-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+ViZaUgcpU8uQkAebqNSi0V1ojuYwIwWMwSxq2ee6uxCJr95vp9DUtJPPkXwnAP mGNJhwif36+y/pqK5CHSPA== 0001050502-98-000043.txt : 19980331 0001050502-98-000043.hdr.sgml : 19980331 ACCESSION NUMBER: 0001050502-98-000043 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIVEST PROPERTIES INC CENTRAL INDEX KEY: 0000927102 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 841240264 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-14462 FILM NUMBER: 98578398 BUSINESS ADDRESS: STREET 1: 7100 GRANDVIEW AVE STREET 2: SUITE 1 CITY: ARVADA STATE: CO ZIP: 80002 BUSINESS PHONE: 3034213040 MAIL ADDRESS: STREET 1: 7100 GRANDVIEW AVE STREET 2: SUITE 1 CITY: ARVADA STATE: CO ZIP: 80002 10KSB 1 FORM 10-KSB 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 --- ---
PART I ITEMS 1. and 2. DESCRIPTION OF BUSINESS AND PROPERTY General - ------- AmeriVest Properties Inc. ("AmeriVest" or the "Company") was incorporated in 1993 in the State of Delaware. AmeriVest operates and intends to continue to operate in a manner so that it qualifies as a self-administered and self-managed real estate investment trust ("REIT"). Through its subsidiaries, AmeriVest owns an industrial office and showroom building (the "Broadway Property"), a commercial office building (the "Giltedge Office Building"), four self-storage facilities (the "Self-Storage Facilities") 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 - -------- -------- ----------- ---------- -------------------- 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
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 - -------- ------- ----------------------- ----------- ----------------------- 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-
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:
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 ------------------ ---------------------- ------------------ ---------------------------------- 1998 2 23,680 $114,612 47.2% 2002 2 26,600 $128,400 52.8% 3
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:
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 ------------ ---------------------- ------------------ ---------------------------------- 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.
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 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 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:
Balance Due At Maturity Property Mortgage Balance Monthly Payment (March 1, 2000) -------- ---------------- --------------- ---------------- 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
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
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 ----------------------- -------------------------- ------------------------- ---------------------------------- 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 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
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 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 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 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 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 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 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 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 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 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 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 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 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
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 ------ ------ --------- ------- -------- 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
AMERIVEST PROPERTIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1997 1996 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES 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
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 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 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 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 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 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 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 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 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 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 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 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 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 19 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 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 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 (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 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 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 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). 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. EX-10.7 2 EMPLOYMENT AGREEMENT 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 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 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 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 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 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 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 EX-10.8 3 EMPLOYMENT AGREEMENT 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. 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 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. 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 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. 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. 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 * * * * * EX-10.9 4 STOCK OPTION PLAN 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 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. 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. (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. 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. (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. 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. 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. (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. * * * * * EX-27 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 DEC-31-1997 99,334 0 34,625 0 0 172,726 16,501,657 (5,118,271) 11,383,386 563,637 7,413,077 0 0 1,429 3,543,126 11,642,068 2,482,182 2,482,182 0 1,953,983 0 0 685,429 (120,452) 0 (120,452) 0 0 0 (120,452) (.09) 0
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