<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-12166
MERIDIAN POINT REALTY TRUST `83
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-6542723
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
655 MONTGOMERY STREET, SUITE 800
SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 393-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: SHARES OF
BENEFICIAL INTEREST
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [x] No [_]
The aggregate market value of the voting and nonvoting common equity
held by non-affiliates of the Registrant on March 26, 1998 was $3,415,604 based
on the closing price on that date of shares of beneficial interest quoted on the
SmallCap Market of the Nasdaq Stock Market and excluding shares owned by
trustees, executive officers and principal shareholders (i.e., holders of 5% or
more of the Registrant's outstanding shares).
The Registrant had 3,031,618 shares of beneficial interest outstanding
on March 26, 1998.
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting
of Shareholders, filed or to be filed pursuant to Regulation 14A within 120 days
following Registrant's fiscal year ended December 31, 1997, are incorporated by
reference into Part III of this report.
<PAGE>
MERIDIAN POINT REALTY TRUST `83
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PART I Page
----
<S> <C>
Item 1: Business..................................................................................... 3
Item 2: Properties................................................................................... 4
Item 3: Legal Proceedings............................................................................ 5
Item 4: Submission of Matters to a Vote of Security Holders.......................................... 5
PART II
Item 5: Market for the Registrant's Common Equity and Related Shareholder Matters.................... 7
Item 6: Selected Financial Data...................................................................... 7
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations........ 8
Item 7A: Quantitative and Qualitative Disclosures About Market Risk................................... 12
Item 8: Financial Statements and Supplementary Data.................................................. 12
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................................... 12
PART III
Item 10: Information about Directors and Executive Officers of the Registrant......................... 13
Items 11 through 13: ................................................................................. 13
PART IV
Item 14: Exhibits, Financial Statements and Reports on Form 8-K....................................... 14
</TABLE>
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PART I
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ITEM 1. BUSINESS
The Company
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Meridian Point Realty Trust `83, a California business trust (the
"Company"), is a finite-life real estate investment trust ("REIT"). The Company
was organized on June 24, 1982 and commenced operations on April 12, 1983. It
changed its name from Sierra Real Estate Equity Trust `83 to Meridian Point
Realty Trust `83 in October 1991.
The Company was organized to qualify as a REIT under Sections 856-860
of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Code,
a REIT must meet certain criteria, including requirements that certain
percentages of its gross income be derived from specific sources and that it
distribute annually to its shareholders at least 95% of its REIT taxable income
(as defined in the Code).
The Company was formed for the purpose of making equity investments in
income-producing industrial and commercial real estate in selected areas of
projected growth in the United States. Prior to February 23, 1996, the Company
had six real estate equity investments consisting of ten properties.
On May 31, 1995, the Company entered into an Asset Purchase Agreement
with a newly formed infinite-life industrial REIT, Meridian Industrial Trust,
Inc. ("MIT"). The Asset Purchase Agreement provided that the Company would sell
all but one of its real estate assets to MIT for approximately $3.6 million in
cash, 390,360 shares of MIT common stock and the assumption of certain mortgage
notes and other liabilities by MIT. The Company's Charleston property was
excluded from the transaction because of MIT's concerns regarding the
environmental conditions at that property. Completion of the transaction was
subject to a number of contingencies, including shareholder approval of the
Asset Purchase Agreement, the effectiveness of a registration statement for
MIT's common stock and completion of the merger of three other Meridian Point
REITs into MIT.
On February 22, 1996, the Company's shareholders approved the Asset
Purchase Agreement with MIT. On February 23, 1996, MIT acquired all of the
Company's real estate assets (other than the Charleston property) pursuant to
the Asset Purchase Agreement.
On February 23, 1996, the Company announced a dividend which was paid
March 22, 1996 of approximately $1 million in cash (or $0.33 per share of
beneficial interest in the Company) and all of the 390,360 shares of MIT common
stock (or 0.1287 of a share of MIT common stock per share of beneficial interest
in the Company) to shareholders of record at the close of business on March 12,
1996.
On August 22, 1997, the Company sold the Charleston property
consisting of six research and light industrial buildings, aggregating 119,041
square feet on an 8-acre site adjacent to the Bayshore Freeway in Mountain View,
California. The total sales price was $13,000,000 less a $1,350,000 credit for
estimated environmental remediation work and related costs resulting in a net
sales price of $11,650,000. The Company realized a gain of approximately
$4,529,000 on the sale of the Charleston property. Since the sale, the
Company's assets have consisted almost exclusively of cash and cash equivalents
and its only income is from investment of its remaining funds. The Board of
Trustees on August 22, 1997 declared a distribution in the amount of
approximately $9,100,000 (or $3.00 per share of beneficial interest in the
Company), which was paid on or about September 12, 1997 to shareholders of
record on September 2, 1997.
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Management
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The Company's affairs are overseen by a Board of Trustees
("Trustees"). There are five Trustees, four of whom are independent (i.e., not
an affiliate of a person or entity providing services for the Company other than
in his or her capacity as a Trustee).
Effective February 24, 1996, the Company entered into an agreement
with E & L Associates, Inc. ("E & L") to provide property management and certain
other administrative services to the Company. Under this agreement E & L
received a monthly fee of $8,333 to June 30, 1996. Effective July 1, 1996, the
monthly fee was increased to $10,000. E & L is a wholly-owned subsidiary of a
company in which Lorraine O. Legg (the Company's President and a Trustee) has an
ownership interest.
Insurance
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Until the sale of Charleston, and in addition to other types of insurance
maintained by the Company, the Company carried comprehensive general liability
and excess liability coverage on the Charleston property in the aggregate amount
of $3,000,000 to insure against liability claims and the costs of defense.
Similarly, the Company insured against the risk of direct physical damage in
amounts necessary to reimburse the Company on a replacement basis for costs
incurred to repair or rebuild the Charleston property, including loss of rental
income during the construction period, in the aggregate amount of $5,500,000.
Real Estate Considerations
- --------------------------
The ownership of real estate entails environmental risks and potential
liability to owners, including former owners. Environmental investigation at
one of the properties sold to MIT in 1996 indicated that soil at the property
contained volatile organic compounds in concentrations that exceeded the clean-
up goals typically cited by the California Regional Water Quality Control Board
("RWQCB"). As part of the sale transaction, the Company was obligated to fully
fund the remediation costs for which it had previously accrued $140,000 in 1994.
Approximately $94,586 has been expended by the Company for remediation costs
through December 1997 and it does not believe that any additional costs will be
incurred, but there can be no assurance to that effect. The Company may be
entitled to seek contribution and indemnity for the remediation costs against
other potentially responsible parties who may have caused the contamination at
the property.
In the late 1980's the San Francisco Bay Region of the RWQCB requested
that the Company investigate and characterize soil and groundwater contamination
of the Charleston property. The Company engaged an environmental engineering
firm that discovered the presence of trichloroethylene and other solvent
chemicals in the groundwater. The RWQCB deferred issuing a Site Cleanup
Requirements ("SCRs") order to give the Company time to complete the pending
sale of the Charleston property. As part of the sale, the purchaser agreed to
indemnify the Company broadly against the pending SCRs and other types of
environmental claims. The purchasers indemnity is backed by an environmental
insurance policy placed with Reliance Insurance Company of Illinois. It is
possible that the RWQCB could still name the Company when it ultimately issues
its SCRs order for the property based on the Company's former ownership. If that
occurs, the Company would tender the SCRs order to the purchaser for compliance.
Similarly, the Company would tender any other environmental claim brought
against it to the purchaser pursuant to the indemnity.
ITEM 2. PROPERTIES
On August 22, 1997, the Company sold the Charleston property, its only
remaining real estate investment.
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ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
is a party or to which any of the assets of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1997.
Executive Officers
- ------------------
The following table sets forth as to each person who currently serves as an
executive officer, his or her name, age, and positions with the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lorraine O. Legg 58 President and Chief Executive Officer
John E. Castello 53 Executive Vice President, Chief Financial Officer and Secretary
Michael Gilbert 54 Vice President Real Estate
</TABLE>
Officers of the Company hold office at the discretion of the Trustees. Each
executive officer's principal occupations during the past five years or more are
set forth below.
LORRAINE O. LEGG. Ms. Legg was appointed President and Chief Executive
Officer of the Company effective February 24, 1996. Ms. Legg has been President
and Chief Executive Officer and a director of TIS Financial Services, Inc. since
1984, TIS Mortgage Investment Company since 1988, and TIS Asset Management, Inc.
since 1990. She is also President of Meridian Point Realty Trust VIII Co., and
President and Chief Executive Officer and a director of Corporate Capital
Investment Advisors and its affiliates. TIS Financial Services, Inc. and its
affiliates advise and manage portfolios for individuals and corporations,
including Meridian Point Realty Trust VIII Co. In addition, Ms. Legg is a
director of CFI ProServices, Inc., located in Portland, Oregon. Ms. Legg has
over 35 years of experience in corporate and real estate finance and real estate
operations. Ms. Legg has served as a Trustee of the Company since October 1993.
JOHN E. CASTELLO. Mr. Castello was appointed Executive Vice President,
Chief Financial Officer and Secretary of the Company effective February 24,
1996. He has also been a Senior Vice President and Chief Financial Officer of
Meridian Point Realty Trust VIII Co. since 1995, Senior Vice President of TIS
Financial Services, Inc. since 1985, Executive Vice President and Chief
Financial Officer of TIS Mortgage Investment Company since 1988, and Senior Vice
President and Chief Financial Officer of TIS Asset Management since 1991. He is
a director of TIS Mortgage Acceptance Corporation and a director and Senior Vice
President of TIS Asset Management (since 1991).
MICHAEL GILBERT. Mr. Gilbert was appointed Vice President, Real Estate of
the Company effective February 24, 1996. He is also a Vice President Real
Estate of Meridian Point Realty Trust VIII Co. (since 1995). Mr. Gilbert has
served as Vice President Real Estate for TIS Financial Services since 1995.
Prior to this time, he was a real estate consultant active in development
projects in Southern California and many other areas of the country. Previously
Mr. Gilbert was Vice President of S.H. Management, Inc., a privately owned Los
Angeles based investment concern. He was previously a Vice President and
5
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director of Gordon Capital Limited, a member firm of the major Canadian Stock
Exchanges.
6
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Until January 9, 1998, the principal market on which the shares were quoted
was the National Market of the Nasdaq Stock Market. Thereafter, the shares
began trading on the SmallCap Market of the Nasdaq Stock Market. The listing
symbol of the shares is MPTBS.
As of March 26, 1998, the Company had outstanding a total of 3,031,618
shares. As of the same date, these shares were held by approximately 2,275
holders of record (this figure does not reflect beneficial ownership of shares
held in nominee names).
The following table sets forth the published high and low closing sales
prices for the shares during each calendar quarter for 1996 and 1997 (amounts in
dollars).
<TABLE>
<CAPTION>
CALENDAR QUARTER HIGH LOW
---------------- ----- ----
<S> <C> <C>
1996
First Quarter 3-3/4 0-1/2
Second Quarter 2-1/8 1
Third Quarter 2-3/8 1-3/8
Fourth Quarter 3 2
1997
First Quarter 3-1/2 2-7/8
Second Quarter 3-5/8 2-5/8
Third Quarter 4-1/4 13/16
Fourth Quarter 1-1/2 1
</TABLE>
The Company suspended the payment of dividends in the fourth quarter of
1992 with the goal of preserving and enhancing its future liquidity. However, as
a result of the sale of the bulk of its property holdings in February 1996, the
Company paid a dividend on March 22, 1996 of $1,000,434 in cash (or $0.33 per
share) and 390,360 shares of MIT common stock (or 0.1287 of a share of MIT
common stock per Company share) to shareholders of record at the close of
business on March 12, 1996. In August 1997, the Company sold its remaining
property holding and on September 12, 1997, paid a cash dividend of $9,094,854
(or $3.00 per Company share) to shareholders of record on September 2, 1997.
Under the REIT tax rules, the Company is required to make distributions to
shareholders that aggregate annually at least 95% of its taxable income. Due to
net operating loss carry-forwards, the Company remains in compliance with this
rule. In accordance with the Company's organizational documents, dividend
distributions to be made by the Company will always be at the discretion of the
Trustees.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data for the
Company for the five years ended December 31, 1997. The data for 1997 reflects
the sale on August 22, 1997 of the Company's sole remaining property, the
Charleston property. The data for 1996 reflects the sale on February 23, 1996
of nine of the ten properties previously owned by the Company. The selected
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financial data presented below for the years ended December 31, 1997 and 1996 is
thus not comparable to the prior years' selected financial data. This table
should be read in conjunction with the more detailed financial statements
included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Rentals from Real Estate
Investments $ 907,831 $ 2,026,861 $ 5,834,499 $ 6,440,653 $ 6,947,791
Income (Loss) Before
Gain (Loss) on Sale
of Properties 47,209 97,168 (534,476) (479,892) 246,015
Gain (Loss) on Sale
of Properties 4,528,701 2,582,606 -- 58,977 (48,964)
Net Income (Loss) 4,386,840 2,679,774 (534,476) (420,915) 197,051
Rental Properties, Net -- 6,191,573 28,780,485 29,346,374 35,741,420
Total Assets 2,907,391 12,345,964 34,053,336 36,422,599 39,923,901
Mortgage Notes
Payable, Net -- 4,627,123 20,873,011 22,626,668 25,905,608
Per Share
Basic Net Income (Loss)
Before Extraordinary Item $ 1.51 $ 0.88 $(0.18) $(0.14) $0.07
Basic Net Income (Loss) $ 1.45 $ 0.88 $(0.18) $(0.14) $0.07
Distributions Declared
Cash $ 3.00 $ 0.33 -- -- --
Shares of MIT stock -- .1287 -- -- --
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</TABLE>
See "Material Changes in Results of Operations" under Item 7 for
information regarding material changes in results of operations during 1997,
1996, and 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction and Discussion of Known Trends, Events and Uncertainties
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The Company was formed as a self-liquidating, finite-life REIT. Before
February 23, 1996, the Company's principal asset (and source of revenue) was its
portfolio of ten industrial and commercial properties. On February 23, 1996,
the Company: (1) sold nine of the ten properties in its portfolio to MIT for
approximately $3.6 million in cash, 390,360 shares of MIT common stock, and the
assumption of certain mortgage notes and other liabilities by MIT; (2) announced
a dividend which was paid March 22, 1996 of approximately $1 million in cash (or
$0.33 per share of beneficial interest in the Company) and all of the 390,360
shares of MIT common stock (or 0.1287 of a share of MIT common stock per share
of beneficial ownership in the Company) to shareholders of record at the close
of business on March 12, 1996; and (3) appointed E & L to provide property
management and certain other administrative services to the Company, effective
February 24, 1996.
On August 22, 1997, the Company sold the Charleston property, the last
property remaining in its portfolio. The total purchase price for the property
was $13,000,000 less a $1,350,000 credit for potential remediation work and
related costs, resulting in a net sales price of $11,650,000. The purchase
price was paid entirely in cash. Out of escrow, the Company used $4,557,500 of
the sales proceeds to pay off existing financing on the property and used
$891,504 to pay brokerage commissions and closing costs associated with the
transaction. The Company incurred a prepayment penalty on early retirement of
debt of $189,070. This represents a gain of approximately $4,529,000.
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As a result of the sale of the Charleston property, the Trustees on August 22,
1997 declared a cash distribution in the amount of $3.00 per share of beneficial
interest payable on September 12, 1997 to shareholders of record on September 2,
1997.
Since the Charleston property was the Company's sole remaining real estate
holding, the Company's remaining assets consist almost entirely of cash and cash
equivalents. The Company will retain assets to satisfy its liabilities, as well
as to cover overhead and operating expenses.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity and capital resources have been dramatically
changed as a result of the February 23, 1996 and August 22, 1997 property sales.
The Company's primary source of near-term liquidity is its unrestricted cash and
cash equivalents which, at December 31, 1997, totaled $2,886,339. This amount
is expected to be adequate to satisfy the Company's liabilities, as well as its
overhead and operating expenses for at least the next 12 months.
At December 31, 1997, the Company has no debt or obligations for capital
expenditures. The only remaining contractual obligation of the Company is its
management contract with E&L which may be terminated by either party upon 30
days written notice. As more fully discussed in Item 1. Business, "Real Estate
Considerations":
(i) the Company is obligated to fully fund the remediation costs relating to
one of the properties sold to MIT in 1996. Through December 1997, the
Company has expended approximately $94,586 relating to this matter and the
Company does not believe that any additional costs will be incurred;
however, management can provide no assurances thereto. The Company may be
entitled to seek contribution and indemnity for the remediation costs
against other potentially responsible parties who may have caused the
contamination at the property.
(ii) in connection with the sale of Charleston, the purchaser indemnified the
Company against the pending SCR's and other types of environmental claims.
It is possible that the Company could still be named by the RWQCB when it
ultimately issues its SCRs order for Charleston, based upon the Company's
former ownership. If that or any other environmental claim were brought
against the Company, then the Company would tender such claim to the
purchaser of Charleston pursuant to the indemnity.
Year 2000 Compliance
- --------------------
The Company utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Company's software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such application will be necessary. Given
information known at this time about the Company's systems that are non-
compliant management does not expect Year 2000 compliance costs to have any
material adverse impact on the Company's liquidity or ongoing results of
operations. No assurance can be given, however, that all the Company's systems
will be Year 2000 compliant or that compliance costs or the impact of the
Company's failure to achieve substantial Year 2000 compliance will not have a
material adverse impact on the Company's future liquidity or results of
operations.
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Election for REIT Status
- ------------------------
The Company has previously elected to be taxed as a REIT pursuant to
Section 856(c)(1) of the Internal Revenue Code (the "Code") and intends to be
taxed as a REIT under the Code for the fiscal year ended December 31, 1997. The
REIT provisions of the Code generally allow a REIT to deduct dividends paid to
shareholders in computing the Company's taxable income. The Company currently
distributes all of its net taxable income (including net capital gains) to its
Shareholders. No provisions for federal or state income taxes have been made in
the accompanying consolidated statements of operations for the years ended
December 31, 1997, 1996 and 1995.
To qualify for REIT status, the Company must meet a number of highly technical
organizational and operations requirements on a continuing basis. Those
requirements seek to ensure, among other things, that the gross income and
investments of a REIT are largely real estate related, with certain other
permitted assets, that a REIT distributes substantially all its ordinary taxable
income to shareholders on a current basis and that the REIT's ownership is not
overly concentrated. Due to the complex nature of these rules, the limited
available guidance concerning interpretation of the rules, the importance of
ongoing factual determinations and the possibility of adverse changes in or
interpretations of the law, administrative interpretations of the law and
developments at the Company, no assurance can be given regarding the Company's
qualification as a REIT for any particular year. As a result of the Company's
sale of its last real estate property in August 1997, the Company's status as a
REIT for 1997 is dependent, in part, upon tax rules regarding investments by
REITs in certain types of non-real estate assets.
If the Company failed to qualify as a REIT for the fiscal year ended December
31, 1997, it would be taxed as a regular corporation, and distributions to
shareholders would not be deductible in computing the Company's taxable income.
The resulting corporate tax liabilities could materially (e.g., by approximately
30 percent of total assets at December 31, 1997) reduce the funds available for
distribution to the Company's shareholders or for reinvestment. If the Company
failed to qualify as a REIT, distributions to stockholders would no longer be
required. Moreover, the Company might not be able to elect to be treated as a
REIT for the four taxable years after the year during which the Company ceased
to qualify as a REIT. In addition, if the Company later requalified as a REIT,
it might be required to pay a full corporate-level tax on any unrealized gain
associated with its assets as of the date of requalification and to make
distributions equal to any C corporation earnings accumulated during the period
of non-REIT status.
Material Changes in Results of Operations
- -----------------------------------------
On August 22, 1997, the Company sold the Charleston property, the last
property remaining in its portfolio. The Company paid off the existing
financing on Charleston, other expenses of the sale, and paid a dividend of
$3.00 per share to the shareholders. The remaining assets of the Company have
primarily been cash and cash equivalents since the sale of Charleston. The
operations of the Company subsequent to August 22, 1997 will be significantly
different than when it owned investments in operating real estate. The
Company's Board of Trustees is in the process of evaluating the options
available, including the sale or liquidation of the Company. In the event that
liquidation is the desired course of action, the Company's management currently
estimates that costs associated with liquidation and wind-up of the Company's
affairs would approximate $500,000; however, management can provide no
assurances thereto. However, the Board of Trustees has not concluded on the
ultimate course of action.
Revenues
Rentals from Real Estate Investments totaled $907,831 and $2,026,861 for
the years ended December 31, 1997 and 1996, respectively. The decrease of
$1,119,030 during 1997 was due to the sale of the Company's sole remaining real
estate holding on August 22, 1997, and the fact that 1996 reflects the
operations of ten properties for the period from January 1 through February 22,
1996.
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Rentals from Real Estate Investments totaled $2,026,861 and $5,834,499 for
the years ended December 31, 1996 and 1995, respectively. The decrease of
$3,807,638 during 1996 was primarily due to the sale of nine of the Company's
ten properties on February 23, 1996. 1996 rental revenues consisted of
$1,274,648 from Charleston and $752,213 from the nine sold properties to the
date of sale. Charleston rentals in 1995 totaled $1,303,576.
Interest and Other Revenue totaled $272,529, $264,902 and $311,627 for the
years ended December 31, 1997, 1996 and 1995, respectively. The increase of
$7,627 from 1997 to 1996 and the decrease of $46,725 from 1996 to 1995 is
primarily due to the average balances in the Company's cash available for
investment.
Expenses
Interest and Amortization of Debt Discount totaled $262,771 and $651,111
for the years ended December 31, 1997 and 1996, respectively. The decrease of
$388,340 during 1997 was due to the sale of Charleston and the corresponding
payment of its mortgage note payable on August 22, 1997.
Interest and Amortization of Debt Discount totaled $651,111 and $2,177,988
for the years ended December 31, 1996 and 1995, respectively. The decrease of
$1,526,877 during 1996 was primarily due to the assumption of debt by MIT
related to the properties sold on February 23, 1996. 1996 expense included
$418,525 related to Charleston and $232,586 related to debt secured by the
properties sold.
Property Taxes for the years ended December 31, 1997 and 1996 respectively
totaled $79,234 and $183,136. The decrease of $103,902 was due to the sale of
Charleston on August 22, 1997. Property Taxes for the year ended December 31,
1996 totaled $183,136 of which $104,019 related to the Charleston property.
1995 Property Taxes totaled $612,621, representing the portfolio of ten
properties.
Property Operating Costs totaled $318,079 and $664,101 for the years ended
December 31, 1997 and 1996, respectively. The decrease of $346,022 was a result
of the sale of Charleston on August 22, 1997. The 1996 amount consisted of
Charleston operating costs of $183,788, asset management fees paid to MPP and E
& L of $236,098, and operating costs of the properties sold to MIT of $244,215.
For the year ended December 31, 1995 Property Operating Costs were $1,576,378.
The decrease in total Property Operating Costs from 1995 to 1996 was not in
proportion to the decrease in rental income because of the write-off of
uncollectible receivables and legal and professional fees incurred related to
the Charleston environmental situation in 1995.
Legal Costs for the years ended December 31, 1997, 1996 and 1995 were
$102,229, $47,724 and $26,653 respectively. The increase of $54,505 was due to
additional costs incurred in the sale of the Charleston property. The increase
of $21,071 during 1996 was primarily due to costs related to the sale of nine of
the Company's operating properties to MIT and the potential sale of Charleston.
General and Administrative expenses for the years ended December 31, 1997
and 1996 were $354,684 and $276,283 respectively. The increase of $78,401 was
due primarily to consulting and other costs associated with developing strategic
alternatives for the Company. General and Administrative expenses for the year
ended December 31, 1996 were $276,283, a decrease of $152,935 from the 1995
level of $429,218. The decrease resulted from the sale of properties in 1996.
For the years ended December 31, 1997 and 1996, Depreciation and
Amortization totaled $16,154 and $372,240. Upon entering into an exclusive
listing agreement for the sale of the Charleston property on June 27, 1996, the
Company ceased to depreciate the property. Therefore, the Company did not
record any depreciation expense in 1997, and recorded $16,154 of amortization
expense related lease commissions on the Charleston property. Depreciation and
Amortization totaled $372,240 and $1,494,611 in the years ended December 31,
1996 and 1995, respectively. This decline relates entirely to the sale of nine
of the Company's operating properties in February 1996.
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During 1997, the Company recorded an extraordinary item to provide for the
prepayment penalty in the amount of $189,070, associated with the pay down of
the Charleston mortgage.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant is not subject to any material quantitative or qualitative
exposure to market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14(a)(1) and
(a)(2) below are incorporated herein by reference and filed as part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company has not changed its independent certified public accountants and
has not had any disagreement with its independent certified public accountants
on accounting or financial disclosures required to be made under rules of the
Securities and Exchange Commission.
12
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PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about Registrant's directors and disclosure of Form 3, 4 or
5 delinquent filers called for by Item 10, Part III of Form 10-K is set forth in
Registrant's definitive proxy statement filed or to be filed pursuant to
Regulation 14A within 120 days of Registrant's fiscal year ended December 31,
1997, and such information is incorporated herein by this reference. Pursuant
to Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K, information about Registrant's executive officers called for by Item 10,
Part III of Form 10-K is set forth in Part I in a separate item captioned
"Executive Officers."
ITEMS 11 THROUGH 13.
The information called for by Part III of Form 10-K (Item 11 - Executive
Compensation, Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Item 13 - Certain Relationships and Related Transactions) is set
forth in Registrant's definitive Proxy Statement filed or to be filed pursuant
to Regulation 14A within 120 days of Registrant's fiscal year ended December 31,
1997, and such information is incorporated herein by this reference.
13
<PAGE>
- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) FINANCIAL STATEMENTS. The following Company financial statements are
--------------------
filed as part of this report:
PAGE
----
Report of Independent Public Accountants....................... 24
Consolidated Balance Sheets.................................... 25
Consolidated Statements of Operations.......................... 26
Consolidated Statements of Shareholders' Equity................ 27
Consolidated Statements of Cash Flows.......................... 28
Supplemental Schedule of Non-Cash Transactions................. 29
Notes to Consolidated Financial Statements..................... 30
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
-----------------------------
schedules are filed as part of this report:
PAGE
----
Valuation and Qualifying Accounts.............................. 37
Real Estate and Accumulated Depreciation....................... 38
Schedules for which provision is made in applicable accounting
regulations of the Securities and Exchange Commission which have not been
included have been omitted because of the absence of conditions for which they
are required or because the information is included elsewhere in this report.
(a)(3) EXHIBITS.
--------
NO. DESCRIPTION
- --- -----------
(In accordance with Item 601 of Regulation S-K)
2.1 Amended and Restated Asset Purchase Agreement dated November 10, 1995
between Meridian Point Realty Trust `83 and Meridian Industrial Trust,
Inc. filed as Appendix D to Registrant's Amendment #3 to Preliminary
Proxy Statement filed December 22, 1995 and incorporated herein by
reference.
3.1 Amended and Restated Declaration of Trust of the Registrant dated March
5, 1992 filed as Exhibit 3.l to Registrant's Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.
3.2 Amended and Restated Trustees' Regulations of the Registrant dated March
5, 1992 filed as Exhibit 3.2 to Registrant's Form l0-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.
3.3 Certificate of First Amended and Restated Declaration of Trust of the
Registrant dated July 12, 1993 filed as Exhibit 3.2 to Registrant's Form
10-Q for the quarter ended June 30, 1993 and incorporated herein by
reference.
3.4 Amendments to Amended and Restated Declaration of Trust adopted February
10, 1995 filed as part of Registrant's Form 8-K dated February 10, 1995
and incorporated herein by reference.
14
<PAGE>
4.1 See Exhibits 3.1 through 3.4 for instruments defining rights of security
holders.
10.1 Employment Agreement dated July 2, 1991 by and among Trust `82, Trust
`83, Trust `84, Trust IV, Trust VI, Trust VII, Trust VIII, Milton K.
Reeder, and Meridian Point Company filed as Exhibit 10.2 to Registrant's
Form 10-Q for the quarter ended September 30, 1991 and incorporated
herein by reference.
10.2 Change of Control Agreement dated December 12, 1991 among Al E. Andrews,
Jr. and Meridian Point Realty Trust `82, Meridian Point Realty Trust `83,
Sierra Real Estate Equity Trust `84 Co., Meridian Point Realty Trust IV
Co., Meridian Point Realty Trust VI Co., Meridian Point Realty Trust VII
Co. and Sierra Capital Realty Trust VIII Co. filed as Exhibit 10.11 to
Registrant's Form l0-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.3 Change of Control Agreement dated December 12, 1991 among Robert A.
Dobbin and Meridian Point Realty Trust `82, Meridian Point Realty Trust
`83, Sierra Real Estate Equity Trust `84 Co., Meridian Point Realty Trust
IV Co., Meridian Point Realty Trust VI Co., Meridian Point Realty Trust
VII Co. and Sierra Capital Realty Trust VIII Co. filed as Exhibit 10.12
to Registrant's Form l0-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.4 Change of Control Agreement dated December 12, 1991 among Dennis D. Higgs
and Meridian Point Realty Trust `82, Meridian Point Realty Trust `83,
Sierra Real Estate Equity Trust `84 Co., Meridian Point Realty Trust IV
Co., Meridian Point Realty Trust VI Co., Meridian Point Realty Trust VII
Co. and Sierra Capital Realty Trust VIII Co. filed as Exhibit 10.13 to
Registrant's Form l0-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.5 Change of Control Agreement dated December 12, 1991 among Barbara J.
Schuessler and Meridian Point Realty Trust `82, Meridian Point Realty
Trust `83, Sierra Real Estate Equity Trust `84 Co., Meridian Point Realty
Trust IV Co., Meridian Point Realty Trust VI Co., Meridian Point Realty
Trust VII Co. and Sierra Capital Realty Trust VIII Co. filed as Exhibit
10.15 to Registrant's Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference.
10.6 Stock Option Agreement, effective April 1, 1991, among Milton K. Reeder,
Meridian Point Properties, Inc., Meridian Point Company, Meridian Point
Realty Trust `82, Meridian Point Realty Trust `83, Sierra Real Estate
Equity Trust `84 Co., Meridian Point Realty Trust IV Co., Meridian Point
Realty Trust VI Co., Meridian Point Realty Trust VII Co. and Sierra
Capital Realty Trust VIII Co. filed as Exhibit 10.20 to Registrant's Form
10-K for the fiscal year ended December 31, 1991 and incorporated herein
by reference.
10.7 Master Lease dated July 5, 1988 between Sierra Real Estate Equity Trust
`83 and Tencor Instruments filed as Exhibit 10.21 to Registrant's Form
10-K for the fiscal year ended December 31, 1991 and incorporated herein
by reference.
10.8 Joint Venture Agreement of Scripps Venturers, dated December 8, 1982
between Sierra Real Estate Equity Trust and Robert A. Alleborn Associates
filed as Exhibit 10.22 to Registrant's Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.
10.9 First Amendment to Joint Venture Agreement of Scripps Venturers, dated
March 10, 1983 filed as Exhibit 10.23 to Registrant's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by reference.
15
<PAGE>
10.10 Second Amendment to Joint Venture Agreement of Scripps Venturers, dated
July 1, 1983 filed as Exhibit 10.24 to Registrant's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by reference.
10.11 Third Amendment to Joint Venture Agreement of Scripps Venturers, dated
December 31, 1987 filed as Exhibit 10.25 to Registrant's Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.
10.12 Secured Promissory Note, dated December 27, 1988 for $9,500,000 to First
Interstate Bank of California on behalf of Scripps Venturers filed as
Exhibit 10.1 to Registrant's Form 8-K, dated December 30, 1988 and
incorporated herein by reference.
10.13 Deed of Trust with Assignment of Rents, dated December 27, 1988, between
Scripps Venturers and First Interstate Bank of California filed as
Exhibit 10.2 to Registrant's Form 8-K, dated December 30, 1988 and
incorporated herein by reference.
10.14 Second Deed of Trust with Assignment of Rents, dated December 27, 1988,
between Scripps Venturers and First Interstate Bank of California filed
as Exhibit 10.7 to Registrant's Form 8-K, dated December 30, 1988 and
incorporated herein by reference.
10.15 Promissory Note, dated May 22, 1986, for $5,000,000 to New England Mutual
Life Insurance Company on behalf of Charleston filed as Exhibit 10.32 to
Registrant's Form l0-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.16 Deed of Trust and Security Agreement, dated May 22, 1986, between Sierra
Real Estate Equity Trust `83 and New England Mutual Life Insurance
Company for Charleston filed as Exhibit 10.33 to Registrant's Form l0-K
for the fiscal year ended December 31, 1991 and incorporated herein by
reference.
10.17 Loan Agreement dated September 28, 1987, between Sierra Real Estate
Equity Trust `83 and Home Federal Savings and Loan Association for Golden
Cove filed as Exhibit 10.1 to Registrant's Form 8-K, dated October 9,
1987 and incorporated herein by reference.
10.18 Note, dated September 28, 1987, for $4,575,000, between Sierra Real
Estate Equity Trust `83 and Home Federal Savings and Loan Association for
Golden Cove filed as Exhibit 10.2 to Registrant's Form 8-K, dated October
9, 1987 and incorporated herein by reference.
10.19 Deed of Trust, dated September 28, 1987, between Sierra Real Estate
Equity Trust `83 and Home Federal Savings and Loan Association for Golden
Cove filed as Exhibit 10.3 to Registrant's Form 8-K, dated October 9,
1987 and incorporated herein by reference.
10.20 Modification Agreement, dated August 1, 1991, between Meridian Point
Realty Trust `83 and The Mutual Benefit Life Insurance Company in
Rehabilitation for Spokane filed as Exhibit 10.39 to Registrant's Form
10-K for the fiscal year ended December 31, 1991 and incorporated herein
by reference.
10.21 Memorandum of Modification Agreement and First Amendment to Deed of
Trust, dated December 31, 1991, between Meridian Point Realty Trust `83
and The Mutual Benefit Life Insurance in Rehabilitation for Spokane filed
as Exhibit 10.40 to Registrant's Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference.
10.22 Indemnity Agreement, dated June 19, 1987, between Sierra Real Estate
Equity Trust `83 and Thomas B. Swartz filed as Exhibit 10.41 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
16
<PAGE>
10.23 Indemnity Agreement, dated June 19, 1987, between Sierra Real Estate
Equity Trust `83 and Robert R. Walker, Jr. filed as Exhibit 10.42 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.24 Indemnity Agreement, dated June 19, 1987, between Sierra Real Estate
Equity Trust `83 and William B. Stevenson filed as Exhibit 10.43 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.25 Indemnity Agreement, dated June 19, 1987, between Sierra Real Estate
Equity Trust `83 and James B. Davis filed as Exhibit 10.44 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.26 Indemnity Agreement, dated June 19, 1987, between Sierra Real Estate
Equity Trust `83 and Lee W. Wilson filed as Exhibit 10.45 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.27 Indemnity Agreement, dated April 8, 1988, between Sierra Real Estate
Equity Trust `83 and Herbert E. Stansbury, Jr. filed as Exhibit 10.46 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.28 Indemnity Agreement, dated April 8, 1988, between Sierra Real Estate
Equity Trust `83 and Kermit Mowbray filed as Exhibit 10.47 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.29 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and Thomas B. Swartz filed as Exhibit 10.48 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.30 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and Robert A. Dobbin filed as Exhibit 10.49 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.31 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and William B. Stevenson filed as Exhibit 10.50 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.32 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and Milton K. Reeder filed as Exhibit 10.51 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.33 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and Steven B. Sinnett filed as Exhibit 10.52 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.34 Indemnity Agreement, dated June 29, 1988, between Sierra Real Estate
Equity Trust `83 and Arnold L. Hoffman filed as Exhibit 10.53 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.35 Indemnity Agreement, effective June 6, 1991, between Meridian Point
Realty Trust `83 and Richard H. Hughes filed as Exhibit 10.55 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
17
<PAGE>
10.36 Indemnity Agreement, dated August 8, 1989, between Sierra Real Estate
Equity Trust `83 and William B. Stevenson filed as Exhibit 10.54 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.37 Indemnity Agreement, effective June 6, 1991, between Meridian Point
Realty Trust `83 and James M. Pollak filed as Exhibit 10.56 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.38 Indemnity Agreement, dated September 13, 1991, between Meridian Point
Realty Trust `83 and Al E. Andrews, Jr. filed as Exhibit 10.57 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.39 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Arnold L. Hoffman filed as Exhibit 10.58 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.40 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Milton K. Reeder filed as Exhibit 10.59 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.41 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Robert A. Dobbin filed as Exhibit 10.60 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.42 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Dennis D. Higgs filed as Exhibit 10.61 to Registrant's Form
10-K for the fiscal year ended December 31, 1991 and incorporated herein
by reference.
10.43 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and James S. McCaffrey filed as Exhibit 10.62 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.44 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Steven B. Sinnett filed as Exhibit 10.63 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.45 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Barbara J. Finnegan filed as Exhibit 10.64 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.46 Amended and Restated Articles of Incorporation of Meridian Point
Properties filed March 24, 1992 filed as Exhibit 10.65 to Registrant's
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.
10.47 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Meridian Point Properties, Inc. filed as Exhibit 10.66 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
10.48 Indemnity Agreement, dated March 5, 1992, between Meridian Point Realty
Trust `83 and Meridian Point Company filed as Exhibit 10.67 to
Registrant's Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
18
<PAGE>
10.49 Amended and Restated Employee Leasing Agreement, effective March 24,
1992, among Meridian Point Realty Trust `82, Meridian Point Realty Trust
`83, Sierra Real Estate Equity Trust `84 Co., Meridian Point Realty Trust
IV Co., Meridian Point Realty Trust VI Co., Meridian Point Realty Trust
VII Co., and Sierra Capital Realty Trust VIII Co. filed as Exhibit 10.l
to Registrant's Form l0-Q for the quarter ended June 30, 1992 and
incorporated herein by reference.
10.50 Amended and Restated Registrar, Transfer Agent, Dividend Disbursement and
Service Agreement, effective March 24, 1992, among Meridian Point
Properties, Inc. and Meridian Point Realty Trust `82, Meridian Point
Realty Trust `83, Sierra Real Estate Equity Trust `84 Co., Meridian Point
Realty Trust IV Co., Meridian Point Realty Trust VI Co., Meridian Point
Realty Trust VII Co., and Sierra Capital Realty Trust VIII Co. filed as
Exhibit 10.2 to Registrant's Form l0-Q for the quarter ended June 30,
1992 and incorporated herein by reference.
10.51 Amendment No. l to Stock Option Agreement, effective March 24, 1992,
among Milton K. Reeder, Meridian Point Properties, Inc., Meridian Point
Realty Trust `82, Meridian Point Realty Trust `83, Sierra Real Estate
Equity Trust `84 Co., Meridian Point Realty Trust IV Co., Meridian Point
Realty Trust VI Co., Meridian Point Realty Trust VII Co., and Sierra
Capital Realty Trust VIII Co. filed as Exhibit 10.3 to Registrant's Form
l0-Q for the quarter ended June 30, 1992 and incorporated herein by
reference.
10.52 Sublease dated September 11, 1992 between Chicago Title Insurance Company
and Meridian Point Properties, Inc. filed as Exhibit 10.64 to
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
10.53 Indemnity Agreement effective February l, 1992 between Meridian Point
Realty Trust `83 and Debra H. Paul filed as Exhibit 10.65 to Registrant's
Form 10-K for the fiscal year ended December 31,1992 and incorporated
herein by reference.
10.54 Indemnity Agreement dated September l0, 1992 between Meridian Point
Realty Trust `83 and Dennis D. Higgs filed as Exhibit 10.66 to
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
10.55 Secured Promissory Note dated February 23, 1993 in the amount of
$2,345,000 made by Meridian Point Realty Trust `83 for Principal Mutual
Life Insurance Company filed as Exhibit 10.68 to Registrant's Form 10-K
for the fiscal year ended December 31, 1992 and incorporated herein by
reference.
10.56 Deed of Trust, Security Agreement and Assignment of Rents dated February
23, 1993 between Meridian Point Realty Trust `83, Ronald B. Franklin, and
Principal Mutual Life Insurance Company filed as Exhibit 10.69 to
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
10.57 Indemnity Agreement dated April 9, 1992 between Meridian Point Realty
Trust `83 and Peter O. Hanson filed as Exhibit 10.1 to Registrant's Form
10-Q for the quarter ended March 31, 1993 and incorporated herein by
reference.
10.58 Indemnity Agreement dated March 4, 1993 between Meridian Point Realty
Trust `83 and Earl F. Cheit filed as Exhibit 10.2 to Registrant's Form
10-Q for the quarter ended March 31, 1993 and incorporated herein by
reference.
10.59 Indemnity Agreement dated March 4, 1993 between Meridian Point Realty
Trust `83 and Robert E. Morgan filed as Exhibit 10.3 to Registrant's Form
10-Q for the quarter ended March 31, 1993 and incorporated herein by
reference.
19
<PAGE>
10.60 Amendment No. 1 to Employment Agreement of Milton K. Reeder dated
September 14, 1993 filed as Exhibit 10.1 to Registrant's Form 10-Q for
the quarter ended September 30, 1993 and incorporated herein by
reference.
10.61 Letter Agreement dated August 2, 1993 amending Change of Control
Agreement for Al E. Andrews, Jr. filed as Exhibit 10.2 to Registrant's
Form 10-Q for the quarter ended September 30, 1993 and incorporated
herein by reference.
10.62 Letter Agreement dated August 2, 1993 amending Change of Control
Agreement for Robert A. Dobbin filed as Exhibit 10.3 to Registrant's Form
10-Q for the quarter ended September 30, 1993 and incorporated herein by
reference.
10.63 Letter Agreement dated August 2, 1993 amending Change of Control
Agreement for Barbara S. Finnegan filed as Exhibit 10.4 to Registrant's
Form 10-Q for the quarter ended September 30, 1993 and incorporated
herein by reference.
10.64 Letter Agreement dated August 2, 1993 amending Change of Control
Agreement for Dennis D. Higgs filed as Exhibit 10.5 to Registrant's Form
10-Q for the quarter ended September 30, 1993 and incorporated herein by
reference.
10.65 Purchase and Sale Agreement dated June 15, 1993 between Thomas C.
Farnsworth, Jr. and Meridian Point Realty Trust `83 (for Memphis 15
property) filed as Exhibit 10.8 to Registrant's Form 10-Q for the quarter
ended September 30, 1993 and incorporated herein by reference.
10.66 Indemnity Agreement dated October 29, 1993 between Meridian Point Realty
Trust `83 and Lorraine O. Legg filed as Exhibit 10.61 to Registrant's
Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference.
10.67 Promissory Note, dated March 1, 1994, for $4,919,266 to New England Life
Insurance Company, executed by Meridian Point Realty Trust `83 filed as
Exhibit 10.62 to Registrant's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
10.68 Deed of Trust and Security Agreement, dated March 1994 between Meridian
Point Realty Trust `83 and New England Life Insurance Company filed as
Exhibit 10.63 to Registrant's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
10.69 Environmental Indemnity Agreement, dated March 1, 1994, between Meridian
Point Realty Trust `83 and New England Life Insurance Company filed as
Exhibit 10.64 to Registrant's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
10.70 Assignment of Leases and Rents, dated March 1994, between Meridian Point
Realty Trust `83 and New England Life Insurance Company filed as Exhibit
10.65 to Registrant's Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
10.71 Escrow Agreement, dated March 4, 1994, by and among New England Life
Insurance Company, Meridian Point Realty Trust `83, and Norris, Beggs,
and Simpson filed as Exhibit 10.66 to Registrant's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by reference.
10.72 Modification of Note Agreement, dated January 14, 1994 between First
Interstate Bank of California and Scripps Venturers filed as Exhibit 10.1
to Registrant's Form 10-Q for the quarter ended March 31, 1994 and
incorporated herein by reference.
20
<PAGE>
10.73 Extension and Modification Agreement, dated June 29, 1994, between First
Interstate Bank of California and Scripps Venturers filed as Exhibit 10.1
to Registrant's Form 10-Q for the quarter ended June 30, 1994 and
incorporated herein by reference.
10.74 Letter Agreement modifying Loan No. 331423 dated May 4, 1994, between
Mutual Benefit Life Insurance Company in Rehabilitation and Meridian
Point Realty Trust `83 filed as Exhibit 10.2 to Registrant's Form 10-Q
for the quarter ended June 30, 1994 and incorporated herein by reference.
10.75 Indemnity Agreement dated June 3, 1994 between Meridian Point Realty
Trust `83 and Peter O. Hanson filed as Exhibit 10.3 to Registrant's Form
10-Q for the quarter ended June 30, 1994 and incorporated herein by
reference.
10.76 Amendment No. 1 to Amended and Restated Employee Leasing Agreement,
effective as of February 1, 1994 filed as Exhibit 10.1 to Registrant's
Form 10-Q for the quarter ended September 30, 1994 and incorporated
herein by reference.
10.77 Stock Purchase Agreement dated as of September 22, 1994 between Meridian
Point Realty Trust `83 and Hunt Realty Acquisitions, L.P. filed as
Exhibit 10.1 to Registrant's Form 8-K dated September 22, 1994 and
incorporated herein by reference.
10.78 Purchase and Sale Agreement entered into December 2, 1994 by and between
Meridian Point Realty Trust `83 and DJ&J Software Corporation filed as
Exhibit 10.1 to Registrant's Form 8-K, dated December 29, 1993 and
incorporated herein by reference.
10.79 Amendment No. 1 to Stock Purchase Agreement dated November 22, 1994,
between Meridian Point Realty Trust `83 and Hunt Realty Acquisitions,
L.P. filed as Exhibit 10.1 to Registrant's Form 8-K dated January 17,
1995 and incorporated herein by reference.
10.80 Indemnity Agreement effective January 3, 1995, between Meridian Point
Realty Trust `83 and Brian F. Zywiciel filed as Exhibit 10.1 to
Registrant's Form 8-K dated January 3, 1995, and incorporated herein by
reference.
10.81 Indemnity Agreement effective January 3, 1995, between Meridian Point
Realty Trust `83 and Barbara S. Finnegan filed as Exhibit 10.2 to
Registrant's Form 8-K dated January 3, 1995, and incorporated herein by
reference.
10.82 Indemnity Agreement effective January 3, 1995, between Meridian Point
Realty Trust `83 and Brian F. Zywiciel filed as Exhibit 10.3 to
Registrant's Form 8-K dated January 3, 1995, and incorporated herein by
reference.
10.83 Agreement for Dissolution and Winding Up of Scripps Ventures, effective
December 31, 1995.
10.84 Amended and Restated Asset Purchase Agreement dated November 10, 1995
between Meridian Point Realty Trust `83 and Meridian Industrial Trust,
Inc. filed as Appendix D to Registrant's Amendment No. #3 to Preliminary
Proxy Statement filed December 22, 1995 and incorporated herein by
reference.
10.85 Agreement between Meridian Point Realty Trust `83 and E & L Associates,
Inc. dated February 23, 1996.
10.86 Purchase and Sale Agreement entered into August 4, 1997, together with
First Amendment to Purchase and Sale Agreement effective August 7,1997
and Second Amendment to Purchase and Sale Agreement effective August 15,
1997, between Meridian Point Realty Trust `83 and 2400
21
<PAGE>
Charleston Associates, LLC (as successor to Rubin-Pachulski Properties,
Inc.) filed as Exhibit 10.1 to Registrant's Form 8-K dated September 5,
1997, and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
-------------------
The following Form 8-K report was filed during the quarter ended
December 31, 1997:
Current Report on Form 8-K under Item 5 - Other Events, dated August
22, 1997 announcing the sale of the Charleston Property.
(c) The exhibits listed in Item 14(a)(3) above are submitted as part of this
report.
(d) The financial statement schedules listed in Item 14(a)(2) above are
submitted as part of this report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 14, 1998 MERIDIAN POINT REALTY TRUST `83
By: /s/ Lorraine O. Legg
-------------------------------------
Lorraine O. Legg
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Lorraine O. Legg Dated: April 14, 1998
- ---------------------------------------
Lorraine O. Legg
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John E. Castello Dated: April 14, 1998
- ---------------------------------------
John E. Castello
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Herbert E. Stansbury Dated: April 14, 1998
- ---------------------------------------
Herbert E. Stansbury, Jr.
Chairman and Trustee
/s/ Peter O. Hanson Dated: April 14, 1998
- ---------------------------------------
Peter O. Hanson
Trustee
/s/ Lorraine O. Legg Dated: April 14, 1998
- ---------------------------------------
Lorraine O. Legg
Trustee
/s/ Robert E. Morgan Dated: April 14, 1998
- ---------------------------------------
Robert E. Morgan
Trustee
/s/ James M. Pollak Dated: April 14, 1998
- ---------------------------------------
James M. Pollak
Trustee
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Trustees
of Meridian Point Realty Trust `83:
We have audited the accompanying Consolidated Balance Sheets of
Meridian Point Realty Trust `83 (a California business trust) as of December 31,
1997 and 1996, and the related Consolidated Statements of Operations,
Shareholders' Equity and Cash Flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Meridian Point Realty Trust `83 as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The Financial
Statement Schedules listed in Item 14(a)(2) are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
February 19, 1998
24
<PAGE>
MERIDIAN POINT REALTY TRUST `83
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE HELD FOR SALE:
Rental Properties, Net $ -- $ 8,723,639
Less: Accumulated Depreciation -- (2,532,066)
- -------------------------------------------------------------------------------------------------------------
-- 6,191,573
OTHER ASSETS:
Cash and Cash Equivalents 2,886,339 4,437,422
Restricted Cash -- 1,580,139
Accounts Receivable, Net of Reserves of $25,000 and $197,452
as of December 31, 1997 and 1996, respectively -- 32,353
Capitalized Loan Costs, Net of Accumulated Amortization of
$0 and $95,491 as of December 31, 1997 and 1996,
respectively -- 17,983
Capitalized Lease Commissions, Net of Accumulated
Amortization of $0 and $49,128 as of December 31,
1997 and 1996, respectively -- 40,130
Other Assets, Net 21,052 46,364
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,907,391 $ 12,345,964
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage Note Payable, Net $ -- $ 4,627,123
Accounts Payable 102,057 13,139
Prepaid Rent, Tenant Deposits and Other Liabilities -- 192,354
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 102,057 4,832,616
- -------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
SHAREHOLDERS' EQUITY:
Shares of Beneficial Interest - $1.00 stated value:
Authorized - Unlimited; 3,031,618 shares issued and
outstanding as of December 31, 1997 and 1996 3,031,618 3,031,618
Paid-in Capital 22,755,694 22,755,694
Distributions in Excess of Income (22,981,978) (18,273,964)
- -------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,805,334 7,513,348
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,907,391 $ 12,345,964
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE>
MERIDIAN POINT REALTY TRUST `83
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Rentals from Real Estate Investments $ 907,831 $2,026,861 $5,834,499
Interest and Other 272,529 264,902 311,627
- -------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,180,360 2,291,763 6,146,126
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Interest and Amortization of Debt Discount 262,771 651,111 2,177,988
Property Taxes 79,234 183,136 612,621
Property Operating Costs, Including Amounts Paid
to Related Parties of $120,000, $236,098, and
$466,125, respectively 318,079 664,101 1,576,378
Legal Costs 102,229 47,724 26,653
General and Administrative, Including Amounts
Paid to Related Parties of $74,657, $56,190,
and $106,544, respectively 354,684 276,283 429,218
Depreciation and Amortization 16,154 372,240 1,494,611
Expenses of Terminated Stock Purchase -- -- 363,133
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,133,151 2,194,595 6,680,602
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE GAIN ON SALE OF PROPERTIES 47,209 97,168 (534,476)
Gain on Sale of Properties 4,528,701 2,582,606 --
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 4,575,910 2,679,774 (534,476)
Extraordinary Item -
Prepayment Penalty on Paydown of Debt (189,070) -- --
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $4,386,840 $2,679,774 $ (534,476)
=============================================================================================================
NET INCOME (LOSS) PER COMMON SHARE BASIC
AND DILUTED:
Income (Loss) Before Extraordinary Item $ 1.51 $0.88 $(0.18)
Extraordinary Item - Prepayment Penalty (0.06) -- --
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ 1.45 $0.88 $(0.18)
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE>
MERIDIAN POINT REALTY TRUST '83
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 AND 1995
<TABLE>
<CAPTION>
SHARES OF DISTRIBUTIONS
BENEFICIAL INTEREST PAID-IN IN EXCESS
-------------------
SHARES AMOUNT CAPITAL OF INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1995 3,031,618 $3,031,618 $22,755,694 $(13,026,683)
Net Loss -- -- -- (534,476)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 3,031,618 $3,031,618 $22,755,694 $(13,561,159)
Net Loss 2,679,774
Distributions Paid -- -- -- (7,392,579)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 3,031,618 $3,031,618 $22,755,694 $(18,273,964)
Net Income 4,386,840
Distributions Paid -- -- -- (9,094,854)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 3,031,618 $3,031,618 $22,755,694 $(22,981,978)
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE>
MERIDIAN POINT REALTY TRUST `83
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) $ 4,386,840 $ 2,679,774 $ (534,476)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Gain on Sale of Properties (4,528,701) (2,582,606) --
Depreciation -- 317,048 1,340,402
Amortization of Debt Discount -- 5,438 89,128
Amortization - Other 20,994 66,779 182,225
Rent Adjustment -- -- 77,083
Extraordinary Item-Prepayment Penalty 189,070 -- --
Decrease (Increase) in Cash Held in Escrow -- 98,363 (5,666)
Decrease (Increase) in Restricted Cash 1,580,139 (460,308) (451,475)
Decrease in Accounts Receivable 32,353 161,443 81,788
Decrease (Increase) in Other Assets, Net 25,312 (129,724) (75,755)
Increase (Decrease) in Accounts Payable 88,918 (260,354) (57,998)
Increase in Due to Affiliates -- 16,954 13,662
Decrease in Other Liabilities (192,354) (325,911) (36,794)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,602,571 (413,104) 622,124
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Properties 11,650,000 3,603,849 --
Closing Costs on Sale of Properties (891,504) -- --
Improvements to Existing Real Estate (1,103) (70,397) (768,345)
Additions to Capitalized Lease Commissions -- (46,064) (390,539)
Investment in Real Estate Investment Trust -- -- (79,500)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 10,757,393 3,487,388 (1,238,384)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgage Notes (4,627,123) (162,346) (1,842,785)
Payment on Early Extinguishment of Debt (189,070) -- --
Cash Distributions Paid (9,094,854) (1,000,434) --
- -----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (13,911,047) (1,162,780) (1,842,785)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (1,551,083) 1,911,504 (2,459,045)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,437,422 2,525,918 4,984,963
- -----------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 2,886,339 $ 4,437,422 $ 2,525,918
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE>
MERIDIAN POINT REALTY TRUST `83
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Disposition of Properties Due to Sale:
Proceeds from Disposition of Assets - Shares of
Meridian Industrial Trust, Inc. (MIT)
Common Stock -- 6,392,145 --
Mortgages Assumed by MIT -- 16,334,297 --
Disposition of Properties, Net (6,192,676) (22,343,329) --
Reduction in Other Assets
Related to Properties Sold (37,118) (1,403,250) --
Distribution Paid in Shares of MIT Common Stock -- (6,392,145) --
Redemption of Investment in Real Estate Trust -- (79,500) --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE>
MERIDIAN POINT REALTY TRUST `83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) ORGANIZATION. Meridian Point Realty Trust `83 (the "Company") is a
business trust organized under the laws of the State of California for the
purpose of acquiring, operating, holding for investment and ultimately selling
income-producing commercial and industrial property. The Company was formed as
a self-liquidating/finite life trust. Under this self-liquidating policy, the
Company may not invest net proceeds from sales or refinancings in additional
properties. The Company commenced operations on April 12, 1983.
From April 1, 1991 to February 23, 1996, the Company operated under a
self-administered management structure in conjunction with other commonly-
sponsored real estate companies (the Company and such other real estate
companies are collectively referred to herein as the "Companies"). Under this
management structure, Meridian Point Properties, Inc. ("MPP"), a captive company
controlled by the Companies, leased employees to the Companies at cost to
perform the administrative, accounting, asset management, and property
management functions. In addition, through December 31, 1994, MPP, at cost,
acted as the transfer agent for the Companies and provided shareholder account
maintenance and dividend disbursement services. The reimbursements made to MPP
were allocated among the Companies in accordance with agreements between MPP and
the Companies.
Effective February 24, 1996, the Company terminated its employee leasing
agreement with MPP and entered into an agreement with E & L Associates, Inc. ("E
& L", see Note 2).
On February 22, 1996, and as more fully described in Note 6, the
Company's shareholders approved the sale of substantially all of the Company's
real estate assets to Meridian Industrial Trust, Inc. ("MIT") for approximately
$3.6 million in cash, 390,360 shares of MIT common stock, and the assumption of
certain mortgage notes and other liabilities by MIT (collectively referred to as
the "Asset Sale"). The sale was completed on February 23, 1996 at which time
the Company also announced a dividend payable on March 22, 1996 of approximately
$1 million in cash (or $0.33 per share of beneficial interest in the Company)
and all of the 390,360 shares of MIT common stock (or 0.1287 of a share of MIT
common stock per share of beneficial ownership in the Company) to shareholders
of record at the close of business on March 12, 1996.
On August 22, 1997, the Company sold its last remaining real estate asset,
Charleston Business Park ("Charleston") (See Note 6). The Company's remaining
assets consist primarily of cash and cash equivalents. The Board of Trustees is
in the process of evaluating all options available, including the sale or
liquidation of the Company. In the event that the Board of Trustees concludes
that liquidation is the desired course of action, management currently estimates
that costs associated with liquidation and wind-up of the Company's affairs
would approximate $500,000. However, the Board of Trustees has not concluded on
the ultimate course of action and, accordingly, the accompanying financial
statements are presented on a going concern basis with no accrual for any costs
associated with winding up the Company's affairs.
(b) ESTIMATES, RISKS AND UNCERTAINTIES. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
30
<PAGE>
From time to time, the Company is subject to legal claims arising in the
ordinary course of business in connection with the Company's prior ownership of
real estate and leasing of such real estate to tenants. The Company maintains
liability insurance, subject to customary deductibles and, accordingly,
management does not believe the ultimate resolution of such matters will have a
material effect on the Company's financial position.
(c) CONSOLIDATION. The consolidated financial statements, include
results of operations of the Company and Scripps Venturers ("Scripps"), a joint
venture between the Company and Robert A. Alleborn Associates for the period
from January 1, 1996 through February 22, 1996 and the years ended December 31,
1995 and 1994. No minority interest is reflected as the minority partner has no
equity in the venture due to the allocation of prior losses. Scripps was sold as
part of the Asset Sale.
(d) STATEMENTS OF CASH FLOWS. For purposes of the statements of cash
flows, the Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
Cash paid for interest was $257,930, $634,087 and $2,070,567 for the
years ended December 31, 1997, 1996, and 1995, respectively.
(e) INVESTMENT IN REAL ESTATE AND DEPRECIATION METHODS. Depreciation and
amortization have been calculated under the straight-line method, based upon the
estimated useful lives of the assets. Property and property additions are
depreciated over 35 years. Expenditures for maintenance, repairs, and
improvements which do not materially prolong the normal useful life of an asset
are charged to operations as incurred. Leasing commissions and tenant
improvements are amortized under the straight-line method over the terms of the
related leases.
Since the Company entered into an exclusive listing agreement for the
sale of the Charleston property on June 27, 1996, the Company ceased
depreciating the property as of August 1, 1996 in accordance with Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of Assets
and for Long Lived-Assets to Be Disposed Of" (see Note 6).
(f) RENTALS FROM REAL ESTATE INVESTMENTS. Certain of the Company's leases
relating to its properties required lessees to pay all or a portion of real
estate taxes, insurance, and operating costs ("Expense Recaptures"). Expense
Recaptures of $233,540, $351,186 and $718,746 for the years ended 1997, 1996,
and 1995, respectively, have been included in Rentals from Real Estate
Investments.
All leases were classified as operating leases. The Company recognized
rental income on the straight-line basis over the terms of the leases.
(g) INCOME TAXES. The Company has previously elected to be taxed as a
REIT pursuant to Section 856(c)(1) of the Internal Revenue Code and intends to
be taxed as a REIT under the Code for the fiscal year ended December 31, 1997.
The REIT provisions of the Code generally allow a REIT to deduct dividends paid
to shareholders in computing the Company's taxable income. The Company
currently distributes all of its net taxable income (including net capital
gains) to its shareholders. No provisions for federal or state income taxes
have been made in the accompanying consolidated statements of operations for
the years ended December 31, 1997, 1996 and 1995.
To qualify for REIT status, the Company must meet a number of highly technical
organizational and operations requirements on a continuing basis. Those
requirements seek to ensure, among other things, that the gross income and
investments of a REIT are largely real estate related, with certain other
permitted assets, that a REIT distributes substantially all its ordinary taxable
income to shareholders on a current basis and that the REIT's ownership is not
overly concentrated. Due to the complex nature of these rules, the limited
available guidance concerning interpretation of the rules, the importance of
ongoing factual determinations and the possibility of adverse changes in or
interpretations of the law, administrative interpretations of the law and
developments at the Company, no assurance can be given regarding the Company's
qualification as a REIT for any particular year. As a result of the Company's
sale of its last real estate property in August 1997, the Company's status as a
REIT for 1997 is dependent, in part, upon tax rules regarding investments by
REITs in certain types of non-real estate assets.
If the Company failed to qualify as a REIT for the fiscal year ended December
31, 1997, it would be taxed as a regular corporation, and distributions to
shareholders would not be deductible in computing the Company's taxable income.
The resulting corporate tax liabilities could materially (e.g., by approximately
30 percent of total assets at December 31, 1997) reduce the funds available for
distribution to the Company's shareholders or for reinvestment. If the Company
failed to qualify as a REIT, distributions to stockholders would no longer be
required. Moreover, the Company might not be able to elect to be treated as a
REIT for the four taxable years after the year during which the Company ceased
to qualify as a REIT. In addition, if the Company later requalified as a REIT,
it might be required to pay a full corporate-level tax on any unrealized gain
associated with its assets as of the date of requalification and to make
distributions equal to any C corporation earnings accumulated during the period
of non-REIT status.
(h) CAPITALIZED LOAN COSTS. Amounts paid to acquire long-term loans have
been capitalized and amortized in relation to the loans.
31
<PAGE>
2. RELATED PARTIES.
For the years ended December 31, 1997, 1996, and 1995, the Company
incurred fees and expenses for services rendered by the Trustees of the Company
totaling $74,657, $56,190 and $106,544, respectively. Such amounts were paid
directly to the Trustees.
Cost reimbursements made to MPP under the management structure discussed
in Note 1 amounted to $140,178 and $466,125 for the years ended December 31,
1996 and 1995. There were no cost reimbursements to MPP in the year ended
December 31, 1997. These costs are classified within Property Operating Costs on
the accompanying consolidated statements of operations.
In accordance with agreements between the Companies and MPP, these
reimbursements were allocated among the Companies based on (i) gross rental
receipts of the Companies' properties and the Companies' relative real estate
assets for property and asset management costs; and (ii) proportionate time
incurred, the number of shareholders and relative real estate assets for costs
incurred in conducting the Companies' daily operations. In the opinion of
management, the allocation methodology is reasonable.
As discussed in Note 1, the Company terminated its employee leasing
agreement with MPP and entered into an agreement with E & L. Under this
agreement, E & L provides property management and certain other services to the
Company. Under the agreement, E & L received a monthly fee of $8,333 through
June 30, 1996. Effective July 1, 1996 the monthly management fee payment is
$10,000. During the years ended December 31, 1997 and 1996, E & L received
management fees of $120,000 and $95,920, all of which is included within
Property Operating Costs on the accompanying consolidated statements of
operations. E & L is a wholly-owned subsidiary of a company in which Lorraine
O. Legg (the Company's Chief Executive Officer and a Trustee) has an ownership
interest. Other than the management fees paid to E & L, Ms. Legg receives no
other compensation from the Company.
32
<PAGE>
3. RENTAL PROPERTIES
At December 31, 1997, the Company did not own any rental properties
(See Note 6). Rental properties at December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
Land $2,084,923
Buildings 6,254,983
Capital Improvements 383,733
Construction in Progress --
------------------------------------------------------
Total $8,723,639
======================================================
</TABLE>
4. MORTGAGE NOTE PAYABLE, NET.
On December 31, 1997, the Company did not hold any mortgage notes
payable (See Note 6). The following table presents information regarding the
Company's mortgage note payable at December 31, 1996. This debt instrument was
a first lien note secured by Charleston and was paid in full, together with a
prepayment penalty of $189,070 upon the sale of Charleston.
<TABLE>
<CAPTION>
STATED ANNUAL MATURITY BALANCE
INTEREST PAYMENTS DATES 12/31/96
RATE
<S> <C> <C> <C> <C>
Charleston Business Park, Mt. View, CA 8.750% $526,543 03/01/99 $4,627,123
</TABLE>
5. BASIC EARNINGS PER SHARE.
Basic earnings per share of beneficial interest is determined by dividing
net income by the weighted average number of shares of beneficial interest
outstanding during the period. The weighted average number of shares outstanding
was 3,031,618 for the years ended December 31, 1997, 1996 and 1995. During the
year ended December 31, 1997, the Company distributed $9,094,854, or $3.00 per
share of beneficial interest to stockholders of record at the close of business
on September 2, 1997. During the year ended December 31, 1996, the Company
distributed cash of $1,004,434, or $0.33 per share of beneficial interest, and
all of the 390,360 shares of MIT common stock (or 0.1287 of a share of MIT
common stock per share of beneficial ownership in the Company) to stockholders
of record at the close of business on March 12, 1996. For the years ended
December 31, 1997, 1996 and 1995 there were no common stock equivalents
outstanding. The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128 in the accompanying financial statements. The adoption of SFAS
No. 128 resulted in no change to the Company's historical manner of calculating
earnings per share.
The analysis below presents the amount of distributions paid to
shareholders and the percentage which the Company estimates is
taxable/nontaxable for 1997. In 1997, the Company also elected to distribute
its capital gains to its shareholders and a portion of the 1997 distribution is
so designated.
Total Distribution $9,094,857
==========
Capital Gains Distributions
Taxable at 25% rate 30.04%
Taxable at 20% rate 22.34%
Nontaxable Distributions 47.62%
------
100%
====
33
<PAGE>
6. DISPOSITIONS OF PROPERTIES.
On August 22, 1997, the Company sold the Charleston property, the last
property remaining in its portfolio to Rubin Pachulski Properties, Inc.
("Rubin"). The total selling price for the property was $13,000,000 less a
$1,350,000 credit for estimated remediation work (see Note 7) and related costs,
resulting in a net selling price of $11,650,000. The sales proceeds were paid
entirely in cash. Out of escrow, the Company used $4,557,500 of the sales
proceeds to pay off the then outstanding principal on the mortgage note payable.
The Company also paid $891,504 in closing costs, and $189,070 in mortgage
prepayment penalties. In connection with the sale, the Company recognized a Gain
on Sale of Property of $4,528,701.
As discussed in Note 1, on February 23, 1996, the Company sold all of its
real estate assets except Charleston to MIT for $3.6 million in cash, 390,360
shares of MIT common stock, and the assumption of certain mortgage notes and
other liabilities by MIT. The MIT common stock was valued at $6,392,145. In
addition, the Company sold all of its personal property. The details of these
transactions are as follows:
<TABLE>
<CAPTION>
Mortgage
Selling Notes Property Other Gain or
Property Price Assumed Basis Costs (Loss)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Scripps $ 3,472,070 $ 7,965,980 $ 8,253,975 $ 329,088 $ 2,854,987
Golden Cove 1,814,467 3,195,467 3,364,489 39,278 1,606,167
Airport #14 996,870 813,290 2,129,470 196,496 (515,806)
North Irvine 995,329 2,080,234 2,435,232 136,489 503,842
El Dorado 849,252 1,310,809 2,060,263 117,905 (18,107)
Airport #17 782,313 0 1,972,250 129,636 (1,319,573)
Airport #16A 528,714 648,906 910,384 224,213 43,023
Airport #3 384,071 0 760,232 81,775 (457,936)
Airport #16B 169,059 319,611 457,034 148,370 (116,734)
-------------------------------------------------------------------------------------------
9,992,145 16,334,297 22,343,329 1,403,250 2,579,863
Personal Property
and Investments 93,309 -- 90,566 -- 2,743
-------------------------------------------------------------------------------------------
Total $10,085,454 $16,334,297 $22,433,895 $1,403,250 $ 2,582,606
===========================================================================================
</TABLE>
Unaudited Pro Forma Information
- -------------------------------
If the sale of the properties and investments had occurred on January 1,
1996, the Company's pro forma results of operations for the years ended
December 31, 1997 and 1996 would have been:
<TABLE>
<S> <C> <C>
Revenues $ 272,529
Expenses:
Interest, Legal,
General and
Administrative 456,914
-------------------
Net Loss ($184,385)
===================
Basic Net Loss per Share ($0.06)
===================
</TABLE>
34
<PAGE>
7. COMMITMENTS AND CONTINGENCIES.
In the late 1980s, the San Francisco Bay Region of the California
Regional Water Quality Control Board (the "RWQCB") requested that the Company
investigate and characterize soil and groundwater contamination at Charleston.
In response to that request, the Company engaged an environmental engineering
firm which discovered the presence of trichloroethylene and other solvent
chemicals in the groundwater below Charleston. Based on the preliminary reports
of this environmental firm, it appears that such contamination is the result of
contamination generated by (i) one or more sources located at properties
adjacent to Charleston, and possibly, (ii) a former tenant at Charleston. The
exact locations of the off-site sources have not yet been determined. During
1993, a further investigation of the on-site contamination was conducted by the
environmental engineering firm and a firm of environmental health and safety
specialists. The information gathered suggests that the on-site groundwater
contamination resulted from an incident which occurred sometime before 1986. It
has not been determined whether the contamination occurred before or after the
Company acquired Charleston in 1983, or that contamination has migrated off-
site. Charleston has not been classified as a superfund site by the
Environmental Protection Agency.
The RWQCB has taken jurisdiction as the "lead agency" with regard to the
environmental conditions at Charleston. By letter dated February 17, 1997, the
RWQCB notified the Company that it intends to issue a Site Cleanup Requirements
("SCRs") Order naming the Company, one of Charleston's current tenants and a
former tenant as parties responsible for further environmental investigation and
remediation of Charleston. The SCRs will require that certain tenants and the
owner of Charleston complete additional investigations and develop a soil and
groundwater cleanup plan for Charleston. The RWQCB has indicated that it also
intends to issue a similar order to parties associated with an adjacent site
that may be an offsite source of a portion of the contamination in the
groundwater underlying Charleston.
As part of the sale of Charleston to Rubin (see Note 6) Rubin agreed to
indemnify the Company broadly against the pending SCRs and other types of
environmental claims. Rubin's indemnity is backed by an environmental insurance
policy placed with Reliance Insurance Company of Illinois. It is possible that
the RQWCB could still name the Company when it ultimately issues its SCRs Order
for the property based on the Company's former ownership of Charleston. If that
occurs, the Company would tender the SCRs Order to Rubin for compliance.
Similarly, the Company would tender any other environmental claim brought
against the Company on the basis of its former ownership of Charleston to Rubin
pursuant to the indemnity.
Environmental investigation at the Golden Cove Shopping Center (which was
sold to MIT in connection with the Asset Sale) has indicated that soil at the
property contains volatile organic compounds (tetrachloroethane and
trichloroethane) in concentrations which exceed the cleanup goals typically
cited by the RWQCB. Furthermore, these investigations estimate the cost for
soil remediation at between $110,000 to $140,000. As part of the Asset Sale
discussed in Note 6, the Company is obligated to fully fund the remediation
costs. The Company may be entitled to seek contribution and indemnity for the
remediation costs against other potentially responsible parties who may have
caused the contamination at the property. Through December 31, 1997, $94,586 has
been expended by the Company for remediation costs for which $140,000 was
accrued in 1994. Management does not believe that any additional costs will be
incurred, but there can be no assurance to that effect.
8. TERMINATED STOCK PURCHASE AGREEMENT.
On September 22, 1994, the Company entered into a Stock Purchase Agreement
(the "Agreement") with Hunt Realty Acquisitions, L.P. ("Hunt"). The Agreement
provided that, subject to shareholder approval of amendments to the Company's
organizational documents (which was obtained in February 1995), completion of
property due diligence, and certain other contingencies, the Company would issue
606,323 shares of common stock to Hunt for $3.50 per share ($2,122,131 in
35
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