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, 1997
[ ] 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.)
7100 Grandview Avenue, Suite 1, Arvada, CO 80002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 421-1224
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 o f this Form
10-KSB or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $2,482,182
The aggregate market value of the issuer's voting Common Stock held by
non-affiliates of the issuer as of March 10, 1998 was $6,249,432 (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 March 10, 1998).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's Common Stock as of March
10, 1998 was 1,429,070
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Items 10 and 12 of this Annual Report are in is
incorporated by reference from the Company's Proxy Statement concerning the
Company's May 21, 1998 Annual Meeting Of Stockholders.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
<TABLE>
<CAPTION>
PART I
ITEMS 1. and 2. DESCRIPTION OF BUSINESS AND PROPERTY
General
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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") and three state-leased office
buildings (the "Texas Buildings"). The Broadway Property, the Giltedge Office
Building, the Self-Storage Facilities, and the Texas Buildings are collectively
referred to as the "Properties". The Properties are managed on behalf of the
Company by AmeriCo Realty Services, Inc. ("AmeriCo") and 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 7100 Grandview Avenue, Suite 1,
Arvada, Colorado 80002. Its telephone number is (303) 421-1224.
Description Of Properties
- -------------------------
The following chart contains a summary of the Properties owned by AmeriVest
as of December 31, 1997:
Approximate Net
Property Location Owned Since Year Built Rentable Square Feet
- -------- -------- ----------- ---------- --------------------
<S> <C> <C> <C> <C>
Broadway Property Adams County, Colorado July 1, 1995 1968 50,280
(5961 Broadway)
Private Self-Storage/Office Arvada, Colorado October 30, 1996 1975 8,000 office/
Building of 37,000 storage
Arvada, Colorado (249 rental units)
(7117 W. 56th Avenue)
Private Self-Storage of Thornton, Colorado October 30, 1996 1975 55,150
Thornton, Colorado (506 rental units)
(666 W. Thornton Parkway)
Private Self-Storage of Denver, Colorado October 30, 1996 1974 72,490
Denver, Colorado (566 rental units)
(11855 E. 40th Avenue)
Private Self-Storage of Westminster, Colorado October 30, 1996 1973 58,938
Westminster, Colorado (399 rental units)
(7140 Irving Street)
Giltedge Office Building Appleton, Wisconsin October 30, 1996 1978 55,071
McCombs Office Building El Paso, Texas August 28, 1997 1978 17,900
(9206 McCombs)
Lubbock Office Building Lubbock, Texas August 28, 1997 1986 8,100
(409 50th Street)
Brookhollow Office Building El Paso, Texas September 30, 1997 1988 8,200
(5929 Brookhollow)
2
</TABLE>
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<TABLE>
<CAPTION>
The following chart contains additional summary information concerning the
Properties:
Occupancy Annual Rent Per Mortgage Loan Balance
Property Acreage as of December 31, 1997 Square Foot as of December 31, 1997
- -------- ------- ----------------------- ----------- -----------------------
<S> <C> <C> <C> <C>
Broadway Property 2.53 acres 100.0% $ 4.87 $1,158,977
Private Self-Storage/ 2.76 acres 95.0% $ 6.62 $827,693
Office Building of
Arvada, Colorado
Private Self-Storage of 4.92 acres 94.6% $ 6.28 $1,170,183
Thornton, Colorado
Private Self-Storage of 3.55 acres 99.5% $ 6.01 $1,189,206
Denver, Colorado
Private Self-Storage of 3.52 acres 88.2% $ 6.13 $903,799
Westminster, Colorado
Giltedge Office Building 3.90 acres 95.4% $14.64 $2,013,218
McCombs Office Building 1.83 acres 100% $ 6.70 -0-
Lubbock Office Building .69 acres 100% $ 7.29 -0-
Brookhollow Office Building .81 acres 100% $ 9.28 -0-
</TABLE>
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."
Broadway Property. AmeriVest Broadway Properties Inc. ("ABP"), a
wholly-owned subsidiary of the Company, owns fee simple title to the Broadway
Property. The Broadway Property is an industrial office and showroom building
located at 5961 Broadway, Denver, Colorado 80216. The Broadway Property consists
of approximately 2.53 acres of land and contains approximately 50,280 rentable
square feet. The mortgage balance on the Broadway Property as of December 31,
1997 was $1,158,977. The current monthly principal and interest payment is
$9,920.40, the per annum interest rate is 8.5%, and the mortgage is amortized
over a 25-year period with the $1,144,945 balance due at maturity in September
1998 (assuming no principal payment has been made in advance). The Company does
not have any present plans for capital expenditures on the Broadway Property and
it intends to hold the Broadway Property for income purposes. The Broadway
Property is subject to the following competitive conditions: there are other
light industrial/warehouse facilities in the immediate area, but no one property
or property owner represents a dominant competitive force. The occupancy rate
for the Broadway Property has been 100% in 1997, 1996 and 1995. There are a
total of four tenants, each of whom occupies more than 10% of the rentable
square feet of the Broadway Property. The principal business of each of these
tenants is warehousing and wholesale sales of commercial products. In general,
the principal businesses carried on at the Broadway Property are office and
showroom. For 1997, 1996 and 1995, the average effective annual rental per
square foot for the Broadway Property was $4.87, $4.73 and $4.45, respectively.
For 1997, real estate taxes for the Broadway Property were $31,358, which were
calculated at the rate of 8.2% of the assessed value as determined by the Adams
County Assessor. The following is a schedule of lease expirations for the
Broadway Property for the next four years as all of the leases will expire
during that time period:
<TABLE>
<CAPTION>
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
------------------ ---------------------- ------------------ ----------------------------------
<C> <C> <C> <C> <C>
1998 2 23,680 $114,612 47.2%
2002 2 26,600 $128,400 52.8%
3
</TABLE>
<PAGE>
For information concerning certain contaminants on the Broadway Property,
see below, "--Forward-Looking Statements And Cautionary Statements--C. Real
Estate Investment Risks--Possible Environmental Liabilities".
Private Self-Storage/Office Building Of Arvada, Colorado. Consolidated
Storage Properties Inc. ("CSP"), a wholly-owned subsidiary of the Company, owns
fee simple title to the Private Self-Storage/Office building in Arvada,
Colorado. The Property consists of a self-storage facility, which includes a
strip of rental offices, located at 7117 West 56th Avenue, Arvada, Colorado
80002. This Property includes approximately 2.76 acres of land and contains
rental offices with approximately 8,000 square feet of rentable space. This
Property also contains eight storage buildings with a total of 252 rental units
with an aggregate of approximately 37,000 square feet of storage space. A
separate building on the premises serves as the manager's apartment and office.
The mortgage loan for this Property was obtained from the same lender and at the
same time as the mortgage loans (collectively, the "CSP Mortgages") for the
private self-storage properties in each of Thornton, Denver, and Westminster,
Colorado. For a description of the CSP Mortgages, see "--CSP Mortgages" below.
The Company does not have any present plans for capital expenditures on this
Property and intends to hold the Property for income purposes. This Property is
subject to the following competitive conditions: there are national, regional
and independent self-storage facilities in the area; however, no one operator is
a dominant competitive force in this market. The occupancy rates for this
Property were 95%, 91%, 95%, 95% and 97% in 1997, 1996, 1995, 1994, and 1993,
respectively. There are seven tenants occupying 10% or more of the office
rentable square feet of the Property. The principal businesses of these tenants
include real estate, property management, carpet cleaning, contractor and
chiropractic. There are no tenants occupying 10% or more of the rentable square
feet of the self-storage units. In general, the Property is used for
self-storage for individuals or companies. For 1997, 1996, 1995, 1994, and 1993,
the average effective annual rentals per square foot for the Property were
$6.62, $6.50, $6.62, $6.36, and $5.24, respectively. For 1997, real estate taxes
for this Property were $34,850, which taxes were calculated at the rate of 8.9%
of the assessed value as determined by the Jefferson County Assessor. The
following is a schedule of lease expirations for office space at this Property
for the next ten years:
<TABLE>
<CAPTION>
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire - Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
Office Space
------------ ---------------------- ------------------ ----------------------------------
<C> <C> <C> <C> <C>
1998 4* 4,800 $31,416 56.9%
1999 1 800 $6,120 11.1%
2000 2 2,400 $17,640 32.0%
- ----------
* Two of these expiring leases are month-to-month tenancies.
</TABLE>
Private Self-Storage Of Thornton, Colorado. CSP owns fee simple title to
Private Self-Storage Of Thornton, Colorado. This Property consists of a
self-storage facility located at 666 West Thornton Parkway, Thornton, Colorado
80229. This Property includes approximately 4.92 acres of land and contains 16
storage buildings with a total of 510 rental units and an aggregate of
approximately 55,150 square feet of storage space. A separate building on the
premises serves as the manager's apartment and office. This Property also
contains 10 parking spaces for vehicle storage. For information concerning the
mortgage loan secured by this Property, see "--CSP Mortgages" below. The Company
does not have any present plans for capital expenditures on the Property. The
4
<PAGE>
Company intends to hold this Property for income purposes. This Property is
subject to the following competitive conditions: There are national, regional
and independent self-storage facilities in the area; however, no one operator is
a dominant competitive force in this market. The occupancy rates for this
Property have been 95%, 86%, 91%, 93%, and 95% in 1997, 1996, 1995, 1994, and
1993, respectively. There are no tenants occupying 10% or more of the rentable
square feet of the Property. All leases are on a month-to-month basis. In
general, the Property is used for self-storage by individuals or businesses. For
1997, 1996, 1995, 1994, and 1993, the average effective annual rentals per
square foot for the Property were $6.28, $6.50, $6.48, $6.61, and $6.33,
respectively. For 1997, real estate taxes for this Property were $47,240, which
taxes were calculated at the rate of 3.1% of the assessed value as determined by
the Adams County Assessor.
Private Self-Storage Of Denver, Colorado. CSP owns fee simple title to
Private Self-Storage Of Denver, Colorado. This Property consists of a
self-storage facility located at 11855 East 40th Avenue, Denver, Colorado 80239.
This Property includes approximately 3.55 acres of land and contains ten storage
buildings with a total of 571 rental units and an aggregate of approximately
72,490 square feet of storage space. This Property also contains a manager's
two-bedroom apartment and office and 35 parking spaces for vehicle storage. For
information concerning the mortgage loan secured by this Property, see "--CSP
Mortgages" below. The Company does not have any present plans for capital
expenditures on the Property. The Company intends to hold this Property for
income purposes. This Property is subject to the following competitive
conditions: there are national, regional and independent self-storage facilities
in the area; however, no one operator is a dominant competitive force in this
market. The occupancy rates for this Property were 99%, 75%, 85%, 86%, 85%, and
88% in 1997, 1996, 1995, 1994, and 1993, respectively. There are no tenants
occupying 10% or more of the rentable square feet of the Property. All leases
are on a month-to-month basis. In general, the Property is used for self-storage
by individuals or businesses. For 1997, 1996, 1995, 1994, and 1993, the average
effective annual rentals per square foot for the Property were $6.01, $5.73,
$6.07, $6.59, and $6.19, respectively. For 1997, real estate taxes for this
Property were $43,454, which taxes were calculated at the rate of 7.5% of the
assessed value as determined by the Denver County Assessor.
Private Self-Storage Of Westminster, Colorado. CSP owns fee simple title to
Private Self-Storage Of Westminster, Colorado. This Property contains a
self-storage facility located at 7140 Irving Street, Westminster, Colorado
80030. This Property consists of approximately 3.52 acres of land and contains
nine storage buildings with a total of 401 rental units and aggregate storage
space of approximately 58,938 square feet. A separate building on the premises
serves as the manager's apartment and office. For information concerning the
mortgage loan secured by this Property, see "--CSP Mortgages" below. The Company
does not have any present plans for capital expenditures on the Property. The
Company intends to hold this Property for income purposes. This Property is
subject to the following competitive conditions: there are national, regional
and independent self-storage facilities in the area; however, no one operator is
a dominant competitive force in this market. The occupancy rates for this
Property were 86%, 85%, 89%, 94%, and 95%, in 1997, 1996, 1995, 1994, and 1993,
respectively. There are no tenants occupying 10% or more of the rentable square
feet of the Property. All leases are on a month-to-month basis. In general, the
Property is used for self-storage by individuals and businesses. For 1997, 1996,
1995, 1994, and 1993, the average effective annual rentals per square foot for
the Property were $6.13, $5.93, $5.51, $5.73, and $5.08, respectively. For 1997,
real estate taxes for this Property were $33,863, which taxes were calculated at
the rate of 2.5% of the assessed value as determined by the Adams County
Assessor.
CSP Mortgages. The mortgage loans (the "CSP Mortgages") for each of the
Self-Storage Facilities owned by CSP that are described above were obtained from
the same lender. Each of the Self-Storage Facilities serves as collateral for
all of the CSP Mortgages so that a default under one loan could cause the
foreclosure on one or all of the Self-Storage Facilities. Each CSP Mortgage
bears interest at the rate of 9.9% per annum and monthly payments of principal
and interest are based upon a 20 year amortization, and the maturity date of
each CSP Mortgage is March 1, 2000. CSP can prepay each CSP Mortgage with a
prepayment fee at any time from May 1, 1996 until December 1, 1999 with at least
5
<PAGE>
60 days' prior written irrevocable notice. The prepayment fee is equal to the
amount prepaid multiplied by the difference in yield between the outstanding
principal balance and a treasury note in the amount of the prepayment proceeds
with a term equal to the remaining term of the loan, or if no treasury note of
equal term is available, based upon an interpolation of the yield of notes with
the next longer and shorter term (the "Treasury Note Yield"). The following
table summarizes the amount of the mortgage loan balance as of December 31, 1997
for each of the self-storage properties owned by CSP, the monthly payment due
with respect to each loan based on the 20-year amortization and 9.9% annual
interest rate, and the balance due at the maturity of each loan on March 1,
2000:
<TABLE>
<CAPTION>
Balance Due At Maturity
Property Mortgage Balance Monthly Payment (March 1, 2000)
-------- ---------------- --------------- ----------------
<S> <C> <C> <C>
Private Self-Storage/Office $827,694 $ 8,338 $ 784,114
Building of Arvada,
Private Self-Storage of $1,170,183 $11,789 $1,108,565
Thornton, Colorado
Private Self-Storage of $1,189,206 $11,980 $1,126,583
Denver, Colorado
Private Self-Storage of $903,799 $ 9,105 $ 856,208
Westminster, Colorado
</TABLE>
Giltedge Office Building In Appleton, Wisconsin. Giltedge Office Building,
Inc. ("GBI"), a wholly-owned subsidiary of the Company, owns fee simple title to
the Giltedge Office Building. This Property contains approximately 3.9 acres and
includes an office building located at 4321 West College Avenue, Appleton,
Wisconsin 54914. The office building contains approximately 54,871 square feet
of net rentable area and was constructed in 1978. The mortgage loan balance on
the Property as of December 31, 1997 was $2,013,218. The current monthly
principal and interest payment is $16,909.80, the per annum interest rate is
8.5%, and the mortgage is amortized over a 25-year period through its maturity
date of October 1, 2019. GBI can prepay the loan in full or in part at any time
without penalty provided that the prepayment is accompanied by any unpaid and
accrued interest. The Company does not have any present plans for capital
expenditures on the Property. The Company 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
96%, 99%, 97%, 99%, and 95%, in 1997, 1996, 1995, 1994, and 1993, respectively.
There are two tenants occupying 10% or more of the rentable square feet of the
Property. The principal businesses of these tenants are telecommunications and
paper supplies. In general, the principal business carried on at the Property is
office administration. For 1997, 1996, 1995, 1994, and 1993, the average
effective annual rentals per square foot for the Property were $14.64, $14.77,
$14.12, $13.65, and $12.85, respectively. For 1997, real estate taxes for this
Property were $66,755, which taxes were calculated at the rate of 1.1% of the
assessed value as determined by the Outagamie County Assessor. The following is
a schedule of lease expirations for the Property for the next ten years:
6
<PAGE>
<TABLE>
<CAPTION>
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
----------------------- -------------------------- ------------------------- ----------------------------------
<S> <C> <C> <C> <C>
1998 8 7,658 $118,560 15.8%
1999 8 14,227 $215,232 28.8%
2000 5 18,560 $276,708 37.0%
2001 1 1,703 $25,548 3.4%
2002 5 8,627 $112,152 15.0%
McCombs Office Building in El Paso, Texas. AmeriVest Properties Texas Inc.
("APT"), a wholly-owned subsidiary of the Company, owns fee simple title to the
McCombs Office Building in El Paso, Texas. This Property consists of an office
building located at 9206 McCombs, El Paso, Texas. This Property includes
approximately 1.83 acres of land in two parcels and an office building of
approximately 17,900 square feet, which includes 14,825 square feet of net
rentable area. The building is leased to the State of Texas and is being
occupied 100% by the Department of Human Services. The Company does not have any
present plans for capital expenditures on the building and intends to hold the
property for income purposes. The State of Texas has leased the building since
September 1984. The effective annual rental for 1997 was $8.09 per square foot.
This Property is subject to the following competitive conditions: there are
several office buildings in the area, but there is no dominant owner or
building. The real estate taxes for 1997 were $21,719, which taxes were
calculated at the rate of 2.8% of the assessed value as determined by the El
Paso County Assessor. The following is a schedule of the lease expiration for
the Property for the next ten years:
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
----------------------- -------------------------- ------------------------- ----------------------------------
2006 1 14,825 $120,000 100%
Lubbock Office Building in Lubbock, Texas. APT owns fee simple title to the
Lubbock Office Building in Lubbock, Texas. This Property consists of an office
building located at 409 50th Street, Lubbock, Texas 79404. This Property
includes approximately .69 acres of land and an office building of approximately
8,100 square feet, which includes 6,070 square feet of net rentable area. The
building is leased to the State of Texas and is being occupied 100% by the
Department of Criminal Justice. The Company does not have any present plans for
capital expenditures on the building and intends to hold the property for income
purposes. The State of Texas has leased the building since October 1986. The
effective annual rental for 1997 was $9.73 per square foot. This Property is
subject to the following competitive conditions: there are several office
buildings in the area, but there is no dominant owner or building. The real
estate taxes were calculated at the rate of 2.4% of the assessed value as
determined by the Lubbock County Assessor. The following is a schedule of the
lease expiration for the Property for the next ten years:
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
----------------------- -------------------------- ------------------------- ----------------------------------
2003 1 6,070 $59,040 100%
7
<PAGE>
Brookhollow Office Building in El Paso, Texas. APT owns fee simple title to
the Brookhollow Office Building in El Paso, Texas. This Property consists of
approximately .81 acres of land and an office building of approximately 8,200
square feet, which includes 6,100 square feet of net rentable area. The building
is leased to the State of Texas and is being occupied 100% by the Department of
Criminal Justice. The Company does not have any present plans for capital
expenditures on the building and intends to hold the property for income
purposes. The State of Texas has leased the building since February 1989. The
effective annual rental for 1997 was $12.39 per square foot. This Property is
subject to the following competitive conditions: there are several office
buildings in the area, but there is no dominant owner or building. The real
estate taxes for 1997 was $13,179, which taxes were calculated at the rate of
2.8% of the assessed value, as determined by the county assessor. The following
schedule of the lease expiration for the Property for the next ten years:
Number Of Tenants Whose Total Area (In Square Feet) Annual Rental Represented Percentage Of Gross Annual Rental
Leases Will Expire Of The Expiring Leases By Expiring Leases Represented By The Expiring Leases
----------------------- -------------------------- ------------------------- ----------------------------------
2003 1 6,100 $75,600 100%
Property Management Contracts. The Company has entered into property
management contracts for each of the Properties other than the Texas Properties
with AmeriCo pursuant to which AmeriCo manages all aspects of the operation of
those Properties, including leasing, maintenance, bookkeeping, and other
matters. The management fee paid to AmeriCo is 5% of the gross rental income, as
received, on those Properties, reimbursement of the cost of any on-site
personnel, and an amount equal to 5% of the total costs related to on-site
personnel. In addition, AmeriCo receives an administrative fee equal to 2% of
the gross rental income from the Texas Properties for accounting, bookkeeping
and other administrative services with respect to the Texas Properties. See
"ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". The Company has
entered into property management contracts with Melsama pursuant to which
Melsama manages all aspects of the operation of the Texas Properties. Melsama is
paid a management fee equal to 3% of the gross rental income, as received, from
the Texas Properties.
Proposed Purchase Of Eleven Office Buildings In Texas
- -----------------------------------------------------
The Company has executed eleven contracts to purchase eleven small office
buildings located in Texas that are leased to various Texas government agencies.
The acquisition of these properties is expected to be completed on or before
July 1, 1998. The aggregate purchase price for these buildings is approximately
$7,300,000. A portion of the purchase price will be paid by the issuance of up
to 204,300 shares of the Company's Common Stock at the rate of $5.00 per share.
Additional shares may be issued to the respective sellers in the future based on
the Company's stock price and the occupancy levels of certain of the properties.
The Company currently is pursuing debt financing for the cash portion of the
purchase price. Although no binding commitment has been received for this
financing, the Company believes that it will be able to obtain the financing for
these acquisitions during the second quarter of 1998. However, there is no
assurance that this will occur.
8
</TABLE>
<PAGE>
Competition
- -----------
The business of operating self-storage facilities 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 business of managing, leasing, and operating office buildings also
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 Company believes that by focusing on
self-storage facilities and other commercial properties, the Company will be
well positioned to compete. Competitive conditions with respect to each Property
are described above under "--Description Of Properties".
Employees
- ---------
The Company has two employees, James F. Etter, who is the President, Chief
Executive Officer and Chief Financial Officer of the Company, and a part time
administrative assistant. Management services with respect to the Properties are
performed by AmeriCo and Melsama. See above, "--Proper ty Management Contracts".
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
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.
9
<PAGE>
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 their
net operating income. The Company will sell any of these Properties when the
economic benefit, including the income tax consequences, to the stockholders
warrants 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 affect this determination, and the Company does not intend to sell 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
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, invest ments, 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 par t 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.
10
<PAGE>
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:
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. Mortgages of certain of the Properties also require the payment of
the mortgage balances in September 1998 and March 2000. See above,
"--Description Of Properties". 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 Ris ks--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.
11
<PAGE>
Dependence On Key Personnel. The Company is highly dependent on the
services of James F. Etter, its president and sole full-time employee. The loss
of Mr. Etter could have a material adverse affect on the Company. See above,
"--Employees".
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.
Although the Company does not intend to sell the properties which are
owned by CSP and GBI until at least ten years after their acquisition, if the
Company does sell any of these properties within ten years of 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 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.
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
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.
12
<PAGE>
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% nondeducti ble 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 be tween 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.
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".
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 expirat ion 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
13
<PAGE>
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 t o 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")
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
14
<PAGE>
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.
15
<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 bid prices of the Common Stock and Warrants for
each quarterly period during the period commencing November 6, 1996 and ended
December 31, 1997, as reported by the Nasdaq SmallCap market, is as follows:
Common Stock Warrants
----------------------- -----------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
December 31, 1996 $5.75 $2.25 $1.50 $.50
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
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not reflect actual transactions. The closing
sales price for the Common Stock on March 10, 1998 as reported by Nasdaq
SmallCap Stock Market was $4.75 per share.
Holders. The number of holders of Common Stock of record on March 10, 1998
was 324. This number does not include stockholders who own Common Stock through
a brokerage firm or other nominee.
Dividends. The Company paid $.1125 per share dividend in each of the four
quarters in 1997. The annualized dividend per share was $.45.
Recent Sales Of Unregistered Securities. On August 28 and September 30,
1997, the Company issued 34,200 and 12,000 shares of Common Stock, respectively,
as part of the purchase consideration of the Texas Properties that were acquired
on those dates. The issuance of these shares of Common Stock was made pursuant
to an exemption from registration in accordance with Section 4(2) under the
Securities Act.
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).
16
<PAGE>
Results Of Operations
- ---------------------
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 in
clusion of the expenses attributable to each of the 1996 Acquired Properties
(defined below) for a full year and the 1997 Acquired Properties for five
months. As a result of the above factors, the net loss and net loss per share
decreased from $137,728 or $.29 per share, to $120,452, or $.09 per share in
1997 from 1996.
Comparison Of Year Ended December 31, 1996 With Year Ended December 31, 1995
- ----------------------------------------------------------------------------
The 1996 operating results include only six months revenues and expenses
for the five properties acquired effective as of July 1, 1996 (the "1996
Acquired Properties"). The 1995 operating results include only one property, the
Broadway Property, for the entire year. Revenues for 1996 increased $1,022,200,
and operating expenses, management fees, interest and depreciation and
amortization increased $280,000, $51,500, $303,000 and $263,000, respectively,
as compared with 1995. All the increases resulted primarily from operation of
the 1996 Acquired Properties as of July 1, 1996. Actual real estate taxes for
each property remained flat when compared to prior year's taxes, except for the
Giltedge Office Building which decreased from $82,600 in 1995 to $67,100 in
1996. The general and administrative expenses increased approximately $44,000
due primarily to personnel costs associated with managing the Company's property
portfolio. Of the $28,000 increase in interest income, approximately $10,000 is
attributable to a portion of IPO proceeds being available for investment in
short term investments, and the remainder is attributable to a non-recurring
interest payment to CSP and GBI from their former parent that accrued from July
1 to October 30, 1996. See Note 9 to the financial statements. The revenues and
operating expenses for the Broadway Property remained constant for years ended
1996 and 1995.
As a result of the above factors, the net loss and net loss per share
decreased in 1995 from $164,570, or $.58 per share, to $137,728, or $.29 per
share, in 1996. Assuming on a pro forma basis that the Company had acquired all
six of its properties effective on or before January 1, 1996 ( the 1996 Acquired
Properties were acquired effective as of July 1, 1996), the pro forma net loss
and net loss per share for 1996 would be $27,999 and $.02, respectively.
Liquidity and Capital Resources
- -------------------------------
AmeriVest's IPO resulted in the issuance and sale of 1,098,870 shares of
common stock at $5.00 per share and 549,435 warrants at $.10 per warrant (see
Note 4 to the financial statements). The net proceeds from the offering were
approximately $4,538,000, of which $3,325,000 was used to acq uire the five
properties that the Company had under contract at the time of the offering (see
Note 2 to the financial statements), $196,000 was used to repay a short term
note to a related party, and $1,000,000 was set aside for future acquisitions.
The $1,000,000 represents the major part of the increase in cash and cash
equivalents from December 31, 1995 to December 31, 1996.
17
<PAGE>
The Company has under contract eleven office buildings in Texas for an
aggregate purchase price of approximately $7,300,000. A portion of the purchase
consideration will be paid by the issuance of 204,300 shares of the Company's
common stock at $5.00 per share. The remaining portion will be financed through
long-term debt. The acquisition is expected to be completed on or before July 1,
1998. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTY - Proposed
Purchase Of Eleven Office Buildings In Texas".
During the third quarter of 1997, AmeriVest issued an aggregate of 46,200
shares of its Common Stock, valued at $207,900, as partial consideration for the
acquisition of the 1997 Acquired Properties. Other changes in stockholders'
equity are the result of dividends paid in 1997. The tota l dividends for 1997
were $631,396, of which $160,801 ($.1125 per share) was paid on January 9, 1998
to stockholders of record on December 26, 1997.
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
$400,000. At December 31, 1997, the Company had available $250,000 under that
line of credit.
The Company expects to continue its acquisition strategy of acquiring
properties, but to do so the Company will need to raise additional capital from
the sale of securities, incur additional borrowings, and/or issue previously
unissued shares of common stock. The issuance of such securities or increase in
debt for additional properties, of which there is no assurance, could adversely
affect the amount of dividends paid to stockholders.
Management believes that inflation should not have a material adverse
effect on the Company. The Company's leases of office and showroom space require
the tenants to pay increases in operating expenses, and the self-storage leases
are short-term so that there are not contractual restraint s against increasing
rents to attempt to respond to inflationary pressures, if any inflationary
pressure should materialize.
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, 1997 F-2
Consolidated Statements of Operations for the
years ended December 31, 1996 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996 and 1997 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1997 F-5-6
Notes to Consolidated Financial Statements F-7-17
18
<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, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1997. 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, eviden ce 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, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Wheeler Wasoff, P.C.
Denver, Colorado
February 7, 1998
F - 1
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
ASSETS
Investment in real estate
Land $ 2,668,758
Buildings and improvements 13,064,287
Furniture, fixtures and equipment 248,667
Tenant improvements 519,945
Less accumulated depreciation and amortization (5,118,271)
------------
Net Investment in Real Estate 11,383,386
Cash and cash equivalents 99,334
Tenant accounts receivable 34,625
Deferred financing costs, net 85,956
Prepaid expenses and other assets 38,767
------------
$ 11,642,068
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage loans and notes payable $ 7,413,077
Accounts payable and accrued expenses 48,543
Accrued interest 56,219
Accrued real estate taxes 298,074
Accrued rents and security deposits 120,799
Dividends payable 160,801
------------
Total Liabilities 8,097,513
============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized - 10,000,000 shares
Issued and outstanding - 1,429,070 shares 1,429
Capital in excess of par value 4,463,955
Distributions in excess of accumulated earnings (920,829)
------------
Total Stockholders' Equity 3,544,555
------------
$ 11,642,068
============
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, 1996 AND 1997
1996 1997
---- ----
REAL ESTATE OPERATING REVENUE
Rental revenue
Commercial properties $ 606,758 $ 1,132,849
Storage properties 638,826 1,349,333
----------- -----------
1,245,584 2,482,182
----------- -----------
REAL ESTATE OPERATING EXPENSES
Property operating expenses
Operating expenses 285,165 559,304
Real estate taxes 129,045 282,860
Management fees - related 72,735 141,136
General and administrative 214,784 400,376
Interest 408,614 685,429
Depreciation and amortization 303,465 570,307
----------- -----------
1,413,808 2,639,412
----------- -----------
OTHER INCOME
Interest income 30,496 36,778
----------- -----------
NET (LOSS) $ (137,728) $ (120,452)
=========== ===========
NET (LOSS) PER COMMON SHARE $ (.29) $ (.09)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 467,145 1,397,270
=========== ===========
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, 1996 AND 1997
Distributions
Common Stock Capital in in Excess of
-------------------------- Excess of Accumulated Accumulated
Shares Amount Par Value Deficit Earnings
------ ------ --------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 284,000 $ 284 $ 509,512 $ (508,782) $ --
Sale of common stock warrants -- -- 150,000 -- --
Costs of warrant offering -- -- (8,008) -- --
Sale of common stock and warrants in initial
public offering 1,098,870 1,099 5,548,205 -- --
Costs of public offering -- -- (1,009,732) -- --
Dividends paid (Note 1) -- -- -- (425,094) (31,253)
Adjustment to reflect reorganization as a
REIT -- -- (933,876) 933,876 --
Net (Loss) -- -- -- -- (137,728)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 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)
=========== =========== =========== =========== ===========
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, 1996 AND 1997
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (137,728) $ (120,452)
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Depreciation and amortization 303,465 570,307
Changes in assets and liabilities
Decrease (increase) in receivables 34,169 (4,611)
(Increase) decrease in prepaids (2,656) 11,588
(Decrease) in accounts payable (26,470) (4,221)
Increase in accruals 91,827 78,276
Other (13,005) (1,500)
----------- -----------
Net cash provided by operating activities 249,602 529,387
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investments in real estate (4,883) (1,205,179)
Acquisition of subsidiaries, net of cash acquired (Note 2) (2,769,152) --
Loans to predecessor parent of subsidiaries acquired (385,000) --
----------- -----------
Net cash (used) by investing activities (3,159,035) (1,205,179)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants 5,549,304 --
Common stock offering costs (905,356) --
Proceeds from sale of common stock warrants 150,000 --
Cost of warrants offering (8,008) --
Proceeds from bank loan -- 260,000
Repayment of bank loan -- (110,000)
Loan proceeds - related 75,000 --
Re-payment of loan to related party (200,000) --
Payments on mortgage loans (71,697) (134,918)
Dividends paid (456,347) (470,596)
----------- -----------
Net cash provided (used) by financing activities 4,132,896 (455,514)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,223,463 (1,131,306)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,177 1,230,640
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,230,640 $ 99,334
=========== ===========
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, 1996 AND 1997
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1996 and 1997, the Company paid cash for
interest of $396,030 and $686,450 respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In October 1996, as effective July 1, 1996, the Company acquired 100% of the
issued and outstanding common stock of Consolidated Storage Properties, Inc.
(CSP) and Giltedge Office Building, Inc. (GBI), for an aggregate purchase price
of $3.8 million (See Note 2). The amount by which the Company's purchase price
exceeded the book value of the net assets acquired has been recorded as a $4.5
million increase to the cost basis of the properties.
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).
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. Effective January 1, 1996, and
upon completion of an initial public offering of its common stock, the
Company commenced operating as a self-administered and self-managed rea l
estate investment trust ("REIT"). The Company owns and operates, through
its wholly owned subsidiaries, self-storage facilities and an industrial
warehouse in the Denver, Colorado metropolitan area, an office building in
Appleton, Wisconsin and three commercial office properties in Texas.
Effective July 1, 1996, the Company acquired 100% of the outstanding common
stock of both Consolidated Storage Properties, Inc. and Giltedge Office
Building, Inc. pursuant to a purchase and sale agreement entered into July
14, 1995, as amended April 24, 1996. The acquisition was accounted for as a
purchase (Note 2).
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)
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
F - 7
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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
Prior to completion of the Company's initial public offering, operations
were conducted through the Company and a wholly owned subsidiary, ABP.
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 distri
butes 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 paid for the year ended December
31, 1996 totaling $456,347 are characterized 93.15% ($.307 per share) as
ordin ary income and 6.85% ($.023 per share) as return of capital. The
F - 8
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dividends paid as ordinary income represent a distribution of earning and
profits (as defined under the Code) of the Company's subsidiaries prior to
their inclusion in the REIT. Dividends for the year ended December 31, 1997
totaling $631,396 are characterized 100% as return of capital and includes
the dividend decl ared in the fourth quarter of 1997 of $160,801 ($.1125
per share) which was paid January 9, 1998.
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 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.
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. Accumulated amortization of deferred financing costs was $71,778 at
De cember 31, 1997. Unamortized deferred financing fees are written-off
when debt is retired before the maturity date.
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. At December 31, 1997 there were no
cash equivalents.
F - 9
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Common shares issued prior to
completion of the Company's initial public offering are considered
outstanding for all periods presented. Common stock equivalents, consist
ing of warrants and options, are not considered in the calculation of net
loss per share as their inclusion would be antidilutive.
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 1997 SFAS No. 129, "Disclosure of Information about Capital
Structure" was issued effective for periods ending after December 15, 1997.
The Company has adopted the disclosure provisions of SFAS No. 129 effective
with the fiscal year ended December 31, 1997.
In June 1997 SFAS No. 130, "Reporting Comprehensive Income" was issued
effective for fiscal years beginning after December 31, 1997, with earlier
application permitted. The Company has elected to adopt SFAS No. 130
effective with the fiscal year ended December 31, 1998. Adoption of SFAS
No. 130 is not expected to have a material impact on the Company's
financial statements.
In June 1997 SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued effective for fiscal years beginning after
December 31, 1997, with earlier application permitted. The Company has
elected to adopt SFAS No. 131 effective with the fiscal year ended December
31, 1998. Adoption of SFAS No. 131 is not expected to have a material
impact on the Company's financial statements.
F - 10
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVESTMENTS IN REAL ESTATE
In October 1996, upon completion of the Company's initial public offering,
and effective as of July 1, 1996, the Company acquired 100% of the
outstanding common stock of both CSP and GBI pursuant to a purchase and
sale agreement entered into July 14, 1995, as amended April 24, 1996, with
Consolidated American Properties, Ltd. (CAP), a Colorado limited
partnership. The purchase price for the shares is an aggregate $3,325,000
allocated $2,604,000 to the CSP shares and $721,000 to the GBI shares. At
closing, the Company paid $3,017,541, as follows:
Purchase price, per contract $ 3,325,000
Closing adjustments 482,505
-----------
Purchase price 3,807,505
Note receivable from CAP (789,964)
-----------
Cash paid at closing 3,017,541
Cash acquired (248,389)
-----------
Cash paid, net of cash acquired $ 2,769,152
===========
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 will be 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.
Depreciation expense related to the investment in real estate was $290,620
and $544,400 for the years ended December 31, 1996 and 1997, respectively.
F - 11
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997:
Mortgage payable to United Companies Lending Corp.
Interest at 8.5%, due in monthly installments of
$9,920 through September 1998, at which time a
balloon payment of $1,144,945 is due.
Collateralized by the industrial warehouse
property in Denver, Colorado. $ 1,158,977
Mortgage payable to Fox Cities Bank, maturing October
1, 2019. Interest at 8.5% through October 1997,
with an annual adjustment thereafter not to exceed
1%; current monthly installment of $16,910.
Collateralized by an office building in Appleton,
Wisconsin. 2,013,218
Mortgages payable to AIG Mortgage Finance Company, Inc.
Interest at 9.9%, due in monthly installments of
$41,212 based on a 20 year amortization through
March 1, 2000 at which time a balloon payment of
$3,875,470 is due. Collateralized by four
self-storage facilities in Denver, Colorado. 4,090,882
Note payable to Norwest Bank Colorado, N.A. (Norwest),
$400,000 revolving line of credit secured by four
private self storage facilities in Colorado,
interest at Norwest prime plus 1% payable monthly.
The note matures in May, 1998. The year end
weighted average interest rate at December 31,
1997 was 9.5%. $250,000 was available for use at
December 31, 1997. 150,000
----------
$7,413,077
==========
As of December 31, 1997, the scheduled maturities of all mortgages and
notes payable are as follows:
1998 $ 1,435,670
1999 139,319
2000 3,932,778
2001 42,508
2002 46,265
Thereafter 1,816,537
-----------
$ 7,413,077
===========
F - 12
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - STOCKHOLDERS' EQUITY
In June 1996 the Company completed a private placement offering of
1,500,000 Warrants to purchase common stock of the Company at a purchase
price of $.10 per warrant. Each warrant entitles the holder to purchase one
share of restricted common stock of the Company at an exercise price of
$5.40 per share. The warrants are exercisable for a period of four years,
commencing November 13, 1996. Proceeds from the offering were $150,000,
before offering costs of $8,008.
In October 1996, the Company completed the sale of common stock and
warrants in its initial public offering, at offering prices of $5.00 and
$.10, respectively. The warrants are exercisable at a price of $5.40 per
share for a period of four years, commencing November 13, 1996. The
aggregate net proceeds from the offering were $4,539,572 for 1,098,870
shares of common stock and 549,435 warrants. In conjunction with the
offering, the Company sold to the underwriter, at a nominal cost, warrants
to purchase 164,831 shares of common stock at a price of $8.25 per share,
for a period of four years commencing October 29, 1996.
In 1997 the Company issued an aggregate 46,200 shares of its common stock
as partial compensation for the acquisition of three commercial properties
in Texas (see Note 2).
NOTE 5 - STOCK OPTION PLAN
In May 1995, the Board of Directors approved the 1995 Stock Option Plan
(the "Option Plan"). Pursuant to the Option 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 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.
F - 13
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTION PLAN (CONTINUED)
The status of outstanding options granted pursuant to the Company's Stock
Option Plan was as follows:
Number Weighted Weighted
of Average Average
Shares Exercise Price Fair Value
------ -------------- ----------
Options Outstanding - January 1, 1996 56,000 $ 5.00
Granted 10,000 $ 5.00 $ .08
-------
Options Outstanding - December 31, 1996 66,000 $ 5.00
(34,000 exercisable)
Granted 56,000 $ 4.44 $ .43
-------
Options Outstanding - December 31, 1997 122,000 $ 4.74
(57,000 exercisable) =======
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 1997 would have been
increased to the pro forma amounts indicated below:
Net (loss) applicable to common stockholders - as reported $ (120,452)
===========
Net (loss) applicable to common stockholders - pro forma $ (122,741)
===========
(Loss) per share - as reported $ (.09)
===========
(Loss) per share - pro forma $ (.09)
===========
Weighted average fair value of options granted in 1997 $ .43
===========
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%; expected volatility of
25.52%; discount rate of 5.50%; and expected lives of 5 years.
At December 31, 1997 the number of options exercisable was 57,000, the
weighted average exercise price of these options was $4.95, the weighted
average contractual life of the options was 5 years and the range of
exercise prices was $4.44 to $5.00 per share.
F - 14
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997:
1998 $ 1,242,371
1999 976,876
2000 664,278
2001 513,996
2002 393,918
Thereafter 292,112
----------
$4,083,551
==========
The 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.
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 governmental units 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. 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 instit utions, and maintains cash accounts only in large
high quality financial institutions, thereby minimizing exposure for
deposits in excess of federally insured amounts.
F - 15
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS
On July 14, 1995, as amended April 24, 1996, the Company entered into an
agreement with a real estate brokerage firm beneficially owned by an
individual who is the special representative to CAP, founder of the
Company, and was an approximate 4.9% beneficial stockholder of the Company
at December 31, 1996 (approximately 2.6% at December 31, 1997). Pursuant to
the agreement, the founder of the Company shall have the first right of
refusal to participate in any and all real estate transactions involving
commercial and industrial real estate which has been offered to the real
estate brokerage firm or the individual. The agreement is for a period of
one year, commencing upon the closing of the initial public offering of the
Company's common stock unless terminated at an earlier date, and month to
month thereafter.
In November 1997 the Company entered into purchase and sale agreements for
the acquisition of eleven commercial real estate properties located in
Texas. The aggregate purchase price for the eleven properties is
$7,316,500, comprised of $6,103,000 cash, 204,300 shares of the Company's
common stock, valued at $5.00 per share, and a promissory note in the
amount of $192,000 due with interest at the rate of 8.5% per annum. The
Company paid a $5,000 earnest money deposit on each of the eleven separate
purchase agreements (an aggregate $55,000) in 1998. Pursuant to the
agreements, closing on the acquisition of the properties will be on or
before July 1, 1998.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company's properties are managed, under a management agreement, by an
entity whose beneficial majority shareholder is a founder of the Company.
The entity manages all aspects of property operations, including leasing,
bookkeeping, and other matters. For these services, the Company is charged
a fee of 2% to 5% of gross revenues plus 5% of all personnel costs. During
the years ended December 31, 1996 and 1997, $66,735 and $141,136,
respectively, were incurred under the management agreement and for other
administrative services.
On June 15, 1995 the Company executed a promissory note with Electro-Media
of Colorado, Inc. (Electro) to borrow up to $125,000. Electro was, and is
still, owned and controlled by the spouse of an individual who was a major
beneficial shareholder of the Company at the time such loan was made. The
note is unsecured and was due, with interest at 11% per annum, on or before
December 31, 1996. As of December 31, 1995, $125,000 in advances had been
made on the note and $3,451 in accrued interest thereon was due. An
additional $75,000 was loaned to the Company in 1996 under the same terms
and conditions as the original loan. The total amount due, including
interest of $16,125, was repaid in October 1996.
The Company's subsidiaries, CSP and GBI, loaned their former parent, CAP,
an aggregate $385,000 during the period July 1, 1996, effective date of the
acquisition, through October 29, 1996, date of closing of the acquisition.
The amount loaned, including loans made prior to July 1, 1996, was re paid
together with interest at 9% per annum as an adjustment to closing (See
Note 2).
F - 16
<PAGE>
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma condensed statement of operations for the year
ended December 31, 1996 is presented as if the initial offering of the
Company's common stock and related transactions and acquisitions of CSP and
GBI had occurred at January 1, 1996 and therefore includes pro forma
information. The pro forma information is based upon historical information
and does not purport to present what actual results would have been had
such transactions, in fact, occurred at January 1, 1996, or to project
results for any future period.
Pro Forma Condensed Statement of Operations (Unaudited)
Total revenues $ 2,367,444
-----------
Property expenses 778,509
General and administrative expense 344,504
Interest expense 706,046
Depreciation and amortization 566,384
-----------
Total expenses 2,395,443
-----------
Net (loss) $ (27,999)
===========
Net (loss) per common share $ (.02)
===========
Weighted average number of common
shares outstanding 1,382,870
===========
F - 17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
19
<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 55 President; Chief Executive Officer;
Chief Financial Officer; and Director
Charles R. Hoffman 61 Chairman Of The Board
John A. Labate 49 Director
Robert J. McFann 81 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. From
1985 until 1988, Mr. Etter served as Vice President, Chief Financial Officer for
Wild Dunes Resort, and President of Wild Dunes Real Estate, Inc. Mr. Etter also
assisted in establishing a chain of restaurants when he served as President and
Chief Executive Officer of BEST Food Systems, Inc. He also served as Vice
President of Finance for Braswell Shipyards, Inc., assisting with negotiations
for a $28 million financing package with multiple lenders. In addition, Mr.
Etter has been the chief financial officer of Sam Solomon & Company, a public
company which subsequently was acquired by Service Merchandise & Company, and a
principal at Arthur Young & Company, now known as Ernst & Young, an
international accounting firm. 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.
20
<PAGE>
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
restaurant supply house under his direction. Prior to this, he worked for Cudahy
Meat Company in its salesdepartment 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, 1997, 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.
21
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The information required for Item 10 is incorporated by reference from
"EXECUTIVE COMPENSATION" in the Company's Proxy Statement concerning the
Company's May 21, 1998 Annual Meeting Of Stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information as of March 10, 1998
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 of the Company's Common Stock, and (iii) by all officers and directors as a
group.
As Of March 10, 1998
--------------------------------------------
Name And Address Of Percentage Of Class
Beneficial Owner Number Of Shares Beneficially Owned
- ---------------- ---------------- ------------------
Charles R. Hoffman 67,500(1) 4.7%
208 Somerset
Bentonville, Arizona 72712
John A. Labate 12,000(1) *
5260 South Beeler Court
Englewood, Colorado 80111
Robert J. McFann 64,800(1) 4.5%
3260 Zephyr Court
Wheat Ridge, Colorado 80033
James F. Etter 43,600(2) 3.0%
7100 Grandview Avenue
Suite 1
Arvada, Colorado 80002
All Officers And Directors 187,900(1)(2) 12.5%
As A Group (Four Persons)
S. Kris Bandal 98,000(3) 6.9%
6043 Hudson Road, #140
Woodbury, Minnesota 55126
Rimrock Partners LLC 122,256(4) 8.6%
1136 East Stuart, Suite 4203
Fort Collins, Colorado 80525-1193
- ---------------
*Less than one percent.
(1) Includes or consists of options to purchase 12,000 shares of Common Stock
that currently are exercisable that were granted to each Outside Director
pursuant to the Company's 1995 Stock Option Plan. The number of shares indicated
also includes the following number 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 17,100 shares of Common Stock owned by Mr.
Etter, his wife, and minor daughter, 21,000 shares of Common Stock issuable upon
one 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.
22
<PAGE>
(3) Consists of 98,000 shares over which Mr. Bandal has sole voting power as
disclosed in a Schedule 13D dated March 5, 1997 provided to the Company by Mr.
Bandal.
(4) Includes 122,256 shares over which Rimrock Partners LLC ("Rimrock") has sole
voting power as disclosed in a Schedule 13D dated March 17, 1998 provided to the
Company by Rimrock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Item 12 is incorporated by reference from
"TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL STOCKHOLDERS" in the Company's Proxy
Statement concerning the Company's May 21, 1998 Annual Meeting Of Stockholders.
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(a) First Amended And Restated Purchase And Sale Agreement
effective as of August 18, 1995 between the Company and
Consolidated Broadway Properties, Ltd. ("CBP") is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.1(b) Amendment No. 1 To First Amended And Restated Purchase And
Sale Agreement between the Company and CBP is incorporated
by reference from Registrant's Registration Statement on
Form SB-2 dated August 30, 1996 (Registration No.
333-5114-D).
10.2 Form of Storage/Office Building Management Agreement between
the Company and Americo Realty Services, Inc. is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.3(a) First Amended And Restated Purchase Agreement effective as
of July 14, 1995 between the Company and Consolidated
American Properties, Ltd. ("CAP") is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registrati on No. 333-5114-D).
23
<PAGE>
10.3(b) Amendment No. 1 To First Amended And Restated Purchase
Agreement between the Company and CAP is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.4(a) Agreement dated as of July 14, 1995 between and among the
Company, C.J. Hedlund, and Colorado Bighorn Corporation is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.4(b) Amendment No. 1 to Agreement between and among the Company,
C.J. Hedlund and Colorado Bighorn Corporation is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.5(a) Promissory Note dated as of June 15, 1995 from the Company
to Electro-Media Of Colorado, Inc. is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.5(b) Amended And Restated Promissory Note from the Company to
Electro-Media of Colorado, Inc. is incorporated by reference
from Registrant's Registration Statement on Form SB-2 dated
August 30, 1996 (Registration No. 333-5114-D).
10.6 Form of Employment Agreement effective as of January 1, 1996
between the Company and James F. Etter is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.7 Form of Employment Agreement effective as of January 1, 1997
between the Company and James F. Etter.
10.8 Form of Employment Agreement effective as of January 1, 1998
between the Company and James F. Etter.
10.9 1995 Stock Option Plan.
10.10 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.
27.1 Financial Data Schedule.
(b) Reports On Form 8-K. The Registrant did not file any reports on Form
8-K during the fiscal year ended December 31, 1997.
24
<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: March 30, 1998 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 March 30, 1998
- -------------------------- Officer (Principal Executive
James F. Etter Officer); Chief Financial
Officer (Principal Financial
and Accounting Officer)
and Director
/s/ Charles R. Hoffman Director March 30, 1998
- --------------------------
Charles R. Hoffman
/s/ John A. Labate Director March 30, 1998
- --------------------------
John A. Labate
/s/ Robert J. McFann Director March 30, 1998
- --------------------------
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(a) First Amended And Restated Purchase And Sale Agreement
effective as of August 18, 1995 between the Company and
Consolidated Broadway Properties, Ltd. ("CBP") is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.1(b) Amendment No. 1 To First Amended And Restated Purchase And
Sale Agreement between the Company and CBP is incorporated
by reference from Registrant's Registration Statement on
Form SB-2 dated August 30, 1996 (Registration No.
333-5114-D).
10.2 Form of Storage/Office Building Management Agreement between
the Company and Americo Realty Services, Inc. is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.3(a) First Amended And Restated Purchase Agreement effective as
of July 14, 1995 between the Company and Consolidated
American Properties, Ltd. ("CAP") is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registrati on No. 333-5114-D).
10.3(b) Amendment No. 1 To First Amended And Restated Purchase
Agreement between the Company and CAP is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.4(a) Agreement dated as of July 14, 1995 between and among the
Company, C.J. Hedlund, and Colorado Bighorn Corporation is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
10.4(b) Amendment No. 1 to Agreement between and among the Company,
C.J. Hedlund and Colorado Bighorn Corporation is
incorporated by reference from Registrant's Registration
Statement on Form SB-2 dated August 30, 1996 (Registration
No. 333-5114-D).
<PAGE>
10.5(a) Promissory Note dated as of June 15, 1995 from the Company
to Electro-Media Of Colorado, Inc. is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.5(b) Amended And Restated Promissory Note from the Company to
Electro-Media of Colorado, Inc. is incorporated by reference
from Registrant's Registration Statement on Form SB-2 dated
August 30, 1996 (Registration No. 333-5114-D).
10.6 Form of Employment Agreement effective as of January 1, 1996
between the Company and James F. Etter is incorporated by
reference from Registrant's Registration Statement on Form
SB-2 dated August 30, 1996 (Registration No. 333-5114-D).
10.7 Form of Employment Agreement effective as of January 1, 1997
between the Company and James F. Etter.
10.8 Form of Employment Agreement effective as of January 1, 1998
between the Company and James F. Etter.
10.9 1995 Stock Option Plan.
10.10 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.
27.1 Financial Data Schedule.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of January
1, 1997 (the "Effective Date") between James F. Etter ("Employee") and AmeriVest
Properties, Inc., a Delaware corporation (the "Company"). For purposes of this
Agreement, each of Employee and the Company is individually referred to as a
"Party", and Employee and the Company are referred to collectively as the
"Parties".
Recital
-------
The Company desires to retain the services of Employee and Employee has
offered to provide services to the Company pursuant to the terms of this
Agreement.
Agreement
---------
In consideration of the premises and of the mutual covenants included in
this Agreement, the Parties agree as follows:
1. Services. The Company retains Employee and Employee shall perform
services for the Company as set forth in this Agreement on behalf of the Company
for the period and under the terms and conditions set forth in this Agreement.
2. Term. This Agreement shall be for a one-year period commencing on the
Effective Date and ending on December 31, 1997, subject, however, to review and
termination as provided herein. Thereafter, this Agreement shall continue in
full force and effect until terminated by either Party upon at least ninety (90)
days' prior written notice to the other party. If the employment relationship is
terminated by either Party, Employee agrees to cooperate with the Company and
the Company's new management with respect to the transition of the new
management in the operations previously performed by Employee.
3. Duties. Employee shall perform the following services for the Company:
3.1 Employee shall serve as President and Chief Financial Officer of
the Company, or in such other position as determined by the Company's Board
of Directors (the "Board"), and in that capacity shall work with the
Company to pursue the Company's plans as directed by the Board
3.2 Employee shall perform duties with the functions of a President
and Chief Financial Officer, subject to the direction of the Board of
Directors of the Company.
3.3 During the term of this Agreement, Employee shall devote all of
Employee's business time to the performance of Employee's duties under this
Agreement. Without limiting the foregoing, Employee shall perform services
on behalf of the Company for at least 40 hours per week and Employee shall
be available at the request of the Company at other times, including
weekends and holidays, to meet the needs and requests of the Company's
customers.
1
<PAGE>
3.4 During the term of this Agreement, Employee will not engage in any
other activities or undertake any other commitments that conflict with or
take priority over Employee's responsibilities and obligations to the
Company and the Company's customers, including without limitation those
responsibilities and obligations incurred pursuant to this Agreement.
4. Compensation. The Company shall pay Employee for the performances of
services pursuant to this Agreement as follows:
4.1 Commencing as of the Effective Date and continuing until December
31, 1997, the Company shall pay Employee for the performance of services
pursuant to this Agreement a salary at an annual rate of $100,000.
4.2 The Company shall consider the Employee for a bonus toward the end
of 1997. Any bonus paid shall be determined by the Board and payable at
such time as the Board directs.
4.3 Any payments that the Company is required to make to the Employee
pursuant to this Agreement shall be reduced by (i) such amounts as are
required to be withheld with respect to those amounts under and for the
purposes of any of the applicable tax and other laws or regulations, and
(ii) such amounts as Employee may owe to the Company at any time and from
time to time.
4.4 Employee shall be eligible for participation in any present or
future incentive compensation, bonus profit sharing, pension, retirement,
stock option, or stock purchase plan of the Company of which other
employees of the Company are generally eligible. It is understood, however,
that entitlements that may accrue to the Employee pursuant to such
arrangements may differ from those that accrue to other employees, such
differences based on the discretion of the Board of Directors.
5. Reimbursement Of Expenses. Employee shall be reimbursed for reasonable
expenses incurred on behalf of the Company in the performance of Employee's
duties and services pursuant to this Agreement.
6. Additional Benefits. Employee shall be entitled to the following:
6.1 During each 12-month period commencing on the Effective Date,
Employee shall be entitled to fifteen (15) days of paid vacation in
accordance with the policies and practices of the Company. Employee's
salary shall accrue during the time of Employee's vacation taken in
accordance with this Section 6.1. Employee must utilize vacation days
within 30 days following the end of the 12-month period for which those
vacation days have accrued pursuant to this Agreement; otherwise those
vacation days will expire without payment, unless prior approval is
received from the Board. In the event that Employee takes more than the
allowable days of vacation, pursuant to the terms as set forth in this
Agreement, Employee's salary shall not accrue during any such excess
vacation or leave time, and the Company shall not be obligated to pay any
salary to Employee for those excess days. Employee shall not be entitled to
utilize vacation days on days on which Employee's services are required by
2
<PAGE>
the Company to meet the needs of the Company's customers or where the
Employee's absence will otherwise have a material effect on the operations
or business of the Company. The use by Employee of a vacation day in
violation of the prior sentence shall be a material breach of this
Agreement and, in addition to any other rights that the Company may have,
the Company shall not be obligated to pay any salary to Employee for that
vacation day. Employee shall be entitled to receive such additional
vacation, personal, and sick leave days as are provided to all other
management members or directors of the Company.
6.2 Employee and Employee's family, if any, shall be entitled to
receive such benefits under medical insurance plans, life and disability
insurance and otherwise, as are provided to all other salaried employees of
the Company. Until such time that the Company has adopted a medical
insurance plan for which Employee and Employee's family would be eligible,
the Company shall reimburse Employee for up to an aggregate of $6,000
annually for premiums and fees actually paid by Employee for medical, life,
dental and orthodontia, and disability insurance coverage for Employee
and/or Employee's family.
6.3 If Employee becomes disabled (i.e., unable to perform a
substantial portion of Employee's duties hereunder because of sickness or
injury), then Employee shall be paid on amount equal to Employee's regular
salary for a calendar period not exceeding ninety (90) days for each such
occurrence.
7. Termination.
7.1 Employee may terminate this Agreement at any time without further
liability or obligation hereunder if the Company has breached a material
provision of this Agreement or the Company has otherwise materially
breached any other obligation to Employee, such termination to be effected
by Employee's giving the Company written notice of termination at least 90
days prior to the date for termination and the Company's failing to cure
the breach prior to the date set for termination in that notice.
7.2 At the option of the Company, this Agreement may be terminated for
cause, with such termination to be effected by the Company's giving
Employee written notice of termination. The term "for cause" shall include
termination of employment as a result of any of the following: (i) a breach
by Employee of a material provision of this Agreement; or (ii) a breach by
Employee of any other material obligation of Employee to the Company; or
(iii) as a result of a determination by the Board, acting reasonably, that
the Employee has (A) committed a criminal act or an act constituting moral
turpitude, or (B) committed any fraudulent act, or (C) breached the
Employee's fiduciary duty to the Company. If the Employee shall dispute the
determination by the Board, the issue shall be submitted promptly to a
single arbitrator, mutually acceptable to each party, pursuant to the rules
of the American Arbitration Association whose decision as to whether
"cause" existed justifying termination of Employee's employment under this
Section 7.2 shall be final and binding. The fees for this arbitrator and
any filing fees for the arbitration shall be paid one-half by the Company
and one-half by the Employee.
7.3 At the option of the Company this Agreement may be terminated
immediately by the Company's giving written notice of termination to
Employee and by the Company's paying Employee's compensation in accordance
with the terms of this Agreement for a period beginning on the date of
termination and ending ninety (90) days after the date of termination.
3
<PAGE>
7.4 This Agreement shall terminate upon the death of Employee or if
Employee becomes disabled, in which case, Employee or Employee's family
shall be paid up to $500 per month for twelve months to the extent expenses
are incurred for medical, dental, orthodontia, disability and life
insurance or medical expenses unless the Company at that time has in effect
a benefit plan covering a portion of medical expenses. Employee shall be
considered "disabled" if, and on the date on which, Employee has been
unable to perform a substantial and material portion of Employee's duties
hereunder, for a period of 90 continuous days, because of sickness, injury,
or disability.
7.5 In the event Employee's employment is terminated, then all
unaccrued salary obligations of the Company to Employee shall cease as of
the date of termination except as otherwise expressed herein.
7.6 If there is (i) a "Change In Control" of the company, as defined
below, and (ii) the Company or the acquiring company in the Change In
Control does not offer Employee a position in the Denver Metropolitan area
at a salary level equal to or exceeding Employee's salary immediately
preceding the Change In Control and Employee's employment is terminated by
Employee or the Company within ninety (90) days after the Change In
Control, then (a) the Company shall pay to Employee on or before ninety
(90) days after the consummation of the Change In Control an amount equal
to one (1) year's Base Salary, at the rate in effect immediately prior to
the Change In Control, (b) all outstanding stock options held by Employee
shall become exercisable upon the consummation of the Change In Control,
and (c) this Agreement shall terminate when the rights of the Employee and
the obligations of the Company, as set forth in this section have been
fulfilled. If the rights of the Employee and the obligations of the Company
as set forth in this section are not fulfilled and satisfied within the
stated 90-day period, the Company will remain liable to the Employee for
those obligations until they are satisfied. Notwithstanding the foregoing,
no new rights or obligations shall accrue or be incurred during the period
that this Agreement is not terminated because of the failure of the Company
to satisfy its obligations. A Change In Control shall mean the sale,
liquidation, dissolution, consolidation, merger or other business
combination of or involving the Company, or the change in ownership of more
than 30 percent of the Company, or the transfer of all or substantially all
of the Company's assets.
8. Corporate Data And Information. Employee understands that Employee has
access to certain information concerning the Company and its business that is
provided solely in connection with Employee's employment with the Company. Any
other use of this information at any time during or after the term of this
Agreement is prohibited. Further, Employee understands that the Company may
become a publicly traded company and it is important for the Company to protect
the rights of its shareholders. Employee understands that applicable federal
securities laws impose significant restrictions concerning the use or disclosure
of certain non-public information in general and in buying or selling, or
discussing with others the possibility of buying or selling, the Company's stock
by persons who have access to material information concerning the Company which
is not generally available to members of the general public. Employee
understands that Employee is or will become subject to these restrictions and
Employee agrees that Employee will not, and that Employee will insure that any
persons having access to such non-public information through Employee will not,
buy or sell the Company's stock, or discuss with others any material non-public
4
<PAGE>
information concerning the Company or the possibility or advisability of buying
or selling the Company's stock, at any time that Employee possesses material
non-public information concerning the Company. During and after Employee's
employment, Employee agrees that Employee will not at any time disclose, to any
person or entity for any reason or purpose whatsoever, nor use for Employee's
own personal benefit or the benefit of any person or entity, any information
concerning the financial or business or other operations of the Company that is
not publicly known, provided that this restriction shall not apply to
information required to be disclosed under applicable laws, regulation, court
order or subpoena to which the Employee is subject. Upon the termination of the
Employee's employment under this Agreement for any reason, the Employee hereby
agrees to return to the Company all data and information relating to the
business of the Company or any of its subsidiaries or affiliates that the
Employee obtained during or prior to the time of Employee's employment. It is
expressly agreed that the terms and conditions of this Paragraph 8 shall apply
after any termination, whether voluntary or involuntary, of the Employee's
employment under this Agreement.
9. Non-Compete. Employee acknowledges and recognizes the highly competitive
nature of the Company's business and that Employee's duties hereunder justify
restricting Employee's further employment following any termination of
employment. The Employee agrees that so long as the Employee is employed by the
Company, (i) for a period of two years following the termination of this
Agreement, Employee, except when acting on behalf of or for the benefit of the
Company, will not induce customers, agents or other sources of distribution of
the Company's business under contract or doing business with the Company to
terminate, reduce, alter or divert business with or from the Company, and (ii)
for a period of one year following the termination of this Agreement, Employee
will not compete, within the State of Colorado, with the Company, or participate
as an officer or a principal in any business that includes part or all of the
Company's Area Of Business, as defined below. The covenant set forth under (ii)
above shall not apply if Employee's employment is terminated within 90 days of a
Change In Control as defined in Section 7.6 of this Agreement. Ownership by
Employee, for investment purposes only, of less than five percent of any class
of securities of a corporation if said securities are listed on a national
securities exchange or registered under the Securities Exchange Act of 1934, as
amended, shall not constitute a breach of the covenant set forth under (ii)
above. The Company's Area Of Business includes the acquisition and operation of
real estate properties with specific focus of investment and acquisition
activities in the office/industrial sector. It is the desire and intent of the
Parties that the provisions of this Section 9 be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of Section 9
shall be adjudicated to be invalid or unenforceable, Section 9 shall be deemed
amended to apply in the broadest allowable manner and to delete therefrom the
portion adjudicated to be invalid or unenforceable, such amendment and deletion
to apply only with respect to the operation of Section 9 in the particular
jurisdiction in which that adjudication is made.
10. Representations And Warranties.
10.1 The Company represents and warrants to Employee as follows: (i)
the Company has been duly formed as a corporation under the laws of the
State of Delaware; and (ii) the execution of this Agreement has been duly
authorized by the Company and does not require the consent of or notice to
any party not previously obtained or given.
5
<PAGE>
10.2 Employee represents and warrants to the Company that the
execution of this Agreement and the performance of Employee's obligations
hereunder does not require the consent of or notice to any party not
previously obtained or given, and there is nothing that prohibits or
restricts the execution by Employee of this Agreement or his performance of
the obligations hereunder.
11. Covenants. Each of Employee and the Company covenants to diligently and
skillfully do and perform the acts and duties required herein.
12. Miscellaneous.
12.1 Entire Agreement. This Agreement constitutes the entire Agreement
between the Parties with respect to the subject matter of this Agreement
and supersedes all prior and contemporaneous agreements between the Parties
with respect to the subject matter of this Agreement.
12.2 Notice. All notices, requests, demands, directions and other
communications ("Notices") concerning this Agreement shall be in writing
and shall be mailed or delivered personally or sent by telecopier or
facsimile to the applicable Party at the address of such Party set forth
below in this Section 12.2. When mailed, each such Notice shall be sent by
first class, certified mail, return receipt requested, enclosed in a
postage prepaid wrapper, and shall be effective on the fifth business day
after it has been deposited in the mail. When delivered personally, each
such Notice shall be effective when delivered to the address for the
respective Party set forth in this Section 12.2. When sent by telecopier or
facsimile, each such Notice shall be effective on the day on which it is
sent provided that it is sent on a business day and further provided that
it is sent prior to 5:00 p.m., local time of the Party to whom the Notice
is being sent, on that business day; otherwise, each such Notice shall be
effective on the first business day occurring after the Notice is sent.
Each such Notice shall be addressed to the Party to be notified as shown
below:
The Company: AmeriVest Properties, Inc.
7100 Grandview Avenue, Suite 1
Arvada, Colorado 80002
Facsimile No. (303) 421-3410
Employee: James F. Etter
31401 Shadow Mountain Drive
Conifer, Colorado 80433
Either Party may change its address for purposes of this Section 12.2
by giving the other Party written notice of the new address in the manner
set forth above.
12.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement shall be or become
prohibited or invalid in whole or in part for any reason whatsoever, that
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remaining portion of that provision or
the remaining provisions of this Agreement.
6
<PAGE>
12.4 Non-Waiver. The waiver of either Party or a breach or violation
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach or violation of any provision of this
Agreement.
12.5 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless and until it has been executed in writing by the
parties to this Agreement. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provision of this Agreement, except by a written instrument that has been
executed by the Party charged with such waiver or estoppel.
12.6 Inurement. This Agreement shall be binding upon, and inure to the
benefit of Employee and the Company, and their respective heirs, successors
and assigns. Notwithstanding the foregoing, this Agreement shall not be
assignable by either Party. There are no third party beneficiaries to this
Agreement.
12.7 Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
IN WITNESS WHEREOF, this Agreement is executed on the dates set forth below
to be effective as of the Effective Date.
EMPLOYEE:
Date: 1/16/97 /s/ James F. Etter
- ------------------------- ------------------------------------
James F. Etter, individually
AMERIVEST PROPERTIES, INC.:
Date: By: /s/ Robert J. McFann
- ------------------------- ---------------------------------
Robert J. McFann, Secretary
* * * * *
7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of January
1, 1998 (the "Effective Date") between James F. Etter ("Employee") and AmeriVest
Properties, Inc., a Delaware corporation (the "Company"). For purposes of this
Agreement, each of Employee and the Company is individually referred to as a
"Party", and Employee and the Company are referred to collectively as the
"Parties".
Recital
-------
The Company desires to retain the services of Employee and Employee has
offered to provide services to the Company pursuant to the terms of this
Agreement.
Agreement
---------
In consideration of the premises and of the mutual covenants included in
this Agreement, the Parties agree as follows:
1. Services. The Company retains Employee and Employee shall perform
services for the Company as set forth in this Agreement on behalf of the Company
for the period and under the terms and conditions set forth in this Agreement.
2. Term. Unless terminated earlier as provided for in Section 7, the term
of this Agreement shall be for a three(3) years, commencing on the Effective
Date and ending on December 31, 2000 (the "Term"). Thereafter, this Agreement
shall continue in full force and effect until terminated by either Party upon at
least ninety (90) days' prior written notice to the other party. If the
employment relationship is terminated by either Party, Employee agrees to
cooperate with the Company and the Company's new management with respect to the
transition of the new management in the operations previously performed by
Employee.
3. Duties. Employee shall perform the following services for the Company:
3.1 Employee shall serve as President, Chief Executive and Chief
Financial Officer of the Company, or in such other position as determined
by the Company's Board of Directors (the "Board"), and in that capacity
shall work with the Company to pursue the Company's plans as directed by
the Board.
3.2 Employee shall perform duties with the functions of a President,
Chief Executive and Chief Financial Officer, subject to the direction of
the Board of Directors of the Company.
3.3 During the term of this Agreement, Employee shall devote all of
Employee's business time to the performance of Employee's duties under this
Agreement. Without limiting the foregoing, Employee shall perform services
on behalf of the Company for at least 40 hours per week and Employee shall
be available at the request of the Company at other times, including
weekends and holidays, to meet the needs and requests of the Company's
customers.
<PAGE>
3.4 During the term of this Agreement, Employee will not engage in any
other activities or undertake any other commitments that conflict with or
take priority over Employee's responsibilities and obligations to the
Company and the Company's customers, including without limitation those
responsibilities and obligations incurred pursuant to this Agreement.
4. Compensation. The Company shall pay Employee for the performances of
services pursuant to this Agreement as follows:
4.1 Commencing as of the Effective Date and continuing until December
31, 2000, the Company shall pay Employee for the performance of services
pursuant to this Agreement a salary at an annual rate of $115,000 (the
"Base Salary"). Commencing January 1, 1999 and on the 1st day of January
thereafter throughout the Term, Employee's Base Salary shall be increased
by five percent (5%) over the previous year's Base Salary.
4.2 The Company shall consider the Employee for a bonus semi-annually
each year based on overall performance of the Company. Any bonus paid under
this section 4.2 shall be determined by the Board and payable at such time
as the Board directs.
4.3 Any payments that the Company is required to make to the Employee
pursuant to this Agreement shall be reduced by (i) such amounts as are
required to be withheld with respect to those amounts under and for the
purposes of any of the applicable tax and other laws or regulations, and
(ii) such amounts as Employee may owe to the Company at any time and from
time to time.
4.4 Employee shall be eligible for participation in any present or
future incentive compensation, bonus profit sharing, pension, retirement,
stock option, or stock purchase plan of the Company of which other
employees of the Company are generally eligible. It is understood, however,
that entitlements that may accrue to the Employee pursuant to such
arrangements may differ from those that accrue to other employees, such
differences based on the discretion of the Board of Directors.
5. Reimbursement Of Expenses. Employee shall be reimbursed for reasonable
expenses incurred on behalf of the Company in the performance of Employee's
duties and services pursuant to this Agreement.
6. Additional Benefits. Employee shall be entitled to the following:
6.1 During each 12-month period commencing on the Effective Date,
Employee shall be entitled to fifteen (15) days of paid vacation in
accordance with the policies and practices of the Company. Employee's
salary shall accrue during the time of Employee's vacation taken in
accordance with this Section 6.1. Employee must utilize vacation days
within 30 days following the end of the 12-month period for which those
vacation days have accrued pursuant to this Agreement; otherwise those
vacation days will expire without payment, unless prior approval is
received from the Board. In the event that Employee takes more than the
allowable days of vacation, pursuant to the terms as set forth in this
<PAGE>
Agreement, Employee's salary shall not accrue during any such excess
vacation or leave time, and the Company shall not be obligated to pay any
salary to Employee for those excess days. Employee shall not be entitled to
utilize vacation days on days on which Employee's services are required by
the Company to meet the needs of the Company's customers or where the
Employee's absence will otherwise have a material effect on the operations
or business of the Company. The use by Employee of a vacation day in
violation of the prior sentence shall be a material breach of this
Agreement and, in addition to any other rights that the Company may have,
the Company shall not be obligated to pay any salary to Employee for that
vacation day. Employee shall be entitled to receive such additional
vacation, personal, and sick leave days as are provided to all other
management members or directors of the Company.
6.2 Employee and Employee's family, if any, shall be entitled to
receive such benefits under medical insurance plans, life and disability
insurance and otherwise, as are provided to all other salaried employees of
the Company. Until such time that the Company has adopted a medical
insurance plan for which Employee and Employee's family would be eligible,
the Company shall reimburse Employee for up to an aggregate of $12,000
annually for premiums and fees actually paid by Employee for medical, life,
dental and orthodontia, and disability insurance coverage for Employee
and/or Employee's family.
6.3 If Employee becomes disabled (i.e., unable to perform a
substantial portion of Employee's duties hereunder because of sickness or
injury), then Employee shall be paid on amount equal to Employee's regular
salary for a calendar period not exceeding ninety (90) days for each such
occurrence.
7. Termination.
7.1 Employee may terminate this Agreement at any time without further
liability or obligation hereunder if the Company has breached a material
provision of this Agreement or the Company has otherwise materially
breached any other obligation to Employee, such termination to be effected
by Employee's giving the Company written notice of termination at least 90
days prior to the date for termination and the Company's failing to cure
the breach prior to the date set for termination in that notice.
7.2 At the option of the Company, this Agreement may be terminated for
cause, with such termination to be effected by the Company's giving
Employee written notice of termination. The term "for cause" shall include
termination of employment as a result of any of the following: (i) a breach
by Employee of a material provision of this Agreement; or (ii) a breach by
Employee of any other material obligation of Employee to the Company; or
(iii) as a result of a determination by the Board, acting reasonably, that
the Employee has (A) committed a criminal act or an act constituting moral
turpitude, or (B) committed any fraudulent act, or (C) breached the
Employee's fiduciary duty to the Company. If the Employee shall dispute the
determination by the Board, the issue shall be submitted promptly to a
single arbitrator, mutually acceptable to each party, pursuant to the rules
of the American Arbitration Association whose decision as to whether
"cause" existed justifying termination of Employee's employment under this
Section 7.2 shall be final and binding. The fees for this arbitrator and
any filing fees for the arbitration shall be paid one-half by the Company
and one-half by the Employee.
<PAGE>
7.3 This Agreement shall terminate upon the death of Employee or if
Employee becomes disabled, in which case, Employee or Employee's family
shall be paid up to $1000 per month for twelve months to the extent
expenses are incurred for medical, dental, orthodontia, disability and life
insurance or medical expenses unless the Company at that time has in effect
a benefit plan covering a portion of medical expenses. Employee shall be
considered "disabled" if, and on the date on which, Employee has been
unable to perform a substantial and material portion of Employee's duties
hereunder, for a period of 90 continuous days, because of sickness, injury,
or disability.
7.4 In the event Employee's employment is terminated, then all
unaccrued salary obligations of the Company to Employee shall cease as of
the date of termination except as otherwise expressed herein.
7.5 If there is (i) a "Change In Control" of the company, as defined
below, and (ii) the Company or the acquiring company in the Change In
Control does not offer Employee a position in the Denver Metropolitan area
at a salary level equal to or exceeding Employee's salary immediately
preceding the Change In Control and Employee's employment is terminated by
Employee or the Company within ninety (90) days after the Change In
Control, then (a) the Company shall pay to Employee on or before ninety
(90) days after the consummation of the Change In Control an amount equal
to one (1) year's Base Salary, at the rate in effect immediately prior to
the Change In Control, (b) all outstanding stock options held by Employee
shall become exercisable upon the consummation of the Change In Control,
and (c) this Agreement shall terminate when the rights of the Employee and
the obligations of the Company, as set forth in this section have been
fulfilled. If the rights of the Employee and the obligations of the Company
as set forth in this section are not fulfilled and satisfied within the
stated 90-day period, the Company will remain liable to the Employee for
those obligations until they are satisfied. Notwithstanding the foregoing,
no new rights or obligations shall accrue or be incurred during the period
that this Agreement is not terminated because of the failure of the Company
to satisfy its obligations. A Change In Control shall mean the sale,
liquidation, dissolution, consolidation, merger or other business
combination of or involving the Company, or the change in ownership of more
than 30 percent of the Company, or the transfer of all or substantially all
of the Company's assets.
8. Corporate Data And Information. Employee understands that Employee has
access to certain information concerning the Company and its business that is
provided solely in connection with Employee's employment with the Company. Any
other use of this information at any time during or after the term of this
Agreement is prohibited. Further, Employee understands that the Company may
become a publicly traded company and it is important for the Company to protect
the rights of its shareholders. Employee understands that applicable federal
securities laws impose significant restrictions concerning the use or disclosure
of certain non-public information in general and in buying or selling, or
discussing with others the possibility of buying or selling, the Company's stock
by persons who have access to material information concerning the Company which
is not generally available to members of the general public. Employee
understands that Employee is or will become subject to these restrictions and
Employee agrees that Employee will not, and that Employee will insure that any
persons having access to such non-public information through Employee will not,
buy or sell the Company's stock, or discuss with others any material non-public
information concerning the Company or the possibility or advisability of buying
<PAGE>
or selling the Company's stock, at any time that Employee possesses material
non-public information concerning the Company. During and after Employee's
employment, Employee agrees that Employee will not at any time disclose, to any
person or entity for any reason or purpose whatsoever, nor use for Employee's
own personal benefit or the benefit of any person or entity, any information
concerning the financial or business or other operations of the Company that is
not publicly known, provided that this restriction shall not apply to
information required to be disclosed under applicable laws, regulation, court
order or subpoena to which the Employee is subject. Upon the termination of the
Employee's employment under this Agreement for any reason, the Employee hereby
agrees to return to the Company all data and information relating to the
business of the Company or any of its subsidiaries or affiliates that the
Employee obtained during or prior to the time of Employee's employment. It is
expressly agreed that the terms and conditions of this Paragraph 8 shall apply
after any termination, whether voluntary or involuntary, of the Employee's
employment under this Agreement.
9. Non-Compete. Employee acknowledges and recognizes the highly competitive
nature of the Company's business and that Employee's duties hereunder justify
restricting Employee's further employment following any termination of
employment. The Employee agrees that so long as the Employee is employed by the
Company, (i) for a period of two years following the termination of this
Agreement, Employee, except when acting on behalf of or for the benefit of the
Company, will not induce customers, agents or other sources of distribution of
the Company's business under contract or doing business with the Company to
terminate, reduce, alter or divert business with or from the Company, and (ii)
for a period of one year following the termination of this Agreement, Employee
will not compete, within the State of Colorado, with the Company, or participate
as an officer or a principal in any business that includes part or all of the
Company's Area Of Business, as defined below. The covenant set forth under (ii)
above shall not apply if Employee's employment is terminated within 90 days of a
Change In Control as defined in Section 7.6 of this Agreement. Ownership by
Employee, for investment purposes only, of less than five percent of any class
of securities of a corporation if said securities are listed on a national
securities exchange or registered under the Securities Exchange Act of 1934, as
amended, shall not constitute a breach of the covenant set forth under (ii)
above. The Company's Area Of Business includes the acquisition and operation of
real estate properties with specific focus of investment and acquisition
activities in the office/industrial sector. It is the desire and intent of the
Parties that the provisions of this Section 9 be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of Section 9
shall be adjudicated to be invalid or unenforceable, Section 9 shall be deemed
amended to apply in the broadest allowable manner and to delete therefrom the
portion adjudicated to be invalid or unenforceable, such amendment and deletion
to apply only with respect to the operation of Section 9 in the particular
jurisdiction in which that adjudication is made.
10. Representations And Warranties.
10.1 The Company represents and warrants to Employee as follows: (i)
the Company has been duly formed as a corporation under the laws of the
State of Delaware; and (ii) the execution of this Agreement has been duly
authorized by the Company and does not require the consent of or notice to
any party not previously obtained or given.
<PAGE>
10.2 Employee represents and warrants to the Company that the
execution of this Agreement and the performance of Employee's obligations
hereunder does not require the consent of or notice to any party not
previously obtained or given, and there is nothing that prohibits or
restricts the execution by Employee of this Agreement or his performance of
the obligations hereunder.
11. Covenants. Each of Employee and the Company covenants to diligently and
skillfully do and perform the acts and duties required herein.
12. Miscellaneous.
12.1 Entire Agreement. This Agreement constitutes the entire Agreement
between the Parties with respect to the subject matter of this Agreement
and supersedes all prior and contemporaneous agreements between the Parties
with respect to the subject matter of this Agreement.
12.2 Notice. All notices, requests, demands, directions and other
communications ("Notices") concerning this Agreement shall be in writing
and shall be mailed or delivered personally or sent by telecopier or
facsimile to the applicable Party at the address of such Party set forth
below in this Section 12.2. When mailed, each such Notice shall be sent by
first class, certified mail, return receipt requested, enclosed in a
postage prepaid wrapper, and shall be effective on the fifth business day
after it has been deposited in the mail. When delivered personally, each
such Notice shall be effective when delivered to the address for the
respective Party set forth in this Section 12.2. When sent by telecopier or
facsimile, each such Notice shall be effective on the day on which it is
sent provided that it is sent on a business day and further provided that
it is sent prior to 5:00 p.m., local time of the Party to whom the Notice
is being sent, on that business day; otherwise, each such Notice shall be
effective on the first business day occurring after the Notice is sent.
Each such Notice shall be addressed to the Party to be notified as shown
below:
The Company: AmeriVest Properties, Inc.
7100 Grandview Avenue, Suite 1
Arvada, Colorado 80002
Facsimile No. (303) 421-3410
Employee: James F. Etter
31401 Shadow Mountain Drive
Conifer, Colorado 80433
Either Party may change its address for purposes of this Section 12.2 by
giving the other Party written notice of the new address in the manner set forth
above.
<PAGE>
12.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement shall be or become
prohibited or invalid in whole or in part for any reason whatsoever, that
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remaining portion of that provision or
the remaining provisions of this Agreement.
12.4 Non-Waiver. The waiver of either Party or a breach or violation
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach or violation of any provision of this
Agreement.
12.5 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless and until it has been executed in writing by the
parties to this Agreement. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provision of this Agreement, except by a written instrument that has been
executed by the Party charged with such waiver or estoppel.
12.6 Inurement. This Agreement shall be binding upon, and inure to the
benefit of Employee and the Company, and their respective heirs, successors
and assigns. Notwithstanding the foregoing, this Agreement shall not be
assignable by either Party. There are no third party beneficiaries to this
Agreement.
12.7 Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
IN WITNESS WHEREOF, this Agreement is executed on the dates set forth below
to be effective as of the Effective Date.
EMPLOYEE:
Date: 1/2/98 /s/ James F. Etter
- ------------------------- ----------------------------------
James F. Etter, individually
AMERIVEST PROPERTIES, INC.:
Date: 1/8/98 By: /s/ Robert J. McFann
- ------------------------- ----------------------------------
Robert J. McFann, Secretary
* * * * *
AMERIVEST PROPERTIES INC.
1995 STOCK OPTION PLAN
As Adopted As Of May 20, 1995
(And As Amended As Of October 17, 1995 To Reflect Stock Split)
This 1995 Stock Option (the "Plan") is adopted by AmeriVest Properties Inc.
(the "Company") effective as of May 20, 1995.
1. Definitions.
Unless otherwise indicated or required by the particular context, the terms
used in this Plan shall have the following meanings:
Board: The Board Of Directors of the Company.
Code: The Internal Revenue Code of 1986, as amended.
Common Stock: The $.001 par value common stock of the Company.
Company: AmeriVest Properties Inc., a corporation incorporated under the
laws of Delaware, any current or future wholly owned subsidiaries of the
Company, and any successors in interest by merger, operation of law, assignment
or purchase of all or substantially all of the property, assets or business of
the Company.
Date Of Grant: The date on which an Option, as defined below, is granted
under the Plan.
Disinterested Person: "Disinterested Person" shall have the meaning set
forth in Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange Act of
1934, as amended, or any successor provision to that Rule, which Rule currently
provides that a "Disinterested Person" is a director who has not, during the one
year prior to service as an administrator of a plan, granted or awarded equity
securities pursuant to the plan or any other plan of the Company or any of the
Company's affiliates, except that: (A) participation in a formula plan meeting
the conditions in Rule 16b-3(c)(2)(ii) shall not disqualify a director from
being a Disinterested Person; (B) participation in an ongoing securities
acquisition plan meeting the conditions of Rule 16b-3(d)(2)(i) shall not
disqualify a director from being a Disinterested Person; (C) an election to
receive an annual retainer fee in either cash or an equivalent amount of
securities, or partly in cash and partly in securities, shall not disqualify a
director from being a Disinterested Person; and (D) participation in a plan
shall not disqualify a director from being a Disinterested Person for the
purpose of administering another plan that does not permit participation by a
director.
Fair Market Value: The Fair Market Value of the Option Shares (defined
below). The Fair Market Value as of any date shall be as reasonably determined
by the Option Committee (defined below); provided, however, that if there is a
public market for the Common Stock, the Fair Market Value of the Option Shares
as of any date shall not be less than the last reported sale price for the
Common Stock on that date (or on the preceding stock market business day if such
date is a Saturday, Sunday, or a holiday), on a national securities exchange, as
reported in The Wall Street Journal, or if not reported in The Wall Street
Journal, as reported in The Denver Post, Denver, Colorado or, if no last sale
<PAGE>
price for a national securities exchange is available, then the last reported
sale price on either another stock exchange or on a national or local
over-the-counter market, as reported by The Wall Street Journal, or if not
available there, in The Denver Post; provided further, that if no such published
last sale price is available and a published bid price is available from one of
those sources, then the Fair Market Value of the shares shall not be less than
such last reported bid price for the Common Stock, and if no such published bid
price is available, the Fair Market Value of such shares shall not be less than
the average of the bid prices quoted as of the close of business on that date by
any two independent persons or entities making a market for the Common Stock,
such persons or entities to be selected by the Option Committee.
Incentive Options: "Incentive stock options" as that term is defined in
Code Section 422 or the successor to that Section.
Key Employee: A person designated by the Option Committee who is employed
by the Company and whose continued employment is considered to be in the best
interests of the Company; provided, however, that Key Employees shall not
include those members of the Board who are not employees of the Company.
Key Individual: A person, other than an employee of the Company, who is
committed to the interests of the Company; provided, however, that Key
Individuals shall not include those members of the Board who are not employees
of the Company.
Non-Discretionary Options: Options granted to Non-Employee Directors
according to the formula set forth in Section 8 of this Plan.
Non-Employee Director: A person who is a member of the Board Of Directors
and who is not an employee of the Company.
Non-Qualified Options: Options that are not intended to qualify, or
otherwise do not qualify, as "incentive stock options" under Code Section 422 or
the successor to that Section. To the extent that Options that are designated by
the Option Committee as Incentive Options do not qualify as "incentive stock
options" under Code Section 422 or the successor to that Section, those Options
shall be treated as Non-Qualified Options.
Option: The rights to purchase Common Stock granted pursuant to the terms
and conditions of an Option Agreement (defined below).
Option Agreement: The written agreement (including any amendments or
supplements thereto) between the Company and either a Key Employee or a Key
Individual or a Non-Employee Director designating the terms and conditions of an
Option.
Option Committee: With respect to grants of Incentive Options or Non
Qualified Options to Employees other than Officers and Directors of the Company,
the Plan shall be administered by an Option Committee ("Option Committee").
Initially, the Option Committee shall consist of the Board Of Directors.
Notwithstanding the foregoing, at and after such time that the Committee first
becomes subject to the reporting provisions of the Securities Exchange Act Of
1934, as amended (the "Exchange Act"), if the Company intends to grant an Option
to an Officer or Director in a manner so that the grant of that Option is exempt
from Section 16(b) of the Exchange Act, or any successor to that Section,
pursuant to Rule 16b-3(c), promulgated under the Exchange Act, or any successor
to that Rule, then there shall be at least two members of the Option Committee,
and each member of the Option Committee shall be a director who is also a
"disinterested person". Subject to the foregoing, the entire Board may serve as
the Option Committee.
<PAGE>
Option Shares: The shares of Common Stock underlying an Option granted
pursuant to this Plan.
Optionee: A Key Employee, Key Individual or Non-Employee Director who has
been granted an Option.
2. Purpose And Scope.
(a) The purpose of the Plan is to advance the interests of the Company
and its stockholders by affording Key Employees, Key Individuals, and
Non-Employee Directors upon whose initiative and efforts, in the aggregate, the
Company is largely dependent for the successful conduct of its business, an
opportunity for investment in the Company and the incentive advantages inherent
in stock ownership in the Company.
(b) This Plan authorizes the Option Committee to grant Incentive
Options to Key Employees and to grant Non-Qualified Options to Key Employees and
Key Individuals, selected by the Option committee while considering criteria
such as employment position or other relationship with the Company, duties and
responsibilities, ability, productivity, length of service or association,
morale, interest in the Company, recommendations by supervisors, the interests
of the Company, and other matters. This Plan also provides that
Non-Discretionary Options shall be granted to Non-Employee Directors pursuant to
the formula set forth in Section 8 of this Plan.
3. Administration Of The Plan.
(a) Except with respect to the grant of Non-Discretionary Options,
which shall be granted in the manner set forth in Section 8 of this Plan, the
Plan shall be administered by the Option Committee. The Option Committee shall
have the authority granted to it under this Section and under each other section
of the Plan.
(b) In accordance with and subject to the provisions of the Plan, the
Option Committee shall select the Optionees and shall determine (i) the number
of shares of Common Stock to be subject to each Incentive Option and
Non-Qualified Option, (ii) the time at which each Incentive Option and
Non-Qualified Option is to be granted, (iii) whether an Incentive Option and
Non-Qualified Option shall be granted in exchange for the cancellation and
termination of a previously granted option or options under the Plan or
otherwise, (iv) the purchase price for the Incentive Option and Non-Qualified
Option Shares, provided that the purchase price shall be a fixed, and cannot be
a fluctuating, price, (v) the option period, (vi) the manner in which an
Incentive Option and Non-Qualified Option becomes exercisable, including whether
portions of the Incentive Option and Non-Qualified Option become exercisable at
different times, and (vii) such other terms and conditions as the Option
Committee may deem necessary or desirable. The Option Committee shall determine
the form of Option Agreement to evidence each Option.
(c) The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company.
<PAGE>
(d) The Board from time to time may make such changes in and additions
to the Plan as it may deem proper and in the best interests of the Company
provided, however, that no such change or addition shall impair any Option
previously granted under the Plan, and that the approval by written consent of a
majority of the holders of the Company's securities entitled to vote, or by the
affirmative votes of the holders of a majority of the Company's securities
entitled to vote at a meeting duly held in accordance with the applicable laws
of the State of Delaware, shall be required for any amendment which would do any
of the following:
(i) materially modify the eligibility requirements for
receiving Options under the Plan;
(ii) materially increase the benefits accruing to Key
Employees, Key Individuals, or Non-Employee Directors
under the Plan; or
(iii)materially increase the number of shares of Common
Stock that may be issued under the Plan.
(e) Each determination, interpretation or other action made or taken
by the Option Committee, unless otherwise determined by the Board, shall be
final, conclusive and binding on all persons, including without limitation, the
Company, the stockholders, directors, officers and employees of the Company, and
the Optionees and their respective successors in interest. No member of the
Option Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan, and all members of
the Option Committee shall be, in addition to rights they may have as directors
of the Company, fully protected by the Company with respect to any such action,
determination or interpretation. If the Board makes a determination contrary to
the Option Committee's determination, interpretation or other action, then the
Board's determination shall be final and conclusive in the same manner.
4. The Common Stock.
The Board is authorized to appropriate, issue and sell for the purposes of
the Plan, and the Option Committee is authorized to grant Options with respect
to, a total number not in excess of 130,000 shares of Common Stock, either
treasury or authorized and unissued, or the number and kind of shares of stock
or other securities which in accordance with Section 10 shall be substituted for
the 130,000 shares or into which such 130,000 shares shall be adjusted. All or
any unsold shares subject to an unexercised Option that for any reason expires
or otherwise terminates may again be made subject to other Options under the
Plan.
5. Eligibility.
Incentive Options may be granted only to Key Employees. Non-Qualified
Options may be granted both to Key Employees and to Key Individuals. Key
Employees and Key Individuals may hold more than one Option under the Plan and
may hold Options under the Plan as well as options granted pursuant to other
plans or otherwise. Non-Discretionary Options may be granted only to
Non-Employee Directors. Non-Employee Directors shall be eligible to receive only
Non-Discretionary Options pursuant to the Plan.
6. Option Price.
The Option Committee shall determine the purchase price for the Option
Shares; provided, however, that the purchase price to be paid by Optionees for
the Option Shares underlying Incentive Options and Non-Qualified Options shall
not be less than 100 percent of the Fair Market Value of the Option Shares on
the Date Of Grant and provided further that the purchase price shall be a fixed,
and cannot be a fluctuating, price. The Option Price for Option Shares
underlying Non-Discretionary Options shall be the Fair Market Value of the
Common Stock on the Date Of Grant.
<PAGE>
7. Duration And Exercise Of Options.
(a) Except as provided in Section 8 with respect to Non-Discretionary
Options and except as provided in Section 18, the option period shall commence
on the Date Of Grant and shall continue for the period designated by the Option
Committee up to a maximum of ten years from the Date Of Grant.
(b) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided that, subject to the following
sentence and paragraph (d) of this Section 7, in the event of the legal
disability of an Optionee, the guardian or personal representative of the
Optionee may exercise the Option. If the Option is an Incentive Option it may be
exercised by the guardian or personal representative of the Optionee only if the
guardian or personal representative obtains a ruling from the Internal Revenue
Service or an opinion of counsel to the effect that neither the grant nor the
exercise of such power is violative of Code Section 422(b)(5) or the successor
to that provision. Any opinion of counsel must be both from counsel acceptable
to the Option Committee and in a form acceptable to the Option Committee.
(c) If the Optionee's employment or affiliation with the Company is
terminated for any reason including the Optionee's death, any Option then held,
to the extent that the Option was exercisable according to its terms on the date
of termination, may be exercised for up to, and not more than, three months
after termination. The duration, if any, of the exercise period of the Option
subsequent to termination will be determined by the Option Committee. Any
options remaining unexercised shall expire at the later of termination or the
end of the extended exercise period, if any.
(d) Each Option shall be exercised in whole or in part by delivering
to the office of the Treasurer of the Company written notice of the number of
shares with respect to which the Option is to be exercised and by paying in full
the purchase price for the Option Shares purchased as set forth in Section 9
herein; provided, that an Option may not be exercised in part unless the
purchase price for the Option Shares purchased is at least $1,000.
(e) No Option Shares may be sold, transferred or otherwise disposed of
within six months of the Date Of Grant by any person who is subject to the
reporting requirements of Section 16(a) of the Exchange Act on the Date Of
Grant.
8. Non-Discretionary Options.
(a) Grant Of Options: Amount And Timing. Non-Discretionary Options to
purchase 12,000 shares of Common stock shall be granted under the Plan to each
Non-Employee Director at the later to occur of (i) May 20, 1995 and (ii) the
date he or she becomes a Non-Employee Director of the Company. In addition, on
the date that all of an Optionee's Non-Discretionary Options to purchase 12,000
shares have become exercisable, as provided in Section 8(c), Options to purchase
an additional 12,000 shares shall be granted to the Optionee provided that, at
that time, he or she is a Non-Employee Director. All Non-Discretionary Options
shall be exercisable only as set forth in Section 8(c) below and shall be
subject to the other terms and conditions set forth in this Plan or otherwise
established by the Company.
<PAGE>
(b) Option Exercise Price. The exercise price for the
Non-Discretionary Options shall be the Fair Market Value of the Common Stock on
the Date Of Grant.
(c) Exercise. Non-Discretionary Options to purchase 4,000 shares of
Common Stock will become exercisable on each of the first three December 30
dates following the Date Of Grant of the Non-Discretionary Options.
(d) Term. The Non-Discretionary Options shall expire five years from
the Date Of Grant. Notwithstanding the foregoing, Non-Discretionary Options
shall expire, if not exercised, 90 days after the Optionee ceases to be a
director of the Company.
9. Payment For Option Shares.
(a) If the purchase price of the Option Shares purchased by any
Optionee at one time exceeds $1,000, the Option Committee, in its sole
discretion, upon request by the Optionee, may permit all or part of the purchase
price for the Option Shares to be paid by delivery to the Company for
cancellation shares of the Common Stock previously owned by the Optionee
("Previously Owned Shares") with a Fair Market Value as of the date of the
payment equal to the portion of the purchase price for the Option Shares that
the Optionee does not pay in cash. Notwithstanding the above, an Optionee shall
be permitted to exercise his Option by delivering Previously Owned Shares only
if he has held, and provides appropriate evidence of such, the Previously Owned
Shares for more than six months prior to the date of exercise. This period (the
"Holding Period") may be extended by the Option Committee acting in its sole
discretion as is necessary, in the opinion of the Option Committee, so that,
under generally accepted accounting principles, no compensation shall be
considered to have been or to be paid to the Optionee as a result of the
exercise of the Option in this manner. At the time the Option is exercised, the
Optionee shall provide an affidavit, and such other evidence and documents as
the Option Committee shall request, to establish the Optionee's Holding Period.
As indicated above, an Optionee may deliver shares of Common Stock as part of
the purchase price only if the Option Committee, in its sole discretion agrees,
on a case by case basis, to permit this form of payment.
(b) If payment for the exercise of an Option is made other than by the
delivery to the Company for cancellation of shares of the Common Stock, the
purchase price shall be paid in cash, certified funds, or Optionee's check.
Payment shall be considered made when the Treasurer of the Company receives
delivery of the payment at the Company's address, provided that a payment made
by check is honored when first presented to the Optionee's bank.
10. Change In Stock, Adjustments, Etc.
In the event that each of the outstanding shares of Common Stock (other
than shares held by dissenting stockholders which are not changed or exchanged)
should be changed into, or exchanged for, a different number or kind of shares
of stock or other securities of the Company, or if further changes or exchanges
of any stock or other securities into which the Common Stock shall have been
changed, or for which it shall have been exchanged, shall be made (whether by
reason of merger, consolidation, reorganization, recapitalization, stock
dividends, reclassification, split-up, combination of shares or otherwise), then
there shall be substituted for each share of Common Stock that is subject to the
Plan but not subject to an outstanding Option hereunder, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock (other than shares held by dissenting stockholders which are not changed
or exchanged) shall be so changed or for which each outstanding share of Common
Stock (other than shares held by dissenting stockholders) shall be so changed or
for which each such share shall be exchanged. Any securities so substituted
shall be subject to similar successive adjustments.
In the event of any such changes or exchanges, (i) the Option Committee
shall determine whether, in order to prevent dilution or enlargement of rights,
an adjustment should be made in the number, or kind, or option price of the
shares or other securities that are then subject to an Option or Options granted
pursuant to the Plan, (ii) the Option Committee shall make any such adjustment,
and (iii) such adjustments shall be made and shall be effective and binding for
all purposes of the Plan.
<PAGE>
11. Relationship To Employment Or Position.
Nothing contained in the Plan, or in any Option or Option Share granted
pursuant to the Plan, (i) shall confer upon any Optionee any right with respect
to continuance of his employment by, or position or affiliation with, or
relationship to, the Company, or (ii) shall interfere in any way with the right
of the Company at any time to terminate the Optionee's employment by, position
or affiliation with, or relationship to, the Company.
12. Non-transferability Of Option.
No Option granted under the Plan shall be transferable by the Optionee,
either voluntarily or involuntarily, except by will or the laws of descent and
distribution, or except pursuant to a qualified domestic relations order as
defined in the Code, the Employee Retirement Income Security Act, or rules
promulgated thereunder. Except as provided in the preceding sentence, any
attempt to transfer the Option shall void the Option.
13. Rights As A Stockholder.
No person shall have any rights as a stockholder with respect to any share
covered by an Option until that person shall become the holder of record of such
share and, except as provided in Section 10, no adjustments shall be made for
dividends or other distributions or other rights as to which there is an earlier
record date.
14. Securities Laws Requirements.
No Option Shares shall be issued unless and until, in the opinion of the
Company, any applicable registration requirements of the Securities Act of 1933,
as amended, any applicable listing requirements of any securities exchange on
which stock of the same class is then listed, and any other requirement of law
or of any regulatory bodies having jurisdiction over such issuance and delivery,
have been fully complied with. Each Option Agreement and each Option Share
certificate may be imprinted with legends reflecting federal and state
securities laws restrictions and conditions, and the Company may comply
therewith and issue "stop transfer" instructions to its transfer agent and
registrar in good faith without liability.
15. Disposition Of Shares.
To the extent reasonably requested by the Company, each Optionee, as a
condition of exercise, shall represent, warrant and agree, in a form of written
certificate approved by the Company, as follows: (a) that all Option Shares are
being acquired solely for his own account and not on behalf of any other person
or entity; (b) that no Option Shares will be sold or otherwise distributed in
violation of the Securities Act of 1933, as amended, or any other applicable
federal or state securities laws; (c) that he will report all sales of Option
Shares to the Company in writing on a form prescribed by the Company; and (d)
that if he is subject to reporting requirements under Section 16(a) of the
Exchange Act, (i) he will not violate Section 16(b) of the Exchange Act, (ii) he
will furnish the Company with a copy of each Form 4 and Form 5 filed by him, and
(iii) he will timely file all reports required under the federal securities
laws.
16. Effective Date Of Plan; Termination Date Of Plan.
Subject to the approval of the Plan on or before May 20, 1996 by the
affirmative vote of the holders of a majority of the shares of Common Stock
entitled to vote and represented at a meeting duly held in accordance with the
applicable laws of the State of Delaware, the Plan shall be deemed effective as
of May 20, 1995. The Plan shall terminate at midnight on the date that is ten
years from that date, except as to Options previously granted and outstanding
under the Plan at that time. No Options shall be granted after the date on which
the Plan terminates. The Plan may be abandoned or terminated at any earlier time
by the Board, except with respect to any Options then outstanding under the
Plan.
<PAGE>
17. Limitation On Amount Of Option.
The aggregate Fair Market Value of the Option Shares underlying all
Incentive Options that have been granted to a particular Optionee and that
become exercisable for the first time during the same calendar year shall not
exceed $100,000, provided that this amount shall be increased or decreased, from
time to time, as Code Section 422 or the successor to that Section, is amended
so that this amount at all times shall equal the amount of the limitation set
forth in the Code. For purposes of the preceding sentence, Fair Market Value of
the Shares underlying any particular Option shall be determined as of the date
that Option is granted.
18. Ten Percent Stockholder Rule.
No Incentive Option may be granted to a Key Employee who, at the time the
Incentive Option is granted, owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of any
"parent corporation" or "subsidiary corporation", as those terms are defined in
Section 424, or its successor provision, of the Code, unless at the time the
Incentive Option is granted the purchase price for the Option Shares is at least
110 percent of the Fair Market Value of the Option Shares on the Date Of Grant
and the Incentive Option by its terms is not exercisable after the expiration of
five years from the Date Of Grant. For purposes of the preceding sentence, stock
ownership shall be determined as provided in Section 424, or its successor
provision, of the Code.
19. Withholding Taxes.
The Option Agreement shall provide that the Company may take such steps as
it may deem necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation or any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with any Option including, but not limited to, the withholding of all or any
portion of any payment or the withholding of issuance of Option Shares to be
issued upon the exercise of any Option.
20. Effect Of Changes In Control And Certain Reorganizations.
(a) In event of a Change In Control of the Company (as defined below),
the Option Committee, in its sole discretion, shall have the right, but not the
obligation, to do any or all of the following:
(i) provide that all Options granted pursuant to the Plan
shall become exercisable immediately at the time of
such Change In Control (or at such other time as the
Committee shall determine), except that this
acceleration would not occur with respect to any
Incentive Options for which the acceleration would
result in a violation of Section 17 of this Plan;
(ii) provide for an Optionee to surrender an Option (or
portion thereof) and to receive in exchange a cash
payment, for each Option share underlying the
surrendered Option, equal to the excess of the
aggregate Fair Market Value of the Option Share on the
date of surrender over the exercise price for the
Option Share. To the extent any Option is surrendered
pursuant to this Subparagraph 20(a) (ii), it shall be
deemed to have been exercised for purposes of Section 4
hereof; and
(iii)make any other adjustments, or take any other action,
as the Option Committee, in its discretion, shall deem
appropriate provided that any such adjustments or
actions would not result in an Optionee receiving less
value than pursuant to any or al l of Subparagraphs
20(a)(i) or 20(a) (ii) above.
For purposes of this Section 20, a "Change In Control" of the Company
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act regardless of whether the Company is then subject to such reporting
requirement.
<PAGE>
(b) In the event that the Company enters into, or the Board shall
propose that the Company enter into, a Reorganization Event (as defined below),
the Option Committee, in its sole discretion, may make any or all of the
following adjustments:
(i) by written notice to each Optionee provide that such
Optionee's Options shall be terminated or cancelled,
unless exercised within 30 days (or such other period
as the Option Committee shall determine) after the date
of such notice;
(ii) advance the dates upon which any or all outstanding
Options shall be exercised, except that this advance
will not occur with respect to any Incentive Options
for which the advance would result in a violation of
Section 16 of this Plan;
(iii)provide for termination or cancellation of an Option in
exchange for payment to the Optionee of an amount in
cash or securities equal to the excess, if any, over
the exercise price of that Option of the Fair Market
Value of the Option Shares subject to the Option at the
time of such termination or cancellation; and
(iv) make any other adjustments, or take any other action,
as the Option Committee, in its discretion, shall deem
appropriate, provided that any such adjustments or
actions shall not result in the Optionee receiving less
value than is possible pursuant to any or all of
Subparagraphs 20(b)(i), 20(b)(ii), and 20(b) (iii)
above. Any action taken by the Option Committee may be
made conditional upon the consummation of the
applicable Reorganization Event.
For purposes of this Section 20, a "Reorganization Event" shall be
deemed to occur if (A) the Company is merged or consolidated with another
corporation, (B) one person becomes the beneficial owner of all of the issued
and outstanding equity securities of the Company (for purposes of this Section
20(b), the terms "person" and "beneficial owner" shall have the meanings
assigned to them in Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder), (C) a division or subsidiary of the Company
is acquired by another corporation, person or entity, (D) all or substantially
all the assets of the Company are acquired by another corporation, or (E) the
Company is reorganized, dissolved or liquidated.
21. Other Provisions.
The following provisions are also in effect under the Plan:
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
(c) This Plan shall be construed to be in addition to any and all
other compensation plans or programs. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other additional incentive or other
compensation arrangements as the Board may deem necessary or desirable.
(d) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and the rights of any and
all persons having or claiming to have an interest therein or thereunder shall
be governed by and determined exclusively and solely in accordance with the laws
of the State of Colorado, except in those instances where the rules of conflicts
of laws would require application of the laws of the State of Delaware.
* * * * *
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