Unassociated Document

0001144204-05-024928.txt : 20050812 0001144204-05-024928.hdr.sgml : 20050812 20050812145341 ACCESSION NUMBER: 0001144204-05-024928 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050812 DATE AS OF CHANGE: 20050812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILSHIRE ENTERPRISES INC CENTRAL INDEX KEY: 0000107454 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 840513668 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04673 FILM NUMBER: 051021002 BUSINESS ADDRESS: STREET 1: 1 GATEWAY CENTER, CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2014202796 MAIL ADDRESS: STREET 1: 1 GATEWAY CENTER, CITY: NEWARK STATE: NJ ZIP: 07102 FORMER COMPANY: FORMER CONFORMED NAME: WILSHIRE OIL CO OF TEXAS DATE OF NAME CHANGE: 19920703 10-Q 1 v023456_10q.htm Unassociated Document

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter period ended June 30, 2005Commission file number 1-4673

WILSHIRE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Delaware		84-0513668
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


1 Gateway Center, Newark, New Jersey		07102
(Address of principal executive offices)		(Zip Code)


(201) 420-2796
(Registrant’s telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 9, 2005.

Common Stock $1 Par Value – 7,859,441

WILSHIRE ENTERPRISES, INC.

INDEX

		Page No.

Part I - Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets -
	June 30, 2005 (Unaudited) and December 31, 2004	3

	Unaudited Condensed Consolidated Statements of Operations -
	Three months ended June 30, 2005 and 2004	4

	Unaudited Condensed Consolidated Statements of Operations -
	Six months ended June 30, 2005 and 2004	5

	Unaudited Condensed Consolidated Statements of Cash Flows -
	Six months ended June 30, 2005 and 2004	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

3.	Quantitative and Qualitative Disclosure About Market Risk	27

4.	Controls and Procedures	29

Part II - Other Information

2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

4.	Submission of Matters to a Vote of Security Holders	30

6.	Exhibits	30

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WILSHIRE ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2005			2004
Assets	(Unaudited)			(Note 1)
CURRENT ASSETS
Cash and cash equivalents	$	25,007,000		$	31,110,000
Restricted cash		670,000			4,082,000
Marketable securities, available for sale, at fair value		2,043,000			2,754,000
Accounts receivable, net		204,000			189,000
Income taxes receivable		4,360,000			4,389,000
Prepaid expenses and other current assets		2,146,000			1,827,000
Total current assets		34,430,000			44,351,000
NONCURRENT ASSETS
Mortgages receivable		133,000			957,000
Other noncurrent assets		—			208,000
PROPERTY AND EQUIPMENT
Real estate properties		32,940,000			32,382,000
Real estate properties - Held for sale		27,100,000			26,555,000
		60,040,000			58,937,000
Less:
Accumulated depreciation and amortization		11,539,000			10,869,000
Accumulated depreciation, depletion and amortization - Property held for sale		6,111,000			6,031,000
		42,390,000			42,037,000
TOTAL ASSETS	$	76,953,000		$	87,553,000


Liabilities and Stockholders’ Equity
CURRENT LIABILITIES
Current portion of long-term debt	$	389,000		$	375,000
Accounts payable		896,000			1,257,000
Income taxes payable		8,000			3,623,000
Deferred income taxes		2,273,000			2,465,000
Accrued liabilities		391,000			606,000
Deferred income		81,000			373,000
Current liabilities associated with discontinued operations		1,040,000			1,086,000
Total current liabilities		5,078,000			9,785,000
NONCURRENT LIABILITIES
Long-term debt, less current portion		24,847,000			25,057,000
Deferred income taxes		1,848,000			1,855,000
Deferred income		180,000			621,000
Noncurrent liabilities associated with discontinued operations		17,137,000			21,124,000
Total liabilities		49,090,000			58,442,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued and outstanding
in 2005 and 2004		—			—
Common stock, $1 par value, 15,000,000 shares authorized; issued 10,013,544 shares
in 2005 and 2004		10,014,000			10,014,000
Capital in excess of par value		9,029,000			9,524,000
Retained earnings		19,581,000			19,905,000
Unearned compensation		(248,000	)		(431,000	)
Treasury stock, 2,159,003 and 2,234,732 shares at June 30, 2005 and
December 31, 2004, respectively, at cost		(10,069,000	)		(10,491,000	)
Accumulated other comprehensive income (loss)		(444,000	)		590,000
Total stockholders’ equity		27,863,000			29,111,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	76,953,000		$	87,553,000

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

WILSHIRE ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended June 30, 2005 and 2004

	June 30, 2005			June 30, 2004

Revenues	$	1,815,000		$	1,868,000

Costs and Expenses
Operating expenses		978,000			1,007,000
Depreciation expense		311,000			323,000
General and administrative		1,603,000			407,000
Total costs and expenses		2,892,000			1,737,000

Income (Loss) from Operations		(1,077,000	)		131,000

Other Income
Dividend and interest income		185,000			46,000
Other income		24,000			-

Interest Expense		(407,000	)		(412,000	)

Loss before income taxes		(1,275,000	)		(235,000	)

Income Tax Benefit		(514,000	)		(81,000	)

Loss from Continuing Operations		(761,000	)		(154,000	)

Discontinued Operations - Real Estate, Net of Taxes of $(73,000) and $278,000
Loss from operations		(133,000	)		(136,000	)
Gain from sales		90,000			471,000

Discontinued Operations - Oil & Gas, Net of Taxes of $(168,000) and $400,000
Income from operations		162,000			275,000
Gain from sales		—			567,000

Net Income (Loss)	$	(642,000	)	$	1,023,000

Basic earnings (loss) per share:
Loss from continuing operations	$	(0.10	)	$	(0.02	)
Income (loss) from discontinued operations
Real estate - loss from operations		(0.01	)		(0.02	)
Real estate - gain on sales		0.01			0.06
Oil and gas - income from operations		0.02			0.04
Oil and gas - gain from sales		—			0.07

Net income (loss) applicable to common stockholders	$	(0.08	)	$	0.13

Diluted earnings (loss) per share:
Loss from continuing operations	$	(0.10	)	$	(0.02	)
Income (loss) from discontinued operations
Real estate - loss from operations		(0.01	)		(0.02	)
Real estate - gain on sales		0.01			0.06
Oil and gas - income from operations		0.02			0.04
Oil and gas -gain from sales		—			0.07

Net income (loss) applicable to common stockholders	$	(0.08	)	$	0.13

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

WILSHIRE ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the six months ended June 30, 2005 and 2004

	June 30, 2005			June 30, 2004

Revenues	$	3,599,000		$	3,698,000

Costs and Expenses
Operating expenses		1,951,000			1,995,000
Depreciation expense		670,000			647,000
General and administrative		2,129,000			654,000
Total costs and expenses		4,750,000			3,296,000

Income (Loss) from Operations		(1,151,000	)		402,000

Other Income
Dividend and interest income		287,000			240,000
Gain on sale of marketable securities		134,000			—
Gain on sale of real estate and real estate related assets		675,000			—
Other income		31,000			—

Interest Expense		(812,000	)		(825,000	)

Loss before income taxes		(836,000	)		(183,000	)

Income Tax Benefit		(360,000	)		(63,000	)

Loss from Continuing Operations		(476,000	)		(120,000	)

Discontinued Operations - Real Estate, Net of Taxes of $(32,000) and $1,918,000
Loss from operations		(205,000	)		(216,000	)
Gain from sales		221,000			3,373,000

Discontinued Operations - Oil & Gas, Net of Taxes of $(179,000) and $217,000
Income from operations		136,000			18,000
Gain from sales		—			567,000

Net income	$	(324,000	)	$	3,622,000

Basic earnings (loss) per share:
Loss from continuing operations	$	(0.06	)	$	(0.01	)
Income (loss) from discontinued operations
Real estate - loss from operations		(0.02	)		(0.03	)
Real estate - gain on sales		0.02			0.43
Oil and gas - income from operations		0.02			—
Oil and gas - gain from sales		—			0.07

Net income applicable to common stockholders	$	(0.04	)	$	0.46

Diluted earnings (loss) per share:
Loss from continuing operations	$	(0.06	)	$	(0.01	)
Income (loss) from discontinued operations
Real estate - loss from operations		(0.02	)		(0.03	)
Real estate - gain on sales		0.02			0.43
Oil and gas - income from operations		0.02			—
Oil and gas - gains from sales		—			0.07

Net income applicable to common stockholders	$	(0.04	)	$	0.46

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

WILSHIRE ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2005 and 2004

	June 30, 2005			June 30, 2004

Cash flows from operating activities:
Net income	$	(324,000	)	$	3,622,000
Adjustments to reconcile net income to net cash used in operating activities -
Depreciation, depletion and amortization		750,000			1,101,000
Amortization of compensation expense		183,000			—
Deferred income tax benefit		(7,000	)		(8,834,000	)
Decrease in deferred income		(5,000	)		(10,000	)
Gain on sales of real estate assets		(1,049,000	)		(5,678,000	)
Gain on sale of marketable securities		(133,000	)		—
Gain on sale of oil and gas assets		—			(768,000	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(15,000	)		1,491,000
Decrease in income taxes receivable		29,000			—
(Increase) decrease in prepaid expenses and other current assets		(319,000	)		556,000
(Decrease) increase in accounts payable, accrued liabilities and other liabilities		(472,000	)		138,000
(Decrease) increase in income taxes payable		(3,615,000	)		4,963,000
Net cash used in operating activities		(4,977,000	)		(3,419,000	)

Cash flows from investing activities:
Capital expenditures - real estate		(1,239,000	)		(547,000	)
Proceeds from sale of oil & gas assets		—			28,131,000
Proceeds from sale of real estate properties		510,000			14,604,000
Proceeds on mortgages receivable		1,100,000			1,187,000
Proceeds from sales of marketable securities		374,000			—
Decrease in restricted cash		3,412,000			159,000
Net cash provided by investing activities		4,157,000			43,534,000

Cash flows from financing activities:
Principal payments of long-term debt		(4,206,000	)		(11,108,000	)
Purchase of treasury stock		(337,000	)		—
Proceeds from exercise of stock options		34,000			14,000
Net cash used in financing activities		(4,509,000	)		(11,094,000	)

Effect of exchange rate changes on cash		(774,000	)		389,000

Net increase (decrease) in cash and cash equivalents		(6,103,000	)		29,410,000

CASH AND CASH EQUIVALENTS, beginning of period		31,110,000			7,763,000
CASH AND CASH EQUIVALENTS, end of period	$	25,007,000		$	37,173,000

SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS:
Cash paid during the period for -
Interest	$	1,464,000		$	1,566,000
Income taxes, net	$	2,959,000		$	4,448,000

The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.

WILSHIRE ENTERPRISES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005

1.	FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Registrant believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of management, this condensed financial information reflects all adjustments necessary to present fairly the results for the interim periods. The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005 or any other subsequent period.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

In July 2003, the Company committed to the sale of its oil and gas operations. The financial statements have been adjusted to reflect the oil and gas operations as “Discontinued Operations” in 2004 and 2005.

In April 2004, the Company sold its oil and gas operations and received net proceeds of $28.1 million. An escrow holdback of $600,000 was established to allow for any potential post closing adjustments relating to its United States operations. This escrow was paid in full to the Company on June 22, 2004 and the condensed consolidated statements of income for the three and six months ended June 30, 2004 include a gain of $567,000 (after taxes) on the transaction. Since the sale was effective as of March 1, 2004, the financial statements as presented reflect in discontinued operations oil and gas operations for the first two months of 2004. The 2005 period includes adjustments to income tax accruals, interest income earned on the cash balances held in Canada, offset by residual costs related to the oil and gas properties.

The Company has designated certain real estate properties as held for sale and reports the gain on the sale of such real estate properties plus the year to date operations and related interest expense of such real estate properties as “Discontinued Operations”.

During the three months ended June 30, 2005, the Company designated the following New Jersey properties as Discontinued Operations: its condominium units at Galsworthy Arms and Jefferson Gardens, the Alpine Village apartment complex, the Wilshire Grand Hotel, its bank branch building in Rutherford and certain parcels of undeveloped land.

For the three months ended June 30, 2005, the Company sold a one-bedroom condominium unit at Galsworthy Arms for gross proceeds of $240,000 and recorded an approximate after tax gain on the sale of $90,000. For the six months ended June 30, 2005, the Company sold a two-bedroom unit for gross proceeds of $270,000 and the previously mentioned one-bedroom unit at Galsworthy Arms for total gross proceeds of $510,000 and recorded an after tax gain on the sales of approximately $221,000. For the three months ended June 30, 2004, the Company sold two real estate properties located in New Jersey for gross proceeds of approximately $3.7 million and recorded an after tax gain on the sale of approximately $471,000. For the six months ended June 30, 2004, the Company sold thirteen real estate properties located in New Jersey for gross proceeds of approximately $14.8 million and recorded an after tax gain on the sale of approximately $3.4 million.

On June 2, 2005, Wilshire Enterprises, Inc. completed a transaction with respect to its property located in West Orange, New Jersey known as the Wilshire Grand Hotel and Banquet Facility (the “Wilshire Hotel”). The Company had leased the Wilshire Hotel under two 25-year operating leases, one for the hotel and one for the banquet facility, to an experienced hotel operator (the “Hotel Operator”). The Hotel Operator had encountered financial adversity and ceased payments in 2004 on its mortgage obligations held by Proud Three LLC (“Proud Three”) and secured by multiple properties. The Hotel Operator was also delinquent on its lease payments for the Wilshire Hotel to the Company since January 2005.

The resolution of this matter included the termination of the leases with the Hotel Operator and the contribution of the Wilshire Hotel by the Company to a newly formed limited liability company, WO Grand Hotel, LLC (“LLC”). Proud Three contributed its loan receivable of $11.9 million from the Hotel Operator, and the Company and Proud Three are the sole members of the LLC.

The operating agreement of the LLC provides that the first $7.5 million in profits and gains will be allocated to Wilshire, the next $7.5 million in profits and gains will be allocated to Proud Three, and the profits and gains above $15 million will be allocated equally between the Company and Proud Three. The operating agreement gives the Company total operational control over the LLC and the Wilshire Hotel, including the right to sell that property. The operating agreement contains other provisions relating to rights of first refusal and call options. The operating agreement provides Proud Three with a call option to acquire Wilshire’s equity in the LLC for a minimum of $5.25 million during the six-month period beginning January 2, 2006.

As part of the resolution of this matter, Proud Three paid 50% of the delinquent rent to the Company.

Because Proud Three is affiliated with the Company’s Chairman and CEO, the transaction was reviewed and approved by a special independent committee of the Company’s Board of Directors that had been appointed for this purpose. As part of its review process, this committee retained an independent investment banking firm to evaluate the transaction and received an opinion from that firm that the transaction was fair to the Company and its stockholders from a financial point of view.

Effective June 2, 2005, LLC and its results of operations are being included in the Company’s condensed consolidated financial statements as part of discontinued operations. The assets contributed to LLC were valued at their historical basis, except for the loan receivable contributed by to LLC by Proud Three which was deemed impaired and written down to its net realizable value.

In the second quarter of 2005, the Company utilized approximately $7.1 million of its total cash including: (a) Debt reduction ($3.8 million); (b) Share repurchases, including the purchase of the exercised shares of the former President of the Company and open market purchases ($1.4 million); (c) Mortgages and notes receivable, including funding for the improvements to Galsworthy Arms condominium complex, secured by a mortgage, and the Wilshire Grand Hotel, LLC ($533,000); (d) Capital expenditures ($482,000); (e) Funding for corporate expenses including general liability insurance for one year beginning April 2005 ($155,000), personnel costs including payments to the former President of the Company in conjunction with acquiring his exercised shares and an executive recruiting firm ($86,000), legal expenses associated with transactions and other matters ($70,000) and other items ($180,000); (f) Improvements made to the Company’s office building located in Perth Amboy ($120,000); and (g) Transaction expenses related to the Wilshire Grand Hotel including a fairness opinion ($109,000).

Basis of Presentation

Certain amounts in the 2004 condensed consolidated financial statements have been reclassified to conform to the 2005 presentation.

Accounting for Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board issued Statement No. 148 to amend alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has continued to account for options in accordance with the provision of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense has been recognized in the statements of income for stock option plans.

In June 2005 and 2004, 25,000 and 50,000 stock options, respectively, were granted to non-officer directors under the 2004 Non-Officer Director Stock Option Plan. The pro forma impact of expensing stock options for the three and six months ended June 30, 2005 and 2004 would not be material.

The fair value of stock options was estimated using the Black-Scholes option-pricing model based on the variables presented in the following table.

	June 30, 2005			June 30, 2004

Weighted average market price	$	7.20		$	5.18
Risk free interest rate		3.87	%		3.97	%
Volatility		40.3	%		36.4	%
Dividend yield		—	%		—	%
Expected option life		5 years			5 years

In December 2004, the FASB issued SFAS No. 123R, “Accounting for Stock-Based Compensation.” SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS 123R, only certain pro forma disclosures of fair value were required. SFAS 123R shall be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, which for Wilshire is the quarter ended March 31, 2006. The adoption of this new accounting pronouncement is not expected to have a material impact on Wilshire’s consolidated financial statements.

At the time of his retirement on June 30, 2004, the former President of the Company had 300,000 stock options outstanding with a weighted average exercise price of $3.35 per share. As part of the three year consulting arrangement between the former President and the Company, the term of his stock options were extended for the length of his consulting arrangement. This arrangement has resulted in the Company valuing his stock options at $495,000, which is the difference between the intrinsic value of the stock options at their date of grant and the market value of the Company’s common stock at June 30, 2004. This value has been recorded as an increase to capital in excess of par value and an increase to unearned compensation, both separate components of stockholders’ equity. The unearned compensation amount was being amortized into general and administrative expense over the term of the three year consulting arrangement at a rate of $41,000 every quarter.

On April 19, 2005, the Company reached a mutual agreement with the former President to terminate his consulting agreement with the Company. The Company agreed to provide him with a final lump sum payment in the amount of $50,625 and the former President agreed to forego an additional $75,000 of consulting fees due to him under the terms of his consulting arrangement. Also, at the Company’s request, the former President agreed to exercise his 300,000 stock options at the applicable exercise prices for a total sum of $1,005,500 and then sell to the Company all of the exercised shares at a purchase price per share of $7.00 for an aggregate payment of $2,100,000, or a net cash payment of $1,094,500. The transaction was completed on April 20, 2005 and resulted in the Company recording an after-tax charge of approximately $600,000 in the second quarter of 2005.

2.	SEGMENT INFORMATION

The Company conducts real estate operations in the United States, principally consisting of residential apartment and condominium complexes and commercial and retail properties. For the first two months of 2004 the Company was engaged in the exploration of oil and gas, both in its own name and through several wholly owned subsidiaries, on the North American continent. In July 2003 the Company committed to the sale of its oil and gas operations and consummated the sale in April 2004, effective March 1, 2004. The financial statements have been adjusted to present oil and gas operations as “Discontinued Operations” in 2004 and 2005. Accordingly, the Company only conducts real estate operations in the United States.

The Company’s real estate operations consist of continuing operations in Arizona (Sunrise Ridge Apartments, Van Buren Apartments, Tempe Corporate Center and Royal Mall Plaza), Texas (Summercreek Apartments and Wellington Estates) and Florida (Tamarac) and discontinued operations in Arizona (Biltmore Club Apartments), Georgia (Twelve Oaks Apartments) and New Jersey. During the three months ended June 30, 2005, the Company designated the following New Jersey properties as Discontinued Operations: its condominium units at Galsworthy Arms and Jefferson Gardens, the Alpine Village apartment complex, the Wilshire Grand Hotel, its bank branch building in Rutherford and certain parcels of undeveloped land. At June 30, 2005, all of the Company’s New Jersey properties have been classified as discontinued operations.

Continuing real estate revenue, operating expenses, net operating income (“NOI”), the total value of real estate properties, net of accumulated depreciation and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated net income (loss) from continuing operations for each of the three and six month periods ended June 30, 2005 and 2004.

	Three months ended
	June 30, 2005			June 30, 2004

Real estate revenue:
Residential	$	1,410,000		$	1,429,000
Commercial		405,000			439,000
Total	$	1,815,000		$	1,868,000

Real estate operating expenses:
Residential	$	815,000		$	835,000
Commercial		163,000			172,000
Total	$	978,000		$	1,007,000

Net operating income:
Residential	$	595,000		$	594,000
Commercial		242,000			267,000
Total	$	837,000		$	861,000

Book value of real estate properties, net of accumulated depreciation:
Residential	$	16,610,000		$	16,568,000
Commercial		4,628,000			4,274,000
Total	$	21,238,000		$	20,842,000

Capital improvements:
Residential	$	318,000		$	108,000
Commercial		99,000			32,000
Total	$	417,000		$	140,000

Reconciliation of NOI to consolidated net loss from continuing operations:
Segment NOI	$	837,000		$	861,000
Total other income, including net investment income		209,000			46,000
Depreciation expense		(311,000	)		(323,000	)
General and administrative expense		(1,603,000	)		(407,000	)
Interest expense		(407,000	)		(412,000	)
Income tax benefit		514,000			81,000

Net loss from continuing operations	$	(761,000	)	$	(154,000	)

	Six months ended
	June 30, 2005			June 30, 2004

Real estate revenue:
Residential	$	2,804,000		$	2,849,000
Commercial		795,000			849,000
Total	$	3,599,000		$	3,698,000

Real estate operating expenses:
Residential	$	1,613,000		$	1,631,000
Commercial		338,000			364,000
Total	$	1,951,000		$	1,995,000

Net operating income:
Residential	$	1,191,000		$	1,218,000
Commercial		457,000			485,000
Total	$	1,648,000		$	1,703,000

Book value of real estate properties, net of accumulated depreciation:
Residential	$	16,610,000		$	16,568,000
Commercial		4,628,000			4,274,000
Total	$	21,238,000		$	20,842,000

Capital improvements:
Residential	$	318,000		$	210,000
Commercial		99,000			64,000
Total	$	417,000		$	274,000

Reconciliation of NOI to consolidated net loss from continuing operations:
Segment NOI	$	1,648,000		$	1,703,000
Total other income, including net investment income		1,127,000			240,000
Depreciation expense		(670,000	)		(647,000	)
General and administrative expense		(2,129,000	)		(654,000	)
Interest expense		(812,000	)		(825,000	)
Income tax benefit		360,000			63,000

Net loss from continuing operations	$	(476,000	)	$	(120,000	)

3.	COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) for the three and six months ended June 30, 2005 and 2004 is as follows:

	Three Months Ended June 30,
	2005			2004
	(Unaudited)			(Unaudited)

Net income (loss)	$	(642,000	)	$	1,023,000
Other comprehensive income (loss) net of taxes:
Foreign currency translation adjustments		(694,000	)		873,000
Change in unrealized gain on marketable securities		(76,000	)		(7,000	)
Other comprehensive income (loss)		(770,000	)		866,000

Comprehensive income (loss)	$	(1,412,000	)	$	1,889,000

	Six Months Ended June 30,
		2005			2004
		(Unaudited)			(Unaudited)

Net income	$	(324,000	)	$	3,622,000
Other comprehensive income (loss) net of taxes:
Foreign currency translation adjustments		(757,000	)		389,000
Change in unrealized gain on marketable securities -
Reclassification adjustment for gains on marketable securities sold,
net of tax of $(53,000) in 2005		(76,000	)		—
Change in unrealized gain on marketable securities		(201,000	)		34,000
Other comprehensive income (loss)		(1,034,000	)		423,000

Comprehensive income (loss)	$	(1,358,000	)	$	4,045,000

Changes in the components of Accumulated Other Comprehensive Income (Loss) for the six months ended June 30, 2005 and the year ended December 31, 2004 are as follows:


	Unrealized Gains			Cumulative			Accumulated
	(Losses) on			Foreign Currency			Other
	Available-for-Sale			Translation			Comprehensive
	Securities			Adjustment			Income (Loss)

BALANCE, December 31, 2003	$	108,000		$	(1,536,000	)	$	(1,428,000	)
Change for the year 2004		456,000			1,562,000			2,018,000
BALANCE, December 31, 2004		564,000			26,000			590,000
Change for the six months		(277,000	)		(757,000	)		(1,034,000	)

BALANCE, June 30, 2005	$	287,000		$	(731,000	)	$	(444,000	)

4.	EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended June 30,
	2005			2004
Numerator-
Net Income (Loss)	$	(642,000	)	$	1,023,000

Denominator-
Weighted average common
shares outstanding - Basic		7,867,382			7,805,156
Incremental shares from assumed
conversions of stock options		105,862			148,128
Weighted average common shares
outstanding - Diluted		7,973,244			7,953,284

Basic earnings per share:	$	(0.08	)	$	0.13

Diluted earnings per share:	$	(0.08	)	$	0.13

	Six Months Ended June 30,
	2005			2004
Numerator-
Net Income (Loss)	$	(324,000	)	$	3,622,000

Denominator-
Weighted average common
shares outstanding - Basic		7,871,845			7,803,995
Incremental shares from assumed
conversions of stock options		94,448			144,582
Weighted average common shares
outstanding - Diluted		7,966,293			7,948,577

Basic earnings per share:	$	(0.04	)	$	0.46

Diluted earnings per share:	$	(0.04	)	$	0.46

5.	COMMITMENTS AND CONTINGENCIES

On June 3, 2004, the Company announced a program to purchase up to 1,000,000 shares of its common stock on the open market, in privately negotiated transactions or otherwise. This purchasing activity may occur from time to time, in one or more transactions. From the inception of the authorization through June 30, 2005, the Company had purchased 82,642 shares under this program at an approximate cost of $535,000 or $6.47 per share, with 41,239 and 44,139 shares being purchased during the three and six months ended June 30, 2005, respectively.

In June 1996, the Company’s Board of Directors adopted the Stockholder Protection Rights Plan (the “Rights Plan”). The Rights Plan provides for issuance of one Right for each share of common stock outstanding as of July 6, 1996. The Rights are separable from and exercisable upon the occurrence of certain triggering events involving the acquisition of at least 15% (or, in the case of certain existing stockholders, 25%) of the Company’s common stock by an individual or group, as defined in the Rights Plan (an “Acquiring Person”) and may be redeemed by the Board of Directors at a redemption price of $0.01 per Right at any time prior to the announcement by the Company that a person or group has become an Acquiring Person.

On and after the tenth day following such triggering events, each Right would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the Company’s Common Stock for $25. In addition, if there is a business combination between the Company and an Acquiring Person, or in certain other circumstances, each Right (if not previously exercised) would entitle the holder (other than the Acquiring Person) to purchase $50 in market value of the common stock of the Acquiring Person for $25.

As of June 30, 2005 and 2004, 7,854,541 and 7,806,733, respectively, of Rights were outstanding. Each Right entitles the holder to purchase, for an exercise price of $25, one one-hundredth of a share of Series A Participating Preferred Stock. Each one one-hundredth share of Series A Participating Preferred Stock is designed to have economic terms similar to those of one share of common stock but will have one one-hundredth of a vote. Because the Rights are only exercisable under certain conditions, none of which were in effect as of June 30, 2005 and 2004, the outstanding Rights are not considered in the computation of basic and diluted earnings per share.

6.	STOCK OPTION PLANS

In June 2004, the Company’s stockholders approved the 2004 Stock Option and Incentive Plan (the “2004 Plan”). The purpose of the 2004 Plan is to encourage stock ownership by key employees and consultants of the Company, to provide additional incentive for them to promote the successful business operations of the Company, to encourage them to continue providing services to the Company, and to attract new employees and consultants to the Company. Awards under the 2004 Plan may be granted in any one or all of the following forms, as those terms are defined under the 2004 Plan: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted shares of common stock; (v) performance shares; (vi) performance units; and (vii) unrestricted shares of common stock. The maximum aggregate number of shares of common stock available for award under the 2004 Plan is 600,000, subject to adjustment under the terms of the 2004 Plan. As of June 30, 2005, 115,529 shares of stock had been granted to employees and significant vendors under the 2004 Plan, of which 48,929 shares had restrictions under which the employee’s right to receive these restricted shares vest serially over a three-year period. During the three months ended June 30, 2005, the Company did not issue any shares under the Plan. During the six months ended June 30, 2005, the Company issued 44,400 shares under the Plan. Compensation expense of approximately $27,000 and $50,000, respectively, was recognized for the three and six months ended June 30, 2005 related to shares issued under the Plan in prior periods.

In June 2004, the Company’s stockholders approved the 2004 Non-Employee Director Stock Option Plan (the “2004 Director Plan”). The purpose of the 2004 Director Plan is to attract qualified personnel to accept positions of responsibility as directors of the Company, to provide incentives for persons to remain on the Board and to induce such persons to maximize the Company’s performance during the terms of their options. Only non-qualified stock options may be granted under the 2004 Director Plan. The maximum aggregate number of shares of common stock available for grant under the 2004 Director Plan is 150,000, subject to adjustment under the terms of the 2004 Director Plan. Upon adoption of the 2004 Director Plan, each non-employee director was granted 10,000 options to purchase common shares of the Company. Under the terms of the 2004 Director Plan at each annual meeting of shareholders, all non-officer directors are granted 5,000 options to purchase common shares of the Company. As of June 30, 2005, 75,000 options had been granted at market value under the 2004 Director Plan, of which 25,000 stock options were granted during the three and six months ended June 30, 2005.

7.	MORTGAGE RECEIVABLE

In February 2005, the Company and the borrower negotiated a settlement of the outstanding mortgage notes receivable for $1.1 million, which was paid during the first quarter of 2005. The Company recognized a gain in the first quarter 2005 of approximately $675,000 before taxes ($400,000 after taxes) on this transaction.

Effective June 1, 2005, the Company entered into a loan agreement with the Galsworthy Arms Condominium Association (“Association”) for $133,000 that is being used by the Association to finance improvements to the property. The loan is secured by a lien on one condominium unit owned directly by the Association. The loan is payable in equal monthly installments over a five year period and bears interest at 5% per annum.

Effective June 2, 2005, the Company entered into a loan agreement with WO Grand Hotel LLC (“LLC”) for $400,000 that is being used by LLC to finance its initial operating costs. The loan is payable upon demand and bears interest at 8% per annum.

8.	SUBSEQUENT EVENTS

On August 3 2005, the Company’s previously announced contract with Interstate East Management, Inc., an independent third party, for the sale of the Twelve Oaks apartment complex in Atlanta, Georgia was modified with no change to the purchase price of $1,725,000. This transaction is now expected to close during the third quarter of 2005, at which time the Company will realize an approximate gain of $300,000 after taxes. The Company will pay-off the outstanding mortgage on the property of approximately $1.6 million using the net proceeds from the sale.

On August 3, 2005, the Company closed on the sale of a one-bedroom unit at Jefferson Gardens for gross proceeds of $150,000 that will result in an approximate after-tax gain of $70,000 being recorded in the third quarter ended September 30, 2005.

In early August 2005, the Company listed for sale most of its New Jersey assets for $26.5 million. The New Jersey properties included in the listing are Alpine Village Apartments, Galsworthy Arms Condominiums, Jefferson Gardens Condominiums, the Rutherford bank branch, 17.5 acres of undeveloped land located adjacent to Alpine Village Apartments, 1.8 acres of undeveloped land located on the shore of Lake Hopatcong, and 0.5 acres of undeveloped land located in West Orange. The properties are being offered for sale as a portfolio.

Also in early August, the Company signed a contract to acquire The Village at Gateway Pavilions, a 240 unit multi-family property built in 2004 in Avondale, Arizona for $28.1 million. The purchase, which is subject to due diligence and the assumption of HUD financing, is expected to close in January 2006. The Company expects it will finance this purchase primarily through the use of proceeds obtained from the sale of properties as part of a Section 1031 exchange.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion addresses material changes in the Company’s results of operations for the three and six month periods ended June 30, 2005 compared to the three and six month periods ended June 30, 2004 and changes in its financial condition since December 31, 2004. It is presumed that readers have read or have access to Wilshire’s 2004 Annual Report on Form 10-K which includes disclosures regarding critical accounting policies as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Report on Form 10-Q for the quarter ended June 30, 2005 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included herein other than statements of historical fact are forward-looking statements. Although the Company believes that the underlying assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The Company’s business and prospects are subject to a number of risks which could cause actual results to differ materially from those reflected in such forward-looking statements, including uncertainties inherent in any attempt to sell a portion or all of its real estate at an acceptable price, environmental risks relating to the Company’s real estate properties, competition, the substantial capital expenditures required to fund the Company’s real estate operations, market and economic changes in areas where the Company holds real estate properties, interest rate fluctuations, government regulation, and the ability of the Company to implement its business strategy.

Overview

Net income (loss) for the three months ended June 30, 2005 amounted to a loss of $642,000 or $0.08 per diluted share, a decrease of $1,665,000 from net income totaling $1,023,000 or $0.13 per diluted share reported for the three months ended June 30, 2004. Operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s oil and gas businesses, the net income (loss) from real estate properties held for sale and the gain from real estate properties held for sale that were sold during the period.

The three months ended June 30, 2005 includes an approximate after-tax charge of $600,000 related to the termination of the consulting contract between the Company and its former President who retired June 30, 2004.

During the three months ended June 30, 2005, the Company sold one (1) one-bedroom condominium unit at its Galsworthy Arms, New Jersey, property for gross proceeds of $240,000 that resulted in an after-tax gain of approximately $90,000. This gain was included in the statement of operations in discontinued operations - real estate - gain from sales.

During the three months ended June 30, 2004, the Company sold two real estate properties in New Jersey for gross proceeds of $3,740,000, realizing an after-tax gain of $471,000. This gain was included in the statement of operations in discontinued operations - real estate - gain from sales.

The following table presents the increases (decreases) in each major statement of income category for the three and six months ended June 30, 2005 and 2004, respectively. The following discussion of “Results of Operations” references these increases (decreases).

	Income (Decrease) in Consolidated Statements of Income Categories for the periods:
	3 months ended June 30, 2005 v. June 30, 2004						6 months ended June 30, 2005 v. June 30, 2004
	Amount ($)			%			Amount ($)			%

Revenues	$	(53,000	)		(2.8	)	$	(99,000	)		(2.7	)

Costs and Expenses
Operating expenses		(29,000	)		(2.9	)		(44,000	)		(2.2	)
Depreciation expense		(12,000	)		(3.7	)		23,000			3.6
General and administrative		1,196,000			293.9			1,475,000			225.5
Total costs and expenses		1,155,000			66.5			1,454,000			44.1

Loss from Operations		(1,208,000	)		(922.1	)		(1,553,000	)		(386.3	)

Other Income
Dividend and interest income		139,000			302.2			47,000			19.6
Gain on sale of marketable securities		—			—			134,000			100.0
Gain on sale of real estate and real estate related assets		—			—			675,000			100.0
Other income		24,000			100.0			31,000			100.0

Interest Expense		(5,000	)		(1.2	)		(13,000	)		(1.6	)

Loss Before Income Taxes		(1,040,000	)		(442.6	)		(653,000	)		(356.8	)

Income Tax Benefit		433,000			534.6			297,000			471.4
`
Loss from Continuing Operations		(607,000	)		394.2			(356,000	)		(296.7	)

Discontinued Operations - Real Estate, Net of Taxes
Loss from operations		3,000			2.2			11,000			5.1
Gain from sales		(381,000	)		(80.9	)		(3,152,000	)		(93.4	)

Discontinued Operations - Oil & Gas, Net of Taxes
Income from operations		(113,000	)		(41.1	)		118,000			655.6
Gain from sales		(567,000	)		(100.0	)		(567,000	)		(100.0	)

Net Income	$	(1,665,000	)		(162.8	)	$	(3,946,000	)		(108.9	)

Basic earnings (loss) per share
Loss from continuing operations	$	(0.08	)		(400.0	)	$	(0.05	)		(500.0	)
Income from discontinued operations		(0.13	)		(86.7	)		(0.45	)		(95.7	)
Net income applicable to common shareholders	$	(0.21	)		(161.5	)	$	(0.50	)		(108.7	)

Diluted earnings (loss) per share
Loss from continuing operations	$	(0.08	)		(400.0	)	$	(0.05	)		(500.0	)
Income from discontinued operations		(0.13	)		(86.7	)		(0.45	)		(95.7	)
Net income applicable to common shareholders	$	(0.21	)		(161.5	)	$	(0.50	)		(108.7	)

Results of Operations

Three Months Ended June 30, 2005 (“Q2 2005”) Compared with Three Months Ended June 30, 2004 (“Q2 2004”)

Overview

Net income (loss) for Q2 2005 amounted to a loss of $642,000 or $0.08 per diluted share, a decline of $1,665,000 from net income of $1,023,000 or $0.13 per diluted share reported for Q2 2004. Results of operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s oil and gas businesses, the operating results from real estate properties held for sale and the gain from real estate properties held for sale that were sold during the period.

Continuing Operations:

Loss from continuing operations was $761,000 in Q2 2005 compared with $154,000 in Q2 2004. Results per diluted share from continuing operations amounted to $(0.10) in Q2 2005 and $(0.02) in Q2 2004. The 2005 period included approximately $600,000 of after tax (approximately $1,029,000 before taxes) expense related to the termination of the consulting contract of the former President of the Company and the purchase by the Company of his outstanding stock options.

Segment Information

Wilshire presently conducts business in the residential (including condominiums that it owns and rents) and commercial real estate segments. The following table sets forth comparative data for Wilshire’s real estate segments in continuing operations.

	Residential Real Estate										Commercial Real Estate										Total
	3 months ended June 30				Increase (Decrease)						3 months ended June 30				Increase (Decrease)						3 months ended June 30						Increase (Decrease)
	2005		2004		$			%			2005		2004		$			%			2005			2004			$			%
	(In 000s of $)										(In 000s of $)										(In 000s of $)
Total revenues	$	1,410	$	1,429	$	(19	)		(1.3	)	$	405	$	439	$	(34	)		(7.7	)	$	1,815		$	1,868		$	(53	)		(2.8	)
Operating expenses		815		835		(20	)		(2.4	)		163		172		(9	)		(5.2	)		978			1,007			(29	)		(2.9	)
Net operating income	$	595	$	594	$	1			(0.2	)	$	242	$	267	$	(25	)		(9.4	)	$	837		$	861		$	(24	)		(2.8	)


Reconciliation to consolidated net loss from continuing operations:
Net operating income																					$	837		$	861
Depreciation expense																						(311	)		(323	)
General and administrative expenses																						(1,603	)		(407	)
Other income																						209			46
Interest expense																						(407	)		(412	)
Income tax benefit																						514			81
Net loss from continuing operations																					$	(761	)	$	(154	)

The above table details the comparative revenue, expenses and net operating income (“NOI”) for Wilshire’s residential and commercial real estate segments, and reconciles the combined NOI to consolidated income (loss) from continuing operations. NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes depreciation and interest expense. Wilshire assesses and measures segment operating results based on NOI, which is a direct measure of each property’s contribution to the results of the Company before considering revenues from treasury activities, overhead expenses and other costs that are not directly related to the performance of a property. The Company believes NOI is a more descriptive measure of the Company’s performance than income (loss) from continuing operations. NOI is not a measure of operating results or cash flow as measured by accounting principles generally accepted in the United States of America and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.

Residential Segment

Q2 2005 revenues, as compared to Q2 2004 revenues, decreased $19,000 or 1.3% to $1,410,000 and operating expenses decreased $20,000 or 2.4% to $815,000. The decrease in revenues was largely attributable to the Company’s Wellington Estates apartment complex in San Antonio, Texas, where revenues decreased primarily due to the Company imposing stricter qualifying criteria regarding the credit profile of potential tenants resulting in a lower occupancy percentage.

Operating expense in Q2 2005 over Q2 2004 was relatively unchanged, with the modest decrease in expense being spread among Sunrise Ridge, Summercreek and Wellington Estates.

Commercial Segment

Q2 2005 revenues, as compared to Q2 2004 revenues, decreased $34,000 or 7.7% to $405,000 and operating expenses decreased $9,000 or 5.2% to $163,000. The bulk of the revenue decrease, $26,000 or 76.5% of the total decrease is attributable to the Company’s property at Royal Mall Plaza in Mesa, Arizona. This property is a mixed use commercial/retail property with an emphasis on medical services tenants. The Company is currently evaluating different strategies to attract new tenants to this property.

Depreciation expense amounted to $311,000 in Q2 2005, basically unchanged from the $323,000 in Q2 2004. Depreciation expense is not included in the operating expenses included in the preceding table and discussion.

General and administrative expense increased $1,196,000, or 293.9%, to $1,603,000 in Q2 2005 from $407,000 in Q2 2004. This increase in general and administrative expense is primarily related to a charge to expense of approximately $1.0 million ($600,000 after taxes) involving the stock options held by the former President of the Company. On April 19, 2005, the Company reached a mutual agreement with the former President to terminate his consulting agreement with the Company. The Company agreed to provide him with a final lump sum payment in the amount of $50,625 and the former President agreed to forego an additional $75,000 of consulting fees due to him under the terms of his consulting arrangement. Also, at the Company’s request, the former President agreed to exercise his 300,000 stock options at the applicable exercise prices for a total sum of $1,005,500 and then sell to the Company all of the exercised shares at a purchase price per share of $7.00 for an aggregate payment of $2,100,000, or a net cash payment of $1,094,500. The transaction was completed on April 20, 2005.

The increase is also related to the method of allocating corporate expenses among the Company’s lines of business and the accounting for incentive and stock compensation expense. In Q2 2004, a high percentage of corporate salaries and related expenses were allocated to the Company’s oil and gas businesses. In Q2 2005, this allocation was significantly lowered as only accrual adjustments related to prior periods were allocated to the oil and gas business.

Additionally, prior to the Q3 2004, incentive compensation awards were not recorded as an expense until they were paid and Q2 2004 did not include incentive compensation expense. Thus, a large portion of the increase was related to recording incentive compensation expense for bonuses to be paid in the future that are being earned by individual and Company performance during the current period and for past awards of restricted stock and other stock compensation whose expense is allocated over the vesting period of the award.

Other income increased $163,000 to $209,000 in Q2 2005 from $46,000 in Q2 2004, principally related to a higher level of interest and dividends being earned in Q2 2005 from the Company’s holdings of cash and cash equivalents that was principally obtained through the Q2 2004 sale of the oil and gas business and Q1 and Q2 2004 sales of real estate assets.

Interest expense was basically unchanged between Q2 2005 and Q2 2005, reflecting normal principal amortization payments.

The provision for income taxes amounted to a benefit of $514,000 in Q2 2005 and $81,000 in Q2 2004. The change in the provision for income taxes is related to the level of income from continuing operations in the 2005 quarter compared to the 2004 quarter and the change in the mix between taxable and tax-exempt income.

Discontinued Operations, Net of Taxes:

Real Estate

Income from discontinued operations amounted to an after tax loss of $43,000 in Q2 2005 and income of $335,000 in Q2 2004. The decreased income reflects the higher level of sales of properties in Q2 2004 compared to Q2 2005. During Q2 2004, the Company sold two properties in New Jersey for gross proceeds of $3,740,000 that resulted in after-tax gains of $471,000. During Q2 2005, the Company sold one (1) one-bedroom unit at Galsworthy Arms for gross proceeds of $240,000 and an after-tax gain of approximately $90,000.

Included in Q2 2005 income from discontinued operations is a nonrefundable fee of $150,000 that the Company received in April 2005 related to its agreement to sell its Biltmore Club apartment complex (Phoenix, Arizona) to GDG Partners L.L.C., an independent third party, for $20,956,000. The agreement is expected to close no later than December 23, 2005. In addition to the $100,000 fee paid in February 2005 and this $150,000 fee paid into an escrow account in April 2005, GDG Partners L.L.C. paid into an escrow account an additional nonrefundable deposit of $250,000 in July 2005. We expect to report, when the sale is completed, a gain on the sale after taxes of approximately $8.5 million and have net proceeds after transaction costs and paying off the mortgage of approximately $10.0 million.

Oil and Gas

The Company announced in July 2003 its intention to sell its oil and gas businesses. The Canadian oil and gas business was sold in April 2004 to Addison Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million in gross proceeds. The United States oil and gas business was sold in April 2004 to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross proceeds. During Q2 2005 and Q2 2004, respectively, the Company recorded income from operating its oil and gas business, net of taxes, of $162,000 and $275,000, respectively. The net income reported in Q2 2005 resulted principally from the adjustment of previously accrued Canadian tax liabilities related to the overaccrual of the Company’s 2004 income tax liability (approximately $155,000) and interest income earned in Canada on the funds that have not yet been repatriated to the United States, offset by an allocation of personnel and other costs incurred by the Company in the wind-up of the Canadian oil and gas operations. The net income from operating the oil and gas business in Q2 2004 includes the continuing reconciliation process between the Company and its partners for periods prior to the effective dates of the sales and the allocation of certain incentive compensation amounts from awards made in January 2005 that relate to efforts that these individuals put forth in consummating the sale of the oil and gas business.

Six Months Ended June 30, 2005 (“YTD 2005”) Compared with Six Months Ended June 30, 2004 (“YTD 2004”)

Overview

Net income (loss) for YTD 2005 amounted to a loss of $324,000 or $0.04 per diluted share, a decline of $3,946,000 from the net income of $3,622,000 or $0.46 per diluted share reported for YTD 2004. Results of operations are shown as continuing and discontinued, with discontinued operations comprised of the results of operations from the Company’s oil and gas businesses, the operating results from real estate properties held for sale and the gain from real estate properties held for sale that were sold during the period.

Continuing Operations:

Loss from continuing operations was $476,000 in YTD 2005 compared with $120,000 in YTD 2004. Results per diluted share from continuing operations amounted to $(0.06) in YTD 2005 and $(0.01) in YTD 2004. The 2005 period included the following items:

●

An approximate $600,000 after tax (approximately $1,029,000 before taxes) charge to expense related to the termination of the employment contract with the former President of the Company and the purchase by the Company of 300,000 shares of stock that the former President acquired through the exercise of his 300,000 stock options.

●

Gains of approximately $480,000 after tax ($809,000 before taxes) from the sale of marketable securities and real estate related assets.

Segment Information

	Residential Real Estate										Commercial Real Estate										Total
	6 months ended June 30				Increase (Decrease)						6 months ended June 30				Increase (Decrease)						6 months ended June 30						Increase (Decrease)
	2005		2004		$			%			2005		2004		$			%			2005			2004			$			%
	(In 000s of $)										(In 000s of $)										(In 000s of $)
Total revenues	$	2,804	$	2,849	$	(45	)		(1.6	)	$	795	$	849	$	(54	)		(6.4	)	$	3,599		$	3,698		$	(99	)		(2.7	)
Operating expenses		1,613		1,631		(18	)		(1.1	)		338		364		(26	)		(7.1	)		1,951			1,995			(44	)		(2.2	)
Net operating income	$	1,191	$	1,218	$	(27	)		(2.2	)	$	457	$	485	$	(28	)		(5.8	)	$	1,648		$	1,703		$	(55	)		(3.2	)


Reconciliation to consolidated loss from continuing operations:
Net operating income																					$	1,648		$	1,703
Depreciation expense																						(670	)		(647	)
General and administrative expenses																						(2,129	)		(654	)
Other income																						1,127			240
Interest expense																						(812	)		(825	)
Income tax benefit																						360			63

Net loss from continuing operations																					$	(476	)	$	(120	)

Residential Segment

YTD 2005 revenues, as compared to YTD 2004 revenues, decreased $45,000 or 1.6% to $2,804,000 and operating expenses decreased $18,000 or 1.1% to $1,613,000. The decrease in revenues was largely attributable to the Company’s Wellington Estates apartment complex in Texas. Revenues for Wellington Estates, located in San Antonio, Texas decreased by $33,000, primarily due to the Company imposing stricter qualifying criteria regarding the credit profile of potential tenants resulting in a lower occupancy percentage.

The decrease in operating expense in YTD 2005 over YTD 2004 was spread among the Company’s Summercreek, Sunrise Ridge and Wellington Estates properties.

Commercial Segment

YTD 2005 revenues, as compared to YTD 2004 revenues, decreased $54,000 or 6.4% to $795,000 and operating expenses decreased $26,000 or 7.1% to $338,000. The revenue decrease is attributable to the performance of the Company’s properties in Arizona - Tempe Corporate Center in Tempe, Arizona and Royal Mall Plaza in Mesa, Arizona. In regards to Tempe Corporate, prior to the Company initiating a property improvement program in Q4 2004, several tenants vacated the building causing the occupancy rate to drop to 53%. The property improvements program, combined with improved marketing and leasing efforts, have resulted in a current occupancy rate of greater than 75%. The Company is evaluating methods for increasing the occupancy rate at Royal Mall Plaza.

Depreciation expense amounted to $670,000 in YTD 2005, an increase of 3.6% from the $647,000 in YTD 2004, reflecting increased capital expenditures throughout the Company’s network of residential and commercial properties. These expenditures were undertaken as part of a program to reposition and strengthen the Company’s properties within their targeted markets. Depreciation expense is not included in the operating expenses included in the preceding table and discussion.

General and administrative expense increased $1,475,000, or 225.5%, to $2,129,000 in YTD 2005 from $654,000 in YTD 2004. This increase in general and administrative expense is primarily related to a charge to expense of approximately $1.0 million ($600,000 after taxes) involving the stock options held by the former President of the Company. On April 19, 2005, the Company reached a mutual agreement with the former President to terminate his consulting agreement with the Company. The Company agreed to provide him with a final lump sum payment in the amount of $50,625 and the former President agreed to forego an additional $75,000 of consulting fees due to him under the terms of his consulting arrangement. Also, at the Company’s request, the former President agreed to exercise his 300,000 stock options at the applicable exercise prices for a total sum of $1,005,500 and then sell to the Company all of the exercised shares at a purchase price per share of $7.00 for an aggregate payment of $2,100,000, or a net cash payment of $1,094,500. The transaction was completed on April 20, 2005.

The increase is also related to the method of allocating corporate expenses among the Company’s lines of business and the accounting for incentive and stock compensation expense. In YTD 2004, a high percentage of corporate salaries and related expenses were allocated to the Company’s oil and gas businesses. In YTD 2005, this allocation was significantly lowered as only accrual adjustments related to prior periods were allocated to the oil and gas business.

Additionally, prior to the June 30, 2004, incentive compensation awards were not recorded as an expense until they were paid and YTD 2004 did not include incentive compensation expense. Thus, a large portion of the increase was related to recording incentive compensation expense for bonuses to be paid in the future that are being earned by individual and Company performance during the current period and for past awards of restricted stock and other stock compensation whose expense is allocated over the vesting period of the award.

Other income increased $887,000 to $1,127,000 in YTD 2005 from $240,000 in YTD 2004, principally related to $675,000 of gain from the settlement of a mortgage receivable and $134,000 gain from the sale of marketable securities. No marketable securities or other assets from the Company’s portfolio of continuing operations were sold in YTD 2004.

Interest expense in YTD 2005 was basically level with the YTD 2004 expense.

The provision for income taxes amounted to a tax benefit of $360,000 in YTD 2005 and a benefit of $63,000 in YTD 2004. The change in the provision for income taxes is related to the level of income from continuing operations in YTD 2005 compared to YTD 2004 and the change in the mix between taxable and tax-exempt income.

Discontinued Operations, Net of Taxes:

Real Estate

Income from discontinued operations amounted to after tax income of $16,000 in YTD 2005 and $3,157,000 in YTD 2004. The decreased income reflects the high level of sales of properties in YTD 2004 compared to only two condominium units being sold in YTD 2005 for gross proceeds of $510,000 and an after tax gain of $221,000. During YTD 2004, the Company sold thirteen properties in New Jersey for gross proceeds of $14.8 million that resulted in after-tax gains of $3,373,000.

Included in YTD 2005 income from discontinued operations is a nonrefundable fee of $250,000 that the Company received from GDG Partners L.L.C., an independent third party, from its agreement to sell its Biltmore Club apartment complex (Phoenix, Arizona) for $20,956,000. The agreement is expected to close no later than December 23, 2005. In addition to the $250,000 fee already paid, GDG Partners L.L.C. paid to escrow an additional nonrefundable deposit of $250,000 in July 2005. We expect to report, when the sale is completed, a gain on the sale after taxes of approximately $8.5 million and have net proceeds after transaction costs and paying off the mortgage of approximately $10.0 million.

Oil and Gas

The Company announced in July 2003 its intention to sell its oil and gas businesses. The Canadian oil and gas business was sold in April 2004 to Addison Energy Inc., a wholly owned subsidiary of Exco Resources, Inc., for $15 million in gross proceeds. The United States oil and gas business was sold in April 2004 to Crow Creek Energy LLC, a Tulsa, Oklahoma based privately held portfolio company of Natural Gas Partners of Dallas, Texas, for $13.3 million in gross proceeds. During YTD 2005 and YTD 2004, respectively, the Company recorded income from operating its oil and gas business, net of taxes, of $136,000 and $18,000, respectively. The income from operating the oil and gas business in YTD 2005 resulted principally from the adjustment of previously accrued Canadian tax liabilities related to the overaccrual of the Company’s 2004 income tax liability (approximately $155,000) and interest income earned in Canada on the funds that have not yet been repatriated to the United States, offset by an allocation of personnel and other costs incurred by the Company in the wind-up of the Canadian oil and gas operations and the continuing reconciliation process between the Company and its partners for periods prior to the effective dates of the sales. The income from operating the oil and gas business in YTD 2004 includes the operating results of the oil and gas business for January and February, the continuing reconciliation process between the Company and its partners for periods prior to the effective dates of the sales and the allocation of certain incentive compensation amounts from awards made in January 2005 that relate to efforts that these individuals put forth in consummating the sale of the oil and gas business.

Liquidity and Capital Resources

At June 30, 2005, the Company had working capital of $29.4 million, compared to working capital of $34.6 million at December 31, 2004. The Company has $25.0 million of cash and cash equivalents at June 30, 2005. This balance is comprised of working capital accounts for its real estate properties and corporate needs and short-term investments in government and corporate securities and money market funds. The Company estimates that it has approximately $2.5 million of taxes remaining to be paid relating to the sale of the oil and gas business, including U.S. and Canadian taxes on the repatriation of earnings from its Canadian subsidiary. These obligations will be satisfied in 2005, partly through the application of an approximate $2.9 million estimated overpayment of 2004 U.S. Federal taxes. After considering these tax payments, Wilshire expects to have $25.4 million of cash and cash equivalents for working capital and other purposes.

The Company continues to explore corporate and real estate property acquisitions as they arise. The timing of such acquisitions, if any, will depend upon, among other criteria, economic conditions and the favorable evaluation of specific opportunities presented to the Company. In the short-term, the Company will continue to invest these funds in high quality investments that are consistent with its investment policy. Management considers its liquidity position adequate to fulfill the Company’s current business plans.

Net cash used in operating activities amounted to $5.0 million in YTD 2005, while YTD 2004 operating activities used net cash of $3.4 million. The YTD 2005 use of cash resulted from a net loss of $0.3 million, the sale of real estate properties and marketable securities with their related changes in receivables, payables and current and deferred tax accounts. The YTD 2004 use of cash was mainly related to a net income of $3.6 million and non-cash charges for depreciation and amortization expense ($1.1 million) and changes in other current asset and liability and income tax accounts related to normal business activity, partly offset by gains on the sales of real estate properties in New Jersey.

Net cash provided by investing activities amounted to $4.2 million in YTD 2005 and $43.5 million in YTD 2004. The cash provided by investing activities in YTD 2005 is due mainly to a decrease in restricted cash related to the release of $3.9 million of funds that were being held for a Section 1031 exchange that was not completed. The YTD 2004 provision of cash from investing activities is largely related to proceeds from the sale of real estate and oil and gas properties.

Net cash used in financing activities amounted to $4.5 million in YTD 2005 and $11.1 million in YTD 2004. The YTD 2005 and YTD 2004 uses of cash reflects the repayment of long term debt due to the sales of real estate properties and normal annual amortization of long term debt from monthly debt service payments. YTD 2005 also includes the use of $337,000 for the purchase of treasury stock.

On June 3, 2004, the Board of Directors approved the repurchase of up to 1,000,000 shares of the Company’s common stock on the open market, in privately negotiated transactions or otherwise. This purchasing activity may occur from time to time, in one or more transactions. At June 30, 2005, the Company had purchased 82,642 shares at an aggregate cost of $535,000 under this program. The majority of the shares acquired were from stockholders who at the time owned less than 100 shares of the Company’s common stock.

During March 2005, Wilshire negotiated a long-term lease for new offices in Newark, New Jersey, effective April 1, 2005. The lease is for a sixty-five month term with two renewal options each for a five-year term and covers 4,502 rentable square feet at a base rate of $29.00 per square foot. The Company has an option to early terminate the lease after two years, subject to a termination fee. The Company moved into its new space at the end of May 2005.

The Company has concluded negotiations with the city of Perth Amboy, New Jersey concerning the redevelopment zone status of its office building (Amboy Towers). The City has agreed to exclude Amboy Towers from the redevelopment zone and the Company has agreed to invest $750,000 in capital improvements in the building over the next 18 months.

The resolution of this matter included the termination of the leases with the Hotel Operator and the contribution of the Wilshire Hotel by the Company to a newly formed limited liability company, WO Grand Hotel, LLC. Proud Three contributed its loan receivable of $11.9 million from the Hotel Operator, and the Company and Proud Three are the sole members of the LLC.

As part of the resolution of this matter, Proud Three paid 50% of the delinquent rent to the Company.

WO Grand Hotel LLC and its results of operations are being included in the Company’s discontinued operations. At this time, Wilshire does not expect to incur a loss on this property.

Subsequent Events

On August 3, 2005, the Company’s previously announced contract with Interstate East Management, Inc., an independent third party, for the sale of the Twelve Oaks apartment complex in Atlanta, Georgia was modified with no change to the purchase price of $1,725,000. This transaction is now expected to close during the third quarter of 2005, at which time the Company will realize an approximate gain of $300,000 after taxes. The Company will pay-off the outstanding mortgage on the property of approximately $1.6 million using the net proceeds from the sale.

On August 3, 2005, the Company closed on the sale of a one-bedroom unit at Jefferson Gardens for gross proceeds of $150,000 that will result in an approximate gain of $70,000 being recorded in the third quarter ended September 30, 2005.

Item 3. Qualitative and Quantitative Disclosure About Market Risk

The Company has an investment in the common stock of one publicly traded real estate company in the United States in which the Company has exposure to the risk of market value fluctuation. The Company accounts for this investment as securities that are available for sale and marks them to market at each period-end. The change in value in the investment, net of tax impact, is reported in Accumulated Other Comprehensive Income, a separate component of stockholders’ equity. The Company also evaluates its investment to determine if it has suffered a decline in market value that is permanent, which would require a charge to the Statement of Income. At June 30, 2005, in the opinion of management, there has been no permanent decline in value in the Company’s holdings of equity securities.

After the sale of its Canadian oil and gas assets in April 2004, the Company has cash and cash equivalents at its Canadian subsidiary whose value is exposed to fluctuations in the value of the Canadian dollar / U.S. dollar exchange rate. The change in value in the Canadian dollar denominated accounts is reported in Accumulated Other Comprehensive Income, a separate component of stockholders’ equity. The Company will be repatriating all assets, net of liabilities, of its Canadian subsidiary during 2005. At that time, the foreign exchange component previously reported in Accumulated Other Comprehensive Income will be recognized as a component of net income. At June 30, 2005, the unrealized foreign exchange component of Accumulated Other Comprehensive Income was a loss of $731,000.

Long-term debt as of June 30, 2005 and December 31, 2004 consists of the following:

	2005		2004
Mortgage notes payable	$	42,649,000	$	46,855,000
Less-current portion (1)		715,000		729,000
Long term portion (2)	$	41,934,000	$	46,126,000

(1)	Includes mortgage debt associated with discontinued operations of $326,000 in 2005 and $354,000 in 2004.

(2)	Includes mortgage debt associated with discontinued operations of $17,087,000 in 2005 and $21,069,000 in 2004.

The aggregate maturities of the long-term debt in each of the five years subsequent to June 30, 2005 and

thereafter are:

Year Ended	Amount
June 30, 2006	$	715,000
June 30, 2007		769,000
June 30, 2008		821,000
June 30, 2009		883,000
June 30, 2010		4,776,000
Thereafter		34,685,000
	$	42,649,000

The Company is not exposed to changes in interest rates. At June 30, 2005, the Company had $42,649,000 of mortgage debt outstanding which all bears interest at an average fixed rate of 6.073% and an average remaining life of approximately 7.3 years. The fixed rate mortgages are subject to repayment (amortization) schedules that are longer than the term of the mortgages. As such, the approximate amount of balloon payments for all mortgage debt that will be required is as follows:

Year	Amount
2009	$	3,830,000
2013		32,003,000
	$	35,833,000

Wilshire expects to re-finance the individual mortgages with new mortgages when their terms expire. To this extent, we have exposure to interest rate risk on our fixed rate mortgage debt obligations. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or re-financing proceeds may be less than the amount of mortgage debt being retired.

We believe that the values of our properties will be adequate to command re-financing proceeds equal to, or higher than the mortgage debt to be re-financed.

Item 4. Controls and Procedures

(a)

Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(b)

Changes in internal controls over financial reporting. There have been no changes in the company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except for the correction of a material weakness noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 concerning the recording of a transaction involving equity compensation for one former employee.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents the total share repurchase activity for the period April 1 through June 30, 2005 under the Board’s authorization. The program, for the repurchase of up to 1,000,000 shares of the Company’s common stock, was announced on June 3, 2004. No repurchase activity took place from the date of the announcement of the Board’s authorization through June 30, 2004. For the period July 1, 2004 through March 31, 2005, the Company purchased 41,403 shares under this authorization. The authorization to repurchase common shares has no expiration date and the Company has not determined when, or if, the program will be discontinued.

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

April 1 - 30, 2005		17,524	$	7.44		17,524		941,098 common shares
May 1 - 31, 2005		21,715		7.90		21,715		919,383 common shares
June 1 - 30, 2005		2,000		7.29		2,000		917,383 common shares

Item 4. Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of the Company’s stockholders at its 2005 Annual Meeting held on June 16, 2005 and the votes cast were as set forth:

(i)

The election of Miles Berger and Eric J. Schmertz, Esq. to serve as directors of the Company for three year terms expiring in 2008. The votes cast were as follow:

	For		Withheld

Miles Berger		7,052,167		137,828

Eric J. Schmertz, Esq.		7,059,639		130,356

Item 6. Exhibits

Exhibit 10.1 Operating Agreement of WO Grand Hotel, LLC dated as of June 2, 2005

Exhibit 10.2 Agreement for Purchase and Sale dated as of July 29, 2005 between Avondale Multi-Family Limited Partnership and
Wilshire Enterprises, Inc.

Exhibit 10.3 Purchase agreement dated July 29, 2005 between Twelve Oaks Management, LLC and Wilshire Enterprises, Inc.

Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act

Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act

Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act

Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act

S I G N A T U R E S

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	WILSHIRE ENTERPRISES, INC. (Registrant)

Date: August 12, 2005	By:	/s/ S. Wilzig Izak
		S. Wilzig Izak Chairman of the Board and Chief Executive Officer




	By:	/s/ Seth H. Ugelow
		Seth H. Ugelow Chief Financial Officer

EX-10.1 2 v023456_ex10-1.htm Unassociated Document

Exhibit 10.1

OPERATING AGREEMENT OF

WO GRAND HOTEL, LLC

(A New Jersey Limited Liability Company)

Dated as of June 2, 2005

TABLE OF CONTENTS


Article I		PURPOSES, POWERS AND FORMATION OF THE COMPANY	6
	Section 1.01	Formation	6
	Section 1.02	Purposes and Powers	6
	Section 1.03	Designation of Authorized Persons	6
	Section 1.04	Principal Place of Business	6
	Section 1.05	Registered Office	6
	Section 1.06	Term	6
	Section 1.07	Agent for Service of Process	6
	Section 1.08	Liability to Third Parties	6
Article II		MEMBERS; CAPITAL CONTRIBUTIONS	6
	Section 2.01	Member’s Interests.	6
	Section 2.02	Capital Contributions.	6
	Section 2.03	Required Funds; Loans by Members.	6
	Section 2.04	Capital, Profits, Losses and Distributions	6
	Section 2.05	Status of Interests	6
	Section 2.06	No Issuance of Certificates	6
	Section 2.07	Register	6
	Section 2.08	Registered Owner	6
	Section 2.09	Capital Contributions.	6
	Section 2.10	Additional Contributions to Capital.	6

TABLE OF CONTENTS

(continued)

Article III		Representations and Warranties.	6
	Section 3.01	Representations and Warranties of Wilshire	6
	Section 3.02	Representations and Warranties of Proud Three	6
	Section 3.03	Further Representations and Warranties	6
Article IV		MANAGEMENT OF THE COMPANY; CONDUCT OF BUSINESS; POWERS; OTHER ACTIVITIES	6
	Section 4.01	Management by the Managing Member	6
	Section 4.02	Termination of the Loans	6
Article V		DUTIES OF MEMBERS; RESTRICTIONS ON MEMBERS	6
	Section 5.01	Confidentiality	6
	Section 5.02	Company Property	6
	Section 5.03	Engaging In Other Activities	6
Article VI		ACCOUNTING PROVISIONS	6
	Section 6.01	Fiscal Year	6
	Section 6.02	Books and Accounts.	6
	Section 6.03	Financial Reports.	6
	Section 6.04	Tax Elections	6
	Section 6.05	Tax Audits.	6
Article VII		TRANSFER OF INTERESTS	6
	Section 7.01	Admission of Substitute Members	6
	Section 7.02	Restrictions on Transfers	6
Article VIII		DISTRIBUTIONS AND ALLOCATIONS	6
	Section 8.01	Distributions of Net Cash Flow and Net Proceeds.	6
	Section 8.02	Allocation of Net Profits	6
	Section 8.03	Allocation of Net Losses	6
	Section 8.04	Allocation of Net Profits and Net Losses from Net Proceeds or upon liquidation.	6
	Section 8.05	No Return of Distributions	6
	Section 8.06	Allocations between Assignor and Assignee Members	6
	Section 8.07	Deficit Capital Accounts	6
	Section 8.08	Amounts Withheld	6

TABLE OF CONTENTS

(continued)

Article IX		LIQUIDATION AND TERMINATION OF THE COMPANY	6
	Section 9.01	General.	6
	Section 9.02	Statements on Termination	6
	Section 9.03	Priority on Liquidation	6
	Section 9.04	Distribution of Non-Liquid Assets.	6
	Section 9.05	Deficit upon Liquidation	6
	Section 9.06	Source of Distributions	6
Article X		EXCULPATION AND INDEMNIFICATION OF MEMBERS	6
	Section 10.01	Exculpation.	6
	Section 10.02	Indemnification	6
Article XI		MISCELLANEOUS PROVISIONS	6
	Section 11.01	Right of First Refusal.	6
	Section 11.02	Call Option.	6
	Section 11.03	Dispute Resolution.	6
	Section 11.04	Applicable Law	6
	Section 11.05	Modification	6
	Section 11.06	Notices	6
	Section 11.07	Captions	6
	Section 11.08	Construction	6
	Section 11.09	Pronouns	6
	Section 11.10	Amendments	6
	Section 11.11	Binding Effect	6
	Section 11.12	Separability	6
	Section 11.13	Further Assurances	6
	Section 11.14	Counterparts	6
	Section 11.15	Consent to Jurisdiction	6

Exhibits


Exhibit A		Description of the Property
Exhibit B		Description of the Loans and Mortgages
Exhibit C		Definitions
Exhibit D		Certificate of Formation
Exhibit E		Bargain and Sale Deed with Covenants Against Grantor’s Acts
Exhibit F		Assignment of the Loans and Loan Documents
Exhibit G		General Assignment and Bill of Sale
Exhibit H		Allonge to the Notes
Exhibit I		Assignment of Mortgages
Exhibit J		Permitted Encumbrances

OPERATING AGREEMENT

WO GRAND HOTEL, LLC

OPERATING AGREEMENT of WO GRAND HOTEL, LLC dated as of June 2, 2005, by and among (i) WO GRAND HOTEL, LLC, a New Jersey limited liability company, with offices at 350 Pleasant Valley Way, West Orange, New Jersey 07052 (the “Company”); (ii) WILSHIRE ENTERPRISES, INC., a Delaware corporation, with offices at 1 Gateway Center, Newark, New Jersey 07102 (“Wilshire” or “Managing Member”); and (iii) PROUD THREE, LLC, a New Jersey limited liability company, with offices at c/o Herrick, Feinstein LLP, 2 Penn Plaza, Newark, New Jersey 07105, attn: Daniel A. Swick, Esq. (“Proud Three”).

RECITALS

WHEREAS, the Company was formed as a limited liability company pursuant to the New Jersey Limited Liability Company Act, as amended (the “Act”) on May 2, 2005;

WHEREAS, the Company has been formed to own and operate the real property (and improvements located thereon) located at 350 Pleasant Valley Way, Township of West Orange, Essex County, New Jersey, Lot 1428, Block 152.22, as more fully described on Exhibit A attached hereto (such real property and improvements, the “Property”) and to manage and further its interests in the Property (the “Business”); and

WHEREAS, Wilshire desires to assign, transfer and convey to the Company all if its right, title and interest in and to the Property in consideration for its ownership interest in the Company pursuant to the terms of this Agreement; and

WHEREAS, Wilshire has entered into a certain lease dated March 8, 2001 between Wilshire, as lessor, and West Orange Hotel Associates, L.L.C. (“WOHA”), as lessee, covering certain space in the improvements located on the Property (the “Hotel Lease”); and

WHEREAS, Wilshire has entered into a certain lease dated September 11, 2002 between Wilshire, as lessor, and West Orange Catering Associates, L.L.C. (“WOCA”), as lessee, covering certain space in the improvements located on the Property (the “Catering Lease”); and

WHEREAS, Proud Three is the maker of certain loans to WOHA and WOCA as more fully described on Exhibit B (the “Loans”), which loans are secured by certain leasehold mortgages and assignment of leases as more fully described on Exhibit B (the “Mortgages”); and

WHEREAS, pursuant to that certain Forbearance and Settlement Agreement dated as of June 2, 2005 by and among Proud Three, WOHA, WOCA, et al. (the “Settlement Agreement”) and effective as of the date of the Settlement Agreement, WOHA and Wilshire are terminating the Hotel Lease; and

WHEREAS, pursuant to the Settlement Agreement and effective as of the date of the Settlement Agreement, WOCA and Wilshire are terminating the Catering Lease; and

WHEREAS, Proud Three desires to assign, transfer and convey to the Company all of its rights, title, interests and obligations in, to and under the Loans and the Mortgages as consideration for its ownership interest in the Company pursuant to the terms of this Agreement; and

WHEREAS, the Members and the Company desire to enter into this Agreement in order to state the terms and conditions of the ongoing operation and management of the Company and the Business; and

WHEREAS, any capitalized terms used herein and not otherwise defined, shall have the meaning ascribed thereto in Exhibit C attached hereto.

NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows:

PURPOSES, POWERS AND FORMATION OF THE COMPANY

Section 1.01 Formation. The Company was formed pursuant to the Act, upon the filing of Certificate of Formation with the Treasurer of the State of New Jersey on May 2, 2005 under the name of “WO GRAND HOTEL, LLC”. A copy of the Certificate of Formation is attached hereto as Exhibit D.

Section 1.02 Purposes and Powers. The Company was formed to conduct the Business. In connection with the Business, the Company shall have the powers to engage in all legal activities as shall be necessary or desirable in connection with or incidental to operating the Business. The Company shall also have the power to (i) engage in any lawful act or activity for which limited liability companies may be formed under the Act; (ii) accomplish any lawful business whatsoever or which shall at any time appear conducive to or expedient for the protection or benefit of the Company and its assets; and (iii) engage in all activities necessary, customary, convenient or incident to any of the foregoing.

Section 1.03 Designation of Authorized Persons. The Members shall, from time to time, designate one or more “Authorized Persons” as defined in the Act (an “Authorized Person”), to execute, deliver and file any amendments, restatements, corrections or cancellation of the Company’s Certificate of Formation and to perform such other actions on behalf of the Company as authorized by the Managing Member, all in accordance with the provisions of this Agreement.

Section 1.04 Principal Place of Business.The principal place of business of the Company shall be located at 350 Pleasant Valley Way, West Orange, New Jersey 07052, or at any other place or places as the Managing Member may from time to time determine.

Section 1.05 Registered Office.The Company’s initial registered office in the State of New Jersey shall be at c/o Greenbaum, Rowe, Smith & Davis LLP, Metro Corporate Campus I, Woodbridge, New Jersey 07095. The registered office may be changed from time to time by the Managing Member by filing the address of the new registered office with the Treasurer of the State of New Jersey pursuant to the Act.

Section 1.06 Term.The term of the Company commenced on the date its Certificate of Formation was filed in the office of the Treasurer of the State of New Jersey, and shall continue until the winding up and liquidation of the Company and its business is completed as provided in Article IX.

Section 1.07 Agent for Service of Process.The registered agent for service of process on the Company in the State of New Jersey shall be W. Raymond Felton, or any successor as appointed by the Managing Member.

Section 1.08 Liability to Third Parties. The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company. Except as otherwise provided in this Agreement, the liability of the Members, as such, shall be limited to the amount of capital contributions that the Members have made to the Company.

ARTICLE II

MEMBERS; CAPITAL CONTRIBUTIONS

Section 2.01 Member’s Interests.

(a) Subject to the terms of this Agreement, the Managing Member may from time to time create such classes of Units in the Company, to be designated as the Managing Member shall determine. The holders of record of such Units shall have such rights and obligations associated with such Units as are provided herein and in the resolution, if any, of the Managing Member creating such Units.

(b) Until the Managing Member determines otherwise, the interest of each Member in the Company shall be the number of each class of Units set forth opposite its name in the chart below, as the same may be adjusted from time to time in accordance with the terms of this Agreement:

MEMBER	CLASS A UNITS	CLASS B UNITS
Wilshire	750
Proud Three		750

Section 2.02 Capital Contributions.

(a) In consideration of its initial 750 Class A Units set forth in Section 2.01(b) above, on the date hereof, Wilshire shall contribute the Property to the capital of the Company, free and clear of all Encumbrances other than Permitted Encumbrances (“Wilshire’s Capital Contribution”). In order to properly effect the transfer of the Property to the Company, Wilshire shall execute and deliver to the Company, simultaneously with the execution and delivery of this Agreement, a Bargain and Sale Deed with Covenants Against Grantor’s Acts, in the form attached hereto as Exhibit E, and such other instruments of transfer and conveyance in form and substance satisfactory to the Company, as may be required to vest good and marketable title to the Property in the Company. Wilshire shall take any further actions (including the execution and delivery of such further instruments and documents) which are necessary or desirable to effectuate the transfer of the Property to the Company as the Company or any other Member may reasonably request.

(b) In consideration of its initial 750 Class B Units set forth in Section 2.01(b) above, Proud Three shall contribute the Loans and the Mortgages to the capital of the Company, free and clear of all Encumbrances (“Proud Three’s Capital Contribution”). In order to properly effect the transfer of the Loans and the Mortgages to the Company, Proud Three shall execute and deliver to the Company, simultaneously with the execution and delivery of this Agreement, an Assignment of the Loans and Loan Documents, a General Assignment and Bill of Sale, an Allonge to the Notes and an Assignment of Mortgage, in the forms attached hereto as Exhibits F, G, H and I respectively, and such other instruments of transfer and conveyance in form and substance satisfactory to the Company, as may be required to vest in the Company all right and privileges arising under the Loans and the Mortgages. Proud Three shall take any further actions (including the execution and delivery of such further instruments and documents) which are necessary or desirable to effectuate the transfer of the Loans and the Mortgages to the Company as the Company or any other Member may reasonably request.

(c) A Capital Account shall be established for each Member on the books of the Company. It is understood and agreed that: (i) Wilshire’s initial Capital Account shall be $7,500,000; and (ii) Proud Three’s initial Capital Account shall be $7,500,000. The initial amount credited to each Member’s Capital Account shall be referred to as its “Capital Investment”.

Section 2.03 Required Funds; Loans by Members.

(a) The Members acknowledge that funds will be required by the Company to complete the construction at the Property and to fund certain operating expenses of the Company (the “Required Funds”). The Members agree that the Managing Member shall first use reasonable efforts to borrow the Required Funds from a lending institution on market terms.

(b) In the event that: (i) the Managing Member is unable to borrow the Required Funds in accordance with Section 2.03(a), or (ii) the Managing Member determines, at any time that additional cash is needed or reasonably required to enable the Company to conduct its business and affairs, then any such Required Funds or additional cash may be provided in the nature of a loan to the Company from any of the Members (“Member Loans”). If the Managing Member in unable to borrow the Required Funds in accordance with Section 2.03(a) or determines that any such loan is otherwise needed or reasonably required, the Managing Member shall offer all of the Members the opportunity to make such a loan by providing written notice thereof, including all of the terms of such loan to each of the Members (the “Loan Notice”). If more than one Member desires to make such loan, such Members shall be entitled to fund up to a portion of such loan pro rata in accordance with the number of Units owned by the Members (unless the other Members also desiring to make such loan agree otherwise). Each Member electing to make such loan shall give written notice of such election to the Managing Member not later than ten (10) days after receipt of a Loan Notice. Interest shall accrue and be payable on all Member Loans at a per annum rate as shall be established by the Managing Member and set forth in the Loan Notice. All Member Loans shall constitute an obligation and liability of the Company. Unless otherwise agreed to in writing between the Members and the Company, the Members shall not have personal obligation or liability for the repayment of Member Loans and the same shall be collectible only from Company assets. No Member Loan shall be deemed a contribution to the capital of the Company and Member Loans shall not in any respect increase a Member’s equity interest or Units in the Company. Member Loans and any interest accrued thereon shall be repaid pari-passu to the Member(s) making such loans prior to any distributions being made to Members under Section 8.01 or Article IX.

Section 2.04 Capital, Profits, Losses and Distributions. Each Unit shall have such interests in the capital, profits and losses, and distributions of the Company as provided in this Agreement.

Section 2.05 Status of Interests. The Units issued pursuant to this Agreement (including additional Units hereafter authorized and issued) shall be deemed to be fully paid and non-assessable if the entire amount of consideration therefore has been received by the Company.

Section 2.06 No Issuance of Certificates. A Unit shall not be represented by a certificate unless otherwise provided by the Managing Member; provided, however, if the Managing Member elects to certificate any Units, all the Units shall be so certificated. Any certificate representing a Unit shall have a legend endorsed thereon and be in the form approved by the Managing Member.

Section 2.07 Register. The Company shall keep a register that shall provide for the registration and transfer of Units, if the Managing Member reasonably determines that such register is necessary. In such event, an Authorized Person shall act as registrar and transfer agent for the purpose of registering Units and transferring Units.

Section 2.08 Registered Owner. The Company shall be entitled to treat the record holder of any Unit as the Member holding such Unit. The Company shall not be bound to recognize any equitable or other claim to or interest in such Unit on the part of any other Person, whether or not the Company shall have actual or other notice hereof.

Section 2.09 Capital Contributions.

(a) Uses of Capital Contributions. Any funds received by the Company pursuant to this Article II shall be utilized by the Company for Company purposes and for perpetuating the Business.

(b) Withdrawal of Capital. Unless the prior written consent of all of the Members shall have been obtained and except as provided in Article VIII, no Member shall have the right to withdraw any part of such Member’s Capital Account prior to the liquidation and termination of the Company pursuant to Article IX. This Section shall not in any way limit the ability of the Company to distribute any or all the Members’ Capital Accounts in accordance with Article VIII.

(c) Source of Distributions of Capital Contributions. No Member nor any of their respective Affiliates, shall be personally liable for the return of the Capital Contributions of any other Member, or any portion thereof, it being expressly understood that any such return shall be made solely from the Company’s assets.

Section 2.10 Additional Contributions to Capital.

(a) The Managing Member may, at any time, or from time to time, determine that additional capital in excess of prior capital contributions is necessary for the operation of the Company (a “Capital Call”). In the event of a Capital Call, the Managing Member shall serve written notice (the “Capital Call Notice”) of such Capital Call upon each Member. The Capital Call Notice shall set forth: (i) the amount of additional capital required (the “Capital Call Amount”); (ii) the specific purpose for the Capital Call Amount; (iii) the number and class of Units to be issued for the Capital Call Amount; (iv) the preferred return, if any, on the Units, whether the return shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of the preferred return; (v) whether the Units shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (vi) the rights of the Units to distributions, whether before or in connection with the liquidation, dissolution or winding up of the Company, and the relative rights of priority, if any, of any such payments on Units; and (vii) any other relative rights, preferences and limitations of the Units. Each Member may contribute, within thirty (30) days following receipt of the Capital Call Notice (the “Capital Call Period”), a pro rata amount of the Capital Call Amount based on the number of Units owned by the Members (as to each Member, the “Additional Capital”).

(b) Within thirty (30) days after the date of the giving of any such Capital Call Notice, each Member electing to contribute to the Capital Call Amount shall pay to the Company its pro rata portion of the Capital Call Amount in the manner directed in the Capital Call Notice as a Capital Contribution. Any Member who shall fail to make any Capital Contribution to the Company pursuant to this Section within said thirty (30) day period is herein referred to as a “Non-Contributing Member”; and any Member who shall make the required Additional Capital Contribution within said thirty (30) day period is herein called a “Contributing Member.”

(c) If within such thirty (30) timeframe referred to Section 2.10(b) any Member fails to make its Capital Contribution pursuant to this Section, the Managing Member shall give notice to all the Members, setting forth (i) the name of the Non-Contributing Member(s); and (ii) the total of the Capital Contribution which the Non-Contributing Member(s) failed to contribute to the Company pursuant to such Capital Call Notice (herein called the “Capital Call Deficit”). Within fifteen (15) days after the giving of such notice, each Contributing Member shall have the right (but not the obligation) to contribute a pro rata portion of the Capital Call Deficit (as same exists at the time of such contribution) as a Capital Contribution to the Company based upon the number of Units owned by the Contributing Members (as to each Contributing Member, the “Additional Capital”).

ARTICLE III

REPRESENTATINS AND WARRANTIES.

Section 3.01 Representations and Warranties of Wilshire. Wilshire hereby represents and warrants to the Company and each other Member that:

(a) Wilshire is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and it is registered or qualified to conduct business in all other jurisdictions in which the failure to be so registered or qualified would materially and adversely affect the ability of Wilshire to perform its obligations hereunder.

(b) Wilshire has taken all necessary action to authorize the execution, delivery and performance of this Agreement by Wilshire. This Agreement and all the obligations of Wilshire hereunder are the legal, valid and binging obligations of Wilshire enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors’ rights generally and by general principals of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(c) The execution and delivery of this Agreement and the performance by Wilshire of it obligations hereunder will not conflict with or be in breach by Wilshire of any material provisions of any law, regulation, judgment, order, decree, writ, injunction, contract, agreement or instrument to which Wilshire is subject; and Wilshire has obtained any consent, approval, authorization or order of any court or governmental agency, if any, required for the execution, delivery and performance by Wilshire of this Agreement.

(d) There is no commenced, or to the Knowledge of Wilshire, threatened litigation against Wilshire which prohibits Wilshire from contributing the Property to the Company.

(e) Wilshire has good, marketable and insurable (at regular rates) title to the Property, free and clear of all Encumbrances, other than Permitted Encumbrances.

(f) To the Knowledge of Wilshire, there are no lawsuits, claims, suits, proceedings or investigations pending relating to the Property. To the Knowledge of Wilshire, there are no injunctions, orders, awards or decrees of any Governmental Body currently in effect with respect to the Property.

(g) To the Knowledge of Wilshire, the buildings and improvements located on the Property are in compliance with all applicable laws.

Section 3.02 Representations and Warranties of Proud Three. Proud Three hereby represents and warrants to the Company and each other Member that:

(a) Proud Three is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation, and it is registered or qualified to conduct business in all other jurisdictions in which the failure to be so registered or qualified would materially and adversely affect the ability of Proud Three to perform its obligations hereunder.

(b) Proud Three has taken all necessary action to authorize the execution, delivery and performance of this Agreement by Proud Three. This Agreement and all the obligations of Proud Three hereunder are the legal, valid and binging obligations of Proud Three enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors’ rights generally and by general principals of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(c) The execution and delivery of this Agreement and the performance by Proud Three of it obligations hereunder will not conflict with or be in breach by Proud Three of any material provisions of any law, regulation, judgment, order, decree, writ, injunction, contract, agreement or instrument to which Proud Three is subject; and Proud Three has obtained any consent, approval, authorization or order of any court or governmental agency, if any, required for the execution, delivery and performance by Proud Three of this Agreement.

(d) There is no commenced, or to the Knowledge of Proud Three, threatened litigation against Proud Three which prohibits Proud Three from contributing the Loans and the Mortgages to the Company.

(e) Proud Three is the owner and holder of the Loans, the Mortgages and the Loan Documents and Proud Three has not previously assigned, transferred or conveyed the Loans or the Mortgages, or any portion thereof or any interest therein, to any other Person.

(f) To the Knowledge of Proud Three, Exhibit B accurately sets forth (i) a description of each Note including its principal amount and execution date, (ii) the Obligor of each Note, and (iii) the outstanding amount of the Loans as of the date hereof.

(g) To the Knowledge of Proud Three, the Notes and the other Loan Documents delivered by Proud Three to the Company prior to the execution of this Agreement are true, complete and correct copies of the documents they purport to be and have not been superseded, amended, modified, canceled or otherwise changed. To the Knowledge of Proud Three, Exhibit B is a true, correct and complete list and description of all Loan Documents, including, notes (and modifications thereto), mortgages (and modifications thereto) assignments of leases and rents, guarantees and UCC-1 financing statements evidencing or securing the Loans.

(h) To the Knowledge of Proud Three, the Notes and the other Loan Documents are the legal, valid and binding obligations of the Obligor thereof, enforceable against such Obligor in accordance with their terms (a) except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general equity principals (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (b) except to the extent that the inability to enforce any particular provision or provisions does not affect the ability of the holder thereof to foreclose the Loan Documents for any payment default by the maker or Obligor thereunder or the practical realization of the intended benefits of the Loan Documents.

(i) Proud Three acknowledges that Wilshire is conveying the Property to the Company: (i) without any representations as to the physical conditions of the Property, including any improvements thereon, (ii) except as otherwise provided in this Agreement, without any representations as to the environmental condition of the Property, including the presence or absence of hazardous materials, or (iii) without any representations as to the value of the Property. Proud Three acknowledges that the Company is acquiring the Property as is and that the Company may be required to incur significant costs in order to improve the Property to make it suitable for its intended business purpose.

Section 3.03 Further Representations and Warranties. Each Member hereby represents and warrants to the Company that: (a) such Member is acquiring its interest in the Company for the Member’s own account as an investment and without an intent to distribute the interest; and (b) such Member acknowledges that the interests have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be resold or transferred by the Member without appropriate registration or the availability of exemption from such requirements.

ARTICLE IV

MANAGEMENT OF THE COMPANY;

CONDUCT OF BUSINESS; POWERS; OTHER ACTIVITIES

Section 4.01 Management by the Managing Member. Wilshire shall have the right and power to make, and only the affirmative vote or consent of Wilshire (the “Managing Member”) shall be required for, all significant decisions (being a decision which may have important ramifications for the Company and the value of its assets) concerning the Business or the Company, including, but not limited to, the following:

(a) commencing any business or line of business which is inconsistent with the Business or making any fundamental changes to the nature of the Business;

(b) requesting that the Members make additional capital contributions pursuant to Section 2.10 hereof and amending this Agreement to take account of any additional Units issued in connection with such additional capital contributions;

(d) loaning any money, guaranteeing the payment of any money or debt of another Person, guaranteeing the performance of any other obligation of another Person or indemnifying any other Person against any losses or damages or costs except as incurred in the ordinary course of the Company’s business;

(e) filing a voluntary petition by the Company pursuant to Title11 of the U.S. Code;

(f) admitting a new member or otherwise issuing or selling additional Units in the Company or any security, warrant, option or right (whether contingent or otherwise) to purchase or acquire any Unit in the Company (collectively, “Subsequent Securities”) to any Person and amending this Agreement to take account of Subsequent Securities issued in connection with such admission, issuance or sale; provided, however that the Members shall have the right, pro rata in accordance with the number of Units owned by the Members, to subscribe (within a thirty (30) day period following receipt of notice of such issuance or sale from the Managing Member) for such Subsequent Securities on the same terms and conditions as proposed to be sold or issued by the Managing Member;

(g) making capital expenditures;

(h) retaining or discharging any manager which performs day-to-day operations, asset management services and/or construction management services to the Company and amending or terminating any agreement relating thereto to which the Company is a party;

(i) changing the accounting principles used by the Company or adopting any material changes to the Company's financial reporting practices, procedures or standards, except to the extent required by generally accepted accounting principles;

(j) retaining an accounting firm and any other professional advisors;

(k) entering into any transactions between the Company and its Members or their Affiliates;

(l) acquiring all or substantially all of the assets of, or acquiring a controlling interest in, any other Person;

(m) amending the Certificate of Formation;

(n) entering into any contract or arrangement or executing any document involving payments by the Company, or the terminating or amending such contract or arrangement;

(o) entering into any material agreements not in the ordinary course including, without limitation, any non-compete or non-solicitation agreement, or any confidentiality agreement which directly or indirectly binds or affects any Member;

(p) settling or defending any legal or regulatory action, or commencing any legal action, on behalf of the Company, or releasing, compromising, assigning or transferring any material claims or material rights of the Company;

(q) making capital contributions and/or loans to any other Person;

(r) subject to Section 11.02(e), selling, transferring, conveying, leasing, mortgaging, refinancing, pledging or otherwise disposing or encumbering the Property or any portion thereof;

(s) merging, consolidating or reorganizing the Company with any other Person;

(t) entering into any joint venture, partnership or similar arrangement with any other Person;

(u) voluntarily liquidating or dissolving the Company; or

(v) any other decisions reserved to the Managing Member pursuant to this Agreement.

Section 4.02 Termination of the Loans. Simultaneously with, or promptly following, the contribution of the initial Capital Investments to the Company, the Company shall: (i) cancel the Loans, (ii) cause the Mortgages to be discharged, (iii) cause the UCCs set forth on Exhibit B to be terminated, and (iv) cause the guarantees set forth on Exhibit B to be terminated.

ARTICLE V

DUTIES OF MEMBERS; RESTRICTIONS ON MEMBERS

Section 5.01 Confidentiality. Each Member, on behalf of such Member and such Member’s Affiliates, covenants and agrees that such Member and such Member’s Affiliates shall retain in strict confidence, and shall not use for any purpose whatsoever, or divulge, disseminate or disclose to any third party (other than in furtherance of the business purposes of the Company or as may be required by law, including without limitation any securities law applicable to such Member or Member’s Affiliate) all proprietary or confidential information relating to the Company’s Business or the Company’s investments or activities. The provisions of this Section 5.01 shall survive and continue to bind the Company’s Members notwithstanding any Member ceasing to be a Member of, or otherwise affiliated with, the Company.

Section 5.02 Company Property. All confidential and proprietary information of the Company shall be the exclusive property and proprietary rights of the Company, and to the extent any Member has participated in the development thereof, such Member shall assign all such rights to the Company and such Member’s work effort shall be considered “works for hire” for the Company.

Section 5.03 Engaging In Other Activities. Notwithstanding any provision contained in this Agreement to the contrary, each Member may engage in, invest in, participate in or otherwise enter into other business ventures of any kind, nature and description, alone or with others, including, without limitation, the acquisition, ownership, financing, leasing, operation, management or development of any interests in any business or asset, and neither the Company nor any other Member shall have any right in or to any such activities or the income or profits derived therefrom.

ARTICLE VI

ACCOUNTING PROVISIONS

Section 6.01 Fiscal Year. The fiscal and taxable year of the Company shall end on December 31 of each calendar year, unless otherwise determined by the Managing Member (“Fiscal Year”).

Section 6.02 Books and Accounts.

(a) Books and accounts shall be kept and maintained by the Company at the principal place of business of the Company or such other place as the Managing Member may determine. Such books and accounts shall be kept in accordance with generally accepted accounting principals and shall include a separate Capital Account for each Member. The Company’s books and records shall also include a list of the name and address of each Member, the number and class of Units held by each Member, which information shall be updated by the Company to reflect all issuances, redemptions and transfers of Units. Each Member or its duly authorized representative, at its own expense, may at all reasonable times by appointment during business hours upon reasonable notice have access to, and may inspect and make copies of, such books and accounts of the Company.

(b) All funds received by the Company shall be deposited in the name of the Company or a designee or agent of the Company in such bank account or other accounts as the Managing Member may designate from time to time, and withdrawals therefrom shall be made upon the signature of an Authorized Person of the Company as the Members may designate from time to time.

Section 6.03 Financial Reports.

(a) The Company shall cause to be prepared at the Company’s expense, and shall deliver to each Member the following reports:

(i) Within the period required by the Code after each Fiscal Year, all information required to be provided to each Member for the preparation of such Member’s federal income tax returns (i.e., Form K-1 or a reasonable substitute therefore);

(ii) Within 60 days after March 31, June 30, September 30 and December 31, the Company shall provide to each Member an unaudited balance sheet, income statement and statement of cash flow as of the end of and for the immediately preceding three month period;

(iii) Within 90 days after the end of each Fiscal Year, the Company shall provide to each Member a balance sheet, income statement and statement of cash flows, each prepared in accordance with generally accepted accounting principals as of and for the annual period ending the last day of the immediately preceding Fiscal Year.

No cause of action may be maintained against the Company or any Member for any delay in provision of reports and returns referred to in this Section 6.03 due to the delay of the Company’s independent public accountants or any other reason not under the control of the Company.

Section 6.04 Tax Elections. The Company, at the request of any Member, shall make an election pursuant to the provisions of Code Section 754. Any other elections required or permitted to be made by the Company under the Code shall be made by Wilshire.

Section 6.05 Tax Audits.

(a) Wilshire (or such other Person designated by the Members) shall serve as the tax matters partner for the Company pursuant to Code Section 6231 and the Treasury Regulations promulgated thereunder (the “Tax Matters Partner”). Each Member by the execution hereof consents to Wilshire serving as the Tax Matters Partner and agrees to execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. To the extent and in the manner provided by applicable law and regulations, the Tax Matters Partner shall furnish the name, address, profits interest, and taxpayer identification number of each Member to the Secretary of the Treasury or his delegate (the “Secretary”). The Tax Matters Partner shall keep the Members informed of any final administrative or judicial determination regarding the adjustment at the Company level of any item required to be taken into account by a Member for income tax purposes (such administrative determination referred to hereinafter as a “tax audit” and such judicial determination referred to hereinafter as “judicial review”).

(b) The Tax Matters Partner may take any of the following actions:

(i) to enter into any settlement with the Internal Revenue Service or the Secretary with respect to any tax audit or judicial review, in which the Tax Matters Partner may expressly state that such agreement binds the Members;

(ii) in the event that a notice of a final partnership administrative adjustment at the Company level of any item required to be taken into account by a Member for tax purposes (a “final adjustment”) is mailed to the Tax Matters Partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court, the District Court of the United States for the district in which the Company’s principal place of business is located, or the United States Court of Federal Claims;

(iii) to intervene in any action brought by any Member for judicial review of a final adjustment (for purposes of this clause (iii), the consent of all Members other than the Member that brought such action shall be required for the Tax Matters Partner to intervene in such action);

(iv) to file a request for an administrative adjustment with the Secretary at any time and, if any part of such request is not allowed by the Secretary, to file a petition for judicial review with respect to such request;

(v) to enter into an agreement with the Internal Revenue Service to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Member for tax purposes, or an item affected by such item; and

(vi) to take any other action on behalf of the Members of the Company in connection with any administrative or judicial tax proceeding to the extent permitted by applicable law or regulations.

(c) The Company shall indemnify and reimburse the Tax Matters Partner for all expenses, including legal and accounting fees, claims, liabilities, losses, and damages incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Members. The payment of all such expenses shall be made before any distributions are made to Members or any discretionary reserves are set aside by the Members. The taking of any action and the incurring of any expense by the Tax Matters Partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole discretion of the Tax Matters Partner and the provisions on limitations of liability and indemnification set forth herein shall be fully applicable to the Tax Matters Partner in its capacity as such.

ARTICLE VII

TRANSFER OF INTERESTS

Section 7.01 Admission of Substitute Members. Any Person who shall have acquired all or any portion of the Units of one or more Members pursuant to a written assignment shall be admitted to the Company as a substitute member (provided that the provisions of this Article VII shall have been complied with) and shall be deemed, and have all the right and obligations of, a “Member” under this Agreement, except as otherwise expressly provided in this Agreement.

Section 7.02 Restrictions on Transfers. No Member shall sell, transfer, assign, gift, pledge, hypothecate, grant a security interest in or otherwise encumber, or transfer (a “Transfer”) all or any portion of such Member’s Units, except upon receipt by such Member of the written consent to such Transfer from all other Members, which consent may be granted or withheld by a Member, in such Member’s sole and absolute discretion. Notwithstanding the foregoing, Proud Three may transfer its Units to the Siggi B. Wilzig Trust without the consent of any other Member. Nothing in this Section 7.02 shall be deemed to prohibit the Transfer of all or any portion of the issued and outstanding shares of stock of Wilshire.

ARTICLE VIII

DISTRIBUTIONS AND ALLOCATIONS

Section 8.01 Distributions of Net Cash Flow and Net Proceeds.

(a) Except as otherwise required by this Agreement (including, without limitation Section 2.03) and subject to the making of the Tax Distributions pursuant to Section 8.01(b) below, Net Cash Flow and Net Proceeds shall be distributed at such times as the Managing Member shall determine, as follows:

(i) First, to the Member owning Class A Units, until such Member shall have received payment of an amount equal to such Member’s unreturned Capital Investment.

(ii) Second, to the Member owning Class B Units, until such Member shall have received payment of an amount equal to such Member’s unreturned Capital Investment.

(iii) Third, pari passu (equal in priority) as follows:

fifty percent (50%) to the Member owning Class A Units; and

fifty percent (50%) to the Member owning Class B Units.

(b) In preference to any other distributions pursuant to this Section 8.01, the Managing Member shall cause the Company to distribute cash of the Company to the Members holding Class A Units and Class B Units, on a quarterly (or other reasonable) basis, at least sufficient for each such Member to meet such Member's required federal, state and local income tax payments in respect of such Member's allocable share of the Company’s taxable income for the current or the prior fiscal year calculated at the marginal tax rates applicable to the Member with the highest marginal tax rate (which tax payments shall include (i) estimated tax payments in respect of the current fiscal year and (ii) any remaining payments of income tax on account of the prior fiscal year not funded out of Tax Distributions in respect of estimated payments for such prior fiscal year) (the “Tax Distributions”). For purposes hereof, if a Member is a “pass-through” entity for income tax purposes, the Tax Distributions required hereby shall be calculated by deeming the owners of such Member to be the Member hereunder.

(c) Notwithstanding Section 8.01(a) to the contrary, in the event that prior to the exercise of the Call Option by Proud Three pursuant to Section 11.02 of this Agreement and the occurrence of the Call Option Closing, Jeffrey T. Masessa (“Masessa”) exercises the Masessa Call Option pursuant to the terms and conditions of that certain Agreement dated the date of this Agreement by and among the Members, the Company and Masessa (the “Masessa Rights Agreement”) and the Masessa Call Option Closing (as defined in the Masessa Rights Agreement) occurs, then: (i) fifty percent (50%) of the Base Purchase Price (as defined in the Masessa Rights Agreement) shall be allocated and distributed to Wilshire; (ii) fifty percent (50%) of the Base Purchase Price shall be allocated and distributed to Proud Three; (iii) the Wilshire Additional Capital (as defined in the Masessa Rights Agreement shall be allocated and distributed to Wilshire; and (iv) the Proud Three Additional Capital (as defined in the Masessa Rights Agreement) shall be allocated and distributed to Proud Three.

(d) In the event that Masessa exercises the Call Option pursuant to the terms and conditions of the Masessa Rights Agreement and the Masessa Call Option Closing occurs after the occurrence of the Call Option Closing pursuant to Section 11.02 of this Agreement, then the Company agrees to pay to Wilshire the sum of $1,125,000.

(e) In the event that Proud Three exercises the Call Option pursuant to Section 11.02 during the First Year (as defined in Section 11.02) and: (i) during the period commencing on the date of the Call Option Closing and the date that is one (1) year thereafter, the Company enters into a binding contract to sell the Property (a “Binding Contract”), and (ii) the amount of the Net Distributions (as hereinafter defined) from the closing of the sale of the Property pursuant to the Binding Contract is greater than $10,500,000 (the “Target Net Distributions”), then the Company agrees to pay to Wilshire at the closing of the sale of the Property, an amount equal to fifty percent (50%) of the Net Distributions in excess of the Target Net Distributions. For purposes of this Section 8.01(e), the term “Net Distributions” means: (i) the Net Proceeds of such sale, minus (ii) the aggregate amount of all additional capital contributions made by Proud Three (or any Affiliate of Proud Three) to the Company.

(f) In the event that the Company sells the Property during the Black Out Period for an amount equal to or greater than the Release Price, then the Company agrees to pay over and distribute the Net Proceeds thereof to the Members as follows: (i) fifty percent (50%) of the Base Release Price shall be allocated and distributed to Wilshire; (ii) fifty percent (50%) of the Base Release Price shall be allocated and distributed to Proud Three; (iii) the Wilshire Additional Contributions shall be allocated and distributed to Wilshire; and (iv) the Proud Three Additional Contributions shall be allocated and distributed to Proud Three.

Section 8.02 Allocation of Net Profits. Net Profits (other than from Net Proceeds or upon liquidation) shall be allocated to the Members owning Class A Units and Class B Units, pari passu (equal in priority), pro rata in accordance with the number of Units owned by such Members.

Section 8.03 Allocation of Net Losses. Net Losses (other than from Net Proceeds or upon liquidation) shall be allocated to the Members owning Class A Units and Class B Units, pari passu (equal in priority), pro rata in accordance with the number of Units owned by such Members.

Section 8.04 Allocation of Net Profits and Net Losses from Net Proceeds or upon liquidation.

Net Profits and Net Losses from Net Proceeds or upon liquidation shall be allocated among the persons who were Members during such period in a manner that will reduce, proportionately, the differences between their respective Partially-adjusted Capital Accounts and Target Capital Accounts for such period. No portion of the Net Losses for any fiscal year shall be allocated to a Member whose Target Capital Account is greater than or equal to its Partially-adjusted Capital Account for such fiscal year. No portion of the Net Profits for any period shall be allocated to any Member whose Partially-adjusted Capital Account is greater than or equal to its Target Capital Account for such period. For the purpose hereof, “Partially-adjusted Capital Account” means, with respect to any Member for any period, the Capital Account of such Member at the beginning of such period, adjusted for all contributions and distributions made during such period and all special allocations pursuant to Section 8.04 with respect to such period, but before giving effect to any allocations of Net Profits or Net Losses for such period made pursuant to this Section 8.04. For the purpose hereof, the “Target Capital Account” of a Member for a period shall be an amount (which may be either a positive or a deficit balance) equal to:

(i) the amount of the hypothetical distribution (if any) that such Member would receive if, on the last day of such fiscal year, (A) all assets of the Company, including cash, were sold for cash equal to their book values, taking into account any adjustments thereto for such fiscal year, (B) all liabilities of the Company were satisfied by the payment of cash according to their terms (limited, with respect to each nonrecourse liability, to the book values of the assets securing such liability), and (C) the net proceeds thereof (after satisfaction of such liabilities) were distributed in full pursuant to Section 9.03, less

(ii) the sum of (A) the amount, if any, without duplication, that such Member would be obligated to contribute to the capital of the Company pursuant to any provision of this Agreement, (B) such Member’s share of Company Minimum Gain determined pursuant to Section 1.704-2(g), and (C) such Member’s share of Member Nonrecourse Debt Minimum Gain determined pursuant to Regulations Section 1.704-2(j), all calculated immediately prior to the hypothetical sale described in Section 8.04(a)(i) hereof.

(b) Determination of Items Comprising Allocations of Net Profits and Net Loss:

(i) If the Company has Net Profits for a period,

(A) for any Member whose Capital Account balance should be reduced by reason of the application of Section 8.04(a) above, the allocation required by Section 8.04(a) shall consist of a proportionate share (based upon the relative amounts of the reductions in the Capital Account balances of all Members whose Capital Account balances then should be reduced by reason of the application of Section 8.04(a) of each of the Company’s items of expense or loss entering into the computation of Net Profits for such period to the extent necessary to eliminate to the maximum extent possible for the period in question, the difference between the Partially-adjusted Capital Account and the Target Capital Account of such Member; and

(B) the allocation pursuant to Section 8.04(a) hereof in respect of each Member (other than a Member referred to in Section 8.04(b)(i) above) shall consist of a proportionate share (based upon the relative amounts of the increases of the Capital Account balances of all Members (other than Members referred to in Section 8.04(b)(i) above) of each item of income, gain, expense and loss entering into the computation of Net Profits for such period (other than the portion of each item of expense or loss, if any, that is allocated pursuant to Section 8.04(a)).

(ii) If the Company has Net Loss for a period,

(A) for any Member whose Capital Account balance needs to be increased pursuant to Section 8.04(a) hereof, the allocation required by Section 8.04(a) shall consist of a proportionate share (based upon the relative amounts of the increases in the Capital Account balances of all Members whose Capital Account balances then should be reduced by reason of the application of Section 8.04(a)) of each of the Company’s items of income and gain entering into the computation of Net Loss for such period to the extent necessary to eliminate to the maximum extent possible for the period in question, the difference between the Partially-adjusted Capital Account and the Target Capital Account of such Member; and

(B) the allocation pursuant to Section 8.04(a) hereof in respect of each Member (other than a Member referred to in Section 8.04(b)(ii)(A) above) shall consist of a proportionate share (based upon the relative amounts of the reductions of the Capital Account balances of all Members (other than Members referred to in Section 8.04(b)(ii)(A)) of each Company item of income, gain, expense and loss entering into the computation of Net Loss for such period (other than the portion of each Company item of income and gain, if any, that is allocated pursuant to Section 8.04(a)).

(c) To the maximum extent possible in each fiscal year, the items of taxable income and gain that are required to be specially allocated among any Members who should be allocated items of expense and loss entering into the computation of Net Profit under Section 8.04(a) shall be allocated among them in the same proportion as the total of all items of expense or loss entering into the computation of Net Profit that should be allocated among them under Section 8.04(a). Correspondingly, to the maximum extent possible in each period, the items of tax-deductible items of expense and loss that are required to be specially allocated among all Members who need to be allocated items of expense and loss entering into the computation of Net Loss under Section 8.04(a) shall be allocated among them in the same proportion as the total of all items of income or gain entering into the computation of Net Loss that should be allocated among them under Section 8.04(a). The purpose of this subsection is to assure that such taxable and tax-deductible items are fairly allocated among the Members in each period.

(d) Notwithstanding anything to the contrary contained in this Section 8.04, in the event that the Masessa Call Option Closing occurs and the Net Proceeds are distributed to the Members pursuant to Section 8.01(c) hereof or in the event that the Property is sold during the Black Out Period and the Net Proceeds are distributed to the Members pursuant to Section 8.01(f) hereof, then Net Profits shall be allocated:

(i) Fifty percent (50%) to Wilshire; and

(ii) Fifty percent (50%) to Proud Three.

Section 8.,05 No Return of Distributions. No Member shall have any obligation to refund to the Company any amount that shall have been distributed to such Member pursuant to this Agreement, subject, however, to applicable law.

Section 8.06 Allocations between Assignor and Assignee Members. In the case of a Transfer, the assignor and assignee shall each be entitled to receive distributions of Net Cash Flow and allocations of Net Profits or Net Losses and Nonrecourse Deductions as follows:

(a) Unless the assignor and assignee agree to the contrary and shall so provide in the instrument effecting the Transfer, distributions shall be made to the Person owning the Units on the date of the distribution; and

(b) Net Profits or Net Losses and Nonrecourse Deductions shall be allocated by the number of days of the periods each Person held the Units; provided that Net Profits or Net Losses attributable to a Capital Transaction shall be allocated to the member owning the Units when a recognition event occurred for federal income tax purposes.

Section 8.07 Deficit Capital Accounts. Except as otherwise provided herein or under the Act, no Member shall be required at any time to make up any deficit in such Member’s Capital Account.

Section 8.08 Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of state or local tax law with respect to any payment or distribution to the Company or to the Members or any allocation of taxable income to the Company or the Members shall be treated as amounts distributed to the Members pursuant to this Article for all purposes under this Agreement. The Company is authorized to withhold from distributions, or with respect to allocations, to the Members and to pay over any federal, state or local government any amounts required to be withheld pursuant to the Code or any provisions of any other federal, state or local law and shall allocate such amounts to the Members with respect to whom such amounts were withheld. If the amount required to be withheld with respect to a Member exceeds the amount which otherwise would have been distributed to such Member, such Member shall pay to the Company the amount of such excess within five days after the giving of written demand therefore by the other Member(s). If such Member (herein called a “Delinquent Member”) shall fail to pay such excess within said five day period, then (i) interest shall accrue thereon at or equal to the lesser of 24% per annum or the maximum rate permitted by law, (ii) such excess amount together with interest accrued thereon as aforesaid shall be a lien upon the Units of the Delinquent Member in favor of the Company and may be recovered from the first distributions to which the Delinquent Member would otherwise have been entitled from the Company until such excess amount is fully repaid together with interest thereon as aforesaid, and (iii) the Company, in addition to and without limiting any of its other rights and remedies, may institute an action against the Delinquent Member for collection of such excess amount and interest; in any such action, the Company shall be entitled to recover, in addition to such excess amount and interest, all reasonable attorneys’ fees, disbursements and court costs incurred by the Company in connection with its efforts to collect the amounts due from such Delinquent Member. In addition, such Delinquent Member shall indemnify and hold harmless the Company and each of the other Members and the employees of the Company from all liabilities, losses, costs and expenses, including, without limitation, penalties imposed by the Internal Revenue Service or any state or local taxing authority, for failure to remit the required amount of taxes to the appropriate governmental authority.

ARTICLE IX

LIQUIDATION AND TERMINATION OF THE COMPANY

Section 9.01 General.

(a) The Company shall be dissolved and its affairs shall be wound up upon the first to occur of any of the following (the “Termination Date”):

(i) The vote or written consent of Wilshire;

(ii) The entry of a decree of judicial dissolution under Section 42:2B-49 of the Act; or

(iii) Any other event requiring the dissolution of the Company pursuant to applicable law.

(b) From and after the Termination Date, the Company shall be dissolved and its affairs shall be wound up in accordance with this Article and the Act. The dissolution and the winding up of the Company’s affairs shall be conducted and supervised by the Managing Member, or if the Managing Member is unable to conduct and supervise the dissolution and winding up of the Company, by an Authorized Person (such Authorized Agent being herein referred to as the “Liquidating Agent”). The Liquidating Agent shall have all the rights and powers with respect to the assets and liabilities of the Company in connection with the dissolution, winding up and termination of the Company that the Members have with respect to the assets and liabilities of the Company. Without limiting the foregoing, the Liquidating Agent is hereby expressly authorized and empowered to execute and deliver any and all documents necessary or desirable to effectuate the liquidation and termination of the Company and to transfer any asset or liability of the Company. The Liquidating Agent shall have the right from time to time, by revocable powers of attorney, to delegate to one or more Persons any or all of such rights and powers and such authority and power to execute and deliver documents, and, in connection therewith, to fix the reasonable compensation of each such Person, which compensation shall be charged as an expense of liquidation. The Liquidating Agent is also expressly authorized to distribute the Company’s property to the Members, which property may be subject to liens.

Section 9.02 Statements on Termination. Each Member shall be furnished with a statement prepared by the Company’s independent certified public accountant setting forth the assets and liabilities of the Company as of the date of the complete liquidation of the Company, and each Member’s share thereof or interest therein. Upon compliance with the distribution plan of the Company adopted by the Members, the Units in the Company shall represent only an unsecured right to receive the net proceeds of liquidation in accordance with this Article, and the Liquidating Agent shall cause to be filed with the Treasurer of the State of New Jersey the Certificate of Cancellation of the Company or any applicable form with similar effect in each state in which the Company is qualified to do business.

Section 9.03 Priority on Liquidation. The Liquidating Agent shall, to the extent feasible, liquidate the marketable assets of the Company as promptly as practicable. To the extent the proceeds are sufficient therefore, as the Liquidating Agent shall deem appropriate, the proceeds of such liquidation shall be applied in the following order of priority:

(a) To pay the reasonable costs and expenses of the liquidation and termination;

(b) To pay the matured or fixed debts and liabilities of the Company (including, without limitation, all Member Loans);

(c) To establish any reserve that the Liquidating Agent may deem necessary for any contingent, unmatured or unforeseen liability of the Company; and

(d) The balance, if any, shall be distributed to the Members in the same manner that Net Proceeds are distributable pursuant to Section 8.01.

Section 9.04 Distribution of Non-Liquid Assets.

(a) If after the Termination Date the Liquidating Agent shall determine that it is not practicable to liquidate all the assets of the Company (pursuant to the exercise of its discretion in accordance with Section 9.03 with respect to assets that are illiquid or are not marketable, or otherwise), then the Liquidating Agent shall distribute such assets as follows:

(i) The Liquidating Agent shall cause the Company to retain assets having a fair market value equal to the amount, if any, by which the net proceeds of liquidated assets are insufficient to satisfy the debts and liabilities of the Company (other than any debt or liability for which neither the Company nor any Member is personally liable), to pay the costs and expenses of the dissolution and liquidation, and to establish reserves, all subject to the provisions of Section 9.03. The foregoing shall not be construed, however, to prohibit the Liquidating Agent from distributing, pursuant to Section 9.04(b), property subject to liens.

(ii) The remaining assets shall be distributed to the Members by way of undivided interests therein in such proportions as shall be equal to the respective amounts to which each Member is entitled pursuant to Section 9.03(d). If, in the judgment of the Liquidating Agent, it shall not be practicable to distribute to each Member an undivided share of each asset, the Liquidating Agent may allocate and distribute specific assets to one or more Members as tenants-in-common as the Liquidating Agent shall determine to be fair and equitable, taking into consideration, inter alia, the basis for tax purposes of each asset distributed. Without limiting the foregoing the Liquidating Agent may transfer assets to a liquidating trust in which each Member shall receive an interest with rights to distributions equivalent to its rights pursuant to Section 9.03.

(b) Nothing contained in this Article or elsewhere in this Agreement is intended to cause any in-kind distributions to be treated as sales for value.

Section 9.05 Deficit upon Liquidation. Upon liquidation, no Member shall be liable to the Company for any deficit in its Capital Account, nor shall such deficit be deemed an asset of the Company, other than to the extent required by law.

Section 9.06 Source of Distributions. No Member shall be personally liable for the return of the capital contributions of any other Member, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.

ARTICLE X

EXCULPATION AND INDEMNIFICATION OF MEMBERS

Section 10.01 Exculpation.

(a) No Member nor any Affiliate of any Member (collectively, the “Related Group”) shall have any personal liability to the Company or the Members for damages for any breach of duty in such capacity, provided that nothing in this Section 10.01 shall eliminate or limit the liability of any person within the Related Group if a judgment or other final adjudication adverse to such person establishes: (i) that such acts were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated; or (ii) that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that: (x) such acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated; or (y) such Person personally gained in fact a financial profit or other advantage to which such Person was not legally entitled (unless there has been a final adjudication in the proceeding that such is the case).

(b) Notwithstanding any of the foregoing to the contrary, the provisions of this Section 10.01 shall not be construed so as to relieve (or attempt to relieve) any Person within the Related Group from or against any liability, to the extent (but only to the extent) that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Section 10.01 to the fullest extent permitted by law.

Section 10.02 Indemnification. The Company shall indemnify each Person within the Related Group thereof made or threatened to be made a party in any civil or criminal action or proceeding, including actions under federal and state securities laws, by reason of the fact that such Person or such Person’s Affiliate is or was a Member of the Company, against judgments, fines, amounts paid in settlement and reasonable expenses, including without limitation, court costs, attorneys’ fees and disbursements and those of accountants, appraisers and other experts and consultants incurred as a result of such action or proceeding or any appeal therein, all of which expenses as incurred shall be advanced by the Company pending the final disposition of such action or proceeding. Such required indemnification shall be subject only to the exception that no indemnification may be made to or on behalf of any of the Related Group in the event and to the extent that a judgment or other final adjudication adverse to the such indemnitee establishes that: (i) such acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or (ii) such Person personally gained in fact a financial profit or other advantage to which such Person was not legally entitled; provided that indemnification shall be made upon any successful appeal of any such adverse judgment or final adjudication. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which any such Person in the Related Group may be entitled apart from this provision, including, without limitation, indemnification provisions included in the certificate of organization of any subsidiary or the directors and officers, errors and omissions insurance.

ARTICLE XI

MISCELLANEOUS PROVISIONS

Section 11.01 Right of First Refusal.

(a) If: (i) the Company shall receive any bona fide offer (an “Offer”) from any Person to purchase, or enter into any other capital transaction with respect to, the Property at any time (the “Option Period”); and (ii) the Company were to sell, or enter into any such other capital transaction with respect to, the Property pursuant to such Offer, upon distribution of the Net Proceeds thereof following such sale or such other capital transaction, Proud Three would not receive greater than the amount that is One Million Dollars ($1,000,000) less than its then unreturned Capital Investment, then the Managing Member shall notify Proud Three, in writing of the Offer (the “Offer Notice”). The Offer Notice shall contain a copy of the Offer and all other applicable terms and conditions. Proud Three shall then have the right to purchase, or otherwise enter into such other capital transaction with respect to, the Property at the price (the “Offer Price”) and on the other terms and conditions set forth in Offer Notice. Proud Three’s right under this Section 11.01 is referred to as the “Right of First Refusal”.

(b) Proud Three shall exercise the Right of First Refusal, if at all, by providing the Managing Member with written notice (the “Notice of Exercise”) within thirty (30) days after receipt by Proud Three of the Offer Notice. If Proud Three does not timely provide the Managing Member with the Notice of Exercise, the Company may sell the Property to, or enter into any such other capital transaction with, a third party at the Offer Price or any amount in excess of the Offer Price, on the terms set forth in Offer Notice, and the Right of First Refusal shall thereupon terminate, provided that if the Property is not conveyed, or such other capital transaction is not entered into, at the Offer Price or any amount in excess of the Offer Price, on the terms set forth in the Offer Notice within ninety (90) days after the date of the Offer Notice with respect to that Offer, then the Right of First Refusal shall again be applicable.

Section 11.02 Call Option.

(a) Proud Three shall have the option (the “Call Option”) to purchase all of the Units owned by Wilshire provided that Proud Three exercises the Call Option by giving Wilshire written notice of its exercise of the Call Option on or prior to the date that is ninety (90) days prior to the date that is five (5) years after the date of this Agreement (the “Call Option Notice”). In the event that Proud Three exercises the Call Option, then the total purchase price for all of the Units owned by Wilshire shall be:

(i) In the event that the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) during the period commencing on the date hereof and ending on the date that is one (1) year after the date hereof (the “First Year”) - $5,250,000;

(ii) In the event that the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) during the period commencing on the date immediately following the end of the First Year and ending on the date that is one (1) year thereafter (the “Second Year”) - $6,250,000;

(iii) In the event that the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) during the period commencing on the date immediately following the end of the Second Year and ending on the date that is one (1) year thereafter (the “Third Year”) - $7,500,000;

(iv) In the event that the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) during the period commencing on the date immediately following the end of the Third Year and ending on the date that is one (1) year thereafter (the “Fourth Year”) - $8,100,000; and

(v) In the event that the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) on or after the date immediately following the end of the Fourth Year - $8,748,000.

For purposes of this Section 11.02(a), the Call Option Closing is deemed to occur on the date that the Call Option Closing is to occur pursuant to Section 11.02(b); provided, however, if the Call Option Closing fails to occur on the date specified in Section 11.02(b) as a result of a delay caused by Proud Three’s default, then the Call Option Closing is deemed to occur for purposes of this Section 11.02(a) on the actual date of the Call Option Closing; and further provided, however, in the event that Proud Three exercises the Call Option by providing Wilshire with the Call Option Notice on or prior to the date that is one (1) year after the date of this Agreement, then, notwithstanding that the Call Option Closing shall occur after the date that is one (1) year after the date of this Agreement, the Call Option Closing shall be deemed to occur during the First Year.

(b) If Proud Three exercises the Call Option, the closing of the transaction of purchase and sale of all of the Units owned by Wilshire (the “Call Option Closing”) shall take place at 10 o’clock in the forenoon at the principal place of business of the Company (or such other location as Proud Three and Wilshire shall agree), on a date ninety (90) days after Wilshire receives the Call Option Notice (or if such date shall be a Sunday or holiday, then on the first business day immediately succeeding such date).

(i) Wilshire shall assign and convey to Proud Three all of its Units, free and clear of all Encumbrances and shall execute and deliver to Proud Three any agreements and/or documents that may be reasonably requested by Proud Three to effectuate such assignment and conveyance and ensure that Wilshire’s Units are being transferred free and clear of all Encumbrances, including, without limitation an agreement executed and delivered by Wilshire pursuant to which it represents and warrants to Proud Three that it owns the Units free and clear of all Encumbrances;

(ii) any deed, documentary, stamp, transfer or similar taxes or fees due in connection with the sale shall be paid by Wilshire; and

(iii) Proud Three shall cause any guarantees for debts or other obligations of the Company that had been made by Wilshire or any of its affiliates to be released or otherwise discharged, with no further liability to such guarantor(s) thereunder.

(d) In the event that Wilshire defaults in its obligation to complete the transaction on or prior to the date specified in Section 11.02(b) hereof, then: (i) Proud Three shall be entitled to all available legal and equitable remedies against Wilshire, including, without limitation, specific performance of Wilshire’s obligation to complete the transaction and recovery of all losses of Proud Three caused by Wilshire’s default (including attorney’s fees and costs paid or incurred in any legal or equitable action); and (ii) Wilshire shall immediately cease to be, and to serve as, the Managing Member, and Proud Three shall be the Managing Member, and for all purposes under this Agreement, the term “Managing Member” shall mean Proud Three.

(e) Notwithstanding anything contained hereinabove to the contrary, but subject to the following provisions of this Section 11.02(e), during the period commencing on the date hereof and ending on the later to occur of: (i) six (6) months and twenty (20) days after the date of this Agreement (the “Marketing Period”), and (ii) in the event that the Company enters into a binding contract to sell the Property during the Marketing Period, the date of termination of such binding contract, Proud Three shall not have the right to exercise the Call Option (the “Black Out Period”). During the Black Out Period, the Managing Member, on behalf of the Company, shall have the right to sell the Property for an amount equal to or greater than the sum of: (i) $12,750,000 (the “Base Release Price”); (ii) the aggregate amount of all additional capital contributions made by Wilshire (or any Affiliate of Wilshire) to the Company on or after the date of this Agreement (the “Wilshire Additional Contributions”); (iii) the aggregate amount of all additional capital contributions made by Proud Three (or any Affiliate of Proud Three) to the Company on or after the date of this Agreement (the “Proud Three Additional Contributions”); and (iv) the aggregate amount of all indebtedness for borrowed money of the Company (including, without limitation, any and all amounts due to trade creditors) (the “Release Price”). During the Black Out Period, the consent of all Members shall be required to sell the Property for an amount less than the Release Price. In the event that the Property is sold during the Black Out Period, any and all right of Proud Three to exercise the Call Option shall terminate and expire.

(f) Notwithstanding anything contained hereinabove to the contrary, but subject to the following provisions of this Section 11.02(f), at any time after the date that is one (1) year after the date of this Agreement and prior to Proud Three exercising the Call Option, Wilshire shall have the right to provide written notice to Proud Three that it desires to offer the Property for sale (a “Proposed Sale Notice”), whereupon Proud Three shall not have the right to exercise the Call Option at any time during the period commencing on the date that is forty-five (45) days following receipt by Proud Three of a Proposed Sale Notice (a “Start Date”) and ending on the date that is eight (8) months after such Start Date (a “Subsequent Black Out Period”). In the event that the Property is not sold during a Subsequent Black Out Period, Wilshire shall not have the right to provide another Proposed Sale Notice to Proud Three until after the date that is six (6) months after the last date of such Subsequent Black Out Period.

Section 11.03 Dispute Resolution.

(a) In the event of a dispute between or among any two or more of the Members relating to this Agreement, such dispute shall be finally determined by arbitration conducted in Newark, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then existing or any successor body of similar function, by a panel of three (3) arbitrators selected as hereinafter described. The party desiring arbitration shall appoint an individual person as arbitrator on its behalf and give notice thereof to the other party who shall, within ten (10) business days after receipt of said notice, appoint a second individual as arbitrator on its behalf and give notice thereof to the first party. The arbitrators thus appointed shall appoint a disinterested third individual, and said three (3) arbitrators shall, as promptly as possible, determine the matter which is the subject of the arbitration. If the second arbitrator shall not timely be appointed as aforesaid, the first arbitrator shall proceed to determine the matter in dispute.

(b) If, within fifteen (15) days after the appointment of the second arbitrator, the two (2) arbitrators appointed by the parties shall be unable to agree upon the appointment of a third arbitrator, they shall give notice to the parties of such failure to agree. If the parties fail to agree upon the selection of such third arbitrator within five (5) business days after receipt of such notice from the appointed arbitrators, then within five (5) business days thereafter either of the parties upon notice to the other party may request such appointment by the American Arbitration Association (or any organization successor thereto), or in its absence, refusal, failure or inability to act, may apply to any court of competent jurisdiction to appoint such arbitrator.

(c) The majority of the arbitrators shall render their decision and award within thirty (30) days after the appointment of the third arbitrator. Such decision and award shall be in writing and shall be conclusive and binding on the parties, and counterpart copies thereof shall be delivered to each of the parties. Judgment on the award may be entered in a court of competent jurisdiction.

(d) Each party shall pay (i) the fees and expenses of the original arbitrator appointed by or for such party and (ii) the fees and disbursements of its own attorneys and the expenses of its proof. The fees and expenses of the third arbitrator and all other expenses of the arbitration shall be borne equally by the parties.

Section 11.04 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey governing agreements made wholly within such State (without regard to principles of conflicts of laws).

Section 11.05 Modification. This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof. No waiver or modification of the provisions hereof shall be valid unless it is in writing and, except as otherwise expressly permitted by Section 11.10 below, signed by the party to be charged and then only to the extent therein set forth.

Section 11.06 Notices. All notices, demands, solicitations of consent or approval, consents and other communications permitted or required to be given hereunder shall be in writing and shall be made by hand-delivery, first-class mail (registered or certified, return receipt requested), telecopier, or overnight air courier guaranteeing next business day delivery to the address set forth below or at such other address as any of the parties may designate in writing in conformity herewith:

(a) if to the Company, to:

WO GRAND HOTEL, LLC

350 Pleasant Valley Way

West Orange, New Jersey 07052

with a copy to all of the parties set forth in Sections 11.06(b) and 11.06(c) below.

(b) if to Wilshire, to:

Wilshire Enterprises, Inc.

1 Gateway Center

Newark, New Jersey 07102

Attn: Daniel C. Pryor

Facsimile: (201) 420-6012

with a copy to:

Greenbaum, Rowe, Smith & Davis LLP

Metro Corporate Campus One

P. O. Box 5600

Woodbridge, New Jersey 07095-0988

Attn: W. Raymond Felton, Esq.

Facsimile: (732) 549-1881

Proud Three, LLC

c/o Herrick, Feinstein LLP

2 Penn Plaza, 11^th Floor

Newark, New Jersey 07105

Attn: Daniel A. Swick, Esq.

Facsimile: (973) 274-2500

with a copy to:

Herrick, Feinstein LLP

2 Penn Plaza, 11^th Floor

Newark, New Jersey 07105

Attn: Daniel A. Swick, Esq.

Facsimile: (973) 274-2500

Except as otherwise provided in this Agreement, each such notice shall be deemed given at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next business day delivery.

Section 11.07 Captions. The captions used herein are intended for convenience of reference only, shall not constitute any part of this Agreement and shall not modify or affect in any manner the meaning or interpretation of any of the provisions of this Agreement.

Section 11.08 Construction. Any word or term used in this Agreement in any form shall be masculine, feminine, neuter, singular or plural, as proper reading requires. The words “herein”, “hereof”, “hereby” or “hereto” shall refer to this Agreement unless otherwise expressly provided. Any reference herein to a Section or any exhibit or schedule shall be a reference to a Section of, and an exhibit or schedule to, this Agreement unless the context otherwise requires. Any reference herein to a “business day” shall mean a day in which the New York branch of the Federal Reserve Bank is open for business during its normal hours of operation.

Section 11.09 Pronouns. All pronouns and any variation thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require.

Section 11.10 Amendments. This Agreement may only be amended by the affirmative vote of all of the Members. Any amendment made pursuant to this Section 11.10 shall become effective as of the date such amendment is approved, except that, at the option of the Members, such amendment may provide that it shall be made effective as of a later date.

Section 11.11 Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the respective heirs, executors, administrators, legal representatives, and permitted successors and assigns of the parties hereto.

Section 11.12 Separability. In case any one or more of the provisions contained in this Agreement or any application thereof shall be deemed invalid, illegal or unenforceable in any respect, such affected provisions shall be construed and deemed rewritten so as to be enforceable to the maximum extent permitted by law, thereby implementing to the maximum extent possible, the intent of the parties hereto, and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

Section 11.13 Further Assurances. The Members shall execute and deliver such further instruments and documents and do such further acts and things as may be required to carry out the intent and purposes of this Agreement.

Section 11.14 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one agreement.

Section 11.15 Consent to Jurisdiction. All actions and proceedings arising out of, or relating to, this Agreement shall be heard and determined in any state or federal court sitting in New Jersey. The parties hereto, by execution and delivery of this Agreement, expressly and irrevocably consent and submit to the personal jurisdiction of any of such courts in any such action or proceeding; (ii) consent to the service of any complaint, summons, notice or other process relating to any such action or proceeding by delivery thereof to such party by hand or by certified mail, delivered or addressed as set forth in Section 11.06; and (iii) waive any claim or defense in any such action or proceeding based on any alleged lack of personal jurisdiction, improper venue or forum non conveniens or any similar basis.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	WO GRAND HOTEL, LLC

	By:
		Name:
		Title: Authorized Person


	WILSHIRE ENTERPRISES, INC.

	By:
		Name:
		Title:


	PROUD THREE, LLC

	By:
		Name:
		Title:

Exhibit A

Description of the Property

That certain lot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Township of West Orange, County of Essex and State of New Jersey, as follows:

Beginning at a point at the intersection of the southeasterly sideline of Pleasant Valley Way with the northeasterly sideline of Kenz Terrace, said sideline of Pleasant Valley Way having been established by the Essex County Highway Department, and shown on Acquisition Map 6-E-6; thence

(1)	Northeasterly along said sideline of Pleasant Valley Way, along a curve to the right having a radius of 915.37 feet, an arc distance of 42.12 feet to a point of tangency; thence

(2)	Still along said sideline North 37 degrees 13 minutes 10 seconds East, a distance of 826.17 feet to a point on the rear line of lots fronting on Ronald Terrace, said point being 137.93 feet southwesterly from the southwesterly sideline of Ronald Terrace; thence

(3)	South 50 degrees 29 minutes 50 seconds East a distance of 99.97 feet to a point; thence

(4)	South 51 degrees 56 minutes 18 seconds East a distance of 737.40 feet to a point; thence

(5)	South 36 degrees 34 minutes 36 seconds West a distance of 501.16 feet to a point; thence

(6)	North 69 degrees 08 minutes 50 seconds West a distance of 359.64 feet to a point; thence

(7)	North 60 degrees 23 minutes 50 seconds West a distance of 367.40 feet to a point; thence

(8)	South 37 degrees 13 minutes 10 seconds West 148.55 feet to a point; thence

(9)	South 31 degrees 38 minutes 31 seconds West 35.70 feet to a point on the northwesterly sideline of Kenz Terrace; thence

(10)	North 60 degrees 23 minutes 50 seconds West 137.32 feet to a point on the southeasterly sideline of Pleasant Valley Way and the point and place of beginning.

BEING commonly known as 350 Pleasant Valley Way, West Orange, New Jersey.

BEING also known as Lot 1428 in Block 152.22 on the current tax map of the Township of West Orange.

Exhibit B

Description of the Loans and Mortgages

WEST ORANGE LOAN DOCUMENTS

1.	Commercial Mortgage Note dated April 10, 2001, executed and delivered by Hotel to The Trust Company of New Jersey (“TCNJ”) in the original principal amount of $6,900,000.00.

2.	Commercial Mortgage dated April 10, 2001, executed and delivered by Hotel to TCNJ in the original principal amount of $6,900,000.00, which was recorded in the Essex County Register’s Office on April 30, 2001 in Mortgage Book 7743 at Page 0016, et seq.

3.	Guaranty dated April 10, 2001, executed and delivered by J.T. Mase and Jeffrey Masessa to TCNJ.

4.	Uniform Commercial Code Financing Statement No. 092244, filed in the Essex County Register’s Office on April 30, 2001, and naming Hotel as the Debtor and TCNJ as the Secured Party.

5.	Uniform Commercial Code Financing Statement No. 2037223, filed with the State of New Jersey on April 19, 2001, and naming Hotel as the Debtor and TCNJ as the Secured Party.

6.	Absolute Assignment of Leases, Rentals and Profits dated April 10, 2001, executed and delivered by Hotel to TCNJ, which was recorded in the Essex County Register’s Office on April 30, 2001 in Mortgage Book 7743 at Page 0050, et seq.

7.	Note and Mortgage Modification and Extension Agreement dated October 21, 2002, made by and between TCNJ, Hotel, Jeffrey Masessa and J.T. Mase, which was recorded in the Essex County Register’s Office on October 25, 2002 in Book 452 at Page 536, et seq.

8.	Amended and Restated Commercial Mortgage Note dated June 25, 2003, executed and delivered by Hotel and Catering to TCNJ in the amount of $11,900,000.00.

9.	Commercial Mortgage dated June 25, 2003, executed and delivered by Catering to TCNJ in the original principal amount of $11,900,000.00, which was recorded in the Essex County Register’s Office on July 1, 2003 in Mortgage Book 8973 at Page 695, et seq.

10.	Mortgage Modification and Extension Agreement dated June 25, 2003, made by and between Hotel and TCNJ, which was recorded in the Essex County Register’s Office on July 1, 2003 in Book 461 at Page 22, et seq.

11.	Uniform Commercial Code Financing Statement No. 802388, filed in the Essex County Register’s Office on July 1, 2003, and naming Catering as the Debtor and TCNJ as the Secured Party.

12.	Uniform Commercial Code Financing Statement No. 21672606, filed with the State of New Jersey on July 1, 2003, and naming Catering as the Debtor and TCNJ as the Secured Party.

13.	Absolute Assignment of Leases, Rentals and Profits dated June 25, 2003, executed and delivered by Catering to TCNJ, which was recorded in the Essex County Register’s Office on July 1, 2003 in Mortgage Book 8973 at Page 725, et seq.

14.	Guaranty dated June 25, 2003, executed and delivered by J.T. Mase, Denville Nites, Inn at Rockaway, J.T. Mase Properties and Jeffrey Masessa to TCNJ.

15.	Commercial Mortgage dated June 25, 2003, executed and delivered by Denville Nites to TCNJ in the original principal amount of $11,900,000.00, which was recorded in the Morris County Clerk’s Office on June 27, 2003 in Mortgage Book 14734 at Page 117, et seq.

16.	Uniform Commercial Code Financing Statement No. 2003-107347, filed in the Morris County Clerk’s Office on June 27, 2003, and naming Denville Nites as the Debtor and TCNJ as the Secured Party.

17.	Uniform Commercial Code Financing Statement No. 2167259-0, filed with the State of New Jersey on July 1, 2003, and naming Denville Nites as the Debtor and TCNJ as the Secured Party.

18.	Absolute Assignment of Leases, Rentals and Profits dated June 25, 2003, executed and delivered by Denville Nites to TCNJ, which was recorded in the Morris County Clerk’s Office on June 27, 2003 in Mortgage Book 14734 at Page 133, et seq.

19.	Commercial Mortgage dated June 25, 2003, executed and delivered by the Inn at Rockaway to TCNJ in the original principal amount of $11,900,000.00, which was recorded in the Morris County Clerk’s Office on June 27, 2003 in Mortgage Book 14735 at Page 038, et seq.

20.	Uniform Commercial Code Financing Statement No. 2003-107384, filed in the Morris County Clerk’s Office on June 27, 2003, and naming the Inn at Rockaway as the Debtor and TCNJ as the Secured Party.

21.	Uniform Commercial Code Financing Statement No. 2167103-6, filed with the State of New Jersey on July 1, 2003, and naming the Inn at Rockaway as the Debtor and TCNJ as the Secured Party.

22.	Absolute Assignment of Leases, Rentals and Profits dated June 25, 2003, executed and delivered by the Inn at Rockaway to TCNJ, which was recorded in the Morris County Clerk’s Office on June 27, 2003 in Mortgage Book 14735 at Page 055, et seq.

Exhibit C

Definitions

As used in the Operating Agreement of WO GRAND HOTEL, LLC, the following terms shall have the following meanings:

“Affiliates” means, with respect to any Person, its officers, directors, stockholders, members and managers, and any Person controlling, controlled by, or under common control with, the Person in question. The term “control” (as used in the terms “controlling”, “controlled” and “common control” means (a) holding 51% or more of the outstanding equity securities of an issuer, (b) holding 51% or more of the outstanding voting securities of an issuer, or (c) holding the power to direct or cause the direction of the management and policies of a Person, whether by contract or otherwise.

2.	“Capital Account” means, with respect to any Member, the Capital Account maintained for such Member in accordance with the following provisions:

To each Member’s Capital Account there shall be credited (A) an amount equal to such Member’s Capital Investment and all additional Capital Contributions made by such Member (in the aggregate, the “Capital Contribution Amount”), (C) such Member’s distributive share of Net Profits and any items in the nature of income or gain which are specially allocated pursuant to the Regulations, and (D) the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member;

To each Member’s Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any property distributed to such Member pursuant to any provision of this Agreement, (B) such Member’s distributive share of Net Losses and any items in the nature of expenses or losses which are specially allocated pursuant to the Regulations, and (C) the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company;

c.	In the event of a Transfer of Units in accordance with the terms of this Agreement, the transferee or assignee, if admitted as a Member, shall succeed to the Capital Account of the transferring Member to the extent it relates to the Transfer of Units; and

d.	In determining the amount of any liability for purposes of subparagraphs (a) and (b) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations, including without limitation those Regulations relating to qualified income offset and minimum gain chargeback. In the event the Members shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or any Members, are computed in order to comply with such Regulations), the Members may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Article IX upon the dissolution of the Company. The Members also shall: (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(g); and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

“Capital Transaction” means any capital transaction with respect to any capital asset of the Company including: (i) any sale, exchange, condemnation (other than a temporary taking) or other disposition of all or any portion of any capital asset or any interest therein; (ii) any recovery of damages or insurance proceeds (other than rental interruption insurance) as a result of damage to or destruction of all or any portion of the improvements on a real property or other capital assets of the Company or the loss of title thereto (all to the extent not applied to the costs of repairing or replacing the assets damaged or destroyed); (iii) any financing or refinancing by debt, sale and leaseback or any other form of financing of all or any portion of any capital asset or any indebtedness or the Company; and (iv) any other transaction, the proceeds of which, in accordance with generally accepted accounting principles, are considered to be capital in nature.

4.	“Class A Unit” means the interest of a Member in the Company having such rights, powers and preferences as specified in this Agreement and the Act.

5.	“Class B Unit” means the interest of a Member in the Company having such rights, powers and preferences as specified in this Agreement and the Act.

6.	“Code” means the Internal Revenue Code of 1986, as amended.

7.	“Collateral” means any and all real personal property mortgaged, pledged or otherwise encumbered to secure the Loans.

8.	“Company Minimum Gain” means the amount determined pursuant to the definition of “partnership minimum gain” set forth in Regulation Sections 1.704-2(b)(2) and 1.704- 2(d).

“Depreciation” means, for each taxable year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such taxable year, except that (A) with respect to any asset whose Gross Asset Value differs from its adjusted basis for federal income tax purposes and the difference is being eliminated by use of the “remedial method” defined by Section 1.704-3T(d) of the Regulations, Depreciation for such year shall be the amount of book basis recovered for such taxable year under the rule described by Section 1.704-3T(d)(2) of the Regulations; and (B) with respect to any other asset whose Gross Asset Value differs from its adjusted basis for federal income tax purposes at the beginning of such taxable year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such taxable year bears to such beginning adjusted tax basis; provided that if the adjusted basis for federal income tax purposes of an asset at the beginning of such taxable year is zero, Depreciation shall be determined with reference to such beginning Gross Asset value using any reasonable method selected by the Members.

10.	“Encumbrances” means all liens, claims, security interests, mortgages, pledges, easements, defects in title or other encumbrances.

11.	“Governmental Body” means any court, government (federal, state, local or foreign), department, commission, board, agency, bureau, official or other regulatory, administrative or governmental authority.

12.	“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

a.	The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Members.

The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as determined by the Members as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis capital contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and (B) of this paragraph shall be made only if the Members reasonably determine that such adjustment is necessary to reflect the relative economic interests of the Members in the Company;

c.	The Gross Asset Value of any item of Company assets distributed to a Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as determined by the Members; and

The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Net Profits” and “Net Losses”; provided that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv).

e.	If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Net Profits and Net Losses.

13.	“Knowledge” means, with respect to any individual, the actual knowledge of such individual, and, with respect to any entity, the actual knowledge of any directors, managers or officers of such entity.

14.

“Loan Document” means each promissory note, mortgage, assignment of leases and rents, security agreement, financing statement, personal, corporate or other guaranty, pledge agreement, subordination agreement, collateral agreement, loan agreement, escrow agreement, non-disturbance agreement, agency agreement or other agreement or document, whether an original or a copy and whether or not similar to those enumerated, evidencing, securing, guarantying or otherwise documenting or giving notice of any Loan and any performance or payment obligations with respect thereto. The term “Loan Documents” shall also include each policy of title insurance, if any, insuring the lien of any deed of trust or mortgage securing the Loans and each Loan File. The term “Loan Document” shall include, without limitation, the documents set forth on Exhibit B.

15.	“Loan File” means all instrument and documents in the files of Proud Three pertaining to the Loans, including, without limitation, the Notes and any Loan Documents.

16.	“Member” and “Members” means Wilshire, Proud Three, and any Person that acquires Units after the date of this Agreement and signs a counterpart signature page or other instrument to become a part to this Agreement.

17.	“Member Nonrecourse Debt” shall have the meaning ascribed to “partner nonrecourse debt” in Regulation Section 1.704-2(b)(4).

18.	“Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations.

19.

“Net Cash Flow” means all cash receipts of the Company, plus any reserves released by the Members, and the fair market value of any property received in connection therewith, in any Fiscal Year from whatever source derived (other than proceeds from borrowings or other Company indebtedness, Net Proceeds and contributions to the capital of the Company such as the aggregate Capital Contribution Amount of the Members), less payment of all the Company’s expenses, including without limitation, debt service payments (including in connection with any Member Loans) and Reserves, if any, as the Members shall elect to establish.

20.	“Net Proceeds” means, with respect to any Capital Transaction or any part thereof,

the cash proceeds of any sale or other disposition of all or any part of a capital asset, less all costs and expenses of such sale or disposition, which shall include all commissions, finder fees, “points” in a loan transaction, and all other transaction fees and expenses, including due diligence, legal and accounting costs;

the proceeds of any financing or refinancing, by debt, sale or lease assignment and leaseback or any other form of financing, of all or any part of any capital asset, or any obligation or debt related to a capital asset, less the aggregate cost of such capital asset and all costs and expenses thereof, including amounts paid to discharge or obtain assignments of any mortgages or debts that are being refinanced;

the proceeds of insurance received by the Company with respect to damage or destruction to any capital asset (including title insurance proceeds payable to the Company), less the costs and expenses incurred in connection therewith and any amounts applied or held to be applied for restoration or repair or to be deployed to purchase a capital asset within 12 months after the date such proceeds are received by the Company;

the proceeds of any award as compensation for the taking of all or any portion of a capital asset by exercise of the power of eminent domain or a transfer in lieu thereof, less the costs and expenses incurred in connection therewith and any amounts applied or held to be applied for restoration or replacement of improvements on any capital asset or to be deployed to purchase a capital asset within 12 months after the date such proceeds are received by the Company; and

e.	the proceeds of any other Capital Transaction, less all expenses incurred in connection with obtaining or collecting such proceeds in all cases.

The foregoing amounts shall be reduced by: (i) the amount required to pay the matured or fixed debts, liabilities and expenses of the Company (including, without limitation, all Member Loans), and (ii) such Realized and Unrealized Losses, and Reserves, if any, as the Members shall elect to establish from such proceeds.

21.

“Net Profits” or “Net Losses” shall mean an amount equal to the Company’s taxable income or loss for any taxable year, determined in accordance with code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss) with the following adjustments:

a.	Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this definition of “Net Profits” and “Net Losses” shall be added to such taxable income or loss;

Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this definition of “Net Profits” or “Net Losses” shall be subtracted from such taxable income or loss;

In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (a) or (b) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Net Profits or Net Losses;

Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

e.	In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation of such taxable year, computed in accordance with the definition of “Depreciation;”

To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than a complete liquidation of a Member’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Profits or Net Losses; and

g.	Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to the Regulations shall not be taken into account in computing Net Profits or Net Losses.

h.	The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to the Regulations shall be determined by applying rules analogous to those set forth in clauses (a) through (f) above.

22.	“Nonrecourse Deductions” shall have the meaning set forth in Regulation §1.704-2(b)(1).

23.	“Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the Regulations.

24.	“Notes” means those certain promissory notes as set forth in Exhibit B, evidencing the original principal indebtedness with respect to the Loans, together with all amendments, modification and renewals thereof.

25.

“Obligor” means the make and co-maker of any Note and any guarantor, surety or other primary, secondary or other party obligated with respect to the Loans or any performance or payment obligation in connection therewith, and any other party who has granted Collateral for or whose property or any part thereof is subject to any encumbrance securing the Loans or any performance or payment obligation in connection therewith.

26.	“Permitted Encumbrances” means those Encumbrances on the Property set forth on Exhibit J attached hereto.

27.	“Person” means an individual, partnership, corporation, trust, unincorporated organization or other entity.

28.

“Realized and Unrealized Losses” means amounts determined by the Members, at the time of any distribution of Net Cash Flow, or Net Proceeds to reflect realized losses incurred by the Company with respect to capital assets previously sold or otherwise disposed of by the Company and/or unrealized losses incurred by the Company with respect to capital assets held by the Company at the time of such determination.

29.	“Regulation” means the income tax regulations promulgated from time to time by the U.S. Department of the Treasury.

30.	“Reserves” means the aggregate amount of reserves that the Managing Member determines to establish from time to time for future expenses of operating the Company or liabilities in connection therewith as of the applicable date of determination.

31.	“Tax Return” means any return (including any information return), report, statement, schedule, notice, form, estimate, or declaration of estimated tax relating to or required to be filed with any Governmental Body in connection with the determination, assessment, collection or payment of any tax.

32.	“Unit” means a Class A Unit, a Class B Unit, or any other class of unit designated and authorized by the Members.

Exhibit D

Certificate of Formation

Exhibit E

Bargain and Sale Deed with Covenants Against Grantor’s Acts

Exhibit F

Assignment of the Loans and Loan Documents

N/A

Exhibit G

General Assignment and Bill of Sale

Exhibit H

Allonge to the Notes

Exhibit I

Assignment of Mortgages

Exhibit J

Permitted Encumbrances

EX-10.2 3 v023456_ex10-2.htm

Exhibit 10.2

Agreement for Purchase and Sale dated as of July 29, 2005 between Avondale Multi-Family Limited Partnership and Wilshire Enterprises, Inc.

AGREEMENT FOR PURCHASE AND SALE

This Agreement for Purchase and Sale (“Agreement”) is dated as of July _____, 2005 (the “Effective Date”), and is entered into between AVONDALE MULTI-FAMILY LIMITED PARTNERSHIP, an Arizona limited partnership (“Seller”), and WILSHIRE ENTERPRISES, INC., a New Jersey corporation (“Purchaser”) (collectively, the “Parties”, or individually, the “Party”).

1.	Definitions. As used in this Agreement, the following terms shall have the following meanings:

1.1	“Property” means:

(a)

that certain real property situated at 1700 North 103rd Avenue, Avondale Arizona 85323, commonly known as The Village at Gateway Pavilions Apartments (the “Real Property” that, together with the “Personal Property,” shall be defined as the “Property”), consisting of 240 apartment units, as more particularly described on Exhibit A attached hereto and incorporated herein by reference, together with any and all improvements thereon and all easements, licenses, rights-of-way and other appurtenances thereto;

(b)	the personal property presently owned by Seller and associated with the ownership, operation and maintenance of the Real Property (the “Personal Property”); and

(c)	the following intangible personal property:

(1)	The name “The Village at Gateway Pavilions Apartments” (“Trade Name”);

(2)	Leases with tenants (“Tenant Leases”) and refundable security deposits (“Tenant Deposits”) related thereto;

(3)	To the extent assignable, all licenses, permits and certificates of occupancy for the Property (“Permits”);

(4)	To the extent assignable, warranties and guarantees on Personal Property purchased, if any (“Warranties”); and

(5)	To the extent assignable, all plans, specifications, surveys, and other studies in Seller’s possession and all other general intangibles.

1.2	“Escrow Agent” means Title Security Agency of Arizona, Inc., 3850 East Baseline Road, Suite 103, Mesa , Arizona 85206, Attn: Ms. Marian Sprague.

2.	Purchase and Sale. Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, all of Seller’s right, title and interest in and to the Property, on the terms and conditions set forth in this Agreement.

3.	Purchase Price. The purchase price for the Property is Twenty Eight Million One Hundred Forty Thousand Dollars ($28,140,000.00) (the “Purchase Price”), paid at Closing (as defined below) as follows:

3.1

Earnest Money Deposit. Upon full execution of this Agreement, Purchaser agrees to deposit One Hundred Thousand Dollars ($100,000.00) in cash with Escrow Agent as Purchaser’s Earnest Money Deposit (the “Initial Deposit”). Upon delivery of the Initial Deposit to Escrow Agent, (a) the Initial Deposit shall be non-refundable to Purchaser, unless Seller breaches this Agreement beyond any applicable cure period or a damage/condemnation event in Sections 14 or 15 shall have occurred and Purchaser timely elects to cancel this Agreement pursuant to the applicable section; and (b) the Initial Deposit shall be paid by Escrow Agent to Seller on the twenty second (22nd) day following the Effective Date, unless Purchaser sooner has given the Purchaser Title CN (as each such term is defined in Section 5.2 below) to Seller and Escrow Agent. In addition, Purchaser agrees to deposit an additional Four Hundred Thousand Dollars ($400,000) in cash (the “Second Deposit”) on the twenty second (22^nd) day after the Effective Date, which shall be non-refundable to Purchaser, except in the event of Seller’s breach of its obligations under this Agreement beyond any applicable cure period or a damage/condemnation event in Sections 14 or 15 shall have occurred and Purchaser timely elects to cancel this Agreement pursuant to the applicable section; from this Second Deposit, Fifty Thousand Dollars ($50,000) shall be paid by Escrow Agent to Seller on the business day following that on which Purchaser makes the Second Deposit. The balance of the Second Deposit shall be placed in an interest bearing account of a federally insured depositary of a major money center bank, and the interest accruing thereon shall belong to the party entitled to the Initial Deposit or the Second Deposit, as the case may be. If upon the 66^th day following the Effective Date Purchaser fails to apply to HUD for the assumption of the PFC Encumbrance as set forth in Section 13.3(d), an additional One Hundred Thousand Dollars ($100,000) of the Second Deposit shall become non-refundable and shall immediately be released to Seller. Additionally, if prior to Closing Purchaser cancels this Agreement for any reason other than Seller’s breach of this Agreement beyond the applicable cure period or a condemnation or casualty event described in Sections 14 or 15, the Second Deposit balance shall be paid, along with accrued interest thereon, to Seller without further instructions to Escrow Agent.

3.2

Balance of Purchase Price. On or before the Closing Date (as defined in Section 4 below), Purchaser shall deposit with Escrow Agent and Escrow Agent shall immediately release to Seller the amount equal to (a) the Purchase Price (less the Initial Deposit and the Second Deposit specified in Section 3.1 above), minus (b) the principal balance of the PFC Encumbrance (as defined below) as of the Closing Date, plus (c) any amounts owed to the holder of the PFC Encumbrance in consideration of Purchaser’s assumption thereof (including without limitation any assumption fee and the replacement of all deposits held in reserve by the Lender or HUD) plus or minus other sums (e.g., escrow fees and tax prorations share) necessary to close, as applicable.

Closing Date. The closing of the transaction contemplated by this Agreement (the “Closing Date” or “Closing”) shall occur in the office of Escrow Agent (or, if required by the federal government, at the HUD office so designated therefore) not later than the tenth (10th) day after the date on which HUD approves the TPA (as defined below) or such earlier date as the parties may agree, but in no event later than one hundred eighty (180) calendar days following the Effective Date (the “Outside Closing Date”) , unless Purchaser elects to extend the Closing as set forth herein. The Closing may be extended for up to thirty (30) days as follows: Upon Purchaser’s written notice to be given to Seller at least ten (10) days prior to the Outside Closing Date, Purchaser shall have the right to extend the Closing Date for one (1) thirty (30) day period, so long as (i) Purchaser has made formal application to HUD for the assumption of the PFC Encumbrance as set forth in Section 13.3(d), and (ii) Purchaser demonstrates in the notice to Seller good faith, diligent efforts to prosecute the application with HUD and shares with Seller Purchaser’s written communications with HUD demonstrating progress in processing the HUD approval of the TPA, and (iii) Purchaser instructs Escrow Agent, concurrently with its notification of extension of the Closing Date, to release an additional One Hundred Thousand Dollars ($100,000.00) from the Second Deposit in consideration of Seller granting the thirty (30) day extension period, such additional deposit to be non-refundable to Purchaser. Escrow Agent hereby is instructed to release the One Hundred Thousand Dollar ($100,000) sum from the Second Deposit to Seller promptly upon its receipt of Purchaser’s notice of intention to extend the Closing.

5.	Title and Title Insurance.

5.1

Condition of Title. At closing, title to the Real Property shall be marketable of record free of (and title insurance shall insure that title is free of) encumbrances or defects, except Permitted Exceptions (as defined below). “Permitted Exceptions” include (i) nondelinquent taxes, (ii) usual rights of tenants as identified in the rental agreements or leases, (iii) building or use restrictions general to the area in which the Real Property is located, (iv) the “Regulatory Agreement for Multifamily Housing Projects” for FHA Project No. 123-35386, recorded as Instrument No. 2003-1502707 in the official records of Maricopa County, Arizona (the “HUD Covenant”), and (v) other exceptions as are approved, or deemed approved or waived, by Purchaser pursuant to Section 5.2.

5.2

Preliminary Title Commitment. Within seven (7) days after the Effective Date, Escrow Agent will make available to Purchaser a commitment for title insurance (“Preliminary Commitment”), along with legible copies of all recorded exceptions to title, issued by First American Title Insurance Company (the “Title Company”) showing the condition of title to the Property.

Purchaser shall give written notice to Seller on or before seven (7) days following the date of Purchaser’s receipt of the Preliminary Commitment (the “PO Notice”) of any defects or exceptions to title to which Purchaser objects. Within five (5) days of receipt of Purchaser’s notice, Seller shall notify Purchaser in writing whether Seller intends to remove, at or prior to closing, the defects or exceptions to title to which Purchaser objects, which Seller shall have the sole election whether to remove. Seller must remove all monetary encumbrances against title to the Real Property (except the PFC Encumbrance, as defined below), which Seller has consensually granted in writing as a lien against the Property and any mechanic’s liens (or bond over such disputed mechanic’s lien) unless resulting from the acts or omissions of Purchaser). If Seller notifies Purchaser of its agreement to remove any of the defects or exceptions, then Seller shall remove such defects or exceptions on or before the Closing Date.

If Seller notifies Purchaser that Seller will not remove one or more of such defects or exceptions noted in the PO Notice (the “SR Refusal Notice”), Purchaser may elect to accept such defects or exceptions to title as Seller declines to, or fails to offer to, cure or, alternatively, elect to terminate this Agreement. If Purchaser elects to terminate this Agreement, it must do so in writing within five (5) days of Seller’s election not to remove all defects to which Purchaser objected (the “Purchaser Title CN”), whereupon the Initial Deposit shall be refunded to Purchaser and all rights and obligations of Seller and Purchaser under this Agreement shall terminate and be of no further force or effect. Purchaser’s failure to timely provide the notice described in the preceding sentence shall be deemed to be Purchaser’s election to accept such defects or exceptions and a waiver of Purchaser’s right to terminate this Agreement pursuant to this Section 5.2. If a mechanic’s lien not resulting from the acts or omissions of Purchaser, is recorded between the date of Purchaser’s receipt of the Preliminary Commitment and the Closing Date, Purchaser shall have the right to cause Seller to pay or bond over such monetary lien or encumbrance through escrow at closing. Other than the removal of any consensual monetary lien granted in writing by Seller, any mechanic’s lien arising from work authorized by Seller, and any other encumbrance executed by Seller after issuance of the Preliminary Commitment and prior to Closing, Seller shall have no obligation to cure any title defect or remove any matter from title to the Property, and Purchaser’s sole remedy in the event of Seller’s inability or unwillingness to cure or remove any exception to title to which Purchaser objects will be to terminate this Agreement and obtain the return of its Initial Deposit.

5.3

Title Policy. The Title Company shall deliver to Purchaser as soon as practicable after Closing, at Seller’s expense, an ALTA standard coverage owner’s policy of title insurance insuring Purchaser’s fee simple title to the Real Property in the face amount of the Purchase Price and containing no exclusions other than the form printed exclusions and no exceptions other than the Permitted Exceptions and those created or caused by Purchaser (the “Title Policy”). Purchaser, at Purchaser’s sole expense, may require the Title Company to issue an ALTA extended coverage owner’s title policy, and if it does so, Purchaser shall bear all additional costs associated with obtaining the extended coverage policy or any endorsements thereto.

Entry and Inspection. Purchaser shall have rights of physical inspection of the Property or the books and records thereof, including without limitation examination of those due diligence matters contained within the items reflected on Exhibit B attached hereto. Seller agrees to promptly furnish the necessary documents stated on Exhibit B for inspection not later than ten (10) days from Effective Date. Purchaser, within twenty one (21) days from the Effective Date (the “Due Diligence Period”), shall specifically approve in writing all matters contained in the items set forth on Exhibit B as well as the forms of the Closing documents, and affirm that Purchaser will proceed with the transaction contemplated by the Agreement for the full Purchase Price. If Purchaser fails to provide timely such unambiguous written approval to Seller by the last day of the Due Diligence Period, this Agreement shall terminate and be of no further force or effect except that Purchaser shall forfeit its Initial Deposit to Seller, and thereafter the Parties shall have no obligations to each other except for any express surviving indemnity obligations contained herein. Notwithstanding the foregoing, the Due Diligence Period shall be extended by one (1) day for each day or portion thereof beyond the aforesaid ten (10) day period for delivery of the necessary documents stated on Exhibit B that any of said documents have not been delivered by Seller. Except as otherwise expressly provided in Section 13.1 below or in the Closing documents, the sale of the Property is and will be made on an “AS IS, WHERE IS” basis, with all defects of any nature, and Seller has not made, does not make and specifically negates and disclaims, any representations, warranties or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future of, as to, concerning or with respect to the Property or any other matter whatsoever, including without limitation its income, its tenancies, its value, its zoning, its environmental condition, and its compliance with any other laws.

Purchaser’s Contingencies. The obligation of Purchaser to purchase the Property pursuant to this Agreement is expressly contingent upon approval or waiver of the following contingency (“Purchaser’s Contingency”) in Purchaser’s reasonable discretion within the time period specified for each condition:

Purchaser obtaining approval of (i) the assumption of the existing first deed of trust and promissory note due April 1, 2045, encumbering the Property in favor of Capstone Realty Advisors, LLC (“Lender”), which succeeded to the interest of PFC (“PFC Encumbrance”) and (ii) the transfer of physical assets under HUD Form 92266 (or its successor application form), provided that Purchaser shall timely submit the necessary assumption documents to each person from whom consent to assume is required within the time frame described in the terms of Section 13.3(d) hereof.

Confidentiality. Except as may be required by law (in which event Purchaser shall give not less than five (5) business days notice to Seller of such legal obligation in advance of the intended disclosure) Purchaser and Purchaser’s agents and representatives hereby covenant with Seller that Purchaser and its agents and representatives, without the prior written consent of Seller (which consent may be withheld for any reason or none) shall not disclose to any other person beyond its accountants and legal counsel, by any means whatsoever, (i) any information pertaining to this Agreement and the transaction contemplated hereby, or (ii) any information, data or documents provided by Seller or its agents or representatives regarding Seller, its business and the Property.

9.	Prorations.

9.1	Taxes. Property taxes shall be prorated as of the Closing Date based upon a three hundred sixty-five (365) day year.

9.2

Rents. All non-delinquent rents shall be prorated on an accrual basis; however, Purchaser shall receive no credit for any outstanding rental concessions or future rent credits. Purchaser shall receive credit for rents on the day of Closing. In the event Seller receives any payments of rent from tenants subsequent to Closing that are applicable to any period after Closing, such payments shall be endorsed by Seller in favor of Purchaser and promptly delivered to Purchaser. In the event Purchaser receives any payments of any delinquent rent from tenants subsequent to Closing that are applicable to periods prior to the Closing, such payments shall, as applicable, either be endorsed by Purchaser in favor of Seller and promptly delivered to Seller or promptly paid to Purchaser by Seller. Purchaser shall use commercially reasonable efforts to collect delinquent rent from tenants owed to Seller prior to Closing, but Purchaser shall not be obligated to commence eviction efforts in an effort to collect rents. Purchaser shall be entitled to apply all payments by tenants first to the payment of current rent and other charges and second to the payment of pre-Closing delinquent rent when the current month’s rent is past due; but rent payments received more than ten (10) days prior to their due date during the two (2) months next following the month of the Closing Date shall be presumed to be a “catch-up” payment of pre-Closing delinquent rent (unless any such payment is accompanied by a notation from the tenant indicating to the contrary) and shall be remitted to Seller. The refundable portion of all tenant deposits and accrued interest as to those leases that provide that the landlord shall pay interest on such deposits shall be credited by Seller to Purchaser at Closing. Purchaser shall receive no credit for any non-refundable fees or deposits unless the date, circumstance or event which makes same non-refundable has not occurred as of the Closing Date.

9.3

Utilities and Operating Expenses. Purchaser agrees to open accounts with the utility companies serving the Property and to cooperate with Seller in requesting readings as of the Closing Date. If readings cannot be obtained as of the Closing Date, the Parties shall prorate all utility charges relating to the Property, including water, gas, electricity, sewer and the like, outside of escrow, with such prorations to be finalized as soon as practicable following Closing. Expenses under any Approved Contracts assumed by Purchaser shall be prorated as of the Closing Date. If any errors or omissions are made regarding adjustments or prorations, the parties shall make the appropriate corrections promptly upon the discovery thereof. If any estimates are made regarding adjustments or prorations, the Parties shall make the appropriate correction promptly when accurate information becomes available. Any corrected adjustment or proration shall be paid in cash outside of escrow to the party entitled thereto. The obligations of the Parties under this Section 9.3 shall survive for a period of twelve (12) months after the Closing Date.

10.

Closing Costs.

10.1	Seller’s Closing Costs. Seller shall pay the following:

(a)	One-half of Escrow Agent’s fee;

(b)	The cost of an ALTA standard coverage owner’s Title Policy, including search fees;

(c)	Real estate sales commissions as set forth in Section 18;

(d)	Seller’s attorneys’ fees in connection with the transaction contemplated by this Agreement (which shall not include any fees of attorneys engaged by Purchaser with regard to the assumption of the PFC Encumbrance); and

(e)	Recording fees customarily paid by sellers.

10.2	Purchaser’s Closing Costs. Purchaser shall pay:

(a)	One-half of Escrow Agent’s fee;

(b)	Any sales/use tax in connection with transfer of the Personal Property;

(c)	That portion of the cost of obtaining a satisfactory title insurance policy that is in excess of the cost of the Title Policy, including the costs of an ALTA survey, if required;

(d)

All costs and fees associated with assumption of the PFC Encumbrance on the Property and replacement of all reserves held by the holder of the PFC Encumbrance and HUD, and upon the Closing Date, any tax, insurance, replacement reserve, operating deficiency reserve, and any other impounds maintained by Lender in accordance with the HUD Loan (collectively, the “Impounds”) shall be reimbursed by Purchaser to Seller. The amount of the Impounds as of the Closing Date is to be determined by the Escrow Agent by obtaining written confirmation from the Lender. Also, Purchaser shall pay all its attorneys’ fees in connection with the transaction contemplated by this Agreement and those fees charged by the PFC Encumbrance holder or HUD in connection with the assumption of same, including without limitation the fees of its legal counsel; all costs incurred in connection with the consummation of Purchaser’s IRC Section 1031 exchange; and those recording fees customarily paid by purchasers, including without limitation all the PFC Encumbrance assumption instruments.

11.

Closing Deliveries. On or before the Closing Date, the Parties shall cause to be delivered to Escrow Agent fully executed originals of the following documents, satisfactory in form and substance to both Seller and Purchaser, together with escrow instructions, funds required to close and any other documents reasonably required to complete the transaction contemplated by this Agreement:

11.1	Seller’s Deliveries.

(a)

Special Warranty Deed conveying title to the Property to Purchaser and containing a reference to the HUD Covenant and a restriction prohibiting converting the use of the Property into condominiums, a horizontal property regime or other form of separate ownership as to any of the dwelling units, for a period of ten (10) years from the date of issuance of the final certificate of occupancy upon completion of the improvements to the Property, in form and substance identical, subject to any corrections or revisions jointly agreed to by the parties or required by law, to that instrument to be delivered to Purchaser within fourteen (14) days after the Effective Date (the “Deed”);

(b)	Bill of Sale conveying title to the Personal Property to Purchaser;

(c)

Rent Roll, certified as correct as of the Closing Date by Seller, identifying each unit, the tenant of each unit, the lease expiration date, the monthly rent, the status of payment of rent, all refundable tenant deposits and/or prepaid rents on deposit from tenants to be transferred by Seller to Purchaser at Closing, and any rental concessions to tenants then in effect;

(d)	Assignment and Assumption of Leases assigning to Purchaser all of Seller’s interests in all of the Tenant Leases;

(e)	Assignment and Assumption of Contracts and Intangibles assigning to Purchaser all of Seller’s rights and obligations under the contracts affecting the Property which Purchaser has elected to assume in accordance with the terms of this Agreement (collectively, the “Approved Contracts”);

(f)	General Assignment assigning to Purchaser all of Seller’s interest in warranties and other intangible Personal Property;

(g)	Non-foreign affidavit stating that Seller is not a “foreign person” for purposes of Section 1445 of the Internal Revenue Code;

(h)	An Affidavit of Property Value required in connection with the conveyance of the Real Property and such other documents as are customary for similar transactions or as may be reasonably required by the Title Company in its capacities as underwriter or escrow agent; and

(i)	A certificate updating Seller’s representations and warranties as of the Closing Date.

Additionally, Seller shall cause fully executed originals of the following documents to be delivered directly to Purchaser on or before the Closing Date:

(a)

Originals of all Tenant Leases (or copies, if any original has been lost) and any material correspondence related thereto, i.e, all tenant files;

(b)

Originals of all Approved Contracts and any material correspondence related thereto;

(c)

Materials relating to the intangible Personal Property assigned to Purchaser that Seller has in its possession and/or control;

(d)

All soils, seismic, geologic, drainage, toxic waste and environmental reports, surveys, “as-built” plans and specifications, working drawings, grading plans, elevations and similar information with respect to the Real Property which Seller has in its possession and/or control to the extent that originals of such items have not been delivered previously by Seller to Purchaser; and

(e)

All keys to the improvements located on the Real Property which Seller or Seller’s agents have in their possession, which keys shall include at least one (1) key for every apartment unit, and which keys shall be properly tagged for identification; and

(f)

The originals of the certificate of occupancy for the improvements on the Real Property and any other document readily accessible by Seller that is identified on Exhibit B.

11.2

Purchaser’s Deliveries. Purchaser shall deliver on the Closing Date, the Purchase Price for the Property in accordance with Sections 3.1 and 3.2 above and any documents necessary to complete the transaction contemplated by this Agreement, which shall include without limitation a letter from Purchaser’s President authorizing (for so long as Purchaser owns the Property) Seller’s affiliates to enter upon the Property (with due concern for the rights of tenants) upon forty-eight (48) hours prior written notice to Purchaser to tour the Real Property with prospective investors in or lenders to Seller’s affiliates’ other developments. Such deliveries shall be made in a timely manner to allow for disbursement of the Purchase Price to Seller on the Closing Date.

12.

Seller’s Obligations Pending Closing.

12.1

Maintenance of Property; Agreements Affecting Property. From the Effective Date until the Closing Date, Seller will continue to conduct its business on and to manage the Property in a manner similar to Seller’s current conduct and will maintain the Property in its current condition, subject to normal wear and tear, depreciation and damage by insured casualty. Seller will maintain Morrison Ekre & Bart as property manager and will not terminate Morrison, Ekre & Bart as property manager unless for cause or with the consent of Purchaser which shall not be unreasonably withheld. Seller has not previously entered into any agreements with respect to the operation of the business conducted on the Property (other than Tenant Leases, and any other agreements which would be disclosed by the documents described in Exhibit B attached to this Agreement) which will be binding on Purchaser after the Closing Date, and following the Effective Date, Seller will not enter into any such agreement which will be binding on Purchaser without the consent in writing of Purchaser. Seller will not sell, assign or convey any right, title or interest in the Property to any third party or permit to exist any lien, encumbrance or charge thereon without discharging the same prior to the Closing Date.

12.2	Property Insurance. Until the Closing Date, Seller shall maintain its insurance policy or policies insuring the Property in full force and effect.

13.

Representations and Warranties.

13.1

Seller’s Representations and Warranties. The phrase “Seller’s Knowledge” or “Seller has not received written notice” or “Seller has no knowledge of” or other phrases of similar import shall mean and be limited to information actually known to or acquired by, in each case as of the Effective Date and without any special inquiry, David K. Lu and Devan F. Wastchak, who are principals of Seller. In addition to other representations herein, Seller represents and warrants to Purchaser as of the date hereof and as of the Closing Date that:

(a)

Seller is an Arizona limited partnership, duly formed and validly existing in the State of Arizona. Seller, and the persons and entities signing on behalf of Seller, have full power and right to enter into and perform their obligations under this Agreement and the documents contemplated herein, including, without limitation, conveying the Property as herein provided;

(b)

Neither Seller nor any of the persons or entities constituting Seller is a “foreign person” within the meaning of Section 1445 of the United States Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, and Seller and each of the persons and entities constituting Seller shall execute an affidavit at Closing, in form acceptable to Purchaser, confirming such matters; additionally, Seller is not, and shall not be at any time, a person with whom the Lenders are restricted from doing business under the regulations of the Office of Foreign Asset Control ("OFAC") of the Department of Treasury of the United States of America (including those Persons named on OFAC's Specially Designated and Blocked Persons list) or under any statute, executive order (including, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and shall not engage in any dealings or transactions or otherwise be associated with such persons. In addition, the Borrower hereby agrees to provide to the Administrative Agent any information that the Administrative Agent deems necessary from time to time in order to ensure compliance with all applicable Laws concerning money laundering and similar activities.

(c)

Seller’s interest in the Personal Property, Warranties, Permits, Tenant Leases, Tenant Deposits, Approved Contracts, and Trade Name is free of any liens or encumbrances, including without limitation any leases or financing (with the exception of the PFC Encumbrance and the HUD Covenant). There shall not be any obligations of Seller in connection with the Property that will be binding upon Purchaser after the Closing Date, except for the Tenant Leases, the Approved Contracts, and the Permitted Exceptions;

(d)

The execution and delivery of this Agreement and the documents contemplated herein, and the consummation of the transactions contemplated herein, will not result in the breach of any agreement, indenture, or other instrument to which Seller is a party or is otherwise bound, so long as the PFC Encumbrance and the HUD Covenant are fully assumed by Purchaser with each lienholder’s consent;

(e)

Except for the consent of the Lender and HUD, no consent, approval, authorization or order of any court or governmental agency or body or other third party is required in connection with Seller’s execution and delivery of this Agreement or in connection with Seller’s performance of its obligations under this Agreement;

(f)

Seller has not received written notice and has no actual knowledge (a) that any permits required for the Property’s present use and status have not been obtained or that any conditions contained in any permits have not been satisfied, except as set forth in subsection (k) of this Section 13.1, or (b) of any attachments, executions, or assignments for the benefit of creditors, or voluntary proceedings in bankruptcy or under any other debtor relief laws contemplated by or pending or threatened by or against any of the persons or entities constituting Seller;

(g)

Except for the Tenant Leases, and those recorded exceptions set forth in the Preliminary Commitment, there are no options, rights of first refusal, occupancy agreements (written or oral), licenses, contracts, restrictive covenants, parking agreements, or any other agreements affecting the Property or the ownership, use, occupancy, operation, construction or maintenance of the Property;

(h)

Seller has not received written notice and has no actual knowledge that any water, sewer, gas, electricity, telephone, cable TV, drainage or other utility or system required by law or necessary for the use, occupancy, operation and maintenance of the Property (i) is not installed across public property (or across valid easements which will inure to the benefit of Purchaser pursuant to this Agreement) to the boundary lines of the Real Property; (ii) is not connected pursuant to valid permits; (iii) is not paid current as of the date of mutual acceptance of this Agreement and will be paid current as of the Closing Date; or (iv) is not billed at normal metered charges for apartment use;

(i)	No services, material or work have been supplied to the Property by or on behalf of Seller for which payment has not been made in full in a timely manner, or which will not be paid in full before the Closing Date;

(j)	All financial information about the Property heretofore or hereafter prepared by Seller and furnished to Purchaser is true, complete, and correct in all material respects as of the date therein specified and presents fairly the financial condition of the Property;

(k)

Seller has received no written notices and Seller has no actual knowledge (a) concerning any actual or alleged violation of or claim relating to any applicable governing regulation relating to the Property, including without limitation the Americans with Disabilities Act, or Seller’s use of the Property; (b) that any of the uses or structures on the Real Property constitute a nonconforming use or structure under the applicable governmental regulation, provided, a secondary fire access issue is being discussed between the City of Avondale and Seller’s contractor and shall reach final resolution prior to Closing; (c) that a variance or special exception from any Board of Adjustment of the City of Avondale or from any other applicable governmental entity has been obtained by Seller, or that any such variance or special exception is required for the Property or its use, occupancy, and operation to fully comply with the applicable governmental regulation; (d) that any federal, state, county, municipal or other governmental plans to change the highway or road system in the vicinity of the Property or to restrict or change access from any such highway or road to the Property; or (e) of any violation of any covenant, or condition applicable to the Property;

(l)

Seller has received no written notice of and Seller has no actual knowledge of: (i) any claim, action, suit, proceeding (including without limitation any proceeding in the nature of eminent domain) or investigation pending or threatened before any agency, court or other governmental authority or by any tenant, supplier or material man which relates to the ownership, use, occupancy, value, operation of or title to the Property or any portion thereof; or (ii) any pending or contemplated special or general assessments, whether or not a lien on the Property, affecting any portion of the Property which will not be paid in full by Seller prior to the Closing Date; or (iii) any proceeding for any increase in the assessed valuation of any portion of the Property (other than normal reassessment for ad valorem tax purposes which is part of a continuing and ongoing process);

(m)

Seller has disclosed to Purchaser, in writing, information to the extent of Seller’s Knowledge in respect to (a) current, pending, or threatened litigation involving the Property or any portion thereof, and (b) any pending or threatened litigation involving any tenants, suppliers, or materialmen; and

(n)

The PFC Encumbrance has an outstanding principal balance in the approximate amount of $14,694,000 and accrues interest at an annual rate of five and four-tenths percent (5.4%). The note evidencing such financing was obtained through the U.S. Department of Housing and Urban Development (“HUD”), and such note is assumable in accordance with its terms, upon the prior written approval of the HUD Secretary.

13.2

Seller’s Disclaimer. Except to the extent expressly set forth in this Section 13 and elsewhere in this Agreement, Seller makes no representations or warranties with respect to, and shall have no liability for: (i) the condition of the Property or the suitability of the Property for habitation or for Purchaser’s intended use or for any use whatsoever; (ii) any applicable building, zoning, fire or life safety laws or regulations or with respect to compliance therewith or with respect to the existence of or compliance with any required permits, if any, of any government agency, other than that described in Section 13.1(k) above; (iii) the availability or existence of any water, sewer or other utilities, any rights thereto, or any water, sewer or other utility districts; or (iv) the presence of any environmentally hazardous wastes, substances or materials on, in or under the property or any adjacent properties. PURCHASER ACKNOWLEDGES TO SELLER THAT PURCHASER WAS OFFERED, BUT AT THE CLOSE OF THE DUE DILIGENCE PERIOD SHALL HAVE WAIVED, THE OPPORTUNITY UNDER THIS AGREEMENT TO FURTHER INSPECT THE PROPERTY IN ALL RESPECTS AND EXCEPT TO THE EXTENT OF SELLER’S EXPRESS REPRESENTATIONS HEREUNDER, PURCHASER ASSUMES THE RESPONSIBILITY AND RISKS OF ALL DEFECTS AND CONDITIONS, INCLUDING SUCH DEFECTS AND CONDITIONS, IF ANY, THAT CANNOT BE OBSERVED BY CASUAL INSPECTION AND ALL RISKS ASSOCIATED WITH ADVERSE PHYSICAL CHARACTERISTICS AND EXISTING ENVIRONMENTAL CONDITIONS ON, IN OR AT THE PROPERTY OR ANY ADJACENT PROPERTIES. Purchaser acknowledges and agrees that neither Seller not any member, manager, employee or agent of Seller has made any representations or warranties regarding the truth, accuracy or thoroughness of any reports, studies or assessments relating to the Property which Seller may have delivered or otherwise made available to Purchaser, except as otherwise expressly set forth in this Agreement. Purchaser acknowledges that Seller would not agree to sell the Property to Purchaser on the terms and conditions of this Agreement but for Purchaser’s acknowledgements and agreements set forth in this Section 13.2.

Purchaser’s Initials:___________________________

13.3

Purchaser’s Representations and Warranties. Purchaser hereby represents and warrants to Seller as of the date hereof, and as of the Closing Date, that (a) Purchaser has full power to execute, deliver and carry out the terms and provisions of this Agreement; (b) Purchaser is a sophisticated purchaser who is familiar with the ownership and operation of real estate projects similar to the Property; (c) Purchaser has or will have adequate opportunity to complete all physical and financial examinations relating to the acquisition of the Property that it deems necessary, and will acquire the same solely on the basis of such examinations and the title insurance protection afforded by the owner’s policy and not on any information provided or to be provided by Seller; and (d) Purchaser shall complete and submit to HUD, HUD Form 92266 (or its successor application form) and all other forms and information required to assume the PFC Encumbrance within sixty six (66) days after the Effective Date.

13.4

Survival; Knowledge. All representations and warranties made in this Agreement shall survive the Closing for a period of twelve (12) months. Any and all claims for misrepresentation or breach of warranty under this Agreement must be commenced or filed within twelve (12) months from the date of Closing. Purchaser shall have no recourse against Seller with respect to any claim for misrepresentation or breach of warranty arising out of facts or circumstances of which Purchaser or its employees or agents (excluding real estate agents) were aware prior to Closing.

14.

Destruction of Improvements. Prior to Seller’s delivery of possession of the Property to Purchaser at Closing, the risk of loss or damage to the Property shall remain upon Seller. The risk of loss transfers to Purchaser after delivery of possession of the Property to Purchaser at Closing. If, prior to Closing, the Property is materially damaged or destroyed by fire or other casualty, Seller shall promptly notify Purchaser of such fact. Purchaser shall have the option to terminate this Agreement upon notice to Seller given not later than five (5) days after receipt of Seller’s notice. If this Agreement is so terminated, then the Initial and Second Deposits and all interest accrued thereon in the depository bank shall be refunded to Purchaser. Purchaser and Seller shall pay one-half (1/2) the cost of any cancellation fees and costs of Escrow Agent or Title Company in such event; and neither Purchaser nor Seller shall have any further rights or obligations under this Agreement except for any surviving indemnity provisions of this Agreement. If Purchaser fails to notify Seller of its election within ten (10) days of receiving notification of the material damage or destruction, the Purchaser shall be deemed to have elected to proceed with Closing and the acquisition under this Agreement. For purposes of this Section 14, “material” damage or destruction shall mean damage or destruction that costs in excess of two percent (2%) of the Purchase Price to repair or replace.

If Purchaser does not so terminate this Agreement or in the event any damage or destruction is not material, then neither Purchaser nor Seller shall have the right to either terminate this Agreement by reason of such damage or destruction, or waive its right to terminate, in which case Seller shall promptly comply with the terms and requirements of any Tenant Lease, the PFC Encumbrance or any other applicable agreement binding on Seller and/or the Real Property and any obligations under applicable law with regard to the repair or restoration of such damage, provided, however, that if the date of occurrence of the loss is such that it can not reasonably be repaired or restored prior to Closing and the failure to repair does not otherwise (a) prevent the Closing, including, without limitation, (i) the assumption of the PFC Encumbrance and (ii) the transfer of physical assets under HUD Form 92266 (or its successor application form), or (b) expose Purchaser or the Real Property to any claim for damages or penalty, then at Closing Seller shall assign and turn over to Purchaser all insurance proceeds paid or payable with respect to such damage or destruction, plus the amount of any deductible under Seller’s insurance policy and Purchaser and Seller shall proceed to close the transaction pursuant to the terms of this Agreement, without modifications of the terms of this Agreement and without any reduction in the Purchase Price. It is expressly understood and agreed to by Purchaser that except as provided in this paragraph Seller shall not and is not obligated to make any repairs to the Property in the event of damage or destruction by fire or other casualty and Seller’s assignment of the insurance proceeds and the payment of the deductible under Seller’s insurance policy to Purchaser is made so that Purchaser is responsible for any such repairs.

15.

Condemnation. In the event that, prior to the Closing Date, any governmental entity shall commence any actions of eminent domain or similar type proceedings to take any portion of the Real Property, Seller shall give prompt written notice thereof to Purchaser, and Purchaser shall have the option either to (a) elect to terminate this Agreement, or (b) complete the acquisition of the Property, in which case Purchaser shall be entitled to all the proceeds of such taking and Seller hereby agrees that it shall not settle or compromise the proceedings without Purchaser’s prior written consent, which consent shall not be unreasonably withheld or delayed. If Purchaser fails to notify Seller of its election within ten (10) days of receiving notification of the proceeding, then Purchaser shall be deemed to have elected to proceed with Closing and the acquisition under this Agreement.

16.

Default.

16.1

Default by Purchaser. In the event the Purchaser fails, without legal excuse, to complete the purchase of the Property, Seller shall have the right to direct the Escrow Agent to pay the Deposit to Seller or to retain said Deposit to the extent already received by Seller, as liquidated damages for Purchaser’s failure. The Parties agree that Seller’s actual damages would be difficult or impossible to determine if Purchaser defaults, and that the Deposit is the best estimate of the amount and damages Seller would suffer. The Deposit shall be the amount that Seller is entitled to receive as liquidated damages and shall be Seller’s sole and exclusive remedy for Purchaser’s failure to complete the purchase of the Property. Payment of the Deposit in consequence of Purchaser’s default represents damages and not any penalty against Purchaser. Notwithstanding anything to the contrary in this Agreement, Purchaser’s indemnity obligations under this Agreement are separate and distinct obligations not subject to this Section 16.1.

16.2

Default by Seller. Purchaser shall have as its sole remedy election, the right to either: (a) bring an action for specific performance, or (b) terminate this Agreement and obtain the return of its Deposit. If Purchaser fails to file suit for its remedy of specific performance within thirty (30) days following the then-scheduled Closing Date, Purchaser shall be deemed to have waived its specific performance remedy. The remedies granted to Purchaser under this Section 16.2 apply only in the event of a breach or default or event that is not otherwise dealt with under terms of this Agreement. Under no circumstances shall Purchaser have the right to sue for damages of any nature. Notwithstanding anything to the contrary in this Agreement, Purchaser’s indemnity obligations under this Agreement are separate and distinct obligations that are not subject to the liquidated damages provisions contained in this Section 16.2. Further, notwithstanding anything to the contrary contained in this Agreement, the liquidated damage provisions of this Section 16.2 will not limit Seller’s damages under A.R.S. sections 12-1103, 12-1191 or 33-420.

17.

Notices. All notices or other communications required or permitted to be given to a party to this Agreement shall be in writing and shall be personally delivered, sent by reliable overnight courier which obtains a delivery receipt, designated for next business day delivery and shipping prepaid,, sent via registered or certified mail, postage prepaid, return receipt requested, or sent by facsimile with hard copy sent on the same day by one of the means set forth above, to such party at the following respective addresses:

Purchaser:

Wilshire Enterprises, Inc.

1 Gateway Center

11-43 Raymond Plaza West, 10th Floor

Newark, New Jersey 07102

Attn: Daniel C. Pryor

Phone No.: (201) 420-2796

Fax No.: (201) 420-6012

E-mail: danpryor@wilshireenterprisesinc.com

With a copy to:

Wilentz, Goldman & Spitzer

90 Woodbridge Center Drive

P.O. Box 10

Woodbridge, NJ 07095

Attn: Joseph J. Jankowski, Esq.

Phone No.: (732) 855-6059

Fax No.: (732) 726-6512

E-mail: jankoj@wilentz.com

Seller:

Avondale Multi-Family Limited Partnership

Attn: Devan Wastchak and David K. Lu

C/o Foursite Development, L.L.C.

2809 East Camelback Road, Suite 300

Phoenix, Arizona 85016

Phone No.: (602) 266-5888

Fax No.: (602) 266-5999

E-mail: dwastchack@foursite.com

With a copy to:

Michael N. Widener, Esq.

Bonnett, Fairbourn, et al.

2901 N. Central Avenue, Suite 1000

Phoenix, AZ 85012

Phone No.: (602) 274-1100

Fax No.: (602) 274-1199

E-mail: mwidener@bffb.com

Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that in the case of registered or certified mailings, these shall be deemed received on the fourth (4th) business day following its posting.

18.

Agency and Commissions. Each Party agrees to defend, indemnify and hold the other harmless from and against all liabilities, costs, damages and expenses, including, without limitation, reasonable attorneys’ fees, resulting from any claims or fees or commissions, based upon agreements by it, if any, to pay any additional broker’s commission and/or finder’s fee. Each Party represents and warrants that no real estate brokers or finders were involved in this transaction that entitle any such person to a commission upon the consummation of this purchase and sale.

19.

Disclosure to Parties. It is hereby disclosed that Douglas A. Dragoo, an owner of an interest in Seller, is a licensed Arizona and Colorado real estate broker. The Parties understand and accept these disclosures and waive any rights that may otherwise relate to the described relationships. The disclosure of such relationship shall not in any way limit the scope of the representations and warranties of the parties in Section 18 or limit the defense or indemnification obligations of the parties under Section 18.

20.

Transfer in Accordance with HUD Requirements. Notwithstanding any provision set forth in this Agreement, the transaction is conditioned upon preliminary approval by HUD of the transaction as set forth in Form HUD-92266, Application for Transfer of Physical Assets, and supporting documents submitted to HUD. No transfer of any interest in the Property under this Agreement shall be allowed or effective prior to such approval by HUD. Purchaser will not take possession of the Property nor assume benefits of property ownership prior to such approval by HUD. The Purchaser, its heirs, executors, administrators, or assigns shall have no right upon any breach by the Seller hereunder to seek damages, directly or indirectly, from the Property which is the subject of this transaction, including from any assets, rents, issues or profits thereof, and Purchaser shall have no right to effect a lien upon this Property or the assets, rents, issues or profits thereof. At the Closing as defined herein, Purchaser shall assume the loan made to the Seller and to be assumed by the Purchaser and insured by HUD in connection with this Project (“HUD Loan”). Purchaser shall be responsible for applying for approval of a Transfer of Physical Assets (“TPA”) with the HUD Phoenix Office in connection with the purchase of the Property and assumption of the HUD Loan. Purchaser shall pay for the services of Tiffany & Bosco, P.A. in connection with the preparation and submission of the TPA, and Purchaser shall be responsible for all legal fees and costs associated with the TPA, whether or not the TPA is approved. Tiffany & Bosco, P.A. shall process the assumption of the HUD Loan. The parties’ obligations under this Agreement shall be contingent upon HUD’s approval of the TPA and Purchaser’s assumption of the HUD Loan. If HUD does not approve of the TPA and Purchaser’s assumption of the HUD Loan on or before the Close of Escrow, then either Party to this Agreement shall have the option at any time thereafter to terminate this Agreement; but in any event, One Hundred Thousand Dollars ($100,000) being the full Initial Deposit and Fifty Thousand Dollars ($50,000) of the Second Deposit shall belong to Seller, and the balance of the Second Deposit shall be returned to Purchaser unless (i) Purchaser failed to apply to HUD for the assumption of the PFC Encumbrance as set forth in Section 13.3(d), in which case an additional One Hundred Thousand Dollars ($100,000) of the Second Deposit shall belong to Seller or (ii) HUD’s disapproval of the TPA and Purchaser’s assumption of the HUD Loan is a result of a) Purchaser’s failure to provide all requested items to HUD and or the Lender within its control; b) Purchaser’s failure to perform any HUD or Lender requirements within its control; c) a prior default by Purchaser on a HUD insured loan; or d) Purchaser’s insufficient credit, in which case the balance of the Second Deposit shall be immediately released to and belong to Seller.

21.

Assignment by Purchaser. Purchaser may assign its rights and/or obligations under this Agreement with the prior written consent of Seller, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Seller’s consent shall not be required with respect to the assignment of this Agreement to an entity in which Purchaser will remain as a manager and member, subject to HUD approval (and Seller shall have no responsibility for this approval). Any assignment shall be documented and notice given at least three (3) business days prior to the Closing Date; and the assignee must execute and deliver the license described in Section 11.2 in favor of the Seller. Any permitted assignment by Purchaser shall not relieve Purchaser from performing the obligations of the buyer under this Agreement.

22.

1031 Exchange. Either Party may elect to qualify this transaction under Section 1031 of the Internal Revenue Code (the “1031 Exchange”). Each Party agrees to cooperate with the other to the extent necessary to qualify for the 1031 Exchange but neither shall be obligated to incur any out of pocket cost in connection therewith unless the exchanging party initiating the 1031 Exchange agrees to reimburse the cooperating party for such cost. Either Party may, without the other’s consent and in furtherance of the 1031 Exchange, assign this Agreement and convey the Property to a person or entity (the “Exchange Intermediary”) at or prior to Closing on the following conditions: (a) the assigning Party shall not be released from its obligations under this Agreement; (b) the other (non-assigning) party shall not bear any cost, expense or liability in connection with the conveyance or assignment; and (c) the assigning Party shall indemnify and save the other party harmless from same.

23.

Attorneys’ Fees. If there is any litigation between Seller and Purchaser to enforce or interpret any provisions or rights of this Agreement, the unsuccessful party in such litigation, as determined by the court, agrees to pay the successful party, as determined by the court, all reasonable out of pocket costs, legal fees, and expenses (through trial and appeal), including, but not limited to, reasonable attorneys’ fees incurred by the successful party.

24.

Time. Time is of the essence of this Agreement, it being understood that each date set forth herein and the obligation of the Parties to be satisfied by such date have been the subject of specific negotiations by the Parties. The time for the performance of any obligation or the taking of any action under this Agreement will be deemed to expire at 5:00 p.m. (Phoenix time) on the last day of the applicable time period established in this Agreement. In calculating any time period in this Agreement which commences upon the receipt of any notice, request, demand, or document, or upon the happening of an event (e.g., the Opening of Escrow), the date upon which the notice, request, demand, or document is deemed received, as determined above, or the date an event occurs (or is deemed to have occurred) is not included with the applicable time period, but the applicable time period will commence on the day immediately following. If the time for the performance of any obligation or taking any action under this Agreement expires on a Saturday, Sunday, or legal holiday, the time for performance or taking such action will be extended to the next succeeding day with is not a Saturday, Sunday, or legal holiday and during which Escrow Agent and both Purchaser’s and Escrow Agent’s banks are open for business.

25.

Possession. Possession of the Property shall be delivered by Seller to Purchaser on the Closing Date, subject to the right of tenants.

26.

Entire Agreement. This Agreement contains the entire agreement between the Parties to this Agreement with respect to the subject matter of this Agreement and supersedes all prior understandings, agreements, representations and warranties, if any, with respect to such subject matter.

27.

Modification in Writing. This Agreement may only be modified by a writing executed by both Purchaser and Seller.

28.

Headings. The headings of the various paragraphs of this Agreement have been inserted only for convenience and shall not be deemed in any manner to modify or limit any of the provisions of this Agreement, or be used in any manner in the interpretation of this Agreement.

29.

Interpretation. Whenever the context so requires, all words used in the singular shall be construed to have been used in the plural (and vice versa), each gender shall be construed to include any other gender, and the word “person” shall be construed to include a natural person, a corporation, a firm, a partnership, a joint venture, an estate or any other entity.

30.

Effectiveness. This Agreement shall become effective as a contract binding the parties if, and only when, it has been signed by, and delivered to, both Purchaser and Seller. There is no offer to sell represented by Seller’s forwarding this Agreement draft to Purchaser. If this Agreement is executed and delivered by Purchaser to Seller prior to 5:00 p.m. Arizona time on or after July 29, 2005, it shall constitute Purchaser’s offer to acquire the Property from Seller. Seller shall have the right to accept other offers to purchase the Property before or after July 29, 2005, so long as Seller has not signed this Agreement and delivered it to Purchaser.

31.

Further Assurances. The Parties shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Agreement. Prior to the expiration of the Due Diligence Period, Purchaser and Seller will agree upon the form of all closing documents which are to be executed at Close of Escrow and which have not been attached to this Agreement as exhibits.

32.

Counterparts. This Agreement may be executed in any number of counterparts, or with signatures sent by facsimile, each of which shall be deemed an original, but all of which when taken together shall constitute but one and the same agreement.

33.

Governing Law. The validity, meaning and effect of this Agreement shall be determined in accordance with the internal laws of the State of Arizona. Any action brought to interpret, enforce, or construe any provision of this Agreement must be commenced and maintained in the Superior Court of the State of Arizona, Maricopa County, or in the United States District Court for the District of Arizona. All parties irrevocably consent to this jurisdiction and venue and agree not to transfer or remove any action commenced in accordance with this Agreement.

34.

Successors. The terms, covenants and conditions of this Agreement shall be binding upon and shall inure to the benefit of the heirs, executors, administrators and assigns of the respective Parties hereto.

[Signatures Appear on the Following Page]

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written.

SELLER:

AVONDALE MULTI-FAMILY LIMITED PARTNERSHIP, an Arizona limited partnership

By Avondale Investments, Inc., an Arizona corporation, its sole General Partner

By__________________________________

Devan F. Wastchak, its Treasurer

PURCHASER:

WILSHIRE ENTERPRISES, INC., a New Jersey corporation

By__________________________________

Daniel C. Pryor, its President

EXHIBIT A

AGREEMENT FOR PURCHASE AND SALE

Legal Description

SEE ATTACHED LEGAL DESCRIPTION FROM TSA TITLE AGENCY

EXHIBIT B

AGREEMENT FOR PURCHASE AND SALE

List of Due Diligence Items

Operating Statements (2004 and year to date)

Operating Budget (2005)

Capital Improvements (2004 and year to date)

Current Rent Roll

Real and Personal Property Tax Statements (2004)

ALTA Survey

Service Contracts

Personal Property List

Delinquency Report

Vendor List

Employee Payroll

Correspondence received from governmental or municipal agencies concerning building and code violations of any nature, if any

Certificates of Occupancy

Miscellaneous Income Report

Property Management Agreement

Certificate of Insurance

Phase I Environmental

Special Warranty Deed - (To be provided within fourteen (14) days of the Effective Date)

Copies of all executed loan documents related to the PFC Encumbrance

EX-10.3 4 v023456_ex10-3.htm Unassociated Document

Exhibit 10.3

Purchase Agreement dated July 29, 2005 between Twelve Oaks Management, LLC and Wilshire Enterprises, Inc.

PURCHASE AGREEMENT

1.	PURCHASE AND SALE:

As a result of the efforts of Southeast Apartment Partners LLC ("Broker"), a licensed real estate broker, the undersigned purchaser ("Purchaser"), agrees to buy, and the undersigned seller ("Seller"), agrees to sell, as of this date, July 29, 2005, subject to the terms and conditions set forth herein, all that tract of land known as 72 units known as Twelve Oaks Apartments, 634 Roy Huie Road, Riverdale, GA 30274, Property ID: 13-139a-00b-0022 (See Attached Legal Description “Exhibit A”) attached hereto and by this reference made a part hereof, together with all improvements now located thereon, including, but not limited to, all electrical, mechanical, plumbing and other systems and all fixtures located therein and thereon, and all personal property owned by Seller used specifically for the use of this property and also all that property that is used by the tenants and owned by Seller and located therein, as well as plants, trees and shrubbery thereon and the related tenant leases and all rights under those leases with respect to the period from and after Closing (collectively, the "Property").

2.	PURCHASE PRICE AND METHOD OF PAYMENT:

The purchase price of the Property shall be One Million Seven Hundred Twenty Five Thousand & 00/100 Dollars (U.S.) ($1,725,000.00) (the “Purchase Price”), to be paid in cash or immediately available funds at Closing.

3.	EARNEST MONEY:

Within five (5) business days of execution of this Agreement, Purchaser shall deposit Ten Thousand & 00/100 dollars ($10,000.00) with Burr Forman (Gary Farris Esq.) (“Escrow Agent”), as "Earnest Money" which shall be credited against the Purchase Price of the Property at the time the sale is consummated. The Earnest Money is non-refundable, except as otherwise provided in this Agreement. The parties to this Agreement understand and agree that the disbursement of Earnest Money held by the Escrow Agent can occur only (A) at Closing; (B) upon written agreement signed by all parties having an interest in the funds; (C) upon court order; (D) upon the failure of any contingency or failure of either party to fulfill his obligations as set forth in this Agreement or (E) as otherwise set out herein. In the event of a dispute between Purchaser and Seller, the Escrow Agent shall interplead all or any disputed pan of the Earnest Money into court, and thereupon be discharged from all further duties and liabilities hereunder. The filing of any such interpleader action shall not deprive Escrow Agent of any of its rights under this Agreement Purchaser and Seller agree that Escrow Agent shall be entitled to be compensated by the party who does not prevail in the interpleader action for its costs and expenses, including reasonable attorney's fees, in filing said interpleader action. Seller and Purchaser agree to execute an escrow agreement agreeable to all of Purchaser, Seller and Escrow Agent regarding establishment of the escrow account.

4.	TITLE EXAMINATION:

For purposes of this Agreement, “good and marketable fee simple title” shall mean such title as is insurable by a title insurance company licensed to do business in Georgia, under its standard form of ALTA Owner’s Policy of Title Insurance, 1992 Form B, at its standard rates, subject only to the Permitted Exceptions (defined below). Fee simple title to the Property shall be conveyed to Purchaser by Seller pursuant to a limited warranty deed executed and delivered by Seller at the Closing subject to the following (collectively, the “Permitted Title Exceptions”): (a) taxes for the year in which the Closing shall occur, the payment of which Purchaser shall assume at the Closing, subject to the provisions of this Agreement; (b) any and all zoning ordinances, rules and regulations; (c) those matters set forth in the Title Commitment (defined below) to be obtained by Purchaser pursuant to the terms of this Agreement, with the exception of those objections as set forth in Purchaser’s Title Notice (defined below); (d) all matters shown by a current survey of the Property, with the exception of those objections as set forth in Purchaser’s Title Notice (defined below) to the extent Seller has elected to cure same; and (e) other matters as disclosed in this Agreement. At Closing, Seller shall also execute usual and customary documents to facilitate the closing of the transaction, including without limitation, settlement statements and seller’s affidavits.

Purchaser agrees to cause a title examination of the Property to be conducted by a title company mutually acceptable to both Purchaser and Seller (the “Title Company”) and to cause such title company to issue an owner’s title commitment for the benefit of Purchaser on its standard form of ALTA Form B owner's policy (the “Title Commitment”). If the Title Commitment discloses any defects in title or objections, as determined in the sole discretion of Purchaser or Purchaser’s lender, Purchaser shall notify Seller in writing of such defects or objections no later than the end of Inspection Period ("Purchaser's Title Notice"). Within five (5) days after receipt of Purchaser’s Title Notice, Seller shall deliver to Purchaser a written notice specifying which, if any, items contained in Purchaser’s Title Notice Seller shall cure prior to or at Closing (the “Seller’s Cure Notice”). Notwithstanding anything contained herein, Seller shall have no obligation or duty to cure any title objection(s) other than those items that Seller agrees to cure in Seller’s Cure Notice. In the event Seller is unable to cure or unwilling to cure all objections raised in Purchaser’s Title Notice, Purchaser's only remedy is (i) within two (2) business days after receipt of Seller’s Cure Notice, to terminate this Agreement as provided herein and receive, within five (5) days of delivery of such termination notice and with or without consent of the Seller, the return of the Earnest Money, including all interest thereon, less $100.00 which shall be paid over to Seller, or (ii) to waive such objection and close the transaction contemplated by this Agreement. Seller is to pay for title examination. At closing, purchaser shall reimburse seller for the cost of the title examination.

5.	WARRANTIES:

Seller represents that to the best of Seller's knowledge, (A) Seller has good and marketable fee simple title to the Property; (B) The Property will be in substantially the same condition upon Closing as on the date of Seller’s execution hereof; (C) There is no planned or pending rezoning affecting the Property; (D) There are no assessments, condemnations, or eminent domain proceedings or governmental orders pending or threatened against the Property or any portion thereof; (E) There is no option to purchase, right of first refusal to purchase or agreement for the sale and purchase of the Property or any portion thereof to any person or entity; (F) No consent or approval of any other person or entity is required in order for this Agreement to be legal, valid and binding upon Seller; (G) There are no pending or threatened suits, proceedings, judgments, bankruptcies, or liens of claim thereof that might affect the title to the Property or executions against the present or former owners thereof, either in the county in which the Property is located or any other county in the State of Georgia that might affect title to the Property; and (H) Seller has not received any written notice from any tenant at the Property that a tenant has asserted any defense, set-off, or counterclaim with respect to its tenancy or its obligation to pay rent and other charges pursuant to its lease. If, prior to Closing, Seller or Purchaser shall become aware of any past or present matters that may cause any of the warranties or representations set forth in this Section 6 to be or become false, inaccurate, or misleading in any material respect (whether or not Seller has had knowledge thereof), Purchaser shall have the right to terminate this Agreement without further recourse by Seller and receive refund of the Earnest Money. The warranties stated herein shall survive the Closing for a period of Ninety (90) days. Any claim for a breach of warranty must be filed during such Ninety (90) day period or shall be forever waived.

6.	CONDITION OF PROPERTY:

Purchaser acknowledges and agrees that upon Closing, Seller shall sell and convey to Purchaser and Purchaser shall accept the Property “AS IS, WHERE IS, WITH ALL FAULTS,” except to the extent expressly warranted or provided otherwise in this Agreement and any document executed by Seller and delivered to Purchaser at Closing. Purchaser acknowledges that it will have the opportunity to inspect the Property during the Inspection Period. Purchaser acknowledges that during such Inspection Period it will have the opportunity to observe the physical characteristics and existing conditions of the Property and to conduct such investigation and study on and of the Property and adjacent areas as Purchaser deems necessary. It is understood and agreed that Seller has not at any time made, is not now making and specifically disclaims any warranties or representations of any kind or character, express or implied, with respect to the presence or absence of Hazardous Materials, in, on, under or in the vicinity of the Property. Until Closing, Seller shall, at Seller's expense, maintain in full force and affect the same fire and extended coverage insurance carried by Seller on the Property on the date of this Agreement. However, should the Property be destroyed or substantially damaged before Closing, then at the election of Purchaser: (A) this Agreement may be immediately canceled by Purchaser, and Seller shall refund the Earnest Money within five (5) days of the notice of cancellation; or (B) Purchaser may consummate this Agreement and receive such insurance proceeds as are paid on the claim of loss. The election to terminate or consummate this Agreement, if not earlier terminated, must be exercised within ten (10) days after Seller provides Purchaser written notice of the casualty.

7.	AGENCY DISCLOSURE:

Purchaser and Seller acknowledge that Broker has acted as an agent for Seller. Broker shall not owe any duty to Seller greater than what is set forth in the Brokerage Relationships in Real Estate Transaction Act, Official Code of Georgia Annotated Section 10-6A-1 et seq.

8.	REAL ESTATE COMMISSION:

In negotiating this Agreement, Broker has rendered a valuable service and shall be paid a Commission in cash at Closing by Seller per a separate agreement.

9.	DISCLAIMER:

Seller and Purchaser acknowledge that they have not relied upon the advise or representations, if any, of Brokers, or their associate brokers or salespersons, concerning: (A) the legal and tax consequences of this Agreement in the sale of the Property: (B) the terms and conditions of financing; (C) the purchase and ownership of the Property; (D) the structural condition of the Property (E) the operating condition of any business; (F) the operating condition of the electrical, heating, air conditioning, plumbing, water heating systems and appliances on the Property; (G.) the availability of utilities to the Property; (H) the investment potential or resale value of the Property; (I) the financial ability of Purchaser, (J) any conditions existing off the Property which may affect the Property; or (K) any matter which could have been revealed through a survey, title search or inspection of the Property. Seller and Purchaser both acknowledge that if such matters have been a concern to them, they have sought and obtained independent advice relative thereto.

10.

ASSIGNMENT:

This Agreement and the rights and obligations hereunder may be assigned by Purchaser to an entity owned by Purchaser or under Purchaser’s control, but not otherwise. Notwithstanding anything contained herein to the contrary, any such assignee shall assume in writing all of the obligations and liabilities of Purchaser hereunder, and a copy of such assignment shall be provided to Seller in writing within two (2) days after it is signed by Purchaser and assignee.

11.

BINDING EFFECT:

This Agreement shall bind and inure to the benefit of Seller, Purchaser and Brokers, and their respective heirs, executors, legal representatives, successors and assigns.

12.

RESPONSIBILITY TO COOPERATE:

Seller and Purchaser agree that such documentation as is reasonably necessary to carry out the terms of this Agreement shall be produced, executed and/or delivered by such parties within the time required to fulfill the terms and conditions of this Agreement.

13.

DEFAULT; REMEDIES:

In the event the sale is not closed because of Seller's inability, failure or refusal to perform any of Seller's obligations herein, and if Seller fails to cure any default within ten (10) days after Seller’s receipt of written notice of such default from Purchaser, then Purchaser may elect to either terminate this Agreement, in which event Escrow Agent shall return the Earnest Money to Purchaser and the parties shall have no further rights or obligations hereunder except for any provisions of this Agreement surviving termination, or to seek specific performance of Seller’s obligations under this Agreement, Purchaser specifically acknowledging that the remedy at law for damages is excluded and Purchaser hereby specifically waives any right to sue for damages. Purchaser agrees that if the sale is not closed because of Purchaser's inability, failure or refusal to perform any of Purchaser's obligations herein, and if Purchaser fails to cure any default within ten (10) days after Purchaser’s receipt of written notice of such default from Seller, Seller may elect to terminate this Contract in which event the Earnest Money shall be paid to Seller as liquidated damages and Seller's sole and exclusive remedy for such default, the parties hereby acknowledging that the actual damages of Seller would be difficult if not impossible to ascertain and the amount of the Earnest Money constitutes a reasonable estimate of such damages. Notwithstanding anything in this Agreement to the contrary, in the event that the transaction contemplated by the Agreement does not close for any reason whatsoever, Broker shall not be entitled to receive any commission with respect to the purchase and sale of the Property, and in such event neither Seller nor Purchaser shall be obligated to pay any commission to Broker.

14.

NOTICES:

Except as may otherwise be provided for in this Agreement, all notices required or permitted to be given hereunder shall be in writing and shall be deemed delivered either (A) in person, (B) by overnight delivery service prepaid, (C) by facsimile (FAX) transmission, or (D) US. Postal Service, postage prepaid, registered or certified, return receipt requested, to the party being given such notice at the appropriate address set forth below.

As to Purchaser:			As to Seller:
Name:	Interstate East Management, Inc.	Name:	Wilshire Enterprises, Inc
Address:	1560 Brookhaven Hills, NE	Address:	921 Bergen Avenue
City, State, ZIP:	Atlanta, GA 30319	City, State, ZIP:	Jersey City, NJ 07306
Attn:	Mike Furr	Attn:	Daniel Pryor, President/COO
Fax No:	404-995-0998	Fax No.:	201-420-6012
Telephone No.:	404-664-8000	Telephone No.:	201-420-2769
E-mail:	mikefurr@comcast.net

As to Broker:			As to Escrow Agent:
Name:	Southeast Apartment Partners, LLC	Name:	Burr & Forman, LLP
Address:	3390 Peachtree Road, Suite 300	Address:	600 W. Peachtree Street Ste. 200
City, State, ZIP:	Atlanta, GA 30326	City, State, Zip:	Atlanta, GA 30308
Attn:	Joshua Goldfarb	Attn:	Gary Farris
Fax No:	404-442-5601	Fax No.:	404-817-3244
Telephone No.:	404-442-5604	Telephone No.:	404-685-4250
E-mail:	jgoldfarb@seaptpartners.com	E-mail:	gfarris@burr.com

Such notices shall be deemed to have been given as of the date and time actually received by the receiving party. In the event no address for purpose of notice is specified with respect to a particular party as required by this paragraph, any other party may direct notices to such party at any business or resident address known to such other party. Any such notice to an unspecified address shall be effective when delivered personally or with respect to mailed notices, upon actual receipt by the party to whom such notice is directed, as shown on the return receipt therefore.

15.

TIME:

Time is of the essence of this Agreement.

16.

ENTIRE AGREEMENT; AMENDMENT; SURVIVAL:

This Agreement constitutes the sole and entire agreement between the parties hereto with respect to the subject matter hereof, and no modification of this Agreement shall be binding unless signed by all parties to this Agreement. No representation, promise or inducement not included in this Agreement shall be binding upon any party hereto. Except as expressly provided herein, none of the provisions of this Agreement shall survive the closing of the transaction contemplated herein.

17.

MISCELLANEOUS/CLOSING:

Real estate taxes and utilities, including all sanitary taxes and charges applicable to the Property, for the calendar year in which the sale is closed shall be prorated as of the date of Closing. Seller shall provide the Purchaser a Rent Roll listing the tenant’s names, unit numbers, the commencement date of the lease, the amount of the monthly rent, and the termination date of the lease within five (5) days after the execution date of this Agreement. Collected Rents shall be prorated as of the date of Closing. Any uncollected rents will be transferred to Purchaser and any rents collected by Purchaser from those tenants will first go to the payment of current rents due and only after all current rents are paid will the payments be applied to rents due to seller and shall be paid to Seller. All tenant security deposits shall be delivered by Seller to Purchaser at Closing. Seller shall provide to the extent they exist or can be obtained with reasonable effort, Tenant Estoppel Certificates like the ones attached hereto as Exhibit B from all Tenants in addition to the originals of all associated leases at or prior to the Closing.

Seller shall pay the State of Georgia property transfer tax and, where applicable, Purchaser shall pay the Georgia intangible taxes, title examination fees and title insurance premiums, cost of survey and recording fees. Each party shall pay its own attorneys’ fees.

B.	Seller agrees to provide a standard termite clearance letter at Closing.

The sale of the Property shall be closed (the “Closing”) on or before Forty-five (45) days from the execution of purchase agreement, at a time and location acceptable to Purchaser and Seller. If the time period by which any right, option or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday or legal holiday, then such time period shall be automatically extended to the close of business on the next regular business day.

D.	Conditions precedent to the obligation of either party to close hereunder, if any, are for the benefit of such party only, and any and all of said conditions may be waived in the discretion of the party benefited thereby.

E.	Seller and Purchaser agree to comply with and to execute and delivery such certifications, affidavits and statements as are required at the Closing in order to meet the requirements of Internal Revenue Code Section 1445 (Foreign/Non-Foreign Sellers).

F.	This Agreement shall be construed under the laws of the State of Georgia.

G.	The Seller shall grant possession of the Property to Purchaser no later than the Closing Date, subject to the Permitted Title Exceptions and the rights of the tenants occupying the Property.

Personal Property: A Bill of Sale containing only a limited warranty of title for all air conditioners, water heaters, ovens, stoves, refrigerators, washers, dryers, office furniture, fixtures, bank operating account, and any and all other personal property owned by the Seller which is located and used as a part of the business of the operation of the property will be conveyed to Buyer. The price of these items are included in the Purchase Price for the Property, and Buyer agrees to accept all such personal property in “as is” condition.

18.

LEAD-BASED PAINT DISCLOSURE

Every purchaser of any interest in residential real property built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning also poses a particular risk to pregnant women. A risk assessment or inspection for possible lead-based hazards is recommended prior to purchase. Purchaser and Seller agree to execute a "Lead-Based Paint Disclosure Addendum" that will be annexed to this Agreement.

19.

SPECIAL STIPULATIONS:

The following Special Stipulations shall, if conflicting with the foregoing, control:

A. Tax-Free Exchange. Both Seller and Purchaser shall have the right to cause the Closing to occur as part of a “like-kind” exchange pursuant to the provisions of Section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. Seller and Purchaser agree to cooperate with each other in effecting a qualifying like-kind exchange; provided, however, if either party (the “Electing Party”) elects to affect a qualifying like-kind exchange:

(1)

The other party shall not be obliged to incur any costs, expenses, losses, liabilities or damages greater than such party would have incurred had the Electing Party not elected to effect a like-kind exchange, subject to any provisions contained in this Agreement, and the Electing Party shall indemnify the other party against same;

(2)

In no event shall the other party be required to acquire title to any other property, whether by deed or contract right, for the benefit of the Electing Party or it assignee.

(3)	The Closing shall not be delayed as a result of such like kind exchange.

(4)	Agreement is subject to Purchaser obtaining satisfactory financing.

Seller and Purchaser make no representations to each other that the sale or purchase, respectively, of the Property will qualify for tax-free exchange treatment.

Once this Agreement becomes effective, (a) Seller agrees not to enter into any new service contracts on the Property which Purchaser will be required to assume without Purchaser’s consent, and (b) Seller agrees not enter into any leases with tenants with an expiration date greater than one year, without Purchaser’s consent.

This instrument shall be regarded as an offer by the first party to sign it and is open for acceptance by the other party until 5:00 o'clock P.M. on _________________, 2005, by which time written acceptance of such offer must have been actually received by Broker, who shall promptly notify the other party of such acceptance.

Purchaser acknowledges that Purchaser has read and understood the terms of this Agreement and has received a copy of it.

The date of this Agreement shall be deemed the date that this Agreement has been fully executed by Purchaser and Seller.

IN WITNESS WHEREOF, Purchaser, Seller and Broker have hereunto set their hands and seals as of the date indicated below.

PURCHASER:	SELLER:

Mike Furr	Daniel C. Pryor


__________________________(SEAL)	____________________________(SEAL)
Twelve Oaks Management, LLC.	Wilshire Enterprises, Inc.
Date: __________________	Date: __________________

BROKER:

Joshua Goldfarb


By: __________________________(SEAL)
Southeast Apartment Partners, LLC

Date: __________________

EX-31.1 5 v023456_ex31-1.htm

Exhibit 31.1

CERTIFICATION

I, S. Wilzig Izak, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Wilshire Enterprises, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 12, 2005

/s/ S. Wilzig Izak

S. Wilzig Izak

Chief Executive Officer

A signed original of this written statement required by Section 302 has been provided to Wilshire Enterprises, Inc. and will be retained by Wilshire Enterprises, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2 6 v023456_ex31-2.htm

Exhibit 31.2

CERTIFICATION

I, Seth H. Ugelow, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Wilshire Enterprises, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

(c)

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 12, 2005

/s/ Seth H. Ugelow

Seth H. Ugelow

Chief Financial Officer

EX-32.1 7 v023456_ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Wilshire Enterprises, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2005 filed with the Securities and Exchange Commission (the "Report"), I, S. Wilzig Izak, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and consolidated results of operations of the Company for the periods presented.

Dated: August 12, 2005

By: /s/ S. Wilzig Izak

S. Wilzig Izak

Chief Executive Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

A signed original of this written statement required by Section 906 has been provided to Wilshire Enterprises, Inc. and will be retained by Wilshire Enterprises, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 8 v023456_ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Wilshire Enterprises, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2005 filed with the Securities and Exchange Commission (the "Report"), I, Seth H. Ugelow, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

Dated: August 12, 2005

By: /s/ Seth H. Ugelow

Seth H. Ugelow

Chief Financial Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.