for AFG since 1994, and has been employed by AFG since December,
1990. From April 1990 to November 1990, Mr. Sujanani served as Vice
President/Mortgage Securities for GMACResidential Funding Corporation. From
June, 1983 to March, 1990, Mr. Sujanani worked for Dain Bosworth, Inc. in
the corporate finance department as a Vice President where he was
responsible for partnership origination and due diligence work. Mr.
Sujanani is a graduate of St. John's University in Minnesota.
David Vazquez (Born 1962) has served as Assistant Controller of AFG since
April 1995. Prior to joining AFG, Mr. Vazquez served as an auditor for BDO
Seidman, LLP in Los Angeles from January 1994 through April 1995, and as an
accounting supervisor for Biggs & Co., a Los Angeles CPA firm, from February
1991 through January 1994. In addition, Mr. Vazquez served as a staff
accountant for P. Leiner N.P., a manufacturer and distributor of nutritional
products, from June 1990 through February 1991. Mr. Vazquez has a Bachelor
of Business Administration degree from the California State University, Los
Angeles.
The following supplements or amends the "PRIOR PERFORMANCE " section on page
46 of the Prospectus, concerning Associated Planners Realty Growth Fund
On August 16, 1996, the Partnership and the Lender executed a
deed-in-lieu-of-foreclosure, in connection with the Park Center Office
Building. It is anticipated that the remaining assets of the Partnership
will be liquidated in the fourth quarter of 1996, and that the Partnership
will be dissolved shortly thereafter.
<PAGE>
The following supplements or amends the"ERISA CONSIDERATIONS" and
"DESCRIPTION OF COMMON STOCK" sections on page 59 of the Prospectus.
As of August 20, 1996, there are 1,498,047 Shares of the Company outstanding,
held by 734 Shareholders. In addition, $95,500 has been raised from the sale
of shares in the current offering to six additional investors; these funds
have been deposited into an escrow account, and shares will be issued at a
later date as provided for by the terms of this offering.
The following supplements the Real Property Investments section on page 25 of
the Prospectus.
JAVA CITY PROPERTY
On August 2, 1996, the Company acquired the investment described below (the
"Java City Property" or the "Property"). The funds to acquire the Java City
property were available as the result of the sale of the Company's Shares in
the previous offering, and the receipt of proceeds from bank financing
assumed in connection with the acquisition.
Description. The Java City Property consists of two single story light
industrial buildings located in the Northgate Industrial Park in Sacramento,
California. The addresses of the two properties are 717 and 721 West Del
Paso Road. The building sites are in the northern part of Sacramento, with
access to Interstate 80, Interstate 5, and other major freeways.
The buildings are located on a site of approximately 62,173 square feet.
Total building square footage for both buildings is approximately 20,000
square feet. The subject lot is zoned M-1 industrial by the City of
Sacramento. This zoning allows for a variety of uses, including the
existing use. 721 West Del Paso Road consists of 8,964 total square feet
and 717 West Del Paso Road consists of 11,035 total square feet. Per the
provisions of the current lease, 721 West Del Paso consists of 4,347
rentable square feet of warehouse space and 4,293 rentable square feet of
office space. Per the provisions of the current lease, 717 West Del Paso
consists of 5,398 rentable square feet of warehouse space and 5,802 of
rentable square feet of office space. The properties were originally
constructed in 1988. The Company believes that there are no deferred
maintenance items that need to be corrected or addressed. The buildings are
constructed using concrete footings (foundation and slab), wood frame wall
designs, and flat/tar gravel roofs. The building has sprinklers for fire
prevention and safety. There is adequate parking in the general business
park area for cars that utilize the Property.
<PAGE>
The primary tenant of the Property is Cucina Holdings, Inc. The company owns
and operates forty-one Java City Bakery Cafes and five La Petite Boulangerie
cafes. The Company is popularly known as "Java City". Java City outlets are
located in various areas of California and Arizona, and are generally in high-
visibility, high-traffic locations. These outlets sell high quality,
specialty coffees in a pleasant retail environment setting. In addition,
these outlets sell a selection of sandwiches and baked goods that compliment
the sale of coffee. Java City also operates a wholesale operation that
serves approximately seven hundred customer accounts located primarily in
Northern California. The Company's wholesale customers include
supermarkets, gourmet shops, convenience stores, restaurants, universities,
airports, and offices, some of which resell the coffee in whole bean form
for home consumption, while others brew and sell coffee beverages.
Approximately 86% of the Company's sales are from its retail cafe operations
and 14% from its wholesale operations. The tenant was effectively formed in
1993 when Cucina Holdings, a corporation formed by current management and
InterWest Partners (a Menlo Park Based venture capital firm), purchased the
assets of La Petite Boulangerie from a private investor group in June 1993,
and then purchased Java City in September 1993. Cucina Holdings and Java
City are privately held, and not publicly traded companies.
Java City leases 100% of the rentable square feet in the two buildings located
on the Property. Each building has a separate lease, and both leases are
triple net leases. Both leases expire on August 1, 2003 and there are no
options for extension or purchase of the Property. Java City operates its
administrative offices, coffee bean processing, warehousing facilities, and
a Java City retail outlet out of these two buildings.
The remaining lease payments due on 717 West Del Paso are noted below
(rounded to the nearest dollar):
August 1, 1996 to July 31, 1997 10,004/month
August 1, 1997 to July 31, 1998 10,405/month
August 1, 1998 to July 31, 1999 10,821/month
August 1, 1999 to July 31, 2000 11,254/month
August 1, 2000 to July 31, 2001 11,704/month
August 1, 2001 to July 31, 2002 12,172/month
August 1, 2002 to July 31, 2003 12,659/month
The remaining lease payments due on 721 West Del Paso are noted below
(rounded to the nearest dollar):
August 1, 1996 to July 31, 1997 $5,671/month
August 1, 1997 to July 31, 1998 5,898/month
August 1, 1998 to July 31, 1999 6,134/month
August 1, 1999 to July 31, 2000 6,379/month
August 1, 2000 to July 31, 2001 6,635/month
August 1, 2001 to July 31, 2002 6,900/month
August 1, 2002 to July 31, 2003 7,176/month
There are no provisions for consumer price increase adjustments in either
lease. The overall initial rent per square foot is approximately $.76, and
this increases 4% on each lease anniversary date.
The Property was acquired from unrelated third parties--Thomas Weborg and
Sandra Singer-husband and wife (90% ownership), and David and Karen
Ewing--husband and wife (10% ownership)(collectively known as the
"Sellers"). Mr. Weborg is President and Chief Executive Officer of Cucina
Holdings, Inc.--the tenant of the Property. Several methods of economic
analysis were used to determine the propriety of the purchase price, and
economic feasibility of the property, prior to acquisition. A review of
rental rates for similar size and style buildings and uses in the same
general area revealed rates ranging from $.41 to $.81 per square foot for
triple net leases. The current monthly rent on these buildings
averages $.76 per square foot. meaning that the Property currently rents near
the highest rate available in this market. However, considering the good
condition of the property, the quality of the tenant, and the long-term
leases in place, this property at this price is considered to be desirable.
Comparable market listing and sales activity were also reviewed by the
Advisor. These revealed that the price per square foot for similar
buildings in the area range from $40.00 to $97.50. Several of the buildings
that were sold in the lower range were older and of lower quality, and
lacked amenities that are present in the Property, including fire prevention
sprinklers. The $86.25 per square foot that the Company is paying for the
Property is considered reasonable given the recent positive movements of
price in the market, the favorable seven year lease term. and the credit
quality of the tenant (this number does not include acquisition costs and
expenses).
<PAGE>
In the opinion of the Advisor, the purchase price of $1,725,000 that the
Company is paying the Sellers for this property is reasonable.
Property Operations. The Java City Property is managed by West Coast Realty
Management Inc.("WCRM"), an affiliate of the Company. WCRM charges the
Company 3% of the gross rents collected as a management fee for managing the
Property, as allowed by the Property Management Agreement. In the opinion
of the Advisor, the Java City Property is adequately insured. Although the
tenant is obligated to pay property taxes, property tax in the first year
is estimated to be $18,000 (approximately 1% of the sales price).
Terms of Purchase. Total consideration paid by the Company for the Java City
property was $1,828,500. The total acquisition cost included $1,725,000 paid
to the Sellers, $25,323 in legal, appraisal, and closing costs, and $78,177
in Acquisition Fees paid to the Advisor.
There is financing on each building of the Property that is being assumed by
the Company. The financing on the 717 West Del Paso Road building is as
follows:
Lender: Business & Professional Bank, Sacramento, CA
Original Loan Amount: $350,000 Payment: $3,413/month
Interest Rate: 10% fixed rate Amortization: 19 years, 4 months
Due Date: November, 2001 Assumption Fee: $3,814
Balance of Debt at time of Purchase: $338,977
Other: Nonrecourse loan; no prepayment penalty; balloon payment of
approximately $293,350 due November 29, 2001.
The financing on the 721 West Del Paso Road building is as follows:
Lender: Heller First Capital Corp., Chicago, IL
Original Loan Amount: $405,000 Payment: $3,126/month
Interest Rate: 8% fixed rate Amortization: 25 years
Due Date: August, 2018 Assumption Fee: None
Balance of Debt at Time of Purchase: $385,488
Other: Nonrecourse; no prepayment penalty
<PAGE>
Thus, in summary, the total amount of financing/assumption fees that the
Company is paying in connection with the assumption of the above two loans
is $3,814. The balance of the debt at time of purchase was $724,465 with
the remaining cost of acquisition--including financing fees-being paid in
cash ($1,107,849). The source of cash was funds received in connection with
the sale of the Company's shares through April 30, 1996.
The purchase price was arrived at through arms-length negotiations with the
Sellers.
General. The computation of depreciation for the Java City Property is based
on the cost of the property, including Acquisition Fees and Acquisition
Expenses. The allocation of the cost of the Property to various asset
categories is estimated, based on allocations in the appraisal report.
Depreciation is computed on a straight-line basis over the component useful
life of the assets.
<PAGE>
The following amends the Index to Financial Statements on p. 74.
Unaudited Financial Statements
Balance Sheet as of June 30, 1996 and December 31,
1995.................................................. F-30
Statements of Income of the six months ended June 30,
ended June 30, 1996 and 1995........................... F-31
Statement Of Stockholders' Equity for the six months
1996 and 1995.......................................... F-32
Statement of Cash Flows for the six months ended
June 30, 1996 and 1995................................. F-33
Summary of Accounting Policies......................... F-34
Notes to Financial Statements.......................... F-36
Java City Property
Report of Independent Certified
Public Accountants..................................... F-44
Summary of Historical Information
Relating to Operating Revenues
and Specified Expenses................................. F-45
Notes to Summary of Historical Information Relating
to Operating Revenues
and Specified Expenses................................. F-46
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)........................... F-47
Estimated Twelve Month Pro Forma Statement of Cash
Available from Operations (unaudited).................. F-47
Notes to Pro Forma Statements.......................... F-48
West Coast Realty Investors, Inc.
Pro Forma Balance Sheet as of June 30, 1996
(unaudited)............................................ F-50
Pro Forma Statement of Income for the six months
ended June 30, 1996 (unaudited)........................ F-51
Notes to Pro Forma Statement of Income for the six
months ended June 30, 1996 (unaudited)................. F-52
Pro Forma Statement of Income for the year ended
December 31, 1995 (unaudited).......................... F-53
Notes to Pro Forma Income Statement for year
ended December 31, 1995 (unaudited).................... F-54
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
JUNE 30,1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS
<S> <C> <C>
RENTAL REAL ESTATE, net of
accumulated depreciation (Note 2) $19,474,817 $19,650,165
CASH AND CASH EQUIVALENTS 2,382,735 1,450,022
ACCOUNTS RECEIVABLE 183,662 132,148
OTHER ASSETS (Note 3) 147,677 160,563
$22,188,891 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE --- $25,419
DUE TO RELATED PARTY (Note 5) 31,818 167,314
DIVIDENDS PAYABLE (Note 8) 286,663 226,649
SECURITY DEPOSITS 109,068 109,068
OTHER LIABILITIES 64,970 90,431
NOTES PAYABLE (Note 6) 9,453,297 9,539,180
TOTAL LIABILITIES 9,945,816 10,158,061
COMMITMENTS AND CONTINGENCIES (NOTE 1)
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $.01 par - shares authorized,
1,500,000; issued and outstanding 1,448,836
in 1996 and 1,322,404 in 1995 14,488 13,224
Additional paid-in capital 12,925,167 11,771,030
Deficit (696,580) (549,417)
TOTAL STOCKHOLDERS' EQUITY 12,243,075 11,234,837
$22,188,891 $21,392,898
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-30
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Rental $564,777 $384,388 $1,154,381 $691,466
Interest 27,877 28,466 50,590 73,834
592,654 412,854 1,204,971 765,300
COSTS AND EXPENSES:
Operating 42,445 21,391 72,763 48,334
Property taxes 18,259 10,801 37,398 21,603
Property management
fees-related party (Note 5(e)) 25,091 9,598 51,198 18,756
Interest 208,979 121,855 419,140 245,762
General and administrative 30,705 27,432 49,872 36,492
Depreciation and amortization 94,736 59,044 189,473 109,629
Realized (gain) from investment in
government securities --- (9,750) --- (9,750)
Change in unrealized loss from
investment in government
securities --- 19,977 --- ---
420,215 260,348 819,844 470,826
NET INCOME $172,439 $152,506 $385,127 $294,474
NET INCOME PER SHARE $.12 $.14 $.28 $.28
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-31
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30,1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 126,432 1,264 1,154,137 ---
Net income --- --- --- 385,127
Dividends declared (Note 8) --- --- --- (532,290)
BALANCE, JUNE 30,1996 1,448,836 $14,488 $12,925,167 $(696,580)
<CAPTION>
SIX MONTHS ENDED JUNE 30,1995
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 911,986 $9,120 $8,141,447 $(394,427)
Issuance of stock, net 204,736 2,047 1,821,422 ---
Net income --- --- --- 294,474
Dividends declared (Note 8) --- --- --- (366,900)
BALANCE, JUNE 30,1995 1,116,722 $11,167 $9,962,869 $(466,853)
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-32
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Cash Flow from operating activities:
Net income $385,127 $294,474
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 189,473 109,629
Proceeds from sales
of government securities --- 1,229,963
Realized gain on investment in government
securities --- (9,750)
Increase in unrealized loss from
Investment - government securities --- 19,977
Increase (decrease) from changes in:
Accounts receivable (51,514) 69,364
Other assets 12,886 (63,129)
Due to related party and other liabilities (166,667) 34,612
Prepaid rent and security deposit (19,709) 78,051
Net cash provided by operating activities
349,596 1,763,191
Cash flows from investing activities:
Additions to rental real estate --- (4,901,485)
Net cash (used in) investing activities --- (4,901,485)
Cash flows from financing activities:
Issuance of stock, net 1,155,401 1,823,469
Proceeds from notes payable --- 2,276,750
Repayments on notes payable (85,883) (25,107)
Dividends paid (546,415) (373,773)
Dividends payable 60,014 26,372
Net cash provided by financing activities 583,117 3,727,711
Net cash increase in cash and cash equivalents 932,713 589,417
Cash and cash equivalents at beginning of period 1,450,022 495,829
Cash and cash equivalents at end of period 2,382,735 1,085,246
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-33
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying balance sheet as of June 30, 1996, the income statements and
statements of cash flow for the six months periods ended June 30, 1996, and
1995 are unaudited, but in the opinion of management include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the
periods presented. The results of operations for the six month period ended
June 30, 1996, are not necessarily indicative of results to be expected for
the year ended December 31, 1996.
These financial statements should be read in conjunction with the
December 31, 1995 financial statements, and the notes thereto.
BUSINESS
West Coast Realty Investors, Inc. (the "Company"), is a corporation formed on
October 26, 1989 under the laws of the State of Delaware. The Company exists
as a Real Estate Investment Trust ("REIT") under Sections 856 to 860 of the
Internal Revenue Code. The Company has complied with all requirements imposed
on REIT's for 1996 and 1995 tax years; however, qualification as a REIT for
future years is dependent upon future operations of the Company. The Company
was organized to acquire interests in income-producing residential,
industrial, retail or commercial properties located primarily in California
and the west coast of the United States. The Company intends to acquire
property for cash on a moderately leveraged basis with aggregate mortgage
indebtedness not to exceed fifty percent of the purchase price of all
properties on a combined basis, or eighty percent individually and intends
to own and operate such properties for investment over an anticipated
holding period of five to ten years.
RENTAL PROPERTIES AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation is
computed using the straight-line method over their estimated useful lives of
31.5 to 39 years for financial and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to
determine if a writedown to market value is required.
INVESTMENTS
Investments which represent trading securities are accounted for in
accordance with SFAS No. 115. The difference between historical cost and
market value are reported as unrealized gains or losses in the statements
of income.
F-34
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
RENTAL INCOME
Rental income is recognized on a straight-line basis to the extent that rental
income is deemed collectable. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases for lower amounts, rental income is recognized as the amounts are
collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and all
highly liquid certificates of deposits, with original maturities of three
months or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
For comparative purposes, certain prior period amounts have been reclassified
to conform to the current presentation.
F-35
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
NOTE 1 - GENERAL
On October 30, 1989, West Coast Realty Advisors, Inc. (the "Advisor"),
purchased 1,000 shares of the Company's common stock for $10,000. On
August 30, 1990, the Company reached its minimum initial offering funding
level of $1,000,000. On November 30, 1992, the Company reached its
secondary offering level of $250,000. On July 25, 1994, the Company achieved
its minimum third offering funding level of $250,000.
Sales commissions and wholesaling fees, representing 7% of the gross
proceeds from the sale of common shares, were paid to Associated
Securities Corp. ("ASC"), a member of the National Association of Securities
Dealers, Inc. and an affiliate of the Advisor.
Dividends are declared and accrued based approximately upon the previous
quarter's income from operations before depreciation and amortization.
NOTE 2 - RENTAL PROPERTIES
The Company owns the following income-producing properties
Original
Location Date Purchased Acquisition
(Property Name) Cost
Huntington Beach California
(Blockbuster) February 26, 1991 $ 1,676,210
Fresno, California May 14, 1993 1,414,893
Huntington Beach, California
(OPTO-22) September 15, 1993 2,500,001
Brea, California March 4, 1994 2,248,343
Riverside, California November 29, 1994 3,655,500
Tustin, California
(Safeguard) May 22, 1995 4,862,094
Fremont, California
(Technology Drive) October 31, 1995 3,747,611
F-36
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
JUNE 30, 1996 DECEMBER 31,1995
Land $ 6,586,920 $ 6,586,920
Buildings and improvements 13,517,732 13,517,732
20,104,652 20,104,652
Less accumulated depreciation 629,835 454,487
Net rental properties $ 19,474,817 $ 19,650,165
A significant portion of the Company's rental revenue was earned from
tenants whose individual rents represented more than 10% of total
rental revenue. Specifically:
Four tenants accounted for 27%, 19%, 19% and 12%, respectively, in 1996;
Four tenants accounted for 24%, 20%, 15% and 10%, respectively, in 1995.
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
JUNE 30, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $42,163 $40,923
Organization costs 14,330 4,330
Loan origination fees 139,056 139,056
195,549 184,309
Less accumulated amortization 47,872 23,746
Net other assets $147,677 $160,563
F-37
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (Unaudited)
AND DECEMBER 31, 1995 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of June 30, 1996 and December 31, 1995, future minimum rental income under
the existing leases that have remaining noncancelable terms in excess of one
year are as follows:
JUNE 30, 1996 DECEMBER 31,1995
1996 .................................$922,907 $2,046,963
1997 ................................1,925,526 1,925,526
1998 ................................1,841,270 1,841,270
1999 ................................1,772,331 1,772,331
2000 ................................1,645,181 1,645,181
Thereafter .........................10,166,258 10,166,258
Total $18,273,473 $19,397,529
Future minimum rental income does not include lease renewals or new leases
that may result after a noncancelable-lease expires.
F-38
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 5 - RELATED PARTY TRANSACTIONS
The Advisor has an agreement with the Company to provide advice on investments
and to administer the day-to-day operations of the Company. Property
management services for the Company's properties are provided by West Coast
Realty Management, Inc. ("WCRM"), an affiliate of the Advisor. Certain
officers and directors of the company are also officers and directors of the
Advisor and its affiliate.
During the periods presented, the Company had the following related party
transactions:
(a) In accordance with the advisory agreement, compensation earned by,
or services reimbursed or reimbursable to the advisor, consisted of the
following:
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
Syndication fees $37,041 $150,429
Acquisition & financing fees --- 444,795
Overhead expenses 6,000 12,000
$43,041 $607,224
(b) At June 30, 1996 and December 31, 1995, the Advisor owned 22,505
shares of the issued and outstanding shares of the Company.
(c) Sales commissions paid in accordance with the selling agreement to
ASC totaled $84,496 for the six months ended June 30, 1996 and $151,954 for
the six months ended June 30, 1995.
(d) Property management fees earned by WCRM totaled $51,198 and $18,756
for the six months ended June 30, 1996 and 1995, respectively.
(e) The Corporation had related party accounts payable as follows:
JUNE 30, 1996 DECEMBER 31, 1995
Associated Financial Group $ --- $ 40,143
West Coast Realty Management 23,235 15,369
West Coast Realty Advisors 8,583 111,802
$31,818 $167,314
F-39
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
JUNE 30, DECEMBER 31,
1996 1995
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244, due August 1, 2003 $ 633,883 $ 639,182
Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.874% at
June 30, 1996), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $11,702, due October 1, 2003 1,716,469 1,721,993
8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 575,115 579,923
9.25 % promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 1,181,520 1,185,778
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March 1st when interest rate
adjusts to the Moody's corporate bond index daily rate
plus 0.125%, monthly principal and interest payments
vary depending upon interest rates and are currently
$8,737, due March 1, 2020 986,989 992,379
F-40
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 6 - NOTES PAYABLE (CONT.)
JUNE 30, DECEMBER 31,
1996 1995
9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 $2,195,845 $2,234,231
Variable rate promissory note secured by a Deed of Trust
on the Fremont property, interest rate equals the current
Treasury rate plus 1.65% (8.24% at March 31,1996),
monthly principal and interest payments vary depending
upon interest rates and are currently $18,898, due
August 1, 2015 2,163,476 2,185,694
$9,453,297 $9,539,180
The carrying amount is a reasonable estimate of fair value of notes payable
because the interest rates approximate the borrowing rates currently available
for mortgage loans with similar terms and average maturities.
The aggregate annual future maturities at June 30, 1996 and December 31, 1995
are as follows:
JUNE 30, 1996 DECEMBER 31, 1995
1996 ...............................$918,437 $1,004,320
1997 ..............................1,004,320 1,004,320
1998 ..............................1,004,320 1,004,320
1999 ..............................1,004,320 1,004,320
2000 ..............................1,004,320 1,004,320
Thereafter ........................4.517,580 4,517,580
Total ............................$9,453,297 $9,539,180
F-41
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 7 - DIVIDEND REINVESTMENT PLAN
The Company has established a Dividend Reinvestment Plan (the "Plan") whereby
cash dividends will, upon election of the shareholders, be used to purchase
additional shares of the Company. The shareholders' participation in the
Plan may be terminated at any time.
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share for the six months ended June 30, 1996 and 1995 was
computed using the weighted average number of outstanding shares of 1,385,908
and 1,038,625, respectively.
Dividends declared during the first six months 1995 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1995 911,986 $ 0.060 $54,719
February 1, 1995 945,136 0.060 56,708
March 1, 1995 1,009,084 0.060 60,545
April 1, 1995 1,029,898 0.060 61,794
May 1, 1995 1,109,204 0.060 66,552
June 1, 1995 1,109,704 0.060 66,582
TOTAL $366,900
January 1, 1996 1,325,404 0.0600 $79,524
February 1, 1996 1,371,794 0.0600 82,308
March 1, 1996 1,401,664 0.0600 84,100
April 1, 1996 1,413,736 0.0666 94,155
May 1, 1996 1,437,098 0.0666 95,711
June 1, 1996 1,448,836 0.0666 96,492
TOTAL $532,290
F-42
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of'
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after
December 15, 1995. The new Standard establishes new guidelines regarding
when impairment losses on long-lived assets, which include plant and
equipment, and certain identifiable intangible assets, should be recognized
and how impairment losses should be measured. Adoption had no effect on the
statement of income for the six months ended June 30, 1996, as there were no
impairment amounts recorded during the period.
Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from nonemployees in exchange for
equity instruments. The Company does not currently provide stock based
compensation and adoption does not have a material effect on its financial
position or results of operations for the six months ended June 30, 1996.
NOTE 10 - SUBSEQUENT EVENT
(a) In July 1996, the Company paid dividends totaling $286,900 ($0.0666 per
share per monthly record date), payable to shareholders of record on April 1,
May 1, and June 1, 1996, respectively (Note 8).
(b) In August 1996, the Company acquired from unrelated parties, two light
industrial buildings located in Sacramento, California. The total
consideration paid by the Company includes $1,725,000 to be paid to the
Sellers, $25,323 in legal, appraisal and closing costs and $78,177 in
Acquisition Fees paid to the Advisor. There is financing on each building
of the Property that is being assumed by the Company. Financing of
approximately $339,000, on the first building provided by Business &
Professional Bank, was assumed at an annual fixed percentage rate of 10%,
due in November 2001, amortized over a twenty year period with monthly
principal and interest payments of approximately $3,413. Financing of
approximately $385,000, on the second building provided by Heller First
Capital Corp., was assumed at an annual fixed percentage rate of 8%, due
in August 2018, amortized over a twenty-five year period with monthly
principal and interest payments of approximately $3,126. The total amount
of financing/assumption fees that the Company paid in connection with the
assumption of the above two loans was $3,814.
Thus in summary, the balance of the debt at the time of purchase was
approximately $724,000 with the remaining cost of acquisition, including
financing fees, being paid in cash ($1,108,000). The source of cash was funds
received in connection with the sale of the Company's shares.
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders
West Coast Realty Investors, Inc.
We have audited the accompanying summary of historical information relating
to operating revenues and specified expenses of 717 and 721 West Del Paso
Road (the Property) for the three months ended March 31, 1996 and for the
year ended December 31, 1995. These financial statements are the
responsibility of 717 and 721 West Del Paso's management. Our
responsibility is to express an opinion on these financial statements based
upon 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 summary of historical
information relating to operating revenues and specified expenses is free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary of historical
information relating to operating revenues and specified expenses. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall summary
relating to operating revenues and specified expenses presentation. We
believe our audits provide a reasonable basis for our opinion.
The accompanying summary of historical information relating to operating
revenues and specified expenses was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
excludes certain material expenses, described in Note 2, that would not be
comparable to those resulting from the proposed future operations of the
Property.
In our opinion, the summary of historical information relating to operating
revenues and specified expenses referred to above presents fairly, in all
material respects, the operating revenues and specified expenses, exclusive of
expenses described in Note 2, of the Property for the three months ended March
31, 1996 and the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
HUNNICUTT OKAMOTO & ASSOCIATES
May 21, 1996
Woodland Hills, California
F-44
<PAGE>
<TABLE>
717 AND 721 WEST DEL PASO ROAD
SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
For the Three Months Ended March 31, 1996
and
Year Ended December 31, 1995
<CAPTION>
Three
Months Year
Ended Ended
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Operating Revenues:
Rental income $ 45,219 $176,815
Total operating revenue 45,219 176,815
---------- -----------
Specified Expenses:
Operating expenses 2,700 170
Interest expense 15,985 63,931
---------- ----------
Total specified expenses 18,685 64,101
---------- ----------
Excess of operating revenues
over specified expenses $26,534 $112,714
</TABLE>
[FN]
See accompanying notes to summary of
historical information
F-45
<PAGE>
717 AND 721 WEST DEL PASO ROAD
NOTES TO SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
NOTE 1 - THE PROPERTY
717 and 721 West Del Paso Road (the Property) is comprised of two adjacent
single story light industrial buildings located in the city of Sacramento,
California. The two properties are located in the same industrial park. The
717 West Del Paso Road property has a rental area approximating 11,200 square
feet. The 721 West Del Paso Road property has a rental area approximating
8,640 square feet. Both properties are currently leased to Java City, a
California corporation. The owners of the Property are also shareholders of
the corporate tenant. Both leases have lease terms expiring in 2003. The
lease agreements provide that specified expenses including insurance, repairs
and maintenance and property taxes of the Property are paid by the lessee.
However, the lease of 721 West Del Paso Road provides that the lessor shall
keep the foundation, roof and structural portions of the exterior walls in
good order, condition and repair. During the three months ended
March 31, 1996 and the year ended December 31, 1995 the lessor incurred
$2,700 and $170, respectively in roof repairs to the 721 West Del Paso Road
property. These specified expenses incurred by the Property are included as
operating expenses in the accompanying summary.
Minimum rental income, under the existing leases, is $183,800, $191,200,
$198,800, $206,800, $215,100, $223,700 for the years ended December 31, 1996
through December 31, 2001 and $371,500 for years thereafter.
The Property is expected to be acquired by West Coast Realty Investors, Inc.
in July 1996. The property is expected to be acquired subject to the
assumption of two promissory notes. The first note has an outstanding
balance of approximately $341,800 as of March 31, 1996 and is due in 2001.
The note rate is 10%. Interest expense incurred during the three months
ended March 31, 1996 and the year ended December 31, 1995 and during was
$8,654 and $33,640, respectively.
The second note has an outstanding balance of approximately $387,900 as of
March 31, 1996 and is due in 2018. The note rate is 8%. Interest expense
incurred during the three months ended March 31, 1996 and during the year
ended December 31, 1995 was $7,331 and $30,291, respectively.
NOTE 2 - BASIS OF PRESENTATION
The summary of historical information relating to operating revenues and
specified expenses of the Property excludes the following items, which are
not comparable to the future operations of the Property under the ownership
of West Coast Realty Investors, Inc.
(a) Depreciation of buildings, improvements and equipment
(b) Nonrecurring income and expenses
Rental income is recognized when earned and expenses are recognized when
incurred.
F-46
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE OPERATING INCOME (NOTE 1)
BASED ON ACQUISITION OF JAVA CITY PROPERTY
<CAPTION>
Java City Property
Historical Audited
Operating Financial Pro Forma Estimated
Results for Results Adjustments Pro
WCRI for the (Note 2) Forma
December 31, period ended Results
1995 December 31,
1995
<S> <C> <C> <C> <C>
REVENUE:
Rental Income $1,692,176 $176,815 $35,433 (a) $1,904,424
Interest Income 120,950 (55,000) (b) 65,950
1,813,126 176,815 (19,567) 1,970,374
COSTS AND EXPENSES:
Operating 169,679 170 6,367 (c) 176,216
Interest 620,031 63,931 683,962
General and
Administrative 117,667 117,667
Depreciation and
Amortization 256,144 26,008 (d) 282,152
1,163,521 64,101 32,375 1,259,997
Taxable Operating $649,605 $112,714 ($51,942) $710,377
Income
</TABLE>
<TABLE>
<CAPTION>
WEST COAST REALTY INVESTORS, INC.
STATEMENT OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
<S> <C>
Pro Forma Taxable Net Operating Income $710,377
Add: Depreciation 282,152
Pro Forma Cash Available from Operations $992,529
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
F-47
<PAGE>
WEST COAST REALTY INVESTORS, INC.
JAVA CITY PROPERTY
NOTES TO PRO FORMA OF TAXABLE OPERATING INCOME STATEMENT
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The preceding unaudited pro forma statements are based on information obtained
from the lease and Agreement to Purchase documents pertaining to the property
located at 717 and 721 West Del Paso Road, Sacramento, California (the "Java
City Property" or the "Property").
The pro forma statements use the audited financial statements for the year
ended December 31, 1995 as a base for preparing the estimated pro forma
operations for the Property during its first full year of operations. The
Property's current tenant, Cucina Holdings, Inc. (doing business as Java
City), leases the space in the two separate buildings. The leases on both
buildings expire October 31, 2003. The leases are triple net in nature.
The pro forma results reflect a full year of operations for the Property
assuming that it was acquired January 1, 1995. They contain certain
adjustments which are expected to be incurred in the Property's first year
of operations.
There can be no assurance that the foregoing results will be obtained.
The Company acquired the property from a party who is also the President of
Cucina Holdings, Inc. The Company is unaware of any material factors which
would cause the reported financial information not to be indicative of future
operating results.
NOTE 2 - PRO FORMA ADJUSTMENTS
The significant pro forma adjustments are as follows:
(a) To reflect a full year's worth of rental income per provisions of the
lease with the Property's tenant. In calculating the amount, the total
remaining minimum monthly rent from January 1, 1995 to October 31, 2003 is
recognized on a straight-line basis in accordance with generally accepted
accounting principles.
(b) To eliminate interest income not earned due to assumed application of
funds toward purchase of Java City Property.
(c) To reflect approximate property management fees of 3% of rental income
in the first year of the lease.
F-48
<PAGE>
WEST COAST REALTY INVESTORS, INC.
JAVA CITY PROPERTY
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(d) The computation of depreciation is based on the cost of the Property
including estimated Acquisition Fees and Expenses, and is for the initial
twelve months subsequent to the purchase. The allocation of the cost of the
property to the various asset categories and lives is based on the
allocations contained in the final appraisal report for the Property.
Depreciation has been computed on a straight-line basis over the component
useful life of the assets.
DEPRECIABLE LIFE COST DEPRECIATION
Building & Improvements 39 $944,104 $24,208
Site Improvements 39 70,190 1,800
Land ------- 814,206 ---
$1,828,500 $26,008
F-49
<PAGE>
WEST COAST REALTY INVESTORS
PRO FORMA BALANCE SHEET
June 30, 1996
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the effect of the acquisition of the Java City Property, as
described elsewhere in this Offering, on the financial position of the
Company.
West Coast Realty Investors acquired the Java City Property from Tom Weborg,
Sandra Singer, David Ewing, and Karen Ewing on August 2, 1996. Total
consideration paid for the property was $1,828,500, with $724,465 of the cost
paid through the assumption of financing with a bank, and the balance,
including $3,814 in financing costs, paid in cash ($1,107,849). The
pro-forma balance sheet below presents the financial condition of the
Company as of June 30, 1996, as if the transaction had taken place on that
date.
The unaudited pro forma financial statements are not necessarily indicative
of the Company's future operations and should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA BALANCE SHEET
June 30, 1996
(unaudited)
<CAPTION>
Historical Pro Forma Pro Forma
June 30, 1996 Adjustments June 30, 1996
<S> <C> <C> <C>
ASSETS:
Rental Properties, net $19,474,817 $1,828,500 (1) $21,303,317
Cash and Cash Equivalents 2,382,735 (1,107,849)(1) 1,274,886
Accounts Receivable 183,662 183,662
Other Assets 147,677 3,814 (1) 151,491
$22,188,891 $724,465 $22,913,356
LIABILITIES & STOCKHOLDERS' EQUITY
Due to Related Party $31,818 $31,818
Prepaid Rent --- ---
Dividends Payable 286,663 286,663
Security Deposits 109,068 109,068
Other Liabilities 64,970 64,970
Notes Payable 9,453,297 724,465 (1) 10,177,762
9,945,816 724,465 10,670,281
Stockholders Equity 12,243,075 12,243,075
$22,188,891 $724,465 $22,913,356
</TABLE>
[FN]
Notes
(1) To record acquisition of Java City Property, and record related
assumption of debt, and payment of cash for the property and financing fees
pertaining to the assumption of the debt.
F-50
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS
PRO FORMA STATEMENT OF INCOME
For the Six Months Ended June 30, 1996
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the effect of the acquisition of the Java City Property, as
described elsewhere in this Offering, on the results of operations of the
Company.
The unaudited pro forma statement of income has been prepared as if the Java
City Property had been acquired and occupied by its respective tenant on
January 1, 1996.
The unaudited pro forma financial statement is not necessarily indicative of
the Company's future operations and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
prospectus.
<CAPTION>
Java City
Audited Pro
Historical Results Forma
June 30, 3 months Adjustments Pro Forma
1996 ended
March 31,
1996
<S> <C> <C> <C> <C>
Revenues:
Rent $1,154,381 $45,219 $57,775 (1) 1,257,375
Interest 50,590 (28,000) (2) 22,590
1,204,971 45,219 29,775 1,279,965
Expenses:
Operating 72,763 2,700 75,463
Property Taxes 37,398 37,398
Property Management Fees-
related party 51,198 3,090 (3) 54,288
Interest 419,140 15,985 15,985 (5) 451,110
General and
Administrative 49,872 49,872
Depreciation and
Amortization 189,473 13,004 (4) 202,477
819,844 18,685 32,079 870,607
NET INCOME $385,127 $26,534 (2,303) $409,358
NET INCOME PER SHARE $0.28 $0.30
Weighted Average Shares 1,385,908 1,385,908
Outstanding
</TABLE>
F-51
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The pro forma statements of Income reflects operations for the Company
assuming that the Java City Property was acquired on January 1, 1996.
This statement contains certain adjustments which are expected to be
incurred in that property's first year of operations, with a full six
month's worth of operations reflected in the Statement of Income for the six
months ended June 30, 1996.
There can be no assurance that the foregoing results will be obtained.
2. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
(1) To reflect rental income from January 1, 1996 to June 30, 1996.
(2) To eliminate interest income on funds used to purchase the Java City
Property from January 1, 1996 to June 30, 1996.
(3) To reflect property management fees and other property operating costs
from January 1, 1996 to June 30, 1996.
(4) To reflect depreciation expense on the Java City Property from January
1, 1996 to June 30, 1996.
(5) To reflect interest expense on the Java City Property from
January 1, 1996 to June 30, 1996.
F-52
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31,1995
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the acquisition of the Safeguard Building, Technology Drive, and
Java City Properties, as described in this offering, on the results of
operations of the Company.
The unaudited pro forma statement of income has been prepared as if all the
aforementioned properties had been acquired and occupied by their respective
tenants on January 1, 1995.
The unaudited pro forma financial statements are not necessarily indicative
of the Company's future operations and should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Prospectus.
<CAPTION>
Pro Forma
Historical Safeguard Technology Java Condensed
December 31, Building Drive City Adjustments December
1995 Building Drive 31, 1995
(I) (II) (III)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental $1,692,176 $680,457 $236,039 $176,815 ($437,744) (a) $2,403,921
20,745 (b)
35,433 (c)
Interest 120,950 (120,000) (d) 950
1,813,126 680,457 $236,039 176,815 501,566 2,404,871
Operating 169,679 5,862 170 11,148 (e) $200,930
7,704 (f)
6,367 (g)
Interest 620,031 38,246 63,931 84,130 (h) 820,016
13,678 (i)
Depreciation 256,144 38,492 (j) 376,872
and Amortization 56,228 (k)
26,008 (l)
General and 117,667 117,667
Administrative
1,045,854 44,108 64,101 243,755 1,515,485
Net Income $649,605 $680,457 $191,931 $112,714 (745,321) $889,386
Net Income $0.58 Net Income Per Share $0.55
Per Share
Weighted Weighted Average Shares Used for
Average 1,117,494 Pro Forma Calculation (Note 2) 1,607,494
Shares
Used for
Historical
calculation
</TABLE>
[FN]
(I) Year ended December 31, 1994 (audited)
(II) Nine months ended September 30,1995 (audited)
(III)Year ended December 31, 1995 (audited)
F-53
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
For the Year Ended December 31, 1995 (Unaudited)
BASIS OF PRESENTATION
The pro forma Statements of Income reflects operations for the Company
assuming that the Safeguard Building, Technology Drive, and Java City
properties were acquired on January 1, 1995. This statement contains
certain adjustments which are expected to be incurred in those properties'
first year of operations, reflected in the Statement of Income for the year
ended December 31, 1995.
There can be no assurance that the foregoing results will be obtained.
1. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
a. To adjust historical Safeguard Building information to reflect rental
income from January 1, 1995 to May 22, 1995 (date of acquisition).
b. To record rental income for Technology Drive property from
October 1 to October 31, 1995 (date of acquisition), reflecting
leases in effect during 1995.
c. To adjust rental income for the Java City property to recognize rental
income on a straight-line basis for 1995 using lease rates in effect
from January 1, 1995 to August 1, 2003.
d. To eliminate interest income to reflect funds used for the acquisition
of properties.
e. To reflect additional property management fees for the Safeguard Building
for the entire year.
f. To reflect additional property management fees for the Technology Drive
property for the entire year.
g. To reflect additional property management fees for the Java City
property.
h. To reflect interest expense on the Safeguard Building for calendar 1995.
I. To reflect interest expense on Technology Drive for calendar 1995.
j. To reflect additional depreciation expense on the Safeguard Building for
calendar 1995.
k. To reflect additional depreciation expense on the Technology Drive
property for calendar 1995.
l. To reflect depreciation expense on the Java City Property for 1995.
F-54
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
For the Year Ended December 31, 1995 (Unaudited)
(CONTINUED)
2. PER SHARE AMOUNTS
The pro forma income statement assumes that the Technology Drive,
Safeguard Building and Java City properties were owned as of January 1, 1995.
The Company used approximately $5.2 million in cash to acquire these
properties. However, as of January 1, 1995, the Company actually had
approximately $1.4 million available for the acquisition of additional
properties. The properties were acquired primarily using funds raised
subsequent to January 1, 1995. Therefore, the weighted average shares
outstanding as of December 31, 1995, was calculated assuming that an
additional $4.9 million in shares (490,000 shares) were outstanding as
of January 1, 1995, and that no additional shares were issued throughout
the year. This is assumed to be the minimum number of shares that
would be sold given the offering expenses and reserves that are
allocated against shares sold.
F-55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
West Coast Realty Investors
Audited Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993
Statements of Stockholders' Equity for the years ended
December 31, 1995 December 31, 1994 and December 31,
1993
Statements of Cash Flows for the years ended December 31,
1995, December 31, 1994 and December 31, 1993
Summary of Accounting Policies
Notes to Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
Unaudited Financial Statements
Balance Sheet as of June 30, 1996 and December 31, 1995
Statement Of Stockholders' Equity for the six months
ended June 30, 1996 and 1995.
Statements of Income of the six months ended June 30,
1996 and 1995
Statement of Cash Flows for the six months ended June 30,
1996 and 1995
Summary of Accounting Policies
Notes to Financial Statements
14661 Franklin Avenue Property
Report on Independent Certified Public Accountants
Summary of Historical Information Relating to Operating
Revenues and Specified Expenses
Notes to Summary of Historical Information Relating to
Operating Revenues and Specified Expenses
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)
Estimated Twelve Month Pro Forma Statement of Cash Available
from Operations (unaudited)
Notes to Pro Forma Statements
<PAGE>
Technology Drive Property
Report of Independent Certified Public Accountants
Summary of Historical Information Relating to Operating
Revenues and Specified Expenses
Notes to Summary of Historical Information Relating to
Operating Revenues and Specified Expenses
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)
Estimated Twelve Month Pro Forma Statement of Cash
Available from Operations (unaudited)
Notes to Pro Forma Statements (unaudited)
Java City Property
Report of Independent Certified Public Accountants
Summary of Historical Information Relating to Operating
Revenues and Specified Expenses
Notes to Summary of Historical Information Relating to
Operating Revenues and Specified Expenses
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)
Estimated Twelve Month Pro Forma Statement of Cash Available
from Operations (unaudited)
Notes to Pro Forma Statements
<PAGE>
West Coast Realty Investors, Inc.
Pro Forma Statement of income for the year ended December 31,
1995 (unaudited)
Notes to Pro Forma Income Statement for year ended
December 31, 1995 (unaudited)
West Coast Realty Investors, Inc.
Pro Forma Balance Sheet as of June 30, 1996 (unaudited)
Pro Forma Statement of Income for the six months ended June 30, 1996
(unaudited)
Notes to Pro Forma Financial Statements for the three months ended June
30, 1996 (unaudited)
Pro Forma Statement of Income for the year ended December 31, 1995
(unaudited)
Notes to Pro Forma Income Statement for year ended December 31, 1995
(unaudited)
<PAGE>
(b) Exhibits:
1.1 Amended Form of Selling Agreement.(1)
1.2 Amended Form of Selected Dealer Agreement.(1)
3.1 Certificate of Incorporation (incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-32466).(1)
3.1.1 Amendment to Certificate of Incorporation (incorporated by reference
to the Company's Registration Statement on Form S-11, File No. 33-
45802).(1)
3.2 Bylaws (incorporated by reference to the Company's Registration Statement
on Form S-11, File No. 33-32466).(1)
3.2.1 Amendment to Bylaws (incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-45802).(1)
3.2.2 Amended and Restated Bylaws (incorporated by reference to the
Company's Registration Statement on Form S-11, File No. 33-45802).(1)
3.2.3 Amended and Restated Bylaws.(1)
4 Form of Share Certificate (incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-32466).(1)
5 Opinion re: legality (including consent).(1)
8 Opinion re: tax matters (including consent).(1)
10.1 Executed copy of Advisory Agreement (incorporated by reference to the
Company's Registration Statement on Form S-11, File No. 33-32466).(1)
10.1.1 Executed Copy of Amendment to Advisory Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File No.
33-45802).(1)
10.1.2 Amended and Restated Advisory Agreement (incorporated by reference to
the Company's Registration Statement on Form S-11, File No. 33-45802).(1)
10.1.3 Second Amended and Restated Advisory Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File No.
33-75260).(1)
10.1.4 Third Amended and Restated Advisory Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File No.
33-75260).(1)
10.2 Executed Copy of Escrow Instructions.(1)
10.3 Form of Dividend Reinvestment Plan (incorporated by reference to the
Company's Registration Statement on Form S-11, File No. 33-3246).(1)
<PAGE>
10.4 Form of Property Management Agreement for Property Manager
(incorporated by reference to the Company's Registration Statement on
Form S-11, File No. 33-32466).(1)
10.4.1 Amended and Restated Property Management Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File No.
33-45802).(1)
10.4.2 Second Amended and Restated Property Management Agreement.(1)
10.5 Form of Sure Pay Agreement for Automatic Reinvestment Plan
(incorporated by reference to the Company's Registration Statement on
Form S-11, File No. 33-32466).(1)
10.6 Agreement to Purchase Property (6491 Edinger Avenue, Huntington Beach,
California) incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-32466).(1)
10.7 Lease Re: Property (6491 Edinger Avenue, Huntington Beach, California)
incorporated by reference to the Company's Registration Statement on Form
S-11, File No. 33-32466).(1)
10.8 Internal Revenue Service Ruling (6491 Edinger Avenue, Huntington
Beach, California) incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-32466).(1)
10.9 Agreement of Purchase and Sale and Joint Escrow Instructions By and
Between Shaw-Nelson San Clemente No. 7 ("Seller") and Associated Planners
Realty Investors, Inc. ("Buyer") (incorporated by reference to the
Company's Current Report on Form 8-K dated January 17, 1992).(1)
10.10 Standard Form Lease Between Shaw/Nelson San Clemente No. 7, a
California Limited Partnership and Societe Endo Technic, a California
Corporation, dba Endo Technic Corporation (incorporated by reference to
the Company's Current Report on Form 8-K dated January 17, 1992).(1)
10.11.1 Lease and Assignment thereof regarding the OPTO-22 Property.
(Incorporated by reference to the Company's Registration Statement on
Form S-11, File No. 33-45802).(1)
10.12 Agreement of Purchase and Sale and Escrow Instructions between IBG
Palm Associates, a California General Partnership and the Company dated
January 6, 1994 re: the North Palm Street Property. (Incorporated by
reference to the Company's Registration Statement on Form S-11, File No.
33-45802).(1)
10.12.1 Leases and Assignment thereof regarding the North Palm Street
Property. (Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-45802).(1)
10.13 Real Estate Purchase Agreement between K & I Associates and West Coast
Realty Investors, Inc. dated March 1, 1993. (Incorporated by reference to
Exhibit 10.13 to Registrant's Current Report on Form 8-K dated May 5,
1994).(1)
10.13.1 Leases re: Fresno Property. (Incorporated by reference to Exhibit
10.13.1 to Registrant's Current Report on Form 8-K dated May 5, 1994).(1)
10.13.2 First Amendment to lease re The Wherehouse.(1)
<PAGE>
10.14 Agreement of Purchase and Sale of Real Property and Escrow
Instructions Between Birtcher Riverside Market Place Properties, Ltd. and
West Coast Realty Investors, Inc. (Incorporated by reference to Exhibit
10.14 to Registrant's Current Report on Form 8-K dated November 29,
1994).(1)
10.14.1 Riverside Market Place Lease and Assignment thereof (Incorporated by
reference to Exhibit 10.14.1 to Registrant's Current Report on Form 8-K
dated November 29, 1994).(1)
10.14.2 Exhibits to Agreement of Purchase and Sale of Real Property and
Escrow Instructions Between Birtcher Riverside Market Place Properties
and West Coast Realty Investors, Inc. (Incorporated by reference to
Exhibit 10.14.2 to Registrant's Current Report on Form 8-K dated
November 29, 1994, as amended).(1)
10.14.3 Appraisal for Riverside Market Place Property. (Incorporated by
reference to Exhibit 10.14.2 to Registrant's Current Report on Form 8-K
dated November 29, 1994, as amended).(1)
10.15 Purchase and Sale Contract between BRS-Tustin Safeguard Associates and
West Coast Realty Investors, Inc. (Incorporated by reference to Exhibit
10.15 to Registrant's Current Report on Form 8-K dated May 22, 1995).(1)
10.15.1 Standard Industrial Lease - Net between BRS-Tustin Safeguard
Associates and Safeguard Business Systems, Inc. (Incorporated by
reference to Exhibit 10.15.1 to Registrant's Current Report on Form 8-K
dated May 22, 1995).(1)
10.15.2 Loan Assignment and Assumption Agreement between BRS-Tustin Safeguard
Associates, West Coast Realty Investors, Inc. and Businessmen's Assurance
Company of America (Incorporated by reference to Exhibit 10.15.2 to
Registrant's Current Report on Form 8-K dated May 22, 1995).(1)
10.15.3 Appraisal of Safeguard Business Systems Property (Incorporated by
reference to Exhibit 10.15.3 to Registrant's Current Report on Form 8-K
dated May 22, 1995).(1)
10.16 Purchase and Sale Agreement Dated August 28, 1995 between 26
Technology Partnership, L.P. (co-owner), Jack M. Langston (President of
the General Partner of 26 Technology Partnership, L.P. and co-owner), and
West Coast Realty Investors, Inc. (Incorporated by reference to Exhibit
1 to Registrant's Current Report on Form 8-K dated September 21, 1995).
(1)
10.16.1 Appraisal Report for An Industrial Building 4400-4415 Technology
Drive, Fremont, California. (Incorporated by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated September 21, 1995).(1)
10.16.2 Standard Industrial Lease between CMS Welding & Machining and 26
Technology Partnership, L.P. dated November 2, 1993. (Incorporated by
reference to Exhibit 3 to Registrant's Current Report on Form 8-K dated
September 21, 1995).(1)
10.16.3 Promissory note secured by deed of trust dated July 1, 1995,
including assignment of leases, environmental indemnity agreement,
and other supporting documents. (Incorporated by reference to
Exhibit 4 to Registrant's Current Report on Form 8-K dated
September 21, 1995).(1)
10.16.4 Environmental Site Assessment for 4415 and 4425 Technology Drive
dated February 24, 1995. (Incorporated by reference to
Registrant's Current Report on Form 8-K dated September 21, 1995).(1)
<PAGE>
10.17 Agreement of Purchase and Sale and Joint Escrow Instructions for 717 and
721 West Del Paso Road (with exhibits).
<PAGE>
10.17.1 Standard Industrial Lease-Net dated April 10, 1989 (as amended) on
717 West Del Paso Road.
10.17.2 Guarantee of a portion of the Rent on 717 West Del Paso Road.
10.17.3 An Appraisal of An Office/Industrial Facility at 717 and 721 West
Del Paso Road, Sacramento, California, dated June 5, 1996.
10.17.4 Amendment No. 1 to Form S-11 Registration Statement dated April 16,
1996
24.1 Consent of BDO Seidman, LLP.(2)
24.2 Consent of Gipson Hoffman & Pancione.(2)
24.3 Consent of Hunnicutt Okamoto & Associates.(2)
(1) Previously filed.
(2) Filed herewith.
<PAGE>
Item 36. Undertakings.
A. Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
B. The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
Post-Effective Amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent Post-Effective Amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
2. To remove from registration by means of a Post-Effective Amendment any of
the securities being registered which remain unsold at the termination of the
offering.
C. The Registrant undertakes to file a sticker supplement pursuant to Rule
424(c) under the Securities Act of 1933 during the distribution period
describing each property not identified in the prospectus at such time as
there arises a reasonable probability that such property will be acquired
and to consolidate all such stickers into a Post-Effective Amendment filed
at least once every three months with the information contained in such
Amendment provided simultaneously to the existing shareholders of the
Registrant. Each sticker supplement will disclose all compensation and fees
received by the Advisor or its Affiliates in connection with any such
acquisition. The Post-Effective Amendment will include audited financial
statements meeting the requirements of Rule 3-14 of Regulation S-X only for
properties acquired during the distribution period.
D. The Registrant also undertakes to file after the end of the distribution
period a current report on Form 8-K, containing the financial statements and
any additional information required by Rule 3-14 of Regulation S-X, to
reflect each commitment (i.e., the signing of a binding purchase agreement)
made after the end of the distribution period involving the use of 10 percent
or more (on a cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the Registrant's
shareholders at least once each quarter after the distribution period of the
offering has ended.
E. The Registrant hereby undertakes to provide to the principal underwriter,
at the closing specified in the Selling Agent Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
F. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
<PAGE>
(2) For the purpose of determining any liability under the Securities Act of
1933, each Post-Effective Amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) That all Post-Effective Amendments will comply with the applicable forms,
rules and regulations of the Commission in effect at the time such Post-
Effective Amendments are filed.
G. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions referred to in Item 33 hereof,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in said Act and is, therefore, unenforceable. If a
claim for indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the said Act and will be governed by the
final adjudication of such issue.
H. The undersigned Registrant hereby undertakes that it will provide its
Shareholders the financial statements required by Form 10K and Form 10Q
promulgated under the Securities Exchange Act of 1934.
I. The Registrant undertakes to send to each Shareholder on an annual basis
a detailed statement of any transaction with the Advisor or its Affiliates,
and of fees, commissions, compensation and other benefits paid, or accrued
to the Advisor or its Affiliates for the fiscal year completed, showing the
amount paid or accrued to each recipient and the services performed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Post-Effective Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Los Angeles, California
on October 1, 1996.
WEST COAST REALTY INVESTORS, INC.
a Delaware corporation
By:*/s/Philip N. Gainsborough
Philip N. Gainsborough
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
*/s/Philip N. Gainsborough Director and October 1, 1996
Philip N. Gainsborough Chief Executive Officer
*/s/W. Thomas Maudlin, Jr. Director and October 1, 1996
W. Thomas Maudlin, Jr. President
*/s/Michael G. Clark Vice President, October 1, 1996
Michael G. Clark Treasurer and Chief
Financial Officer
*/s/George Young Director October 1, 1996
George Young
*/s/Steve Bridges Director October 1, 1996
Steve Bridges
*/s/James W. Coulter Director October 1, 1996
James W. Coulter
*/s/Michael G. Clark October 1, 1996
Michael G. Clark
(Attorney-in-fact Pursuant to
Power of Attorney previously filed)
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
West Coast Realty Investors, Inc.
Los Angeles, California
We hereby consent to the use in the Prospectus that constitutes a
part of this Post-Effective Amendment #1 to the Registration Statement of
our report dated February 23, 1996, relating to the financial statements of
West Coast Realty Investors, Inc.
We also consent to the reference to us under the caption "Experts"
in the Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
September 18, 1996
<PAGE>
CONSENT OF SPECIAL COUNSEL
We hereby consent to the use of our name as an exhibit in Post-Effective
Amendment No. 1 to the Registration Statement on Form S-11 of West Coast
Realty Investors, Inc., a Delaware corporation. In such consent we do not
thereby admit the we come within the category of persons where consent is
required under Section 7 of the Securities Act of 1993, as amended.
Dated: September 17, 1996
GIPSON HOFFMAN & PANCIONE,
A Professional Corporation
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
West Coast Realty Investors, Inc.
Los Angeles, California
We hereby consent to the use of our reports dated April 28, 1995, January 26,
1996 and May 21, 1996 in the Post-Effective Amendment No. 1 to the
Registration Statement on Form S-11 of West Coast Realty Investors, Inc.,
included herein. We also consent to the reference to us under the caption
"Experts" in the Prospectus.
Hunnicutt Okamoto & Associates
Woodland Hills, California
September 20, 1996
<PAGE>
DUPLICATE
ORIGINAL
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
By and Between
THOMAS WEBORG, SANDRA SINGER, DAVID EWING AND KAREN EWING
(COLLECTIVELY "SELLER")
and
WEST COAST REALTY INVESTORS, INC., A DELAWARE CORPORATION
("BUYER")
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
To: Stewart Title Company Escrow No. 15000514VB
555 Capitol Mail, Suite 280
Sacramento, California 95814 Escrow Officer: Vince Balbi
<PAGE>
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("Agreement") is made and entered into as of the day of April, 1996, by and
between Thomas Weborg, Sandra Singer, David Ewing and Karen Ewing
(collectively "Seller") and West Coast Realty Investors, Inc., a Delaware
corporation ("Buyer").
RECITALS
A. Seller is the owner of the Real Property located in the
City of Sacramento ("City"), County of Sacramento ("County"), State of
California ("State") and more particularly described in Exhibit "A" attached
hereto.
B. The Real Property is zoned MI (light industrial) and is improved
with the Improvements.
C. The Real Property and Improvements are herein collectively
referred to as the "Project" which is commonly known as 717 and 721 Del Paso
Road".
D. Capitalized terms shall have the meanings set forth following the
use of such terns. If no definition is so set forth such capitalized terms
shall have the meanings set forth in the Glossary of Terms attached hereto.
E. Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, the Property.
The terms of this Agreement and the Escrow Holder's instructions
are as follows:
1 . Purchase and Sale. Seller agrees to sell to Buyer, and Buyer
agrees to purchase from Seller, the Property upon the terms and
conditions set forth in this agreement.
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2. Purchase Price and Allocation of Purchase Price.
(a) Purchase Price. The Purchase Price ("Purchase Price") for
the Property shall be One Million Seven Hundred Twenty-Five
Thousand Dollars ($1,725,000).
(b) Allocation of Purchase Price. The Purchase Price shall be
allocated as follows:
Item Amount
721 Del Paso Road $894,395
717 Del Paso Road $688,605
Tenant Improvements at
721 Del Paso Road $142,000
Total $1,725,000
Payment of Purchase Price. The Purchase Price shall be payable
as follows:
(a) Deposit. Upon the Opening of Escrow, Buyer shall deposit
into Escrow cash or Cash Equivalent in the amount of
Fifteen Thousand Dollars ($15,000) ("Deposit"). The Deposit
shall be invested by Escrow Holder in a federally-insured
interest-bearing account with any interest accruing thereon
to be paid or credited to Buyer. At the Close of Escrow, the
Deposit shall be applied and credited toward payment of the
Purchase Price.
(b) Cash Balance. On or before the Closing Date, Buyer
shall deposit into Escrow cash or Cash Equivalent in the
amount of the balance of the Purchase Price.
4. Condition of Title. At the Close of Escrow, fee simple title to
the Project shall be conveyed to Buyer by Seller by the Grant Deed, subject
only to the following matters ("Approved Title Conditions"): (a) a lien for
real property taxes, not then delinquent; (b) matters. of title respecting
the Project approved by Buyer in accordance with Paragraph 6(a)(I); (c)
matters affecting the condition of title to the Project created by or with
the written consent of Buyer; and(d) the Existing Trust Deed.
5. Escrow.
(a) Opening of Escrow. Buyer and Seller shall promptly cause the, Opening
of Escrow by delivering a fully executed copy of this Agreement to Escrow
Holder. The Close of Escrow shall occur on the Closing Date. Buyer and
Seller hereby authorize their respective attorneys to execute and deliver
to Escrow Holder any additional or supplementary instructions as may be
necessary or convenient to implement the terms of this Agreement and
close the transaction contemplated hereby.
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<PAGE>
(b) Indemnification of Escrow Holder. If this Agreement or any
matter relating hereto shall become the subject of any litigation or
controversy, Buyer and Seller agree, jointly and severally, to hold Escrow
Holder free and harmless from any loss or expense, including attorneys' fees,
that may be suffered by it by reason thereof. In the event conflicting
demands are made or notices served upon Escrow Holder with respect to
this Agreement, the Buyer and Seller expressly agree that Escrow
Holder shall be entitled to file a suit in interpleader and obtain an
order from the court requiring Buyer and Seller to interplead and litigate
their several claims and rights among themselves. Upon the filing of the
action in interpleader, and release of the documents, Deposit and other
cash held by Escrow Holder to the Court, Escrow Holder shall be fully
released and discharged from any obligations imposed upon it by this
Agreement.
(c) Nonliability of Escrow Holder. Escrow Holder shall not be liable
for the sufficiency or correctness as to form, manner, execution or validity
of any instrument deposited with it, nor as to the identity, authority or
rights of any person executing such instrument, nor for failure to comply
with any of the provisions of any agreement, contract or other
instrument filed with Escrow Holder or referred to herein. Escrow
Holder's duties hereunder shall be limited to the safekeeping of such money,
instruments or other documents received by it as Escrow Holder, and for
their disposition in accordance with the terms of this Agreement.
Notwithstanding the foregoing, if Escrow Holder is also acting as the
Title Company under the terms of this Agreement, nothing in this Paragraph
5(c) shall limit the liability of Escrow Holder under the Title Policy.
6. Conditions to the Close of Escrow.
(a) Conditions Precedent to Buyer's Obligations. The Close of
Escrow and Buyer's obligations with respect to the transaction contemplated
by this Agreement are subject to the satisfaction, not later than the
Closing Date (unless otherwise provided), of the following conditions and
the obligations of the parties with respect to such conditions are as
follows:
(i) Title. Buyer shall have approved the legal description of the
Real Property attached hereto as Exhibit "A" and any matters of title as
disclosed by the following documents and instruments ("Title
Documents"): (A) a standard preliminary title report dated on or
after the date of this Agreement issued by the Title Company with
respect to the Project; (B) an "extended coverage" supplemental title
report dated on or after the date of this Agreement issued by the Title
Company with respect to the Project; (C) an A.L.T.A. survey ("Survey") of
the Project prepared on or after the date of this Agreement, and at
Buyer's expense, together with a
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<PAGE>
certificate from a licensed surveyor reasonably acceptable to Buyer
("Surveyor's Certificate"), and (D) legible copies of all documents,
whether recorded or unrecorded, referred to in the preliminary title
report, supplemental title report or Survey. Seller shall cause the Title
Company to deliver the Title Documents to Buyer within ten (1O) days after
the Opening of Escrow. Buyer shall have until the Contingency Date to
give the Seller and the Escrow Holder written notice ("Buyer's Title
Notice") of Buyer's disapproval of the legal description of any Title
Document. Notwithstanding the foregoing, Buyer hereby objects to all
liens evidencing monetary encumbrances (other than (A) liens for
non-delinquent property taxes and (B) liens evidencing existing
financing if Buyer elects to take title to the Property subject to
such liens whereupon the amount secured by such liens shall be credited
to the payment of the Purchase Price).
(ii) Review and Approval of Documents and Materials. Within ten (10)
days after the Opening of Escrow, Seller shall deliver to Buyer for Buyer's
review and approval the documents and materials respecting the Property
set forth below. Buyer shall have until the Contingency Date (or such other
date as may be specified) to review and approve the documents and materials
delivered by Seller to Buyer. The failure of Buyer to approve in
writing all of such documents and materials on or before the Contingency
Date shall be deemed to constitute disapproval thereof.
(A) Personal Property Inventory. A detailed list ("Inventory")
describing all of the Personal Property as of the Opening of Escrow.
(B) Rent Roll. A list ("Rent Roll") prepared as of the Opening of
Escrow setting forth (1) the number, name and nature of business of the
Tenant and the approximate total number of square feet occupied, (2)
the date, commencement date. and expiration date (including option
periods) of each Tenant Lease, (3) the current monthly rental payable under
each Tenant Lease (including base rent and any percentage rent or expense
reimbursement), (4) the amount of all Tenant Deposits and prepaid rent paid
by each Tenant under each Tenant's Lease, less amounts previously applied
or returned to such Tenant.
(C) Tenant Leases. Copies of the Tenant Leases.
(D) Service Contracts . A list and legible copies of all Service
Contracts relative to the Project identifying the names of the parties
thereto and the date of such Service Contracts and all amendments,
modifications and supplements thereto. If permittable by its terms,
any Service Contract disapproved by Buyer in writing to Seller on or
prior to the Contingency Date shall be terminated by Seller, without cost
or liability to Buyer, on or prior to the Closing Date and such disapproved
Service Contract shall no longer be a Service Contract for purposes of this
Agreement.
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<PAGE>
(E) Operating Statements. A list and copies of all Operating Statements.
(F) Records and Plans. A list and copies of all Records and Plans in
Seller's possession or reasonably available to Seller.
(G) Architects' Certificates. To the extent known to Seller or
in Seller's possession, a list and original certificates from any
architect or engineer who was employed in connection with any
construction, or major alteration or rehabilitation of the
Improvements or who inspected the Improvements in connection with such
construction alteration or rehabilitation, certifying that the Improvements
have been completed in a good and workmanlike manner and in accordance
with the final plans and specifications for the Improvements, the terms
and conditions of all approvals and permits issued or resolutions
approving such construction, alteration or rehabilitation of the
Improvements and all other Governmental Regulations.
(H) Licenses and Permits. A list and copies of all Licenses and Permits.
(I) Insurance Policies. A list and copies of all hazard, rent loss,
liability, worker's compensation and other insurance policies currently
in effect with respect to the Project, and copies of all claims and
settlements made within the three most recent years of Fifty Thousand
Dollars ($50,000.00) or more.
(J) Property Tax Bill. Copies of the bills issued for the three (3)
most recent years for all real property taxes and personal property taxes
and copies of all notices or documents for any assessments or bonds relating
to the Project.
(K) All environmental reports in the possession of Seller respecting
the Project. In the event that Seller does not have an environmental report
for 721 or 717 West Del Paso Road, Seller shall pay the cost of obtaining
such report. With reference to existing reports, Seller shall pay the
cost of updating the reports.
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<PAGE>
(L) Other information. All other information and legible copies of
any additional documents in Seller's possession which, in the Seller's good
faith judgment, may materially affect the economic or physical
condition of the Project.
(iii) Inspections and Studies. On or before the Contingency Date,
Buyer shall have approved the results of any and all inspections,
investigations, tests and studies (including, without limitation,
investigations with regard to zoning, building codes and other
governmental regulations, architectural inspections, engineering tests,
economic feasibility studies and soils, seismic and geologic reports) with
respect to the Project (including all structural and mechanical systems and
leased areas) as Buyer may elect to make or obtain. The cost of any such
inspections, test and studies shall be borne by Buyer.
(iv) Financing. On or prior to the Financing Approval Date, Buyer shall
have obtained a commitment in writing from a lender upon terms and
condition satisfactory to Buyer assuring Buyer that funds will be available
to Buyer for the consummation of the transaction contemplated by this
Agreement. Buyer agrees to use its reasonable good faith efforts to
obtain such a commitment on or before the Financing Approval Date.
(v) Tenant Estoppel Certificates. Buyer shall have received estoppel
certificates ("Tenant Estoppel Certificates") duly executed by the Tenants to
be dated not more than thirty (30) days prior to the Closing Date. The
Tenant Estoppel Certificates shall be in the form of and upon the terms
contained in Exhibit "G" attached hereto, with such modifications or
additions to any particular Tenant Estoppel Certificate as shall be
reasonably requested by Buyer so long as such modifications or additions
are for the purpose of confirming certain matters respecting the
applicable Tenant Lease. Seller shall deliver the original executed
Tenant Estoppel Certificates to Buyer no later than ten (1O) business
days prior to the Closing Date.
(vi) Appraisal. On or prior to the Contingency Date, at the option
of Buyer and at its cost, Buyer shall have obtained and approved an
appraisal of the value of the Project.
(vii) Advisory Committee Approval. On or prior to the Financing
Approval Date, the Advisory Committee of Buyer shall have approved the
transaction described in this Agreement and the financing of the Purchase
Price.
(viii) Moratorium. On the Commencement Date, there shall be
no reassessment, reclassification, rezoning or other statute, law, judicial
or administrative decision, proceeding, ordinance or regulation
(including amendments and modifications of any of the foregoing) pending or
proposed to be imposed by the Authorities or any public or private utility
having jurisdiction over the Project which would adversely affect, in
Buyer's reasonable judgment, the acquisition, development, sale or use of
the Project.
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<PAGE>
(ix) Representations, Warranties and Covenants of Seller. Seller
shall have duly performed each and every agreement to be performed
by Seller hereunder and Seller's representations, warranties and covenants
set forth in this Agreement shall be true and correct as of the Closing
Date.
(x) No Material Changes. At the Closing Date, there shall have been
no material adverse changes in the physical or financial condition of the
Project.
(xi) Seller's Deliveries. Seller shall have delivered the
items described in Paragraph 6(a), Paragraph 7(a) and Paragraph 8.
(xii) Title Insurance. As of the Close of Escrow, the Title
Company shall have issued or shall have committed to issue the Title Policy
to Buyer.
(xiii) Amendment to Tenant Lease. No later than five (5) business
days prior to the Contingency Date, the Tenant Lease respecting 717 Del
Paso Road shall be amended, which amendment shall be subject to the
approval of Buyer. Buyer shall have five (5) business days from
delivery of a copy of such amendment to Buyer to object to it in writing
delivered to Seller; failure to object within such five (5) day period
shall be deemed an approval by Seller.
The conditions set forth in this Paragraph 6(a) are solely for the
benefit of Buyer and may be waived only by Buyer. Buyer shall at all
times have the right to waive any condition. Such waiver or waivers
shall be in writing to Seller. The waiver by Buyer of any condition shall
not relieve Seller of any liability or obligation with respect to any
representation, warranty, covenant or agreement of Seller. All approvals
given by Buyer under this Paragraph 6(a) shall be in writing and the
failure of Buyer to approve any matter requiring its approval under this
Paragraph 6(a) by the time therefor shall be deemed disapproval
thereof by Buyer unless otherwise stated herein.
(b) Conditions Precedent to Seller's Obligations. The Close of
Escrow and Seller's obligations with respect to the transactions
contemplated by this Agreement are subject to Buyer's delivery to Escrow
Holder on or before the Closing Date, for disbursement as provided herein.
of the Purchase Price and the documents and materials described in
Paragraph 7(b).
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<PAGE>
(c) Failure of Conditions to Close of Escrow. In the event any of the
conditions set forth in Paragraph 6(a) or Paragraph 6(b) are not
timely satisfied or waived, for a reason other than the default of Buyer
or Seller under this Agreement:
(i) This Agreement, the Escrow and the rights and obligations
of Buyer and Seller shall terminate, except as otherwise provided
herein; and
(ii) Escrow Holder is hereby instructed to promptly return
to Seller and Buyer all funds (including the Deposit and interest
thereon unless Buyer is in default hereunder) and documents deposited
by them, respectively, into Escrow which are held by Escrow Holder on
the date of said termination (less, in the case of the party otherwise
entitled to such funds, however, the amount of any cancellation charges
required to be paid by such party under Paragraph 6(d)).
(d) Cancellation Fees and Expenses. In the event this Escrow
terminates because of the nonsatisfaction of any condition for a
reason other than the default of Buyer or Seller under this
Agreement, the cancellation charges required to be paid by and
to Escrow Holder and the Title Company shall be borne one-half (1/2) by
Seller and one-half (1/2) by Buyer and all other charges shall be borne
by the party incurring same.
7. Deliveries to Escrow Holder.
(a) By Seller. Seller hereby covenants and agrees to deliver or
caused to be delivered to Escrow Holder on or prior to the Closing Date the
following instruments and documents, the delivery of each of which shall be
a condition to the performance by Buyer of its obligations under the terms
of this Agreement:
(i) Grant Deed. A Grant Deed ("Grant Deed"), duly executed
and acknowledged in recordable form by Seller, conveying the Project
to Buyer subject only to the Approved Title Conditions. The Grant Deed
shall be in the form of, and upon the terms contained in, Exhibit "B"
attached hereto.
(ii) Bill of Sale. A bill of sale ("Bill of Sale") duly executed
and acknowledged by Seller in favor of Buyer, assigning and conveying to
Buyer all of Seller's right, title and interest in and to the Personal
Property, free and clear of all liens, encumbrances and adverse claims
(except for liens securing the Existing Financing, if Buyer elects to take
title to the Property subject to the Existing Financing). The Bill of Sale
shall be in the form of, and upon the terms contained in, Exhibit "C"
attached hereto.
(iii) Assignment of Tenant Leases. An Assignment and Assumption
of Tenant Leases ("Tenant Lease Assignment and Assumption") duly executed
and acknowledged by Seller in recordable form, assigning to Buyer all of
Seller's right, title and interest in and to all of the Tenant Leases. The
Tenant Lease Assignment shall be in form, and upon the terms contained
in, Exhibit "D" attached hereto.
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(iv) General Assignment and Assumption. An assignment and
assumption ("General Assignment and Assumption"), duly executed by Seller,
assigning to Buyer all of Seller's right, title and interest in and
to all Service Contracts, Licenses and Plans and all Records. The
General Assignment and Assumption shall be in the form of, and upon the
terms contained in, Exhibit "E" attached hereto.
(v) Non-Foreign Certification. A certification duly executed by
Seller under penalty of perjury in the form of, and upon the terms set
forth in, the Transferor's Certificate of Non-Foreign Status attached
hereto as Exhibit "F" ("FIRPTA Certificate"), setting forth Seller's
address and federal tax identification number and certifying that
Seller is a "United States Person" and that Seller is not a "foreign
person" in accordance with and/or for the purpose of the provisions of
Sections 7701 and 1445 (as may be amended) of the Internal Revenue Code of
1954, as amended. and any regulations promulgated thereunder.
(vi) Tenant Notification Letter. A letter to the Tenants
("Tenant Notification Letter"), duly executed by Seller and dated as of
the Close of Escrow, notifying each Tenant that: (A) the Project has been
sold to Buyer; (B) all of Seller's right, title and interest in and to
the Tenant Leases and Tenant Deposits have been assigned to Buyer; and
(C) commencing immediately, all rent and other payments and any notices
under the Tenant Leases are to be paid and sent to Buyer. The form and
content of the Tenant Notification Letter shall be satisfactory to Buyer.
(vii) Change of Address. Written notices executed by Seller to
the Existing Lender (if Buyer elects to take title to the Property subject
to the Existing Financing) and to taxing authorities having jurisdiction
over the Project, changing the address for service of notice and delivery
of statements and bills.
(viii) Proof of Authority. Such proof of Seller's authority
and authorization to enter into this Agreement and consummate the
transactions contemplated hereby, and such proof of the power and
authority of the individual(s) executing and/or delivering any
instruments, documents or certificates on behalf of Seller to act
for and bind Seller as may be reasonably required by Title Company
and/or Buyer.
(b) By Buyer. Buyer hereby covenants and agrees to deliver or cause
to be delivered to Escrow Holder on or prior to the Closing Date the
following instruments and documents, the delivery of each of which shall be
a condition to the performance by Seller of its obligations under the terms
of this Agreement.
(i) Purchase Price. The Purchase Price in accordance with Paragraph 3.
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(ii) Tenant Lease Assignment and Assumption. The Tenant Lease
Assignment and Assumption duly executed and acknowledged by Buyer in
recordable form.
(iii) General Assignment and Assumption. The General Assignment and
Assumption duly executed by Buyer.
(iv) Prorations. The amount due Seller, if any, after the prorations
are computed in accordance with Paragraph I 1.
8. Deliveries to Buyer Upon Close of Escrow. Seller shall
deliver possession of the Property to Buyer upon the Close of Escrow
(unless otherwise provided). Further, Seller hereby covenants and agrees
to deliver to Buyer, on or prior to the Closing Date, the following items,
the delivery of each of which shall be a condition to the performance by
Buyer of its obligations under the terms of this Agreement:
(a) Tenant Leases. Originals of all of the Tenant Leases or, to
the extent an original Tenant Lease is unavailable, a duplicate
original thereof with a certificate executed by Seller warranting the
authenticity of such duplicate original.
(b) Rent Roll. The Rent Roll, updated as of the Closing Date,
certified as to its accuracy and executed by Seller, together with a list
of Tenants whose rent is past due or who are otherwise in default under
their Tenant Leases as of the Close of Escrow.
(c) Service Contracts. Originals of all Service Contracts or, to
the extent an original Service Contract is unavailable, a duplicate original
thereof with a certificate executed by Seller warranting the authenticity
of such duplicate original.
(d) Records and Plans. Originals of the Records and Plans.
(e) Keys. Keys to all entrance doors to the Improvements and keys
to all Personal Property located on the Property. which keys shall be properly
tagged for identification.
(f) Personal Property. Possession of the Personal Property.
(g) Licenses and Permits. Originals of all Licenses and Pen-nits
or to the extent an original of a License or Pen-nit is unavailable or must
be kept at the Project, a duplicate original thereof with a certificate
executed by Seller warranting the authenticity of such duplicate original.
9. Title Insurance. At the Close of Escrow, the Title Company shall issue
to Buyer, upon payment of a normal premium, a standard ALTA Owner's Policy of
Title Insurance showing
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fee title to the Project vested in Buyer subject only to the Approved
Title Conditions ("Title Policy"). The Title Policy shall be issued with
liability in an amount equal to the Purchase Price. With respect to the
Title Policy, Buyer shall have the right to acquire at its sole cost any
additional coverage in such amount and with such title companies as
Buyer determines in Buyer's sole discretion; the acquisition of such
additional coverage shall not be a condition to Buyer's obligation to close
Escrow in accordance with the provisions of this Agreement.
10. Costs and Expenses. Seller shall pay (a) all premiums for the
Title Policy, (b) all documentary transfer taxes, (c) all transfer,
assumption and prepayment fees and similar costs incurred in connection
with Buyer acquiring the Project subject to the Existing Financing, (d) one
half (1/2) of all escrow fees and costs. (e) all sales and gross receipts
taxes, and (f) Seller's share of prorations. Buyer shall pay for any
document recording charges, one-half (1/2) of all escrow fees and costs
and Buyer's share of prorations, and the costs of any A.L.T.A. survey.
Buyer and Seller shall each pay all legal and professional fees and fees
of other consultants incurred by Buyer and Seller, respectively.
11. Prorations.
(a) General. Rentals, revenues, and other income, if any,
from the Property, and real property taxes and operating expenses,
if any, affecting the Property shall be prorated as of 11:59 P.M.
on the day preceding the Close of Escrow. For purposes of
calculating prorations, Buyer shall be deemed to be in title to
the Property, and therefore entitled to the income and responsible
for the expenses, for the entire day upon which the Close of Escrow
occurs.
(b) Rentals. Subject to the provisions of Paragraph 11 (c)
and 11 (d), rentals shall be prorated as of the Close of Escrow.
"Rentals" as used herein includes fixed monthly rentals, additional
rentals, percentage rentals, escalation rentals, retroactive rentals,
operating cost pass throughs and other sums and charges payable by
Tenants under the Tenant Leases.
(c) Delinquent Rentals. Rentals are delinquent when
payment thereof is due on or prior to the Close of Escrow but has not
been made by the Close of Escrow. Delinquent rentals shall be
prorated between Buyer and Seller as of the Close of Escrow but not
until they are actually collected by Buyer. Buyer shall have the
right to collect any delinquent rentals, but shall not have the
obligation to do so. After the Close of Escrow, Seller shall not take
any action against a Tenant owing delinquent rentals. Seller shall
not be entitled to any rentals received from Tenants after the
Close of Escrow unless such Tenants are current in their rental
obligations for periods occurring from and after the Close of
Escrow. Delinquent rentals collected by the Buyer, net of the costs
of collection (including attorneys' fees), shall be applied first
against any amount currently due and then to amounts most recently
overdue. For purposes hereof. "amounts currently due" shall
include amounts which would be due for
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a month which is to commence within ten (1O) days after receipt of such
amounts. Buyer agrees that any payments due to Seller as a result of
collected delinquent rentals shall be payable by Buyer to Seller upon
receipt thereof.
(d) Operating Cost Pass-Throughs, Etc. Operating cost
pass-throughs, percentage rentals, additional rentals and other retroactive
rental escalations, sums or charges payable by Tenants which accrue to the
Close of Escrow but are not then due and payable, shall be prorated as of
the Close of Escrow; provided, however, no payment thereof shall be made
to Seller unless and until Buyer collects same from the Tenants. Buyer
shall have the right to collect such amounts, but shall not have the
obligation to do so. When and if Buyer collects such operating cost
pass-throughs, percentage rentals or other retroactive rental
escalations, sums or charges from a Tenant, such amounts, net of the
costs of collection, shall be applied first to payment(s) most recently due,
and Seller shall be due an amount equal to all such operating cost
pass-throughs, percentage rentals or other retroactive rental escalations,
sums or charges accruing prior to the Close of Escrow, computing same on a
per them basis after amortizing them over the respective periods for which
such items are payable. Payments of such prorated amounts collected by
Buyer shall be made to Seller upon receipt and shall be accompanied
by a report showing how same was calculated and such supporting
documentation as Seller reasonably requests.
(e) Prepaid Rentals. Rentals received by Seller attributable to
periods after the Close of Escrow and the amount of any other credits due
Tenants shall be credited to Buyer and debited to Seller at the Close of
Escrow.
(f) Taxes and Assessments. All non-delinquent real estate taxes on
the Property shall be prorated based on the actual current tax bill, but if
such tax bill has not yet been received by Seller by the Close of Escrow
then current year's taxes shall be deemed to be one hundred two percent
(102%) of the amount of the previous year's tax bill. All delinquent
taxes and all assessments, if any, on the Property shall be paid at the
Close of Escrow from funds accruing to Seller.
(g) Operating Expenses. All utility service charges for
electricity, heat and air conditioning service, other utilities, elevator
maintenance, common area maintenance, taxes (other than real estate taxes)
such as rental taxes, other expenses incurred in operating the Property
that Seller customarily pays, and any other costs incurred in the
ordinary course of business or the management and operation of the
Project shall be prorated on an accrual basis. Seller shall pay all such
expenses that accrue prior to the Close of Escrow and Buyer shall pay all
such expenses accruing on the Close of Escrow and thereafter. To
the extent possible, Seller and Buyer shall obtain billings and
meter readings as of the Close of Escrow to aid in such prorations.
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(h) Commissions. Seller shall pay in full all leasing commissions with
respect to the Tenant Leases entered into as of or prior to the Close of
Escrow without contribution or proration from Buyer.
(i) Tenant Deposits. Buyer shall be credited and Seller shall be
debited with an amount equal to all Tenant Deposits (and any interest
accrued thereon for the benefit of a Tenant) being held by Seller or any
other person under the Tenant Leases.
(j) Capital Expenditures. All capital and other improvements
(including labor and materials) which are performed or contracted for by
Seller at or prior to the Close of Escrow will be paid by the Seller,
without contribution or proration from Buyer.
(k) Service Contracts. Amounts payable under Service Contracts shall
be prorated on an accrual basis. Seller shall pay all amounts due
thereunder which accrue prior to the Close of Escrow and Buyer shall pay
all amounts accruing on the Close of Escrow and thereafter.
(1) Method of Proration. All prorations shall be made in accordance
with customary practice in the County, except as expressly provided herein.
Buyer and Seller agree to cause their accountants to prepare a schedule of
tentative prorations prior to the Closing Date. Such prorations, if and to
the extent known and agreed upon as of the Close of Escrow, shall be
paid by Buyer to Seller (if the prorations result in a net credit to the
Seller) or by Seller to Buyer (if the prorations result in a net credit to
the Buyer) by increasing or reducing the cash to be paid by Buyer at the
Close of Escrow. Any such prorations not determined or not agreed upon
as of the Close of Escrow shall be paid by Buyer to Seller, or by Seller
to Buyer, as the case may be, in cash as soon as practicable following the
Close of Escrow. A copy of the schedule of prorations as agreed upon by
Buyer and Seller shall be delivered to Escrow Holder at least three (3)
business days prior to the Closing Date.
12. Disbursements and Other Actions by Escrow Holder. At the Close of
Escrow, Escrow Holder shall promptly undertake all of the following in the
manner hereinbelow indicated:
(a) Funds. Disburse all funds deposited with Escrow Holder by Buyer
in payment of the Purchase Price as follows:
(i) Deduct all items chargeable to the account of Seller pursuant to
Paragraph 10.
(ii) If, as the result of the prorations and credits pursuant to
Paragraph 11, amounts are to be charged to account of Seller, deduct
the total amount of such charges.
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(iii) Disburse the balance of the Purchase Price to Seller promptly
upon the Close of Escrow.
(iv) Disburse the remaining balance of the funds, if any, to Buyer
promptly upon the Close of Escrow.
(b) Recording Cause the Grant Deed (with documentary transfer
tax information to be affixed after recording) and any other documents
which the parties hereto may mutually direct to be recorded in the
Official Records and obtain conformed copies thereof for distribution to
Buyer and Seller.
(c) Title Policy. Direct the Title Company to issue the Title Policy
to
(d) Disbursement of Documents to Buyer. Disburse to Buyer the Bill
of
(e) Seller's Representations and Warranties. In addition to any
express
13. Seller's Representations and Warranties. In addition to any
express
(a) Representations Regarding Seller's Authority.
(i) Seller has the legal power, right and authority to enter into
this
(ii) All requisite action (corporate, trust, partnership or otherwise)
has
(iii) The individuals executing this Agreement and the
instruments
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(iv) This Agreement and all documents required hereby to be executed
by Seller are and shall be valid, legally binding obligations of and
enforceable against Seller in accordance with their terms, subject only
to applicable bankruptcy, insolvency, reorganization, moratorium laws or
similar laws or equitable principals affecting or limiting the rights
of contracting parties generally.
(v) Neither the execution and delivery of this Agreement and
documents referenced herein, nor the incurrence of the obligations set
forth herein, nor the consummation of the transactions herein contemplated,
nor compliance with the terms of this Agreement and the documents referenced
herein conflict with or result in the material breach of any terms,
conditions or provisions of, or constitute a default under, any bond,
note, or other evidence of indebtedness or any contract, indenture, mortgage,
deed of trust, loan, partnership agreement, lease or other agreements or
instruments to which Seller is a party or affecting the Project.
(b) Warranties and Representations Pertaining to Real Estate and Legal
Matters.
(i) The information contained in the Recitals is true and correct.
(ii) To the best of Seller's knowledge, there are no pending,
threatened or contemplated actions, suits, arbitrations, claims or
proceedings. at law or in equity, affecting the Property or in which
Seller is, or to the best of Seller's knowledge will be, a party by
reason of Seller's ownership of the Property.
(iii) No attachments, execution proceedings, assignments for the
benefit of creditors, insolvency, bankruptcy, reorganization or other
proceedings are pending or threatened against Seller or, to the best of
Seller's knowledge, any general partners of Seller, nor are any of such
proceedings contemplated by Seller or, to the best of Seller's knowledge,
any general partner of Seller.
(iv) To the best of Seller's knowledge, there are no violations
of Governmental Regulations relating to the Property. To the best of
Seller's knowledge, the Improvements are permitted, conforming
structures under applicable zoning and building laws and ordinances and
the present uses thereof are permitted conforming uses under applicable
zoning and building laws and ordinances.
(v) As evidenced by the Licenses and Permits, to the best of
Seller's knowledge, all licenses, approvals, permits and certificates
from the Authorities or private parties necessary for the construction,
development, alteration or rehabilitation of the Improvements, and for the
use and operation of the Property as it is currently being used and
operated, were obtained prior to such construction, development,
alteration, rehabilitation, use and operation, and are currently
possessed by Seller, and the Project have been constructed, completed
and modified in
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accordance with (A) all such approvals, licenses, permits and certificates,
(B) all Governmental Regulations, (C) accepted standards of good
materials and workmanship, (D) all covenants. conditions,
restrictions, easements and agreements of any kind or nature affecting
the Property, including the Existing Documents, and (E) the plans. and
specifications required to be delivered by Seller to Buyer hereunder,
which plans and specifications were approved by all Authorities having
jurisdiction thereof. To the best of Seller's knowledge, any conditions to
any licenses, approvals, permits and certificates for the
construction, development, alteration or rehabilitation of the Improvements
have been satisfied.
(vi) To the best of Seller's knowledge, The Improvements are connected
to and are served by water, solid waste and sewage disposal, drainage,
telephone, gas, electricity and other utility equipment facilities and
services required by law and which are adequate for the present use and
operation of the Project, and which are installed and connected pursuant
to valid permits and are in full compliance with all Governmental
Regulations. To the best of Seller's knowledge. no fact or condition
exists which would result in the termination or impairment in the
furnishing of utility services to the Improvements.
(vii) To the best of Seller's knowledge, there are no physical
or mechanical defects or deficiencies in the condition of the Project,
including, but not limited to, the roofs, exterior walls or structural
components of the Improvements and the heating, air conditioning, plumbing,
ventilating, elevator, utility, sprinkler and other mechanical and
electrical systems, apparatus and appliances located in the Project. To
the best of Seller's knowledge, the Project is free from infestation by
termites or other pests, insects or animals. To the best of Seller's
knowledge, the Personal Property is in good operating condition.
(viii) To the best of Seller's knowledge, there are no defects
or conditions of the soil which will impair the present use of and operation
of the project.
(ix) The Personal Property listed in the Inventory is all located at
the Project and is all of the personal property used in the operation
of the Project, other than personal property owned by Tenants.
(x) To the best of Seller's knowledge, there has been no
production, disposal or storage at the Project of any hazardous Materials
or other toxic substance by Seller, the Tenant or any previous owner or
tenant, and, to the best of Seller's knowledge, there is no proceeding or
inquiry by any Authority with respect thereto.
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(c) Representations Pertaining to Tenant Leases and Service Contracts.
(i) There are no leases, subleases, occupancies or tenancies in
effect pertaining to the Project, except the Tenant Leases and Seller has
no knowledge of any oral agreements with anyone, including Tenants,
with respect to the occupancy of the Project, except as may be shown by
the Rent Roll. Except as may otherwise set forth in the Estoppel
Certificates, no Tenant Lease has been modified, amended or altered in
writing or otherwise, and no concessions, abatements or adjustments have
been granted to any Tenant, except as set forth on the Rent Roll. The
Rent Roll is true and complete in all respects.
(ii) To the best of Seller's knowledge, there are no service
or maintenance contracts, warranties, Guarantees or bonds (whether oral or
written) which affect or will affect or which are or will be obligations of
the Buyer or the Project, other than the Service Contracts. Except as set
forth on the list of Service Contracts. all of the Service Contracts may
be terminated without penalty or other payment on thirty (30) days or less
notice.
(iii) To the best of Seller's knowledge, the Records and Plans to be
delivered to Buyer under the terms of this Agreement are all of such Records
and Plans which are within the possession of, under the control of, or
reasonably available to Seller.
(iv) To the best of Seller's knowledge, the Operating Statements
are complete and accurate in all material respects as of the date thereof.
(v) The Tenant Leases have been duly authorized and executed by
the landlord thereunder, and, to the best of Seller's knowledge, by the
Tenant thereunder. The Tenant Leases are in full force and effect strictly
according to the terms set forth therein. To the best of Seller's knowledge,
there are no uncured defaults under the Tenant Leases and no Tenant has
asserted, or has any defense to, offsets or claims against rent payable
or obligations under its Tenant Lease. To the best of Seller's
knowledge, all of the landlord's obligations under the Tenant Leases
which accrued prior to the date of this Agreement have been performed.
Seller has no reason to believe that any Tenant is or may become unable
or unwilling to perform any or all of the Tenant's obligations under its
Tenant Lease. No guarantors of any of the Tenant Leases have been
released or discharged, voluntarily or involuntarily, or by operation
of law from any obligation related to the Tenant Lease. All Tenants are
in occupancy of their premises under their respective Tenant Leases, and,
to the best of Seller's knowledge, no Tenant intends to abandon its
premises or default under its Tenant Lease. To the best of Seller's
knowledge, no claim, controversy, dispute,
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quarrel or disagreement exists between any Tenant and Seller. Seller has
made no representations to Tenants regarding the condition of the premises
covered by any Tenant Lease or the compliance of the premises with
any applicable Governmental Regulations, except as expressly set forth
in the Tenant Leases. All of the improvements to be constructed by Seller,
if any, contemplated under the Tenant Leases or as required therein and
in all collateral agreements, plans and specifications respecting same have
been completed as so required. Seller has not at any time waived any
provision under any Tenant Lease, or granted any concessions to any Tenant
no disclosed in such Tenant's Tenant lease.
(vi) No leasing or brokerage fees or commissions of any nature
whatsoever shall be or become due or owing to any person, firm
corporation or entity whomsoever after the Close of Escrow with respect
to the Tenant Leases.
(d) Representations, Warranties and Covenants Regarding Operations of
the Project Through the Close of Escrow.
(i) Seller hereby agrees, through and including the Close
of Escrow and at the Seller's sole cost and expense, to (A) keep all
existing insurance policies affecting the Project in full force and
effect, (B) use due diligence and its best efforts to keep in full
force and effect and/or renew all Licenses and Permits, (C) make all
regular payments of interest and principal on the existing financing,
(D) provide all services and to continue to operate, manage and
maintain the Project (including mechanical equipment of every kind
used in the operation thereof) in such condition so that the Project
shall be in the same condition on the Close of Escrow as of the date
hereof, reasonable wear and tear excepted, (E) comply with all
Governmental Regulations, (F) deliver to Buyer copies of any
Operating Statements prepared after the date of this Agreement, and
(G) to the extent known by Seller, keep Buyer timely advised of any
repair or improvement required to keep the Project in such condition
as aforesaid and which costs in excess of Two Thousand Dollars
($2,000.00).
(e) General Representation. No representation, warranty or statement
of Seller in this Agreement or in Any document, certificate or schedule
furnished or to be furnished to Buyer pursuant hereto contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements or facts contained
therein not misleading. Seller's representations and warranties made in
this Paragraph U shall be continuing and shall be true and correct as of
the Close of Escrow with the same force and effect as if remade by Seller in
a separate certificate at that time. The truth and accuracy of Seller's
representations and warranties made herein shall constitute a condition
for the benefit of Buyer to the Close of Escrow (as elsewhere provided
herein) and shall survive, and shall not merge into, the Close of
Escrow and the recording of the Grant Deed in the Official Records.
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14. Buyer's Representations and Warranties. In addition to any express
agreements of Buyer contained herein, the following constitute representations
and warranties of Buyer to Seller:
(a) Power. Buyer has the legal power, right and authority to enter
into this Agreement and the instruments referenced herein, and to
consummate the transactions contemplated hereby.
(b) Requisite Action. All requisite action (corporate, trust,
partnership or otherwise) has been taken by Buyer in connection with
the entering into this Agreement and the instruments referenced herein,
and the consummation of the transactions contemplated hereby.
(c) Authority. The individuals executing this Agreement and
the instruments referenced herein on behalf of Buyer have the legal
power, right and actual authority to bind Buyer to the terms and
conditions hereof and thereof
(d) Validity. This Agreement and all documents required hereby to
be executed by Buyer are and shall be valid, legally binding
obligations of and enforceable against Buyer in accordance with
their terms.
(e) Conflicts. Neither the execution and delivery of this Agreement
and documents referenced herein, nor the incurrence of the
obligations set forth herein, nor the consummation of the transactions
herein contemplated, nor compliance with the terms of this
Agreement and the documents referenced herein conflict with or
result in the material breach of any terms, conditions or
provisions of, or constitute a default under, any bond, note, or
other evidence of indebtedness or any contract, indenture, mortgage,
deed of trust, loan, partnership agreement, lease or other
agreements or instruments to which Buyer is a party.
(f) General Representation. No representation, warranty or statement
of Buyer in this Agreement or in any document, certificate or
schedule fumished or to be finished to Seller pursuant hereto
contains or will contain any untrue statement or a material fact,
omits or will omit to state a material fact necessary to make the
statements or facts contained therein not misleading.
Buyer's representations and warranties made in this Paragraph 14
shall be continuing and shall be true and correct as of the Close of
Escrow with the same force and effect as if remade by Buyer in a
separate certificate at that time. The truth and accuracy of
Buyer's representations and warranties made herein shall constitute
a condition for the benefit of Seller to the Close of Escrow and shall
survive, and shall not merge into the Close of Escrow or the
recordation of the Grant Deed in the Official Records.
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15. Condemnation and Destruction.
(a) Eminent Domain or Taking. If, prior to the Close of Escrow,
any material portion of the Real Property is taken or if the access
thereto or available parking area therefor is reduced or restricted or
if any of the rentable square footage of the Improvements is taken, by
eminent domain or otherwise (or is the subject of a pending, threatened
or contemplated taking which has not been consummated), Seller shall
immediately notify Buyer of such fact. In such event, Buyer shall have
the option, in its sole and absolute discretion, to terminate this
Agreement upon written notice to Seller given not later than ten (10) days
after receipt of Seller's notice. If this Agreement is so terminated, the
provisions of Paragraphs 6(c) shall govern. If Buyer does not exercise
this option to terminate this Agreement, or if there has not been a material
taking by eminent domain or otherwise to give rise to such option,
neither party shall have the right to terminate this Agreement, but the
Seller shall assign and turn over, and the Buyer shall be entitled to
receive and keep, all awards for the taking by eminent domain which
accrue to Seller and the parties shall proceed to the Close of Escrow
pursuant to the terms hereof, without modification of the terms of this
Agreement and without any reduction in the Purchase Price. Unless or until
this Agreement is terminated, Seller shall take no action with respect to
any eminent domain proceeding without the prior written consent of Buyer.
(b) Fire or Casualty. Prior to the Close of Escrow, and
notwithstanding the pendency of this Agreement, the entire risk of loss or
damage by earthquake, flood, landslide, fire or other casualty shall be
borne and assumed by Seller, except as otherwise provided in this Paragraph
15(b). If, prior to the Close of Escrow, any part of the Improvements is
damaged or destroyed by earthquake, flood, landslide, fire or other
casualty, Seller shall immediately notify Buyer of such fact. If such
damage or destruction is "material", Buyer shall have the option to
terminate this Agreement upon written notice to the Seller given not later
than ten (10) days after receipt of Seller's notice. For purposes hereof,
"material" shall be deemed to be any uninsured damage or destruction to
the Project or any insured damage or destruction (i) where the cost of
repair or replacement is estimated to be Fifty Thousand Dollars
($50,000.00) or more or shall take more than ninety (90) days to repair, in
Buyer's good faith judgment, or (ii) which allows any Tenant to abate
its rent or to terminate its Tenant Lease; provided, however, in the case
of uninsured damage or destruction, Seller may, at Seller's option, elect
to repair such damage and destruction and keep this Agreement in full
force and effect so long as such repair can be and is completed by Seller
prior to the Closing Date. If this Agreement is so terminated, the
provisions of Paragraph 6(c) shall govern. If Buyer does not exercise
this option to terminate this Agreement, or if the casualty is not
material, neither party shall have the right to terminate this Agreement
but Seller shall assign and turn over, and Buyer shall be entitled to
receive and keep, all insurance proceeds payable to it with respect
to such destruction (which shall then be repaired or not at Buyer's
option and cost), plus Seller shall pay over to Buyer an amount equal to
the deductible amount with respect to the insurance and the parties shall
proceed to the Close of Escrow pursuant to the terms hereof without
modification of the terms of this Agreement and without any reduction in the
Purchase Price. If Buyer does not elect to terminate this Agreement by
reason of any casualty, Buyer shall have the right to participate in any
adjustment of the insurance claim.
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16. Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered
(including by means of professional messenger service) or sent by
registered or certified mail, postage prepaid, return receipt requested,
and shall be deemed received upon the date of receipt thereof.
To Buyer: West Coast Realty Investors, Inc. 5933 West Century
Boulevard, Suite 1900 Los Angeles, California 90045
Attn: Mr. W. Thomas Maudlin, Jr.
To Seller: Java City
717 West Del Paso Road
Sacramento, California 95834
Attn:
To Escrow Holder: Stewart Title Company
555 Capitol Mall, Suite 280
Sacramento, California 95814
Attn: Vince Balbi
Notice of change of address shall be given by written notice in the
manner detailed in this Paragraph 16.
17. Broker. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged
by it, respectively, in connection with any of the transactions
contemplated by this Agreement, or to its knowledge is in any way
connected with any of such transactions.
18. Required Actions of Buyer and Seller. Buyer and Seller agrees to
execute all such instruments and documents and to take all actions pursuant
to the provisions hereof in order to consummate the purchase and sale
herein contemplated and shall use their best efforts to accomplish the Close
of Escrow in accordance with the provisions hereof
19. Entry. Buyer and Buyer's representatives, agents and designees
shall have the right, at reasonable times and upon reasonable notice to
Seller to enter upon the Property, at Buyer's own cost, for any purpose in
connection with its proposed purchase, development or operation of the
Property, including, without limitation, the to examine all books, records
and files of Seller relating to the Property and the right make such
inspections, investigations and tests (including all leased areas and
mechanic systems) as Buyer may elect to make or obtain. Seller agrees to
make all such book records and files available to Buyer and Buyer's
attorneys, accountants and other representatives at any time during
business hours upon reasonable notice from Buyer. The exercise by Buyer
of any of the preceding or any other act of Buyer shall not negate
any representation, warranty or covenant of Seller or modify any of Buyer's
rights or Seller's
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obligations in the event of any breach by Seller of its representations,
warranties or covenants under this Agreement. Buyer hereby indemnifies
Seller from any and all liabilities and losses (including mechanics' liens)
arising out of any such entry by Buyer or its agents, designees or
representatives.
20. Legal and Equitable Enforcement of this Agreement.
(a) Default by Seller. In the event the Close of Escrow and
the consummation of the transactions herein contemplated do not occur
by reason of any default by Seller, Buyer shall be entitled to all
of its out-of-pocket expenses incurred in connection with this
transaction not to exceed Thirty-Five Thousand Dollars ($35,000.00),
plus its deposit with all interest earned thereon; or, in the
alternative. specific performance of this Agreement including, without
limitation. reasonable attorneys' fees.
(b) Default by Buyer. IN THE EVENT THE CLOSING AND THE
CONSUMMATION OF THE TRANSACTION HEREIN CONTEMPLATED DOES NOT OCCUR
AS HEREIN PROVIDED BY REASON OF ANY DEFAULT OF BUYER, BUYER AND SELLER
AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO
ESTIMATE THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE BUYER AND
SELLER DO HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET
DETRIMENT THAT SELLER WOULD SUFFER IN THE EVENT THAT BUYER DEFAULTS
AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY IS AND SHALL BE,
AS SELLER'S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY),
AN AMOUNT EQUAL TO THE DEPOSIT (WHICH INCLUDES ANY ACCRUED INTEREST
THEREON). SAID AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED
DAMAGES FOR THE BREACH OF THIS AGREEMENT BY BUYER, ALL OTHER CLAIMS
TO DAMAGES OR OTHER REMEDIES BEING HEREIN EXPRESSLY WAIVED BY SELLER.
THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED
AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL
CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE
LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS
1671,1676 AND 1677. SELLER HEREBY WAIVES THE PROVISIONS OF CALIFORNIA
CIVIL CODE SECTION 3389. UPON DEFAULT BY BUYER, THIS AGREEMENT
SHALL BE TERMINATED AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS
OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER EXCEPT FOR THE RIGHT OF
SELLER TO COLLECT SUCH LIQUIDATED DAMAGES FROM BUYER AND ESCROW HOLDER.
Buyer's Initials Seller's
Initials
22
<PAGE>
21. Assignment. Buyer shall have the right to assign its rights and
obligations under this Agreement, by giving prior written notice to Seller,
to any person or entity, so long as such assignee expressly assumes the
obligations of Buyer hereunder. Any assignee shall succeed to all the
rights and remedies hereunder, including, but not limited to, the
specific performance of this Agreement. Notwithstanding the foregoing,
no such assignment shall relieve Buyer from its liability under this
Agreement up to and through the Close of Escrow whereupon Buyer shall be
fully relieved from any further liability under this Agreement.
22. Payment Obligation. Attached hereto as Exhibit "H" is an
Amortization Schedule of the Tenant Improvements at 721 Del Paso Road
referenced in Section 2. To the extent Buyer doe ,S not receive monthly
rent under the Tenant Lease for 721 Del Paso Road, Thomas Weborg and Sandra
Singer, jointly and severally, agree to pay such rental to Buyer; provided,
however, the maximum amount of such monthly rental with respect to which
Thomas Weborg and Sandra Singer shall be liable to Buyer under this Section
22 for any month shall be the amortization amount set forth for such month
in Exhibit "H". In the event Tenant defaults under the Tenant Lease for
721 Del Paso Road, then Thomas Weborg and Sandra Singer shall pay to Buyer,
within ten (10) days after notice of such default is given to Thomas Weborg
and Sandra Singer and amount equal to the remaining rental payable
("accelerated rent") under the Tenant Lease for 721 Del Paso Road; provided,
however, that Thomas Weborg's and Sandra Singer's obligation to pay
such accelerated rent shall not exceed the aggregate of the amortization
amounts set forth on Exhibit "H" for the months remaining after such
default in the term of the Tenant Lease for 721 Del Paso Road.
23 Deferred Maintenance. On or prior to the Closing Date, Seller
agrees to complete any and all other repairs and deferred maintenance which are
required under the Tenant Leases to the extent such repairs are necessary, and
which expenses are the obligation of the Tenant under the Tenant Leases, as
reasonably determined by Seller or Buyer on or prior to the Contingency Date.
Seller shall paint the buildings, slurry and restripe the parking lots at its
own expense.
24. Miscellaneous.
(a) Partial Invalidity. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each such term and
provision of this Agreement shall be valid and be enforced to the fullest
extent permitted by law.
(b) Waivers. No waiver of any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding
breach thereof, or of any other covenant or provision herein contained. No
extension of time for performance of any obligation or act shall be deemed
an extension of the time for performance of any other obligation or act.
23
<PAGE>
(c) Survival of Representations. The covenants, agreements,
representations and warranties made herein shall survive the Close of
Escrow and shall not merge into the Grant Deed and the recordation thereof
in the Official Records.
(d) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the permitted successors and assigns of
the parties hereto.
(e) Professional Fees. In the event of the bringing of any action
or suit by a party hereto against another party hereunder by reason of any
breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the
prevailing party shall be entitled to have and recover of and from the
other party all costs and expenses of the action or suit, including actual
attorneys' fees, accounting and engineering fees, and any other
professional fees resulting therefrom.
(f) Entire Agreement. This Agreement (including all Exhibits
attached hereto) is the final expression of and contains the entire
agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This
Agreement may not be modified, changed, supplemented or terminated, nor
may any obligations hereunder be waived. except by written instrument
signed by the party to be charged or by its agent duly authorized in
writing or as otherwise expressly permitted herein. The parties do not
intend to confer any benefit hereunder on any person, firm or corporation
other than the parties hereto.
(g) Time of Essence. Seller and Buyer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every
term, condition, obligation and provision hereof and that failure to
timely perform any of the terms, conditions, obligations or provisions
hereof by either party shall constitute a material breach of and a non-
curable (but waivable) default under this Agreement by the party so
failing to perform.
(h) Construction. Headings at the beginning of each paragraph and
subparagraph are solely for the convenience of the parties and are not a
part of the Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and the masculine shall
include the feminine and vice versa. This Agreement shall not be
construed as if it had been prepared by one of the parties, but rather as
if both parties had prepared the same. Unless otherwise indicated, all
references to paragraphs and subparagraphs are to this Agreement. All
exhibits referred to in this Agreement and the Glossary of Terms are
attached and incorporated by this reference. In the event the date on
which Buyer or Seller is required to take any action under the terms of
this Agreement is not a business day, the action shall be taken on the
next succeeding business day.
24
<PAGE>
(i) Governing Law. The parties hereto acknowledge that this
Agreement has been negotiated and entered into in the State. The parties
hereto expressly agree that this Agreement shall be governed by,
interpreted under. and construed and enforced in accordance with the laws
of the State.
(j) Cooperation In Exchange. In the event that Seller or Buyer
are under contract with a qualified intermediary for the purpose of
effecting a tax-deferred exchange in accordance with Section 1031 of the
United States Internal Revenue Code of 1986, as most recently amended, each
shall cooperate with such exchange and perform any acts reasonably
necessary to assist in such exchange, provided that neither party shall be
required to expend any additional amounts of money above those amounts
required pursuant to this Agreement, extend the Closing Date and each
indemnities and holds the other harmless from and against expenses, costs
and damages of any kind (including attorney's fees) suffered by either by
reason of the performance of, or failure to perform, any acts of
cooperation necessitated by this Section. Buyer and Seller shall have the
absolute right to assign this Agreement to a qualified intermediary for the
purpose of effecting a tax-deferred exchange.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
BUYER: SELLER:
WEST COAST REALTY INVESTORS,
a Delaware THOMAS WEBORG
By:
Name: W. Thomas Maudlin, Jr. SANDRA SINGER
Title: President
DAVID EWING
KAREN EWING
25
<PAGE>
GLOSSARY OF TERMS
( ) "Approved Title Conditions" is defined in Paragraph 4.
( ) "Authorities" means any governmental or quasi-governmental
body or agency having jurisdiction over the Project and/or Seller including,
without limitation, the State, the City and the County.
( ) "Bill of Sale" is defined in Paragraph 7(b).
( ) "Cash Equivalent" means a wire transfer of funds or a certified
or bank cashier's check drawn on a reputable bank licensed to do business in
the State.
( ) "City" is defined in Recital A.
( ) "Close of Escrow" means the date the Grant Deed is recorded in
the Official Records.
( ) "Closing Date" means the date which is thirty (30) days
after the Financing Approval Date.
( ) "Contingency Date" means May 29, 1996.
( ) "County" is defined in Recital A.
( ) "Deposit" is defined in Paragraph 3(a).
( ) "Escrow" means the above-referenced escrow opened with Escrow
Holder for the consummation of the transaction described in this Agreement.
( ) "Escrow Holder" means Stewart Title Company.
( )"FIRPTA Certificate" is defined in Paragraph 7(a).
( )"Financing Approval Date" is July 29, 1996.
( )"General Assignment and Assumption" is defined in Paragraph 7(a).
( ) "Governmental Regulations" means any laws, ordinances, rules,
requirements, resolutions, policy statements and regulations (including, without
limitation, those relating to land use, subdivision, zoning, environmental,
toxic or hazardous waste, occupational health and safety, water, earthquake
hazard reduction, and building and fire codes) of the Authorities bearing on the
construction, alteration, rehabilitation, maintenance, use, operation or sale of
the Project.
i
<PAGE>
( ) "Grant Deed" is defined in Paragraph 7(a).
( ) "Hazardous Material" means any hazardous or toxic substance,
material or waste which is or becomes regulated by any local governmental
authority, the State of California or the United States Government. The term
"Hazardous Material" includes, without limitation, any material or substance
which is (i) defined as a "hazardous waste," "extremely hazardous waste" or
"restricted hazardous waste" under Sections 25115,25117 or 25122.7, or listed
pursuant to Section 251.40, or the California Health and Safety Code, Division
20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous
substance" under Section 25316 of the California Health and Safety Code,
Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account
Act), (iii) defined as a "hazardous material," "hazardous substance," or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Plans and Inventory),
(iv) defined as a "hazardous substance" under Section 25281 of the California
Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of
Hazardous Substances), (v) petroleum, (vi) asbestos, (vii) listed under Article
9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title
22 of the California Administrative Code, Division 4, Chapter 20, (viii)
designated as a "hazardous substance" pursuant to Section 311 of the Federal
Water Pollution Control Act (33 U. S.C. 81317), (ix) defined as a "hazardous
waste" pursuant to Section 1004 of the Federal Resource Conservation and
Recovery Act, 42 U.S.C. S 6901 et seq. (42 U.S.C. 8 6903), or (x) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. S 9601 et seq. (42 U.S.C.
89601).
( ) "Improvements" means all buildings, fixtures, structures,
parking areas, landscaping and other improvements constructed and located on
the Real Property, together with all machinery and mechanical, electrical, HVAC
and plumbing systems (other than Personal Property) used in the operation
thereof, but excluding any such items owned by Tenants in possession or public
or private utilities or contractors under contract.
( ) "Licenses and Permits" means (A) all licenses, permits,
certificates of occupancy, approvals, dedications, subdivision maps and
entitlements issued, approved or granted by Authorities or otherwise in
connection with the Project; (B) all right, title and interest of Seller in and
to the use of and any and all other trade names and logos used by Seller in the
operation and identification of the Project; (C) any and all development rights
and other intangible rights, titles, interests, privileges and appurtenances
owned by Seller and in any way related to or used in connection with the
Project and its operation; and (D) all licenses, consents, easements, rights of
way and approvals required from private parties to make use of utilities and to
insure vehicular and pedestrian ingress and egress to the Project.
( ) "Official Records" means the Official Records of the County.
( ) "Opening of Escrow" means the date on which a fully executed copy
of this Agreement is delivered to Escrow Holder by Buyer and Seller.
ii
<PAGE>
( ) "Operating Statements" means all income and expense
statements, year-end financial and monthly operating statements and proposed
budgets respecting the Project for the three (3) most recent calendar years
prior to the Closing Date and, to the extent available, the current fiscal year,
all of which shall be certified by an independent certified public accountant as
having been prepared in accordance with generally accepted accounting principles
or certified by the chief financial officer or partner of Seller as having been
prepared in accordance with Seller's customary accounting practice in the
ordinary course of business. The Operating Statements shall be in form and
content sufficient to allow Buyer to calculate each Tenant's cost pass-throughs
and rent escalations under the Tenant Leases and to satisfy all requirements
under the Tenant Leases with regard to documentation of charges payable by
Tenants.
( ) "Personal Property" means all equipment, appliances, tools,
machinery, supplies, building materials and other personal property of every
kind and character owned by Seller and attached to, appurtenant to, located in
or used exclusively in connection with the operation of the Project including,
without limitation, all attachments, appliances, fittings, gas and oil burners,
automatic stokers, lighting fixtures, doors, cabinets, partitions, mantles,
elevators, electric motors, pumps, screens, flag poles, waste disposal or
storage equipment, all sprinklers, plumbing, heating, air conditioning,
electrical, ventilating, lighting, incinerating, vacuum cleaning, refrigerating
and cooling systems, each with its respective furnaces, boilers, engines,
motors, dynamos, radiators, pipe, wiring and other apparatus, vaults, safes,
fire prevention and extinguishing equipment, carpets, floor covering, kitchen
appliances and antenna, and the Records and Plans.
( ) "Property" means, collectively, the Real Property, the
Improvements, the Personal Property, the Licenses and Permits, and all of
Seller's interest in the Tenant Leases, Tenant Deposits and Service Contracts.
( ) "Project" is defined in Recital C.
( ) "Purchase Price" is defined in Paragraph 2.
( ) "Real Property" means that certain real property located in
the City and County and more particularly described in Exhibit "A" attached
hereto and incorporated herein by this reference, together with all right, title
and interest of the Seller in and to all streets, alleys, easements and rights-
of-way in, on, across, in front of, abutting or adjoining said real property.
( ) "Records and Plans" means (A) all financial and other books
and records maintained in connection with the operation of the Property
(excluding the Operating Statements), (B) all preliminary, final and proposed
building plans and specifications (including "as-built" drawings) respecting the
Improvements, and (C) all structural reviews. architectural drawings and
engineering,
iii
<PAGE>
soils, seismic, geologic and architectural reports, studies and certificates and
other documents pertaining to the Project which are within the possession of,
under the control of, or reasonably available to Seller.
( ) "Rent Roll" is defined in Paragraph 6(a)(ii).
( ) "Service Contracts" means any and all service contracts,
warranties, guarantees, bonds and like contracts and agreements relating to the
Project, together with all supplements, amendments and modifications thereto,
relating to the Property.
( ) "State" is defined in Recital A.
( ) "Survey" is defined in Paragraph 6(a)(i).
( ) "Tenant Deposits" means all security deposits, prepaid
rentals, cleaning fees and other deposits, plus any interest accrued thereon,
paid by Tenants to Seller or any other person relative to the Project.
( ) "Tenant Estoppel Certificates" is defined in Paragraph 6(a).
( ) "Tenant Lease Assignment and Assumption" is defined in Paragraph
7(b).
( ) "Tenant Leases" means (i) that certain Industrial Real Estate
Lease (Single Tenant Facility) dated August 1, 1993 between Thomas Weborg and
Sandra Singer, as Landlord, and Java City, Inc., as Tenant, respecting 717 Del
Paso Road, as amended by that certain Modification of Lease dated January 26,
1995 between Thomas Weborg and Sandra Singer, as Landlord, and Tenant, as
successor-in-interest to Java City, Inc. and (ii) that certain Standard
Industrial Lease - Net dated April 10, 1989 between Whitney Properties, as
Lessor, and Java City, as Lessee, respecting 717 Del Paso Road, as amended by
that certain Modification of Lease dated January 26, 1995 between Thomas Weborg
and Sandra Singer, as successors-in-interest to Whitney Properties, as Lessor,
and Tenant, as successor-in-interest to Java City, as Lessee.
( )"Tenant Notification Letter" is defined in Paragraph 7(b).
( )"Tenant" means Cucina Holdings, Inc., a Delaware corporation.
( )"Title Company" means Stewart Title Company.
( )"Title Documents" is defined in Paragraph 6(a)(i).
( )"Title Policy" is defined in Paragraph 9.
( ) "To the best of Seller's knowledge" or other references herein to
Seller's knowledge mean the knowledge a party would be expected to have by
reason of continued involvement with
iv
<PAGE>
with the Property as developer (as to those portions of the Property developed
or rehabilitated by Seller), owner, managing agent and leasing agent.
( ) "UCC Searches" is defined in Paragraph 6(a)(ii).
v
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
721 Del Paso Rd.
PARCEL 3, AS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "MAIN AVENUE INDUSTRIAL
PARK", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SACRAMENTO COUNTY ON MAY
30,1990, IN BOOK 119 OF PARCEL MAPS AT PAGE 2.
ASSESSOR'S PARCEL NUMBER 237-0600-003-000
717 Del Paso Rd.
The land referred to herein, is situated in the unincorporated area of the
County of Sacramento, State of California, and is described as follows:
PARCEL A:
Parcel 5, as shown on the "Parcel Map", recorded in Book II 9 of Parcel Maps, at
Page 2, records of said County.
RESERVING unto the Grantor herein as an appurtenance to the Grantor's remaining
lands a nonexclusive easement for pedestrian traffic, ingress, egress, drainage
and utilities over, under and across the common areas defined in that certain
Declaration of Covenants, Conditions and Restrictions, recorded May 30, 1990 in
Book 90-05-30 of Official Records, at Page 1315, as all areas in the project
except parking areas and those areas which are either improved with buildings or
other structures and used in connection therewith. Common areas are more
particularly delineated on Exhibit "B" attached to said Declaration.
PARCEL B:
A non-exclusive easement for the benefit and appurtenance of Parcel A above for
pedestrian traffic, ingress, egress, drainage and utilities over, under and
across the common areas defined in that certain Declaration of Covenants,
Conditions and Restrictions recorded May 30, 1990, in Book 90-05-3 )O of
Official Records, at Page 1 3 ) 1 5, as all areas in the project except parking
areas and those areas which are either improved with buildings or other
structures and used in connection therewith. Common areas are more particularly
delineated on Exhibit "B" attached to said Declaration.
APN: 237-0013-001
<PAGE>
EXHIBIT "B"
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Attn:
Wh TAX STATEMENTS TO:
Same as Above
(Above Space For Recorder's Use Only)
GRANT DEED
The undersigned grantor declares:
Documentary Transfer Tax not shown pursuant to Section 11932 of the Revenue
and Taxation Code and as amended
City of
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
hereby GRANTS to a the following described real property located in the City
of County of State of
See Exhibit "A" attached hereto and incorporated herein by this reference.
DATED:
19
a
By:
Its:
By:
Its:
<PAGE>
EXHIBIT "A" TO EXHIBIT "B"
LEGAL DESCRIPTION
721 Del Paso Rd.
PARCEL 3, AS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "MAIN AVENUE INDUSTRIAL
PARK", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SACRAMENTO COUNTY ON MAY
3O. 1990, IN BOOK 119 OF PARCEL MAPS AT PAGE 2.
ASSESSOR'S PARCEL NUMBER 237-0600-003-000
717 Del Paso Rd.
The land referred to herein. is situated in the unincorporated area of the
County of Sacramento, State of California, and is described as follows:
PARCEL A:
Parcel 5, as shown on the "Parcel Map", recorded in Book 119 of Parcel Maps, at
Page 2, records of said County.
RESERVING unto the Grantor herein as an appurtenance to the Grantor's remaining
lands a nonexclusive easement for pedestrian traffic, ingress, egress, drainage
and utilities over, under and across the common areas defined in that certain
Declaration of Covenants, Conditions and Restrictions, recorded May 30, 1990 in
Book 90-05-30 of Official Records, at Page 1315, as all areas in the project
except parking areas and those areas which are either improved with buildings or
other structures and used in connection therewith. Common areas are more
particularly delineated on Exhibit "B" attached to said Declaration.
PARCEL B:
A non-exclusive easement for the benefit and appurtenance of Parcel A above for
pedestrian traffic, ingress, egress, drainage and utilities over, under and
across the common areas defined in that certain Declaration of Covenants,
Conditions and Restrictions recorded May 30, 1990, in Book 90-05-30 of Official
Records, at Page 1315, as all areas in the project except parking areas and
those areas which are either improved with buildings or other structures and
used in connection therewith. Common areas are more particularly delineated on
Exhibit "B" attached to said Declaration.
APN: 237-0013-001
<PAGE>
STATE OF Ss.
COUNTY OF
On 199- before me, the undersigned, a Notary Public in and
for said State, personally appeared and , personally known to me
(or proved to me on the basis of satisfactory evidence) to be persons who
executed the within instrument as the and respectively,
of ,the corporation that
executed the within Instrument, known to me to be the persons who executed
the within Instrument on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument pursuant to its bylaws
or a resolution of its board of directors.
WITNESS my hand and official seal.
Notary Public in and for said State
<PAGE>
EXHIBIT "C"
BILL OF SALE
THIS BILL OF SALE ("Bill of Sale") is made this day of 196 , by
a ("Seller"), in favor of ("Buyer").
WITNESSETH:
Seller and Buyer entered into that certain Agreement of Purchase and Sale
and Joint Escrow Instructions dated as of 199 ("Agreement")
respecting the sale of certain "Property" (as defined in the Agreement).
Under the Agreement, Seller is obligated to transfer to Buyer any and all
of its right, title and interest in and to all equipment, appliances,
tools, machinery, supplies, building materials and other personal property
of every kind and character owned by Seller and attached to. appurtenant
to, located in or used in connection with the operation of the improvements
(" Improvements") commonly known as 717 and 721 Del Paso Road. Sacramento,
California 95834, and located on the real property described in
Exhibit "A" attached hereto (collectively, "Personal Property").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged. Seller does hereby absolutely and
unconditionally give, grant. bargain, sell, transfer, set over, assign, convey,
release, confirm and deliver to Buyer all of the Personal Property.
Seller hereby covenants that Seller will, at any time and from time to time
upon written request therefor, execute and deliver to Buyer, Buyer's successors,
nominees or assigns, such documents as Buyer or they may reasonably request in
order to fully assign and transfer to and vest in Buyer or Buyer's successors,
nominees and assigns, and protect Buyer's or their right, title and interest in
and to all of the Personal Property and rights of Seller intended to be
transferred and assigned hereby, or to enable Buyer, Buyer's successors,
nominees and assigns to realize upon or otherwise enjoy such rights and
property.
Seller hereby represents and warrants to Buyer that: (i) to the best of
Seller's knowledge, the Personal Property has been paid for and is not subject
to any liens, encumbrances or claims of any kind; (ii) all taxes of any nature
whatsoever on the Personal Property have been paid by Seller; (iii) the
consideration paid to Seller herewith is the full and complete consideration for
the Personal Property; (iv) any sales or other taxes which may be payable with
respect to this transfer shall be the sole responsibility of Seller; and (v) the
transfer of the Personal Property to Buyer does not require the consent of third
parties except as otherwise disclosed in writing by Seller to Buyer. Such
warranties and representations shall survive the execution and delivery of this
Bill of Sale and Buyer's subsequent transfer of any of the Personal Property.
Seller warrants, and hereby covenants, at Seller's sole cost and expense,
to defend Buyer's title to the Personal Property against all lawful claims and
demands of all persons or entities whomsoever which may now exist or which may
have accrued as of the date of this Bill of Sale. Seller hereby agrees to
indemnify and hold Buyer free and harmless from all liabilities, obligations,
damages, causes of action, judgments, costs and expenses (including reasonable
attorneys' fees) which Buyer may incur or suffer in connection with any breach
by Seller of the preceding warranty and covenant.
This Bill of Sale shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, heirs and legatees of Buyer and
Seller.
This Bill of Sale shall be governed by, interpreted under, and construed
and enforceable in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Seller has executed and delivered this Bill of Sale as
of this day of 1996.
a
By:
Its:
"Seller"
<PAGE>
EXHIBIT "D"
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Attn:
(Above Space For Recorder's Use Only)
TENANT LEASE ASSIGNMENT
THIS TENANT LEASE ASSIGNMENT ("Assignment") is made this day of
198 by and between a ("Assignor"), and (Assignee").
WITNTESSETH:
Assignor and Assignee entered' into that certain Agreement of Purchase and
Sale and Joint Escrow Instructions dated as of , 199 ("Agreement")
respecting the sale of certain "Property" (as defined in the Agreement).
Under the Agreement, Assignor is obligated to assign to Assignee any and
all of its right, title and interest in and to all leases, licenses, rental
agreements or occupancy agreements relative to the real property ("Real
Property") described in Exhibit "A" attached hereto, together with all rents,
issues and profits thereunder (collectively, "Tenant Leases") and all security
deposits, prepaid rentals, cleaning fees and other deposits. plus any interest
accrued thereon, paid by tenants of the Property to Assignor or any other person
("Tenant Deposits"), which Tenant Leases and Tenant Deposits are set forth on
Exhibit "B" attached hereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby assigns, sells,
transfers, sets over and delivers unto Assignee all of Assignor's estate, right,
title and interest in and to the Tenant Leases and Tenant Deposits and Assignee
hereby accepts such assignment.
Assignor hereby covenants that Assignor will, at any time and from time to time
upon written request therefor, execute and deliver to Assignee, Assignee's
successors, nominees or assigns, such documents as Assignee or they may
reasonably request in order to Duly assign and transfer to and vest in Assignee
or Assignee's successors, nominees and assigns, and protect Assignee's or their
right, title and interest in and to the Tenant Leases and the Tenant Deposits
and the rights of Assignor intended to be transferred and assigned hereby, or to
enable Assignee, Assignee's successors, nominees and assigns to realize upon or
otherwise enjoy such rights in and to the Tenant Leases and the Tenant Deposits.
<PAGE>
Assignee hereby assumes the performance of all of the terms, covenants
and conditions imposed upon Assignor as landlord under the Tenant Leases
accruing or arising on or after the date of delivery of this Assignment.
Assignor hereby agrees to indemnify and hold harmless Assignee,
Assignee's agents and Assignee's and their successors and assigns from and
against any and all claims, losses, liabilities and expenses, including
reasonable attorneys' fees, suffered or incurred by Assignee by reason
of any breach by Assignor prior to the date hereof, of any of
Assignor's obligations under the Tenant Leases or with respect to the Tenant
Deposits.
Assignee hereby agrees to indemnify and hold harmless Assignor,
Assignor's agents and Assignor's and their successors and assigns from and
against any and all claims, losses, liabilities and expenses, including
reasonable attorneys' fees, suffered or incurred by Assignor by reason of
any breach by Assignee from and after the date hereof of any of
Assignee's obligations under the Tenant Leases or with respect to the Tenant
Deposits.
In the event of the bringing of any action or suit by a party hereto
against another party hereunder by reason of any breach of any of the
covenants, conditions, agreements or provisions on the part of the other
party arising out of this Assignment, then in that event the prevailing
party shall be entitled to have and recover of and from the other party
all costs and expenses of the action or suit, including reasonable attorneys'
fees.
This Assignment may be executed simultaneously in counterparts, each of
which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument. This Assignment shall be binding
upon and inure to the benefit of the successors, assignees, personal
representatives, heirs and legatees of all the respective parties hereto.
This Assignment shall be governed by, interpreted under, and
construed and enforceable in accordance with, the laws of the State of
California.
IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered
this Assignment as of the day and Year first written above.
a a
By: By:
Its: Its:
"Assignor" "Assignee"
<PAGE>
STATE OF
Ss.
COUNTY OF
On 199- before me, the undersigned, a Notary Public in and
for said State, personally appeared and , personally
known to me (or proved to me on the basis of satisfactory evidence) to be
persons who executed the within
instrument as the and respectively,
of the corporation that executed the within Instrument, known to me to be the
persons who executed the-within Instrument on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument
pursuant to its bylaws or a resolution of its board of directors.
WITNESS my hand and official seal.
Notary Public in and for said State
<PAGE>
STATE OF Ss.
COUNTY OF
On 199- before me, the undersigned, a Notary Public in and for
said State, personally appeared and , personally known
to me (or proved to me on the basis of satisfactory evidence) to be persons
who executed the within instrument as the and
respectively, of the corporation that executed the within Instrument,
known to me to be the persons who executed the within Instrument on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument pursuant to its bylaws or a resolution of its board of
directors.
WITNESS my hand and official seal.
Notary Public in and for said State
<PAGE>
EXHIBIT "E"
GENERAL ASSIGNMENT
THIS GENERAL ASSIGNMENT ("Assignment") is made this day of
19 by and between a
("Assignor"),
and
a ("Assignee").
WITNESSETH:
Assignor and Assignee entered into that certain Agreement of Purchase
and Sale and Joint Escrow Instructions dated as of , 19-
("Agreement") respecting the sale of certain "Property", including the "Real
Property" described in Exhibit "A" and the "Improvements located thereon
(all as defined in the Agreement).
Under the Agreement, Assignor is obligated to assign to Assignee any
and all of its right, title and interest in and to:
(a) certain service agreements, maintenance contracts, warranties,
guarantees, management contracts and bonds, together with all
supplements, amendments and modifications thereto, relating to the
Property, ("Service Contracts");
(b) all licenses, permits, certificates of occupancy, approvals,
dedications, subdivision maps and entitlements issued, approved or granted
by "Authorities" (as defined in the Agreement) or otherwise in connection
with the Property; the use of the name and any other trade names,
trademarks, and logos used by Assignor in the operation and identification
of the Improvements and/or the Real Property (as defined in the Agreement);
any and all development rights and other intangible rights, titles, interests,
privileges and appurtenances owned by Assignor and in any way related to or
used in connection with the Property and its operation; and all licenses,
consents, easements, rights of way and approvals required from private
parties to make use of utilities and to insure vehicular and pedestrian
ingress and egress to the Real Property and the Improvements ("Licenses and
Permits"); and
(c) all financial and other books and records maintained in connection
with the operation of the Property, all preliminary, final and proposed
building plans and specifications (including "as-built" drawings)
respecting the Improvements, and all structural reviews, architectural
drawings and engineering, soils, seismic, geologic and architectural
reports, studies and certificates and other documents pertaining to the
Property which are within the possession of, under the control of or
reasonably available to Assignor and such additional books, records, plans,
specifications, reports, studies and other documents maintained or prepared
after the date of the Agreement ("Records and Plans").
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby assigns,
sells, transfers, sets over and delivers unto THE Assignee all of
Assignor's estate, right, title and interest in and to the Service
Contracts. Licenses and Permits and Records and Plans and Assignee hereby
accepts such assignment.
Assignor warrants and represents to Assignee, and Assignee agrees, as
follows:
(i) that there exist no Service Contracts other than those set forth on
the list of Service Contracts delivered to Assignee pursuant to Paragraph
6(a)(ii)(c) of the Agreement;
(ii) that no Service Contract, License and Permit or Record and Plan has
been amended nor have any notices of breach or default been received by Assignor
under any Service Contract, License and Permit or Record and Plan nor have
claims been asserted or suits been threatened or commenced by other parties
thereto;
(iii) unless otherwise provided therein, that each Service Contract
may be canceled, without penalty, upon thirty (30) or less days notice thereof,
(iv) that the Records and Plans are all of such Records and Plans which
are within the possession of, under the control of or reasonably
available to Assignor;
(v) that the Records and Plans have been fully paid for and are
not subject to any liens, encumbrances or claims of any kind; and
(vi) that the transfer and assignment of the Records and Plans,
Licenses and Permits and Service Contracts to Assignee does not require
the consent of third parties except as may be provided therein or
previously disclosed in writing to Assignee.
Such warranties and representations shall survive the execution
and delivery of this Assignment.
<PAGE>
Assignor hereby covenants that Assignor will, at any time and from time
to time, upon written request therefor, execute and deliver to Assignee,
Assignee's successors, nominees and assigns, any new or confirmatory
instruments which Assignee, Assignee's successors, nominees and assigns may
reasonably request in order to fully assign and transfer to and vest in
Assignee, or Assignee's successors, nominees and assigns, and to protect
Assignee's or Assignee's successors, nominees and assigns right, title and
interest in and to the Service Contracts, Licenses and Permits, and Records
and Plans or to otherwise realize upon or enjoy such rights in and to the
Service Contracts, Licenses and Permits, and Records and Plans.
Assignee hereby assumes the performance of all of the terms, covenants
and conditions imposed upon Assignor under the Service Contracts,
Licenses and Permits, and Record and Plans accruing or arising on or after
the date of this Agreement.
Assignee hereby agrees to indemnify and hold harmless Assignor,
Assignor's agents and Assignor's and their successors and assigns from and
against any and all claims, losses, liabilities and expenses, including
reasonable attorneys' fees, suffered or incurred by Assignor by reason of
any breach by Assignee from and after the date hereof of any of
Assignee's obligations under the Service Contracts, Licenses and Permits
or Records and Plans.
Assignor hereby agrees to indemnify and hold harmless Assignee,
Assignee's agents and Assignee's and their successors and assigns from and
against any and all claims, losses, liabilities and expenses, including
reasonable attorneys' fees, suffered or incurred by Assignee by reason of
any breach by Assignor prior to the date hereof of any of Assignor's
obligations under the Service Contracts, Licenses and Permits or Records
and Plans.
In the event of the bringing of any action or suit by a party hereto
against another party hereunder by reason of any breach of any of the
covenants, conditions, agreements or provisions on the part of the other
party arising out of this Assignment, then in that event the prevailing
party shall be entitled to have and recover of and from the other party
all costs and expenses of the action or suit, including reasonable attorneys'
fees.
This Assignment shall be binding upon and inure to the benefit of the
successors, assignees, personal representatives, heirs and legatees of all
the respective parties hereto.
This Assignment shall be governed by, interpreted under, and construed
and enforceable in accordance with, the laws of the State of
IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered
this Assignment as of the day and year first above written.
a a
By: By:
Its: Its:
"Assignor" "Assignee"
<PAGE>
EXHIBIT "F"
TRANSFEROR'S CERTIFICATION OF NON-FOREIGN STATUS
To inform ("Transferee") that withholding of tax under Section 1445 of
the Internal Revenue Code of 1954, as amended ("Code") will not be required
upon the transfer of certain real propert to the Transferee
by ("Transferor"), the undersigned hereby certifies
the following on behalf of the Transferor:
1. The Transferor is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Code
and the Income Tax Regulations promulgated thereunder);
2. The Transferor's U.S. employer identification/social security number
is
;and
3. The Transferor's office/personal residence address is
The Transferor understands that this Certification may be disclosed to the
Internal Revenue Service by the Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
The Transferor understands that the Transferee is relying on this
Certification in determining whether withholding is required upon said transfer.
The Transferor hereby agrees to indemnify, defend and hold the Transferee
harmless from and against any and all obligations, liabilities, claims, losses,
actions, causes of action, rights, demands, damages, costs and expenses of every
kind, nature or character whatsoever (including, without limitation, actual
attorneys' fees and court costs) incurred by the Transferee as a result of: (i)
the Transferor's failure to pay U.S. Federal income tax which the Transferor is
required to pay under applicable U.S. law; or (ii) any false or misleading
statement contained herein.
Under penalty of penury I declare that I have examined this Certification
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of the
Transferor.
Date: 1996
By:
Its:
By:
Its:
<PAGE>
EXHIBIT "G"
TENANT:
DATE OF LEASE:
AMENDED:
PREMISES:
ESTOPPEL CERTIFICATE
To:
Re:
The undersigned hereby certifies to ("Buyer")
as follows:
1 . The undersigned is the "Tenant" under the above referenced lease
("Lease") covering the above-referenced Premises ("Premises"). A true, correct
and complete Copy of the Lease (including all addenda, riders, amendments,
modifications and supplements thereto) is attached as Exhibit "A".
2. The Lease constitutes the entire agreement between landlord under
the Lease ("Landlord") and Tenant with respect to the Property and the Lease has
not been modified, changed, altered or amended in any respect except as set
forth above.
3. The term of the Lease commenced on 19
and, including any presently exercised option or renewal term, will expire on
, 19 Tenant has accepted possession of the Premises and is the actual
occupant in possession and has not sublet, assigned or hypothecated
Tenant's leasehold interest. All improvements to be constructed on the
Property by Landlord have been completed and accepted by Tenant and any
tenant construction allowances have been paid in full.
4. As of the date of this Estoppel Certificate, there exists no
breach or default, nor state of facts which, with notice, the passage of
time, or both, would result in a breach or default on the part of either
Tenant or Landlord. To the best of Tenant's knowledge, no claim,
controversy, dispute, quarrel or disagreement exists between Tenant and
Landlord.
5. Tenant is currently obligated to pay annual rental in monthly
installments of $ per month and monthly installments of annual rental have
been paid through 19 . In addition, the Lease requires rent adjustments based
on increases in the consumer price index. No other rent has been paid in
advance and Tenant has no claim or defense against Landlord under the Lease
and is asserting no offsets or credits against either the rent or Landlord.
Tenant has no claim against Landlord for any security or other deposits
except which was paid pursuant to the Lease.
6. Tenant has no option or preferential right to purchase all or
any part of the Premises (or the real property of which the Premises are a
part) nor any right or interest with respect to the Property other than as
Tenant under the Lease. Tenant has no right to renew or extend the terms of
the Lease except
7. Tenant has made no agreement with Landlord or any agent,
representative or employee of Landlord concerning free rent, partial rent,
rebate of rental payments or any other type of rental or other concession
except as expressly set forth in the Lease.
8. There has not been filed by or against Tenant a petition in
bankruptcy, voluntary or otherwise, any assignment for the benefit of
creditors, any petition seeking reorganization or arrangement under the
bankruptcy laws of the United States, or any state thereof, or any other
action brought under said bankruptcy laws with respect to Tenant.
9. All insurance required of Tenant by the Lease has been provided
by Tenant and all premiums paid.
10. The Property contains square feet of rentable/usable
area.
This Certificate is made to Buyer in connection with the
prospective purchase by Buyer, or Buyer's assignee, of the building containing
the Premises. This Certificate may be relied on by Buyer and any other
party who acquires an interest in the Premises in connection with such
purchase or any person or entity which may finance such purchase.
Dated this - day of 19
By:
Its:
<PAGE>
EXHIBIT "H"
AMORTIZATION SCHEDULE
1) RECITALS. The Buyer is purchasing tenant improvements in the amount of
One Hundred Forty-two Thousand and no/100 Dollars ($142,000.00) as more
particularly set forth in Section 2(b) herein above. In the event the
conditions set forth in Section 22 herein above are satisfied, Seller
shall pay to Buyer the amounts set forth below as a guarantee for
the payment of the full amount of such improvements. The total cost of
the improvements (S 142,000.00) shall be divided into daily
amortized increments ("Amortized Increments") payable during the
remainder of the term.
2) FORMULA.
a) Remaining term - Seven (7) years: 2,555 days
b) Cost of improvements: $142,000.00
C) Daily Amortized Increments of principal: Fifty-five
and 57/100 Dollars ($55.57) per day
3) CONDITIONS TO PAYMENT OF AMORTIZED INCREMENTS.
a) Tenant fails to pay rent for one or more days
b) Tenant is in default under the Lease
C) Any amounts collected from Tenant on account of failure to pay
rent and/or default shall be paid to Sellers by Buyer to the
extent that Seller has paid Buyer the guaranteed Amortized
Increments.
4) A separate agreement guaranteeing the provisions of Section 22
<PAGE>
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the Landlord and
Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: 8-1-93
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): Thomas Weborg and Sandra Singer
ADDRESS OF LANDLORD: 717 W. Del Paso Road, Sacramento, CA 95834
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Java City, Inc., a
California Corporation
ADDRESS OF TENANT: 717 W. Del Paso Road, Sacramento, CA 95834.
Section 1.04. PROPERTY: (include street address, approximate square footage
and description) 8640 square foot warehouse with potential office space 721
W. Del Paso Road, Sacramento, CA 95834.
Section 1.05. LEASE TERM: 10 years -0- -months BEGINNING ON or such other
date as is specified in this Lease, and ENDING ON
Section 1.06. PERMITTED USES: (See Article Five) Office, warehouse,
distribution and any other legal use permitted in Sacramento County.
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None.
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state) None.
LANDLORD'S BROKER: None.
TENANT'S BROKER: None.
Section 1.09. COMMISSION PAYABLE TO LANDLORDS BROKER: (See Article Fourteen) $
None.
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ -0-
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: Per applicable
County Code.
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) Landlord and Tenant agree that the entire Property shall initially
be used as a warehouse. During the portion of the term of this Lease in
which the Property is used as a warehouse only, excluding any office
use, the rent shall be as follows ("Rent Schedule"):
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<PAGE>
Months Monthly Rent Yearly Rent
1-12 $2937.60 $35251.20
13-24 $3055.10 $36661.20
25-36 $3177.31 $38127.72
37-48 $3304.40 $39652.80
49-60 $3436.58 $41238.96
61-72 $3574.04 $42888.48
73-84 $3717.00 $44604.00
85-96 $3865.68 $46388.16
97-108 $4020.31 $48243.72
109-120 $4181.12 $50173.44
The above Rent Schedule is based on warehouse use by the Tenant of 8640
square feet of the Property. Initially the entire Property is being leased
for warehouse use only. The Property has, within its 8640 square feet, a
portion that may be used for office space of 3210 square feet ("Potential
Office Space") . In the event that Tenant uses any part of the Potential
Office Space for office use then the Rent shall be increased pursuant to
subsection (b).
(b) BASE RENT/OFFICE Use: Landlord and Tenant agree that there is
approximately 3210 square feet of useable office space in the Property. In
the event that Tenant uses all or any part of such space for office use,
then the rents set forth in subsection (a) above shall be increased,
commencing on the first day of such office use, by adding $1540.80 to
each month ("Additional Rent") in the year such use has commenced and
thereafter to increase such Additional Rent by four percent (4%) commencing
with the next Rent increase shown on the Rent Schedule and thereafter
increased four percent (4%) annually.
(c) OTHER PERIODIC PAYMENTS BY TENANT: (i) Real Property Taxes
above the "Base Real Property Taxes" (See Section 4.02) ; (ii)
Utilities (See Section 4.03); (iii) Increased Insurance Premiums above
"Base Premiums" (See Section 4.04) ; (iv) Impounds for Tenant's Share of
Insurance Premiums and Property Taxes (See Section 4.07) (v)
Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. RIDERS: The following Riders are attached to and made a part
of this Lease:
(If none, so state)
Exhibit A - Legal Description of the Property
Exhibit B - List of improvements currently on the Property
Exhibit C - Hazardous Materials Rider
Exhibit D - Changes Required by Law
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the Property
to Tenant and Tenant leases the Property from Landlord for the Lease Term.
The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under
any provision of this Lease.
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<PAGE>
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) -day period ends. If Tenant gives such notice, the Lease shall be canceled
and neither Landlord nor Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. Tenant shall] pay Base Rent and all other
charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease, Tenant
shall pay Landlord the Base Rent in the amount stated in Paragraph 1.12(a) above
for the first month of the Lease Term. On the first day of the second month of
the Lease Term and each month thereafter, Tenant shall pay Landlord the Base
Rent, in advance, without offset, deduction or prior demand. The Base Rent
shall be payable at Landlord's address or at such other place as Landlord may
designate in writing.
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<PAGE>
Section 3.02. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord
a cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this Lease. No
interest shall be paid on the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
(b) Each time the Base Rent is increased, Tenant shall deposit
additional funds with Landlord sufficient to increase the Security Deposit to an
amount which bears the same relationship to the adjusted Base Rent as the
initial Security Deposit bore to the initial Base Rent.
Section 3.03. TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
under Article Seven (Damage or Destruction) , Article Eight (Condemnation) or
any other termination not resulting from Tenant's default, and after Tenant has
vacated the Property in the manner required by this Lease, Landlord shall refund
or credit to Tenant (or Tenant's successor) the unused portion of the Security
Deposit, any advance rent or other advance payments made by Tenant to Landlord,
and any amounts paid for real property taxes and other reserves which apply to
any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL PAYMENTS. All payments due under this Article Four
shall be paid by Tenant directly to the public entity or agency, vendor or
supplier thereof on or before the due date. Any failure by Tenant to pay such
charges when due shall be a material breach of this Lease.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay the "Base Real Property
Taxes" on the Property during the Lease Term. Base Real Property Taxes are
real property taxes applicable to the Property as shown on the tax bill for
the most recent tax fiscal year ending prior to the Commencement Date.
However, if the structures on the Property are not completed by the tax
lien date of such tax fiscal year, the Base Real Property Taxes are the
taxes shown on the first tax bill showing the full assessed value of the
Property after completion of the structures.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i)
any fee, license fee, license tax, business license fee,
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<PAGE>
commercial rental tax, levy, charge, assessment, penalty or tax imposed by any
taxing authority against the Property; (ii) any tax on the Landlord's right to
receive, or the receipt of, rent or income from the Property or against
Landlord's business of leasing the Property; (iii) any tax or charge for fire
protection, streets, sidewalks, road maintenance, refuse or other services
provided to the Property by any governmental agency; (iv) any tax imposed upon
this transaction or based upon a re-assessment of the Property due to a change
of ownership, as defined by applicable law, or other transfer of all or part of
Landlord's interest in the Property; and (v) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes.(c) JOINT ASSESSMENT. If the Property is not
separately assessed, Landlord shall reasonably determine Tenant's share of the
real property tax payable by Tenant under Paragraph 4.02(a) from the assessor's
worksheets or other reasonably available information. Tenant shall pay such
share to Landlord within fifteen (15) days after receipt of Landlord's written
statement.
(d) PERSONAL PROPERTY TAXES. Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging to
Tenant. Tenant shall attempt to have such personal property taxed separately
from the Property and pay all such taxes on or before the due date.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be $ 1,000,000 per occurrence and shall be
subject to periodic increase based upon inflation, increased liability awards,
recommendation of Landlord's professional insurance advisers and other relevant
factors. The liability insurance obtained by Tenant under this Paragraph
4.04(a) shall (i) be primary and noncontributing; (ii) contain cross-liability
endorsements; and (iii) insure Landlord against Tenant's performance under
Section 5.05, if the matters giving rise to the indemnity under Section 5.05
result
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<PAGE>
from the negligence of Tenant. The amount and coverage of such insurance shall
not limit Tenant's liability nor relieve Tenant of any other obligation under
this Lease. Landlord may also obtain comprehensive public liability insurance
in an amount and with coverage determined by Landlord insuring Landlord against
liability arising out of ownership, operation, use or occupancy of the Property.
The policy obtained by Landlord shall not be contributory and shall not provide
primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Tenant
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk) , sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Tenant shall obtain
flood and earthquake insurance if required by Landlord or by any Lender holding
a security interest in the Property. Tenant shall obtain insurance for Tenant's
fixtures and equipment or building improvements installed by Tenant on the
Property. During the Lease Term, Tenant shall also maintain a rental income
insurance policy, with loss payable to Landlord, in an amount equal to one
year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed $ $1,000.00 . Tenant shall not do or permit anything to
be done which invalidates any such insurance policies.
(c) PAYMENT OF Premiums. Tenant shall pay the premiums for such
insurance policies required under this Lease on or before the due date and shall
supply to Landlord a copy of such policies and endorsements thereto with proof
of active current coverage.
(d) GENERAL INSURANCE PROVISIONS. Any insurance which Tenant is required
to maintain under this Lease shall include a provision which requires the
insurance carrier to give Landlord not less than thirty (30) days' written
notice prior to any cancellation or modification of such coverage. Tenant shall
deliver to Landlord proof of all insurance coverage required under this Article
Four within ten (10) days of the required dates of coverage. Tenant shall
maintain all insurance required under this Lease with companies holding a
"General Policy Rating" of A-12 or better, as set forth in the most current
issue of "Best Key Rating Guide". Landlord and Tenant acknowledge the insurance
markets are rapidly changing and that insurance in the form and amounts
described in this Section 4.04 may not be available in the future. Tenant
acknowledges that the insurance described in this Section 4.04 is for the
primary benefit of Landlord. If at any time during the Lease Term, Tenant is
unable to maintain the insurance required under the Lease, Tenant shall
nevertheless maintain insurance coverage which is customary and commercially
reasonable in the insurance industry for Tenant's type of business, as that
coverage
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may change from time to time. Landlord makes no representation as to the
adequacy of such insurance to protect Landlord 1s or Tenant 1s interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant. Unless
prohibited under any applicable insurance policies maintained, Landlord and
Tenant each hereby waive any and all rights of recovery against the other, or
against the officers, employees, agents or representatives of the other, for
loss of or damage to its property or the property of others under its control,
if such loss or damage is covered by any insurance policy in force (whether or
not described in this Lease) at the time of such loss or damage. Upon obtaining
the required policies of insurance, Landlord and Tenant shall give notice to the
insurance carriers of this mutual waiver of subrogation.
Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (10%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to
Landlord which is not paid when due shall bear interest at the rate of ten
percent (10%) per annum from the due date of such amount. However, interest
shall not be payable on late charges to be paid by Tenant under this Lease. The
payment of interest on such amounts shall not excuse or cure any default by
Tenant under this Lease. If the interest rate specified in this Lease is higher
than the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent, or other payments required by Tenant under this Lease, more
than once in any consecutive twelve (12) month period, Tenant shall pay Landlord
a sum equal to one-twelfth (1/12) of the annual real property taxes and
insurance premiums payable by Tenant under this Lease, together with each
payment of Base Rent. Landlord shall hold such payments in a non-interest
bearing impound account. If unknown, Landlord shall reasonably estimate the
amount of real property taxes and insurance premiums when due. Tenant shall pay
any deficiency of funds in the impound account to Landlord upon written request.
If Tenant defaults under this Lease, Landlord may apply any funds in the impound
account to any obligation then due under this Lease.
Section 4.08. LANDLORD'S RIGHT TO ADVANCE PAYMENT. In the event
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that Tenant fails or refuses to pay the amounts required under this Article Four
to any public entity or agency, vendor or supplier then Landlord may, but is not
obligated to, pay such payments and Tenant shall reimburse Landlord the full
amount of such payments plus any late charge or interest thereon pursuant to
Sections 4.05 and 4.06 within ten (10) days of receipt by Tenant of a notice
from Landlord requiring reimbursement of such sums.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for
the Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property to
be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. SEE ATTACHED HAZARDOUS MATERIALS RIDER)
Subject to Exhibit C, the term "Hazardous Material" means any flammable items,
explosives, radioactive materials! hazardous or toxic substances material or
waste or related materials, including any substances defined as or included in
the definition of "hazardous substances", "hazardous wastes", "hazardous
materials" or "toxic substances" now or subsequently regulated under any
applicable federal, state or local laws or regulations, including without
limitation petroleum-based products, paints, solvents, lead, cyanide, DDT,
printing inks, acids, pesticides, ammonia compounds and other chemical products,
asbestos, PCBs and similar compounds, and including any different products and
materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons. Tenant shall not cause or
permit any Hazardous Material to be generated, produced, brought upon, used,
stored, treated or disposed of in or about the Property by Tenant, its agents,
employees, contractors, subleases or invitees without the prior written consent
of Landlord. Landlord shall be entitled to take into account such other factors
or facts as Landlord may reasonably determine to be relevant in determining
whether to grant or withhold consent to Tenant's proposed activity with respect
to Hazardous Material. In no event, however, shall Landlord be required to
consent to the installation or use of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
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Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the Property
at all reasonable times to show the Property to potential buyers, investors or
tenants or other parties; to do any other act or to inspect and conduct tests in
order to monitor Tenant's compliance with all applicable environmental laws and
all laws governing the presence and use of Hazardous Material; or for any other
purpose Landlord deems necessary. Landlord shall give Tenant prior notice of
such entry, except in the case of an emergency. Landlord may place customary
"For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy the Property for the full
Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its condition
as of the execution of the Lease, subject to all recorded matters, laws,
ordinances, and governmental regulations and orders. Except as provided herein,
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any
representation as to the condition of the Property or the suitability of the
Property for Tenant's intended use. Tenant represents and warrants that Tenant
has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
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Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or from other sources or places; or (d) any act or omission of any
other tenant of Landlord. Landlord shall not be liable for any such damage or
injury even though the cause of or the means of repairing such damage or injury
are not accessible to Tenant. The provisions of this Section 6.02 shall not,
however, exempt Landlord from liability for Landlord's gross negligence or
willful misconduct.
Section 6.03. LANDLORDS OBLIGATIONS. Subject to the provisions of Article Seven
(Damage or Destruction) and Article Eight (Condemnation), and except for damage
caused by any act of omission of Tenant, or Tenant's employees, agents,
contractors or invitees, Landlord shall keep the foundation, roof and structural
portions of exterior walls of the improvements on the Property in good order,
condition and repair. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the surfaces of walls. Landlord shall not
be obligated to make any repairs under this Section 6.03 until a reasonable time
after receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord' s expense or to terminate the
Lease because of the condition of the Property.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation) , Tenant shall keep all portions of the Property (including
structural, nonstructural, interior, exterior, and landscaped areas, portions,
systems and equipment) in good order, condition and repair (including interior
repainting and refinishing, as needed) . If any portion of the Property or any
system or equipment in the Property which Tenant is obligated to repair cannot
be fully repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit or
useful life of such replacement extends beyond the Lease Term (as such term may
be extended by exercise of any options) , the useful life of such replacement
shall be prorated over the remaining portion of the Lease Term (as extended),
and Tenant shall be liable only for that portion of the cost which is applicable
to the Lease Term (as extended) . Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor.
Landlord shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance of the heating and air conditioning
system at Tenant's expense. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of walls caused
by Tenant's acts or omissions. It is the intention of Landlord and Tenant that,
at all times during the Lease Term, Tenant shall maintain the Property in an
attractive, first-class and fully operative condition.
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(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements to the
Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed $ 10,000 in cost cumulatively over the Lease
Term and which are not visible from the outside of any building of which the
Property is part. Landlord may require Tenant to provide demolition and/or lien
and completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.05(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" plans, copies of all construction contracts,
and proof of payment for all labor and materials. Tenant shall not convert
warehouse use to office use without the written consent Landlord, which consent
shall be in Landlords sole and arbitrary discretion to give or withhold.
(b) Tenant shall pay when due all claims for labor and material furnished to
the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination the Lease,
Tenant shall surrender the Property to Landlord, broom clean and in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered
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to Landlord upon the expiration or earlier termination of the Lease, except that
Tenant may remove any of Tenant's machinery or equipment which can be removed
without material damage to the Property. Tenant shall repair, at Tenant's
expense, any damage to the Property caused by the removal of any such machinery
or equipment. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels; lighting or
lighting fixtures; wall coverings; drapes, blinds or other window coverings;
carpets or other floor coverings; heaters, air conditioners or any other heating
or air conditioning equipment; fencing or security gates; or other similar
building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4. 04 (b) -
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate
this Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs,
except that upon satisfactory completion of such repairs, Landlord shall deliver
to Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of the
Lease Term and such damage will require more than
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thirty (30) days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the sufficiency of
any insurance proceeds. The party electing to terminate this Lease shall give
written notification to the other party of such election within thirty (30) days
after Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and restoration shall be reduced according to the degree, if any,
to which Tenant's use of the Property is impaired. However, the reduction shall
not exceed the sum of one year's payment of Base Rent, insurance premiums and
real property taxes. Except for such possible reduction in Base Rent, insurance
premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent domain
or sold under the threat of that power (all of which are called "Condemnation"),
this Lease shall terminate as to the part taken or sold on the date the
condemning authority takes title or possession, whichever occurs first. If more
than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date
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the condemning authority takes title or possession, by delivering written notice
to the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant terminates
this Lease, this Lease shall remain in effect as to the portion of the Property
not taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or of
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, mortgage, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.02 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.05 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than twenty percent (20%) of the
partnership interests shall require Landlord's consent. If Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease the
Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all
of Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article Nine,
whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee
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defaults under this Lease, Landlord may proceed directly against Tenant without
pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Article
Nine shall set forth in writing the details of the proposed transfer, including
the name, business and financial condition of the prospective transferee,
financial details of the proposed transfer (e.g., the term of and the rent and
security deposit payable under any proposed assignment or sublease), and any
other information Landlord deems relevant. Landlord shall have the right to
withhold consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of the proposed
assignee or subtenant; (iii) Tenant's compliance with all of its obligations
under the Lease; and (iv) such other factors as Landlord may reasonably deem
relevant. If Landlord objects to a proposed assignment solely because of the
net worth and financial reputation of the proposed assignee, Tenant may
nonetheless sublease (but not assign), all or a portion of the Property to the
proposed transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the
Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined
below) on such transaction as and when received by Tenant, unless Landlord gives
written notice to Tenant and the assignee or subtenant that Landlord's Share
shall be paid by the assignee or subtenant to Landlord directly. The "Profit"
means (A) all amounts paid to Tenant for such assignment or sublease, including
"key" money, monthly rent in excess of the monthly rent payable under the Lease,
and all fees and other consideration paid for the assignment or sublease,
including fees under any collateral agreements, less (B) costs and expenses
directly incurred by Tenant in connection with the execution and performance of
such assignment or sublease for real estate broker's commissions and costs of
renovation or construction of tenant improvements required under such assignment
or sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's
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Share to Landlord. The Profit in the case of a sublease of less than all
the Property is the rent allocable to the subleased space as a percentage
on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying
all amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and Landlord may
inspect Tenant's books and records to verify the accuracy of such statement. On
written request, Tenant shall promptly furnish to Landlord copies of all the
transaction documentation, all of which shall be certified by Tenant to be
complete, true and correct. Landlord's receipt of Landlord's Share shall not be
a consent to any further assignment or subletting. The breach of Tenant's
obligation under this Paragraph 9.05(b) shall be a material default of the
Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of the
Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
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Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
ten percent (10%) per annum, or such lesser amount as may then be the maximum
lawful
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rate. As used in subpart (iii) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%). If
Tenant has abandoned the Property, Landlord shall have the option of (i)
retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state in which the Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession (i.e. $70,000 moving expense reimbursement) , such postponed
rent or "free" rent is called the "Abated Rent". Tenant shall be credited with
having paid all of the Abated Rent on the expiration of the Lease Term only if
Tenant has fully, faithfully, and punctually performed all of Tenant's
obligations hereunder, including the payment of all rent (other than the Abated
Rent) and all other monetary obligations and the surrender of the Property in
the physical condition required by this Lease. Tenant acknowledges that its
right to receive credit for the Abated Rent is absolutely conditioned upon
Tenant's full, faithful and punctual performance of its obligations under this
Lease. If Tenant defaults and does not cure within any applicable grace period,
the Abated Rent shall immediately become due and payable in full and this Lease
shall be enforced as if there were no such rent abatement or other rent
concession. In such case Abated Rent shall be calculated based on the full
initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to Landlord's
right to possession of the Property. All such damages suffered (apart from Base
Rent and other rent payable hereunder) shall constitute pecuniary damages which
must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
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Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or remedy
shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate this
Lease to any ground lease, deed of trust or mortgage encumbering the Property,
any advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
Tenant shall cooperate with Landlord and any lender which is acquiring a
security interest in the Property or the Lease. Tenant shall execute such
further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is acquired
by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser
at a foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a)Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed) ; (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be
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in default, stating why); and (v) such other representations or information with
respect to Tenant or the Lease as Landlord may reasonably request or which any
prospective purchaser or encumbrancer of the Property may require. Tenant shall
deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
ten (10) -day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
stopped from denying the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach or
default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant against any third party, or by any third party against Tenant, or by or
against any person holding any interest under or using the Property by license
of or agreement with Tenant; (b) for foreclosure of any lien for labor or
material
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furnished to or for Tenant or such other person; (c) otherwise arising out of or
resulting from any act or transaction of Tenant or such other person; or (d)
necessary to protect Landlord's interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant I s expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
Landlord incurs in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition to
the continuance of this Lease, that there will be no discrimination against, or
segregation of, any person or group of persons on the basis of race, color, sex,
creed, national origin or ancestry in the leasing, subleasing, transferring,
occupancy. tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not
be in default under this Lease unless Landlord (or such ground lessor, mortgagee
or beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably
requires more than thirty (30) days to cure, Landlord shall not be in default if
such cure is commenced within such thirty (30) -day period and thereafter
diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
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Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of this
Lease are to assist the parties in reading this Lease and are not a part of the
terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is
the only agreement between the parties pertaining to the lease of the Property
and no other agreements are effective. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without prior
written consent from Landlord. However, either Landlord or Tenant may require
that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. Binding EFFECT; CHOICE OF LAW. This Lease binds any party who
legally acquires any rights or interest in this Lease
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from Landlord or Tenant. However, Landlord shall have no obligation to Tenant's
successor unless the rights or interests of Tenant's successor are acquired in
accordance with the terms of this Lease. The laws of the state in which the
Property is located shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its obligations
due to events beyond Landlord's control, the time provided for performing such
obligations shall be extended by a period of time equal to the duration of such
events. Events beyond Landlord's control include, but are not limited to, acts
of God, war, civil commotion, labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in counterparts
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument. Landlord's delivery of this Lease to
Tenant shall not be deemed to be an offer to lease and shall not be binding upon
either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Tenant represents and warrants to Landlord that no brokers have been consulted
or used by Tenant or Tenant's agents or employees with reference to this
Property and that no obligations for payment of commissions or fees are present
with reference to the Lease of this Property. In the event that Tenant has
dealt with any person or entity claiming a commission or fee with reference to
this Property, it shall be Tenant's sole and exclusive expense.
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Tenant hereby indemnities and holds Landlord harmless from any and all claims
of commission and fee with reference to the Lease of this Property based
on the actions of Tenant herein. Landlord and Tenant have signed this
Lease at the place and on the dates specified adjacent to their
signatures below and have initialed all Riders which are attached to or
incorporated by reference in this Lease.
LANDLORD:
SIGNED ON 1993 BY:
THOMAS WEBORG, OWNER
BY:
SANDRA SINGER, OWNER
TENANT
SIGNED ON 1993 JAVA CITY, INC.,
A CALIFORNIA CORPORATION
BY:
ITS:
BY:
ITS:
PORTIONS OF THIS LEASE HAVE BEEN TAKEN FROM THE INDUSTRIAL REAL ESTATE
LEASE SINGLE TENANT FACILITY OF THE CALIFORNIA CHAPTERS OF THE SOCIETY OF
INDUSTRIAL AND OFFICE REALTORS, INC., COPYRIGHTED 1988. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN CALIFORNIA
CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., IT'S
LEGAL COUNSEL OR THEIR EMPLOYEES OR AGENTS AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT OR TAX CONSEQUENCES LANGUAGE DERIVED FROM THEIR LEASE FORM
AND QUESTIONS TO SUCH SHOULD BE ANSWERED BY LEGAL COUNSEL FOR THE PARTIES
HEREIN.
EXHIBIT "A"
LEGAL DESCRIPTION OF THE PROPERTY
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EXHIBIT "B"
LIST OF IMPROVEMENTS
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EXHIBIT "C"
HAZARDOUS MATERIALS RIDER
JAVA CITY, INC. ("TENANT")
Tenant shall (i) not cause or permit any Hazardous Material to be brought
upon, kept or used in or about the Premises by Tenant, its agents,
employees, contractors or invitees, without the prior written consent of
Landlord (which consent Landlord shall not unreasonably withhold or delay
as long as Tenant demonstrates to Landlord's reasonable satisfaction that
such Hazardous Material is necessary or useful to Tenant's business and
will be used, kept and stored in a manner that complies with all laws
relating to any such Hazardous Material so brought upon or used or kept in
or about the Premises). If Tenant breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on the
Premises caused or permitted by Tenant results in contamination of the
Premises by Hazardous Material other wise occurs for which Tenant is
legally liable to Landlord for damage resulting therefrom, then Tenant
shall indemnify, defend and hold Landlord harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution on value of the Premises,
damages for the loss or restrictions on use of rentable or usable
space or of any amenity of the Premises, damages arising from any
adverse impact on marketing of the Premises, and reasonable sums paid
in settlement of claims, attorneys' fees, consultant fees and expert
fees) which arise during or after the lease term as a result of such
contamination. The indemnification set forth herein shall run to the
benefit of any bank or other lender to which Landlord or Landlord's
successors and assigns may grant a security interest in the Property
and or assigns may grant a security interest in the Property and
or the Premises. This indemnification of Landlord by Tenant includes,
without limitation, costs incurred in connection with any investigation of
site conditions or any cleanup, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision because of Hazardous Material present in the soil or ground
water on or under the Premises. Without limiting the foregoing, if the
presence of any Hazardous Material on the Premises caused or permitted by
Tenant results in any contamination of the Premises, Tenant shall
promptly take all actions at its sole expense as are necessary to return
the Premises to the condition existing prior to the introduction of any
such Hazardous Material to the Premises; provided that Landlord's approval
of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Premises.
Landlord represents that to the best of their knowledge, they are not aware
of the existence of any hazardous material or related environmental
concerns. Furthermore, Landlord shall indemnify Tenant for any
breach of this representation.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes
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regulated by any local governmental authority, the State of California or the
United States Government. The term "Hazardous Material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25140 of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law) ; (ii) defined as a "hazardous waste" under Section 25316 of the
California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-
Tanner Hazardous Substance Account Act); (iii) defined as a "hazardous
material", "hazardous substance"! or "hazardous waste" under Section 25501 of
the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous
Materials Release Response Plans and Inventory) ; (iv) defined as a "hazardous
substance" under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances) ; (v)
petroleum; (vi) asbestos; (vii) listed under Article 9 or defined as hazardous
or extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20; (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317) ; (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. (42 U.S.C. Section 6903) (x) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601) ; or (xi) or any substance requiring remediation under any
federal, state, municipal or other governmental statute, ordinance, rule,
regulation or policy.
AGREED BY:
TENANT: JAVA CITY, INC.,
A CALIFORNIA CORPORATION
BY: DATE: 7-24-93
LANDLORD: THOMAS WEBORG/SANDRA SINGER
BY: DATE:
BY: DATE:
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EXHIBIT "D"
CHANGES REQUIRED BY LAW
CHANGES REQUIRED BY CODE. In the event the responsible fire department, or
any other governmental agency, governmental entity, public district, public
council or any other standard or rule making body (including, Federal, State and
local) requires additional changes in construction or improvements to be
constructed on the Property due to changes in laws, regulations or codes which
are enacted after the Commencement Date, or in existence on the Commencement
Date but enforced thereafter, the costs of the additional improvements shall be
paid by Tenant, within ten (10) days after receipt of written notice thereof
from Landlord.
5/21/93
Draft
A: Java City
717 W. Del Paso Blvd. Lease 28
<PAGE>
MODIFICATION OF LEASE
THIS AGREEMENT dated January 26, 1995 is made by and between THOMAS WEBORG and
SANDRA SINGER, hereinafter referred to as "Landlord" and CUCINA HOLDINGS, INC.,
a Delaware corporation, successor in interest to JAVA CITY, a California
corporation, hereinafter referred to as "Tenant".
1. WITNESSETH
THAT, WHEREAS, by Indenture of Lease dated August 1, 1993 by and between
Landlord and Tenant, Landlord leased and demised unto Tenant for the purpose of
warehouse and office space the following described property situated in the
county of Sacramento, California, to-wit:
consisting of approximately 8,640 square feet of floor space and
more commonly known and designated 721 West Del Paso Road; and
WHEREAS, the aforementioned Indenture of Lease is due to expire by its own
terms on July 31, 2003; and
WHEREAS, Section 1.12(b), Base Rent/office Use, sets forth office space of
3,210 square feet; and
WHEREAS, the actual office/improved space constructed and occupied by Tenant
is 4,293 square feet; and
WHEREAS, the remaining space is warehouse space which equals 4,347 square
feet; and
WHEREAS, it was the intention of the parties to amend this Lease to conform
to the rent rates and payment periods set forth in that certain Lease
of the adjoining building (717 West Del Paso Road, wherein Landlord is
Lessor and Tenant is Lessee) following the completion of Tenant
improvements; and
WHEREAS, following the completion of Tenant improvements the rent rates for
the adjoining building were 82 cents per square foot per month for
office/improved space and 35 cents per square foot per month for warehouse
space; and
WHEREAS, the starting Rent is computed as follows:
(1) 82 cents multiplied by 4,293 square feet of office/improved space
$3,520.26 per month; plus
1
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(2) 35 cents multiplied by 4,347 square feet of warehouse space
= $1,521.45 per month; equals
(3) $5,041.71 per month; increased by
(4) four percent (4%) per year in accordance with Section 1.12(b); and
WHEREAS, Landlord and Tenant desire to clarify and confirm the Rent Tenant
shall pay to Landlord for the Premises pursuant to Section 1.12(a) &
Section 1.12(b) for the balance of Lease Term of said Lease mentioned
hereinabove.
NOW, THEREFORE, in consideration of the Premises and the mutual covenants
and conditions hereinafter contained, the parties hereto amend Section
1.12 as to the Rent as follows, to-wit:
1) Landlord and Tenant hereby agree that the Rent Tenant shall pay to
Landlord for the Premises pursuant to Section 1.12(a) and Section
1.12(b) for the Lease Term is as follows:
August 1, 1993 to July 31, 1994 = $5,041.71/Month
August 1, 1994 to July 31, 1995 = $5,243.38/Month
August 1, 1995 to July 31, 1996 = $5,453.12/Month
August 1, 1996 to July 31, 1997 = $5,671.24/Month
August 1, 1997 to July 31, 1998 = $5,898.09/Month
August 1, 1998 to July 31, 1999 = $6,134.01/Month
August 1, 1999 to July 31, 2000 = $6,379.37/Month
August 1, 2000 to July 31, 2001 = $6,634.54/Month
August 1, 2001 to July 31, 2002 = $6,899.92/Month
August 1, 2002 to July 31, 2003 = $7,175.92/Month
2) Landlord and Tenant hereby covenant and agree that during the remaining
original term Landlord and Tenant shall perform and be bound by all
covenants and conditions in said Indenture of Lease dated
August 1, 1993, insofar as they are consistent with the provisions of
this Agreement.
3) The said Indenture of Lease is modified in the above particulars only
and all other provisions thereof, insofar as they are consistent
herewith, shall remain binding and in full
2
<PAGE>
force and effect. The above modification shall henceforth be considered
a part of said Indenture of Lease as if fully and completely written
therein.
IN WITNESS WHEREOF, the parties hereto have executed this Modification of
Lease the day and year first above written.
LANDLORD: TENANT:
Thomas Weborg and Sandra Singer Cucina Holdings, Inc., a
Delaware corporation
Thomas Weborg By:
Title:
Sandra Singer
3
<PAGE>
AMENDMENT TO LEASE
This Amendment to Lease is made this 26 day of June, 1996, by and
between Thomas Weborg and Sandra Singer, David Ewing and Karen Ewing
("Landlord") and Cucina Holdings, Inc., a Delaware corporation,
successor-in-interest to Java City, Inc., a California corporation
("Tenant") to that certain Lease dated August 1, 1993, as modified by
that Modification of Lease dated January 26, 1995 ("Lease"), for the
property located at 721 Del Paso Road, Sacramento, California.
WHEREAS, Landlord and Tenant desire to clarify certain obligations under
the Lease, the following modifications are agreed to by each:
1. Section 6.03, Landlord's Obligations, is deleted in its entire
and replaced with the following:
"Subject to the provisions' of Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Landlord shall not be
obligated to maintain and repair the foundation, roof, structural portions
of the exterior walls of the Property, windows, doors, plate glass, or
the surfaces of the walls, or other structural, non-structural, interior,
exterior, and landscaped areas, systems and equipment, as of which shall
be the obligation of the Tenant to maintain and repair as set forth in
Section 6.04."
2. Section 6.04 (a), Tenant's Obligations, is deleted in its entirety
and replaced with the following:
`(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Tenant shall keep all portions of the Property
(including structural, non-structural, interior, exterior, landscaped
areas, systems, equipment, foundation, roof, exterior and interior
walls) in good order, condition and repair (including interior and
exterior repainting and refinishing, as needed), If any portion of
the Property or any system or equipment in the Property which Tenant is
obligated to repair, cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or system or equipment in
the Property, regardless of whether the benefit of such replacement
extends beyond the Lease Term. Tenant shall maintain a preventative
maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating
and air conditioning contractor. Landlord shall have the right, upon written
notice to Tenant, to undertake the responsibility for preventative
maintenance of the heating and air conditioning system at Tenant's expenses.
It is the intention of Landlord and Tenant that, at all times during the
Lease Term, Tenant shall, at its expense, maintain the Property in
an attractive, first-class, and fully operative condition."
3 . Section 3.02, Security Deposit; Increases (b), and Section
9.05, Landlord's Consent, (b)(i) and (ii), are deleted in their entirety.
Section 9.05(a) remains unchanged.
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<PAGE>
4. Section 10.04, Repayment of "Free" Rent, is deleted in its
entirety. The parties hereto evidence their agreement to the covenants and
conditions contained in this Amendment by executing the same as indicated
herein below.
LANDLORD:
By:
Thomas Weborg
By: Sandra Singer
By:
David Ewing
By: Karen Ewing
TENANT:
CUCINA HOLDINGS, INC.,
a Delaware corporation
By: By:
Name: Name:
Title: Title:
2
<PAGE>
GUARANTY
THIS GUARANTY (this Guaranty") is made as July 31,1996, by Thomas Weborg,
Sandra Singer, David Ewing and Karen Ewing (collectively, the ,Guarantors,, and,
individually, each a "Guarantor), in favor of West Coast Realty Investors, Inc.,
a Delaware corporation ("Landlord").
WHEREAS, Guarantors and Cucina Holdings, Inc., a Delaware corporation, (as
successor in interest to Java City, a California corporation) ("Tenant") entered
into that certain Standard Industrial Lease - Net dated April 10, 1989 together
with the Addendum thereto, as amended by that certain Amendment No. 1 dated
February, 1990 as further amended by that certain Amendment No. 2 dated November
6, 1992, the Extension and Modification of Lease dated March 23, 1994, the
Modification of Lease dated January 26, 1995 (" 1995 Modification") And the
Amendment to Lease dated June 26, 1996 (collectively the 'Lease") concerning
that certain, real property known as 717 West Del Paso Road, Sacramento,
California (the "Property").
WHEREAS, Guarantors, ". and Landlord have entered into that certain
Agreement of Purchase and Sale and Joint Escrow Instructions ("Purchase
Agreement") dated April, 1996 pursuant to which Guarantors, ". have agreed to
sell to Landlord the Property and to assign to Landlord all of Guarantor's
interest in and to the Lease.
WHEREAS, Landlord would not purchase the Property nor accept an assignment
of the Lease if Guarantors did not execute and deliver to Landlord this Guaranty
in accordance with Section 22 of the Purchase Agreement.
WHEREAS, $2,527.57 of each month's base rent payable pursuant to Section
1.12(a) of the Lease ("Tenant Improvement Payment") is allocable to the
reimbursement of costs of certain improvements constructed for the Tenant under
the Lease (the aggregate of all Tenant Improvement Payments required to be paid
under the Lease being referred to herein as the "Improvement Obligation").
WHEREAS, Guarantors have agreed to guarantee the payment by Tenant
to Landlord of the Improvement Obligation.
NOW, THEREFORE, for good and consideration, Guarantors hereby jointly,
severally, and absolutely, presently, continually, unconditionally and
irrevocably guaranty the prompt payment by Tenant of all rentals payable by
Tenant under the Lease; provided however, the maximum liability of Guarantors
shall not exceed the Improvement Obligation; provided further such liability
shall be reduced from time to time as and when the Landlord received monthly
rent pursuant to the 1995 Modification, commencing with the first AM calendar
mouth following the Closing Date referred to in the Purchase Agreement and for
each month thereafter by the Tenant Improvement Payment allocable to such
month's base rent
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<PAGE>
Guarantors further agree as follows:
1. It is specifically agreed and understood that the terms, covenants
and conditions of the Lease may be altered, affected, modified, amended,
compromised, released or otherwise changed by agreement between Landlord and
Tenant, or by course of conduct and the Lease may be assigned by or with the
consent of Landlord or any assignee of Landlord without consent or notice to
Guarantors and that this Guaranty shall thereupon and thereafter remain and
continue in full force and effect.
2. This Guaranty shall not be released, modified or affected by failure
or delay on the part of Landlord to enforce any of the rights or remedies of
Landlord under the Lease, whether pursuant to the terms thereof or at law or in
equity, provided that it is not the intention of Guarantor to waive the benefit
of any applicable statute of limitation for the bringing of legal action against
Guarantor.
3. Each Guarantor's liability under this Guaranty shall continue until
the Improvement Obligation has been paid in full.
4. Each Guarantor hereby covenants and agrees with Landlord that if a
default shall at any time occur in the payment of any sums due under the Lease
by Tenant and continue for ninety (90) days, such Guarantor shall and will
forthwith upon demand pay the unpaid principal balance of the Improvement
Obligation in full to Landlord in legal currency of the United States of America
for payment of public and private debts.
5. The liability of Guarantors under this Guaranty is a guaranty of
payment and not of collectibility, and is not conditioned or contingent upon
the genuineness, validity, regularity or enforceability of the Lease or the
pursuit by Landlord of any remedies which it now has or may hereafter have with
respect thereto, at law, in equity or otherwise.
6. Each Guarantor hereby waives and agrees not to assert or take
advantage of to the extent permitted by law: (i) all notices to Guarantor (or
any of them), to Tenant, or to any other person, (ii) demand of payment,
presentation and protest; (iii) any right to require Landlord to apply to any
default any security deposit or other security it may hold under the Lease; and
(iv) any right or defense that may arise by reason of the incapability, lack of
authority, death or disability of Tenant or any other person. Each Guarantor
further agrees that Landlord may enforce this Guaranty upon the occurrence of a
default under the Lease which continues for ninety (90) days, notwithstanding
any dispute between Landlord and Tenant with respect to the existence of said
default or performance of the obligations under the Lease or any counterclaims
set-off or other claim which Tenant may allege against Landlord with respect
thereto, Moreover, each Guarantor agrees that such Guarantor's obligations shall
not be affected by any circumstances which constitute a legal or equitable
discharge of a guarantor or surety.
7. Each Guarantor agrees that Landlord may enforce this Guaranty
without the necessity of proceeding against Tenant or any other guarantor,
including without limitation, any other Guarantor named herein. Each Guarantor
hereby waives the right to require Landlord to proceed against Tenant, to
proceed against any other guarantor, including, without limitation, any other
Guarantor named herein, to exercise any right or remedy under the Lease or to
pursue any other remedy or to enforce any other right.
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61690OS6.LAI/P.LMIW9183-015/07-31-96/JP
<PAGE>
8. (a) Each Guarantor agrees that nothing contained herein shall prevent
Landlord from suing on the Lease or from exercising any rights available to it
thereunder and that the exercise of any of the aforesaid rights shall not
constitute a legal or equitable. discharge of Guarantor. Without limiting the
generality of the foregoing, each Guarantor hereby expressly waives any and all
benefits under California Civil Code S S 2810, 2819, 2845, 2848, 2949 and 2850,
and the second sentence of California Civil Code Section 2822(a). Any partial
payment by Tenant shall be applied to amounts longest overdue under the terms of
the Lease and shall be prorated between Tenant Improvement Payments and other
amounts longest overdue based upon the amounts thereof
(b) Each Guarantor agrees that such Guarantor shall have no right of
subrogation against Tenant or any right of contribution against any other
Guarantor hereunder unless and until the Improvement Obligation has been paid
in full. Each Guarantor further agrees that, to the extent the waiver of such
Guarantor's rights of subrogation and contribution as set forth herein is found
by a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation such Guarantor may have against Tenant shall be junior
and subordinate to any rights Landlord may have against Tenant, and any rights
of contribution such Guarantor may have against any other Guarantor shall be
junior and subordinate to any rights Landlord may have against such other
Guarantor.
(c) To the extent any dispute exists at any time between or among any of
the Guarantors as to any Guarantor's right to contribution or otherwise, each
Guarantor agrees to indemnify, defend and hold Landlord harmless from and
against any loss, damage, claim, demand, cost or any other liability (including
without limitation, reasonable attorneys' fees and costs) Landlord may suffer as
a result of such dispute.
(d) The obligations of each Guarantor under this Guaranty shall not be
altered, limited or affected by any case, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of Tenant or any defense which Tenant may have by reason of order,
decree or decision of any court or administrative body resulting from any such
case. Landlord shall have the sole right to accept or reject any plan on behalf
of each Guarantor proposed in such case and to take any other action which such
Guarantor would be entitled to take, including, without limitation, the decision
to file or not file a claim. Each Guarantor acknowledges and agrees that any
payment which accrues with respect to Tenant's obligations under the Lease
(including without limitation, the payment of rent) after the commencement of
any such proceeding (or, if any such payment ceases to accrue by operation of
law by reason of the commencement of such proceeding, such payment as would have
accrued if said proceedings had not been commenced) shall be included in
Guarantors' obligations hereunder because it is the intention of the parties
that said obligations should be determined without regard to any rule or law or
order which may relieve Tenant of any of its obligations under the Lease. Each
Guarantor -hereby permits any trustee in bankruptcy;
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61690056.LA1)RI2,F/W9193-015/07-31-96/JP
<PAGE>
receiver, debtor-in-possession, assignee for the benefit of creditor's or
similar person to pay Landlord, or allow the claim of Landlord in respect of,
any such payment accruing after the date on which such proceeding is commenced.
9. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Guaranty or pursuant to any applicable
law or requirement of public authority, shall be in writing (whether or not
so stated elsewhere in this Guaranty) and shall be deemed to have been
properly given, rendered or made only if hand-delivered or sent by
overnight courier, addressed to the other party at its respective
address set forth below,. By giving notice as provided above, either party
may designate a different address for notices, statements, demands,
consents, approvals or other communications intended for it.
To Guarantors: c/o of Java City
717 West Del-Paso Road Sacramento, California
95834
To Landlord: West Coast Realty Investors, Inc.
5933 West Century Boulevard, Suite 1900, Los
Angeles, California 90045
Attention Mr. W. Thomas Maudlin, Jr.
10 .Each Guarantor represents and warrants to Landlord as follows:
(a) No consent of any other person, including, without limitation,
any creditors of such Guarantor, and no license, permit, approval or
authorization of, exemption by, notice or report to, or registration,
filing or declaration with, any governmental authority is required by
such Guarantor in connection with this Guaranty or the execution,
delivery. performance, validity or enforceability of this Guaranty and
all obligations required hereunder. This Guaranty has been duly executed
and delivered by such Guarantor, and constitutes the legally valid and
binding obligation of such Guarantor enforceable against such Guarantor in
accordance with its terms.
(b) The execution, delivery and performance of this Guaranty will
not violate any provision of any existing law or regulation binding
on such Guarantor, or any order, judgment, award or decree of any court
arbitrator or governmental authority binding on such Guarantor, or of any
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which such Guarantor is a party or by which such Guarantor
or any of such Guarantor's assets may be bound, and will not result in,
or require, the creation or imposition of any lien on any of such
Guarantor's property, assets or revenues pursuant to the provisions of any
such mortgage, indenture, lease, contract, or other agreement instrument
or undertaking-
11. This Guaranty shall be binding upon each Guarantor, such
Guarantor heirs, representatives, administrators, executors, successors
and assigns and shall inure to the benefit of and shall be enforceable
by Landlord, its successors, endorsees and assigns. Any married person
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61690056.LAlIRLIM9193-015/07-31-966p
<PAGE>
executing this Guaranty agrees that recourse may be had against community assets
and against his separate property for the satisfaction of all obligations herein
guaranteed. As- used herein, the singular shall include the plural, and the
masculine shall include the feminine and neuter and vice versa, if the context
so requires.
12. The term "Landlord" whenever used herein refers to and means the
Landlord specifically named in the Lease and also any assignee of said Landlord,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Landlord of any assignee in the Lease or any
part thereof whether by assignment or otherwise.
13. The term 'Tenant" whenever used herein refers to and means the
Tenant in the Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Tenant, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
14. In the event of any dispute or litigation regarding the enforcement
or validity of this Guaranty, Guarantors shall- be' obligated to pay all
charges, costs and expenses (Including, without limitation, reasonable
attorneys' fees) incurred by Landlord, whether or not any action or proceeding
is commenced regarding such dispute and whether or not such litigation is
prosecuted to judgment, provided Landlord is the prevailing party.
15. This Guaranty shall be governed by and construed in accordance with
the laws of the State of California, and in a case involving diversity of
citizenship, shall be litigated in and subject to the jurisdiction of the Courts
of California.
16. Every provision of this Guaranty is intended to be severable. In
the event any term or provision hereof is declared to be illegal or invalid for
any reason whatsoever by a court of competent jurisdiction, such illegality or
invalidity shall not affect the balance of the terms and provisions hereof which
terms and provisions shall remain binding and enforceable.'
17. Subject to the limitations set forth in Paragraph 2 above, no
failure or delay on the part of Landlord to exercise any power, right or
privilege under this Guaranty shall impair any such power, right or privilege,
or be construed to be a waiver of any default or any acquiescence therein, nor
shall any single or partial exercise of such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
18. This Guaranty shall. constitute the entire agreement between each
Guarantor and the Landlord with respect to the subject matter hereof No
provision of this Guaranty or right of Landlord hereunder may be waived nor may
any Guarantor be released from any obligation hereunder except by a writing duly
executed by an authorized officer, director or trustee of Landlord-
19. The liability of each Guarantor and all rights, powers and remedies
of Landlord hereunder and under any other agreement now or at any time hereafter
in force between Landlord and such Guarantor relating to the Lease shall be
cumulative and not alternative and such rights,
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61690056.LAIAZTNM9183-015/07-31-96/JP
<PAGE>
powers and remedies shall be in addition to all rights, powers and remedies
given to Landlord by law.
IN WITNESS WHEREOF, Guarantors have executed this Guaranty AS of the day
and year first above written.
THOMAS WEBORG
Sandra Singer
David Ewing
Karen Ewing
6
<PAGE>
AN APPRAISAL OF
An Office/Industrial Facility
717 & 721 West Del Paso Road
Sacramento, California
Effective Date of Value: June 5, 1996
Date of Preparation: June 5, 1996
SUBJECT PROPERTY:
717 & 721 WEST DEL PASO ROAD
SACRAMENTO, CALIFORNIA
IDENTIFICATION OF THE PROPERTY
The property appraised is located at 717 & 721 West Del Paso
Road, California. A preliminary title report was provided to
review easements and encumbrances of record. To aid in
identifying the property, the following page indicates the
subject property on a plat map.
1
<PAGE>
map
Subject:
717 & 721 West Del Paso Road
Sacramento, California
2
<PAGE>
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to estimate the market value of the
property appraised, in fee simple title as of June 5, 1996.
FUNCTION OF THE APPRAISAL
The function of the appraisal is to provide value information for due
diligence and purchase decision of Western Realty Advisors, Inc.
DEFINITION OF MARKET VALUE
For the purposes of this report, market value is defined as:
"The most probable price in terms of money which a property
will bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller
each acting prudently, knowledgeably, and assuming the price
is not affected by undue stimulus. Implicit in this
definition is the consummation of a sale as of a specified
date and the passing of title from seller to buyer under
conditions whereby: (1) buyer and seller are typically
motivated, (2) both parties are well informed or well
advised, and each acting on what each considers to be his own
best interest, (3) a reasonable time is allowed for exposure
in the open market, (4) payment is made in cash or its
equivalent, (5) financing, if any, is on ten-terms generally
available in the community at the specified date and typical
for the property type in its locale, (6) the price represents
a normal consideration for the property sold unaffected by
special financing amounts and/or terms, services, fees,
costs, or credits incurred in the transactions."
HISTORY OF OWNERSHIP
721 Del Paso Road was purchased on August 16, 1993 for $450,000 and
later improvements were made to the property. The amount of the
improvements were not disclosed to the appraiser other than they were
substantial. 717 Del Paso Road was transferred partially to Karen
Ewing and David Ewing/Estate on December 28, 1990 as a 1/10 partial
interest.
3
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
Title to Real Estate - A copy of the preliminary title report was
provided for the purpose of this appraisal. In accordance with
professional appraisal practice, we assume that:
a)The title to the property is marketable;
b)The property is free and clear of all liens,
encumbrances, easements and restriction except here
noted in this report;
c)The property does not exist in violation of any
applicable codes/ordinances, statutes or other
government regulations;
d)The property is under responsible ownership and
competent management and is available for its highest
and best use.
We have reviewed the preliminary title reports reproduced in the Addenda
to this report.
Sketches and Maps - Sketches and maps in this report are provided to
aid the reader in visualizing the property and are the results of
field investigations made by the appraiser. Dimensions and
descriptions are based on public records and information that was
furnished by others. These dimensions and descriptions are not meant
to be used to replace matters of survey.
Information and Data - Information supplied by others is considered in
this valuation. These information sources are believed to be
reliable, and no further responsibility is assumed for their
contribution to the value estimate. A change in the value estimate
may be required upon consideration of additional or more reliable data
that may become available.
4
<PAGE>
Unexpected Conditions - It is assumed that there are no expected or
unexpected conditions of the property that would adversely affect
value.
Distribution of Value - The distribution of total value for land and
improvements is applied only under the state of usage and utilization.
Separate values for land and improvements may not be used in
conjunction with any other appraisal and are invalid if so used.
Legal or Specialized Expertise - No opinion is customarily expressed
for matters requiring legal expertise, or other matters under
investigation, or of knowledge beyond that customarily expressed by
real estate appraisers.
Advertising - Neither all nor any part of this appraisal report shall
be conveyed to the public through advertising, public relations, news,
sales or other methods without the written consent and approval of the
appraisers.
Court Testimony - Testimony or attendance in court by reason of this
appraisal shall not be required unless arrangements for such services
were previously made.
Effective Date of Value - The date of value, to which the conclusions
and opinions expressed in this report apply, is set forth in the
letter of transmittal. The effective date of value is the date of
inspection of the subject property. The dollar amount of any value
5
<PAGE>
opinion reported is based on the purchasing power of the U.S. dollar
as of that date. The appraiser assumes no responsibility for economic
or physical factors occurring subsequent to the date of value which
may affect the opinions reported.
Mineral Rights - The value of mineral rights, if any, was not
considered in this appraisal unless otherwise noted.
Structural-Deficiencies - The appraiser found no obvious evidence of
structural deficiencies except as stated; however, no responsibility
for structural soundness or conformity to city or county building and
safety codes can be assumed without an independent structural
engineering report.
Property Inspection - The appraiser(s) personally inspected the
subject property as part of the appraisal assignment.
Property Included - No consideration was given in this appraisal to
personal property located on the premises. Only the Real Property was
considered as part of the appraisal assignment. However, the
appraiser has considered the value of tenant improvements in valuation
conclusion.
6
<PAGE>
Earthquakes - As earthquakes are not uncommon in the area, no
responsibility is assumed for their possible effect on individual
properties unless detailed geologic reports are made available.
Soil Conditions - No detailed soil studies of the subject were
available to the appraiser. Therefore, statements regarding soil
qualities made in this report are not conclusive but have been
considered consistent with the information available to us.
Mechanical Equipment - It is assumed by the appraiser that all
mechanical equipment is in operative condition. The mechanical
equipment is not included in this appraisal.
Environmental Study - This appraisal is not an environmental study and
reliance should not be placed on this report for matters that are the
province of an environmental study. Such a study has not been
provided to the appraiser for our review.
Hazardous Waste - The appraiser has not learned of any hazardous waste
or toxic material in existence at the subject property, therefore, the
indicated value does not reflect their existence, if any.
7
<PAGE>
DESCRIPTIVE SECTION
AND
REGIONAL DISCUSSION
Regional Map
Regional Area: Sacramento County
9
<PAGE>
NEIGHBORHOOD DISCUSSION
10
<PAGE>
Neighborhood Map
SUBJECT PROPERTY: VICINITY MAP
11
POR. SEC7,T.9N.,R.5E.,M.D.B.AM.
<PAGE>
Assessor's Map Bk- 23 7 P9. 60h. II 9 Pg 213-30-90)
County of Sacramento, Calif.
SUBJECT PROPERTY: PLAT MAP
12
<PAGE>
NEIGHBORHOOD ANALYSIS
SITE ANALYSIS
The subject site is in close proximity to good freeway access, the
center city, and air transportation facilities. It is surrounded by
industrial and commercial buildings of similar vintage in a desirable
industrial location. The property is located in the prestigious
Northgate Industrial Park area. It is located in the northern part of
Sacramento with access to Interstate 80, Interstate 5, and other major
freeways. Directly south is the center city and recreational areas;
east and west is residential; and north is the communities of Garden
land, North Sacramental, and Del Paso Heights.
Tenants in the subject building, JAVA CITY, are very similar to those
that occupy surrounding properties.
As reported by the City of Sacramento Northgate is one of the premiere
industrial parks in the immediate vicinity of Sacramento. Competing
areas are: Bradshaw region and Sunrise industrial and office park
areas.
Vacant is spread throughout the City though not in large business
parks. There are three industrial zoning categories which allow a
large variety of uses.
An examination of rental rates in the immediate area, however, showed
a stability of rental rates and there was limited vacancy in
structures the size of the subject property
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other than what was normal for the area and to allow for transition.
Vacancy existed in the larger industrial/office buildings in direct
proximity to the subject property.
Discussion with several commercial brokers in the area indicated that
leasing demand is relatively good and sales activity is reasonably
strong, but hindered by the past recession based economy. There was
few properties available for sale in the immediate area.
Topography was level and the site was well landscaped. Discussions
with the listing broker indicated that the building will be repainted
and the parking lot will be restriped. Parking is adequate to meet
zoning standards once it is restriped.
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PHOTOGRAPHS
Street Scene: Del Paso Boulevard Looking North East
Street Scene: Del Paso Blvd. Looking Southwest
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SITE ANALYSIS
Site Improvements: The site is covered by building improvements, and
associated asphalt paving, of approximately 62,173 square feet of area
for the two parcels comprising the property. Total building square
footage, for both buildings, is 20,000 square feet.
The subject property fronts to Del Paso Boulevard with good access to
the 160 freeway and Northgate Boulevard.
Dimensions/Shape/Area,
The subject lot is rectangularly shaped. The site enjoys frontage on
Del Paso Blvd. which is a 2 lane street. The site has 62,173 square
feet of space with good access to Northgate Boulevard.
Zoning is industrial, M-1, which allows the existing use for research
and development and industrial use with up to 65% build out as office
space. Property usage is recorded as Industrial Condominium.
Flood Zone
The property is in zone A-99 as per flood map 060262-0065E. This is a
100 year old flood zone area. The entire pad is within the 100 year
flood plain.
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Topography,
The lot and surrounding area is level for the subject and in the
immediate area of the neighboring properties. Topography is level and
very slightly downward from front to back of the lot to allow for
drainage. Neighboring properties are basically level and there was no
evidence of settling in the subject property or area.
Sail & Subsoil Conditions:
The subject soil appears to be adequate, there is no evidence of land
and building settlement in the subject neighborhood. However, no soil
report was made available to the appraiser. The City is not subject
to unstable soil conditions other than Earthquakes as discussed with
the Economic Planning department of the City.
It is assumed for appraisal purposes that there are no adverse soil
conditions which might adversely affect the value of the subject
property. The land use before the building was built was undisclosed.
It is assumed for appraisal purpose that the previous use posed no
form of toxic danger which could adversely affect the value of the
subject property. The appraiser(s) has not reviewed any environmental
study, nor does the appraiser(s) claim to be an expert in the
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field of environmental study. If concern over environmental
contamination is an issue, a prospective purchaser is urged to
consider environmental studies. Environmental studies are common for
industrial locations such as the subject property, prior to property
transfers.
Drainage:
The lot appears to be adequate for drainage. No noticeable area of
water accumulation was found, nor noticed. Drainage from the
surrounding areas appear minimal.
Utilities and Services:
The subject property is connected to all public utilities.
Access:
The lot is accessible from Del Paso Boulevard and Northgate Boulevard.
Easements:
There are no adverse noticeable adverse easements affecting the
property. The appraiser has reviewed a preliminary title or title
report of the property in that determination. There is the
availability for ingress and egress and also for public utility
easements. A copy of the Preliminary Title report is reprinted in the
Addenda to this report.
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Man-Made Improvements
The subject street is maintained by the City of Sacramento. The off-site
improvements include sidewalks, curbs, electrical street lights, sanitary
sewers and storm sewers.
Assessment and Taxes: According to the Sacramento County Assessor, current
assessed costs are presented current and not payable. Assessments are as
follow:
APN: 237-0600-003* 237-0600-005**
Land $89,047 S217,988
Improvements S366,307 $639,869
TAXES:
1st Installment Paid Paid
2nd Installment Paid Paid
Based on Proposition 13 taxes should increase annually by 2% unless there is
a change of ownership, AT which time they will increase to an amount based on
the current tax rates against existing market value.
Zoning:
The subject lot is zoned M- 1 industrial City of Sacramento. This zoning
allows for A variety of uses including the existing use. Zoning is designed
to preserve city land appropriate for industrial uses and to attract and
preserve desirable manufacturing and research/development areas. Land use
is industrial condominium.
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Zoning is intended to provide safeguards and appropriate transitions
to surrounding land uses that may be sensitive to
industrial/commercial activities and to permit efficient design of
infrastructure and public services to serve these uses. Such
infrastructure serves the neighboring area. The property is in a well
structured industrial area.
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IMPROVEMENT ANALYSIS
PHOTOGRAPHS
Improvement Scene: Front View of 717 W. Del Paso
Improvement Scene: Front View of 721 W. Del Paso
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IMPROVEMENT ANALYSIS
Building Improvements: The primary improvements are two class C
concrete tiltup, construction buildings. 721 Del Paso Road consists of
8,964 square feet and 717 Del Paso Road consists of approximately 1
1,035 square feet.
Age: The subject properties were originally constructed in 1988. It
has a chronological age of 8 years, an effective age of 5 years, and a
remaining economic life of 45 to 50 years.
Based on the appraiser's inspection and assessment of the condition of
the improvements, the subject has an estimated effective age of 5
years and a remaining useful life in excess of 50 years. It is
adequately maintained for it's intended use. There was no deferred
maintenance noted.
Tenant improvements may exceed the 65% permitted by existing zone
ordinances.
The Construction is summarized as follows:
Construction: Concrete footings, foundation and slab; wood frame
wall design office; flat tar/gravel roof.
Basement: None
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Exterior Walls: Stucco wood frame construction
Interior Walls: Painted and finished drywall with baseboard
molding.
Windows: 1/4" tinted glass in metal and wood casement.
Roof: Wood, flat roof with built-up tar/gravel roof cover.
(Estimated 16 Foot ceiling height).
Plumbing: Adequate bathroom and plumbing facilities present.
Adequate plumbing and normal equipment is evidenced.
Air Conditioning
Ventilation: There is adequate heating and air conditioning
equipment present. The industrial building has good
ventilation. Production Area is clean and air
conditioned.
Electric: 1 10/220 volt electrical service. The entire building
has adequate Amperage service with the ability to expand as
need.
Lighting: For the office area and lobby area, lighting is
provided by flush mounted drop in-ceiling florescent fixtures,
incandescent lighting, and commercial 2 bulb, 8 foot
fluorescent fixtures.
Sprinkled: The building is fully sprinkled for fire protection.
Parking: Parking is adequate and within applicable building
codes.
Comments: The subject building is in good/excellent condition and
evidences a desirable quality of construction.
Deferred Maintenance: There was no deferred maintenance noted.
Other Factors: There is substantial tenant improvements that
enhances the use of the building for Office usage
including additional tenant improvements.
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Highest and Best Use
Highest and Best use is defined as:
"That reasonable and probable use that supports the highest present value, as
defined, as of the effective date of appraisal.
Alternatively, that use, from among reasonable, probable and legal alternative
uses, found to be physically possible, appropriately supported, financially
feasible and which results in highest land value.
The definition immediately above applied specifically to the highest and best
use of land. It is to be recognized that in cases where a site has existing
improvements on it, the highest and best use may be determined to be different
from the existing use. The existing use will continue, however, unless and
until land value in its highest and best use exceeds the total value of the
property in its existing use."
The above describes the concept of highest and best use where the existing
improvements have a number of years of physical life remaining that does
enhance the total property value.
The overall analysis of the real estate indicates that the improvements are
not new and suffer some depreciation. The trends indicate that land values
are stable and/or increasing slightly; however, the improvements contribute
to the overall property value and razing of these improvements would not be
feasible until the value of the current use is
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exceeded by the land. The net return of the building is greater than the
return which could be earned if the site were vacant.
Based on the existing uses and trends in the neighborhood, zoning, and
location, the highest and best use of the land is for industrial/research
and development usage.
The existing improvements are developed with this type of use and therefore,
are concluded to represent the highest and best use as improved. Therefore,
the property is at highest & best use as presently zoned and developed.
Lease Analysis
In evaluating the lease for the subject property a description of the
Lessee's business is reproduced in the Addenda to this report. It should be
noted that the tenant is a closely held company with the intent to be
involved in an initial public offering. The company is -a well financed and
a well run company in a niche market that is expanding.
Lease A: 717 West Del Paso Road, Sacramento, California
Lessor: Mr. Thomas Weborg and Sandra Singer
Lessee: Cucina Holdings, Inc.
Building Square Footage: 11,200 square footage
Lease expiration: July 31, 2003
Warehouse space: 5,398 square feet
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Office space: 5,802 square feet
Existing rent:
Warehouse $312 per square foot NNN
Office $.757 per square foot NNN
Total Rent:
August 1, 1996 to August 1, 1997 $9,619.69 per month
August 1, 1997 to August 1, 1998 $10,004.48
August 1, 1998 to August 1, 1999 $10,820.85
August 1, 1999 to August 1, 2000 $11,253.68
August 1, 2000 to August 1, 2001 $11,703.83
August 1, 2001 to August 1, 2002 $12,171.98
August 1, 2002 to August 1, 2003 $12,658.86
4% escalating increase to lease termination.
There is no CPI escalation clause.
Lease expiration date: July 31, 2003
Use: Wholesale roasting and distribution of coffees with showroom/cafe/cafe
to general public.
Lease B: 721 West Del Paso Road, Sacramento, California
Lessor: Mr. Thomas Weborg and Sandra Singer
Lessee: Cucina Holdings, Inc.
Building Square Footage: 8,640 square footage
Lease expiration: July 31, 2003
Warehouse space: 4,347 square feet
Office space: 4,293 square feet
Existing rent:
Warehouse $393 per square foot NNN
Office $.922 per square foot NNN
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Total Rent:
August 1, 1996 to August 1, 1997 S5,671.24 per month
August 1, 1997 to August 1, 1998 S5,898.09
August 1, 1998 to August 1, 1999 $6,134.01
August 1, 1999 to August 1, 2000 $6,379.37
August 1, 2000 to August 1, 2001 $6,634.54
August 1, 2001 to August 1, 2002 $6,899.92
August 1, 2002 to August 1, 2003 $7,175.92
4% escalating increase to lease termination.
There is no CPI escalation clause.
Lease expiration date: July 31, 2003
Use: Wholesale roasting and distribution of coffees
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VALUATION SECTION
VALUATION SECTION
APPRAISAL PROCEDURES
The three traditional approaches to value are applied in order to arrive at a
final value conclusion. A synopsis of the procedures employed in each
approach follows.
COST APPROACH
The Cost Approach is based upon the proposition that the informed purchaser
would pay no more than the cost of producing a substitute property with the
same utility as the subject. It is particularly applicable when the property
under appraisement involves new or newer improvements which represent the
highest and best use of the land.
Additionally it is applicable to those types of properties which are unique
and contain specialized improvements for which there is no comparable data
in the market. The Cost Approach includes the following steps:
1.Estimate the market value for the land.
2.Estimate the reproduction cost of the improvements.
3.Deducting appropriate depreciation from the cost new
to arrive at a depreciated improvement value.
4.Adding the land and depreciated improvement value to
arrive at A property value estimate.
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INCOME APPROACH
The Income Approach views the property as a revenue producing assets whose
value is derived from satisfying investment criteria. This approach
generally follows the following steps:
1. Recognizing the revenue producing potential of the
property.
2. Considering appropriate expenses associated with the revenue
including normal operating costs and real property taxes as
well as vacancy and collection loss factors. Care is exercised
in keeping expenses within acceptable proportions for the
specific investment.
3. Subtracting the expenses from revenues in order to arrive at
a net annual income stream produced by the property.
4. Capitalizing the net operating income at an Overall Rate
which considers the risks inherent in the property as compared
to alternate investments.
THE MARKET APPROACH
This method produces an estimate of value by comparing the subject property to
sales and/or listing of similar properties in the same or competing areas.
This technique is used to indicate the value established by informed buyers
and sellers in the market. At the date of this appraisal, there was not
indicated by an inspection of market sales from use of DAMAR/TRW, CONTS INC.
and assessor data an abundance of comparable sales of this type of property.
These industrial buildings are build and designed by investors who generally
hold onto the property and lease the properties such as the present building
to technology oriented companies. At the date of the appraisal such
companies are generally doing well in the recession based California economy.
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Since the property is newly constructed the cost approach is felt to bear
significance in the value determination. The lease rate, available
capitalization rates from similar size properties, and the examination of the
income stream, plus the long term nature of the lease are factors that the
income approach should consider.
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VALUATION ANALYSIS
The Cost Approach
This approach involves the summation of the depreciation value of the building
and site improvements with the market value of the land. The market value of
land added to the depreciated improvement value estimate is the value
indicated by the cost approach. The land sales used to derive our estimate
of land value is presented on the following pages under land valuation.
We have made adjustments for location, time of sales, size, comer influence,
traffic count, and potential use to arrive at our estimate of land value.
This value when added to the depreciated improvement value estimates produces
the following value estimate attributable to the cost approach.
Land Valuation
The comparison method, or market approach is the most common way of developing
a market value estimate for land. In the comparison method, sales and
listings of vacant land comparable to the subject property are gathered and
analyzed. The sale prices are adjusted for time, location, physical
characteristics, and other relevant variations. The adjusted prices are
reduced to some common unit of comparison, such as price per acre or price
per square foot. The appraiser analyzed this information and derives a unit
value applicable to the subject property. When applied to the appropriate
unit measure, this results in an estimate of the market value of the vacant
land.
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An investigation of land sales in the subject's vicinity disclosed several
that were useful in our analysis. However, at the preparation of this report
these sales were in the process of being verified. Sales ranged from $8
to $20 dollars per square foot. There is minimal sales of vacant land in
the immediate area as the Northgate industrial center is fully constructed.
We have used land sales in the immediate area to formulate the value
conclusion as follows:
No. Address Lot Zoning Sale Sale Price Price per
area Date square foot
1. S. WATT, 34,500 INDUSTRIAL 05/95 $367,500 $10.65
SACRAMENTO
2. 8634 ANTELOPE, 23,555 INDUSTRIAL 07/94 $588,000 $24.96
SACRAMENTO
3. GOLD MEADOW, 101,495 INDUSTRIAL 04/94 $1,037,500 $10.22
SACRAMENTO
*The were no industrial sales in the Northgate business area.
Analysis:
An analysis of land sales in the immediate area did not disclose an abundance
to draw our value conclusion. An attachment to this report will be prepared
to supplement the analysis of land value.
Land Sale Discussion:
Summary
The review of vacant land sales was conducted and consideration was given to
other sales which did not contradict the comparables selected. Estimating the
value of the subject site as though vacant is a primary step in completing the
cost approach to value.
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Vacant land sales reported were helpful in estimating the value of the
subject site as though vacant.
With adjustments, the land value of the subject is similar to these
comparables. After making adjustments for location, size, date of sale,
retail access, proximity to the central business district, and probable use,
we conclude that the indicated market value of the subject's land value is
conservatively stated at $14.00 per square foot since the property is
desirable and considering the size of the parcel and the abundance of
industrial land in the area for development. Therefore, the total land
value for the land is calculated as:
$14.00 x 62,173 square feet = $870,422
which results in a total rounded value of $870,000 for land value under the
definition of fair market value.
Improvement Valuation
The next step in the Cost Approach is to estimate the Reproduction
Cost New of the improvements. Reproduction Cost New is defined as
follows:
"The cost of construction at current prices of an exact duplicate or
replica using the same materials, construction standards, design,
layout, and quality of workmanship, embodying all the deficiencies,
super-adequacies and obsolescence of the subject."
The Reproduction Cost estimate is based upon the current market and
includes all items necessary to reproduce the subject improvements as
of the date of appraisal. In compiling the cost estimate the Marshall
Valuation Cost Manual was employed and
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reflects not only the cost of material and labor, but also includes
architect's fees, engineering expenses, contractors fees, overhead and
profit. As an improvement ages, it typically loses value or depreciates
because of deterioration and/or obsolescence resulting from wear and tear,
inadequacy or over-adequacy. Accrued Depreciation is defined as follows:
"A loss from the upper limit of value. An effect caused by
deterioration and/or obsolescence. Deterioration is
evidenced by wear and tear, decay, dry rot, cracks,
encrustation, or structural defects. Obsolescence is
divisible into two parts, functional and economic.
Functional obsolescence may be due to poor floor plan,
mechanical inadequacy or over-adequacy, functional inadequacy
or over-adequacy due to size, style, age, etc. It is
evidenced by conditions within the property. Economic
obsolescence is caused by changes external to the property
such as changes in neighboring property uses, changes in
zoning and legislation, etc. It is also the actual decline
in market value of the improvement to land from time of
purchase to the time of resale."
Depreciation is divided into three classifications; Physical Deterioration,
Functional Obsolescence, and Economic Obsolescence. Physical deterioration
refers to the loss in value due to the wear and tear of the physical
components of the structure. Curable physical deterioration is normally
measured by the cost of those physical aspects of the structure which are
in need of repair.
Non-curable Physical Deterioration is estimated by the "Age-Life Method"
wherein the depreciation is based upon the relationship of the structure's
effective age to the total estimated physical life when new.
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Functional obsolescence is a loss or reduction in the utility of a structure
resulting from a decreased capacity of the structure or one of its component
parts to perform the function for which it was intended. This type of
depreciation or obsolescence is evidenced by conditions within the property
and is generally caused by deficiencies in architectural style, placement of
the improvements on the site, or the general floor plan. Functional
obsolescence can be curable or non-curable. As an example curable functional
obsolescence could present itself as a lack of loading doors in an industrial
property. All things being equal the cure would be to construct additional
doors to permit the building to be competitive with other facilities.
Non-curable obsolescence could be evidenced by low ceiling heights in
comparison to competing structures.
Economic Obsolescence is the loss in value of a property due to factors
outside the limits of the property itself An example is a major free-standing
chain store relocating and its effects on neighboring local retailers. In
general, the local merchants are highly dependent on the foot traffic created
by a large chain store. The absence of this store will reduce foot traffic
and retail sales for the local merchants. This can reduce the economic
rentals which a property could command prior to the moving of the chain
store. Other examples include the re-routing of thoroughfares, changing of
zoning, etc.
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PHYSICAL DETERIORATION - SUBJECT PROPERTY
Physical Deterioration was based on analysis of the physical condition of
the subject improvements. Consideration was given to the physical
deterioration created by the wear of elements and use, and the estimated
effective age of the improvements with respect to the total estimated
physical life of same (Age/Life Method).
Although the improvement's actual age is 8 years, it was noted that the
property has been adequately maintained. An effective age of 5 years was
determined and a remaining economic life of 55 years was considered to
be appropriate. The physical depreciation calculation is set forth as
follows.
The effective age is estimated at 5 years which is divided by the effective
age plus the estimated remaining economic life of 60 years. Therefore,
physical depreciation is calculated as: 5/60 = 8.33% depreciation.
If, we had considered that the building will depreciate on a curvilinear
basis, the depreciation would be 3% based on Marshall and Swift
Valuation Guide. Curvi-linear depreciation is thought to better
represent the physical depreciation of the improvements.
As a result, the appraiser has used a depreciation percentage of 3%
after consideration of both calculations, the extent of the tenant
improvements, and the present good quality and condition of the
improvements.
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Functional Obsolescence - Subject Property
None Evident. The subject is well designed for its present and
intended purpose.
Economic Obsolescence - Subject Property
None Evident. The area supports the value of the property.
Our Cost Approach Summary is presented on the following page.
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COST APPROACH SUMMARY
A. Two Story Retail Building, Class C Good Quality, Good Condition with
square feet of 20,000 @ an average of $52 PSF*, new: $1,040,000
Less Estimated Depreciation from all causes:
Physical Deterioration @ 3% $31,200
Functional Obsolescence: None
Economic Obsolescence: None < 31,200>
Total Depreciated Value of the Main Improvement $1,008,800
C. Estimated Value of Site Improvements $75,000
D. Total Estimated Value of the Improvements: $1,083,800
E. Add Estimated Land Value $ 870,000
Total Value Indicated by the Cost Approach: $1,953,800
Rounded to: $1,954,000
Estimated from Marshall & Swift Section 14, Page 14, Industrial Buildings and
adjusted for tenant improvements.
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INCOME APPROACH
The next step in the appraisal process is to develop an estimate of value for
the subject property by applying the income approach. This Approach is
recognized as most applicable to those properties which are considered
"investment oriented real estate." The Net Income generated by the property is
capitalized based on the premise that the value of the subject property is
represented by the present worth of anticipated net income.
The projected income stream is based on an analysis of the quality, as well as
the quantity and duration, of the income expectancy. This income stream is
capitalized into an indication of value using a capitalization rate developed
from market sales analysis. The estimates of income, expense, and capitalized
property values are presented in the following paragraphs.
In preparation of the Income Approach we have not been provided nor have we
reviewed the financial statements of the landlords to determine the applicable
income and expenses of the subject as these were not available.
Income Analysis
The first step in the income approach is to determine the economic rent for
the subject property. To do this, we have obtained rental data on properties
similar to the subject. A sampling of this information is presented in the
following section of this report.
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Rental Analysis
The income approach utilizes an estimate of economic market rental income
adjusted to a triple net basis, which is capitalized into a value estimate
abstracted from the market which is summarized below:
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Rental Rates - Triple Net
Location Total Sq. Ft.
office Sc. Ft. Rent/Terms Comments
1. 749 W. Stadium Lane 14,800 $.42 IG N/A
Sacramento 3,350 60 months
2. 4103 Northgate Blvd. 7,562 $ .81 NNN Escalate
Sacramento 6,000
3. 1515 Sports Drive 10,186 S .42 IG 4% annual
Sacramento Increase/expansion
4. 1143 N. Market Blvd. 10,545 $ .41 IG 4% annual
increase
Cam=$.055 psf
Considering the location, regular maintenance and repair, and the size of the
structure, the subject would be desirable rental space if exposed to the open
market.
The appraiser has determined that an economic rental rate for the subject is
best represented by current rental rates. The property is a desirable
industrial and research and development area. The current lease is to a
quality tenant and has 7 years remaining. It is likely that the rental
income will be stable for that period. In purchasing the property the
appraisal/evaluation must consider the rental income received from the lease
to account for the economic benefits due the prospective purchaser.
The appraiser has determined that the estimate of mark-et rent is calculated
as follows:
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Net Lease Basis
Address Square Foot Net Lease Rate Total Rent
717 & 721 Del Paso 20,000 NNN $15,675
x 12
Total Market Rental Rate $188,102
*Based on the rental increase for August 1, 1996.
Total rental revenue is estimated at $188,102 assuming full occupancy
and considering comparable rental rates in the immediate area. An
examination of the existing lease showed a 4% adjustment for each year
which is typical adjustments for the market, but exposes the purchaser to
additional risk should inflation return.
Other rental rates are generally below the subject property in the
surrounding area. The subject property is an older building relative to A
number of other R & D buildings where rents are about $1.00 to $1.25 NNN
and is of the same vintage as many office/industrial buildings near the
present location. Today's rental rates are realistic although may be on
the high side given existing rents in the area. However, offsetting
this is vacancy rates for surrounding properties which are dropping to
3-5% and the value of A long term lease to A quality tenant. Thus, we
have used existing market rates for fair rental value.
Vacancy loss has been estimated at 3% given the vacancy and growing
competitive nature of the rental market, the quality tenant, and the
existing lease. he appraiser has considered the vacancy and collection
in the immediate and neighboring area to
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establish the vacancy rate of 5%, but then considered the lease which insures
a minimum vacancy as long as the subject company honors it's existing lease.
A study of the market place indicated that there are similar properties to
the subject, but in general they are less desirable properties that are
vacant and/or for sale.
The benefit for the subject property is that it is located in a
desirable industrial location for industrial and research and development.
It is part of a desirable industrial location for property and should be
reasonably rentable even in today's existing market place.
Common management expenses would include collecting rents, servicing the
debt, if any, paying operating expenses and paying taxes when due.
A study of operating expenses indicate that expenses are estimated to
approximate 3% of Total Rental Revenue. Management expenses have been
estimated at 1% of annual income and is included in the estimate of operating
costs.
Reserves cover the replacement of short-lived building components (and
deferred maintenance). In this case, reserves for replacement would
include items covered items such as resurfacing, pavement of parking
areas, and roofing repairs. Such reserves are included in the estimate
of operating expenses as short lived items are paid for out of the revenue
stream as needed.
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Since the improvements are not new, but are in good to average condition and
with good maintenance, the reserves for replacement have been estimated at 2%
of annual income.
STATEMENT OF PRO-FORMA NET OPERATING INCOME
Gross Revenue $188,102
Less: Vacancy and Collection Loss @3% < 5,643>
Effective Gross Annual Income $182,459
Operating Expense, Reserve For Replacements, etc. 3% $< 5,473>
Net Income $176,986
CAPITALIZATION PROCESS
The capitalization of income has been made on the premise that value is
represented by the present worth of anticipated net income. The projected
income stream is based on an analysis of the quality, as well as the quantity
and duration of the income expectancy. This income stream is capitalized
into an indication of value using a capitalization rate developed from the
market.
Using the technique of direct capitalization, the capitalization rate is
calculated using market data as follows:
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No. Location Date of Sale Price Price per Capitalization Rate
Sale S. F.
1. 3231 Ramon Circle
Sacramento 10/25/94 $785,000 $71.36 8.55%
Comments: This was an all cash sale of a property built in 1991. It
has 11,000 Square feet with office space of 61% much like the subject.
Price per square foot Land is at $9.99. Rent per square foot is
approximately $.75 including CAM changes.
2. 580 Menlo Drive
Rocklin, CA 01/28/94 $1,250,000 $82.60 8.64%
Comments: This is an older sale, but is used to reflect the increase in
market condition and to match economic times and market conditions. It is
in neighboring Rocklin, Ca. And has 15,133 square foot rentable. Office
space is 49% of total space. The property was built in 1988. It is
within good access to freeway 65.
3. 729 W. Del Paso
Rd. 01/17/95 $616,000 $40.00 11.68%
Sacramento, CA
Comments: This property is owner occupied by Sacramento Machinery
Company with reported market rents at $.30 s.f. per month gross for warehouse
space and $.65 gross for Office space. The buyer spent additional funds
exceeding $100,000 for needed improvements. It is a neighboring property
and was sold by the developer Whitney Properties, Ltd. It has 15,400 square
foot. Rental rates were below that of the subject property.
We have concluded that a capitalization rate of 9.60% appears appropriate
given the time of sale, and the market sales in the recent past. The
majority of sales are owner occupied and not investment owned and it has
not been possible to derive capitalization rates from them. However, sales
in the nearby vicinity generally shows a dropping capitalization rate as
rental income increases and with A slight increase in market values.
An analysis of direct sales indicated that most of the industrial sales are
of A similar size and type in the immediate area and was investment owned
properties.
47
<PAGE>
After analyzing these sales and the nature of the market in general it is
our opinion that the capitalization rates is for sales in the 1995- 1996
period is due to the anticipation of the return being obtained at the
end of the investment holding period (as a reversion or sale). Investment
in the subject property requires that a projection be made of resale price
in the future and/or of rental rates in the future. This is difficult to
do, but the direction of change is rising price per square foot, lower
vacancy rates, and stable market interest rates. A review of economic
activity in the area shows a high growth rate which should be favorable,
barring a major economic recession, due to the technology emphasis in the
immediate area.
As a result, we have arrived at a direct capitalization approach to arrive at
an overall capitalization rate of approximately 9.60%. We have selected an
overall rate to reflect the rate appropriate for the risks and returns of
this type of investment. We have added to the capitalization rate to reflect
the risk in the economy due to recession and increasing elicited in the
market for industrial property in the immediate area.
The value conclusion as it applies to the subject is as follows:
Net Income Overall Rate = Value lndication
$176,986 .0960 = $1,843,604
Rounded To: $1,844,000
48
<PAGE>
Market Approach
The next step in the appraisal process is the development of the market approach
for the subject property. The market approach is an appraisal technique in
which a market value estimate is based on prices paid in actual market value
estimate is based on prices paid in actual market transactions and on current
listings. It is a process of analyzing recently sold and listed properties
similar to the subject. The reliability of this technique depends on (a) the
degree of comparability of the property appraised with each sale or listing, (b)
the length of time since the sale, (c.) the accuracy of the sale data, and (d)
the absence of unusual conditions affecting the sale.
Once the sales are selected they are compared to the subject property on some
unit of comparison which is generally recognized in the marketplace, such as
square feet of improvement area, including land value, square feet of
improvement area after land value has been subtracted, annual gross rent
multiplier, etc.
A search of the subject's area disclosed several sales that were useful in my
analysis. The property is selling at the top of the market range indicated
partially due to the changing market, the favorable 7 year lease term, and the
credit quality of the tenant. The structure has slightly over 65% improved
office space and is of sturdy construction.
The appraiser has considered sales from 1993 to present, plus has checked
several listings in the determination of the comparables to use in the
analysis.
Generally,
49
<PAGE>
properties in the immediate area that were available for sale were of similar
locations and were in similar conditions of maintenance.
These sales are summarized on the following pages and listed below:
Number Location
1. 729 West Del Paso Road, Sacramento, CA.
2. 580 Menlo Drive, Rocklin, CA.
3. 3845 Atherton Road, Rocklin, CA.
4. 3400 Sunrise Blvd., Rancho Cordova, CA.
5. 3231 Ramos Circle, Sacramento, CA.
6. 140 Blue Ravine Road, Folsom, CA.
Other Sales:
1. 713 W. Del Paso Road, Sacramento, CA.
2. 771 Oak Avenue, Folsom, CA.
A summary of each sale is presented below:
50
<PAGE>
<TABLE>
Comparable Sales
<CAPTION>
Sale
Address Bldg. Size Lot size Year Built Type Date of Sale Price Per S.F.
<S> <C> <C> <C> <C> <C> <C>
1. 729 W. Del Paw Rd. 15,400 41,643 1988 Warehouse 01/17/95 $40.00
Sacramento, CA.
Comments: This is an owner occupied building that is nearby the subject
property. It is improved as a warehouse and has less tenant improvements than
the subject property. Also, it does not have as favorable a lease. Market
rents were slightly below those of the subject property at time of sale.
Adjustments are made upward for time, condition, quality, and tenant
improvements.
Sale
Address Bldg.Size Lot size Year Built Type Date of Sale Price Per S.F.
2. 580 Menlo Drive, 15,133 20,540 1988 Industrial 01/28/94 $82.60
Rocklin, CA.
Comments: This is a one story concrete tiltup building with a brick
veneer. It consists of 15,133 square feet rentable with office area of 7,452.
Zoning is MP, Sacramento County. It is not fire sprinkled like the subject
and is of lower quality. It is of good condition and of similar age, but a
lesser location.
Sale
Address Bldg.Size Lot size Year Built Type Date of Sale Price Per S.F.
3. 3845 Atherton Road 16,666 16,666 1990 Industrial 12/16/94 $92.20
Rocklin, CA.
Comments: This is a one story concrete tiltup building with multi-tenants. It
is in a similar industrial Area known as Sunset Blvd. It is located in
Stanford Business Park. This is of similar quality as the subject property,
but possibly a less desirable location. Adjustments are upward for quality
and condition, plus location.
Sale
Address Bldg. Size Lot size Year Built Type Date of Sale Price Per S.F.
4. 3400 Sunrise Blvd. 7,200 88,498 1985 Industrial 04/11/95 $97.50
Rancho Cordova, CA.
Comments: This is a one story tiltup building with stone veneer. It is in
good condition and of similar Quality, but is a distance from the subject
property. It is located in neighboring Rancho Cordova, California.
Adjustments are made for location and type of structure, but in general is
slightly superior to the subject property.
Sale
Address Bldg. Size Lot size Year Built Type Date of Sale Price Per S.F.
5. 3231 Ramos Circle 11,000 Unk 1991 Industrial 10/25/94 $71.36
Sacramento, CA.
Comments: this is a one story building of very similar design and quality of
construction as the subject properly. It is of similar size and is improved
as an R & D building. This property is in proximity and similar area as the
subject property. Adjustments are upward for tenant quality, for date of
sale, and for location. It is slightly newer than the subject also
warranting an adjustment.
Sale
Address Bldg. Size Lot size Year Built Type Date of Sale Price Per S.F.
6. 140 Blue Ravine Road 35,000 137,258 1985 Industrial 05/10/95 $57.68
Sacramento, CA.
Comments: This property is occupied by Blue Shield insurance. It is a one
story concrete tiltup building. The property is located in an older
development which has larger buildings. Adjustments are made for size of
building, quality of construction, and condition, plus age of structure. In
general adjustments are upward.
51
</TABLE>
<PAGE>
<TABLE>
Other Sales:
<CAPTION>
Sale
Address Bldg. Size Lot size Year Built Type Date of Sale Price Per S.F.
<S> <C> <C> <C> <C> <C> <C>
1. 713 W. Del Paso Road 11,200 1988 Industrial 04/11/96 $57.50
Sacramento, CA.
Comments:Reported to be an REO sale with vacancy at time of sale.
Sale
Address Bldg.Size Lot size Year Built Type Date of Sale Price Per S.F.
2. 771 Oak Avenue 8,890 49,484 1970 Industrial 11/95 $79.69
Sacramento, CA.
Comments:This is of similar design and construction as the subject
property.
</TABLE>
Summary
These 8 sales represent similar industrial sales which have sold in comparable
market areas. Although some adjustments have been noted in each analysis the
properties are all similar in use, age and design. As no one sale indicates a
market other sales have been considered.
Considering these sales on a price per square foot basis before adjustments, a
range of $40.00 to $97.50 per square foot was determined.
Adjustments were made for size of lot, size of structure, age, location, date
of sale, and other factors such as accessibility. Also, considered was the
state of the recessionary economy and the potential for recovery relative to
an appropriate time trend.
52
<PAGE>
Therefore, our valuation opinion is based on the following:
Rentable Area: 20,000 s.f. x $92.00* = S 1,840,000
* The price per square foot is based on extensive tenant improvements which is
being purchased separate from the real estate. Tenant improvements are being
purchased separately of $145,000 for 7 years and will be financed at 12%
interest.
In the market approach we have weighted each comparable carefully to arrive at
a market value indicated at $1,840,000. This valuation has also considered
the quality of the tenants and the nature of the existing lease on the
premises. In addition there were several sales of neighboring properties
that were less desirable than the subject property based on the quality of
improvements and occupancy. We have considered those sales and they can be
justified on the basis of a slightly less visible location, lack of quality
tenants, and due to one being an REO property.
53
<PAGE>
CONCLUSION OF VALUE
The three approaches have various degrees of applicability depending on the
circumstances. The cost approach is usually relied on when the improvements
are new, or nearly new, and are fully utilized for their designed intent, or
when the improvements represent a special purpose property on which no
reliable income or market data is available.
In this instance the cost approach was considered less reliable than the other
approaches and set an upper limit to value. This is due to the recovery of
the commercial market in the area and difficulty of estimating land value.
The cost approach indication of value was $1,954,000 which was, however, used
in deriving the value conclusion.
The income approach is often used for properties that are typically leased.
The income approach was applied in the traditional manner and the value
indication produced was given substantial weight as this property is
"investment oriented" real estate. The income approach indication of value
is $1,844,000.
The market approach reflects actual prices paid for similar properties. This
approach is generally used when reliable and comparable market data are
available. The indicated value for the unit of comparison is then applied
against the subject property. This approach was given the weight in the value
conclusion although timely market data
54
<PAGE>
indicated that a recovery was starting as optimistically reported by several
commercial brokers in the area. The market approach indication of value is
$1,840,000.
The appraiser has given the greatest weight to the income approach and market
approach while considering the cost approach. In general, market conditions
had changed with few sales in the 1995-1996 time period.
As a result, we have tempered the values arrived at by the market (e.g. direct
sales) approach for the change in market conditions. Since substantial
factors such as income generating ability must be considered in this type of
appraisal we have carefully considered the income approach to value. That
approach while yielding the lowest indication of value suggests that an
investment in industrial buildings must carefully consider the income
generating ability of real property.
In conclusion, based upon the foregoing analysis, it is our opinion that the
Fair Market Value of the subject unencumbered, as of June 5, 1996 is estimated
at:
ONE MILLION EIGHT HUNDRED FORTY THOUSAND DOLLARS
$ 1,840,000.
The appraiser has given weight to the income approach, market approach, and
cost approach, but has given slightly less weight to the cost approach.
Carefully considered was the terms of the existing lease and the tenant
mix/quality. The appraiser has not reviewed the financial condition, nor
financial statements of the tenants.
55
<PAGE>
Other Factors:
The economy is strengthening and improving relative to other counties in
California. The outlook is favorable for high demand for industrial space for
the Northgate area. It was reported that values are rising, capitalization
rates are decreasing, and vacancy rates are falling to earlier levels.
Additional economic data is available.
56
<PAGE>
ADDENDA
EXHIBIT A
Additional Data Provided
EXHIBIT B
Certification
JAVA CITY COMPANY DESCRIPTION
Bakery - Cafe
Company
Java City operates 46 gourmet coffee bakery cafes offering fresh bakery
products, desserts and other food items, as well as Java City's fresh roasted
whole bean coffees, rich-brewed coffee and Italian-style espresso beverages.
The Company also sells its fresh roasted coffee beans wholesale to over 700
customers. Approximately 86% of the Company's sales are from its retail cafe
operations and 14% from its wholesale operations.
The Company was created through the merger of La Petite Boulangerie ("LPB")
and Java City. Cucina Holdings, Inc., a corporation formed by management and
InterWest Partners, a Menlo Park based venture capital firm, purchased the
assets of La Petite Boulangerie from a private investor group in June 1993.
At the time of purchase, La Petite Boulangerie had 68 company-owned cafes (51
in California, 10 in Denver, 4 in Phoenix and 3 in Philadelphia). Cucina
Holdings, Inc. purchased Java City in September 1993. At the time, Java City
operated six retail cafes in Sacramento, California, as well as a wholesale
division, providing specialty coffees to restaurants, hospitals, colleges,
airports and other retail accounts.
The management functions for the two companies have been combined under the
leadership of President and Chief Executive Officer, Tom Weborg. The
headquarters are located in Sacramento, California.
Currently, we are operating 41 Java City Bakery Cafes, and 5 LPB Cafes which
serve Java City coffee. The company is creating a new decor package and
complimentary marketing materials to reflect contemporary design trends. Five
northern California cafes and 4 in southern California have been built or
remodeled with the new design. The remaining units will be remodeled
according to a priority established by criteria such as: sales volume, lease
renewal opportunities and competitive intrusion.
From 1993-1995, 20 cafes were closed due to inappropriateness of lease renewal
issues or insufficient sales volume potential. The Denver district was sold
in 1996. We plan to market our concept to the more specific geographic area
of California and Arizona.
<PAGE>
COMPANY DESCRIPTION
Page 2
INDUSTRY
Java City believes that there will be continued rapid growth in the
specialty coffee market in the United States throughout the remainder of
the decade. According to The Market for Coffee and Tea: A Market
Intelligence Report published in February 1993 by FIND/SVP, a market
research firm, retail sales of specialty coffee increased from
approximately $1.0 billion in 1990 to approximately $1.2 billion in
1992. FIND/SVP projects that in the United States, sales of specialty
coffee will reach approximately $1.6 billion by 1997. While the projected
1992-1997 annual growth rate for specialty coffee is 5.9%, retail sales of
non-specialty coffee are projected to remain flat over the same period.
According to FIND/SVP, the specialty coffee dollar share of the retail
market was 19% in 1990 and 23% in 1992 and is projected to be 28.9% in 1997.
FIND/SVP has defined two categories within the U.S. specialty coffee
segment - "true gourmet" and "premium" coffee. The Company's coffees are
included in the "true gourmet" category. "True gourmet" coffees refer
to the high-quality coffees sold by comparatively small roasters which are
frequently sold in whole bean form and are often packaged in bags.
"Premium" coffees are upscale, mass marketed products sold by major food
companies which are often packaged in cans and are pre-ground. FIND/SVP
projects that the "true gourmet" category will grow from approximately
$800 million in 1992 to approximately $1.1 billion in 1997 and the
"premium" category will grow from approximately $350 million to
approximately $500 million over the same period.
According to Avenues for Growth: A 20-year Review of the U.S. Specialty
Coffee Market, a report published in 1992 by the Specialty Coffee
Association of America (the "Specialty Coffee Report"), the following
factors are influential in the rapid growth of the specialty coffee industry:
DEMOGRAPHICS - As aging baby-boomers have become more affluent, they have
demanded higher quality specialty food items, including coffee. Future
growth in the group's disposable income will likely generate continued
growth in specialty coffee demand.
TECHNOLOGY - the introduction of small batch roasters by several
manufacturers has allowed small roasters to enter the market. According
to the "Specialty Coffee Report", between 1969 and 1979, approximately 50
companies established roasting facilities. Over the following decade,
approximately 400 new companies entered the market as roasters. Furthermore,
the displacement of percolators by automatic drip coffee makers allowed
consumers to more fully taste and appreciate the quality of specialty
coffee beans. Continued improvements in home brewing technology should
further consumer interest in specialty coffee.
PACKAGING - The introduction of one-way valve bag packaging and brick
packaging have extended the shelf life of specialty coffee. Consumer
concerns about the freshness of specialty coffee, traditionally
merchandised in loose bags and whole bean bins, will become less of a
barrier as more specialty coffees become available in such packaging.
<PAGE>
COMPANY DESCRIPTION
Page 3
FLAVORS - Flavored coffees have created renewed interest in coffee,
most notably in the specialty segment.
STRATEGY
Java City's objective is to become a leading specialty retailer of high-quality
whole bean coffees, coffee beverages, and baked goods in each of its target
markets. Each element of the Company strategy is designed to differentiate and
reinforce the Java City brand and to engender a high degree of loyalty among
Java City's customers. The cornerstones of this strategy include:
HIGHEST-QUALITY COFFEE AND BAKERY PRODUCTS - Java City believes its standards
for the selection, roasting, and fresh delivery of coffee beans and beverages
are among the highest in the coffee industry. Java City sells high quality
baked goods, many of which are made from its own recipes. In most cafes, these
products are baked on the premises throughout the day to ensure freshness. The
Company's strategy is to continue to enhance its product lines to ensure
customer satisfaction through quality products with great price value. Several
new and/or improved bakery products are being introduced this fall such as
coffee cakes, low fat items and scones. In addition, sandwiches, served on
freshly baked bread represent an opportunity for increased sales.
VERTICAL INTEGRATION In order to manage costs and ensure compliance with the
Company's rigorous standards for freshness, quality, and consistency, the
Company controls its coffee sourcing, roasting, and retail sales. The Company
believes this vertical integration provides significant competitive advantages.
CUSTOMER SERVICE - Java City's goal is to develop customers who are
"enthusiastically satisfied" every time they visit a Java City cafe. The
Company depends on a high rate of repeat business, and views the quality of its
customer interaction with employees as critical to its long-term success.
Through its emphasis on training and personnel development, the Company attracts
and retains well-qualified, highly motivated employees continued to providing
superior levels of customer service.
CAFE MERCHANDISING AND DESIGN - The Management Team believes that to ensure the
success accomplished in the Sacramento market by the original Java City cafes,
they needed to re-evaluate the cafe design, graphics and merchandising. Outside
experts completed this evaluation and the nine cafes which were remodeled under
the new design criteria have met with early success.
CAFE LOCATIONS - Java City's site selection strategy is to cluster cafes in
high-traffic, high-visibility locations in each of its target markets in order
to realize operating and marketing efficiencies and enhance brand awareness.
Due to its ability to vary the size of its cafes, the Company can locate cafes
in a variety of retail settings, including office buildings, downtown and
suburban retail centers, and kiosks placed in building lobbies, airport
terminals, and supermarket foyers. While the Company may selectively locate
<PAGE>
COMPANY DESCRIPTION
Page 4
cafes in suburban malls, its focus will be on cafes that are convenient
for pedestrian street traffic.
RETAIL -CAFES
As of February 19, 1996, 41 of the Company's cafes are operated as Java City
Bakery Cafes, 5 are LPB cafes serving Java City coffee.
MERCHANDISING AND PRODUCT MIX - The Company combines its merchandising strategy
with its marketing programs to create and reinforce a distinctive brand image
for its coffees and bakery products. The Company's merchandising strategy is
reflected in its product mix, product pricing and packaging materials.
All current Java City Bakery Cafes offer a choice of regular and decaffeinated
coffee beverages, a broad selection of Italian-style espresso beverages,
changing "coffees of the day", as well as distinctly packaged, freshly roasted
whole bean coffees, and a selection of fresh pastries, breads, sandwiches,
sodas, juices, and confections. For the 12 months ended September 30, 1993, the
Sacramento Java City cafes' merchandise mix as a percentage of retail sales was
approximately 52% coffee beverages, 20% whole bean coffees, and 28% bakery,
sandwiches, and other food items.
The product mix for the cafes currently operating as LPB's is approximately 5%
coffee beverages, 8% other beverages, 70% bakery, and 17% sandwiches and other
food items. When LPB's are converted to Java City Bakery Cafes, the company
intends to increase the proportion of high margin coffee beverages and whole
bean coffee to 30% and 10% of sales, respectively. In the conversions completed
to date, coffee beverage and whole bean sales have averaged 31% and 3%,
respectively.
Java City prices its coffees at or above the prevailing high-end coffee prices
in each of its markets, reflecting the higher quality of the Company's coffees
and its higher level of customer service. Prices vary by market, but coffee
beverages range from $0.85 for regular brewed coffees to $2.75 for the most
expensive espresso beverages. Whole bean coffee prices range from $6.95 to
$29.95 per pound, with an average of approximately $7.50 per pound.
CAFE DESIGN AND ATMOSPHERE - Java City designs its cafes to be visually
stimulating and strives to make each cafe a neighborhood gathering place. The
company designs each cafe individually and uses unusual building materials and
high quality fixtures to reinforce an upscale brand image. Most cafes are
configured to accommodate a high volume of traffic, while retaining an inviting,
casual atmosphere. Most cafes offer seating and/or stand up counters.
RETAIL CAFE ECONOMICS - Cafes typically vary in size from approximately 1,500 to
3,000 square feet, with an average of approximately 2,000 square feet.
<PAGE>
COMPANY DESCRIPTION
Page 5
The company believes that the outstanding unit economics achieved by the six
original Java City Cafes are an indication of the fundamental economic
attractiveness of the Java City Bakery Cafe concept. The following is a summary
of the actual unit economics for the original Java City Cafes for the year ended
September 30, 1993.
Actual
Average Original
Java City Cafe
NET SALES $805,000 ($452/SF)
Operating Contribution $200,000 ($112/SF)
% of Sales 24.8%
AVERAGE SIZE 1,780 SF
INVESTMENT:
Total (incl. capitalized leases) $731,000
Cash (FF&E; Pre-opening, etc.) $395,000
ROI 34%
Cash on Cash 51%
Wholesale Operations
Java City's wholesale operation serves approximately 700 customer
accounts located primarily in Northern California. The Company's
wholesale customers include supermarkets, gourmet shops, convenience
stores, restaurants, universities, airports, and offices, some of which
resell the coffee in whole bean or ground form for home consumption,
while others brew and sell coffee beverages.
Product Supply
Java City believes that there are adequate sources of supply for top quality
green arabica, coffee beans to meet its expansion plans for the
foreseeable future. Because Java City roasts over 15 different types of
green coffee beans to produce its more than 45 different varieties of
coffee, if one type of green coffee bean were to become unavailable or
prohibitively expensive, management believes Java City could substitute
another type of coffee in a blend or temporarily remove that particular
coffee from its product line without having a negative impact on operations.
In addition, Java City blends can be made with different combinations of
coffees, making a temporary shortage of one or more specific coffee beans
a manageable problem.
The company utilizes both outside brokers and direct relationships with the
growers to ensure its continuing supply of high quality green coffee. Coffee
is the world's second largest traded commodity and its supply and price are
subject to volatility. though most coffee is traded in the commodity market,
coffee of the quality sought by the Company tends to trade on a negotiated
basis at a substantial premium above commodity coffee
<PAGE>
COMPANY DESCRIPTION
Page 6
pricing, depending upon the supply and the demand at the time of purchase.
Supply and price can be affected by multiple factors, such as weather,
politics, and economics in the producing countries.
Historically, the International Coffee Organization ("ICO") (a major
organization comprising coffee producers and consumers) has attempted
to establish the commodity prices of green coffees through an
agreement establishing export quotas among participating countries. In
July 1989, the refusal of certain countries to participate in the quota
system resulted in the dissolution of the agreement and a drop in the
price of coffee. Since that time, coffee prices have reached historically
low levels, placing substantial pressure on coffee producers. In July
1993, a group of Latin American coffee producers, who accounted for almost
two-thirds of the world coffee production, agreed to retain 20% of their
coffee exports beginning October, 1993, in an effort to increase prices.
In addition, on August 17, 1993, representatives of approximately 24
African and Latin American coffee-producing countries, announced an
agreement to establish the new Association of Coffee Producing Countries,
which agreed to hold back 20% of its coffee exports beginning October
1, 1993, in an effort to increase prices.
On March 30, 1994, the ICO resurrected a new five year agreement scheduled to
be implemented in October, 1994. The pact covers 56 member countries
representing all of the world's major coffee producers and consumers with
the exception of the United States. Although the agreement has no power to
control prices in the market place, by raising or lowering quotas in the
producing countries, its mere presence and existence is positive in maintaining
normalcy in the overall market place. The recent significant increases in the
price of green coffee which were caused by the cyclical nature of coffee
production, lessening of world stocks held by consumers, pressure from the
retention scheme created by the ACPC, and the recent frosts and drought in
Brazil will increase the Company's cost of goods sold for its coffee
products. The Company believes, however, that due to its broad base of
retail sales, and the high gross margins realized on coffee sales, a
slight increase in beverage prices in conjunction with corresponding
increases at the wholesale level, will offset these increases in green
coffee costs.
FACILITIES
The Company leases 22,480 square feet in three buildings in Sacramento,
California for its manufacturing, warehousing, and administrative operations.
Java City's leases for the three facilities expire in late October, 2002
and August, 2003.
Java City believes that its current roasting and packaging capacity will
be sufficient to meet its requirements through 1997.
EMPLOYEES
As of June 30, 1994, the Company employed 900 individuals, including 825 in
retail cafes and regional offices, and the remainder in the Company's
administrative, real estate, roasting, and warehousing operations. The
Company has 9 district managers who are
<PAGE>
COMPANY DESCRIPTION
Page 7
responsible for cafe operations within their regions. None of the retail
cafe employees or managers is unionized.
MANAGEMENT
Java City's management team has over 140 years of restaurant industry and
coffee sales experience and includes individuals with extensive experience
in all the functional areas necessary to operate a multi-unit restaurant
organization.
The Company's executive officers and directors are as follows:
Name Position
Tom Weborg President and Chief Executive Officer
Bill White Chief Financial Officer
Karen Ewing Vice President, Marketing/Retail
Dennis Bartel Vice President, Development
Bob Marquis Vice President, Operations
Everett "Jeff' Jefferson Chairman of the Board
Charles A. Lynch Director
W. Scott Hedrick Director
Alexander M, Seaver Director
Charles L. Boppell Director
Jeffrey J. Brown Director
Tom Weborg, President and Chief Executive Officer
Tom Weborg has been in the wholesale coffee industry for the past 25 years.
He was a partner of Sterling Restaurant Service, an enterprise founded
by his father in 1947. In addition, Tom founded Coffee Break Services,
an office coffee business which was sold in 1983. Tom was co-owner and
President of Java City prior to its purchase by the Company. In
addition, he is co-owner and president of Brew-Tech, a company
specializing in the repair and installation of coffee brewing and espresso
equipment. He is on the Board of Directors of the Sacramento branch of
the California Restaurant Association of America and has lectured to
civic and professional groups on "Entrepreneurship" and "The Changing
Face of the Coffee Industry". He also serves on the long-range
planning committee of the Specialty Coffee Association of America.
William F. White, Chief Financial Officer
Mr. White has been involved with service industries for more than 20 years.
He spent 4 years with Peat Marwick, was controller for a division of W. R.
Grace, Director of Financial Planning for Taco Bell, Vice President and
Controller of Times Mirror Cable, Chief Financial Officer for Merle Norman
Cosmetics, and for the last 8 years was President and Chief Operating Officer
of U.S. Operations for Automated Security Holdings.
<PAGE>
COMPANY DESCRIPTION
Page 8
KAREN EWING, VICE PRESIDENT, MARKETING/RETAIL
Karen Ewing has been in the retail food industry for the past 15 years in
both public and private enterprises. She was co-owner of Java City,
where she oversaw retail operations, marketing, advertising and public
relations. Karen is on the Board of Directors of the Specialty Coffee
Association of America and is the Chairman of the Educational and Promotional
Materials Committee. She has lectured on "Guerrilla Marketing" and has
appeared on television and radio as a food and beverage authority.
DENNIS BARTEL, VICE PRESIDENT, DEVELOPMENT
Mr. Bartel has over 25 years experience in real estate management
and construction and more than 20 years experience in the restaurant
business. His restaurant experience includes 12 years as Senior
Director of Property Management for Pizza Hut, Inc., where he developed
over 500 units, and four years at Pofolks, Inc., where he developed 54
company restaurants and helped open 130 franchise restaurants. I-Es
private sector experience has been in the development of sites for
multi-unit operating companies, including banks, child care and retail
service businesses.
BOB MARGUIST VICE PRESIDENT, OPERATIONS
EVERETT "JEFF" JEFFERSON, CHAIRMAN OF THE BOARD
Mr. Jefferson has over 25 years of experience in the restaurant industry.
After 10 years at Saga Corporation, he joined Pizza Hut, Inc., as
Senior Vice president of operations, running over 2,000 restaurants
nationwide. Since 1983, Mr. Jefferson has been president of Godfather's
Pizza, Straw Hat Restaurants, Inc., International King's Table, Inc., and
Skippers, Inc. He has extensive experience in running high growth,
multi-unit restaurant companies (both public and private) and is a
substantial investor in the Company.
CHARLES A. LYNCH, DIRECTOR
Charlie Lynch is the founder of Market Value Partners. For two years, Mr.
Lynch was President and CEO of Levolor Corporation and prior to that he was
Chairman and CEO of DHL Airways, Inc. Mr. Lynch also was Chairman and
CEO of Saga Corporation. Mr. Lynch was also an Executive Vice President
of W.R. Grace & Co., a company that operates food, specialty retail, and
distribution companies.
W. SCOTT HEDRICK, DIRECTOR
Mr. Hedrick is a founder of InterWest Partners which was established in
1979. Prior to that he was a partner in American-Euro InterFund, SHVs
venture capital subsidiary headquarters in San Francisco. Scott also
spent four years with Small business Enterprise
<PAGE>
COMPANY DESCRIPTION
Page 9
Company, Bank of America's venture capital subsidiary, focusing primarily
on early-stage, high-technology companies. Scott also serves on the
Board of Directors for Office Depot, Auto Parts Club, Heritage Kitchen,
Il Fornaio, Midwest Folding Products and Quadlux.
ALEXANDER M. SEAVER, DIRECTOR
Mr. Seaver joined InterWest in 1987. Es prior experience included two
years with Goldman, Sachs & Company and one year with Hambrecht & Quist
in San Francisco. As an ad advisor in corporate finance, Alex worked on
transactions involving emerging companies and mergers/acquisitions of
established companies. Alex also serves on the Board of Directors for
Bojangles', Heritage Kitchen, Merchandise Sales, Pace, and Pacific Grain
Products.
CHARLES L. BOOVELL, DIRECTOR
Mr. Boppell has 30 years of experience in the restaurant industry. Mr.
Boppell joined La Salsa holding Co., a quick-service Mexican food chain
headquarters in Los Angeles, in November 1993 as President and Chief
Executive Officer. He was Senior Vice President of Pizza Hut, President
of Taco Bell and Hudson's Grill, and Chairman/CEO of Godfather's Pizza.
JEFFREY F. BROWN, DIRECTOR
Mr. Brown has been a General Partner of Forrest Binkley & Brown since 1993.
He brings eight years of private equity investment experience to the Board.
Prior to joining FBB Mr. Brown was Senior Vice President of Security Pacific
Venture Capital (SPVC) Following the merger with Bank of America in 1992, he
assumed the role of Senior Vice president of BankAmerica Venture Capital.
Mr. Brown joined SPVC as a Senior Investment Analyst in 1987 following
his graduation from the Stanford Graduate School of Business. He was
appointed to Vice President in 1989 and Senior Vice President in 1992.
<PAGE>
MODIFICATION OF LEASE
THIS AGREEMENT dated January 26, 1995 is made by and between THOMAS WEBORG
and SANDRA SINGER, Successors in interest to WHITNEY PROPERTIES,
hereinafter referred to as "Lessor" and CUCINA HOLDINGS, INC. , a
Delaware corporation, successor in interest to JAVA CITY, a California
corporation, hereinafter referred to as "Lessee".
WITNESSETH
THAT, WHEREAS, by Indenture of Lease dated April 10, 1989 together
with Amendment 1 and Amendment 2 thereto, and Ex-Extension and Modification
of Lease dated March 23, 1994, by and between Lessor and Lessee, Lessor
leased and demised unto Lessee for the purpose of wholesale roasting and
distribution of coffees with a showroom/cafe open to the general public the
following described property situated in the county of Sacramento,
California, to-wit:
consisting of approximately 11,200 square feet of floor space and more
commonly known and designated 717 West Del Paso Road; and
WHEREAS, the aforementioned Indenture of Lease is due to expire of its own
terms on July 31, 2003; and
WHEREAS, Lessor and Lessee desire to clarify and confirm the Rent Lessee
shall pay to Lessor for the Premises pursuant to Paragraph 4 for the balance
of Lease Term of said Lease mentioned hereinabove; and
WHEREAS, the Lease was originally dated April 10, 1989 and provided for
Lessee to occupy and pay Rent on 7,000 square feet of industrial, office,
showroom and cafe space; and
WHEREAS, Amendment 1 to the Lease provided that Lessee lease an additional
4,200 square feet commencing April 1, 1990; and
<PAGE>
WHEREAS, the Rent commencing on April 1, 1989 was 30 cents per square foot
per month for warehouse space and 70 cents per square foot per
month for office/improved space, each being increased four percent (4%)
per year from commencement as set forth in the Addendum to the Lease; and
WHEREAS, the Lease was amended and now conforms to the rent rates and
rent payment periods set forth in that certain Lea se of the adjoining
building dated August 1, 1993 (721 West Del Paso Road, wherein Lessor is
Landlord and Lessee is Tenant) ; and
WHEREAS, the warehouse space occupied by Lessee is 5,398 square feet; and
WHEREAS, following the completion of tenant improvements, the
office/improved space occupied by Lessee is 5,802 square feet; and
WHEREAS, the Rent escalation for warehouse space, from Lease commencement,
is calculated as follows:
Year 1 = .30 per square foot
Year 2 = .30 multiplied by 104% = .312
Year 3 = .312 multiplied by 104% = .32448
Year 4 = .32448 multiplied by 104% = .33746
Year 5 = .33746 multiplied by 104% = .35; and
WHEREAS, the Rent escalation for office/improved space, from Lease
commencement, is calculated as follows:
Year 1 = .70 per square foot
Year 2 = .70 multiplied by 104% = .728
Year 3 = .728 multiplied by 104% = .75712
Year 4 = .75712 multiplied by 104% = .7874
Year 5 = .7874 multiplied by 104% = .82; and
WHEREAS, Lessor paid $132,000.00 for tenant improvements, under the
express agreement by Lessee to pay additional Rent of $2,247.00 per month
during the Lease Term which was to be added to the Base Rent; and
WHEREAS, the Rent in the fifth year of the Lease was calculated as follows:
(1) office/improved space=5802 square feet multiplied by 82 cents = $4,757.64
per month; plus
(2) warehouse space = 5,398 square feet multiplied by 35 cents = $1,889.30
per month; plus
(3) $2,247.00 additional Rent as consideration for - construction of
tenant improvements; equals
(4) Rent beginning August 1, 1993 through July 31, 1994 $8,893.94 per
month; increased by
(5) one hundred four percent (104%) annually thereafter.
NOW, THEREFORE, in consideration of the Premises and the mutual covenants
and conditions hereinafter contained, the parties hereto agree as follows,
to-wit:
1) Lessor and Lessee hereby amend the Lease and all addendums and
amendments thereto to set forth the Rent payable by Lessee to
2
<PAGE>
Lessor commencing April 10, 1993 until the expiration of the Lease Term
as follows:
November 1, 1992 to July 31, 1993 = $8,551.86/Month
August 1, 1993 to July 31, 1994 = $6,893.94/Month
August 1, 1994 to July 31, 1995 = $9,249.70/Month
August 1, 1995 to July 31, 1996 = $9,619.69/Month
August 1, 1996 to July 31, 1997 = $10,004.48/Month
August 1, 1997 to July 31, 1998 = $10,404.66/Month
August 1, 1998 to July 31, 1999 = $10,820.85/Month
August 1, 1999 to July 31, 2000 = $11,253.60/month
August 1, 2000 to July 31, 2001 = $11,703.83/month
August 1, 2001 to July 31, 2002 = $12,171.98/Month
August 1, 2002 to July 31, 2003 = $12,658.86/Month
2) Lessor and Lessee hereby covenant and agree that during the
remaining original term and the extended term- Lessor and Lessor shall
perform and be bound by all covenants and conditions in said Indenture of
Lease dated April 10, 1989 together with Amendment 1 and Amendment 2
thereto and Extension and Modification of Lease dated March 23, 1994,
insofar as they are consistent with the provisions of this Agreement.
3) The said Indenture of Lease is modified in the above particulars only
and all other provisions thereof, insofar as they are consistent herewith,
shall remain binding and in full force and effect. The above
modification shall henceforth be considered a part of said Indenture
of Lease as if fully and completely written therein.
IN WITNESS WHEREOF, the parties hereto have executed this Modification of
Lease the day and year first above written.
3
<PAGE>
LESSOR: LESSEE:
Thomas Weborg and Sandra Singer Cucina Holdings,Inc., a
Delaware corporation
By:
Thomas Weborg
Tit1e:
Sandra Singer
4
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1996
REGISTRATION NO. 333-1304
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
AMENDMENT NO 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------
WEST COAST REALTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
5933 WEST CENTURY BOULEVARD - NINTH FLOOR
LOS ANGELES, CALIFORNIA 90045
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
PHILIP N. GAINSBOROUGH
5933 WEST CENTURY BOULEVARD - NINTH FLOOR
LOS ANGELES, CALIFORNIA 90045
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-----------------------------------------
COPIES TO:
PETER R. PANCIONE, ESQ.
GIPSON HOFFMAN & PANCIONE
1901 AVENUE OF THE STARS, SUITE 1100
LOS ANGELES, CALIFORNIA 90067
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
Delivery of the Prospectus is expected to be made pursuant to Rule 415.
Please check the following box. /X/
IF ANY OF THE SECURITIES BEING REGISTERED ARE TO BE OFFERED ON A DELAYED
OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933,
CHECK THE FOLLOWING BOX /X/.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 1(A)
(BY REFERENCE TO REGULATION S-K ITEM 501(B))
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ---------------------- ---------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Cover Page; Back Cover
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Prospectus Summary; The
Company; Risk Factors
4. Determination of Offering Price.......... Plan of Distribution
5. Dilution................................. Not Applicable
6. Selling Security Holders................. Management's Discussion
of Financial Condition
7. Plan of Distribution..................... Cover Page; Description
of Common Stock;
Plan of Distribution
8. Use of Proceeds.......................... Compensation of Advisor
and Affiliates; Estimated
Use of Proceeds; Investment
Objectives and Policies
9. Selected Financial Data.................. Selected Financial Data
10. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... Management's Discussion
and Analysis of Financial
Condition and Results of Operations
11. General Information as to Registrant..... Cover Page; The Company;
Management; Summary of
Organization Documents
12. Policy with Respect to Certain
Activities............................... Investment Objectives
and Policies; Summary of
Organization Documents;
Description of Common Stock
13. Investment Policies of Registrant........ Investment Objectives
and Policies; Summary of
Organization Documents
14. Description of Real Estate............... Real Property Investments
15. Operating Data........................... Selected Financial Data
16. Tax Treatment of Registrant and its
Security Holders......................... Prospectus Summary; Tax
Consequences
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters...................... Not Applicable
18. Description of Registrant's Securities... Cover Page; Description of
Common Stock
19. Legal Proceedings........................ Not Applicable
20. Security Ownership of Certain Beneficial
Owners................................... Description of Common Stock
21. Directors and Executive Officers......... Management
22. Executive Compensation................... Compensation of Advisor
and Affiliates; Management
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ------------------------ ---------- ------------------
<C> <S> <C>
23. Certain Relationships and Related
Transactions............................. Compensation of Advisor
and Affiliates; Conflicts
of Interest; Management
24. Selection, Management and Custody of
Registrant's Investments................. Investment Objectives and
Policies; Conflicts of
Interest; Management
Services Provided by the
Advisor; Summary of
Organization Documents
25. Policies with Respect to Certain
Transactions............................. Conflicts of Interest;
Investment Objectives
and Policies; Summary of
Organization Documents
26. Limitations of Liability................. Risk Factors; Summary of
Organization Documents
27. Financial Statements and Information..... Financial Statements
28. Interests of Named Experts............... Legal Matters; Experts
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Summary of Organization
Documents
</TABLE>
<PAGE>
PROSPECTUS
25,000 SHARES
LOGO
WEST COAST REALTY INVESTORS, INC.
MINIMUM OFFERING -- $250,000 - $10.00 PER SHARE
MINIMUM INVESTMENT: 100 SHARES ($1,000)
WEST COAST REALTY INVESTORS, INC. (the "Company") is a Delaware corporation
which qualifies, and since January 1, 1991 is doing business as, a "Real Estate
Investment Trust" for federal income tax purposes. The Company is advised by
West Coast Realty Advisors, Inc. (the "Advisor"), an Affiliate of Associated
Financial Group, Inc. ("AFG"). The Advisor oversees the investments of the
Company, subject to the direction of the Company's Board of Directors. A
majority of the members of the Board of Directors are independent (i.e., they
are not affiliated with the Advisor or AFG) (the "Independent Directors"). See
"Management."
The Company intends to use the net proceeds of this Offering to acquire,
improve, operate, hold for investment, sell and reinvest sales proceeds in
equity interests in income-producing residential, industrial, retail or
commercial real Properties located primarily in California and the west coast
of the United States. Properties will be acquired for cash or on a moderately
leveraged basis with aggregate mortgage indebtedness not to exceed 50% of the
Purchase Price (which is defined generally as the cost to acquire the
Company's Properties) of the Properties; however, an individual Property may
be acquired with mortgage indebtedness not to exceed 80% of its Purchase
Price. If the minimum proceeds of $250,000 are raised, approximately 74.8% of
the proceeds will be invested in Properties and the remaining 25.2% will be
used to pay expenses of the Offering and fees to the Advisor. If the maximum
proceeds of $15,000,000 are raised, approximately 75.39% of the proceeds
will be invested in Properties and the remaining 24.61% will be used to pay
expenses of the Offering and fees to the Advisor. See "Estimated Use of
Proceeds." As of the date of this Prospectus, the Company has acquired and
owns seven Properties. See "Real Property Investments."
The Company has had three prior offerings of its Shares and its Affiliates
have offered and sold prior programs. The amount of securities sold by the
Company in its three prior offerings and by the Affiliates in the prior
programs was less than the maximum amount of securities offered for sale and,
therefore, were insufficient to achieve the Company's investment objectives.
If the Company does not sell the maximum number of Shares offered by this
Prospectus, the Company will acquire fewer Properties, resulting in a lack
of diversification in the number of Properties the Company may own. See
"Prior Performance" and "Risk Factors -- Uncertainty of Company
Capitalization; Diversification; Possibility of Number of Properties; Delay
in Investments".
Investment in the Shares is subject to certain risks, including:
- The lack of identified investments to be acquired with the proceeds of
the offering. However, the Company has acquired and owns seven
Properties.
- The payment of substantial fees to the Advisor and its Affiliates.
- The lack of participation by Shareholders in the direct management and
control of the Company.
- Various conflicts of interest.
- The Company's ability to diversify its investments.
- No active market for the Shares has developed and there is limited
liquidity to transfer the Shares.
- Certain real estate investment risks such as changes in occupancy rates,
revenues, lease payment defaults, competition, economic conditions,
zoning and tax increases; and
- Taxation of the Company as a corporation if it fails to qualify as
a REIT
SEE "COMPENSATION OF ADVISOR AND AFFILIATES," "RISK FACTORS," "CONFLICTS OF
INTEREST" AND "MANAGEMENT."
(Cover page continued on next printed page)
<PAGE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA DOES
NOT RECOMMEND OR ENDORSE THE PURCHASE OF THESE SECURITIES. THESE ARE
SPECULATIVE SECURITIES.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
SHARES OFFERED TO THE PUBLIC PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------- -------- -------------- -------------
<S> <C> <C> <C>
Per Share $10.00 $.70 $9.30
Total Minimum (25,000) $250,000 $17,500 $232,500
Total Maximum (1,500,000) $15,000,000 $1,050,000 $13,950,000
</TABLE>
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OFFERED TO SHAREHOLDERS THROUGH DIVIDEND INITIAL SELLING PROCEEDS TO
DIVIDEND REINVESTMENT PLAN, AND CROSSING ARRANGEMENT PRICE COMMISSIONS COMPANY(3)
- ------------------------------------------------ ------- -------- ---------
<S> <C> <C> <C>
Per Share $10.00 $0 $10.00
Total $1,000,000 $0 $1,000,000
</TABLE>
(Footnotes continued on next printed page)
The date of this Prospectus is May 7, 1996
<PAGE>
(Footnotes continued from cover)
(1) The Company will pay the Selling Agent and Selected Dealers sales
commissions of up to 7% of the offering price per Share and may pay to the
Selling Agent an additional 1% of the offering price per Share for wholesaling
compensation. The Selling Agent will also receive up to $.05 per Share from
the Company for bona fide due diligence expenses. See "Plan of Distribution."
(2) Before deducting Offering and Organizational expenses which include
legal and accounting fees, due diligence, printing expenses, Monitoring Fee,
filing fees, a nonaccountable expense allowance, and other expenses and fees
relating to the registration, marketing and distribution of all Shares
pursuant to this offering. The Advisor has agreed to pay any Offering and
Organizational expenses which exceed the greater of 4% of the gross proceeds
of the offering or $500,000.
(3) Prior to deducting expenses of the Dividend Reinvestment Plan of
$50,000 to be paid by the Company.
(Cover page continued from cover)
The Company's objectives are to (i) invest in Properties which will
preserve and protect capital, (ii) provide Shareholders with cash Dividends,
a portion of which will not constitute taxable income (which due to
depreciation will constitute a return of capital which will reduce an
investor's basis in the Shares and thereby increase the gain or reduce the
loss that will be incurred on the disposition of the Shares or upon
dissolution or liquidation of the Company), (iii) provide capital gains
through potential appreciation of Properties, and (iv) provide a Crossing
Arrangement and limited liquidity through transferable shares of stock. No
assurance can be given that these objectives will be attained.
The offering of shares of Common Stock (the "Shares") will continue until
the earlier of 24 months from the initial date of this Prospectus, the sale of
1,500,000 Shares or termination of the offering by the Company's Board of
Directors (which may be at any time). The Company will pay sales commissions
of up to 70 cents per Share from the gross proceeds of this offering. No sales
commissions will be paid to the Selling Agent or Selected Dealers when
qualified pension plans, profit sharing plans, Keogh plans or individual
retirement plans purchase a minimum of $500,000 of Shares. Such entities will
pay $9.30 per Share and the net proceeds to the Company will remain the same.
See "Plan of Distribution."
If subscriptions for a minimum of 25,000 Shares have not been received and
accepted on or before September 30, 1996, the offering will terminate and the
full amount of subscriptions will be promptly refunded together with accrued
interest. Proceeds received from subscribers will be placed in an interest
bearing escrow account with City National Bank, Los Angeles, California, until
the minimum number of Shares is subscribed. Subscribers have no right to
withdraw their investment during the escrow period. See "Plan of
Distribution." After the minimum number of shares are sold and proceeds
thereof transferred to the Company, the proceeds from further sales of the
Shares will remain in the escrow account and transferred to the Company from
time to time thereafter.
The Shares are freely transferable subject only to restrictions on certain
transfers which would disqualify the Company as a real estate investment
trust. However, there is no present market for the Shares except for the
Crossing Arrangement. In view of the imposition of suitability standards by
state "blue sky" administrators and certain listing standards, there is no
assurance that the Shares will be listed on the NASDAQ System or that an
active market for the Shares will develop. The Company has provided for a
Crossing Arrangement which will match buy and sell orders for the Shares. The
Company has also provided for a Dividend Reinvestment Plan which would allow
purchasers of the shares to have any Dividends paid on the Shares
automatically invested in the purchase of Shares of the Company.
<PAGE>
See "Glossary" for the definitions of certain capitalized terms.
The Shares are being offered on a best-efforts minimum-maximum basis,
(which means there is no firm commitment to buy any Shares but best efforts
will be made to sell Shares) (the minimum amount of Shares that can be sold
is 25,000 ($250,000) and the maximum amount of Shares that can be sold is
1,500,000 ($15,000,000)). The Shares will be sold through Associated
Securities Corp. (the "Selling Agent"), also an Affiliate of AFG, and other
broker-dealers ("Selected Dealers") selected by the Selling Agent. The Company
has agreed to indemnify the Selling Agent and any Selected Dealers against
certain civil liabilities, including certain liabilities under the
Securities Act of 1933, as amended. The Company will pay the Selling Agent
and Selected Dealers a sales commission of up to 7% of the $10.00 per Share
offering price. The Selling Agent and Selected Dealers may also receive 5
cents per Share for bona fide due diligence expenses. Shares may be
purchased without payment of any sales commissions at $9.30 per Share by
current or retired employees, officers and directors of the Company, the
Advisor, the Selling Agent and Selected Dealers and their registered
representatives and any of their Affiliates (and the families of any of the
foregoing) and trust employee benefit plans established exclusively for the
benefit of such Persons. See "Plan of Distribution."
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS
TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR
CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY
FLOW FROM AN INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
UNTIL NINETY (90) DAYS AFTER THE DATE OF THIS PROSPECTUS ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS.
<PAGE>
<TABLE>
TABLE OF CONTENTS
PAGE
<S> <C>
PROSPECTUS SUMMARY............................................................... 1
The Company.................................................................... 1
Risk Factors................................................................... 1
Management: Compensation to Advisor and Affiliate.............................. 1
Shares......................................................................... 2
Investment Objectives and Policies............................................. 2
Income Tax Considerations...................................................... 2
Dividends...................................................................... 3
Dividend Reinvestment Plan..................................................... 3
Tax-Deferred Dividends......................................................... 3
Additional Considerations for Tax-Exempt Investors............................. 3
Conflicts of Interest.......................................................... 3
THE COMPANY....................................................................... 4
RISK FACTORS..................................................................... 5
Continuous Operations of the Company; Shareholder Liquidation of Investment..... 5
Substantial Payment of Fees to the Advisor and Affiliates....................... 5
Real Estate Investment Risks................................................... 5
Leveraging of Investments...................................................... 6
Unspecified Investments........................................................ 7
Uncertainty of Company Capitalization; Diversification; Possible Limited Numbers of
Properties; Delay in Investments............................................ 7
Prior Experience in Raising Funds............................................... 7
Uninsured Losses................................................................ 8
Risks Related to Hazardous Wastes .............................................. 8
Joint Venture Investments...................................................... 8
Competition for Investments.................................................... 8
Tax Risks...................................................................... 8
Additional Tax Risk............................................................ 9
Reliance on Management and Conflicts of Interest ................................ 10
Limited Transferability; No Active Market For Shares May Develop............... 10
Transferability of Shares; Application of Penny Stock Rules.................... 10
Limited Liability, Indemnification and Possible Inadequacy of Shareholder Remedies 10
Potential Dilution............................................................. 11
ESTIMATED USE OF PROCEEDS........................................................ 11
COMPENSATION OF ADVISOR AND AFFILIATES........................................... 13
Selling Commissions............................................................ 13
Acquisition Fees and Acquisition Expenses...................................... 13
Disposition Services........................................................... 13
Advisory Fee................................................................... 13
Property Management Fee......................................................... 14
Financing Services............................................................. 14
Subordinated Incentive Fee..................................................... 14
Reimbursements................................................................. 14
CAPITALIZATION.................................................................... 18
SELECTED FINANCIAL DATA.......................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
PAGE
<S> <C>
CONFLICTS OF INTEREST ............................................................ 19
Competition by the Company with Affiliated Parties for Purchase and Sale of Real
Property ................................................................... 19
Transactions with the Advisor or an Affiliate.................................. 19
Selling Agent.................................................................. 19
Property Management Fee ........................................................ 20
Lack of Separate Representation................................................ 20
INVESTMENT OBJECTIVES AND POLICIES............................................... 20
Principal Investment Objectives................................................ 20
Use of Initial Capital.......................................................... 21
Acquisition Policies ........................................................... 21
Borrowing Policies -- Leveraging ............................................... 22
Reserves for Operating Expenses................................................. 22
Management of Properties........................................................ 23
Dividends...................................................................... 23
Sale, Financing or Refinancing of Properties................................... 24
General Restrictions............................................................ 25
REAL PROPERTY INVESTMENTS........................................................ 25
Blockbuster Video Building..................................................... 25
Fresno Property ................................................................ 26
OPTO-22 Property ............................................................... 28
North Palm Street Property ..................................................... 30
Riverside Marketplace Property ................................................. 31
Safeguard Business Systems Property ............................................ 33
Technology Drive Property ...................................................... 34
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......... 37
Results of Operations -- 1995 vs. 1994.......................................... 37
Results of Operations -- 1994 vs. 1993 ......................................... 38
Liquidity and Capital Resources ................................................ 40
New Accounting Pronouncements.................................................. 41
MANAGEMENT ........................................................................ 42
Directors and Officers of the Company ........................................... 42
Board of Directors............................................................. 43
Advisor........................................................................ 44
Property Manager ............................................................... 44
PRIOR PERFORMANCE................................................................ 45
SERVICES PROVIDED BY THE ADVISOR AND PROPERTY MANAGER ............................. 47
Advisory Services ............................................................... 47
Property Management Services................................................... 47
Other Services................................................................. 48
TAX CONSEQUENCES................................................................. 48
Opinion of Counsel ............................................................. 49
Requirements for Qualification as a REIT....................................... 50
Termination or Revocation of REIT Status....................................... 54
Taxation of the Company........................................................ 54
Taxation of Taxable U.S. Shareholders.......................................... 55
Taxation of Tax-Exempt Shareholders............................................ 56
Taxation of Non-U.S. Stockholders ............................................... 56
Statement of Stock Ownership.................................................... 58
</TABLE>
ii
<PAGE>
<TABLE>
PAGE
<S> <C>
Tax Law Changes................................................................ 58
State and Local Taxes......................................................... 58
ERISA CONSIDERATIONS............................................................... 58
DESCRIPTION OF COMMON STOCK...................................................... 59
General........................................................................ 59
Redemption and Prohibition of Transfer of Shares............................... 60
SUMMARY OF ORGANIZATION DOCUMENTS................................................ 60
Directors...................................................................... 60
Limited Liability and Indemnification of Directors, Officers, Employees and Other
Agents...................................................................... 60
Transactions with Affiliates................................................... 61
Shareholder Limited Liability.................................................. 62
Reports to Shareholders and Rights of Examination.............................. 62
Restrictions on Investments.................................................... 62
Other Restrictions............................................................. 63
Amendments..................................................................... 63
Meetings of Shareholders and Voting............................................ 63
WHO SHOULD INVEST ................................................................ 64
Suitability Standards.......................................................... 64
How to Subscribe............................................................... 64
PLAN OF DISTRIBUTION............................................................. 64
Escrow Arrangements............................................................ 65
Offering Period................................................................ 66
Method of Subscription......................................................... 66
Transferability; Crossing Arrangement.......................................... 66
Dividend Reinvestment Plan..................................................... 67
SALES MATERIAL................................................................... 68
LEGAL MATTERS.................................................................... 68
EXPERTS.......................................................................... 68
FURTHER INFORMATION.............................................................. 68
GLOSSARY.......................................................................... 69
INDEX TO FINANCIAL STATEMENTS .................................................... 74
SUBSCRIPTION AGREEMENT........................................................... S-1
PRIOR PERFORMANCE TABLE........................................................... T-1
</TABLE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in supplements to this Prospectus, or in literature issued by
the Company, Advisor or the Principal Distributor (which shall not be deemed
to be a part of this Prospectus), in connection with the offer contained
herein, and if given or made, that information or representation must not be
relied upon. The statements in this Prospectus or in any supplement are made
as of the date of the Prospectus or supplement, unless another time is
specified. Neither the delivery of this Prospectus or any supplement nor any
sale of Shares shall, under any circumstances, create an implication that
there has been no change in the facts since the date of the Prospectus or
supplement. However, if any material changes occur during the period when a
Prospectus is required to be delivered, this Prospectus or any supplement
will be amended or supplemented accordingly.
iii
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. See "Glossary" for
definitions of certain capitalized terms used in this Summary and throughout
this Prospectus.
THE COMPANY. West Coast Realty Investors, Inc. (the "Company") is a Delaware
corporation which has an unlimited life and will, therefore, continue in
business and operate for an indefinite period of time. A majority (3 of 5) of
the Company's Directors are independent of and unaffiliated with the Advisor
or AFG. Since January 1, 1991, the Company qualifies, and is doing business,
as a "Real Estate Investment Trust" under the Internal Revenue Code of 1986,
as amended (the "Code"). See "The Company," "Risk Factors," and "Tax
Consequences."
The Company's principal office is located at 5933 W. Century Boulevard, Ninth
Floor, Los Angeles, California 90045, telephone: (310) 337-9700.
The Company is making the Offering of its Shares to increase its size and
the amount of the Company's investment in Properties, thereby potentially
increasing the amount of Properties it will be able to acquire and
diversifying the risk of an investment in the Company and spreading operating
expenses over a greater number of assets.
RISK FACTORS. An investment in the Shares is subject to certain risks,
including:
- The lack of identified investments to be acquired with the proceeds of
the offering.
- The payment of substantial fees to the Advisor and its Affiliates.
- The lack of participation by Shareholders in the direct management and
control of the Company.
- Various conflicts of interest.
- The Company's ability to diversify its investments.
- No active market for the Shares has developed and there is limited
liquidity to transfer the Shares.
- Certain real estate investment risks such as changes in occupancy
rates, revenues, lease payment defaults, competition, economic
conditions, zoning and tax increases; and
- Taxation of the Company as a corporation if it fails to qualify as a
REIT.
MANAGEMENT: COMPENSATION TO ADVISOR AND AFFILIATE. West Coast Realty\
Advisors, Inc. (the "Advisor"), will act as the Company's Advisor. The
Advisor's principal office is located at 5933 W. Century Boulevard, Ninth
Floor, Los Angeles, California 90045, telephone: (310) 337-9700.
(a) Management of the Company. Pursuant to the terms of an agreement
(the "Advisory Agreement"), the Advisor will provide investment and financial
advice, and conduct the day-to-day operations of the Company. The Advisor is
an Affiliate of AFG. While the Advisor has a limited operating history,
certain of its directors, officers and employees have substantial real
estate investment experience.
(b) Compensation of Advisor and Affiliates. The Advisor and Affiliates
will receive the following substantial fees and compensation, relating to this
offering: Sales commissions of 7% and wholesaling compensation of 1% of the
amount of Shares sold, Acquisition Fees and Acquisition Expenses equal to 6%
of the Purchase Price of Properties acquired; a subordinated disposition fee
of 3% for selling the Company's Properties; a Property Management Fee equal
to 5% of gross revenues for residential properties and 6% of gross revenues
for retail, industrial and commercial properties (which will be reduced to
3% if the Advisor or an Affiliate does not provide any leasing or releasing
services); an Advisory Fee up to 1% of Invested Assets subordinated to an
annualized 7% noncumulative, noncompounded, quarterly dividend on the
Shareholders' Adjusted Price per Share; reasonable and competitive fees for
financing services as determined by the Independent Directors, a Subordinated
Incentive Fee equal to 15% of cash from Property sales or refinancing after
the Shareholders have received a 100% return of their Adjusted Price per
Share plus an 8% cumulative noncompounded return thereon; and reimbursement
of Offering and Organizational Expenses, in an amount not to exceed the
greater of 40 cents per Share or $500,000 to the extent that such
nonaccountable expenses do not exceed 3% of the gross offering proceeds.
See "Services Provided by the Advisor and Property Manager", "Management",
"Prior Performance" and "Compensation of Advisor and Affiliates."
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SHARES. The Company is hereby offering shares of its Common Stock (the
"Shares") at a purchase price of $10.00 per Share. As discussed in "Dividends"
below, all Shares will be entitled to equal Dividends per Share when
Dividends are paid. Each Share will have equal voting power. See "Description
of Common Stock." AFG, the Advisor and their Affiliates may also purchase
Shares pursuant to this offering. See "Plan of Distribution -- Escrow
Agreements."
INVESTMENT OBJECTIVES AND POLICIES. (a) Principal Investment Objectives. The
Company intends to acquire, improve, operate, hold for investment, sell and
reinvest such sales proceeds in equity interests in income-producing
residential, industrial, retail or commercial Properties. The Company intends
to acquire Properties located primarily in California and the west coast of
the United States; (b) Borrowing Policies -- Leveraging. Generally,
Properties will initially be acquired on an all-cash basis or with moderate
mortgage indebtedness. The aggregate amount of mortgage indebtedness the
Company will incur will not exceed 50% of the Purchase Price of Properties
(which is defined generally as the cost to acquire all the Company's
Properties) or, if a Property is financed or refinanced, 50% of the
Property's Appraised Value (defined generally as its fair market value as
determined by an Appraiser) at the time of such financing or refinancing.
However, the maximum amount of mortgage indebtedness which may be incurred
for the purchase of a specific Property may not exceed 80% of the Purchase
Price of that specific Property. During the course of this offering the
Advisor may, from time to time, make certain cash advances to the Company in
connection with the acquisition of Properties. These advances will be subject
to approval by a majority of the Independent Directors and will be on terms
no less favorable to the Company than those available from third parties.
All advances will be unsecured and will be repaid solely out of the proceeds
of this offering or in Shares at a $9.30 per Share price, to the extent that
the proceeds of this offering are insufficient to repay the advances. The
Company may subsequently sell or finance any or all of the Properties for
the purpose of acquiring additional Property investments.
The Company's principal investment objectives, in the order of priority,
are to invest in Properties which: (i) preserve and protect the Company's
capital, (ii) provide Shareholders with cash Dividends a portion of which will
not constitute taxable income (which due to depreciation will constitute a
return of capital which will reduce an investor's basis in the Shares and
thereby increase the gain or reduce the loss that will be incurred on the
disposition of the Shares or upon dissolution or liquidation of the Company),
(iii) provide capital gains through potential appreciation of the Properties,
and (iv) provide market liquidity through transferable shares of stock. NO
ASSURANCE CAN BE GIVEN THAT THESE OBJECTIVES WILL BE ATTAINED.
The Company has acquired seven Properties. See "Real Property
Investments" and "Investment Objectives and Policies." Specific acquisitions
of other Properties will be described in supplements to this Prospectus. The
Company is unable to predict when Properties may be purchased or the
particular income characteristics of any Property; therefore, no estimate
can be given as to the amount of any Shareholder Dividends. See "Real Property
Investments" and "Risk Factors."
INCOME TAX CONSIDERATIONS. The Company qualifies, and since January 1, 1991
is doing business, as a real estate investment trust (a "REIT") under Sections
856-860 of the Internal Revenue Code of 1986, as amended, (the "Code").
However, continued qualification as a REIT depends upon future operations of
the Company, and no assurance can be given that the Company will be able to
maintain its status as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions of which there
are only a limited number of judicial or administrative interpretations, and
the determination of various factual matters and circumstances not entirely
within the Company's control may impact its ability to qualify as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to the qualification as a REIT or the
federal income tax consequences of such qualification. The Company, however,
is not aware of any proposal to amend the tax laws that would significantly
and adversely affect the Company's ability to operate as a REIT.
If the Company fails to qualify as a REIT, the Company will be subject
to federal income tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. In addition, distributions to
stockholders would not be deductible by the Company. This treatment would
reduce the net earnings of the Company available for investment or
distribution to stockholders because of the additional tax
2
<PAGE>
liability of the Company for the year or years involved. In addition, unless
entitled to relief under certain statutory provisions, the Company would also
be disqualified from treatment as a REIT for the four taxable years following
the year during which qualification was lost. In addition, the Company would
no longer be required by the Code to make any distributions. See "Risk
Factors" and "Tax Consequences."
DIVIDENDS. The Directors will establish a Dividend rate based on the cash
flow, operations and financial condition of the Company. The Company has
declared Dividends on a monthly basis, and has paid Dividends on a quarterly
basis. See "Investment Objectives and Policies -- Dividends." As a result of
the payment of dividends, the Company had no accumulated earnings for any
fiscal year prior to the 1991 fiscal year, the first year the Company elected
to be taxed as a REIT.
DIVIDEND REINVESTMENT PLAN. The Company has established a Dividend
Reinvestment Plan (the "Plan") for its Shareholders which gives Shareholders
the option to use any Dividend payments to purchase additional Shares.
Shares acquired under the Plan during this offering will be purchased from
the Shares offered hereby at the $10.00 per Share offering price. After the
completion of this offering and if the Shares are quoted on the NASDAQ
System, the Plan will acquire existing Shares through the Crossing Agent at
a maximum price of $10.00 per Share, if a sufficient number of Shares are
available at such price. Thereafter, Shares will be acquired in the
over-the-counter public trading market at negotiated commissions or markups.
See "Description of Common Stock -- Dividend Reinvestment Plan."
TAX-DEFERRED DIVIDENDS. Due to depreciation, the Company's cash flow and
distributions is expected to exceed Taxable Income in the early years of its
ownership of Properties. Consequently, it is expected that a portion of
initial cash flow Dividends to Shareholders will constitute a tax-deferred
return of capital. The availability of cash for Dividends will depend on the
operations of the Company. See "Tax Consequences."
ADDITIONAL CONSIDERATIONS FOR TAX-EXEMPT INVESTORS. It is presently
anticipated that Dividends paid to qualified retirement plans, Individual
Retirement Accounts and tax-exempt investors will generally not constitute
"unrelated business taxable income." However, such investors could be
subject to tax on Dividends or upon sale of their Shares if their Shares are
deemed to be directly or indirectly financed in whole or in part by
indebtedness. See "Tax Consequences -- Taxation of Tax-Exempt Shareholders."
The Company intends to conduct its operations in a manner that will not
result in the Company's assets being considered "plan assets" under the
Employee Retirement Income Security Act of 1974 ("ERISA"); however,
fiduciaries of ERISA Plans and Individual Retirement Accounts, in
consultation with their advisors, should carefully consider the
impact of ERISA, the Code and the regulations thereunder on an investment in
Shares. See "ERISA Considerations."
CONFLICTS OF INTEREST. An investment in Shares may subject the Advisor and its
Affiliates to certain conflicts of interest.
- The Company may be in competition with the Advisor and its Affiliates
for investment opportunities.
- Any transactions between the Advisor and its Affiliates and the Company
must be approved by a majority of the Independent Directors, since such
transactions will not be considered at arms length.
- The Selling Agent is an Affiliate of the Advisor and may experience
conflicts in performing its due diligence, although the Selling Agent
believes it has performed the due diligence required.
- West Coast Realty Management, Inc., an Affiliate of the Advisor, is
the property manager for the Company's Properties and will receive a
fee for such services.
- The attorneys, accountants and other experts who perform services for
the Company also perform services for the Advisor and its Affiliates
and will continue to do so in the future.
See "Conflicts of Interest."
3
<PAGE>
THE COMPANY
West Coast Realty Investors, Inc. (the "Company") has been established to
provide investors (both taxable and tax-exempt) with a professionally managed,
diversified portfolio of income-producing equity real estate investments which
present the potential for current cash flow and for capital appreciation. The
Company intends to operate indefinitely. The number of Properties and the
extent of portfolio diversification will depend upon the amount of net
proceeds available to the Company from the sale of the Shares. See "Real
Property Investments," "Management's Discussion of Financial Condition and
Results of Operations," "Risk Factors -- Possible Limited Number of
Properties." Some of the Company's equity investments may be owned by joint
venture partnerships between the Company and other parties which may be
Affiliates of AFG or the Advisor. See "Investment Objectives and Policies."
The Company has had three prior offerings at $10.00 per Share; the first
offering of 1,500,000 Shares commenced on April 20, 1990 and was completed on
November 18, 1991; the second offering of 1,500,000 Shares commenced on
May 14,1992 and was completed on May 14, 1994. The third offering of
2,000,000 Shares commenced on June 3, 1994 and is expected to be completed
on April 30, 1996. As a result of the first offering, 268,791 Shares were
sold for $2,672,586 of gross proceeds which were used to acquire one
property. As a result of the second offering, 368,524 Shares were sold for
$3,681,147 of gross proceeds which were used to acquire three Properties. As
a result of the third offering 776,349 Shares were sold for $7,757,252
through March 25, 1996, the gross proceeds which were used to acquire the
fifth, sixth, and seventh properties. The Company elected to be taxed as a
REIT commencing January 1, 1991. See "Real Property Investments," "Prior
Performance" and "Management's Discussion of Financial Condition and Results
of Operations".
The Company presently intends to hold each Property for a minimum of four
years and a maximum of ten years. Investments in Properties will occur during
this offering and after the completion of this offering. The net proceeds from
the sale, financing or refinancing of Properties ("Cash From Sales or
Refinancing") may be reinvested in additional Properties on a continuous
basis. Cash From Sales or Refinancings (less appropriate reserves) may be
distributed to Shareholders. No specific date is set forth in the
Organization Documents for the Company's termination and the Company
anticipates continuous operations into the foreseeable future. However, the
Organization Documents permit a majority of the Shareholders to liquidate
the Company at any time.
The Company currently owns seven Properties. While the Advisor is
presently reviewing possible investment opportunities, it does not have any
specific plans for the acquisition by the Company of any other specific
Property. See "Real Property Investments" and "Risk Factors."
The Company qualifies, and, since January 1, 1991, is doing business, as
a REIT under Sections 856-860 of the Code. The election by the Company to be
taxed as a REIT was in its 1991 Federal Income Tax return. As of
December 31, 1995, the Company had no accumulated earnings and profits
attributable to taxable years prior to 1995. As a REIT, the Company will not
be subject to federal income tax on that portion of its taxable income which
is distributed annually to Shareholders if certain conditions are met. See
"Tax Consequences" and "Summary of Organization Documents."
The Company expects to benefit from the experience and capabilities of
its officers and Directors, and the officers and directors of the Advisor and
its Affiliates, by drawing on their experience, advice and services in the
areas of real estate investment, commercial and industrial real estate
brokerage, real estate securities and syndication, real estate development
and banking and finance, and public accountancy, as well as upon their
goodwill and their relationships with builders, developers, lenders, insurers
and investors. See "Management."
Day-to-day property management services for the Company's Properties may
be provided by outside property managers, including West Coast Realty
Management Inc. ("WCRM"), an Affiliate of the Advisor, subject to review by
the Advisor and the Directors. Depending on the location of the Company's
real property investments, unaffiliated independent property management
companies may also render day-to-day property management services.
4
<PAGE>
While the Shares will be freely transferable, there is no present market
for the Shares and none is expected to develop during the period of this
offering in view of the suitability standards imposed on investors by certain
state "blue sky" administrators. There is no assurance that an active public
trading market will eventually develop. The Company intends to use a Crossing
Arrangement as an accommodation to and for the benefit of investors who wish
to sell their Shares prior to quotation on the NASDAQ System. See "Description
of Common Stock."
The Company is a corporation organized under the laws of the State of
Delaware on October 26, 1989. Its principal offices are located at 5933 West
Century Boulevard, Ninth Floor, Los Angeles, California 90045, telephone:
(310) 337-9200.
RISK FACTORS
The purchase of Shares involves a high degree of risk. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus, prospective purchasers should carefully consider the following
factors before making a decision to purchase Shares:
CONTINUOUS OPERATIONS OF THE COMPANY; SHAREHOLDER LIQUIDATION OF INVESTMENT.
The Company's plan of business allows the Company to reinvest, in lieu of
distributing to Shareholders, the proceeds from the sale, financing and
refinancing of Properties in additional Properties. The Shareholders,
therefore, would be able to liquidate their investment only through the sale
of their Shares into the market. Such a market does not currently exist. The
market value of the Shares may never equal or exceed the Appraised Value of
the Properties held by the Company or the net proceeds which may have been
available for distribution to Shareholders upon a current sale of the
Company's Properties.
SUBSTANTIAL PAYMENT OF FEES TO THE ADVISOR AND AFFILIATES. The Advisor is
entitled to receive certain transactional fees or commissions based upon the
acquisition, management and disposition of Properties of the Company or the
financing or refinancing of indebtedness relating to such Properties.
Approximately 74.8% of the minimum offering proceeds (75.39% of the maximum
offering proceeds) will be invested in Properties with the remaining 25.2% of
the minimum offering proceeds (24.61% of the maximum offering proceeds) being
paid to the Advisor and its Affiliates for fees and expenses of the offering.
The ongoing compensation paid to the Advisor in the form of an Advisory Fee
will continue indefinitely. See "Compensation of Advisor and Affiliate."
REAL ESTATE INVESTMENT RISKS. The Company will be subject to the risks
generally associated with the ownership of real property, including the
possibility that operating expenses and fixed costs may exceed property
revenues; adverse changes in economic conditions; changes in the real estate
investment climate; adverse changes in local market conditions due to changes
in general or local economic conditions and neighborhood characteristics;
changes in interest rates and in the availability, costs and terms of
mortgage financing; the need for unanticipated maintenance and renovations,
particularly in older structures; changes in real estate tax property rates
and other operating expenses; adverse changes in governmental rules and
fiscal policies; natural disasters, including earthquakes, floods or
tornadoes (which may result in uninsured losses); the financial condition of
the tenants of Properties; and other factors which are beyond the control of
the Company.
The Company's real estate investments in rental properties will be
subject to the risk of the Company's ability to attract or retain tenants
and a potential decline in rental income. To the extent that the Company
acquires Properties with fixed rental payments, the Company may be prevented
from varying its investment portfolio promptly in response to changing
economic conditions during the term of such investments. Furthermore, real
estate investments tend to be long-term, and under the REIT provisions of
the Code, might be subject to minimum holding periods to avoid adverse tax
consequences; consequently, the Company will have only minimal ability to
vary its Property portfolio in response to changing economic, financial and
investment conditions. To the extent that the Company's rental or interest
income is based on a percentage of the gross receipts of retail tenants, its
cash flow is dependent on the retail success achieved by such tenants.
5
<PAGE>
While one of the Company's objectives is to generate cash flow, there can
be no guarantee that the Properties will generate sufficient revenue to cover
operating expenses and meet any required payments on any debt obligations of
the Company. The opportunities for sale, and the profitability of any sale,
of any particular Property by the Company will be subject to the risk of
adverse changes in real estate market conditions, which may vary depending
upon the size, location and type of each Property.
In the event of a dissolution or termination of the Company, the proceeds
realized from the liquidation of Properties, if any, will be distributed to
the Shareholders, but only after the satisfaction of claims of creditors
including any fees which are then payable to the Advisor. Accordingly, the
ability of Shareholders to receive all or any portion of their investment
under these circumstances will depend on the amount of funds realized and
claims to be satisfied from those funds.
If the Company finds it necessary or desirable to provide secondary
financing to purchasers upon the sale of Properties, a liquidation of the
Company may be delayed beyond the time of disposition of its Properties until
any such financing is paid or otherwise liquidated. See "Investment
Objectives and Policies -- Sale or Refinancing of Properties."
LEVERAGING OF INVESTMENTS. The Company anticipates acquiring Properties for
cash or by incurring long-term secured borrowings on investment Properties.
This practice is often referred to as leveraging. The maximum level of
leveraging to be incurred by the Company will be limited to 80% of the
Purchase Price of any individual Property and 50% of the Purchase Price of
all Properties on a combined basis. If a Property is financed or refinanced,
the maximum amount of leveraging to be incurred by the Company will be
limited to 50% of the Appraised Value of the Property at the time of such
financing or refinancing. Leveraging may involve the use of first mortgages,
junior mortgages and/or wrap-around mortgages. The effects of leveraging are
on the one hand, to increase the funds available for investment (which in
turn permits the acquisition of Properties with a higher purchase price
and/or greater diversification by allowing investment in more Properties)
and thereby to increase the aggregate amount of tax-advantaged depreciation
available to the Company; and on the other hand, to increase the risk of
loss if the Company is unable to generate sufficient funds to repay the debt
incurred. The Company may borrow through loans with fixed interest rates or
with variable interest rates which fluctuate with the market rate of
interest. Financing involving renegotiable, floating or adjustable interest
rates involves greater risks than financing where the interest rate is fixed,
since such rates could rise substantially. The higher the rate of interest
on the financing, the more difficult it will be for the Company to meet
its debt service obligations and the greater the chance of a default. If the
Company defaults on secured indebtedness, the lender may foreclose and the
Company could lose its investment in the Property. To the extent possible,
mortgage debt will be non-recourse, meaning the Company will not be liable
for any deficiency between the proceeds of foreclosure and the amount of the
debt. The Company may also use the proceeds from financing its Properties
to acquire new Properties which may themselves be leveraged. See "Investment
Objectives and Policies -- Borrowing Policies -- Leveraging." Money market
fluctuations may significantly decrease the availability and increase the
cost of real estate loans, which could result in the Company being unable to
incur the optimum level of indebtedness or paying higher costs, or both,
which, in turn, could result in less income to the Shareholders. Money
market conditions may also adversely affect the ability of the Company to
sell Properties, when a sale is determined to be in the best interest of the
Company, and may affect the terms of any such sale. If the Company acquires
Properties with "due on sale" clauses, or finances Properties containing
such clauses in their mortgages, the Company's ability to sell such
Properties may be adversely affected. The Company and the Advisor are
unable to predict the effect, if any, which the money market or the federal
government's fiscal, monetary and statutory policies will have on the ability
of the Company to meet its objectives.
The Company may, under certain conditions, obtain permanent first
mortgage financing which requires a "balloon payment" at maturity. In
general, it is intended that the due date of a "balloon payment" will fall
outside the projected holding period of the Property. "Balloon" mortgages
involve greater risks than mortgages where the principal amount is payable
over the term of the loan even though periodic payments may be lower since
the ability of the Company to repay at maturity the outstanding principal
amount of the "balloon" loan may depend upon the Company's ability either
to sell the related Property or to obtain adequate refinancing which will
in turn depend upon economic conditions in general and the value of the
6
<PAGE>
underlying Property in particular. There is no assurance that the Company will
be able either to sell the related Property or to refinance "balloon payment"
mortgages at maturity. Further, a significant decline in the value of the
underlying Property could result in a loss of the Property through
foreclosure. See "Investment Objectives and Policies -- Principal Investment
Objectives."
Recourse for any mortgage indebtedness to be incurred by the Company is
expected to be limited to the particular Property to which the indebtedness
relates. The Federal Bankruptcy Code permits, under certain limited
circumstances, a secured creditor holding non-recourse debt to be treated as
a creditor with a recourse claim. Thus, it is possible that if the Company
were involved in a reorganization proceeding, a holder of a non-recourse
loan to the Company could obtain a Court-approved evaluation of the Property
which secured the loan, and then be treated as the holder of an unsecured
claim against the assets of the Company for any excess of the amount of the
debt over the value of the Property. While the Company intends to obtain
borrowings on a non-recourse basis, the Company might sustain a loss on its
investment as a result of foreclosure by the mortgagee of a Property if
mortgage payments are not paid when due. Also such foreclosure might also
have adverse tax consequences for the Company and the Shareholders. See
"Tax Consequences."
UNSPECIFIED INVESTMENTS. The Company currently owns seven Properties. The
Company has not identified any specific Properties in which the proceeds of
this offering are to be invested.
Therefore, a prospective investor has no information as to the
identification or location of Properties, or other relevant economic and
financial data affecting Properties to be purchased by the Company with the
proceeds of this Offering, which information, if available, would be of
assistance in evaluating an investment in the Company.
The investment of the net proceeds of this offering may occur over an
extended period. During such time, the Company faces the risks of changes in
interest rates and adverse changes in the real estate market. These risks may
adversely affect the amount of funds available for Dividends and investments,
and the price at which Shareholders may sell their Shares. In addition,
substantial delays in investment in Properties could result in the Company's
disqualification as a REIT. See "Tax Consequences -- Requirements for
Qualification as a REIT."
UNCERTAINTY OF COMPANY CAPITALIZATION; DIVERSIFICATION; POSSIBLE LIMITED
NUMBERS OF PROPERTIES; DELAY IN INVESTMENTS. The Company will invest the
proceeds of this offering in a limited number of Properties, depending upon
the amount of proceeds generated by the number of Shares sold. The Company
will acquire Properties for all cash or with moderate leverage. See "Risk
Factors -- Leveraging of Investments." There is no limitation as to the
amount or percentage of the Company's assets which may be invested in any
one developed Property or group of Properties, any specific investment or
the number of purchases which may be made from any person or group of
persons. The Company intends to make real estate investments in Properties
in various locations primarily in California and the west coast of the
United States, in an attempt to achieve diversification and to minimize the
effect of changes in local economic conditions and certain other risks. The
extent of diversification will depend upon the amount of net proceeds
available to the Company from the sale of the Shares. The Company may,
however, be subject to any generalized downturn in the real estate market.
The potential profitability of the Company could also be affected by the
amount of capital at its disposal for investment in Properties.
PRIOR EXPERIENCE IN RAISING FUNDS. There is a risk that the Company will not
sell the entire 1,500,000 Shares being offered and that a significant period
of time will pass between the time funds are received for investment by the
Company and an investment in Property is made. The Company in its initial
offering offered 1,500,000 Shares ($15,000,000) and sold 268,791 Shares
($2,672,586) in a twenty month period. The minimum amount of 100,000 Shares
($1,000,000) in the initial offering, were sold in four months. Ninety
percent of the proceeds from the initial offering were committed for
investment in March, 1993 (60% of the investments were made in February,
1991). The Company's second offering of 1,500,000 Shares ($15,000,000) sold
368,524 Shares ($3,681,147) in a period of 24 months. The minimum amount of
25,000 Shares ($250,000) in the second offering were sold in six months. One
Hundred percent of the proceeds from the second offering were committed for
investment by November, 1994. The Company's third offering of 2,000,000
Shares ($20,000,000) has sold 776,349 Shares ($7,757,252) in a period of
twenty-two months.
7
<PAGE>
The minimum of 25,000 Shares ($250,000) in that offering were sold in seven
weeks. 74% of the offering proceeds were committed for investment in
properties in twenty-two months. In addition, in prior programs sponsored by
an Affiliate of the Company, the full amount of the securities offered were
not sold and it took a significant period of time to invest the funds
received. See "Prior Performance."
UNINSURED LOSSES. The Company will arrange for its Properties to be covered
by comprehensive insurance, including liability for personal injury or
property damage occasioned by its activities, fire and extended coverage,
which is customarily obtained for similar properties. However, there are
certain types of losses (generally of a catastrophic nature such as
earthquakes, floods and tornadoes) which are either uninsurable or not
insurable at economically reasonable costs. Should such a disaster cause the
destruction of a Property, the Company could lose both its invested capital
and anticipated profits in the Property, as well as be obligated to pay any
recourse financing with respect to the Property.
RISKS RELATED TO HAZARDOUS WASTES. Federal law imposes liability on a
landowner for the presence on the premises of improperly disposed hazardous
substances. This liability is without regard to fault for or knowledge of
the presence of such substances and may be imposed jointly and severally
upon all succeeding landowners from the date of the first improper disposal
(although prior to acquisition of a Property the Company will perform due
diligence to ascertain if any hazardous waste exist). If it is ever
determined that hazardous substances are present on a Property, the Company
could be required to pay all costs of any necessary cleanup work, although
under certain circumstances claims against other responsible parties could
be made by the Company.
JOINT VENTURE INVESTMENTS. The Company may make investments in Properties
through joint venture partnerships or joint participations between the
Company (or a partnership between the Company and another entity) and other
parties, including Affiliates or clients of the Advisor and sellers of real
properties or Affiliates thereof. The investment by the Company through joint
ventures or joint participations, instead of investing directly in the
Properties may under certain circumstances involve risks not otherwise
present including, for example, risks associated with the possibility that
the Company's co-venturer in an investment might become bankrupt, that such
co-venturer may at any time have economic or business interests or goals
which are inconsistent with the business interests or goals of the Company,
or that such co-venturers may be in a position to take action contrary to
the instructions or the requests of the Company or contrary to the Company's
investment policies or objectives. In connection with joint ventures, a
Property seller may, as a joint venturer, have the right to take certain
actions with respect to the Property owned through the joint venture without
the Company's concurrence, including under some circumstances the right to
determine whether and when the Property will be sold. Among other things,
actions by any such co-venturer might have the result of subjecting Property
owned through the joint venture to liabilities in excess of those
contemplated by the terms of the Company. See "Conflicts of Interest --
Transactions with the Advisor or an Affiliate," and "Summary of Organization
Documents -- Transactions with Affiliates."
COMPETITION FOR INVESTMENTS. There may be intense competition for Properties
of the type and in the areas in which the Company intends to invest. The
Company will compete for the acquisition of Properties with many other
entities, including Affiliates of the Advisor engaged in real estate
investment activities, some of which have greater assets than the Company.
TAX RISKS. The Company intends to conduct its operations in a manner which
will enable it to qualify for taxation as a REIT under the Code. Although
management of the Company believes that the Company has been so organized and
has been and will operate in such a manner, no assurance can be given that
the Company will be able to operate in a manner as to qualify or remain so
qualified. Qualification as a REIT involves the application of highly
technical and complex Code provisions of which there are only a limited
number of judicial or administrative interpretations, and the determination
of various factual matters and circumstances not entirely within the
Company's control may impact its ability to qualify as a REIT. In addition,
no assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax
laws with respect to the qualification as a REIT or the federal income tax
consequences of such qualification. The Company, however, is not aware of
any proposal to amend the tax laws that would significantly and adversely
affect the Company's ability to operate as a REIT.
8
<PAGE>
If the Company fails to qualify as a REIT, the Company will be subject
to federal income tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. In addition, distributions to
stockholders would not be deductible by the Company. This treatment would
reduce the net earnings of the Company available for investment or
distribution to stockholders because of the additional tax liability of the
Company for the year or years involved. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following
the year during which qualification was lost. In addition, the Company would
no longer be required by the Code to make any distributions. See "Tax
onsequences." The payment of tax by the Company resulting from
disqualification as a REIT would reduce the funds available for distribution
to Shareholders, or could result in the Company having to borrow additional
funds or liquidate certain of its investments in order to pay the corporate
tax.
In order to qualify for the favorable federal income tax treatment
afforded to qualifying REITs, the Company must annually satisfy various
requirements (quarterly for certain requirements), including distributing to
its Shareholders substantially all of its otherwise taxable ordinary income.
Following termination of the offering, the Company intends to make Dividend
distributions to Shareholders at least quarterly. See "Investment Objectives
and Policies -- Dividends." Depending on the circumstances existing in a
given year, the Company might be required to borrow funds or to liquidate
its investments in order to satisfy its distribution requirement. See "Tax
Consequences -- Requirements for Qualification as a REIT" and "-- Taxation
of the Company." In addition, because the Company will be obligated to pay
operating expenses on a current basis, including certain compensation to the
Advisor, the Company might be required to borrow or liquidate investments in
order to pay its fixed expenses. Since the Company elected to be taxed as a
REIT after its first year of existence, it had a taxable year in which it
was not a REIT. The Company elected to be taxed as a REIT commencing
January 1, 1991. As of December 31, 1991, the Company had no accumulated
earnings and profits prior to January 1, 1991.
The REIT provisions of the Code place restrictions on the Company's
investments which do not apply to other types of real estate entities. These
provisions also place restrictions on the Company's operations which will not
apply to operators of buildings with which the Company may be competing for
tenants.
The Company has received a ruling from the Internal Revenue Service that,
based on the facts contained in the request for a ruling ("Ruling Request"),
WCRM will qualify as an independent contractor under Section 856(d)(2) and
856(d)(3) of the Code if it renders services to the Company. If WCRM had not
qualified as an independent contractor, it may have been deemed to be an
Affiliate of the Company and if the Company contracted with WCRM for property
management services, the Company might have lost its eligibility to elect
REIT tax treatment. The Company has represented that the material facts
contained in the Ruling Request are currently still factually accurate.
Gipson Hoffman & Pancione, a Professional Corporation, counsel to the
Company, has opined that based upon information and undertakings supplied by
the Company as described in the "Tax Consequences" section, as well as the
Company's representations contained elsewhere in this Prospectus concerning
the organization and proposed operations of the Company, and subject to the
limitations on such opinion discussed in the "Tax Consequences" section, the
Company is eligible to elect REIT tax treatment.
Certain income, excise and penalty taxes can be imposed even if the
Company maintains its status as a REIT. For example, if the Company
reinvests, rather than distributes, net capital gains, the Company will be
subject to income tax (up to 35%) and a 4% excise tax on such gains. See
"Tax Consequences -- Taxation of the Company."
ADDITIONAL TAX RISK. There is a risk that the Company might be taxed as a
corporation for its 1991, 1992 and 1993 taxable years in that the Company
inadvertently failed to send to its shareholders a demand letter regarding
actual ownership of the Company's shares as required by Treasury Regulation
sec.sec. 1.857-8(d) and (e) for such years. A literal reading of the Code and
Regulations would indicate that failure to satisfy such requirement would
result in the Company being taxed as a regular corporation for its 1991,
1992 and 1993 taxable years. However, the Company's failure to satisfy this
formal requirement was inadvertent and the Company believes that it can
clearly establish that it has satisfied all of the substantive requirements
which
9
<PAGE>
must be satisfied to qualify for taxation as a REIT for its 1991, 1992 and
1993 taxable years, including the actual ownership of the Company's shares.
It is the Company's understanding that the Internal Revenue Service has, at
least in one situation, not disqualified a corporation from taxation as a
REIT simply because it failed to send its shareholders the written demand
letter required by Treasury Regulation sec.sec. 1.857-8(d) and (e). Although
there is no assurance that this will occur, as a matter of administrative
action, it is possible that the Internal Revenue Service would permit the
Company to be taxable as a REIT for its 1991, 1992 and 1993 taxable years.
The Company, in the future, will satisfy all of the record keeping
requirements imposed by sec.sec. 856 through 859 of the Code.
If the Company were taxed as a regular corporation for its 1991, 1992
and 1993 taxable years, the payment of such taxes, including penalties and
interest, would be approximately $140,000, which could be material to the
Company's results of operations.
RELIANCE ON MANAGEMENT AND CONFLICTS OF INTEREST. All decisions with respect
to the management of the Company will be made by the Advisor, subject to the
direction and review of the Directors of the Company. In addition, neither
the Advisor nor any of its officers and directors nor their Affiliates will
have any obligation to give to the Company a prior right to acquire or
invest in any investment opportunities that may be available to them. See
"Conflicts of Interest -- Competition by the Company with Affiliated Parties
for Purchase and Sale of Real Property" and "Services Provided by the
Advisor and Property Manager." Shareholders have no right or power to take
part in the direct management of the Company. Accordingly, investors should
not purchase Shares unless they are willing to entrust all aspects of the
management of the Company to the Directors and the Advisor. See
"Management." The Advisor may also experience certain conflicts of interest
in connection with the management of the Company. See "Conflicts of
Interest."
The Advisor and the Directors will have fiduciary duties and obligations
which will require them to manage the affairs of the Company and resolve any
conflicts of interest by exercising the utmost good faith and integrity. This
is a rapidly developing and changing area of the law, therefore, potential
investors or Shareholders who have questions concerning the duties of the
Directors and the Advisor should consult with their own counsel.
LIMITED TRANSFERABILITY; NO ACTIVE MARKET FOR SHARES MAY DEVELOP. Except
under certain circumstances, see "Description of Common Stock -- Redemption
and Prohibition of Transfer of Shares", there are no restrictions on transfer
of the Shares. However, a market is unlikely to develop during this offering
and there can be no assurance that a market will ever develop for the Shares.
Therefore, Shareholders may not be able to liquidate their investment in the
Company in the event of an emergency. In addition, Shares may not be readily
accepted as collateral for a loan. The Company intends to use a Crossing
Arrangement to match buy and sell orders for Shares as an accommodation to
and for the benefit of Shareholders who wish to sell their Shares. The
Company may apply to have the Shares quoted on the NASDAQ System; however,
no assurance can be given that any broker-dealer will act as a market maker
for the Shares, that the Shares will be accepted for quotation or that, if
quoted, an active public trading market for the Shares will thereafter
develop. See "Description of Common Stock."
TRANSFERABILITY OF SHARES; APPLICATION OF PENNY STOCK RULES. There is a risk
that a market for the Company's Shares may not develop if the Company's Shares
are subject to the "Penny Stock" rules promulgated by the Securities and
Exchange Commission. A Penny Stock is defined generally as one which sells for
less than $5.00 per share. If the Company's Shares sell for less than $5.00
per share, the development of a market in the Shares may be inhibited because
of the requirement that broker-dealers provide customers with a risk
disclosure document prior to effecting any transactions in the Shares, which
requirement may prevent broker-dealers from making a market in the Shares.
LIMITED LIABILITY, INDEMNIFICATION AND POSSIBLE INADEQUACY OF SHAREHOLDER
REMEDIES. The Company's Certificate of Incorporation and Bylaws provide that
the Directors' liability to the Company for monetary damages will be
eliminated to the fullest extent permitted under Delaware law. In addition,
the Company is obligated under its Certificate of Incorporation and Bylaws
to indemnify its Directors, officers, employees and other agents against
certain liabilities incurred in connection with their service in such
capacities. Each of these measures could reduce the legal remedies available
to the Company and Shareholders against such
10
<PAGE>
individuals. See "Summary of Organization Documents -- Limited Liability and
Indemnification of Directors, Officers, Employees and Other Agents" and
"Management."
POTENTIAL DILUTION. The Directors are authorized to borrow or raise capital
without Shareholder approval through the issuance of additional Shares,
notes, debentures, or other obligations of the Company that may be
convertible into Shares or that are accompanied by warrants or rights to
purchase Shares. The net proceeds of any such offering would be applied to
the acquisitions of additional Properties, the enhancement of existing
Properties, or the establishment of Working Capital Reserves. The issuance
of additional Shares, the conversion of any such obligations, or the
exercise of any such warrants or rights, could dilute existing Shareholders'
equity.
ESTIMATED USE OF PROCEEDS
The Company intends to invest the net proceeds of this offering primarily
in income-producing real estate. See "Investment Objectives and Policies."
If the minimum proceeds of $250,000 are raised, approximately 74.8% of
the proceeds will be available for investment in real properties and if the
maximum proceeds of $15,000,000 are raised, approximately 75.39% of the of
the proceeds will be available for investment in real properties. The
remainder of the offering proceeds will used to pay sales commissions of 7%
and wholesaling compensation of 1% (some of which may be paid to Affiliates
of the Advisor if they sell the Shares) and 4% of the proceeds (not to
exceed $500,000) will be used to pay Offering and Organizational Expenses
including a nonaccountable expense allowance which may not exceed 3% of the
gross offering proceeds (some of which may be reimbursed to the Advisor for
the payment of the Offering and Organizational Expenses). Three percent of
the proceeds will be maintained as Working Capital Reserves.
Of the balance of the net proceeds, approximately 10.28% (approximately
$1,542,000 if 1,500,000 Shares are sold) and 10.2% (approximately $25,500 if
25,000 Shares are sold) will be paid to the Advisor by Company as Acquisition
Fees and Acquisition Expenses. Acquisition Fees are normally paid by the
seller of a Property rather than the buyer. However, the price of a Property
will generally be adjusted in order to take this obligation of the seller
into consideration, so that in effect, the Company, as purchaser, will bear
all or a portion of the Acquisition Fees in the Purchase Price of the
Property. The Company also expects to pay commissions in connection with the
Sale or Disposition of the Properties which will reduce the net proceeds to
the Company of any such sales.
11
<PAGE>
The following tables sets forth information concerning the estimated
initial use of proceeds of this offering of Shares, assuming compensation
levels as described in "Compensation of the Advisor and Affiliates." The
table does not give effect to the use of proceeds which may be received by
the Company from any sale, financing or refinancing of its Properties.
<TABLE>
<CAPTION>
ESTIMATED AMOUNT ESTIMATED AMOUNT
ASSUMING ASSUMING
MINIMUM OFFERING MAXIMUM OFFERING
(25,000 SHARES SOLD) (1,500,000 SHARES SOLD)
--------------------- ------------------------
PERCENTAGE PERCENTAGE
OF GROSS OF GROSS
AMOUNT PROCEEDS AMOUNT PROCEEDS
---------- --------- -------- ------------
<S> <C> <C> <C> <C>
Gross Offering Proceeds.................. $250,000 100.0% $15,000,000 100.0%
Less Public Offering Expenses:
Commissions(1)......................... 20,000 8.0% 1,200,000 8.0%
Offering and Organizational
Expenses(2)............................ 10,000 4.0% 500,000 3.33%
-------- ------- ----------- --------
Total Amount Available for Investment in
Properties and Operations.............. $220,000 88.0% 13,300,000 88.67%
-------- ------- ---------- --------
Net Amount Available for Net Acquisition
Fees and Acquisition Expenses:(3)...... $ 25,500 10.20% 1,542,000 10.28%
Reserves:................................ 7,500 3.0% 450,000 3.0%
-------- ------- ----------- --------
Amount Available for Investment in
Properties and Operations.............. $187,000 74.80% $11,308,000 75.39%
-------- ------- ----------- --------
</TABLE>
- ---------------
(1) The Selling Agent will receive from the Company up to 8% of the $10.00
per Share offering price for each Share sold from the proceeds of such sale
for sales commissions and wholesaling compensation, exclusive of the
Monitoring Fee and an additional .5% per Share for bona fide due diligence
expenses. The Company will be solely responsible for paying commissions to
participating Selected Dealers. See "Plan of Distribution."
(2) These amounts represent reimbursements payable to the Advisor for
offering, organization and wholesaling services. See "Plan of Distribution."
The reimbursements are limited to 40 cents per Share for each Share sold
pursuant to this offering and may include a nonaccountable expense
allowance which may not exceed 3% of the gross offering proceeds. All such
expenses in excess of this limit will be borne by the Advisor.
(3) Assumes Properties are acquired with the maximum 50% leverage. If
Properties were acquired without leverage, the maximum Acquisition Fee and
Acquisition Expenses payable would be $12,250 (5.1%) if the minimum proceeds
were raised and $771,000 (5.14%) if the maximum proceeds were raised.
Acquisition Fees are generally defined as all the fees and commissions paid
by any person to any person in connection with the purchase of any real
estate by the Company, whether designated as a real estate commission,
selection fee, nonrecurring management fee, nonrecurring start up fee,
construction fee, or any fee of a similar nature, but excludes any fees paid
for the financing or refinancing of the property. Acquisition Expenses are
generally defined as those fees and expenses including legal fees, travel
and communication expenses, appraisal costs, nonrefundable options, title
fees and other similar expenses related to the selection and acquisition of
Properties.
12
<PAGE>
COMPENSATION OF ADVISOR AND AFFILIATES
The Advisor and its Affiliates will receive the following items of
compensation from the Company. Except as described below, and unless otherwise
authorized by a majority of the Independent Directors, no compensation or
reimbursement is to be paid to the Advisor and its Affiliates and such
compensation or reimbursements may not be recovered by reclassifying them
under a different category. These amounts were not determined by arm's-length
negotiations.
SELLING COMMISSIONS. Associated Securities Corp. (the "Selling Agent"), an
Affiliate of the Advisor, will receive a maximum of 80 cents per Share from
the Company for sales commission, and wholesaling compensation, excluding the
Monitoring Fee and 5 cents per Share from the Company for bona fide due
diligence expenses. If all of the Shares are sold by the Selling Agent, the
Selling Agent would receive a maximum of $1,200,000. However, to the extent
that the Company pays a portion of the sales commissions, wholesaling
compensation and Monitoring Fees, or due diligence expenses to Selected
Dealers who are not affiliated with the Advisor, the compensation paid to
the Selling Agent will be reduced.
ACQUISITION FEES AND ACQUISITION EXPENSES. The Advisor and/or an Affiliate
will receive Acquisition Fees (which are defined generally to mean the fees
and commissions paid by any person to any person in connection with the
investigation, selection or purchase of real estate by the Company) and
Acquisition Expenses (which are defined generally to mean those expenses
incurred in the acquisition of properties by the Company, such as legal fees,
travel fees, title insurance, etc.) in an amount which shall not exceed a
maximum of 6% of the Purchase Price of the Property being acquired. If the
minimum amount of Shares are sold, the Acquisition Fees and Acquisition
Expenses to be received by the Advisor shall approximate a maximum of
$25,500 ($12,250 if Properties were purchased without leverage). If the
maximum amount of Shares are sold, the Acquisition Fees and Acquisition
Expenses to be received by the Advisor, shall approximate a maximum of
$1,542,000 ($771,000 if the Properties were purchased without leverage). The
total amount of Acquisition Fees and Acquisition Expenses which may be paid
by one person to another person shall not exceed 6% of the Purchase Price of
the Properties, no matter how paid. Acquisition Fees paid to the Advisor
will be reduced by all real estate brokerage fees paid by either the Seller
or the Company to any person in connection with the transaction.
In no event will the amount of Acquisition Fees paid exceed the lesser
of the percentages set forth above or the competitive compensation which
would be paid to a real estate professional rendering similar services.
If the Company sells a Property and the proceeds from such sale are
reinvested in the acquisition of another Property, no Acquisition Fees or
Acquisition Expenses will be paid to the Advisor or an Affiliate upon the
acquisition by the Company of the new Property.
DISPOSITION SERVICES. The Company will pay a real estate commission to the
Advisor and/or an Affiliate for selling the Company's Properties. The maximum
real estate commission to be paid will be equal to the lesser of 3% of the
gross sales price of a Property or the normal and competitive rate charged
by unaffiliated parties rendering similar services. The amount of
compensation the Advisor will earn upon disposition of the Company's
properties cannot be estimated at this time, since the gross sales price of
the Properties cannot be determined at this time.
If, on the disposition of a Property, a real estate commission is paid
to an unaffiliated third party in addition to the Advisor and/or an
Affiliate, the maximum total real estate commission paid to the Advisor
shall equal the lesser of one-half of the brokerage commission paid, or 3%
of the gross sales price of the Property. However, the total real estate
commission paid by the Company shall not exceed the lesser of the reasonable
and competitive commission for such Property or an amount equal to 6% of the
gross sales price of the Property.
ADVISORY FEE. The Advisor will receive quarterly, an annualized fee equal to
one percent of the amount of Invested Assets. (Invested Assets are defined
generally as the book value of the real estate owned by the Company). The
Advisory Fee will not be paid unless Shareholders have received a
noncumulative, noncompounded Dividend for such quarter equal to an 7% per
annum return on Shareholders Adjusted Price Per Share (which is defined
generally as the price paid for the Shares less the Dividends paid or deemed
paid
13
<PAGE>
from the sale, financing or refinancing of Properties) prior to adjustment
as a result of the Dividend paid. If the minimum amount of Shares are sold,
the Advisory Fee would be increased approximately $3,740 per annum ($1,870
per annum if Properties were purchased without leverage) and if the maximum
amount of Shares are sold the Advisory Fee would increase approximately
$226,160 (113,080 per annum if the Properties were purchased without
leverage); (i) assuming maximum leverage of 50% when the Properties are
acquired and (ii) is the amount which would be paid during the first year
the amount available for investment is fully invested.
PROPERTY MANAGEMENT FEE. For residential properties the maximum Property
Management Fee payable to West Coast Realty Management Inc., an Affiliate of
the Advisor, will be 5% of the gross revenues. For retail, industrial and
commercial properties, the maximum Property Management Fee will be equal to
6% of the gross revenues, if the Advisor or an Affiliate performs all or
part of the leasing and releasing of the Properties. However, if the Advisor
or its Affiliate does not perform any of the leasing and releasing services
for retail, industrial and commercial Properties, the maximum amount of the
Property Management Fee will not exceed 3% of the gross revenues. In no
event, however, shall the Property Management Fee exceed the normal
competitive rate for those services in the localities where the Properties
are located. The amount of Property Management Fee compensation cannot be
estimated at this time since the amount of gross revenues cannot be
determined.
FINANCING SERVICES. The Advisor will receive compensation for services
rendered in securing additional or replacement financing on the Company's
Properties and in obtaining unsecured financing. The compensation paid to
the Advisor and/or an Affiliate will be determined by the Independent
Directors based on terms and at rates which are reasonable, fair and
competitive with like activities and services from unaffiliated parties.
The amount of compensation cannot be estimated at this time since the amount
of financing or replacement financing which the Company will require cannot
be determined at this time.
SUBORDINATED INCENTIVE FEE. The Advisor will receive a Subordinated
Incentive Fee on the sale, financing or refinancing of the Company's
Properties. The amount of the Subordinated Incentive Fee to be paid will be
determined after the sale, financing or refinancing of a specific Property
has been made and will equal a maximum of 15% of the amount of Cash From
Sales and Refinancing (which is generally defined as the net cash remaining
from the sale of a Property after payment of the expenses related to such
sale and any debt applicable to the Property) remaining after the Company
has received proceeds from the sale or refinancing of such specific Property
in an amount equal to either Offering Proceeds (which is defined generally
as the amount of funds used from the sale of Shares to purchase the
Property) or Reinvestment Proceeds (which is generally defined as the amount
of net cash received from the sale of a Property which is reinvested in
another Property) (such proceeds are deemed to be a Distribution of Cash
Available From Sales or Refinancing to Shareholders) and Shareholders have
received an amount which, when added to all prior Distributions paid to
Shareholders equals 100% of their Adjusted Price Per Share plus a cumulative
noncompounded return on their Adjusted Price Per Share equal to 8% per annum.
The amount of the Subordinated Incentive Fee cannot be estimated at this
time since the amount of Cash From Sales or Refinancings cannot be
determined.
REIMBURSEMENTS. The Selling Agent and Affiliates of the Advisor will receive
reimbursement for Offering and Organizational Expenses (which are defined
generally to mean the costs expended in organizing the Company for the
registration and sale of the Shares and distributing the Shares to the
public) in an amount not to exceed a maximum amount of 40 cents per Share,
not to exceed $500,000 and may be nonaccountable to the extent that such
nonaccountable expenses do not exceed 3% of the gross offering proceeds.
14
<PAGE>
The following table summarizes the nature, estimated amounts and
recipients of compensation to be paid to the Advisor and its Affiliates.
<TABLE>
<CAPTION>
ESTIMATED AMOUNT ASSUMING
TYPE OF COMPENSATION AND ENTITY MINIMUM/MAXIMUM NUMBER OF SHARES
RECEIVING COMPENSATION METHOD OF COMPENSATION IS SOLD(1)
------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
OFFERING AND ORGANIZATION STAGE $20,000 for the minimum amount
Selling Commissions (payable to the 70 cents per Share will be paid by the of Shares sold and $1,200,000
Selling Agent) Company to the Selling Agent; however, if the maximum amount of
a portion may be paid to Selected Shares are sold, excluding the
Dealers. Monitoring Fee.(2)
Offering and Organization Expense Total reimbursement not to exceed 40 $10,000 for the minimum amount
reimbursement (payable to the cents per Share of each Share sold of Shares sold and up to
Selling Agent) pursuant to this offering. $500,000 if the maximum amount
of Shares are sold.(3)
Non-recurring Acquisition Fees The total Acquisition Fees and $25,500 for the minimum amount of
(payable to the Advisor and/or an Acquisition Expenses paid by the Shares sold and approximately
Affiliate and all other parties, Company shall not exceed 6% of the $1,542,000 if the maximum amount
both Affiliates and non-Affiliates) Purchase Price of the Property. of Shares are sold. (4)(5)
involved in the acquisition of
Properties.
OPERATING STAGE (6)
Property Management Fee for For the residential Properties the Not determinable at this time.
Property Management Services maximum Property Management Fee shall
(payable to West Coast Realty be 5% of the gross revenues. For
Management, Inc. an Affiliate of industrial, commercial, and retail
the Advisor) Properties, the maximum Property
Management Fee will be 6% of the gross
revenues where the Advisor or an
Affiliate performs all or part of the
leasing, and re-leasing of Properties.
However, if the Advisor or its
Affiliates does not perform any
portion of the leasing and re-leasing
services for retail, industrial and
commercial Properties, the amount of
Property Management Fee will not
exceed 3% of the gross revenues. In
no event shall the Property Management
Fee exceed the normal competitive rate
for those services in the localities
where the Properties are located.
Advisory Fee for Advising the Annualized fee equal to 1% of Invested Increased per annum by
Company and Managing its Assets. Such fee will be subordinated approximately $3,780 if the
investments (payable to the on a noncummulative, noncompunded minimum amount of Shares are sold
Advisor) basis to a quarterly Dividend payment and approximately $228,000 if the
to Shareholders equal to an annualized maximum amount of Shares are sold.
7% per annum return to shareholders (7) (9)
Adjusted Price Per Share. This fee is
payable quarterly.
Financing services for obtaining As determined by the Independent Not determinable at this time.
financing (payable to the Advisor Directors, not to exceed fair and
and/or an Affiliate) competitive rates paid to unaffiliated
parties rendering similar services.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED AMOUNT ASSUMING
TYPE OF COMPENSATION AND ENTITY MINIMUM/MAXIMUM NUMBER OF SHARES
RECEIVING COMPENSATION METHOD OF COMPENSATION IS SOLD(1)
--------------------------------- -------------------------------------- ----------------------------------
<S> <C> <C>
LIQUIDATION STAGE
Real Estate Commissions for Selling If the Advisor or an Affiliate is the Not determinable at this time. (8)
Properties (payable to the Advisor only party to receive a brokerage (9)
and/or an Affiliate) Property or an commission upon the sale of a
amount equal to 6% of the gross Property, the Company will pay a
sale price. commission equal to the lesser of (i)
3% of the gross sale price of a
Property or (ii) a percentage of the
sale price equal to one-half the
normal and competitive rate charged by
unaffiliated parties rendering similar
services, subject to certain
restrictions specified in the
Company's Organization Documents. Any
real estate commission which is paid
to any unaffiliated parties shall
equal the lesser of (I) one-half of
the brokerage commission paid or (ii)
3% of the gross sale price of the
Property; provided that the total
brokerage commission paid by the
Company shall not exceed the lesser of
the reasonable, customary and
competitive commission for such
Property or an amount equal to 6% of
the gross sale price.
Subordinated Incentive Fee on Sale, After the sale, financing or Not determinable at this time. (9)
Financing or Refinancing (payable refinancing of a specific Property an
to the Advisor and/or an amount equal to 15% of the amount of
Affiliate). Cash From Sales or refinancing
remaining after the Company has
received proceeds from the sale or
refinancing of such specific Property
in an amount equal to either offering
proceeds or Reinvestment Proceeds
(such proceeds are deemed a
distribution of Cash Available From
Sales or refinancing to Shareholders)
and Shareholders have received an
amount which, when added to all
distributions made to Shareholders,
equal 100% of their Adjusted Price per
Share plus a cumulative
(noncompounded) return on their
Adjusted Price per Share (calculated
from time to time) equal to 8% per
annum.
</TABLE>
- ---------------
(1) The estimated amounts assume that a minimum of 25,000 Shares and a
maximum of 1,500,000 Shares are sold.
(2) This assumes the Selling Agent sells all of the Shares. The amount paid
to the Selling Agent will be reduced if Shares are sold by Selected Dealers.
It cannot be determined what percentage of the Shares will be sold by the
Selling Agent and what percentage of the Shares will be sold by Selected
Dealers. The Selling Agent will also receive 5 cents per Share from the
Company for bona fide due diligence expenses. See "Plan of Distribution."
16
<PAGE>
(3) The Advisor will receive reimbursement for actual and necessary
Organization and Offering Expenses which consist of expenses relating to the
Company's organization and formation, for all legal, accounting, due
diligence, printing expenses and for all other expenses relating to the
registration, marketing and distribution of this offering other than retail
sales commissions. This reimbursement is limited to 40 cents per Share for
each Share sold up to a maximum of $500,000 and may include a nonaccountable
expense allowance which may not exceed 3% of the gross offering proceeds.
All such expenses in excess of this limit will be borne by the Advisor. See
"Plan of Distribution."
(4) If the Company finances, refinances, joint ventures or sells a Property,
it may reinvest the proceeds in other Properties. See "Investment Objectives
and Policies." Whenever the proceeds from the sale, financing, or refinancing
of a Property are reinvested in another Property, no Acquisition Fee will be
paid to the Advisor or an Affiliate for the Property which was subsequently
purchased.
(5) The amount of Acquisition Fees and Acquisition Expenses (which assumes
Properties are acquired with a maximum 50% leverage; such amounts would be
approximately $12,250 and $771,000 if the Properties were acquired without
leverage) will be paid by the Company, or the seller of the Property, to the
Advisor and/or an Affiliate. See "Investment Objectives and Policies --
Acquisition Policies" for limitations applicable to the payment of these fees.
To the extent these fees are paid by sellers of Properties, the amount of
Acquisition Fees paid by the Company will be reduced, but it is anticipated
that in such situations the Purchase Price, and therefore, the cash payment
for the purchase of Properties, will be increased.
(6) The Company will pay all expenses of its operations except for the
following expenses which shall be borne by the Advisor: (i) employment
expenses of the Chairman, President, Executive and Senior Vice Presidents
and directors of the Advisor, (ii) office expenses of the Advisor, and (iii)
miscellaneous administrative and other expenses of the Advisor not relating
to the performance of its functions as set forth in the Advisory Agreement.
(7) The amounts reflected assume maximum leverage of 50% when Properties are
acquired and are for the first year the amount available for investment is
fully invested (such amounts would be approximately $1,870 and $113,080 if
Properties were purchased without leverage). See "Estimated Use of Proceeds."
(8) If the Advisor, Affiliates and non-Affiliates participate in a sale, the
general limitation requirements set forth in the Company's Organization
Documents will apply to the Advisor and all Affiliates involved in the
transaction.
(9) Any amounts which are payable to the Advisor but which are deferred
(e.g., insufficient cash for distribution resulting from a sale of a
Property) will be paid when sufficient funds become available.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995.
<TABLE>
<S> <C>
MORTGAGE DEBT..............................................................$ 9,539,180
SHAREHOLDERS' EQUITY (1,322,404 Shares Outstanding) ........................$11,234,837
--------------
Total Capitalization ......................................................$20,774,017
========
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990
----------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues ................ $1,813,126 $903,167 $362,566 $158,306 $152,550 $32,155
Income from continuing
operations....................... 649,605 247,068 158,490 40,287 28,634 5,678
Income from continuing operations
per share........................ 0.58 0.35 0.38 0.15 0.12 0.08
Long-Term Debt .................. 9,539,180 5,161,355 2,405,526 -0- -0- -0-
Total Assets ..................... 21,392,898 13,228,888 7,509,947 2,786,423 2,387,450 1,513,873
Cash Dividends per common share .. $0.720 $0.762 $0.539 $0.275 $0.218 $0.042
</TABLE>
18
<PAGE>
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of
its relationship with the Advisor and Affiliates of the Advisor. None of the
agreements and arrangements, including those relating to compensation, between
the Company and the Advisor and its Affiliates are the result of arm's-length
negotiations. However, the Independent Directors will review annually the
reasonableness of the compensation being paid to the Advisor. In addition, the
Advisory Agreement may be terminated by the Directors, Independent Directors
or Shareholders on 60 days' notice to the Advisor. See "Services Provided by
the Advisor and Property Manager." If the Advisory Agreement is terminated,
the Directors shall select a successor Advisor which shall be approved by the
Shareholders at the next annual meeting of Shareholders.
The Advisor is an Affiliate of AFG. It is anticipated that, in the
future, the Advisor may serve as general partner, advisor or sponsor of other
public and private programs and engage in business activities which will be
competitive with the Company. Accordingly, conflicts may arise between
operating and managing the real estate investments of the Company, and any
such future real estate programs. In addition, AFG and its Affiliates may in
the future engage in additional business activities which will be competitive
with the Company.
The Advisor and its Affiliates are subject to various conflicts of
interest in the operation of the Company. These conflicts include the
following:
COMPETITION BY THE COMPANY WITH AFFILIATED PARTIES FOR PURCHASE AND SALE OF
REAL PROPERTY. The Advisor and its Affiliates may engage for their own
account, or for the account of others, and other public or private real
estate investment trusts or limited partnerships, in other business ventures
involving real estate or otherwise, and neither the Company nor any
Shareholder shall be entitled to any interest in any such venture. The
Company's Organization Documents expressly provide that neither the Advisor
nor any Affiliate of the Advisor will be obligated to present to the Company
any particular investment opportunity which comes to its attention even if
the opportunity is of a character which might be suitable for investment by
the Company. Additionally, the Advisor intends to form other public and
private real estate investment trusts or limited partnerships in the future,
some of which may have the same investment objectives as the Company.
However, the Advisor will not make investments for its own account of the
character suitable for investment by the Company while the Company has
sufficient funds available to make the investment.
When two entities have funds available for investment at the same time,
the Advisor or its Affiliates will review the investment portfolio of each
entity and will make the decision as to which entity will acquire the
property on the basis of such factors, among others, as the suitability of
investing in the property in light of their respective investment
objectives, a review of the investment portfolio of the entities, their
respective cash flow requirements, the effect of the acquisition on
diversification of the portfolio, the size of the investment compared to the
capitalization of the entity, the policy of each entity with respect to
leverage, the amount of funds available and the length of time such funds
have been available for investment. If funds should be available to two or
more entities to purchase a given property or properties and the other
factors are deemed equally applicable to each entity, then the Advisor and
its Affiliates will acquire the properties for the entities on the basis of
rotation with the order of priority determined by the dates of formation of
each entity, and will so report to each entity not selected to acquire the
property. There are no current or prior programs which have funds available
for investment in properties.
TRANSACTIONS WITH THE ADVISOR OR AN AFFILIATE. Transactions with the Advisor
and its Affiliates and the Directors are governed by the Bylaws. The Bylaws
require that the Independent Directors must approve or ratify all
transactions with the Advisor or its Affiliates, or any transaction with any
Director, officer, employee or agent of the Company, except with respect to
certain transactions which, by their terms, are governed by the Bylaws.
Transactions with Affiliates may be considered not to be made at arms-length.
The material terms and circumstances of any transactions so approved will be
included in the Company's annual report. The Company will not acquire
Properties from the Advisor or any of its Affiliates, except as described
in "Summary of Organization Documents -- Transactions with Affiliates."
SELLING AGENT. Associated Securities Corp., a wholly owned subsidiary of
AFG, is the Selling Agent of the Shares. As an Affiliate of AFG and the
Advisor, the Selling Agent may experience conflicts in performing its
19
<PAGE>
obligations to exercise due diligence with respect to the statements made in
this Prospectus. The Selling Agent believes, however, that it has exercised
the degree of diligence required of it in connection with this offering.
PROPERTY MANAGEMENT FEE. West Coast Realty Management Inc., an Affiliate of
AFG and the Advisor, will receive a monthly fee not to exceed 5% of the gross
revenues from residential Properties and 6% of the gross revenues from the
retail, industrial and commercial Properties which it manages and leases.
For further information on the Property Management Fee see "Investment
Objectives and Policies -- Management of Properties" and "Compensation of
Advisor and Affiliates".
LACK OF SEPARATE REPRESENTATION. The attorneys, accountants and other
experts who perform services for the Company also perform services for AFG,
the Advisor and certain Affiliates of the Advisor. It is anticipated that
this dual representation will continue in the future. However, should a
dispute arise between the Company and the Advisor or an Affiliate, or should
it become necessary to negotiate and prepare any material contracts and
agreements between the Company and the Advisor or an Affiliate other than
those existing on the effective date of this Prospectus, the Independent
Directors may cause the Company to retain separate counsel for those matters.
Any future contracts and agreements between the Company and the Advisor or
its Affiliates will provide that they may be terminated at the option of the
Company upon 60 days' notice without penalty to the Company.
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES. The Company primarily intends to acquire,
improve, operate and hold for investment income-producing real estate
projects, which may include residential buildings, office buildings,
shopping centers, research and development facilities, industrial parks,
warehouses, or mini-warehouses and other similar types of income-producing
property. The Company will operate on a continuous basis for an indefinite
term. The Company's principal investment objectives cannot be changed without
a majority vote of the Shareholders. The Company will not develop speculative
properties; it will acquire only properties which have been developed and
are producing income. The Company's policy will be to acquire Properties for
cash or with a moderate amount of mortgage indebtedness; however, the Company
may leverage its investments as described below in "Borrowing Policies --
Leveraging." The Company intends to concentrate on equity investments. The
Company does not presently intend to offer Shares as consideration in exchange
for Properties but may do so with the approval of a majority of the
Independent Directors. During the course of this offering the Advisor may,
from time to time, make certain cash advances to the Company in connection
with the acquisition of Properties. These advances will be subject to
approval by a majority of the Independent Directors and will be on terms no
less favorable to the Company than those available from third parties. All
advances will be unsecured and will be repaid out of the proceeds of this
offering or in Shares at a $9.30 per Share price, to the extent that such
offering proceeds are insufficient to repay all advances at the completion
of this offering.
The Company's principal investment objectives in order of priority are
to invest the net proceeds of this offering in Properties which will: (i)
preserve and protect the Company's capital, (ii) provide cash Dividends a
portion of which will not constitute taxable income (which due to
depreciation will constitute a return of capital which will reduce an
investor's basis in the Shares and thereby will result in an increase in gain
or a reduction in loss to the Shareholders on any disposition of the Shares
including a disposition upon dissolution or liquidation of the Company),
(iii) provide capital gains through potential appreciation of Properties,
and (iv) provide market liquidity through transferable shares of stock.
NO ASSURANCE CAN BE GIVEN THAT THESE OBJECTIVES WILL BE ATTAINED.
Except as described below in "Use of Initial Capital" and "Borrowing
Policies -- Leveraging," the Company does not have a policy, and there is no
limitation, as to the amount or percentage of its assets which may be
invested in any one Property or group of Properties, any specific investment
or the number of purchases which may be made from any person or group of
persons. To the extent feasible, investments will be made in various
locations primarily in California and the west coast of the United States in
an attempt to achieve diversification and to minimize the effect of changes
in local economic conditions and certain other risks. See "Risk Factors."
However, the extent of diversification depends upon the amount of net
proceeds
20
<PAGE>
available to the Company from the sale of the Shares, and if less than the
maximum net proceeds of this offering is obtained, the number of Properties
acquired and the Company's ability to diversify will be reduced. The Company
may, in the future, repurchase Shares on the open market or in negotiated
transactions if the Directors believe that the Company's Share price makes
that an attractive investment. Such repurchases, if any are made, would only
be made in compliance with conditions imposed by the Federal Securities
Exchange Act of 1934.
USE OF INITIAL CAPITAL. The Company intends to use the net proceeds of this
offering, which will be not less than a minimum of $220,000 and a maximum of
$13,300,000 for the purchase of Properties, for the payment of Acquisition
Fees and for the establishment of appropriate reserves. See "Estimated Use of
Proceeds".
There can be no assurance as to when the proceeds from the offering may
be fully invested. The Advisor is presently evaluating real property for
purchase. It is intended that the time required to invest the net proceeds
of this offering will not cause the Company to be deemed an "investment
company" for purposes of the Investment Company Act of 1940, as amended. If
the Company holds sufficient uninvested funds, it may invest in short-term
investments (including, without limitation, bank or savings and loan
instruments, bankers' acceptances, repurchase agreements, GNMA and FNMA
mortgage pass-through certificates, commercial paper, short-term time
deposits and money market funds managed by subsidiaries of AFG or its
Affiliates and having assets in excess of $100,000,000) until the funds are
required for the acquisition of Properties. Any interest earned will be
deemed to be earned from operations of the Company. The Company does not
intend to make investments in securities for the purpose of exercising
control of the issuer of such securities.
Before completion of this offering, when the Directors believe that a
reasonable probability exists that a Property will be acquired by the Company,
this Prospectus will be supplemented to disclose the pending acquisition of
the Property. This event will normally occur on the signing of a legally
binding purchase agreement, but it may occur before or after signing,
depending on the particular circumstances surrounding each potential
acquisition. A supplement to this Prospectus will set forth data available
with respect to the acquisition, which will include the proposed terms of
purchase, a description of the Property to be acquired and other
information. Additional data will be made available after a pending
acquisition is completed by means of an additional supplement to this
Prospectus if the information can be distributed before termination of this
offering.
PROPOSED ACQUISITIONS WILL BE DISCLOSED WHEN THERE IS, IN THE COMPANY'S
JUDGMENT, A "REASONABLE PROBABILITY" THAT THE PROPERTY WILL BE ACQUIRED.
THEREFORE, INFORMATION CONCERNING A PROPOSED ACQUISITION CANNOT BE RELIED
UPON AS A COMPLETE ASSURANCE THAT THE COMPANY WILL ULTIMATELY CONSUMMATE THE
PROPOSED ACQUISITION OR THAT THE IDENTIFIED PROPERTY WILL ULTIMATELY BE
ACQUIRED UPON THE DISCLOSED TERMS AND CONDITIONS. THERE MAY BE A DELAY
BETWEEN THE NEGOTIATION AND THE COMPLETION OF A PROPERTY ACQUISITION.
To attain its stated objectives and pay cash Dividends to Shareholders,
it will be necessary for the Company to acquire Properties which will generate
cash in excess of the cash required to meet the gross operating expense of
the Company. To do this, the Company intends where possible to invest the
majority of the net proceeds of this offering in Properties with operating
histories including established rent and expense schedules. In the event that
there is an agreement with the seller of a Property assuring a minimum level
of rental income, it is likely that the seller would increase the purchase
price for that Property to reflect the agreement. Upon the expiration of any
such agreement, there would be no assurance that the Company will be able to
obtain or maintain the levels of operating income or expense which are
necessary to produce the return it was previously experiencing. Payments made
to the Company pursuant to such an agreement may be treated as income for
federal income tax purposes.
ACQUISITION POLICIES. The Company will obtain an Appraisal of the fair market
value of any equity interest in real estate to be acquired by the Company. The
Appraisal will be made by an Independent Expert who is a member of a
nationally recognized society of appraisers. Each Appraisal will be
maintained in the records of
21
<PAGE>
the Company for at least five years following the acquisition of the appraised
Property and during that period will be available for inspection by any
Shareholder. The Company will not purchase any Property if the cost of the
Property (including Acquisition Fees and Acquisition Expenses) exceeds the
appraised value of the Property. It should be recognized that appraised
values are opinions and, as such, may not represent the true worth or
realizable value of the property being appraised.
It is the present policy of the Company that all investments in real
property will be made only with the prior approval of the Directors. The
Advisor and its Affiliates are prohibited from leasing or selling any
Property to the Company except with the approval of the Independent
Directors, and the Advisor and its Affiliates may not have any pecuniary
interest, other than their interest in the Company, in any Property sold or
leased to the Company. However, the Advisor or any of its Affiliates (i) may
be joint venture partners with the Company with respect to certain Property
ownership, and (ii) may purchase Property in its own name, assume loans and
temporarily hold title for the purpose of facilitating the acquisition of a
Property, or for any other purpose related to the business of the Company.
Prior to the acquisition of any Property or any interest in a Property,
the Company will be provided with evidence satisfactory to the Directors or
the Advisor, that the Company will acquire marketable title to the Property.
This evidence may include a policy of title insurance, an opinion of counsel
or such other evidence as is customary in the locality where the Property is
situated.
BORROWING POLICIES -- LEVERAGING. The Company will initially acquire
Properties for cash or by borrowing from banks, other institutional lenders
and private lenders. Aggregate borrowings incurred by the Company in
connection with the financing of all Properties will not exceed 50% of the
Purchase Price of the Properties on a combined basis and the amount borrowed
with respect to any individual Property will not exceed 80% of its Purchase
Price. If a Property is financed or refinanced, the aggregate amount of
borrowings the Company will incur will not exceed 50% of the Appraised Value
of the Property at the time of such financing or refinancing. The Company
may use the proceeds from any refinancing, and the proceeds from any
Property disposition, to acquire additional Properties, the acquisition of
which may also be leveraged. The Company may also issue notes, debentures
and other debt securities and mortgage a portion of its Properties in
connection with these borrowings or acquisitions. In addition, the Company
may establish a line of credit with a bank or other lender.
Where possible, the Company will issue only nonrecourse promissory notes
in connection with the financing of Properties so that the Company would not
be generally liable on the borrowing and the lender's rights upon default
would be limited to the Property which secures the obligation. There is no
assurance as to whether, or the extent to which, the Company may enter into
such nonrecourse arrangements. The Company and the Advisor will use their
best efforts to arrange fixed interest rate permanent financing on the most
favorable terms available to the Company; however, some financing may involve
renegotiable, floating or adjustable interest rates, interest accruals or
balloon payments. See "Risk Factors -- Leveraging of Investments."
RESERVES FOR OPERATING EXPENSES. It is anticipated that approximately 3% of
the gross proceeds of the offering will initially be designated as Working
Capital Reserves to meet operating costs and expenses of the Company and
its Properties, capital expenditures and initial cash expense upon
completion of the Company's investment program. In connection with
Properties requiring large initial maintenance expenditures or Properties
which are in the process of being leased pursuant to discussions with
prospective tenants, larger reserves may be retained by the Company. To the
extent that Working Capital Reserves and any income of the Company are
insufficient to defray these costs and other obligations and liabilities,
it may be necessary to attempt to finance or refinance the Properties or, if
financing or refinancing is not available on acceptable terms, to liquidate
the Company's investment in certain of its Properties, which could result in
sales on unfavorable terms as well as jeopardize the tax status of the
Company as a REIT. However, during the holding period of a Property, the
Company may increase Working Capital Reserves to meet anticipated costs and
expenses and other economic contingencies. If in any fiscal quarter the
Directors should determine that Working Capital Reserves of the Company
exceed the amount it deems sufficient for the Company's operations, the
reserves may be reduced and the amount of the reduction added to the funds
available for
22
<PAGE>
acquisition of Properties or distributed to Shareholders, as determined by
the Board of Directors. See "Investment Objectives and Policies -- Dividends."
MANAGEMENT OF PROPERTIES. It is anticipated that each Property will be
managed by West Coast Realty Management, Inc., an Affiliate of the Advisor,
which will be responsible for the management of the Property and collection
of its rental income. Based upon the accuracy of the facts contained in the
Ruling Request, the Internal Revenue Service has issued a ruling that West
Coast Realty Management, Inc. will qualify as an "independent contractor" as
defined in the REIT provisions of the Code. If West Coast Realty Management,
Inc. had not qualified as an independent contractor, it may have been deemed
to be an Affiliate of the Company, and if the Company contracted with West
Coast Realty Management, Inc. for property management services, the Company
might have lost its eligibility to elect REIT tax treatment. The Company will
use its best efforts to ensure that the material facts contained in the
Ruling Request remain accurate. See "Management." The difference between
revenues and the expenses related to the operation of the Property, including
the cost of maintenance, repairs and improvements, administration, payroll,
utilities, insurance premiums, taxes and assessments, bookkeeping and
commissions, debt service and the Property Management Fee will be retained
by the Company. In no event will the Property Management Fee exceed the
rates prevailing for comparable services in the localities where the
Properties are located. See "Compensation of Advisor and Affiliates." If
West Coast Realty Management, Inc., retains independent management companies
to perform a portion or all of the services in connection with the management
of the Properties, it will be responsible for and pay any fees charged by
these persons without additional cost to the Company. The Property
Management Fee does not include, and West Coast Realty Management, Inc.
will not be responsible to pay, any fees or expenses paid to on-site property
managers.
DIVIDENDS. The Company will declare Dividends on a monthly basis, payable to
Shareholders of record on the first of the month, and will pay those Dividends
quarterly. The Company will declare and pay Dividends in such amounts as the
Directors determine, based upon the cash flow of the Properties, the
operations of the Company and its financial condition. However, the
Company's policy will be to pay Dividends to Shareholders aggregating
annually at least 95% of its Taxable Income (which term is different from
Cash Available For Distribution or Cash From Sales or Refinancings).
Commencing January 1, 1993, the Advisor and WCRM agreed to waive their
administrative services reimbursement and a portion of the Property
Management Fee, until November, 1994. The effect of the foregoing was to
increase Dividends approximately $.10 to $.15 per Share per year.
The Company will seek to comply with provisions of the federal income tax
laws applicable to REITs, and, assuming compliance, income distributed as
Dividends will not be taxable to the Company under federal income tax laws.
Dividends paid by the Company will always be at the discretion of the
Directors, and will depend on the earnings and cash flow of the Company, its
financial condition and other relevant factors. Certain Dividends, or
portions thereof, may not constitute taxable income to the shareholder. See
"Tax Consequences."
Dividends may be restricted under provisions of the Delaware Corporations
Code. Generally, payment of Dividends is permitted only if the Company has
sufficient retained earnings or it meets certain assets and liabilities tests.
If Dividends are paid in violation of these provisions, creditors of the
Company, if any, who are not paid by the Company may be able to recover the
amount of the Dividends, with interest, from Shareholders who had knowledge of
the facts indicating the impropriety of the Dividends.
Dividends totaling $804,595, $522,614, $221,010, $74,632 and $50,284 in
1995, 1994, 1993, 1992 and 1991, respectively, were declared for Shareholders
of record, who owned Shares on the first day of each month, and paid in the
quarter following the record date. Of such amounts,
approximately 24%, 37%, 6%,
23
<PAGE>
46% and 42% in 1995, 1994, 1993, 1992 and 1991, respectively, constituted a
return of capital. The 1993, 1994 and 1995 dividend distributions are
summarized below.
<TABLE>
<CAPTION>
RECORD DATE PER OUTSTANDING TOTAL
DATE PAID SHARE SHARES DIVIDENDS
- ------- --------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
01/01/93 05/03/93 $0.034 309,040 $10,507
02/01/93 05/03/93 0.034 313,240 10,650
03/01/93 05/03/93 0.034 318,760 10,838
04/01/93 08/06/93 0.034 333,440 11,337
05/01/93 08/06/93 0.044 355,345 15,622
06/01/93 08/06/93 0.050 383,165 19,158
07/01/93 08/06/93 0.050 406,916 20,346
08/01/93 11/05/93 0.050 417,373 20,869
09/01/93 11/05/93 0.050 436,872 21,843
10/01/93 11/05/93 0.053 472,591 25,047
11/01/93 01/31/94 0.053 497,706 26,378
12/01/93 01/31/94 0.053 535,365 28,375
01/01/94 01/31/94 0.058 562,888 32,648
02/01/94 04/29/94 0.060 568,404 34,104
03/01/94 04/29/94 0.062 590,966 36,640
04/01/94 04/29/94 0.063 610,195 38,442
05/01/94 08/11/94 0.064 620,421 39,707
06/01/94 08/11/94 0.065 637,315 41,426
07/01/94 08/11/94 0.065 637,315 41,426
08/01/94 10/31/94 0.065 688,203 44,733
09/01/94 10/31/94 0.065 747,876 48,612
10/01/94 10/31/94 0.065 811,034 52,717
11/01/94 01/15/95 0.065 844,800 54,913
12/01/94 01/15/95 0.065 880,700 57,246
01/01/95 01/15/95 0.060 911,986 54,719
02/01/95 04/17/95 0.060 945,136 56,708
03/01/95 04/17/95 0.060 1,009,084 60,545
04/01/95 04/17/95 0.060 1,069,217 64,153
05/01/95 7/14/95 0.060 1,109,374 66,562
06/01/95 7/14/95 0.060 1,109,874 66,592
07/01/95 7/14/95 0.060 1,116,891 67,013
08/01/95 10/16/95 0.060 1,151,911 69,115
09/01/95 10/16/95 0.060 1,204,517 72,271
10/01/95 10/16/95 0.060 1,225,398 73,524
11/01/95 1/15/96 0.060 1,261,859 75,712
12/01/95 1/15/96 0.060 1,294,683 77,681
</TABLE>
The amount of distributions necessary to maintain taxable status as a
REIT for the years ended December 31, 1995, 1994, 1993, 1992, and 1991
was $617,125, $251,456, $171,223, $38,273, and $27,202.
SALE, FINANCING OR REFINANCING OF PROPERTIES. The Company anticipates holding
Properties for a minimum of four years and a maximum of ten years from the
date of each Property's acquisition. The Company is prohibited from selling
any Property to the Advisor or its Affiliates.
The Company's policy will be to purchase Properties, generally on a
moderately leveraged basis. The Company may sell or finance Properties and
reinvest the proceeds in additional Properties which may themselves be
leveraged. Should the Company sell or refinance Properties, the Company may
distribute all or part of the proceeds to the Shareholders. Properties may be
financed at any time depending upon the availability of suitable financing,
satisfactory terms and other factors. The Company also may use funds from the
sale or financing of a Property to finance improvements or additions to any
Property and may use the net proceeds of any financing to purchase the land
underlying any Property which is held subject to a ground lease.
The determination of whether a particular Property should be sold,
financed, or otherwise disposed of will be made after a consideration of
relevant factors, including performance of the Property and market conditions,
with a view toward achieving the principal investment objectives of the
Company. The Advisor and any Affiliates may not have any pecuniary
interest, other than their interest in the Company and pursuant to the other
arrangements described in this Prospectus, in any Property sold or leased by
the Company
24
<PAGE>
without the approval of a majority of the Directors, including a majority of
the Independent Directors, not otherwise interested in the transaction.
In connection with the sale of a Property, the Company may provide seller
financing as to a portion of the sales price. The terms of payment to the
Company will be affected by the then prevailing economic conditions.
Therefore, the distribution to Shareholders of the proceeds of a sale, if
any, may be delayed until the notes or other property are paid at maturity,
sold, refinanced or otherwise disposed of. In certain cases a significant
portion of the remaining balance of the sales price may be a balloon payment
due at a specified maturity date.
GENERAL RESTRICTIONS. The Bylaws contain certain restrictions on the
Company's investments and activities, including limitations on transactions
with Affiliates, which are more fully described in "Summary of Organization
Documents --"Restrictions on Investments" and "Other Restrictions."
REAL PROPERTY INVESTMENTS
BLOCKBUSTER VIDEO BUILDING.
On February 26, 1991, utilizing the proceeds received from the prior sale
of its Shares, the Company acquired the Blockbuster Video building and
underlying fee ownership in the land (the "Building") located at 6491 Edinger
Avenue in Huntington Beach, California. Huntington Beach is a thriving,
beachside community located in the northwest section of Orange County. The
Building is located on the northwest corner of Edinger Avenue and Edwards
Street -- two busy thoroughfares located in the heart of the city. The
Building is located approximately three miles away from the San Diego
Freeway (Highway 405), two miles away from two major shopping malls
(Westminster Mall and Huntington Center), and one mile away from Golden West
Community College.
Description. The Building is occupied by a single tenant, a Blockbuster
Video store. Blockbuster Videos, Inc., ("Blockbuster") the tenant, is a large,
Texas-based corporation that operates a national network of video rental
stores. Blockbuster is a component of the Standard & Poor's 500 index of
top U.S. publicly traded companies. The Blockbuster chain has built a
reputation of offering convenient video rental service featuring easy rental
and return privileges, and has established a good reputation in the
communities it is located in by refusing to rent or sell pornographic
videos, or those videos rated "X" or "NC-17" by the Motion Picture
Association of America. The information regarding Blockbuster was obtained
from the Blockbuster Entertainment Corporation Form 10-K for its fiscal year
ended December 31, 1990 as filed with the Securities and Exchange Commission.
Base building construction was completed in January 1991. The primary
contractor was the Newport Construction Company. The total size of the lot is
18,030 square feet. The Building was constructed using a wood frame, on a
concrete slab, with a flat roof. The floors are concrete with carpet and tile
coverings. The building contains a total of 5,200 rentable square feet. Site
improvements include professional landscaping, parking lot lighting, trash
enclosures, asphalt and concrete paving, striping and buffers, and twenty-six
parking spaces located in a parking lot with street access to both Edinger
Avenue and Edwards Street. The landscaping covers approximately 2,591 square
feet or 14% of the total lot area.
The lease with Blockbuster is for ten years, and is a "triple-net" lease
with the tenant responsible for the Building's operating costs including, but
not limited to, taxes, insurance, and common area maintenance. In addition,
the builder has provided warranties on several of the site improvements. The
lease calls for rental payments of $11,180 per month for years one through
five (1991-1995), and $13,416 per month for years six through ten
(1996-2000). This is equivalent to $2.15 and $2.58 per square foot,
respectively. Rental income is recognized on a straight line basis to the
extent that rental income is deemed collectible. In addition, the tenant
has the option to renew the lease for $16,099 per month ($3.10 per square
foot) for years eleven to fifteen (2001-2005), and another option to renew
the lease for $19,319 per month ($3.72 per square foot) for years sixteen
to twenty (2006-2010). Rental payments began when Blockbuster occupied the
Building on February 19, 1991.
25
<PAGE>
Total Purchase Price paid for the Building was $1,676,525. The total
acquisition cost included $1,575,000 payable to the seller, $10,000 in
estimated legal, appraisal, and closing costs, and $90,140 as an Acquisition
Fee payable to the Advisor and Descolin, Incorporated ("Descolin"). Descolin
is an affiliate of the Advisor. The Building was acquired from Edinger &
Edwards, a California General Partnership.
The funds used to acquire the Building were received from the prior sales
of the Company's Shares. Payment of the Acquisition Fee to the Advisor was
deferred until March 11, 1991, the date on which sufficient net proceeds from
the sale of the Company's Shares was sufficient to pay such fee. All other
costs and expenses, including the payment to the seller of the building,
were paid on February 26, 1991 from net proceeds from the sale of the
Company's shares.
The Building was initially acquired entirely for cash, with no debt
financing involved. However, on February 8, 1994, the Company financed the
Building by incurring nonrecourse mortgage debt secured by the Building from
Standard Insurance Company in the amount of $600,000. The initial interest
rate is 8.25% per annum and at the end of the fifth year of the loan, the
interest rate will be adjusted to 350 basis points over the five-year
Treasury Bond yield. The initial monthly payment is $4,934. The loan is
amortized over 25 years and matures in 10 years.
Competitive Conditions. The Building is located in the heart of
Huntington Beach, a thriving Orange County city which is adjacent to other
well-known communities such as Fountain Valley, Westminster, and Costa Mesa.
Although there are several other video stores in the area of smaller or
equal size, there are no other Blockbuster video stores within two miles of
this location.
Although the building currently has a single tenant, it is readily
convertible to another use for a new, retail tenant in the event of vacancy.
Property Operations. The Advisor has determined that the Building is
adequately insured. Although the tenant is obligated by its lease to pay
property taxes, the property taxes in 1995 were approximately $18,000.
General. The material facts considered in purchasing the Building were
the desirability of its location, comparable rents in the area, the high
credit quality of the single tenant, the long-term lease that the sole
tenant has committed to, and the competitive return on investment provided
by the net income from the Building.
The computation of depreciation is based on the cost of the Blockbuster
Video Property including Acquisition Fees and Acquisition Expenses. The
allocation of the cost of the Blockbuster Video Property to the various asset
categories is estimated, based on allocations noted in the property tax
assessments. Depreciation is computed on a straight-line basis over the
component useful life of the assets.
FRESNO PROPERTY
On May 14, 1993, the Company acquired the property described below (the
"Fresno Property"). The cash to acquire the Fresno Property was received from
the sale of the Company's Shares in prior offerings.
Description. The Fresno Property was a newly developed retail building
(the "Fresno Building") with construction completed in April, 1993. The Fresno
Building is located at 1614 North Blackstone, Fresno, California. The Fresno
Building is located close to the center of Fresno, California on the
northeast corner of Blackstone and McKinley. Fresno is located in Central
California. The Fresno Building is located on a lot size of 23,855 square
feet, with a building size of 8,915 square feet. The exterior of the Fresno
Building consists of stucco and glass construction.
The Fresno Building is 100% occupied by two tenants -- Wherehouse
Entertainment, Inc. ("The Wherehouse"-- a music and video retailer), and RTO,
Inc. (which stands for "Rent To Own" -- a home furnishing and appliance rental
company) (collectively "Tenants").
The Wherehouse entered into a ten year lease which commenced
April 1, 1993 and was to continue through March 31, 2003. The Wherehouse
occupies approximately 6,000 square feet of the Fresno Building.
26
<PAGE>
Prior to the modification of The Wherehouse lease, as described below,
monthly rental payments were to be as follows:
April, 1993 to March, 1998: $7,680 per month
(1.28/sq. ft./month)
April, 1998 to March, 2003: 8,820 per month
(1.41/sq. ft./month)
As possible additional rent, The Wherehouse was scheduled to pay the
Company 3% of gross sales after applying a formula that involves recapture of
rent and expenses that The Wherehouse would pay as a triple net lease tenant.
There were no amounts due on this additional rent through December 1995.
On August 2, 1995, The Wherehouse filed for protection under Chapter 11
of the U.S. Bankruptcy Code. The Wherehouse continued to pay its rent under
the term of the lease through 1995. In December 1995, the Company and The
Wherehouse agreed to the terms of a new lease, subject to the approval of
the Bankruptcy Court. Under the terms of the First Amendment to Lease (the
"Amendment") dated December 29, 1995, commencing January 1, 1996, The
Wherehouse's lease was converted from a "net" lease to a "gross" lease. At
a minimum, the Company will be paid rent of $82,800 per year ($6,900 per
month) until March 30, 2003. The Amendment also provides that every two
years commencing January 1, 1998, the gross rent will be adjusted to an
amount equal to 8.2% of gross sales from the previous calendar year, but
such rent shall never be less than the rent paid during the previous year.
At this time, the Company does not feel that the gross rent calculation will
exceed the minimum rental amount payable in 1996. The Wherehouse will also
pay for any percentage increase in property taxes over and above the amount
assessed for calendar year 1995, on its pro rata share of occupied space of
the property. The terms and conditions pertaining to options to renew the
lease remain unmodified and are described below.
As a result of the Amendment, the monthly rent payments (based on
minimum rental amounts) was decreased from $1.28 per square foot to $1.15
per square foot (or $9,360 per year) effective January 1, 1996. In addition,
the Company expects to absorb an additional $17,500 in operating expenses
that were previously allocated to The Wherehouse. The total decrease in
income as a result of the Amendment is therefore estimated to be $26,860
per year. Based on approximately 1.32 million shares of the Company
outstanding, the Amendment would decrease distributable income by
approximately $.02 per share per year, and thus is not material to the
operating results of the Company.
In addition, the Wherehouse has an option to extend its lease for three
five-year periods at the end of the initial lease, or extended term, as
follows:
April, 2003 to March, 2008: $10,140 per month
April, 2008 to March, 2013: 11,700 per month
April, 2013 to March, 2018: 13,500 per month
RTO entered into a five year lease and occupies approximately 2,915
square feet of the Fresno Building, with monthly rental payments as follows:
April, 1993 to March, 1993: Free Rent
June, 1994 to March, 1997: $3,498 per month
(1.20/sq. ft./month)
April, 1997 to March, 1998: $3,664 per month
(1.25/sq. ft./month)
During the term of the initial lease -- during the Company's
ownership -- rent payments will average $1.21 per square foot per month.
In addition, RTO has an option to extend the lease for two three year
periods at the end of the initial, or extended lease term as follows:
April, 1998 to March, 2001: $3,790 per month
April, 2001 to March, 2004: $3,935 per month
27
<PAGE>
The RTO lease is "triple-net," with the Tenant responsible for paying all
operating expenses including utilities, maintenance, and a pro rata portion of
real estate taxes.
The Fresno Building was acquired from an unrelated third party. In
determining the propriety of the investment in the Building, the Advisor
reviewed (1991-1992) sales information on seven similar retail buildings
located in the vicinity. Based on sales price of $1,330,000, the Fresno
Building's acquisition price was $149.18 per square foot. In contrast, the
comparative sales in the area ranged from $82.56 to $272.95 per square
foot, with the average of all seven buildings equal to $154.59 per square
foot. Based on the comparison of the price per square foot of the Fresno
Building Property and the comparative recent sales price per square foot of
the seven properties comparable in quality to the Fresno Building, it is
the opinion of the Advisor that the acquisition price of the Fresno Building
was reasonable.
Property Operations. The Fresno Building is managed by West Coast Realty
Management, Inc. ("WCRM") (the "Property Manager"), an affiliate of the
Company. WCRM charges the Company 3% of the gross rents collected as a
management fee for managing the Property, as allowed by the property
management agreement. In the opinion of the Advisor, the Fresno Building is
adequately insured. The property tax in 1995 was approximately $14,000, with
the tenants obligated to pay their pro rata portion of taxes. Beginning in
1996, approximately 67% of the property taxes will be absorbed by the
Company as a provision of the new gross lease with The Wherehouse.
Terms of Purchase. Total consideration for the Fresno Building paid by
the Company was $1,414,894. The total acquisition cost includes $1,330,000
payable to the Seller, $4,838 in legal, appraisal, and closing costs, and an
$80,056 Acquisition Fee paid to Descolin, Incorporated, an affiliate of the
Advisor. Long-term financing has been obtained from Standard Insurance
Company of Portland, Oregon. The long-term financing totals $665,000 and
matures in ten years. The payments will be amortized over a twenty-five year
life at an initial interest rate of 8.25% per annum. At the end of the fifth
year, the interest rate will adjust to 3.25% above the five-year Treasury
Bond yield (if adjusted as of June 1, 1993, this would result in an interest
rate of approximately 8.65% per annum). The closing costs pertaining to the
long-term financing, of $18,000 were paid by the Seller.
The purchase price was arrived at through arms-length negotiations with
the seller. The sources of funds for the purchase were proceeds from sale of
the Company's Shares, and the financing provided by Standard Insurance
Company.
General. The computation of depreciation is based on the cost of the
Fresno Property, including Acquisition Fees and Acquisition Expenses. The
allocation of the cost of the Fresno Property to the various asset categories
is estimated, based on allocations noted in the appraisal report.
Depreciation will be computed on a straight-line basis over 39 years, the
component useful life of the assets.
OPTO-22 PROPERTY
On September 15, 1993, the Company acquired the property described below
(the "OPTO-22 Property" or "Building"). The funds used to acquire the OPTO-22
Property were obtained from the sale of the Company's Shares and from seller-
provided financing in connection with the acquisition of the OPTO-22 Property.
Description. The OPTO-22 Property is located within the master-planned
Huntington Beach Industrial Park at 15461 Springdale (at the intersection of
Springdale Street and McFadden Avenue), Huntington Beach, California. The
Building was built in 1977, and was occupied by a company named OPTO-22 from
1979 through 1992. In August 1992, OPTO-22 subleased the Building to Claremont
High School, a private school, whose sublease runs through April 1997. The
Building was deeded over to the Seller in May 1993 by the John Lusk
Corporation via a Deed in Lieu of Foreclosure.
Situated on approximately 3.344 acres of fee land, the Building is
concrete tilt-up construction. The Building has approximately 25,866 square
feet of fully improved office area, 24 foot height clearance, is fully
sprinklered, and has two overhead truck doors as well as one exterior
two-bay truck loading well. In addition, the site contains ample parking
with approximately 201 spaces, and has three separate driveway entrances for
ingress and egress.
28
<PAGE>
The Huntington Beach Industrial Park is a master-planned development of
the Lusk Company. This industrial park contains over 1.5 million square feet
of space, and benefits from its close proximity to labor markets and
desirable housing as well as access to the San Diego (405) Freeway. Also
located within one mile are the Westminster Mall, Golden West Community
College, and a McDonnell Douglas Corporation facility.
The OPTO-22 Property is currently occupied by Claremont High School, a
private school, under a sublease that commenced in August 1992 and continues
until April 1997. Claremont High School is a non-profit, public benefit, tax-
exempt educational institution that serves students in the 7th through 12th
grade levels, and has been in existence since 1975. Claremont is accredited by
the Western Association of Schools and Colleges, and is also certified by the
University of California system. Since taking occupancy of the Building,
Claremont has spent an estimated $200,000 on improvements and upgrades to the
interior of the building.
The Building was previously occupied by OPTO-22, the primary lessee,
which took occupancy in 1979, and subleased the Building to Claremont High
School in August, 1992. OPTO-22's lease on the Building ends at the same
time that Claremont High School's sublease ends with OPTO-22. The primary
lease on the property currently calls for rent of $19,709.41 per month.
Claremont High School currently pays a sublease rent $3,690.59 per month
higher than OPTO-22's rent.
The lease is "triple-net" with the Tenant responsible for all operating
expenses including utilities, maintenance, taxes, and insurance.
The OPTO-22 Building was acquired from Glendale Federal Bank (the
"Seller") -- an unrelated third party. In determining the propriety of the
investment in the Building, the Advisor reviewed 1991 and 1992 sales
information on several similar properties in the vicinity. Based on the sales
price of $2,350,000, the OPTO-22's acquisition price was approximately
$38.90 per square foot. In contrast, the comparative sales in the area
ranged from $42 to $65 per square foot, with the average of all the
buildings equal to $45 per square foot. In addition, the Advisor took note
that the monthly rental being paid by OPTO-22 is less than current market
rents in the area, especially in comparison to the sublease rent being paid
to OPTO-22 by Claremont High School for this property. Based on (1)
comparison of the price per square foot of the OPTO-22 Building, and the
comparative recent sales price per square foot of several properties
comparable in quality to the OPTO-22 Building, and (2) the comparison of
current rental revenue on the building to current market rental rates for
the area, it is the opinion of the Advisor that the acquisition price of
the OPTO-22 Building is reasonable.
Property Operations. The OPTO-22 Building is managed by West Coast
Realty Management, Inc. ("WCRM") (the "Property Manager"), an Affiliate of the
Company. WCRM charges the Company 3% of the gross rents collected as a
management fee for managing the Property, as allowed by the Property
Management Agreement. In the opinion of the Advisor, the OPTO-22 Building
is adequately insured. Although the tenant is obligated by their leases to
pay property taxes, the property tax in 1995 was approximately $24,000.
Terms of Purchase. Total consideration for the OPTO-22 Building paid by
the Company was approximately $2,500,000. The total acquisition cost included
$2,350,000 paid to the Seller, approximately $7,000 in legal, appraisal,
audit, and closing costs, and a $143,000 Acquisition Fee paid to Descolin,
Incorporated, an affiliate of the Advisor. Financing of $1,750,000 was
obtained from the Seller, with the remainder of the acquisition costs,
approximately $779,000, paid in cash. The $1,750,000 financing was in the
form of a ten year note, that is being amortized over a thirty year period.
The note has an adjustable interest rate that began at approximately 7.0%,
and will adjust to three hundred basis points (3.00%) above the Federal
Reserve Board Eleventh District Cost of Funds Rate every year. Payments on
the note are currently $11,702 per month.
The purchase price was arrived at through arms-length negotiations with
the Seller. The source of funds for the purchase is the proceeds from the
sales of the Company's Shares, and Seller-provided financing (the Seller is
a large bank and lender).
29
<PAGE>
General. The computation of depreciation is based on the cost of the
OPTO-22 Property, including Acquisition Fees and Acquisition Expenses. The
allocation of the cost of the OPTO-22 Property to the various asset
categories is estimated, based on allocations in the appraisal report.
Depreciation will be computed on a straight-line basis over the component
useful life of the assets.
NORTH PALM STREET PROPERTY
On March 4, 1994, the Company acquired the investment described below
(the "North Palm Street Building"). The funds to acquire the North Palm
Street Building were available as the result of the sale of the Company's
Shares in a prior offering and the proceeds from seller-provided financing
in connection with the acquisition.
Description. The North Palm Street Building is an industrial/research
and development building located at 260 North Palm Street, Brea, California.
The North Palm Street Building was built in 1989 and is located within a
master-planned business park. The North Palm Street Building is currently
occupied by two tenants:
M.L.E. Corporation ("MLE"), which occupies 27,831 square feet of the
North Palm Street Building, is a contract office furniture supplier. In
addition to the warehousing and distribution functions in the North Palm
Street Building, MLE maintains a retail showroom for both contract and
walk-in customers. MLE, which has been in business since 1982, commenced
their lease on February 1, 1991 and the lease terminates on May 31, 1999.
The lease calls for payments of $11,143.08 per month through its term
($.40 per square foot).
Surgical Technologies Incorporated ("Surgical") occupies 14,100 square
feet (including a 1,000 square foot mezzanine office). Surgical provides
contract sterilization, assembly and packaging of medical devices. Surgical
is a subsidiary of Minnesota-based Scanlan International, which has been
supplying stainless steel surgical instruments to the medical profession
since 1921. The term of Surgical's lease is from December 15, 1993 to
December 14, 1999 and requires rent payments of $6,819 per month ($.4836
square foot) from December 15, 1993 to December 14, 1998, and $7,077 per
month ($.5019 per square foot) from December 15, 1998 to December 14, 1999.
The Surgical lease is "triple-net" with the tenant responsible for all
operating expenses including utilities, maintenance, taxes and insurance. The
MLE lease is "semi-net," with the tenant paying their pro-rated share of
expenses, taxes and maintenance over the base year 1990/1991.
The North Palm Street Building is located on Palm Street between Imperial
Highway and Lambert Road in Brea, approximately two miles west of the Orange
Freeway (State Highway 57). This is an established industrial area serving
North Orange County, California. Construction of the North Palm Street
Building is concrete tilt-up with a sandblasted exterior and glass on two
levels. Five thousand (5,000) square feet of the building is improved with
an office environment, including 1,000 square feet on the mezzanine space.
A "bonus" mezzanine of approximately 1,300 square feet is available for a
future second story office, but is not currently included in the rentable
area. The North Palm Street Building features a 24 foot minimum clearance,
with a fire sprinkler system and skylights/smoke vents equaling 2% of the roof
area for high pile storage capacity. The North Palm Street Building has four
dock high truck doors and three grade level doors, as well as parking for
eighty-five cars. The North Palm Street Building was acquired from an
unrelated third party. In determining the propriety of the investment in the
North Palm Street Building, the Advisor reviewed recent (1992-1993) sales
information on several similar properties in the vicinity. Based on the
sales price of $2,100,000, the North Palm Street Building's acquisition
price is approximately $50 per square foot. In contrast, the comparative
sales in the area ranged from $52 to $65 per square foot, with the average
of all buildings equal to $55 per square foot. In addition, the long-term
lease commitments that the two tenants had for this property made this
a desirable acquisition.
Property Operations. The North Palm Street Building is being managed by
West Coast Realty Management, Inc. ("WCRM") (the "Property Manager"), an
affiliate of the Company. WCRM will charge the Company 3% of the gross rents
collected as a management fee for managing the North Palm Street Building, as
allowed by the Property Management Agreement. In the opinion of the Advisor,
the North Palm Street
30
<PAGE>
Building is adequately insured. Although the tenants are obligated by their
leases to pay property taxes, the property tax in 1995 was approximately
$24,000.
Terms of Purchase. Total consideration for the North Palm Street
Building paid by the Company was approximately $2,248,000. The total
acquisition cost included $2,100,000 paid to the Seller, $18,000 in legal,
appraisal, audit and closing costs, and a $130,000 Acquisition Fee paid to
Descolin, Incorporated, an affiliate of the Advisor. Financing of $1,000,000
was obtained from the Seller, with the remaining acquisition costs and
acquisition price being paid in cash (approximately $1,248,000). The source
of cash was funds received in connection with the sale of the Company's
shares and $600,000 in long-term refinancing proceeds received in connection
with the Blockbuster Video Building. The $1,000,000 Seller financing was in
the form of a Purchase Money Note, payable monthly, interest only, at the
rate of 8% per annum; $500,000 principal amount of the note was due
March 4, 1995 and $500,000 principal amount of the note was due
March 4, 1996. Payments were $6,666.67 per month. The $1,000,000 Sellers
note was refinanced in February 1995 by a $1,000,000 promissory note from an
insurance company at a fixed rate of 9.5% per annum amortized over 25 years,
with monthly principal and interest payments of $8,737.
The purchase price was arrived at through arms-length negotiations with
the Seller.
General. The computation of depreciation is based on the cost of the
North Palm Street Building, including Acquisition Fees and Acquisition
Expenses. The allocation of the cost of the North Palm Street Building to
the various asset categories is estimated, based on allocations in the
appraisal report. Depreciation will be computed on a straight-line basis
over the component useful life of the assets.
RIVERSIDE MARKETPLACE PROPERTY
On November 29, 1994, the Company acquired the property described below
(the "Riverside Marketplace Property"). The sources of funds used to acquire
the Riverside Marketplace Property were from the sale of the Company's Shares
in the current and most recent offering, and from bank-provided financing in
connection with the acquisition.
Description. The Riverside Marketplace Property is a six-plex cinema
located at 4040 Vine Street, Riverside, California. The construction of the
Riverside Marketplace Property was completed on June 24, 1994, and is located
in a newly developed retail area (the Riverside Marketplace) containing
restaurants, including Golden Corral, Applebees, and The Old Spaghetti
Factory, retail shops, and the Riverside Marketplace Property. This area is
between the 91 Freeway and the Metrolink train station in Riverside.
University Avenue -- a main thoroughfare of Riverside -- runs through the
Riverside Marketplace area. Downtown Riverside is less than six blocks away.
The Riverside Marketplace is similar in design to University Studio's
CityWalk (located in Universal City, California) and the 3rd Street
Promenade (located in Santa Monica, California). Both developments have
been successful in drawing large numbers of local residents and tourists to
the clean and safe entertainment facilities that they offer.
Lease. The sole tenant of the Company's Riverside Marketplace Property
is Sanborn Theaters, Inc. (the "Tenant"), which does business under the name
of SoCal Cinemas. The Tenant operates eleven theaters housing fifty-six
screens in the Southern California area. The Tenant's lease commenced on
June 24, 1994, which was also the completion date of construction for the
Riverside marketplace Property and the day it opened for business. The six
screen theater has seating for 1,586 and contains 30,493 square feet. There
is parking available for 483 cars in an adjacent parking lot, approximately
one-half of which is owned by the Company.
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<PAGE>
The Tenant's lease is for twenty years, and is scheduled to expire on
June 15, 2014. The lease calls for the following minimum rental amounts per
month, with the equivalent monthly rent per square foot set forth in the
parentheses:
First Five years.............................. $31,250 $(1.02)
Years 6 through 10............................ $32,813 (1.08)
Years 11 through 15........................... $34,453 (1.13)
Years 16 through 20........................... $36,176 (1.19)
The lease gives the Tenant the option to renew up to five consecutive
terms of five years each, with the minimum rent amount continuing to
increase 5% during each five year period.
The lease also provides that 10% of the theater's gross sales (including
concessions) would be payable to the Company, if that amount exceeds the
monthly minimum rent, less film rental costs. The lease is triple net, with
all taxes, insurance and maintenance costs to be paid by the Tenant.
Property Operations. The Riverside Marketplace Property is managed by
West Coast Realty Management, Inc. ("WCRM"), an Affiliate of the Company.
WCRM receives a property management fee for managing the Riverside
Marketplace Property equal to 3% of the gross rents collected as provided in
the Property Management Agreement. In the opinion of the Advisor, the
Riverside Marketplace Property is adequately insured. Although the Tenant is
obligated to pay property taxes, the property tax in 1995 was approximately
$37,000.
Terms of Purchase. The Riverside Marketplace Property was acquired from
an unrelated third party -- Birtcher Riverside Marketplace Partners, Ltd., a
California Limited Partnership. A movie theater is an unusual real estate
investment in that comparable rental and price per square foot information
for other retail shops and restaurants in the area may not provide a readily
comparable method of evaluating the revenues and cost of this type of
property. However, there are several factors that provided a positive basis
for its acquisition, including:
1. A long-term, triple-net lease, with increased rental potential due
to revenue sharing provisions.
2. Success of similar entertainment venues in Universal City and Santa
Monica.
3. The property acquired is new construction.
4. Credit-worthiness and positive operating history of the Tenant.
5. Absence of significant theater competition in the general area.
Based on the seller's price of $3,425,000, the sales price per square
foot of the Property is $112.32. In the opinion of the Company's Advisor,
the price paid was reasonable.
The total consideration paid by the Company for the Riverside Marketplace
Property was $3,655,500. The total acquisition cost included $3,425,000 paid
to the Seller, $40,500 in legal, appraisal, and closing costs, and a $190,000
Acquisition Fee paid to the Advisor. Financing of $1,200,000 was obtained from
Chino Valley Bank, with the remaining acquisition costs, $2,445,500, paid in
cash. The source of funds for the cash payment was proceeds received from the
sale of the Company's Shares. The $1,200,000 financing is in the form of a
first trust deed and note, amortized over a twenty-eight year, three month
period at a fixed interest rate of 9.25% per annum, with payments of
principal and interest of $9,988.44 per month. The principal balance is
fully due and payable in ten years. Financing charges of $24,000 for the loan
were paid at the close of escrow. Such amount is not included in the costs
described above.
The purchase price was arrived at through arms-length negotiations with
the Seller.
General. The computation of depreciation for the Riverside Marketplace
Property is based on the cost of the property including Acquisition Fees and
Acquisition Expenses. The allocation of the cost of the Property to the
various asset categories is estimated, based on allocations in the appraisal
report. Depreciation is computed on a straight-line basis over the component
useful life of the assets.
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SAFEGUARD BUSINESS SYSTEMS PROPERTY
On May 22, 1995 the Company acquired the investment described below (the
"Safeguard Business Systems Property" or the "Property"). The funds to
acquire the Safeguard Business Systems Property were available as the result
of the sale of the Company's Shares and the receipt of proceeds from
insurance company financing in connection with the acquisition.
Description. The Safeguard Business Systems Property is a two story
office building located at 14661 Franklin Avenue, Tustin, California. This
area is near the Santa Ana (Interstate 5) Freeway, and also has access to
the Newport (55) and San Diego (405) Freeways in the general vicinity. The
retail development of the Tustin Marketplace, Costco, Super K-Mart, and
Tustin Auto Mall have also had a positive influence in the area.
The sole tenant of the Property is Safeguard Business Systems (the
"Tenant"), which occupies 100% of the Property. The Tenant, which was founded
in 1913, develops and manufactures economical, easy-to-use products and
services that collect, record and organize data for small businesses. The
Tenant has built what it believes to be the Country's largest distribution
sales force that specifically targets small business. In 1993, the Tenant
had net sales of approximately $197 million and earnings from continuing
operations of approximately $22 million. Safeguard also reported stockholder
equity in 1993 of approximately $156 million, and long term debt of
approximately $19 million. Safeguard is a privately held firm, and does
not release complete audited financial statements to the public.
The Property is a two story building that contains 40,000 rentable square
feet, and was built to suit for Safeguard Business Systems in 1986. Solar gray
glass accents the sandblast finish and exposed concrete walls. Granite tile
pavers and patterned concrete, coupled with an open two story lobby, provide
an entrance to the building. The interior finish is paint or textured wall
coverings, placed over drywall. A security card system is used at the front
and rear of the property. There is parking available for 149 cars. The
building is landscaped, has kitchen facilities, and men's and women's locker
and shower improvements for the benefit of the employees.
The Tenant's lease commenced October 1, 1994, and is scheduled to
terminate eleven years from that date (September 30, 2005). The rent for the
current lease year is $520,000/year (or $43,333.33/month), with the rent
scheduled to increase 3% per year, on the lease anniversary date. The lease
is absolute triple net, including the potential cost of repair and
replacement of the roof and structure. The Tenant has the option to renew the
lease for one ten year period at the end of the lease period, at the fair
market rent in effect at that time. The lease payments currently scheduled
under the terms of the existing lease, using October 1, 1994 as a starting
point (commencement date for current lease), are as follows:
10/1/94 - 9/30/95: $520,000
10/1/95 - 9/30/96: 535,600
10/1/96 - 9/30/97: 551,668
10/1/97 - 9/30/98: 568,218
10/1/98 - 9/30/99: 585,265
10/1/99 - 9/30/00: 602,822
10/1/00 - 9/30/01: 620,907
10/1/01 - 9/30/02: 639,534
10/1/02 - 9/30/03: 658,720
10/1/03 - 9/30/04: 678,482
10/1/04 - 9/30/05: 698,832
Of course, the Company's ownership of the property, and participation in
lease income, did not begin until date of acquisition. The average
straightline rent earned during the Company's projected ownership period
(the remaining life of the lease) was calculated to be $50,914/month
($6,313,382 scheduled rent divided by one hundred twenty-four months
(rounded)).
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The Property was acquired from an unrelated third party -- BRS-Tustin
Safeguard Associates, A California Limited Partnership. Several methods of
economic analysis were used to determine the propriety of the purchase price,
and economic feasibility of the property, prior to acquisition. A review of
rental rates for similar size and style buildings in the nearby communities of
Costa Mesa, Irvine, and Newport Beach revealed rental rates ranging from
$1.73/sq. ft to $1.90/sq. ft. The current monthly rental rate on this building
is $1.09/sq. ft., meaning that the Property could possibly rent at a higher
rate than currently in place if exposed to the open market. Comparable market
listing and sales activity was also reviewed by the Advisor. These revealed
the sales price per square foot for similar buildings in the area to range
between $88.00 and $121.00 per square foot. The $115.00 per square foot that
the Company is paying for this building is comparable to these numbers. Other
positive factors considered in acquiring the Property included:
1. A long-term, triple-net lease, with the potential for lease extension.
2. The property acquired is relatively new construction.
3. Credit-worthiness and positive operating history of the tenant.
In the opinion of the Advisor, the total sales price of $4,600,000 that
the Company paid for this property is reasonable.
Property Operations. The Safeguard Business Systems Property is managed
by West Coast Realty Management, Inc. ("WCRM"), an affiliate of the Company.
WCRM will charge the Company 3% of the gross rents collected as a management
fee for managing the Property, as allowed by the Property Management
Agreement. In the opinion of the Advisor, the Safeguard Business Systems
Property is adequately insured. Although the tenants are obligated to pay
property taxes, the property tax in the first year is estimated to be $50,000
(approximately 1% of the sales price).
Terms of Purchase. Total consideration paid by the Company for the
Safeguard Business Systems Property was $4,862,000. The total acquisition cost
included $4,600,000 paid to the Seller, $13,000 in legal, appraisal, and
closing costs, and a $249,000 Acquisition Fee paid to the Advisor. Financing
of $2,300,000 was obtained from Business Men's Assurance Company (an
insurance company), with the remaining acquisition costs and acquisition
price being paid in cash ($2,576,000). The source of cash is funds received
in connection with the sale of the Company's Shares. The $2,300,000 financing
is in the form of a first trust deed and note, amortized over a fifteen year
period at the fixed rate of 9.625% and fully due and payable in ten years. The
loan amount represents an assumption of an existing loan from the seller of
the property. There were no financing costs or points charged in connection
with the financing. Payments on the debt are $24,109.95 per month.
The purchase price was arrived at through arms-length negotiations with
the Seller.
General. The computation of depreciation for the Safeguard Business
Systems Property is based on the cost of the property, including Acquisition
Fees and Acquisition Expenses. The allocation of the cost of the Property to
the various asset categories was estimated, based on allocations in the
appraisal report. Depreciation is computed on a straight-line basis over the
component useful life of the assets.
TECHNOLOGY DRIVE PROPERTY
On October 31, 1995, the Company acquired the investment described below
(the "Technology Drive Property" or the "Property"). The funds to acquire the
Technology Drive Property were available as the result of the sale of the
Company's Shares in the current offering, and the receipt of proceeds from
bank financing assumed in connection with the acquisition.
Description. The Technology Drive Property is a single story light
industrial/research & development building located at 4415 Technology Drive,
Fremont, California. This area is near the Interstate 680 and 880 Freeways
(it is one block east of Interstate 880), and is accessible via the Auto Mall
Parkway off-ramps from both freeways. The Property is located in an
established neighborhood of research and development and industrial projects.
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The primary tenant of the Property is CMS Welding & Machining (the
"Tenant"). The tenant, which was founded in 1983, is a manufacturer of welded
vacuum chambers, used in the processing of semiconductors. This privately-held
company had over $7 million in revenues in 1994, and has been profitable for
the last two years. The Tenant has subleased approximately 20,000 square feet
of the space to Macotron Systems, Inc. (the "Sub-tenant"). This sub-lease
commenced on March 1, 1995, and expires March 1, 1998. The $11,000 rent per
month that the Sub-tenant pays is collected entirely by the Company, and the
Tenant's rent obligation is credited for the amount collected from the
Sub-tenant. Macotron Systems also has in excess of $7 million in annual
revenues. Both leases are guaranteed by the principals of each company.
The Property is a one story building that contains 58,727 divisible
rentable square feet located on 3.47 acres. Of the 58,727 square feet, 12,000
is high quality office space. The manufacturing and assembly area is fully
air conditioned with 14,800 square feet of dropped ceiling. High quality
concrete and tilt-up construction was used to build the Property. Smoked
glass is used extensively to provide a modern appearance to the building. The
building is fully sprinklered for fire prevention purposes. The Property has
two dock high and two grade level doors. There is parking available for 213
cars. Each tenant has a separate entrance area with two different reception
areas.
The Tenant's lease commenced November 2, 1993, and is scheduled to
terminate on February 28, 2005. The current minimum monthly rent schedule (as
of the beginning of 1995) is as follows:
1/1/95 - 2/28/95: $ 16,200
3/1/95 - 3/31/95: 19,538
4/1/95 - 7/31/96: 30,976
8/1/96 - 8/31/96: 31,786
9/1/96 - 1/31/99: 32,596
2/1/99 - 2/28/99: 34,633
3/1/99 - 1/31/00: 36,670
2/1/00 - 2/28/00: 37,220
3/1/00 - 1/31/01: 37,770
2/1/01 - 2/28/01: 38,337
3/1/01 - 1/31/02: 38,903
2/1/02 - 2/28/02: 39,487
3/1/02 - 1/31/03: 40,070
2/1/03 - 2/28/03: 40,671
3/1/03 - 1/31/04: 41,272
2/1/04 - 2/28/04: 41,891
3/1/04 - 2/28/05: 42,510
In addition to the above, the seller of the property paid the Company an
additional $15,390, after the close of escrow, as a rent supplement covering
the period from October 31, 1995 to August 15, 1996. This amount was treated
as a reduction in the cost of the property.
There are certain provisions in the lease with the primary tenant that
call for a minimum 3% rental increase and a maximum 7% rental increase based
on the Consumer Price Index for the San Francisco/Oakland area, based on the
average annual increase for the following three periods: 1/95-1/99;
1/99-1/2001; and 1/2001-1/2003. The total scheduled rent, beginning with the
Company's ownership date (October 31, 1995) is $4,140,528. This works out
to an average of $36,969 per month through February 28, 2005 (112 months).
The Property was acquired from unrelated third parties -- 26 Technology
Partnership, A California Limited Partnership and Jack Langston, an
individual (collectively known as "the Seller"). Several methods of economic
analysis were used to determine the propriety of the purchase price, and
economic feasibility of the property, prior to acquisition. A review of rental
rates for similar size and style buildings in Fremont (including the immediate
business park) revealed rental rates ranging from $.55 to $.72 per square foot
for net leases,
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and leases as high as $.80 per square foot for a gross lease. The current
monthly rental rate on this building is $.53, meaning that the Property could
possibly rent at a higher rate than currently in place if exposed to the open
market. Recent occupancy levels in the area have ranged from 90% to 95% due
to significant growth in the technology sector of the nation's economy.
Comparable market listing and sales activity was also reviewed by the Advisor.
These revealed the price per square foot for similar buildings in the area to
range between $43.47 and $88.97 per square foot. Several of the buildings that
sold at the lower range were older and of lower quality, and lacked amenities
that are present in this Property including air conditioning and fire
sprinklers. The $60.45 per square foot that the Company paid for this building
is comparable to these numbers (this number does not include acquisition costs
and expenses).
Other positive factors considered in acquiring the Property included:
1. A long-term, triple-net lease, with the potential for lease
extension.
2. The property acquired is relatively new construction.
3. Credit-worthiness and positive operating history of the tenant.
In the opinion of the Advisor, the purchase price of $3,550,000 that the
Company paid the Seller for this property was reasonable.
Property Operations. The Technology Drive Property is managed by West
Coast Realty Management, Inc. ("WCRM"), an affiliate of the Company. WCRM will
charge the Company 3% of the gross rents collected as a management fee for
managing the Property, as allowed by the Property Management Agreement. In the
opinion of the Advisor, the Technology Drive Property is adequately insured.
Although the tenant is obligated to pay property taxes, the property tax in
the first year is estimated to be $36,000 (approximately 1% of the sales
price).
Terms of Purchase. Total consideration paid by the Company for the
Technology Drive Property was $3,748,000, net of $15,000 received from the
Seller after the close of escrow as additional rent subsidy. The total
acquisition cost included $3,550,000 paid to the Seller, $17,000 in legal,
appraisal, and closing costs, and a $196,000 Acquisition Fee paid to the
Advisor. Financing of $2,192,897 with Manufacturer's Bank of Los Angeles was
assumed from the Seller, with the remaining acquisition costs and acquisition
price being paid in cash ($1,570,103). The source of cash was funds received
in connection with the sale of the Company's Shares. The $2,192,897 financing
was in the form of a first trust deed and note, fully amortized over a twenty
year period at the fixed rate of 8.24%. The loan amount represents an
assumption of an existing loan from the seller of the property; the original
balance of the loan was $2,200,000 and was funded on July 1, 1995. There were
no financing costs or points charged in connection with the financing or
assumption. Payments on the debt are $18,880 per month.
The purchase price was arrived at through arms-length negotiations with
the Seller.
General. The computation of depreciation for the Technology Drive
Property is based on the cost of the property, including Acquisition Fees and
Acquisition Expenses. The allocation of the cost of the Property to the
various asset categories was estimated, based on allocations in the appraisal
report. Depreciation is computed on a straight-line basis over the component
useful life of the assets.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company had three prior offerings of its Shares. As of
March 25, 1996, the Company has raised $14,110,985 in capital.
The Company was organized for the purpose of investing in, improving,
holding, and managing equity interests in a diversified number of residential
and commercial properties located in California and the West Coast, while
qualifying as a Real Estate Investment Trust ("REIT"). Properties will be
acquired for cash or on a moderately leveraged basis, with aggregate
indebtedness not to exceed 50% of the Purchase Price of Properties on a
combined basis. The Company intends to hold each property for approximately
four to ten years. See "Investment Objectives and Policies".
The ownership and operation of any income-producing real estate is
subject to those risks inherent in all real estate investment, including
national and local economic conditions, the supply and demand for similar
types of properties, competitive marketing conditions, zoning changes,
possible casualty losses, and increases in real estate taxes, assessments,
and operating expenses, as well as others. See "Risk Factors".
The Company has engaged West Coast Realty Advisors, Inc. to act as the
Company's Advisor. Pursuant to the terms of the Advisory Agreement, the
Advisor provides investment and financial advice and conducts the day-to-day
operations of the Company. The Company, itself, has no employees. See
"Management."
RESULTS OF OPERATIONS -- 1995 VS. 1994
Operations for the year ended December 31, 1995 represented a full year
of rental operations for the Blockbuster Video Building, Fresno Village
Shopping Center, OPTO-22 Building, Riverside Marketplace, and Brea
properties, and partial years of operations for the Technology Drive and
Safeguard Building properties.
The net income for the year ended December 31, 1995 ($649,605) was higher
than the year ended December 31, 1994 ($247,068) due to the raising of
additional funds and investment of such funds in additional income producing
properties. The Company did not have any adverse events that significantly
impacted net income during the year ended December 31, 1995, and all
properties that have been purchased by the Company have operated at levels
equal to expectations. All tenants were current on their lease obligations.
Rental revenue increased $889,562 (111%) due to a full year's ownership
of the Riverside Marketplace and Brea properties (as compared to partial year
ownership in 1994), and partial year ownership for the Technology Drive and
Safeguard Business Systems properties. Interest income increased $20,397 (20%)
due to a greater amount of cash held during the year awaiting investment and
greater amounts of profits held each quarter awaiting distribution to
investors on the normal distribution timeline.
Operating expenses increased $73,042 (76%) as a reflection of the
additional properties owned during the year. Interest expense increased
$317,907 (105%) as a reflection of the additional debt incurred in connection
with property acquisition and refinancing activities. Despite the amount of
debt, the Company remains below the maximum 50% debt maximum allowed by the
Company's by-laws (debt was 49% of property cost (as defined in the by-laws)
at December 31, 1995). General and administrative costs increased $46,777
(66%) due to higher accounting, taxes, and general insurance expense costs
related to the Company's increased size. General and administrative costs
decreased as a percentage of revenue from 7.8% in 1994 to 6.5% in 1995.
Depreciation and amortization expense increased $137,906 (117%) as the result
of the ownership of additional properties during 1995 as compared to 1994.
1994's results were hurt by the recognition of $68,210 loss on government
securities investments during that year. No loss was recorded in 1995. Net
income of $649,605 for 1995 was $402,537 (163%) higher than 1994.
The average number of shares outstanding during 1995 was 1,117,494 vs.
706,684 in 1994. Despite the greater number of shares outstanding, the net
income per share increased from $.35 in 1994 to $.58 in 1995. If this figure
is analyzed using flow of funds -- that is net income plus depreciation
expense and loss on government securities investments -- then the amount in
1995 was $.80 per share vs. $.61 in 1994. The improvement in results is
attributable to a larger percentage of the Company's assets being invested
in
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income-producing real estate in 1995 than in 1994, as opposed to investments
in relatively lower yielding money market investments. Although the balance of
cash and cash equivalents was higher at the end of 1995 ($1,450,022) than at
the end of 1994 ($495,829), the average level of cash on hand during 1995 was
lower. In addition, the rate of increase in total revenues (111%) was much
higher than the rate of increase in general and administrative expenses (66%).
General and administrative expenses represented a smaller percentage of total
revenues in 1995 than in 1994 (6.5% in 1995 vs. 7.8% in 1994).
During the year ended December 31, 1995, the Company declared dividends
totaling $804,095, compared to dividends of $522,614 declared for the year
ended December 31, 1994. Cash basis income for the year ended December 31,
1995 was $905,749. This was derived by adding depreciation and amortization
expense to net income. Thus, cash distributions this year were less ($101,154)
than cash basis net income. In contrast, distributions in 1994 were greater
($89,098) than cash basis income. In either event, the Company continues to
qualify as a REIT.
Cash resources increased $954,193 during 1995 compared to a $284,966 in
1994. This was the result of normal amounts of investing, financing, and
operating activities that were expected to take place during the year. Cash
provided by operating activities increased to $2,373,143 with the largest
contributors being $905,749 in cash basis income and $1,240,190 in proceeds
from the sale of government securities. In contrast, 1994 saw $791,190 in cash
being provided by operating activities due to only $433,516 in cash basis
income and $372,104 being received from the sale of government securities
(such securities were purchased in 1993 primarily). $804,595 (88.8%) of the
cash basis income ($905,749) was declared as dividends during the year; this
is noted as a large use of cash under financing activities. This continues the
Company's trend of paying virtually all the cash basis income out to investors
in the form of quarterly dividends. Financing activities provided an
additional $7,228,140 in cash resources to the Company via the sale of
additional shares in the Company ($3,633,687 in net proceeds), and
$4,469,647 in financing obtained in connection with the acquisition or
refinancing of properties, less cash dividends paid of $745,172. In contrast,
1994's cash provided by financing activities was $5,360,233 due to $3,088,804
in proceeds from the sale of additional shares, and a $2,800,000 gross
increase in notes payable, net of dividends paid of $437,803. The sole use
of cash in investing activities in 1995 was $8,647,090 expended for the
acquisition of additional properties during the year. As mentioned above,
$4,469,647 of the funds necessary for obtaining these new properties was
obtained from debt financing. In contrast, only $5,866,457 in funds were used
to purchase additional rental properties in 1994. (Note: cash dividends paid
were less than dividends declared due to some dividends being reinvested in
additional shares of the Company).
In summary then, the operating performance of the Company continued to
improve as additional funds were raised, additional property was acquired, and
all properties were operated profitably.
RESULTS OF OPERATIONS -- 1994 VS. 1993
Operations for the year ended December 31, 1994 reflect a full period of
operations for the Blockbuster Video Building, the Fresno Center Building, the
OPTO-22 Building, almost ten months for the Brea property and one month of
operations for the Riverside Marketplace property. In contrast, the year ended
December 31, 1993 only reflected a year of operations for the Blockbuster
property, seven and a half months for the Fresno property, and three and a
half months for the OPTO-22 property. These differences in ownership periods
account for much of the differences in operating numbers for the Company.
Rental revenue for the year ended December 31, 1994 was $477,779 (147%)
higher than for the year ended December 31, 1993, due to additional rent
brought in by the Brea property, and the longer ownership during the period of
the Fresno Center and OPTO-22 properties. Interest income increased $62,822
(166%) due to the retention of large cash balances during the most recent
year, as the growth rate of the sale of shares in the Company accelerated.
Virtually all of the increase in rental revenue was attributable to increases
in the period of ownership of the properties -- none was due to an increase
in rental rates.
Interest expense increased $238,440 (374%) due to $1,000,000 in financing
securing the Brea property (that was acquired in March 1994), and $600,000 in
refinancing proceeds received in connection with the Blockbuster property in
February 1994. Despite the large debt amounts, the Company is still below the
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maximum 50% debt maximum that is allowed by the Company's By-laws (debt was
45% of property cost at December 31, 1994).
Depreciation expense increased $70,061 (145%) as the result of more real
estate being owned during this period.
The Company is reflecting a $68,210 unrealized loss on its Statement of
Income for the year ended December 31, 1994. The Company began a program of
investing in short-term government securities in November 1993 in order to
increase the yield received on funds not invested in real estate. Despite the
relatively low-risk nature of the investment, this unrealized loss represents
5.2% of the $1,308,400 cost basis of funds invested in these government
securities. This loss was the result of 1994 being one of the worst
performance years for fixed income securities in this century.
Despite 1994's net income increasing $88,578 (56%) over the income for
1993, the net income per share fell from $.38 per share to $.35 per share.
Much of this decrease is due to the effect of the unrealized loss on
government securities, which lowered net income per share by approximately
$.10.
Cash resources increased $284,966 during the year. This was the result
of normal amounts of investing, financing, and operating activities that were
expected to take place during the year. Cash provided by operating activities
was $791,190, with the largest contributors being $365,306 in net income
(excluding depreciation expense) and $440,314 from the sale of government
securities. Financing activities provided an additional $5,360,233 in cash
resources to the Company via the sale of additional shares in the Company
($3,088,804 in net proceeds), and $2,800,000 in financing obtained in
connection with the acquisition or refinancing of properties ($600,000 of the
financing represented the refinancing of an existing property -- the
Blockbuster Video Building in Huntington Beach) offset by cash dividends of
$437,803 being paid to investors. The sole use of cash in investing
activities was $5,866,457 expended for the acquisition of additional
properties during the year. As mentioned above, $2,800,000 of the funds
necessary for obtaining these new properties was obtained from debt
financing.
In terms of long-term liquidity needs, the Advisor is aware that the
current scheduled rental income obligations from existing tenants would not be
sufficient to pay the current scheduled maturities of the long term debt that
pertains to the Company's properties. It is the intention of the Advisor to
retain or obtain new tenants to ensure that the cash flow from the properties
will be sufficient to continue serving the debt pertaining to the properties.
In addition, the Advisor intends to facilitate the sale of properties in an
orderly fashion in order to obtain proceeds to retire debt, or to negotiate
the refinancing or renewal of debt, as economic conditions would dictate. The
Advisor recognizes that the failure to plan for tenant retention or
replacement, and debt retirement or refinancing, or to properly negotiate
the sale of properties on a timely basis at an appropriate price, could have
negative financial implications on the operations and continuation of the
Company.
During the year ended December 31, 1994, the Company declared dividends
totaling $522,614, compared to dividends of $221,010 declared for the year
ended December 31, 1993. Cash basis income for the year ended December 31,
1994 was $433,516. This was derived by adding the unrealized loss on
government securities, expense reimbursements by affiliates, and
depreciation and amortization expense, to net income. Cash distributions
this year have been slightly greater than cash basis net income.
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LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, the Company declared dividends
totaling $804,595. Dividends are determined by management based on cash flows
and the liquidity position of the Company. It is the intention of management
to declare dividends, subject to the maintenance of reasonable reserves.
During the year ended December 31, 1995, the Company raised an additional
$3,633,687 in net proceeds as the result of the sale of shares from its third
public offering. In 1994, the Company raised a net $3,088,804 from a
combination of its second and third public offerings. The Company has used
the net proceeds from these offerings to purchase additional income-producing
properties and to add to the cash reserve balances of the Company as is
prudent given the amount of property now under ownership.
Management uses cash as its primary measure of the Company's liquidity.
The amount of cash that represents adequate liquidity for a "REIT", is
dependent on several factors. Among them are:
1. The relative risk of the Company's operations;
2. The condition of the Company's Properties;
3. The stage in the Company's operating cycle (e.g.,
money-raising, acquisition, operating or disposition phase);
and
4. The distributions to Shareholders.
The Company is adequately liquid and management believes it has the
ability to generate sufficient cash to meet both short-term and long-term
liquidity needs, based upon the above four points.
The first point refers to the risk of the Company's investments. At
December 31, 1995, the Company's excess funds were invested in a short-term
money market fund.
In February 1991, the Company purchased the Blockbuster Property without
the use of debt, and this property is occupied by an established Standard &
Poor's 500 Company. In May 1993, with the use of moderate leverage, the
Company purchased the Fresno Property, a two tenant retail center that is
occupied by two nationally known retailers. In September 1993, with the use
of moderate leverage, the Company purchased the OPTO-22 Property, a single
tenant building that is leased to an established electronics firm, and
sub-leased by an educational institution that has made significant capital
improvements to the property as an indication of their desire to maintain
tenancy on a long-term basis. In March 1994, with the use of moderate
leverage, the Company acquired the North Palm Street Property, which is
occupied by two tenants who have leases that do not expire until 1999. In
November, 1994, with the use of moderate leverage, the Company acquired the
Riverside Marketplace Property, which is leased by one tenant whose lease
expires in 2014. In May 1995, with the use of moderate leverage, the Company
acquired the Safeguard Building Property, which is leased by one tenant whose
lease expires in 2005. In October 1995, with the use of moderate leverage,
the Company acquired the Technology Drive Property, which is leased by one
tenant, whose lease expires in 2005.
The aggregate fees paid to affiliates in connection with these
acquisitions were as follows:
Blockbuster........................... 90,141
Fresno................................ 80,056
OPTO-22.............................. 135,818
North Palm Street.................... 127,404
Riverside Marketplace ................ 192,602
Safeguard Building................... 259,100
Technology Drive....................... 195,612
----------
1,080,733
=========
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Fees paid to the Advisor and the Property Manager in recent years are
as follows:
ADVISOR WCRM TOTAL
-------- ------- --------
1995..................................... $607,224 $46,947 $654,171
1994..................................... 495,880 16,455 512,335
1993..................................... 330,413 9,745 340,158
As to the second point regarding liquidity and use of capital resources,
all properties acquired are relatively new properties and do not have
significant deferred maintenance costs associated with their ownership. In
addition, all seven properties are occupied by "triple-lease" tenants, thus
removing much of the Company's risk pertaining to maintenance and operating
costs.
As to point three, the Company was liquid at December 31, 1995, as it is
in the money raising stage. During the year ended December 31, 1995, the
Company's cash reserves increased by $954,193, primarily due to the sale of
the Company's shares. In addition to the Company's existing reserves, the
Company's operations generated approximately $906,000 in cash flow (net income
plus depreciation expense) during the year ended December 31, 1995, providing
an additional source of liquidity to the Company. At its discretion, the
Company could choose to withhold a portion of this source of cash by not
making or reducing dividend payments to investors, in order to build up cash
reserves.
As to point four, the amount of dividends paid to Shareholders was made
at a level consistent with the amount of net income available after
application of expenses. The Company's Advisor does not intend to distribute
amounts which will exceed the level of cash generated from operations
available. The acquisition in October 1995 of the Technology Drive property
is not expected to decrease the amount of funds available for distribution,
nor endanger the Company's ability to retain its REIT status. Commencing
January 1, 1993 until November 1994, the Advisor and WCRM, the Property
Manager, waived overhead cost allocations, and Property Management Fees. The
effect of the foregoing was to increase dividends $.10 to $.15 per Share
per year. The Advisor expects to increase the amount of dividends as
additional funds are raised, revenues are increased, and overhead expenses
are spread over a larger base of investor's funds.
Inflation and changing prices have not had a material effect on the
Company's operations. Operations in the future may be affected as the Company
acquires additional Properties.
The Company currently has no external sources of liquidity (other than
funds that potentially could be received from the sale of additional Shares).
The Company currently has no material capital commitments.
NEW ACCOUNTING PRONOUNCEMENTS.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes new guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment,
and certain identifiable intangible assets, should be recognized and how
impairment losses should be measured. The Company has elected the early
adoption of SFAS No. 121. This change had no effect on the statement of
income for the year ended December 31, 1995.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 5, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company does not currently provide stock based compensation
and accordingly does not expect adoption to have a material effect on its
financial position or results of operations.
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MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY. While the Company has a limited
operating history, some of the Directors and officers of the Company have
substantial real estate investment experience. The Directors and officers are
elected annually by the Shareholders and Board of Directors respectively. The
Directors and Officers of the Company are:
Philip N. Gainsborough ............... Director and Chairman of the Board
W. Thomas Maudlin, Jr. ...................... Director and President
William T. Haas.................. Executive Vice President and Secretary
Michael G. Clark ................ .......... Vice President and Treasurer
James W. Coulter ............................................Director (1)
George Young ............................................... Director (1)
Steve Bridges ...............................................Director (1)
- ---------------
(1) Independent Director
PHILIP N. GAINSBOROUGH (Born 1938) has, since 1983, been Chairman of the
Board of Directors, President and Director of Associated Financial Group,
Inc. He has been active in the securities and financial services business
since 1961. He has been, and he currently serves as, Chairman of the Board
of Directors, President and Director of Associated Securities Corp. since
its organization in 1982. Mr. Gainsborough is also currently the Chairman
of the Board of Directors and Director of West Coast Realty Advisors, Inc.,
and West Coast Realty Management, Inc. Mr. Gainsborough is also Chairman of
the Board of Directors of Associated Planners Partnership Services, Inc. and
Associated Planners Insurance Services, Inc. Mr. Gainsborough is a graduate
of the University of Southern California.
W. THOMAS MAUDLIN, JR. (Born 1936) is a Director and President of West
Coast Realty Advisors, Inc., and a Director of West Coast Realty Management,
Inc. He has been active in the real estate area for the past 33 years,
serving as co-developer of high rise office buildings and shopping centers.
Mr. Maudlin has structured transactions for syndicators in apartment housing,
including sale leasebacks, all-inclusive trust deeds, buying and
restructuring transactions to suit a particular buyer, and as a buyer acting
as a principal. From 1980 to present, Mr. Maudlin has been involved in the
development of real property in numerous parts of Southern California. Mr.
Maudlin is a graduate of the University of Southern California.
WILLIAM T. HAAS (Born 1946) is Executive Vice President/Secretary and
Director of Associated Financial Group, Inc., and he is a Director and
Executive Vice President/Secretary of Associated Securities Corp.
(since 1982), Associated Planners Insurance Services, Inc. (since 1984) and
Associated Planners Investment Advisory, Inc. (since 1985). Mr. Haas is also a
Director and Executive Vice President/Secretary of West Coast Realty
Advisors, Inc., Associated Planners Partnership Services, Inc., and a
director of West Coast Realty Management, Inc. From December 1977 to
December 1982, he was employed by the National Association of Securities
Dealers, Inc. in various capacities, including that of Supervisor of
Examiners. From 1968 to 1977, Mr. Haas was associated with Merrill Lynch as
a branch office operations manager, and in the home office Operations
Liaison department. Mr. Haas is a graduate of John Carroll University and
has a Masters of Business Administration degree from Pepperdine University.
MICHAEL G. CLARK (Born 1956) has served as Vice President/Treasurer of
AFG since January 1988, and served as Controller of AFG from March 1986 to
December 1987. Mr. Clark is currently Treasurer of Associated Planners
Investment Advisory, Inc., Treasurer of Associated Planners Insurance
Services, Inc., Treasurer of Associated Planners Partnership Services, Inc.,
Treasurer of West Coast Realty Advisors, Inc., and Treasurer of Associated
Securities Corp. Prior to joining AFG, Mr. Clark served as Controller for
Quest Resources, a Los Angeles based syndicator and operator of alternative
energy projects from October 1984 to March 1986 and as Assistant Controller
for Valley Cable T.V. from March 1982 through September 1984. In addition,
Mr. Clark served as an auditor for Arthur Young & Co. in Los Angeles from
July 1978 to March
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1982. Mr. Clark is a graduate of the University of California, Santa Barbara
and has a Masters of Science degree from the California State University at
Northridge.
GEORGE YOUNG (Born 1937). Since 1972 has been President of George Young &
Associates, Inc., which specializes in the development and management of
public issue campaigns such as initiatives and referendums on a statewide or
local level. In addition, the firm guides businesses and associations in
developing their policies in politically volatile issues. Mr. Young is a
graduate of the University of Southern California.
STEVE BRIDGES (Born 1951) has served as Executive Vice President of
Pacific Building Industries, a general building contractor, from July 1995 to
the present. From July 1986 to July 1995, Mr. Bridges served as Executive
Vice President of Pathfinder Mortgage, a mortgage brokerage firm, and was
responsible for loan production and financing of construction loans. From
July 1984 to July 1986 Mr. Bridges was the President of The Muller Company, a
real estate development company, and was responsible for the management of the
Company, developing, financing and joint venture relationships, the
development of 800,000 square feet of industrial and commercial real estate
and partnership management. Mr. Bridges is a graduate of the University of
Southern California.
JAMES W. COULTER (Born 1938) has since 1988 been a principal in Coulter &
Company, a firm which provides brokerage services and invests in real property
with an emphasis in retail, industrial and office properties. From 1981 to
1988 Mr. Coulter was a Vice President of the investment division of
Bishop-Hawk, Inc., a firm which specialized in investments in retail and
office buildings and land sales of real property. Prior to 1981, Mr. Coulter
was involved in real estate investments, property management and development,
and served as an officer of real estate investment trusts. Mr. Coulter is a
graduate of and has a Masters of Business Administration degree from the
University of Southern California.
BOARD OF DIRECTORS. The Directors are charged with the ultimate
responsibility for the affairs of the Company, and particularly with
monitoring the relationship between the Company and the Advisor. The
Independent Directors will make an annual determination that the Advisor's
compensation is reasonable and that total fees and expenses of the Company
are reasonable, and a quarterly determination that the Company's borrowings
are appropriate.
The Directors are accountable to the Company as fiduciaries and
consequently must exercise good faith and integrity in handling Company
affairs. However, Directors will have no different or greater level of
fiduciary duty and responsibility than do directors of any other Delaware
business corporation. In addition, an Independent Director will not be
subject to any greater liability than a Director who is not independent,
notwithstanding the additional responsibilities of Independent Directors.
Directors and officers of the Company are also entitled to certain indemnity
rights under the Company's Organization Documents. See "Summary of
Organization Documents -- Limited Liability and Indemnification of Directors,
Officers, Employees and Other Agents."
The Directors will each spend such time on the affairs of the Company as
their duties may require, and will meet quarterly or more frequently, as
required. Financial statements and various other financial reports of the
Company will be provided to the Directors quarterly to aid them in the
discharge of their duties. It is contemplated that the Directors will not
devote a substantial portion of their time to the discharge of their duties
as Directors.
The Directors have the authority to approve or disapprove all investments
recommended to the Company by the Advisor. Prior to an investment being
consummated, all investments recommended to the Company must be approved
either by a majority of the Directors present at a meeting or by written
consent of all of the Directors. If approval is not obtained the investment
will not be made. Certain transactions with the Advisor and its Affiliates
require the additional approval of a majority of the Directors then in office
who are not parties to the transaction or affiliates of any person (other
than the Company) who is a party to the transaction.
Except for payments to Independent Directors, the Company has not paid
any remuneration to its officers and Directors. The Company pays each
Independent Director $500 dollars for each meeting of the Directors attended
in person ($100 dollars if attended by telephonic means) and reimburses all
Directors for their travel expense and other out-of-pocket disbursements
incurred in connection with attending any such meeting and for carrying on
the business of the Company. The aggregate remuneration paid (exclusive of
reimbursement for expenses) to the Independent Directors for the year ended
December 31, 1995 was
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<PAGE>
$2,210. Directors and officers of the Company who are affiliated with the
Advisor have not received and will not receive compensation from the Company
for their services as Directors and officers of the Company. Such persons
will, however, be remunerated indirectly by reason of their relationship with
the Advisor and its affiliated companies and will be reimbursed by the
Company for their expenses in attending meetings of the Directors and for
carrying on the business of the Company.
ADVISOR. West Coast Realty Advisors, Inc. was organized in 1983 and is an
Affiliate of AFG. In order to obtain the services of persons having
substantial real estate and financial experience, there are no restrictions
on the business activities of the Advisor or any of its officers, directors
or employees, and the Advisor and such persons are free (with certain
exceptions) to engage in other business activities related to real estate
investments. See "Conflicts of Interest."
The Advisor will advise the Company and oversee its investments and
operations, subject to the direction of the Company's Directors. The
Advisor's office is located at 5933 W. Century Boulevard, Ninth Floor, Los
Angeles, California 90045 and its telephone number is (310) 670-0800.
The principal executive officers, directors and key employees of the
Advisor are as follows:
NAME POSITION
---------------------------------------------------------------
Philip N. Gainsborough.......... Director and Chairman of the Board
W. Thomas Maudlin, Jr........... Director and President
William T. Haas................. Director, Executive Vice President and
Secretary
Michael G. Clark................ Treasurer
For a description of the occupations and affiliations of Messrs.
Gainsborough, Maudlin, Haas and Clark, see "Directors and Officers of the
Company" above.
PROPERTY MANAGER. West Coast Realty Management, Inc. will act as the property
manager for any Properties acquired by the Company. The principal executive
officers, directors and key employees of the Property Manager are:
Philip N. Gainsborough, Director and Chairman of the Board
W. Thomas Maudlin, Jr., Director (1)
William T. Haas, Director
James E. Prock, President
Neal Nakagiri, Vice President and Secretary
Sean P. McGaughey, Treasurer
- ---------------
(1) AFG owns 75% and Mr. Maudlin owns 25% of the capital stock of West Coast
Realty Management, Inc.
The Company has received a ruling from the Internal Revenue Service as
to the independent contractor status of West Coast Realty Management, Inc.
("WCRM") under the REIT provisions of the Code and has therefore contracted
with WCRM for the provision of property management services. (See "Tax
Consequences -- Requirements for Qualification as a REIT".)
For a description of the occupations and affiliations of Messrs.
Gainsborough, Maudlin and Haas see "Directors and Officers of the Company"
above.
JAMES E. PROCK (Born 1935) has over 30 years of experience in the real
estate and construction industries and has been President of West Coast Realty
Management, Inc. since December, 1991. From 1981 to December, 1991, Mr. Prock
was President of Keystate Properties, Inc., a real estate consulting and
brokerage firm which provides acquisition, development and disposition
management services to owners of improved and unimproved properties. Mr. Prock
has Bachelor of Civil Engineering and Master of Business Administration
degrees from the University of Southern California.
44
<PAGE>
NEAL NAKAGIRI (Born 1954) has served as Vice President of Compliance for
Associated Securities Corp. ("ASC") since March 1985. He has also been a Vice
President of Associated Planners Investment Advisory, Inc. since March of 1985
and as Vice President and General Counsel for Associated Financial Group, Inc.
since March, 1992. Mr. Nakagiri served as Vice President of Compliance with
Morgan, Olmstead, Kennedy & Gardner, a NYSE and NASD member firm from August
1984 through February 1985. From June 1981 through August 1984, he served as
First Vice President in charge of compliance at Jefferies & Company, Inc., a
NASD member firm. From June 1980 through February 1983, Mr. Nakagiri served
as Vice President and Director of Compliance at W&D Securities, Inc. Mr.
Nakagiri served as an Investigator with the National Association of
Securities Dealers, Inc. ("NASD") in Los Angeles, California from November
1976 through June 1980.
SEAN P. MCGAUGHEY (Born 1961) has served as Vice President of Operations
for AFG since 1990 and has been employed with AFG since 1983. Mr. McGaughey
has a Bachelor of Business Administration degree from the University of
Southern California. He holds both a Series 7 and Series 24 securities
licenses.
PRIOR PERFORMANCE
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE PROGRAMS MANAGED BY AFFILIATES OF THE ADVISOR.
INVESTORS IN THE COMPANY SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS,
IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR PROGRAMS.
AFFILIATES OF THE ADVISOR HAVE FORMED THREE LIMITED PARTNERSHIPS
DESCRIBED BELOW. AN AGGREGATE OF $14,644,650 FROM 1,326 INVESTORS WAS RAISED
IN THE PRIOR PROGRAMS. THOSE PARTNERSHIPS HAVE ACQUIRED EIGHT PROPERTIES, 100
PERCENT OF WHICH WERE EXISTING PROPERTIES, FOR AN AGGREGATE PURCHASE PRICE
OF $14,944,404.
FOR THE INVESTMENT EXPERIENCE OF THE COMPANY SEE "REAL PROPERTY
INVESTMENTS" AND "MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS".
Associated Planners Realty Fund was formed in 1986, offered an aggregate
of $7,500,000 in Units of Limited Partnership Interests and as of
December 31, 1987 had sold an aggregate of $7,499,000 of its Limited
Partnership Interests to 704 investors. The proceeds from the offering have
been invested in five existing properties with a total purchase price of
$6,670,857. The properties were purchased for all cash. Three of the
properties are office buildings located in Southern California which were
acquired for an aggregate acquisition cost of $3,858,723 (approximately 58%
of the funds expended for investment); a shopping center in Central
California for $1,208,990 (approximately 18% of the funds expended for
investment); and a mini-warehouse in the State of Washington for $1,603,144
(approximately 24% of the funds expended for investment).
On May 15, 1995, the mini-warehouse located in the State of Washington
was sold to Shurgard Storage Centers, Inc. Associated Planners Realty Fund
netted $1,522,182 as a result of the sale of the property. Proceeds from the
sale were distributed to the partners in accordance with the terms of the
Partnership Agreement in July 1995.
Associated Planners Realty Income Fund was formed in 1987, offered
$12,000,000 of Limited Partnership Interests and as of September 5, 1989, the
date it terminated its offering, had sold a total of $5,096,000 of its
Limited Partnership Interests to 436 investors. It has acquired one existing
property, a shopping center located in Southern California for $1,851,147
cash (which represents approximately 36% of the amount of funds raised from
investors) and, through a joint venture with its Affiliate Associated Planners
Realty Growth Fund, a 90% interest in an industrial building located in
Southern California for $2,816,000 cash (which represents approximately 55%
of funds raised from investors). None of the properties have been sold.
Associated Planners Realty Growth Fund was formed in 1987, offered
$10,000,000 of Limited Partnership Interests and as of September 5, 1989, the
date it terminated its offering, had sold a total of $2,059,650 of its
Limited Partnership Interests to 186 Investors. It has acquired one existing
property, an office building located in Santa Ana, California for
approximately $3,293,400 (which represents a cash
45
<PAGE>
investment of approximately 72% of the amount raised from Investors), with
approximately 46% of the purchase price paid in cash and the balance through
a first mortgage loan. Also, through a joint venture with its Affiliate,
Associated Planners Realty Income Fund, the Partnership a 10% interest in an
industrial building located in Southern California for $313,000 cash (which
represents approximately 15% of funds raised from investors).
Although the office building located in Santa Ana, California has been
70% to 80% occupied in recent years, it has not generated positive cash flow
for Associated Planners Realty Growth Fund due to the drop in rental rates in
the area. As a result, the Partnership's general partner has been paying
certain administrative costs of the Partnership, i.e., property management
fees, legal and accounting costs, general and administrative fees, as well
as certain leasehold improvement costs. As of December 31, 1995, the amount
of cash advanced to the Partnership by the General Partner was $150,000. In
addition, the General Partner and its affiliates have deferred collection of
fees and expenses totaling $240,095. The General Partner does not intend to
advance any additional funds to the Partnership. The General Partner has
pursued alternative solutions to improve the cash flow of the Santa Ana
Property and the Partnership. On July 31, 1995, the holder of the first deed
of trust on the property agreed to provide relief by deferring collection of
debt payments due on the loan from September 1995 to January 1996 and adding
such debt service payments to the principal balance of the loan and adjusting
the debt service payments commencing February 1, 1996. During the fourth
quarter of 1995, despite the Partnership's best efforts to enhance the value
of the property with tenant improvements designed to attract new tenants and
increase occupancy, it was determined that the surrounding economic
conditions of the area dictated a thorough review of the current value of
the property. Using recent comparative building sales data for the general
area in which the building is located, it was determined that a $1,912,727
impairment loss should be recorded on the Partnership's Statement of Loss
for 1995. This loss was unrealized, and thus did not flow through to the
partners for tax purposes, and may not flow through until the ParkCenter
Office Building is sold or otherwise disposed of. This loss allowance, in
itself, does not directly affect the liquidity of the Partnership, which as
previously set forth, is poor.
On March 4, 1996 the Partnership requested that the Lender re-structure
the loan on the ParkCenter Office Building. On April 4, 1996, the Partnership
received a reply from the Lender denying the request to modify the loan and
also notified the Partnership that an event of default had occurred under
the deed of trust securing the loan due to the Partnership's nonpayment of
the March 1, 1996 loan payment. The Partnership also did not make the loan
payment due April 1, 1996 or pay the property tax installment due on
April 10, 1996.
It is anticipated that the Lender will initiate foreclosure proceedings
against the property. Unless the Lender is willing to modify the loan (and
there is no indication that the Lender will do so), there is a substantial
likelihood the Partnership's investment in the ParkCenter Office Building
will be lost.
The total amount of Units of Limited Partnership Interests ("Units")
offered in Associated Planners Realty Income Fund and Associated Planners
Realty Growth Fund did not generate full sale of such Units and the cash
received by those Prior Programs decreased compared to the amount of Units
sold and cash received by Associated Planners Realty Fund.
The investment objectives of Associated Planners Realty Fund ("Fund I"),
Associated Planners Realty Income Fund ("Income Fund"), Associated Planners
Realty Growth Fund ("Growth Fund") and the Company are the same except that
Fund I and Income Fund acquired their properties for cash without leverage,
whereas Growth Fund acquired, and the Company anticipates acquiring its
properties, by incurring mortgage debt, up to an aggregate of 50% of the
Purchase Price of Properties.
The Advisor will provide to each person to whom this Prospectus is
delivered, upon request and without charge, a copy of the most recent annual
report filed with the Securities and Exchange Commission within the last
twenty-four months by any of the Prior Programs. Requests for such
information should be addressed to West Coast Realty Advisors, Inc., 5933
W. Century Boulevard, Ninth Floor, Los Angeles, California 90045. Upon
request, exhibits to the annual report will also be provided upon payment of
a reasonable fee.
46
<PAGE>
SERVICES PROVIDED BY THE ADVISOR
AND PROPERTY MANAGER
Many of the services to be performed by the Advisor and its Affiliates in
selecting Properties for acquisition by the Company, managing Properties and
communicating with investors are summarized below. This summary is provided to
illustrate the various functions which the Advisor and its Affiliates will
perform for the Company and is not intended to include all of the services
which may be performed by the Advisor and its Affiliates or other services
provided by third parties to the Company.
ADVISORY SERVICES
The Advisory Agreement was renewed until June 30, 1996, by a majority
vote of the Shareholders, and will thereafter be renewable annually with the
approval of a majority of the Shareholders. The Advisory Agreement is not
assignable without the consent of the parties, except for assignments by the
Advisor to a corporation or other person which controls, is controlled by or
is under common control with the Advisor, or by either the Advisor or the
Company to a successor of the business of either of the parties. The Advisory
Agreement may be terminated by the Advisor on 120 days' written notice, or by
the Directors, the independent Directors or the Shareholders on 60 days'
written notice. If for any reason the Advisory Agreement is terminated, the
Directors, subject to Shareholders ratification, will appoint a new Advisor
and the Company has agreed to change its name to one which does not include
"Associated Planners", "West Coast Realty" or any similar words.
Under the terms of the Advisory Agreement, the Advisor undertakes to use
its best efforts to present an investment program consistent with the
investment policies and objectives of the Company and to obtain investments
suitable to such investment program. In performance of this undertaking, but
at all times subject to the continuing and exclusive authority of the
Directors over the management of the Company, the Advisor will: (i) obtain or
furnish and supervise the performance of such ministerial functions in
connection with the administration of the day-to-day operations of the
Company as may be agreed upon by the Advisor and the Directors; (ii) serve
as the Company's investment and financial advisor and provide research,
economic and statistical data with respect to the making, holding,
administration and disposition of the Company's investments; (iii)
investigate, select and oversee outside property managers and other
independent third parties (e.g., consultants, developers, brokers,
appraisers, etc.); (iv) subject to Board approval, make investments
consistent with the policies and provisions of the Company; (v) advise in
connection with negotiations by the Company with investment banking firms,
securities brokers or dealers and other institutions or investors for public
or private sales of securities of the Company, or obtain loans for the
Company; and (vi) provide, at the Company's expense, office space, office
furnishings, personnel and other overhead items necessary and incidental to
the Company's business and operations.
PROPERTY MANAGEMENT SERVICES
The providing of property management services in connection with the
management of the Company's real property investments will, subject to the
supervision of the Advisor and the Directors, be performed by "independent
property managers" (within the meaning of the Code), including WCRM, an
Affiliate of the Advisor, as required by the REIT provisions of the Code. The
Company has received a ruling from the Internal Revenue Service as to the
independent contractor status of WCRM. See "Tax Consequences -- Requirements
for Qualification as a REIT". All or a portion of those services may be
contracted or subcontracted to other unaffiliated independent property
management companies. A separate property management agreement will be
entered into with respect to each real property investment. A copy of the
form of the agreement is filed as an exhibit to the Registration Statement
filed with the Securities and Exchange Commission, of which this Prospectus
is a part. The fees payable for property management services shall in no
event be greater than rates charged for similar services in the area of each
real property investment. See "Compensation of Advisor and Affiliates" and
"Conflicts of Interest."
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OTHER SERVICES
The Advisor will provide real estate brokerage services in the
acquisition, refinancing or sale of Properties by the Company. The Advisor
may utilize the services of its Affiliates acting for the Company or
independent brokers acting for sellers of Properties to the Company. The
Advisor will receive Acquisition Fees for these Property acquisition
services. The Advisor will also receive a real estate commission for
services rendered in connection with the refinancing or sale of Properties.
See "Compensation of Advisor and Affiliates."
The Advisory Agreement provides for an Advisory Fee for regular advisory
services rendered by the Advisor, and a Subordinated Incentive Fee in any
fiscal year that a Property of the Company is sold, financed or refinanced.
See "Compensation of Advisor and Affiliates" for a description of these fees.
Pursuant to the Advisory Agreement, the Advisor is to pay employment
expenses of its senior executives (Chairman, President, Executive and Senior
Vice Presidents and directors), office expenses and other miscellaneous
administrative expenses not relating to the Advisor's performance of its
functions under the Advisory Agreement. The Company will be required to pay
its allocable share of all other expenses at their cost to the Advisor.
Within 60 days after the end of each calendar year, the Advisor will
refund to the Company the amount, if any, by which the Operating Expenses of
the Company during such calendar year exceeded the greater of (a) 2% of the
Average Invested Assets (which is generally defined to mean the book value
of the Company's real estate interests less noncash items) or (b) 25% of Net
Income (which is generally defined as the net profits of the Company)
(excluding the gain from the sale of the Properties for which the Advisor
received a Subordinated Incentive Fee).
Neither the Advisor nor any of its officers and directors nor their
Affiliates will have any obligation to give to the Company a prior right to
acquire or invest in any investment opportunities which may be available to
them. The Advisor will not make investments for its own account of the
character suitable for investment by the Company while the Company has
sufficient funds available to make the investment. The Advisor and its
officers and directors intend, to the extent consistent with the provisions
of statutes, regulations and case law governing their activities, to provide
the Company with access to review investment opportunities generated by
them, which are consistent with the Company's investment policies.
The foregoing is only a summary of the Advisory Agreement. Reference is
made to the Advisory Agreement itself, filed as an exhibit to the
Registration Statement of which this Prospectus is a part, for a complete
statement of its provisions.
TAX CONSEQUENCES
The following summary of the material federal income tax considerations
of the Offering is based on current law, is for general information only and
is not tax advice. The summary is based upon the Internal Revenue Code of
1986, as currently amended (the "Code"), judicial decisions, administrative
regulations (the "Regulations"), and published rulings and procedures of the
Treasury Department, all of which are subject to change prospectively or
retroactively. This summary is not, and is not intended to be, a complete
analysis of all applicable provisions of the Code, the Regulations and
administrative and judicial interpretations thereof. The summary does not
purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investments or tax
circumstances, or to certain types of stockholders (including insurance
companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the
federal income tax laws. The effects of certain Code provisions on individual
investors will vary from one case to another, depending upon the facts. In
addition, there is uncertainty concerning certain of the tax aspects of an
investment in the Company, and there can be no assurance that some of the
positions taken by the Company might not be challenged by the Internal
Revenue Service (the "IRS").
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The Company might also be subject to state and local taxes in
jurisdictions in which the Company might be deemed to be doing business or
in which it owns property or other interests. See "State and Local Taxes"
below.
For the foregoing reasons, this summary is not intended as a substitute
for careful tax planning. Prospective Shareholders and fiduciaries and others
investing on behalf of prospective Shareholders are urged to consult their
own tax advisors with respect to the federal and state tax consequences which
could arise from the purchase of Shares in their individual situations.
The Code provides special tax treatment for an organization that
qualifies and elects to be taxed as a real estate investment trust
(a "REIT"). In brief, if certain detailed requirements imposed by the REIT
provisions of the Code (Sections 856-860) are met, entities that invest
primarily in real estate assets (i.e., real estate, mortgages or REITs) and
that otherwise would be taxed as corporations are, with certain limited
exceptions, not taxed at the corporate level on their income that is
currently distributed to their shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels)
that typically results from the use of corporate investment vehicles.
The Company has elected to be treated as a REIT. The first taxable year
the Company was taxable as a REIT was its taxable year ending
December 31, 1991. Except for its inadvertent failure to comply with
Treasury Regulation Section 31.857-8(d) and (e) for 1991, 1992 and 1993 (See
Additional Tax Risks), the Company believes that it has been organized and
has operated in such a manner as to qualify for taxation as a REIT under
Sections 856-860 of the Code for its taxable year ending through
December 31, 1995 and the Company intends to continue to operate in such a
manner in the future. No assurance can be given, however, that the Company
will operate in a manner so as to qualify or remain qualified as a REIT.
See "Requirements for Qualification as a REIT" below. Based on the accuracy
of the facts contained in the Ruling Request, the Company received a ruling
from the Internal Revenue Service that WCRM will qualify as an independent
contractor under Section 856(d)(2) and 856(d)(3) of the Code if it renders
property management services to the Company. The Company has represented
that it will utilize the services of WCRM only for so long as the material
facts contained in the Ruling Request remain accurate.
If the Company does not qualify as a REIT for any taxable year, it will
be subject to federal income tax as if it were a corporation, and the
Shareholders will be taxed as shareholders of a corporation. Consequently,
the Company would be subject to potentially significant tax liabilities
which would reduce the amount of Cash Available For Distribution to the
Shareholders and the Shareholders would also be taxed on Distributions from
the Company.
OPINION OF COUNSEL
The Company has obtained an opinion of Gipson Hoffman & Pancione, a
Professional Corporation, counsel to the Company ("Counsel"), that based on
factual representations and various assumptions made by the Company and
calculations prepared by BDO Seidman, LLP is the opinion of Counsel that
subject to the possible disqualification of its REIT's status as a result of
its inadvertent failure to comply with Treasury Regulation Section 1.857-8(d)
and (e) for its 1991, 1992 and 1993 taxable years, the Company was organized
in conformity with the requirements for qualification and taxation as a REIT
commencing with the Company's taxable year ending December 31, 1991, and its
method of operations has, and its proposed method of operation will, enable
it to continue to qualify to be taxed as a REIT. It must be emphasized that
this qualification depends upon the Company's ability to meet the various
requirements imposed under the Code, including, but not limited to, the
various income, asset, distribution, share ownership and other tests
discussed below, the results of which will not be reviewed by Counsel.
Accordingly, no assurance can be given that the actual results of the
Company's operation for any one taxable year will satisfy such requirements.
See "Failure to Qualify," below.
The opinion of Counsel, which is summarized in this Prospectus and which
is filed as an exhibit to the Company's Registration Statement of which this
Prospectus forms a part, represents such firm's judgment that it is more
likely than not that the applicable issues should be resolved in the manner
indicated if litigated by the IRS. Nevertheless, that opinion represents the
views of Counsel only, is not binding upon the IRS or the
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courts, and should not be taken as an assurance that such tax consequences in
fact will result. Because the opinion is based upon facts and factual
assumptions described more fully in this section, including assumptions as to
future facts concerning the actual operations of the Company, it may be
adversely affected by alterations in such facts and by differences between
actual and assumed facts. No factual investigations have been made by Counsel.
Therefore, for purposes of its opinion, Counsel has relied upon
representations made by the Directors on behalf of the Company and by
certain financial information compiled by BDO Seidman, LLP.
The opinion of Counsel is also based upon existing law and currently
applicable Regulations, current published administrative positions of the IRS
contained in Revenue Rulings and Revenue Procedures, and judicial decisions,
which are subject to change either prospectively or retroactively.
Furthermore, the law as to many tax matters material to an investment in the
Company is uncertain. Although reasonable arguments can be made for the
positions which the Company proposes to take as to tax matters as described
in this Prospectus, the federal income tax consequences of a proposed
investment in the Company cannot be predicted with certainty, and there can
be no assurance of how the law will develop or, if litigated, how the courts
will decide various issues.
REQUIREMENTS FOR QUALIFICATION AS A REIT
To qualify as a REIT for federal income tax purposes, the Company has
made a valid election to be so treated and must satisfy the requirements set
forth below. In order to qualify as a REIT, the Company may not have any
accumulated earnings and profits attributable to periods prior to its REIT
status, i.e., prior to January 1, 1991. The Company has represented that it
has no accumulated earnings and profits for any period commencing prior to
January 1, 1991. Once made, an election continues in effect until voluntarily
revoked or automatically terminated by the Company's failure to qualify as a
REIT for a taxable year.
1. SHARE OWNERSHIP. The Shares (i) must be transferable and (ii) must
be held by 100 or more persons during at least 335/365th of the Company's
taxable year. No more than 50% of the outstanding Shares may be owned in the
aggregate, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) at any time during the last half of
the Company's taxable year. Although, the Advisor was required to purchase
Shares and AFG, the Advisor and their Affiliates (they currently own
approximately 8% of the outstanding shares) may purchase Shares, they intend
to limit their investment in Shares to the extent necessary to enable the
Company to satisfy the REIT ownership requirements and in no event will they
own in the aggregate more than 35% of the outstanding Shares.
The Omnibus Budget Reconciliation Act of 1993 was enacted in
August, 1993. This act provides that qualified pension trusts generally
would no longer be treated as a single "individual" for purposes of applying
the ownership test that currently prohibits five or fewer individuals
(applying certain attribution of ownership rules) from owning more than 50%
of the value of a REITs' outstanding shares. The ownership interests instead
would be treated as held by the beneficiaries of the qualified trust, in
proportion to their actuarial interests in the trust. The act also provides
that if the REIT would fail the five or fewer test but for this new
exception, and if the REIT is "predominantly held" by qualified trusts
(one such trust owns more than 25% by value, or more than 50% by value is
held by such trusts that each own more than 10%), those qualified trusts
that own more than 10% may be required to report a portion of the dividends
they receive from the REIT as UBTI.
2. NATURE OF ASSETS. On the last day of each calendar quarter, at least
75% of the value of the total assets of the Company must consist of real
estate assets (including interests in real property, interests in loans
secured by mortgages on real property or by interests in real property,
shares in other REITs, regular or residual interests in real estate mortgage
investment conduits ("REMICs"), and certain options, but not mineral, oil or
gas royalty interests), cash, cash items (including receivables) and
government securities (collectively, "real estate assets"). During the
one-year period beginning on the date the Company receives new capital from
the sale of Shares (other than from sales resulting from the dividend
reinvestment plan), stock or debt instruments purchased with such capital
are treated as "real estate assets" for the purposes of the 75% asset test.
Thereafter, not more than 25% of the value of the Company's assets may
consist of
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securities (other than government securities). There are no investment
restrictions on the remainder of the Company's assets, except that the
securities of any one nongovernmental issuer may not represent more than 5% of
the value of the Company's total assets or 10% of the outstanding voting
securities of any one issuer.
A REIT is permitted to hold assets in a "qualified REIT subsidiary" which
is a corporation that has been 100% owned by the REIT at all times during its
existence. The REIT treats all of the qualified REIT subsidiary's assets,
liabilities, and items of income, deduction and credit as its own for federal
income tax purposes, although the subsidiary will be a separate entity for
state law purposes. If the fund invests in a partnership, it will be deemed
to own a proportionate share of the partnership's assets.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an
acquisition of securities or other property during a quarter, the failure
can be cured by disposition of sufficient nonqualifying assets within 30
days after the close of that quarter. The Company intends to maintain
adequate records of the value of its assets to ensure compliance with the
asset tests, and to take such other action, within 30 days after the close of
any quarter, as may be required to cure any noncompliance.
3. SOURCES OF INCOME. For each taxable year, the Company must meet the
following three income-based tests:
(a) 75% Test. At least 75% of the Company's gross income (excluding
income from prohibited transactions) for each taxable year must be derived
from the following: (i) rents from real property; (ii) interest accruing on
obligations secured by mortgages on real property or interests in real
property; (iii) gain from the sale or other disposition of real property,
interests in real property and mortgages on real property (excluding gain
from the sale of "dealer property"); (iv) dividends or other distributions
on, and gain from the sale or other disposition of transferable shares of
other qualified REITs; (v) abatements and refunds of taxes on real property;
(vi) income and gain from the sale or other disposition of foreclosure
property; (vii) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction; (viii) amounts (other than
amounts based in whole or in part, on the income or profits of any person)
received or accrued as consideration for entering into agreements (A) to
make loans secured by mortgages on real property or on interests in real
property, or (B) to purchase or lease real property, interests in real
property or mortgages on real property; (ix) income from a regular or
residual interests in REMICs to the extent of the proportion in which assets
of the REMICs consist of interests in real property; and (x) income from the
temporary investment of new capital in stock or debt instruments during the
one-year period beginning on the date the Company receives the new capital.
For purposes of the 75% income test and the 95% income test described
below, "rents from real property" do not include (a) amounts determined in
whole or in part by the income or profits derived by any person from a
Property; (b) amounts from any person (e.g., partnership or corporation) in
which the Company directly or indirectly owns 10% or more of the beneficial
interests; (c) amounts received or accrued with respect to a Property if the
Company furnishes or renders noncustomary services to the tenants of such
Property, other than through an independent contractor from whom the Company
does not derive or receive any income; and (d) amounts attributable to
personal property leased in connection with a lease of real property, if more
than 15% of the total rent from the real and personal property is attributable
to the personal property. The Company, has received a ruling from the
Internal Revenue Service, as to the independent contractor status of one of
its Affiliates, WCRM under the REIT provisions of the Code and therefore has
contracted with WCRM for the provision of property management services. The
rents generally will not be considered to be based on income or profits of a
tenant if they are based on a fixed percentage of receipts or sales, or if
they are based on the net income or profits of the tenant and the tenant
derives substantially all of its income with respect to such Property from
the leasing or subleasing of substantially all of such Property and such
tenant receives from subtenants only amounts which would be treated as rents
from real property if received directly by a REIT. The Company may provide
services to its tenants and the income will qualify as rents from real
property if the services are (a) customarily furnished or rendered to
tenants in connection with the rental of real property of a similar class in
the geographic market in which the Property is located and (b)
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of a type that a tax-exempt organization can provide to its tenants without
causing its rental income to be unrelated business taxable income under the
Code.
(b) 95% Test. At least 95% of the Company's gross income (excluding
income from prohibited transactions) for each taxable year must be derived
from the same items which qualify under the 75% income test, or from
dividends, interest or gains from the sale or other disposition of stock or
other securities which are not "dealer property" or from any combination of
the foregoing.
Fees for performing services to the Company's tenants (other than for
services which are both (a) customarily furnished or rendered to tenants in
real properties of a similar class in the geographic market in which the
property is located and (b) of a type that a tax-exempt organization can
provide its tenants without causing its rental income to be unrelated
business taxable income under the Code) do not qualify under either the 75%
or the 95% income test.
If the Company fails to meet either the 75% or the 95% income test
during a taxable year, it may still qualify as a REIT in such year if (i) it
reports the source and nature of each item of its gross income in its federal
income tax return for such year; (ii) the inclusion of any incorrect
information in its return is not due to fraud with intent to evade tax;
and (iii) the failure to meet such tests is due to reasonable cause and not
to willful neglect. However, in such event the Company will be subject to an
excise tax equal to 100% of the greater of the amount by which it fails
either the 75% or the 95% income test for such year.
(i) Prohibited Transactions. In determining whether the Company
complies with the 75% and 95% income tests, gross income does not include
gross income from "prohibited transactions." The term "prohibited
transactions" generally means a sale or other disposition of real property or
interests in mortgages on real property held by the REIT primarily for sale
to customers in the ordinary course of its business ("Dealer Property"),
other than foreclosure property, unless all of the following requirements
are met:
(1) The property was held for at least four years and, except for
foreclosure property, must have been held for at least four years for the
production of rental income;
(2) Either (a) the REIT made no more than seven sales of property during
the year in question (other than foreclosure property) or (b) the aggregate
adjusted tax bases of property (other than foreclosure property) sold during
the taxable year does not exceed 10% of the aggregate tax bases of all of
the assets of the REIT as of the beginning of the taxable year and
substantially all of the marketing and development expenditures with respect
to the property were made through an independent contractor; and
(3) The cost of any improvements made by the REIT to the property or any
partner thereof during the four years prior to the sale did not aggregate in
excess of 30% of the property's net sales price.
Any gross income derived from a prohibited transaction is taken into
account in applying the 30% test described below (and the net income from any
such transaction is subject to a 100% tax). The Company intends to hold its
Properties for investment and rental with a view to long-term appreciation, to
engage in the business of owning, acquiring, managing, renovating and
expanding for rental the Properties, and to make such occasional sales of
the Properties as are consistent with the Company's investment objectives.
Based on the above, the Company believes that all of its real property will
be held for rental, and not for sale to customers, in the ordinary course of
its trade or business. However, whether property is held as Dealer Property
depends on the facts and circumstances in effect from time to time,
including those relating to a particular property. As a result, complete
assurance cannot be given that the Company can avoid being deemed to own
property that the IRS later characterizes as property held "primarily for
sale to customers in the ordinary course of its trade or business."
(ii) Foreclosure Property. "Foreclosure property," referred to above,
is real property and any personal property incident thereto, which is
acquired by the Company as the result of a bid in foreclosure, or by
agreement or legal process, following a default (or where a default as
imminent) on a lease of the property or on an indebtedness secured by that
property and which the Company elects to so treat. If the Company acquires
foreclosure property, such property will normally cease to be foreclosure
property no later than two years after the date of acquisition by the
Company. However, if the Company establishes to the satisfaction of
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the IRS that an extension of the two-year period is necessary for the
orderly liquidation of the Company's interest in such a foreclosure property,
the IRS may grant one or more extensions of the two-year period. Such
extensions may not extend the two-year period beyond a date which is six
years after the date on which the Company acquired such foreclosure property.
If the Company is not able to dispose of such foreclosure property within
such two-year period, as extended, then, because rents from such foreclosure
properties may not be treated as "rents from real property," the Company may
not satisfy either or both of the 75% or 95% income tests, depending on how
great a portion of the Company's gross income is represented by rental income
not meeting the passive income requirements of the Code for qualification as
a REIT.
(c) 30% Test. Less than 30% of the Company's gross income may be derived
from the sale or other disposition of the following: (i) stock or securities
held by the Company for less than one year; (ii) property in a transaction
which is a prohibited transaction; and (iii) real property, including
interests in real property, and mortgages on real property held for less
than four years (other than foreclosure property and property compulsorily
or involuntarily converted through destruction, condemnation or similar
event). The Company does not intend to acquire Properties with a view to
deriving short-term profits. Nevertheless, any gains realized from the sale
of a Property held less than four years by the Company (except as provided
above) must be included in the 30% income test.
4. DISTRIBUTIONS TO SHAREHOLDERS. Each year, the Company must distribute
to its Shareholders an amount equal to (a) 95% of (i) its "REIT taxable
income" (as defined below) determined without regard to the deduction for
dividends paid and by excluding any net capital gain, and (ii) the excess of
net income from foreclosure property over the tax on such income, minus (b)
any "excess noncash income" (as defined below). The Company intends to make
distributions to the Shareholders on a quarterly basis sufficient to meet
this 95% distribution requirement. If the Company does not otherwise have
sufficient cash to meet the 95% distribution requirement, it might be
required to borrow funds or sell its Properties in order to make
distributions.
"REIT taxable income" is the taxable income of a REIT, computed as if it
were an ordinary corporation, adjusted by certain items, including without
limitation, an exclusion equal to the amount of net income from foreclosure
property, a deduction for the 100% tax on the greater of the amount by which
the REIT fails the 75% or the 95% income test, and an exclusion for an amount
equal to any net income derived from prohibited transactions. "Excess noncash
income" means the excess of certain amounts that a REIT is required to
recognize as income in advance of receiving cash (such as income recognized
under Code Section 467 relating to rental agreements involving deferred or
increasing rents to the extent the REIT would not otherwise recognize such
income under its regular method of accounting) over five percent of the REIT
taxable income before deduction for dividends paid and excluding any net
capital gain. If the REIT enters into a long-term lease of a Property
pursuant to which it receives deferred rents or increasing rents it might
recognize income under Code Section 467 during the term of the lease or upon
disposition of the Property subject to such lease.
Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year (a) if declared by the Company in October,
November or December in the taxable year in question to stockholders of record
in such month and paid by the Company during January of the following taxable
year or (b) if the Company duly elects and if declared before the Company
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration.
The IRS has ruled that if a REIT's dividend reinvestment plan allows
shareholders of the REIT to elect to have cash distributions reinvested
automatically in newly issued shares of the REIT at a purchase price equal to
at least 95% of fair market value on the distribution date, or in shares
purchased in the open market, then such cash distributions qualify under
the 95% distribution test. The terms of the Company's Dividend Reinvestment
Plan comply with such rulings. See "Plan of Distribution -- Dividend
Reinvestment Plan." Shareholders should be aware that the amount of
Dividends reinvested pursuant to the Dividend Reinvestment Plan will be
taxable income to them, regardless of the fact that such dividends have been
reinvested with the Company or have been used to acquire shares through the
Crossing Agent or on the open market (i.e., the tax is not deferred until
the Shares received from participation in the Dividend Reinvestment Plan
are sold or disposed of).
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TERMINATION OR REVOCATION OF REIT STATUS
For any taxable year that the Company fails to qualify as a REIT, it
would be taxed as a corporation. Consequently, because it would not be
entitled to the deduction for dividends paid to its Shareholders in computing
its taxable income, assets of the Company and Dividends to Shareholders
would be reduced to the extent necessary to pay any resulting tax liability
of the Company. Distributions from the Company at such time would be taxable
to Shareholders as dividends to the extent of the current and accumulated
earnings and profits of the Company with any excess being treated as a
reduction of tax basis in the REIT stock and after such tax basis is
exhausted as gain from the sale of stock.
If the Company's election to be treated as a REIT is terminated
automatically, the Company will not be eligible to elect REIT status until
the fifth taxable year which begins after the year for which the Company's
election was terminated, unless (i) the Company did not willfully fail to
file a timely return with respect to the termination taxable year, (ii) the
inclusion of any incorrect information in such return was not due to fraud
with intent to evade tax, and (iii) the Company establishes that failure to
meet the requirements was due to reasonable cause and not to willful neglect.
While the Company has no intention of voluntarily revoking its REIT election,
if it does so, it will be prohibited from electing REIT status for the year
to which such revocation relates and for the next four taxable years.
TAXATION OF THE COMPANY
For any taxable year in which the Company qualifies as a REIT, it
generally will not be subject to federal income tax on that portion of its
ordinary income or capital gain which is timely distributed to Shareholders
(except certain income with respect to foreclosure property, which is taxed
at the highest corporate rate -- currently 35%). Even if the Company is
treated as a REIT, it is subject to the tax on any REIT taxable income and
net capital gain not distributed to Shareholders. The Company will be
subject to tax on any net capital gain arising from the sale of its
Properties not distributed to the Shareholders. If the Company reinvests the
net capital gain from the sale of a Property on which it recognized a net
capital gain, it will be taxed on that gain, or, in the alternative, it
could distribute all or part of the net capital gain as a capital gain
dividend to the Shareholders and in that event, the distributed capital gain
would be taxable to the Shareholders and not to the Company. Since at
present the maximum rate for individuals on long-term capital gain is
twenty-eight percent (28%), which is lower than the current corporate federal
income tax rate of thirty-five percent (35%), it is anticipated that the
Company will make a capital gains distribution equal to the amount of the
capital gain so that only the lower capital gains tax rates will be incurred.
The Company may choose, however, to not distribute part or all of a capital
gain recognized by the Company and in that event the Company would pay tax on
the capital gain at the corporate tax rate, and reinvest the proceeds
remaining in additional Properties.
In addition, regardless of distributions to Shareholders, (i) if the
Company fails either or both the 75% and 95% income tests, but still
maintains its qualification as a REIT, it will be subject to a 100% tax on
the greater of the amount by which it failed the 75% test or the 95% test,
multiplied by a fraction, the numerator of which would be the Company's
taxable income for the year (with certain adjustments) and the denominator
of which would be the Company's gross income (with certain adjustments);
and (ii) the Company will be subject to a 100% tax on any net income derived
from a prohibited transaction.
The Company will also be subject to the minimum tax on items of tax
preference allocable to it. Code Section 59(d) authorizes the Treasury
Department to issue Regulations allocating items of tax preference between a
REIT and its shareholders. Such Regulations have not yet been issued.
The Company will be subject to a 4% excise tax under Code Section 4981
on the amount, if any, by which the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of any net capital gain for such year, and
(iii) any undistributed taxable income from prior periods exceeds the
amount actually distributed by the Company to its Shareholders during the
calendar year (or declared as a dividend during the calendar year, if
distributed during the following January) as dividends. If necessary, the
Company will make its fourth quarterly distribution prior to February 1 of
the following year and will declare such dividend before the end of the
fourth quarter in order to avoid imposition of the excise tax. If the
Company reinvests net capital gains in additional Properties it is likely to
be subject to the excise tax. Imposition of the excise tax on the Company
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would reduce both the amount of money available for reinvestment by the
Company and the amount of cash available for distribution to Shareholders.
The Company has adopted a calendar taxable year for federal income tax
purposes; accordingly, the Company's taxable year will end each December 31.
The Company has elected the accrual method of accounting.
As a result of an inadvertent failure to satisfy certain technical
requirements of Treasury Regulation Section 1.857-8(b) for its 1991, 1992 and
1993 taxable years, it is possible that the Company would be treated as a
regulation corporation (and not as a REIT) for such taxable years.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
1. IN GENERAL. As long as the Company qualifies as a REIT, distributions
made to its taxable U.S. Stockholders (as defined herein) out of current or
accumulated earnings and profits (and not designated as capital gain
dividends) will result in ordinary income. For this purpose, the term "U.S.
Stockholder" means a holder of Common Stock that (for United States federal
income tax purposes) (i) is a citizen or resident of the United States, (ii)
is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof,
or (iii) is an estate or trust, the income of which is subject to United
States federal income taxation regardless of its source. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as described herein.
Corporate stockholders will not be entitled to the dividends received
deduction. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to the extent that they
do not exceed the adjusted tax basis of the stockholder's shares of Common
Stock, but rather, will reduce a stockholder's adjusted tax basis in such
shares. To the extent that such distributions exceed the adjusted tax basis
of a stockholder's shares of Common Stock, they will be included in income
as long-term capital gain (or short-term capital gain if the shares of
Common Stock have been held for one year or less) assuming the shares are a
capital asset in the hands of the stockholder. Currently, the maximum tax
rate for individuals on net long-term capital gain is 28%.
Capital gain realized by the Company on the sale of its assets generally
will equal the difference between the sale price and the Company's adjusted
tax basis in the asset sold, and will be recognized by the Company's
stockholders to the extent the Company maintains its qualifications as a
REIT and such capital gain is distributed to the Company's stockholders as a
capital gain dividend. The initial tax basis of such assets will be
subsequently reduced by annual depreciation deductions. Depreciation
deductions reduce taxable income and thus may effectively increase the
portion of dividends which would represent a non-taxable return of capital.
Any dividend declared by the Company in October, November or December of
any year payable to a stockholder of record on a specified date in any such
month will be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following year.
Stockholders may not include any net operating losses or capital losses
of the Company in their individual income tax returns. A stockholder will
realize capital gain or loss on the disposition of any of his Common Stock
equal to the difference between (a) the sales price for such Common Stock
and (b) his adjusted tax basis in such Common Stock. In general, any gain
or loss realized upon the sale or exchange of Common Stock by a stockholder
who has held such Common Stock for more than one year (after applying
certain holding period rules) will be treated as a long-term capital gain or
long-term capital loss, respectively. In general, any gain or loss realized
upon the sale or exchange of Common Stock by a stockholder who has held such
Common Stock for one year or less (after applying certain holding period
rules) will be treated as short-term gain or loss, respectively. However,
losses incurred on the sale or exchange of Common Stock held
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for less than six months will be deemed long-term capital loss to the extent
of any capital gain dividends received by the selling stockholder with
respect to such Common Stock.
2. PORTFOLIO INCOME. Dividends paid to Shareholders will constitute
portfolio income for purposes of Code Section 469 and not passive activity
income. Accordingly, such income will not be subject to reduction by losses
from passive activities (e.g., an interest in a business held as a limited
partner or any interest in a rental activity) of Shareholders who are subject
to the passive activity loss rules.
3. TAXATION OF REINVESTED DIVIDENDS. Those Shareholders who avail
themselves of the Dividend Reinvestment Plan during the offering period will
realize taxable income or gain in an amount equal to the fair market value of
he Shares acquired from the REIT through the Dividend Reinvestment Plan.
Those Shareholders who avail themselves of the Dividend Reinvestment Plan
after the offering period will realize taxable income or gain equal to the
gross amount of Dividends distributed on their behalf to the Agent, as agent
for the participants in such plan. Such distributions will retain the
character of the Company's income and gain which is distributed. Shares
received pursuant to the Dividend Reinvestment Plan will have a holding
period which begins on the day after purchase by the Agent. The tax basis of
the Shares acquired through the Dividend Reinvestment Plan will generally be
the gross amount of income realized by the Shareholder from the distribution.
4. BACK-UP WITHHOLDING. The Company will report to its stockholders and
to the IRS the amount of dividends paid during such calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such holder (a) is a corporation or another
form of exempt entity and, when required, demonstrates this fact, or (b)
provides a taxpayer identification number, certifies to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements
of the backup withholding rules. A stockholder that does not provide the
Company with a correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to the
Company. See "Taxation of Non-U.S. Stockholders."
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Stockholders, and Non-U.S.
Stockholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
5. DIVIDEND INFORMATION. The Company will notify each Shareholder after
the end of each year as to the portion of Dividends paid that constitutes
ordinary income, return of capital, capital gain and items of tax preferences.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
In Revenue Ruling 66-106, 1966-a C.B. 151, the IRS ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust did not
constitute "unrelated business taxable income" ("UBTI"). Revenue rulings are
interpretive in nature and subject to revocation or modification by the IRS.
Based upon Revenue Ruling 66-106, distributions to tax-exempt stockholders
generally should not constitute UBTI where (a) the stockholder has not
financed the acquisition of its Common Stock with "acquisition indebtedness"
within the meaning of the Code, and (b) the Common Stock is not used by the
stockholder in an unrelated trade or business. However, legislation was
recently enacted which provides that amounts distributed by a REIT to a
tax-exempt employees' pension trust which owns more than 10% of the REIT's
share will be treated as UBTI in certain circumstances.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnership and other
foreign stockholders (collectively, "Non-U.S. Stockholders") are complex, and
no attempt will be made herein to provide more than a summary of such rules.
Prospective
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Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular United
States income tax with respect to their investment in the Company if such
investment is "effectively connected" with the Non-U.S. Stockholder's
conduct of a trade or business in the United States. A corporate Non-U.S.
Stockholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business may also be subject to the branch
profits tax under Section 884 of the Code, which is payable in addition to
regular United States corporate income tax. The balance of this discussion
will apply to Non-U.S. Stockholders whose investment in the Company is not
so effectively connected.
Distributions that are not attributable to gain from sales or exchanges
of United States real property interests and not designated as capital gain
dividends will be treated as dividends of ordinary income to the extent that
they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to a withholding
tax equal to 30% of the gross amount of the distribution, subject to
reduction or elimination under an applicable tax treaty. The Company expects
to withhold United States income tax at the rate of 30% on the gross amount
of any such dividends made to a Non-U.S. Stockholder unless (i) a lower
treaty rate applies and the stockholder files an IRS Form 1001 or (ii) the
Non-U.S. Stockholder files a properly completed IRS Form 4224 with the
Company claiming that the distribution is "effectively connected" income.
Distributions which exceed current and accumulated earnings and profits of
the Company will not be taxable to the extent that they do not exceed the
adjusted tax basis of the stockholder's Common Stock, but rather will reduce
the adjusted tax basis of such Common Stock. To the extent that such
dividends exceed the adjusted tax basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to tax liability if the Non-U.S. Stockholder
would otherwise be subject to tax on gain from the sale or disposition of
his Common Stock in the Company, as described below. Because it cannot be
determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and
profits, the distributions generally will be subject to withholding at the
same rate as if distributed from earnings. However, amounts thus withheld
are refundable to a stockholder if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company. A Non-U.S. Stockholder will be solely responsible,
at his or her expense, to file a U.S. tax return claiming a refund of
over-withheld tax.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of a United
States real property interest will be taxed to a Non-U.S. Stockholder under
the provisions of the foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed as if such gain were
"effectively connected" with a United States business. Non-U.S. Stockholders
would thus be taxed at the normal capital gain rates applicable to U.S.
Stockholders (subject to the applicable alternative minimum tax and a special
alternative minimum tax for nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty
exemption. The Company is required by applicable Treasury Regulations to
withhold 35% of any distribution that could be designated by the Company as
a capital gains dividend regardless of the amount actually designated as a
capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability. A refund may be available if the amount
exceeds the Non-U.S. Stockholder's federal tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% of the value of the Common Stock was
held directly or indirectly by foreign persons. If the Company were not a
domestically controlled REIT, sales of shares generally would not be taxed
under FIRPTA so long as (i) the Company's stock is regularly traded on an
established securities market (as defined in applicable Treasury Regulations)
and (ii) the Non-U.S. Stockholder owns less than 5% of the Company's Common
Stock. It is currently anticipated that the Company will be a "domestically
controlled REIT," and therefore the sale of Common Stock will not be subject
to taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable
to a Non-U.S. Stockholder if (i) the investment in the Common Stock is
effectively connected with the Non-U.S. Stockholder's United States trade or
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business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and (a) such gain is
attributable to an office or fixed place of business in the United States or
(b) such nonresident alien individual has a "tax home" in the United States,
and such gain is not attributable to an office or fixed place of business
located outside the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of Common Stock were to be subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as
U.S. Stockholders with respect to such gain (subject to the applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals).
STATEMENT OF STOCK OWNERSHIP
The Company is required to demand annual written statements of actual
stock ownership of the Shares from the record holders of one-half percent,
one percent or five percent of its stock depending on whether the Company
has 200 or fewer record Shareholders, 201 to 2000 record Shareholders, or
more than 2000 record Shareholders, respectively. The Company must also
maintain, within the Internal Revenue District in which it is required to
file its federal income tax return, permanent records showing the information
it has received as to the actual ownership of such Shares and a list of
those persons failing or refusing to comply with such demand.
TAX LAW CHANGES
The anticipated income tax treatment described in this Prospectus may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time.
STATE AND LOCAL TAXES
The tax treatment of the Company and its Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. It is possible that some jurisdictions will impose a tax
liability on the Company if it operates in such states, thereby reducing the
economic return to Shareholders. Accordingly, no discussion of state taxation
of the Company, the Shares, or the Shareholders is provided herein, nor is
any representation made as to the tax status of the Company, the Shares or
the Shareholders in such states. Each Shareholder should consult his own
tax advisor as to that status of the Shares under the respective state tax
laws applicable to him.
ERISA CONSIDERATIONS
In considering an investment in the Company of a portion of the assets of
a qualified pension, profit sharing, stock bonus, or other employee benefit
plan trust subject to ERISA, a fiduciary, taking into account the facts and
circumstances of each trust, should also consider, among other matters, (i)
what assets will be deemed to constitute "plan assets" for purposes of ERISA
and the Code, particularly under the plan asset regulation (described below),
and (ii) whether the investment satisfies the standards of fiduciary conduct
prescribed by ERISA including, among other matters, the requirements that
the plan's investments be appropriately diversified, and be prudent,
considering the nature of an investment in, and the compensation structure
of, the Company; the fact that the Company has a limited history of
operations; and the fact that, except for investments from a prior offering
of Shares as described in "Real Property Investments", the specific
Properties which are to be invested in have not been identified as of the
date of this Prospectus. The prudence of a particular investment must be
determined by the fiduciary (usually the trustee or investment manager) with
respect to each employee benefit plan who is responsible for controlling,
managing and investing plan assets which are to be invested in this
investment, taking into account all of the facts and circumstances of the
investment.
Section 406 of ERISA and Section 4975 of the Code prohibits certain
transactions, involving assets of an employee benefit plan subject to ERISA
or described in Section 4975 of the Code (which excludes
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governmental plans and church plans) ("Benefit Plan"), between the Benefit
Plan and any party in interest or qualified person with respect to the
Benefit Plan. Neither ERISA nor the Code defines the term "plan assets."
However, the Department of Labor has issued a final regulation (29 C.F.R.
Section 2510.3-101) defining the term "plan assets" (the "plan assets
regulation") for purposes of Subtitle A, and Parts 1 and 4 of Subtitle B, of
Title I of ERISA and Section 4975 of the Code. The plan asset regulation
provides that assets of a Benefit Plan will not include the assets of an
equity in which the Benefit Plan invests if the entity (or the interests
therein) satisfies at least one of the sets of criteria contained in the
plan asset regulation.
Under the plan asset regulation, the assets of a Benefit Plan will not
include underlying assets of entities in which the Benefit Plan invests if
the interests in the equity the Benefit Plan acquires are "publicly offered
securities." A publicly-offered security is a security that is (1) part of a
class of securities that is widely held, (2) freely transferable, and (3) sold
as part of a public offering registered under the Securities Act of 1933 and
part of a class of securities registered under the Securities Exchange Act of
1934 within 120 days (or such later time as may be allowed by the Securities
and Exchange Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. A class
of securities is widely held if it is owned by 100 or more persons who are
independent of the issuer and of one another. Whether a security is freely
transferable is a factual question to be determined on the basis of all
relevant facts and circumstances. The preamble to the plan asset regulation
suggests that one factor to be considered in determining whether a security
is freely transferable is whether the investor has a reasonable opportunity
to liquidate its investment. The plan asset regulation provides that where
the minimum investment in a public offering of securities is $10,000 or less,
the presence of certain restrictions enumerated in the plan asset regulation
(the "permissible restrictions") designed to permit entities to comply with
applicable federal or state laws and to meet reasonable administrative needs
ordinarily will not affect a determination that such securities are freely
transferable.
As of March 25, 1996, there are 1,413,664 Shares of the Company
outstanding, held by 1,094 Shareholders. These Shares were sold pursuant to a
Registration Statement under the Securities Act of 1933. The purchase price
per Share pursuant to this offering is $10.00. The minimum offering is 25,000
Shares ($250,000), and the minimum purchase for an investor is 100 Shares
($1,000). Although they have no present intention to do so, the Advisor and
its Affiliates may purchase Shares pursuant to this offering. It is assumed,
therefore, that the Shares are part of a class of securities that is
widely-held.
The Shares will generally be transferable. However, the Company has the
power to redeem or prohibit the transfer of the Shares to the extent necessary
to prevent the Company from failing to satisfy the requirements of
qualification as a REIT under the Code, which requirements tend to enhance,
not limit, the dissemination of REIT stock. See "Tax Consequences." One of
the permissible restrictions under the plan asset regulation that will not
ordinarily affect a finding that securities are freely transferable is any
restriction on, or prohibition against, any transfer or assignment of a
security which would result in a termination or reclassification of the
entity for federal or state tax purposes. The restriction of transferability
of the Shares to prevent the Company's loss of status as a REIT for federal
tax purposes falls within this exception. Except as may be imposed by state
"blue sky" administrators, there are no other restrictions on the
transferability of the Shares. The Company intends to use a Crossing
Arrangement to match buy and sell orders for Shares.
The foregoing discussion is merely a summary of issues a Benefit Plan
fiduciary should evaluate when considering an investment in the Shares.
Benefit Plan fiduciaries are urged to consult their legal advisors before
investing Benefit Plan assets in the Shares.
DESCRIPTION OF COMMON STOCK
GENERAL. As of March 25, 1996, there are 1,413,664 Shares outstanding held
by 1,094 Shareholders. The Certificate of Incorporation authorizes the
Company to issue one class of Common Stock. The Shares being issued in this
offering all have the same rights, preferences, privileges and restrictions
as the issued and outstanding Shares. The Shares are entitled to one vote
per Share. The Advisor owns 22,505 Shares representing approximately 1.6% of
the voting power of the Company if the maximum amount of Shares is sold. AFG,
the Advisor and their Affiliates may also purchase Shares pursuant to this
offering, although they
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have undertaken not to acquire more than 35% of the total outstanding voting
shares at any time, in accordance with certain REIT qualification provisions
of the Code. The Shares will be fully paid and non-assessable by the Company
and may be represented by a share certificate or, at the option of the
holder, may be held in "uncertificated" form. There are currently 5,000,000
Shares authorized by the Company Organization Documents. The Company is not
precluded from issuing additional Shares after the issuance of the Shares
in this offering. The Company does not intend to issue any equity securities
which would be senior in right and preference to the Shares, and has no
authority to do so without the affirmative vote of a majority of its
outstanding voting stock. The public offering price of the Shares was
determined arbitrarily by the Directors of the Company.
REDEMPTION AND PROHIBITION OF TRANSFER OF SHARES. For the Company to qualify
as a REIT under the Code, not more than 50% of its outstanding shares may
be owned by five or fewer individuals during the last half of a taxable year,
and the shares must be owned by 100 or more persons during at least 335 days
of a taxable year of twelve months or during a proportionate part of a shorter
taxable year. See "Tax Consequences." In order to meet these requirements, the
Company has the power to redeem a sufficient number of Shares in order to
maintain or bring the ownership of the Shares into conformity with these
requirements, and to prohibit the transfer of Shares to persons whose
acquisitions would result in a violation of these requirements. The price to
be paid in the event of the redemption of Shares will be the fair market
value as reflected in the latest quotations, if any, or, if no quotations
are available, as determined in good faith by the Directors. The effect of
these requirements is to generally limit direct and indirect ownership of
the shares by each of the five largest Shareholders to no more than 9.9% of
the outstanding shares per holder.
SUMMARY OF ORGANIZATION DOCUMENTS
The following is a brief summary of certain provisions of the
Organization Documents (which are the Company's Certificate of Incorporation
and Bylaws) not described elsewhere in this Prospectus. The summary is,
however, qualified in its entirety by the detailed information set forth in
the Organization Documents and the Advisory Agreement, each of which is filed
as an exhibit to the Registration Statement.
DIRECTORS. The Company's Bylaws provide that the number of Directors may be
fixed from time to time by the Directors of the Company, with a minimum of
three and a maximum of five, a majority of whom must be Independent
Directors. There are currently 5 Directors, including 3 Independent
Directors. Any Director may resign at any time and may be removed with or
without cause by the holders of a majority of the Shares, or for cause by a
majority of the remaining Directors.
The Directors may in their discretion issue Shares for the consideration
and on the terms as they may deem advisable. The Directors may issue debt
obligations with conversion privileges whereby the holders of the debt
obligations may acquire Shares. The Directors also may issue warrants,
options and rights to buy Shares as a part of a ratable issue to
Shareholders, as part of a public offering, or as part of a financial
arrangement with parties other than the Advisor or directors, officers or
employees of the Company or the Advisor, subject to certain limitations on
the total amount of such warrants or options and on their exercise prices.
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS. Under its Certificate of Incorporation and Bylaws and pursuant
to indemnification agreements, the Company will limit the liability of and
indemnify its Directors, officers, employees and other agents against all
liabilities incurred in connection with their serving in those capacities.
Therefore, Shareholders have a limited right of action against such persons,
as permitted by Delaware law.
Consistent with the duties and obligations of, and limitations on, the
Directors and under Delaware law, the Directors are accountable to the
Company and the Shareholders as fiduciaries and are required to perform
their duties in good faith in a manner which each Director believes to be in
or not opposed to the best interests of the Company and the Shareholders and
with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances. However,
the Organizational Documents and the Advisory Agreement provide that the
officers, employees, agents, Directors, the
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Advisor and their Affiliates will be indemnified against certain liabilities
incurred in connection with serving in such capacities limiting the personal
liability of Directors of the Company to the Company or its Shareholders for
monetary damages for breach of fiduciary duty if such persons were acting in
good faith and in the best interests of the Company and were performing
services or acting on behalf of the Company. Such persons will not be
indemnified for conduct which is found to be negligent, or misconduct,
except for Independent Directors who will not be indemnified for conduct
which is found to be grossly negligent or willful misconduct.
No indemnification will be provided to any agent on account of conduct
which is found to be negligent, or misconduct. In addition, no indemnification
will be provided if a court determines that such indemnification is not
lawful. Notwithstanding anything to the contrary above, the Directors,
Advisors or Affiliates and any persons acting as a broker-dealer shall not
be indemnified by the Company for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state securities
laws by such party unless one or more of the following conditions are met
(i) There has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee,
(ii) Such claims have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee, (iii) A court of
competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
the related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and
Exchange Commission and of the published position of any state securities
regulatory authority in which securities of the Company were offered or sold
as to indemnification for violations of securities laws. Any
indemnification is recoverable only out of the Company's assets and not from
Shareholders.
The Bylaw provision and the indemnification agreements are not intended
to deny or otherwise limit third party or derivative suits against the
Company or its agents, but to the extent an agent is entitled to
indemnification, the financial burden of a third party suit would be borne
by the Company, and the Company would not benefit from derivative recoveries
against such person.
The Directors have obtained insurance payable by the Company in
reasonable amounts against losses arising from tort claims or other claims
which may be made against a Director, officer, employee, agent or
Shareholder of the Company.
TRANSACTIONS WITH AFFILIATES. The Company's Bylaws impose certain other
restrictions upon dealings between the Company and the Advisor, any Director
or Affiliates thereof. In particular, the Company may not:
(i) purchase real property from the Advisor, any Director or Affiliates
thereof, unless a majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in such transaction
determines that such transaction is fair and reasonable to the Company and
such transaction is at a price to the Company no greater than the cost of
the asset to the Advisor, a Director or an Affiliate thereof, as the case
may be, or if the price to the Company is in excess of such cost, that
substantial justification exists and such excess is not unreasonable. In no
event shall the cost of such asset to the Company exceed its current
Appraised Value;
(ii) make loans to the Advisor, any Director or Affiliates thereof;
(iii) borrow money from the Advisor, any Director or Affiliates thereof
unless a majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transaction determines that such
transaction is fair, competitive and commercially reasonable and no less
favorable to the Company than would have been obtained between unaffiliated
lenders and borrowers under the same or similar circumstances;
(iv) invest in joint ventures with the Advisor, any Director or
Affiliates thereof, unless a majority of the Directors (including a majority
of the Independent Directors) not otherwise interested in such transaction
determines that the transaction is fair and reasonable to the Company and
is on substantially the same terms and conditions as would have been
obtained with unaffiliated joint venturers; and
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(v) enter into any other transaction with the Advisor, any Director or
Affiliates thereof, unless a majority of the Directors (including a majority
of the Independent Directors) not otherwise interested in such transaction
determines that the transaction is fair and reasonable to the Company and is
on terms and conditions no less favorable than would have been obtained from
unaffiliated third parties and that payments to the Directors of the Company
or to the Advisor, or its Affiliates, for services rendered in a capacity
other than as Directors or as Advisor are not in excess of their current
compensation for comparable services and are not greater than charges for
comparable services from competent unaffiliated third parties.
No Properties of the Company may be sold to the Advisor, AFG, any
Director or any Affiliate of any of the foregoing.
SHAREHOLDER LIMITED LIABILITY. Under Delaware general corporate law, a
Shareholder's liability for claims made against the Company will be limited
to the extent of the Shareholder's investment. However, a Shareholder may
have an obligation to return Dividends under certain limited circumstances.
See "Investment Policies and Objectives -- Dividends."
REPORTS TO SHAREHOLDERS AND RIGHTS OF EXAMINATION. Within 120 days following
the close of each fiscal year, and at least 30 days before the date of the
Company's annual meeting of Shareholders, an annual report of the affairs of
the Company will be provided to the Shareholders, containing a balance sheet,
income statement, statement of changes in Shareholders' equity, and a
statement of cash flows prepared on an accrual basis in accordance with
generally accepted accounting principles with a reconciliation with respect
to information furnished to Shareholders for tax purposes and audited by an
independent certified public accountant. The Company must also report
annually on fees, commissions and other compensation paid to or earned by
the Advisor, the Directors or their Affiliates during the year and must
fully disclose all material terms, factors and circumstances surrounding
any and all transactions involving the Company and the Directors, the Advisor
or their Affiliates during the year, with the Independent Directors examining
and commenting in the report as to the fairness of any such transactions.
The Company's Annual Report will contain such disclosures. The Company will
also provide Shareholders quarterly financial statements in the form
specified by Form 10-Q promulgated by the Securities and Exchange Commission
within 60 days after the close of each of the Company's first three fiscal
quarters. The Company will provide a proxy statement in connection with the
annual meeting. Shareholders of the Company have the right under Delaware
law to inspect the Shareholder list and other books and records of the
Company for a proper purpose.
RESTRICTIONS ON INVESTMENTS. The Bylaws prohibit investments in (i)
commodities or commodity future contracts; (ii) short sales; and (iii)
any security in any company holding investments or engaging in activities
prohibited by the Company's Bylaws.
In addition to other investment restrictions imposed by the Directors
from time to time consistent with the Company's objective to qualify as
a REIT, the Company will observe the following restrictions on its
investments as set forth in its Bylaws:
(i) Not more than 10% of the Company's total assets will be invested in
unimproved real property or indebtedness secured by a deed of trust or
mortgage loans on unimproved real property.
(ii) The Company may not invest in real estate contracts of sale.
(iii) The Company may not invest in the equity securities of any non-
governmental issuer, including other real estate investment trusts or limited
partnerships, for a period in excess of 18 months although it may repurchase
and retire its own shares. Investments otherwise permitted hereunder in
entities affiliated with the Advisor, any Director or Affiliates thereof are
subject to the restrictions on joint venture investment. See "Transactions
with Affiliates" above.
(iv) The Company has no present intention of investing in any type of
debt; however, if the Company invests in debt, it may not invest in
indebtedness, including construction loans (herein called "junior debt")
secured by a mortgage on real property which is subordinate to the lien of
other indebtedness (herein called "senior debt") unless (a) the total amount
of such junior debt, plus the outstanding amount of senior debt, does not
exceed 85% of the appraised value of the property; (b) the senior debt is
held by a person other than
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any Director, the Advisor, or one of their Affiliates; and (c) the total
junior debt investments of the Company will not exceed 25% of the Company's
assets. The Company, however, may make junior debt investments which do not
meet the 85% limitation above; provided, however, that the aggregate of
such investment would be limited to 10% of the Company's assets (which would
be included in the 25% limitation).
These investment restrictions cannot be changed except by an amendment
to the Bylaws approved by the holders of a majority of the outstanding
Shares.
OTHER RESTRICTIONS. The Company's Bylaws contain other restrictions on its
activities, including restrictions regarding the aggregate amount of
indebtedness the Company may incur, restrictions upon the type of securities
the Company may issue, and restrictions against engaging in certain
activities.
With respect to the incurrence of indebtedness, the Bylaws provide that
the Company may not incur secured indebtedness such that the Company's
aggregate secured borrowings exceed 50 % of the aggregate Purchase Price of
the Company's Properties (the amount of any single Property's secured
indebtedness may not exceed 80% of the purchase price of that specific
Property) or, if a Property is financed or refinanced, 50% of the appraised
value of such Property when financed or refinanced; and, the Bylaws further
provide that the Company may not incur, in addition to the secured
borrowings described above, unsecured borrowings in excess of 20% of the
Invested Assets of the Company, in the absence of a showing that a higher
level of borrowing is appropriate and an approval by the Independent
Directors of borrowing in excess of that limit. In no event, however, may
the Company incur total indebtedness in excess of 300% of Invested Assets.
The aggregate borrowings of the Company, secured and unsecured, shall in all
respects be reasonable in relation to the net assets of the Company, and the
level of such aggregate borrowings shall be reviewed by the Directors at
least quarterly. The 20% limitation of unsecured borrowings allows the
Company the flexibility of borrowing additional funds on an unsecured basis
for any emergencies or contingencies which may occur and for which the
Working Capital Reserve is not sufficient.
The Bylaws also prohibit the issuance by the Company of (i) equity
securities redeemable at the option of holder, (ii) securities on a deferred-
payment basis, or (iii) warrants or options exercisable for securities,
except in compliance with certain provisions of the Bylaws.
Additionally, the Bylaws prohibit the Company from engaging in the
trading (as compared with investment activities), underwriting or agency
distribution of securities issued by others, from issuing debt securities
in the absence of adequate cash flow to cover debt service and from holding
property primarily for sale to customers in the ordinary course of the trade
or business.
These restrictions cannot be changed except by an amendment to the
Bylaws approved by the Shareholders holding a majority of the outstanding
Shares.
AMENDMENTS. The Organization Documents may be amended by the affirmative
vote of the holders of a majority of the outstanding Shares. In addition, a
majority of the Directors may, without the approval or consent of the
Shareholders, adopt any amendment to the Bylaws which they in good faith
determine to be necessary to conform the Bylaws to the requirements of the
REIT provisions of the Code, the requirements imposed by the securities
administrator of any state in which the Shares are being offered and any
other applicable laws or regulations.
MEETINGS OF SHAREHOLDERS AND VOTING. The annual meeting of the Shareholders
will be held on the first Tuesday of June in each year, and special meetings
may be called by the Chairman, the President, the Board of Directors, or by
one or more Shareholders holding not less than ten percent (10%) of the
voting power of the Company. At any meeting of Shareholders, each
Shareholder is entitled to one vote for each Share. In addition to the
matters discussed under "Amendments" above, the Shareholders are entitled to
decide the following matters by a majority vote of the Shares at a meeting at
which a quorum is present, or by the written consent of a majority of the
outstanding Shares without a meeting: (I) the election or removal of
Directors; (ii) increase or decrease the number of Directors (between three
and five); (iii) termination of the Advisory Agreement upon 60 days' notice;
(iv) ratification of any transaction between the Company and any Affiliate of
the Company; and (v) any amendment to the Certificate of Incorporation. The
Directors or the Independent Directors may also make certain of these
decisions without Shareholder approval.
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WHO SHOULD INVEST
SUITABILITY STANDARDS
The Shares will only be sold to an investor who represents in writing
that the investor has either (i) a net worth (exclusive of home, home
furnishings and automobiles) of at least $30,000 and estimates that the
investor will have gross income during the current year of at least $30,000;
or (ii) a net worth of $75,000 (determined with the same exclusions); or
(iii) that the investor is purchasing in a fiduciary capacity for a person
or entity meeting such conditions. In the case of sales to fiduciary
accounts, such conditions must be met by the fiduciary, by the fiduciary
account, or by the donor who directly or indirectly supplies the funds for
the purchase of the Units. If sales are made to fiduciary accounts in the
State of California, the suitability requirements must be met by each
beneficiary of the fiduciary account; provided however, if the only
beneficiaries of the fiduciary account are the donor's ancestors,
descendants or spouse, the suitability standards may be met by the donor
to the fiduciary account. If the fiduciary is the donor of the funds for
investment, the suitability requirements may be met by the fiduciary.
The minimum number of Shares which an investor may initially purchase
is 100 ($1,000).
The Selling Agreement between the Company and the Selling Agent requires
the Selling Agent and Selected Dealers to diligently make inquiries as
required by law of all prospective purchasers of Shares in order to
ascertain whether such purchase is suitable for such person, and to
promptly transmit to the Company a fully completed and duly executed
Subscription Agreement and funds concurrently therewith.
Certain states in which it is contemplated the Company will apply to
have the Shares qualified or registered for sale may establish suitability
standards and minimum purchase requirements different from those set by the
Company. In the event that such suitability and minimum purchase standards
are higher than those set by the Company, such facts are set forth below or
will be set forth in a sticker or supplement to the Prospectus. Unless
otherwise so indicated, those states in which the Company is authorized to
sell its securities have minimum investment requirements and investor
suitability standards which come within the standards established by the
Company.
Shares will be sold to investors in the state of Arizona, who represent
in writing that the investor has either (i) a net worth (exclusive of home,
home furnishings and automobiles) of $45,000 and estimates that the investor
will have gross income during the current year of at least $45,000; or (ii)
a net worth of $150,000 (determined with the same exclusions); or (iii)
that the investor is purchasing in a fiduciary capacity for a person or
entity meeting such conditions. In the case of sales to fiduciary accounts,
such conditions must be met by the fiduciary, by the fiduciary account, or
by the donor who directly or indirectly supplies the funds for the purchase
of the Units.
HOW TO SUBSCRIBE
An investor who meets the qualifications set forth above may subscribe
to acquire Shares by executing a Subscription Agreement. By subscribing for
Shares, each investor will be deemed to have made all of the representations
contained in the Subscription Agreement and will be bound by all of the
terms of the Subscription Agreement.
The Company shall finally accept or reject subscriptions within 30 days
after the Company has received subscriptions (but the admission of an
investor to the Company shall be subject to acceptance of subscriptions for
the minimum number of Shares).
PLAN OF DISTRIBUTION
A maximum of 1,500,000 Shares are offered through Associated Securities
Corp., (a member of the National Association of Securities Dealers, Inc.
("NASD")), a wholly owned subsidiary of AFG, as Selling Agent of the Shares
pursuant to a Selling Agreement. The Company is offering the Shares through
the Selling Agent and other Selected Dealers who are members of the NASD. The
Shares are being sold on a best efforts,
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minimum-maximum basis which means that the Selling Agent and other Selected
Dealers are not obligated to purchase any Shares but are only required to use
their best efforts to sell Shares to investors.
The Selling Agent and Selected Dealers will be paid a sales commission 7%
by the Company of the $10.00 per Share offering price on all Shares sold by
the Selling Agent or Selected Dealers. The Selling Agent will also receive 1%
of the $10.00 per Share offering price for wholesaling compensation and .5%
of the $10.00 per Share offering price from the Company for bona fide due
diligence expenses. Shares may be purchased without payment of any sales
commissions by current or retired employees, officers and directors of the
Company, the Advisor, the Selling Agent and Selected Dealers and their
registered representatives and any of their Affiliates (and the families of
any of the foregoing) and trust or employee benefit plans established
exclusively for the benefit of such Persons.
Notwithstanding the foregoing, no sales commission will be paid to the
Selling Agent or Selected Dealers when qualified pension plans, profit
sharing plans, Keogh plans, or individual retirement accounts purchase a
minimum of $500,000 of Shares. Such investors will purchase Shares at $9.30
per Share and the net proceeds to the Company will not be affected.
Subscriptions for Shares will not be aggregated or combined unless the
Shares will be owned by, or for the benefit of, a single Person's pension
plan, profit sharing plan, Keogh plan and/or individual retirement account.
In addition, if a registered investment advisor is receiving a fee for
receiving investment advice regarding an investment in the Company's Shares,
the Company will not pay a sales commission to the registered investment
adviser for the sale of such Shares.
In addition to the sales commission, the Company will pay to the Selling
Agent and Selected Dealers an annual monitoring fee (the "Monitoring Fee")
with respect to all Shares sold to clients of the Selling Agent or Selected
Dealers on each April 15 commencing on April 15, 1997 in an amount equal
to .15% of the gross proceeds of all such Shares. Such fee may be payable
up to a maximum of eleven years. No portion of the Monitoring Fee for any
year shall accrue in, or be payable for, such year in which the Company is
liquidated or the Shares become publicly traded. Notwithstanding the
foregoing, the Company shall not pay the portion of the Monitoring Fee for
any year which, if paid, would cause the total underwriting compensation
paid to the Selling Agent and Selected Dealers in connection with the
offering, including sales commissions, wholesaling compensation and all
Monitoring Fees, to be equal to or to exceed 10% of the gross proceeds.
The Advisor will receive reimbursement for organization and offering
services performed by them in connection with this offering which consist of
expenses relating to the Company's organization and formation, for all legal,
accounting, due diligence, printing expenses and for all other expenses
relating to the registration, marketing and distribution of this offering,
other than retail sales commissions. This reimbursement expense allowance is
limited to cents per Share for each Share sold up to an aggregate of $500,000
and may be nonaccountable to the extent that such nonaccountable expenses do
not exceed 3% of the gross offering proceeds. All such expenses in excess of
this limit will be borne by the Advisor.
The total payments made by the Company or any of its Affiliates to the
Advisor, Selling Agent and the Selected Dealers in connection with this
offering, including all Offering and Organization Expenses, will not exceed
14.5% of the gross proceeds obtained from the sale of Shares.
The Selling Agreement, which may be terminated by the Company on 60 days'
notice without penalty, contains cross-indemnity clauses with respect to
certain liabilities between the Company and the Selling Agent, including
liabilities under the Securities Act of 1933. The indemnities of the Company
inure to the benefit of all Selected Dealers participating in the offering.
Selected Dealers participating in this offering may be deemed to be
"underwriters" as that term is defined in the Securities Act of 1933.
ESCROW ARRANGEMENTS. Commencing on the date of this Prospectus and until
the minimum offering of Shares is completed, all funds received by the
Company in payment of subscriptions for Shares will be placed in an
interest-bearing escrow account with an office of City National Bank, as
escrow agent, and may be invested in short-term negotiable government
obligations, an interest-bearing account at the escrow agent, and other
similar investments consistent with the requirements of Rule 15c2-4,
pursuant to the Securities Exchange Act of 1934, and Notice to Member 84-7,
issued January 30, 1984, by the NASD, and subject to the direction of the
Company. Accrued interest will be paid by the Company to those Subscribers
whose funds are paid into the escrow account 30 days after the escrow period
ends and computed from the date each investor's subscription payment is
collected in the escrow account. The escrow will remain open until the
earliest to occur of the following: receipt by City National Bank of the
Subscription Price for at least 25,000 shares, or September 30, 1996,
whichever occurs first. Following the release funds from the minimum
offering of Shares, additional funds received by the Company from
prospective investors will continue to be placed in the escrow account
during the offering and the Company will issue Shares periodically (but not
less often than quarterly) as agreed between the Company and the Selling
Agent.
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AFG, the Advisor or any Affiliate may purchase as many Shares as they
wish (provided that their collective holdings do not exceed 35% of the
Shares), but presently have no intention to purchase any Shares. Shares
purchased by AFG, the Advisor or any Affiliate shall be only for investment
and without present intention to resell, and shall only be purchased on the
same terms and conditions on which the Shares are offered to the public,
except that no sales commissions shall be payable upon any such purchase of
Shares. Any Shares purchased by AFG, the Advisor or any Affiliate may be
included in satisfying the minimum offering requirement.
Investors will be issued Shares not later than the last calendar day of
the month following the month in which funds are released from the escrow
account to the Company.
OFFERING PERIOD. If the Company does not terminate this offering earlier,
the offering of Shares will continue until the earlier of 24 months from the
initial date of this Prospectus or 1,500,000 Shares are sold.
METHOD OF SUBSCRIPTION. To purchase Shares, an investor must complete and
execute an application to purchase Shares as set forth in the Subscription
Agreement included with this Prospectus. Shares will only be sold to an
investor who makes a minimum purchase of 100 Shares ($1,000). Additional
Shares may only be purchased in 10-Share ($100) increments, except that
smaller increments will be made available for Dividend Reinvestment Plans,
IRA and Keogh plan rollovers. Any purchase of Shares must be accompanied by
tender of the full sum of $10.00 per Share for each Share purchased. Once
the subscription is submitted to the Company, the investor will not have a
right to revoke the subscription. Subscriptions will be accepted or
rejected by the Company within 30 days after the receipt by the escrow
agent of the purchase price. If the subscription is rejected for any reason,
the investor's subscription will be promptly returned without interest.
TRANSFERABILITY; CROSSING ARRANGEMENT. Except under certain circumstances as
set forth in "Redemption and Prohibition of Transfer of Shares" above, there
are no restrictions on transfer of the Shares; however, a market is unlikely
to develop during this offering and there can be no assurance that a market
will therefore develop for the Shares. However, the Company intends to use
a Crossing Arrangement pursuant to which Associated Securities Corp. (the
"Crossing Agent"), an Affiliate of AFG, will match buy and sell orders for
Shares at negotiated commissions or markups. The Crossing Arrangement is
expected to continue for a period of approximately two years but may
continue longer.
Upon receipt of a sell order from a current Shareholder, the Crossing
Agent will arrange for the sale of the Shares to one or more persons who
have placed orders to purchase Shares either through the Crossing
Arrangement or through the Dividend Reinvestment Plan. Neither the Company
nor the Crossing Agent can guarantee that sales of Shares will be effected
through this Crossing Arrangement. The Crossing Agent will not solicit sell
orders from any existing Shareholder.
Shareholders who wish to sell their Shares through this Crossing
Arrangement should contact the Company directly, at the following address or
telephone number:
5933 W. Century Boulevard, Ninth Floor
Los Angeles, California 90045
(310) 337-9700
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There is no requirement that Shareholders utilize the services of the
Crossing Agent in the sale of their Shares. Other broker-dealers may offer
similar services to selling Shareholders, and there can be no assurance that
the price per Share received from the Crossing Agent will be the best
possible price. The Company may, from time to time, change the terms of the
crossing arrangement in such fashion as it believes appropriate.
The Company may apply for quotation of the Shares on the NASDAQ System,
but there can be no assurance that it will apply, that the application will
be approved or that an active public trading market for the Shares will
thereafter develop. See "Risk Factors -- Limited Transferability."
West Coast Realty Advisors, Inc. is the transfer agent and registrar for
the Shares. The actual issuance of a stock certificate evidencing the Shares
is optional under the transfer agent's system. IRA and Keogh Account
investors will not be issued share certificates. Shareholders who do not
elect to receive a stock certificate will own Shares in "uncertificated"
form, and will be treated in the same manner as Shareholders who elect to
receive a stock certificate. Owning Shares in an "uncertificated" form will
(a) eliminate the physical handling and safekeeping responsibilities
inherent in owning transferable stock certificates, and (b) eliminate the
need to return a duly executed stock certificate to the transfer agent to
effect a transfer. Transfers can be effected simply by mailing a duly
executed stock power to the transfer agent.
DIVIDEND REINVESTMENT PLAN. The fund has established a Dividend Reinvestment
Plan (the "Plan") which is designed to enable Shareholders to have Dividends
automatically invested in Shares of the Company. In order to participate in
the Plan, investors must designate in the Subscription Agreement received
with this Prospectus the manner in which they would like their Dividends
reinvested. Shareholders may elect to participate in the Plan at any time.
If a Shareholder does not indicate a Dividend reinvestment option, Dividends
will be paid to such Shareholder in cash.
Associated Securities Corp. will act as the Plan's agent (the "Agent")
for participating Shareholders. During this offering, the Agent will purchase
Shares for participating Shareholders from the Selling Agent at a price
of $10.00 per Share. Of the Shares being offered by this Prospectus, one
hundred thousand shares have been reserved for the Crossing Arrangement and
the Plan.
From the completion of this offering until the Shares are quoted on the
NASDAQ System, the Agent will receive any cash Dividends payable to the
participating Shareholders and use these amounts to purchase Shares for
participants through the Crossing Agent who will match the Shares owned by
Shareholders who wish to sell, with purchases to be made by the Plan. The
Plan will not pay in excess of $9.30 per Share to the Crossing Agent. If an
insufficient number of Shares are presented for sale to the Plan at an
acceptable price, the purchases for the participants will be made either pro
rata or by lot and the remaining amount of cash Dividends not used to
purchase Shares will be returned to the appropriate Shareholders.
If listed on the NASDAQ System, the Agent will purchase Shares for
participants in the over-the-counter trading market at negotiated commissions
or markups, to the extent Shares are available. Purchases will generally be
made within 30 days after the funds are received by the Agent, and pending
investment, funds temporarily will be held in non-interest bearing accounts
for administrative convenience. If Shares are not reasonably available in
the market during such period, the Agent will return a participating
Shareholder's pro rata portion of the remaining funds. If a participant's
Dividend is not large enough to buy a full Share, such participant will be
credited with a fractional Share computed to six decimal places. The Agent
will add the Shares purchased to each participant's capital account as
Shares in "uncertificated" form, unless the participant requests
certificates for full Shares in writing. The purchased Share(s) will then
participate in the Plan to the extent of any future Dividends. Participants
will have the right to vote all Shares held in their Plan accounts, whether
in certificates or uncertificated form.
Following each reinvestment under the Plan, each participant will be
sent a confirmation showing the amount of Dividends reinvested, the service
and any brokerage charges deducted, the number and price of Shares purchased,
and the balance of Shares held by the Agent in the participant's account
under the Plan. In addition, each participant will be provided annually
with tax information regarding the reinvestment of Dividends pursuant to
the Plan, including information with respect to income earned on Shares
under the Plan for each calendar year which will be shown on a Form 1099-DIV
United States Information Return.
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The Plan and the reinvestment of Dividends in additional Shares
thereunder has been structured to enable the Company to qualify as a REIT
under the applicable provisions of the Code. Therefore, any Dividends to
which a participating Shareholder is entitled will be taxable to the
Shareholder substantially to the same extent as if the Dividends had been
received in cash rather than reinvested in the Company. See "Tax
Consequences -- Requirements for Qualification as a REIT -- Distributions
to Shareholders."
Participation in the Plan will start with the next Dividend payable after
receipt of a participant's authorization. Copies of the Company's most current
Prospectus, during the period in which this offering is still in progress,
will be available to any Shareholder on written request to the Company at its
principal office.
A Shareholder's participation in the Plan will continue until terminated
by the Shareholder, the Company or the Agent. A Shareholder may terminate
participation in the Plan at any time by delivering written notice before the
record date for the next Dividend to the Agent at: 5933 W. Century Boulevard,
Ninth Floor, Los Angeles, California 90045. Within 30 days after notice of
termination, the Agent will send a confirmation to the participant evidencing
the whole and fractional Shares in such Shareholder's account. Any future
Dividends will then be paid directly to the Shareholder. The Company may
terminate the Plan for any reason by sending written notice to each
participating Shareholder at the address shown on the Agent's records.
The foregoing summary is qualified in its entirety by reference to the
Plan, a copy of which has been filed as an exhibit to the Registration
Statement. Experience under the Plan may indicate changes are desirable.
Accordingly, the Company reserves the right to amend any aspect of the Plan
effective with respect to any Dividend paid subsequent to notice of the change
sent to participants in the Plan at least 30 days prior to any Dividend record
date. The Company also reserves the right to change the Agent for any reason
at any time with like notice.
SALES MATERIAL
The Company may utilize certain sales material in connection with this
offering. In certain jurisdictions, sales material may not be available. This
material may include other material relating to the offering, property
brochures and articles and publications concerning real estate and REITs.
Other than a sales brochure which will accompany the Prospectus, the
Company has not authorized the use of sales material. This offering is made
only by means of this Prospectus. Although the information contained in sales
material does not conflict with any of the information contained in this
Prospectus, the sales material does not purport to be complete, and should not
be considered as part of this Prospectus or as incorporated in this Prospectus
by reference, or as forming the basis of this offering.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Gipson Hoffman & Pancione, a Professional Corporation, Los Angeles,
California. Gipson Hoffman & Pancione has also rendered an opinion with
respect to certain federal income tax matters as referred to under "Tax
Consequences."
EXPERTS
The financial statements and schedules of the Company included in this
Prospectus have been audited by BDO Seidman, LLP, and Hunnicutt Okamoto &
Associates, independent certified public accountants, to the extent and for
theperiods set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firms as experts in auditing and accounting.
FURTHER INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto which the Company has
filed with the Securities and Exchange Commission, 450
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Fifth Street, N.W., Washington, D.C. 20549, under the Securities Act of 1933,
and to which reference is hereby made. Copies of the exhibits are on file at
the offices of the Securities and Exchange Commission in Washington, D.C.
and may be obtained, upon payment of the fee prescribed by the Commission,
or may be examined without charge at the offices of the Commission.
GLOSSARY
"ACQUISITION EXPENSES" means all expenses, including but not limited to
legal fees and expenses, travel and communication expenses, costs of
appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance, and miscellaneous expenses
related to the selection and acquisition of properties, whether or not
acquired.
"ACQUISITION FEES" means all fees and commissions paid by any person to
any person in connection with the investigation, selection, purchase or
improvement of real estate by the Company, whether designated as a real
estate commission, selection fee, non-recurring management fee,
non-recurring start-up fee, construction fee, or any fee of a similar
nature, however designated, but not to include any fees or expenses paid to
any party upon financing or refinancing where the proceeds of such financing
or refinancing are not reinvested in real estate.
"ADJUSTED PRICE PER SHARE" means, with respect to the Shares, $10.00 per
share less all Dividends or other distributions paid out of Cash From Sales
or Refinancings of Properties; and adjusted for any stock split, Dividends in
Shares or combinations or reclassifications resulting in an increase or
decrease in the number of Shares outstanding.
"ADVISOR" means any Person whom the Company employs or appoints or with
whom the Company contracts under the provisions of Article VII hereof and who
is responsible for directing or performing the day-to-day business affairs
of the Company, including a person to which an Advisor subcontracts
substantially all said functions.
"ADVISORY AGREEMENT" means an agreement between the Company and its
Advisor that provides for the payment of any regular advisory or incentive
compensation, other than an agreement that provides for compensation based
only on the acquisition, disposition or refinancing of Company properties.
"ADVISORY FEE" means the fee paid to the Advisor for day-to-day advice
and services in managing and carrying on the business and operations of the
Company pursuant to the Advisory Agreement with the Company, as described in
"Compensation of Advisor and Affiliates."
"AFFILIATES" means an Affiliate of another Person includes any of the
following (a) any Person directly or indirectly controlling, controlled by or
under common control with such other Person, (b) any person directly or
indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities of such other Person, (c) any executive
officer, director, trustee or general partner of such other Person, (d) any
legal entity for which such Person acts as an officer, director, trustee or
partner, and (e) any Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with power
to vote by such other Person.
"AFG" means Associated Financial Group, Inc., the sponsor of the Company.
"ANNUAL REPORT" means the Annual Report distributed to shareholders
which shall contain financial statements prepared in accordance with
generally accepted accounting principles which are audited and reported
upon by independent certified public accountants.
"APPRAISAL" means the value of, as of the date of the Appraisal of real
property in its existing state or in a state to be created, as determined by
an Independent Expert. The Directors may in good faith rely on a previous
Appraisal made on behalf of other Persons, provided, (a) it meets these
standards and was made in connection with an investment in which the Company
acquires an entire or participating interest, or (b) it was prepared not
earlier than two years prior to the acquisition by the Company of its
interest in the real property. In appraising Properties, appraisers may take
into consideration each of the specific terms and conditions of a
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purchase, including any leaseback or other guarantee arrangement. An
Appraisal may not necessarily represent the cash value of the Property but
may consider the value of the income stream from the Property plus
discounted value of the fee interest, and other terms of the purchase.
"AVERAGE INVESTED ASSETS" means the average of the aggregate book value,
for any period, of the assets of the Company invested, directly or indirectly,
in equity interests in and loans secured by real estate, before reserves for
depreciation or bad debts or other similar non-cash reserves. Average Invested
Assets is computed by taking the average of such values at the end of each
month during such period.
"BYLAWS" means these Bylaws and all amendments, restatements, or
modifications thereof. References in these Bylaws to "herein," "hereof," and
"hereunder" shall be deemed to refer to these Bylaws and shall not be limited
to the particular text, article, or section in which such words appear.
"CASH AVAILABLE FOR DISTRIBUTION" means for any period cash from
operations (consisting of net income from operations plus depreciation and
amortization expenses) for such period.
"CASH FROM SALES OR REFINANCINGS" means net cash realized by the Company
from the Sale or Disposition of any Property after retirement of applicable
secured debt and the payment of all expenses related to the transaction. Cash
from Sales or Refinancings shall not include amounts withheld for Working
Capital Reserves.
"CERTIFICATE OF INCORPORATION" means the articles of incorporation for
the Company, as they may be amended from time to time, as filed with the
Delaware Secretary of State.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means West Coast Realty Investors, Inc.
"COMPETITIVE COMMISSION" means the real estate or brokerage commission
paid for the purchase or sale of a Property which is reasonable, customary
and competitive in light of the size, type and location of the Property.
"CONSTRUCTION FEE" means a fee or other remuneration for acting as
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or to provide major repairs or
rehabilitation on a Company's Property.
"CROSSING ARRANGEMENT" means the matching of buy orders and sell orders
of the Company's Shares at negotiated commissions or markups.
"DEVELOPMENT FEE" means a fee for the packaging of the Company's
Property, including negotiating and approving plans, and undertaking to
assist in obtaining zoning and necessary variances and necessary financing
for the specific Property, either initially or at a later date.
"DIRECTORS" means as of any particular time, the members of the board
of directors of the Company holding office at such time.
"DISTRIBUTION" means any dividend or other distribution of cash
distributed to anyone, including Shareholders, arising from their interests
in the Company.
"DIVIDEND" means any Distribution made to Shareholders arising from
their interests in the Company.
"INDEPENDENT DIRECTORS" means Directors of the Company who are not
associated and have not been associated within the last two years, directly
or indirectly, with the Advisor or Sponsor of the Company, (a) a Director
shall be deemed to be associated with the Sponsor or Advisor if he or she:
(i) owns an interest in the Sponsor, Advisor, or any of their Affiliates; or
(ii) is employed by the Sponsor, Advisor or any of their Affiliates; or
(iii) is an officer or director of the Sponsor, Advisor, or any of their
Affiliates; or (iv) performs services, other than as a Director, for the
Company; or (v) is a Director for more than three REITs organized by the
Sponsor or advised the Advisor; or (vi) has any material business or
professional relationship with the Sponsor, Advisor, or any of their
Affiliates; (b) for purposes of determining whether or not the business or
professional relationship is material, the gross revenue derived by the
prospective Independent Director from the Sponsor
70
<PAGE>
and Advisor and Affiliates shall be deemed material per se if it exceeds 5%
of the prospective Independent Directors (i) annual gross revenue, derived
from all sources, during either of the last two years; or (ii) net worth,
on a fair market value basis, (c) an indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or
sisters-in-law is or has been associated with the Sponsor, Advisor, any of
their Affiliates, or the Company.
"INDEPENDENT EXPERT" means a Person with no material current or prior
business or personal relationship with the Advisor or Directors who is engaged
to a substantial extent in the business of rendering opinions regarding the
value of assets of the type held by the Company.
"INVESTED ASSETS" means for any fiscal quarter, the total assets (other
than intangibles) of the Company valued at cost before deducting depreciation
or other noncash reserves, less liabilities. Invested assets is computed by
taking the average of such values at the end of each month during such
quarter.
"MONITORING FEE" means the annual fee paid by the Company to the Selling
Agent with respect to Shares sold to clients of the Selling Agent or Selected
Dealer in an amount equal to .15% of the gross proceeds from the sale of such
Shares, payable beginning on April 15, 1997 and on or before April 15 of each
succeeding year.
"NET INCOME" means for any period, the total revenues applicable to such
period, less expenses applicable to such period, other than additions to
reserves for depreciation or bad debts or other similar non-cash reserves. If
the Company's Advisor receives an incentive fee as provided in Section 8.3(l)
hereof, Net Income, for purposes of calculating Operating Expenses, shall
exclude the gain from the sale or disposition of the Company's assets.
"OFFERING PROCEEDS" means the total amount of proceeds received by the
Company pursuant to the sale of its Shares in any public offering of the
Company's Shares.
"OPERATING EXPENSES" means the aggregate annual expenses of every
character paid or incurred by the Company as determined in accordance with
generally accepted accounting principles, as determined by independent
accountants selected by the Directors, including regular and incentive
compensation payable to the Advisor, excluding, however, the following: (a)
the expenses of raising capital such as Organization and Offering Expenses,
legal, audit, underwriting, brokerage, listing, registration and other fees,
printing and such other expenses, and tax incurred in connection with the
issuance, distribution, transfer, registration, and stock exchange listing
of the Company's securities; (b) interest (i. e., the cost of money borrowed
by the Company; (c) taxes on income, taxes and assessments on real property
and all other taxes applicable to the Company; (d) subordinated incentive
fees based upon the excess of the sales prices of Properties over their
purchase prices as provided for in Section 8.3(l) of the bylaws; (e)
Acquisition Fees, Acquisition Expenses, real estate commissions on resale
of Property, and other expenses connected with the acquiring, financing,
refinancing, disposing of, maintaining, managing and owning real estate
equity interests, mortgage loans, or other property (including the costs of
foreclosure, insurance premiums, legal services, maintenance, repair and
improvement of property); and (f) non-cash expenditures (including
depreciation, amortization and bad debt reserve).
"ORGANIZATION AND OFFERING EXPENSES" means all the actual and necessary
expenses incurred by and to be paid from the assets of the Company in
connection with and in preparing the Company's securities for registration
and subsequently offering and distributing them to the public, including,
but not limited to, total underwriting and brokerage discount, the
Monitoring Fee and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, mailing, salaries, registrars,
trustees, escrow holders, depositaries, experts, expenses of qualification
of the sale of the securities under Federal and State laws, including taxes
and fees, accountants' and attorneys' fees.
"ORGANIZATION DOCUMENTS" means the Certificate of Incorporation and the
Bylaws of the Company.
"ORIGINAL INVESTED CAPITAL" means the total cash investment (either as a
down payment, mortgage reduction payment or capital expense) in a Property.
71
<PAGE>
"PERSON" means any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"PROPERTY" or "PROPERTIES" means all properties or any interest in an
property acquired directly or indirectly by the Company, including any direct
or indirect investment in any interest in land, leasehold interests, and
buildings, structures, improvements, fixtures, equipment and furnishings in
connection with land, leasehold interests and rights or interests in land,
whether equity or debt, or any entity, partnership or venture whose principal
purpose is to make any such investment or investments. Reference to a
"Property" shall be to any one of them.
"PROPERTY MANAGEMENT FEE" means the fee payable to West Coast Realty
Management, Inc., an Affiliate of the Advisor, or other entities for property
management services pursuant to a property management agreement.
"PROSPECTUS" means this Prospectus and any Supplements hereto.
"PURCHASE PRICE" means the amount actually paid or allocated to the
purchase, development, construction or improvement of a Property exclusive of
Acquisition Fees and Acquisition Expenses.
"REAL ESTATE COMMISSION" means the real estate brokerage commission
payable to the Advisor, Descolin Incorporated, or an Affiliate, upon sale of
a Property pursuant to the Advisory Agreement as described in "Compensation
of Advisor and Affiliates."
"REAL ESTATE INVESTMENT TRUST" or "REIT" means a real estate investment
trust, as defined in Part II, Subchapter M of Chapter 1 (Sections 856-860) of
the Code.
"REINVESTMENT PROCEEDS" means the amount of proceeds from the sale,
financing or refinancing of a Property used to acquire an additional Property.
"ROLLUP" means a transaction involving the acquisition, merger,
conversion or consolidation either directly or indirectly of the Company and
the issuance of securities of a Rollup Entity. Such term does not include (a)
a transaction involving securities of the Company that have been listed for
at least twelve months on a national securities exchange or traded through
the National Association of Securities Dealers Automated Quotation National
Market System or (b) a transaction involving the conversion to corporate,
trust or association form of only the Company if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following (i) the Shareholders' voting rights, (ii) the term of existence of
the Company, (iii) compensation to the Sponsor or Advisor, or (iv) the
Company's investment objectives.
"ROLLUP ENTITY" means a partnership, REIT, corporation, trust or other
entity that will be created or would survive after the successful completion
of a proposed Rollup transaction.
"RULING REQUEST" means the request made by the Company to the Internal
Revenue Service that West Coast Realty Management, Inc. is an independent
contractor.
"SALE OR DISPOSITION" means any: (i) disposition of a Company asset not
in the ordinary course of its business, including without limitation, sales,
exchanges or other dispositions of real or personal property; (ii)
condemnations; (iii) recovery of damage awards and insurance proceeds (other
than business or rental interruption insurance proceeds); or (iv) any
borrowings or mortgage financings or refinancings (other than any financing
upon the initial acquisition of Properties). The disposition of a Property
by transfer back to the seller or an Affiliate thereof, whether in the form
of a rescission, exchange or resale or pursuant to an option or an
arrangement entered into at or prior to the time of taking title to the
Property, shall not, if the proceeds from such transfer back are reinvested
in other Property, constitute a Sale or Disposition and shall not result in
Cash From Sales or Refinancings.
"SELECTED DEALERS" means members of the National Association of
Securities Dealers, Inc., participating in the offering. See "Plan of
Distribution."
"SELLING AGENT" means Associated Securities Corp.
"SHAREHOLDERS" means the beneficial holders of the Company's Shares.
72
<PAGE>
"SHARES" means shares of common stock of the Company.
"SPONSOR" means any person directly or indirectly instrumental in
organizing the Company, wholly or in part, or who will manage or participate
in the management of the Company and its Affiliates.
"SPONSOR" does not include any unaffiliated person whose only
relationship with the Company is that of an independent property manager
receiving compensation from the Company as such, and unaffiliated third
parties such as attorneys, tax preparers, accountants and underwriters whose
only compensation from the Company is for the professional services rendered
in connection with the offering of the Company's securities or the
operations of the Company. A person may also be a Sponsor of the Company by
(a) taking the initiative directly or indirectly in founding or organizing
the business or enterprise of the Company, either alone or in conjunction
with one or more other persons, (b) receiving a material participation in
the Company in connection with the founding or organization of the business
of the Company in consideration of services or property or both services and
property, (c) having a substantial number of relationships and contacts with
the Company, (d) possessing significant rights to control the Company's
properties, (e) receiving fees for providing services to the Company which
are paid on a basis that is not customary in the industry, or (f) providing
goods or services to the Company on a basis which was not negotiated at
arms' length with the Company.
"SUBORDINATED INCENTIVE FEE" means the fee payable to the Advisor
pursuant to the Advisory Agreement upon the sale, financing or refinancing
of a Property, as described in "Compensation of Advisor and Affiliates."
"TAXABLE INCOME" means the real estate investment trust taxable income
of the Company for federal income tax purposes, determined without regard
to the deduction for dividends paid and by excluding any net capital gain.
"UNIMPROVED REAL PROPERTY" means the real property which has the
following three characteristics: (a) An equity interest in real property
which was not acquired for the purpose of producing rental or other
operating income; (b) Has no development or construction in process on such
land; and (c) No development or construction on such land is planned in good
faith to commence on such land within one year.
"WCRM" means West Coast Realty Management, Inc.
"WORKING CAPITAL RESERVES" means cash reserves of the Company as needed
for normal operations, repairs, maintenance, and other contingencies.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
West Coast Realty Investors
Audited Financial Statements
Report of Independent Certified Public Accountants..................................... F-1
Balance Sheets as of December 31, 1995 and 1994........................................ F-2
Statements of Income for the years ended December 31, 1995, December 31, 1994
and December 31, 1993............................................................... F-3
Statements of Stockholders' Equity for the years ended December 31, 1995, December 31,
1994
and December 31, 1993............................................................... F-4
Statements of Cash Flows for the years ended December 31, 1995, December 31, 1994 and
December 31, 1993.................................................................... F-5
Summary of Accounting Policies......................................................... F-6
Notes to Financial Statements........................................................... F-8
Schedule III -- Real Estate and Accumulated Depreciation.................................. F-15
Schedule IV -- Mortgage Loans on Real Estate............................................... F-17
14661 Franklin Avenue Property
Report on Independent Certified Public Accountants....................................... F-18
Summary of Historical Information Relating to Operating Revenues and Specified Expenses.. F-19
Notes to Summary of Historical Information Relating to Operating Revenues and Specified
Expenses............................................................................... F-20
Estimated Twelve Month Pro Forma Statement of Taxable Operating Income (unaudited)....... F-21
Estimated Twelve Month Pro Forma Statement of Cash Available from Operations
(unaudited)........................................................................... F-21
Notes to Pro Forma Statements............................................................ F-22
Technology Drive Property
Report of Independent Certified Public Accountants....................................... F-23
Summary of Historical Information Relating to Operating Revenues and Specified Expenses.. F-24
Notes to Summary of Historical Information Relating to Operating Revenues and Specified
Expenses............................................................................... F-25
Estimated Twelve Month Pro Forma Statement of Taxable Operating Income (unaudited)....... F-26
Estimated Twelve Month Pro Forma Statement of Cash Available From Operations
(unaudited)............................................................................ F-26
Notes to Pro Forma Statements............................................................ F-27
West Coast Realty Investors, Inc.
Pro Forma Statement of income for the year ended December 31, 1995 (unaudited)........... F-28
Notes to Pro Forma Income Statement for year ended December 31, 1995 (unaudited)......... F-29
</TABLE>
74
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
West Coast Realty Investors, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of West Coast Realty
Investors, Inc., as of December 31, 1995 and 1994 and the related statements
of income, stockholders' equity, and cash flows for each of the years ended
December 31, 1995, 1994 and 1993. We have also audited the schedules listed
in the accompanying index. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules 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 and
schedules are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of West Coast Realty
Investors, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years ended December 31, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
Also in our opinion, the schedules present fairly, in all material
respects, the information set forth there.
As discussed in the summary of accounting policies, the Company changed
its method in accounting for investments in 1994 to conform with SFAS No. 115.
BDO SEIDMAN, LLP
Los Angeles, California
February 23, 1996
F-1
<PAGE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Rental properties, net of accumulated depreciation (Notes 2 and
3)............................................................ $19,650,165 $11,256,979
Cash and cash equivalents....................................... 1,450,022 495,829
Investment in government securities............................. --- 1,240,190
Accounts receivable............................................. 132,148 69,364
Loan origination fees, net of accumulated amortization of
$19,087 and $7,633............................................ 119,969 93,223
Other assets.................................................... 40,594 73,303
------------- -----------
Total assets.................................................... $21,392,898 $13,228,888
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable.............................................. $ 25,419 $ 14,688
Due to related party (Note 4)................................. 167,314 36,936
Dividends payable (Note 7).................................... 226,649 167,226
Security deposits............................................. 109,068 37,245
Other liabilities............................................. 90,431 55,298
Notes payable (Note 5)........................................ 9,539,180 5,161,355
-------------- -------------
Total liabilities............................................... 10,158,061 5,472,748
-------------- --------------
Commitments
Stockholders' equity
Common Stock, $.01 par -- shares authorized, 1,500,000; shares
issued, 1,322,404 and 911,986.............................. 13,224 9,120
Additional paid-in capital.................................... 11,771,030 8,141,447
Distributions in excess of earnings........................... (549,417) (394,427)
--------------- --------------
Total stockholders' equity...................................... 11,234,837 7,756,140
--------------- --------------
Total liabilities and stockholders' equity...................... $21,392,898 $13,228,888
=========== ===========
</TABLE>
F-2
<PAGE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
REVENUES:
Rental (Notes 2 and 3)............................ $1,692,176 $802,614 $324,835
Interest.......................................... 120,950 100,553 37,731
--------- ------- --------
1,813,126 903,167 362,566
--------- ------- --------
COSTS AND EXPENSES
Operating......................................... 169,679 96,637 25,004
Interest.......................................... 620,031 302,124 63,684
General and administrative........................ 117,667 70,890 67,211
Depreciation and amortization..................... 256,144 118,238 48,177
Loss on government securities..................... --- 68,210 --
---------- -------- -------
1,163,521 656,099 204,076
---------- -------- --------
Net income.......................................... $649,605 $247,068 $158,490
========= ======= ========
Net income per share (Note 7)....................... $.58 $.35 $.38
========= ======= ========
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DISTRIBUTIONS
COMMON STOCK ADDITIONAL IN EXCESS
--------------------- PAID-IN OF
SHARES AMOUNT CAPITAL EARNINGS
--------- --------- -------- ---------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1993.................. 309,040 $3,090 $2,760,745 $(56,361)
Issuance of stock for cash, net of costs
and sales commissions of $277,297.... 253,845 2,539 2,256,022 --
Net income for the year................. -- -- -- 158,490
Equity contribution by Affiliates
through expense reimbursements (Note
4b).................................. -- -- 21,745 --
Dividends declared ($.539 per share)
(Note 7)............................. -- -- -- (221,010)
--------- -------- -------- -------------
BALANCE, December 31, 1993................ 562,885 5,629 5,038,512 (118,881)
Issuance of stock for cash, net of costs
and sales commissions of $399,416.... 349,101 3,491 3,085,313 --
Net income for the year................. -- -- -- 247,068
Equity contribution by Affiliates
through expense reimbursements (Note
4b).................................. -- -- 17,622 --
Dividends declared ($.762 per share)
(Note 7)............................. -- -- -- (522,614)
-------- -------- --------- ------------
BALANCE, December 31, 1994................ 911,986 9,120 8,141,447 (394,427)
Issuance of stock for cash, net of costs
and sales commissions of $423,603.... 410,418 4,104 3,629,583 --
Net income for the year................. -- -- -- 649,605
Dividends declared ($.72 per share)
(Note 7)............................. -- -- -- (804,595)
-------- -------- --------- ------------
BALANCE, December 31, 1995................ 1,322,404 $13,224 11,771,030 $(549,417)
======== ======= =========== =========
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 649,605 $ 247,068 $ 158,490
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 256,144 118,238 48,177
Interest expense on amortization of loan
origination fees............................. 11,454 6,335 --
Increase (decrease) from changes in:
Government securities........................ 1,240,190 440,314 (1,680,504)
Accounts receivable.......................... (62,784) (19,001) 4,726
Other assets................................. 30,469 (49,185) (20,109)
Accounts payable............................. 10,731 14,688 (456)
Due to related party......................... 130,378 (16,412) 41,589
Other liabilities............................ 35,133 36,900 7,434
Security deposits............................ 71,823 12,245 25,000
------------ ------------ ------------
Net cash provided by operating activities........... 2,373,143 791,190 (1,415,653)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.................... (8,647,090) (5,866,457) (3,914,894)
------------ ------------ ------------
Net cash used in investing activities............... (8,647,090) (5,866,457) (3,914,894)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks held against future deposits............... -- -- (27,661)
Proceeds from issuance of common stock, net....... 3,633,687 3,088,804 2,258,561
Equity contribution by Affiliates through expense
reimbursements................................. -- 17,622 21,745
Dividends paid.................................... (745,172) (437,803) (166,704)
Increase in notes payable......................... 4,469,647 2,800,000 2,415,000
Payments on note payable.......................... (91,822) (44,171) (9,474)
Increase in loan origination fees................. (38,200) (64,219) (36,637)
------------ ------------ ------------
Net cash provided by financing activities........... 7,228,140 5,360,233 4,454,830
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents....................................... 954,193 284,966 (875,717)
CASH AND CASH EQUIVALENTS, beginning of year........ 495,829 210,863 1,086,580
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year.............. $ 1,450,022 $ 495,829 $ 210,863
============ ============ ============
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
BUSINESS
West Coast Realty Investors, Inc., (the "Company") is a corporation
formed on October 26, 1989 under the laws of the State of Delaware. The
Company exists as a Real Estate Investment Trust ("REIT") under Sections 856
to 860 of the Internal Revenue Code. The Company has complied with all
requirements imposed on REIT's for the 1995 and 1994 tax years; however,
qualification as a REIT for future years is dependent upon future operations
of the Company. The Company was organized to acquire interests in
income-producing residential, industrial, retail or commercial properties
located primarily in California and the west coast of the United States. The
Company intends to acquire property for cash on a moderately leveraged basis
with aggregate mortgage indebtedness not to exceed fifty percent of the
purchase price of all properties on a combined basis, or eighty percent
individually and intends to own and operate such properties for investment
over an anticipated holding period of five to ten years.
RENTAL PROPERTIES AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation
is computed using the straight-line method over their estimated useful lives
of 31.5 to 39 years for financial income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an
asset may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to
determine if a write-down to market value is required.
INVESTMENTS
During 1994, the Company changed its method of accounting for
Investments. Investments which represent trading securities, are accounted
for in accordance with SFAS No. 115. The difference between historical cost
and market value are reported as unrealized gains or losses in the
statements of income. The effect of this change in accounting policy on the
December 31, 1993 investment is not material to the financial statements.
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the
loan.
RENTAL INCOME
Rental income is recognized on a straight line basis to the extent that
rental income is deemed collectable. Where there is uncertainty of collecting
higher scheduled rental amounts, due to the tendency of tenants to
renegotiate their leases for lower amounts, rental income is recognized as
the amounts are collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and
all highly liquid certificates of deposits, with original maturities of
three months or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation.
F-7
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
On October 30, 1989, West Coast Realty Advisors, Inc. (the "Advisor")
purchased 1,000 shares of the Company's common stock for $10,000. On
August 30, 1990, the Company reached its minimum initial offering funding
level of $1,000,000. As of December 31, 1995, the Company has raised
$13,196,731 in capital.
Sales commissions and wholesaling fees, representing 7% of the gross
proceeds from the sale of common shares, were paid to Associated Securities
Corp. ("ASC"), a member of the National Association of Securities Dealers,
Inc. ("NASD") and an affiliate of the Advisor.
Dividends are accrued approximately based upon the previous quarter's
income from operations before depreciation and amortization.
2. RENTAL PROPERTIES
The Company owns the following income-producing properties:
<TABLE>
<CAPTION>
ACQUISITION
LOCATION (PROPERTY NAME) DATE PURCHASED COST
------------------------------------------ ---------------------- -----------------
<S> <C> <C>
Huntington Beach, California (Blockbuster) February 26, 1991 $ 1,676,210
Fresno, California May 14, 1993 1,414,893
Huntington Beach, California (OPTO-22) September 15, 1993 2,500,001
Brea, California March 4, 1994 2,248,343
Riverside, California November 29, 1994 3,655,500
Tustin, California (Safeguard) May 22, 1995 4,862,094
Fremont, California (Technology Drive) October 31, 1995 3,747,611
</TABLE>
The major categories of property are:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- ------------
<S> <C> <C>
Land................................. $ 6,586,920 $ 4,231,476
Buildings and improvements........... 13,517,732 7,226,085
----------- ------------
20,104,652 11,457,561
Less accumulated depreciation........ 454,487 200,582
---------- ------------
Net rental properties................ $19,650,165 $11,256,979
========== ==========
</TABLE>
A significant portion of the Company's rental revenue was earned from
tenants whose individual rents represented more than 10% of total rental
revenue. Specifically:
Four tenants accounted for 24%, 20%, 15% and 10% in 1995;
Four tenants accounted for 29%, 18%, 17% and 14% in 1994;
Four tenants accounted for 45%, 23%, 21% and 11% in 1993.
The following unaudited pro forma information are presented to illustrate
the effect of the four properties acquired during 1995 and 1994, as discussed
above, as if the acquisitions occurred on January 1 of each year presented.
F-8
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. RENTAL PROPERTIES -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMAS FOR THE YEARS
ENDED DECEMBER 31,
-------------------------
1995 1994
------- -------
<S> <C> <C>
Revenues:
Rental............................................ $2,191,673 $ 1,989,511
Interest.......................................... 20,950 --
----------- ----------
2,212,623 1,989,511
----------- ----------
Costs and Expenses:
Operating......................................... 194,393 162,351
Interest.......................................... 756,085 808,136
General and administrative........................ 117,667 70,890
Depreciation and amortization..................... 350,864 369,960
Unrealized loss -- government securities.......... -- 68,210
----------- ---------
1,419,009 1,479,547
----------- ---------
Net income.......................................... $ 793,614 $ 509,964
========== ==========
Net income per share................................ $.62 $.40
========== ==========
</TABLE>
3. FUTURE MINIMUM RENTAL INCOME
As of December 31, 1995, future minimum rental income under the
existing leases that have remaining noncancelable terms in excess of one
year are as follows:
AMOUNT
-----------
1996................................................... $2,046,963
1997................................................... 1,925,526
1998................................................... 1,841,270
1999................................................... 1,772,331
2000................................................... 1,645,181
Thereafter........................................... 10,166,258
Total........................................ $19,397,529
Future minimum rental income does not include lease renewals or new
leases that may result after a noncancelable-lease expires.
4. RELATED PARTY TRANSACTIONS
The Advisor has an agreement with the Company to provide advice on
investments and to administer the day-to-day operations of the Company. At
December 31, 1995, the Advisor owned 22,505 shares of the Company. Property
management services for the Company's properties are provided by West Coast
Realty Management, Inc. ("WCRM"), an affiliate of the Advisor.
Certain officers and directors of the Company are also officers and
directors of the Advisor and its affiliates.
F-9
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The following related party transactions are included in the statement
of income:
(a) In accordance with the advisory agreement, syndication fees
earned by the Advisor totaled $150,429, $173,874, and $114,539 in 1995,
1994, and 1993.
(b) Overhead expenses reimbursed to the Advisor totaled $12,000,
$2,000 and $-0- in 1995, 1994 and 1993. In 1994, the Advisor waived $10,000
of these costs which are included in additional paid-in-capital.
(c) Sales commissions paid in accordance with the selling agreement
to ASC totaled $301,706, $172,098 and $162,758 for 1995, 1994 and 1993.
(d) Acquisition fees related to the purchase of real estate totaled
$444,795, $320,006 and $215,874 in 1995, 1994 and 1993 (Note 2). These fees
were split, in accordance with the advisory agreement, between the Advisor
and an affiliate.
(e) Property management fees earned by WCRM totaled $46,947,
$24,077 and $9,745 in 1995, 1994 and 1993. In 1994, WCRM waived $7,622
in property management fees.
The Corporation had related party accounts payables as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- ---------
<S> <C> <C>
Associated Financial Group, Inc................................ $ 40,143 $ --
Associated Securities Corp..................................... -- 18,899
West Coast Realty Advisors..................................... 111,802 18,037
West Coast Realty Management................................... 15,369 --
-------- ---------
$167,314 $36,936
======= =======
</TABLE>
5. NOTES PAYABLE
Notes payable are made up of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- ---------
<S> <C> <C>
8.25% promissory note secured by a Deed of Trust on the
Fresno Property, monthly principal and interest payments
are $5,244, due August 1, 2003.......................$639,182 $649,093
Variable rate promissory note secured by a Deed of Trust
on the OPTO-22 property, interest rate adjustments are
monthly and are based on the 11th District cost of funds
plus 3% (8.116% at December 31, 1995), and may never go
below 6.5% or above 11.0%, monthly principal and
interest payments vary depending upon interest rates and
are currently $11,702, due October 1, 2003........ 1,721,993 1,726,587
8.25% promissory note secured by a Deed of Trust on the
Blockbuster property, interest rate adjusts to the
5-year Treasury rate plus 350 basis points on February
1, 1999, monthly principal and interest payments are
$4,934, due February 1, 2004....................... 579,923 591,655
</TABLE>
F-10
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
-------- ----------
<S> <C> <C>
5. NOTES PAYABLE -- (CONTINUED)
9.25% promissory note secured by a Deed of Trust on the
Riverside property, monthly principal and interest
payments are $9,988, due November 8, 2004...... 1,185,778 1,194,020
8.0% promissory note secured by a Deed of Trust on the
Brea property, monthly payments for interest only,
balloon payments of $500,000 on March 4, 1995 and
1996........................................... -- 1,000,000
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March
1, 2000 (and each succeeding March 1st) when the
interest rate adjusts to the Moody's corporate bond
index daily rate plus 0.125% monthly principal and
interest payments vary depending upon interest rates and
are currently $8,737, due March 1, 2020 (replaced 8%
Brea promissory note)........................... 992,379 --
9.625% promissory note secured by a Deed of Trust on the
Safeguard property, monthly principal and interest
payments are $24,191, due February 1, 2005.... 2,234,231 --
Variable rate promissory note secured by a Deed of Trust
on the Fremont property, interest rate equals the
current Treasury rate plus 1.65% (8.24% at December 31,
1995), monthly principal and interest payments vary
depending upon interest rates and are currently
$18,898, due August 1, 2015..... ............ 2,185,694 --
---------- ----------
$9,539,180 $5,161,355
========= ==========
</TABLE>
The carrying amount is a reasonable estimate of fair value of notes
payable because the interest rates approximate the borrowing rates currently
available for mortgage loans with similar terms and average maturities.
The aggregate annual future maturities at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------- ----------
<S> <C>
1996.................................................. $1,004,320
1997.................................................. 1,004,320
1998.................................................. 1,004,320
1999.................................................. 1,004,320
2000.................................................. 1,004,320
Thereafter............................................ 4,517,580
------------
Total....................................... $9,539,180
==========
6. DIVIDEND REINVESTMENT PLAN
The Company has established a Dividend Reinvestment Plan (the "Plan")
whereby cash dividends will, upon election of the shareholders, be used to
purchase additional shares of the Company. The shareholders' participation
in the Plan may be terminated at any time.
F-11
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share was computed using the weighted average number of
outstanding shares of 1,117,494, 706,684 and 414,728 for 1995, 1994 and 1993.
Dividends declared during 1995 were as follows:
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
---------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
January 1, 1995...................... 911,986 $ 0.060 $ 54,719
February 1, 1995..................... 945,136 0.060 56,708
March 1, 1995........................ 1,009,084 0.060 60,545
April 1, 1995........................ 1,069,217 0.060 64,153
May 1, 1995.......................... 1,109,374 0.060 66,562
June 1, 1995.......................... 1,109,874 0.060 66,592
July 1, 1995.......................... 1,116,891 0.060 67,013
August 1, 1995........................ 1,151,911 0.060 69,115
September 1, 1995..................... 1,204,517 0.060 72,271
October 1, 1995...................... 1,225,398 0.060 73,524
November 1, 1995...................... 1,261,859 0.060 75,712
December 1, 1995...................... 1,294,683 0.060 77,681
--------
Total.................................... $804,595
=======
</TABLE>
Dividends declared during 1994 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
----------------------------------------- ----------- --------- --------
<S> <C> <C> <C>
January 1, 1994......................... 562,888 $ 0.058 $ 32,648
February 1, 1994........................ 568,404 0.060 34,104
March 1, 1994........................... 590,966 0.062 36,640
April 1, 1994........................... 610,195 0.063 38,442
May 1, 1994............................. 620,421 0.064 39,707
June 1, 1994............................ 637,315 0.065 41,426
July 1, 1994............................ 637,315 0.065 41,426
August 1, 1994.......................... 688,203 0.065 44,733
September 1, 1994....................... 747,876 0.065 48,612
October 1, 1994......................... 811,034 0.065 52,717
November 1, 1994........................ 844,800 0.065 54,913
December 1, 1994........................ 880,700 0.065 57,246
-------
Total.................................... $522,614
========
</TABLE>
F-12
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. NET INCOME AND DIVIDENDS PER SHARE -- (CONTINUED)
Dividends declared during 1993 were as follows:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING PER TOTAL
RECORD DATE SHARES UNIT DIVIDEND
---------------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
January 1, 1993.................. 309,040 $0.034 $ 10,507
February 1, 1993................. 313,240 0.034 10,650
March 1, 1993.................... 318,760 0.034 10,838
April 1, 1993.................... 333,440 0.034 11,337
May 1, 1993...................... 355,945 0.044 15,662
June 1, 1993..................... 383,165 0.050 19,158
July 1, 1993..................... 406,916 0.050 20,346
August 1, 1993................... 417,373 0.050 20,869
September 1, 1993................ 436,872 0.050 21,843
October 1, 1993.................. 472,591 0.053 25,047
November 1, 1993................. 497,707 0.053 26,379
December 1, 1993................. 535,364 0.053 28,374
-----------
Total.................................... $ 221,010
=========
</TABLE>
Dividends are paid in the fiscal quarter following the record date.
The Company has followed the practice of making distributions to
shareholders in amounts approximately equal to its cash basis net income.
Since cash flows are sheltered from tax by depreciation and amortization
expense, distributions to shareholders are in excess of net income.
Accordingly, certain distributions result in a nontaxable return of capital.
Distributions per beneficial share are reportable by shareholders on their
individual income tax returns as shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Taxable ordinary income..................... $.549 $.469 $.373
Nontaxable return of capital................ .171 .270 .023
------ ------ ------
$.720 $.739 $.396
====== ====== ======
</TABLE>
8. TAXES ON INCOME
For the taxable years 1994, 1993 and 1992, the Company elected to be
treated as a REIT on the filings of the 1994, 1993 and 1992 tax returns and
will elect the same for 1995.
The Company inadvertently failed to send to certain shareholders a
demand letter regarding actual ownership of the Company's shares as
required by Treasury Regulation sec.1.857-8(d) and (e) for the taxable
years 1991, 1992, and 1993. It is our understanding that the Internal
Revenue Service, as a matter of administrative grace, may permit the
Company to be taxable as a REIT for its 1991, 1992 and 1993 taxable years.
During 1994, the Company sent these demand letters regarding the 1991,
1992, and 1993 tax years in an attempt to remedy this issue. If the
Company were taxed as a regular corporation for 1991, 1992 and 1993 taxable
years, the payment of such taxes, including penalties and interest would be
approximately $120,000.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company had a noncash financing activity related to unpaid dividends
declared of $226,649, $164,876 and $79,800 for 1995, 1994 and 1993.
F-13
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- (CONTINUED)
Cash paid for interest during year ended December 31, 1995, 1994 and
1993 was $569,746, $277,288 and $51,680.
10. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes new guidelines regarding
when impairment losses on long-lived assets, which include plant and
equipment, and certain identifiable intangible assets, should be recognized
and how impairment losses should be measured. The Company has elected the
early adoption of SFAS No. 121. This change had no effect on the statement
of income for the year ended December 31, 1995.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from nonemployees in exchange for
equity instruments. The Company does not currently provide stock based
compensation and accordingly does not expect adoption to have a material
effect on its financial position or results of operations.
F-14
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Information required by Rule 12-28 is as follows:
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
INITIAL COST COST CARRIED AT CLOSE OF PERIOD
---------------------- CAPITALIZED ------------------------------
BUILDING SUBSEQUENT TO BUILDING
& ACQUISITION &
IMPROVE- IMPROVE- IMPROVE- TOTAL
DESCRIPTION ENCUMBRANCES LAND MENTS MENTS LAND MENTS COST
- ------------------- ----------------------------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Building,
Huntington Beach, CA.... 579,923 1,005,965 670,245 0 1,005,965 670,245 1,676,210
Retail Building,
Shopping Center,
Fresno, CA.............. 639,182 553,648 861,245 0 553,648 861,245 1,414,893
Industrial Building
Huntington Beach, CA.... 1,721,993 1,132,159 1,367,842 0 1,132,159 1,367,842 2,500,001
Industrial Building
Brea, CA................ 992,379 808,423 1,439,920 0 808,423 1,439,920 2,248,343
Entertainment Center
Riverside, CA........... 1,185,778 768,667 2,886,833 0 768,667 2,886,833 3,655,500
Office Building
Tustin, CA.............. 2,234,231 1,089,796 3,772,298 0 1,089,796 3,772,298 4,862,094
Light Industrial Bldg,
Fremont, CA............. 2,185,694 1,228,262 2,519,349 0 1,228,262 2,519,349 3,747,611
------------ ---------- --------- --- ---------- --------- -----------
Total............. 9,539,180 6,586,920 13,517,732 0 6,586,920 13,517,732 20,104,652
========= ======= ========= === ========= ========= =========
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
YEAR IS COMPUTED
ACCUMULATED CONSTRUCTION DATE BUILDING/
DESCRIPTION DEPRECIATION COMPLETED ACQUIRED IMPROVEMENTS
- -------------------- ------------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Retail Building,
Huntington Beach, CA.... 103,735 1991 2/91 31.5
Retail Building,
Shopping Center,
Fresno, CA.............. 57,976 1993 5/93 39.0
Industrial Building
Huntington Beach, CA.... 80,378 1976 9/93 39.0
Industrial Building
Brea, CA................ 67,693 1989 3/94 39.0
Entertainment Center
Riverside, CA........... 80,197 1994 11/94 39.0
Office Building
Tustin, CA............. 56,423 1986 5/95 39.0
Light Industrial Bldg,
Fremont, CA............ 8,085 1993 10/95 39.0
---------
Total............. 454,487
=======
</TABLE>
F-15
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1995
A reconciliation of the total cost for the years ending
December 31, 1993, 1994 and 1995 follows:
<TABLE>
<S> <C>
Balance at December 31, 1992 ...................................... $ 1,676,210
1993 Additions .................................................... 3,914,894
-----------
Balance at December 31, 1993......................................... 5,591,104
1994 Additions.................................................... 5,866,457
-----------
Balance at December 31, 1994...................................... 11,457,561
1995 Additions..................................................... 8,647,091
-----------
Balance at December 31, 1995...................................... $20,104,652
===========
</TABLE>
A reconciliation of accumulated depreciation for the years ending
December 31, 1993, 1994, and 1995 follows:
<TABLE>
<S> <C>
Balance at December 31, 1992.............. $ 39,899
1993 Depreciation......................... 45,311
--------
Balance at December 31, 1993.............. 85,210
1994 Depreciation......................... 115,372
--------
Balance at December 31, 1994.............. 200,582
1995 Depreciation......................... 253,905
--------
Balance at December 31, 1995.............. $454,487
========
</TABLE>
F-16
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Information required by Rule 12-29 is as follows:
<TABLE>
<CAPTION>
FINAL PERIODIC DELINQUENT
INTEREST MATURITY PAYMENT PRIOR FACE CARRYING PRINCIPAL/
DESCRIPTION RATE DATE TERMS LIENS AMOUNT AMOUNT INTEREST
<S> <C> <C> <C> <C> <C> <C> <C>
Retail 8.25% 8/1/2003 Equal None $665,000 $ 639,182 None
Building........ monthly
.......... payments
Fresno, CA to
First Deed of Maturity
Trust Balloon
Payment
due
8/2003
Industrial Variable 10/1/2003 Variable None $1,750,000 $1,721,993 None
Building........ monthly
.... payments
Huntington to
Beach, Maturity
California Balloon
First Deed of Payment
Trust due
10/2003
Retail Variable 2/1/2004 Variable None $600,000 $579,923 None
Building........ monthly
....... Payments
Huntington to
Beach, Maturity
California First ; 25 yr
Deed of Trust Amortization
balloon
payment
due
2/2004
Industrial Variable 3/1/2020 Variable None $1,000,000 $ 992,379 None
Building........ rate;
...... 25 yr.
Brea,CA amortization
First Deed of
trust
Entertainment 9.25% 11/8/2004 Equal None $1,200,000 $1,185,778 None
Center.......... Monthly
Riverside, CA Payments
First Deed of amortized
Trust over 28
yrs, 3
months
Balloon
payment
due
11/2004
Office 9.625% 2/2/2005 Fixed None $2,300,000 $2,234,231 None
Building........ Rate;
......... 15 yr
Tustin, CA amortization
First Deed of Ballon
trust Payment
due
2/2005
Light Industrial Variable 8/1/2015 Variable None $2,200,000 $2,185,694 None
Building........ Monthly
........... Payments
Fremont, CA 20 years
First Deed of amortization
trust ---------- -----------
9,715,000 9,539,180
========== ==========
</TABLE>
A reconciliation of mortgage loans payable for the years ending
December 31, 1993, 1994, and 1995 follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1992.......................... $ --
1993 Additions........................................ 2,415,000
1993 Paydowns......................................... (9,474)
----------
Balance at December 31, 1993.......................... 2,405,526
1994 Additions........................................ 2,800,000
1994 Paydowns......................................... (44,171)
----------
Balance at December 31, 1994.......................... 5,161,355
1995 Additions........................................ 4,469,647
1995 Paydowns......................................... (91,822)
----------
Balance at December 31, 1995.......................... $9,539,180
==========
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders
West Coast Realty Investors, Inc.
We have audited the accompanying summary of historical information
relating to operating revenues and specified expenses of 14661 Franklin
Avenue (the Property) for the year ended December 31, 1994. This financial
statement is the responsibility of BRS -- Tustin Safeguard Associate's
management. Our responsibility is to express an opinion on this financial
statement based upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the summary of historical
information relating to operating revenues and specified expenses is free
of material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary of historical
information relating to operating revenues and specified expenses. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall summary
relating to operating revenues and specified expenses presentation. We
believe our audit provides a reasonable basis for our opinion.
The accompanying summary of historical information relating to operating
revenues and specified expenses was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
and excludes certain material expenses, described in Note 2, that would not
be comparable to those resulting from the proposed future operations of the
Property.
In our opinion, the summary of historical information relating to
operating revenues and specified expenses referred to above presents fairly,
in all material respects, the operating revenues and specified expenses,
exclusive of expenses described in Note 2, of the Property for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
HUNNICUTT OKAMOTO & ASSOCIATES
Woodland Hills, California
April 28, 1995
F-18
<PAGE>
14661 FRANKLIN AVENUE
SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Operating Revenue:
Rental income............................................... $680,457
-----------
Total operating revenue..................................... 680,457
----------
Specified Expenses:
Insurance................................................... --
Maintenance and repairs..................................... --
Property taxes.............................................. --
--------
Total specified expenses.................................... --
--------
Excess of operating revenues
over specified expenses....................................... $680,457
========
</TABLE>
[FN]
See accompanying notes to summary of historical information.
F-19
<PAGE>
14661 FRANKLIN AVENUE
NOTES TO SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
NOTE 1 -- THE PROPERTY
14661 Franklin Avenue (the Property) is a two story office building
located near Walnut Avenue and Jamboree Road in the City of Tustin,
California. The Property has rental areas encompassing approximately 40,000
rental square feet. The Property is currently leased to one tenant with a
lease expiring in 2005. The lease agreement provides that insurance,
repairs and maintenance and property taxes of the Property are paid by the
lessee. Accordingly, the Property did not incur any specified expenses.
Minimum rental income under the existing lease is $523,900, $539,800,
$555,800, $572,400, $589,600 for the years ended December 31, 1995 through
December 31, 1999 and $3,748,500 for years thereafter.
The Property is expected to be acquired by West Coast Realty Investors,
Inc. in May, 1995.
NOTE 2 -- BASIS OF PRESENTATION
The summary of historical information relating to operating revenues and
specified expenses of the Property excludes the following items, which are
not comparable to the proposed future operations of the Property under the
ownership of West Coast Realty Investors, Inc.
(a) Interest expense on mortgages
(b) Depreciation of buildings, improvements and equipment
(c) Nonrecurring income and expenses
Rental income is recognized when earned and expenses are recognized
when incurred.
F-20
<PAGE>
SAFEGUARD BUSINESS SYSTEMS PROPERTY (14461 FRANKLIN AVENUE)
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT
OF TAXABLE OPERATING INCOME (NOTE 1)
(UNAUDITED)
<TABLE>
<CAPTION>
ESTIMATED
FOR THE YEAR PRO FORMA PRO
ENDED ADJUSTMENTS FORMA
DECEMBER 31, 1994 (NOTE 2) RESULTS
------------------ ---------- ----------
<S> <C> <C> <C>
RENTAL INCOME.......................... $ 680,457 $(69,484)(1) $610,973
EXPENSES
Interest Expense.................. 218,250 (4) 218,250
Management Fees................... 18,329 (2) 18,329
Depreciation...................... 96,952 (3) 96,952
---------- ---------- ----------
Taxable Operating Income............... $ 680,457 $(403,015) $277,442
========== ========= ========
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT
OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
(UNAUDITED)
<TABLE>
<S> <C>
Pro Forma Taxable Net Operating Income........................... $277,442
Add: Depreciation (Note 2)....................................... 96,952
---------
Pro Forma Cash Available from Operations............... $374,394
========
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
F-21
<PAGE>
SAFEGUARD BUSINESS SYSTEMS BUILDINGS
NOTES TO PRO FORMA STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The preceding unaudited pro forma statements are based on information
obtained from the lease and Agreement to Purchase documents pertaining to
the property located at 14661 Franklin Avenue, Tustin, California
(the "Property").
The pro forma statements use audited financial statements for the year
ended December 31, 1994, as a base for preparing the estimated pro forma
operations for the property during its first full year of operations. The
property's current tenant, Safeguard Business Systems (the "Tenant"), has
occupied the property since inception (1986). The Tenant's current lease
term terminates September 30, 2005.
The pro forma results reflect a full year of operations for the Property
assuming that it was acquired on January 1, 1994. They contain certain
adjustments which are expected to be incurred in the Property's first year of
operations.
There can be no assurance that the foregoing results will be obtained.
NOTE 2 -- PRO FORMA ADJUSTMENTS
The adjustment to the pro forma Balance Sheet is as follows:
(A) To record the acquisition of the Safeguard Business Systems Property.
The adjustments to the pro forma statement of income are as follows:
(1) To reflect a full year's worth of rental income per provisions of
the lease with the Property's sole tenant. In calculating this amount, the
total minimum monthly rent ($6,313,382) over the remaining term of the lease
(one hundred twenty-four months, or ten years four months, as of
June 1, 1995), is recognized on a straight-line basis ($50,914/month) in
accordance with generally accepted accounting principles.
Audited rental revenue was higher due to the existence of a lease with
significantly higher rent that was in effect on the property from January 1,
1994 to September 30, 1994 (prior to the Company's ownership).
(2) To reflect property management fees of 3% of cash basis rental
income in the first year of the lease.
(3) The computation of depreciation is based on the cost of the
Property including estimated Acquisition Fees and Expenses, and is for the
initial twelve months subsequent to the purchase. The allocation of the
cost of the property to the various asset categories and lives is based on
the allocations contained in the final appraisal report for the Property.
The depreciation has been computed on a straight-line basis over the
component useful life of the assets.
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE COST DEPRECIATION
---------- -------- -----------------------
<S> <C> <C> <C>
Building......................... 39 $3,603,217 $ 92,390
Site Improvements................ 39 177,905 4,562
Land............................. -- 1,094,878 --
----------- ---------
$4,876,000 $ 96,952
========== ========
</TABLE>
(4) To reflect interest expense related to $2,300,000 of mortgage
financing incurred in acquiring the property. The interest rate on the
mortgage is fixed at 9.625%, is amortizable over a fifteen year period,
and due in ten years.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders
West Coast Realty Investors, Inc.
We have audited the accompanying summary of historical information
relating to operating revenues and specified expenses of Technology Drive
(the Property) for the nine months ended September 30, 1995 and for the
year ended December 31, 1994. These financial statements are the
responsibility of 26 Technology Partnership L.P.'s management. Our
responsibility is to express an opinion on these financial statements based
upon 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 summary of historical
information relating to operating revenues and specified expenses is free
of material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary of historical
information relating to operating revenues and specified expenses. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall summary
relating to operating revenues and specified expenses presentation. We
believe our audits provide a reasonable basis for our opinion.
The accompanying summary of historical information relating to operating
revenues and specified expenses was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
and excludes certain material expenses, described in Note 2, that would not
be comparable to those resulting from the proposed future operations of
the Property.
In our opinion, the summary of historical information relating to
operating revenues and specified expenses referred to above presents fairly,
in all material respects, the operating revenues and specified expenses,
exclusive of expenses described in Note 2, of the Property for the nine
months ended September 30, 1995 and the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
HUNNICUTT OKAMOTO & ASSOCIATES
Woodland Hills, California
January 26, 1996
F-23
<PAGE>
TECHNOLOGY DRIVE
SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- ------------
<S> <C> <C>
Operating Revenues:
Rental income............................. $ 236,039 $170,361
----------- ----------
Total operating revenue................... 236,039 170,361
----------- ----------
Specified Expenses:
Operating expenses........................ 5,862 30,107
Interest expense.......................... 38,246 --
----------- ----------
Total specified expenses.................. 44,108 30,107
----------- ----------
Excess of operating revenues
over specified expenses.................... $ 191,931 $140,254
========== ==========
</TABLE>
[FN]
See accompanying notes to summary of historical information
F-24
<PAGE>
TECHNOLOGY DRIVE
NOTES TO SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
NOTE 1 -- THE PROPERTY
Technology Drive (the Property) is a single story light industrial
building located in the city of Fremont, California. The Property has a
rental area encompassing approximately 58,727 rental square feet. The entire
property is currently leased to a tenant (Primary Tenant). The lease expires
in 2005. The Primary Tenant currently occupies approximately 38,727 square
feet of the building. The remaining 20,000 square feet of the building is
occupied by another tenant (Secondary Tenant) under a three year lease. The
lease of the Secondary Tenant has been assigned to the Primary Tenant. The
Property was 50% occupied from February 16, 1994 until March 15, 1995 at
which point the Primary Tenant leased the remaining space. The lease
agreement provides that specified expenses including insurance, repairs and
maintenance and property taxes of the Property are paid by the lessee. The
Property was entirely vacant from January 1, 1994 to February 15, 1994. The
Property did not incur any specified expenses, except for those expenses
incurred during which time the Property was entirely and partially vacant.
Specified expenses incurred by the Property are included as operating
expenses in the accompanying summary.
Minimum rental income under the existing lease is $329,000, $379,000,
$391,100, $391,100, $434,000 for the years ended December 31, 1995 through
December 31, 1999 and $2,449,900 for years thereafter.
26 Technology Partnership L.P., on July 1, 1995 entered into a
$2,200,000 promissory note secured by a deed of trust on the Property. The
note rate is the current Treasury Rate plus 1.65% and the note is fully
amortized over 20 years.
The Property was acquired by West Coast Realty Investors, Inc. in
October 1995. The Property was acquired subject to the promissory note under
an assumption agreement. Accordingly, interest expense on the promissory
note is included as a specified expense as the terms of the promissory note
did not change after acquisition.
NOTE 2 -- BASIS OF PRESENTATION
The summary of historical information relating to operating revenues and
specified expenses of the Property excludes the following items, which are
not comparable to the future operations of the Property under the ownership
of West Coast Realty Investors, Inc.
(a) Depreciation of buildings, improvements and equipment
(b) Nonrecurring income and expenses
Rental income is recognized when earned and expenses are recognized
when incurred.
F-25
<PAGE>
WEST COAST REALTY INVESTORS, INC.
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT
OF TAXABLE OPERATING INCOME (NOTE 1)
BASED ON ACQUISITION OF TECHNOLOGY DRIVE PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
TECHNOLOGY DRIVE
HISTORICAL OPERATING AUDITED FINANCIAL RESULTS PRO FORMA ESTIMATED
RESULTS FOR WCRI FOR THE PERIOD ENDED ADJUSTMENTS PRO FORMA
DECEMBER 31, 1994 DECEMBER 31, 1994 (NOTE 2) RESULTS
------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental Income.......... $802,614 $ 170,361 $ 273,267 (a) $1,246,242
Interest Income........ 100,553 --- (100,553)(b) --
------------ ------------ ------------ ---------
903,167 170,361 172,714 1,246,242
------------ ------------ ------------ ---------
EXPENSES:
Interest Expense....... 302,124 179,202(c) 481,326
General and
Administrative...... 70,890 70,890
Depreciation........... 118,238 67,473(d) 185,711
Property Operating Costs.. 96,637 30,107 13,309 (e) 140,053
Unrealized
loss -- government
securities........... 68,210 68,210
----------- ------------ ----------- ----------
656,099 30,107 259,984 946,190
----------- ------------ ----------- ----------
Taxable Operating Income.. $247,068 $ 140,254 $ (87,270) $ 300,052
========== ============ ========== ==========
</TABLE>
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT
OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
<TABLE>
<S> <C>
Pro Forma Taxable Net Operating Income.......................... $300,052
Add: Depreciation............................................... 185,711
---------
Pro Forma Cash Available from Operations.............. $485,763
========
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
F-26
<PAGE>
WEST COAST REALTY INVESTORS, INC.
TECHNOLOGY DRIVE PROPERTY
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The preceding unaudited pro forma statements are based on information
obtained from the lease and Agreement to Purchase documents pertaining to
the property located at 4415 Technology Drive, Fremont, California
(the "Property").
The pro forma statements use the audited financial statement for the
year ended December 31, 1994 as a base for preparing the estimated pro forma
operations for the property during its first full year of operations. The
property's current tenant, CMS Welding & Machining (the "Tenant"), subleases
a portion of the Property to Macotron Systems, Inc. The Tenant's initial
lease term ends February 26, 2005. The lease is a triple net lease.
The pro forma results reflect a full year of operations for the Property
assuming that it was acquired January 1, 1994. They contain certain
adjustments which are expected to be incurred in the Property's first year
of operations.
There can be no assurance that the foregoing results will be obtained.
The Company acquired the property from an unrelated third party and is
unaware of any material factors which would cause the reported financial
information not to be indicative of future operating results.
NOTE 2 -- PRO FORMA ADJUSTMENTS
The significant pro forma adjustments are as follows:
(a) To reflect a full year's worth of rental income per provisions
of the lease with the Property's primary tenant. In calculating the amount,
the total minimum monthly rent ($4,140,528) over the term of the lease (112
months), is recognized on a straight-line basis ($36,969/month) in accordance
with generally accepted accounting principles.
(b) To eliminate interest income on funds used to purchase the
aforementioned property.
(c) To record interest expense expected to be incurred in the first
year of operations in connection with the financing on the property. (There
was no financing attached to the property in 1994, during the seller's
ownership).
(d) The computation of depreciation is based on the cost of the
Property including estimated Acquisition Fees and Expenses, and is for the
initial twelve months subsequent to the purchase. The allocation of the cost
of the property to the various asset categories and lives is based on the
allocations contained in the final appraisal report for the Property.
Depreciation has been computed on a straight-line basis over the component
useful life of the assets.
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE COST DEPRECIATION
---------- --------- ------------
<S> <C> <C> <C>
Building and Improvements............ 39 years $2,502,865 $ 64,176
Site Improvements.................... 5 years 16,483 3,297
Land................................. -- 1,228,262 --
----------- ----------
$3,747,610 $ 67,473
========== ==========
</TABLE>
(e) To reflect property management fees that will be charged to the
Company in connection with rental revenues earned by the property.
F-27
<PAGE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the acquisition of the Safeguard Building, North Palm Street,
Riverside Marketplace and Technology Drive Properties as described elsewhere
in this Offering, on the results of operations of the Company.
The unaudited pro forma statement of income has been prepared as if all
the aforementioned properties had been acquired and occupied by their
respective tenants on January 1, 1995.
The unaudited pro forma financial statements are not necessarily
indicative of the Company's future operations and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL INFORMATION
-----------------------
HISTORICAL SAFEGUARD TECHNOLOGY PRO FORMA COMBINED
DECEMBER 31, 1995 BUILDING(I) DRIVE(II) ADJUSTMENTS DECEMBER 31, 1995
----------------- ----------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rent........................ $ 1,692,176 $ 680,457 $ 236,039 $(437,744)(a) $2,191,673
20,745 (b)
Interest.................... 120,950 -- -- (100,000)(c) 20,950
------- ------- ------- -------- -------
1,813,126 680,457 236,039 (516,999) 2,212,623
------- ------- ------- ------- -------
EXPENSES:
Interest Expense............ 620,031 -- 38,246 84,130(d) 756,085
13,678(e)
Property Operations......... 169,679 -- 5,862 11,148(f) 194,393
7,704(g)
General and Administrative.. 117,667 -- -- 117,667
Depreciation and Amortization. 256,144 -- -- 38,492(h) 350,864
56,228(i)
------- ------- ------- ------ -------
1,163,521 0 44,108 211,380 1,419,009
------- ------- ------- ------ -------
Net Income...................... $ 649,605 $ 680,457 $ 191,931 $(728,379) $ 793,614
======= ======= ======= ====== =======
Net Income Per Share............ $ 0.58 $ 0.62
======= =======
Weighted Average Shares Used for
Historical Calculation.............. 1,117,494 1,271,986
========= =======
</TABLE>
[FN]
- ---------------
(I) Year ended December 31, 1994 (audited).
(II) Nine months ended September 30, 1995 (audited).
See accompanying notes to pro forma financial statements
F-28
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
BASIS OF PRESENTATION
The pro forma Statement of Income reflects operations for the Company
assuming that the Marketplace Safeguard Building and Technology Drive
properties were acquired on January 1, 1995. This statement contains
certain adjustments which are expected to be incurred in those properties'
first year of operations, reflected in the Statement of Income for the year
ended December 31, 1995.
There can be no assurance that the foregoing results will be obtained.
1. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
a. To adjust historical Safeguard Building information to reflect
rental income from January 1, 1995 to May 22, 1995 (date of acquisition).
b. To record rental income for Technology Drive property from
October 1 to October 31, 1995 (date of acquisition), reflecting leases in
effect during 1995.
c. To eliminate interest income to reflect funds used for the
acquisition of properties.
d. To reflect interest expense on the Safeguard Building for
calendar 1995.
e. To reflect interest expense on Technology Drive for calendar
1995.
f. To reflect additional property management fees for the
Safeguard Building for the entire year.
g. To reflect additional property management fees for the
Technology Drive property for the entire year.
h. To reflect additional depreciation expense on the Safeguard
Building for calendar 1995.
i. To reflect additional depreciation expense on the Technology
Drive property for calendar 1995.
2. PER SHARE AMOUNTS
The pro forma income statement assumes that the Technology Drive and
Safeguard Building properties were owned as of January 1, 1995. The Company
used approximately $4.1 million in cash to acquire these properties. However,
as of January 1, 1995, the Company actually had approximately $1.4 million
available for the acquisition of additional properties. The properties were
acquired primarily using funds raised subsequent to January 1, 1995.
Therefore, the weighted average shares outstanding as of December 31, 1995,
was calculated assuming that an additional $3.6 million in shares (360,000
shares) were outstanding as of January 1, 1995, and that no additional
shares were issued throughout the year. This is assumed to be the minimum
number of shares that would need to be sold given the offering expenses
and reserves that are allocated against shares sold.
F-29
<PAGE>
PRIOR PERFORMANCE TABLE
The Table below presents information on past performance regarding a
partnership for which the Advisor or its Affiliates serve as general partner
and which was sponsored by Affiliates of the Advisor. A potential investor
may therefore evaluate the experience of the Advisor and its Affiliates and
their record in meeting the investment objectives of the partnership. The
table should be carefully reviewed by a potential investor in considering
an investment in the Company. The table provides information as of
December 31, 1995. The table is:
Table V -- Sales or Disposals of Properties
Factors which the Company considered in determining whether the prior
limited partnership had investment objectives similar to those of the Company
were the type and standards of real property investments and benefits of the
prior partnership. The Company included Associated Planners Realty Fund
("Fund I") prior performance since it had similar investment objectives in
that it sought to preserve and protect invested capital and provide capital
appreciation. Fund I acquired properties for cash, without borrowings. The
Company is structured differently, however, in that it will acquire
properties for all cash or moderate leverage. To that extent, the
investment objectives of Fund I are dissimilar and should be taken into
account by an investor in analyzing the results indicated in the table.
PERSONS WHO PURCHASE SHARES IN THE COMPANY WILL NOT THEREBY ACQUIRE ANY
OWNERSHIP INTEREST IN THE PARTNERSHIP TO WHICH THIS TABLE RELATES. THE
INCLUSION OF THIS TABLE IN THE PROSPECTUS DOES NOT IMPLY THAT THE COMPANY
WILL MAKE INVESTMENTS COMPARABLE TO THOSE REFLECTED IN THE TABLE AND RETURNS
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PARTNERSHIP REFERRED TO
BELOW. IN ADDITION, NONE OF THE INFORMATION CONTAINED IN THE TABLE HAS
BEEN AUDITED BY INDEPENDENT ACCOUNTANTS. (SEE "PRIOR PERFORMANCE" ON PAGE 59
OF THE PROSPECTUS.)
Table V summaries the sales or disposals of properties made by prior
programs affiliated with the Company for the three years ended December 31,
1995. The table presents information concerning the cash and other
consideration received from the sale or disposition of its property, its
cost and net operating cash received. IT SHOULD NOT BE ASSUMED THAT
INVESTORS IN THE OFFERING COVERED BY THIS PROSPECTUS WILL EXPERIENCE RESULTS
COMPARABLE TO THOSE EXPERIENCED IN PRIOR OFFERINGS.
T-1
<PAGE>
TABLE V.
SALES OR DISPOSALS OF PROPERTIES
JANUARY 1, 1995 TO DECEMBER 31, 1995
(NOT COVERED BY INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
COST OF
PROPERTIES
INCLUDING
CLOSING
AND SOFT
COSTS
SELLING PRICE, NET OF --------
CLOSING COSTS AND GAAP ADJUSTMENTS
-----------------------------------------------------
CASH ADJUSTMENTS
RECEIVED MORTGAGE PURCHASE MONEY RESULTING
NET OF BALANCE MORTGAGE TAKEN FROM ORIGINAL
DATE DATE OF CLOSING AT TIME BACK BY APPLICATION MORTGAGE
PROPERTY ACQUIRED SALE COSTS OF SALE PROGRAM OF GAAP TOTAL FINANCING
- -------------- ------- ------- ------- -------- ------------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) Shurgard
Mini-Warehouse.... 5/8/88 5/15/95 $1,510,976 None None None $1,510,976 (2) None
Puyallup, Washington
<CAPTION>
TOTAL
ACQUISITION EXCESS
COST, (DEFICIENCY)
CAPITAL OF PROPERTY
IMPROVEMENT, OPERATING CASH
CLOSING AND RECEIPTS OVER
PROPERTY SOFT COSTS TOTAL CASH EXPENDITURES
- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C>
(1)Shurgard
Mini-Warehouse............. $1,639,005 $1,639,005 $ 863,373
Puyallup, Washington
</TABLE>
[FN]
- ---------------
Sale was not made to a related party.
(1) This property was owned by Associated Planners Realty Fund.
(2) The gain on sale was $116,749. The gain is entirely capital gain. The
gain is not being reported on an installment basis.
T-2
<PAGE>
- -----------------------------------------------------------------------------
- -
WEST COAST REALTY INVESTORS, INC.
- -
SUBSCRIPTION AGREEMENT
- -
TO: WEST COAST REALTY INVESTORS, INC.
- -
The buyer identified below hereby orders
- -------
- -------
shares of West Coast Realty Investors, Inc. at $
- ---------
- ---------
per share for a total purchase price of $
- -------------
- ------------- .
- -
The undersigned:
- -
(1) Warrants that prior to any offer of sale or sale of shares of West Coast
Realty Investors, Inc. (the "Company"), Buyer has
- -
received a copy of the Prospectus of the Company.
- -
(2) Under penalties of perjury, certifies that (i) the Social Security or Tax
I.D. number shown below is correct and (ii) he or she has not been notified
that he or she is subject to backup withholding, (if you have been so
notified, strike out all of (ii) above).
- -
(3) REPRESENTATIONS AND WARRANTIES: By executing this Subscription Agreement
the Subscriber represents and warrants
- -
to the Company, the Advisor and Associated Securities Corp. that:
- -
(a) The Subscriber hereby confirms the Subscriber's understanding that
the Company has full right to accept or reject this
- -
Subscription Agreement promptly after it is received by the Company
and provided that, in the case of rejection, the payment of the Subscriber
is promptly returned. Upon acceptance of this Subscription Agreement by the
Company, the
- -
Subscriber will receive a confirmation of acceptance.
- -
(b) If the Subscriber is acting in a representative capacity for a
corporation, partnership or trust or as an agent for any person
- -
or entity, the Subscriber has full power and authority to execute
this Subscription Agreement in that capacity and on
- -
behalf of the corporation, trust, person or entity.
T
(c) The Subscriber is not entitled to cancel, terminate or revoke this
- - Subscription Agreement and that this Subscription
E
Agreement shall survive the Subscriber's death or disability.
A
- -
R
(d) The Subscriber meets the suitability standards set forth in the
Prospectus.
- -
O
REGISTRATION (if a custodial account, also give address of beneficiary
below);*
- -
U
- - Please Type or Print the Following Information
T
<PAGE>
- -
A
Registered Name(s)
T
- -
(As it is to appear on
- -
P
certificate of ownership)
E
- -
R
Street Address (Residence)
- -
F
O
- -
City, State, Zip Code
R
- -
A
Telephone Number
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
T
- -
I
- -
O
Name and/or Mailing Address for Distributions or Investor Reports if
different from above
N
- -
Name
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- -
- -
- -
Mailing Address
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- -
City, State, Zip Code
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- -
<PAGE>
- -
MANNER IN WHICH TITLE IS TO BE HELD:
- -
Check One:
- -
/ / Individual Ownership
- -
/ / Joint Tenants with Right
- -
of Survivorship (both sign)
-
/ / Community Property
- -
- - / / Tenants in common (all sign)
/ / Individual Retirement Account*
/ / Pension/Profit Sharing Plan*
/ / Keogh Plan*
/ / Trust (taxable)*
/ / Trust (non-taxable)*
/ / Partnership
/ / Corporation
/ / Custodian Under
UTMA (State)*
/ / UGMA (State)
/ / Sole Proprietorship
/ / Other (Please
Explain)
- -
- -
----------------------------------------------------------------
*Trustee/Custodian must sign as
- - Investor
- -----------------------------------------------------------------------------
S-1
<PAGE>
- -----------------------------------------------------------------------------
-
DIVIDEND DISTRIBUTION METHOD: Subscribers have the option of receiving their
quarterly distributions in cash or, under
-
the terms of the Dividend Reinvestment Plan, Subscribers may have their
dividends automatically reinvested in additional Shares of the Company.
Please elect the method of dividend distribution you would like by checking
the appropriate box below. If no box
-
is checked, dividends will automatically be paid in cash. Please check one
of the following boxes:
-
/ / Paid in cash.
-
/ / Reinvested in additional Shares of the Company.
-
/ / Other (Please Provide Details)
-
-----------------------------------------------------------
-
-----------------------------------------------------------
-
- ------------------------------------
- ------------------------------------ -
(Date)
-
- ------------------------------------
- ------------------------------------ -
-
(Signature)
- ------------------------------------------------------
- ------------------------------------------------------
(Social Security or Tax I.D. Number)
- ------------------------------------------------------
- ------------------------------------------------------
(Signature)
<PAGE>
- -
All shares will be held in safekeeping
on your behalf by the
-
Transfer Agent unless you specifically
request by an "X" below
-
that a certificate be issued.
Management urges that for the sake of
convenience shares be held in
safekeeping and a certificate
-
not be issued.
-
-- Issue certificate / /
-
DEALER INFORMATION
-
- ----------------------------------------------------------
-
Authorized Representative Name and Number
-
- ----------------------------------------------------------
-
Broker/Dealer Name
-
- ----------------------------------------------------------
-
Street Address (Home Office)
-
-
- ----------------------------------------------------------
City and State (Home Office)
--------------------------------------
Street Address (Branch Office)
--------------------------------------
City and State (Branch Office)
( )
Representative Telephone Number
-
<PAGE>
-
Company Use Only:
-
ACCEPTED:
WEST COAST REALTY INVESTORS, INC.
-
-
By
Authorized Officer
-
-
Fund
No. $ Date / / Title
Code
-
Abbrev.
Name Br.
No. Rep.
No.
By
-
CHECKS SHOULD BE MADE PAYABLE TO: "CITY NATIONAL BANK-WEST COAST REALTY
INVESTORS, INC."
-
MAIL TO: 5933 W. Century Boulevard
-
Ninth Floor
-
Los Angeles, California 90045
Rev. 5/96
-
-
- ------------------------------------------------------------------------------
-
-
S-2
<PAGE>
- -------------------------------------------------------------
- -------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR IN SUPPLEMENTS TO THIS PROSPECTUS, OR IN LITERATURE ISSUED BY
THE COMPANY, ADVISOR OR THE PRINCIPAL DISTRIBUTOR (WHICH SHALL NOT BE DEEMED
TO BE PART OF THIS PROSPECTUS), IN CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND IF GIVEN OR MADE, THAT INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON. THE STATEMENTS IN THIS PROSPECTUS OR IN ANY SUPPLEMENT ARE
MADE AS OF THE DATE OF THE PROSPECTUS OR SUPPLEMENT, UNLESS ANOTHER TIME IS
SPECIFIED. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SUPPLEMENT NOR
ANY SALE OF SHARES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SINCE THE DATE OF THE PROSPECTUS
OR SUPPLEMENT. HOWEVER, IF ANY MATERIAL CHANGES OCCUR DURING THE PERIOD WHEN
A PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS OR ANY SUPPLEMENT
WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
-------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................................. 1
THE COMPANY........................................................................ 4
RISK FACTORS........................................................................ 5
ESTIMATED USE OF PROCEEDS........................................................... 11
COMPENSATION OF ADVISOR AND AFFILIATES.............................................. 13
CAPITALIZATION..................................................................... 18
SELECTED FINANCIAL DATA............................................................ 18
CONFLICTS OF INTEREST............................................................... 19
INVESTMENT OBJECTIVES AND POLICIES................................................. 20
REAL PROPERTY INVESTMENTS.......................................................... 25
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................ 37
MANAGEMENT......................................................................... 42
PRIOR PERFORMANCE.................................................................. 45
SERVICES PROVIDED BY THE ADVISOR AND PROPERTY MANAGER.............................. 47
TAX CONSEQUENCES................................................................... 48
ERISA CONSIDERATIONS............................................................... 58
DESCRIPTION OF COMMON STOCK........................................................ 59
SUMMARY OF ORGANIZATION DOCUMENTS.................................................. 60
WHO SHOULD INVEST................................................................... 64
PLAN OF DISTRIBUTION ............................................................... 64
SALES MATERIAL ......................................................................68
LEGAL MATTERS....................................................................... 68
EXPERTS ............................................................................ 68
FURTHER INFORMATION................................................................ 68
GLOSSARY........................................................................... 69
INDEX TO FINANCIAL STATEMENTS........................................................74
SUBSCRIPTION AGREEMENT..............................................................S-1
PRIOR PERFORMANCE TABLE............................................................ T-1
</TABLE>
- -------------------------------------------------------------
- -------------------------------------------------------------
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<PAGE>
25,000 SHARES
LOGO
WEST COAST REALTY INVESTORS, INC.
MINIMUM OFFERING -- $250,000
$10.00 PER SHARE
MINIMUM INVESTMENT: 100 SHARES ($1,000)
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PROSPECTUS
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May 7, 1996
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
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Securities and Exchange Commission
Registration Fee................................................................. $ 5,517
NASD Filing Fee.................................................................. 2,100
Accounting Fees and Expenses..................................................... 95,000
Blue Sky Fees and Expenses....................................................... 35,000
Legal Fees and Expenses.......................................................... 100,000
Investor/Dealer Printed Materials................................................ 100,000
Prospectus Printing.............................................................. 100,000
Mailgrams, Western Union, Postage and Miscellaneous.............................. 62,383
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Total.......................................................................... 500,000
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ITEM 31. SALES TO SPECIAL PARTIES.
Not Applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On October 30, 1989, 1,000 shares of Registrant's Common Stock were sold
for cash (without commissions) to Registrant's Advisor, West Coast Realty
Advisors, Inc., pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has the power to indemnify its directors, officers,
employees, and certain other persons against liability for certain acts
pursuant to Section 145 of the Delaware Corporations Code. Indemnification
of the directors, officers, employees and agents is provided for in the
Certificate of Incorporation and the Bylaws of the Registrant and is
incorporated herein by reference to Exhibits 3.1, 3.1.1, 3.2, 3.2.1
and 3.2.2 filed herewith.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING RETURNED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
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West Coast Realty Investors
Audited Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995, December 31, 1994 and
December 31, 1993
Statements of Stockholders' Equity for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993
Statements of Cash Flows for the years ended December 31, 1995, December 31, 1994
and December 31, 1993
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II-1
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<TABLE>
<CAPTION>
<S> <C>
Summary of Accounting Policies
Notes to Financial Statements
Schedule III -- Real Estate and Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate
14661 Franklin Avenue Property
Report on Independent Certified Public Accountants
Summary of Historical Information Relating to Operating Revenues and Specified
Expenses
Notes to Summary of Historical Information Relating to Operating Revenues and
Specified Expenses
Estimated Twelve Month Pro Forma Statement of Taxable Operating Income (unaudited)
Estimated Twelve Month Pro Forma Statement of Cash Available from Operations
(unaudited)
Notes to Pro Forma Statements
Technology Drive Property
Report of Independent Certified Public Accountants
Summary of Historical Information Relating to Operating Revenues and Specified
Expenses
Notes to Summary of Historical Information Relating to Operating Revenues and
Specified Expenses
Estimated Twelve Month Pro Forma Statement of Taxable Operating Income (unaudited)
Estimated Twelve Month Pro Forma Statement of Cash Available from Operations
(unaudited)
Notes to Pro Forma Statements (unaudited)
West Coast Realty Investors, Inc.
Pro Forma Statement of Income for the year ended December 31, 1995 (unaudited)
Notes to Pro Forma Financial Statements for nine months ended December 31, 1995
(unaudited)
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(b) Exhibits:
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1.1 Amended Form of Selling Agreement.(2)
1.2 Amended Form of Selected Dealer Agreement.(2)
3.1 Certificate of Incorporation (incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-32466).(1)
3.1.1 Amendment to Certificate of Incorporation (incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-45802).(1)
3.2 Bylaws (incorporated by reference to the Company's Registration Statement on Form
S-11, File No. 33-32466).(1)
3.2.1 Amendment to Bylaws (incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-45802).(1)
3.2.2 Amended and Restated Bylaws (incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-45802).(1)
3.2.3 Amended and Restated Bylaws.(1)
4 Form of Share Certificate (incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-32466).(1)
5 Opinion re: legality (including consent).(2)
8 Opinion re: tax matters (including consent).(2)
10.1 Executed copy of Advisory Agreement (incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-32466).(1)
10.1.1 Executed Copy of Amendment to Advisory Agreement (incorporated by reference to the
Company's Registration Statement on Form S-11, File No. 33-45802).(1)
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<S> <C>
10.1.2 Amended and Restated Advisory Agreement (incorporated by reference to
the Company's Registration Statement on Form S-11, File No. 33-
45802).(1)
10.1.3 Second Amended and Restated Advisory Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File
No. 33-75260).(1)
10.1.4 Third Amended and Restated Advisory Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File
No. 33-75260).(1)
10.2 Executed Copy of Escrow Instructions.(1)
10.3 Form of Dividend Reinvestment Plan (incorporated by reference to the
Company's Registration Statement on Form S-11, File No. 33-3246).(1)
10.4 Form of Property Management Agreement for Property Manager
(incorporated by reference to the Company's Registration Statement on
Form S-11, File No. 33-32466).(1)
10.4.1 Amended and Restated Property Management Agreement (incorporated by
reference to the Company's Registration Statement on Form S-11, File
No. 33-45802).(1)
10.4.2 Second Amended and Restated Property Management Agreement.(1)
10.5 Form of Sure Pay Agreement for Automatic Reinvestment Plan
(incorporated by reference to the Company's Registration Statement on
Form S-11, File No. 33-32466).(1)
10.6 Agreement to Purchase Property (6491 Edinger Avenue, Huntington Beach,
California) incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-32466).(1)
10.7 Lease Re: Property (6491 Edinger Avenue, Huntington Beach, California)
incorporated by reference to the Company's Registration Statement on
Form S-11, File No.33-32466).(1)
10.8 Internal Revenue Service Ruling (6491 Edinger Avenue, Huntington
Beach, California) Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 33-32466).(1)
10.9 Agreement of Purchase and Sale and Joint Escrow Instructions By and
Between Shaw-Nelson San Clemente No. 7 ("Seller") and Associated
Planners Realty Investors, Inc. ("Buyer") (incorporated by reference
to the Company's Current Report on Form 8-K dated January 17,
1992).(1)
10.10 Standard Form Lease Between Shaw/Nelson San Clemente No. 7, a
California Limited Partnership and Societe Endo Technic, a California
Corporation, dba Endo Technic Corporation (incorporated by reference
to the Company's Current Report on Form 8-K dated January 17,
1992).(1)
10.11.1 Lease and Assignment thereof regarding the OPTO-22 Property.
(Incorporated by reference to the Company's Registration Statement on
Form S-11, File No.33-45802).(1)
10.12 Agreement of Purchase and Sale and Escrow Instructions between IBG
Palm Associates, a California General Partnership and the Company
dated January 6, 1994 re: the North Palm Street Property.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-45802).(1)
10.12.1 Leases and Assignment thereof regarding the North Palm Street
Property. (Incorporated by reference to the Company's Registration
Statement on Form S-11, File No.33-45802).(1)
10.13 Real Estate Purchase Agreement between K & I Associates and West Coast
Realty Investors, Inc. dated March 1, 1993. (Incorporated by reference
to Exhibit 10.13 to Registrant's Current Report on Form 8-K dated May
5, 1994).(1)
10.13.1 Leases re: Fresno Property. (Incorporated by reference to Exhibit
10.13.1 to Registrant's Current Report on Form 8-K dated May 5,
1994).(1)
10.13.2 First Amendment to lease re The Wherehouse.(1)
10.14 Agreement of Purchase and Sale of Real Property and Escrow
Instructions Between Birtcher Riverside Market Place Properties, Ltd.
and West Coast Realty Investors, Inc. (Incorporated by reference to
Exhibit 10.14 to Registrant's Current Report on Form 8-K dated
November 29, 1994).(1)
10.14.1 Riverside Market Place Lease and Assignment thereof (Incorporated by
reference to Exhibit 10.14.1 to Registrant's Current Report on Form 8-
K dated November 29, 1994).(1)
10.14.2 Exhibits to Agreement of Purchase and Sale of Real Property and Escrow
Instructions Between Birtcher Riverside Market Place Properties and
West Coast Realty Investors, Inc. (Incorporated by reference to
Exhibit 10.14.2 to Registrant's Current Report on Form 8-K dated
November 29, 1994, as amended).(1)
10.14.3 Appraisal for Riverside Market Place Property. (Incorporated by
reference to Exhibit 10.14.2 to Registrant's Current Report on Form 8-
K dated November 29, 1994, as amended).(1)
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10.15 Purchase and Sale Contract between BRS-Tustin Safeguard Associates and
West Coast Realty Investors, Inc. (Incorporated by reference to
Exhibit 10.15 to Registrant's Current Report on Form 8-K dated May 22,
1995).(1)
10.15.1 Standard Industrial Lease -- Net between BRS-Tustin Safeguard
Associates and Safeguard Business Systems, Inc. (Incorporated by
reference to Exhibit 10.15.1 to Registrant's Current Report on Form 8-
K dated May 22, 1995).(1)
10.15.2 Loan Assignment and Assumption Agreement between BRS-Tustin Safeguard
Associates, West Coast Realty Investors, Inc. and Businessmen's
Assurance Company of America (Incorporated by reference to Exhibit
10.15.2 to Registrant's Current Report on Form 8-K dated May 22,
1995).(1)
10.15.3 Appraisal of Safeguard Business Systems Property (Incorporated by
reference to Exhibit 10.15.3 to Registrant's Current Report on Form 8-
K dated May 22, 1995).(1)
10.16 Purchase and Sale Agreement Dated August 28, 1995 between 26
Technology Partnership, L.P. (co-owner), Jack M. Langston (President
of the General Partner of 26 Technology Partnership, L.P. and co-
owner), and West Coast Realty Investors, Inc. (Incorporated
by reference to Exhibit 1 to Registrant's Current Report on Form 8-K
dated September 21, 1995).(1)
10.16.1 Appraisal Report for An Industrial Building 4400-4415 Technology
Drive, Fremont, California. (Incorporated by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated September 21, 1995).(1)
10.16.2 Standard Industrial Lease between CMS Welding & Machining and 26
Technology Partnership, L.P. dated November 2, 1993. (Incorporated by
reference to Exhibit 3 to Registrant's Current Report on Form 8-K
dated September 21, 1995).(1)
10.16.3 Promissory note secured by deed of trust dated July 1, 1995, including
assignment of leases, environmental indemnity agreement, and other
supporting documents. (Incorporated by reference to Exhibit 4 to
Registrant's Current Report on Form 8-K dated September 21, 1995).(1)
10.16.4 Environmental Site Assessment for 4415 and 4425 Technology Drive dated
February 24, 1995. (Incorporated by reference to Registrant's Current
Report on Form 8-K dated September 21, 1995).(1)
24.1 Consent of BDO Seidman, LLP.(2)
24.2 Consent of Gipson Hoffman & Pancione included in Exhibits 5 and 8
hereto.
24.3 Consent of Hunnicutt Okamoto & Associates.(2)
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(1) Previously filed.
(2) Filed herewith.
ITEM 36. UNDERTAKINGS.
A. Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby
undertakes to file with the Securities and Exchange Commission such
supplementary and periodic information, documents and reports as may be
prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
B. The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a Post-Effective Amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
Post-Effective Amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the Information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
2. To remove from registration by means of a Post-Effective
Amendment any of the securities being registered which remain unsold at
the termination of the offering.
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C. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Securities Act of 1933 during the distribution period
describing each property not identified in the prospectus at such time as
there arises a reasonable probability that such property will be acquired
and to consolidate all such stickers into a Post-Effective Amendment filed
at least once every three months with the information contained in such
Amendment provided simultaneously to the existing shareholders of the
Registrant. Each sticker supplement will disclose all compensation and
fees received by the Advisor or its Affiliates in connection with any such
acquisition. The Post-Effective Amendment will include audited financial
statements meeting the requirements of Rule 3-14 of Regulation S-X only for
properties acquired during the distribution period.
D. The Registrant also undertakes to file after the end of the
distribution period a current report on Form 8-K, containing the financial
statements and any additional information required by Rule 3-14 of
Regulation S-X, to reflect each commitment (i.e., the signing of a binding
purchase agreement) made after the end of the distribution period involving
the use of 10 percent or more (on a cumulative basis) of the net proceeds
of the offering and to provide the information contained in such report to
the Registrant's shareholders at least once each quarter after the
distribution period of the offering has ended.
E. The Registrant hereby undertakes to provide to the principal
underwriter, at the closing specified in the Selling Agent Agreement,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
F. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each Post-Effective Amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) That all Post-Effective Amendments will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such Post-Effective Amendments are filed.
G. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred
to in Item 33 hereof, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in said Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the said Act and will be governed by
the final adjudication of such issue.
H. The undersigned Registrant hereby undertakes that it will provide
its Shareholders the financial statements required by Form 10K and Form 10Q
promulgated under the Securities Exchange Act of 1934.
I. The Registrant undertakes to send to each Shareholder on an annual
basis a detailed statement of any transaction with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid,
or accrued to the Advisor or its Affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-11 and has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Los Angeles, California on
April 15, 1996.
WEST COAST REALTY INVESTORS, INC.
a Delaware corporation
By */s/ Philip N. Gainsborough
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Philip N. Gainsborough
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-11 of West Coast Realty Investors, Inc.
has been signed by the following persons in the capacities and on the date
indicated.
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SIGNATURE TITLE DATE
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<S> <C> <C>
*/s/ Philip N. Gainsborough Director and April 15, 1996
- ---------------------------- Chief Executive Officer
Philip N. Gainsborough
*/s/ W. Thomas Maudlin, Jr. Director and April 15, 1996
- ---------------------------- President
W. Thomas Maudlin, Jr.
*/s/ Michael G. Clark Vice President, April 15, 1996
- ---------------------------- Treasurer and Chief
Michael G. Clark Financial Officer
*/s/ Steve Bridges Director April 15, 1996
- ----------------------------
Steve Bridges
*/s/ James W. Coulter Director April 15, 1996
- -----------------------------
James W. Coulter
*/s/ George Young Director April 15, 1996
- -----------------------------
George Young
/s/ Michael G. Clark
- -----------------------------
*Michael G. Clark
(As attorney-in-fact
pursuant to Power of
Attorney previously filed)
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