U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended:
December 31, 1997
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[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition
period from ___________ to __________
COMMISSION FILE NUMBER: 33-37513-D
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GLOBAL WATER TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Delaware 84-1148204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1767 Denver West Boulevard
Golden, Colorado 80401
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(Address of principal executive offices)
(Zip Code)
Issuer's telephone number: (303) 215-1100
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Securities to be registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act: None
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or
any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $18,697,292
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Aggregate market value of voting stock held by non-affiliates as of March
20, 1998: $4,414,252
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Shares of Common Stock, $.001 par value, outstanding as of March 20,
1998: 294,050,000
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Documents incorporated by reference: Exhibits to Issuer's Registration
Statement on Form S-18, No. 33-37513-D and to Issuer's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Description of Business.. . . . . . . . . . . . . . . . . . . .1
Item 2. Description of Property.. . . . . . . . . . . . . . . . . . . .9
Item 3. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders.. . . . . 10
PART II
Item 5. Market Price of the Registrant's Common Stock and Related
Security Holder Matters. . . . . . . . . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 12
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . 16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.. . . . . . . . . . . . . . . . . . . 16
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act . . 17
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 20
Item 11. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 12. Certain Relationships and Related Transactions.. . . . . . . 22
Item 13. Exhibits, Financial Statements and Reports on Form 8-K . . . 23
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
FORM 10-KSB
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
Global Water Technologies, Inc. (the "Company") was incorporated under
the name Fi-Tek VI, Inc. in the State of Delaware on July 12, 1990, for the
primary purpose of seeking out acquisitions of properties, businesses or
merger candidates, without limitation as to the nature of the business
operations or geographic area of the acquisition candidate. In October
1992, the Company completed an initial public offering, receiving proceeds
of $160,000 from the sale of 8,042,500 units, consisting of Common Stock
and warrants. The Company's offering was subject to the Colorado
Securities Act, which required the placement into escrow of 80% of the net
proceeds of the offering ($93,714) until the completion of a transaction or
series of transactions whereby at least 50% of the gross proceeds received
from the sale of shares in the offering was committed for use in one or
more specific lines of business. The escrow condition had not been
satisfied as of the fourth anniversary of the initial public offering, and
accordingly, the Company distributed those funds pro rata to those persons
who were owners of the shares of Common Stock purchased in the offering.
The expiration date of the warrants which were included in the units sold
in the public offering have been extended past their original expiration
date, and will now expire April 14, 1999, unless extended.
On September 25, 1997, the Company and Psychometric Systems, Inc.
("PSI") consummated an Agreement and Plan of Reorganization whereby the
Company acquired all of the issued and outstanding common shares of PSI
in exchange for the issuance of 261,382,500 shares of the Company's Common
Stock and 1,000,000 shares of a newly-authorized Series A non-voting
preferred stock ("Preferred Stock"). Each share of Preferred Stock is
convertible into 290 shares of Common Stock upon attainment of gross annual
sales of $60,000,000 for the Company and its subsidiaries (the "Company"),
but only if such annual sales goal is reported not later than the due date
of the Company's Annual Report on Form 10-K for the fiscal year ending in
2002, and is subject to redemption by the Company at a price of $0.0001 per
share in the event the required sales level is not attained. The Company
has accounted for the transaction as a reverse acquisition under the purchase
method of accounting. The fiscal year of the Company was changed from
June 30 to December 31 to correspond to the fiscal year of PSI.
On November 5, 1997 and subsequent to its reverse acquisition with
PSI, the Company changed its name from Fi-Tek VI, Inc. to Global Water
Technologies, Inc. to reflect the Company's focus on the growing
water-related market opportunities. The Company's trading symbol was
also changed to "GWTR" on that date.
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Except as otherwise noted, all references to the "Company" include
Global Water Technologies, Inc. and its subsidiaries.
BUSINESS OF THE ISSUER
The Company, through its wholly owned subsidiary, PSI, designs, sells,
manufactures and builds industrial cooling towers, and repairs, maintains
and retrofits existing industrial cooling towers and cooling tower
components for these and similar facilities. The Company primarily markets
its products and services worldwide to the following industries: electric
power utilities; process (such as agricultural, industrial and
pharmaceutical process industries); petrochemical; chemical; heating,
ventilation and air-conditioning ("HVAC"); manufacturing; pulp & paper and
other industries utilizing cooling towers. Typical customers include
companies such as Archer Daniels Midland, Amoco, Mitsubishi, Mobil, Texaco,
Bechtel, Fluor Daniel and other large corporations around the world.
The Company plans on expanding its product line offerings into the
integrated non-chemical water treatment and modular cooling tower market.
PSI was founded in January 1993 by George A. Kast, President and Chief
Executive Officer. Mr. Kast and members of his family have been in the
cooling tower industry since 1983. The predecessor company, Thermal-Dynamic
Towers, Inc., was sold to GEA AG, a large European conglomerate in 1991.
PSI was named as one of America's 50 Hottest New Small Businesses by
ENTREPRENEUR magazine in early 1996, achieving a ranking of #30 within the
group of 50. The Small Business Administration named PSI "The Small
Business Exporter of the Year" in 1997 for Region VIII, which includes
Colorado.
The Company custom designs industrial cooling towers for its customer
base in a competitive bid job award process. The Company provides value
engineering and specific cooling tower designs to its customer base.
Although influenced by many factors, management believes competitive
pricing is one of the main criteria for job awards. Based on customer
requirements, the Company designs cooling towers using structural members
manufactured from wood, fiberglass and concrete. Light manufacturing of
wooden and fiberglass structural components is done at the Company's
facilities for selected jobs prior to treatment procedures. Component
parts are subcontracted and ordered from various suppliers to be shipped
directly to the job site. For domestic projects, Company managed crews
erect the cooling tower in the field or a subcontractor is awarded the
erection of the tower. The field erection normally takes between six to
twelve weeks for the typical two to three cell cooling tower. The
construction and erection of foreign jobs are usually outside of the
Company's scope of responsibility. From contract award to final completion
of the structure, a typical project will last four to six months.
The Company utilizes proprietary software products and know-how to
design and estimate
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construction costs for potential projects. Although not copyrighted or
patented, management believes that the proprietary information is integral
to its ability to accurately and reliably design cooling towers to meet the
desired specifications and to estimate job costs. This know-how is
augmented by key knowledgeable employees. The Company's competitive
position could be adversely affected by the loss of these employees or
know-how.
THE COOLING TOWER MARKET
Cooling towers are designed to reject heat from process operations
into the atmosphere through evaporation and direct heat transfer. Hot
water is pumped to the top of the cooling tower and distributed over the
fill media through various nozzle apertures. The fill media is designed to
maximize the air/water interface to improve the efficiency of the heat
rejection. As the air comes into contact with the hot water from the
process, some water evaporates causing a reduction in heat for the
remaining water. Fans placed on the top of the tower cause air to be drawn
in from the sides and the bottom of the tower in an induced draft design.
The induced draft air flow cools the water through direct contact and
through evaporation. The evaporated water, now in the form of steam, is
ejected through the fanstacks at the top of the tower. The cooler water at
the bottom of the tower in the basin, is then re-circulated back into the
process where it again absorbs heat until the entire process is repeated.
Management believes this type of cooling tower configuration provides the
most efficient and cost effective design for industrial cooling towers.
Cooling towers have been used in the process industries for close to 100
years.
Most process industries with available water that generate heat in the
process utilize cooling towers in their operations. Accordingly, cooling
towers are vital to the continuing operation of these facilities and are
considered critical pieces of plant and equipment. In fact, these
processes cannot continue to operate without cooling towers or some other
more expensive means to reject heat from these facilities. Cooling towers
can range in price from $10,000 for a small 600 gallon per minute ("GPM")
or 250 ton HVAC facility to over $10,000,000 for a heavy industrial or
utility customer needing capacities of 300,000 GPM. GPM is the standard
unit of measurement in the industrial cooling tower segment, while HVAC
usage denominates capacity in nominal cooling tons. One ton of cooling is
approximately equivalent to 2.5 - 3.0 GPM under humid environmental
conditions.
The cooling tower market can be subdivided into two main segments,
facilities using pre-packaged or factory assembled units and plants
employing field erected cooling towers. Industrial cooling towers are
usually stand alone, separate facilities while factory assembled units
often are placed on top of office buildings or in close proximity to the
heat source adjacent to the building. Factory assembled cooling towers are
shipped directly to the end user as a completed unit and installed on site
with minimal additional fabrication. These units are typically sold to
HVAC and light to medium industrial users. Cooling towers for HVAC
applications are sized from approximately 30 to 500 nominal tons. Larger
tonnages are obtained from either sequencing a number of factory assembled
units or constructing small field erected units on site. Field erected
cooling towers are constructed on site and are utilized by medium and heavy
industrial and utilities. Heavy industrial users require cooling towers
sized from 10,000 to 100,000 GPM and some utility applications range up to
300,000 GPM.
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Accurate information about the cooling tower industry is difficult to
obtain since many cooling tower manufacturers are either privately held and
do not divulge market information or are divisions of very large public
entities. Furthermore, many existing cooling tower companies operating in
the U.S. are owned by foreign entities where reporting requirements are
substantially different from U.S. provisions. Limited market information
is available from the U.S. Department of Commerce, public SEC information,
commissioned private studies and internal intelligence sources. Based on
this limited information and management's evaluation of the market,
management estimates that the total annual United States cooling tower
market ranges from $400 million to $600 million, and that the total annual
worldwide market ranges from $800 million to $1.1 billion.
PRODUCT LINE
The market currently served by the Company can be subdivided into two
main sub-segments: new cooling towers and retrofits and repairs of existing
towers. For the year ended December 31, 1997, the new tower revenue
recognition represented approximately 73% of the Company's revenues,
retrofits represented approximately 25% and miscellaneous sales comprised
the balance. Based upon its current backlog of business and current
outstanding bid activity, management believes that future revenue
recognition for 1998, will approximate 1997 percentages for new towers,
retrofits and replacement parts, respectively.
NEW COOLING TOWERS. New cooling tower project opportunities come from
two major sources: a worldwide network of independent manufacturers
representatives and internal sales personnel. Although some projects arise
from past sales relationships with customers, most projects are awarded
independently. The manufacturer's representatives are compensated based
upon a sliding scale commission level. In addition to its direct sales
activities, the Company markets new cooling towers in a number of ways,
including sponsorship of trade shows, direct mail solicitation and
advertising in various trade publications. The Company is presently
developing a compact disk ("CD"), which will portray its products using
interactive pictures and animation. This CD will be distributed to
engineering firms, manufacturers and specialized mailing lists in the
industrial cooling tower market. The Company also maintains a web page on
the worldwide web at http:\\www.psicoolingtowers.com.
Bids on new cooling tower projects typically range from $50,000 to
$10,000,000 per project. Although the Company has bid on larger projects,
the majority of projects fall within this range. The average project size
awarded is estimated at $400,000 to $500,000; however, as the Company bids
on and is awarded larger projects, management believes that the average
project size will correspondingly increase.
Although there is no typical bidding process, normally the customer or
a customer's agent describes the operating performance requirements of the
tower. Company personnel assemble a value engineering plan for the given
heat load configuration and a cost estimate for the materials, labor, and
ancillary equipment to meet the specific performance criteria for the
facility. Many factors
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affect the cost calculation, including water quality, environmental
conditions, operating details, local building requirements, structural
materials needed, local labor conditions and other factors which affect the
cost components of the cooling tower. A bid is then submitted to the
customer for consideration. Some projects may be awarded to low bidder,
while others may have other performance factors as the prime criteria for
contract award. Most commercial bids the company submits have bid
clarification meetings to clarify the scope of the Company's bid. Often,
competitive bids have differing scopes of work since the projects are large
and complex. The clarification meetings are necessary to insure the
customer that their evaluation process accurately considers all of the
differences among the competing bids.
At the time the job is awarded, final terms and conditions are
negotiated including construction on-site dates, contract terms and
conditions, financial performance, warranties and other factors defining
the rights and obligations of the parties. The Company then submits the
project bid information to the engineering and construction department
within the Company. Normal payment terms include payment upon completion
of the engineering phase which is followed by additional payments upon
completion or partial completion of the material procurement/manufacturing
phase and, if applicable, the labor construction phase. The Company
recognizes engineering and construction contract revenues using the
percentage-of-completion method, based primarily on contract costs incurred
to date compared with total estimated contract costs. Contracts on new
cooling towers are segmented between types of services, such as engineering
and construction, and accordingly, gross margin related to each activity is
recognized as those separate services are rendered. Changes to total
estimated contract costs and to contract revenues via change orders are
recognized in the period in which they are determined. In addition, a
provision is made for the entire amount of future estimated losses, if any,
on contracts in progress in the period in which such losses are determined.
The project manager assigned to the project performs detailed cost
calculations for the contract, work schedule controls and works in
conjunction with the purchasing department to complete the material
requisition process. In addition, the project manager coordinates crew
availability with the customer and the Company's construction manager for
the actual erection of the facility if the erection is in the Company's
scope of work. The project manager is the Company's liaison with the
customer, the coordinator and the facilitator for job completion. The
Company employs a group of skilled engineers trained in various aspects of
construction management to fulfill these responsibilities. As the job
progresses, customer requirements may change from the original job
specifications. When this occurs, the project manager in conjunction with
the sales department determines the amount for the change order and
negotiates with the customer for these amounts. A majority of jobs have
change orders, which may be significant, during the project life.
Cost components for new cooling towers include hardware, structural
components, fan decks, partition walls, distribution, fill and drift
eliminator media, mechanicals (fans, drive shafts, gearboxes etc.),
fanstacks, labor, tools, and freight. Most of the material requirements
are purchased from independent outside vendors, custom fabricated for
the specific project requirements and shipped directly to job sites. Some
wooden and fiberglass structural materials are fabricated by the
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Company at leased facilities.
The customer will often require a thermal performance test as part of
the documentation on tower performance. Either the Company's personnel or
independent third parties perform these tests. Historically, these
performance tests have shown that the Company's products consistently meet
or exceed performance design specifications. In addition to the performance
tests described above, the Company provides a limited warranty on its
products to be free from material defects for 12 months from start-up or 18
months from shipment, whichever occurs first. Management believes that
there are no significant warranty issues from products placed in service
since inception.
The Company has installed plume-abated towers in Japan and the United
States. Plume abatement is attained through the installation of hot water
cooling coils on the outside of the cooling tower. The fans draw air over
these coils to pre-heat and dry the ambient air. Controlling louvers blend
the amount of air drawn over the coils versus air drawn from the sides and
bottom of the tower. These louvers are modified based on local
environmental conditions. The dry air from the coils is then mixed with the
saturated moist air from the normal cooling tower operation and mixed in
the plenum chamber prior to ejection from the fanstacks at the top of the
tower. These plume-abated towers have positive environmental impacts on the
immediate surrounding area. Plume abatement features increase the selling
price of the facilities and provides additional customer benefits, such as
reduced damage to surrounding deciduous trees and reduction in potential
liability caused by condensing water and ice in winter driving conditions.
In addition to plume abatement, the Company also has successfully installed
sound abated towers which decrease noise levels and sound pollution.
RETROFIT MARKET. In the retrofit or repair market, the Company has
bid on projects ranging from $5,000 to $4,000,000. Management expects to
bid on projects in excess of this range in the future as opportunities may
arise. A typical retrofit job is in the $50,000 to $200,000 range.
Normally, the customer selects options from a list of possible repair
scopes for the existing cooling tower retrofit project. In approximately
75% of the projects bid by the Company, a portion of the work scope is
based upon a time and material unit price. Most retrofit projects do not
require drawings or extensive engineering work. Profit is recognized on a
percentage-of-completion basis.
Retrofit projects could have significant change orders as compared to
the total price of the contract. Change orders from retrofit projects arise
due to the uncertainty surrounding the job scope at the time of the bid.
Often, the existing towers are operating when the job walkthrough is done
to determine the scope of the repairs necessary. Damaged areas in need of
repair can only be observed after the crew has begun their retrofit work
and the damaged area is exposed. An experienced construction crew is vital
to observe additional opportunities and communicate that information to the
project manager. The project manager can then communicate the proposed
change orders to the customer and provide them with additional value in
their cooling tower retrofit.
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SUPPLIERS, VENDORS AND SPARE PARTS
The Company utilizes selected vendors for its sub-component
requirements. In a limited number of cases, specific manufacturers have
worked in conjunction with the Company to supply components to customers
under common marketing programs. Because the Company has access to a broad
number of suppliers and works with them on a regular basis, management
believes that the customer can achieve economic benefits by utilizing the
Company's buying power when component spare parts are needed. The Company
relies upon the suppliers and vendors to manufacture components to Company
specifications. The Company has not experienced any significant delays in
obtaining parts and components for its products, and management believes
that the Company's relationships with its suppliers are good and that the
material availability is adequate.
On November 1, 1997, the Company acquired certain assets of Texas
Cooling Tower Company ("Texas Tower"), located in Bulverde, Texas. The
assets acquired included casts/dies, furniture and equipment and other
inventory, for which the Company paid $70,000. The Company will use this
equipment and inventory to expand its product line into complementary
fiberglass cooling tower designs for specific industrial process
applications.
PRODUCT RESEARCH, DESIGN AND DEVELOPMENT
The Company leases a facility from George A. Kast, the President and
principal shareholder of the Company, in Coeur d'Alene, Idaho for its
research and development requirements. The Company is evaluating various
technologies related to cooling towers, heat rejection rates, water reuse,
disinfection, water treatment and product design at this facility. The
facility is staffed by one employee as of December 31, 1997. The Company
plans to continue research and refinement programs at its facility but has
no fixed research and development budget. For the fiscal years ended
December 31, 1997 and 1996, the Company expended $147,895 and $129,984,
respectively, for research and development.
NEW BUSINESSES
On October 15, 1997, the Company announced that PSI, in conjunction
with two non-affiliated companies, had entered into an agreement with the
inventor of certain patented electro-disinfection technology in the non-
chemical water treatment industry to market this technology in fiberglass
modular cooling towers and industrial cooling towers. Although the Company
could have extended this agreement, the Company allowed such agreement to
expire on December 31, 1997. The Company is pursuing other technologies
with various organizations to provide cleaner water and provide better
control over biological hazards such as legionella and tuberculosis, and
improve "sick building syndrome". There can be no assurance that Company
will be successful in acquiring such technology or that the technology will
perform as expected.
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GOVERNMENTAL REGULATION
The Company is subject to the requirements of a number of federal,
state and local laws, such as the federal Occupational Safety and Health
Act ("OSHA") in the construction and manufacturing of the cooling towers,
the Department of Transportation ("DOT"), the Federal Aviation
Administration ("FAA"), the Environmental Protection Agency ("EPA") and
various state regulatory agencies. The Company endeavors to comply with all
state and federal laws and believes that it is in compliance with all
applicable federal, state and local regulations applicable to it, including
environmental regulations.
COMPETITION
The market for cooling towers is extremely competitive worldwide.
There are approximately 10 manufacturers of new industrial cooling towers
in the United States. There are approximately 15 regional companies
providing retrofits and repair services. The Company's primary competitors
internationally consist of the same competitors with which the Company
competes in the United States. Additionally, there are 10-15 companies
which compete regionally on an international basis with the Company's
products and services.
The two largest competitors on a worldwide basis are the Marley
Cooling Tower Co., a division of United Dominion Industries Limited based
in the United States, and Hamon Cooling Towers, a division of the Hamon
Group of Belgium. Collectively, these two companies account for
approximately 50% of the worldwide industrial cooling tower market.
A number of the Company's competitors are substantially larger in size
than the Company and have greater financial, operating and other resources.
Many of these competitors have been in business for a number of years and
are well established in the industry.
In addition, a number of the aforementioned competitors manufacture
and market cooling towers employing fiberglass, wood and concrete materials
which are similar to the Company's products. Management believes that the
Company's products provide superior value to the customer through service,
performance and operating efficiencies. There can be no assurance that
competitors will not develop and produce products which are comparable or
superior to the Company's product line.
EMPLOYEES
As of December 31, 1997, the Company employed 52 full time individuals
in the fields of engineering, management, marketing, accounting, finance,
drafting, design, construction, law and administrative support throughout
its operations. There were 40 individuals at its corporate headquarters in
Lakewood, Colorado; five full time employees located at its shop facilities
in Denver, Colorado; one employee at its research and development facility
in Coeur d'Alene, Idaho and six construction superintendents located at
various sites in the field. The Company also
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contracted with four independent contractors as of December 31, 1997. The
Company employs a service organization and local labor halls to provide
crewing levels for its construction projects in the field where the
erection of the tower is within the Company's scope of work. These crews
have ranged from approximately 30 to 170 individuals and fluctuates in
accordance with the total number of projects requiring field installation
at any given time. Only crews on selected jobs where union representation
is mandatory are subject to a collective bargaining agreement. The Company
believes that relations with its employees are good.
CUSTOMERS
The Company did not have a major customer accounting for more than 10%
of its revenues for the year ended December 31, 1997. During 1996, three
separate projects with Bechtel accounted for more than 10% of the Company's
revenues. From time to time, the Company may have projects that exceed the
10% revenue threshold for defining a major customer. Because each
construction project is awarded independently from other projects,
management does not believe that the completion of the contractual
arrangements with any major customer that may arise will have a material
adverse effect on the Company.
The Company has experienced some seasonality in the business over the
past few years. In general, the fourth calendar quarter of the year has
experienced higher revenues and higher operating income that the other
calendar quarters. Management attributes some of this to cooling tower
projects following the warmer summer months and to end of the year capital
budgets of customers.
ITEM 2. DESCRIPTION OF PROPERTY.
Effective March 10, 1998, the Company and George A. Kast, President
and CEO, entered into a triple-net lease for a 35,560 square foot office
building in Golden, Colorado for the Company's expanding office space
requirements. The lease commits the Company to pay rent on 22,560 square
feet and for Mr. Kast to pay rent on the remainder. Commencing May 1,
1998, the Company's monthly rent is $20,680, with such rent escalating to
$22,560 for calendar year 1999 and $24,440 for calendar year 2000. In
addition, it is estimated that the Company's operating expenses will
approximate $14,000 per month. The lease also provides Mr. Kast with the
option to purchase the building on or before December 31, 2000.
Through March 15, 1998 at which time the Company relocated to its
Golden offices as noted above, the Company's principal offices were located
in Lakewood, Colorado and consisted of approximately 12,260 square feet of
office space which was occupied pursuant to a 60 month lease with an
unaffiliated entity and which expires on October 31, 1999. Although there
can be no assurance, management believes that it will be able to sublet the
Lakewood offices at a rate comparable to its current lease obligations.
The Company leases approximately 17,700 square feet from an
unaffiliated entity in Denver, Colorado and which is utilized for light
structural fabrication, component storage and centralized
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warehousing for tools and equipment. The facility was leased from January
6, 1997 through January 5, 1998 and the Company is currently leasing the
facility on a month-to-month basis. The Company does not anticipate
modifying these terms or the operation in the immediate future. Management
believes that the lease on this facility can be renewed and/or additional
space secured without substantial economic implications. This facility
provides the Company with the flexibility for light fabrication in order to
achieve pricing leverage with existing suppliers, quick turnarounds for
selected jobs and quality control for the structural components.
The Company leases a 5,000 square foot research and development
facility in Coeur d'Alene, Idaho from its principal stockholder, George A.
Kast. The facility is subject to a lease from October 1, 1996 to September
30, 2001. The lease terms obligate the Company to a monthly payment of
$1,238.
Management believes that the Company's insurance policies provide
adequate coverage for the contents at all facilities. The lessor of each of
the Company's leased facilities is responsible for the building structure
itself. The Company could have material adverse consequences if its
facilities were destroyed by fire or other disaster without a recovery
system in place.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated for which the Company anticipates a material risk of
loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1997. However, in October 1997, the Company
approved (i) an amendment to the Company's Certificate of Incorporation to
change the name from Fi-Tek VI, Inc. to Global Water Technologies, Inc. and
(ii) an increase in the number of authorized shares of Common Stock from
500,000,000 shares, $.00001 par value, to 800,000,000 shares, $.00001 par
value. The amendments to the Company's Certificate of Incorporation were
approved by a majority of the outstanding shares of Common Stock, by
consent, without calling a meeting of all of the Company's shareholders,
pursuant to applicable provisions of the General Corporate Law of Delaware.
The Company did not provide its shareholders with an annual report
for the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock began trading on the
Over the Counter Bulletin Board during the third quarter of fiscal 1994.
The following table sets forth the high and low bid prices for the
Company's Common Stock for the past two years. The quotations reflect
inter-dealer prices, with retail mark-up, mark-down or commissions, and may
not represent actual transactions. The information presented has been
derived from the National Quotation Bureau, Inc. Library.
High Low
Bid Bid
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1996 Fiscal Year
----------------
First Quarter . . . . . . . . . . . . . . . . . $.01 $.01
Second Quarter. . . . . . . . . . . . . . . . . $.01 $.01
Third Quarter . . . . . . . . . . . . . . . . . $.01 $.01
Fourth Quarter. . . . . . . . . . . . . . . . . $.01 $.01
1997 Fiscal Year
----------------
First Quarter . . . . . . . . . . . . . . . . . $.01 $.01
Second Quarter. . . . . . . . . . . . . . . . . $.01 $.01
Third Quarter . . . . . . . . . . . . . . . . . $.08 $.01
Fourth Quarter. . . . . . . . . . . . . . . . . $.08 $.04
1998 Fiscal Year
----------------
First Quarter (through March 20, 1998). . . . . $.08 $.03125
On March 20, 1998, the last reported bid and asked prices for the
Common Stock were $.075 and $.09, respectively. No quotations are available
for the Class A and Class B Warrants.
HOLDERS. As of March 1, 1998, the Company had approximately 71
holders of record of the Company's Common Stock.
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<PAGE>
DIVIDENDS. The payment of dividends by the Company is within the
discretion of its Board of Directors and depends in part upon the Company's
earnings, capital requirements, debt covenants and financial condition.
Since its inception, the Company has not paid any dividends on its Common
Stock and does not anticipate paying such dividends in the foreseeable
future. The Company intends to retain earnings, if any, to finance its
operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Global Water Technologies, Inc. (the "Company"), primarily through its
wholly owned subsidiary, Psychrometric Systems, Inc. ("PSI"), is in the
business of designing, selling, manufacturing and building industrial
cooling towers, repairs and maintenance in the retrofit of existing
industrial cooling towers and cooling tower components for these and
similar facilities. The Company primarily markets its products and services
worldwide to the following industries: electric power utilities; process
(such as agricultural, industrial and pharmaceutical process industries);
petrochemical; chemical; heating, ventilation and air-conditioning
("HVAC"); manufacturing; pulp & paper and other industries utilizing
cooling towers. Typical customers include companies such as Archer Daniels
Midland, Amoco, Mitsubishi, Mobil, Texaco, Bechtel, Fluor Daniel and other
large corporations around the world.
The Company derives revenue from the following principal sources: new
cooling tower sales, retrofits to existing cooling tower construction
repair projects and spare parts and supplies to existing cooling tower
customers. The Company custom designs and constructs wooden, fiberglass and
concrete towers for its customer base worldwide.
The Company recognizes engineering and construction contract revenues
using the percentage-of-completion method, based primarily on contract
costs incurred to date compared with total estimated contract costs.
Contracts on new cooling towers are segmented between types of services,
such as engineering and construction, and accordingly, gross margin related
to each activity is recognized as those separate services are rendered.
Changes to total estimated contract costs and to contract revenues via
change orders are recognized in the period in which they are determined.
In addition, a provision is made for the entire amount of future estimated
losses, if any, on contracts in progress in the period in which such losses
are determined.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues were derived from engineering, construction, retrofits
and spare parts of cooling towers. For the year ended December 31, 1997,
total tower revenue increased 13.2% to
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$18,697,292 as compared to $16,520,544 for the year ended December 31,
1996. International revenues comprised 20.2% of total revenues in 1997
versus 11.6% in 1996, with such increase resulting from increased emphasis
on the international market. In 1997, the Small Business Administration
named the Company's PSI subsidiary as Small Business Exporter of the Year
for Region VIII which includes Colorado, Montana, North Dakota, South
Dakota, Utah and Wyoming.
Contracts awarded ("bookings") during 1997 increased 61.6% to
$24,163,772 from $14,955,222 in 1996. These amounts included international
bookings of $8,749,532 in 1997 (36.2% of total) and $2,496,168 in 1996
(16.7% of total). Management believes that foreign opportunities will
continue to play an important role in future periods and that the Company
will not be adversely affected by the current economic conditions in Asia.
The increase in bookings awarded is due to an overall increase in the
number of projects won, an increase in the average dollar amount of the
contract awarded, and increased selling expenses to take advantage of
market opportunities. Backlog increased from $6,139,765 at December 31,
1996 to $11,606,245 at December 31, 1997.
The Company's cost of construction increased 7.1% from $12,654,634 in
1996 to $13,547,484 in 1997. As a percentage of revenues, cost of
construction decreased from 76.6% in 1996 to 72.5% in 1997. The absolute
increase in cost of construction resulted from a 13.2% increase in
corresponding revenues, net of cost efficiencies from project management
cost controls. Due to significant competition, there can be no assurance
that the Company can maintain its profit margins in the future.
Selling, general and administrative expenses increased 28.8% from
$3,130,378 in 1996 to $4,031,159 in 1997. As a percentage of revenues,
these expenses increased from 18.9% in 1996 to 21.6% in 1997 as the company
continues to make an investment in its future. However, as a percentage of
new bookings which increased 61.6%, these expenses actually decreased from
20.9% in 1996 to 16.7% in 1997. In support of greater bookings, the
overall increase in selling, general and administrative expense primarily
occurred in two areas. The first was in personnel related costs, primarily
from an increase in number of staff. The second occurred in such areas as
travel related to international sales opportunities and increased
participation in national and international trade shows. Management
believes that the increases in selling expenses will continue to have a
positive impact on the increase in bookings and the recognition of the
related revenues for future periods.
Research and development costs increased 13.8% to $147,895 in 1997
from $129,984 in 1996. These costs include the research and development
facility in Idaho and the expenses associated with the Company's
diversification effort into water treatment and water purification.
Operating income, based on the explanations noted above, increased
60.3% from $605,548 or 3.7% of revenues in 1996 to $970,754 or 5.2% of
revenues in 1997.
Other income and expense primarily consisted of interest expense,
which declined slightly, related to the Company's various debt financings.
Income taxes increased from $154,453 with an effective 33.5% tax rate in
1996 to $273,878 with an effective tax rate of 32.4% in 1997.
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<PAGE>
Net income increased 86.6% from $305,984 in 1996 to $570,982 in 1997.
Both basic and fully diluted income per share increased from $0.001 in 1996
to $0.002 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $1,223,939 as
compared to working capital of $757,018 at December 31, 1996. The working
capital increase is mainly due to a net increase in costs and estimated
earnings on uncompleted contracts and an increase in inventories from
December 31, 1996 to December 31, 1997. An increase in trade accounts
receivable was substantially offset by a corresponding increase in trade
accounts payable. The Company's cash flow provided by and used in its
operating, investing and financing activities are summarized as follows:
Year Ended December 31,
1997 1996
---- ----
Operating activities $ 484,098 $ 636,013
Investing activities (191,172) (269,667)
Financing activities (235,627) (330,045)
---------- ----------
Net increase in cash $ 57,699 $ 36,301
========== ==========
The Company's capital requirements for its continuing operations
consist of its general working capital needs, increased lease obligations
as described in ITEM 2. DESCRIPTION OF PROPERTY hereof, scheduled payments
on its debt obligations and capital expenditures. Management anticipates
that the Company's operating activities in the future will continue to
provide cash even though the investment in receivables, inventory and costs
and estimated earnings in excess of billings is expected to increase as
sales volume increases. The Company tries to minimize its investment in
these working capital components, but as sales and backlogs increase,
management believes that these investments will also increase.
Scheduled principal payments on term loans will total $137,865 during
the fiscal year ended December 31, 1998 with Norwest Bank and other
financial institutions. A portion of the term loans outstanding is
guaranteed by the Small Business Administration and subjects the Company to
certain financial covenants. These covenants include minimum net worth
requirements, limitations on capital withdrawals from the Company and
collateral claims on substantially all of the Company's assets. The total
amount of the Small Business Administration guaranteed term loan
outstanding at December 31, 1997 was $199,841. Principal payments of
$8,334 plus interest on the outstanding balance are due and payable each
month. Interest is calculated at the prime rate of interest plus one
percent. The prime rate will change periodically as economic conditions in
the general economy fluctuate. At December 31, 1997 the interest rate used
for interest payments was 9.5%. The bank has the right to accelerate
payment on any or all of the principal outstanding if the financial
covenants are not maintained. If the bank exercised this right, it would
have a material adverse effect on the Company and its financial position.
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<PAGE>
The Company has a revolving line of credit with Norwest Bank in the
amount of $1,025,000 of which $745,000 was outstanding at December 31,
1997. The line of credit bears interest at a rate of 7.75% rate and bears
no annual commitment fee. The line of credit is due January 3, 1999. The
line of credit and the SBA term loan above are secured by cash collateral
of $928,942 at December 31, 1997, of which the Company's portion is
$222,836 and the remainder is pledged by Michael A. Kast, one of the
Company's stockholders. As compensation for pledging the cash collateral,
the Company pays additional interest to Michael A. Kast. See ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Management believes that
the Company's short-term debt can be refinanced at comparable or better
terms when the debt becomes due.
The Company has various loans secured by Company vehicles. At
December 31, 1997, the total amount outstanding was $116,981 for seven
individual bank obligations. The short-term principal payments obligations
for the fiscal year ended December 31, 1998 will be $37,857 for these
loans.
In total, as of December 31, 1997, the Company had outstanding loans
from commercial lenders of $1,061,823 and had $137,000 outstanding in
letters of credit. The unused availability under the line-of-credit as of
this date was $143,000.
In regard to its diversification effort, the Company plans to develop
and/or acquire proprietary or patented non-chemical water treatment
technology to provide cleaner water and provide better control over
biological hazards such as legionella and tuberculosis, and improve "sick
building syndrome". There can be no assurance that the technology which
the Company is pursuing will perform as expected. The Company anticipates
that the new business opportunity will require cash resources in 1998, and
that such business will commence generating revenues in 1998.
In March 1998, the Company secured two additional financings through
Norwest Bank, Lakewood, CO. These included (a) a $475,000 Small Business
Administration 75% guaranteed loan maturing in June 2003 and (b) a
$1,000,000 Export-Import Bank 90% guaranteed credit agreement (primarily
related to eligible foreign accounts receivable and inventory) maturing in
March 1999. Both financings bear interest at 1.0% above prime rate.
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not experienced material unfavorable effects on its
results of operations due to currency exchange fluctuations with its
foreign customers or material unfavorable effects upon its results of
operations as a result of domestic inflation.
YEAR 2000 ISSUE
The Company's management does not believe that the Company will be
materially adversely affected by the computer software Year 2000 issue.
The Company has a relatively small number of transactions with its select
customer base and does not have significant exposure to the Year 2000
issue. The Company's vendors and suppliers may have some exposure to the
issue but at this time, management does not anticipate a material adverse
impact on the Company's operations.
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<PAGE>
FORWARD LOOKING INFORMATION
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. As with
any future event, there can be no assurance that the events described in
forward looking statements made in this report will occur or that the
results of future events will not vary materially from those described in
the forward looking statements made in this document. Important factors
that could cause the Company's actual performance and operating results to
differ materially from the forward looking statements include, but are not
limited to, changes in the general level of economic activity in the
markets served by the company, competition in the cooling tower industry
and other industries where the Company markets its products and the
introduction of new products by competitors in those industries, delays in
refining the Company's manufacturing and construction techniques, cost
overruns on particular projects, availability of capital sufficient to
support the Company's level of activity and the ability of the Company to
implement its business strategy.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements set forth on pages F-1 to F-18 of this Report
are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company's principal independent accountants did not resign or
decline to stand for re-election nor were they dismissed during the
Company's two most recent fiscal years. The Company's financial statements
for the year ended December 31, 1997 were audited by Comiskey and Company,
P.C., which had been the auditor for the registrant, Global Water
Technologies, Inc. (formerly known as Fi-Tek VI, Inc.), prior to the
reverse acquisition of PSI.
The financial statements of PSI as of and for the year ended December
31, 1996, which have been presented in comparative form with the current
year consolidated financial statements, were audited by Bauerle and
Company, P.C. There have been no disagreements between PSI and Bauerle and
Company, P.C. on matters of accounting and financial disclosure.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following sets forth certain information with respect to the
officers and directors of the Company.
Name Age Position Officer or Director Since
- ---- --- -------- -------------------------
George A. Kast 40 President, Chief Executive 1997
Officer and Chairman of the
Board
Gary L. Brown 41 Chief Operating Officer, 1997
Secretary and General Counsel
Robert L. Tomz 54 Vice President of Finance, 1998
Chief Financial Officer,
Treasurer and Director
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected annually
by the Board of Directors and hold office until their successors are
elected and qualified.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five
years.
GEORGE A. KAST, the founder, officer and director of PSI, has been an
officer and director of the Company since the Company's acquisition of PSI
in September 1997. Prior to forming PSI, from 1983 to 1992, Mr. Kast was
the vice-president of GEA/Thermal-Dynamic Towers, Inc. ("TDT"), Lakewood,
Colorado where he was responsible for all marketing activities and directly
experienced in design and project management of cooling towers, including
the design and creation of the pultruded fiberglass structural cooling
towers.
GARY L. BROWN has been Chief Operating Officer and General Counsel of
PSI since 1996 and became an officer of the Company when the Company
acquired PSI in September 1997. From 1993 to 1996, he was the general
counsel of Fischbach Corporation, which included Fischbach & Moore, Natkin
& Company, Ficon Corporation and Fischbach Power Services, among others.
Prior to joining the Fischbach companies, Mr. Brown was engaged in private
practice for ten years with the firm of Gorsuch, Kirgis, Campbell, Walker
& Grover in Denver, Colorado. Mr. Brown received
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a B.S.J. degree from the University of Kansas in journalism in 1979 and a
J.D. degree from Washburn University in 1983.
ROBERT L. TOMZ joined the Company in January 1998. From 1992 through
1997, Mr. Tomz was the vice president of finance and chief financial
officer of Ketema, Inc., Denver, Colorado, a publicly held company which
was taken private in a leveraged buyout in December, 1994. Mr. Tomz
received a B.S. degree in accounting from Marquette University, Milwaukee,
Wisconsin in 1965. He is a certified public accountant and a member of the
American Institute of Certified Public Accountants and the Financial
Executives Institute.
The Company presently has no audit/systems committee nor a
compensation committee.
SIGNIFICANT EMPLOYEES
The following employees make a significant contribution to the
business of the Company.
JOHN H. BEVAN, age 46, was secretary/treasurer of PSI from 1993 to
1997 and is presently the Company's controller. From 1989 to joining PSI
in 1993, Mr. Bevan was the controller for TDT. He received a B.S. degree
in finance in 1974 and a M.B.A. degree in 1975 from the University of
Colorado.
MICHAEL A. KAST, age 41, has been the director of projects and a
director of PSI since 1993. He is currently a senior vice president of
PSI. From 1983 to 1992, he was the founder and former president of TDT. He
is responsible for all of the Company's business activities including
labor, construction, erection, reconstruction and new towers.
STEVE D. ADAMS, age 37, was the director of applications and projects
at TDT from 1992 to 1994 and the product manager for new tower and
engineering manager at Custodis-Ecodyne, Inc., Santa Rosa, California from
1988 to 1992, where he was product manager for new tower and engineer
manager. Mr. Adams joined PSI in 1994 and is currently vice president-
applications. His responsibilities include new tower design, estimating
and testing. He received a B.S. degree in chemical engineering from the
University of Missouri in 1983.
MARTIN E. HOUT, age 42, has been employed by PSI since 1995. He is
currently vice president of finance for the Company's wholly owned
subsidiary, Advanced Oxidation Technologies, Inc. Prior to his association
with PSI, he was the president of International Consulting Associates,
Inc., Lakewood, Colorado from 1994 to 1995, and from 1993 to 1994, a
financial officer at GAC Technologies, a manufacturing subsidiary of Golden
Aluminum Co., a subsidiary of ACX Technologies, Inc., Golden, Colorado.
From 1988 to 1993, he was controller of a subsidiary of Golden Aluminum Co.
Mr. Hout joined the Company in 1995 as chief planning officer and is
responsible for acquisition analysis, investor relations and planning. Mr.
Hout received a B.A. degree from the University of Illinois in 1979 and a
M.B.A. degree in international finance from the University of Denver in
1991. He is a certified public accountant in Colorado and Illinois.
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<PAGE>
WILLIAM W. HOWARD, age 40, was structural design manager for TDT from
1990 to 1993 when he joined PSI. In 1991, he was the committee chairman
for the Redwood, Douglas Fir and Fastener Specifications Standards
committee of the Cooling Tower Institute. As vice president of engineering
of PSI, his responsibilities include the analysis and design of all
structural members and joints, proposal reviews, project engineer and
directing new tower project managers. He received a B.S. degree in
architectural engineering, structures from the University of Colorado in
1982.
TIMOTHY P. KAST, age 33, has been the director of research and
technology at PSI's Coeur d'Alene facility in Idaho since 1993. From 1990
to 1993, he was the chief engineer and project designer for TDT where he
led an interdisciplinary team of engineers in the development, design,
analysis, field support and testing of industrial evaporative cooling
towers and assorted equipment. He is currently vice president of
technology for Advanced Oxidation Technologies, Inc. He received a B.S.
degree and a M.S. degree in chemical engineering in 1986 and 1989 from the
University of Idaho and is pursuing his Ph.D. in chemical engineering from
the same institution.
FAMILY RELATIONSHIPS
There are no family relationships between the officers and directors
of the Company; however, George A. Kast's sister, Kelli C. Kast, is
married to Gary L. Brown's brother. Kelli C. Kast is the Assistant General
Counsel for the Company.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No officer, director, significant employee, promoter or control person
of the Company has been involved in any event of the type described in Item
401(d) of Regulation S-B during the past five years.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during
the year ended December 31, 1997:
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Annual Compensation ($$) Restricted
Name and ------------------------ Stock Options Other
Position Year Salary Bonus Awards(4) & SARs(4) Compensation
- -------- ---- ------ ----- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
George A. Kast, 1997 $166,438 $ 7,023 -0- -0- $ 13,618(1)
President and Chief 1996 $124,000 46,368 -0- -0- $ 4,926(1)
Executive Officer 1995 $ 75,000 -0- -0- -0- -0-
Gary L. Brown 1997 $125,000 $ 25,000 -0- -0- -0-
Secretary and 1996 $125,000(2) $ 791(3) -0- -0- -0-
General Counsel 1995 -0- -0- -0- -0- -0-
</TABLE>
_________________________
(1) Represents rental payments made to Mr. Kast for the Coeur d'Alene
research and development center.
(2) Mr. Brown joined PSI in April 1996; thus, salary shown is annualized.
(3) PSI issued Mr. Brown 408 shares of PSI's common stock (which was
exchanged for 5,233,807 shares of the Company's Common Stock and
20,023 shares of the Company's preferred stock) as a bonus upon his
employment by PSI in 1996.
(4) No long-term compensation was awarded.
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS.
Members of the Company's Board of Directors are not compensated in
their capacities as Board Members. However, the Company reimburses all of
its officers, directors and employees for accountable expenses incurred on
behalf of the Company.
OTHER ARRANGEMENTS. The Company has no other arrangements pursuant to
which any director of the Company was compensated during the year ended
December 31, 1997, for services as a director.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None of the Company's officers presently have employment agreements
with the Company.
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<PAGE>
REPORTING ON REPRICING OF OPTIONS/SARS
Not applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock.
Name and Address Amount and Nature of
of Shareholder Beneficial Ownership (1) Percent of Class
- -------------- ------------------------ ----------------
George A. Kast 231,310,108 78.7%
1767 Denver West Boulevard
Golden, Colorado 80401
Gary L. Brown 5,233,807 1.8%
1767 Denver West Boulevard
Golden, Colorado 80401
Robert L. Tomz 4,000,000 1.3%
1767 Denver West Boulevard
Golden, CO 80401
All Directors and Executive 240,543,915 81.8%
Officers as a group (3 persons)
_________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule 13d-
3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed.
CHANGES IN CONTROL
There are no understandings, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
In January 1993, PSI issued 8,000 shares of PSI's common stock
(102,623,675 shares of the Company's Common Stock) to George A. Kast for
$190,000 in cash and $10,000 in equipment, furniture and fixtures. The
cash portion of Mr. Kast's contribution was paid $71,000 by March 31, 1993
and $119,000 by April 30, 1993. Mr. Kast purchased an additional 2,540
shares of PSI's common stock (32,583,015 shares of the Company's Common
Stock) for $63,500 in cash on September 30, 1993, and an additional 8,000
shares of PSI's common stock (102,623,675 shares of the Company's Common
Stock) for $200,000 in cash in December 1993.
In January 1994, Michael A. Kast, a stockholder of PSI, pledged
certificates of deposit in the amount of $500,000 to a bank to secure a
credit line for the Company. In consideration for such pledge, PSI agreed
to pay Michael A. Kast interest at an annual rate of 7.65% for one year.
In August 1994, the Company paid Michael A. Kast $5,000 and issued him 200
shares of PSI's preferred stock as additional consideration for pledging
the loan collateral. This preferred stock was redeemed in 1997. The
collateral balance as of December 31, 1997 was $ 706,106. The total amount
of interest paid by the Company was $49,875 and $48,784 for the years ended
December 31, 1996 and 1997, respectively.
In 1996, Gary L. Brown was issued 408 shares of PSI's common stock
(5,233,807 of the Company's Common Stock), valued at $791, as a bonus in
connection with his employment with PSI. Also in 1996, Michael A. Kast and
Timothy P. Kast received 1,020 and 408 shares, respectively, of PSI's
common stock (13,084,518 and 5,233,807 shares of the Company's Common
Stock, respectively) for services rendered, valued at $1,978 and $791,
respectively.
In October 1996, PSI entered into a lease arrangement with its
principal shareholder, George A. Kast. The Idaho building encompasses 3,200
square feet of office space and 1,800 square feet of wet laboratory. These
facilities are being leased at a monthly rate of $1,238.
In June 1997, PSI loaned $2,000 to Motion Marine, Inc., a subchapter
S corporation owned by PSI's principal shareholder, George A. Kast. The
note carried an interest rate of 10% per annum and the principal amount of
the note and accrued interest and was repaid on September 4, 1997.
In February 1997, PSI loaned George A. Kast $200,000 with interest at
8%. The loan was approved by the directors and shareholders of PSI. In
October 1997, Mr. Kast repaid the loan in full.
George A. Kast has personally guaranteed the Company's obligations
(approximately $1,225,000 as of December 31, 1997) with financial
institutions, including the Company's SBA term loan. In addition, as of
December 31, 1997, Mr. Kast had personally guaranteed approximately
$4,200,000 of Company obligations with bonding companies.
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<PAGE>
PARENTS OF THE COMPANY
See the information set forth above under ITEM 9. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS and ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
TRANSACTIONS WITH PROMOTERS
Not applicable.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-KSB:
Consolidated Financial Statements of Global Water Technologies,
Inc.:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years ended December
31, 1997 and 1996
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December
31, 1997 and 1996
Notes to Consolidated Financial Statements - December 31, 1997
and 1996
Exhibits required to be filed are listed below and, except
where incorporated by reference, immediately follow the
Financial Statements.
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation, dated July 12, 1990 (1)
3.2 Certificate of Designations of Preferred Stock, filed with
the State of Delaware on September 25, 1997
3.3 Certificate of Amendment to the Certificate of Incorporation,
filed with the State of Delaware November 5, 1997
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<PAGE>
3.4 Bylaws (2)
3.5 Amendment to the Bylaws, dated September 12, 1997
10.1 Plan and Agreement or Reorganization, dated September 12, 1997,
between the Registrant and Psychrometric Systems, Inc. (3)
10.2 Lease Agreement, dated September 21, 1994, between
Psychrometric Systems, Inc. and Golden Hill Partnership
10.3 Lease Agreement, dated December 27, 1996, between Psychrometric
Systems, Inc. and N. R. Petry Co.
10.4 Lease Agreement, dated October 1, 1996, between George A. Kast
and Psychrometric Systems, Inc.
10.5 Sublease Agreement, dated March 10, 1998, by and between The
Coleman Company, Inc., Global Water Technologies, Inc. and
George A. Kast
21 Subsidiaries of the Company
27 Financial Data Schedule
_____________
(1) Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(2) Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(3) Incorporated by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1997.
(b) During the quarter ended December 31, 1997, the Company filed
Current Reports on Form 8-K as follows:
(i) Form 8-K, dated September 25, 1997, reporting the
consummation of the acquisition of all of the issued and
outstanding shares of Psychrometric Systems, Inc. by the
Company pursuant to Item 2 thereof. The audited financial
statements of PSI for the fiscal year ended December 31,
1996 were included in this Report.
(ii) Form 8-K, dated October 7, 1997, reporting developments in
the Company's business under Item 5 thereof.
(iii) Form 8-K, dated November 5, 1997, reporting the Company's
name change
-24-
<PAGE>
and resignation of the Company's Chief Financial Officer
under Item 5 thereof.
(c) Required exhibits are attached hereto or are incorporated
by reference and are listed in Item 13(a)(3) of this
Report.
(d) Required financial statements are attached hereto and are
listed in Item 13 of this Report.
-25-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: March 24, 1998 GLOBAL WATER TECHNOLOGIES, INC.
By /s/ George A. Kast
--------------------------------
George A. Kast,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ George A. Kast President, Chief Executive March 24, 1998
- ----------------------- Officer, (Principal Executive
George A. Kast Officer) and Chairman of the Board
/s/ Robert L. Tomz Vice President of Finance, March 24, 1998
- ----------------------- Chief Financial Officer,
Robert L. Tomz (Principal Financial Officer)
and Director
/s/ Gary L. Brown Secretary and General March 24, 1998
- ----------------------- Counsel
Gary L. Brown
/s/ John H. Bevan Controller (Principal March 24, 1998
- ----------------------- Accounting Officer)
John H. Bevan
-26-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
GLOBAL WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Comiskey and Company, P.C. Independent Certified
Public Accountants. . . . . . . . . . . . . . . . . . . . . . . .F-2
Report of Bauerle and Company, P.C. Independent Certified
Public Accountants. . . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Operations
For Years Ended December 31, 1997 and 1996. . . . . . . . . . . .F-4
Consolidated Balance Sheets As of December 31, 1997 and 1996 . . . . .F-5
Consolidated Statements of Cash Flows
For Years Ended December 31, 1997 and 1996. . . . . . . . . . . .F-6
Consolidated Statements of Stockholders' Equity
For the Years ended December 31, 1997 and 1996. . . . . . . . . .F-7
Notes to Consolidated Financial Statements
December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . .F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Global Water Technologies, Inc.
We have audited the consolidated balance sheet of Global Water
Technologies, Inc. as of December 31, 1997, and the related consolidated
statements of operations, cash flows, and stockholders' equity for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of
Psychrometric Systems, Inc. as of December 31, 1996, presented herein in
comparative form with current year consolidated statements were audited by
other auditors whose report dated March 1, 1997, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as, evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects the consolidated financial position of
Global Water Technologies, Inc. as of December 31, 1997 and the results of
its operations, cash flows, and changes in stockholders' equity for the
year then ended in conformity with generally accepted accounting
principles.
Denver, Colorado
February 27, 1998 (except as to Note 17,
which is dated March 19, 1998)
COMISKEY & COMPANY, P.C.
PROFESSIONAL CORPORATION
F-2
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
Board of Directors
Psychrometric Systems, Inc.
We have audited the accompanying balance sheet of Psychrometric
Systems, Inc., as of December 31, 1996, and the related statements of
operations, retained earnings (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Psychrometric
Systems, Inc., as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Our audit was made primarily for the purpose of forming an opinion on
the basic financial statements taken as a whole. The accompanying
supplementary financial information is not considered necessary for a fair
presentation of the basic financial statements and is presented for
analytical purposes only. The supplementary information was derived from
the accounting records tested by us as part of our audit of the
aforementioned financial statements, and in our opinion is fairly stated in
all material respects in relation to the basic financial statements taken
as a whole.
/s/ Bauerle and Company, P.C.
Bauerle and Company, P.C.
March 1, 1997
F-3
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Construction revenues:
United States $ 14,919,866 $ 14,602,363
International 3,777,426 1,918,181
------------ ------------
Total revenues 18,697,292 16,520,544
------------ ------------
Costs and expenses:
Cost of construction 13,547,484 12,654,634
Selling, general and administrative 4,031,159 3,130,378
Research and development 147,895 129,984
------------ ------------
Total costs and expenses 17,726,538 15,914,996
------------ ------------
Operating income 970,754 605,548
Other income (expense):
Interest expense, net (123,072) (145,758)
Other, net (2,822) 647
------------ ------------
Income before income taxes 844,860 460,437
Income taxes 273,878 154,453
------------ ------------
Net income $ 570,982 $ 305,984
============ ============
Income per share:
Basic weighted average shares
outstanding 270,014,801 255,526,642
Basic income per share $ 0.002 $ 0.001
============ ============
Fully diluted weighted average
shares outstanding 270,126,740 255,526,642
Fully diluted income per share $ 0.002 $ 0.001
============ ============
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 AND 1996
1997 1996
---- ----
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 118,887 $ 61,188
Trade accounts receivable, net of
allowance for doubtful accounts of
$50,000 and $10,000, respectively 3,937,645 3,002,928
Other receivables 16,097 52,434
Costs and estimated earnings in excess
of billings or uncompleted contracts 2,695,782 1,986,163
Income taxes receivable 34,995 ---
Inventories 380,128 163,816
Prepaid expenses 126,031 111,847
---------- ----------
Total current assets 7,309,565 5,378,576
---------- ----------
Property and equipment, net 604,578 572,096
Intangibles, net of amortization 52,250 ---
Deposits 13,086 9,096
Restricted assets, certificate of deposit 222,836 211,369
---------- ----------
$8,202,315 $6,170,937
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 137,865 $ 135,539
Accounts payable 4,685,568 3,700,899
Accrued liabilities 638,821 465,028
Billings in excess of costs and
estimated earnings on uncompleted
contracts 499,594 152,579
Income taxes payable --- 167,513
Deferred income taxes 123,778 ---
---------- ----------
Total current liabilities 6,085,626 4,621,558
---------- ----------
Long-term debt 923,958 1,165,515
Deferred income taxes 190,417 6,136
Stockholders' equity:
Preferred stock, 0.001 par value,
20,000 shares authorized; 1,000,000
shares issued and outstanding 1,000 1,000
Preferred stock, no par, 50 shares
authorized, issued and outstanding
as of December 31, 1996 only --- 5,000
Common stock, 0.0001 par value;
800,000,000 shares authorized;
294,050,000 and 261,382,500 shares
issued and outstanding, respectively 29,405 26,138
Capital in excess of par value 495,259 439,922
Retained earnings (deficit) 476,650 (94,322)
---------- ----------
Total stockholders' equity 1,002,314 377,728
---------- ----------
$8,202,315 $6,170,937
========== ==========
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 570,982 $ 305,984
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 142,223 99,428
Amortization 2,750 ---
Loss on sales of fixed assets --- 1,276
Increase (decrease) in deferred
income taxes 308,059 (20,250)
(Increase) decrease in working capital:
Trade accounts receivable (934,717) 1,955,225
Other receivables 36,337 (37,286)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (709,619) (630,250)
Income taxes receivable (34,995) ---
Inventories (216,312) (111,439)
Prepaid expenses (14,184) (11,991)
Deposits (3,990) (1,238)
Accounts payable 984,669 (437,691)
Income taxes payable (167,513) 167,513
Accrued liabilities 173,793 (65,954)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 347,015 (577,314)
---------- ----------
Net cash provided by operating
activities 484,498 636,013
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificate of deposit (11,467) (5,841)
Purchase of property and equipment (174,705) (299,826)
Purchase of intangibles (5,000) ---
Collection of stockholder loan --- 36,000
---------- ----------
Net cash (used in) investing
activities (191,172) (269,667)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net changes on the lines-of-credit (103,267) (432,260)
Issuance of common stock 5,604 3,560
Redemption of preferred stock (2,000) ---
Proceeds from issuance of debt --- 264,363
Repayment of debt (135,964) (165,708)
---------- ----------
Net cash (used in) financing
activities (235,627) (330,045)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 57,699 36,301
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 61,188 24,887
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 118,887 $ 61,188
========== ==========
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
PREFERRED STOCK -- SERIES "A" COMMON STOCK CAPITAL IN RETAINED
--------------- --------------- ------------ EXCESS OF EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAR VALUE (DEFICIT) TOTAL
------ ------ ------ ------ ------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 50 $5,000 910,000 $ 910 237,858,075 $23,786 $438,804 $(400,316) $ 68,184
Stock issued
for services,
April 1, 1996 --- --- 90,000 90 23,524,425 2,352 1,118 --- 3,560
Net income --- --- --- --- --- --- --- 305,984 305,984
---- ------ --------- ------ ----------- ------- -------- --------- ----------
BALANCE,
DECEMBER 31, 1996 50 $5,000 1,000,000 $1,000 261,382,500 $26,138 $439,922 $ (94,332) $ 377,728
Redemption of
preferred stock,
September 24, 1997 (50) (5,000) --- --- --- --- 3,000 --- (2,000)
Stock deemed issued
in reverse
acquisition,
September 25, 1997 --- --- --- --- 32,042,500 3,204 2,400 --- 5,604
Stock issued for non-
compete Agreement,
December 15, 1997 --- --- --- --- 625,000 63 49,937 --- 50,000
Net income --- --- --- --- --- --- --- 570,982 570,982
---- ------ --------- ------ ----------- ------- -------- --------- ----------
BALANCE,
DECEMBER 31, 1997 --- $ --- 1,000,000 $1,000 294,050,000 $29,405 $495,259 $ 476,650 $1,002,314
==== ====== ========= ====== =========== ======= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
COMPANY HISTORY
- ---------------
Global Water Technologies, Inc. ("GWTR") was incorporated in the state
of Delaware on July 12, 1990 under its predecessor name of Fi-Tek VI, Inc.
and became a public company in 1992. Until September 25, 1997, GWTR was
considered a development stage company which had not engaged in any
business other than organizational efforts, raising capital and
investigating business opportunities.
On September 25, 1997, GWTR and Psychrometric Systems, Inc. ("PSI")
consummated an Agreement and Plan of Reorganization whereby GWTR acquired
all of the issued and outstanding common shares of PSI in exchange for the
issuance of 261,382,500 shares of GWTR's Common Stock and 1,000,000 shares
of a newly-authorized Series A non-voting preferred stock ("Preferred
Stock"). Each share of Preferred Stock is convertible into 290 shares of
Common Stock upon attainment of gross annual sales of $60,000,000 for GWTR
and its subsidiaries (the "Company"), but only if such annual sales goal is
reported not later than the due date of the Company's Annual Report on Form
10-K for the fiscal year ending in 2002, and is subject to redemption by
the Company at a price of $0.0001 per share in the event the required sales
level is not attained. The Company has accounted for the transaction as a
reverse acquisition under the purchase method of accounting. The fiscal
year of the Company was changed from June 30 to December 31 to correspond
to the fiscal year of PSI.
GWTR, through its wholly owned subsidiary, PSI, is in the business of
designing, selling, manufacturing and building new industrial cooling
towers and in retrofitting existing industrial cooling towers and cooling
tower components.
On November 5, 1997 and subsequent to its reverse acquisition with PSI,
GWTR changed its name from Fi-Tek VI, Inc. to Global Water Technologies,
Inc. to reflect the Company's focus on the growing water-related market
opportunities. The Company's trading symbol was also changed to "GWTR" on
that date.
BASIS OF PRESENTATION
- ---------------------
As a result of the reverse acquisition referred to in the above "Company
History", the consolidated financial statements through September 25, 1997
reflect only the operations of PSI. Subsequent to that date, the
consolidated financial statements include the financial statements of
Global Water Technologies, Inc. and its wholly owned subsidiaries including
PSI. All significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE AND COST RECOGNITION
- ----------------------------
The Company recognizes engineering and construction contract revenues using
the percentage-of-completion method, based primarily on contract costs
incurred to date compared with total estimated contract costs. Contracts
on new cooling towers are segmented between types of services, such as
engineering and construction, and accordingly, gross margin related to each
activity is recognized as those separate services are rendered. Changes to
total estimated contract costs and to contract
F-8
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
revenues via change orders are recognized in the period in which they are
determined. In addition, a provision is made for the entire amount of
future estimated losses, if any, on contracts in progress in the period in
which such losses are determined.
Contract costs include all direct materials, subcontract costs, labor costs
and those indirect costs related to contract performance. Selling, general
and administrative costs are charged to expenses as incurred.
The aggregate of costs incurred and income recognized in excess of related
billings on uncompleted contracts is shown as a current asset, and the
aggregate of billings in excess of related costs incurred and income
recognized on uncompleted contracts is shown as a current liability.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME PER SHARE
- ----------------
The Company adopted FASB Statement No. 128 "Earnings Per Share" retroactive
to January 1, 1996. Income per basic share is computed on the basis of the
weighted average number of common shares outstanding for the respective
periods. Fully diluted income per share was computed using the treasury
stock method on the basis of the weighted average number of common shares
after giving effect to all dilutive potential common shares that were
outstanding during the respective periods. Only 804,250 options as
described in Note 3 were considered dilutive with such effect being only
applicable to the year ending December 31, 1997.
INCOME TAXES
- ------------
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns.
Effective January 1, 1996, the Company filed for a change in accounting
methods. The new tax method, percentage-of-completion, is the same as used
for financial statement purposes. In accordance with IRS regulations, the
deferred income as of December 31, 1995 is being recognized over a four-year
period for tax purposes. The deferred income from the change in
method will be fully recognized by December 31, 1999. The Company also
depreciates its property and equipment on an accelerated method for income
tax purposes. A provision for deferred taxes on these timing differences
has been recorded.
During 1997, the Company established a Foreign Sales Corporation ("FSC") in
the United States Virgin Islands. The new wholly-owned subsidiary will be
used as a commission agent on eligible foreign sales. The eligible sales
which qualify for FSC treatment will generate permanent tax differences for
the Company.
F-9
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
CASH EQUIVALENTS
- ----------------
The Company considers all liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
INVENTORY VALUATION
- -------------------
Inventory is stated at the lower of cost (first-in, first-out method) or
market value. The inventory consists primarily of parts and structural
materials for use on specific future jobs.
PROPERTY AND EQUIPMENT
- ----------------------
The principle categories of equipment include office furniture and
equipment, vehicles, machinery and equipment and leasehold improvements.
Significant additions and improvements are capitalized. Maintenance and
repairs are expensed as incurred. Depreciation of property and equipment
is determined principally on the straight-line method over the estimated
useful lives of the assets.
INTANGIBLES
- -----------
Intangible assets relate to a non-compete agreement and goodwill, both of
which are amortized over a five year period.
CONCENTRATIONS OF CREDIT RISK
- -----------------------------
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade accounts receivable. The
Company maintains minimum cash balances which are partially covered by FDIC
insurance and which are maintained in accounts held by major banks and
financial institutions in the United States. As is customary in the
industry and where appropriate, the Company often grants uncollateralized
credit to its customers, which include all sizes of companies operating in
a broad range of industries. In order to mitigate its credit risk, the
Company continually evaluates the credit worthiness of its customers and,
where appropriate, strives to obtain appropriate collateral.
RECLASSIFICATIONS
- -----------------
Certain amounts as of or for the year ended December 31, 1996 have been
reclassified to conform with the December 31, 1997 presentation.
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31,
1997 and 1996:
1997 1996
---- ----
Office furniture and equipment $ 509,819 $ 413,511
Machinery and equipment 178,092 109,830
Vehicles 186,455 186,455
Leasehold improvements 53,394 43,259
---------- ----------
927,760 753,055
Less accumulated depreciation 323,182 180,959
---------- ----------
Property and equipment, net $ 604,578 $ 572,096
========== ==========
F-10
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
- --------------------------
The Company History section of Note 1 discussed the reverse acquisition
between Global Water Technologies, Inc. and Psychrometric Systems, Inc. In
regard to stockholders' equity, the effect of the reverse acquisition
resulted in the restatement of the Common Stock, Preferred Stock and the
capital in excess of par value as if the acquisition had taken effect on
the first day of the presented financial statements. Prior to the
acquisition, PSI's own preferred stock was redeemed.
As of the date of the acquisition, the authorized shares of the Company's
Common Stock and Preferred Stock was 500,000,000 and 20,000,000 shares,
respectively. As a consequence of the acquisition, the previous PSI
shareholders held 261,382,500 shares of the Company's Common Stock and
1,000,000 shares of the Preferred Stock; the previous GWTR shareholders
held 32,042,500 shares of the Company's Common Stock.
On November 4, 1997, the Company increased the authorized shares of Common
Stock to 800,000,000 shares. On December 15, 1997, the Company issued
625,000 shares of Common Stock relating to a non-compete agreement. Such
non-compete agreement was valued at the fair market value of the stock
issued.
WARRANTS AND OPTIONS
- --------------------
Immediately prior to the acquisition, the shareholders of GWTR held
warrants to acquire the Company's Common Stock. There are 8,042,500 Class
A warrants exercisable at 12 cents per share and 8,042,500 Class B warrants
exercisable at 20 cents per share. Such publicly traded warrants, which
were scheduled to expire on April 14, 1998 have been extended to April 14,
1999.
An investment banking house, which assisted in the Company's initial public
offering in 1992, holds 804,250 Class A warrants, 804,250 Class B warrants
and 804,250 options to acquire the Company's Common Stock. The option on
Common Stock is exercisable at 2.4 cents per share. The Class A warrants
and Class B warrants are exercisable at 12 cents per share and 20 cents per
share, respectively. These options and warrants expire on October 23,
1998.
4. BACKLOG
The following schedule summarizes changes in backlog on contracts during
the years ended December 31, 1997 and 1996. Backlog represents the amount
of revenue the Company expects to realize from work to be performed on
uncompleted contracts.
1997 1996
---- ----
Backlog, beginning of year $ 6,139,765 $ 7,705,087
New contracts during year 24,163,772 14,955,222
Contract revenues earned
during the year (18,697,292) (16,520,544)
----------- -----------
Backlog, end of year $11,606,245 $ 6,139,765
=========== ===========
F-11
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. LONG-TERM OPERATING LEASES
The Company has a 60 month lease for its Lakewood, CO office space, for
approximately $14,519 per month, and which expires in October 1999. The
Company also has a 60 month lease with a stockholder for a research and
testing facility located in Idaho, for $1,238 per month, and which expires
on September 30, 2001. The Company leases approximately 17,700 square feet
from an unaffiliated entity in Denver, Colorado which is utilized for light
structural fabrication, component storage and centralized warehousing for
tools and equipment on a month to month basis for $4,797 per month.
Rent expense for the years ended December 31, 1997 and 1996 was $242,223
and $161,844, respectively. In addition, the following is a schedule by
year of future minimum lease payments required under these leases:
1998 $ 189,087
1999 160,046
2000 14,856
2001 11,142
2002 none
Effective March 10, 1998, the Company and George A. Kast, President and
CEO, entered into a triple-net lease for a 35,560 square foot office
building in Golden, Colorado for the Company's expanding office space
requirements. The lease commits the Company to pay rent on 22,560 square
feet and for George Kast to pay rent on the remainder. Commencing May 1,
1998, the Company's monthly rent is $20,680, with such rent escalating to
$22,560 for calendar year 1999 and $24,440 for calendar year 2000. In
addition, it is estimated that the Company's operating expenses will
approximate $14,000 per month. The lease also provides George Kast with
the option to purchase the building on or before December 31, 2000.
Although there can be no assurance, management believes that it will be
able to sublet the Lakewood offices at a rate comparable to its current
lease obligations.
The following is a schedule by year of additional future anticipated lease
payments required under the new Golden office lease:
1998 $ 165,440
1999 270,720
2000 293,280
2001 none
2002 none
F-12
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. LONG- AND SHORT-TERM DEBT
The following is a summary of the long- and short-term debt as of December
31, 1997 and 1996:
1997 1996
---- ----
Norwest Bank, Lakewood, CO:
-Line-of-credit $ 745,000 $ 848,267
-Small Business Administration 90%
guaranteed loan (payable in monthly
installments of $8,334, including
interest at 1.0% above prime rate;
secured by furniture and equipment,
inventory, accounts receivable and
assignment of life insurance policy)
maturing May 2000 199,841 299,849
First Interstate Bank (payable in monthly
installments of $912, including interest
at 9.5%; secured by a vehicle) maturing
May 2001 31,741 39,220
GMAC - various (payable in monthly
installments ranging from $361 to $577,
including interest ranging from 9.75%
to 10.75%; secured by six vehicles)
maturing May-August 2000 85,241 113,718
----------- ----------
1,061,823 1,301,054
Less current maturities included in
current liabilities 137,865 135,539
---------- ----------
Net long-term debt $ 923,958 $1,165,515
========== ==========
The Company has a line of credit with Norwest Bank totaling $1,025,000.
The line-of-credit is secured by the Company's certificate of deposit of
$222,836 and a stockholder's personal certificates of deposit of $706,106.
The line of credit has an interest rate of 7.75% and matures on January 3,
1999.
The Small Business Administration guarantee of certain term debts subjects
the Company to financial covenants including a minimum net worth,
limitations on capital withdrawals and the personal guarantee of George A.
Kast, President and CEO. The Company was in compliance with all covenants
as of December 31, 1997.
F-13
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The following is a summary of the future maturities of debt for the years
ending December 31:
1998 $ 137,865
1999 888,090
2000 31,416
2001 4,452
2002 none
Reference should be made to Subsequent Event Note 17 in regard to
additional debt financings secured by the Company in March 1998.
7. INCOME TAXES
The components of the net deferred tax liability at December 31, 1997 and
1996 are as follows:
1997 1996
---- ----
Deferred tax liabilities:
Deferred revenue under section 481 $ 277,556 $ 260,948
Property and equipment 26,639 22,337
Other 25,000 ----
---------- ----------
Total deferred tax liabilities $ 329,195 $ 283,285
========== ==========
Deferred tax assets:
Net operating loss carryforwards $ ---- $ 275,159
Accounts receivable allowance 15,000 1,990
Valuation allowance ---- ----
---------- ----------
Total deferred tax assets $ 15,000 $ 277,149
---------- ----------
Net deferred tax liabilities $ 314,195 $ 6,136
========== ==========
Net deferred tax liabilities classification:
Current $ 123,778 $ ----
Long-term 190,417 6,136
---------- ----------
Net deferred tax liabilities $ 314,195 $ 6,136
========== ==========
The provision for income taxes consisted of the following at December 31,
1997 and 1996:
1997 1996
---- ----
Current:
Federal $ 116,343 $ 152,573
State 14,284 22,130
Deferred 143,251 (20,250)
---------- ----------
Income tax expense $ 273,878 $ 154,453
========== ==========
The Company increased the deferred tax liability balance by $164,808
through amendment of its 1996 income tax liability. During 1997, the
Company fully utilized its net operating loss carryforward of $1,382,781
from the previous years.
F-14
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
The differences between the federal income tax rate of 34% and the
Company's effective tax rate were as follows:
1997 1996
---- ----
Taxes at the U.S. statutory rate $ 287,253 $ 156,549
State income taxes,
net of federal income tax benefit 25,543 17,003
Foreign sales corporation (48,243) -
Non-deductible items 9,325 6,899
Other - (25,998)
---------- ----------
Provision for income taxes $ 273,878 $ 154,453
========== ==========
8. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts at December 31, 1997 and 1996, are summarized as
follows:
1997 1996
---- ----
Costs incurred to date $ 9,858,349 $ 8,089,803
Gross profit recognized to date 4,499,694 3,533,787
----------- -----------
Total costs plus gross profit to date 14,358,043 11,623,590
Billings to date 12,161,855 9,790,006
----------- -----------
$ 2,196,188 $ 1,833,584
=========== ===========
The above amounts are included in the accompanying balance sheets under the
following captions:
1997 1996
---- ----
Costs and estimated earnings in excess
of billings on uncompleted contracts $2,695,782 $1,986,163
Billings in excess of costs and
estimated earnings on uncompleted
contracts 499,594 152,579
---------- ----------
$2,196,188 $1,833,584
========== ==========
9. CERTIFICATES OF DEPOSITS - PLEDGED
The certificate of deposit, with an outstanding balance at December 31,
1997 and 1996 of $222,836 and $211,369, respectively, is pledged as
security on the company's line-of-credit agreement with Norwest Bank -
Lakewood.
F-15
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. ACCRUED LIABILITIES
The accrued liabilities consist of the following as of December 31, 1997
and 1996:
1997 1996
---- ----
Payroll taxes payable $ 6,175 $ 25,281
Accrued commissions payable 398,484 307,766
Accrued salaries and vacations 122,036 -
Sales tax payable 57,097 57,204
Accrued workers compensation 19,652 21,460
Other accrued liabilities 35,377 53,317
---------- ----------
$ 638,821 $ 465,028
========== ==========
11. LITIGATION AND CLAIMS
During the year ended December 31, 1997, the Company resolved its December
31, 1996 claims with Potomac Electric Company (PEPCO) and the City of
Lakeland, Florida.
The Company has recognized certain receivables which are subject to
uncertainty as to their ultimate realization. These receivables include an
amount of $56,256 emanating from work performed on a project which was
canceled prior to physical construction. This amount is being negotiated
with the customer. The customer has signed a contract with the Company and
the customer has corresponded with the Company acknowledging the
obligation.
The Company also has a receivable emanating from a project performed by the
Company in 1995. The total amount of the receivable is $115,000.
Discussions with the customer have not been productive. The customer has
also notified the Company of a potential claim against the Company in the
amount of $940,000. The customer has offered to release the Company from
liability on its claim if the Company releases the customer from the
Company's receivable. The Company believes the customer's claim is without
merit and considers its risk of loss to be remote. Consequently, the
Company has recorded no provision for loss related to the potential
counterclaim. Management has not yet determined what course of action it
will pursue with respect to this matter.
The Company believes it has appropriate reserves for these and other
unanticipated claims.
12. 401(k) PLAN
On July 1, 1996, the Company implemented a 401(k) savings plan. The
current plan covers all full time employees over the age of 21 who have
completed six months of service to the Company. The Company may contribute
to the plan upon the Board of Directors' discretion. For the years ended
December 31, 1997 and 1996, the Company did not make any contributions to
the plan.
F-16
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's debt at December 31, 1997 and 1996,
approximate their fair value, since the interest rate charged per the
agreements is similar to the Company's current borrowing rate.
From time to time, the Company enters into financial instruments with
off-balance sheet risk to hedge future cash flows from firm contracts in
non-dollar denominated currencies. As of December 31, 1997 and 1996, the
Company did not have any financial instruments with off-balance sheet risk.
The Company's policy is to hedge these firm contracts where possible with
forward foreign exchange contracts. These forward contracts are executed
through the Company's banking relationships.
14. RELATED PARTY TRANSACTIONS
A stockholder has pledged two personal certificates of deposit in the
amount of $706,106 as security for the Company's line-of-credit. For the
years ended December 31, 1997 and 1996, the Company authorized fees of
$48,784 and $49,875, respectively, to the stockholder for this pledge.
These amounts are included in interest expense.
The Company leases a research and testing facility from a stockholder with
monthly payments of $1,238. For the years ended December 31, 1997 and
1996, the Company incurred $14,856 and $3,714, respectively, in rent
expense for the research and testing facility. These amounts are included
in research and development expense.
In February 1997, PSI loaned George A. Kast $200,000 with interest at 8%.
The loan was approved by the directors and shareholders of PSI. In October
1997, Mr. Kast repaid the loan in full.
George A. Kast has personally guaranteed the Company's obligations
(approximately $1,225,000 as of December 31, 1997) with financial
institutions, including the Company's SBA term loan. In addition, as of
December 31, 1997, Mr. Kast had personally guaranteed approximately
$4,200,000 of Company obligations with bonding companies.
15. BUSINESS SEGMENT DATA
The Company's sole business is the design, sale, manufacture and building
of new industrial cooling towers and in retrofitting existing industrial
cooling towers and cooling tower components. All of its operations are
within the United States. Its export sales were $3,777,426 and $1,918,181
for the years ended December 31, 1997 and 1996, respectively.
F-17
<PAGE>
GLOBAL WATER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
16. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
AND OTHER CASH FLOW INFORMATION.
The effect of a $50,000 non-cash financing transaction related to a
non-compete agreement acquired with Common Stock of the Company was excluded
from the consolidated cash flows for the year ended December 31, 1997.
The following provides additional information concerning disclosure of cash
flow activities:
1997 1996
---- ----
Interest paid $ 141,598 $ 157,577
Income taxes paid $ 169,162 $ 2,925
17. SUBSEQUENT EVENT
In March 1998, the Company secured two additional financings through
Norwest Bank, Lakewood, CO, as follows:
Small Business Administration 75% guaranteed
loan (payable interest only for 3 months; then
payable in 60 monthly installments of $7,917,
including interest at 1.0% above prime rate;
secured, subject to a prior security interest
held by Norwest Bank and SBA in regard to SBA
loan referenced in Note 6, by furniture and
equipment, inventory and accounts receivable)
maturing June 2003 $ 475,000
Export-Import Bank 90% guaranteed credit
agreement (primarily related to a percentage
of eligible foreign accounts receivable,
inventory and unbilled export costs; interest
at 1.0% above prime rate payable monthly;
secured by inventory, accounts receivable,
equipment, general intangibles and investment
property) maturing March 1999. $ 1,000,000
Both financings require the personal guarantee of George A. Kast, President
and CEO. In addition, the Small Business Administration guarantee subjects
the Company to certain financial covenants including limitation on capital
withdrawals. The Export-Import Bank guarantee subjects the Company to
certain financial covenants including a minimum tangible net worth, as
defined, of $700,000. As of December 31, 1997, the Company's tangible net
worth was $950,064.
F-18
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS
OF
PREFERRED STOCK
OF
FI-TEK VI, INC.
Fi-Tek VI, Inc., a corporation organized under the laws of the State of
Delaware, desiring to issue shares of preferred stock of which the powers,
designations, preferences and relative, participating, optional or other
rights, or the qualifications, limitations or restrictions thereof, have
not been set forth in the certificate of incorporation or in any amendment
thereto, but which have been provided in resolutions adopted by the board
of directors pursuant to authority expressly vested in it by the provisions
of the certificate of incorporation, hereby makes this Certificate of
Designations in accordance with Section 151(g) of the Delaware General
Corporation Law, and sets forth a copy of such resolutions, followed by a
statement of the number of shares to which the resolutions apply:
NOW THEREFORE BE IT RESOLVED, that a series of Preferred Stock be, and
it hereby is, designated Series A Preferred Stock (herein the "Preferred
Shares"), to be subject to the rights and conditions provided in the
Resolutions set forth below;
BE IT RESOLVED FURTHER, that the holders of the Preferred Shares shall
have the rights, and the Preferred Shares shall be subject to the
limitations and qualifications, set forth below:
(a) AUTOMATIC CONVERSION. Each Preferred Share shall automatically
be converted into two hundred ninety (290) shares of the Company's common
stock, par value $0.00001 per share, upon the earlier of
i) the filing date of the Company's Annual Report on Form 10-K
(or on Form 10-KSB or other applicable Annual Report under the Securities
Exchange Act of 1934, as amended) with respect to the first fiscal year in
which the Company shall have attained annual sales of sixty million dollars
($60,000,000) or more, but only if such annual sales goal is reported not
later than the due date (as may be extended by any authorized extension) of
such Annual Report for the fiscal year of the Company ending in 2002;
ii) the closing date of any transaction that results in a change
of ownership of the Company, which is defined as a single transaction
(other than transactions contemplated by the Reorganization Agreement)
which results in a change in majority control of the Company, but only if
such change of ownership occurs on or before the end of the Company's
fiscal year ending in 2002.
<PAGE>
The convertibility of the Preferred Shares shall terminate upon a failure
of the Preferred Shares to have been converted on or before the lapse of
the last opportunity for conversion set forth above in this paragraph (a).
Any holder who wishes to receive certificate(s) for common stock upon
conversion of his Preferred Shares must deliver the certificate or
certificates representing such Preferred Shares, duly endorsed by the
holder, to the Secretary of the Company at its executive office.
(b) VOTING RIGHTS. The Preferred Shares shall be nonvoting shares.
(c) DIVIDEND AND DISTRIBUTION RIGHTS. The Preferred Shares shall
have no right to participate in any dividends that may be declared with
respect to any other stock of the Company. No distribution shall be made
in respect of the Preferred Shares in connection with any partial or total
liquidation of the Company.
(d) REDEMPTION. If the convertibility of the Preferred Shares shall
have terminated in accordance with paragraph (a), above, all of the
Preferred Shares shall automatically be redeemed by the Company effective
as of the date (the "Redemption Date") on which the last opportunity for
conversion set forth in paragraph (a), above, shall have lapsed. The
redemption price shall be paid in cash in the amount of $0.0001 per share.
As of the Redemption Date, the Preferred Shares being redeemed shall be
marked "cancelled" on the Company's stock transfer books (whether or not
the certificates therefor have been surrendered by the holders) and,
thereafter, holders of redeemed Preferred Shares shall not be considered as
or possess any rights as shareholders of the Company with respect to the
redeemed shares. Holders shall be paid the redemption amount due only upon
surrender to the Company of the certificate or certificates representing
the redeemed shares.
(e) STATUS OF PREFERRED SHARES. Preferred Shares which have been
redeemed by the Company or converted to common stock by the holders shall
not be cancelled but shall revert to the status of authorized but unissued
shares.
(f) ADJUSTMENTS TO PREFERRED SHARES. The conversion ratio and
similar terms governing the Preferred Shares (the "Designated Terms") shall
be subject to adjustment as set forth below:
i) In case the Company shall hereafter (A) pay a dividend or
make a distribution on its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class),
(B) subdivide its outstanding shares of Common Stock, (C) combine its
outstanding shares of Common Stock into a smaller number or shares, or (D)
issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, the Designated Terms in effect immediately
prior to such action shall be adjusted so that the Registered Holder of any
Preferred Shares thereafter converted shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Preferred Shares been
converted immediately prior thereto.
<PAGE>
ii) An adjustment made pursuant to this subsection shall become
effective immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case of
a subdivision, combination, reclassification or issue. If, as a result of
an adjustment made pursuant to this subsection, the Registered Holder of
any Preferred Shares thereafter converted shall become entitled to receive
shares of two or more classes of capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described
in a statement filed with the transfer agent of the Company) shall
determine the allocation of the adjusted Designated Terms between or among
shares of such classes of capital stock.
iii) No adjustment in the Designated Terms shall be required to
be made unless such adjustment would require an increase or decrease of at
least one one-hundredth of a share; provided, however, that any adjustments
which by reason of this subsection are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this subsection (f) shall be made to the nearest one-
hundredth of a share, as the case may be, but in no event shall the Company
be obligated to issue fractional shares upon the conversion of any
Preferred Share.
iv) In the event that at any time as a result of an adjustment
made pursuant to subsection (i) of this subsection (f) the Registered
Holder of any Preferred Share thereafter converted shall become entitled to
receive any shares of the Company other than shares of its Common Stock,
thereafter the Designated Terms of such other shares so receivable upon
conversion of any Preferred Shares shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in subsections (i)
through (iii) of this subsection (f).
THE COMPANY IS AUTHORIZED TO ISSUE 1,000,000 SHARES OF SERIES A PREFERRED
STOCK.
IN WITNESS WHEREOF, THIS CERTIFICATE OF DESIGNATIONS HAS BEEN EXECUTED
BELOW ON BEHALF OF THE CORPORATION ON THIS TWENTY-THIRD DAY OF SEPTEMBER
1997 BY ITS PRESIDENT AND ACKNOWLEDGED BY ITS SECRETARY, THEREUNTO DULY
AUTHORIZED.
/s/ FRANK L. KRAMER
--------------------------------
Frank L. Kramer, President
/s/ RONALD J. MILLER
ACKNOWLEDGED BY: --------------------------------
Ronald J. Miller, Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing was acknowledged before me this 24 day of
September, 1997, by Frank L. Kramer, President of FI-TEK VI, INC.
WITNESS my hand and official seal.
My Commission expires: November 22, 1999
/s/ SHIRLEY GREENBLATT
------------------------------------
Notary Public
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing was acknowledged before me this 24 day of
September, 1997, by Ronald J. Miller, Secretary of FI-TEK VI, INC.
WITNESS my hand and official seal.
My Commission expires: November 22, 1999
/s/ SHIRLEY GREENBLATT
------------------------------------
Notary Public
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION OF
FI-TEK VI, INC.
The undersigned President of Fi-Tek VI, Inc., a Delaware corporation
(the "Corporation"), does hereby sign, verify and deliver in duplicate to
the Secretary of State of the State of Delaware this Certificate of
Amendment to the Certificate of Incorporation of the Corporation.
FIRST: The name of the Corporation is Fi-Tek VI, Inc.
SECOND: The Certificate of Incorporation is amended as follows:
1. Article I of the Certificate of Incorporation shall be
amended to read as follows:
ARTICLE I
NAME AND DURATION
The name of this corporation is Global Water Technologies,
Inc. (the "Company"). It shall have perpetual existence.
2. Article V, Section 5.01, of the Certificate of
Incorporation shall be amended to read as follows:
ARTICLE V
CAPITAL STOCK
5.01 AUTHORIZED SHARES. The aggregate number of shares which
the Company shall have authority to issue is Eight Hundred Twenty
Million (820,000,000). Eight Hundred Million (800,000,000) shares
shall be designated "Common Stock" and shall have a par value of
$.00001 per share. Twenty Million (20,000,000) shares shall be
designated "Preferred Stock" and shall have a par value of $.00001
per share. All shares of the Company shall be issued for such
consideration, expressed in dollars, as the Board of Directors may,
from time to time, determine.
THIRD: The Board of Directors of the Corporation adopted a
resolution proposing and declaring the advisability of the above amendments
to the Certificate of Incorporation on November 4, 1997. The amendments
to the Certificate of Incorporation were duly adopted and approved by the
shareholders of the Corporation pursuant to Sections 242 and 228 of the
Delaware General Corporation Law by written consent of the shareholders
in lieu of a special meeting on November 4, 1997
<PAGE>
IN WITNESS WHEREOF, Fi-Tek VI, Inc., a Delaware corporation, through
its President, duly executes the above and foregoing Certificate of
Amendment to the Certificate of Incorporation as of the 4th day of
November, 1997.
FI-TEK VI, INC.
By: /s/ GEORGE A. KAST
--------------------------------------
George A. Kast, President
ACKNOWLEDGED BY:
/s/ GARY L. BROWN
- ----------------------------------
Gary L. Brown, Secretary
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing was acknowledged before me this 4th day of November,
1997, by George A. Kast, President of Fi-Tek VI, Inc.
WITNESS my hand and official seal.
My commission expires: 11-13-99
/s/ BETH SCHNEEKLOTH
-----------------------------------------
Notary Public
-2-
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing was acknowledged before me this 4th day of November,
1997, by Gary L. Brown, Secretary of Fi-Tek VI, Inc.
WITNESS my hand and official seal.
My commission expires: 11-13-99
/s/ BETH SCHNEEKLOTH
-----------------------------------------
Notary Public
-3-
EXHIBIT 3.5
AMENDMENT TO THE BYLAWS
OF
FI-TEK VI, INC.
a Delaware corporation
ARTICLE 4.09 of the Bylaws is hereby amended in its entirety to read
as follows:
4.09 QUORUM. A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business. The act
of the majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors; provided, however, that
if the number of directors shall be two, and if one of the directors
present at the meeting abstains from voting on one or more resolutions, the
act of the other Director present at a meeting at which a quorum is present
shall be the act of the Board of Directors with respect to such resolution
or resolutions.
CERTIFICATE
-----------
The undersigned, constituting the Board of Directors of Fi-Tek VI,
Inc., certify that the foregoing has been adopted in accordance with law as
an Amendment to Article 4.09 of the Bylaws of the corporation, effective as
of the 12th day of September, 1997.
/s/ Frank L. Kramer
--------------------------------------
Frank L. Kramer, Director
/s/ Ronald J. Miller
--------------------------------------
Ronald J. Miller, Director
PROPP REALTY
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
12600 W. Colfax Ave., Suite B-130
Lakewood, Colorado 80215
Tel: (303) 233-4000
Fax: (303) 233-3100
December 5, 1994
George Kast
Psychometric Systems
12600 W. Colfax Avenue
Suite C-500
Lakewood, Colorado 80215
SUBJECT: Tenant Finish
Dear George,
Attached please find the amortization schedules for the tenant finish
costs. The total increase per month is $559.93, making your rental
payments for months five through twenty four $10,263.38 and months
twenty five through sixty $14,519.29.
Please sign below as acknowledgement, retain one copy and return the other
to this office. Your attention to this matter is appreciated.
Sincerely,
/s/ DARYLL PROPP
Daryll Propp
DP/mp
Attachments
HAND DELIVERED
ACKNOWLEDGEMENT:
/s/ GEORGE KAST 2/2/95
- ----------------------------------------------------------------
George Kast - Psychometric Systems Date
<PAGE>
- -------------------------------------------------------------------------
11-15-1994 Pg 1
- -------------------------------------------------------------------------
Compounding period . . . . . : Monthly
Nominal annual rate. . . . . : 6.785 %
Effective annual rate. . . . : 7.000 %
Periodic rate. . . . . . . . : 0.5654 %
Equivalent daily rate. . . . : 0.01859 %
CASH FLOW DATA
- -------------------------------------------------------------------------
Event Date Amount Pt Period End-date
- -------------------------------------------------------------------------
1 Loan 11-01-94 21,000.00 1
2 Payment 12-01-94 438.55 56 Monthly 07-01-99
AMORTIZATION SCHEDULE - Normal amortization
Pmt Date Payment Interest Principal Balance
Loan 11-01-1994 21,000.00
1 12-01-1994 438.55 118.74 319.81 20,680.19
1994 totals 438.55 118.74 319.81
2 01-01-1995 438.55 116.93 321.62 20,358.57
3 02-01-1995 438.55 115.11 323.44 20,035.13
4 03-01-1995 438.55 113.28 325.27 19,709.86
5 04-01-1995 438.55 111.44 327.11 19,382.75
6 05-01-1995 438.55 109.59 328.96 19,053.79
7 06-01-1995 438.55 107.73 330.82 18,722.97
8 07-01-1995 438.55 105.86 332.69 18,390.28
9 08-01-1995 438.55 103.98 334.57 18,055.71
10 09-01-1995 438.55 102.09 336.46 17,719.25
11 10-01-1995 438.55 100.19 338.36 17,380.89
12 11-01-1995 438.55 98.27 340.28 17,040.61
13 12-01-1995 438.55 96.35 342.20 16,698.41
1995 totals 5,262.60 1,280.82 3,981.78
14 01-01-1996 438.55 94.42 344.13 16,354.28
15 02-01-1996 438.55 92.47 346.08 16,008.20
16 03-01-1996 438.55 90.51 348.04 15,660.16
17 04-01-1996 438.55 88.54 350.01 15,310.15
18 05-01-1996 438.55 86.57 351.98 14,958.17
19 06-01-1996 438.55 84.58 353.97 14,604.20
20 07-01-1996 438.55 82.57 355.98 14,248.22
21 08-01-1996 438.55 80.56 357.99 13,890.23
22 09-01-1996 438.55 78.54 360.01 13,530.22
23 10-01-1996 438.55 76.50 362.05 13,168.17
24 11-01-1996 438.55 74.45 364.10 12,804.07
25 12-01-1996 438.55 72.40 366.15 12,437.92
1996 totals 5,262.60 1,002.11 4,260.49
26 01-01-1997 438.55 70.33 368.22 12,069.70
27 02-01-1997 438.55 68.24 370.31 11,699.39
<PAGE>
- -------------------------------------------------------------------------
11-15-1994 Pg 2
- -------------------------------------------------------------------------
Pmt Date Payment Interest Principal Balance
28 03-01-1997 438.55 66.15 372.40 11,326.99
29 04-01-1997 438.55 64.04 374.51 10,952.48
30 05-01-1997 438.55 61.93 376.62 10,575.86
31 06-01-1997 438.55 59.80 378.75 10,197.11
32 07-01-1997 438.55 57.66 380.89 9,816.22
33 08-01-1997 438.55 55.50 383.05 9,433.17
34 09-01-1997 438.55 53.34 385.21 9,047.96
35 10-01-1997 438.55 51.16 387.39 8,660.57
36 11-01-1997 438.55 48.97 389.58 8,270.99
37 12-01-1997 438.55 46.77 391.78 7,879.21
1997 totals 5,262.60 703.89 4,558.71
38 01-01-1998 438.55 44.55 394.00 7,485.21
39 02-01-1998 438.55 42.32 396.23 7,088.98
40 03-01-1998 438.55 40.08 398.47 6,690.51
41 04-01-1998 438.55 37.83 400.72 6,289.79
42 05-01-1998 438.55 35.56 402.99 5,886.80
43 06-01-1998 438.55 33.28 405.27 5,481.53
44 07-01-1998 438.55 30.99 407.56 5,073.97
45 08-01-1998 438.55 28.69 409.86 4,664.11
46 09-01-1998 438.55 26.37 412.18 4,251.93
47 10-01-1998 438.55 24.04 414.51 3,837.42
48 11-01-1998 438.55 21.70 416.85 3,420.57
49 12-01-1998 438.55 19.34 419.21 3,001.36
1998 totals 5,262.60 384.75 4,877.85
50 01-01-1999 438.55 16.97 421.58 2,579.78
51 02-01-1999 438.55 14.59 423.96 2,155.82
52 03-01-1999 438.55 12.19 426.36 1,729.46
53 04-01-1999 438.55 9.78 428.77 1,300.69
54 05-01-1999 438.55 7.35 431.20 869.49
55 06-01-1999 438.55 4.92 433.63 435.86
56 07-01-1999 438.55 2.69 435.86 0.00
1999 totals 3,069.85 68.49 3,001.36
Grand totals 24,558.80 3,558.80 21,000.00
<PAGE>
- -------------------------------------------------------------------------
11-15-1994 Pg 1
- -------------------------------------------------------------------------
Compounding period . . . . . : Monthly
Nominal annual rate. . . . . : 11.387 %
Effective annual rate. . . . : 12.000 %
Periodic rate. . . . . . . . : 0.9489 %
Equivalent daily rate. . . . : 0.03120 %
CASH FLOW DATA
- -------------------------------------------------------------------------
Event Date Amount Pt Period End-date
- -------------------------------------------------------------------------
1 Loan 11-01-94 5,254.00 1
2 Payment 12-01-94 121.38 56 Monthly 07-01-99
AMORTIZATION SCHEDULE - Normal amortization
Pmt Date Payment Interest Principal Balance
Loan 11-01-1994 5,254.00
1 12-01-1994 121.38 49.85 71.53 5,182.47
1994 totals 121.38 49.85 71.53
2 01-01-1995 121.38 49.18 72.20 5,110.27
3 02-01-1995 121.38 48.49 72.89 5,037.38
4 03-01-1995 121.38 47.80 73.58 4,963.80
5 04-01-1995 121.38 47.10 74.28 4,889.52
6 05-01-1995 121.38 46.40 74.98 4,814.54
7 06-01-1995 121.38 45.68 75.70 4,738.84
8 07-01-1995 121.38 44.97 76.41 4,662.43
9 08-01-1995 121.38 44.24 77.14 4,585.29
10 09-01-1995 121.38 43.51 77.87 4,507.42
11 10-01-1995 121.38 42.77 78.61 4,428.81
12 11-01-1995 121.38 42.02 79.36 4,349.45
13 12-01-1995 121.38 41.27 80.11 4,269.34
1995 totals 1,456.56 543.43 913.13
14 01-01-1996 121.38 40.51 80.87 4,188.47
15 02-01-1996 121.38 39.74 81.64 4,106.83
16 03-01-1996 121.38 38.97 82.41 4,024.42
17 04-01-1996 121.38 38.19 83.19 3,941.23
18 05-01-1996 121.38 37.40 83.98 3,857.25
19 06-01-1996 121.38 36.60 84.78 3,772.47
20 07-01-1996 121.38 35.80 85.58 3,686.89
21 08-01-1996 121.38 34.98 86.40 3,600.49
22 09-01-1996 121.38 34.16 87.22 3,513.27
23 10-01-1996 121.38 33.34 88.04 3,425.23
24 11-01-1996 121.38 32.50 88.88 3,336.35
25 12-01-1996 121.38 31.66 89.72 3,246.63
1996 totals 1,456.56 433.85 1,022.71
26 01-01-1997 121.38 30.81 90.57 3,156.06
27 02-01-1997 121.38 29.95 91.43 3,064.63
<PAGE>
- -------------------------------------------------------------------------
11-15-1994 Pg 2
- -------------------------------------------------------------------------
Pmt Date Payment Interest Principal Balance
28 03-01-1997 121.38 29.08 92.30 2,972.33
29 04-01-1997 121.38 28.20 93.18 2,879.15
30 05-01-1997 121.38 27.32 94.06 2,785.09
31 06-01-1997 121.38 26.43 94.95 2,690.14
32 07-01-1997 121.38 25.53 95.85 2,594.29
33 08-01-1997 121.38 24.62 96.76 2,497.53
34 09-01-1997 121.38 23.70 97.68 2,399.85
35 10-01-1997 121.38 22.77 98.61 2,301.24
36 11-01-1997 121.38 21.84 99.54 2,201.70
37 12-01-1997 121.38 20.89 100.49 2,101.21
1997 totals 1,456.56 311.14 1,145.42
38 01-01-1998 121.38 19.94 101.44 1,999.77
39 02-01-1998 121.38 18.98 102.40 1,897.37
40 03-01-1998 121.38 18.00 103.38 1,793.99
41 04-01-1998 121.38 17.02 104.36 1,689.63
42 05-01-1998 121.38 16.03 105.35 1,584.28
43 06-01-1998 121.38 15.03 106.35 1,477.93
44 07-01-1998 121.38 14.02 107.36 1,370.57
45 08-01-1998 121.38 13.01 108.37 1,262.20
46 09-01-1998 121.38 11.98 109.40 1,152.80
47 10-01-1998 121.38 10.94 110.44 1,042.36
48 11-01-1998 121.38 9.89 111.49 930.87
49 12-01-1998 121.38 8.83 112.55 818.32
1998 totals 1,456.56 173.67 1,282.89
50 01-01-1999 121.38 7.76 113.62 704.70
51 02-01-1999 121.38 6.69 114.69 590.01
52 03-01-1999 121.38 5.60 115.78 474.23
53 04-01-1999 121.38 4.50 116.88 357.35
54 05-01-1999 121.38 3.39 117.99 239.36
55 06-01-1999 121.38 2.27 119.11 120.25
56 07-01-1999 121.38 1.13 120.25 0.00
1999 totals 849.66 31.34 818.32
Grand totals 6,797.28 1,543.28 5,254.00
<PAGE>
OFFICE LEASE
1. THIS INDENTURE OF LEASE WITNESSETH, that GOLDEN HILL PARTNERSHIP,
hereinafter called the Landlord, does hereby demise and lease unto
PSYCHOMETRIC SYSTEMS, hereinafter called the Tenant, the premises known and
described as 12600 W. COLFAX AVENUE SUITE C-500 (12,257 R.S.F.) LAKEWOOD,
COLORADO 80215 ("Demised Premises") situated in the GOLDEN HILL OFFICE
CENTRE, beginning on the 1ST day of NOVEMBER, 1994, and terminating on the
31ST day of OCTOBER, 1999, unless the term shall be sooner terminated as
hereinafter provided.
2. IN CONSIDERATION OF said demise, the Tenant agrees to pay the
Landlord as rent for said premises for the full term aforesaid the total
sum of $696,606.20 payable as follows: MONTHS ONE THROUGH FOUR ARE RENT
FREE. MONTHS FIVE THROUGH TWENTY FOUR MONTHLY RENT IS $9,703.45. MONTHS
TWENTY FIVE THROUGH SIXTY MONTHLY RENT IS $13,959.36. THIS IS A FULL
SERVICE LEASE WITH NO PASS THROUGHS OR CONSUMER PRICE INDEX INCREASE. NO
ADDITIONAL DEPOSIT IS REQUIRED.
3. SERVICES. The Landlord agrees, during the period of this lease:
To heat the demised premises whenever necessary during reasonable business
hours of customary heating season. To provide janitor and elevator service
as determined by Landlord for the demised premises. To provide electric
current for all lighting, customary for miscellaneous office equipment, and
normal office purposes required by Tenant, together with electric bulbs for
lamps for lighting the demised premises, which bulbs Landlord shall renew
as necessary. In case Tenant requires electric energy for signs, photostat
machines, or any other like equipment not part of its normal office
operation, such electrical energy shall be furnished by Landlord, and the
rental payable hereunder shall be increased by an amount equivalent to the
sum paid by the Landlord for such additional energy to the utility
supplying electric services for said building. Unless a flat rate can be
mutually agreed upon between the parties hereto, the additional rental
shall be determined by measuring through metering equipment furnished and
installed by the Tenant the additional electrical energy so required by
Tenant and computing the cost thereof at the average rate charged Landlord
by said utility company for current supplied to said building. To cause
public halls to be lighted during the time and the manner customary in said
building. Tenant agrees that Landlord shall not be held liable for failure
to supply such heating, janitor, elevator, lighting or other services, or
any of them, when such failure is not due to gross negligence on its part,
it being understood that Landlord reserves the right to temporarily
<PAGE>
discontinue such services, or any of them, at such times as may be
necessary by reason of accident, repairs, alterations or improvements, or
whenever, by reason of strikes, lockouts, riots, acts of God, governmental
regulations, or any other happening, Landlord is unable to furnish such
services.
Tenant agrees that if any payment of rent as herein provided shall
remain unpaid for more than five days after the same shall become due,
Landlord may, without notice to Tenant, discontinue furnishing lighting,
heating and janitor services, or any of them, until all arrears of rent
shall have first been paid and discharged, and that Landlord shall not be
liable for damages, and that such action shall in no way operate to release
Tenant from the obligations hereunder.
4. CHARACTER OF OCCUPANCY. Tenant agrees to use and occupy the
demised premises in a careful, safe and proper manner, and only for the
purpose of GENERAL OFFICE USE and to pay on demand for any damage to the
premises caused by the misuse of same by Tenant or his agents or employees;
Tenant will not use or permit the demised premise to be used for any
purposes prohibited by the laws of the United States or the State of
Colorado, or any of the ordinances of the City and County of Jefferson.
Tenant will not use or keep any substance or material in or about the
demised premises which may violate or endanger the validity of the
insurance on said building or increase the hazard of the risk, or which may
prove offensive or annoying to other tenants of the building. Tenant will
not permit any nuisance to be committed in the demised premises.
5. ALTERATIONS. The Landlord, its agents and servants, shall have
the right at any time to enter the demised premises to examine and inspect
the same, or to make such repairs, additions or alterations as it may deem
necessary or proper for the safety, improvement or preservation thereof,
and shall at all times have the right, at is election, to make such
alterations or changes to other portions of said building as it may from
time to time deem necessary and desirable. However, the Tenant agrees not
to call upon the Landlord for any disbursements or outlay of money upon
said demised premises for decorating, redecorating.
Tenant shall make no alterations in, or additions to the demised
premises without first obtaining the written consent of Landlord, and all
additions or improvements made by the Tenant (except only unattached office
furniture, fixtures and equipment) shall be deemed a part of the real
estate and permanent structure thereon and shall remain upon and be
surrendered with said premises as a part thereof at the end of the said
term, by lapse of time, or
2
<PAGE>
otherwise. Prior to tenant undertaking any alterations or additions to the
Demised Premises, Tenant shall post the appropriate notices, as required by
Law, so as to exclude and/or protect Landlord and/or the Building from the
filing of any mechanic's liens.
6. SUBLETTING. Tenant agrees not to sublet the demised premises, or
any part thereof, nor assign this lease, or any interest therein, without
the written consent of the Landlord first had and obtained. LANDLORD
AGREES NOT TO WITHHOLD SUCH CONSENT UNREASONABLY.
7. INSOLVENCY. No assignment for the benefit of creditors or by
operation of law shall be effective to transfer any rights under this lease
to any assignee without the written consent of the Landlord first having
been obtained.
It is further agreed between the parties hereto that, if Tenant shall
be declared insolvent or bankrupt, or if any assignment of Tenant's
property shall be made for the benefit of creditors or otherwise, or if
Tenant's leasehold interest herein shall be levied upon under execution, or
seized by virtue of any writ of any Court of law, or a Trustee in
Bankruptcy or a Receiver be appointed for the property of Tenant,
("involuntary breach") whether under the operation of State or Federal
statutes, then and in any such case, Landlord may, at its option,
immediately, with or without notice (notice being expressly waived)
terminate this lease and immediately retake possession of said premises,
using such force as may be necessary, without being guilty of any manner of
trespass or forcible entry or detainer, and without the same working any
forfeiture of the obligations of Tenant hereunder. In such event the
Lessor shall be deemed to have a provable claim in bankruptcy or
receivership in an amount equal to (1) the then accrued and unpaid rent
plus, (2) an amount equal to the sum of the last nine (9) monthly
installments of the rental provided for herein, which sum is fixed, not as
a penalty, but as liquidated damages by the parties hereto because the
actual damages incurred by Landlord as a result of the involuntary breach
would be difficult to ascertain.
8. BREACH.
A. The Tenant agrees to observe and perform the conditions and
agreements herein set forth to be observed and performed by the Tenant, and
further agrees that if default be made by the Tenant in the payment of said
rent, or any part thereof, or if the Tenant shall fail to observe or
perform any of said conditions or agreements, and such default shall
continue for a period of five days,* then and in that event, and as often
as the
*AFTER WRITTEN NOTICE
3
<PAGE>
same may happen, it shall be lawful for the Landlord, at its election, with
or without legal proceeding, using such force as may be necessary and
without notice, may, re-enter and take possession of the Demised Premises,
including all improvements, fixtures and equipment located at, in, or about
the Demised Premises and take, operate, or relet same, in whole or in part,
for the account of Lessee at such rental, on such conditions, and to such
tenant(s) as Landlord in good faith may deem proper. Landlord shall
receive all proceeds and/or rentals accruing from such operation or
reletting and shall apply such proceeds and/or rentals, first, to the
payment of all costs and expenses incurred by Landlord in obtaining
possession and in the operation or reletting of the Demised Premises,
fixtures, or equipment, including, but not limited to, reasonable
attorney's fees, commissions, and collection fees, and any alternations or
repairs reasonably necessary to enable Landlord to operate or relet the
Demised Premises, fixtures, or equipment; second, to the payment of all
such amounts due or becoming due from Tenant under the provisions of this
Lease Agreement.
B. REPOSSESSION OR RELETTING NOT A TERMINATION. Landlord's Right To
Terminate Not Forfeited. No re-entry, repossession, operation, or
reletting of the Demised Premises or the fixtures and equipment therein or
thereon shall be construed as an election by Landlord to terminate this
Lease Agreement unless or until a written notice of such intention is given
by Landlord to Tenant. Notwithstanding any such operation or reletting
without terminating this Lease Agreement, Landlord may at any time
thereafter elect to terminate said Lease Agreement.
C. TENANT'S OBLIGATION TO PAY DEFICIENCIES. In the event the
proceeds or rentals received by Landlord pursuant to this Paragraph 8 are
insufficient to pay all costs and expenses incurred by Landlord and all
amounts due and becoming due under this Lease Agreement, Tenant shall pay
to Landlord, on demand, any such deficiency as may from time to time occur
or exist.
D. LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES AT TENANT'S EXPENSE.
Notwithstanding any notice provisions contained in the Lease Agreement to
the contrary, if, in the judgment of Landlord, the continuance of any
default by tenant, other than default in the payment of money, for the full
notice period otherwise provided herein will jeopardize the Demised
Premises, the Building, or the rights of Landlord or other tenants,
Landlord may, without notice, elect to perform or cure, at the expense of
Tenant, those acts in respect of which tenant is in default and Tenant
shall, within ten (10) days following receipt of written notice of same,
reimburse Landlord for all costs and expenses incurred by Landlord,
together with interest thereon at the rate of eighteen percent (18%) per
annum until paid in full.
4
<PAGE>
E. LANDLORD'S RIGHT TO TERMINATE LEASE. In the event of Tenant's
default as provided in this Paragraph 8, Landlord may, at its option,
without further notice, terminate this Lease Agreement and pay any and all
interest of Tenant hereunder, and may thereupon immediately reenter and
take possession of the Demised Premises.
F. LANDLORD'S RIGHT ON TERMINATION TO RECOVER AMOUNT EQUAL TO RENT
RESERVED. If this Lease Agreement is terminated by Landlord on account of
any default by Tenant, Landlord shall be entitled to recover as damages
from Tenant, at the time of such termination, along with any and all other
damages to which it is entitled, the excess, if any, of the amount of rent
provided herein for the balance of the term hereof over the then reasonable
rental value of the Demised Premises for the same period. It is agreed
that the "reasonable rental value" shall be the amount of rental which
Landlord can obtain as rent for the remaining balance of this term.
G. LANDLORD'S REMEDIES CUMULATIVE. Landlord shall have the right to
seek all remedies provided in this Lease Agreement and by the governing
law. Each and all of the remedies provided Landlord in this Lease
Agreement or by law shall be cumulative, and the exercise of one right or
remedy by Landlord shall not impair its right to exercise any other right
or remedy.
H. TENANT'S WAIVER OF CLAIMS AGAINST LANDLORD. Tenant hereby waives
all claim or demand for damages that may be caused by Landlord's re-entering
and taking possession of the Demised Premises as provided in this
Paragraph 8, including, but not limited to, damages resulting from the
destruction of or damage to the Demised Premises and damages resulting from
loss or injury to property in or on the Demised Premises at the time of
such re-entry belonging to Tenant or any other person, firm or corporation.
9. REMOVAL OF TENANT'S PROPERTY. If the Tenant shall fail to remove
all effects from said premises upon the abandonment or upon the termination
of the lease for any cause whatsoever, the Landlord, at its option, may
remove the same in any manner that it shall choose, and store the said
effects without liability to the Tenant for loss thereof, and the Tenant
agrees to pay the Landlord on demand any and all expenses incurred in such
removal, including court costs and attorney's fees and storage charges on
such effects for any length of time the same shall be in the Landlord's
possession or the Landlord, at its option, without notice, may sell said
effects, or any of the same, at private sale and without legal process, for
such prices as the Landlord may obtain, and apply the proceeds of such sale
upon any amounts due under this lease from the Tenant to the Landlord and
upon the expense incident to the removal and sale of said effects,
rendering the surplus, if any, to the Tenant.
5
<PAGE>
10. LOSS OR DAMAGE TO TENANT'S PROPERTY. All personal property of
any kind or description whatsoever in the demised premises shall be at the
Tenant's sole risk, and the Landlord shall not be held liable for any
damage done to or loss of such personal property, or for damage or loss
suffered by the business or occupation of the Tenant arising from any act
or neglect of co-tenants or other occupants of the building, or of their
employees or the employees of the Landlord or of other persons, or from
bursting, overflowing or leaking of water, sewer or steam pipes, or from
heating or plumbing fixtures, or from electric wires, or from gases, or
odors, or other causes in any other manner whatsoever, except in the case
of willful neglect on the part of the Landlord.
11. SURRENDER OF POSSESSION. The Tenant agrees to deliver up and
surrender to the Landlord possession of said premises at the expiration or
termination of this lease, by lapse of time or otherwise, in as good repair
as when the Tenant obtained the same at the commencement of said term,
excepting only ordinary wear and decay, or damage by the elements,
(occurring without the fault of the Tenant or other persons permitted by
the Tenant to occupy or enter the demised premises or any part thereof), or
by act of God, or by insurrection, riot, invasion or commotion, or of
military or usurped power.
12. FIRE OR OTHER CASUALTY. That if, during the term of this lease
the said premises or the building shall be so damaged by fire or other
casualty, not arising from the fault or negligence of the Tenant or anyone
in his employ, so that the said premises shall thereby be rendered unfit
for use or occupation, then, and in such case the rent herein reserved, or
a just and proportionate part thereof, according to the nature and extent
of the damage which has been sustained, shall be abated until said premises
shall have been duly repaired and restored. If within 120 days of said
casualty, the Landlord,* in its sole discretion, determines the Demised
Premises or the Building are damaged to such an extent that the cost of
reconstruction would be impracticable, the Landlord shall, on thirty (30)
days notice, have the right to cancel this lease and end the term hereof.
In case of such cancellation the rent, and any other moneys due and owing
to the Landlord shall be paid by the Tenant up to the date the Tenant
vacates and delivers full possession and the keys of said premises, and all
further obligations upon the part of either party hereto, shall cease and
the estate hereby created shall thereupon terminate.
*OR TENANT
6
<PAGE>
In the event that any question shall arise between the Landlord and
the Tenant as to whether or not repairs shall have been made with
reasonable diligence, due allowance shall be made for any delay which may
arise in connection with the adjustment of the fire insurance and loss, and
for any delay arising out of inability to obtain materials and what are
commonly known as "labor trouble".
13. AVAILABILITY OF PREMISES AND ACCEPTANCE. That, if for any reason
the said premises shall not be ready or available for occupancy on the date
specified herein, this lease shall nevertheless continue in full force and
effect and the Tenant shall have no right to rescind, cancel or terminate
the same and the Landlord shall not be liable for damages, if any,
sustained by the said Tenant on account of failure to obtain possession at
the date specified for commencement of the term herein and in such event
the rent for the said premises shall not commence until the said Tenant is
notified that said premises are available and ready for occupancy, and the
date specified in the notification shall be used for the beginning of the
term of this lease. That the Tenant acknowledges that he has examined the
demised premises and appurtenances, and the taking of possession of said
premises by the Tenant shall be conclusive evidence, as against the Tenant
that the said premises and appurtenance were in good and satisfactory
condition when possession of the same were taken.
14. ENCUMBRANCES. That this lease is subject and subordinate to the
lien of any trust deeds or mortgages now on, or which at any time may be
made a lien upon the premises, or the building in which the demised
premises are situate, and to all advances made or hereafter to be made upon
the security thereof. The Tenant agrees to execute and deliver upon
request such further instrument or instruments subordinating this lease to
the lien of any such trust deeds or mortgages as shall be desired by any
mortgage or proposed mortgage. That the Tenant hereby appoints the
Landlord his attorney-in-fact irrevocably, to execute, acknowledge and
deliver any such instrument or instruments for the Tenant, as the Landlord
may deem necessary. Further, said Lease shall not take effect until
approved by the beneficiary of said mortgage or deed of trust.
15. PAYMENTS AFTER TERMINATION. No payments of money by the Tenant
to the Landlord, after the giving of notice of termination or demand for
possession by the Landlord to the Tenant, shall reinstate, continue or
extend the term of this lease or affect any notice given to the Tenant
prior to the payment of such money, it being agreed that after the service
of notice or the commencement of a suit or after judgment granting the
Landlord possession of
7
<PAGE>
said premises, the Landlord may receive and collect any sums of rent due,
or any other sums of money due under the terms of this lease, and the
payment of such sums of money, whether as rent or otherwise, shall not
waive said notice, or in any manner affect any pending suit or any judgment
theretofore obtained.
16. HOLDING AFTER TERMINATION. If the Tenant retains possession of
the premises, or any part thereof, after the termination of this lease by
lapse of time or otherwise, the Tenant shall pay to the Landlord rent at 1
and 1/2 times the rate of rental specified in this lease for the time the
Tenant thus remains in possession. If the Tenant remains in possession of
the premises, or any part thereof, after the termination of the term by
lapse of time or otherwise, the Landlord may thereafter terminate the
tenancy immediately and without notice. The provisions of this Article do
not waive the Landlord's right of re-entry or any other right under this
lease.
17. NOTICES. That any notice by the Landlord to the Tenant shall be
deemed to be duly given, if in writing and hand delivered to the Tenant in
person, by handing said notice to anyone at the Demised Premises, or posted
on the Demised Premises, or sent by registered or certified mail, deposited
in any general branch post office, enclosed in a prepaid envelope addressed
to the Tenant at the address of the demised premises. Any notice by the
Tenant to the Landlord shall be in writing and deemed to be duly given if
mailed by registered or certified mail, return receipt requested deposited
in any general, branch post office, enclosed in a prepaid envelope
addressed to 12600 W. Colfax Ave., Suite B-130, Lakewood, Colorado 80215.
18. CHANGE IN OR ABOUT PREMISES. That, in the event the demised
premises, or any part thereof, shall be taken and condemned for public
purposes by the proper authorities, then and in that event the rental shall
be adjusted in a fair and appropriate manner depending upon the portion of
the demised premises so taken. Otherwise, insofar as the remainder of the
demised premises are concerned, the said lease shall remain in full force
and effect, at the option of the Landlord.* It is further agreed that in
the event of condemnation proceedings, the Tenant shall have no claim
against the Landlord other than the adjustment of rent as hereinbefore
mentioned, and any award made shall be the sole property of the Landlord.
*OR TENANT
8
<PAGE>
19. LATE CHARGES. If the Tenant shall fail to pay the rental as
provided herein within ten days of due date as stipulated herein, the
Tenant agrees to pay an additional sum of 5% for each monthly rental
payment so in default to defray the additional bookkeeping and collection
costs, in addition to the payment of any other costs incurred by the
Landlord as provided herein.
20. ATTORNEYS FEES AND COSTS. The Tenant shall pay all attorney's
fees and expenses of the Landlord incurred to enforce any of the
obligations of the Tenant under this Lease, or in any litigation or
negotiation, in which the Landlord shall, without its fault, become
involved, through, or on account of, the Tenant, his guests, servants or
employees.
21. NOTICE OF TERMINATION. That in consideration of the rate of
rental as provided herein, time being the essence hereof, the Tenant hereby
agrees, at least sixty (60) days prior to the expiration of the terms
hereof, to give written notice to the Landlord of his intention to
surrender possession and vacate the demised premises during the final sixty
(60) day period of this lease, and failing to do so, the Tenant shall be
liable for and agrees to pay, upon request, an amount equal to two (2)
months rental as liquidated damages, and the Tenant agrees that said sum is
reasonable and shall not be considered as a penalty.
Nothing herein contained shall be deemed to require Landlord to extend
the terms of this Lease with Tenant or to enter into a new Lease with
Tenant unless mutually agreed-upon terms are negotiated and evidenced by a
written document signed by all parties hereto.
22. RULES AND REGULATIONS. It is further agreed that the rules and
regulations attached hereto shall be and are hereby made a part of this
Lease, and the Tenant agrees that the employees and agents, or any others
permitted by the Tenant to occupy or enter said premises, will at all times
abide by said rules and that a default in the performance and observance
thereof shall operate the same as any other defaults herein. Said rules
and regulations may be amended from time to time by Landlord and shall be
binding upon Tenant upon Tenant receiving notice of the same.
9
<PAGE>
23. TENANT IMPROVEMENTS. Notwithstanding anything herein contained
to the contrary, it is specifically understood and agreed that the Landlord
herein does not authorize the Tenant to make any additions, repairs or
replacements to the demised premises without first obtaining the Landlord's
written consent and satisfying the Landlord that the costs involved will be
paid in full by the Tenant, so that no person, firm, or corporation shall
be able to assert a lien against said property. Nothing herein contained
shall relieve the Tenant to make repairs or replacements as provided in
said lease.
24. WAIVER. No waiver of any breach of any one or more of the
conditions or covenants of this lease by the Landlord shall be deemed to
imply or constitute a waiver of any succeeding or other breach hereunder.
25. AMENDMENT OR MODIFICATION. The Tenant acknowledges and agrees
that he has not relied upon any statements, representations, agreements or
warranties, except such as are expressed herein, and that no amendment or
modification of this lease shall be valid or binding unless expressed in
writing and executed by the parties hereto in the same manner as the
execution of this lease.
26. GRAMMATICAL CHANGES. Whenever the words "Landlord" and "Tenant"
are used in this indenture, they shall include Landlords and Tenants and
shall apply to both men and women, companies, partnerships and
corporations, and in reading said Lease the necessary grammatical changes
required to make the provisions hereof mean and apply as aforesaid, shall
be made in the same manner as though written into this lease.
27. PARAGRAPH HEADINGS. That the head notes or paragraph headings
are inserted only as a matter of convenience and for reference and in no
way define, limit or describe the scope or intent of this lease.
28. DEMISED PREMISES MAINTENANCE. Tenant shall not employ any person
or persons other than the janitor of Landlord for the purpose of cleaning
the premises unless otherwise agreed to by landlord. Except with the
written consent of Landlord, no person or persons other than those approved
by Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenants shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and
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cleanliness. Landlord shall in no way be responsible to any Tenant for any
loss of property on the premises, however occurring, or for any damage done
to the effects of any Tenant by the janitor or any other employee or any
other person. Janitor service will be provided by Landlord five (5) nights
per week except for legal holidays and shall include ordinary dusting and
cleaning and shall not include cleaning of carpets or rugs, except normal
vacuuming, nor moving of furniture and other special services. Janitor
service will not be furnished on nights when rooms are occupied after 6:00
p.m. The janitor may at all times keep a passkey and shall be allowed
admittance to the leased premises.
29. BUILDING SERVICES. Landlord shall furnish heating and air
conditioning during the hours of 8:00 a.m. to 6:00 p.m. Monday through
Friday except for legal holidays. In the event Tenant requires heating and
air conditioning during off hours, weekends and holidays, Landlord shall on
notice provide such services at a rate to be agreed upon in writing with
the Tenant prior to furnishing same. Landlord reserves the right to close
and keep locked all entrance and exit doors of the building on weekends,
legal holidays and on other days between the hours of 6:00 p.m. and 8:00
a.m. and during such further hours as Landlord may deem advisable for the
adequate protection of said building and the property of its tenants.
30. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of
$*TRANSFER FROM PREVIOUS LEASE, for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant
defaults with respect to any provision of this Lease, including but not
limited to the provisions relating to the payment of rent, Landlord may
use, apply or retain all or any part of this security deposit for the
payment of any rent or any other sum in default, or for the payment of any
other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall within five (5)
days after written demand therefore deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall be a material breach of this Lease. Said
deposit shall not be considered as liquidated damages and if claims of
Landlord exceed said deposit, Tenant shall remain liable for the balance of
such claims. Landlord shall not be required to keep this security deposit
separate from its general funds and Tenant shall not be entitled to
interest on such deposit.
11
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If Tenant shall fully and faithfully perform every provision of this Lease
to be performed by it, the security deposit or any balance thereof shall be
returned to Tenant (or, at Landlord's option, to the last assignee to
Tenant's interest hereunder) sixty (60) days after the expiration of the
lease term and Tenant's vacation of the premises. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer
the deposit to Landlord's successor in interest whereupon Tenant agrees to
release Landlord from liability for the return of such deposit or the
accounting therefore.
31. PARKING. Tenant shall have the non-exclusive right to use in
common with Tenants within the building, their guests, invites and
customers, 43 SURFACE PARKING, 5 COVERED PARKING passenger automobile
parking space located in the parking lot adjacent to the building in which
the demised premises are located for which the Landlord takes no
responsibility in policing, but the Landlord reserves the right to
promulgate such rules and regulations as it may deem necessary from time to
time.
32. INSURANCE.
A. Property: Tenant shall procure and maintain at all times
during the term of this lease at its own cost, primary
insurance coverage for all of Tenant's leasehold
improvements and personal property in or about the demised
premises of the building, in an amount not less than ninety
percent (90%) of the replacement costs thereof, including
broad form fire and extended casualty coverage, sprinkler
leakage, vandalism and malicious mischief. Landlord shall
be named as an additional insured and shall be entitled to
recover thereunder for any loss occasioned to Landlord by
reason of Tenant's negligence. Any proceeds shall be used
for the repair or replacement of leasehold improvements
damaged or destroyed during the term of this Lease. Each
party for their insurers hereby waives all claims of
subrogation if any, insurer has against the other party so
long as both parties can grant such waivers under their
insurance policies without payment of additional premiums.
B. Liability: Tenant shall procure and maintain at its cost
public liability insurance in amounts not less than
$300,000/$500,000 with $100,000 property damage coverage and
workmen's compensation insurance as required by law to
protect Tenant's employees.
C. Tenant shall deliver certificates evidencing all insurance
to Landlord.
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33. SALE BY LANDLORD. In the event of a sale or conveyance by
Landlord of the Building containing the demised premises, the same shall
operate to release Landlord from any further liability upon any of the
covenants or conditions, expressed or implied herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the
responsibility of the successor in interest of Landlord in and to this
lease. This lease shall not be affected by any such sale, and the Tenant
agrees to attorn to the purchaser or assignee.
34. RELOCATION. If the Premises are less than 3,000 rentable square
feet, Tenant agrees that Landlord may relocate Tenant to other space in the
Building containing at lease the same amount of rentable space as is
contained in the Premises, provided that the rent is not increased above
the amount payable hereunder and the costs of relocating Tenant, including
the cost of altering the new space to make it comparable to the Premises,
is borne by Landlord.
35. BUILDING FINISH ITEMS.
A. Landlord will provide the following building standard finish
to Tenant:
1. DIRECTORY: One building standard directory strip will be
provided by Landlord, along with hallway suite sign.
2. WINDOW COVERINGS: Building standard blinds or drapes on
exterior windows.
3. AIR CONDITIONING: Landlord will provide building standard
heating, ventilating and air conditioning system as well as a
duct distribution system. However, Tenant will be responsible
for all construction costs associated with changes to mechanical
and electrical systems due to Tenant requirements which exceed or
differ from building standards, or from office as is now
existing.
4. GENERAL: All of the items and finishes listed herein will
conform to standard building specifications, as to color,
quality, and quantity. In the event Tenant desires material of
its choosing, different from the office as it now exists, or
desires light fixtures, electrical outlets or telephone outlets
or any other items, not already in the office, the cost of the
same shall be borne by the Tenant. The cost of modifications of
building standards for any item shall include the cost of
architectural and engineering and the increased cost of
construction.
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5. FIXTURES: It is further understood and agreed that any
improvement made as aforesaid shall become a part of the property
owned by the Landlord and be surrendered upon the termination of,
or the expiration of, the term of said office lease, in good
condition, ordinary wear and tear excepted.
6. LIMITATIONS: It is further agreed that the Landlord shall
not be called upon for any future expenditures on the demised
premises during the term of said lease except as specifically
provided in said office lease.
B. Space Design: Landlord will provide, at no cost to Tenant,
preliminary space planning and working drawing reflecting
Tenant's building standard requirements. Tenant will be
responsible for all architectural, mechanical and electrical
engineering costs associated with Tenant's requirements
which exceed or differ from building standard. Landlord
will coordinate at no cost to the Tenant, the construction
of Tenant's space with Landlord's contractor.
C. Landlord shall advise Tenant, upon the execution of this
Lease, of the estimated costs of any items required by
Tenant beyond the limitations set forth above and the Tenant
agrees to pay the Landlord 50% of the estimated costs upon
the execution of said office lease. Landlord hereby
acknowledges receipt of Tenant's share of such estimated
costs in the sum of $-0-. Landlord may, within sixty days
after Tenant's occupancy of the Demised Premises, render a
final itemized statement to the Tenant and a bill for the
balance of amounts due. Tenant agrees to pay in full, the
balance of any such additional costs to the Landlord within
thirty days of receipt of Landlord's bill and statement. In
the event Tenant fails to pay the amount so billed within
said thirty day period, Tenant agrees to pay any and all
costs, including reasonable attorney's fees, incurred in
collection of same or at Landlord's election, Tenant's
failure to pay shall be deemed a breach of said lease and
shall be grounds of termination thereof or such other
remedies as may be available to Landlord under or by Law.
14
<PAGE>
D. It is specifically understood that the Landlord does not
provide interior decorating services and all of such work
shall be performed by others for the Tenant at the Tenant's
sole costs and expense. All of Tenant's plan shall be
submitted in accordance with the provisions of this
Paragraph 37 and shall be deemed authorization by Tenant for
Landlord to proceed with that portion of the work shown in
Tenant plans which is to be performed by the Landlord in
accordance with this Paragraph 37.
36. INDEMNIFICATION:
A. TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall neither hold
nor attempt to hold Landlord, its employees or agents liable for
and Tenant shall defend, indemnify and hold Landlord, its
employees and agents harmless from and against any and all
claims, demands, causes of action, damages, liabilities,
judgments, and reasonable attorney fees arising from: (i) any
injury to or death of or damage to any person or property
sustained or incurring in, on or about the premises, unless due
to the gross negligence of Landlord, its agents or employees;
(ii) any act, omission or negligence of its concessionaires,
licenses, customers, invitees or guests; and (iii) any breach or
default in the performance or observance of any obligation on
Tenant's part to be performed or observed under this Lease. In
the event any action or proceeding is brought against Landlord,
its employees or agents by reason of any such claim, Tenant, upon
notice from Landlord, shall defend such action or proceeding at
Tenant's expense by counsel reasonably satisfactory to Landlord
(but Landlord shall accept counsel provided by Tenant's insurance
company defending such a claim).
B. LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall neither
hold nor attempt to hold Tenant, its employees or agents liable
for and Landlord shall defend, indemnify and hold Tenant, its
employees and agents harmless from and against any and all
claims, demands, causes of action, damages, liabilities,
judgments, and expenses and reasonable attorney fees arising from
the gross negligent acts or omissions of the Landlord, its agents
or employees with respect to: (i) any injury to or death of or
damage to any person or property sustained or occurring in, on or
about the common areas; (ii) any activity, work or thing done,
permitted or suffered by Landlord in, on or about the common
areas; and (iii) any breach or default in the performance or
observance of
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<PAGE>
any obligation on Landlord's part to be performed or observed
under this Lease. In the event any action or proceeding is
brought against Tenant, its employees or agents by reason of any
such claim, Landlord, upon notice from Tenant, shall defend such
action or proceeding at Landlord's expense by counsel reasonably
satisfactory to Tenant (but Tenant shall accept counsel provided
by Landlord's insurance company defending such a claim). The
foregoing indemnity agreement shall not apply to damage or injury
caused by the negligence or intentional acts of Tenants, its
agents or employees and Landlord shall not be liable for any such
damage or injury.
C. In the event Tenant has a right to indemnification from Landlord,
Tenant shall only be entitled to obtain compensation from the
proceeds of the building in which the Demised Premises are
located and except as set forth herein shall have no right to
proceed against the Landlord or any of the partners of the
Landlord.
37. PERSONAL PROPERTY TAXES. Tenant shall pay, before delinquent,
all taxes and charges levied, assessed, or imposed on Tenant's fixtures,
equipment and all other personal property in and on the Demised Premises,
whether or not affixed to the Real Property. Failure by Tenant to comply
with this paragraph shall be, at Landlord's option, a breach of this Lease.
38. REPLACEMENT LEASE. Upon request of Landlord or any mortgage
holder, Tenant shall agree to execute an identical Lease in replacement of
the then existing Lease between Tenant and Landlord in form for recording.
In the event of enforcement by the Beneficiary of the Deed of Trust or
the Trustee of the Deed of Trust (either shall be hereafter referred to
herein as "successor in interest") of their remedies provided for under the
Deed of Trust which is secured by this real property or by law, the Tenant,
upon request of any successor in interest as a result of such enforcement,
shall automatically become the tenant of said successor in interest,
without change in the terms or other provisions of this Lease; provided,
however, that said successor in interest shall not be bound by or liable
for (i) any payment of rent or additional rent for more than one (1) month
in advance, except prepayments in the nature of security of the performance
by Tenant of its obligations
<PAGE>
under this Lease provided the successor in interest has received such
security deposit from Landlord, (ii) any claim, offset or defense that had
previously accrued to Tenant against Landlord, or (iii) any amendment of
the Lease made without the consent of the successor in interest. Upon
request by the successor in interest, Tenant shall execute and deliver an
agreement confirming this attornment.
39. TENANT FINISH. Tenant has elected to have abatement of four (4)
months rent in leu of carpet, paint and tenant finish.
40. SIGNAGE. Tenant may place name on monument sign with prior
review and approval from Landlord.
41. CANCELLATION. Tenant or Landlord may cancel this lease, in
writing on or before October 1, 1994.
Notwithstanding any provisions to the contrary herein set forth,
unless this indenture of lease is executed by the Tenant hereinabove named
and returned to PROPP REALTY, INC. on or before the 25TH day of SEPTEMBER,
1994, then this indenture of lease shall be null and void and have no
binding effect.
EXECUTED this 21ST day of SEPTEMBER, 1994.
GOLDEN HILL PARTNERSHIP
By /s/ DARYLL PROPP
---------------------------------
Landlord Agent
By /s/ GEORGE A. KAST
---------------------------------
Tenant
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<PAGE>
RULES AND REGULATIONS
(1) The sidewalks, entries, passages, stairways shall not be
obstructed by the Tenant, or the agents, or used by them for any purpose
other than ingress and egress to and from their offices.
(2) a. Furniture, equipment or supplies shall be moved in or out of
the building only during such hours and in such manner as may be prescribed
by the Landlord.
b. No safe or article, the weight of which may constitute a
hazard to the building or the equipment, shall be moved into the premises.
c. Safes and other equipment, the weight of which is not
excessive shall be moved into, from or about the building only during such
hours and in such manner as shall be prescribed by the Landlord, and the
Landlord shall have the right to designate the location of such articles in
the space hereby demised.
(3) The name of the Tenant shall not be placed upon any part of the
premises except upon the hall suite sign of the demised premises and then
only by such sign writers and of such size, form and color, as shall be
first specified by the Landlord.
(4) Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of the Tenant, its agents or
employees, shall be paid for by the Tenant. No person shall waste water by
tying back or wedging the faucets, or in any other manner.
(5) No animals shall be allowed in the offices, halls or corridors in
the building.
(6) Bicycles or other vehicles shall not be permitted in the offices,
halls or corridors in the building, nor shall any obstruction of sidewalks
or entrances of the building be permitted.
(7) No person shall disturb the occupants of this or adjoining
buildings or premises by the use of any television, radio or musical
instrument or by the making of loud or improper noises.
(8) The Tenant shall not allow anything to be placed on the outside
window ledges of the building, nor shall anything be thrown by the Tenant,
its agents or employees, out of the windows or doors, or down the courts,
or skylights of the building.
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(9) No additional lock or locks shall be placed by the Tenant on any
door in the building unless written consent of the Landlord shall first
have been obtained. A reasonable number of keys to the demised premises
and to the toilet rooms will be furnished by the Landlord, and neither the
Tenant, the agents or employees, shall have any duplicate key made. At the
termination of this tenancy, the Tenant shall promptly return to the
Landlord all keys to offices, toilet rooms or vaults.
(10) No awnings shall be placed over the windows except by the written
consent of the Landlord.
(11) The Tenant, before closing and leaving the demised premises at
any time, shall close all windows in order to avoid possible damage from
fire, storm, freezing or the elements.
(12) The use of oil, gas or inflammable liquids for heating, lighting
or any other purpose is expressly prohibited. Explosives or other articles
deemed extra hazardous shall not be brought into the building.
(13) The Tenant shall not mark upon, paint signs upon, cut drill into,
or in any way deface the walls, ceiling, partitions or floors of the
demised premises or of the building, and any defacement, damage or injury
caused by the Tenant, its agents or employees, shall be paid for by the
Tenant.
(14) The Landlord shall at all times have the right, by its officers
or agents, to enter the demised premises to inspect and examine the same
and to show the same to persons wishing to lease, purchase or mortgage.
(15) The Landlord reserves the right to make such other and further
reasonable rules and regulations as in its judgment may from time to time
be needful and desirable for the safety, care and cleanliness of the
premises and for the preservation of good order therein.
(16) Tenant agrees to furnish at its cost and use chair pads under all
chairs and stools in the carpeted areas of the building throughout the term
of this lease unless the prior written consent of Landlord is obtained.
Attachment
19
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,
December 27, 1996, is made by and between N. R. Petry Co.("Lessor") and
Psychrometric Systems, 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 626 Mariposa St., Denver, CO 80204,
located in the County of Denver, State of Colorado, and generally described
as (describe briefly the nature of the property) approximately 17,712
square feet warehouse building and fenced yard area as shown on the
attached Exhibit A "Site Plan" ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 TERM: One years and 0 months ("Original Term") commencing January
6, 1997("Commencement Date") and ending January 5, 1998 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: ("Early Possession Date"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 BASE RENT: $4,428.00 per month ("Base Rent"), payable on the First
day of each month commencing January 6, 1997 (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: $3,713.81 as Base Rent for the
period January 6-31, 1997.
1.7 SECURITY DEPOSIT: $5,000.00 ("Security Deposit"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: warehouse and fabrication of cooling tower
components and related office activities (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):
Grubb & Ellis Company represents Lessor exclusively ("Lessor's
Broker"); and
Fuller & Company represents Lessee exclusively ("Lessee's Broker");
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 49 and Exhibits A all of which constitute a part of
this Lease.
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 thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
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, 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.
NET PAGE 1 Initials
<PAGE>
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 amend
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, at
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.
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 Lessors 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.
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, either 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 to the 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.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the
Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of 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 persons 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.
(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 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 ground water conditions,
and (iii) the use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spilt 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.
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
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as a result of Lessee's 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, floors,
windows, doors, plate glass, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about 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 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.
(b) ITEM WAS DELETED.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements
of Lessor contained in Paragraphs 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, except for walls (interior and exterior), foundations, roofs,
and skylights, 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, fire
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 costs $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 surety bond
satisfactory to Lessor in an amount equal to one and one-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.
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
be removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to by 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 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
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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
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 full 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 B+, 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 insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification
except after thirty (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.
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 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 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.
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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 13), Lessor may at Lessor's option, either:
(i) repair such damage as soon as reasonably possible at Lessors 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 to
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 to 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.
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, 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 intermingled 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.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"Real Property Taxes" shall include any form of real estate tax or
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 herein, 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 improvements 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.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee Owned Alterations,
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 taxed 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 10.1(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 which shall not
be unreasonably withheld, 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 which shall not be unreasonably
withheld. 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 not 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, which shall not be
unreasonably withheld, 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 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,
(i) 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, and (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.
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
without notifying 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) ITEM WAS DELETED.
(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, by 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 receipt of a 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 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.
(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 that 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.
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(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 the 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) WAS DELETED, (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.
(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 an
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 an 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 plus one percent. 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.
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 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 ten (10) 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 three (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
ten percent (10%) of the floor area of the Premises, or more than twenty-five
percent (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
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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.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement
between Lessor and said Brokers for brokerage services rendered by said
Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing,
Lessor further agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) or any Option subsequently granted which is
substantially similar to an Option granted to Lessee in this Lease, or (b)
if Lessee acquires any rights to the Premises or other premises described
in this Lease which are substantially similar to what Lessee would have
acquired had an Option herein granted to Lessee been exercised, or (c) if
Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of the term of this Lease after having failed to
exercise an Option, or (d) if said Brokers are the procuring cause of any
other lease or sale entered into between the Parties pertaining to the
Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be
deemed to have assumed Lessor's obligation under this Paragraph 15. Each
Broker shall be a third party beneficiary of the provisions of this
Paragraph 15 to the extent of its interest in any commission arising from
this Lease and may enforce that right directly against Lessor and its
successors.
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 or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings 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 then 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 three (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
obligations 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 hereinabove 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 Lessee to 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.
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 prepaid, 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 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.
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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 to
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) SECTION WAS DELETED, (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.
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. 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, nor 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). Unless otherwise
expressly agreed herein, Lessor reserves all rights to the use of the roof
and the right to install, and all revenues from the installation of, such
advertising signs on the Premises, including the roof, as do not
unreasonably interfere with the conduct of Lessee's business.
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 architect's, attorney's, 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. Subject to Paragraph 12.2(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.
(b) 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.
37.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall
be in the form most recently published by the American Industrial Real
Estate Association, and each said Guarantor shall have the same obligations
as Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to
give: (a) evidence of the due execution of the guaranty called for by this
Lease, including the authority of the Guarantor (and of the party signing
on Guarantor's behalf) to obligate such Guarantor on said guaranty, and
including in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such
guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor,
(c) a Tenancy Statement, or (d) written confirmation that the guaranty is
still in effect.
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,
or the right of first offer 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.
NET PAGE 9 Initials
<PAGE>
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the granted 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 noted 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 buildings
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.
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
and dedications that Lessor deems necessary, and to cause the recordation
of parcel maps and restrictions, so long as 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 or handwritten 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 REASONABLE 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 ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; 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 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 _______________________ on __________________________
by LESSOR:
N. R . Petry Co.
By: /s/ N.R. PETRY
Name Printed: N. R. Petry
Title: President
Tel No. (303) 629-5757 Fax No. (303) 629-7554
Executed at Lakewood, CO on January 6, 1997
by LESSEE:
Psychrometric Systems, Inc.
By: /s/ GEORGE A. KAST
Name Printed: George A. Kast
Title: President
Address: 12600 W. Colfax #C500
Lakewood, CO 80215
Tel. No. (303) 233-0400 Fax No. (303) 237-1877
NET PAGE 10
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) 687-6777. Fax No. (213) 687-8616.
Copyright 1990-By American Industrial Real Estate Association. All rights
reserved, No part of these works may be reproduced in any form without
permission in writing.
Form 204N-3/90
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATED December 27, 1996
BY AND BETWEEN (LESSOR) N.R. Petry Co.
(LESSEE) Psychrometric Systems, Inc.
PROPERTY ADDRESS: 626 Mariposa St., Denver, CO 80204
Paragraph 49
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 1 additional 24 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 12 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 are
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)
Initials:
OPTION(S) TO EXTEND
PAGE 1 OF 2
NOTICE: These forms are often modified to meed 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.
<PAGE>
/X/ III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be increased to the following amount on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
January 1, 1998 $4,797.00
January 1, 1999 $5,166.00
B. NOTICE: Unless specified otherwise herein, notice of any escalations
other than Fixed Rental Adjustments shall be made as specified in paragraph
23 of the attached Lease.
C. BROKER'S FEE:
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
OPTION(S) TO EXTEND
PAGE 2 OF 2
NOTICE: These forms are often modified to meed 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.
(c) 1991 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION.
<PAGE>
EXHIBIT A (Parking Area, Yard Area)
MAP SHOWING THE OFFICE BUILDING AND SURROUNDING PARKING AND YARD.
EXHIBIT 10.4
LEASE
THIS LEASE, dated OCTOBER 1, 1996, is between GEORGE A. KAST, the
Landlord, and PSYCHROMETRIC SYSTEMS, INC, the Tenant.
The Landlord, for and in consideration of the covenants and agreements
hereinafter mentioned, to be kept and performed by the Tenant, does hereby
lease to the Tenant, the premises situate in the County of KOOTENAI, State
of IDAHO, described as follows:
600 RIVER AVENUE, COEUR D' ALENE, IDAHO 83814
LOTS 1 AND 2, BLOCK 36, MARCOTT TRACT
Said premises, with the appurtenances, are to be leased to the Tenant
from OCTOBER 1, 1996, until SEPTEMBER 30, 2001, at and for a rental of
$74,280.00, payable in monthly installments of $ 1,238.00, in advance, on
or before the 5th day of each and every month during the term of this lease
at the office of the Landlord or as the Landlord may direct in writing.
The Tenant further covenants with the Landlord that Tenant has received
said premises in good order and condition, and at the expiration of the
term of this lease will yield up said premises to the Landlord in as good
order and condition as when the same were entered upon by the Tenant, loss
by fire, inevitable accident and ordinary wear excepted, and will keep said
premises in good repair during said term at tenant's own expense.
IT IS FURTHER AGREED by the Tenant that no part of the premises will
be sublet, nor will this lease be assigned, without the written consent of
the Landlord being first obtained. Tenant will not use nor permit the
premises to be used for any purposes prohibited by the laws of the United
States or of the State of Idaho or the ordinances of the city or town in
which the premises is located.
IT IS MUTUALLY AGREED that if, after the expiration of this lease, the
Tenant shall remain in possession of said premises and continue to pay rent
without a written agreement as to such possession, then the Tenant shall be
regarded as a tenant from month to month at a monthly rental payable in
advance equivalent to the last month's rent hereunder, and subject to all
the terms and provisions of this lease.
IT IS FURTHER MUTUALLY AGREED that in case said premises are left
vacant and any part of the rent herein reserved be unpaid, then the
Landlord may, without in any wise being obligated to do so and without
terminating this lease, re-take possession of said premises and rent the
same for such rent and upon such conditions as the Landlord may think best,
making such changes and repairs as may be required, giving credit for the
amount of rent so received less all expenses of such changes and repairs,
and the Tenant shall be liable for the balance of the rent herein reserved
until the expiration of the term of this lease.
IT IS AGREED that if the Tenant shall be in arrears in the payment of
any installment of rent, or any portion thereof, or in default of any of
the covenants or agreements herein contained to be performed by the Tenant,
which default shall be uncorrected for a period of three (3) days after
Landlord has given written notice pursuant to applicable law, Landlord may,
at Landlord's option, undertake any of the following remedies without
limitation: (a) declare the term of the lease ended; (b) terminate the
Tenant's right to possession of the premises and reenter
<PAGE>
and repossess the premises pursuant to applicable provisions of the
Colorado Forcible Entry and Detainer Statute; (c) recover all present and
future damages, costs and other relief to which the Landlord is entitled;
(d) pursue Landlord's lien remedies; (e) pursue breach of contract
remedies; and/or (f) pursue any and all available remedies in law or
equity. In the event possession is terminated by a reason of default prior
to expiration of the term, the Tenant shall be responsible for the rent
occurring for the remainder of the term, subject to the Landlord's duty to
mitigate such damages. In the event repeated or substantial default(s)
under the lease occur, the Landlord may terminate the Tenant's possession
upon a written Notice to Quit, without a right to cure. Upon such
termination, the Landlord shall have available any and all of the above-
listed remedies.
This lease shall be subordinate to all existing and future security
interests on the premises. All notices shall be in writing and be
personally delivered or sent by first class mail, unless otherwise provided
by law, to the respective parties at the address immediately below their
signature. If any term or provision of this lease shall be invalid or
unenforceable, the remainder of this lease shall not be affected thereby
and shall be valid and enforceable to the full extent permitted by law.
This lease shall only be modified by amendment signed by both parties.
This lease shall be binding on the parties, their personal representatives,
successors and assigns. The singular shall be deemed to include the
plural.
Additional provisions:
TENANT SHALL BE RESPONSIBLE FOR ALL PROPERTY TAXES,
UTILITIES, INSURANCE, MAINTENANCE AND IMPROVEMENT
COSTS. TENANT SHALL REMIT A DAMAGE DEPOSIT Of
$1,238.00 TO BE HELD BY THE LANDLORD UNTIL THE
EXPIRATION OF THE LEASE.
Landlord: /s/ George A. Kast Tenant: /s/Gary L. Brown
Psychrometric Systems, Inc.
Address: 3388 W. 62nd Avenue
Denver, CO 80221 Address: 12600 W. Colfax Avenue
Lakewood, CO 80215
EXHIBIT 10.5
SUBLEASE
--------
THIS SUBLEASE (this "SUBLEASE"), dated as of February 27, 1998, is by
and between THE COLEMAN COMPANY, INC., a Delaware corporation
("SUBLANDLORD"), GLOBAL WATER TECHNOLOGIES, INC., a Delaware corporation
("SUBTENANT"), and GEORGE A. KAST, an individual ("KAST"), as to the
purchase option and purchase obligations set forth below.
R E C I T A L S
---------------
A. Sublandlord entered into that certain Lease and Security
Agreement, dated as of December 27, 1995, as amended by that certain
Amendment No. 1 [Colorado Lease], dated as of April ___, 1996 (as amended,
the "MASTER LEASE"), with Sumitomo Bank Leasing and Finance, Inc., a
Delaware corporation ("SUMITOMO"), as landlord, pursuant to which
Sublandlord leases certain real property and the improvements thereon (the
"PROPERTY") located in Golden, Colorado, as more fully described in the
Master Lease, having a street address of 1767 Denver West Boulevard,
Golden, Colorado. A copy of the Master Lease is attached hereto and,
subject to Paragraph 5 below, incorporated herein by this reference as
EXHIBIT "A."
B. Subtenant desires to sublet from Sublandlord and Sublandlord
desires to sublet to Subtenant, the Property, as more fully described
below.
AGREEMENT
---------
For and in consideration of the covenants and agreements herein
contained, Sublandlord and Subtenant hereby agree as follows:
1. SUBLEASE OF THE PROPERTY. Subject to and upon the terms,
provisions and conditions of this Sublease, Sublandlord hereby leases to
Subtenant, and Subtenant hereby leases from Sublandlord, the Property.
2. TERM. The term of this Sublease shall commence on March 10,
1998 and shall end on December 31, 2000, unless sooner terminated pursuant
to law or as provided in this Sublease or the Master Lease; provided,
however, that no expiration or termination of the term of this Sublease
shall relieve Subtenant of its liabilities or obligations hereunder or
relieve Kast of his obligation hereunder to purchase the Property, all of
which shall survive such expiration or termination. Such term of this
Sublease is hereinafter referred to as the "TERM."
3. USE. Subtenant shall use the Property only for the use or uses
permitted under the Master Lease.
<PAGE>
4. RENT; SECURITY DEPOSIT.
(a) Commencing on May 1, 1998, Subtenant shall pay to
Sublandlord base rent (the "BASE RENT") as follows:
May 1, 1998 through December 31, 1998: $20,680 per month;
January 1, 1999 through December 31, 1999: $22,560 per month; and
January 1, 2000 through December 31, 2000: $24,440 per month.
Subtenant shall not be obligated to pay any Base Rent to
Sublandlord for the period between the commencement of the Term and April
30, 1998. Base Rent may be increased in accordance with the provisions of
Section 29(c) below. Each such monthly payment of Base Rent shall be
payable on the date that is ten Business Days (as defined in the Master
Lease) prior to the Payment Date (as defined in the Lease) or other date
that the corresponding payment of Rent (as defined in the Master Lease) is
due under the Master Lease. All Base Rent and other charges due hereunder
shall be paid without notice, demand, offset or deduction (except as may be
specifically permitted pursuant to the terms hereof) in immediately
available lawful currency of the United States of America at the address of
Sublandlord set forth in Paragraph 26 below or such other place as
Sublandlord may from time to time designate in writing.
(b) Subtenant has deposited with Sublandlord the sum of $39,607
as a security deposit (the "DEPOSIT"). Sublandlord shall retain the
Deposit as security for the full and faithful performance of every
provision of this Sublease to be performed by Subtenant. If Subtenant or
Kast defaults with respect to any provision of this Sublease, including,
but not limited to the provisions relating to the payment of rent or the
purchase of the Property, Sublandlord may use, apply or retain all or any
part of the Deposit for the payment of any rent or any other sum in
default, or for the payment of any amount which the Sublandlord may spend
or become obligated to spend by reason of Subtenant's default or to
compensate the Sublandlord for any other loss or damage which the
Sublandlord may suffer by reason of Subtenant's default or may apply the
Deposit against the liquidated damages Kast is required to pay pursuant to
Section 29(b)(iii) below; on the condition that if Kast pays the entire
amount of liquidated damages due pursuant to Section 29(b)(iii) below
within five days after the date that such amounts are due, Sublandlord will
not apply the Deposit against the liquidated damages. If any portion of
the Deposit is used or applied in accord with this Paragraph 4(b),
Subtenant shall within five days after the written demand thereof deposit
cash with Sublandlord in an amount sufficient to restore the Deposit to its
original amount and Subtenant's failure to do so shall be deemed to be a
material breach of this Sublease. Sublandlord shall not be required to
keep the Deposit separate from its general funds and Subtenant shall not be
entitled to interest on the Deposit; however, subject to Sublandlord's
rights to use, apply or retain the Deposit set forth in this Section 4(b),
Sublandlord acknowledges that Sublandlord is holding the Deposit in trust
for Subtenant. If Subtenant and Kast shall fully and faithfully perform
each and every provision of this Sublease, then, and only then, the Deposit
or any balance thereof shall be returned to the Subtenant at the expiration
of the Term and upon Subtenant's vacation of the Property; provided,
however, that in no event shall Sublandlord be under any obligation to
return the Deposit earlier than 60 days after the expiration of the Term or
after the Subtenant's vacation of the Property, whichever occurs last;
however,
-2-
<PAGE>
Sublandlord agrees that if Subtenant is entitled to the return of the
Deposit pursuant to the terms hereof, Sublandlord will return such Deposit
to Subtenant within 120 days after the expiration of the Term or the
Subtenant's vacation of the Property, whichever occurs last.
5. MASTER LEASE.
(a) This Sublease is subject and subordinate to the Master
Lease. Except as may be inconsistent with the terms hereof and except for
Sections 7.1, 7.4, 7.5, 15.2, 26.6, 26.7, 26.8, 26.9, 26.10, 32.1(b), 33.4
and 33.8 and Articles II, III, IV, V, VI, XX (other than to the extent set
forth in Section 16(a) below), XXI, XXII, XXIII, XXIV, XXV, XXX and XXXI of
the Master Lease, all of the terms, provisions, covenants and conditions of
the Master Lease are hereby incorporated herein and shall be applicable to
this Sublease as if Sublandlord was the landlord under the Master Lease
and Subtenant was the tenant thereunder (i.e, for purposes of interpreting
the Master Lease as incorporated herein by this Paragraph 5, all references
to "Lessor" in the Master Lease shall mean Sublandlord and all references
to "Lessee" shall mean Subtenant). This Sublease and the Master Lease are
intended by Sublandlord and Subtenant to be construed together to give the
broadest possible effect and interpretation thereof for the benefit of
Sublandlord; provided, however, that if it is not possible to construe this
Sublease and the Master Lease together for the benefit of Sublandlord with
respect to a particular provision or provisions, then the provision or
provisions of this Sublease shall control in connection therewith.
Subtenant shall and hereby agrees to be subject to and bound by and to
comply with all of those provisions of the Master Lease incorporated herein
with respect to the Property as if Subtenant was the Lessee thereunder, to
satisfy all applicable terms and conditions of the Master Lease for the
benefit of Sublandlord and Sumitomo, and to defend, indemnify and hold
Sublandlord harmless against any and all claims or liability to Sumitomo or
any other party for failure to do so.
(b) In the event of default by Subtenant or Kast under this
Sublease (including, without limitation, the provisions of the Master Lease
incorporated herein), Subtenant agrees that at Sublandlord's option,
Sublandlord shall have the same remedies with respect to Subtenant that
Sumitomo has with respect to Sublandlord under the Master Lease or such of
those remedies as Sublandlord determines in its sole discretion are
applicable and elects to exercise. Notwithstanding anything to the
contrary contained herein, it is further understood and agreed that
Sublandlord has no duty or obligation to Subtenant or Kast under the
provisions of the Master Lease incorporated herein and any covenants or
obligations of Sumitomo under the Master Lease shall not be deemed to be
covenants or obligations of Sublandlord hereunder.
(c) If the Master Lease shall be terminated for any reason,
Subtenant's right to possession of the Premises pursuant to this Sublease,
if not sooner terminated hereunder, shall automatically terminate on the
effective date of termination of the Master Lease (whether or not an Event
of Default (as defined in Paragraph 16 below) has occurred hereunder) and
Sublandlord shall not be liable to Subtenant or any other person for loss,
damage or expense resulting therefrom; provided, however, that if such
termination is a result of a default under the Master Lease which is not
also a default by Subtenant under this Sublease and Kast is ready, willing
and able to purchase the Property at such time but Sublandlord is unable or
unwilling to cause
-3-
<PAGE>
Sumitomo to convey the Property to Kast at such time, then Sublandlord
shall be liable to Subtenant and Kast for actual (but not consequential)
damages in an amount not to exceed $100,000 in the aggregate for both
Subtenant and Kast, plus up to $25,000 in actual damages to the extent
actually paid by either Subtenant or Kast to a subtenant leasing a portion
of the Property from Subtenant or Kast for the actual (not consequential)
damages of such subtenant. Neither Subtenant nor Kast shall be entitled to
recover any other damages from Sublandlord in connection with a termination
of the Master Lease. If such termination shall be due to the fault of
Subtenant or a breach by Subtenant or a failure by Subtenant to perform any
of its obligations hereunder (including the provisions of the Master Lease
incorporated herein), Sublandlord shall be entitled to recover from
Subtenant and Subtenant shall pay, in addition to all other sums to which
Sublandlord may be entitled, all damages, losses, costs and expenses
(including attorneys' fees) suffered or incurred by Sublandlord as a result
of such termination.
(d) Whenever the provisions of the Master Lease require the
written consent of Sumitomo thereunder, those provisions shall be construed
to require the written consent of both Sublandlord and Sumitomo. Subtenant
represents that it has read and is familiar with the terms of the Master
Lease and understands its obligations thereunder.
(e) If the Property or any part thereof shall be taken by right
of eminent domain or by condemnation or conveyed in lieu of any such
taking, Sublandlord shall be entitled to any and all awards, damages and
settlements that may be given with respect to the Property (subject to any
rights of Sumitomo under the Master Lease) and Subtenant and Kast hereby
assign to Sublandlord any and all right, title and interest in any such
awards, damages and settlements with respect to the Property and neither
Subtenant nor Kast shall have any claim against Sublandlord for the value
of any unexpired term of this Sublease or the purchase option; provided,
however, Sublandlord shall have no interest in any award made to Subtenant
for the interruption of Subtenant's business or for the taking of any of
Subtenant's fixtures or other personal property if a separate award for
such items is made to Subtenant. Notwithstanding any casualty or
condemnation affecting the Property or other portions of the Property, the
Term shall continue in effect, unless the Master Lease is terminated and
Subtenant shall not be entitled to an abatement of rent or any other remedy
unless Sublandlord is entitled to such abatement or other remedy under the
terms of the Master Lease and then only to the extent of such abatement or
remedy that Sublandlord is entitled to under the Master Lease.
(f) In the event that a default occurs in respect to
Sublandlord's obligations under the Master Lease which is not also a
default by Subtenant under this Sublease, Sublandlord shall immediately
provide to Subtenant a copy of any notice of such default received by
Sublandlord from Sumitomo and Sublandlord agrees that Subtenant may cure
the default within the same cure period, if any, as may be provided to
Sublandlord by Sumitomo.
(g) In the event that a default occurs in respect of
Sublandlord's obligations under the Master Lease which is not also a
default by Subtenant under this Sublease, and Subtenant is entitled to and
effects a cure of such default, Subtenant shall have a right to offset
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against rent and other amounts due under this Sublease any amounts paid by
Subtenant to cure Sublandlord's default if, but only if, such default
relates directly to the Property.
6. PREPARATION AND ACCEPTANCE OF THE PROPERTY.
(a) Any tenant improvements or alterations to the Property
required by Subtenant prior to its occupancy thereof shall be at
Subtenant's sole cost and expense and shall be subject to the requirements
contained in Paragraph 11 below. Subject to Section 6(b) below, taking
possession of the Property by Subtenant shall be conclusive evidence as
against Subtenant and Kast that Subtenant and Kast accept the Property "AS
IS" at that time and that the Property is in good and satisfactory
condition. Except as set forth in Section 6(b) below, Sublandlord shall
have no obligation whatsoever to remodel, renovate or alter the Property or
to pay for any remodeling, renovation or alterations. Sublandlord has not
made and hereby disclaims any representation or warranty whatsoever
concerning the condition of the Property and compliance or lack of
compliance by the Property with applicable building, health, fire safety
and other governmental codes and requirements including, without
limitation, those relating to accessibility and specifically including the
Americans with Disabilities Act and all regulations and guidelines
promulgated thereunder (collectively, the "ADA"). Without in any way
limiting the obligations of the Subtenant under the provisions of the
Master Lease incorporated herein, Subtenant shall be responsible for
compliance of the Property with applicable governmental codes and
requirements, including the ADA, solely at Subtenant's expense, subject
only to Kast's rights under Section 29(d) below and the provisions of
Section 6(b) below.
(b) In the event that (i) the Property does not comply with the
Americans With Disabilities Act (the "ADA"), (ii) Subtenant provides
Sublandlord evidence acceptable to Sublandlord that the Property does not
so comply on or before July 1, 1998, and (iii) Subtenant provides
Sublandlord evidence acceptable to Sublandlord of the cost to cause the
Property to comply with the ADA, Sublandlord will pay 50% of the actual
cost to cause the Property to comply with the ADA up to an amount not to
exceed payment of $50,000 by Sublandlord, which amounts shall be paid as
and when incurred by Subtenant upon Subtenant providing Sublandlord
evidence reasonably acceptable to Sublandlord of the amount of expenses
actually incurred by Subtenant and evidence that Subtenant has or will pay
its 50% share of such expenses; provided that all work done to cause the
Property to comply with ADA shall be subject to and must be done in
accordance with the terms and conditions of this Sublease and the Master
Lease.
7. SERVICES. Notwithstanding any other provision of this Sublease
to the contrary, the only services, utilities or rights to which Subtenant
is entitled hereunder are those to which Sublandlord is entitled, if any,
under the Master Lease. Otherwise, if not the obligation of Sumitomo under
the Master Lease, Subtenant shall, to the extent it desires utility
services or other services to the Property, make its own arrangements in
its own name, for such services to the Property, and Subtenant shall pay
all costs of obtaining such services, including without limitation, any and
all deposits, service initiation or transfer charges, line extension costs
and other such fees and costs. Subtenant shall pay, when due, directly to
the service provider, all charges for gas, electricity, steam, water,
telephone, snow removal and other utilities or services furnished to the
Property during the Term.
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8. TAXES. Subtenant shall pay when due, all real estate taxes
(whether special or general, ordinary or extraordinary), special
improvement and other assessments (ordinary and extraordinary), water rents
and charges, and all other taxes, duties, charges, fees and payments that
are imposed, assessed or levied by any governmental or public authority
with respect to the Property, or that arise in connection with the use,
occupancy or possession of the Property or any part thereof during the Term
(collectively, the "GOVERNMENTAL IMPOSITIONS"). In each case, Subtenant
shall pay all such Governmental Impositions directly to the taxing
authority and deliver to Sublandlord and Sumitomo copies of the receipted
bills or other evidence satisfactory to Sublandlord and Sumitomo showing
such payment promptly after Subtenant receives receipts showing the payment
thereof. In addition, Subtenant shall perform all obligations with respect
to taxes and other Governmental Impositions set forth in the Master Lease.
9. PERMITS. Subtenant shall, at Subtenant's sole cost and expense,
procure every permit, license, certificate or other authorization required
in connection with the use of the Property by Subtenant or required in
connection with any building or improvements now or hereafter erected on
the Property.
10. INSURANCE/USE OF INSURANCE AND CONDEMNATION PROCEEDS.
(a) At all times during the term of this Sublease, Subtenant
shall carry and maintain, at Subtenant's expense, insurance in the amounts
and with the coverages required under the Master Lease from time to time.
All policies of insurance required hereunder shall name Sublandlord and
Sumitomo as additional insureds, and executed copies of such policies or
certificates thereof shall be delivered to Sublandlord and Sumitomo in
accordance with the provisions of the Master Lease.
(b) Use of insurance and condemnation proceeds is governed by
and subject to the terms of the Master Lease. In the event that
Sublandlord is entitled to the use of either insurance proceeds or
condemnation proceeds to rebuild or restore the Property pursuant to the
terms of the Master Lease, Sublandlord shall make such proceeds available
to Subtenant subject to and in accordance with all of the terms and
conditions of the Master Lease and such other terms and conditions as
Sublandlord may reasonably require.
11. ALTERATIONS BY SUBTENANT. In connection with any proposed
alterations, renovations, improvements or additions to the Property,
Subtenant shall comply with the terms and conditions of Section 14.1 of the
Master Lease; except that any consent required thereto shall require the
consent of Sublandlord and Sumitomo (unless Sublandlord in its sole
discretion determines that the consent of Sumitomo is not required, in
which event only the consent of Sublandlord shall be required).
12. MAINTENANCE AND REPAIR. In connection with the maintenance and
repair of the Property, Subtenant shall comply with the terms and
conditions of Section 13.1 of the Master Lease.
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13. ASSIGNMENT AND SUBLETTING.
(a) Except as set forth in (b) below, neither Subtenant nor Kast
shall assign, convey, mortgage, hypothecate or encumber this Sublease or
any interest herein or sublet all or any part of the Property, or suffer or
permit the Property or any part thereof to be used by others (any and all
of which hereinafter shall be referred to as a "transfer"), without the
prior written consent of Sublandlord in each instance, which consent shall
not be unreasonably withheld or delayed. Any attempted transfer without
Sublandlord's prior written consent shall be void and shall confer no
rights upon any third person. If any transfer shall occur, with or without
Sublandlord's prior consent, Sublandlord may, after default by Subtenant,
collect rent from the assignee, sub-Subtenant or other transferee, and
apply the net amount collected to the Base Rent, but no such transfer or
collection shall be deemed a waiver of the provisions of this Paragraph 13,
or the acceptance of the assignee, sub-Subtenant or other transferee as the
Subtenant hereof, or a release of Subtenant from the further performance by
Subtenant of covenants on the part of Subtenant contained in this Sublease.
The consent by Sublandlord to a transfer shall not relieve Subtenant from
primary liability hereunder or from the obligation to obtain the express
consent in writing of Sublandlord to any further transfer.
(b) (i) Subtenant shall be entitled to lease the basement of
the Property consisting of approximately 14,000 square feet (the "BASEMENT
SPACE") to Kast without the consent of Sublandlord or Sumitomo and either
Subtenant or Kast shall be entitled to lease the Basement Space to any
other party (a "SUB-SUBTENANT") without the consent of Sublandlord or
Sumitomo; on the condition that any sublease entered into by Subtenant or
Kast shall expressly provide that it is subject and subordinate in all
respects to the Master Lease and this Sublease and that any such subtenancy
shall terminate and be of no further force and effect upon the termination
of the Master Lease or this Sublease.
(ii) Any base rent, operating expense reimbursements or
other payments received from any Sub-subtenant shall be paid by Subtenant
or Kast to Sublandlord immediately upon receipt of such amounts by
Subtenant or Kast (any such amounts paid to Sublandlord are hereinafter
referred to as "SUB-SUBTENANT PAYMENTS").
14. ACCESS. In addition to the rights set forth in the Master Lease,
Sublandlord and its agents and employees shall have the right, upon
reasonable notice to Subtenant (except in cases of emergency, in which
event no notice is required), to undertake the following: to enter the
Property at all times to examine it, to show the Property to interested
parties such as prospective mortgagees or to post notices provided for by
Section 38-22-105(2) of Colorado Revised Statutes (1973, as amended), and
for any other purpose that Sublandlord deems necessary or desirable for the
protection of Sublandlord, Sumitomo or the Property. If during the Term
Subtenant shall have removed all or substantially all of Subtenant's
property from the Property, Sublandlord may immediately enter and alter,
renovate and redecorate the Property without incurring liability to
Subtenant for any compensation or damages, and such acts shall not entitle
Subtenant to any elimination or abatement of Base Rent and shall not have
the effect of terminating this Sublease or making this Sublease void or
voidable. If Subtenant is not present to open the Property for any such
entry, Sublandlord may gain entry by use of a master key and in
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an emergency by any means (including breaking any doors or windows) without
rendering Sublandlord, its agents or employees liable therefor and without
in any manner affecting the obligations and covenants of this Sublease. In
exercising its rights under this Paragraph 14, Sublandlord shall use
reasonable efforts to minimize any interference with Subtenant's use of the
Property.
15. SURRENDER; HOLDOVER.
(a) Pursuant to the provisions of this Sublease, Kast is
obligated to purchase the Property. In the event that Kast fails to
purchase the Property prior to the expiration of the Term or immediately
upon the earlier termination of the Term (which failure would constitute a
breach and default hereunder), Subtenant shall surrender possession of the
Property to Sublandlord and shall deliver the Property in as good a
condition as it was at the commencement of the Term, or as subsequently
improved by alterations and repairs, reasonable wear and tear excepted, and
all mechanical, electrical and plumbing systems for which Subtenant is
responsible shall be in good working order. Subtenant further agrees that
the Property shall be free of any hazardous or toxic materials, substances
or waste (as such term may be defined or used in any law, statute,
ordinance, code, rule or regulation) deposited or introduced in, on, under,
over, from or around the Property during the Term. Subtenant shall
indemnify, defend and hold harmless Sublandlord and Sumitomo from and
against any and all liabilities, claims, demands, losses, damages, costs,
expenses (including attorneys' fees), judgments, proceedings and causes of
action of any kind whatsoever in any way arising out of or connected with
hazardous or toxic materials, substances or waste deposited or introduced
in, on, under, over, from or around the Property during the Term.
Subtenant's indemnification obligation set forth in this Paragraph 15 shall
survive the expiration or earlier termination of the Term.
(b) Pursuant to the provisions of this Sublease, Kast is
obligated to purchase the Property. In the event that Kast fails to
purchase the Property prior to the termination of the Term or immediately
upon the earlier termination of the Term (which failure would constitute a
breach and default hereunder) and if Subtenant or anyone claiming under
Subtenant holds over in the Property after the end of the Term without the
express written consent of Sublandlord, Subtenant shall be deemed to be
illegally retaining possession and shall pay Sublandlord monthly during the
entire holdover period, as liquidated damages for loss of use of the
Property, an amount equal to 125% of the Base Rent payable immediately
prior to the end of the Term. In the event of any unauthorized holding
over, Subtenant shall indemnify Sublandlord against all claims for damages
by any person to whom Sublandlord may have leased all or any part of the
Property effective after the termination of this Sublease. No such holding
over and no acceptance by Sublandlord of payments of liquidated damages as
provided in this Paragraph 15 shall be construed to extend this Sublease or
to constitute Subtenant a Subtenant of the Property on any basis whatsoever
or constitute a waiver by Sublandlord of Subtenant's obligation to purchase
the Property in accordance with the terms of this Sublease or the Master
Lease.
16. DEFAULTS. The occurrence or existence of any one or more of the
following events constitutes a default under this Sublease ("EVENTS OF
DEFAULT"):
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(a) MASTER LEASE. Any "Event of Default" under the Master Lease
relating to those provisions of the Master Lease incorporated into this
Sublease pursuant to Paragraph 5 above; or
(b) NONPAYMENT. Subtenant fails to pay any Base Rent or other
sum payable hereunder by Subtenant to Sublandlord when the same becomes due
and payable; or
(c) NONPERFORMANCE. Subtenant fails to perform or comply with
any other term, covenant, condition, obligation, requirement or provision
hereof (including the terms of the Master Lease incorporated herein) and
such failure continues for more than 15 days after Sublandlord gives
written notice thereof to Subtenant, unless a shorter cure period or no
cure period is specified in this Sublease or the Master Lease in which
event Subtenant shall have only such cure period as is specified in this
Sublease or the Master Lease; or
(d) IMPERMISSIBLE TRANSFER. Subtenant enters into any lease,
sublease, assignment or other Transfer of its interest in this Sublease or
the Property, or any part thereof, except as expressly permitted by and in
accordance with Paragraph 13 above; or
(e) ATTACHMENT. Any execution or attachment is issued whereby
any of the Property will be taken or is attempted to be taken by someone
claiming through or under the Subtenant, if the same is not vacated or
discharged within ten days after the issuance thereof; or
(f) INSOLVENCY AND BANKRUPTCY. Subtenant or Kast becomes unable
to pay its or his debts as they become due, or makes a general assignment
for the benefit of creditors, or is adjudicated bankrupt or insolvent, or
is the subject of any voluntary or involuntary petition in that regard, or
files any petition or answer seeking, consenting to, or acquiescing in
reorganization, arrangement, adjustment, composition, liquidation,
dissolution or similar relief, under any present or future statute, law or
regulation or files an answer admitting or failing to deny the material
allegations of a petition against it or him for any such relief; or
(g) PROCEEDINGS NOT DISMISSED. Proceedings against Subtenant or
Kast of the type referred to in Paragraph 16(f) above or seeking any such
relief are not dismissed within sixty days after commencement; or
(h) APPOINTMENT OF RECEIVER. Any trustee, receiver or
liquidator is appointed with respect to Subtenant or any substantial part
of its properties or assets or with respect to the Property, provided that
if such an appointment is made without the application, consent or
acquiescence of Subtenant, the appointment constitutes a default only if it
remains unvacated or unstayed for an aggregate of 60 days (regardless of
whether consecutive).
(i) NON-PERFORMANCE BY KAST. Kast fails to perform or comply
with any of the terms, covenants, conditions, obligations or requirements
of Section 29 below.
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(j) CONTROL OF SUBTENANT. Kast shall at any time cease (i) to
own at least 40% of the issued and outstanding common stock of Subtenant or
(ii) to have the ability to control the decisions and operations of
Subtenant.
17. REMEDIES.
(a) REMEDIES. Upon the occurrence or existence of an Event of
Default, Sublandlord may at any time thereafter, in addition to the
exercise of all available remedies at law and in equity (and none of the
following, whether or not exercised by Sublandlord, shall preclude the
exercise of any other right or remedy whether herein set forth or existing
at law or equity):
(i) Require Kast to purchase the Property for an amount
equal to the Purchase Price (as defined in Section 29(a) below) plus all
Base Rent and other amounts then owing under this Sublease (the "PUT
OPTION"), the closing which purchase shall occur on the date designated by
Sublandlord in a written notice to Kast. In the event that Kast fails to
purchase the Property following Sublandlord's exercise of the Put Option,
Sublandlord's rights and remedies against Kast shall be governed by Section
29(b) below.
(ii) Exercise any of Sumitomo's remedies under the Master
Lease.
(iii) Give a written termination notice to Subtenant,
and upon the date specified in such notice (subject to the provisions of
this Paragraph 17 relating to the survival of Subtenant's obligations), the
Term of this Sublease shall expire and terminate, and all rights of
Subtenant under this Sublease shall cease without the necessity of reentry
or any other act on Sublandlord's part. Sublandlord shall have the right
to terminate this Sublease by giving Subtenant such written notice at any
time. No act by or on behalf of Sublandlord, such as entry of the Property
by Sublandlord to perform maintenance and repairs and efforts to relet the
Property, other than giving Subtenant written notice of termination, shall
terminate this Sublease. Upon any termination of this Sublease, Subtenant
shall quit and surrender to Sublandlord the Property as set forth in
Paragraph 15 above. If this Sublease is terminated, Subtenant shall be and
remain liable to Sublandlord for damages as hereinafter provided and
Sublandlord shall be entitled to recover forthwith from Subtenant as
damages an amount equal to the total of (1) all Base Rent and other sums
accrued and unpaid at the time of termination of the Lease, plus interest
thereon at the Interest Rate (as defined in Paragraph 24 below), and (2)
the amount of Base Rent and all other sums that would have been payable
hereunder if this Sublease had not been terminated, less the net proceeds,
if any, of any reletting of the Property, after deducting all Sublandlord's
expenses in connection with such reletting, including, but without
limitation, all repossession costs, brokerage commissions, Subtenant
inducements, legal expenses, reasonable attorneys' fees, alteration,
remodeling and repair costs, expenses of employees, and expenses of
preparation for such reletting, which damages Subtenant shall pay to
Sublandlord on the days on which the Base Rent would have been payable if
this Sublease had not terminated, or, alternatively, at Sublandlord's
option, an amount equal to the present value (discounted at the rate of 5%
per annum) of the balance of the Base Rent and other sums payable for the
remainder of the stated term of this Sublease after the termination date
less the present value (discounted at the
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same rate) of the reasonable rental value of the Property for such period,
plus all of Sublandlord's expenses incurred in repossessing the Property
and reletting (or attempting to relet) the Property, including, but without
limitation, the expenses enumerated above, and all other amounts necessary
to compensate Sublandlord fully for all damage caused by Subtenant's
default.
(iv) Without demand or notice, enter upon and repossess the
Property or any part thereof, and repossess the same as of Sublandlord's
former estate and expel Subtenant and those claiming through or under
Subtenant, and remove the effects of any and all such persons, by force,
summary proceedings, ejectment or otherwise, without being deemed guilty of
any manner of trespass and without prejudice to Sublandlord's rights to
recover Base Rent and damages. Sublandlord shall be under no liability for
or by reason of any such entry, repossession or removal. If Sublandlord
elects to reenter as provided in this Paragraph 17(a)(iv), or if
Sublandlord takes possession pursuant to legal proceedings or pursuant to
any notice provided for by law, Sublandlord may, from time to time, without
terminating this Sublease, relet the Property or any part thereof as
provided in Paragraph 17(a)(v) below. No such reentry, repossession or
reletting of the Property by Sublandlord shall be construed as an election
on Sublandlord's part to terminate this Sublease unless a written notice of
termination is given to Subtenant by Sublandlord. No such reentry,
repossession or reletting of the Property shall relieve Subtenant of its
liability and obligation under this Sublease, all of which shall survive
such reentry, repossession or reletting. Upon the occurrence of such
reentry or repossession, Sublandlord shall be entitled to the amount of the
monthly Base Rent, and all other sums, which would be payable hereunder if
such reentry or repossession had not occurred, less the net proceeds, if
any, of any reletting of the Property after deducting all of Sublandlord's
expenses in connection with such reletting, including, but without
limitation, the expenses enumerated in Paragraph 17(a)(iii) above.
Subtenant shall pay such amounts to Sublandlord on the days on which the
Base Rent would have been payable hereunder if possession had not been
retaken. If this Sublease is terminated as a result of Sublandlord's
actions in retaking possession of the Property or otherwise, Sublandlord
shall be entitled to recover damages from Subtenant as provided in
Paragraph 17(a)(ii) above.
(v) At any time or from time to time after the repossession
of the Property or any part thereof pursuant to Paragraph 17(a)(iv) above,
regardless of whether the Term of this Sublease has terminated pursuant to
Paragraph 17(a)(iii) above, relet the Property or any part thereof for the
account of Subtenant, in the name of Subtenant or Sublandlord or otherwise,
without notice to Subtenant, for such term or terms (which may be greater
or less than the period which would otherwise have constituted the balance
of the Term of this Sublease) and on such conditions (which may include
concessions or free rent) and for such uses as Sublandlord, in its
uncontrolled discretion, may determine, with the right to make alterations
and repairs to the Property, and may collect and receive the rents
therefor. Notwithstanding Sublandlord's ability to relet the Property,
Sublandlord has no obligation in that regard, and Subtenant expressly
disclaims any rights or claims that it may have to require such reletting
by Sublandlord as mitigation. In no event shall Subtenant be entitled to
receive the excess, if any, of net rent collected by Sublandlord as a
result of such reletting over the sums payable by Subtenant to Sublandlord
hereunder.
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(b) TERMINATION DOES NOT RELIEVE SUBTENANT OR KAST OF
OBLIGATIONS. No expiration or termination of the Term of this Sublease
pursuant to Paragraph 17(a)(iii) above or by operation of law or otherwise
(except as expressly provided herein), and no repossession of the Property
or any part thereof pursuant to Paragraph 17(a)(iv) above or otherwise,
shall relieve Subtenant or Kast of their liabilities and obligations
hereunder (including, without limitation, Kast's obligation to purchase the
Property), all of which shall survive such expiration, termination or
repossession.
(c) NO LIMITATION AS TO PROOF OF LIQUIDATED DAMAGES. No
provision of this Sublease limits or prejudices the right of Sublandlord to
prove and obtain as liquidated damages by reason of any termination of this
Sublease an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which,
such damages are to be proved, whether such amount is greater, equal to or
lesser than the amount referred to above. Sublandlord has the right to
recover from Subtenant the damages and other sums provided for above by
suit or suits brought from time to time without Sublandlord being required
to wait until the expiration of the Term of this Sublease, or if this
Sublease is terminated, the date on which such expiration would have
occurred.
(d) MULTIPLE REMEDIES. Upon the occurrence of an Event of
Default hereunder, Sublandlord shall be entitled to exercise all rights and
remedies provided for pursuant to this Section 17 and to obtain all damages
to which Sublandlord may be entitled pursuant to this Section 17 in
addition to liquidated damages against Kast pursuant to Section 29(b)
below.
(e) RIGHT TO RECEIVERSHIP. In addition to all other remedies of
Sublandlord set forth in this Sublease and available at law or in equity,
upon the occurrence or existence of an Event of Default that is not cured
within the time periods specified therefor, Sublandlord shall be entitled
to a receiver for the Property (including all improvements, fixtures and
equipment and appurtenances thereto) and of the rents, issues and profits
thereof as a matter of right, and such receiver may be appointed by any
court of competent jurisdiction upon EX PARTE application and without
notice, notice being hereby expressly waived. All rents, issues and
profits, income and revenues from the Property shall be applied by such
receiver to the payment of Base Rent and other sums due under this
Sublease, together with Governmental Impositions and insurance premiums and
expenses of receivership. Upon the curing of all Subtenant's defaults,
possession of the Property shall be returned to Subtenant and the
receivership terminated.
(f) NON-WAIVER. Sublandlord's exercise of or failure to
exercise any right or remedy available to it does not constitute a waiver
thereof or of the default by Subtenant. Sublandlord's exercise of any
right or remedy does not preclude its exercise of any other right or remedy
available to it under this Sublease, at law or in equity. Sublandlord's
acceptance of payments of Base Rent at a time when Sublandlord has
knowledge of any default or Event of Default does not constitute a waiver
of such default or Event of Default or of any right or remedy of
Sublandlord.
(g) FEES AND EXPENSES. In addition to all other rights of the
Sublandlord herein or incorporated herein by reference from the Master
Lease, in the event of any breach by
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Subtenant or Kast of any of the terms or provisions of this Sublease or
failure of the Subtenant or Kast to perform any of Subtenant's or Kast's
obligations hereunder or under the Master Lease, in addition to all other
rights and remedies of Sublandlord, Sublandlord shall be entitled to
collect all fees and expenses incurred by Sublandlord in connection with
such breach or default or any action taken by Sublandlord in connection
therewith, including without limitation, attorneys' fees and expenses.
18. ENVIRONMENTAL MATTERS.
(a) In addition to complying with all of the terms and
conditions of the Master Lease, Subtenant shall and shall cause its agents,
employees, contractors and invitees to use the Property and conduct any
operations thereon in compliance with all federal, state and local
environmental laws, rules, regulations, ordinances, judicial or
administrative decrees, orders, decisions, authorizations or permits
pertaining to the protection of human health and/or the environment
("ENVIRONMENTAL LAWS"), including, but not limited to, the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901, et seq. ("RCRA"), the
Clean Air Act, 42 U.S.C. ss.7401, et seq.("CAA"), the Federal Water
Pollution Control Act, 33 U.S.C. ss.1251, et seq.("FWPCA"), the Emergency
Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss. 9601, et seq.("CERCLA"), the Toxic Substances Control Act, 15
U.S.C. ss.2601, et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss.2701,
et seq., and any other local, state (including, without limitation,
Colorado) or federal statute or ordinance pertaining to the environment or
natural resources and all regulations pertaining thereto and any permits,
approvals or judicial or administrative orders issued thereunder. For
purposes of this Sublease, "HAZARDOUS SUBSTANCES" shall mean any and all
hazardous or toxic substances, hazardous constituents, contaminants,
wastes, pollutants or petroleum (including, without limitation, crude oil
or any fraction thereof), including, without limitation, hazardous or toxic
substances, pollutants and/or contaminants as such terms are defined in any
of the Environmental Laws; asbestos or material containing asbestos; and
PCBs, PCB articles, PCB containers, PCB article containers, PCB equipment,
PCB transformers or PCB-contaminated electrical equipment (as such terms
are defined in Part 761 of Title 40, Code of Federal Regulations).
Subtenant covenants that:
(i) No Hazardous Substances shall be generated, treated,
stored or disposed of, or otherwise deposited in or located on the
Property;
(ii) No activity shall be undertaken on the Property which
would cause:
(1) The Property to become a hazardous waste
treatment, storage or disposal facility within the meaning of, or otherwise
cause the Property to be in violation of RCRA or any similar state law or
local ordinance;
(2) A release or threatened release from any source on
the Property of Hazardous Substances from the Property within the meaning
of, or otherwise cause
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the Property to be in violation of, CERCLA or any similar state law or
local ordinance or any other environmental law;
(3) The discharge of pollutants or effluents into any
water source or system, or the discharge into the air of any emissions,
which would require a permit under FWPCA or CAA or any similar state law or
local ordinance;
(iii) There shall be no substances or conditions in or
on the Property which may support a claim or cause of action under RCRA,
CERCLA, any other Environmental Laws or under any common law claim relating
to environmental matters, or could result in recovery by any governmental
or private party of remedial or removal costs, natural resources damages,
property damages, damages in personal injuries or other costs, expenses or
damages, or could result in injunctive relief arising from any alleged
injury or threat of injury to health, safety or the environment; and
(iv) There shall be no underground storage tanks or release
or threatened releases from such tanks located on the Property.
(b) If it is discovered that any Hazardous Substances have been
deposited, released, discharged or otherwise caused to exist, on or from
the Property, in violation of the provisions of this Paragraph 18, then
Subtenant agrees promptly to remove, clean up or take such other remedial
action with regard to such substances as may be required by applicable law
or regulations. Any such remedial action shall be the sole responsibility
of Subtenant and shall be conducted solely at Subtenant's expense. If
Subtenant fails to commence or diligently pursue such remedial action in
Sublandlord's sole judgment, then, after written notice to Subtenant,
Sublandlord may declare an event of default under this Sublease and
exercise any and all remedies hereunder, and/or cause the taking of such
remedial action as may be required solely at Subtenant's expense.
Subtenant grants to Sublandlord, its agents and employees access to the
Property and the license to carry out such remedial action.
(c) Subtenant shall give Sublandlord prompt notice of any of the
following occurrences arising with regard to the Property or Subtenant's
activities thereon:
(i) Any spill, release, threatened release or other
occurrence that would constitute a violation of the provisions of Paragraph
18(a) above;
(ii) The notification of any of the events set forth in
Paragraph 18(c)(i) above to any federal, state or local governmental agency
or authority;
(iii) Any notices, claims or allegations of
environmental violations or contamination received from any federal, state
or local governmental agency or authority or the filing or commencement of
any judicial or administrative proceeding by any such agency; or
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(iv) The filing or threatened filing (in writing) of any
judicial or administrative proceeding by any private party alleging injury
or threat of injury to property, health, safety or the environment relating
in any way to any environmental matter.
(d) Subtenant hereby agrees to indemnify, defend and hold
harmless Sublandlord and Sublandlord's agents, employees, officers,
directors, shareholders, members, and contractors (all of such entities and
persons being referred to herein individually as an "INDEMNIFIED PERSON"
and collectively as the "INDEMNIFIED PARTIES") from and against any and all
liabilities, claims, demands, actions and causes of action whatsoever
(including, without limitation, attorneys' fees and expenses, and costs and
expenses reasonably incurred in investigating, preparing or defending
against any litigation or claim, action, suit, proceeding or demand of any
kind or character) to which any Indemnified Person may be subject arising
out of or relating to any alleged contamination of the Property arising
from any violation of Subtenant's obligations under this Paragraph 18.
Those costs, damages, liabilities, losses, claims, expenses (including,
without limitation, attorneys' fees and disbursements) for which the
Indemnified Parties are indemnified hereunder shall be reimbursable as
incurred without any requirement of waiting for the ultimate outcome of any
litigation, claim or other proceeding, and Subtenant shall pay such costs,
damages, liabilities, losses, claims and expenses (including, without
limitation, attorneys' fees and disbursements) as incurred by Sublandlord
or other Indemnified Persons within 15 days after notice itemizing the
amounts incurred to the date of such notice.
(e) Sublandlord hereby agrees to indemnify, defend and hold
harmless Subtenant and Subtenant's agents, employees, officers, directors,
shareholders, members, and contractors (all of such entities and persons
being referred to herein individually as an "INDEMNIFIED PERSON" and
collectively as the "INDEMNIFIED PARTIES") from and against any and all
liabilities, claims, demands, actions and causes of action whatsoever
(including, without limitation, attorneys' fees and expenses, and costs and
expenses reasonably incurred in investigating, preparing or defending
against any litigation or claim, action, suit, proceeding or demand of any
kind or character) to which any Indemnified Person may be subject arising
out of or relating to any alleged contamination of the Property as a result
of any action by Sublandlord. Those costs, damages, disbursements for
which the Indemnified Parties are indemnified hereunder shall be
reimbursable as incurred without any requirement of waiting for the
ultimate outcome of any litigation, claim or other proceeding, and
Subtenant shall pay such costs, damages, liabilities, losses, claims and
expenses (including, without limitation, attorneys' fees and disbursements)
as incurred by Sublandlord or other Indemnified Persons within 15 days
after notice itemizing the amounts incurred to the date of such notice.
(f) The obligations of Subtenant set forth in this Paragraph 18
shall survive the expiration or earlier termination of this Sublease or the
exercise by Sublandlord of any of its remedies hereunder.
19. Intentionally Deleted.
20. PUBLIC DEDICATION; ADVERSE POSSESSION. Subtenant shall not, and
nothing in this Sublease may be construed to give Subtenant the authority
to, dedicate any
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portion of the Property to public use, Subtenant shall take any and all
necessary and appropriate actions (including without limitation periodic
and temporary closures of any access roadway) to ensure that no portion of
the Property is inadvertently dedicated to any public authority or to
public use. Subtenant shall take all necessary and appropriate actions to
ensure that no portion of the Property becomes subject to a claim for
adverse possession, prescriptive easement rights or other similar claims.
21. INDEMNITY; WAIVER.
(a) In addition to indemnifying Sublandlord in connection with
each of the indemnification provisions of the Master Lease incorporated
into this Sublease (including, without limitation, Article XXVI of the
Master Lease) pursuant to Paragraph 5 above, Subtenant shall indemnify,
defend and hold harmless Sublandlord and Sublandlord's agents, employees,
officers, directors, shareholders, members, and contractors from and
against any and all liabilities, losses, causes of action, suits, claims,
demands, judgments, damages, penalties, costs, expenses (including without
limitation, reasonable attorneys' fees and costs), claims, suits or actions
due to or in any way arising out of or resulting from or related to (a) any
breach, violation or nonperformance of any obligation of Subtenant or Kast
under this Sublease, (b) Subtenant's use or occupancy of the Property or
the condition of the Property, (c) any act, thing or work done or omitted
to be done in, on or about the Property or adjacent property by Subtenant
or any of the agents, contractors, servants, employees, licensees, visitors
or guests of Subtenant, (d) any contest of Governmental Impositions or
Requirements of Law (as defined in the Master Lease) by Subtenant
authorized by this Sublease, and (e) any damage to property or any injury
to persons (including death resulting at any time therefrom) in, on, under
or about the Property from any cause. If any action is brought against
Sublandlord by reason of any such claim, Subtenant, upon notice from
Sublandlord, agrees to defend any such action or proceeding at Subtenant's
expense by counsel reasonably satisfactory to Sublandlord. Subtenant and
Kast waive all claims against Sublandlord for damage or injury to person or
property arising, or asserted to have arisen, from any cause whatsoever,
including without limitation, any negligence or alleged negligence of
Sublandlord or its agents, employees, directors, officers, shareholders,
members, or contractors (other than gross negligence or willful misconduct
of Sublandlord). Subtenant's and Kast's obligations under this Paragraph
21 shall survive the expiration or earlier termination of this Sublease.
(b) Subject to the provisions of Section 27 below and the
limitation that damages resulting from the termination of this Sublease may
not exceed $100,000 in the aggregate (plus $25,000 in actual Subtenant
damages) set forth in Section 5(c) above, Sublandlord hereby indemnifies
and holds Subtenant, Subtenant's nominees, officers, directors, agents,
employees, successors and assigns harmless from and against any and all
claims, demands, liabilities, and expenses, including attorneys' fees and
litigation expenses, caused by (i) the gross negligence or willful
misconduct of Sublandlord or (ii) a breach of this Agreement by
Sublandlord. In the event any action or proceeding shall be brought
against Subtenant by reason of any such claim, Sublandlord shall defend the
same at Sublandlord's expense by counsel selected by Sublandlord and
reasonably acceptable to Subtenant.
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22. SUBTENANT ESTOPPEL CERTIFICATE. Subtenant agrees at any time and
from time to time, (a) to execute, acknowledge and deliver to Sublandlord
and Sumitomo any and all estoppel certificates required under the Master
Lease, and (b) within 10 days after request by Sublandlord or by the holder
of any mortgage or deed of trust on Sublandlord's interest in the Property,
to execute, acknowledge and deliver to Sublandlord or the holder of such
instrument, a statement in writing certifying that this Sublease is
unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications); that to the best of Subtenant's knowledge there
are no defaults hereunder by Sublandlord, if such is the fact, and
otherwise specifying such defaults in detail; that there are no defenses or
offsets to the Lease by Subtenant, or stating such defenses or offsets as
are claimed by Subtenant; the dates to which Base Rent and other charges
have been paid, and such other information concerning this Sublease, the
Property and Subtenant as may be reasonably requested. Subtenant's failure
to deliver such certificate within such time shall be a material default of
Subtenant and shall be conclusive upon Subtenant that this Sublease is in
full force and effect without modification except as may be represented by
Sublandlord, that there are no uncured defaults in Sublandlord's
performance and that no more than one month's Base Rent has been paid in
advance. Any statement delivered pursuant to this Paragraph 22 may be
relied upon by the holder of any such mortgage, deed of trust or other
instrument of security or any prospective purchaser of Sublandlord's
interest in the Property.
23. NO ABATEMENT. Except as otherwise provided herein or in the
Master Lease, in no event whatsoever will there be any abatement or
reduction of any Base Rent or other sums payable by Subtenant for any
reason, including without limitation, diminution of the amount of usable
space caused by legally required changes in the construction, operation or
use of the Property or due to the construction of improvements on the
Property or the public dedication of any portion of the Property.
24. INTEREST UPON ARREARS OR UPON DEFAULT. Every installment of Base
Rent accruing under this Sublease and all other sums becoming due or
payable to Sublandlord under this Sublease or on account of any default by
Subtenant in performance or observance of any of the covenants of this
Sublease, will, if it is not paid when due, bear interest from the due date
until the same is paid at the rate of 12% per annum, or if such rate
exceeds the maximum rate of interest that may be legally charged, such
maximum rate (the "INTEREST RATE"). All sums advanced or paid by
Sublandlord under the provisions of this Sublease are due and payable with
the installment of Base Rent next becoming due after the date of such
advance or payment.
25. SURVIVAL OF OBLIGATIONS. Subtenant's obligations to pay Base
Rent reserved herein and to pay all other sums payable hereunder
attributable to the Term of this Sublease and Kast's obligation to purchase
the Property shall survive the expiration or earlier termination of this
Sublease.
26. NOTICE AND BILLS. Any bill, statement, notice, demand or other
communication which either party may desire or be required to give shall be
in writing and shall be given by personally delivering a copy thereof to
the person specified below at the following
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address or by sending a copy thereof by certified or registered United
States mail, postage prepaid, addressed as follows:
If to Subtenant:
---------------
GLOBAL WATER TECHNOLOGIES, INC.
12600 West Colfax Avenue, Suite C500
Lakewood, CO 80215
Attention: George A. Kast
If to Kast:
----------
George A. Kast
12600 West Colfax Avenue, Suite C500
Lakewood, CO 80215
If to Sublandlord:
-----------------
THE COLEMAN COMPANY, INC.
625 Madison Avenue
New York, NY 10022
Attention: General Counsel
Any communication given as herein provided shall be deemed given when
personally delivered or when mailed. Each party shall have the right to
designate a different address or a different person, or both, to which or
to whom communications shall be sent or delivered, by written notice given
as provided herein.
Subtenant shall deliver copies of all bills, statements, notices,
demands or other communications required to be given by Lessee under the
Master Lease to both Sublandlord and Sumitomo (such communications to
Sumitomo to be in accordance with the provisions of the Master Lease).
27. LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary expressly or impliedly contained in this Sublease, there shall be
absolutely no personal liability of Sublandlord or any person, firm,
partnership, association, or other entity who or which constitutes
Sublandlord, or of any shareholder, directors, officers, partner, member,
or employee of Sublandlord, under or with respect to any of the terms,
covenants, conditions or provisions of this Sublease, or of any violation
hereof (except for (1) the actual damages in an amount not to exceed
$100,000 plus $25,000 referred to in Paragraph 5(c) above, or (2) any
breach of Sublandlord's obligation in Section 29(a)(i) below to pay any
amount by which the amount owing to Sumitomo in connection with the
exercise of the Purchase Option exceeds the Purchase Price, and Subtenant
and Kast shall look solely to the interest of Sublandlord in the Master
Lease for the satisfaction of each and every claim and remedy of Subtenant
or Kast in the event of any default or violation whatever by Sublandlord
hereunder; such exculpation of personal liability is absolute and without
any exception or modification whatever, now or hereafter.
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28. CONSENT OF SUMITOMO. This Sublease shall not be effective unless
and until the written consent of Sumitomo, substantially in the form and
substance of EXHIBIT "B" attached hereto and incorporated herein by this
reference, has been executed by Sumitomo and delivered to Sublandlord.
29. PURCHASE OPTION; PURCHASE OBLIGATION.
(a) (i) Subject to the provisions of Section 29(c) and 29(d)
below, Kast shall have the right during the Term to cause Sublandlord to
exercise the Purchase Option (as defined in the Master Lease) set forth in
Section 22.1 of the Master Lease. The purchase price payable by Kast in
connection with Kast's purchase of the Property under this Paragraph 29
shall be an amount equal to (A) $5,800,000 plus (B) $460.20 per day from
May 1, 1998 to the date of the closing of the purchase (which amounts
represent rent for the Basement Space which is being abated and added to
the Purchase Price), minus (C) any Sub-subtenant Payments paid to
Sublandlord pursuant to Section 13(b)(ii) above, subject to customary
prorations at closing (such amount is referred to herein as the "PURCHASE
PRICE") notwithstanding the amount of the Purchase Option Price (as defined
in the Master Lease) which Sublandlord would owe to Sumitomo under Section
22.1 of the Master Lease in connection with such exercise of the Purchase
Option. Sublandlord represents, warrants and covenants to Kast that, as of
the date of this Sublease, the Purchase Option Price would be $5,800,000
and that Sublandlord shall pay any amount by which the amount owing to
Sumitomo in connection with such exercise of the Purchase Option exceeds
the Purchase Price. In order to cause Sublandlord to exercise such right,
Kast shall deliver written notice (the "OPTION NOTICE") to Sublandlord
(acknowledged by Subtenant) not more than 180 days and not less than 120
days prior to the closing date of such purchase under the Master Lease.
Kast shall not be entitled to exercise the Purchase Option (but Sublandlord
shall be entitled to exercise the Put Option) at any time after the
occurrence of an Event of Default by Subtenant hereunder, except that if
Kast provides an Option Notice and the Escrowed Funds within 10 days after
the occurrence of an Event of Default hereunder and pays all Base Rent and
other amounts due hereunder within 10 days after the occurrence of an Event
of Default, Kast shall be entitled to purchase the Property, on the
condition that Sublandlord shall continue to have and may exercise all
remedies available against Subtenant as a result of such Event of Default.
Delivery of the Option Notice shall constitute the irrevocable agreement of
Kast that Kast will tender the Purchase Price set forth hereinabove and
purchase the Property in the manner and at the time required under the
Master Lease. In addition, at the time that Kast provides the Option
Notice to Sublandlord, Kast shall place in escrow with a title insurance
company acceptable to Sublandlord the entire amount of the Purchase Price
(the "ESCROWED FUNDS"); subject to an escrow agreement that shall provide
(A) in the event that Kast completes the purchase of the Property in
accordance with the terms of this Sublease, the Escrowed Funds shall apply
to the Purchase Price and (B) notwithstanding any contrary instructions
from Kast, upon delivery of a deed to the title company which complies with
the provisions of Section 29(e) below, Sublandlord shall immediately be
entitled to the Escrowed Funds and the title company shall release the
Escrowed Funds to Sublandlord. The Sublandlord's receipt of the Escrowed
Funds shall in no way limit any other remedies that Sublandlord has against
Kast pursuant to the provisions hereof.
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(ii) Upon receipt of the Option Notice and such evidence
from Subtenant, Sublandlord shall provide the notice to Sumitomo required
pursuant to the Master Lease in a timely fashion to facilitate closing on
or before the closing date contemplated by the Master Lease. Upon receipt
of the Option Notice from Kast, Kast shall have irrevocably elected to
exercise the Purchase Option. Notwithstanding anything to the contrary
herein, in the event that Kast fails to complete the purchase for any
reason after delivery of the Option Notice, Sublandlord shall be entitled
to obtain specific performance or damages (including without limitation the
Escrowed Funds) or both from Kast.
(iii) If Kast is unable to exercise the Purchase Option
due to a default under the Master Lease of which neither Subtenant nor Kast
is aware as of the date of the exercise by Kast of the Purchase Option and
receipt by Sublandlord of the Option Notice and which is not also a default
under this Sublease, then Sublandlord shall be liable to Subtenant (but not
Kast) for actual (but not consequential) damages incurred by Subtenant in
connection therewith. Otherwise, Subtenant's and Kast's remedies shall be
limited as set forth in Section 5(c) and 27 above.
(b) (i) Unless Kast shall have properly caused Sublandlord to
exercise the Purchase Option pursuant to Paragraph 29(a) above and
purchased the Property pursuant thereto, Kast shall purchase the Property
at the end of the Term for the Purchase Price. In such event, the closing
of such purchase shall occur on or before December 31, 2000, subject to
Sublandlord's right to extend such closing date for a reasonable period of
time in order to permit Sublandlord to acquire the Property from Sumitomo.
(ii) Upon the occurrence of an Event of Default, Sublandlord
shall be entitled to exercise the Put Option pursuant to Section 17(a)(i)
above and require Kast to purchase the Property.
(iii) If Kast breaches his obligation to purchase the
Property pursuant to Section 29(b)(i) or (ii) above (and has not provided
the Option Notice pursuant to Section 29(a) above), Sublandlord shall be
entitled to liquidated damages as its sole and exclusive remedy against
Kast in the amount of $503,000 (a sum which reflects in part that rent for
the Basement Space is being abated) minus (A) the amount of the Deposit
retained by Sublandlord if the Deposit is in fact retained by Sublandlord
and (B) the amount of any Sub-subtenant Payments received by Sublandlord
pursuant to Section 13(b)(ii) above. In the event of a breach of Kast's
obligations pursuant to Section 29(b)(i) or (ii) above, the parties
acknowledge and agree that it would be difficult to determine Sublandlord's
exact damages and that the amount set forth above is a reasonable estimate
of damages and not a penalty. Notwithstanding the foregoing, in the event
that Kast provides the Option Notice pursuant to Section 29(a) above,
Sublandlord's remedies shall be governed by Section 29(a) above.
(c) If (i) Subtenant notifies Sublandlord in writing on or
before July 1, 1998 of a defect in the physical condition of the Property,
(ii) Subtenant provides Sublandlord evidence acceptable to Sublandlord of
the existence of such defect, (iii) Subtenant provides Sublandlord evidence
acceptable to Sublandlord that the cost to repair such defect exceeds 5% of
the Purchase
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Price, and (iv) Sublandlord receives a written request executed by Kast and
Subtenant requesting that Subtenant's obligation under 29(b) above be null
and void, then Kast's obligations under Paragraph 29(b) above (as well as
his rights under Section 29(a) above) shall be null and void, unless
Sublandlord notifies Kast that Sublandlord will repair such defect and
diligently proceeds to repair such defect (which shall be at Sublandlord'
sole option and Sublandlord shall have no duty to do so). Except as set
forth in (d) below, in the event that Kast's obligation to purchase the
Property under Paragraph 29(b) above becomes null and void, then the Base
Rent shall increase, effective the day that Subtenant provides the written
notification required pursuant to Section 29(c)(iv) above as follows, and
from and after such date, Subtenant shall pay to Landlord Base Rent in the
amount set forth below MINUS the amount of Sub-subtenant Payment actually
received by Sublandlord during such month:
May 1, 1998 through December 31, 1998: $33,514 per month;
January 1, 1999 through December 31, 1999: $36,560 per month; and
January 1, 2000 through December 31, 2000: $39,607 per month.
(d) In the event that (i) the Property does not comply with the
Americans With Disabilities Act (the "ADA"), (ii) Subtenant provides
Sublandlord evidence acceptable to Sublandlord that the Property does not
so comply on or before July 1, 1998, (iii) Subtenant provides Sublandlord
evidence acceptable to Sublandlord that the cost to cause the Property to
comply with the ADA would exceed 5% of the Purchase Price, and (iv)
Sublandlord receives a written request executed by Kast and Subtenant on or
before July 1, 1998 requesting that Kast's obligation under 29(b) above be
null and void, then Kast's obligations under Paragraph 29(b) above (as well
as his rights under Section 29(a) above) shall be null and void, unless
Sublandlord notifies Kast that Sublandlord will cause the Property to
comply with the ADA, which will be at Sublandlord's sole option (and
Sublandlord shall have no obligation to do so). In the event that Kast's
obligation to purchase the Property under Paragraph 29(b) above shall
become null and void in accordance with the provisions of this Section
29(d), the Base Rent shall not increase in the manner set forth in (c)
above and Subtenant shall be entitled to retain any Sub-subtenant payments
received after such date.
(e) Kast agrees that in connection with any acquisition of the
Property by Kast pursuant to this Sublease that Sublandlord may, at its
option, cause Sumitomo to convey the Property directly to Kast by means of
a quit claim deed. Subtenant, Kast and Sublandlord each further agree to
execute and deliver all documents and instruments reasonably necessary in
order to effectuate the purchase transactions contemplated under this
Sublease. Sublandlord and Kast also agree that any conveyance to Kast
pursuant to this Sublease shall be "as is" and by quit claim deed and
without any representations or warranties; provided, however, that
Sublandlord shall convey, or cause Sumitomo to convey, the Property to Kast
subject to no other recorded exceptions to title other than (i) the
exceptions to title existing as of the date hereof, (ii) any exceptions to
title agreed to by Subtenant or Kast or being claimed by, through or under
Subtenant or Kast, or (iii) any other exceptions to title which do not
materially impair the value or use of the Property (it being understood
between Kast and Sublandlord that mechanics' liens, mortgages, deeds of
trust and similar encumbrances securing monetary obligations will be deemed
to materially impair the value of the Property and must be removed or
insured over prior
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to the conveyance). In connection with Kast's acquisition of the Property,
Sublandlord shall quit claim to Kast any warranties that Sublandlord is
entitled to from contractors or suppliers in connection with the Building;
on the condition that such assignment shall be without representation and
warranties.
30. REPRESENTATIONS AND WARRANTIES OF SUBLANDLORD. Sublandlord
hereby represents and warrants to Subtenant as follows:
(a) ORGANIZATION AND STANDING. Sublandlord is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware.
(b) CORPORATE AUTHORITY. Sublandlord has corporate power and
corporate authority to lease the Property and to enter into and deliver
this Agreement and perform the transactions contemplated herein.
(c) BINDING EFFECT. This Agreement when executed and delivered
by all parties hereto and consented to by Sumitomo will constitute
Sublandlord's legal, valid and binding obligation enforceable against
Sublandlord in accordance with its terms, except to the extent that the
enforceability against Sublandlord of this Agreement in accordance with its
terms may be limited in accordance with principles of equity or applicable
insolvency, bankruptcy or other similar laws affecting creditors' rights
generally.
(d) APPROVALS; CONSENTS. All approvals, resolutions,
authorizations, consents, actions or orders required of Sublandlord for the
authorization, execution and delivery of, and for the consummation of the
transactions contemplated by, this Agreement, have been obtained.
(e) NO VIOLATION. The execution and delivery of this Agreement,
the consummation of the transactions contemplated by this Agreement, and
the fulfillment of and compliance with the terms and provisions hereof do
not (i) conflict with or violate any judicial or administrative order,
award, judgment or decree applicable to Sublandlord, (ii) conflict with any
of the terms, conditions or provisions of Sublandlord's Articles of
Incorporation or Bylaws or other organizational documents, or (iii) require
any approval, consent or authorization which has not been obtained from any
federal, state or local court, or any creditor or Sublandlord or any other
person or entity.
(f) CONDEMNATION. To the best of Sublandlord's current actual
knowledge, without inquiry, no condemnation action has been taken with
respect to the Property or any part thereof and there is not any pending
condemnation relating to any of the Property.
(g) LITIGATION. To the best of Sublandlord's current actual
knowledge, without inquiry, there are no investigations, actions, lawsuits,
claims arbitrations or proceedings, either judicial, administrative or
otherwise, pending against or affecting the Property, by or before any
court, governmental department, commission, board, bureau, agency,
mediator, arbitrator or other person or instrumentality.
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31. REPRESENTATIONS AND WARRANTIES OF SUBTENANT. Subtenant and Kast
hereby represent and warrant to Sublandlord as follows:
(a) ORGANIZATION AND STANDING. Subtenant is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware.
(b) CORPORATE AUTHORITY. Subtenant has corporate power and
corporate authority to lease the Property and to enter into and deliver
this Agreement and perform the transactions contemplated herein.
(c) BINDING EFFECT. This Agreement when executed and delivered
by all parties hereto and consented to by Sumitomo will constitute
Subtenant's and Kast's legal, valid and binding obligation enforceable
against Subtenant and Kast in accordance with its terms, except to the
extent that the enforceability against Subtenant or Kast of this Agreement
in accordance with its terms may be limited in accordance with principles
of equity or applicable insolvency, bankruptcy or other similar laws
affecting creditors' rights generally.
(d) APPROVALS; CONSENTS. All approvals, resolutions,
authorizations, consents, actions or orders required for the authorization,
execution and delivery of, and for the consummation of the transactions
contemplated by, this Agreement by Subtenant and Kast, have been obtained.
(e) NO VIOLATION. The execution and delivery of this Agreement,
the consummation of the transactions contemplated by this Agreement, and
the fulfillment of and compliance with the terms and provisions hereof do
not (i) conflict with or violate any judicial or administrative order,
award, judgment or decree applicable to Subtenant or Kast, (ii) conflict
with any of the terms, conditions or provisions of Subtenant's Articles of
Incorporation or Bylaws or other organizational documents, or (iii) require
any approval, consent or authorization which has not been obtained from any
federal, state or local court, or any creditor or Subtenant or Kast or any
other person or entity.
32. BROKERS. Each of Sublandlord and Subtenant shall satisfy any fee
or commission payable to any broker or agent retained by it with respect to
this Sublease. Sublandlord and Subtenant each represent and warrant to one
another that no brokers', agents' or finders' fees or commissions are due
arising in connection with this Sublease, and each party hereto agrees to
indemnify and hold the other party harmless from claims made by any person
for any such fees, commissions or like compensation claiming to have dealt
with the party so indemnifying the other.
33. MISCELLANEOUS.
(a) Sublandlord and Sublandlord's agents have made no
representations, warranties, agreements or promises with respect to the
Property or the Master Lease except such as are expressed herein.
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(b) The covenants, conditions and agreements contained in this
Sublease shall bind and inure to the benefit of Sublandlord and Subtenant
and their respective successors and permitted assigns. If there is more
than one entity or person which or who are the Subtenant under this
Sublease, the obligations imposed upon Subtenant under this Sublease shall
be joint and several.
(c) Notwithstanding anything contained herein to the contrary,
Sublandlord is not and shall not in any way or for any purpose become
principal or partner of Subtenant in the conduct of its business, or
otherwise, or a joint venturer or member of a joint enterprise with
Subtenant hereunder.
(d) This Sublease and Subtenant's obligations hereunder shall
not be affected or excused because of Sublandlord's delay or failure to
perform or comply with any of Sublandlord's obligations hereunder for
reasons beyond the reasonable control of Sublandlord, including, without
limitation, strikes or other labor difficulties, inability to obtain
necessary governmental approvals, unavailability of materials, war, riot,
civil insurrection or governmental preemption in connection with a national
emergency.
(e) The failure of Sublandlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of
this Sublease shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of
an original violation. The receipt by Sublandlord of rent with knowledge
of the breach of any covenant of this Sublease shall not be deemed a waiver
of such breach. No provisions of this Sublease shall be deemed to have
been waived by Sublandlord unless such waiver is in writing signed by
Sublandlord.
(f) No act or thing done by Sublandlord or Sublandlord's agents
during the Term shall be deemed an acceptance of a surrender of the
Property, and no agreement to accept such surrender shall be valid unless
in writing signed by Sublandlord. No employees of Sublandlord or of
Sublandlord's agents shall have any power to accept the keys of the
Property prior to the expiration of the Term. The delivery of keys to any
employee of Sublandlord, or of Sublandlord's agents, shall not operate as
a termination of this Sublease or a surrender of the Property.
(g) No payment by Subtenant, or receipt by Sublandlord, of a
lesser amount than the rent due hereunder, shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Sublandlord may accept such
check or payment without prejudice to Sublandlord's right to recover the
balance of such rent or pursue any other remedy available to Sublandlord.
(h) Time is of the essence hereof.
-24-
<PAGE>
(i) If any provision of this Sublease is determined by a court
of competent jurisdiction to be illegal, invalid or unenforceable, the
remainder of this Sublease shall not be affected thereby.
(j) The entire contract of the parties is contained herein and
all prior or contemporaneous negotiations, agreements, representations and
understandings, whether oral or written, are hereby superseded.
(k) This Sublease may be amended, altered or modified ONLY by an
instrument in writing signed by the party to be bound thereby.
(l) The headings of the Sections and Paragraphs of this Sublease
are inserted solely for convenient reference and shall in no manner affect
the interpretation of any provision(s) of this Sublease.
(m) The language in all parts of this Sublease shall be
construed according to its fair meaning and not strictly for or against
Sublandlord or Subtenant.
(n) The submission of this Sublease by Sublandlord, its agent or
representative for examination or execution by Subtenant does not
constitute an option or offer to lease the Property or a reservation of the
Property in favor of Subtenant. This Sublease shall become effective only
upon execution by both Sublandlord and Subtenant.
(o) This Sublease shall be governed by and interpreted in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, Sublandlord and Subtenant have respectively
executed this Sublease as of the date first set forth above.
SUBLANDLORD: SUBTENANT:
- ----------- ---------
THE COLEMAN COMPANY, INC., GLOBAL WATER TECHNOLOGIES,
a Delaware corporation INC., a Delaware corporation
By: /s/ PAUL SHAPIRO By: /s/ GEORGE A. KAST
---------------------------- ----------------------------
Name: Paul Shapiro Name: George A. Kast
Title: EVP Title: President
KAST:
- ----
/s/ GEORGE A. KAST
- -------------------------------
George A. Kast, an Individual
-25-
<PAGE>
EXHIBIT "A"
MASTER LEASE
------------
[omitted]
A-1
<PAGE>
EXHIBIT "B"
SUMITOMO'S CONSENT TO SUBLEASE
------------------------------
1. SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
("SUMITOMO"), as landlord under that certain Lease and Security Agreement,
dated as of December 27, 1995 (the "MASTER LEASE"), by and between Sumitomo
and The Coleman Company, Inc., a Delaware corporation ("COLEMAN"), as
Lessee, as amended to date, hereby acknowledges and consents to all of the
terms and conditions of that certain Sublease, dated as of February __,
1998 (the "SUBLEASE"), by and between Coleman, as Sublandlord, and Global
Water Technologies, Inc., a Delaware corporation, as subtenant
("Subtenant"), and George A. Kast, a copy of which has been reviewed and
approved by Sumitomo. Without limiting the generality of the foregoing,
Sumitomo consents to the sublease provisions set forth in Section 13(b)(i)
of the Sublease.
2. Sumitomo hereby acknowledges and agrees that it has read and is
familiar with the terms of the Sublease. All initially capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in
the Sublease.
3. Notwithstanding anything to contrary in the Master Lease, Coleman
shall have an unconditional and unqualified right to exercise the Purchase
Option (as defined in the Master Lease) under Section 22.1 of the Master
Lease upon providing the notice set forth therein and tendering the
Purchase Option Price (as defined in the Master Lease). Coleman shall be
entitled to purchase the Property notwithstanding the occurrence of any
default or Event of Default (as defined in the Master Lease) under the
Master Lease or the failure to exercise the purchase option under the Other
Lease (as defined in the Master Lease) or to comply with any other
condition precedent to the exercise of the Purchase Option under the Master
Lease.
4. Sumitomo agrees that the Purchase Option Price as of the date
hereof is $5,800,000.
5. To induce Sumitomo to execute this Consent, Coleman covenants for
the benefit of Sumitomo as follows:
(a) Coleman shall not, without the written agreement of
Sumitomo, to the extent that consent by Sumitomo is required under the
Master Lease, grant any consent pursuant to Section 13(a) of the Sublease;
and
(b) cumulatively with, but without duplication of, Coleman's
obligations under the Master Lease, Coleman shall indemnify, defend and
hold harmless Sumitomo and Sumitomo's agents, employees, officers,
directors, shareholders, and contractors, to the same extent and in the
same manner as Subtenant indemnifies Coleman pursuant to Section 18(d) or
21(a) of the Sublease, against all liabilities incurred by Sumitomo,
including without limitation those liabilities incurred by Sumitomo arising
out of the acts or omissions of Subtenant, of the
B-1
<PAGE>
types specified in said Section 18(d) or 21(a). It is the parties'
intentions that Coleman "pass through" to Sumitomo the indemnity
obligations of Subtenant under the Sublease. Accordingly, Sumitomo's right
of recovery against Coleman pursuant to the provisions of this Paragraph
5(b) shall be limited to the amount and scope of any recovery of Coleman
against Subtenant under the Sublease, it being agreed that Coleman shall
diligently prosecute its rights and remedies against Subtenant; on the
condition that if Coleman reasonably determines (a) that there is not a
substantial likelihood of collecting from Subtenant an amount sufficient to
justify the time and expense required in connection with such collection
efforts, or (b) that there is not a substantial likelihood that Coleman's
claim against Subtenant will be successful or (c) based on all of the
relevant facts and circumstances not to pursue its rights and remedies
against Subtenant, then Coleman shall not be required to prosecute its
rights and remedies against Subtenant.
IN WITNESS WHEREOF, the undersigned have executed this Consent to
Sublease as of this 27th day of February, 1998.
SUMITOMO:
--------
SUMITOMO BANK LEASING AND FINANCE, INC.,
a Delaware corporation
By: /s/ WILLIAM GINN
-------------------------------
Name: William Ginn
Title: President
COLEMAN:
-------
THE COLEMAN COMPANY, INC.,
a Delaware corporation
By: /s/ PAUL SHAPIRO
-------------------------------
Name: Paul Shapiro
Title: EVP
B-2
EXHIBIT 21
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
Psychrometric Systems, Inc.
Incorporated in Nevada
Global Water Technologies Foreign Sales Corporation, Inc.
Incorporated in St. Thomas, V.I.
Advanced Oxidation Technologies, Inc.
Incorporated in Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GLOBAL WATER TECHNOLOGIES' ANNUAL REPORT TO STOCKHOLDERS FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 118,887
<SECURITIES> 0
<RECEIVABLES> 4,003,742
<ALLOWANCES> 50,000
<INVENTORY> 380,128
<CURRENT-ASSETS> 7,309,565
<PP&E> 927,760
<DEPRECIATION> 323,182
<TOTAL-ASSETS> 8,202,315
<CURRENT-LIABILITIES> 6,085,626
<BONDS> 923,928
0
1,000
<COMMON> 29,405
<OTHER-SE> 971,909
<TOTAL-LIABILITY-AND-EQUITY> 8,202,315
<SALES> 18,697,292
<TOTAL-REVENUES> 18,697,292
<CGS> 13,547,484
<TOTAL-COSTS> 17,726,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,072
<INCOME-PRETAX> 844,860
<INCOME-TAX> 273,878
<INCOME-CONTINUING> 570,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570,982
<EPS-PRIMARY> 0.002
<EPS-DILUTED> 0.002
</TABLE>
