U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-14462
AmeriVest Properties Inc.
--------------------------------------------
(Name of small business issuer in its charter)
Delaware 84-1240264
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 Youngfield Street, Suite 300, Golden, CO 80401
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 205-7870
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
------------------------------
Title of class
Redeemable Common Stock Purchase Warrants
-----------------------------------------
Title of class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to be the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $3,816,169
The aggregate market value of the issuer's voting Common Stock held by
non-affiliates * of the issuer as of April 5, 1999 was $7,322,272 (computed on
the basis of $4.75 per share which was the reported closing sale price of the
issuer's common stock on the Nasdaq SmallCap Stock Market on April 5, 1999).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's Common Stock as of April
5, 1999 was 1,658,770
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
* Without asserting that any director or executive officer of the issuer is
an affiliate, the shares of which they are beneficial owners have been
deemed to be owned by affiliates solely for this calculation.
<PAGE>
PART I
ITEMS 1. and 2. DESCRIPTION OF BUSINESS AND PROPERTY
General
- -------
AmeriVest Properties Inc. ("AmeriVest" or the "Company") was incorporated
in 1993 in the State of Delaware. AmeriVest operates and intends to continue to
operate in a manner so that it qualifies as a self-administered and self-managed
real estate investment trust ("REIT"). Through its subsidiaries, AmeriVest owns
an industrial office and showroom building (the "Broadway Property"), a
commercial office building (the "Giltedge Office Building"), four self-storage
facilities (the "Self-Storage Facilities"), four Bank of America branch office
buildings (the "Bank Buildings"), and 14 state-leased office buildings (the
"State Of Texas Buildings"). The Broadway Property, the Giltedge Office
Building, the Self-Storage Facilities, the Bank Buildings and the State Of Texas
Buildings are collectively referred to as the "Properties". The Bank Buildings
are managed on behalf of the Company by Windsor Corporation ("Windsor") and the
State Of Texas Buildings are managed on behalf of the Company by Melsama
Corporation ("Melsama"). See "--Property Management Contracts" below. In October
and November 1996, the Company sold an aggregate of 1,098,870 shares of Common
Stock and 549,435 common stock purchase warrants in its initial public offering.
The aggregate gross proceeds from the offering were approximately $5.5 million
and the net proceeds to the Company were approximately $4.5 million.
AmeriVest's headquarters are located at 2801 Youngfield Street, Suite 300,
Golden, Colorado 80401. Its telephone number is (303) 205-7870. As of April 30,
1999, the Company's headquarters will be at 3333 South Wadsworth Blvd., Suite
D-216, Lakewood, Colorado 80227, and there also may be a new telephone number at
that address.
Description Of Properties
- -------------------------
At December 31, 1998, the Company owned and operated 24 properties in
Texas, Colorado and Wisconsin. The following chart lists the properties owned
and contains a summary of some of the operating information applicable to each
facility:
<TABLE>
<CAPTION>
Percentage
Year Rentable Occupancy Annual Rent
Location Type Acquired Sq. Footage At 12/31/98 Per Sq. Ft.
- -------- ---- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
TEXAS PROPERTIES
STATE OF TEXAS BUILDINGS
Amarillo Office 1998 23,778 100.0 $7.60
Arlington Office 1998 36,326 63.0 $10.22
Bellville Office 1998 17,898 100.0 $8.91
Clint Office 1998 12,979 100.0 $9.54
Columbus Office 1998 6,574 100.0 $11.64
El Paso Office 1997 17,913 100.0 $6.72
El Paso Office 1997 8,208 100.0 $10.67
Hempstead Office 1998 7,000 100.0 $8.96
Lubbock Office 1997 8,103 100.0 $7.33
Marshall Office 1998 24,647 100.0 $6.81
Mission Office 1998 17,288 100.0 $8.99
Odessa Office 1998 14,500 33.3 $11.65
Paris Office 1998 33,312 100.0 $6.16
Temple Office 1998 7,360 100.0 $8.52
2
<PAGE>
BANK BUILDINGS
Clifton Office 1998 12,308 100.0 $14.77
Georgetown Office 1998 15,044 94.0 $16.26
Henderson Office 1998 14,623 95.0 $14.60
Mineral Wells Office 1998 18,314 100.0 $14.48
COLORADO PROPERTIES
Arvada Office 1996 8,000 80.0 $7.72
BROADWAY PROPERTY
Denver Industrial 1995 50,280 100.0 $4.87
SELF-STORAGE FACILITIES
Arvada Self-Storage 1996 37,000 95.0 $6.71
Denver Self-Storage 1996 72,490 97.0 $6.45
Thornton Self-Storage 1996 55,150 93.0 $6.20
Westminster Self-Storage 1996 58,938 89.0 $5.40
WISCONSIN PROPERTY
GILTEDGE OFFICE BUILDING
Appleton Office 1996 54,871 94.0 $15.43
</TABLE>
Giltedge Office Building. The Wisconsin property is the only property that
has a book value in excess of ten percent of the Company's total assets. The
Giltedge Office Building is located at 4321 West College Avenue, Appleton,
Wisconsin 54914. It is situated on approximately 3.9 acres. The Company does not
have any plans for major capital improvements for the property and intends to
hold the property for income purposes. This property is subject to the following
competitive conditions: there are several mid-rise office buildings in the area,
but there is no dominant owner or building. The occupancy rates for this
property were 94%, 96%, 99%, 97% and 99%, in 1998, 1997, 1996, 1995 and 1994,
respectively. There are two tenants occupying 10% or more of the rentable space
of the property. The principal businesses of these tenants are
telecommunications and paper supplies. For 1998, 1997, 1996, 1995 and 1995, the
average effective annual rentals per square foot for this property were $15.43,
$14.64, $14.77, $14.12, and $13.65, respectively. The following is a schedule of
lease expirations for the property for the next ten years:
<TABLE>
<CAPTION>
Number Of Leases Total Area Of Annual Revenue Of Percentage Of Gross Rents
That Will Expire Expiring Leases Expiring Leases On Expiring Leases
---------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
1999 6 7,567 $105,339 14.0
2000 5 18,867 $287,186 38.1
2001 3 2,957 $44,471 5.9
2002 5 8,627 $119,692 15.9
2003 3 4,396 $65,421 8.6
2008 1 8,827 $132,405 17.5
</TABLE>
3
<PAGE>
State Of Texas Building Leases. The State Of Texas Buildings are leased to
the State of Texas on a long-term basis. The primary lease periods range from
three years to eight years. Most of the leases have five multiple option periods
of three years to five years. The Hempstead, Amarillo, and Paris leases are the
only leases that expire without additional option periods, in August 2000,
August 2003, and August 2002, respectively.
Although the leases with the State of Texas regarding the State Of Texas
Buildings each include a specific termination date, the State of Texas may
terminate a lease at any time that (i) the legislature of the State of Texas
fails to appropriate funds necessary to pay required rents, or (ii)
federally-funded programs housed in a State Of Texas Building are discontinued.
Prior to terminating the lease, the State of Texas may assign another agency to
fill or partially fill the rented space, and the lease would be adjusted
accordingly.
Bank Building Leases. The Bank Buildings have approximately 63% of each
facility leased to the Bank of America, on a long-term basis, with the primary
lease through June 2012. The Bank of America leases provide for automatic rent
increases every three years at a predetermined rate. The leases also provide for
multiple option periods for Bank of America. The remaining leased space of each
facility is leased to smaller tenants under leases ranging from one year to
three years in length.
Property Improvement. The Company currently intends to spend approximately
$150,000 for capital improvements on the Properties during 1999. These amounts
are in addition to amounts that will be expended for routine maintenance and
repairs.
Mortgages. The following is a summary of the Company's indebtedness that is
secured by mortgages on substantially all of the Properties:
Outstanding Balance At
Description of Indebtedness December 31, 1998
- --------------------------- ----------------------
Note payable to Commercial Federal Mortgage Corp.
Interest at 7.625%, due in monthly installments of
$10,273 based on a 25 year amortization through
January 1, 2014, at which time a balloon payment
of $872,793 is due. This note is secured by a
mortgage on the Broadway Property. $ 1,375,000
Note payable to Fox Cities Bank. Interest at
7.75%, due in monthly installments of $22,295
based on a 30 year amortization through June 1,
2008 at which time a balloon payment of $2,797,181
is due. This note is secured by a mortgage on the
Giltedge Office Building. $ 3,186,228
Note payable to GMAC. Interest at 7.15%, due in
monthly installments of $39,401 based on a 25 year
amortization through September 1, 2008, at which
time a balloon payment of $4,358,574 is due. This
note is secured by a mortgage on the three
Self-Storage Facilities other than the Arvada,
Colorado facility. $ 5,481,089
4
<PAGE>
Note payable to 1st National Bank of Arvada.
Interest at the Prime Rate, adjusted quarterly,
due in monthly installments of $8,678, based on a
20 year amortization, through September 14, 2003
at which time a balloon payment of $852,197 is
due. This note is secured by a mortgage on the
Arvada, Colorado Self-Storage Facility. $ 990,927
Note payable to BankOne Mortgage, Interest at
7.66%, due in monthly installments of $42,612
through July 1, 2028. This note is secured by a
mortgage on the State Of Texas Buildings. $ 5,982,558
Note payable to Jefferson Pilot. Interest at 9.0%,
due in monthly installments of $17,095, through
May 1, 2013. This note is secured by a mortgage on
the Bank Buildings. $ 1,653,797
Note payable to Arlington Building Partnership.
Interest at 8.5%, monthly payments of interest
only, principal balance due June 15, 2000. $ 192,000
-----------
$18,861,599
===========
Insurance. The Company believes that each of the Properties is adequately
covered by insurance. For a discussion of the financial treatment of the
depreciation of the Properties, see "Notes To Financial Statements" in "ITEM 7.
FINANCIAL STATEMENTS".
Competition
- -----------
The business of managing, leasing, and operating office buildings is very
competitive and the Company competes for tenants with other office buildings,
including buildings owned by larger companies with more financial and other
resources available to them. The business of operating self-storage facilities
also is very competitive and the Company will compete with many larger
companies, including national franchisors, with significantly more financial and
other resources than the Company. The Company believes that by continuing to
focus on commercial properties, the Company will be well positioned to compete.
Competitive conditions relating specifically to the Giltedge Office Building are
described above under "--Description Of Properties".
Employees
- ---------
The Company has 16 employees as of January 1, 1999: James F. Etter, who is
the President, Chief Executive Officer and Chief Financial Officer of the
Company; a Controller; and 14 administrative, support, and property management
personnel. Management services with respect to the Bank Buildings and the State
Of Texas Buildings are performed by Windsor and Melsama, respectively.
Environmental Matters
- ---------------------
Under various federal, state and local laws and regulations, an owner or
operator of real property may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on that property. These laws often
impose such liability regardless of whether the owner caused or knew of the
presence of hazardous or toxic substances and regardless of whether the storage
of those substances was in violation of a tenant's lease. Furthermore, the costs
5
<PAGE>
of remediation or removal of those substances may be substantial, and the
presence of hazardous or toxic substances, or the failure to promptly remediate
those substances, may adversely affect the owner's ability to sell the property
or to borrow using the property as collateral. In connection with the ownership
and operation of the Properties, the Company may be potentially liable for such
costs.
The Company has obtained an environmental assessment of each of the
Properties. Based on those assessments, management believes that the Properties
are in compliance in all material respects with all applicable federal, state
and local ordinances and regulations regarding hazardous or toxic substances and
other environmental matters or that, to the extent that a Property is not in
compliance that the Company will not be subject to material liability. In
addition, neither the Company nor, to the knowledge of the Company, any of the
previous owners of the Properties, have been notified by any governmental
authority of any material noncompliance, liability or claim relating to
hazardous or toxic substances or other environmental substances in connection
with any of the Properties. Although the Company has obtained environmental
assessments of the Properties, and although the Company is not aware of any
notifications by any governmental authority of any material noncompliance, it is
possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. See below, "--Disclosure Regarding Forward-Looking
Statements And Cautionary Statements--C. Real Estate Investment Risks--Possible
Environmental Liabilities".
Policies And Objectives With Respect To Certain Activities
- ----------------------------------------------------------
The following is a discussion of the Company's policies with respect to
investment, financing, conflicts of interest and certain other activities. The
policies with respect to these activities have been determined by the Company's
Board Of Directors and, although the Board currently does not contemplate any
changes to these policies, the Board may change these policies without the vote
of stockholders.
Acquisition, Development And Investment Policies. The Company's business
and growth strategies are designed to increase both the Company's cash flow and
the value of the Company and its properties. The Company's policies contemplate
the possibility of each of (i) direct ownership of real estate properties,
including ownership through wholly-owned subsidiaries, focusing on office,
industrial and self-storage properties, (ii) indirect participation in those
types of properties through investments in corporations, business trusts,
general partnerships, limited partnerships, joint ventures and other legal
entities, and (iii) development and acquisition of unimproved property or the
acquisition and conversion of existing structures. At the present time, all the
Company's existing and contemplated investments in real estate properties are
held through direct ownership as described in clause (i). The Company intends to
retain ownership of the Properties and any other acquired properties for the net
operating income that the Properties generate. The Company will sell any of
these Properties when it believes that the economic benefits, including the
income tax consequences, to the stockholders warrant such action. In the case of
the sale of the Self-Storage Facilities and the Giltedge Office Building, there
are special income tax considerations that may influence the Company to refrain
from selling them for 10 years from the date of their purchase. See below,
"--Disclosure Regarding Forward-Looking Statements And Cautionary Statements--B.
Tax Risks".
Although the Company has no formal policy as to the allocation of assets
among its investments, initially the Company will limit its investment in a
single property to a maximum of 25% of the Company's total assets. The Company
expects to fund future development and acquisitions utilizing funds from
additional indebtedness, future offerings of securities of the Company, and
retained cash flow. The Company believes its capital structure is advantageous
because it permits the Company to acquire additional properties by issuing
equity securities in whole or in part as consideration for the acquired
properties. In order to maintain its qualification as a REIT, the Company must
6
<PAGE>
make annual distributions to its stockholders of at least 95% of its REIT
taxable income (which does not include net capital gains). This requirement may
impair the Company's ability to use retained cash flow for future acquisitions.
Financing Policies. The Company intends to make additional investments in
properties and may incur indebtedness to make those investments or to meet the
distribution requirements imposed by the REIT provisions of the Code, to the
extent that cash flow from the Company's operations, investments, and working
capital is insufficient. Additional indebtedness incurred by the Company may be
secured by part or all of the Company's real estate properties ("Secured
Indebtedness"). The Company has no limitation on the number or amount of Secured
Indebtedness or mortgages which may be placed on any one of the Company's
properties.
Secured Indebtedness incurred by the Company may be in the form of purchase
money obligations to the sellers of properties, publicly or privately placed
debt instruments, or financing from banks, institutional investors or other
lenders. This indebtedness may be recourse to all or any part of the assets of
the Company, or may be limited to the particular property to which the
indebtedness relates. The proceeds from any borrowings by the Company may be
used for refinancing existing indebtedness, for financing development and
acquisition of properties, for the payment of dividends and for working capital.
If the Board Of Directors determines to raise additional equity capital,
the Board has the authority, generally without stockholder approval, to issue
additional Common Stock, preferred stock or other capital stock of the Company
in any manner (and on such terms and for such consideration) as it deems
appropriate, including in exchange for property. Existing stockholders have no
preemptive right to purchase shares issued in any offering, and any such
offering might cause a dilution of a stockholder's investment in the Company.
Disclosure Regarding Forward-Looking Statements And Cautionary Statements
- -------------------------------------------------------------------------
Forward-Looking Statements. This Annual Report on Form 10-KSB includes
"forward-looking" statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). All statements other
than statements of historical facts included in this Annual Report, including
without limitation statements under "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND
PROPERTY-- Description Of Properties", "-Competition", "--Environmental Matters"
and "--Policies And Objectives With Respect To Certain Activities", and "ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION", regarding the
Company's financial position, business strategy, and plans and objectives of
management of the Company for future operations and capital expenditures, are
forward-looking statements. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which the
forward-looking statements are based are reasonable, it can give no assurance
that such expectations and assumptions will prove to have been correct.
Additional statements concerning important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed below in the "--Cautionary Statements" section and
elsewhere in this Annual Report. All written and oral forward-looking statements
attributable to the Company or persons acting on its behalf subsequent to the
date of this Annual Report are expressly qualified in their entirety by the
Cautionary Statements.
Cautionary Statements. In addition to the other information contained in
this Annual Report, the following Cautionary Statements should be considered
when evaluating the forward-looking statements contained in this Annual Report:
7
<PAGE>
A. General Risks
-------------
Competition. The commercial real estate industry is highly competitive, and
the Company will be competing with substantially larger companies, including
substantially larger REITs, for the acquisition and operation of properties.
Some of these companies are national or regional operators. The Company's
primary competitors are significantly larger and have far greater resources than
those of the Company. The presence of these competitors may be a significant
impediment to the continuation and development of the Company's business.
Debt And Mortgage Financing. The Company has incurred indebtedness in
connection with the acquisition of the Properties and the Company in the future
may incur new indebtedness in connection with its acquisition and operating
activities. As a result of the Company's use of debt, the Company will be
subject to the risks normally associated with debt financing. The required
payments on mortgages and on other indebtedness are not reduced if the economic
performance of any property declines. If any such decline occurs, the Company's
ability to make debt service payments would be adversely affected. If a property
is mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, that property could be transferred to the mortgagee with a
consequent loss of income and asset value to the Company.
Government Regulation. The Company is subject to government regulation of
its business operations in general, such as environmental and other laws,
including the Americans With Disabilities Act. See above, "--Environmental
Matters", and see below "--C. Real Estate Investment Risks--Possible
Environmental Liabilities" and "--Americans With Disabilities Act". There is no
assurance that subsequent changes in laws and regulations will not affect the
Company's operations.
Dependence On Key Personnel. The Company is highly dependent on the
services of James F. Etter, its President. The loss of Mr. Etter could have a
material adverse affect on the Company.
No Assurance of Dividends. The Company's ability to pay dividends in the
future is dependent on its ability to operate profitably and to generate cash
from its operations. There is no assurance that the Company will be able to pay
dividends on a regular quarterly basis.
B. Tax Risks
---------
Tax Liabilities As A Consequence Of The Failure To Qualify As A REIT. The
Company believes that it has been organized and operated so as to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"); however
no assurance can be given that the Company will qualify or remain qualified as a
REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. There are no controlling authorities that deal
specifically with many tax issues affecting a REIT that operates self-storage
facilities. The determination of various factual matters and circumstances not
entirely within the Company's control may affect its ability to qualify as a
REIT. In addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not have a substantial
adverse effect with respect to the qualification as a REIT or the federal income
tax consequences of such qualification.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to stockholders in
computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which REIT qualification was
8
<PAGE>
lost. As a result, the funds available for distribution to the stockholders
would be reduced for each of the years involved. In addition, failure to qualify
for even one taxable year would result in double taxation and could result in
the Company's incurring substantial indebtedness or liquidating substantial
investments in order to pay the resulting federal income tax liabilities.
Differences in timing between the receipt of income and payment of expenses and
the inclusion of those amounts in arriving at taxable income of the Company
could make it necessary for the Company to borrow in order to make the
distributions to its stockholders that are necessary to satisfy the distribution
requirements applicable to REITs. Although the Company currently intends to
operate in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Board Of
Directors, with the consent of a majority of the stockholders, to revoke the
REIT election.
Distributions to Stockholders. In order to qualify as a REIT, the Company
generally will be required each year to distribute to its stockholders at least
95% of its REIT taxable income (excluding any net capital gains). In addition,
the Company will be subject to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by it with respect to any calendar year
are less than the sum of 85% of its ordinary income plus 95% of its capital gain
net income for that year.
The Company intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income from
operating the Properties. Differences in timing between taxable income and cash
available for distribution could require the Company to borrow funds on a
short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax.
Tax Liability Upon Sale Of Certain Properties Prior to 2006. If the Company
sells the Self-Storage Facilities owned by the Company's Consolidated Storage
Properties, Inc. subsidiary ("CSP") and the Giltedge Office Building owned by
the Company's Giltedge Office Building, Inc. subsidiary ("GBI") less than ten
years after their acquisition, the Company will be required to pay tax at the
highest applicable corporate rates on the difference between their fair market
value and their adjusted bases at the time of the Company's REIT election. The
amount of this tax could be substantial and would be significantly more than if
the Company would be permitted to use its own adjusted basis. There is a risk
that the Company would not have sufficient cash available to pay the additional
taxes resulting from the lower adjusted bases of CSP and GBI. As long as these
tax liabilities apply, the Company currently does not intend to sell these
properties unless the other economic, financial and business consequences of the
sale would offset the tax liabilities and lead the Company to believe it would
be in its best interests to effect such a sale.
C. Real Estate Investment Risks
----------------------------
General Risks. Real estate investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on the
amount of income and capital appreciation generated by the properties held by
the entity in which the investment is made. If the Company acquires properties
and they do not generate sufficient operating cash flow to meet operating
expenses, including debt service, capital expenditures and tenant improvements,
the Company's income and ability to pay dividends to its stockholders will be
adversely affected. Income from properties may be adversely affected by the
general economic climate, local conditions, such as an oversupply of or
reduction in demand for storage facilities and office space, the attractiveness
of properties to tenants, zoning or other regulatory restrictions, competition
from other available storage facilities and office buildings, and the ability of
the Company to provide adequate maintenance and insurance to control operating
costs, including site maintenance, insurance premiums and real estate taxes.
Income from properties and real estate values also are affected by such factors
as applicable laws, including tax laws, interest rate levels and the
availability of financing. See above, "-- Competition".
9
<PAGE>
No Assurance Of Tenants. Although the Properties currently have favorable
occupancy rates, there is no assurance that current tenants will renew their
leases upon the expiration of their terms or that current tenants will not
attempt to terminate their leases prior to the expiration of their current
terms. In such an instance, the Company may not be able to locate a qualified
replacement tenant and, as a result, the Company would lose a source of revenue
while remaining responsible for the payment of the Company's obligations. See
"ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTY - Description Of
Properties".
Illiquidity Of Real Estate May Limit Its Value. Real estate investments are
relatively illiquid. The ability of the Company to vary its portfolio in
response to changes in economic and other conditions will be limited. There can
be no assurance that the Company will be able to dispose of an investment when
it finds disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Company's investment.
Uninsured And Underinsured Losses Could Result In Loss Of Value Of
Properties. The Company maintains comprehensive insurance on each of the
Properties, including liability, fire and extended coverage. Management believes
such coverage is of the type and amount customarily obtained for or by an owner
on real property assets. The Company will obtain similar insurance coverage on
subsequently acquired facilities. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes and floods, that may be
uninsurable or not economically insurable, as to which the Company's facilities
are at risk in their particular locales. The Company's management will use its
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to requiring appropriate insurance on the Company's
investments at a reasonable cost and on suitable terms. This may result in
insurance coverage that in the event of a substantial loss would not be
sufficient to pay the full current market value or current replacement cost of
the Company's lost investment. Inflation, changes in codes and ordinances,
environmental considerations, and other factors also might make it not feasible
to use insurance proceeds to replace a facility after it has been damaged or
destroyed.
Possible Environmental Liabilities. Under various federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances, including, without limitation,
asbestos-containing materials ("ACMs") that are located on or under the
property. These laws often impose liability whether the owner or operator knew
of, or was responsible for, the presence of those substances. In connection with
its proposed ownership and operation of the Properties, the Company may be
liable for such costs. In addition, the presence of hazardous or toxic
substances, or the failure to properly remediate any contamination, may
adversely affect the ability to arrange for financing secured by that real
property.
There are three types of environmental issues at the Broadway Property.
First, a test well near the northeast corner of the Broadway Property indicates
the presence of the contaminants pentachlorophenol and polycyclic aromatic
hydrocarbons in the groundwater below the Broadway Property. In September 1995,
the Company obtained confirmation from the United States Environmental
Protection Agency (the "EPA") that the facts concerning groundwater
contamination under the Broadway Property were within the EPA's Policy of not
pursuing landowners for such contamination. However, even though the requested
confirmation was received, the EPA's Policy expressly states that it is subject
to change and not binding on the EPA, and there can be no assurance that the EPA
would not take enforcement action in the future. In November 1995, the Company
received a letter from the Colorado Department of Health (the "Department")
10
<PAGE>
stating that the Department was of the opinion that no further action is
required to assure that the Broadway Property, when used for the purposes
intended by the Company, is protective of existing and proposed uses and also
stating that the Broadway Property does not appear to pose an unacceptable risk
to human health or the environment at the site. This letter states that the
Department's opinion applies only with respect to the conditions on the Broadway
Property and the standards of the State of Colorado that exist at the time of
the Company's application to the Department. The Department's letter indicates
that it should not be construed to limit the Department's authority to take
actions under existing statutes as necessary should new information come to the
attention of the Department. Second, Phase I Environmental Site Assessments
performed in 1990 and 1995 (the "Assessments") on the Broadway Property indicate
the presence of ACMs in small amounts at the Broadway Property, including
asbestos contained in vinyl floor tiles and mastic adhesive. The Assessments
indicate these materials are in good condition, and the potential for asbestos
fiber hazards is minimal. Third, electric transformers mounted on electric poles
that belong to the Public Service Company of Colorado ("PSC") contain PCBs.
According to PSC, these transformers are contaminated and will be exchanged for
non-PCB transformers. With regard to the Broadway Property, the Company does not
believe it will be subject to material liability but there is no assurance that
this will be true. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND
PROPERTY--Description Of Properties" and "--Environmental Matters".
Americans With Disabilities Act. Under the Americans with Disabilities Act
of 1990 (the "ADA"), all public accommodations are required to meet certain
federal requirements related to physical access and use by disabled persons.
While the Company believes that the Properties comply in all material respects
with these physical requirements (or would be eligible for applicable exemptions
from material requirements because of adaptive assistance provided), a
determination that the Company is not in compliance with the ADA could result in
imposition of fines or an award of damages to private litigants. If the Company
were required to make modifications to comply with the ADA, the Company's
ability to make expected distributions to its stockholders could be adversely
affected; however, management believes that such effect would be minimal.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding (nor is the
Company's property the subject of a pending legal proceeding) that the Company
believes would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. The Company's Common Stock (symbol: AMVP) and Warrants
(symbol: AMVPW) became listed for trading on the Nasdaq SmallCap Stock Market in
the over-the-counter market on November 6, 1996.
The range of high and low sales prices of the Common Stock and Warrants for
each quarterly period during the Company's last two fiscal years, as reported by
the Nasdaq SmallCap market, is as follows:
Common Stock Warrants
------------ --------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
March 31, 1997 4.75 3.00 .75 .25
June 30, 1997 4.5625 3.75 .3125 .25
September 30, 1997 4.9375 4.0625 .28125 .15625
December 31, 1997 5.00 4.25 .34375 .21875
March 31, 1998 4.875 4.313 .313 .125
June 30, 1998 4.938 4.625 .188 .000
September 30, 1998 4.750 3.938 .156 .094
December 31, 1998 4.563 3.813 .094 .094
The closing sales price for the Common Stock on April 5, 1999 as reported
by Nasdaq SmallCap Stock Market was $4.75 per share.
Holders. The number of holders of Common Stock of record on April 5, 1999
was 160. This number does not include stockholders who own Common Stock through
a brokerage firm or other nominee.
Dividends. The Company paid $.1125 per share dividends in each of the first
and second quarters and $.12 per share in the third and fourth quarters in 1998.
The Company also paid a dividend of $.12 per share in the first quarter of 1999,
which, together with the dividends paid in the third and fourth quarters of
1998, represents an annualized rate of $.48 per share.
During 1997, the Company paid four quarterly dividends of $.1125 each,
representing a 1997 total annual dividend of $.45 per share.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in "ITEM 7.
FINANCIAL STATEMENTS". These financial statements present the operations of the
Company prior and subsequent to the consummation of the Company's initial public
offering on October 29, 1996 (the "IPO") (see Note 4 to the financial
statements).
12
<PAGE>
Results Of Operations
- ---------------------
Comparison Of Year Ended December 31, 1998 With Year Ended December 31, 1997
- ----------------------------------------------------------------------------
The Company acquired 15 properties in June, July and August 1998 (the "1998
Acquired Properties"). At December 31, 1998 the Company owned 24 properties.
Revenues increased $1,333,987, or 54%, to $3,816,169 for 1998 as compared to
$2,482,182 for 1997. The increase in revenues was due primarily to the revenues
of the 1998 Acquired Properties being included subsequent to their respective
acquisition dates in the amount of $1,050,000 and the revenues of the 1997
Acquired Properties (defined below) being included for the entire year, which
resulted in an increase of approximately $144,000 for the 1997 Acquired
Properties for the 1998 period that is comparable to the period that was not
included in 1997.
Property operations, real estate taxes, management fees, general and
administrative, interest, depreciation and amortization increased by $396,492,
$150,003, $51,373, $46,987, $350,958 and $181,285, respectively. All of the
increases primarily resulted from inclusion of the expenses attributable to each
of the 1998 Acquired Properties subsequent to their respective acquisition dates
and the 1997 Acquired Properties for a full year, as well as increased overhead
in additional personnel costs as a result of handling more property management
and accounting on an in-house basis rather than paying outside parties to
provide these services. The prepayment penalty and other expenses of $321,178
associated with debt refinancing was incurred in 1998 as part of the refinancing
of the mortgage on the Self-Storage Facilities, which resulted in decreasing the
annual interest rate on the mortgage from 9.9%, to 7.15%. Interest income
decreased in 1998 by $32,665 to $4,113 as compared to $36,778 for 1997 as a
result of the Company's utilizing most of its cash accounts for acquisition
purposes.
As a result of the above factors, the Company had a net loss of $317,406,
or $.21 per share, in 1998 as compared with a net loss of $120,452, or $.09 per
share, in 1997. Of the $317,406 net loss for the year ended December 31, 1998,
$321,178, or $.21 per share, relates to the one-time charge for prepayment
penalty and other expenses associated with the early retirement of the mortgage
described in the previous paragraph.
Comparison Of Year Ended December 31, 1997 With Year Ended December 31, 1996
- ----------------------------------------------------------------------------
In August and September 1997, the Company acquired three properties in
Texas (the "1997 Acquired Properties"). The Company owned a total of nine
properties at December 31, 1997. Revenues increased $1,236,598, or 99%, to
$2,481,182 for 1997 as compared to $1,245,584 for 1996. The increase in revenues
was due primarily to the revenues of the 1997 Acquired Properties of $105,934
being included for five months in 1997 and the revenues of the 1996 Acquired
Properties (defined below) of $1,123,812 being included for the entire year. The
growth in revenues was directly related to the Company's acquisition of
properties subsequent to its IPO.
Property operations, real estate taxes, management fees, general and
administrative, interest expense, and depreciation and amortization all
increased in 1997 to $274,139, $153,815, $68,401, $185,592, $276,815 and
$266,842, respectively. All of the increases primarily resulted from the
inclusion of the expenses attributable to the five properties acquired effective
as of July 1, 1996, for a full year and those attributable to the 1997 Acquired
Properties for five months. As a result of the above factors, the net loss
decreased from $137,728, or $.29 per share, in 1996 to $120,452, or $.09 per
share, in 1997.
13
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At December 31, 1997 the Company had under contract eleven office buildings
to be acquired. Those eleven office buildings were acquired in June and July of
1998. As part of the consideration for the purchase of those office buildings
the Company issued 207,200 shares of its common stock valued for purposes of the
transaction at $5.00 per share, or $1,036,000. The remaining portion of the
purchase was financed through long-term debt.
In August 1998, the Company acquired four bank office buildings through the
assumption of debt of approximately $1,672,000, issuance of 13,500 shares of its
common stock valued for purposes of the transaction at $5.00 per share, or
$67,500, and the remaining portion of $2,094,500 was paid from proceeds received
from the refinancing of other properties in the Company's real estate portfolio.
In 1998, the Company had one mortgage loan mature and two other mortgage
loans were refinanced with the objective of reducing the interest carry on the
existing debt and to obtain additional funds to be used to acquire the Bank
Buildings. The total loans obtained in 1998, other than debt assumed with the
acquisitions, was $9,075,219. The amount of mortgages paid off/refinanced in
1998 was $5,167,085. The net cash received from the refinancing of $3,908,134
was applied to the purchase of the Bank Buildings, to fund capital improvements
and for working capital.
The Company intends to meet its near-term working capital liquidity
requirements through cash flows provided from operations. The Company has a
short-term revolving credit line from Norwest Bank Colorado in the amount of
$300,000. At December 31, 1998 the Company had no outstanding balance on the
line of credit.
Year 2000 Compliance
- --------------------
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to send invoices or
engage in normal business activities or to operate equipment such as elevators,
air conditioning units, and external security systems installed in the Company's
buildings. The Company currently is working with its service contractors to
review the operation of elevators, air conditioners, and other equipment
installed in the Company's buildings to confirm that this equipment is Year 2000
compliant. Although the service contractors have responded with respect to most
of these systems indicating that they are Year 2000 compliant, the review of all
the systems is not yet complete. The Company believes that this review will be
completed prior to June 30, 1999 and that the cost of this review will be
included in the cost of the Company's service contracts for this equipment.
The Company also intends to contact its major tenants to determine their
Year 2000 compliance. Failure of tenants to be Year 2000 compliant may lead to
delays in payment of rent to the Company and lost revenue to the Company. The
Company intends to complete its review of tenant compliance in the second
quarter of 1999.
The Company has purchased a new accounting and tenant service software that
is Year 2000 compliant. The Company would have purchased new software to meet
its needs regardless of potential Year 2000 issues with its prior system. The
Company anticipates installing and receiving training concerning this new
software at an approximate cost of less than $25,000.
14
<PAGE>
Until the Company's Year 2000 review has been completed, the Company has no
estimate of the cost to correct any deficiency in Year 2000 compliance for this
equipment. Upon the completion of the Company's Year 2000 review, the Company
intends to develop a contingency plan to address potential Year 2000 problems.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
AmeriVest Properties Inc. and Subsidiaries
Independent Auditor's Report F-1
Consolidated Balance Sheet as of December 31, 1998 F-2
Consolidated Statements of Operations for the
years ended December 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997 F-5-6
Notes to Consolidated Financial Statements F-7-19
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
AMERIVEST PROPERTIES INC.
We have audited the accompanying consolidated balance sheet of AmeriVest
Properties Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides 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 AmeriVest Properties
Inc. and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Wheeler Wasoff, P.C.
Denver, Colorado
March 15, 1999
F - 1
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
ASSETS
Investment in real estate
Land $ 4,745,754
Buildings and improvements 22,363,656
Furniture, fixtures and equipment 284,993
Tenant improvements 541,058
Less accumulated depreciation and amortization (5,837,264)
------------
Net Investment in Real Estate 22,098,197
Cash and cash equivalents 441,316
Tenant accounts receivable 48,615
Deferred financing costs, net 624,917
Prepaid expenses and other assets 501,889
------------
$ 23,714,934
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage loans and notes payable $ 18,861,599
Accounts payable and accrued expenses 121,327
Accrued interest 108,810
Accrued real estate taxes 558,745
Prepaid rents and security deposits 214,912
Dividends payable 199,052
------------
Total Liabilities 20,064,445
------------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 7)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized - 10,000,000 shares
Issued and outstanding - 1,658,770 shares 1,659
Capital in excess of par value 5,607,725
Distributions in excess of accumulated earnings (1,958,895)
------------
Total Stockholders' Equity 3,650,489
------------
$ 23,714,934
============
The accompanying notes are an integral part of the
consolidated financial statements.
F - 2
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
1997 1998
----------- -----------
REAL ESTATE OPERATING REVENUE
Rental revenue
Commercial properties $ 1,132,849 $ 2,365,629
Storage properties 1,349,333 1,450,540
----------- -----------
2,482,182 3,816,169
----------- -----------
REAL ESTATE OPERATING EXPENSES
Property operating expenses
Operating expenses 559,304 955,796
Real estate taxes 282,860 432,863
Management fees 130,276 181,649
General and administrative 411,236 458,223
Interest 685,429 1,036,387
Expenses associated with debt refinancing -- 321,178
Depreciation and amortization 570,307 751,592
----------- -----------
2,639,412 4,137,688
----------- -----------
OTHER INCOME
Interest income 36,778 4,113
----------- -----------
NET (LOSS) $ (120,452) $ (317,406)
=========== ===========
NET (LOSS) PER COMMON SHARE - Basic and Diluted $ (.09) $ (.21)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - Basic and Diluted 1,397,270 1,538,403
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
Distributions
Common Stock Capital in in Excess of
------------------------- Excess of Accumulated
Shares Amount Par Value Earnings
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 1,382,870 $ 1,383 $ 4,256,101 $ (168,981)
Issuance of common stock for properties 46,200 46 207,854 --
Dividends declared (Note 1) -- -- -- (631,396)
Net (Loss) -- -- -- (120,452)
----------- ----------- ----------- -----------
Balance, December 31, 1997 1,429,070 1,429 4,463,955 (920,829)
Issuance of common stock for properties 229,700 230 1,143,770 --
Dividends declared (Note 1) -- -- -- (720,660)
Net (Loss) -- -- -- (317,406)
-----------
Balance, December 31, 1998 1,658,770 $ 1,659 $ 5,607,725 $(1,958,895)
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (120,452) $ (317,406)
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Depreciation and amortization 570,307 751,592
Write off of unamortized loan fees -- 37,080
Changes in assets and liabilities
(Increase) in receivables (4,611) (13,990)
Decrease (increase) in prepaids 11,588 (464,384)
(Decrease) increase in accounts payable (4,221) 72,781
Increase in accruals 78,276 407,375
Other (1,500) --
----------- -----------
Net cash provided by operating activities 529,387 473,048
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investments in real estate (1,205,179) (2,425,617)
----------- -----------
Net cash (used) by investing activities (1,205,179) (2,425,617)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term borrowing 260,000 1,075,000
Repayment of short term borrowing (110,000) (1,225,000)
Proceeds from refinancing of mortgages -- 3,908,134
Payments on mortgage loans (134,918) (173,799)
Dividends paid (470,596) (682,406)
Payment of deferred financing costs -- (607,378)
----------- -----------
Net cash (used) provided by financing activities (455,514) 2,294,551
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,131,306) 341,982
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,230,640 99,334
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 99,334 $ 441,316
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
</TABLE>
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1997 and 1998, the Company made cash
payments for interest on indebtedness of $686,450 and $963,011 respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1997 the Company issued an aggregate 46,200 shares of its common stock,
valued at $207,900, as partial consideration for the acquisition by a wholly
owned subsidiary of the Company of three commercial properties in Texas (See
Note 2). An additional 9,000 shares of common stock valued at $40,500 were
issued in 1998 as additional consideration in conjunction with the acquisition
of one of the properties.
In 1998 the Company acquired an additional 15 commercial properties in the State
of Texas. The aggregate purchase price of these properties consisted of cash,
debt and 220,700 shares of the Company's common stock (valued at $5 per share),
as follows:
Purchase price $ 11,231,702
Mortgage loans payable and debt assumed (7,864,187)
Common stock issued (1,103,500)
------------
Net cash paid $ 2,264,015
============
In 1998 the Company refinanced certain
mortgage loans as follows:
Mortgage loans obtained $ 9,075,219
Mortgage loans paid off/refinanced (5,167,085)
------------
Net cash received from refinancing $ 3,908,134
============
The accompanying notes are an integral part of the
consolidated financial statements.
F - 6
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AmeriVest Properties Inc. (the Company) was incorporated under the
laws of the State of Delaware on August 25, 1993, and completed an
initial public offering of its common stock in October 1996. Effective
January 1, 1996 the Company commenced operating as a self-administered
and self-managed real estate investment trust ("REIT"). The Company
owns and operates, through its wholly owned subsidiaries, an office
building in Appleton, Wisconsin, 18 commercial office properties in
the State of Texas and four self-storage facilities and an industrial
warehouse in the Denver, Colorado metropolitan area.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated operations of the Company and its wholly owned
subsidiaries, as follows:
AmeriVest Broadway Properties Inc. (ABP)
Consolidated Storage Properties Inc. (CSP)
Giltedge Office Building Inc. (GBI)
AmeriVest Properties Texas Inc. (APT)
AmeriVest Buildings Texas Inc. (ABT)
AmeriVest Properties Odessa Inc. (AOI)
AmeriVest Properties Arvada Inc. (APA)
All significant intercompany accounts and transactions have been
eliminated in consolidation.
INVESTMENT IN REAL ESTATE
Real estate, property, and equipment are stated at cost. Depreciation
and amortization are computed on a straight-line basis over the
estimated useful lives as follows:
Description Estimated Useful Lives
----------- ----------------------
Land Not Depreciated
Buildings 15 to 35 years
Equipment 5 to 7 years
Tenant Improvements Corresponding term of tenant's lease
Maintenance and repairs are expensed as incurred and improvements are
capitalized. The cost of assets sold or retired and the related
accumulated depreciation and/or amortization are removed from the
accounts and the resulting gain or loss is reflected in operations in
the period in which such sale or retirement occurs.
F - 7
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has adopted Statement of Financial Accounting Standard
("SFAS") 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" which requires that
long-lived assets to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The adoption of SFAS 121
has not had an impact on the Company's consolidated financial
statements, as the Company has determined that no impairment loss for
1998 need to be recognized for applicable assets of continuing
operations
REVENUE RECOGNITION
Rental revenue from real estate operations is recognized as earned, on
a monthly basis.
ORGANIZATION COSTS
Costs related to the organization of the Company have been capitalized
and are being amortized over a period of five years.
INCOME TAXES
Effective January 1, 1996 the Company elected to be taxed as a REIT
under Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended (the "Code"). As a REIT, the Company generally would not be
subject to federal income taxation at the corporate level to the
extent it distributes annually at least 95% of its REIT taxable
income, as defined in the Code, to its stockholders and satisfies
certain other requirements. Accordingly, no provision has been made
for federal income taxes in the accompanying consolidated financial
statements.
Certain of the Company's subsidiaries are subject to certain state
excise and franchise taxes. The provision for such state taxes has
been reflected in general and administrative expense in the
consolidated statement of operations and has not been separately
stated due to its insignificance.
For federal income tax purposes, the cash dividend paid to
stockholders may be characterized as ordinary income, return of
capital (generally non-taxable) or capital gains. Dividends for the
year ended December 31, 1997 totaling $631,396 are characterized 100%
as return of capital and includes the dividend declared in the fourth
quarter of 1997 of $160,801 ($.1125 per share) which was paid January
9, 1998. Dividends for the year ended December 31, 1998 totaling
$720,660 are characterized 100% as return of capital and includes the
dividend declared in the fourth quarter of 1998 of $199,052 ($.12 per
share) which was paid January 14, 1999.
SHARE BASED COMPENSATION
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation" was issued. This standard defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing
F - 8
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
related compensation expense by adopting the new fair value method or
to continue to measure compensation using the intrinsic value approach
under Accounting Principles Board (APB) Opinion No. 25. The Company
has elected to utilize APB No. 25 for measurement; and will, pursuant
to SFAS No. 123, disclose supplementally the pro forma effects on net
income and earnings per share of using the new measurement criteria.
During the years ended December 31, 1997 and 1998, the Company issued
options to purchase shares of its common stock (Note 5).
DEFERRED FINANCING COSTS
Deferred financing costs include fees and costs incurred to obtain
long-term financing. These fees and costs are being amortized over the
terms of the respective loans on a basis, which approximates the
interest method. Unamortized deferred financing fees are written-off
when debt is retired before the maturity date. Accumulated
amortization of deferred financing costs was $23,090 at December 31,
1998. In 1998 unamortized deferred financing costs of $37,080 were
charged to operations and are included in the accompanying financial
statements as a component of "Expenses associated with debt
refinancing".
TENANT LEASING COSTS
Fees and costs incurred in the successful negotiation of leases have
been deferred and are being amortized on a straight-line basis over
the terms of the respective leases.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three
months or less at the time of purchase. On occasion, the Company has
cash in banks in excess of federally insured amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
LOSS PER COMMON SHARE
Loss per common share is computed based on the weighted average number
of common shares outstanding during each period. Convertible equity
instruments, consisting of warrants and options, are not considered in
the calculation of net loss per share, as their inclusion would be
antidilutive.
F - 9
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1997 SFAS No. 128, "Earnings Per Share" was issued
effective for periods ending after December 15, 1997. There is no
impact on the Company's financial statements from adoption of SFAS No.
128.
NEW TECHNICAL PRONOUNCEMENTS
In February 1998 SFAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits", was issued effective for fiscal
years beginning after December 15, 1997, with earlier application
encouraged. The Company has adopted SFAS No. 132 effective with the
fiscal year ending December 31, 1998. Adoption of SFAS No. 132 has not
had any impact on the Company's financial statements.
In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued for fiscal years beginning after June
15, 1999. Adoption of SFAS No. 133 is not expected to have a material
impact on the Company's financial statements.
In October 1998 SFAS No. 134, "Accounting for Mortgage Broker
Securities", was issued. SFAS No. 134 is not expected to have an
impact on the Company's financial statements.
NOTE 2 - INVESTMENTS IN REAL ESTATE
Effective August 1, 1997 the Company, through its wholly owned
subsidiary, APT, acquired three real estate properties in Texas. The
properties were acquired for an aggregate $1,149,700 and an aggregate
46,200 shares of common stock, under separate purchase contracts.
Pursuant to the purchase agreements and related subscription
agreements executed by the seller, the seller will be issued
additional shares of common stock if either (a) the average last sales
price of the Company's common stock is not $4.50 per share or higher
during the 60 days immediately preceding the first anniversary of the
closing date or (b) the last sale price of common stock is not $4.50
higher on the 15 consecutive business days immediately preceding the
first anniversary of the closing date of the properties. The
additional shares to be issued would have been based on the difference
between the amounts as calculated in (a) or (b) above and $4.50 per
share. Accordingly, the shares issued were valued at $4.50 per share.
As the trading price of the Company's common stock exceeded $4.50 per
share on the anniversary date, no additional shares were required to
be issued in 1998 in accordance with the agreement. In 1998 an
additional 9,000 shares of common stock, valued at $4.50 per share,
were issued in conjunction with the acquisition of one of the
properties due to the benefit of additional office space being leased
by an existing tenant. These shares were issued pursuant to the
original purchase agreement.
In 1998 the Company, through APT and AOI, acquired eleven office
buildings in Texas under separate purchase contracts. The primary
tenants of each of these buildings are government agencies of the
State of Texas. The aggregate purchase price for the eleven properties
is $7,340,800, comprised of 207,200 shares of common stock, valued at
F - 10
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENTS IN REAL ESTATE (CONTINUED)
$5.00 per share, a promissory note to one of the sellers in the amount
of $192,000 and $6,112,800 cash, of which $6,000,000 was financed by a
first mortgage on the properties. Pursuant to the purchase agreements
and related subscription agreements executed by the seller, the seller
will be issued additional shares of common stock if either (a) the
average last sales price of the Company's common stock is not $5.00
per share or higher during the 60 days immediately preceding the first
anniversary of the closing date or (b) the last sales price of common
stock is not $5.00 higher on the 15 consecutive business days
immediately preceding the first anniversary of the closing date of the
properties. The additional shares to be issued will be based on the
difference between the amounts as calculated in (a) or (b) above and
$5.00 per share. Accordingly, the shares issued were valued at $5.00
per share.
In 1998 the Company, through ABT, acquired four office buildings in
Texas whose primary tenants are branch offices of a commercial bank.
The aggregate purchase price for the four properties, which were
acquired under one purchase contract, was $3,625,000. In conjunction
with the purchase the Company issued 13,500 shares of its common
stock, valued at $5.00 per share, as part of the sales commission on
the properties.
Depreciation expense related to investment in real estate was $544,400
and $718,993 for the years ended December 31, 1997 and 1998,
respectively.
NOTE 3 - MORTGAGES AND NOTES PAYABLE
Mortgages payable are collateralized by substantially all properties
and require monthly principal and interest payments. Following is a
summary of the Company's mortgages and notes payable at December 31,
1998:
Mortgage payable to Commercial Federal
Mortgage Corp. Interest at 7.625%,
due in monthly installments of
$10,273 based on a 25 year
amortization through January 1,
2014, at which time a balloon
payment of $872,793 is due.
Collateralized by the industrial
warehouse property in Denver,
Colorado. $1,375,000
Mortgage payable to Fox Cities Bank.
Interest at 7.75%, due in monthly
installments of $22,295 based on a
30 year amortization through June
1, 2008 at which time a balloon
payment of $2,797,181 is due.
Collateralized by an office
building in Appleton, Wisconsin. 3,186,228
Mortgage payable to GMAC. Interest at
7.15%, due in monthly installments
of $39,401 based on a 25 year
amortization through September 1,
2008, at which time a balloon
payment of $4,358,574 is due.
Collateralized by three
self-storage facilities in Denver,
Colorado. 5,481,089
F - 11
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MORTGAGES AND NOTES PAYABLE (CONTINUED)
Mortgage payable to 1st National Bank of
Arvada. Interest at prime interest
rate (8% as of December 31, 1998),
due in monthly installments of
$8,678, based on a 20 year
amortization, through September 14,
2003 at which time a balloon
payment of $852,197 is due.
Collateralized by the
self-storage/office building
property in Arvada, Colorado 990,927
Mortgage payable to BankOne Mortgage.
Interest at 7.66%, due in monthly
installments of $42,612 through
July 1, 2028. Collateralized by 13
office buildings in the State of
Texas. 5,982,558
Mortgage payable to Jefferson Pilot.
Interest at 9.0%, due in monthly
installments of $17,095, through
May 1, 2013. Collateralized by four
office buildings in the State of
Texas 1,653,797
Note Payable to Arlington Building
Partnership. Interest at 8.5%,
monthly payments of interest only,
principal balance due June 15,
2000. 192,000
-----------
$18,861,599
===========
As of December 31, 1998, the scheduled maturities of mortgages is as
follows:
1999 $ 270,243
2000 294,458
2001 318,386
2002 344,272
2003 1,211,422
Thereafter 16,422,818
-----------
$18,861,599
===========
At December 31, 1998 there were no advances outstanding under the
Company's $250,000 line of credit. The average interest rate at the
year ended December 31, 1998 was 8.75%. In January 1999, the Company
renewed its revolving line of credit facility with Norwest Bank
Colorado, N.A. The $300,000 note is secured by a second mortgage on
the Company's Arvada self storage facility, with interest payable
monthly at Norwest prime interest rate plus 1%. The note matures in
May 2000.
F - 12
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCKHOLDERS' EQUITY
COMMON STOCK
In 1997 the Company issued an aggregate 46,200 shares of its common
stock as partial consideration for the acquisition of three commercial
properties in Texas.
In 1998 the Company issued shares of its common stock as partial
consideration for the acquisition of commercial properties in the
State of Texas as follows:
* 9,000 shares valued at $40,500 ($4.50 per share) as additional
consideration for one property acquired in 1997.
* 7,300 shares valued at $36,500 ($5.00 per share) as partial
consideration for an office building in Odessa, Texas.
* 199,900 shares valued at $999,500 ($5.00 per share) as partial
consideration for ten office buildings in the State of Texas.
* 13,500 shares valued at $67,500 ($5.00 per share) for partial
consideration for a sales commission on the acquisition of four
bank buildings in the State of Texas.
WARRANTS
At December 31, 1998 the status of outstanding warrants is as follows:
Issue Shares Exercise Expiration
Date Exercisable Price Date
------------- ----------- -------- --------------
June, 1996 1,500,000 $5.40 November, 2000
October, 1996 549,435 $5.40 November, 2000
October, 1996 164,831 $8.25 November, 2000
At December 31, 1998 the per share weighted average exercise price of
outstanding warrants is $5.61.
F - 13
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTION PLAN
In March 1998, the Board of Directors approved the 1998 Stock Option
Plan (the "1998 Option Plan"). Pursuant to the Option Plan, the
Company may grant options to purchase an aggregate of 200,000 shares
of the Company's common stock to key employees, directors, and other
persons who have or are contributing to the success of the Company.
The options granted pursuant to the Option Plan may be either
incentive options qualifying for beneficial tax treatment for the
recipient or non-qualified options. Directors who are not also
employees of the Company ("Outside Directors") automatically receive
options to purchase 12,000 shares pursuant to the Option Plan at the
time of their election as an Outside Director. None of these options
are exercisable at the time of grant. Options to purchase 4,000 shares
become exercisable for each Outside Director on December 30 of each of
the first three years immediately following the date of grant of the
options to that Outside Director. The exercise price for options
granted to Outside Directors is the fair market value of the common
stock on the date of grant, and all options granted to Outside
Directors expire five years from the date of grant. On the date that
all of an Outside Director's options have expired, options to purchase
an additional 12,000 shares, none of which is exercisable at that
time, shall be granted to that Outside Director. The 1998 option plan
was adopted as the Company had issued substantially all options
available pursuant to the 1995 Stock Option Plan.
The status of outstanding options granted pursuant to the Company's
Stock Option Plans was as follows:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted
of Exercise Average Exercise
Shares Price Fair Value Price
------ ----- ---------- -----
<S> <C> <C> <C> <C>
Options Outstanding - January 1, 1997 66,000 $5.00 $5.00
(34,000 exercisable)
Granted 56,000 $4.44 $.43 $4.44
--------
Options Outstanding - December 31, 1997 122,000 $4.74 $4.44 - 5.00
(57,000 exercisable)
Granted 15,000 $3.97 $.24 $3.97
--------
Options Outstanding - December 31, 1998 137,000 $4.66 $3.97 - 5.00
=======
(83,750 exercisable)
</TABLE>
The weighted average contractual life of options outstanding at
December 31, 1998 was 5 years.
F - 14
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTION PLAN (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No.
123. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date consistent with
the provisions of SFAS No. 123, the Company's net loss and loss per
share for the years ended December 31, 1997 and 1998 would have been
increased to the pro forma amounts indicated below:
1997 1998
---- ----
Net (loss) applicable to common
stockholders - as reported $(120,452) $(317,406)
========= =========
Net (loss) applicable to common
stockholders - pro forma $(122,741) $(325,741)
========= =========
(Loss) per share - as reported $ (.09) $ (.21)
========= =========
(Loss) per share - pro forma $ (.09) $ (.21)
========= =========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants: dividend yield of 9.5%
to 10.41%; expected volatility of 21.5% to 25.52%; discount rate of
5.32% to 5.50%; and expected lives of 5 years.
At December 31, 1998 the number of options exercisable was 83,750, the
weighted average exercise price of these options was $4.81, the
weighted average contractual life of the options was 5 years and the
range of exercise prices was $3.97 to $5.00 per share.
NOTE 6 - LEASE AGREEMENTS
The following table summarizes future minimum base rent to be received
under noncancelable tenant leases for the Company's commercial
properties expiring each year, as of December 31, 1998:
1999 $ 3,510,655
2000 3,182,725
2001 2,873,325
2002 2,594,595
2003 2,062,775
Thereafter 9,646,870
-----------
$23,870,945
===========
Some leases also provide for additional rent based on increases in
operating expenses. These increases are generally payable annually in
the succeeding year. The Company's self-storage facilities are
generally leased on a month to month basis, and are therefore not
included in the above table.
F - 15
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - FINANCIAL INSTRUMENTS
FAIR VALUE
The Company's financial instruments include tenant accounts
receivable, accounts payable, other accrued expenses and mortgage
loans and notes payable. The fair values of these financial
instruments were not materially different from their carrying or
contract values.
CONCENTRATIONS OF CREDIT RISK
The Company leases office and warehouse facilities to commercial
businesses in Colorado and Wisconsin, and State of Texas governmental
agencies bank buildings in Texas. The terms of the leases generally
require basic rent payments at the beginning of each month. Credit
risk associated with the lease agreements is limited to the amount of
rents receivable from tenants less any related security deposits.
Leases with the State of Texas governmental agencies may be canceled
by the lessee should funding for the specific government agency on a
complete agency basis be decreased or discontinued. The Company's
self-storage facilities are generally leased on a monthly basis.
Credit risk associated with these leases is limited to the amounts of
rents receivable.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents. The Company maintains cash accounts at two financial
institutions. The Company periodically evaluates the credit worthiness
of these financial institutions, and maintains cash accounts only in
large high quality financial institutions, thereby minimizing exposure
for deposits in excess of federally insured amounts. On occasion, cash
on deposit may exceed federally insured amounts.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company's Colorado and Wisconsin properties were managed through
December 1998, under a management agreement, by an entity whose former
beneficial majority shareholder was a founder of the Company. The
entity managed all aspects of Colorado and Wisconsin property
operations, including leasing and bookkeeping. For these services, the
Company was charged a fee of 5% of gross revenues plus 5% of all
personnel costs. In addition, the entity provided bookkeeping services
for the Company's Texas properties, and was paid a fee at the rate of
2% of gross revenues from these properties. During the years ended
December 31, 1997 and 1998, $141,136 and $150,520, respectively, were
incurred under the management agreement and for other administrative
services.
NOTE 9 - COMPREHENSIVE INCOME
There are no adjustments necessary to net (loss) as presented in the
accompanying consolidated statements of operations to derive
comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income".
F - 16
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SEGMENT REPORTING
In June 1997, SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" was issued, which amends the
requirements for a public enterprise to report financial and
descriptive information about its reportable operating segments.
Operating segments, as defined in the pronouncement, are components of
an enterprise about which separate financial information is available
that is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is
required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources
to segments. The Company has adopted SFAS No. 131 for the year ended
December 31, 1998.
The Company has reportable segments organized by the region in which
they operate as follows: Wisconsin, Colorado and Texas. Reportable
segments for Texas are further classified by major tenants.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based upon income from real estate from
the combined properties in each segment.
F - 17
<PAGE>
<TABLE>
<CAPTION>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEXAS
-------------------------
Leased Bank
1998 Wisconsin to State Buildings Colorado Corporate Consolidated
- ---- --------- -------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Rental income $ 778,929 $ 1,003,330 $ 339,518 $ 1,694,392 -- $ 3,816,169
Operating expenses 398,119 483,560 160,007 528,622 -- 1,570,308
Depreciation and
amortization (1) 115,698 159,497 42,107 433,653 637 751,592
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
property operations
265,112 360,273 137,404 732,117 (637) 1,494,269
Percent of income from
property operations 17.7% 24.1% 9.2% 49.0% -- 100.0%
Interest income -- -- -- -- 4,113 4,113
Expenses associated with
Debt refinancing -- -- -- 321,178 -- 321,178
Interest expense 208,099 223,613 54,869 529,115 20,691 1,036,387
General and administrative 3,250 1,215 1,087 15,680 436,991 458,223
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 53,763 $ 135,445 $ 81,448 ($ 133,856) ($ 454,206) ($ 317,406)
============ ============ ============ ============ ============ ============
Real estate investments,
net (1) $ 2,547,164 $ 8,618,972 $ 3,803,867 $ 7,101,843 $ 26,351 $ 22,098,197
============ ============ ============ ============ ============ ============
Additions to real estate
investments $ 75,825 $ 7,428,072 $ 3,845,974 $ 60,315 $ 25,528 $ 11,435,714
============ ============ ============ ============ ============ ============
Total Assets $ 2,631,151 $ 9,175,714 $ 3,831,337 $ 7,600,446 $ 476,246 $ 23,714,934
============ ============ ============ ============ ============ ============
1997
Rental income $ 782,000 $ 105,934 -- $ 1,594,248 -- $ 2,482,182
Operating expenses 354,935 54,503 -- 556,901 -- 966,339
Depreciation and amortization (1) 126,550 14,137 -- 429,399 221 570,307
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from property
operations 300,515 37,294 -- 607,948 (221) 945,536
Percent of income from property
operations 20.1% 2.5% -- 40.7% -- 63.3%
Interest income -- -- -- -- 36,778 36,778
Interest expense 172,325 -- -- 508,208 4,896 685,429
General and administrative 11,927 22,955 -- 7,595 374,860 417,337
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 116,263 $ 14,339 -- $ 92,145 ($ 343,199) ($ 120,452)
============ ============ ============ ============ ============ ============
Real estate investments, net (1) $ 2,581,599 $ 1,345,893 -- $ 7,454,474 $ 1,420 $ 11,383,386
============ ============ ============ ============ ============ ============
Additions to real estate
investments $ 5,458 $ 1,359,880 -- $ 46,191 $ 1,550 $ 1,413,079
============ ============ ============ ============ ============ ============
Total assets $ 2,669,888 $ 1,352,245 -- $ 7,557,151 $ 62,784 $ 11,642,068
============ ============ ============ ============ ============ ============
F - 18
</TABLE>
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SEGMENT REPORTING (CONTINUED)
(1) Real estate investments and related depreciation and amortization
includes office equipment for corporate segment.
MAJOR CUSTOMERS
Rental income from one tenant, the State of Texas, of approximately
$1,000,000 comprised approximately 26% of consolidated revenues for
the year ended December 31, 1998. Revenues from this tenant are
enclosed in the segment "Texas - Leased to State". For the year ended
December 31, 1997, no tenant comprised 10% or greater of total
consolidated revenues.
NOTE 11 - RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been
reclassified to conform to 1998 classifications.
F - 19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
17
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors And Executive Officers
- --------------------------------
The officers and directors of the Company are as follows:
Name Age Positions
- ---- --- ---------
James F. Etter 56 President; Chief Executive Officer;
Chief Financial Officer; and Director
Charles R. Hoffman 62 Chairman Of The Board
John A. Labate 50 Director
Robert J. McFann 82 Director; and Secretary
James F. Etter has served as President of AmeriVest since May 1995, as a
director since December 1995, as Chief Executive Officer since January 1997, and
as Chief Financial Officer since July 1996. From 1994 until he joined the
Company, Mr. Etter acted as a consultant with respect to acquisitions. Mr. Etter
served as President and Chief Executive Officer of Recycling Management Company
from 1990 until 1994. From 1988 until 1990, Mr. Etter acted as a real estate
consultant for real estate development/resort projects in South Carolina. Mr.
Etter received his Masters of Business Administration and his Bachelors of
Business Administration degrees from the University of Cincinnati.
Charles R. Hoffman has served as a director of AmeriVest since August 1994
and as Chairman of the Board since May 1995. Mr. Hoffman has served as a member
of the Audit Committee of the Board Of Directors since July 1995. In July 1994,
Mr. Hoffman retired as President of Texaco Pipeline Inc. In that capacity he had
executive responsibility for more than 1,200 employees and over 2,900 miles of
pipeline. He also has experience in the crude oil terminal and transportation
business with companies such as Getty Pipeline, Inc., Getty Trading And
Transportation Company, and Skelly Pipe Line, Inc. He has served on the boards
of directors of a number of pipeline systems and as president of two pipeline
systems. Mr. Hoffman received his Bachelor of Science and Masters of
Science/Civil Engineering degrees from the Missouri School Of Mines And
Metallurgy.
John A. Labate has served as a director of AmeriVest since May 1995. Mr.
Labate has served as a member of each of the Audit Committee and of the
Acquisition Committee of the Board Of Directors since July 1995. Mr. Labate has
served as Vice President and Chief Financial Officer of GeoBiotics, Inc. since
August 1997, a Denver based mining technology company. From 1992 to 1997 Mr.
Labate served as the Chief Financial Officer, Secretary, and Treasurer of Crown
Resources Corporation, a publicly traded, Denver, Colorado based international
gold mining and exploration company. From 1987 through 1991, Mr. Labate served
as Corporate Controller of Bond International Gold, Inc., a New York Stock
Exchange listed international mining and processing company based in Denver,
Colorado. Prior to 1987, Mr. Labate served as controller and manager of other
mining companies and equipment manufacturing companies. Mr. Labate received his
Bachelor of Science degree in accounting from San Diego State University.
Robert J. McFann has served as a director of AmeriVest since August 1994
and as Secretary since May 1995. Mr. McFann has served as a member of the
Acquisition Committee of the Board Of Directors since July 1995. Mr. McFann has
been retired since 1996. He previously was the principal owner and President of
Hy Grade Meat Company, a private company which grew to a mid-sized hotel and
18
<PAGE>
restaurant supply house under his direction. Prior to this, he worked for Cudahy
Meat Company in its sales department as well as other positions. He has served
on the Board Of Directors of the Bank Of Aurora and for several years managed a
diverse family owned investment portfolio of commercial real estate, family
owned businesses and other investments.
Committees
- ----------
The Board Of Directors maintains an Audit Committee and an Acquisition
Committee. The Audit Committee was formed to perform the following functions:
recommend to the Board Of Directors the independent auditors to be employed;
discuss the scope of the independent auditors' examination; review the financial
statements and the independent auditors' report; solicit recommendations from
the independent auditors regarding internal controls and other matters; review
all related party transactions for potential conflicts of interest; make
recommendations to the Board Of Directors; and perform other related tasks as
requested by the Board. The Acquisitions Committee was formed to perform the
following functions: recommend to the Board Of Directors an acquisitions policy
and strategy; review and update the acquisitions policy and strategy
periodically; review proposed acquisitions and make recommendations to the Board
concerning those acquisitions; review past acquisitions and make recommendations
to the Board; and perform other related tasks as requested by the Board. The
current members of the Audit Committee are Messrs. Hoffman and Labate, and the
current members of the Acquisition Committee are Messrs. Labate and McFann.
Classification Of The Board Of Directors
- ----------------------------------------
The Board Of Directors of the Company is divided into three classes,
designated Class 1, Class 2 and Class 3. Directors from each class are elected
once every three years for a three-year term. John Labate and James Etter serve
as the Class 1 directors, Charles Hoffman serves as the Class 2 director, and
Robert McFann serves as the Class 3 director.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities And Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the year ended December 31, 1998, its officers,
directors and holders of more than 10% of the Company's common stock complied
with all Section 16(a) filing requirements. In making these statements, the
Company has relied upon the written representations of its directors and
officers and the Company's review of the monthly statements of changes filed
with the Company by its officers and directors.
19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the Company's
President. No other employee of the Company received total salary and bonus
exceeding $100,000 during any of the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
- ----------------------------------------------------------------------------------------------------------------------
Fiscal Long-Term
Name and Year Compensation Other Annual
Principal Position Ended Salary ($)(1) Bonus ($) Options Compensation ($)
- ------------------ ----- ------------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
James F. Etter, President 1998 $115,000 $20,000 10,000 $15,000 (2)
1997 $100,000 $15,000 20,000 $9,000 (3)
1996 $90,000 $5,000 10,000 $6,000 (4)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) The dollar value of base salary (cash and non-cash) received.
(2) Consists of $12,000 to reimburse for medical and life insurance coverage
and a $3,000 contribution to SIMPLE IRA Plan.
(3) Consists of $6,000 to reimburse for medical insurance coverage and a $3,000
contribution to SIMPLE IRA Plan.
(4) Reimbursement for medical insurance coverage.
Option Grants Table
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended December 31, 1998 to the
Company's President. See "- Employment Contracts And Termination Of Employment
And Change-In-Control Arrangements - 1995 Stock Option Plan", "- 1998 Stock
Option Plan", and "- Option Grants", below.
<TABLE>
<CAPTION>
Option Grants For Fiscal Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------
% of Total Options
Options Granted to Employees Exercise or Base Expiration
Name Granted (#) in Fiscal Year Price ($/Share) Date
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James F. Etter, President 10,000 47% $3.969/Share 12/10/03
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Option Exercises And Fiscal Year-End Option Value Table
The following table indicates that there were no exercises of stock options
during the fiscal year ended December 31, 1998 by the Company's President, and
also sets forth information concerning the fiscal year-end value of unexercised
options held by the President.
20
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises
For Fiscal Year Ended December 31, 1998
And Year-End Option Values
- -------------------------------------------------------------------------------------------------------------------------
Number of Value of
Unexercised Unexercised
Options In-The-Money
at Fiscal Options at Fiscal
Year-End (#)(3) Year-End ($)(4)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#)(1) Realized ($)(2) unexercisable unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James F. Etter, President -0- -0- 34,500/25,500 $75/$225 (5)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
(1) The number of shares received upon exercise of options during the fiscal
year ended December 31, 1998.
(2) With respect to options exercised during the Company's fiscal year ended
December 31, 1998, the dollar value of the difference between the option
price and the market value of the option shares purchased on the date of
the exercise of the options.
(3) The total number of unexercised options held as of December 31, 1998
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of December 31, 1998, the aggregate
dollar value of the excess is the market value of the stock underlying
those options over the exercise price of those unexercised options. For
purposes of this table, the market value used for the Common Stock is its
closing sales price on December 31, 1998 of $4.00 per share as reported on
the Nasdaq SmallCap Stock Market.
(5) The amounts shown are for options to purchase shares for $3.969 per share,
2,500 of which were exercisable and 7,500 of which were unexercisable at
December 31, 1998. Mr. Etter's other options have exercise prices of $5.00
and $4.4375 per share, which are greater than the closing sales price of
$4.00 for the Common Stock on December 31, 1998 as reported on the Nasdaq
SmallCap Stock Market. These options therefore were not "in-the-money", did
not have any value on December 31, 1998, and are not reflected in this
column.
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
Employment Agreement With James F. Etter. The Company entered into an
employment agreement (the "Etter Agreement") with James F. Etter effective as of
January 1, 1998, which replaced a previous agreement between the parties
effective as of January 1, 1996. Pursuant to the Etter Agreement, Mr. Etter will
serve as the President and Chief Executive Officer of the Company and will
devote substantially all his business time to the Company. For the 1998 fiscal
year, the Etter Agreement provided for the payment of salary at the rate of
$9,583 per month and a bonus to be determined by the Board Of Directors at year
end. The Etter Agreement also provides that the Company will reimburse Mr. Etter
for up to $12,000 annually for medical/insurance expenses paid by Mr. Etter.
21
<PAGE>
Pursuant to the Etter Agreement, for the 1999 fiscal year, Mr. Etter's
salary was increased to $10,062.50 per month and the Company agreed to consider
paying Mr. Etter a bonus at the end of each year of the Etter Agreement, which
bonus will be at the discretion of the Board and will be based on criteria
determined by the Board. On December 9, 1998, the Board also granted to Mr.
Etter a bonus of $20,000 for 1998 and options to purchase 10,000 shares of
Common Stock. See below, "--Option Grants".
If the Company is acquired by another company, and if the acquiring company
does not offer Mr. Etter a position in the Denver area at a salary level equal
to or greater than his then current salary, then all unexercised stock options
held by Mr. Etter would immediately become exercisable, and the Company would
pay Mr. Etter a bonus equal to one year's salary.
1995 Stock Option Plan. Pursuant to the Company's 1995 Stock Option Plan
(the "1995 Plan"), the Company may grant options to purchase an aggregate of
130,000 shares of the Company's Common Stock to key employees, directors, and
other persons who have contributed or are contributing to the success of the
Company. The options granted pursuant to the 1995 Plan may be incentive options
qualifying for beneficial tax treatment for the recipient or they may be
non-qualified options. With respect to options granted to persons other than
directors of the Company who are not also employees of the Company, the 1995
Plan is administered by an option committee that determines the terms of the
options subject to the requirements of the 1995 Plan. In May 1995, directors of
the Company who are not also employees of the Company ("Outside Directors") were
granted an aggregate of 48,000 options with an exercise price of $5.00 per share
pursuant to the 1995 Plan, 12,000 of which subsequently expired without being
exercised. In December 1997, the Outside Directors were granted an aggregate of
36,000 options with an exercise price of $4.4375 per share pursuant to the 1995
Plan. At December 31, 1998 options to purchase an aggregate of 122,000 shares of
Common Stock were outstanding under the 1995 Plan. The option committee may
grant additional options to purchase 8,000 shares pursuant to that plan.
1998 Stock Option Plan. Pursuant to the Company's 1998 Stock Option Plan
(the "1998 Plan"), the Company may grant options to purchase an aggregate of
200,000 shares of Common Stock to key employees, directors, and other persons
who have or are contributing to the success of the Company. The options granted
pursuant to the 1998 Plan may be either incentive options qualifying for
beneficial tax treatment for the recipient, non-qualified options or
non-qualified non-discretionary options. The terms of the 1998 Plan concerning
incentive options and non-qualified options are substantially the same except
that only employees of the Company or its subsidiaries are eligible for
incentive options and employees and other persons who have contributed or are
contributing to the success of the Company are eligible for non-qualified
options. Non-qualified non-discretionary options may be granted only to Outside
Directors who are contributing to the success of the Company. With respect to
options granted to persons other than directors of the Company who are not also
employees of the Company, the 1998 Plan also is administered by an option
committee that determines the terms of the options subject to the requirements
of the 1998 Plan. The portion of the 1998 Plan concerning non-qualified
non-discretionary options provides that Outside Directors automatically receive
options to purchase 12,000 shares pursuant to the 1998 Plan at the time of their
initial election as an Outside Director. The Options held by Outside Directors
are not exercisable at the time of grant, but Options to purchase 4,000 shares
become exercisable for each Outside Director on December 30 of each of the first
three years immediately following the date of grant of these options to the
Outside Director. The exercise price for the non-qualified non-discretionary
options is the fair market value of the Company's Common Stock on the date these
options are granted. Shares acquired upon exercise of these options cannot be
sold for six months following the date of grant. If not previously exercised,
22
<PAGE>
non-qualified non-discretionary options that have been granted expire upon the
later to occur of five years after the date of grant and two years after the
date these options first became exercisable. The non-qualified non-discretionary
options also expire 90 days after the optionholder ceases to be a director of
the Company. At any time all of an Outside Director's options have become
exercisable, non-qualified non- discretionary options to purchase an additional
12,000 shares, which are not exercisable at the time of grant, shall be granted
to that Outside Director.
All options granted under the 1998 Plan will become fully exercisable upon
the occurrence of a change in control of the Company or of certain mergers or
other reorganizations or asset sales described in the 1998 Plan. Options granted
pursuant to the 1998 Plan are not transferable during the optionee's lifetime.
Subject to the other terms of the 1998 Plan, the option committee has discretion
to provide vesting requirements and specific expiration provisions with respect
to the incentive options and non-qualified options granted. At December 31,
1998, options to purchase 15,000 shares of Common Stock were outstanding under
the 1998 Plan and options to purchase 185,000 were available to be granted
pursuant to that plan.
Compensation Of Outside Directors
Outside Directors are paid $250 per month plus $300 for each meeting of the
Board Of Directors that they attend. Directors also will be reimbursed for
expenses incurred in attending meetings and for other expenses incurred on
behalf of the Company. In addition, each director who is not an employee
automatically receives options to purchase shares of Common Stock. See above, "-
1995 Stock Option Plan" and "- 1998 Stock Option Plan".
Option Grants. In addition to the automatic grants of options to Outside
Directors, stock options have been granted pursuant to the Company's 1995 Plan
and 1998 Plan on four occasions. In May 1995, the Company granted to Mr. Etter
options to acquire up to 20,000 shares of the Company's Common Stock at an
exercise price of $5 per share. 4,000 of these options became exercisable on
each of December 30, 1995, 1996, 1997 and 1998, an additional 4,000 of these
options will become exercisable on December 30, 1999, and all of these options
expire on May 20, 2000. On December 9, 1996, the Company granted to Mr. Etter
options to purchase up to an additional 10,000 shares of Common Stock at an
exercise price of $5 per share. On that date, the last sales price for the
Company's Common Stock on the Nasdaq SmallCap Stock Market was $4.50. 2,000 of
these options became exercisable on each of December 30, 1996, 1997 and 1998, an
additional 2,000 of these options will become exercisable on each of December
30, 1999 and 2000, and all of these options expire on December 9, 2001. On
December 8, 1997, the Company granted to Mr. Etter options to purchase up to an
additional 20,000 shares of Common Stock at an exercise price equal to the last
sales price for the Company's Common Stock on the Nasdaq SmallCap Stock Market
on December 30, 1997, which was $4.4375 per share. 5,000 of these options became
exercisable on each of December 30, 1997 and 1998, an additional 5,000 of
options will become exercisable on each of December 30, 1999 and 2000, and all
of these options expire on December 8, 2002. On December 9, 1998, the Company
granted to Mr. Etter options to purchase up to an additional 10,000 shares of
Common Stock at an exercise price equal to the last sales price for the
Company's Common Stock on the Nasdaq SmallCap Stock Market on December 9, 1998,
which was $3.969 per share. 2,500 of these options became exercisable on
December 9, 1998, an additional 2,500 of options will become exercisable on each
of December 31, 1999, 2000 and 2001, and all of these options expire on December
10, 2003.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information as of April 5, 1999 with
respect to the beneficial ownership of the Company's common stock (i) by the
Company's directors, (ii) by stockholders known by the Company to own 5% or more
23
<PAGE>
of the Company's Common Stock, and (iii) by all officers and directors as a
group.
As Of April 5, 1999
-----------------------------------------
Percentage Of Class
Name And Address Of Beneficial Owner Number Of Shares Beneficially Owned
- ------------------------------------ ---------------- ------------------
Charles R. Hoffman 70,500(1) 4.2%
208 Somerset
Bentonville, Arkansas 72712
John A. Labate 15,000(1) *
5260 South Beeler Court
Englewood, Colorado 80111
Robert J. McFann 67,800(1) 4.1%
3260 Zephyr Court
Wheat Ridge, Colorado 80033
James F. Etter 60,939(2) 3.6%
2801 Youngfield Street
Suite 300
Golden, Colorado 80401
All Officers And Directors As
A Group (Four Persons) 214,239 12.2%
Maxine G. Hedlund 84,985(3) 5.1%
7100 Grandview Ave., Suite 1
Arvada, Colorado 80002
- ---------------
* Less than one percent.
(1) Includes the following numbers of shares underlying options to purchase
shares of Common Stock that currently are exercisable that were granted to
each Outside Director pursuant to the Company's 1995 and 1998 Stock Option
Plans: Charles Hoffman, 15,000; John Labate, 15,000; and Robert McFann,
15,000. The number of shares indicated also includes the following numbers
of shares underlying common stock purchase warrants ("Warrants") that
currently are exercisable that are held by each of the following persons:
Charles Hoffman, 8,000; and Robert J. McFann, 4,000.
(2) Consists of an aggregate of 20,939 shares of Common Stock owned by Mr.
Etter, his wife, and minor daughter, 34,500 shares of Common Stock issuable
upon the exercise of currently exercisable options, and an aggregate of
5,500 shares of Common Stock issuable upon the exercise of Warrants owned
by Mr. Etter and his wife.
(3) Includes 9,775 shares owned by the C.J. Hedlund Trust, of which Maxine
Hedlund is the beneficiary; 22,845 shares owned by Colorado Bighorn
Corporation, of which Mrs. Hedlund is the President and a director; 15,540
shares owned by Continental Western Services Inc., of which Mrs. Hedlund is
the President, a director and the beneficial owner of approximately 24
percent of the outstanding stock; 14,400 shares owned by the Maxine G.
Hedlund Trust, of which Mrs. Hedlund is the beneficiary; and 600 shares
owned by AmeriCo Realty Services Inc., 51 percent of which is owned by Mrs.
Hedlund and of which she is a director. See also, "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has been involved in the following transactions with its
current and past directors and officers and by persons known by the Company to
be the beneficial owners of 5% or more of the Company's Common Stock.
24
<PAGE>
Property Management; Administrative Services. The Company had entered into
property management contracts pursuant to which AmeriCo Realty Services, Inc.
("AmeriCo") managed the following properties owned by the Company: four private
self storage facilities located in Colorado (the "Self-Storage Facilities"), an
office building in Appleton, Wisconsin (the "Giltedge Office Building") and the
Broadway Property. These agreements were effective as of the date on which the
Company acquired the respective property, which was in 1995 for the Broadway
Property and in 1996 for the other properties. Pursuant to the termination
provisions of each agreement, all of which provided that the Company could
terminate any of them after one year, all of the agreements were terminated by
the Company as of January 1, 1999. The Company and AmeriCo continue to operate
under a month-to-month agreement pursuant to which AmeriCo continues to
administer certain personnel-related matters in exchange for $4,000 per month,
and which, unless earlier terminated by the Company, will automatically
terminate on June 30, 1999. In addition, until the Company's offices were moved
to Golden, Colorado in October 1998, AmeriCo provided the Company with
accounting and clerical services as well as general office support, including
telephone, fax, and other services, for an aggregate cost of $1,250 per month.
Those services and support costs are now conducted and borne directly by the
Company. Maxine Hedlund, who is the beneficial owner of approximately 5.1% of
the Company's Common Stock, is a director of AmeriCo and beneficially owns 51%
of the outstanding common stock of AmeriCo.
Property Acquisition; Brokerage Services. C.J. Hedlund, the Company, and
Colorado Bighorn entered into an agreement effective as of October 30, 1996
pursuant to which Mr. Hedlund and Colorado Bighorn granted to the Company the
right of first refusal to participate in any real estate transaction in which
Mr. Hedlund, Colorado Bighorn, or any of their affiliated entities was involved
or for which Mr. Hedlund, Colorado Bighorn, or any of their affiliated entities
otherwise received compensation, except that the right of first refusal did not
apply to any proposed transaction that related solely to their serving in a
brokerage function, such as a listing or selling broker. Also as part of this
transaction, the Company entered into broker listing agreements with Colorado
Bighorn pursuant to which Colorado Bighorn will serve as the Company's broker
for all purchase and sale transactions during the period of the agreement.
Pursuant to these listing agreements, the Company will pay Colorado Bighorn a
standard real estate commission for each purchase or sale transaction entered
into by the Company, including those pursuant to the right of first refusal
granted to the Company by Mr. Hedlund and Colorado Bighorn. This agreement and
the listing agreements were for one year terms beginning on October 30, 1996 and
have been renewed for successive one year terms until the Company allowed the
agreements to terminate as of October 30, 1998. Pursuant to these agreements,
the Company paid Colorado Bighorn the commissions described below under "--
Purchase Of State Of Texas Office Buildings" and "-- Purchase Of Bank
Buildings". Maxine Hedlund controls, and is the President and a director of,
Colorado Bighorn. See above, " -- Property Acquisition; Brokerage Services."
Purchase Of State Of Texas Buildings. In June 1998, the Company acquired
eleven small office buildings located in Texas that are leased to various Texas
government agencies. The aggregate purchase price for these buildings included
approximately $6,300,000 and 204,300 shares of the Company's Common Stock at the
rate of $5.00 per share. As part of those transactions, the sellers of the
properties paid Colorado Bighorn aggregate commissions of $75,830 and 4,390
shares of the Company's Common Stock.
Purchase Of Four Office Buildings. In August 1998, the Company acquired
four additional office building located in Texas. The primary tenants in each
building are branches of NationsBank, N.A. The aggregate purchase price for the
four buildings was $3,625,000. As part of that transaction, the Company paid
Colorado Bighorn aggregate commissions of 13,500 shares of the Company's Common
Stock at the rate of $5.00 per share. See above, " -- Property Acquisition;
Brokerage Services."
Conflicts Of Interest Policies
The Company's Board Of Directors and its officers are subject to certain
provisions of Delaware law which are designed to eliminate or minimize the
effects of certain potential conflicts of interest. In addition, the Bylaws
provide that any transaction between the Company and an interested party must be
fully disclosed to the Board Of Directors, and that a majority of the directors
not otherwise interested in the transaction (including a majority of independent
directors) must make a determination that such transaction is fair, competitive
and commercially reasonable and on terms and conditions not less favorable to
the Company than those available from unaffiliated third parties.
All future transactions between the Company and the Company's officers,
directors and 5% stockholders will be on terms no less favorable than could be
obtained from independent third parties and will be approved by a majority of
the independent, disinterested directors of the Company. The Company believes
that by following these procedures it will be able to mitigate the possible
effects of these conflicts of interest.
25
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
Exhibit Index
Number Description
------ -----------
3.1(a) Certificate Of Incorporation filed with the Delaware
Secretary Of State on August 25, 1993 is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
3.1(b) Amended and Restated Certificate Of Incorporation filed with
the Delaware Secretary Of State on January 17, 1996 is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
3.2 Bylaws are incorporated by reference from Registrant's
Registration Statement on Form SB-2 dated August 30, 1996
(Registration No. 333-5114-D).
10.1 Form of Employment Agreement effective as of January 1, 1998
between the Company and James F. Etter is incorporated by
reference from Exhibit 10.8 to Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
10.2 1995 Stock Option Plan is incorporated by reference from
Exhibit 10.9 to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.3 1998 Stock Option Plan is incorporated by reference from the
Company's Proxy Statement concerning the Company's May 21,
1998 Annual Meeting Of Stockholders filed with the SEC on
March 30, 1998.
10.4 Form Of Commercial Contract To Buy And Sell Real Estate is
incorporated by reference from Registrant's Form 8-K dated
July 13, 1998.
10.5 Schedule Of Material Terms Of Commercial Contracts To Buy
And Sell Real Estate is incorporated by reference from
Registrant's Form 8-K dated July 13, 1998.
10.6 Agreement dated June 11, 1998 between AmeriVest Buildings
Texas Inc. and Five N-B Properties, L.P.
27.1 Financial Data Schedule.
(b) Reports On Form 8-K. During the last quarter of the fiscal year ended
December 31, 1998, the Company filed, on November 2, 1998, one report on Form
8-K/A for an event occurring August 18, 1998.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERIVEST PROPERTIES INC.
Date: April 13, 1999 By: /s/ James F. Etter
------------------------------
James F. Etter, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James F. Etter President, Chief Executive April 13, 1999
- -------------------------- Officer (Principal Executive
James F. Etter and Director
/s/ Charles R. Hoffman Director April 13, 1999
- --------------------------
Charles R. Hoffman
/s/ John A. Labate Director April 13, 1999
- ---------------------------
John A. Labate
Director April , 1999
- ---------------------------
Robert J. McFann
<PAGE>
Exhibit Index
Number Description
------ -----------
3.1(a) Certificate Of Incorporation filed with the Delaware
Secretary Of State on August 25, 1993 is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
3.1(b) Amended and Restated Certificate Of Incorporation filed with
the Delaware Secretary Of State on January 17, 1996 is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
3.2 Bylaws are incorporated by reference from Registrant's
Registration Statement on Form SB-2 dated August 30, 1996
(Registration No. 333-5114-D).
10.1 Form of Employment Agreement effective as of January 1, 1998
between the Company and James F. Etter is incorporated by
reference from Exhibit 10.8 to Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
10.2 1995 Stock Option Plan is incorporated by reference from
Exhibit 10.9 to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.3 1998 Stock Option Plan is incorporated by reference from the
Company's Proxy Statement concerning the Company's May 21,
1998 Annual Meeting Of Stockholders filed with the SEC on
March 30, 1998.
10.4 Form Of Commercial Contract To Buy And Sell Real Estate is
incorporated by reference from Registrant's Form 8-K dated
July 13, 1998.
10.5 Schedule Of Material Terms Of Commercial Contracts To Buy
And Sell Real Estate is incorporated by reference from
Registrant's Form 8-K dated July 13, 1998.
10.6 Agreement dated June 11, 1998 between AmeriVest Buildings
Texas Inc. and Five N-B Properties, L.P.
27.1 Financial Data Schedule.
Exhibit 10.6
================================================================================
FIVE N-B PROPERTIES, L.P.,
as Seller,
-and-
AMERIVEST BUILDINGS TEXAS INC.
as Purchaser.
------------------------------
CONTRACT OF SALE
------------------------------
Premises:
---------------------
Date:
-------------------------
================================================================================
HERRICK, FEINSTEIN LLP
Two Park Avenue
New York, New York 10016
Attention: Dennis W. Russo, Esq.
<PAGE>
Schedules
---------
A Description of the Land
B Permitted Exceptions
C Rent Roll and Security Deposits
D Service Contracts
Exhibits
--------
A Existing Mortgage
B General Warranty Deed
C Assignment and Assumption of Leases, Security Deposits, and Service
Contracts
D Notice to Tenants
E Tenant Estoppel
F Landlord Estoppel
<PAGE>
TABLE OF CONTENTS
Page
----
1. Agreement to Sell and Purchase 1
------------------------------
2. Purchase Price 1
--------------
3. Due Diligence Period/Closing 1
----------------------------
4. Closing Documents and Certain Payments 2
--------------------------------------
5. Title 5
-----
6. Closing Adjustments. 10
-------------------
7. Violations 12
----------
8. Leases 14
------
9. Service Contracts. 16
-----------------
10a Risk of Loss 17
------------
11a Escrow 19
------
12a Condition of Property 21
---------------------
13a Default by Purchaser; Liquidated Damages 23
----------------------------------------
14a Purchaser's Right of Adjournment 24
--------------------------------
15a Tax Certiorari 25
--------------
16a Assignment by Purchaser 25
-----------------------
17a Notices 26
-------
18a Further Assurances 26
------------------
19a Vendee's Lien 27
-------------
20a Title to Personal Property 27
--------------------------
21a Brokerage 27
---------
22a Intentionally Omitted 28
---------------------
23a If Property Conveyed Subject to any Mortgages 28
---------------------------------------------
24a Intentionally Omitted 28
---------------------
25a Miscellaneous 28
-------------
<PAGE>
AGREEMENT made this ______ day of ________________, 1998, between Five N-B
Properties, L.P., a Delaware limited partnership, having an office at
__________________ (hereinafter referred to as "Seller"), and AmeriVest
Buildings Texas Inc., a Texas corporation, having an office at
_____________________ (hereinafter referred to as "Purchaser").
W I T N E S S E T H :
1. Agreement to Sell and Purchase. Seller agrees to sell and convey to
Purchaser, and Purchaser agrees to purchase from Seller, on the terms and
conditions set forth herein, the parcels of land described in Schedule A annexed
hereto and made a part hereof (collectively, the "Land"), together with any
buildings (collectively, the "Building") and other improvements, if any, on the
Land. The Land, the Building, and any other improvements, if any, on the Land
are sometimes collectively referred to herein as the "Property."
2. Purchase Price. The purchase price for the Property shall be Three
Million Six Hundred Twenty-Five Thousand and No/100 Dollars ($3,625,000.00), and
Purchaser shall pay the purchase price as follows:
(a) Forty-Thousand and No/100 Dollars ($40,000.00) upon signing this
Agreement by payment thereof to Escrow Agent (as hereinafter defined), the
receipt of which is hereby acknowledged, subject to collection;
(b) One Hundred Sixty Thousand and No/100 Dollars ($160,000.00) on
June 15, 1998; and
(c) Three Million Four Hundred Twenty-Five Thousand and No/100 Dollars
($3,425,000.00) reduced by the principal amount remaining unpaid as of the
Closing Date (as hereinafter defined) under the Mortgage (defined below).
The term "Mortgage" shall mean that certain mortgage and note, copies of
which are annexed hereto as Exhibit A.
3. Due Diligence Period/Closing. Purchaser acknowledges that commencing
upon the execution of this Agreement, and continuing for a period which will
expire on June 26, 1998 (the "Due Diligence Period"), Purchaser shall conduct
its examinations, inspections, testing, studies, and/or investigations (herein
collectively called the "Due Diligence") of the Property and information
regarding the Property. Seller shall make the Property files available to
Purchaser, or shall make copies thereof for Purchaser, for Purchaser's review
during the Due Diligence Period. Purchaser shall have the right to meet with (or
converse with) tenants (including their agents) of the Property only if
accompanied by an authorized representative of Seller. Seller shall make an
authorized representative available during normal business hours upon at least
<PAGE>
24-hours notice to Seller by Purchaser. If Purchaser is not satisfied with the
results of its Due Diligence, Purchaser may terminate this Agreement by written
notice to Seller before 5:00 p.m. (Eastern Time) on the last day of the Due
Diligence Period (time being of the essence), and, in the event of such
termination, neither Seller nor Purchaser shall have any liability hereunder
except for those obligations which expressly survive the termination of this
Agreement, and Purchaser shall be entitled to the return of its deposits
aggregating up to $200,000.00 as described in Paragraph 2 hereof.
The closing of title hereunder shall occur at the offices of Herrick,
Feinstein LLP, Two Park Avenue, New York, New York at 10:00 o'clock a.m. on July
15, 1998, unless the closing is adjourned, as and when permitted, in accordance
with the provisions hereof (such date of closing of title as the same may be
adjourned as provided above being herein referred to as the "Closing Date").
4. Closing Documents and Certain Payments. Without limiting any other
provisions hereof:
(a) Seller shall deliver to Purchaser on or before the Closing Date
the following:
(1) The usual general warranty deed in proper statutory short
form for recording, as set forth in Exhibit B, duly executed and acknowledged by
Seller, so as to convey to Purchaser the fee simple title to the Property, free
of all encumbrances, except as provided herein;
(2) If Purchaser is taking title to the Property subject to a
mortgage as described in Paragraph 2 above, then, a letter from such mortgage
holder setting forth the following: (a) the amount of the unpaid principal of
such mortgage, and the date the last payment of interest under such mortgage was
made, (b) the date of maturity thereof, (c) the rate of interest thereon, and
(d) the amount of accrued and unpaid interest as of the Closing Date;
(3) The instruments of assignment, without recourse, of any
Leases (as hereinafter defined) and Service Contracts (as hereinafter defined)
provided for herein, executed by Seller in the form annexed hereto as Exhibit C;
(4) A notice to the tenants under the Leases executed by Seller
in the form set forth in Exhibit D;
(5) A check drawn to the order of the recording officer of the
county in which the deed is to be recorded for any and all transfers taxes
unless Seller elects that Purchaser shall pay such amount on behalf of Seller,
in which event, Purchaser shall make payment of such amount at the closing, and
-2-
<PAGE>
such amount shall be allowed as a credit to Purchaser against the payment
required to be made pursuant to Paragraph 2 hereof;
(6) Purchaser shall have received, prior to Closing, executed
estoppel letters which are not Materially Deficient Estoppel Letters (as defined
below) from (i) NationsBank (collectively, the "Major Tenant"), and (ii) other
tenants such that estoppel letters have been provided for Leases responsible for
no less than eighty-five percent (85%) in aggregate of the base rent from each
building included in the Property for the calendar month prior to closing. After
the Due Diligence Period, Seller shall request estoppel letters from all of the
tenants leasing space in the Property, and shall use commercially reasonable
efforts to follow up with such tenants who do not promptly execute and deliver
tenant estoppel letters. Prior to delivering an estoppel certificate to a
tenant, Seller shall provide Purchaser three (3) business days to review the
content of such estoppel letter and to respond to Seller with noted
discrepancies and suggested changes. All of such estoppel letters shall be
substantially in the form which such tenant is required to provide pursuant to
the terms of such tenant's Lease or, if no form is specified in any of the
Leases, in the form of Exhibit E attached hereto and incorporated herein by this
reference. In the event Seller cannot for any reason obtain a tenant estoppel
letter from a tenant from which an estoppel letter is required, Seller, at its
option, may deliver to Purchaser a landlord estoppel letter from Seller, in the
form of Exhibit F attached hereto and incorporated herein by this reference. The
liability of Seller under each landlord estoppel letter shall expire and be of
no further force and effect on the one-year anniversary of the Closing Date;
provided, however, that if Seller shall obtain an estoppel letter, which is not
a Materially Deficient Estoppel Letter, from any such tenant after delivery of
such Seller's estoppel letter with respect to such tenant, such landlord
estoppel letter shall, as of the date of such tenant's estoppel letter, be
without further force or effect. As defined herein, "Materially Deficient
Estoppel Letter" shall mean an estoppel letter in which the applicable tenant
discloses a Material Default on the part of the landlord or the tenant under its
Lease or discloses another Material Matter (as such terms are defined below),
which in each case was not included in the copy of such tenant's Lease delivered
to Purchaser and was not actually known to Purchaser at the expiration of the
Due Diligence Period. As used herein, a "Material Default" and a "Material
Matter" shall mean a default or other matter relating to a Lease that, with
respect to any Lease, would have an adverse effect on Purchaser in excess of
Twenty-Five Thousand Dollars ($25,000.00). With respect to each Materially
Deficient Estoppel Letter, Seller shall have the right to elect prior to closing
either to:
(i) attempt to cure the Material Default or other Material
Matter, in which event Seller shall have the right to adjourn the Closing, and
(a) if Seller shall cure such material default or other material matter, the
Closing shall take place on a date to be designated by Seller, which date shall
not be later than forty-five (45) days after the initial outside Closing Date,
-3-
<PAGE>
or (b) if Seller shall fail to cure such Material Default or Material Matter
within such forty-five (45) day period, Seller shall elect to proceed under
either clause (ii) or clause (iii) immediately below,
(ii) proceed with the Closing and deliver to Purchaser at
Closing a landlord estoppel letter from Seller with respect to the applicable
Lease, or
(iii) not cure such Material Default or Material Matter and
not deliver a landlord estoppel letter, in which case Purchaser shall have the
right to either (a) accept such Materially Deficient Estoppel Letter and proceed
with the Closing, in which event the purchase price will be reduced by an amount
not to exceed $50,000.00 determined by an independent appraiser selected by
Seller and Purchaser, or (b) terminate this Agreement, in which event the
$200,000.00 of deposits paid under Paragraph 2 hereof shall be repaid to
Purchaser and, thereafter, the parties shall have no further rights or
obligations hereunder except for obligations which expressly survive the
termination of this Agreement.
(7) Such instruments, agreements, or other documents as may be
necessary or convenient in order to effectuate any of the provisions hereof, or
requested by Purchaser or the Title Company to consummate the transactions
contemplated herein, or to confirm any of the provisions hereof, which shall be
executed, acknowledged, and/or sworn to before a notary public by Seller, as the
case may be; provided that Seller shall not be required to take any additional
risks, incur additional costs, or waive any rights not expressly required
pursuant to this Agreement;
(b) Purchaser shall deliver to Seller on or before the Closing Date
the following:
(1) The payment required on account of the purchase price in
accordance with the provisions of Paragraph 2 hereof;
(2) Proof that electric and gas accounts have been applied for by
Purchaser with the applicable utility, and that any deposit required in
connection therewith has been made by Purchaser;
(3) The agreements or instruments of assumption and/or indemnity
described in Paragraphs 8 and 9 hereof;
(4) A payment to Seller of the amount of any net adjustments in
favor of Seller;
-4-
<PAGE>
(5) An instrument of assumption of any mortgages to be assumed by
Purchaser pursuant to the provisions hereof, in form and substance satisfactory
to Seller, duly executed and acknowledged by Purchaser;
(6) The payment of all sums due related to surveys or survey
updates;
(7) The payment to Seller of any amounts due Seller on the
Closing Date pursuant to Paragraph 8 hereof;
(8) If Purchaser is a corporation, then a copy of the resolution
of the board of directors of Purchaser authorizing the transactions contemplated
hereunder, including the execution and delivery of any note (or bond) and
mortgage, and a certificate by the Secretary or Assistant Secretary of the
corporation certifying such resolution and setting forth facts showing that the
corporation is authorized in accordance with its certificate of incorporation,
by-laws and at law to enter into the transactions contemplated hereby,
including, without limitation, the execution and delivery of any note (or bond)
and mortgage, if any, hereunder, and an incumbency certificate certifying the
authority of the officer signing the documents to be delivered by Purchaser
hereunder;
(9) Payments in the amounts and to the appropriate parties as may
be required in order to make any other payments due and payable to or on behalf
of Seller hereunder;
(10) Any other document required to be delivered or payment
required to be made at the closing hereunder pursuant to the provisions hereof;
and
(11) Such instruments, agreements or other documents as may be
necessary or convenient in order to effectuate any of the provisions hereof, or
requested by Seller or the Title Company to consummate the transactions
contemplated herein, or to confirm any of the provisions hereof, which shall be
executed, acknowledged and/or sworn to before a notary by Purchaser, as the case
may be; provided that Purchaser shall not be required to take any additional
risks, incur additional costs, or waive any rights not expressly required
pursuant to this Agreement.
(c) All other de minimus, non-legal, and due diligence costs (i.e.,
title escrow charges) not otherwise allocated herein shall be split 50/50
between Seller and Purchaser.
-5-
<PAGE>
5. Title.
(a) Purchaser acknowledges and agrees that the Property to be sold and
conveyed pursuant to the provisions hereof may be subject to any and all of the
matters described below (collectively "Permitted Exceptions"), and Purchaser
shall accept title to the Property as of the Closing Date subject thereto:
(1) Zoning regulations and ordinances, building restrictions and
regulations of the city, town or village in which the Property is located which
are not violated by the Building;
(2) Encroachments of the Building (provided that the Title
Company affirmatively insures that the same may remain undisturbed so long as
the Building shall stand), nonstructural walls, lawns, walks, fences, cellar
doors, sidewalk elevators, fire escapes, sheds, stoops, areas, steps, trim and
cornices, balconies, ornamental columns, windows, door caps, keystones, ledges,
pilasters, coping, or other similar projections or structures, if any, upon,
under or above any street, highway, or any adjoining property, and any similar
encroachments projecting upon, under or above the Property;
(3) The lien of any real estate taxes, water frontage and/or
meter charges, sewer rents, vault taxes and assessments, and any interest and
penalties thereon, provided that apportionment thereof is made as provided
herein;
(4) Uniform Commercial Code financing statements or conditional
bills of sale of record, provided that (i) such statements were filed on a date
more than five (5) years prior to the Closing Date, and Seller executes and
delivers to Purchaser an affidavit setting forth that the property covered
thereby is no longer in the Property or is fully paid for, or (ii) a tenant is
the debtor thereunder;
(5) Any lien, encumbrance or lis pendens either (i) for which the
instrument required to remove said encumbrance of record is delivered on or
prior to the Closing Date to the proper party or the Title Company, together
with the required recording or filing fee, or (ii) as to which the Title Company
will insure Purchaser that the lien, encumbrance or lis pendens will not be
collected out of or enforced against the Property;
(6) The lien of any assessment which is or may become payable in
annual installments of which any installment is then a charge or a lien,
provided that apportionment thereof is made as provided herein;
(7) Any state of facts an accurate survey made as of the Closing
Date would show, provided that (i) such additional state of facts (except as
otherwise set forth herein) does not render title unmarketable, and (ii) the
Title Company will insure against;
-6-
<PAGE>
(8) Any covenants, restrictions and easements or other
encumbrances of record (other than for the payment of money) provided that they
do not prohibit the existence or present use of the Building;
(9) Rights of electric, gas, steam, telephone, cable, water, and
any other utility companies to lay, maintain, install, and repair pipes, lines,
poles, conduits, cables, boxes, and related equipment upon, under, and above the
Property;
(10) Possible minor variations between the description of the
Property on the tax maps and herein;
(11) The lien of any unpaid federal or state income, estate,
inheritance or transfer taxes, franchise taxes or general corporation taxes,
provided that Seller, on the Closing Date, makes such deposit or undertaking as
might be reasonably required by the Title Company in order to issue to Purchaser
a policy of title insurance insuring against the collection thereof out of the
Property;
(12) The Service Contracts;
(13) The Leases, any memoranda thereof, and any nondisturbance
agreements with tenants or subtenants, whether or not recorded against the
Property;
(14) Any mortgages of record described in Paragraph 2 hereof, and
any Uniform Commercial Code financing statements, assignments of rents, or any
other security interests in connection with any such mortgages;
(15) The standard printed exceptions and the title matters set
forth in Schedule B in that certain certificate of title annexed hereto as
Schedule B and made a part hereof; and
(16) Any matter which the Title Company shall be willing, without
special premium, to omit as an exception to coverage, or to insure against
collection out of or enforcement against the Property.
(b) Seller shall give, and Purchaser shall accept, title to the
Property such as the Title Company shall be willing to insure, subject to the
Permitted Exceptions.
-7-
<PAGE>
(c) Seller may use any portion of any payments due to Seller hereunder
to satisfy any lien or encumbrance against the Property. In order to facilitate
the satisfaction of any such liens or encumbrances, Purchaser shall, on the
Closing Date, on behalf of Seller, make separate payments of any amounts due to
Seller to such parties, as may be requested by Seller.
(d) The amount of any unpaid tax assessments, with interest and
penalties, to a date not less than two (2) business days after the Closing Date,
shall be paid by Seller, or allowed to Purchaser out of the balance of the
purchase price, and official bills therefor, with interest and penalties thereon
figured to said date, shall be furnished by Seller at the closing.
(e) Purchaser shall promptly after executing this Agreement order from
Chicago Title Insurance Company, or another title insurance company which is
reasonably acceptable to Seller ("Title Company"), a title examination, survey
update, and search of violations, and shall cause a copy of the report, updated
survey, and violation search to be delivered to Seller's attorneys concurrently
with the delivery thereof to Purchaser's attorneys. Within ten (10) days after
receipt of such title report, survey, or violation search, as the case may be,
Purchaser or Purchaser's attorneys shall send to Seller's attorneys a written
statement setting forth any items noted in such title report or survey which
Purchaser deems a valid title objection (as hereinafter defined) in accordance
with the provisions hereof, or any violations noted in such search, which
Purchaser deems the obligation of Seller hereunder. If the statement provided
above shall not be delivered as provided above, then any title exceptions noted
in such title report or survey, or violations noted in such search, shall be
deemed waived. Any title exceptions noted in such title report or survey, or
violations noted in the search, which are not set forth in the statement of
Purchaser or Purchaser's attorneys provided above, shall likewise be deemed
waived.
(f) Seller shall have the right, but not the obligation, to cure title
objections constituting conditions of title varying from the state of title to
be delivered in accordance herewith (collectively "valid title objections" and,
individually, "valid title objection"), and to adjourn the closing from time to
time to a date (the "Adjourned Date") specified by Seller upon ten (10) days'
notice to Purchaser, but not beyond a date which is more than ninety (90) days
after the Closing Date. If Seller elects to adjourn the closing, and cures the
valid title objections on or before the Adjourned Date, then the closing shall
occur on such Adjourned Date specified by Seller in accordance with the
provisions hereof, without any reduction in the purchase price hereunder.
(g) If Seller elects by notice at any time not to cure any valid title
objection, or Seller fails to cure a valid title objection on or before the
Adjourned Date, then Purchaser's sole right and remedy shall be, on the terms
and conditions set forth below, either:
(1) to declare this Agreement canceled;
-8-
<PAGE>
(2) to complete the purchase in accordance herewith without
reduction or abatement in the purchase price; or
(3) to elect to attempt to cure such valid title objection by
setting aside into a mutually agreed escrow a portion of the purchase price, not
to exceed $50,000.00, representing one hundred ten percent (110%) of the cost of
curing the valid title objection as reasonably estimated by the Title Company,
proceed to immediately close the purchase of the Property, and then work with
the Title Company to cure the valid title objection. At the earlier of the
curing of the valid title objection or twelve (12) months from the Closing Date,
any funds in the escrow not utilized or specifically committed to be utilized
for the aforesaid cure shall be returned to Seller.
Purchaser shall exercise its option pursuant to clause (1) above by
notice given to and received by Seller on the later of (i) five (5) days after
the giving of Seller's notice to Purchaser that Seller will not cure all the
valid title objections, and (ii) the Adjourned Date.
If Purchaser exercises its option pursuant to clauses (1) or (3)
above, then Purchaser shall be entitled to receive a refund of all sums
theretofore paid on account of the purchase price; provided there is not in
existence a Purchaser Closing Default (as hereinafter defined). Upon such
cancellation, except as set forth in the preceding sentence, neither party shall
have any further liability to the other party.
If Purchaser shall fail to send a written notice to Seller exercising
Purchaser's option set forth under clauses (1) or (3) above within the
applicable period, then it shall be deemed that Purchaser exercised the option
set forth in clause (2) above.
Nothing contained herein shall be construed as a representation of the
state of title to the Property, or to require Seller to bring any action or
proceeding, or otherwise to incur any expenses, to render title to the Property
insurable or marketable, or to cure any valid title objections. Any attempt by
Seller to cure a title objection shall not be construed as an admission by
Seller that such objection is a valid title objection hereunder.
(h) All right, title, and interest of Seller, if any, in and to the
land lying in the bed of the street road or avenue in front of, or adjoining,
the Property to the center line thereof is included with the sale of the
Property, and shall be deemed transferred to Purchaser under the deed for the
Property to be delivered to Purchaser at the closing hereunder.
-9-
<PAGE>
6. Closing Adjustments.
(a) The following items shall be apportioned between Seller and
Purchaser as of the Closing Date:
(1) Rents collected;
(2) Interest on mortgages;
(3) Real estate taxes on the basis of the fiscal year for which
assessed; however, if the Closing Date shall occur before the tax rate is fixed,
then the apportionment of real estate taxes shall be upon the basis of the tax
rate theretofore in effect applied to the latest assessed valuation;
(4) Water charges and [sewer rents] on the basis of the fiscal
year for which assessed, subject to the provisions of subparagraph (c) below;
(5) Fuel, if any, as estimated by Seller's fuel oil supplier,
valued at the price therefor then charged by such supplier, including any
applicable taxes;
(6) Supplies, if any, in unopened containers valued at Seller's
cost thereof, including any applicable taxes;
(7) Charges under Service Contracts;
(8) Utility charges for gas and electric service, if any;
(9) Elevator inspection fees and any charges and fees for
transferable licenses and permits apportioned ratably over the period covered;
(10) Any leasing commissions, advertising costs, legal fees, and
costs of construction incurred by Seller with respect to Leases entered into
after the date hereof, and prior to the Closing Date; provided that the terms of
the Lease and all such costs have, in advance, been submitted to and approved in
writing by Purchaser. Such apportionments are to be made by prorating the total
amount of such commissions, costs, and fees payable with respect to each such
Lease over the period for which rent is payable under such Lease, without regard
to any renewal periods; and
(b) If, as of the Closing Date, the Property or any part thereof shall
be, or shall have been, affected by an assessment or assessments which are or
may become payable in annual installments of which the first installment is then
-10-
<PAGE>
a charge or lien, or has been paid, then the installment for the year in which
the Closing Date occurs shall be apportioned between Seller and Purchaser as of
the Closing Date, and Purchaser shall be responsible for any installments due
thereafter.
(c) If there be a water meter on the Property, then Seller shall
furnish a reading to a date not more than thirty (30) days prior to the Closing
Date, and, except as set forth below, the unfixed meter charge and the unfixed
sewer rent, if any, based thereon for the intervening time, shall be apportioned
on the basis of such last reading. If, pursuant to any of the Leases, the tenant
is obligated to pay water charges or vault taxes, such water charges, and the
sewer rents attributable thereto, and vault taxes, as the case may be, shall not
be apportioned, and Purchaser shall look solely to said tenant for the payment
of same, and Purchaser shall take title subject to any such unpaid water meter
charges, sewer rents, and vault taxes owing by such tenant or tenants, and same
shall not be deemed a valid title objection.
(d) (1) Supplementing the provisions of subparagraph (a) above, if, on
the Closing Date, there are rents or other sums due to Seller from tenants for
the month in which the Closing Date occurs, and/or the month prior thereto
(collectively, the "Adjustment Period"), then Purchaser shall hold the first
monies received from any tenants in trust for the benefit of Seller, and
promptly remit the same to Seller to the extent required to pay such sums due to
Seller.
(2) Without limiting the provisions of subparagraph (a) above,
Seller hereby reserves its right to any rents or other sums due from tenants for
any period prior to the Closing Date, and reserves the right to bring legal
proceedings directly against tenants for collection of any sums due Seller from
such tenants. If requested by Seller, and, if necessary, to obtain standing in
any such proceedings brought by Seller, Purchaser shall join as a party
plaintiff in any such proceedings brought by Seller, and both Seller and
Purchaser shall be represented by Seller's attorneys in such proceedings.
However, Seller shall reimburse Purchaser for its actual and reasonable costs
incurred in connection with any such proceedings in which Purchaser joins as
provided above.
(3) Where the Leases contain obligations for utility charges,
rent escalation for taxes, labor, operating expenses or other factors, common
area charges, insurance, or other forms of additional rent, and Seller shall
have collected any portion of such charges for a period beyond the Closing Date,
then the same shall be apportioned, and credit given to Purchaser for such
period. If such charges have not been billed, or, if billed, have not been
collected by Seller as of the Closing Date, then Purchaser shall (i) in good
faith and with due diligence bill and collect such charges, and, when the amount
of such additional rent is determined and collected by Purchaser from such
tenants, the same shall be apportioned as provided herein, (ii) hold the first
monies so received and apportioned to Seller in trust for the benefit of Seller,
-11-
<PAGE>
and (iii) promptly remit the amounts apportioned thereto to Seller to the extent
required to pay the amounts due to Seller for the period up to the Closing Date.
(4) If Purchaser receives any rents or other sums to which Seller
shall be entitled under this Paragraph, then Purchaser shall hold the same in
trust for the benefit of Seller, and promptly remit the same to Seller.
(5) The provisions of this subparagraph shall survive the
delivery of the deed hereunder.
(e) Any income earned on the Escrow Fund will be used first to pay any
amounts due to the Escrow Agent and then will be paid to the party entitled to
such funds.
7. Violations.
(a) Except as set forth in subparagraphs (b) and (c) below, all notes,
or notices of violations of law or municipal ordinances, orders, or requirements
noted in, or issued by, any state or municipal department having jurisdiction
against or affecting the Property on or before the Closing Date, shall be
complied with by Seller, and the Property shall be conveyed free of the same.
Seller shall furnish Purchaser with an authorization to make the necessary
searches therefor.
(b) If the cost (the "Violation Amount") of curing the violations for
which Seller is responsible in accordance with the provisions of subparagraph
(a) above (the "Violations") exceeds $50,000.00 in the aggregate, Seller may,
notwithstanding the provisions of subparagraph (a) above, elect not to cure such
Violations. If Seller elects to attempt to cure the Violations, Seller shall
have the right to adjourn the closing from time to time to a date (the
"Suspended Date") specified by Seller upon five (5) days' notice to Purchaser,
but not beyond a date which is more than ninety (90) days after the date of
closing set forth in Paragraph 3 hereof as same may be extended. If Seller
elects to adjourn the closing, and cures the Violations on or before the
Suspended Date, then the closing shall occur on such date without any reduction
in the purchase price. If Seller elects, by notice, at any time not to cure the
Violations, or if Seller fails to cure the Violations on or before the Suspended
Date, then Purchaser's sole right and remedy shall be, on the terms and
conditions set forth below, either:
(1) to declare this Agreement canceled, except as provided in
subparagraph (c) below;
-12-
<PAGE>
(2) to complete the purchase in accordance herewith, with a
credit against the purchase price in an amount equal to the Violation Amount,
less any sums expended or incurred by Seller for curing the Violations, but
without reduction or abatement in the purchase price; or
(3) to elect to attempt to cure the Violations by setting aside
into a mutually agreed escrow a portion of the purchase price, not to exceed
$50,000.00, reasonably estimated by an expediter (with expertise in the removal
of violations) chosen by both Seller and Purchaser, as one hundred ten percent
(110%) of the cost of curing the Violations, proceed to immediately close the
purchase of the Property, and then work to cure the Violation. At the earlier of
the completion of all work to cure the Violation or twelve (12) months from the
Closing Date, any uncommitted funds in the escrow not utilized or specifically
committed to be utilized for the aforesaid cure shall be returned to Seller .
Purchaser shall exercise its option pursuant to clause (1) above by
notice given to and received by Seller on the later of (i) five (5) days after
the giving of Seller's notice to Purchaser that Seller will not cure the
Violations, and (ii) the Suspended Date.
If Purchaser exercises its option pursuant to clause (1) above, then
Purchaser shall be entitled to receive a refund of all sums theretofore paid on
account of the purchase price; provided that there is not in existence a
Purchaser Closing Default hereunder. Upon such cancellation, except as set forth
in the preceding sentence, neither party shall have any further liability to the
other party.
If Purchaser shall fail to send a written notice to Seller exercising
Purchaser's option set forth under clauses (1) or (3) above within the
applicable period, then it shall be deemed that Purchaser exercised the option
set forth in clause (2) above.
(c) Notwithstanding the provisions of subparagraphs (a) and (b) above,
Seller shall have the right, but not the obligation, in lieu of curing the
Violations on or before the Closing Date, either of (i) depositing with Escrow
Agent on the Closing Date a sum estimated to be sufficient to pay the cost of
curing the Violations which remain uncured as of the Closing Date by a
contractor ("Contractor") selected by Seller, and consented to by Purchaser
(which consent shall not be unreasonably withheld or delayed), and delivering to
Purchaser, at the closing, Seller's agreement (the "Violation Agreement") to
promptly and diligently cure such Violations within one hundred twenty (120)
days after the Closing Date so long as Purchaser grants Seller (and its agents)
such access to the Property as may be reasonably required in order to cure such
Violations, or (ii) allowing Purchaser a credit of one hundred ten percent
(110%) of the sum estimated by Contractor to be sufficient to pay the cost of
-13-
<PAGE>
any of such Violations. Upon the occurrence of either of the events described in
clauses (i) or (ii) above, Purchaser shall complete the purchase in accordance
herewith without reduction or abatement in the purchase price. Seller shall be
entitled to receive a refund of any deposit made pursuant to clause (i) above,
and any income earned thereon when such Violations have been removed of record,
and the work required to cure such Violations has been completed as determined
by Contractor.
8. Leases.
(a) Seller represents as of the date hereof and as of the Closing
Date, the following:
(1) Annexed hereto as Schedule C is a schedule of the leases and
the tenancies affecting the Property (such leases and tenancies, and any other
leases and tenancies entered into after the date hereof, are hereinafter
sometimes collectively referred to as the "Leases" and individually referred to
as a "Lease");
(2) There are no Leases other than as set forth in Schedule C;
(3) All Leases are in writing except as set forth in Schedule C,
and, if any Lease is not in writing, the material terms of the tenancy are set
forth in Schedule C;
(4) True and complete copies of all the written Leases referred
to in Schedule C, including any extensions or modifications thereof or
amendments thereto, have been exhibited to and initialed by Purchaser or
Purchaser's representatives;
(5) With respect to the Leases described in Schedule C, and
except as stated in Schedule C annexed hereto:
(i) all such Leases are in full force and effect; and
(ii) Seller has received no notice from any tenant claiming
a material default under any such Lease as a result of which said tenant has
ceased to pay the rental required to be paid under its Lease or canceling such
Lease.
(b) Seller does not undertake or guarantee that any Lease will be in
full force or effect on the Closing Date, and Purchaser agrees that the
voluntary or involuntary removal of tenants or occupants before or after
-14-
<PAGE>
institution of summary proceedings, or otherwise, shall not give rise to any
reduction or abatement in the purchase price hereunder, or other claim on the
part of Purchaser against Seller. Seller shall not be obligated to re-rent any
space which shall become vacant between the date hereof and the Closing Date.
Seller shall not rent any space or renew leases of space at the Property without
prior written approval of Purchaser.
(c) At the closing, Seller shall assign to Purchaser, without
recourse, all of Seller's right, title, and interest in and to each of the
Leases which are in full force and effect on the Closing Date, and Purchaser
shall assume all of the obligations on the part of Seller accruing after the
Closing Date under each of such Leases, and for any leasing brokerage
commissions or other such fees due upon the exercise of any renewal options
under any such Leases, or the leasing by any tenant of additional space at the
Property. Purchaser agrees to indemnify and to hold Seller harmless from and
against any and all claims, liabilities, damages, costs, and expenses
(including, without limitation, reasonable attorneys' fees) arising out of or in
connection with such Leases, based on facts and circumstances occurring after
the Closing Date, and/or any leasing brokerage commissions, or other such fees,
due upon the exercise of any renewal options under any such Leases, or the
leasing by any tenant of additional space at the Property. Seller agrees to
indemnify and to hold Purchaser harmless from and against any and all claims,
liabilities, damages, costs, and expenses (including, without limitation,
reasonable attorneys' fees) arising out of or in connection with such Leases
based on facts and circumstances occurring before the Closing Date. The
provisions of this subparagraph shall survive the delivery of the deed hereunder
for one (1) year.
(d) Included in Schedule C is a schedule of security deposits under
the Leases. At the closing, Seller shall assign, without recourse, or turn over
to Purchaser, the security deposits under the Leases to be assigned hereunder.
Purchaser shall acknowledge, in writing, the receipt of such Security Deposits
at the closing hereunder. Purchaser agrees to indemnify and to hold Seller
harmless from and against any and all claims, liabilities, damages, costs, and
expenses (including, without limitation, reasonable attorneys' fees) arising out
of or in connection with such Security Deposits caused by acts or omissions
occurring on or after the Closing Date. Seller agrees to indemnify and to hold
Purchaser harmless from and against any and all claims, liabilities, damages,
costs, and expenses (including, without limitation, reasonable attorneys' fees)
arising out of or in connection with such Security Deposits caused by acts or
omissions occurring before the Closing Date. The provisions of this subparagraph
shall survive the delivery of the deed hereunder for one (1) year.
(e) Without limiting the provisions of subparagraphs (c) and (d)
above, Purchaser shall execute and deliver to Seller at the closing hereunder an
instrument or agreement in form and substance satisfactory to Seller, confirming
the assumption and indemnity provisions of subparagraphs (c) and (d) above.
-15-
<PAGE>
9. Service Contracts.
(a) Annexed hereto as Schedule D is a schedule of certain service,
labor, concession, and maintenance contracts, if any, affecting the Property
(such contracts and any such other contracts entered into after the date hereof
are hereinafter sometimes collectively referred to as "Service Contracts" and
individually as a "Service Contract"), which Purchaser is to assume pursuant to
the provisions of this Paragraph.
(b) Seller does not undertake or guarantee that any Service Contract
will be in force or effect on the Closing Date, and Purchaser agrees that the
existence of any such Service Contract shall not give rise to any reduction or
abatement in the purchase price hereunder, or other claim on the part of
Purchaser against Seller. Seller shall not be obligated to replace any Service
Contract which shall cease to be in effect between the date hereof and the
Closing Date. Upon the receipt of the prior written consent of Purchaser, which
consent shall not be unreasonably withheld, Seller may renew any such Service
Contracts or to enter into new Service Contracts; provided that, in no event,
shall any such new Service Contract or renewal Service Contract at the Property
provide for a cost which is more than ten percent (10%) greater than the current
cost for such services, or a term of more than one (1) year, except as set forth
below. Notwithstanding the foregoing, Seller may at any time, and from time to
time, enter into Service Contracts on any terms which Seller, in Seller's sole
discretion, shall decide, provided that (i) the term of such Service Contract
shall either expire on the Closing Date or be on a month-to-month basis, or (ii)
in the case of renegotiation of any union labor contract affecting the Property,
the term of such union contract shall not exceed three (3) years, or be on less
favorable terms than the terms and conditions of the union contract negotiated
by the industry association, if any, or if there be no such industry association
negotiated contract, then prevailing terms for such union contracts. At the
closing, Seller shall assign to Purchaser, without recourse, all of Seller's
right, title, and interest in and to, and Purchaser shall assume all of the
obligations on the part of Seller accruing after the Closing Date under each of
the Service Contracts which are in full force and effect on the Closing Date.
Purchaser agrees to indemnify and to hold Seller harmless from and against any
and all claims, liabilities, damages, costs, and expenses (including, without
limitation, reasonable attorneys' fees) arising out of or in connection with the
Service Contracts based on facts and circumstances occurring on or after the
Closing Date. Seller agrees to indemnify and to hold Purchaser harmless from and
against any and all claims, liabilities, damages, costs, and expenses
(including, without limitation, reasonable attorneys' fees) arising out of or in
connection with the Service Contracts based on facts and circumstances occurring
before the Closing Date. The provisions of this Paragraph shall survive the
-16-
<PAGE>
delivery of the deed hereunder for one (1) year. Without limiting the foregoing
provisions of this Paragraph, Purchaser shall execute and deliver to Seller at
the closing hereunder an instrument in form and substance satisfactory to Seller
and Purchaser confirming the assumption and indemnity provisions of this
Paragraph.
10 Risk of Loss.
(a) The risk of loss or damage to the Property by fire or other
casualty, until the Closing Date, is assumed by Seller, except for loss or
damage arising out of or relating to the acts or negligence of Purchaser, which
is assumed by Purchaser. Seller shall have the right, but not the obligation, at
Seller's sole option, to restore the Property in the event of a fire or other
casualty. Seller shall notify Purchaser of the occurrence of any such loss or
damage within ten (10) days after such occurrence, or by the Closing Date,
whichever first occurs, and by such notice, shall elect whether or not Seller
shall attempt to restore the Property. If Seller elects to attempt to restore
the Property, Seller shall have the right to adjourn the closing from time to
time to a date (the "Completion Date") specified by Seller upon ten (10) days'
notice to Purchaser, but not beyond a date which is more than ninety (90) days
after the date of closing set forth in Paragraph 3 hereof. If Seller elects to
adjourn the closing, and substantially completes the restoration of the Property
on or before the Completion Date, then the closing shall occur on such adjourned
closing date without any reduction or abatement in the purchase price hereunder.
If Seller elects, by notice, at any time, not to make such restoration, or if
Seller fails to complete the restoration on or before the Completion Date, then
Purchaser's sole right and remedy shall be, on the terms and conditions set
forth below, as follows:
If a material part of the Property is damaged by fire or other
casualty, then Purchaser shall have the right either:
(1) to declare this Agreement canceled; or
(2) to complete the purchase in accordance with the provisions
hereof without reduction or abatement in the purchase price.
Purchaser shall exercise its option pursuant to clause (1) above by
notice given to Seller, and received by Seller on the earlier of (i) within five
(5) days after the giving of Seller's notice to Purchaser that Seller will not
restore the Property, and (ii) the Completion Date.
If Purchaser exercises its option pursuant to clause (1) above, then
Purchaser shall be entitled to receive a refund of all sums theretofore paid on
account of the purchase price; provided that there is not in existence a
-17-
<PAGE>
Purchaser Closing Default. Upon such cancellation, except as set forth in the
preceding sentence, neither party shall have any further liability to the other
party.
If Purchaser shall fail to send a written notice to Seller exercising
Purchaser's option set forth under clause (1) above within the applicable
period, then it shall be deemed that Purchaser exercised the option set forth in
clause (2).
If an immaterial part of the Property is damaged by fire or other
casualty, then Purchaser shall complete the purchase in accordance with the
provisions hereof, without abatement or reduction in the purchase price.
If Purchaser exercises its option pursuant to clause (2) above, or, if
an immaterial part of the Property is damaged by fire or other casualty, then,
subject and subordinate to the rights of any holder of any mortgage affecting
the Property, Seller shall turn over to Purchaser the net proceeds (after legal
and other expenses of collection) actually collected by Seller under the
provisions of such hazard insurance policies, if any, covering such damage, to
the extent that they were attributable to such damage to the Property, less any
sums expended or incurred by Seller for restoration of the Property, and Seller
shall assign, without recourse, Seller's right to any insurance payments, if
any, not yet received by Seller attributable to such damage to the Property,
less any unrecouped sums theretofore expended or incurred by Seller for the
restoration of the Property, and any legal and other expenses of collection.
(b) If, prior to the Closing Date, all or any part of the Property is
taken by eminent domain, then Seller promptly thereafter shall give notice
thereof to Purchaser.
If a material part of the Property is taken by eminent domain, then,
upon such taking, this Agreement shall be deemed canceled, and Purchaser's sole
right and remedy shall be to receive a refund from Seller of all sums
theretofore paid on account of the purchase price (provided Purchaser is not in
default in any of its obligations hereunder) and, except as set forth above,
neither party shall have any further liability to the other hereunder.
If an immaterial part of the Property is taken by eminent domain, or,
in the event of a change of legal grade or temporary taking, then Purchaser
shall nonetheless complete the purchase in accordance with the provisions
hereof, without reduction or abatement in the purchase price. However, if an
immaterial part of the Property is taken by eminent domain, then Seller shall,
upon closing, subject and subordinate to the rights of any holder of a mortgage
affecting the Property, (i) turn over and deliver to Purchaser the net proceeds
of any award or other proceeds of such taking which may have been collected by,
and not previously used for, restoration, or (ii) if no award or other proceeds
-18-
<PAGE>
shall have been collected, deliver to Purchaser an assignment without recourse
of Seller's rights, if any, to any such award or other proceeds which may be
payable as a result of such taking.
(c) The provisions of this Paragraph shall govern and control even if
inconsistent with any applicable law.
11. Escrow. The amount paid upon signing of this Agreement shall be held in
escrow by the Title Company ("Escrow Agent"), together with any income earned
thereon (such principal and income being hereinafter sometimes collectively
referred to as the "Escrow Fund") in accordance with the terms and conditions
set forth below. Any amount deposited with Escrow Agent pursuant to the
provisions of Paragraph 7(c) hereof shall be held in escrow by Escrow Agent,
together with any income earned thereon (such amount and any income earned
thereon being hereinafter sometimes collectively referred to as the "Violations
Fund"), in accordance with the terms and conditions set forth below. The Escrow
Fund and Violations Fund are hereinafter collectively referred to as the "Fund."
(a) Escrow Agent shall have the right, but not the obligation, to
invest the Fund in federally insured savings accounts, and shall not be liable
for any losses suffered in connection with any such investment.
(1) the balance of the Escrow Fund shall be the property of and
shall be paid over to:
(i) Seller, upon closing, in accordance with the provisions
hereof;
(ii) Purchaser, if, prior to payment over to Seller, as
provided in clause (i) above, shall be entitled to return of the payments which
Purchaser made on account of the purchase price hereunder, pursuant to the terms
and conditions hereof; or
(iii) as may otherwise be provided in subparagraph (c)
below.
(2) the balance of the Violations Fund shall be the property of,
and shall be paid to Seller, when Seller shall be entitled to receive a refund
thereof pursuant to the provisions of Paragraph 7(c) hereof, or as may otherwise
be provided in subparagraph (c) below,
(b) Except in connection with the closing hereunder as provided below,
to obtain a payment from the Fund as provided above, a party ("Requesting
Party") shall deliver or mail to Escrow Agent at Two Park Avenue, New York, New
-19-
<PAGE>
York 10016, Attention: Dennis W. Russo, Esq., and to the other party at the
address set forth above, a notice that Requesting Party is entitled to a payment
out of the Fund as provided above.
If Escrow Agent does not receive a notice from the other party within
fifteen (15) days of the mailing or delivery, as the case may be, of such notice
from Requesting Party, then Escrow Agent shall pay over the balance of the Fund
to Requesting Party. If, within fifteen (15) days after the mailing or delivery,
as the case may be, of such notice, Escrow Agent shall have received a statement
from the other party that Requesting Party is not entitled thereto pursuant to
the provisions hereof, and directing Escrow Agent not to deliver to Requesting
Party the balance of the Fund, then Escrow Agent shall, at its sole option
either:
(i) deliver to the court the balance of the Fund , or
(ii) retain the balance of the Fund until one of the
following shall have occurred:
(A) The other party shall have failed to commence an
action in a court of competent jurisdiction against Requesting Party to resolve
why Requesting Party shall not be entitled to the payment of the Fund within
thirty (30) days after delivery or mailing, as the case may be, of Requesting
Party's notice, by serving a summons and complaint on Requesting Party, and
delivering to Escrow Agent a copy thereof, together with an affidavit of service
within such thirty- (30) day period, in which event, Escrow Agent shall, except
to the extent provided below, pay over the Fund to Requesting Party;
(B) There shall have been served upon Escrow Agent an
order or judgment duly entered in a court of competent jurisdiction setting
forth the manner in which the Fund is to be paid out and delivered, in which
event, Escrow Agent shall, except to the extent provided below, deliver the
balance of the Fund as set forth in such order or judgment; or
(C) The parties shall have delivered to Escrow Agent a
statement executed by both of the parties setting forth the manner in which the
Fund is to be paid out and delivered, in which event, Escrow Agent shall, except
to the extent provided below, deliver the balance of the Fund as set forth in
such statement.
Upon closing hereunder, Escrow Agent shall pay over to Seller the
balance of the Escrow Fund.
-20-
<PAGE>
(c) Escrow Agent shall not be liable to either Seller or Purchaser in
connection with its performance as Escrow Agent hereunder other than for its
willful misconduct. Purchaser and Seller shall indemnify and hold harmless
Escrow Agent from any and all claims, liabilities, damages, costs and expenses
(including, but not limited to, reasonable attorneys' fees) arising out of or in
connection with the Escrow Fund (including, without limitation, the collection
of any amounts due or payable to Escrow Agent), and any actions of Escrow Agent
in connection therewith, other than Escrow Agent's willful misconduct.
(d) Upon delivery of the balance of the Escrow Fund as provided in
subparagraphs (b) and (c) above, Escrow Agent shall be relieved of all
liability, responsibility, or obligation with respect to or arising out of the
Escrow Fund. Upon delivery of the balance of the Violations Fund as provided in
subparagraphs (b) and (c) above, Escrow Agent shall be relieved of all
liability, responsibility or obligation with respect to or arising out of the
Violations Fund.
(e) Escrow Agent shall be entitled to rely upon the truth and accuracy
of any statement from Purchaser or Seller without any independent investigation
or verification by Escrow Agent.
(f) Escrow Agent shall be entitled to retain attorneys of its choice
in connection with the Escrow Fund, and to charge the fees and any disbursements
of any such attorneys and any amounts due Escrow Agent under subparagraph (d)
above against the Fund, and, notwithstanding anything to the contrary contained
herein, any such amounts shall be paid by Escrow Agent out of the Fund before
any other payments shall be required to be made from the Fund. Escrow Agent
shall be entitled to rely on advice of its attorneys, and Escrow Agent shall not
be liable to either Purchaser or Seller for any action taken in reliance on such
advice.
(g) Escrow Agent may represent Seller in any dispute or action related
hereto, including any litigation arising hereof.
12. Condition of Property. Purchaser has inspected the Property and is
thoroughly acquainted with the physical condition thereof. Seller has not made,
does not make, and is unwilling to make, any representations as to the
condition, income, expenses, leases, tenants, use, operation, or any other
matter or thing affecting or relating to the Property or title thereto, or the
transactions contemplated hereby, except as may otherwise expressly be set forth
herein. Purchaser hereby expressly acknowledges and represents that, except as
may otherwise expressly be set forth herein, no such representations have been
made.
Without limiting the generality of the foregoing, but except as may
otherwise be specifically provided herein, Purchaser has not relied on any
representations or warranties, and Seller has not made any representations or
-21-
<PAGE>
warranties, in either case express or implied, as to (i) the current or future
real estate tax liability, assessment, or valuation of the Property; (ii) the
potential qualification of the Property for any and all benefits conferred by
federal, state or municipal laws, whether for subsidies, special real estate tax
treatment, insurance, mortgages, or any other benefits, whether similar of
dissimilar to those enumerated; (iii) the compliance of the Property, in its
current or any future state, with applicable zoning ordinances, and the ability
to obtain a variance in respect to any non-compliance, if any, with said zoning
ordinances; (iv) the availability of any financing for the purchase, alteration,
rehabilitation, or operation of the Property from any source, including, but not
limited to, the state, city, or federal government, or any institutional lender;
(v) the current or future use of the Property, including, but not limited to,
the use of the Property for commercial purposes; (vi) the current or future
condition and operating state of any and all machinery or equipment on the
Property, or any other improvements to the Property or their suitability for
rehabilitation or renovation; (vii) the state of title to the Property; and
(viii) the presence or absence of violations of law or municipal ordinances,
orders or requirements.
Purchaser agrees to take title to the Land, including, without
limitation, the Building and any other improvements to the Land, "as is" and in
its present condition, subject to reasonable wear and tear, casualty (except to
the extent provided in Paragraph 10 hereof), and natural deterioration between
the date hereof and the Closing Date, and subject to any changes (i) required to
be made by law, or pursuant to any of the Leases; (ii) made by Seller in the
ordinary course of operation of the Property consistent with Seller's prior
practices; or (iii) which do not materially and adversely affect the value of
the Property. Between the date hereof and the Closing Date, Seller shall
continue to operate the Property in a manner consistent with Seller's prior
practices.
Without limiting the foregoing provisions of this Paragraph, Purchaser
represents that Purchaser is not relying upon information not embodied herein,
including, without limitation, any statement or representation, express or
implied, warranties, guarantees, promises, "set-ups," or other information not
embodied herein, made by Seller, or by any real estate broker, agent, employee,
servant, or other person representing, or purporting to represent Seller. The
representations and obligations of Seller contained herein shall survive for one
(1) year after the delivery of the deed hereunder, except to the extent that a
longer period is expressly provided herein.
Seller represents and warrants that neither the Property nor Seller,
nor, to the best of Seller's knowledge, any previous owner of the Property, is
in violation of or subject to any existing, pending, or threatened investigation
or inquiry by any governmental authority or any remedial obligations under any
applicable laws, rules, or regulations pertaining to health or the environment,
-22-
<PAGE>
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and Seller further
represents and warrants that there are no facts, conditions, or circumstances
known to Seller which could result in any such investigation or inquiry if such
facts, conditions, and circumstances, if any, were fully disclosed to the
applicable governmental authority. Seller represents and warrants that it has
not obtained and it is not required to obtain, by reason of any environmental
laws, rules, or regulations, any permits, licenses, or similar authorizations to
construct, occupy, operate, or use any buildings, improvements, fixtures, or
equipment in connection with the Property constructed or to be constructed.
Seller represents and warrants that it has no knowledge of any oil, toxic, or
hazardous substances or solid wastes having been disposed of or released on the
Property, or any asbestos within the improvements, except as set forth herein.
13. Default by Purchaser; Liquidated Damages.
(a) If Purchaser defaults in any of its obligations to close the
transactions contemplated hereunder, or if Purchaser shall:
(1) apply for or consent to the appointment of a receiver,
trustee, or liquidator for it or them or for any of its or their property, or,
if such receiver, liquidator, or trustee shall be appointed by order of a court
of competent jurisdiction, and shall not have been discharged within thirty (30)
days;
(2) admit in writing an inability to pay its, his, or their debts
as they mature;
(3) make a general assignment for the benefit of creditors;
(4) be adjudicated a bankrupt or insolvent, or, if a petition for
reorganization is granted; or
(5) file a voluntary petition seeking reorganization, or an
arrangement with creditors, or take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution, or liquidation law or statute, or
file an answer admitting the material allegations of a petition filed against
Purchaser in any proceedings under any such law, or, if any such petition is
consented to or is not dismissed, canceled, or terminated within thirty (30)
days, then, in any of the events described above, Seller may cancel this
Agreement, and shall have the rights set forth in subparagraphs (b) and (c)
below.
-23-
<PAGE>
(b) If this Agreement shall be terminated or canceled, and Purchaser
is in default in its obligations pursuant to Paragraph 4(b) hereunder other than
as a result of any action or omission of Seller that is not in compliance with
this Agreement, the damages of Seller, while substantial, would be difficult or
impossible to determine with mathematical precision. A default by Purchaser in
its obligations pursuant to Paragraph 4(b) other than as a result of any action
or omission of Seller that is not in compliance with this Agreement is referred
to herein as a "Purchaser Closing Default." In the event of a Purchaser Closing
Default, Seller shall be entitled to, as liquidated damages, any payments due
from Purchaser upon the execution hereof, and any other payments made hereunder,
together with any income earned thereon. The parties agree that the provisions
of this Paragraph represent an agreed measure of damages and are not to be
deemed a forfeiture or penalty.
(c) If Seller cancels this Agreement pursuant to subparagraph (a)
above, and Purchaser has not committed a Purchaser Closing Default, then
Purchaser shall be entitled to receive a refund of all sums theretofore paid on
account of the purchase price. Upon such cancellation, except as set forth in
the preceding sentence, neither party shall have any further liability to the
other party.
(d) Without limiting the provisions of subparagraph (a) above, if any
check delivered to or on behalf of Seller, including, but not limited to, on
account of the down payment, or any other portion of the purchase price, shall
be dishonored for any reason whatsoever and shall not be replaced with valid
funds within four (4) business days after notice thereof, it shall be deemed a
material default by Purchaser hereunder, and Seller may, in that event, cancel
this Agreement and, notwithstanding such cancellation, be entitled to recover
the amount of said check in addition to any other sums Seller may be entitled to
hereunder.
(e) If at any time a check or other instrument for the payment of
money or on behalf of Seller delivered by Purchaser pursuant to the provisions
hereof is dishonored for any reason whatsoever, and shall not be replaced with
valid funds within four (4) business days after notice thereof, without limiting
the foregoing provisions of this Paragraph, Purchaser shall reimburse Seller for
the costs (including, but not limited to, reasonable attorneys' fees) of
collection of any check or other instrument. The provisions of this subparagraph
shall survive the delivery of the deed hereunder.
14. Purchaser's Right of Adjournment. Purchaser shall have a one time right
to adjourn the closing to a date which is not more than nineteen (19) days after
the date of closing set forth in Paragraph 3 hereof by giving Seller notice
thereof at least fifteen (15) days prior to the date of closing set forth in
such Paragraph 3, provided that time shall be of the essence against Purchaser
with respect to such Adjourned Date, and, provided, further, that Purchaser
delivers to Escrow Agent with such adjournment notice $100,000 representing an
-24-
<PAGE>
additional deposit on account of the purchase price hereunder. Except as set
forth in this Paragraph, Purchaser shall have no right to adjourn the closing.
15. Tax Certiorari. If there be any tax certiorari proceedings or tax
protest proceedings pending with respect to the Property, then, after deducting
the cost of such proceedings, including attorneys' fees, all benefits obtained,
including, without limitation, any tax refunds attributable to (a) any tax year
ended prior to the Closing Date shall be the property of and shall be paid to
Seller, (b) any tax year commencing after the Closing Date may be retained by
Purchaser, and (c) the tax year in which the Closing Date occurs shall be the
property of and shall be paid to Seller, subject to apportionment between Seller
and Purchaser as of the Closing Date.
Seller reserves the right to prosecute any such proceedings for the
tax year in which the Closing Date occurs, and any preceding tax years by
attorneys selected by Seller, and to settle any such proceedings without the
consent of Purchaser. If requested by Seller, Purchaser shall join as a party
plaintiff in any such proceedings, and both Seller and Purchaser shall be
represented by Seller's attorneys in such proceedings. Purchaser shall deliver
to Seller, upon demand, receipted tax bills and canceled checks used in payment
of such taxes, and shall execute any and all consents or other documents, and do
any act or thing necessary for the collection of such refund by Seller.
If Purchaser receives any benefits to which Seller shall be entitled
under this Paragraph, Purchaser shall hold the same in trust for the benefit of
Seller, and promptly remit the same to Seller.
The provisions of this Paragraph shall survive the delivery of the
deed hereunder.
16. Assignment by Purchaser. The rights of Purchaser hereunder may only be
assigned by Purchaser to a wholly owned subsidiary of Purchaser subject to the
following:
(a) the assignee, executing and delivering to Seller within five (5)
days after the making of such assignment, an assumption of this Agreement in
form and substance reasonably satisfactory to Seller; and
(b) Purchaser executing and delivering to Seller a guarantee of the
assignee's obligations hereunder, and any instruments or agreements made
pursuant to the provisions hereof, on or before, or in connection with the
closing hereunder, in form and substance satisfactory to Seller.
-25-
<PAGE>
(c) Notwithstanding any such consent or assignment, Purchaser shall
not be released from any liability hereunder.
17. Notices. Any notice or communication which may be given or is required
to be given pursuant to the terms hereof shall be in writing, and shall be
personally delivered or mailed by certified or registered mail, return receipt
requested, to the other party at such party's address set forth above, or at the
following facsimile numbers: (914) 381-9622 for Seller, and (303) 421-3410 for
Purchaser, and, in the case of Seller, with a copy to:
Herrick, Feinstein LLP
Two Park Avenue
New York, New York 10016
Attention: Dennis W. Russo, Esq.
Facsimile No: (212) 889-7577
and, in the case of Purchaser, with a copy to:
Bearman Talesnick & Clowdus P.C.
1200 Seventeenth Street, Suite 2600
Denver, Colorado 80202
Attention: Alan L. Talesnick, Esq.
Facsimile No. (303) 572-6511
A notice or communication which is mailed shall be deemed to be given
three (3) business days after the date of mailing. A notice or communication
which is personally delivered, including delivery by facsimile, shall be deemed
to be given on the first business day after the date of delivery.
Any party may designate a different address for the purpose of the
service of notices hereunder by giving notice thereof in accordance with the
provisions of this Paragraph.
Attorneys for a party shall be authorized to give (but not receive)
notices on behalf of such party. Written adjournments and/or extensions in time
signed by an attorney for a party shall be binding upon that party.
18. Further Assurances. Purchaser, upon request of Seller, and Seller, upon
request of Purchaser, each from time to time, on or before the Closing Date or
at any time thereafter, shall do such things and execute and deliver any
instruments, agreements or other documents requested by the other which are
necessary or convenient in order to evidence or confirm any of the agreements of
the parties hereunder, or to effectuate any of the provisions hereof, including,
-26-
<PAGE>
without limitation, executing and delivering at the closing hereunder a separate
agreement of indemnity confirming the indemnity provisions hereof.
19. Vendee's Lien. All sums paid on account hereof, and the reasonable
expenses of examination of title to the Property and of the survey of the
Property, if any, paid by Purchaser in connection therewith, are hereby made
liens on the Property, to the extent, if any, Purchaser is entitled to
reimbursement thereof from Seller in accordance with the provisions hereof, but
such liens shall not continue after a Purchaser Closing Default.
20. Title to Personal Property.
(a) All fixtures and other property attached or appurtenant to the
Property which are owned by Seller are included in this sale, subject, however,
to any title matters. Without limiting the generality of the foregoing, such
fixtures and other property include the central installations for the plumbing,
heating, and electrical systems attached to the Property. Purchaser acknowledges
and agrees that other than expressly provided herein, Seller makes no
representation in connection with such fixtures and other property, and Seller
expressly disclaims any implied warranties of merchantability or fitness for a
particular purpose.
(b) Although no part of the purchase price has been allocated to
personalty, and, therefore, it is not anticipated that any sales or use taxes
shall be due and payable, Purchaser agrees to indemnify and hold Seller harmless
from and against any and all claims, liabilities, damages, costs, and expenses
(including, without limitation, reasonable attorneys' fees) arising out of or in
connection with any sales or use taxes which may now or hereafter be imposed
upon Seller or the Property with respect to the sale of personal property, if
any. The provisions of this subparagraph shall survive the delivery of the deed
hereunder.
21. Brokerage. Purchaser and Seller each hereby represents for itself that
other than the exceptions set forth below, no broker, licensed or otherwise,
brought about this transaction, brought the Property to its attention, or had
any communication with it in regard to the same. There are no exceptions to the
foregoing with respect to Seller, and the only exceptions with respect to
Purchaser are Grubb & Ellis, Colorado Bighorn Corporation, and N.E. Cohen &
Associates (collectively, the "Brokers"). Purchaser is responsible for paying
fees of these Brokers. Each of Seller and Purchaser agrees (i) to give testimony
to such effect in any case, action, or proceeding instituted by any real estate
broker, and (ii) to indemnify and hold the other harmless from and against any
and all claims, liabilities, damages, costs, and expenses (including, without
limitation, reasonable attorneys' fees) arising out of or in connection with any
claim made by any person claiming any fee or commission through the indemnifying
-27-
<PAGE>
party with respect to the sale of the Property. The provisions of this Paragraph
shall survive the delivery of the deed hereunder.
22. Intentionally Omitted
23. If Property Conveyed Subject to any Mortgages. If the Property is to be
conveyed subject to any mortgage, then the following shall apply:
(a) At the closing hereunder, Purchaser shall pay to Seller the amount
of any escrow or other deposits that originally were paid by or for the account
of Seller under any such mortgages, and, upon payment, thereof Seller shall
assign such deposits to Purchaser. The foregoing does not include security
deposits under the Leases or any other deposits or escrows paid by or on behalf
of third parties.
(b) At Purchaser's sole option, it shall be a condition to Purchaser's
obligation to close hereunder that, as of the Closing Date, any such mortgages
shall not be in default as a result of the delivery of the deed hereunder, nor
shall Seller have received any notice of default prior to the Closing Date from
the holder of any such mortgages which remain uncured as of the Closing Date.
(c) If any such mortgage and/or the note or bond secured by such
mortgage does not contain a clause which exculpates Seller from any personal
liability thereunder, and provides that the sole recourse of the holder thereof
shall be against the Property, or, if there are any guarantors or endorsers of
such mortgage and/or note or bond, then at the closing, Purchaser shall assume
such mortgage.
Seller represents that such mortgage is assumable by Purchaser with only de
minimus charges/reimbursements due to the holder thereof. Any such expenses
shall be split 50/50 between Seller and Purchaser.
24. Intentionally Omitted.
25. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) Neither this Agreement nor any provision hereof may be waived,
amended, discharged, or terminated except by instrument in writing signed by the
party against which the enforcement of such waiver, amendment, discharge, or
termination is sought, and then, only to the extent set forth in such
instrument.
-28-
<PAGE>
(c) It is understood and agreed that all understandings and agreements
heretofore made between the parties hereto are merged herein which alone fully
and completely express their agreement.
(d) Whenever the context shall require, the singular shall include the
plural, the plural shall include the singular, and words of any gender shall be
deemed to include words of any other gender. As used herein, "Purchaser" shall
mean each individual or other entity signing this Agreement both individually
and collectively. If two or more persons or entities constitute Purchaser
hereunder, then they shall be jointly and severally liable for the obligations
of Purchaser hereunder, and Seller and Escrow Agent may rely on, and all of such
persons shall be bound by, any writing executed by any one or more of them.
(e) The terms "herein," "hereof" or "hereunder" or similar terms used
herein refer to the entire Agreement and not to the particular provision in
which the term is used unless the context otherwise requires.
(f) The captions herein are for convenience and reference only, and in
no way define, limit, or describe the scope of this Agreement, or the intent of
any provision hereof.
(g) This Agreement shall be interpreted without the aid of any
presumption against the party drafting or causing the drafting of the provision
in question.
(h) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their successors, and their permitted assigns.
(i) This Agreement shall not be binding upon Seller until executed and
delivered by Seller.
(j) Purchaser shall not record this Agreement without the written
consent of Seller.
(k) Any payments to be made by Purchaser hereunder to, on behalf of,
or at the request of, Seller or Escrow Agent shall be made by unendorsed
certified check, or bank check endorsed by Purchaser, subject to collection.
Notwithstanding the foregoing, any payment made on account of the purchase
price, except for the payment made upon execution hereof, shall be made by wire
transfer of federal funds to Seller to a bank account designated by Seller. Any
payment made by wire transfer shall not be deemed to have been made until
confirmed as received by Seller's bank and credited to Seller's account.
-29-
<PAGE>
(l) If there be any reference herein to Purchaser's lender, then, any
such reference herein, shall not in any manner imply that financing is a
condition to Purchaser's obligations hereunder.
(m) Whenever herein Purchaser is entitled to receive a refund of all
sums theretofore paid on account of the purchase price, Seller shall also
reimburse Purchaser for the net cost of examination of title to the Property
(but not in excess of the Title Company's charges for examining title without
issuance of a title policy), if any, paid by Purchaser, and the reasonable cost
of a visual inspection of survey of the Property, if any, paid by Purchaser in
connection therewith.
(n) Purchaser represents that Purchaser has full power and authority
to enter into this Agreement, and to consummate the transactions contemplated
hereby, and neither the entering into hereof, nor the consummation of the
transactions contemplated thereby, will constitute a violation or breach by
Purchaser of any agreement or other instrument to which Purchaser is a party, or
to which it is subject, or by which any of its assets or property may be
affected or any judgment, order, writ, injunction, or decree issued against or
imposed upon it or will result in a violation of any applicable law, order,
rule, or regulation of any governmental authority.
(o) In the event any action is commenced by either party with regard
hereto, the party which prevails on the merits in any such action shall be
entitled to receive reasonable attorneys' fees and expenses incurred in
connection with the
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
-30-
<PAGE>
action from the opposing party. This remedy is without prejudice to any and all
of Purchaser's and Seller's other rights hereunder, at law, in equity, or
otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
Seller: FIVE N-B PROPERTIES, L.P.
By: Three Darts Corp., general partner
By: /s/ Gerald L. Antell
--------------------------------------
Name: Gerald L. Antell
Title: Partner
Purchaser: AMERIVEST BUILDINGS TEXAS INC.
By: /s/ James F. Etter
-------------------------------------
Name: James F. Etter
Title: President
Purchaser represents that its tax identification
number is _________________________ .
Executed solely for the purpose of accepting the Escrow on the terms and
conditions set forth in Paragraph 11 hereof.
Chicago Title Insurance Company
By:
-----------------------------------
-31-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 441,316
<SECURITIES> 0
<RECEIVABLES> 48,615
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 27,935,461
<DEPRECIATION> (5,837,264)
<TOTAL-ASSETS> 23,714,934
<CURRENT-LIABILITIES> 0
<BONDS> 18,861,599
0
0
<COMMON> 1,659
<OTHER-SE> 3,648,830
<TOTAL-LIABILITY-AND-EQUITY> 23,714,934
<SALES> 3,816,169
<TOTAL-REVENUES> 3,816,169
<CGS> 0
<TOTAL-COSTS> 3,101,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,036,387
<INCOME-PRETAX> (317,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (317,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (317,406)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> 0
</TABLE>
