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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1996 Commission file number 0-14996
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CRYENCO SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1471630
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3811 Joliet Street, Denver, CO 80239
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Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 303-371-6332
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
The aggregate market value at November 25, 1996 of shares of the
registrant's Common Stock, $.01 par value, held by non-affiliates of the
registrant was approximately $13,334,638. On such date, the closing price of the
Common Stock on the NASDAQ-National Market System was $2.00 per share. Solely
for the purposes of this calculation, shares held by directors and executive
officers of the registrant have been excluded. Such exclusion should not be
deemed a determination or an admission by the registrant that such individuals
are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At November 25,
1996, there were outstanding 6,996,997 shares of Class A Common Stock, $.01 par
value.
Documents Incorporated by Reference: Certain portions of the registrant's
definitive proxy statement to be filed not later than December 29, 1996 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
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CRYENCO SCIENCES, INC.
INDEX TO FORM 10-K
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Item Number Page
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PART I
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Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
Signatures 31
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PART I
ITEM 1. BUSINESS.
GENERAL
Cryenco Sciences, Inc., its subsidiaries and their predecessors (the
"Company") have manufactured vacuum jacketed containment systems and related
products since 1978. Vacuum jacketing provides a highly efficient and
cost-effective insulation to prevent heat transfer and is therefore critical for
many applications that are temperature-sensitive. The Company's products are
used in such applications as magnetic resonance imaging ("MRI"), industrial gas
transportation and storage, military cryogenics, liquefied natural gas
transportation, storage and dispensing, vacuum jacketed intermodal
transportation, and other applications requiring both custom and standard design
and fabrication.
The Company has significant expertise in the field of cryogenics, a
branch of physics that deals with the production and effects of extremely cold
temperatures on the properties of matter. To date, most applications for the
Company's products have required the storing and handling of cryogenic liquids.
Cryogenic liquids are typically atmospheric gases in the liquid state which have
extremely low boiling points, such as liquid oxygen (-297 degrees Fahrenheit; 90
Kelvin), liquid nitrogen (-320 degrees Fahrenheit; 77 Kelvin) and liquid helium
(-452 degrees Fahrenheit; 4 Kelvin), and density ratios reaching 700 to 1
compared to their atmospheric state. Cryogenic liquids are produced by
compressing and cooling gases until they reach the liquid state. As liquids,
they can be stored and transported with weight and volume advantages of five to
ten times compared with compressed gases. The Company's vacuum jacketed
containers minimize evaporation of these cryogenic liquids and preserve low
temperature.
The Company's expansion strategy is to extend vacuum jacketed technology
into new areas, including high performance insulated containers which enhance
energy conservation and environmental protection, and to take a leadership
position in the introduction of products to advance the use of liquefied natural
gas ("LNG") and compressed natural gas ("CNG") as alternatives to other fuels.
Management believes that current international efforts to conserve energy
together with growing concerns for environmental issues provide opportunities
for the Company to broaden the applications for its existing technology, both
within and outside of its historical focus. One such opportunity is a direct
application of the Company's current manufacturing expertise to develop
alternative fuel powered transportation systems including dispensing systems
using LNG and CNG. Another application is the use of LNG for heat and power in
areas which are not served by gas pipelines. LNG is less costly than propane and
is a much more environmentally friendly fuel. The Company is working with
various bus and engine manufacturers, transit authorities and private fleet
operators to supply LNG fuel tanks and systems. See "Products -- Liquefied and
Compressed Natural Gas Products."
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PRODUCTS
The Company offers a wide range of custom and standard vacuum systems,
components and accessories to meet the needs and requirements of customers in
the medical, industrial gas, transportation, chemical, pharmaceutical, food, and
aerospace and defense industries, as well as national laboratories,
semiconductor manufacturers and the United States Government. The Company's
products generally include an inner vessel that is surrounded by a jacket
casing. An annular space is created between the vessel and the jacket casing
into which insulation such as aluminum foil, glass paper or fiberglass is
installed and a vacuum is created. This insulated system is designed to prevent
heat gain or, in some cases, to promote heat retention. Both the inner vessel
and jacket casing are generally made of carbon steel, stainless steel or
aluminum. While the Company's products differ substantially in their use, they
all require close tolerance forming and sophisticated welding of stainless steel
and aluminum to create microscopically leak-tight systems.
MRI CRYOSTAT COMPONENTS
MRI is generally regarded as a significant advance in medical diagnostics
and has been found to offer benefits not provided by other forms of medical
examination. From a clinical point of view, MRI may also be considered superior
to other available techniques in providing images of the central nervous system,
particularly in the brain. Unlike x-rays and certain other imaging techniques,
such as computerized axial tomography, MRI is a non-invasive procedure where the
patient is not exposed to radiation or required to ingest any liquids or receive
injections of any type. Although MRI is a relatively expensive technology to
purchase and to operate, its growth has been substantial. MRI use has replaced
or complemented much of the imaging done by other techniques and can decrease
the number of necessary tasks performed on a patient, thereby eliminating the
need for many exploratory procedures and adding significantly to diagnostic
knowledge.
The basis of the MRI technique is the magnetic properties of certain
nuclei of the human body which can be detected, measured and converted into
images for analysis. MRI equipment uses high-strength magnetic fields, applied
radio waves and high-speed computers to obtain cross-sectional images of the
body. The major components of the MRI assembly are a series of concentric
thermal shields and a supercooled magnet immersed in a liquid helium vessel (a
"cryostat") that maintains a constant, extremely low temperature (-452 degrees
Fahrenheit; 4 Kelvin) to achieve superconductivity. The Company manufactures
large cryostats, various cryogenic interfaces, electrical feed-throughs and
various other MRI components, that are used to transfer power and/or cryogenic
fluids from the exterior of the MRI unit to the various layers of the cryostat
and superconducting magnet.
The Company currently sells all of its MRI cryostats to General Electric
Company ("GE"), and is the exclusive supplier of GE's cryostats. GE is the
leading worldwide manufacturer of MRI equipment. The Company will soon complete
the second year of its current two-year contract with GE for the production of
MRI cryostats, its tenth consecutive year of this work for GE. A new contract of
two years is currently being negotiated with GE. It is anticipated that the
contract will allow for price adjustments based upon the cost of material, which
can be modified if GE changes specifications and contains options under which GE
may adjust the number of units which it will purchase. Revenue from MRI
cryostats and components was 35%, 36% and 50% of the Company's total revenue
during the fiscal years
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ended August 31, 1996, 1995 and 1994, respectively. The Company's backlog of
purchase orders with GE was approximately $6.0 million and $4.3 million at
September 30, 1996 and September 30, 1995, respectively. It is expected that all
of the Company's current backlog for MRI cryostat components will be filled by
August 31, 1997.
TRANSPORTATION AND STORAGE EQUIPMENT
Cryogenic Transport Trailers
Cryogenic transport trailers are designed to hold a variety of gases in
liquid or gaseous state and are capable of storing and transporting such gases
without substantial evaporation, limiting the loss to less than one percent per
day. Because of these characteristics, cryogenic liquids can be transported over
relatively long distances with marginal loss.
The Company designs and produces transport trailers to the specific
requirement of its customers. The primary purchasers of cryogenic transport
trailers are industrial gas companies, independent carriers which service
producers and users of these gases, and independent carriers transporting LNG
for use as an alternative fuel. During the past year, the increased demand for
new cryogenic transport trailers, combined with the Company's success in
obtaining a high percentage of trailer orders placed, has resulted in an
increased level of trailer production by the Company. The Company also repairs
transport trailers built by others and provides such services for its own
trailers.
Revenue from cryogenic transport trailers was 42%, 33% and 17% of the
Company's total revenue for the fiscal years ended August 31, 1996, 1995 and
1994, respectively. Sales of cryogenic transport trailers to Jack B. Kelley,
Inc. and affiliated companies accounted for 21%, 12% and 6% of total revenue for
the fiscal years ended August 31, 1996, 1995 and 1994, respectively. The
Company's backlog of cryogenic transport trailers at September 30, 1996 and
September 30, 1995 was $2.7 million and $10.3 million, respectively. It is
expected that the Company's current backlog of cryogenic transport trailers will
be filled by August 31, 1997.
TVAC(R) Intermodal Containers
Intermodal containers, which are used to store and transport various
items worldwide, are generally uniform in size and are transferable from one
mode of transportation or carrier to another. Management believes that there are
in excess of 70,000 intermodal tank containers worldwide, many of which rely on
mechanical refrigeration or heating to maintain the temperature of their
contents.
The Company has designed a number of models of its proprietary TVAC
intermodal tank container, which fall into two categories. The first category,
which is used in the chemical, food and pharmaceutical industries, enables the
transportation of up to 5,500 gallons of temperature sensitive hot or cold
liquids by truck, rail and ship without mechanical refrigeration or heating. The
Company has been producing these products since 1993 for applications involving
the transportation of various temperature-sensitive products, including hot
liquid chocolate, glacial acrylic acid and chilled fruit juices. The second
category, for the transportation and storage of cryogenic liquids, was developed
in 1994, and also transports up to 5,500 gallons of these liquids without the
need for mechanical refrigeration. As of
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October 31, 1996, over 175 TVACs have been produced and are in service
transporting food and chemical products as well as various cryogenic liquids
including liquid argon and LNG.
Revenue from TVACs accounted for 13%, 21% and 13% of the Company's total
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
Sales of TVACs to Jack B. Kelley, Inc. and affiliated companies accounted for
9%, 20% and 8% of the Company's total revenue during the same years. The
Company's backlog of TVACs at September 30, 1996 and September 30, 1995 was $7.3
million and $4.8 million, respectively. It is expected that the Company's
current backlog of TVACs will be filled by August 31, 1997.
Cryogenic Storage Tanks
Large cryogenic storage tanks ("Big Tanks") are used for the storage of
liquefied atmospheric gases and LNG at sites where a permanent storage facility
is desired. The Company has designed a series of shop-built Big Tanks to
accommodate storage of cryogenic liquids from 15,000 gallons through 60,000
gallons. These tanks are an alternative to fieldbuilt tanks, and often provide a
more cost effective storage solution for customers. The Company made its initial
deliveries of Big Tanks in the fiscal year ended August 31, 1996.
LIQUEFIED AND COMPRESSED NATURAL GAS PRODUCTS
The Company believes that LNG, used as an alternative fuel in the
transportation sector, offers a significant opportunity for application of the
Company's cryogenic equipment and technology. Natural gas burns more cleanly
than gasoline or diesel fuel, and advanced natural gas-fueled vehicles have the
potential to reduce carbon monoxide emissions by about 90% and carbon dioxide
emissions by about 25% compared with most gasoline powered vehicles. Recent
legislation, including the Clean Air Act of 1990, has prompted many governmental
agencies to consider and require conversion of municipal vehicles to the
utilization of natural gas. In addition, the cost of LNG in many areas has
decreased in the past year, primarily due to the increasing supply of LNG. This
has resulted, in some cases, in an economic advantage over other fuels in both
vehicle and industrial applications. Natural gas may be used in compressed (CNG)
or liquid (LNG) states, and the Company believes that LNG offers a superior
alternative to CNG for certain transportation applications, providing
substantially longer range before refueling is required and requiring
significantly less vehicle tank space and weight. Additionally, the Company
believes that compressed natural gas made from liquefied natural gas ("LCNG")
offers some distinct advantages as an alternative fuel compared to traditional
CNG. Currently, LNG production requires liquefaction plants to convert the gas
into a liquid state and specialized cryogenic containers to store and transport
the liquid gas to fueling stations.
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The Company continues to develop proprietary products for the LNG and CNG
transportation market. Among the products developed to date are LNG vehicle
tanks for heavy vehicle applications, portable dispensing equipment for both LNG
and LCNG, fueling facilities utilizing either a TVAC or a large permanent
storage tank and dispensing equipment which looks and operates like a gasoline
fuel station, a mobile refueling facility for dispensing both LNG and LCNG, and
fuel gas modules for converting LNG to pipeline gas for industrial and
commercial applications. Management believes that the Company's proprietary
products developed for this market will be increasingly well received as the
supply of LNG becomes more widespread, and as the advantages of LNG and LCNG as
alternative fuels, including the economic advantages in an increasing number of
cases, become apparent to the potential customers.
The Company's joint venture with Jack B. Kelley, Inc., Applied LNG
Technologies USA, LLC ("ALT-USA") has been active throughout the year in
identifying opportunities for the use of LNG as an alternative fuel source, both
for vehicle applications and for heat and power applications in areas not served
by gas pipelines. The vehicle opportunities have recently been limited by an
increased excise tax burden imposed by the Internal Revenue Service (the "IRS")
for highway use of LNG as a motor fuel.
On August 7, 1995 the IRS ruled that LNG is not a gaseous fuel, and
should be taxed as a liquid motor fuel. The result of this ruling is to impose a
much higher effective rate of tax on LNG, one that is 25.1 cents higher than CNG
and 7.1 cents higher than diesel fuel. This tax penalty compared to diesel fuel
has virtually halted the conversion of medium and large trucks from diesel to
LNG. A number of bills have been introduced in Congress to eliminate this
disparity, and this issue is currently working its way through the legislative
process. While there appears to be substantial support for a reduction of the
tax on LNG to a rate equaling the tax on CNG, the outcome of the effort and the
timing are in question.
The Company continues to seek international sales agents, licensees and
joint venture partners, and continues to pursue the sale of LNG fuel tanks and
systems to a number of potential domestic customers, including municipal and
private fleets.
TADOPTR
The Company has obtained exclusive rights to license technology from the
Los Alamos National Laboratory which management believes may enable the Company
to produce a low cost, low maintenance, reliable cryogenic refrigerator, known
as "TADOPTR", to be used as a liquefier to produce LNG and CNG in a variety of
locations and applications. The TADOPTR refrigerator's maximum theoretical
efficiency occurs at approximately 110 Kelvin (-260 degrees Fahrenheit), the
liquefication temperature for natural gas.
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In June 1994, the Company received $780,000 in funding from a limited
partnership for the purpose of developing a 500 gallon per day TADOPTR. In
return for the partnership's investment, the Company issued warrants to purchase
200,000 shares of the Company's Common Stock at $3.00 per share, and entered
into a Royalty Rights and Technology Development Agreement with the partnership
pursuant to which royalties will be paid to the partnership on net revenues from
the sale of TADOPTRs. The royalties are payable for a period of 20 years from
the execution of the agreement. The Company spent the funds provided by the
partnership for the development of a 500 gallon per day TADOPTR during the years
ended August 31, 1995 and 1994. Should the development under this contract be
successful, management believes that there are numerous potential applications
for this technology, including use at fueling stations for LNG and CNG vehicles,
use for liquefaction of natural gas at remote well locations and use in other
commercial liquefaction applications.
In May, 1995, the Company received a contract from BDM-Oklahoma, Inc., a
program manager for the U.S. Department of Energy administering funding for LNG
and CNG research, in the amount of $452,500 for further development of and
additional enhancements to the TADOPTR liquefier and LNG dispenser system.
During the year ended August 31, 1996, the Company billed approximately $120,000
against this contract.
In October 1995, the Company successfully liquefied a stream of natural
gas, utilizing a compressor to power the OPTR phase of the TADOPTR, which
demonstrates that the OPTR technology can be scaled to a large size. In August
1996, the Company successfully operated a TAD power source, designed to operate
a 500 gallon per day TADOPTR, which demonstrates that the TAD technology can
also be scaled to a large size. Currently the Company is working to integrate
the TAD and the OPTR hardware as well as developing related liquefier products.
Considerable additional development is required to transition these developments
to a refrigerator that will produce LNG efficiently and economically.
MANUFACTURING
The Company's reputation as an innovative and effective problem solver is
supported by its engineering expertise and manufacturing capabilities.
Customized products often result from extended efforts between the Company's
engineers and the customers' design staff.
The Company meets stringent industrial and governmental specifications
throughout the entire design and manufacturing process and produces fabrications
in accordance with the requirements of the American Society of Mechanical
Engineers ("ASME") and the Boiler and Pressure Container Vessel Code ("ASME
Code"). The ASME Code sets forth generally recognized standards for
manufacturing, inspection and testing of containers for pressurized gases and
liquids. The ASME, through the National Board of Pressure Vessel Inspectors, has
examined and approved the Company's quality control system. This approval
permits the Company to stamp its pressure containers with a symbol indicating
that the equipment was built according to the requirements of the ASME Code. In
addition, many of the Company's products are designed to meet various
international standards for containers used for transporting regulated
materials, such as the International Maritime Organization standards. The
Company believes that, in many cases, its ability to meet such standards gives
it a competitive advantage.
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To the extent that the Company's products transport cryogenic liquids in
interstate commerce, they are also subject to regulation by the United States
Department of Transportation. These regulations provide safety inspections that
vary according to the method of transportation and the nature of the substance
being transported. Also, many states and localities impose safety requirements
which are independent of federal requirements.
The Company's quality control procedures incorporate many "inspection
points." Such inspection points require review of the quality of raw materials
used by the Company, review of the engineering design, inspections throughout
the manufacturing process and postmanufacture tests to insure the structural
integrity of the container, its durability and its impermeability to leaks. At
each inspection point, the quality control review is conducted both by employees
of the Company and by representatives of an independent agency acceptable to the
ASME. The frequency of inspections varies according to the nature of the
manufacturing projects underway at any given time.
The Company generally warrants its manufactured products against
defective materials and workmanship for a period of one year from the date of
delivery of the product.
The principal raw materials and supplies used by the Company in its
manufacturing processes are stainless steel, carbon steel, aluminum, valves,
pressure gauges, liquid level detectors and insulation materials, such as
aluminum foil. These materials are generally available at competitive prices
from many sources.
SALES AND MARKETING
The Company currently has five sales account executives. These sales
account executives are responsible for specific customer and industry
relationships. To facilitate its sales and marketing efforts, the Company has a
sales administration department consisting of a sales manager, a sales
administrator, an order entry clerk and a contract administrator, and agreements
with marketing representatives to cover parts of the United States and Europe.
In addition, the Company utilizes a team selling effort which draws upon the
expertise of senior management from areas such as engineering, manufacturing,
operations and finance. To supplement its direct sales efforts, the Company also
has an indirect sales and marketing network, utilizing the personnel of
customers and affiliates, including Chemical Leaman Tank Lines, Jack B. Kelley,
Inc. and ALT-USA. The Company believes that its team approach and the
utilization of outside resources enables it to address its customers'
requirements more effectively and provide a more complete understanding of the
costs involved in a particular project, allowing the Company to bid more
competitively and maximize the opportunity for longer-term, high volume
contracts.
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CUSTOMERS
Over the past several years, the Company has developed close working
relationships with several significant customers, including GE, Jack B. Kelley,
Inc., Chemical Leaman Tank Lines, MG Industries, BOC Gases, Air Products, the
Department of Defense (the "DOD") and others. The Company's recent focus on
broadening its product lines is reducing customer concentration to levels where
the loss of a single contract or customer, other than GE and Jack B. Kelley,
Inc., would not have a material adverse effect on the Company's overall
business. GE and Jack B. Kelley, Inc. have accounted for substantial percentages
of the Company's revenues during the past three fiscal years. See "Products --
MRI Cryostat Components" and "Products -- Transportation Equipment." The Company
anticipates that its dependence on these customers will be reduced in future
years.
Historically, the Company's products were sold pursuant to customer
orders which called for delivery on a relatively short term basis. Over the past
several years, the Company has developed proprietary products which has enabled
it to enter into longer term contracts with certain of its major customers. Such
contracts contain product specifications, numbers of units, and pricing per
unit, subject in some cases to adjustment for changes in cost of materials and
product specifications. During the term of these contracts, the customer will
issue specific purchase orders against which the Company will commence
production. These orders are counted in the backlog when purchase orders are
received.
At September 30, 1996, the Company had a total backlog of $18.8 million,
compared to a backlog of $21.2 million at September 30, 1995. The Company
estimates that all of the current backlog will be filled by August 31, 1997. The
Company's backlog fluctuates depending on placement of large orders from certain
customers.
COMPETITION
The Company has competitors in each of its product lines. Certain of
these competitors are significantly larger and have greater financial resources
than the Company. The Company believes that the principal competitive factors in
the markets in which it competes are product expertise, quality, service and
price. The Company believes that its products have achieved market acceptance
due to the Company's ability to meet stringent industrial and governmental
specifications, innovative design and attention to customer service. The Company
has achieved significant market position in the fields of MRI cryostats,
cryogenic truck trailers, cryogenic intermodal tank containers and LNG fueling
systems, and has historically been one of the largest suppliers of cryogenic
tankage to the DOD.
EMPLOYEES
At September 30, 1996, the Company employed 210 persons, including 167 in
manufacturing, 5 in quality control, 12 in administration, 11 in sales and 15 in
engineering.
The Company depends on many skilled employees, and the Company's success
is affected by its ability to retain such employees. None of the Company's
employees is represented by a union or other collective bargaining group, and
management believes that its relationships with its employees are generally
good.
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ITEM 2. PROPERTIES.
The Company leases 14,700 square feet of office space and 105,100 square
feet of manufacturing space for its primary offices and plant under a lease
expiring in 2006 at 3811 Joliet Street, Denver, Colorado. Lease expense is $3.75
per square foot per year, to be increased every two years at an annual rate of
between 3% and 5%, depending upon the level of inflation. Additionally, the
Company is required to pay all maintenance for the premises and the cost of
insurance and property taxes.
The Company also leases approximately 13,700 square feet of office space
and 91,300 square feet of manufacturing space at 5995 North Washington Street,
Denver, Colorado under a lease expiring in 1999. The facility was remodeled in
1989 and substantial leasehold improvements were made to the manufacturing area
to facilitate production and improve efficiencies. Lease expense is $3.25 per
square foot per year and the Company is required to pay all taxes, insurance and
maintenance for the premises. The Company has a right of first refusal to
purchase the facility.
The Company believes that its facilities are generally in good repair and
provide suitable and adequate capacity for its present needs. Additional
facilities may be required for future expansion of operations.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the
executive officers of the Company.
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Positions and offices held
Name Age during the past fiscal year
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Alfred Schechter................ 76 Chairman of the Board, Chief Executive
Officer and President of the Company;
Chairman of the Board, Chief Executive
Officer and President of Cryenco, Inc.
James A. Raabe.................. 44 Vice President, Treasurer, Chief Financial
Officer and Secretary of the Company;
Vice President, Treasurer, Chief Financial
Officer and Secretary of Cryenco, Inc.
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Each executive officer serves at the pleasure of the Board of Directors
and until his or her successor is duly elected and qualifies.
ALFRED SCHECHTER has been Chairman of the Board and Chief Executive
Officer of Cryenco, Inc. since September 1991, President of Cryenco, Inc. since
September 1996 and Chairman of the Board, Chief Executive Officer and President
of the Company since February 1992. Mr. Schechter has been a Director of
Charterhouse Group International, Inc. ("Charterhouse") since 1985. Mr.
Schechter served as Chairman of the Board and Chief Executive Officer of
Charter-Crellin, Inc., a designer, manufacturer and marketer of proprietary
injected molded plastic products, from 1985 to 1989 and as Chairman of the Board
and Chief Executive Officer of Paco Pharmaceutical Services, Inc., a
pharmaceutical contract packaging company, from 1975 to 1988. Mr. Schechter is
also a member of The Advisory Board of The Recovery Group, L.P., which invests
in debt and equity securities of distressed companies. Mr. Schechter has held
the positions of Chairman of Stanley Interiors Corporation, a manufacturer of
home furnishings, Vice Chairman of Joseph Kirschner Company, Inc., a
manufacturer of processed meat products, and Director of Paco Pharmaceutical
Services, Inc., WDP, Inc., a brick refractory servicing the steel industry,
Dreyers Grand Ice Cream, Inc., a manufacturer of ice cream products, Marathon
Enterprises Inc., a manufacturer of processed meat products, and Garden America
Corporation, a manufacturer and distributor of garden products.
JAMES A. RAABE became Vice President and Chief Financial Officer of
Cryenco, Inc. and Chief Financial Officer of the Company in July 1994. He later
became Vice President of the Company and Treasurer of Cryenco, Inc. in January
1995 and Secretary and Treasurer of the Company and Secretary of Cryenco, Inc.
in July 1995. Mr. Raabe was employed by Cryenco, Inc. in March 1994 as Financial
Manager. Mr. Raabe was previously employed by Stanley Aviation Corporation, a
manufacturer of aerospace products, from 1977 to 1993, where he was Vice
President - Finance, Corporate Secretary and a Director of the Company. Mr.
Raabe received his B.A. degree in Business Administration from California State
University, Fullerton, and is a Certified Public Accountant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol CSCI. The following table sets forth the high and low sales
prices for the Company's Common Stock as reported on the NASDAQ National Market
System from September 1, 1994 to November 25, 1996. The prices set forth reflect
interdealer quotations, without retail markups, markdowns or commissions, and do
not necessarily represent actual transactions.
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High Low
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Fiscal Quarter Ended
November 30, 1994....................................................... $5 1/2 $3 1/8
February 28, 1995....................................................... 4 1/2 2 1/2
May 31, 1995............................................................ 4 1/2 3
August 31, 1995......................................................... 4 1/4 3 1/4
November 30, 1995....................................................... $5 $3 5/8
February 29, 1996....................................................... 5 1/8 3 3/8
May 31, 1996............................................................ 4 3/8 3
August 31, 1996......................................................... 4 3/4 2 5/8
November 30, 1996 (through November 25, 1996)........................... $3 3/4 $1 3/8
</TABLE>
The closing price of the Company's Common Stock on November 25, 1996 was
$2.00 per share. At November 25, 1996, there were approximately 200 stockholders
of record. However, the Company believes that at such date there were in excess
of 500 beneficial stockholders.
DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain any earnings for use in its business. The
Company's ability to pay cash dividends is currently limited by credit
agreements and the Company does not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE>
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data at and for the fiscal years
ended August 31, 1996, 1995, 1994 and 1993 are derived from financial statements
which have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data at and for the fiscal year ended August 31, 1992 are
derived from the consolidated financial statements which have been audited by
KPMG Peat Marwick LLP, independent auditors. This information should be read in
conjunction with the Company's consolidated financial statements and related
notes and other financial information appearing elsewhere herein.
<TABLE>
<CAPTION>
Fiscal year ended August 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of income data:
<S> <C> <C> <C> <C> <C>
Contract Revenue $31,259 $27,215 $17,665 $13,099 $22,198
Cost of revenue 24,898 22,350 14,670 12,198 16,398
------- ------- ------- ------- -------
Gross Profit 6,361 4,865 2,995 901 5,800
Selling, general and
administrative expenses 3,288 2,867 2,834 3,396 2,366
Research and development expenses 792 70 86 701 319
Amortization expense 346 346 338 286 321
------- ------- ------- ------- -------
Operating income (loss) 1,935 1,582 (263) (3,482) 2,794
Interest expense, net 943 987 1,105 1,057 1,282
Other nonoperating expense
(income), net 9 40 (69) (19) 111
------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item 983 555 (1,229) (4,500) 1,401
Income tax (expense) benefit (363) (194) 403 1,196 (483)
------- ------- ------- ------- -------
Income from operations before
extraordinary item 620 361 (896) (3,304) 918
Extraordinary item, net of taxes 93 -- -- -- --
------- ------- ------- ------- -------
Net income (loss) $ 527 $ 361 $ (896) $(3,304) 918
======= ======= ======= ======= =======
Earnings (loss) per share (1) $ .06 $ .04 $ (.17) $ (.62) $ .20
======= ======= ======= ======= =======
Balance sheet data:
Total assets $25,704 $23,377 $18,404 $20,344 $21,644
Long-term debt, excluding
current maturities 8,634 5,629 6,928 8,191 7,558
Stockholders' equity 11,673 11,236 7,047 7,191 10,420
</TABLE>
(1) Net income (loss) per share for the fiscal years ended August 31, 1996,
1995, 1994, 1993 and 1992 have been calculated based on 7,230,773,
6,620,055, 5,346,760, 5,326,936 and 4,491,392 weighted average common and
common equivalent shares outstanding during the year, respectively.
13
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the materials set forth under
"Business" and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth below. The Company's actual results could
differ materially from those anticipated in the forward-looking statements.
GENERAL
The Company's operating subsidiary, Cryenco, Inc. was organized in 1978.
Effective August 30, 1991, Cryenco Holdings, Inc. ("CHI") acquired all of the
outstanding common stock of Cryenco, Inc. On February 11, 1992, CHI was merged
with and into Gulf & Mississippi Corporation and Gulf & Mississippi Corporation
changed its name to Cryenco Sciences, Inc. (the "Merger"). The Merger has been
accounted for as a reverse acquisition, whereby CHI is considered to be the
acquirer of Gulf & Mississippi Corporation for accounting and financial
reporting purposes. The discussion and analysis set forth below refers to the
financial condition and results of operations of the Company, including its
predecessor, Cryenco, Inc.
The Company accounts for its revenue using the percentage-of-completion
method, units delivered or completed contract, whichever is deemed more
appropriate for the contract. See Note 1 to the consolidated financial
statements. Revenue has been generated primarily from sales of cryogenic
components and systems to a small number of significant customers. During the
fiscal years ended August 31, 1996, 1995 and 1994, revenue from MRI cryostats
and components accounted for 35%, 36% and 50%, respectively, of total contract
revenue. Revenue from the sale and repair of cryogenic transport trailers and
intermodal tank containers accounted for 55%, 55% and 40% of total contract
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
During fiscal 1996, the Company continued to concentrate its efforts on
developing new domestic and international markets with an emphasis on product
lines offering repeatability and higher volume potential while de-emphasizing
its traditional job shop or short product run products. During this period, the
Company expanded certain segments of its operations, including personnel and
plant capacity, to support the growth from these new markets for its cryogenic
technology. Management believes that the Company has been successful in securing
the majority of the orders placed during the past year for these trailers. The
markets for LNG fuel tanks and systems both in the United States and
internationally are growing, but much more slowly than the Company had hoped.
Nevertheless, this market appears to be improving as an increased availability
of LNG and new products, including the Company's dispensing equipment and TVAC,
have made LNG vehicles more economically viable.
14
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
income and expense items as a percentage of revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
August 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Contract revenue.............................................. 100.0% 100.0% 100.0%
Cost of revenue............................................... 79.7 82.1 83.0
----- ----- -----
Gross profit.................................................. 20.3 17.9 17.0
Selling, general and administrative expenses.................. 10.5 10.5 16.1
Research and development expenses............................. 2.5 0.3 0.5
Amortization expense.......................................... 1.1 1.3 1.9
----- ----- -----
Operating (loss) income ...................................... 6.2 5.8 (1.5)
Interest expense, net......................................... 3.0 3.6 6.3
Other nonoperating (income) expense, net...................... 0.0 0.2 (0.4)
----- ----- -----
Income (loss) before income taxes and extraordinary item...... 3.2 2.0 (7.4)
Income tax (expense) benefit.................................. (1.2) (0.7) 2.3
----- ----- -----
Income (loss) before extraordinary item....................... 2.0 1.3 (5.1)
Extraordinary item............................................ 0.3 -- --
----- ----- -----
Net income (loss)..................................... 1.7% 1.3% (5.1)%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED AUGUST 31, 1996 AND 1995
Contract revenue increased 14.9% to $31.3 million in 1996 from $27.2
million in 1995, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers, as well as revenue
derived from the sale of various products to ALT-USA. Additionally, the Company
recognized smaller increases in revenue from the production of MRI cryostats and
sales of LNG products.
Gross profit in 1996 increased 30.8% to $6.4 million from $4.9 million in
1995 and gross profit as a percentage of contract revenue increased to 20.3% in
1996 from 17.9% in 1995. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment. Additionally, excess and obsolete inventory costs
increased to $269,000 in 1996 from $55,000 in 1995, while warranty costs
decreased from $663,000 in 1995 to $379,000 in 1996. The increase in obsolete
inventory costs is primarily due to the changing of the Company's products
during the past few years, which has resulted in certain inventory items having
no anticipated production use, and an increase in the reserve for obsolete
inventory. The decrease in warranty costs is primarily based on the improved
quality of the Company's products. At August 31, 1996 the reserve for obsolete
inventory was $150,000, compared to the $100,000 reserve at August 31, 1995.
Selling, general and administrative expenses increased 14.7% to $3.3
million in 1996 from $2.9 million in 1995 and remained at 10.5% of contract
revenue.
15
<PAGE>
<PAGE>
Research and development expenses increased to $792,000 in 1996 from
$70,000 in 1995. This increase is primarily due to the Company's funding of
research and development for the TADOPTR program and for the further development
of LNG products, both of which were in excess of amounts reimbursed from
customers.
Amortization expense remained at $346,000 in both 1996 and 1995.
Interest income decreased to $1,000 in 1996 from $20,000 in 1995. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $944,000 in 1996 from $1.0 million in 1995.
This decrease is the result of slightly higher average borrowings during the
year which is more than offset by lower interest rates.
Other nonoperating expense decreased to $9,000 in 1996 from $40,000 in
1995. This decrease is primarily due to the expenses from the Company's
investment in ALT-USA in 1995 that did not recur in 1996.
Income tax expense increased to $363,000 in 1996 from $194,000 in 1995,
due primarily to the increased profit in 1996 compared to 1995.
In 1996, the Company recorded an extraordinary expense of $93,000 net of
income tax benefit of $54,000, with no corresponding expense in 1995. This
amount is the result of the expensing in the current period of certain deferred
financing expenses, due to the early retirement of the Chemical Bank loans and a
portion of The CIT Group/Equity Investments, Inc.
("CIT") note.
Net income increased to $527,000 in 1996 from $377,000 in 1995. The
resulting net income is the result of the cumulative effect of the above
factors.
Net cash used by operating activities in 1996 amounted to $356,000
compared to $1.2 million in 1995. The use of cash in 1996 is primarily the
result of an increase in accounts receivable resulting from the Company
discontinuing its policy of granting cash discounts, combined with a decrease in
accounts payable following the increase in borrowing capacity from FBS Business
Finance Corporation. This use of funds was only partially offset by the decrease
in costs and estimated earnings in excess of billings on uncompleted contracts
during 1996.
FISCAL YEARS ENDED AUGUST 31, 1995 AND 1994
Contract revenue increased 54.1% to $27.2 million in 1995 from $17.7
million in 1994, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers and TVAC intermodal
containers. Additionally, the Company recognized smaller increases in revenue
from the production of MRI cryostats and sales of LNG products.
16
<PAGE>
<PAGE>
Gross profit in 1995 increased 62.4% to $4.9 million from $3.0 million in
1994 and gross profit as a percentage of contract revenue increased to 17.9% in
1995 from 17.0% in 1994. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment and LNG Products. Additionally, the excess and
obsolete inventory costs decreased to $55,000 in 1995 from $142,000 in 1994,
while warranty costs increased from $287,000 in 1994 to $663,000 in 1995. The
increase in warranty costs is primarily due to costs incurred on cryogenic
transport trailers produced in 1993, and an increase in the warranty reserve. At
August 31, 1995 the reserve for warranty costs was $200,000, compared to the
$144,000 reserve at August 31, 1994, and the allowance for excess and obsolete
inventory increased from $52,000 at August 31, 1994 to $100,000 at August 31,
1995.
Selling, general and administrative expenses increased 1.2% to $2.9
million in 1995 from $2.8 million in 1994 and decreased as a percentage of
contract revenue to 10.6% from 16.1%. This decrease resulted from continuing
savings resulting from the Company's cost reduction efforts and the fixed nature
of certain general and administrative expenses in relation to increased revenue.
Research and development expenses decreased to $70,000 in 1995 from
$86,000 in 1994. In both years, the costs for the continuing development of
products were generally charged against specific customer orders.
Amortization expense increased to $346,000 in 1995 from $338,000 in 1994.
This increase is the result of the increased warrant amortization resulting from
the 1993 debt restructuring with Chemical Bank, CIT and the Company's junior
subordinated debt holders.
Interest income decreased to $20,000 in 1995 from $103,000 in 1994. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $1.0 million in 1995 from $1.2 million in
1994. This decrease is primarily due to reduced level of interest bearing debt
in 1995 compared to 1994.
Other nonoperating expense increased to $40,000 in 1995 from the
nonoperating income of $69,000 in 1994. This increase is primarily due to
expenses from the Company's investment in ALT-USA in the current year compared
to a reimbursement received for warranty claims in the prior year.
Income tax expense increased to $194,000 in 1995 from a tax benefit of
$403,000 in 1994, due primarily to the profit in 1995 compared to the loss in
1994.
Net income increased to $361,000 in 1995 from a net loss of $896,000 in
1994. The resulting net income is the result of the cumulative effect of the
above factors.
Net cash used by operating activities in 1995 amounted to $1.2 million
compared to $1.9 million provided by operating activities in 1994. The
difference of $3.2 million is due to
17
<PAGE>
<PAGE>
the increased level of operating activities of the Company, which has resulted
in increased inventories and costs and estimated earnings in excess of billings
on uncompleted contracts, which are only partially offset by the increase in
accounts payable.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company's working capital was $9.8 million, which
represented a current ratio of 2.8 to 1. Also, the Company's outstanding
indebtedness under the Credit and Security Agreement with FBS Business Finance
Corporation ("FBS") was $7.8 million, of which $615,000 represented term
indebtedness and $7.2 million represented revolving indebtedness. At August 31,
1996, the Company's outstanding indebtedness to CIT was $1.7 million which
represented subordinated indebtedness.
In December 1995, the Company entered into a Credit and Security
Agreement with FBS. Under the agreement, FBS is providing a revolving loan
facility of up to $10,000,000 and a term loan facility of up to $2,960,000,
subject to the amount of the Company's borrowing base and manufacturing
equipment additions in the fiscal year ended August 31, 1996, respectively. The
revolving loan initially bore interest at the First Bank National Association
reference rate (the "Reference Rate") plus 0.5%, while the term loan bears
interest at the Reference Rate plus 0.75%. The revolving loan has a provision
for incentive pricing whereby the rate may adjust upward or downward on a
quarterly basis depending upon the performance of the Company.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding Chemical Bank revolving credit facility ($2,200,000),
to retire the outstanding Chemical Bank term loan ($2,125,000), to make a
partial payment on the outstanding note payable to CIT ($500,000), and for
general corporate purposes ($1,000,000).
The Credit and Security Agreement limits the Company's ability to make
capital expenditures to $6.5 million for fiscal 1997, and $4.5 million for
fiscal 1998. As necessary to supplement capital expenditure needs, Cryenco, Inc.
intends to utilize leasing arrangements to the extent they are available on
commercially reasonable terms. The Company intends to fund capital expenditure
needs from cash flow from operations, future borrowing capacity under the Credit
and Security Agreement, if any, and, as necessary, future financing.
The Company believes that its existing capital resources, together with
its cash flow from future operations will be sufficient to meet its short term
working capital needs. Additional financing may be required for future expansion
of operations and research and development, as necessary, including for the
continued development of the Company's TADOPTR products.
18
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
19
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY.
See Part I, page 11. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
20
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a)(1) Consolidated Financial Statements of Registrant.
Report of Independent Auditors...........................................F-2 & S-1
Consolidated Balance Sheets as of August 31, 1996 and 1995...............F-3
Consolidated Statements of Operations for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended August 31, 1996, 1995 and 1994.............................F-6
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-7
Notes to Consolidated Financial Statements...............................F-9
(a)(2) Schedule II..............................................................S-2
</TABLE>
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the
Registrant, incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on
Form S-2, File No. 33-48738, filed on June 19,
1992 (the "S-2 Registration Statement").
3.2 - By-laws of the Registrant, incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, File No.
33-7532, filed on July 25, 1986 (the "S-1
Registration Statement").
3.3 - Certificate of Amendment to the Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 (the "1995
Annual Report").
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
3.4 - Certificate of Designation, Preferences and Rights
of the Series A Preferred Stock of the Registrant,
incorporated by reference to Exhibit 3.4 to the
1995 Annual Report.
3.5 - Corrected Certificate of Amendment of Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.5 to the
1995 Annual Report.
4.1 - See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the
Registrant (Exhibit 3.5 hereof), incorporated by
reference to Exhibit 4.1 to the 1995 Annual
Report.
4.2 - Forms of Common Stock and Class B Common Stock
certificates of the Registrant, incorporated by
reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-4, File No. 33-
43782, filed on December 19, 1991 (the "S-4
Registration Statement").
4.3 - Registration Rights Agreement dated as of August
30, 1991 among CHI, CIT, Chemical Bank and the
Investors named therein, incorporated by reference
to Exhibit 4.3 to the 1995 Annual Report.
4.4 - Warrant Agreement dated as of August 30, 1991
between Chemical Bank, CHI and the Registrant,
incorporated by reference to Exhibit 4.4 to the
1995 Annual Report.
4.5 - Letter Agreement dated April 15, 1992 among the
Registrant, CIT and Chemical Bank relating to the
Warrants referred to herein at Exhibits 4.8 and
4.9, incorporated by reference to Exhibit 4.9 to
the S-2 Registration Statement.
4.6 - Letter Agreement dated August 12, 1992 between the
Registrant and Chemical Bank relating to the
Warrants referred to herein at Exhibit 4.8,
incorporated by reference to Exhibit 4.6 to the
1995 Annual Report.
4.7 - Letter Agreement dated August 12, 1992 between the
Registrant and CIT relating to the Warrants
referred to herein at Exhibit 4.9, incorporated by
reference to Exhibit 4.7 to the 1995 Annual
Report.
</TABLE>
22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.8 - Warrants issued to Chemical Bank each dated April
27, 1992, incorporated by reference to Exhibit 4.8
to the 1995 Annual Report.
4.9 - Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the
1995 Annual Report.
4.10 - Warrant issued to Dain Bosworth Incorporated dated
August 20, 1992, incorporated by reference to
Exhibit 4.12 to the S-2 Registration Statement.
4.11 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Alfred Schechter,
incorporated by reference to Exhibit 4.11 to the
1995 Annual Report.
4.12 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Don M. Harwell,
incorporated by reference to Exhibit 4.12 to the
1995 Annual Report.
4.13 - Warrant Agreement dated as of March 12, 1993
between the Registrant and MCC, incorporated by
reference to Exhibit 4.13 to the 1995 Annual
Report.
4.14 - Warrant issued to Alfred Schechter dated March 12,
1993, incorporated by reference to Exhibit 4.14 to
the 1995 Annual Report.
4.15 - Warrant issued to Don M. Harwell dated March 12,
1993, incorporated by reference to Exhibit 4.15 to
the 1995 Annual Report.
4.16 - Warrant issued to MCC dated March 12, 1993,
incorporated by reference to Exhibit 4.16 to the
1995 Annual Report.
4.17 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Alfred Schechter with respect
to the Exercise Price for the Warrant referred to
herein at Exhibit 4.14, incorporated by reference
to Exhibit 4.17 to the 1995 Annual Report.
4.18 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Don M. Harwell with respect to
the Exercise Price for the Warrant referred to
herein at Exhibit 4.15, incorporated by reference
to Exhibit 4.18 to the 1995 Annual Report.
</TABLE>
23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.19 - Letter Agreement dated as of June 9, 1993 between
the Registrant and MCC with respect to the Warrant
referred to herein at Exhibit 4.16, incorporated
by reference to Exhibit 4.19 to the 1995 Annual
Report.
4.20 - Warrant issued to Chemical Bank dated November 24,
1993, incorporated by reference to Exhibit 4.20 to
the 1995 Annual Report.
4.21 - Warrant issued to CIT dated November 24, 1993,
incorporated by reference to Exhibit 4.21 to the
1995 Annual Report.
4.22 - Warrant Agreement dated as of January 26, 1995
between the Company and Alfred Schechter,
incorporated by reference to Exhibit 4.22 to the
1995 Annual Report.
4.23 - Warrant Agreement dated as of January 26, 1995
between the Company and Don M. Harwell,
incorporated by reference to Exhibit 4.23 to the
1995 Annual Report.
4.24 - Warrant Agreement dated as of January 26, 1995
between the Company and MCC, incorporated by
reference to Exhibit 4.24 to the 1995 Annual
Report.
4.25 - Warrant issued to Alfred Schechter dated January
26, 1995, incorporated by reference to Exhibit
4.25 to the 1995 Annual Report.
4.26 - Warrant issued to Don M. Harwell dated January 26,
1995, incorporated by reference to Exhibit 4.26 to
the 1995 Annual Report.
4.27 - Warrant issued to MCC dated January 26, 1995,
incorporated by reference to Exhibit 4.27 to the
1995 Annual Report.
4.28 - See the Certificate of Designation, Preferences
and Rights of the Series A Preferred Stock of the
Registrant (Exhibit 3.4 hereof), incorporated by
reference to Exhibit 4.28 to the 1995 Annual
Report.
4.29 - Warrant Agreement dated as of June 8, 1994 between
the Registrant and Cryogenic TADOPTR Company, L.P.
and the Form of Warrant Certificate issued
pursuant thereto, incorporated by reference to
Exhibit 4.29 to the 1995 Annual Report.
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.30 - Warrant Agreement dated as of December 20, 1994
between the Registrant and The Edgehill
Corporation, incorporated by reference to Exhibit
4.30 to the 1995 Annual Report.
4.31 - Warrant issued to The Edgehill Corporation dated
as of December 20, 1994, incorporated by reference
to Exhibit 4.31 to the 1995 Annual Report.
4.32 - Registration Rights Agreement dated as of December
20, 1994 among the Registrant, certain parties
named therein and International Capital Partners,
Inc., incorporated by reference to Exhibit 4.32 to
the 1995 Annual Report.
4.33 - Form of Warrant issued to each of International
Capital Partners, Inc. and the parties named in
the Registration Rights Agreement dated as of
December 20, 1994 (Exhibit 4.32 hereof),
incorporated by reference to Exhibit 4.33 to the
1995 Annual Report.
10.1 - 1986 Non-Qualified Stock Option Agreement,
incorporated by reference to Exhibit 10.1 to the
1995 Annual Report.
10.2 - Stockholders Agreement dated as of August 30, 1991
among the Registrant, CHI and other stockholders
of CHI, incorporated by reference to Exhibit 10.2
to the 1995 Annual Report.
10.3 - Securities Purchase Agreement dated as of August
30, 1991 among CIT, CHI, the Registrant, CEC
Acquisition Corp. and Cryogenic Energy Company,
incorporated by reference to Exhibit 10.3 of the
1995 Annual Report.
10.4 - Credit Agreement dated as of August 30, 1991 among
Cryenco, Inc., the Lenders named therein, and
Chemical Bank, as Agent, incorporated by reference
to Exhibit 10.7 to the S-4 Registration Statement.
10.5 - Form of Amended and Restated Pledge Agreement
dated February 11, 1992 relating to the capital
stock of Cryenco, Inc. executed by CSCI
Corporation in favor of Chemical Bank,
incorporated by reference to Exhibit 10.6 to the
S-4 Registration Statement.
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.6 - Employment Agreement dated as of September 1, 1991
between Cryenco, Inc. and Alfred Schechter,
incorporated by reference to Exhibit 10.8 of the
S-4 Registration Statement.
10.7 - 1992 Employee Incentive and Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on
Form S-8, File No. 33-65864, filed on July 12,
1993 (the "S-8 Registration Statement").
10.8 - Form of Option Agreement under the 1992 Employee
Incentive and Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4.2 to the
S-8 Registration Statement.
10.9 - 1993 Non-Employee Director Stock Option Program,
incorporated by reference to Exhibit 4.3 to the
S-8 Registration Statement.
10.10 - Form of Option Agreement under the 1993 Non-
Employee Director Stock Option Program (contained
in the 1993 Non-Employee Director Stock Option
Program referred to herein at Exhibit 10.9),
incorporated by reference to Exhibit 4.4 to the
S-8 Registration Statement.
10.11 - 1991 Incentive Compensation Plan of Cryenco, Inc.,
as amended, incorporated by reference to Exhibit
10.9 to the S-2 Registration Statement.
10.12 - Lease, as amended, dated August 22, 1989
concerning the property leased by the Registrant
located at 5995 North Washington Street, Denver,
Colorado, incorporated by reference to Exhibit
10.10 to the S-2 Registration Statement.
*10.13 - Lease, as amended, dated June 19, 1996 concerning
the property leased by the Registrant located at
3811 Joliet Street, Denver, Colorado.
10.14 - Consulting Agreement dated August 30, 1991 between
the Registrant and Charterhouse, incorporated by
reference to Exhibit 10.12 to the S-2 Registration
Statement.
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.15 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.15 to the 1995 Annual Report.
10.16 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.16 to the 1995 Annual Report.
10.17 - Funding Agreement dated March 12, 1993 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.17 to the 1995 Annual Report.
10.18 - Intentionally left blank.
10.19 - Form of Indemnification Agreement entered into
between the Registrant and certain of its officers
and directors dated March 16, 1993, incorporated
by reference to Exhibit 10.19 to the 1995 Annual
Report.
10.20 - Second Waiver and Amendment Agreement dated as of
August 31, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.20 to the 1995 Annual Report.
10.21 - Second Waiver and Amendment Agreement dated as of
October 31, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.22 - Letter Agreement dated April 13, 1994 among the
Registrant, Cryenco, Inc., Chemical Bank and CIT,
incorporated by reference to Exhibit 10.22 to the
1995 Annual Report.
27
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.23 - Exchange Agreement dated April 13, 1994 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.23 to the 1995 Annual Report.
10.24 - Royalty Rights and Technology Development
Agreement dated June 8, 1994 between the
Registrant and Cryogenic TADOPTR Company, L.P.,
incorporated by reference to Exhibit 10.24 to the
1995 Annual Report.
10.25 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1991, as amended, incorporated by reference to
Exhibit 10.25 to the 1995 Annual Report.
10.26 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.26 to the 1995 Annual Report.
10.27 - Purchase Agreement dated as of November 29, 1994
among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein,
incorporated by reference to Exhibit 10.27 to the
1995 Annual Report.
10.28 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among the Registrant, Cryenco,
Inc., the Lenders named therein and Chemical Bank,
as Agent, amending the Credit Agreement dated as
of August 30, 1991, as amended, incorporated by
reference to Exhibit 10.28 to the 1995 Annual
Report.
10.29 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.29 to the 1995 Annual Report.
</TABLE>
28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.30 - First Amendment to the Purchase Agreement dated as
of December 20, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994,
incorporated by reference to Exhibit 10.30 to the
1995 Annual Report.
10.31 - Second Amendment to the Purchase Agreement dated
as of January 30, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994, as
amended, incorporated by reference to Exhibit
10.31 to the 1995 Annual Report.
10.32 - Amended and Restated Employment Agreement dated
January 18, 1995 between Cryenco, Inc. and Dale A.
Brubaker, incorporated by reference to Exhibit
10.32 to the 1995 Annual Report.
10.33 - Letter Agreement dated May 18, 1995 among the
Registrant, International Capital Partners, Inc.
and the Purchasers named therein, incorporated by
reference to Exhibit 10.33 to the 1995 Annual
Report.
10.34 - Fifth Waiver and Amendment Agreement dated as of
May 30, 1995 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1995, as amended, incorporated by reference to
Exhibit 10.34 to the 1995 Annual Report.
10.35 - Credit and Security Agreement dated as of December
19, 1995 and Supplement A thereto between Cryenco,
Inc., the Company and FBS Business Finance
Corporation, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30,
1995.
</TABLE>
29
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.36 - First Amendment dated as of January 16, 1996
between FBS Business Finance Corporation, Cryenco,
Inc., the Company and Cryenex, Inc., amending the
Credit and Security Agreement dated as of December
19, 1995, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended February 29,
1996 (the "February 29, 1996 Quarterly Report").
10.37 - Letter Agreement dated January 12, 1996 between
CIT and FBS Business Finance Corporation,
incorporated by reference to Exhibit 10.2 to the
February 29, 1996 Quarterly Report.
*21 - Subsidiaries of the Registrant
*23.1 - Consent of Ernst & Young LLP
*27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X filed with EDGAR filing only.
</TABLE>
- -------------------------
* Filed herewith
(b) Reports on Form 8-K: None
30
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
--------------------------
Alfred Schechter,
Chairman of the Board
November 25, 1996
------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE CAPACITY IN WHICH SIGNED
--------- ---- ------------------------
<S> <C> <C>
/s/ Alfred Schechter November 25, 1996 Chairman of the Board, Chief Executive
------------------- Officer, President and Director of the
Alfred Schechter Company (Principal Executive Officer)
/s/ James A. Raabe November 25, 1996 Vice President, Treasurer, Chief
------------------- Financial Officer and Secretary of the
James A. Raabe Company, Vice President, Treasurer,
Chief Financial Officer and Secretary
of Cryenco, Inc. (Principal Financial
and Accounting Officer)
/s/ Jerome L. Katz November 25, 1996 Director of the Company
-------------------
Jerome L. Katz
/s/ Russell R. Haines November 25, 1996 Director of the Company
-------------------
Russell R. Haines
/s/ Burton J. Ahrens November 25, 1996 Director of the Company
-------------------
Burton J. Ahrens
/s/ Ajit G. Hutheesing November 25, 1996 Director of the Company
-------------------
Ajit G. Hutheesing
</TABLE>
31
<PAGE>
<PAGE>
Consolidated Financial Statements
Cryenco Sciences, Inc.
Years ended August 31, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Financial Statements
Years ended August 31, 1996, 1995 and 1994
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors .....................................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.........................................................F-3
Consolidated Statements of Operations...............................................F-5
Consolidated Statements of Stockholders' Equity.....................................F-6
Consolidated Statements of Cash Flows...............................................F-7
Notes to Consolidated Financial Statements .........................................F-9
</TABLE>
F-1
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Cryenco
Sciences, Inc. as of August 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cryenco Sciences,
Inc. at August 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
F-2
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Balance Sheets
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111 $ 632
Accounts receivable, trade, net of allowance of $12
in 1996 and $14 in 1995 5,352 2,738
Accounts receivable, affiliate 1,423 83
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,944 6,707
Inventories 4,333 4,208
Prepaid expenses 57 116
-----------------------------
Total current assets 15,220 14,484
Property and equipment:
Leasehold improvements 739 684
Machinery and equipment 5,355 3,979
Office furniture and equipment 1,231 402
-----------------------------
7,325 5,065
Less accumulated depreciation 3,099 2,249
-----------------------------
4,226 2,816
Property on operating leases, net of accumulated
depreciation of $7 604 -
Deferred financing costs, net of accumulated
amortization of $177 in 1996 and $738 in 1995 120 256
Organizational costs, net of accumulated
amortization of $507 in 1996 and $404 in 1995 - 103
Goodwill, net of accumulated amortization of
$738 in 1996 and $589 in 1995 5,226 5,375
Other assets 308 343
-----------------------------
Total assets $25,704 $23,377
=============================
F-3
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,224 $ 3,469
Accrued expenses 1,123 880
Accrued management fees 324 324
Current portion of long-term debt and capital lease
obligations 1,382 1,593
Income tax payable 344 246
-----------------------------
Total current liabilities 5,397 6,512
Long-term debt and capital lease obligations, less
current portion 8,634 5,629
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized shares -
2,000,000, preferences, limitations and relative
rights to be established by the Board of Directors:
Series A, nonvoting, authorized shares - 150,000
Issued and outstanding shares - 67,838
(aggregate liquidation preference of $678,380) 1 1
Common stock, $.01 par value:
Class A, voting, authorized shares - 21,500,000
Issued and outstanding shares - 6,996,997 at August 31,
1996 and 6,842,828 at August 31,
1995 70 68
Class B, nonvoting, authorized shares - 1,500,000
Issued and outstanding shares - none - -
Additional paid-in capital 14,020 14,022
Warrants 169 169
Retained earnings (deficit) (2,587) (3,024)
-----------------------------
Total stockholders' equity 11,673 11,236
-----------------------------
Total liabilities and stockholders' equity $25,704 $23,377
=============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Contract revenue $31,259 $27,215 $17,665
Cost of revenue 24,898 22,350 14,670
------------------------------------------
Gross profit 6,361 4,865 2,995
Selling, general and administrative expenses 3,288 2,867 2,834
Research and development expenses 792 70 86
Amortization expense 346 346 338
------------------------------------------
Operating income (loss) 1,935 1,582 (263)
Other (income) expense:
Interest income (1) (20) (103)
Interest expense 944 1,007 1,208
Other nonoperating (income) expense, net 9 40 (69)
------------------------------------------
Income (loss) from operations before
income taxes and extraordinary item 983 555 (1,299)
Income tax expense (benefit) 363 194 (403)
------------------------------------------
Income (loss) from operations before
extraordinary item 620 361 (896)
Extraordinary item (net of income tax
benefit of $54) 93 - -
------------------------------------------
Net income (loss) $ 527 $ 361 $ (896)
==========================================
Earnings (loss) per common share and common share equivalent:
Income (loss) from operations before
extraordinary item $ .07 $ .04 $ (.17)
Extraordinary item (.01) - -
------------------------------------------
Net income (loss) $ .06 $ .04 $ (.17)
==========================================
Weighted average number of shares
outstanding during year 7,230,773 6,620,055 5,346,760
==========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Stockholders' Equity
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Preferred Common Additional Retained
Stock Stock Paid-In Earnings
------------------------------------
Shares Amount Shares Amount Capital Warrants (Deficit) Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993 - $- 5,326,936 $53 $ 9,469 $ 55 $(2,386) $ 7,191
Issuance of warrants - - - - - 94 - 94
Issuance of preferred
stock 67,838 1 - - 678 - - 679
Issuance of common
stock in exchange for
warrants exercised - - 56,974 1 (1) - - -
Cash dividends paid on
preferred stock ($.32
per share) - - - - - - (21) (21)
Net loss - - - - - - (896) (896)
------------------------------------------------------------------------------
Balance at August 31, 1994 67,838 1 5,383,910 54 10,146 149 (3,303) 7,047
Sale of common stock - - 800,000 8 2,223 - - 2,231
Issuance of warrants - - - - - 74 - 74
Issuance of common
stock in exchange for
warrants exercised - - 658,918 6 1,653 (54) - 1,605
Cash dividends paid on
preferred stock ($1.22
per share) - - - - - - (82) (82)
Net income - - - - - - 361 361
------------------------------------------------------------------------------
Balance at August 31, 1995 67,838 1 6,842,828 68 14,022 169 (3,024) 11,236
Issuance of common
stock in exchange for
warrants exercised - - 154,169 2 (2) - - -
Dividends on preferred
stock ($1.32 per share) - - - - - - (90) (90)
Net income - - - - - - 527 527
==============================================================================
Balance at August 31, 1996 67,838 $1 6,996,997 $70 $14,020 $169 $(2,587) $11,673
==============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 527 $ 361 $ (896)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 857 684 571
Amortization 436 346 338
Deferred taxes 26 - -
Write-down of deferred financing costs 147 - -
Changes in operating assets and liabilities:
Accounts receivable (3,954) (48) 525
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,763 (3,191) (293)
Inventories (125) (1,562) (114)
Income tax payable 72 596 863
Prepaid expenses and other assets (101) 14 228
Accounts payable (1,245) 2,107 217
Accrued expenses 220 (16) 87
Accrued management fees - 80 133
Customer deposits - (607) 285
-------------------------------------------
Net cash provided (used) by operating activities (377) (1,236) 1,944
INVESTING ACTIVITIES
Purchases of property and equipment (1,956) (1,402) (601)
Payments for operating lease property (611) - -
Proceeds from sale of property and equipment - 6 17
-------------------------------------------
Net cash used by investing activities (2,567) (1,396) (584)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - 3,892 -
Net proceeds from issuance of stock warrants - 72 60
Principal payments on long-term debt and capital
lease obligations (31,322) (1,343) (1,927)
Proceeds from long-term debt borrowings, net
of expenses 33,812 - -
Exercise of common stock options and warrants - (54) -
Dividends paid on preferred stock (67) (82) (21)
-------------------------------------------
Net cash provided (used) by financing activities 2,423 2,485 (1,888)
-------------------------------------------
</TABLE>
F-7
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Net decrease in cash and cash equivalents $ (521) $ (147) $ (528)
Cash and cash equivalents at beginning of year 632 779 1,307
-------------------------------------------
Cash and cash equivalents at end of year $ 111 $ 632 $ 779
===========================================
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 247 $ - $ -
Cash paid for interest 787 875 1,267
Supplemental disclosures of noncash financing activities:
Equipment acquired and financed under capital
leases 304 317 87
Retirement of debt in exchange for issuance of
Series A preferred stock - - 678
Issuance of common stock in exchange for
warrants exercised 2 2 1
Issuance of warrants as part of debt restructurings - - 35
</TABLE>
See accompanying notes.
F-8
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements
August 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Cryenco Sciences, Inc. (the Company) designs and manufactures controlled
atmospheric enclosures and products to transport, store and dispense cryogenic
materials.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cryenco Sciences,
Inc. and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
INCOME TAXES
Deferred tax liabilities or assets (net of a valuation allowance) are provided
in the financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences that will result
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
CONTRACT REVENUE AND COST RECOGNITION
Revenue and costs on long-term contracts (contracts with a value in excess of
$100,000 and requiring more than six months to complete) are recognized using
the percentage-of-completion method (measured by the percentage of costs
incurred to date to total estimated costs for each contract) or units delivered,
whichever is deemed more appropriate for the contract.
Revenue and costs on short-term contracts (contracts with a value less than
$100,000 and requiring six months or less to complete) are recognized using the
completed contract method, which results in the deferral of revenue and costs
until such time as the contracts
F-9
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are complete. A contract is considered complete when all costs, except
insignificant items, have been incurred and the units have been delivered to the
customer.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, building and
equipment rental, supplies, freight and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period such losses are
determined.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company records an allowance for excess and obsolete inventory based on periodic
reviews.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the related indebtedness.
ORGANIZATIONAL COSTS
Organizational costs are amortized using the straight-line method over five
years.
GOODWILL
Goodwill is being amortized using the straight-line method over forty years. The
Company periodically evaluates goodwill impairment on the basis of whether the
goodwill is fully recoverable from projected, undiscounted operating cash flows.
F-10
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenses are typically charged to expense as incurred
or are charged against a specific contract, if to be reimbursed by the customer.
In May 1995, the Company entered into an arrangement with a corporation under
which the corporation would provide $452,500 to the Company for the development,
demonstration, delivery, and installation of an on-site Thermo-Acoustic Driven
Orifice Pulse Tube Refrigerator (TADOPTR) liquefier and LNG dispensing system.
The period of performance under the arrangement was over twelve months. For the
year ended August 31, 1995, the Company incurred approximately $255,000 in costs
for development for which it was fully reimbursed. For the year ended August 31,
1996, the Company incurred approximately $504,000 in costs for development and
received $120,000 of reimbursement.
WARRANTIES
The Company records a warranty accrual at the time of sale for estimated claims,
based on actual claims experience. The warranty for the Company's products
generally is for defects in material and workmanship for a period of twelve
months.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the weighted average
number of shares of common stock outstanding. When dilutive, stock options and
warrants are included as share equivalents using the treasury stock method. In
calculating net earnings (loss) per share, preferred dividends of $89,661 and
$82,538 decreased the net earnings during 1996 and 1995, respectively. Preferred
dividends of $21,150 increased the net loss during 1994. Fully diluted net
earnings (loss) per common share is not significantly different from primary net
earnings (loss) per common share.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
During the fiscal years ended August 31, 1996, 1995 and 1994, revenue from one
customer, General Electric, was approximately $11,067,000 (35% of revenue),
F-11
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$9,702,000 (36% of revenue), and $8,888,000 (50% of revenue), respectively. This
customer also represented $1,140,000 (21%) and $659,000 (24%) of accounts
receivable at August 31, 1996 and 1995, respectively, and $2,775,000 (70%) and
$2,734,000 (40%) of costs and estimated earnings in excess of billings on
uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Jack B. Kelley, Inc. and affiliates totaled approximately
$9,566,000 (31% of revenue) in 1996, $9,854,000 (36% of revenue) in 1995 and
$2,545,000 (14% of revenue) in 1994. Jack B. Kelley, Inc. and affiliates also
represent $1,835,000 (34%) and $821,000 (30%) of accounts receivable and
$435,000 (11%) and $2,182,000 (32%) of costs and estimated earnings in excess of
billings on uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Air Products totaled approximately $4,024,000 (13% of revenue) in
1996. Air Products also represents $408,000 (8%) of accounts receivable and
$960,000 (24%) of costs and estimated earnings in excess of billings on
uncompleted contracts as of August 31, 1996.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses consistently have not been significant.
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 amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial assets approximate fair value.
The fair values of debt are estimated using discounted cash flow analyses with
discount rates equal to the interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. While the Company
believes the carrying value of its note payable generally approximates fair
value, a reasonable estimate of the fair market value could not be made without
incurring excessive costs.
F-12
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123 is
applicable for fiscal years beginning after December 15, 1995 and gives the
option to either follow fair value accounting or to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and
related interpretations.
The Company has determined it will follow APB No. 25 and related interpretations
in accounting for its employee stock options. The Company has not yet determined
the impact on its financial position or results of operations had fair value
accounting been adopted.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. The Company is required to adopt Statement
No. 121 in the first quarter of fiscal year 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
2. INVENTORIES
At August 31, inventories consist of:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
(In Thousands)
<S> <C> <C>
Raw materials $3,344 $3,514
Finished goods and work-in-process 1,139 794
---------------------------------
4,483 4,308
Less reserve for obsolescence 150 100
---------------------------------
$4,333 $4,208
=================================
</TABLE>
F-13
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
At August 31, costs and estimated earnings in excess of billings on uncompleted
contracts consist of:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
(In Thousands)
<S> <C> <C>
Costs on uncompleted contracts $5,436 $ 8,776
Estimated gross profit to date 2,203 2,616
---------------------------------
Estimated revenue 7,639 11,392
Less billings to date 3,695 4,685
---------------------------------
$3,944 $ 6,707
=================================
</TABLE>
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
---------------------------
(In Thousands)
<S> <C> <C>
Note payable bearing interest at 14%, subordinated,
unsecured. Interest is payable quarterly and
principal payments of $275,000 are payable quarterly
beginning November 30, 1996. $ 1,700 $2,200
Term loan maturing December 31, 1998 bearing interest
at the reference rate (as defined in the loan agreement)
plus 3/4% (9.0% at August 31, 1996)
payable monthly. Principal payments of $12,806 are
payable monthly beginning September 15, 1996. 615 -
Term loan bearing interest at the adjusted LIBO rate
plus 3 1/2%. - 2,500
Revolving credit facility. Interest payable at the
adjusted LIBO rate plus 3 1/2%. - 2,200
</TABLE>
F-14
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
---------------------------
(In Thousands)
<S> <C> <C>
Revolving credit facility maturing December 31, 1998
bearing interest at the reference rate (as defined in
the loan agreement) plus up to an additional 1.0%
depending upon financial performance (9.25% at
August 31, 1996). $ 7,210 $ -
Capital lease obligations 491 322
---------------------------
10,016 7,222
Less current portion 1,382 1,593
---------------------------
$ 8,634 $5,629
===========================
</TABLE>
In December 1995, the Company entered into a Credit and Security Agreement (the
Agreement) with FBS Business Finance Corporation (FBS). Under the Agreement, FBS
has provided a revolving loan facility of up to $9,000,000 through December 31,
1997, increasing to $10,000,000 through December 31, 1998, subject to the amount
of the Company's borrowing base, and a term loan facility of up to $2,960,000,
subject to eligible manufacturing additions for the year ended August 31, 1996.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding revolving credit facility ($2,200,000), to retire the
outstanding term loan ($2,125,000), to make a partial payment on the outstanding
note payable ($500,000) and for general corporate purposes ($1,000,000). As a
result of the early retirement of the term loan, the revolving credit facility,
and the partial payment on the note payable, the Company recognized an
extraordinary expense of $93,000 (net of the related tax benefit of $54,000) for
the write-down of deferred financing expenses related to these debts.
The term loan and revolving credit facility are secured by the common stock of
Cryenco, Inc. and all accounts receivable, inventories, property and equipment
and intangible assets of the Company.
The Company must comply with certain debt covenants, including the maintenance
of certain financial ratios and restrictions on dividends.
F-15
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending August 31:
1997 $ 1,382
1998 899
1999 7,648
2000 74
2001 13
-----------
$10,016
===========
</TABLE>
5. LEASES
Office space, production facilities, and certain equipment are leased under
agreements which are classified as operating leases for financial reporting
purposes. The facilities leases provide for renewal options of up to five and
ten years at approximately the same rates. Total rental expense charged to
operations for the years ended August 31, 1996, 1995 and 1994 was $784,000,
$853,000 and $828,000, respectively.
The Company's assets held under capital leases, which are included in property
and equipment, consist of the following at August 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C>
Machinery and equipment $628,003 $418,039
Less accumulated depreciation 110,481 52,824
-----------------------------
$517,522 $365,215
=============================
</TABLE>
F-16
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
5. LEASES (CONTINUED)
Future minimum lease payments under capital and noncancelable operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-----------------------------
<S> <C> <C>
Year ending August 31:
1997 $180 $ 860
1998 180 360
1999 155 359
2000 80 42
2001 20 13
-----------------------------
Total minimum lease payments 615 $1,634
===========
Less interest 124
--------------
Present value of minimum lease payments $491
==============
</TABLE>
Depreciation expense relating to assets held under capital leases for the years
ended August 31, 1996, 1995 and 1994 was $98,323, $36,023 and $16,801,
respectively.
Subsequent to August 31, 1996, the property located at 3811 Joliet Street,
Denver, Colorado, was sold and a new lease agreement between the Company and the
new owners became effective. Under the terms of the lease, the Company is
obligated to pay a minimum rent of $38,841 per month for 10 years (subject to
increases based on an inflation index), property taxes and insurance. This lease
replaces the Company's lease with the prior owners which had one year remaining
with rent of $41,666 per month, and is not included in the future minimum lease
payments shown above.
6. EQUIPMENT LEASING
During the year ended August 31, 1996, the Company entered into lease agreements
under which equipment manufactured by the Company is leased to customers. These
leases have been classified as operating leases by the Company.
F-17
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
6. EQUIPMENT LEASING (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ending August 31:
<S> <C>
1997 $ 81
1998 74
----------
$155
==========
</TABLE>
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS
In connection with a term loan and subordinated note payable, the Company issued
warrants to purchase 197,456 shares of its Class A common stock and 543,372
shares of its Class B common stock for $.86112 per share (the original
warrants). At April 15, 1992, the Company issued warrants to purchase a total of
38,323 additional shares of Class B common stock at $5 per share (the new
warrants) to the holders of the original Class A and Class B warrants in
exchange for the removal of a feature of the original warrants whereby the
holders had the option to require the Company to purchase the warrants or the
stock issued pursuant to the warrants. During 1995, the Company increased the
number of original warrants to purchase an additional 1,443 shares of its Class
A common stock and 16,854 shares of its Class B common stock and reduced the
exercise price to $.8352 per share as a result of antidilutive provisions which
were invoked when the Company issued the shares of common stock described below.
In addition, the new warrants were increased to purchase an additional 1,189
shares of Class A common stock and the exercise price was reduced to $4.8496 per
share. The holders of the original warrants, as amended, and the new warrants
have a "cashless exercise right," whereby the holders may reduce the number of
shares to be received to pay the exercise price, such reduction to be equal to
the exercise price to be paid divided by the then fair market value per share.
These warrants expire August 29, 2003. During the years ended August 31, 1996,
1995 and 1994, warrants for 191,766, 150,000 and 75,925 shares, respectively,
were exercised, using the cashless exercise option, which resulted in the
issuance of 154,169, 118,918 and 56,974 shares, respectively, of Class A common
stock.
In 1992, 130,000 outstanding options and warrants to acquire shares of Gulf &
Mississippi Corporation, which had acquired the Company in a reverse
acquisition, were converted into options and warrants to purchase the same
number of shares of Class A common stock of the Company. Warrants to purchase
100,000 shares of the Company's Class A common stock at $3.6956 per share
expired July 9, 1995 and options to purchase 30,000 shares of the Company's
Class A common stock at $16 per share are exercisable
F-18
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
prior to November 5, 1996. The options were issued pursuant to the Company's
1986 Non-Qualified Stock Option Plan, which provides for an aggregate of 50,000
shares of common stock to be issued under the Plan.
In connection with the 1992 public offering, the Company sold a warrant to
purchase 10,000 shares of Class A common stock at $5.50 per share for $100 to
one of the underwriters. The warrant is exercisable for a period of five years
commencing August 13, 1993.
In March 1993, in conjunction with a debt restructuring, the Company was
advanced $650,000 from stockholders, treated as junior subordinated notes. In
consideration for the advances, these stockholders received warrants to purchase
130,000 shares of Class A common stock at $7.90 per share. The warrants are
exercisable for a period of five years commencing March 12, 1993. The warrants'
fair value of $55,000 at time of issuance, as determined by an independent
appraiser, was capitalized as a deferred expense and is being amortized to
expense over five years.
In November 1993, the Company amended certain of its debt agreements with
respect to certain covenants. Under the terms of these amendments, the Company
issued warrants to purchase 35,000 shares of the Company's Class B common stock
and warrants to purchase 17,500 shares of the Company's Class A common stock.
The warrants were exercisable at a price of $6.38 per share and expire on August
29, 2003. The warrants' fair value at time of issuance, as determined by the
Company, was $22,000. During 1995, the Company increased the number of warrants
to purchase an additional 1,086 shares of its Class B common stock and 542
shares of its Class A common stock and reduced the exercise price to $6.19 per
share as a result of antidilutive provisions which were invoked when the Company
issued the shares of common stock described below.
During the year ended August 31, 1994, the Company exchanged 67,838 shares of
its Series A Preferred Stock for the junior subordinated notes and related
current interest notes totaling approximately $678,000. The Series A Preferred
Stock provides for a cumulative cash dividend of 12% of the aggregate
liquidation value, as defined, per annum through August 31, 1995, increasing 1%
per annum thereafter to a maximum of 18%. However, all dividends in excess of
12% per annum shall not be paid in cash, but shall be paid by issuing additional
shares of Series A Preferred Stock. The Series A Preferred Stock shall be
redeemable, in whole or in part, at the option of the Company by
F-19
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
resolution of its Board of Directors, at any time and from time to time, at the
liquidation value of such shares, plus all dividends payable on such shares up
to the date fixed for redemption. In consideration for the exchange, the Company
issued warrants to purchase up to 65,000 shares of the Company's Class A common
stock, at an exercise price of $3.55 per share. The warrants expire January 29,
2000. The warrants' fair value of $13,000 at time of issuance, as determined by
an independent appraiser, was capitalized as a deferred expense and is being
amortized to expense over five years.
As described in Note 10, in June 1994, the Company received $780,000 from a
limited partnership to fund the development of a 500 gallon per day TADOPTR. The
partnership received warrants as a part of the transaction to purchase 200,000
shares of Class A common stock at $3.00 per share. The warrants expire March 20,
2000. The warrants' fair value, as determined by an independent appraiser, was
$60,000 at the time of issuance.
On November 29, 1994, the Company entered into a Purchase Agreement with a group
of purchasers which provided for the sale of 800,000 shares of Class A common
stock and warrants to purchase 700,000 shares of Class A common stock in the
future at an exercise price of $4.00 per share. The aggregate purchase price for
the shares and warrants was approximately $2,700,000. The purchase was completed
in two closings, on December 20, 1994 and January 30, 1995, from which the
Company realized net proceeds of approximately $2,300,000. Warrants for 507,503
and 192,497 shares are exercisable for a period of five years commencing
December 20, 1994 and January 30, 1995, respectively. The warrants' fair value,
as determined by the Company, was $70,000 at the time of issuance.
On May 18, 1995, the Company agreed, among other things, to reduce the exercise
price of the warrants referred to in the preceding paragraph to $3.00 per share
and the purchasers agreed to exercise a portion of the warrants. On June 8,
1995, the purchasers exercised warrants to purchase 539,900 shares of Class A
common stock, from which the Company realized net proceeds of approximately
$1,600,000.
In connection with the aforementioned Purchase Agreement, the Company also
issued warrants to purchase 25,000 shares of Class A common stock at an exercise
price of $4.00 per share. The warrants expire December 20, 1999. The warrants'
fair value, as determined by the Company, was $2,500 at the time of issuance.
F-20
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
The Company's 1992 Employee Incentive and Non-Qualified Stock Option Plan (the
1992 Plan) was adopted effective April 1, 1992. The 1992 Plan provides for up to
187,500 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the 1992 Plan, is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
<S> <C> <C> <C>
Options outstanding at August 31, 1993 26,000 $4.00 - 6.75
Granted in 1994 19,500 $3.00 - 6.38
--------------
Options outstanding at August 31, 1994 45,500 $3.00 - 6.75
Granted in 1995 58,000 $5.38
Forfeited in 1995 (17,500) $4.00 - 6.38
--------------
Options outstanding at August 31, 1995 86,000 $3.00 - 6.75
Granted in 1996 96,500 $4.50
Forfeited in 1996 (52,000) $4.50 - 6.38
==============
Options outstanding at August 31, 1996 130,500 $3.00 - 6.75
==============
</TABLE>
The Company's 1995 Incentive and Non-Qualified Stock Option Plan (the 1995 Plan)
was adopted effective November 16, 1995. The 1995 Plan provides for up to
300,000 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant. No options
have been granted under the 1995 Plan at August 31, 1996.
The Company adopted the 1993 Non-Employee Director Stock Option Program (the
Program) effective September 1, 1993, whereby each director who is not an
officer or employee of the Company is entitled to receive options to purchase
500 shares of the Company's Class A common stock for each fiscal quarter served
as a director, commencing with the quarter ending November 30, 1993. Eligible
directors are limited to a total of 20,000 shares under the Program. The
purchase price is determined based on the fair market value of outstanding
shares as of the last business day of the applicable fiscal quarter (the Award
Date). Options are exercisable for a period of ten years subsequent to the Award
Date. In connection with the Program, the Company has
F-21
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
reserved 40,000 authorized and unissued shares of Class A common stock for
issuance and delivery upon exercise of the options.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the Program, is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
<S> <C> <C>
Options outstanding at August 31, 1993 -
Granted in 1994 3,000 $2.50 - 6.13
--------------
Options outstanding at August 31, 1994 3,000 $2.50 - 6.13
Granted in 1995 4,000 $3.75 - 4.25
--------------
Options outstanding at August 31, 1995 7,000 $2.50 - 6.13
Granted in 1996 4,000 $3.50 - 4.75
--------------
Options outstanding at August 31, 1996 11,000 $2.50 - 6.13
==============
</TABLE>
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts
F-22
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
used for income tax purposes. Significant components of the Company's deferred
tax liabilities and assets at August 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Prepaid expenses $ 9 $ 35
-----------------------------
Deferred tax assets:
Inventory obsolescence 56 37
Warranty 52 75
Inventory capitalization 23 25
Accrued liabilities 64 50
Tax basis of assets in excess of book basis 35 87
Other 4 6
-----------------------------
Total deferred tax assets 234 280
Valuation allowance for deferred tax assets (225) (245)
-----------------------------
Net deferred tax assets 9 35
-----------------------------
$ - $ -
=============================
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
1996
Federal $ 389 $(26) $ 363
State - - -
----------------------------------------
$ 389 $(26) $ 363
========================================
1995
Federal $ 194 $ - $ 194
State - - -
----------------------------------------
$ 194 $ - $ 194
========================================
</TABLE>
F-23
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
1994
Federal $(403) $ - $(403)
State - - -
----------------------------------------
$(403) $ - $(403)
========================================
</TABLE>
A reconciliation between the actual income tax expense (benefit) and income
taxes computed by applying the statutory tax rates is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $334 $189 $(442)
Goodwill and other permanent differences 99 86 -
Other (70) (81) 39
----------------------------------------
Actual tax expense (benefit) $363 $194 $(403)
========================================
</TABLE>
The Company has net operating loss carryforwards for state income tax purposes
of approximately $2,668,000 which expire in various amounts from 2008 to 2009.
Net operating loss carryforwards of approximately $1,048,000 and $977,000 were
used for state income tax purposes in 1996 and 1995, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company's 401(k) savings plan provides for both employee and employer
contributions. Employees who have reached the age of 21 years and who have
completed one year of service are eligible to participate in the Plan. Employees
may contribute up to 15% of their annual compensation limited to the maximum
contribution allowable under Internal Revenue Service guidelines. The employer
matches 25% of each employee's contribution, up to $1,000. Employee
contributions vest immediately, while amounts contributed by the employer vest
based upon the employee's term of service. Contributions for the years ended
August 31, 1996, 1995 and 1994 were $68,000, $52,000 and $41,000, respectively.
F-24
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS
In June 1994, the Company entered into an arrangement with a limited partnership
in which the partnership would contribute $780,000 to the Company for the
development of a 500 gallon per day TADOPTR. A director of the Company is a
general partner of the limited partnership. In exchange for this funding, the
Company issued warrants to purchase 200,000 shares of Class A common stock at
$3.00 per share, and entered into a Royalty Rights and Technology Development
Agreement with the partnership pursuant to which royalties of between 1% and 5%
of net revenues from the sale of TADOPTRs will be paid to the partnership until
the partnership receives an aggregate of $1,600,000, after which the royalties
decrease to between 0.6% and 0.75% of net revenues. The royalties are payable
for a period of 20 years from the execution of the agreement. In addition, the
partnership was given a security interest in the Company's rights in the TADOPTR
to secure the royalty payments. The Company was obligated to spend funds
provided by the partnership for the development of a 500 gallon per day TADOPTR
over a period of 12 to 18 months. For the years ended August 31, 1996 and 1995,
the Company incurred approximately $455,000 and $325,000, respectively, in costs
for this development, for which it has been fully reimbursed under this
agreement.
In fiscal year 1992, the Company entered into an agreement with an affiliate of
several of the Company's principal stockholders pursuant to which such entity
provides a variety of management advisory services to the Company. The
agreement, which terminates on August 30, 1997, provides for monthly payments of
approximately $10,000 by the Company. At August 31, 1996 and 1995, the Company
has accrued management advisory fees of approximately $324,000 related to the
agreement.
In connection with the Purchase Agreement described in Note 7, the Company
issued warrants to purchase 700,000 and 25,000 shares of Class A common stock to
two entities within the purchaser group in which two directors of the Company
have a financial interest.
In June 1995, a limited liability company agreement was signed between Cryenex,
Inc. (Cryenex), a wholly owned subsidiary of the Company, and an affiliate of
Jack B. Kelley, Inc. for the establishment of a limited liability company,
Applied LNG Technologies USA, LLC (ALT), to develop turnkey projects utilizing
liquefied natural gas. Cryenex is a 49% owner of ALT, and accounts for its
investment using the equity method, under which Cryenex's share of income and
losses of ALT is reflected in income as earned and distributions will be
credited against the investment when received. As of August 31, 1995, Cryenex's
investment of $49,000 was reduced to zero. Under terms of the
F-25
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
agreement, Cryenex agreed to provide certain services to ALT, reimbursable to
Cryenex, in an amount up to $490,000. During the fiscal years ended August 31,
1996 and 1995, Cryenex has provided services to ALT in the amount of $189,000
and $83,000, respectively. In addition, during the fiscal year ended August 31,
1996, revenue resulting from sales to ALT amounted to approximately $1,344,000.
At August 31, 1996 and 1995, receivables from ALT represented $1,423,000 and
$83,000, respectively.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB No. 107, Disclosures about Fair Value of Financial Instruments, requires
the disclosure of the fair value of all financial instruments, both on and off
balance sheet, for which it is practicable to estimate their value. Financial
instruments are generally defined as cash, equity instruments or investments and
contractual obligations to pay or receive cash or another financial instrument.
In defining fair value, the Statement indicates quoted market prices are the
preferred means of estimating the value of a specific instrument, but in cases
where market quotes are not available, fair values should be determined using
various valuation techniques such as discounted cash flow calculations. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FASB No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts do not represent the underlying value of the
Company.
F-26
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the consolidated financial statements of Cryenco Sciences, Inc.
as of August 31, 1996 and 1995, and for each of the three years in the period
ended August 31, 1996, and have issued our report thereon dated October 5, 1996
(included elsewhere in this Form 10-K). Our audits also included the financial
statement schedule of Cryenco Sciences, Inc. listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
S-1
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1996
Deducted from asset
accounts:
Allowance for excess and
obsolete inventory $100,000 $268,726 $218,726(1) $150,000
Allowance for doubtful
accounts 14,240 11,900 14,240 11,900
---------------------------------------------------------------------
$114,240 $280,626 $232,966 $161,900
=====================================================================
Accrued warranty reserve $200,000 $379,259 $438,713(2) $140,546
=====================================================================
YEAR ENDED AUGUST 31, 1995
Deducted from asset accounts:
Allowance for excess and
obsolete inventory $ 52,226 $ 55,309 $ 7,535(1) $100,000
Allowance for doubtful
accounts 22,070 14,240 22,070 14,240
---------------------------------------------------------------------
$ 74,296 $ 69,549 $ 29,605 $114,240
=====================================================================
Accrued warranty reserve $143,697 $662,988 $606,685(2) $200,000
=====================================================================
YEAR ENDED AUGUST 31, 1994
Deducted from asset accounts:
Allowance for excess
and obsolete inventory $105,801 $142,319 $195,894(1) $ 52,226
Allowance for doubtful
accounts 1,791 20,279 - 22,070
---------------------------------------------------------------------
$107,592 $162,598 $195,894 $ 74,296
=====================================================================
Accrued warranty reserve $327,791 $287,955 $472,049(2) $143,697
=====================================================================
</TABLE>
(1) Obsolete and excess inventories written off, net of recoveries
(2) Warranty claims honored during the year
S-2
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-2, File No. 33-48738, filed
on June 19, 1992 (the "S-2 Registration Statement").
3.2 - By-laws of the Registrant, incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-7532, filed on July 25, 1986 (the "S-1
Registration Statement").
3.3 - Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1995 (the "1995 Annual
Report").
3.4 - Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock of the Registrant, incorporated by
reference to Exhibit 3.4 to the 1995 Annual Report.
3.5 - Corrected Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.5 to the 1995 Annual Report.
4.1 - See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the Registrant
(Exhibit 3.5 hereof) , incorporated by reference to Exhibit
4.1 to the 1995 Annual Report.
4.2 - Forms of Common Stock and Class B Common Stock certificates
of the Registrant, incorporated by reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-4, File
No. 33-43782, filed on December 19, 1991 (the "S-4
Registration Statement").
</TABLE>
E-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
4.3 - Registration Rights Agreement dated as of August 30, 1991
among CHI, CIT, Chemical Bank and the Investors named
therein, incorporated by reference to Exhibit 4.3 to the 1995
Annual Report.
4.4 - Warrant Agreement dated as of August 30, 1991 between
Chemical Bank, CHI and the Registrant, incorporated by
reference to Exhibit 4.4 to the 1995 Annual Report.
4.5 - Letter Agreement dated April 15, 1992 among the Registrant,
CIT and Chemical Bank relating to the Warrants referred to
herein at Exhibits 4.8 and 4.9, incorporated by reference to
Exhibit 4.9 to the S-2 Registration Statement.
4.6 - Letter Agreement dated August 12, 1992 between the Registrant
and Chemical Bank relating to the Warrants referred to herein
at Exhibit 4.8, incorporated by reference to Exhibit 4.6 to
the 1995 Annual Report.
4.7 - Letter Agreement dated August 12, 1992 between the Registrant
and CIT relating to the Warrants referred to herein at
Exhibit 4.9, incorporated by reference to Exhibit 4.7 to the
1995 Annual Report.
4.8 - Warrants issued to Chemical Bank each dated April 27, 1992,
incorporated by reference to Exhibit 4.8 to the 1995 Annual
Report.
4.9 - Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the 1995 Annual
Report.
4.10 - Warrant issued to Dain Bosworth Incorporated dated August 20,
1992, incorporated by reference to Exhibit 4.12 to the S-2
Registration Statement.
4.11 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and Alfred Schechter, incorporated by reference to
Exhibit 4.11 to the 1995 Annual Report.
</TABLE>
E-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
4.12 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and Don M. Harwell, incorporated by reference to
Exhibit 4.12 to the 1995 Annual Report.
4.13 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and MCC, incorporated by reference to Exhibit 4.13
to the 1995 Annual Report.
4.14 - Warrant issued to Alfred Schechter dated March 12, 1993,
incorporated by reference to Exhibit 4.14 to the 1995 Annual
Report.
4.15 - Warrant issued to Don M. Harwell dated March 12, 1993,
incorporated by reference to Exhibit 4.15 to the 1995 Annual
Report.
4.16 - Warrant issued to MCC dated March 12, 1993, incorporated by
reference to Exhibit 4.16 to the 1995 Annual Report.
4.17 - Letter Agreement dated as of June 9, 1993 between the
Registrant and Alfred Schechter with respect to the Exercise
Price for the Warrant referred to herein at Exhibit 4.14,
incorporated by reference to Exhibit 4.17 to the 1995 Annual
Report.
4.18 - Letter Agreement dated as of June 9, 1993 between the
Registrant and Don M. Harwell with respect to the Exercise
Price for the Warrant referred to herein at Exhibit 4.15,
incorporated by reference to Exhibit 4.18 to the 1995 Annual
Report.
4.19 - Letter Agreement dated as of June 9, 1993 between the
Registrant and MCC with respect to the Warrant referred to
herein at Exhibit 4.16, incorporated by reference to Exhibit
4.19 to the 1995 Annual Report.
4.20 - Warrant issued to Chemical Bank dated November 24, 1993,
incorporated by reference to Exhibit 4.20 to the 1995 Annual
Report.
4.21 - Warrant issued to CIT dated November 24, 1993, incorporated
by reference to Exhibit 4.21 to the 1995 Annual Report.
</TABLE>
E-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
4.22 - Warrant Agreement dated as of January 26, 1995 between the
Company and Alfred Schechter, incorporated by reference to
Exhibit 4.22 to the 1995 Annual Report.
4.23 - Warrant Agreement dated as of January 26, 1995 between the
Company and Don M. Harwell, incorporated by reference to
Exhibit 4.23 to the 1995 Annual Report.
4.24 - Warrant Agreement dated as of January 26, 1995 between the
Company and MCC, incorporated by reference to Exhibit 4.24 to
the 1995 Annual Report.
4.25 - Warrant issued to Alfred Schechter dated January 26, 1995,
incorporated by reference to Exhibit 4.25 to the 1995 Annual
Report.
4.26 - Warrant issued to Don M. Harwell dated January 26, 1995,
incorporated by reference to Exhibit 4.26 to the 1995 Annual
Report.
4.27 -
Warrant issued to MCC dated January 26, 1995, incorporated by
reference to Exhibit 4.27 to the 1995 Annual Report.
4.28 - See the Certificate of Designation, Preferences and Rights of
the Series A Preferred Stock of the Registrant (Exhibit 3.4
hereof) , incorporated by reference to Exhibit 4.28 to the
1995 Annual Report.
4.29 - Warrant Agreement dated as of June 8, 1994 between the
Registrant and Cryogenic TADOPTR Company, L.P. and the Form
of Warrant Certificate issued pursuant thereto, incorporated
by reference to Exhibit 4.29 to the 1995 Annual Report.
4.30 - Warrant Agreement dated as of December 20, 1994 between the
Registrant and The Edgehill Corporation, incorporated by
reference to Exhibit 4.30 to the 1995 Annual Report.
</TABLE>
E-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
4.31 - Warrant issued to The Edgehill Corporation dated as of
December 20, 1994, incorporated by reference to Exhibit 4.31
to the 1995 Annual Report.
4.32 - Registration Rights Agreement dated as of December 20, 1994
among the Registrant, certain parties named therein and
International Capital Partners, Inc., incorporated by
reference to Exhibit 4.32 to the 1995 Annual Report.
4.33 - Form of Warrant issued to each of International Capital
Partners, Inc. and the parties named in the Registration
Rights Agreement dated as of December 20, 1994 (Exhibit 4.32
hereof), incorporated by reference to Exhibit 4.33 to the
1995 Annual Report.
10.1 - 1986 Non-Qualified Stock Option Agreement, incorporated by
reference to Exhibit 10.1 to the 1995 Annual Report.
10.2 - Stockholders Agreement dated as of August 30, 1991 among the
Registrant, CHI and other stockholders of CHI, incorporated
by reference to Exhibit 10.2 to the 1995 Annual Report.
10.3 - Securities Purchase Agreement dated as of August 30, 1991
among CIT, CHI, the Registrant, CEC Acquisition Corp. and
Cryogenic Energy Company, incorporated by reference to
Exhibit 10.3 to the 1995 Annual Report.
10.4 - Credit Agreement dated as of August 30, 1991 among Cryenco,
Inc., the Lenders named therein, and Chemical Bank, as Agent,
incorporated by reference to Exhibit 10.7 to the S-4
Registration Statement.
10.5 - Form of Amended and Restated Pledge Agreement dated February
11, 1992 relating to the capital stock of Cryenco, Inc.
executed by CSCI Corporation in favor of Chemical Bank,
incorporated by reference to Exhibit 10.6 to the S-4
Registration Statement.
</TABLE>
E-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.6 - Employment Agreement dated as of September 1, 1991 between
Cryenco, Inc. and Alfred Schechter, incorporated by reference
to Exhibit 10.8 of the S-4 Registration Statement.
10.7 - 1992 Employee Incentive and Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8, File No. 33-65864, filed
on July 12, 1993 (the "S-8 Registration Statement").
10.8 - Form of Option Agreement under the 1992 Employee Incentive
and Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 4.2 to the S-8 Registration Statement.
10.9 - 1993 Non-Employee Director Stock Option Program, incorporated
by reference to Exhibit 4.3 to the S-8 Registration
Statement.
10.10 - Form of Option Agreement under the 1993 Non-Employee Director
Stock Option Program (contained in the 1993 Non-Employee
Director Stock Option Program referred to herein at Exhibit
10.9), incorporated by reference to Exhibit 4.4 to the S-8
Registration Statement.
10.11 - 1991 Incentive Compensation Plan of Cryenco, Inc., as
amended, incorporated by reference to Exhibit 10.9 to the S-2
Registration Statement.
10.12 - Lease, as amended, dated August 22, 1989 concerning the
property leased by the Registrant located at 5995 North
Washington Street, Denver, Colorado, incorporated by
reference to Exhibit 10.10 to the S-2 Registration Statement.
*10.13 - Lease, as amended, dated June 19, 1996 concerning the
property leased by the Registrant located at 3811 Joliet
Street, Denver, Colorado.
</TABLE>
E-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.14 - Consulting Agreement dated August 30, 1991 between the
Registrant and Charterhouse, incorporated by reference to
Exhibit 10.12 to the S-2 Registration Statement.
10.15 - Waiver and Amendment Agreement dated as of February 28, 1993
among Cryenco, Inc., the Lenders named therein and Chemical
Bank, amending the Credit Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.15
to the 1995 Annual Report.
10.16 - Waiver and Amendment Agreement dated as of February 28, 1993
among Cryenco, Inc., the Registrant and CIT, amending the
Securities Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit 3.4 to the 1995
Annual Report, incorporated by reference to Exhibit 10.16 to
the 1995 Annual Report.
10.17 - Funding Agreement dated March 12, 1993 among Alfred
Schechter, Don M. Harwell, MCC and the Registrant,
incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report.
10.18 - Intentionally left blank.
10.19 -
Form of Indemnification Agreement entered into between the
Registrant and certain of its officers and directors dated
March 16, 1993, incorporated by reference to Exhibit 10.19 to
the 1995 Annual Report.
10.20 - Second Waiver and Amendment Agreement dated as of August 31,
1993 among Cryenco, Inc., the Lenders named therein and
Chemical Bank, amending the Credit Agreement dated as of
August 30, 1991, as amended, incorporated by reference to
Exhibit 10.20 to the 1995 Annual Report.
</TABLE>
E-7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.21 - Second Waiver and Amendment Agreement dated as of October 31,
1993 among Cryenco, Inc., the Registrant and CIT, amending
the Securities Purchase Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.21
to the 1995 Annual Report.
10.22 - Letter Agreement dated April 13, 1994 among the Registrant,
Cryenco, Inc., Chemical Bank and CIT, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.23 - Exchange Agreement dated April 13, 1994 among Alfred
Schechter, Don M. Harwell, MCC and the Registrant,
incorporated by reference to Exhibit 10.23 to the 1995 Annual
Report.
10.24 - Royalty Rights and Technology Development Agreement dated
June 8, 1994 between the Registrant and Cryogenic TADOPTR
Company, L.P., incorporated by reference to Exhibit 10.24 to
the 1995 Annual Report.
10.25 - Third Waiver and Amendment Agreement dated as of November 29,
1994 among Cryenco, Inc., the Lenders named therein and
Chemical Bank, as Agent, amending the Credit Agreement dated
as of August 30, 1991, as amended, incorporated by reference
to Exhibit 10.25 to the 1995 Annual Report.
10.26 - Third Waiver and Amendment Agreement dated as of November 29,
1994 among Cryenco, Inc., the Registrant and CIT, amending
the Securities Purchase Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.26
to the 1995 Annual Report.
10.27 - Purchase Agreement dated as of November 29, 1994 among the
Registrant, International Capital Partners, Inc. and the
Purchasers named therein, incorporated by reference to
Exhibit 10.27 to the 1995 Annual Report.
</TABLE>
E-8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.28 - Fourth Waiver and Amendment Agreement dated as of December
20, 1994 among the Registrant, Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent, amending the
Credit Agreement dated as of August 30, 1991, as amended,
incorporated by reference to Exhibit 10.28 to the 1995 Annual
Report.
10.29 - Fourth Waiver and Amendment Agreement dated as of December
20, 1994 among Cryenco, Inc., the Registrant and CIT,
amending the Securities Purchase Agreement dated as of August
30, 1991, as amended, incorporated by reference to Exhibit
10.29 to the 1995 Annual Report.
10.30 - First Amendment to the Purchase Agreement dated as of
December 20, 1994 among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein, amending the
Purchase Agreement dated as of November 29, 1994,
incorporated by reference to Exhibit 10.30 to the 1995 Annual
Report.
10.31 - Second Amendment to the Purchase Agreement dated as of
January 30, 1994 among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein, amending the
Purchase Agreement dated as of November 29, 1994, as amended,
incorporated by reference to Exhibit 10.31 to the 1995 Annual
Report.
10.32 - Amended and Restated Employment Agreement dated January 18,
1995 between Cryenco, Inc. and Dale A. Brubaker, incorporated
by reference to Exhibit 10.32 to the 1995 Annual Report.
10.33 - Letter Agreement dated May 18, 1995 among the Registrant,
International Capital Partners, Inc. and the Purchasers named
therein, incorporated by reference to Exhibit 10.33 to the
1995 Annual Report.
</TABLE>
E-9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page
------- ---------------------- ----
<S> <C> <C>
10.34 - Fifth Waiver and Amendment Agreement dated as of May 30, 1995
among Cryenco, Inc., the Lenders named therein and Chemical
Bank, as Agent, amending the Credit Agreement dated as of
August 30, 1995, as amended, incorporated by reference to
Exhibit 10.34 to the 1995 Annual Report.
10.35 - Credit and Security Agreement dated as of December 19, 1995
and Supplement A thereto between Cryenco, Inc., the Company
and FBS Business Finance Corporation, incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30,
1995.
10.36 - First Amendment dated as of January 16, 1996 between FBS
Business Finance Corporation, Cryenco, Inc., the Company and
Cryenex, Inc., amending the Credit and Security Agreement
dated as of December 19, 1995, incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended February 29, 1996 (the
"February 29, 1996 Quarterly Report").
10.37 - Letter Agreement dated January 12, 1996 between CIT and FBS
Business Finance Corporation, incorporated by reference to
Exhibit 10.2 to the February 29, 1996 Quarterly Report.
*21 - Subsidiaries of the Registrant
*23.1 - Consent of Ernst & Young LLP
*27 - Financial Data Schedule pursuant to Article 5 of Regulation
S-X filed with EDGAR filing only.
</TABLE>
- -------------------------
* Filed herewith
E-10
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as........... (R)
The section symbol shall be expressed as............. 'SS'
<PAGE>
<PAGE>
FIRST AMENDMENT TO COMMERCIAL
SINGLE-TENANT LEASE
THIS FIRST AMENDMENT TO SINGLE-TENANT LEASE (this "Amendment") is entered into
for reference purposes only as of October __, 1996, by and between 3811
PARTNERS, LLLP, a Colorado limited liability limited partnership, JEROME A.
LEWIS AND MARTHA DELL LEWIS AND PACIFICA JOLIET INDUSTRIAL, LLC, a Colorado
limited liability company, as tenants in common, d/b/a/ PRL Joliet ("landlord"),
and CRYENCO SCIENCES, INC. a Colorado corporation ("Tenant").
WITNESSETH:
A. Landlord and Tenant entered into that certain Commercial Single-Tenant
Lease, dated June 19, 1996 (the "Lease").
B. Landlord and Tenant desire to amend the Lease in the manner and form
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. The reference in Lease to "3811 Partners, LLLP" shall be changed to read as
"3811 Joliet, L.L.L.P."
2. Miscellaneous.
a. The Lease as modified herein remains in full force and effect and is
ratified by Landlord and Tenant. In the event of any conflict between
the Lease and this Amendment, the terms and conditions of this
Amendment shall control. Capitalized terms not defined herein shall
have the same meaning as set forth in the Lease.
b. This Amendment is binding upon and inures to the benefit of the
parties hereto and their heirs, personal representatives, successors
and assigns.
c. This Amendment shall be governed by an construed in accordance
with the laws of the State of Colorado.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS Amendment. This Amendment is
effective upon delivery of a fully executed copy to Tenant ("Effective Date");
the day and year first above written is for reference purposes only.
3811 JOLIET, L.L.L.P., a Colorado limited liability
limited partnership
By: ___________________________________
Robert A. Russell, General Partner
JEROME A. LEWIS AND MARTHA DELL LEWIS
__________________________________________
Jerome A. Lewis
__________________________________________
Martha Dell Lewis
PACIFICA JOLIET INDUSTRIAL, LLC, a
Colorado limited liability company
By: ___________________________________
Steve Leonard, Manager
"Landlord"
CRYENCO SCIENCES, INC., a Colorado
corporation
By: _______________________________
Print Name: _______________________
Its: ______________________________
Date: _____________________________
"Tenant"
2
<PAGE>
<PAGE>
** Upon purchase of this property by Lessor from current owner, approximately
October 1, 1996.
*** Lessee is currently in possession under existing lease with current owner,
which lease shall terminate effective with Lessor's purchase of the property
from current owner and commencement of the Lease.
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, June
19, 1996, is made by and between 3811 Partners, LLLP, a Colorado
limited liability limited partnership, Jerome A. Lewis and Martha Dell
Lewis, and Pacifica Joliet Industrial, LLC, a Colorado limited
liability company, as Tenants-in-Common dba PRL Joliet ("LESSOR") AND
Cryenco Sciences, Inc. ("LESSEE"), (collectively the "PARTIES", or
individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 3811 Joliet Street located in
the County of Denver, State of Colorado and generally described as
(describe briefly the nature of the property) 124,290 square foot
manufacturing and warehouse facility on 14.3 acres of land.
("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Ten (10) years and 0 months ("ORIGINAL TERM") commencing **
("COMMENCEMENT DATE") and ending ten (10) years from commencement date
("EXPIRATION DATE"). However, this original Term may be modified
pursuant to Addendum A, Paragraph 11(b) attached hereto. (SEE ADDENDUM
A, ADDITIONAL PROVISIONS, PARA. 11 (2)) (See Paragraph 2 for further
provisions.)
1.4 EARLY POSSESSION: *** ("Early Possession Date"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 BASE RENT: $38,840.63 per month ("BASE RENT"), payable on the first
day of each month commencing (See Paragraph 4 for further provisions.)
If this box is checked, there are provisions in this lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $38,840.63 as Base Rent for the period.
1.7 SECURITY DEPOSIT: $116,521.89 (3 months' rent) * ("SECURITY DEPOSIT").
(See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: Manufacturing and warehousing of vehicles for
cryogenically cooled liquids (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)*
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction
and are consented to by the Parties (check applicable boxes):
Pacifica Holding Company represents [ ] Lessor exclusively ("LESSOR'S
BROKER"); [ ] both Lessor and Lessee, and CB Commercial represents [ ]
Lessee exclusively "LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions).
1.11
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs I through VII.1 and Exhibits A - Colorado Statutes -
Substitution Bonds; B- List of Chemicals and * all of which constitute
a part of this Lease.
*Option(s) to Extend
2. Premises.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of square footage set forth in
this Lease, or that may have been used in calculating rental, is an
approximation which Lessor and Lessee agree is reasonable and the
rental based thereon is not subject to revision whether or not the
actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty
within (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
<PAGE>
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with
all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the
Commencement Date. Said warranty does not apply to the use to which
Lessee will put the Premises or to any Alterations or Utility
installations (as defined in Paragraph 7.3(a) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the
Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical
and fire sprinkler systems, security, environmental aspects, compliance
with Applicable Law, as defined in Paragraph 6.3) and the present and
future suitability of the Premises for Lessee's intended use , (b) that
Lessee has made such investigation as it deems necessary with reference
to such matters and assumes all responsibility therefor as the same
relate to Lessee's occupancy of the Premises and/or the term of this
Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to
the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and
expense, correct any non-compliance of the Premises with said
warranties.
3. Term.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to
pay Real Property Taxes and insurance premiums and to maintain the
Premises) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the
Original Term..
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession
Date is specified, by the Commencement Date, Lessor shall not be
subject to any liability therefor, nor shall such failure affect the
validity of this Lease, or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not, except as
otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, as its option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which
event the Parties shall be discharged from all obligations hereunder;
provided, however, that if such written notice by Lessee is not
received by Lessor within said ten (10) day period, Lessee's right to
cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term
actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any,
that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee
would otherwise have enjoyed under the terms hereof, but minus any days
of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received
by Lessor in lawful money of the United States, without offset or
deduction, on or before the day on which it is due under the terms of
this lease. Base Rent and all other rent and charges for any period
during the term hereof which is for less than one (1) full calendar
month shall be prorated based upon the actual number of days of the
calendar month involved. Payment of Base Rent and other charges shall
be made to Lessor at its address stated herein or to such other persons
or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
* See Addendum A, Additional Provisions Initials _________
NET _________
1
<PAGE>
<PAGE>
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee
fails to pay Base Rent or other rent or charges due hereunder, or otherwise
Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use,
apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional moneys with Lessor
sufficient to maintain the same ratio between the Security Deposit and the
Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease. (SEE ADDENDUM A,
ADDITIONAL PROVISIONS, PARAGRAPH V)
6. Use.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto,
and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises
or properties.
6.2 Hazardous Substances.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity
of existence, use, manufacture, disposal, transportation, spill,
release or effect, ether by itself or in combination with other
materials expected to be on the Premises, is either: (i)
potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to
any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substance shall include, but not be
limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products, by-products or fractions thereof. Lessee shall not engage
in any activity in, on or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE"
shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's
being responsible for the presence in, on or about the Premises of
a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but in
compliance with all Applicable Law, use any ordinary and customary
materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as
such use is not a Reportable Use and does not expose the Premises
or neighboring properties to any meaningful risk of contamination
or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its
consent tot he use or presence of any Hazardous Substance, activity
or storage tank by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to
the Premises (such as concrete encasements), and/or the deposit of
an additional Security Deposit under Paragraph 5 hereof. (SEE
ADDENDUM A, ADDITIONAL PROVISIONS, PARAGRAPH VII (1)).
(b)
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(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all loss of
rents and/or damages, liabilities, judgments, costs, claims, liens,
expenses, penalties, permits and attorney's and consultant's fees
arising out of or involving any Hazardous Substance or storage tank
brought onto the Premises by or for Lessee or under Lessee's
control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury
to person, property or the environment created or suffered by
Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this
Lease. No termination, cancellation or release agreement entered
into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully,
diligently and in a timely manner, comply with all "APPLICABLE LAW,"
which term is used in this Lease to include all laws, rules,
regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable
fire insurance underwriter or rating bureau, and the reasonable
recommendations of Lessor's engineers and/or consultants, relating in
any manner to the Premises (including but not limited to matters
pertaining to (i) industrial hygiene, (ii) environmental conditions on,
in, under or about the Premises, including soil and groundwater
conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or
release of any Hazardous Substance or storage tank), now in effect or
which may hereafter come into effect, and whether or not reflecting a
change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not
limited to, permits, registrations, manifests, applications, reports
and certificates, evidencing Lessee's compliance with any Applicable
Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Lessee or the Premises to
comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a) shall have the right to enter the Premises at any
time, in the case of an emergency, and otherwise at reasonable times,
for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease and all Applicable Laws
(as defined in Paragraph 6.3), and to employ experts and/or consultants
in connection therewith and/or to advise Lessor with respect to
Lessee's activities, including but not limited to the installation,
operation, use, monitoring, maintenance, or removal of any Hazardous
Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting
same, unless a Default or Breach of this Lease, violation of Applicable
Law, or a contamination, caused or materially contributed to by Lessee
is found to exist or be imminent, or unless the inspection is requested
or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the
case may be, for the costs and expenses of such inspections. (SEE
ADDENDUM A, ADDITION PROVISIONS, PARAGRAPH VII (3)).
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage
and destruction), and 14 (condemnation,) Lessee shall, at Lessee's
sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair, structural and
non-structural (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire
sprinkler and/or standpipe and hose or other automatic fire
extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors,
plate glass, skylights, landscaping, driveways, parking lots,
fences, retaining walls, signs, sidewalks and parkways located in,
on, about, adjacent to the Premises. Lessee shall not cause or
permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense,
take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security
and/or monitoring of, the Premises, the elements surrounding same,
or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises
by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to
keep the Premises and all improvements thereon or a part thereof in
good
See Addendum A, Additional Provisions, Paragraph VII(2)
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(b) order, condition and state of repair. If Lessee occupies the
Premises for seven (7) years or more, Lessor may require Lessee to
repaint the exterior of the buildings on the Premises as reasonably
required, but not more frequently than once every seven (7) years,
AND REPAINTING SHALL OCCUR ON CURRENTLY PAINTED PORTIONS OF THE
BUILDING ONLY. *
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced
in, the inspection, maintenance and service of the following
equipment and improvements, if any, located on the Premises: (i)
heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and
(vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraph 2.2 (relating to condition of the
Premises), 2.3 (relating to compliance with covenants, restrictions and
building code), 9 (relating to destruction of the Premises) and 14
(relating to condemnation of the Premises), it is intended by the
Parties hereto that Lessor have no obligation, in any manner
whatsoever, to repair and maintain the Premises, the improvements
located thereon, or the equipment therein, whether structural or non
structural, all of which obligations are intended to be that of the
Lessee under Paragraph 7.1 hereof. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the
Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect
to the extent it is inconsistent with the terms of this Lease with
respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of, any needed
repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings air
lines, power panels, electrical distribution, security, fir
protection systems, communication systems, lighting fixtures,
heating, ventilating, and air conditioning equipment, plumbing, and
fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on
the Premises from that which are provided by Lessor under the terms
of this Lease, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR
UTILITY INSTALLATIONS" are defined as Alterations and/or Utility
Installations made by Lessee that are not yet owned by Lessor as
defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the
Premises (excluding the roof), as long as they are not visible from
the outside, do not involve puncturing, relocating or removing the
roof or any existing walls, and the cumulative cost thereof during
the term of this lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans.
All consents given by Lessor, whether by virtue of Paragraph 7.3(a)
or by subsequent specific consent, shall be deemed conditioned
upon: (i) Lessee's acquiring all applicable permits required by
governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon, and (iii) the compliance by
Lessee with all conditions of said permits in a prompt and
expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and
workmanlike manner with good and sufficient materials and in
compliance with all Applicable Law. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and
specifications therefor. Lessor may (but without obligation to do
so) condition its consent to any requested Alteration or Utility
Installation that cost $10,000 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one
and one-half times the estimated cost of such Alteration or Utility
Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be
secured by any mechanics' or materialmen's lien against the
Premises or any interest therein. Lessee shall give Lessor not less
than ten (10) days' notice prior to the commencement of any work
in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises
against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surely bond satisfactory
to Lessor in an amount equal to one and on-half times the amount of
such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its
best interest to do so. (SEE ADDENDUM A, ADDITIONAL PROVISIONS,
PARAGRAPH VIII)
<PAGE>
7.4 Ownership; Removal; Surrender; and Restoration.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option,
elect in writing to Lessee to be the owner of all or any specified
part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the
expiration or earlier termination of this Lease, become the
property of Lessor and remain upon and be surrendered by Lessee
with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations
by removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to
Lessor. Lessor may require the removal at any time of all or any
part of any Lessee Owned Alterations or Utility Installations made
without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination
date, with all of the improvements, parts and surfaces thereof
clean and free of debris and in good operating order, condition and
state of repair, ordinary wear and tear excepted. "ORDINARY WEAR
AND TEAR" shall not include any damage or deterioration that would
have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises,
as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or
Utility Installations, as well as the removal of any storage tank
installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by
Lessee, all as may then be required by Applicable Law and/or good
practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor in excess of $1,000,000 per
occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the
Lease term. Payment shall be made by Lessee to lessor within ten (10)
days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured)
against claims for bodily injury, personal injury and property
damage based upon, involving or arising out of the ownership, use,
occupancy, or maintenance of the Premises and all areas appurtenant
thereto. Such insurance shall be on an occurrence basis or a claim
made basis with a "tail" acceptable to Lessor providing single
limit coverage in an amount not less than $1,000,000 per occurrence
with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion"
for damage caused by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this lease. The
limits of said insurance required by this lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor
relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in
Paragraph 8.2(a), above, in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the
name of Lessor, with loss payable to Lessor and to the holders of
any mortgages, deeds of trust or ground leases on the Premises
("LENDER(S)"), insuring loss or damage to the Premises. The amount
of such insurance shall be equal to the full replacement cost of
the Premises, as the same shall exist from time to time, or the
amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if,
by
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reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations shall be insured by Lessee under Paragraph 8.4 rather
than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood
and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or
removed by reason of the enforcement of any building, zoning,
safety or land use laws as the result of a covered cause of loss.
Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation,
and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All
Urban Consumers for the city nearest to where the Premises are
located. If such insurance coverage has a deductible clause, the
deductible amount shall not exceed $1,000 per occurrence, and
Lessee shall be liable for such deductible amount in the event of
an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in
the name of Lessor, with loss payable to Lessor and Lender(s),
insuring the loss of the full rental and other charges payable by
Lessee to Lessor under this Lease for one (1) year (including all
real estate taxes insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to
provide for one full year's loss of rental revenues from the date
of any such loss. Said insurance shall contain an agreed valuation
provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental
income, property taxes, insurance premium costs and other expenses,
if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the
event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any
increase in the premiums for the property insurance of such
building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the
property of Lessor under the terms of this Lease. If Lessee is the
Insuring Party, the policy carried by Lessee under this Paragraph
8.3 shall insure Lessee Owned Alterations and Utility
Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations
and Utility Installations in, on, or about the Premises similar in
coverage to that carried by the Insuring Party under Paragraph 8.3.
Such insurance shall be for replacement cost coverage with a deductible
of not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal
property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the
insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General
Policyholders Rating" of at least BI,V, or such other rating as may be
required by a Lender having a lien on the Premises, as set forth in the
most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance
policies referred to in this Paragraph 8. If Lessee is the Insuring
Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and
amounts of such insurance with the insured and loss payable clauses as
required by this Lease. No such policy shall be cancelable or subject
to modification except after (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such insurance
and charge the cost thereof to Lessee, which amount shall be payable by
Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall
not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the
Waiving Party's property arising out of or incident to the perils
required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be
limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
<PAGE>
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of
rents and/or damages, costs, liens, judgments, penalties, permits,
attorney's and consultant's fees, expenses and/or liabilities arising
out of, involving, or in dealing with, the occupancy of the Premises by
Lessee, the conduct of Lessee's business, any act, omission or neglect
of Lessee, its agents, contractors, employees or invitees, and out of
any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this lease.
The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and
whether or not (in the case of claims made against Lessor) litigated
and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of
the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage except for damage caused by Lessor's gross negligence
or willful misconduct and to the extent such loss is not covered by
insurance provided for in this lease * to the person or goods, wares,
merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water, or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from
conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or
places, and regardless of whether the cause of such damage or injury or
the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other
tenant of Lessor. Notwithstanding Lessor's negligence or breach of this
Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations
and Utility Installations, the repair cost of which damage or
destruction is less than 50% of the then Replacement Cost of the
Premises immediately prior to such damage or destruction, excluding
from such calculation the value of the land and Lessee Owned
Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50%
or more of the then Replacement Cost of the Premises immediately
prior to such damage or destruction, excluding from such
calculation the value of the land and Lessee Owned Alterations and
Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered
by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of
applicable building codes, ordinances or laws, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of , or a
contamination by, a Hazardous Substance as defined in Paragraph
6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned
Alterations and Utility Installations) as soon as reasonably possible
and this Lease shall continue in full force and effect; provided,
however, that Lessee shall, at Lessor's election, make the repair of
any damage or destruction the total cost to repair of which is $10,000
or less, and , in such event, Lessor shall make the insurance proceeds
available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in
proceeds (except as to the deductible which is Lessee's responsibility)
as and when required to complete said repairs. In the event, however,
the shortage in proceeds was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides
Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such
shortage and request therefor. If Lessor receives said funds or
adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as
reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said
period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as
is commercially reasonable with Lessor paying any shortage in proceeds,
in which case this Lease
* and/or such loss has not been waived pursuant to Section 8.6 of this
lease. Initials _______
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shall remain in full force and effect. If in such case Lessor does not
so elect, then this Lease shall terminate sixty(60) days following the
occurrence of the damage or destruction. Unless otherwise agreed,
Lessee shall in no event have any right to reimbursement from Lessor
for any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any
such insurance shall be made available for the repairs if made by
either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's
expense and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph
4
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<PAGE>
13). Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the
giving of such notice. In the event Lessor elects to give such notice
of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the repair
of such damage totally at lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance
thereof within the times specified above, this Lease shall terminate as
of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required
by any authorized public authority), this Lease shall terminate sixty
(60) days following the date of such Premises Total Destruction,
whether or not the damage or destruction is an Insured Loss or was
caused by a negligent or willful act of Lessee. In the event, however,
that the damage or destruction was caused by Lessee, Lessor shall have
the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost for repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss,
Lessor may, at Lessor's option, terminate this Lease effective sixty
(60) days following the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election do so within thirty (30)
days after the date of occurrence of such damage. Provided, however, if
Lessee at that time has an exercisable option to extend this Lease or
to purchase the Premises, then Lessee may preserve this Lease by,
within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its
exercise whichever is earlier ("EXERCISE PERIOD"), (i) exercising such
option and (ii) providing Lessor with any shortage in insurance
proceeds (or adequate assurance thereof) needed to make the repairs. If
Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period,
then Lessor may at Lessor's option terminate this Lease as of the
expiration of said sixty (60) day period following the occurrence of
such damage by giving written notice to Lessee of Lessor's election to
do so within ten (10) days after the expiration of the Exercise Period,
notwithstanding any term or provision in the grant of option to the
contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage -
Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, Insurance premiums,
and other charges, if any, payable by Lessee hereunder for the
period during which such damage, its repair or the restoration
continues (not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b)), shall be abated in
proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes,
insurance premiums, and other charges, if any, as aforesaid, all
other obligations of Lessee hereunder shall be performed by Lessee,
and Lessee shall have no claim against Lessor for any damage
suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in
a substantial and meaningful way, the repair or restoration of the
Premises within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such
repair or restoration, give written notice to Lessor and to any
Lenders of which Lessee has actual notice of Lessee's election to
terminate this Lease on a date not less than sixty (60) days
following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not
commenced within thirty (30) days after receipt of such notice,
this Lease shall terminate as of the date specified in said notice.
If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this
Lease shall continue in full force and effect. "COMMENCE" as used
in this paragraph shall mean either the unconditional authorization
of the preparation of the required plans, or the beginning of the
actual work on the Premises, whichever first occurs.
<PAGE>
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to investigate and
remediate such condition exceeds twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire
to terminate this Lease as of the date sixty (60) days following the
giving of such notice. In the event Lessor elects to give such notice
of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition
totally at Lessee's expense and without reimbursement from Lessor
except to the extent of an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said
commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are
available. If Lessee does not give such notice and provide the required
funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of
termination. If a Hazardous Substance Condition occurs for which Lessee
is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used
by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent
herewith.
10. Real Property Taxes.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term
of this Lease. Subject to Paragraph 10.1(b), all such payments shall be
made at least ten (10) days prior to the delinquency date of the
applicable installment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes
to be paid by Lessee shall cover any period of time prior to or after
the expiration or earlier termination of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration.
If Lessee shall fail to pay any Real Property Taxes required by this
Lease to be paid by Lessee, Lessor shall have the right to pay the
same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the
right, at Lessor's option and only if required by Lessor's lender
to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to
be paid in advance to Lessor by Lessee, either: (i) in a lump sum
amount equal to the installment due, at least twenty (20) days
prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be
that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment
would become delinquent (and without interest thereon), would
provide a fund large enough to fully discharge before delinquency
the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such
equal monthly advance payment shall be adjusted as required to
provide the fund needed to pay the applicable taxes before
delinquency. If the amounts paid to Lessor by Lessee under the
provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same
become due, Lessee shall pay to Lessor, upon Lessor's demand, such
additional sums as are necessary to pay such obligations. All
moneys paid to Lessor under this Paragraph may be inter-mingled
with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations
of Lessee under this lease, then any balance of funds paid to
Lessor under the provisions of this Paragraph may, subject to
proration as provided in Paragraph 10.1(a), at the option of
Lessor, be treated as an additional Security Deposit under
Paragraph 5.
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10.2 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax assessment,
general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other
than inheritance, personal income or estate taxes) imposed upon the
Premises by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of
Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or
any increase therein, imposed by reason of events occurring, or changes
in applicable law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Premises
or in the improvements thereon, the execution of this lease, or any
modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvement included within the tax parcel
assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such
other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alternatives,
Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises or elsewhere.
When possible, Lessee shall cause its Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee
shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable
to Lessee's property or, at Lessor's option, as provided in Paragraph
10.l(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to
be determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in
this Lease or in the Premises without Lessor's prior written
consent given under and subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee
shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise),
whether or not a formal assignment or hypothecation of this Lease
or Lessee's assets occurs, which results or will result in a
reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of
the execution by Lessor of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting
such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth
of Lessee (excluding any guarantors) established under generally
accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or
a noncurable Breach without the necessity of any notice and grace
period. If Lessor elects to treat such unconsented to assignment or
subletting as a noncurable Breach, Lessor shall have the right to
either: (i) terminate this Lease, or (ii) upon thirty (30) days
written notice ("Lessor's Notice"), increase the monthly Base Rent
to a fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending
determination of the new fair market rental value, if disputed by
Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of
Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the
event of such Breach and market value adjustment, (1) the purchase
price of any option to purchase the Premises held by Lessee shall
be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction
for depreciation or obsolescence, and considering the Premises at
its highest and best use and in good condition), or one hundred ten
percent (110%) of the price previously in effect, whichever is
greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable
to the time of such adjustment, (iii) any fixed rental adjustments
scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new market rental bears to the Base Rent
in effect immediately prior to the market value adjustment.
<PAGE>
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this
Lease, (ii) release Lessee of any obligations hereunder, or (iii)
alter the primary liability of Lessee for the payment of Base Rent
and other sums due Lessor hereunder or for the performance of any
other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of
such assignment nor the acceptance of any rent or performance shall
constitute a waiver or estoppel of Lessor's right to exercise its
remedies for the Default or Breach by Lessee of any of the terms,
covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting
by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or
modifications thereto after reasonable attempts to notify Lessee or
anyone else liable on the lease or sublease and without obtaining
their consent, and such action shall not relieve such persons from
liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the
Lessee's obligations under this Lease, including the sublessee,
without first exhausting Lessor's remedies against any other person
or entity responsible therefor to Lessor, or any security held by
Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility
and appropriateness of the proposed assignee or sublessee,
including but not limited to the intended use and/or required
modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the
current monthly Base Rent, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request
for consent. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to
conform and comply with each and every term, covenant, condition
and obligation herein to be observed or performed by Lessee during
the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require
that the Security Deposit be increased to an amount equal to six
(6) times the then monthly Base Rent, and Lessor may make the
actual receipt by Lessor of the amount required to establish such
Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of
the rent payable under this Lease be adjusted to what is then the
market value and/.or adjustment structure for property similar to
the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by
Lessee, and Lessor may collect such rent and income and apply same
toward Lessee's Obligations under this Lease; provided, however,
that until a Breach (as defined in Paragraph 13.1) shall occur in
the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect
and enjoy the rents accruing under such sublease. Lessor shall not,
be reason of this or any other assignment of such sublease to
Lessor, nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon written notice from
Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall
rely upon any such statement and request from Lessor and shall pay
such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right to inquire as to whether such
Breach exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against
Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
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(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor,
in which event Lessor shall undertake the obligations of the
sublessor under such sublease from the time of the exercise of said
option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other
prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in
such notice. The sublessee shall have a right of reimbursement and
offset from and against Lessee for any such Defaults cured by the
sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such
occurrence for legal services and costs in the preparation and service
of a notice of Default, and the Lessor may include the cost of such
services and costs in said notice as rent due and payable to cure said
Default. A "DEFAULT" is defined as a failure by the Lessee to observe,
comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "BREACH" is defined as the
occurrence of any one or more of the following Defaults, and, where a
grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable
grace period, and shall entitle Lessor to pursue the remedies set forth
in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor
or to a third party, as and when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3)
days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with
applicable law per Paragraph 6.3(ii) the inspection, maintenance
and service contracts required under Paragraph 7.1(b), (iii) the
recission of an unauthorized assignment or subletting per Paragraph
12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the
subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under
this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where
any such failure continues for a period of ten (10) days following
written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph
40 hereof, that are to be observed, complied with or performed by
Lessee, other than those described in subparagraphs (a), (b) or
(c), above, where such Default continues for a period of thirty
(30) days after written notice thereof by or on behalf of Lessor to
Lessee; provided, however, that if the nature of Lessee's Default
is such that more than thirty (30) days are reasonably required for
its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11
U.S.C. 'SS' 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed
within sixty (60) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event
that any provision of this subparagraph (e) is contrary to any
applicable law, such provision shall be of no force or effect, and
not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder
was materially false.
<PAGE>
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in
accordance with the terms of such guaranty, (iii) a guarantor's
becoming insolvent or the subject of a bankruptcy filing, (iv) a
guarantor's refusal to honor the guaranty, or (v) a guarantor's
breach of its guaranty obligation on a n anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written
notice by or on behalf of Lessor to Lessee of any such event, to
provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and
the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after
written notice to Lessee (or in case of emergency, without
notice),Lessor may at its option (but without obligation to do so),
perform such duty or obligation on Lessee's behalf, including but not
limited to the obtaining of reasonably required bonds, insurance
policies, or governmental licenses, permits or approvals. The costs and
expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by
Lessee shall not be honored by the bank upon which it is drawn, Lessor,
at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or
without further notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such
Breach, Lessor may:
(a) Terminate Lessee's right to Possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the
Premises to Lessor. In such event Lessor shall be entitled to
recover from Lessee: (i) the worth at the time of the award of the
unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but
not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the
unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall
be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award. Efforts
by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages
under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall
have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve therein
the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required
under subparagraphs 13.1(b), (c) or (d) was not previously given, a
notice to pay rent or quit, or to perform or quit, as the case may
be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable
notice for grace period purposes required by subparagraphs 13.1(b),
(c) or (d). In such case, the applicable grace period under
subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer
statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of
the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after
Lessee's Breach and abandonment and recover the rent as it becomes
due, provided Lessee has the right to sublet or assign, subject
only to reasonable limitations. See Paragraphs 12 and 36 for the
limitations on assignment and subletting which limitations Lessee
and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of
a receiver to protect the Lessor's interest under the Lease shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this lease as to
matters occurring or accruing during the term hereof or by reason
of Lessee's occupancy of the Premises.
NET Initials____________
7
<PAGE>
<PAGE>
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other
bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS", shall be deemed conditioned upon Lessee's full
and faithful performance of all of the terms, covenants and conditions
of this Lease to be performed or observed by Lessee during the term
hereof as the same may be extended. Upon the occurrence of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, any such Inducement
Provision shall automatically be deemed deleted from this Lease and of
no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable
by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach
which initiate the operation of this Paragraph shall not be deemed a
waiver by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph shall not be deemed a waiver by Lessor of
the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which
may be imposed upon Lessor by the terms of any ground lease mortgage or
trust deed covering the Premises. Accordingly, if any installment of
rent or any other sum due from Lessee shall not be received by Lessor
or Lessor's designee within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason
of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for
there (3) consecutive installments of Base Rent, then notwithstanding
Paragraph 4.1 or any other provision of this Lease to the contrary,
Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph
13.5, a reasonable time shall in no event be less than thirty (30) days
after receipt by Lessor, and by the holders of any ground lease,
mortgage or deed of trust covering the Premises whose name and address
shall have been furnished Lessee in writing for such purpose, of
written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be
in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than 10 percent
(10%) of the floor area of the Premises, or more than twenty-five (25%) of
the land area not occupied by any building, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that
the Base Rent shall be reduced in the same proportion as the rentable floor
area of the Premises taken bears to the total rentable floor area of the
building located on the Premises. No reduction of Base Rent shall occur if
the only portion of the Premises taken is land on which there is no
building. Any award for the taking of all or any part of the Premises under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages received, over and
above the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation,
except to the extent that Lessee has been reimbursed therefor by the
condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such
repair.
<PAGE>
15. BROKER'S FEE.
15.1
15.2
15.3
15.4
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity
other than said named Brokers is entitled to any commission or finder's
fee in connection with said transaction. Lessee and Lessor do each
hereby agree to indemnify, protect, defend and hold the other harmless
from and against liability for compensation of charges which may be
claimed by any such unnamed broker, finder or other similar party by
reason of any dealing or actions of the indemnifying Party, including
any costs, expenses, attorneys' fees reasonably incurred with respect
thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph
1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party ( the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing
in form similar to the most current "TENANCY STATEMENT" form published
by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial
statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's
financial statements for the past there (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligation
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be performed by the Lessor shall be binding only upon the Lessor as herein
above defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late
charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessor under the terms of this
Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers
that it has made, and is relying solely upon, its own investigation as to
the nature, quality, character and financial responsibility of the other
Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.
NET Initials_________
8
<PAGE>
<PAGE>
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage paid, or by facsimile transmission,
and shall be deemed sufficiently given if served in a manner specified
in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the
other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering
notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such
party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantees next day delivery shall be deemed
given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or
mail. If notice is received on a Sunday or legal holiday, it shall be
deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other
than the failure of Lessee to pay the particular rent so accepted. Any
payment given Lessor by Lessee in may be accepted by Lessor on account of
moneys or damages due Lessor, notwithstanding any qualifying statements or
conditions made by Lessee in connection therewith, which such statements
and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of
this Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by
the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust,
or other hypothecation or security device (collectively, "SECURITY
DEVICE"), now or hereafter placed by Lessor upon the real property of
which the Premises are a part, to any and all advances made on the
security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Lessee agrees that the Lenders
holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any
such obligation, Lessee will give any Lender whose name and address
have been furnished Lessee in writing for such purpose notice of
Lessor's default and allow such Lender thirty (30) days following
receipt of such notice for the cure of said default before invoking any
remedies Lessee may have by reason thereof. If any Lender shall elect
to have this Lease and/or any Option granted hereby superior to the
lien of its Security Device and shall give written notice thereof of
Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a
Security Device, and that in the event of such foreclosure, such new
owner shall not: (i) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of
ownership, (ii) be subject to any offsets or defenses which Lessee
might have against any prior lessor or (iii) be bound by prepayment of
more than one month's rent.
<PAGE>
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of
this Lease shall be subject to receiving assurance (a "NON-DISTURBANCE
AGREEMENT") from the Lender that Lessee's possession and this Lease,
including any options to extend the term hereof, will not be disturbed
so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in
connection with a sale, financing or refinancing of the Premises,
Lessee and Lessor shall execute such further writings as may be
reasonably required to separately document any such subordination or
non-subordination, attornment and/or non-disturbance agreement as is
provided for herein.
31. ATTORNEY'S FEES. Notwithstanding any other terms or provisions of this
Lease, if any Party or Broker brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) or Broker in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorney's fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, not permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject
to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Lessor consents to Lessee's
existing sign.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any
one or all of any existing subtenancies. Lessor's failure within ten (10)
days following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required
to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys',
engineers' or other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including
but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, practice or storage tank,
shall be paid by Lessee to Lessor upon receipt of an invoice and
supporting documentation therefor.
NET Initials_________
9
<PAGE>
<PAGE>
(b) Subject to Paragraph 12.1(e) (applicable to assignment or
subletting), Lessor may, as a condition to considering any such
request by Lessee, require that Lessee deposit with Lessor an
amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost
Lessor will incur in considering and responding to Lessee's
request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's
consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(c) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not
preclude the imposition by Lessor at the time of consent of such
further or other conditions as are then reasonable with reference
to the particular matter for which consent is being given.
37. GUARANTOR.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term
hereof subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right
of first refusal to lease other property of Lessor or the right of
first offer to lease other property of Lessor; (c) the right to
purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the
right to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or
exercised by any person or entity other than said original Lessee while
the original Lessee is in full and actual possession of the Premises
and without the intention of thereafter assigning or subletting. The
Options, if any herein granted to Lessee are not assignable, either as
a part of an assignment of this Lease or separately or apart therefrom,
and no Option may be separated from this Lease in any manner, by
reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly
exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default
under Paragraph 13.1 and continuing until the noticed Default is
cured, or (ii) during the period of time any monetary obligation
due Lessor from Lessee is unpaid (without regard to whether notice
thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1,
whether or not the Defaults are cured, during the twelve (12) month
period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such
exercise and during the term of this Lease, (i) Lessee fails to pay
to Lessor a monetary obligation of Lessee for a period of thirty
(30) days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessor gives
to Lessee three or more notices of Default under Paragraph 13.1
during any twelve month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of building
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
<PAGE>
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts
of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights,
dedications, maps and restrictions do not unreasonably interfere with the
use of the Premises by Lessee. Lessee agrees to sign any documents
reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten provisions shall be controlled by the typewritten or handwritten
provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This
Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONALE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE
THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS,
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIALTION OR BY THE REAL
ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES ASA TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELEATS; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
10
<PAGE>
<PAGE>
PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE
STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at __________________________ Executed at ___________________________
on ___________________________________ on ____________________________________
by LESSOR: By LESSEE:
3811 Partners, LLLP, a Colorado CRYENCO SCIENCES, INC.
limited liability, limited
partnership, Jerome A. Lewis and
Martha Dell Lewis, and Pacifica
Joliet Industrial, LLC, a Colorado
limited liability company, as
Tenants-in-Common, dba PRL Joliet
By ___________________________________ By ____________________________________
Name Printed: Name Printed:
Title: Title:
By By
Name Printed: Name Printed:
Title: Title:
Address: Address:
Tel. No. ( ) Fax No. ( ) Tel. No. ( ) Fax No. ( )
NET
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 354
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777.
Fax No. (213) 687-8616.
11
<PAGE>
<PAGE>
ADDENDUM "A" TO LEASE AGREEMENT
ADDITIONAL PROVISIONS
To that certain Lease dated June 19, 1996, between 3811 Partners, LLLP,
a Colorado limited liability limited partnership, Jerome A. Lewis and
Martha Dell Lewis; and Pacifica Joliet Industrial, LLC, a Colorado limited
liability company, as Tenants In Common, dba PRL Joliet, as Lessor, and
Cryenco Sciences, Inc., as Lessee, covering the property located at 3811
Joliet Street, Denver, Colorado.
To the extent that this Addendum conflicts with, modifies or
supplements other portions of the Lease, the provisions contained in this
Addendum shall govern and control the rights and obligations of the
parties.
I. RENT ADJUSTMENTS.
(1) The Base Rent shall be adjusted every two (2) years on the anniversary
date of the lease commencement (an "Adjustment Date"). The Base Rent
shall be adjusted by the increase, if any, in the Consumer Price Index
of the Bureau of Labor Statistics of the Department of Labor for All
Urban Consumers, "All Items", for the City and County of Denver, herein
referred to as "CPI". The CPI increase on each Adjustment Date shall
not be, on a cumulative basis, less than 3% compounded annually nor
more than 5% compounded annually.
(2) The adjusted Monthly Base Rent shall be calculated as follows: the Base
Rent set forth in paragraph 1.5 of the attached Lease, shall be
multiplied by a fraction the numerator of which shall be the CPI of the
calendar month 2 (two) months prior to the month(s) specified in
paragraph I(1) above during which the adjustment is to take effect, and
the denominator of which shall be the CPI of the calendar month which
is two (2) months prior to the first month of the term of this Lease as
set forth in paragraph 1.3 ("Base Month"). The sum so calculated shall
constitute the new monthly rent hereunder, but in no event, shall any
such new monthly rent be less than the rent payable for the month
immediately preceding the date for rent adjustment.
(3) In the event the compilation and/or publication of the CPI shall be
discontinued, then the index most similar to the CPI shall be used to
make such calculations. In the even that Lessor and Lessee cannot agree
on such alternate index, then the matter shall be submitted for
decision to the American Arbitration association in the County in which
the Premises are located, in accordance with the then rules of said
Association, and the decision of the Arbitrators shall be binding upon
the parties, notwithstanding any party failing to appear after the
notice of proceeding. The cost of said Arbitrators shall be paid
equally by Lessor and Lessee.
(4) In the event of a dispute as to the selected substitute CPI in
accordance with Section I(3) above, Lessee shall continue to pay Base
Rent at the rate in effect for the month immediately preceding the
Adjustment Date, until the increased Base Rent, if any, is determined.
Within five (5) days following the date on which the increase is
determined, Lessee shall make a payment to Lessor equal to the
increased Base Rent plus an amount equal to the difference between the
Base Rent in effect for the month immediately preceding the Adjustment
Date and the increased Base Rent for each month that has passed without
payment of the increase since the Adjustment Date. Thereafter, the rent
shall be paid at the increase rate.
II. ROOF REPAIRS.
(1) Lessee shall be responsible for any and all repair, maintenance and
replacement of both the upper and lower roofs pursuant to Paragraph 7.1
of this Lease. Lessee and Lessor acknowledge that a portion of the roof
is currently in a state of disrepair. Lessee agrees, within sixty (60)
days after execution of this Lease, to perform necessary maintenance
and repairs that will bring the roof into a good operating condition.
Those repairs shall exclude a re-roofing of the asphalt built-up roof
(lower roof). However, Lessor agrees, one time only, to replace the
asphalt built-up roof (lower roof) only, consisting of approximately
120,000 square feet, when needed, as determined by Lessor in its sole
discretion, after consideration to normal maintenance and repair
performed by Lessee as provided above. The cost to Lessor for such roof
replacement shall not exceed $220,000. If the cost to replace the same
shall exceed $220,000, any such excess will be paid by Lessee.
(2) Lessee agrees that on the date of completion of the lower roof
replacement (the "Roof Completion Date"), the Lease shall automatically
be extended by ten (10) years to the date that is ten (10) years after
the Roof Completion Date, however, the term of this Lease in the
aggregate shall not exceed a total of fifteen (15) years, (i.e. if the
roof is replaced in the second year of this Lease, then the Lease term
will be twelve (12) years, however, if the roof is replaced in the
sixth year of the Lease or any time thereafter, then the total lease
term will be fifteen (15) years.
<PAGE>
III. ASPHALT AND CONCRETE REPAIRS.
LESSEE AND LESSOR ACKNOWLEDGE THAT THE ASPHALT IS CURRENTLY IN NEED OF
CERTAIN REPAIRS AND MAINTENANCE. LESSEE AGREES TO PERFORM REASONABLY
REQUIRED REPAIRS IN A GOOD WORKMAN-LIKE MANNER IN ACCORDANCE WITH PARAGRAPH
7.3 OF THIS LEASE WITHIN 100 DAYS AFTER THE DATE OF THIS LEASE.
IV. LNG.
Landlord gives its approval for Tenant to install an LNG fueling station on
the south portion of the land, subject to all appropriate governmental and
environmental regulations. The installation and maintenance of the LNG
fueling station shall be the sole responsibility of the Tenant. In
addition, Lessor hereby consents to Lessee's handling and storage of LNG on
the Premises, subject to applicable governmental and environmental
regulations with no additional security deposit.
V. SECURITY DEPOSIT.
The following language shall be added to the end of paragraph 1.7 of the
Lease, "Security Deposit shall be held as follows: one-third ($38,840.63)
in cash with Landlord and two-thirds ($77,681.26) in the form of a Letter
of Credit. The Letter of Credit must be from an institution and in a form
approved by the Lessor. Such approval shall not be unreasonably withheld.
If after thirty-six (36) months after the commencement of this Lease,
Lessee is not nor has not been in default under the terms of this Lease,
then the Security Deposit will be reduced by one month's initial rent
($38,840.63), and if after sixty (60) months after the commencement of this
Lease, Lessee is not nor has not been in default under the terms of this
lease, then the Security Deposit shall be reduced by an additional one
month's initial rent ($38,840.63), leaving ($38,840.63) held as a security
deposit in the form of cash."
VI. INSURING PARTY.
The following language shall be added to the end of paragraph 1.9 of the
Lease, "If Lessee can provide Lessor with a written estimate which shows
that Lessee can obtain the insurance coverage required under paragraph 8 of
this Lease at a cost which is less than the cost incurred by Lessor for
such insurance coverage, Lessee shall be the Insuring Party and will remain
the Insuring Party for so long as the cost of such required insurance
coverage remains less than the cost to Lessor to provide such insurance
coverage, and for such time as Lessee is the Insuring Party, Lessee will be
obligated to promptly notify Lessor of the annual renewal cost of such
insurance within thirty (30) days of such renewal date."
VII. HAZARDOUS SUBSTANCES
1. Consent to Use of LNG and other Hazardous Substances by Lessee on the
Premises.
The following language shall be added to the end of paragraph 6.2(a) of
the Lease, "Lessor hereby acknowledges that Lessee uses the following
Hazardous Substances, as detailed in Exhibit B, in connection with its
normal business operation on, in and about the Premises and Lessor consents
to the permitted Use of the Premises, including the use by Lessee, of such
Hazardous Substances in the conduct of Lessee's Normal business operations
in accordance with this Section 6.2(a), subject to the terms and conditions
imposed by this Article 6. Lessee shall, on the anniversary date of this
Lease, provide Lessor with a list of all Hazardous Substances listed above,
and Lessor shall have the right to reasonably request further information
from Lessee regarding the same. The use by Lessee in the Premises of
Hazardous Substances other than those Hazardous Substances specifically
mentioned above shall require Lessee to obtain the consent of Lessor in
accordance with Section 6.2(a)."
2. Duty to Inform Lessor
Paragraph 6.2(b) of the Lease shall be replaced with the following
language, "If Lessee knows, or has reasonable cause to believe, that a
Hazardous Substances other than minimum quantities of the same used by
Tenant in the ordinary course of the conduct of its business as permitted
hereunder or other than as previously consented to by Lessor in accordance
with the terms of Section 6.2, or a condition involving or resulting from
such Hazardous Substances has come to be located in, on, under or about the
premises, Lessee shall immediately give written notice of such fact to
Lessor. Lessee shall also immediately give Lessor a copy of any initial
statement, report, notice or documentation sent by any governmental
authority or private party or persons entering or occupying the Premises,
with regards to the same,
12
<PAGE>
<PAGE>
and shall provide Lessor and its lender with access, during regular
business hours and upon reasonable notice to Lessee, to Lessee's files
containing any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to or
received from any governmental authority or private party, or person
entering or occupying the Premises, concerning the presence, spill,
release, discharge of, or exposure to, any Hazardous Substance or
contamination in on, or about the Premises, including but not limited to
all such documents as may be involved in any Reportable Uses involving the
Premises for review by Lessor or its lender or mortgagee during regular
business hours and upon reasonable notice to Lessee."
3. Inspections; Compliance
The following language shall be added to the end of paragraph 6.4 of
the Lease, "In the event that Lessor, and/or Lessor's Lender reasonably
determine that an environmental inspection is necessary due to the nature
of Lessee's business and the use of the property, then a Phase I
Environmental Study shall be ordered at Lessee's cost at a cost not to
exceed the competitive market cost. If the results of the Phase I study
require that a Phase II Environmental Study is necessary, then this study
shall be ordered at Lessee's cost, again at a cost not to exceed the
competitive market cost. Lessor must approve any environmental testing
company to be used for this purpose."
VIII. MECHANIC'S LIENS
The following language shall be added to the end of paragraph 7.3(c) of the
Lease, "Notwithstanding the foregoing if, within a reasonable time after
any mechanic's lien is filed against the Premises, Lessee: (1) procures a
substitution bond pursuant to C.R.S. Section 38-22-131 approved by a judge
of the District Court with which such bond or undertaking is filed in an
amount equal to one and one-half times the amount of the lien plus costs
allowed to date, and (2) in accordance with C.R.S. Section 38-22-132, the
lien against the Premises is discharged and released in full and the
subject bond is substituted therefor by the Court, then Lessor shall not
(under such circumstances) require Lessee to pay Lessor's attorneys' fees
and costs in participating in such action if Lessor shall decide to do so.
Copies of the above-referenced Colorado statues are attached hereto as
Exhibit A."
13
<PAGE>
<PAGE>
EXHIBIT "A"
38-22-131. SUBSTITUTION OF BOND ALLOWED. (1) Whenever a mechanic's lien has been
filed in accordance with this article, the owner, whether legal or
beneficial, of any interest in the property subject to the lien may, at any
time, file with the clerk of the district court of the county wherein the
property is situated a corporate surety bond or any other undertaking which
has been approved by a judge of said district court.
(2) Such bond or undertaking plus costs allowed to date shall be in an
amount equal to one and one-half times the amount of the lien plus costs
allowed to date and shall be approved by a judge of the district court
with which such bond or undertaking is filed.
(3) The bond or undertaking shall be conditioned that, if the lien claimant
shall be finally adjudged to be entitled to recover upon the claim upon
which his lien is based, the principal or his sureties shall pay to such
claimant the amount of his judgment, together with any interest, costs,
and other sums which such claimant would be entitled to recover upon the
foreclosure of the lien.
Source: L. 75, p.1425, 'SS' 5.
38-22-132. LIEN TO BE DISCHARGED. Notwithstanding the provisions of section
38-22-119, upon the filing of a bond or undertaking as provided in section
38-22-131, the lien against the property shall be forthwith discharged and
released in full, and the real property described in such bond or
undertaking shall be released from the lien and from any action brought to
foreclose such lien, and the bond or undertaking shall be substituted. The
clerk of the district court with which such bond or undertaking has been
filed shall issue a certificate of release which shall be recorded in the
office of the clerk and recorder of the county wherein the original
mechanic's lien was filed, and the certificate of release shall show that
the property has been released from the lien and from any action brought to
foreclose such lien.
14
<PAGE>
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATED June 19, 1996
BY AND BETWEEN (LESSOR) 3811 Partners, LLLP, a Colorado limited liability
limited partnership, Jerome A. Lewis
and
Martha Dell Lewis, and Pacifica Joliet Industrial,
LLC, a Colorado limited liability company, as
Tenants-in-Common, dba PRL Joliet
(LESSEE) Cryenco Sciences, Inc.
PROPERTY ADDRESS: 3811 Joliet Street, Denver, Colorado
Paragraph ________
A. OPTION(S) TO EXTEND:
Lessor hereby grants lessee the option to extend the term of this Lease
for 2 additional 60 month period(s) commencing when the prior term expires
upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by
at least 6 and not more than 9 months, a written notice of the exercise of
the option(s) to extend this Lease for said additional term(s), time being
of essence. If said notification of the exercise of said option(s) is
(are) not so given and received, the option(s) shall automatically expire;
said option(s) may (if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease and conditions
of this Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated
as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] 1. COST OF LIVING ADJUSTMENT(S) (COL)
(a) On (Fill in COL Adjustment Date(s): the commencement date of the first
option period and every two (2) years thereafter, monthly rent payable
under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted by the change, if any, from the Base Month specified below, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): CPI W (Urban Wage Earners and
Clerical Workers) or |X| CPI U (All Urban , Consumers), for (Fill in
Urban Area): the City and County of Denver, Colorado, All Items
(1982-1984 = 100), herein referred to as "C.P.I." The same minimum and
maximum parameters for calculation of the CPI increases provided for in
the original term, Addendum A, Paragraph I(1) shall be applicable for
all option periods.
(b) The monthly rent payable in accordance with paragraph A1(a) above of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction
the numerator of which shall be the C.P.I. of the calendar month 2 (two)
months prior to the month(s) specified in paragraph A1(a) above during
which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. of the calendar month which is two (2) months prior
to (select one): [X] the first month of the term of this Lease as set
forth in paragraph 1.3 ("Base Month") or (Fill in other "Base Month"):
______________________. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall any such new monthly rent
be less than the rent payable for the month immediately preceding the
date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in
accordance with the then rules of said association and the decision of
the arbitrators shall be binding upon the parties. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
B. NOTICE: Unless specified otherwise herein, notice of any escalation's other
than Fixed Rental Adjustments shall be made as specified in paragraph 23 of
the attached Lease.
C. BROKER'S FEE:
15
<PAGE>
<PAGE>
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
Initials: ________________ Initials: _________________
________________ _________________
OPTION(S) TO EXTEND
PAGE 2 OF 2
NOTICE: These forms are often modified to meet changing requirements of law and
Industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1 Los Angeles, CA 90071. (213) 687-8777.
Fax No. (213) 687-8616.
16
<PAGE>
<PAGE>
EXHIBIT "B"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NFPA RATINGS
--------------------------------------------------------------
PRODUCT CAS # TYPE HEALTH FLAMMABILITY REACTIVITY OTHER
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nitric Acid 7697-37-2 ACID 3 0 0 CORR
- ---------------------------------------------------------------------------------------------------------------
Ethylene Glycol 107-21-1 COOLENT 2 0 0
- ---------------------------------------------------------------------------------------------------------------
LNG 8006-14-2 CRYOGENIC 1 4 0
- ---------------------------------------------------------------------------------------------------------------
Nitrogen, Liquid 7727-37-9 CRYOGENIC 3 0 0
- ---------------------------------------------------------------------------------------------------------------
SKC-NF Cleaner DYE 0 0 0
- ---------------------------------------------------------------------------------------------------------------
SKD-NF Developer DYE 0 0 0
- ---------------------------------------------------------------------------------------------------------------
SKL-HF/S Penetrant DYE 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Steel Blue, DX-100 DYE 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Steel Blue, SP-100 DYE 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Fuel Oil 000126-00-0 FUEL 2 2 0
- ---------------------------------------------------------------------------------------------------------------
Fuel Oil, #2-D 000169-00-0 FUEL 2 2 0
- ---------------------------------------------------------------------------------------------------------------
Gas/Oil Blend 64741-44-2 FUEL 2 2 0
- ---------------------------------------------------------------------------------------------------------------
Gasoline 8006-61-9 FUEL 1 3 0
- ---------------------------------------------------------------------------------------------------------------
Kerosene 8008-20-6 FUEL 1 2 0
- ---------------------------------------------------------------------------------------------------------------
Acetylene GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Air, Compressed 000016-00-0 GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Ar+1 Gas Mix GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Ar+2 Gas Mix GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Argon 7440-37-1 GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Blueshield #1 GAS 0 0 0
#3, (Ari in HE)
- ---------------------------------------------------------------------------------------------------------------
Blueshield #4, GAS 0 0 0
#5 (02 in AR)
- ---------------------------------------------------------------------------------------------------------------
Carbon Dioxed 124-38-9 GAS 1 0 0
- ---------------------------------------------------------------------------------------------------------------
Carbon Monoxide 630-08-0 GAS 3 3 0
- ---------------------------------------------------------------------------------------------------------------
Helium GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Nitrogen 7727-37-9 GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
O2 +1 Gas Mix GAS 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Oxygen 7782-44-7 GAS 0 0 0 OXY
- ---------------------------------------------------------------------------------------------------------------
Propane 115-07-1 GAS 0 4 1
- ---------------------------------------------------------------------------------------------------------------
Dicaperl INSULATION 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Persolite INSULATION 0 0 0
- ---------------------------------------------------------------------------------------------------------------
ATF LUBRICANT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Bel-Ray FC-1245 LUBRICANT 0 0 0
Grease
- ---------------------------------------------------------------------------------------------------------------
Cutting Fluid LUBRICANT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
High Vacuum LUBRICANT 0 0 0
Grease
- ---------------------------------------------------------------------------------------------------------------
Hydraulic Oil LUBRICANT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Kyrotox, 240 LUBRICANT 1 0 0
series Grease
- ---------------------------------------------------------------------------------------------------------------
Lubriplate 1200-2 LUBRICANT 0 0 0
Grease
- ---------------------------------------------------------------------------------------------------------------
Lubriplate 630-2 LUBRICANT 0 0 0
Grease
- ---------------------------------------------------------------------------------------------------------------
Motor Oil 000034-00-0 LUBRICANT 2 1 0
- ---------------------------------------------------------------------------------------------------------------
Trim Sol LUBRICANT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
WD-40 LUBRICANT 2 2 0
- ---------------------------------------------------------------------------------------------------------------
Paint PAINT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Paint Related PAINT 0 0 0
Products
- ---------------------------------------------------------------------------------------------------------------
Epoxy Thinner SOLVENT 0 0 0
- ---------------------------------------------------------------------------------------------------------------
Isopropyl 67-63-0 SOLVENT 2 3 0
Alcohol 99%
- ---------------------------------------------------------------------------------------------------------------
MEK 78-93-3 SOLVENT 2 3 0
- ---------------------------------------------------------------------------------------------------------------
Trichloroethylene79-01-6 SOLVENT 3 3 0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Subsidiary of Incorporation or Organization
- ---------- ----------------------------------
Cryenco Inc., a wholly owned
subsidiary of the Registrant Colorado
Cryomex S.A. de C.V. 50% owned
by the Registrant Mexico
Cryenex, Inc., a wholly owned
subsidiary of the Registrant Delaware
Applied LNG Technologies USA
by Cryenex, Inc. Delaware
<PAGE>
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. -33-65864) pertaining to the 1992 Employee Incentive and
Non-Qualified Stock Option Plan and 1993 Non-Employee Director Stock Option
Program of Cryenco Sciences, Inc., and the Registration Statement (Form
S-8 No. -333-1379) pertaining to the 1995 Incentive and Non-Qualified Stock
Option Plan of Cryenco Sciences, Inc., of our report dated October 5, 1996,
with respect to the consolidated financial statements and schedule of Cryenco
Sciences, Inc. included in the Annual Report (Form 10-K) for the year ended
August 31, 1996.
ERNST & YOUNG LLP
Denver, Colorado
November 25, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE REGISTRANT'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR
ENDED AUGUST 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 6,787
<ALLOWANCES> 12
<INVENTORY> 4,333
<CURRENT-ASSETS> 15,220
<PP&E> 7,325
<DEPRECIATION> 3,099
<TOTAL-ASSETS> 25,704
<CURRENT-LIABILITIES> 5,397
<BONDS> 0
<COMMON> 70
0
1
<OTHER-SE> 11,602
<TOTAL-LIABILITY-AND-EQUITY> 25,704
<SALES> 31,259
<TOTAL-REVENUES> 31,259
<CGS> 24,898
<TOTAL-COSTS> 24,898
<OTHER-EXPENSES> 4,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 944
<INCOME-PRETAX> 983
<INCOME-TAX> 363
<INCOME-CONTINUING> 620
<DISCONTINUED> 0
<EXTRAORDINARY> 93
<CHANGES> 0
<NET-INCOME> 527
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
