<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25942
SWEETWATER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1167603
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2505 TRADE CENTRE AVENUE, SUITE D, LONGMONT, CO 80503
(Address of principal executive offices) (Zip Code)
(303) 678-0447
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of June 30, 1997, 3,094,040 shares of Registrant's Common Stock, par
value $.001 per share, were outstanding.
<PAGE> 2
SweetWater, Inc.
Table of Contents
<TABLE>
<CAPTION>
Part I. Financial Information Page
Item 1. Financial Statements ----
<S> <C>
Balance Sheets-
June 30, 1997 and December 31, 1996 2
Statements of Operations- 4
Three months ended June 30, 1997 and 1996
Statements of Cash Flows 5
Six months ended June 30, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 12
</TABLE>
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<PAGE> 3
SWEETWATER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 886,301 $ 1,479,937
Short-term investments -- 440,659
Accounts receivable - net 331,205 132,446
Inventory 741,399 690,231
Prepaids and other current assets 53,957 51,288
----------- -----------
Total current assets 2,012,862 2,794,561
----------- -----------
Fixed Assets, at cost 462,860 475,000
Less: Accumulated depreciation (110,749) --
----------- -----------
Fixed assets, net 352,111 475,000
----------- -----------
Other Assets:
Deposits and other 2,075 39,921
----------- -----------
TOTAL ASSETS $ 2,367,048 $ 3,309,482
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements
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<PAGE> 4
SWEETWATER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and other accrued liabilities $ 311,711 $ 493,356
Accrued salaries and employee benefits 50,677 92,982
Accrued warranty and other 33,015 30,630
------------ ------------
Total current liabilities 395,403 616,968
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 8,000,000 shares
authorized; 3,094,040 and 3,067,382 shares issued and
outstanding at June 30, 1997 and December 31, 1996, after
deducting 99,948 and 126,606 shares held in treasury,
respectively 3,094 3,068
Deferred Compensation -- (12,366)
Additional paid-in capital 12,427,501 12,425,783
Accumulated deficit (10,458,950) (9,723,971)
------------ ------------
Total stockholders' equity $ 1,971,645 2,692,514
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,367,048 $ 3,309,482
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets
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<PAGE> 5
SWEETWATER, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 611,979 $ 546,718 $ 1,102,077 $ 1,021,237
COST OF GOODS SOLD 338,962 385,294 823,640 692,758
----------- ----------- ----------- -----------
GROSS MARGIN 273,017 161,424 278,437 328,479
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and Marketing 161,965 437,283 352,230 786,397
Research and Development -- 298,353 236,673 512,056
General Administrative 314,608 282,135 640,641 536,195
----------- ----------- ----------- -----------
Total operating expenses 476,573 1,017,771 1,229,544 1,834,648
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (203,556) (856,347) (951,107) (1,506,169)
OTHER INCOME, NET 205,281 40,191 216,128 95,147
----------- ----------- ----------- -----------
NET INCOME (LOSS) 1,725 (816,156) (734,979) (1,411,022)
=========== =========== =========== ===========
INCOME (LOSS) PER
COMMON SHARE $ 0.00 $ (0.27) $ (0.24) $ (0.46)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,090,059 3,067,621 3,083,625 3,066,075
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements
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<PAGE> 6
SWEETWATER, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (734,979) $(1,411,022)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 116,675 202,384
Amortization of deferred compensation -- 8,244
Amortization of trademarks and patents -- 2,711
Changes in assets and liabilities:
(Increase) in net accounts receivable (198,759) (258,291)
(Increase) in inventory (51,168) (251,727)
(Increase) in prepaids and other current assets (2,669) (8,862)
Decrease (increase) in deposits and other assets 37,846 (156,826)
(Decrease) in accounts payable and other accrued liabilities (181,645) (5,886)
(Decrease) increase in accrued salaries and other current liabilities (39,920) 221,161
----------- -----------
Net cash used in operating activities (1,054,619) (1,658,114)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment (20,360) (302,482)
Purchases of short-term investments (4,866,689)
Proceeds from the sale of fixed assets, net of gain recognized 26,576
Proceeds from the sales of short term investments 440,659 6,737,620
----------- -----------
Net cash provided by investing activities 446,875 1,568,449
CASH FLOWS FROM FINANCING ACTIVITIES
Capital Contributions 14,108 2,439
Payments on notes payable -- (52,296)
----------- -----------
Net cash provided by (used in) financing activities 14,108 (49,857)
----------- -----------
Net decrease in Cash and Cash Equivalents (593,636) (139,522)
CASH AND CASH EQUIVALENTS, beginning of period 1,479,937 511,331
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 886,301 $ 371,809
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASHFLOW INFORMATION:
CASH PAID FOR INTEREST $ 3,536 $ 16,430
=========== ===========
</TABLE>
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<PAGE> 7
SweetWater, Inc.
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited balance sheets,
statements of operations and cash flows contain all adjustments,
consisting only of normal recurring items, necessary to present fairly the
financial position of SweetWater, Inc. (the "Company") as of June 30, 1997
and the results of operations and cash flows for the three and six months
ended June 30, 1997 and 1996.
The unaudited financial statements presented herein have been prepared in
accordance with Securities and Exchange Commission regulations and do not
include all the information and note disclosures required by generally
accepted accounting principles. These financial statements should be read
in conjunction with the audited financial statements and notes thereto
contained in the Company's annual report on Form 10-K for the year ending
December 31, 1996.
2. BUSINESS
The Company, which was incorporated in the state of Colorado in 1991, is a
water technology company specializing in the development, marketing and
sale of water filtration and purification devices and technologies to
address health concerns resulting from the microbiological contamination
of drinking water. The Company's existing products are principally
marketed to outdoor supply retailers across the United States. A
substantial portion of the Company's revenues are currently derived from
sales to one national outdoor supply retailer.
Since its inception, the Company has incurred significant operating losses
and cash flow deficits resulting in an accumulated deficit of
approximately $10.5 million as of June 30, 1997. Operating losses
increased in 1996 as a result of the Company's efforts to develop a water
filtration and purification device for the home use market. During 1996,
the Company actively pursued the establishment of a joint strategic
alliance to manufacture and market the home use product; however, the
Company was not successful in locating an industry partner to manufacture
and market this potential product. Accordingly, the Company suspended its
efforts to manufacture and market this product, sold the plans, designs
and technology associated therewith in April 1997 and realized net
proceeds of approximately $210,000. The Company has no amounts capitalized
related to this product.
The Company has also reduced its personnel, eliminated all research and
development efforts and initiated a cost containment program designed to
reduce general and administrative costs, conserve its cash reserves and
enable the Company to concentrate its resources on the manufacture and
sale of its current portable water filtration and purification products.
Although the Company has adopted a plan that it believes will allow it to
remain in operation
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<PAGE> 8
SweetWater, Inc.
Notes to Financial Statements
(Unaudited)
through at least 1997, as a result of streamlining its operations and
reducing its costs, there can be no assurance the Company's losses will
not continue or that the Company will be able to manufacture and sell its
products successfully or achieve profitability. In addition, as a new
business in an emerging industry with a limited number of products, the
Company may encounter unforeseen difficulties, some of which may be beyond
the Company's ability to control.
The Company and Messrs. Reynolds, Thomas and Cogdill, members of the
Company's senior management ("Management"), have reached an agreement
pursuant to which the Management have agreed to remain with the Company
through January 31, 1998 in exchange for certain performance bonuses and a
right of first refusal to purchase the Company's portable water filtration
and purification business (the "Outdoor Business") in the event certain
performance targets are met and the Company elects to sell such business
within a specified period after December 31, 1997. The Company has not
determined to sell the Outdoor Business and will have no obligation to
sell the Outdoor Business to Management or to a third party at any time.
Specifically, the agreement provides that Management, as a group, under
certain circumstances, shall be entitled to receive a Performance Bonus
equal to 50% of the amount by which cash and cash equivalents as set forth
on the Company's audited balance sheet as of December 31, 1997, subject to
certain adjustments ("Year End Cash") exceeds $1,000,000. In addition, in
the event Year End Cash exceeds a specified target (which is lower than
$1,000,000), Management shall have a right of first refusal in the event
the Company elects to sell the Outdoor Business to a third party. If such
right is not exercised, Management, as a group, shall be entitled to
receive a Value Enhancement Bonus equal to 30% of the excess of the third
party purchase price over the Management Price (as defined below) less the
amount of the Performance Bonus, if any. In the event the Company elects
to sell the Outdoor Business to Management, Management shall have the
right to purchase the Outdoor Business for a specified price (the
"Management Price") and the assumption of the Outdoor Business
liabilities. The Management Price shall be subject to certain adjustments,
and shall be reduced by the amount by which Year End Cash exceeds the
target amount. If Year End Cash equals or exceeds $1,000,000, the
Management Price shall be a nominal amount.
The Company believes that the agreement provides an incentive to
Management to maximize cash flow from the Outdoor Business and to conserve
the Company's cash resources. While the Company assesses the effects of
its cost containment program and the profitability of its Outdoor
Business, the Company may also assess various strategic alternatives which
may include a stock or asset acquisition, or a merger, consolidation or
similar transaction. Although the Company intends to investigate these
alternatives, no assurance can be given that any transaction will be
consummated.
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<PAGE> 9
SweetWater, Inc.
Notes to Financial Statements
(Unaudited)
3. INVENTORY
Inventory includes costs of materials, direct labor and manufacturing
overhead. Inventory is priced at the lower of cost (using the first-in,
first-out method of valuation) or market.
Inventory consists of the following components:
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(Unaudited) 1996
--------- ---------
<S> <C> <C>
Raw materials $ 705,603 $ 669,736
Finished Goods 241,796 225,495
--------- ---------
947,399 895,231
Less-Reserve for Obsolescence (206,000) (205,000)
--------- ---------
$ 741,399 $ 690,231
========= =========
</TABLE>
4. INCOME TAXES
SFAS No. 109 requires recognition of deferred tax assets for the expected
future effects of all deductible temporary differences, loss carryforwards
and tax credit carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for the amount of any tax
benefits which, more likely than not, based on current circumstances, are
not expected to be realized. The Company has determined that under SFAS
109, any previously unrecognized tax benefits do not satisfy the
realization criteria set forth therein. Therefore, a valuation allowance
has been recorded against the entire net deferred tax asset.
- 8 -
<PAGE> 10
SweetWater, Inc.
Notes to Financial Statements
(Unaudited)
5. PROFIT SHARING PLAN AND TRUST
Pursuant to the Company's 401(k) Profit Sharing Plan and Trust (the
"401(k) Plan"), which was established effective January 1, 1995, the
Company has agreed to contribute matching contributions in the form of
Company common stock at the rate of 50% of the first 8% of employees
salary deferral. Under the 401(k) Plan, the Company may also elect to make
discretionary contributions. Employees vest in Company contributions over
six years of service with the Company. Forfeitures of the unvested
prorated portion are allocated to the remaining employees in the plan
proportionately, based upon current years compensation.
6. COMMITMENTS AND CONTINGENCIES
In May 1997, the Company reached an agreement to terminate its existing
lease agreements representing approximately $450,000 in minimum future
lease obligations effective August 31, 1997 in consideration of the
Company's payment of a termination fee of $8,255 and its forfeiture of a
security deposit of $26,250. In August 1997, the Company entered into a
new lease which commences October 1997 and will continue for a three year
period unless cancelled by the Company between June 1, 1998 and July 15,
1998. Minimum future lease obligations under the new lease are $6,011 per
month for the period from October 1, 1997 through June 1, 1998. If the
Company elects to continue the lease after June 1, 1998, minimum future
lease obligations shall be $6,011 per month through September 30, 1998;
$6,191 per month from October 1, 1998 through September 30, 1999; and
$6,377 per month from October 1, 1999 through September 30, 2000.
- 9 -
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements. The forward-looking statements were prepared on the
basis of certain assumptions which relate, among other things, to the demand for
and cost of producing and marketing the Company's products; the retail prices at
which such products may be sold; seasonal selling trends; and the Company's
anticipated market share. Even if the assumptions on which the projections are
based prove accurate and appropriate, the actual results of the Company's
operations in the future may vary widely from the financial projections due to
technological change, increased competition, additional government regulation or
intervention in the water purification and filtration industries, and other
factors not yet known or anticipated. Accordingly, the actual results of the
Company's operations in the future may vary widely from the forward-looking
statements included herein.
Results of Operations for the three months ended June 30, 1997 and 1996
During the three-month period ended June 30, 1997, the Company had sales
of $612,000, an increase of 12%, compared to sales in the three-month period
ended June 30, 1996 of $547,000. This is due to increased sales of the
Guardian+Plus(TM) and replacement cartridges, offset by lower sales of the
Guardian. The Company's business is seasonal and its quarterly results of
operations reflect seasonal trends resulting from increased demand for the
Company's products in the warmer months of the year. Historically, the Company's
sales tend to be highest in the second and third quarters of each year.
The gross profit margin of $273,000 or 45% of sales for the three-month
period ended June 30, 1997 was higher than the prior year gross margin of
$161,000 or 30% of sales, primarily due to the sales mix changing to sales of
higher margin Guardian+Plus(TM) units and replacement cartridges, higher
overhead absorption on higher production levels, and lower production spending.
Lower production spending resulted from the cost containment program initiated
in the prior quarter, reduced depreciation expense on manufacturing equipment
and tooling assets, plus allocation of excess capacity manufacturing facilities
to general and administrative expense. In anticipation of the Company's move to
smaller facilities in the third quarter of 1997, second quarter production
levels were higher which positively impacted overhead absorption and
consequently improved gross profit margin. The Company expects lower production
levels in the third quarter as a result of the move, which it expects will
negatively impact overhead absorption and gross margins for the quarter.
Sales and marketing expenses for the three-month period ended June 30,
1997 were $162,000, a decrease of 63% compared to $437,000 for the three-month
period ended June 30, 1996. This decrease was due to reduced staffing costs as a
result of the cost containment program, the suspension of efforts to manufacture
and market a water filtration and purification product for the home use market,
and reduced advertising and sales aids expenses.
There were no research and development expenses for the three-month period
ended June 30, 1997 compared to $298,000 for the three-month period ended June
30, 1996. Research and development in the home drinking water treatment market
was discontinued at March 31, 1997.
- 10 -
<PAGE> 12
General and administrative expenses for the three-month period ended June
30, 1997 were $315,000, an increase of 12% compared to $282,000 for the
three-month period ended June 30, 1996. Lower staffing costs were offset by
costs associated with terminating contingent lease obligations and the
allocation of excess manufacturing facilities space to general and
administrative expense.
Other income for the three month period ended June 30, 1997 was $205,000
compared to $40,000 for the three month period ended June 30, 1996 as a result
of the sale of assets associated with its home use product.
Results of Operations for the six months ended June 30, 1997 and 1996
During the six-month period ended June 30, 1997, the Company had sales of
$1,102,000, an increase of 8%, compared to sales in the six-month period ended
June 30, 1996 of $1,021,000. This is due to increased sales of the
Guardian+Plus(TM), WalkAbout(TM), and replacement cartridges, offset by lower
sales of the Guardian.
The gross margin of $278,000 or 25% of sales for the six month period
ended June 30, 1997 was lower than the prior year gross margin of $328,000 or
32% of sales, primarily due to the sales mix changing to sales of lower margin
WalkAbout units, a lower effective sales price for the WalkAbout, partially
offset by lower production spending.
Sales and marketing expenses for the six-month period ended June 30, 1997
were $352,000, a decrease of 55%, compared to $786,000 for the six-month period
ended June 30, 1996. This decrease was due to reduced staffing costs as a result
of the cost containment program, the suspension of efforts to manufacture and
market a water filtration and purification product for the home use market, and
reduced advertising and sales aids expenses.
Research and development expenses for the six-month period ended June 30,
1997 were $237,000, a decrease of 54% compared to $512,000 for the six-month
period ended June 30, 1996. This decrease was due to the Company's suspension of
efforts to manufacture and market a water filtration and purification product
for the home use market.
General and administrative expenses for the six-month period ended June
30, 1997 were $641,000, an increase of 19% compared to $536,000 for the
six-month period ended June 30, 1996. Lower staffing costs were offset by
severance costs associated with the reduction in personnel, the costs associated
with terminating contingent lease obligations, and the allocation of excess
manufacturing facilities space to general and administrative expense.
Other income for the six month period ended June 30, 1997 was $216,000
compared to $95,000 for the six month period ended June 30, 1996 as a result of
the sale of assets associated with its home use product.
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<PAGE> 13
Liquidity and Capital Resources
Cash, cash equivalents, and short term investments decreased by 40% from
$1,480,000 at December 31, 1996 to $886,000 at June 30, 1997 primarily due to
operating losses, additional accounts receivable of $199,000, and a decrease in
payables and accruals of $182,000.
Since its inception, the Company has been engaged primarily in product
development and has incurred operating losses resulting in an accumulated
deficit of approximately $10.5 million as of June 30, 1997. Operating losses
increased in 1996 as a result of the Company's efforts to develop a water
filtration and purification device for the home use market. The Company
suspended its efforts to manufacture and market this product, reduced its
personnel and initiated a cost containment program designed to reduce general
and administrative costs, conserve its cash reserves and enable the Company to
concentrate its resources on its current portable water filtration and
purification products. In April 1997, the Company sold the plans, designs and
technology associated with the home use product and realized net proceeds of
approximately $210,000. In May 1997, the Company reached an agreement to
terminate its existing lease on its manufacturing facilities effective August
31, 1997 in consideration of the Company's payment of a termination fee of
$8,255 and its forfeiture of a security deposit of $26,250. In August 1997, the
Company entered into a new lease for an 11,500 square foot manufacturing
facility commencing October 1997.
Although the Company believes that the cost containment program will
enable it to remain in operation at least through 1997 as a result of
streamlining its operations and reducing its costs, there can be no assurance
the Company's losses will not continue or that the Company will be able to
generate sufficient revenue from sales of the Guardian, the ViralGuard, the
Guardian+Plus(TM), the WalkAbout and their accessories to cover expenses. The
Company believes that cash and short term investments will be sufficient to meet
working capital requirements and support its existing operations at least
through 1997. However, if the Company incurs unexpected substantial expenses
prior thereto, the Company would be required to raise additional capital and
there can be no assurance that additional capital will be pursued or available
on terms acceptable to the Company when and if needed. Unless the performance of
the Company improves substantially, no assurance can be given that the Company
will be able to achieve profitability. The Company is assessing the effects of
its cost containment program, the profitability of its current business and
various strategic alternatives which may include a stock or asset acquisition,
or a merger, consolidation or similar transaction. Although the Company is
investigating these strategic alternatives, no assurance can be given that any
transaction will be consummated.
- 12 -
<PAGE> 14
PART II OTHER INFORMATION
Items 1-2 None
Item 3 None
Item 4 Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of the Company was held on May 14,
1997 pursuant to notice, at which the following persons were elected directors
of the Company to serve until the next annual meeting of the stockholders or
until their successors are elected and qualify:
<TABLE>
<CAPTION>
For Vote Withheld
<S> <C> <C>
A. Clinton Allen 2,259,896 1,300
Thomas A. Barron 2,260,396 800
Blair W. Effron 2,259,896 1,300
Peter W. Gilson 2,260,396 800
Randall A. Hack 2,259,896 1,300
Keith R. Lively 2,260,396 800
Eric M. Reynolds 2,260,396 800
Ralph Z. Sorenson 2,260,396 800
</TABLE>
The proposal to ratify the selection by the Company's Board of Directors
of Arthur Andersen LLP as independent auditors for the Company for the 1997
calendar year was passed with 2,261,196 votes in favor, no votes against, no
abstentions and no broker non-votes.
- 13 -
<PAGE> 15
Item 5 None
Item 6 Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K - There were no reports filed on Form 8-K for
the quarter ended March 31, 1997.
(B) Exhibits
(10) Material Contracts
(t) Termination of Lease Agreement dated May 29, 1997 by and
between SweetWater, Inc. and Pratt Land Company, LLC.
(u) Lease agreement dated August 1, 1997 by and between
SweetWater, Inc. and Edwin Kanemoto, Dale Kanemoto and
Karen K. Wood.
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SweetWater, Inc.
(Registrant)
Dated: August 8, 1997 By: /s/ Patrick E. Thomas
---------------------------------------
Patrick E. Thomas
Vice President of Finance and
Administration, Chief Financial Officer
(principal financial officer and
chief accounting officer)
- 14 -
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit Description Page(s) of this Form
------- ------------------- --------------------
Number
------
<S> <C> <C>
(10) Material Contracts
(t) Termination of Lease Agreement dated May 29, 1997 by
and between SweetWater, Inc. and Pratt Land Company,
LLC.
(u) Lease agreement dated August 1, 1997 by and between
SweetWater, Inc. and Edwin Kanemoto, Dale Kanemoto
and Karen K. Wood.
(27) Financial Data Schedule
</TABLE>
- 15 -
<PAGE> 1
Exhibit 10(t)
TERMINATION OF LEASE AGREEMENT
THIS TERMINATION OF LEASE AGREEMENT ("Agreement") is executed as of
this 29th day of May, 1997, by and between Pratt Land Company, LLC, a Colorado
limited liability company, ("Landlord") and SweetWater, Inc. ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant are parties to that certain Lease
Agreement dated the 12th day of December, 1994, with respect to those premises
commonly known as 2505 Trade Centre Avenue, Longmont, Colorado ("Premises").
WHEREAS, Tenant desires to enter into an agreement with Landlord
with respect to termination of the remaining term of the Lease and;
WHEREAS, Landlord is willing to terminate the Lease and all rights,
obligations and liabilities associated therewith on the terms and conditions set
forth herein including but not limited to the Tenant's full and complete
performance of all terms and conditions of the Lease through the Termination
Date and execution and delivery of this Agreement to Landlord on or before May
29, 1997.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein and for such other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. All capitalized terms used herein shall have the same
definition as set forth in the lease, unless otherwise defined
herein.
2. Landlord and Tenant acknowledge and agree that the Lease shall
terminate at 12:00 midnight on August 31, 1997, ("Termination
Date"). Tenant shall vacate the Premises in their entirety on
or before midnight on the Termination date. As a condition of
this early termination, Tenant shall forfeit their security
deposit of $26,250.00 and shall pay upon execution hereof an
additional amount of $8,255.38 as a termination fee
3. Tenant shall be responsible for any damage to the building
during the process of vacating the Premises and shall
otherwise comply with Paragraph 14 of the Lease. Tenant shall
pay upon execution hereof to Landlord a damage deposit of
$15,000.00 to cover estimated repairs
<PAGE> 2
and cleaning expenses. Said deposit shall be subject to all
terms and conditions of the lease.
4. Tenant hereby releases and forever discharges Landlord, its
agents contractors, employees, successors and/or assigns from
any and all actions, causes of actions, liabilities, suits,
claims, damages, costs or expenses including attorneys' fees,
now existing or hereafter arising, whether known or unknown,
arising out of or resulting from the Lease
5. Subject to Tenant's compliance with Paragraph 2, 3 and 4
above, Landlord hereby releases and forever discharges Tenant,
their successors and assigns, from any and all actions, causes
of action, liabilities, suits, claims, damages,costs or
expenses, including attorneys' fees, now existing or hereafter
arising, whether known or unknown, arising out of or resulting
from the Lease.
6. Nothing in this Agreement shall relieve Tenant or Landlord
from each of their respective indemnification obligations
under Paragraph 21.10 of the Lease relating to environmental
compliance.
7. The Agreement and releases contained herein shall inure to the
benefit of and be binding upon successors, legal
representatives and assigns of the parties hereto.
8. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
9. In the event of any controversy, claim or dispute between the
parties affecting or related to the subject matter or
performance of this Agreement, the prevailing party shall be
entitled to recover from the non-prevailing party all of its
reasonable expenses, including but not limited to attorneys'
fees, accountant's fees and costs.
LANDLORD: Pratt Land Company, LLC
a Colorado limited liability company
By: /s/ Martin W. McElwain
-------------------------
Martin W. McElwain, Manager
TENANT: SweetWater, Inc.
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By: /s/ Eric M. Reynolds
-------------------------
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Exhibit 10(u)
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 1st day of August, 1997, by and between
Edwin Kanemoto, Dale Kanemoto and Karen K. Wood, as Landlord, and SweetWater,
Inc., as Tenant.
WITNESSETH, THAT, in consideration of the covenants herein, it is
agreed:
1. LEASE OF PREMISES.
The Landlord hereby leases to the Tenant, and the Tenant hereby leases
from the Landlord, the land and building located at 1140 Boston Avenue, Unit A
(Exhibit A -- attached square foot diagram) Longmont, CO 80501, together with
all appurtenances thereto, and all fixtures attached thereto, in present
condition.
2. CONDITION OF PROPERTY.
Tenant has examined, and accepts the building, improvements, and any
fixtures, in present condition. No representation, statement or warranty,
expressed or implied, has been made by or on behalf of Landlord as to such
condition, or as to the use that may be made of such property. In no event shall
the Landlord be liable for any defect in such property or for any limitation on
its use. Except as otherwise provided in this Lease, Tenant shall return the
property to Landlord upon expiration or termination of this Lease, in present
condition, ordinary wear and tear excepted.
3. TERM.
The term of this Lease shall be 36 months, commencing at noon on October
1, 1997, (See Paragraph 26(C) and ending at noon on September 30, 2000, unless
sooner terminated in accordance of the provisions hereof.
A. HOLDOVER. Should the Tenant hold over and remain in possession of the
leased property after the expiration of this lease without the Landlord's
consent, it shall not be deemed or construed to be a renewal or an extension of
this lease but shall only operate to create a month to month tenancy which may
be terminated by the Landlord or Tenant at the end of any month upon thirty days
prior written notice to the other party.
B. OPTION TO EXTEND. Tenant shall have the right to extend the term of
this Lease for an additional 3 years. This option shall be valid only if all of
Tenant's obligations in this Lease have been fully performed and all defaults,
if any, have been cured. The option may be exercised only if Tenant gives
Landlord written notice of their intent to extend at least 60
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days prior to the expiration of the initial term. Rental rate shall be current
market rate at time of notification of intent to extend.
4. DELIVERY OF POSSESSION.
The Tenant shall be entitled to possession of the leased premises at
noon on the date of commencement of the lease term.
5. RENTAL.
Tenant shall pay to the Landlord, at such place as the Landlord may
designate in writing the following rent:
A. Base Rental. Base rental of $216,412.50 for the first initial term of
this lease, payable in installments of $6,011.46 per month commencing October 1,
1997, and continuing until September 30, 2000, due in advance on the first day
of each month. If the lease term includes only a part of any month, rental for
such part of a month shall be prorated accordingly and added to the next monthly
rent and paid in advance.
B. Late Charge. Tenant will pay a late charge equal to five percent of
any rental payment not paid within 10 days of when due.
C. Monthly rent shall be increased by $512.00 for estimated property tax
expense.
6. USE.
The Tenant may use and occupy the leased property for purposes of
manufacture/distribution of water treatment devices or related products, and
Tenant shall not use or occupy nor permit the leased property or any part
thereof to be used or occupied for any unlawful business, use or purpose, nor
for any business, use, or purpose deemed extrahazardous, nor for any purpose or
in any manner which is in violation of any present or future governmental laws
or regulations. It shall be Tenant's sole and exclusive responsibility to meet
all fire and safety regulations of any governmental entity having jurisdiction
over the leased premises, at Tenant's sole expense. Tenant shall not allow any
odors, fumes, or vibrations on the leased premises, or any noise thereon which
would cause disruption of normal activities on adjacent premises. The Tenant
shall indemnify the Landlord against all costs, expenses, liabilities, losses,
damages, injunctions, suits, fines, penalties, claims, and demands, including
reasonable attorney's fees, arising out of any violation of or default in this
covenant by Tenant.
7. POSSESSION AND QUIET ENJOYMENT.
The Tenant, upon the payment of the rent herein reserved and upon the
performance of all the terms of this lease, shall at all times during the lease
term and during any extension
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or renewal term, peaceably and quietly possess and enjoy the leased property
without any disturbance from the Landlord or from any other person claiming
through the Landlord.
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8. MAINTENANCE AND REPAIRS.
The Landlord shall be responsible for maintenance and repairs required
to maintain the structural portions and the roof of the building on the leased
property, the exterior finish of such building, and the parking lot on the
subject property; all to be maintained in present condition at the sole cost and
expense of the Landlord. All other maintenance and repairs shall be performed by
Tenant, at its own expense, including all necessary repairs and replacements to
pipes, heating/air-conditioning systems, plumbing systems, electrical systems,
window glass, doors, fixtures, interior decorations, and all other appliances
and appurtenances belonging thereto, however that all replacement or major
repairs to the plumbing, heating, or electrical systems on the leased property,
which occur the first year and are not necessitated by the negligence of the
Tenant, shall be paid by Landlord. Such repairs and replacements, interior and
exterior, ordinary as well as extraordinary, shall be made promptly, as and when
necessary. All such repairs and replacements shall be in quality and class at
least equal to the original work. On default of the Tenant in making such
repairs or replacements, the Landlord may, but shall not be required to, make
such repairs and replacements for the Tenant's account, and the expense thereof
shall constitute and be collectable as additional rent, together with interest
thereon at the rate of eighteen percent per annum until paid. Tenant shall not
allow or permit any waste of the leased premises, and shall keep the leased
grounds free from accumulations of trash or debris.
9. CONDITION UPON SURRENDER.
The Tenant shall vacate the leased property in the same condition and
repair in which the property now is, ordinary wear and tear excepted and shall
remove all of the Tenant's property therefrom so that the Landlord can repossess
the leased property not later than noon on the day upon which this lease or any
extension thereof ends, whether upon notice or by holdover or otherwise. The
Landlord shall have the same rights to enforce this covenant by ejectment and
for damages or otherwise as for the breach of any other condition or covenant of
this lease. Except as otherwise provided herein, the Tenant may at any time
prior to or upon the termination of this lease or any renewal or extension
thereof, remove from the leased property all materials, equipment, and property
of every other sort of nature, installed by the Tenant thereon, provided that
such property is removed without substantial injury to the leased property. No
injury shall be considered substantial if it is promptly corrected by
restoration to the condition prior to the installation of such property. Any
such property not removed shall become the property of the Landlord.
10. ALTERATIONS.
The Tenant shall have the right, from time to time, to make all such
nonstructural alterations and improvements to the leased property as may be
reasonably necessary or appropriate, for the conduct of the Tenant's business,
provided that prior to commencement of any such work, the Landlord shall in each
case have approved in writing the plans and specifications for such work. If
within fourteen days after such plans and specifications are
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submitted by the Tenant to the Landlord for such approval, the Landlord shall
have not given the Tenant notice of disapproval, such plans and specifications
shall be considered approved by the Landlord. All work done by Tenant shall
confirm to all applicable governmental regulations and requirements with all
required permits to be paid for by Tenant. If any such work done by Tenant
causes damage to the structural portions or roof of any building on the leased
premises, then the costs of all maintenance and repairs to such damaged parts or
roof of any such building shall thereafter be the responsibility of Tenant.
Notwithstanding the fact that alterations may be made by the Tenant, during the
lease term or any renewal or extension of such term, the Tenant shall have the
duty to return the leased premises, upon termination or expiration of the lease,
to the Landlord in the same condition as when received by the Tenant, ordinary
wear and tear excepted; provided, however, that Landlord shall have the option
to require Tenant to leave all such alterations, improvements and fixtures in
place, in which the same shall be and remain the property of Landlord. Further,
in connection with any improvements and alterations to the leased premises,
Tenant shall indemnify the Landlord from any lien arising out of any such work
performed or materials furnished, and shall indemnify and hold harmless the
Landlord from any liability or loss, of any type or nature, including reasonable
attorney's fees, arising out of any lien or claim based on work performed or
materials furnished. Landlord shall have the right to require Tenant to furnish
adequate bond or other security acceptable to Landlord for payment of any such
work performed by Tenant, and shall have the right to require adequate lien
waivers on any such work performed by Tenant. Landlord shall also have the right
to post notice of nonliability for any such work, or appropriate places in the
leased premises. Any checks written by Tenant for said work shall include a
restrictive endorsement waiving all rights to mechanic's liens.
11. TAXES AND ASSESSMENTS.
A. Tenant shall be liable for and agrees to pay all of the real property
taxes and assessments levied or assessed against the leased premises and
improvements thereon during the term of this Lease or any extension thereof. Any
partial years will be prorated accordingly. This paragraph is intended to
include all real estate taxes and assessments of every kind and nature
whatsoever, which may be levied, imposed or assessed by any level of government
including municipal and county government, or by any special district. If
applicable, Tenant shall pay to Landlord within 10 days from receipt of bill for
said taxes & assessments.
B. The Tenant shall be liable for and agrees to pay all of the personal
property taxes and assessments levied or assessed against personal property and
fixtures placed in or upon the leased premises by the Tenant. This paragraph is
intended to include all the personal property taxes and assessments of every
kind and nature whatsoever, which may be levied, imposed or assessed by any
level of government including municipal and county government, or by any special
district.
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12. UTILITIES.
The Tenant shall pay all charges prior to delinquency, for gas, water,
sewer, electricity, trash and telephone or other communication services or other
utilities used, rendered, or supplied, upon or in connection with the liability
or damages on any such account.
13. INSURANCE
Landlord shall maintain property insurance on the building improvements
of which cost shall be billed to the Tenant as additional rent.
The Tenant shall keep the leased property fully insured throughout the
term of this lease against the following:
A. Liability. Claims for personal injury or property damage under a
policy of general public liability insurance, with such limits as may be
reasonably requested by the Landlord from time to time, but not less than
$500,000.00/$1,000,000.00 in respect of bodily injury, and $50,000.00 for
property damage.
B. Other. Against such other hazards and in such amounts as the holder
of any mortgage or deed of trust to which this lease is subordinate may require
from time to time.
C. Waiver of Subordination. Landlord hereby releases Tenant, and Tenant
hereby releases Landlord, and their respective officers, agents, employees and
servants, from any and all claims or demands for damages, loss, expense or
injury to the demised premises, or to the furnishings and fixtures and
equipment, or inventory or other property of either Landlord or Tenant in, about
or upon the demised premises, as the case may be, which be caused by or result
from perils, events or happenings which are the subject of insurance carried by
the respective parties and in force at the time of any such loss; provided,
however, that such waiver shall be effective only to the extent permitted by the
insurance covering such loss and to the extent such insurance is not prejudiced
thereby or the expense of such insurance is not thereby increased.
14. RIGHT OF ENTRY.
The Landlord and its representative may enter the leased property at any
reasonable time for the purpose of inspecting the leased property, performing
any work which the Landlord elects to undertake made necessary by reason of
Tenant's default under the terms of this lease, exhibiting the leased property
for sale, lease, or mortgage financing, or posting notices of nonresponsibility
under any mechanic's lien law.
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15. CASUALTY DAMAGE.
a. If the premises or the building are damaged by fire or other insured
casualty, Landlord will give Tenant written notice of the time that Landlord has
determined in its reasonable discretion will be needed to repair the damage, and
the election (if any) that Landlord has made according to this section. The
notice will be given before the tenth day (the "notice day") after the fire or
other insured casualty.
b. If the premises or the building are damaged by fire or other insured casualty
to the extent that it can be repaired within sixty (60) days after the notice
date, Landlord will promptly begin to repair the damage after the notice date
and will diligently pursue the completion of such repair. In that event, this
lease will continue in full force and effect except that monthly rent will be
abated on a pro rata basis from the date of the damage until the date of the
completion of such repairs (the "repair period") based on the proportion of the
rentable area of the premises that Tenant is unable to use during the repair
period.
c. If the premises or the building are damaged by fire or other insured casualty
to an extent Landlord has determined in its sole discretion can not be repaired
within one hundred twenty (120) days after the notice date, the (1.) Landlord
may cancel this lease as of the date of the damage by written notice given to
Tenant on or before the notice date or (2.) Tenant may cancel this least as of
the date of the damage by written notice given to Landlord if repairs cannot be
completed within sixty (60) days as set forth in (b) above. If neither Landlord
nor Tenant so elects to cancel this lease, Landlord will diligently proceed to
repair the building and premises and monthly rent will be abated on a pro rata
basis during the repair period based on the proportion of rentable area of the
premises that Tenant is unable to use during the repair period.
d. If the premises or the building are damaged by uninsured casualty, or if the
proceeds of insurance are insufficient to pay for the repair of any damage to
the premises or the building, Landlord will have the option either to elect to
repair the damage or to cancel this lease as of the date of the casualty by
written notice to Tenant on or before the notice date.
e. If any damage by fire or other casualty is the result of the willful conduct
or negligence or failure to act of Tenant, its agents, contractors, employees or
invitees, monthly rent will not be abated. Tenant will have no right to
terminate this lease on account of any damage to the premises, the building, or
the project, except as set forth in this lease.
16. CONDEMNATION.
If the whole of the leased property or such portion thereof which will
make the leased property unsuitable for the purposes herein leased, is condemned
for any public use or purpose by any legally constituted authority, then in
either of such events this lease shall cease from the time when possession is
taken by such public authority, and rental shall be accounted for between the
Landlord and the Tenant as of the date of the surrender of possession. Such
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termination shall be without prejudice to the rights of either the Landlord or
the Tenant to recover compensation from the condemning authority for any loss or
damage caused by such condemnation. Neither the Landlord nor the Tenant shall
have any rights in or to any award made to the other by the condemning
authority.
17. ASSIGNMENT AND SUBLETTING.
The Tenant shall not assign, mortgage, or encumber this lease, nor
sublet or permit the leased property or any part thereof to be used by others,
without the prior written consent of the Landlord in each instance. Such consent
will not be unreasonably withheld. If this lease is assigned, or if the leased
property or any part thereof is sublet, or occupied by anyone other than the
Tenant, the Landlord may, after default by the Tenant, collect rent from the
assignee, sub-tenant, or occupant and apply the net amount collected against all
rent herein reserved. No such assignment, subletting, occupancy, or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
sub-tenant, or occupant as tenant, or a release of Tenant from further
performance by the Tenant of the covenants in this lease. The consent by the
Landlord to an assignment or subletting shall not be construed to relieve the
Tenant from obtaining the consent in writing of the Landlord to any further
assignment or subletting.
18. SUBORDINATION TO MORTGAGE.
This lease shall be subject and subordinate at all times to the lien of
any existing mortgages and trust deeds and mortgages and trust deeds which
hereafter may be made a lien on the leased property. Although no instrument or
act on the part of the Tenant shall be necessary to effectuate such
subordination the Tenant will, nevertheless, execute and deliver such further
instruments subordinating this lease to the lien of any such mortgages or trust
deeds as may be desired by the mortgagee or holder of such trust deeds. The
Tenant hereby appoints the Landlord as his attorney in fact, irrevocably, to
execute and deliver any such instrument for the Tenant. Tenant further agrees at
any time and from time to time upon not less than ten days prior written request
by Landlord, to execute, acknowledge, and deliver to Landlord a statement in
writing certifying that this lease agreement is unmodified and a statement in
writing certifying that this lease agreement is unmodified and is in full force
and effect (or if there have been modifications, that the lease is in force and
effect as modified, and stating the modifications); that there have been no
defaults thereunder by Landlord of Tenant (or if there have been defaults,
setting forth the nature thereof), and the date to which the rent and other
charges have been paid in advance, if any, it being intended that any such
statement delivered pursuant to this requirement may be relied upon by any
prospective lender or by any prospective purchaser of all or any portion of
Landlord's interest therein, or by the holder of any existing mortgage or deed
of trust encumbering the leased premises. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant (1) that this lease
is in full force and effect, without modification except as may be represented
by Landlord; (2) that there are no uncured defaults in Landlord's performance;
and (3) that not more than one month's rent has been paid in advance. Further,
upon request, Tenant shall supply to Landlord a corporate resolution
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certifying that the party signing this statement on behalf of Tenant is properly
authorized to do so, if Tenant is a corporation.
19. INDEMNITY.
The Tenant shall indemnify and hold harmless the Landlord from and
against all liabilities, penalties, damages, judgments, and expenses, including
reasonable attorney's fees incurred by Landlord in defending or satisfying any
claim of any type or nature, including personal injury claims or property damage
claims, arising out of the use, occupancy, or control of the leased property or
any of its appurtenances by Tenant.
20. SECURITY.
The Tenant has deposited with the Landlord the sum of $6,011.46 as
security for the full and faithful performance by the Tenant of all the terms of
this lease required to be performed by the Tenant. Such sum shall be returned to
the Tenant within 30 days after the expiration of this lease, provided the
Tenant has fully and faithfully carried out all of its terms. Otherwise, the
Landlord may use, apply, or retain the whole or any part of such amount to the
extent required for the payment of any rent or other obligation as to which the
Tenant is in default under the terms of this lease. In such event Tenant shall
upon written demand from Landlord, forthwith remit to Landlord a sufficient
amount in cash to restore such deposit to its original amount. Landlord shall
have the right to transfer such security to the purchaser to be held under the
terms of this lease, and the Landlord shall thereupon be released from all
liability for the return of such security to the Tenant, and the Tenant shall
look solely to the new Landlord for the return of such security. The Tenant
shall not assign nor encumber the money deposited as security, and neither the
Landlord nor its successors or assigns shall be bound by any such assignment or
encumbrance.
21. DEFAULT.
The occurrence of any of the following shall constitute an event of
default: (1) Delinquency in the due and punctual payment of any rent or
additional rent payable under this lease when such rent shall become payable.
(2) Delinquency by the Tenant in the performance of or compliance with any of
the conditions contained in this lease other than those referred to in the
foregoing subparagraph (1), for a period of thirty days after written notice
thereof from the Landlord to the Tenant, except for any default not susceptible
of being cured within such thirty day period, in which event the time permitted
to the Tenant to cure such default shall be extended for as long as shall be
necessary to cure such default, and provided further that such period of time
shall not be so extended as to jeopardize the interest of the Landlord in this
lease or so as to subject the Landlord or the Tenant to any civil or criminal
liabilities. (3) Filing by the Tenant in any court pursuant to any statute,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors. (4) Filing against the Tenant in any court
pursuant to any statute, either
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of the United State or of any state, of a petition in bankruptcy or insolvency,
or for reorganization, or for appointment of a receiver of trustee of all or a
portion of the Tenant's property, if within ninety days after the commencement
of any such proceeding against the Tenant such petition shall not have been
dismissed.
A. Upon the occurrence of an event of default, the Landlord at any time
thereafter may give written notice to the Tenant specifying such event of
default and stating that this lease shall expire on the date specified in such
notice, which shall be at least three days after the giving of such notice, and
upon the date specified in such notice this lease and all rights of the Tenant
shall terminate. Upon the expiration of this lease pursuant to this article, the
Tenant shall peacefully surrender the leased property to the Landlord, and the
Landlord, upon or at any time after any such expiration, may without further
notice re-enter the leased property and repossess it by force, and remove the
Tenant and all other persons and property from the leased property and may have,
hold, and enjoy the leased property and the right to receive all rental income
therefrom. If statutory notice, in accordance with the laws of the State of
Colorado, of such default is given to Tenant by Landlord, demanding payment of
rent or possession, such demand shall not constitute an election of remedies by
Landlord and Landlord reserves the right to seek damages and future rents due
under the lease for the balance of the term, notwithstanding Tenant's election
to surrender possession pursuant to any such demand made by Landlord.
B. At any time after any such expiration, the Landlord may relet the
leased property or any part thereof, in the name of the Landlord or otherwise,
for such term (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this lease) and on such
conditions (which may include concessions or free rent) as the Landlord, in its
uncontrolled discretion, may determine, and may collect and receive the rent
therefor. The Landlord shall in no way be responsible or liable for any failure
to relet the leased property or any part thereof, or for any failure to collect
any rent due upon any such reletting.
C. No such expiration of this lease shall relieve the Tenant of its
liability and obligations under this lease, and such liability and obligations
shall survive any such expiration. In the event of any such expiration, whether
or not the leased property or any part thereof shall have been relet, the Tenant
shall pay to the Landlord the rent and additional rent required to be paid by
the Tenant up to the time of such expiration, and thereafter the Tenant, until
the end of which would have been the term of this lease in the absence of such
expiration, shall be liable to the Landlord for, and shall pay to the Landlord,
as and for liquidated and agreed current damages for the Tenant's default: (1)
The equivalent of the amount of the rent and additional rent which would be
payable under this lease by the Tenant if this lease were still in effect, less
(2) The net proceeds of any reletting effected pursuant to the provisions of
paragraph B of this article, after deducting all the Landlord's expenses in
connection with such reletting, including, without limitation, all repossession
costs, brokerage commissions, legal expenses, reasonable attorney's fees,
alteration costs, and expenses of preparation of such reletting.
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D. The Tenant shall pay such current damages, herein called deficiency,
to the Landlord monthly on the days on which the rent and additional rent would
have been payable under this lease if this lease were still in effect, and the
Landlord shall be entitled to recover from the Tenant, and the Tenant shall pay
to the Landlord, on demand, as and for liquidated and agreed final damages for
the Tenant's default, an amount equal to the difference between the rent and
additional rent reserved hereunder for the unexpired portion of the lease term
and the then fair and reasonable rental value of the leased property for the
same period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the leased property for the period for which
such installment was payable shall be discounted to the date of termination at
the rate of eight percent per annum. If the leased property or any part thereof
is relet by the Landlord for the unexpired term of this lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission, or tribunal, the amount of rent reserved upon such reletting shall
be deemed prima facie to be the fair and reasonable rental value for the part or
the whole of the leased property so relet during the term of the reletting.
Nothing herein contained shall limit or prejudice the right of the Landlord to
prove for and obtain as liquidated damages by reason of such termination 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 or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
E. The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to reenter provided for in any statute, or of
the institution of legal proceedings to that end. The Tenant, for and on behalf
of itself and all persons claiming through or under the Tenant, also waives any
right of redemption or reentry or repossession or to restore the operation of
this lease in case the Tenant shall be dispossessed by a judgment or by warrant
of any court or judge or in the case of reentry or repossession by the Landlord.
In case of any litigation under this lease, the Landlord and the Tenant, so far
as permitted by law, waive trial by jury in any action, proceeding, or
counterclaim brought by either of the parties hereto against the other on any
matter arising out of or in any way connected with this lease, the relationship
of Landlord and Tenant, the Tenant's use of occupancy of the leased property, or
any claim of injury or damage; and further agree that the party not in default
shall be entitled to recover, from the party in default, all costs and
reasonable attorney's fees incurred by the nondefaulting party in enforcing its
rights under this lease agreement.
F. The terms "enter", "reenter", "entry", or "reentry", as used in this
lease are not restricted to their technical legal meaning.
G. Any amounts not paid by Tenant to Landlord when due shall draw
interest at the rate of eighteen percent per annum from due date until paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this lease.
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H. No assent express or implied, to any breach of one or more of the
covenants or terms of this lease shall be deemed or construed to be a waiver of
any succeeding or other breach.
I. Notwithstanding anything to the contrary contained herein, Landlord's
liability under this lease agreement shall be limited to Landlord's interest in
the leased premises.
22. HAZARDOUS MATERIALS INDEMNIFICATION.
Tenant and its agents, employees, contractors and invitees shall not
engage in any business wherein hazardous substances are used or any hazardous
materials released or threatened to be released, including, but not limited to,
the business of generating, transporting, storing, treating or disposing of
hazardous substances or hazard waste except in conformance with all applicable
laws and regulations concerning the use, storage and transportation of hazardous
materials. Hazardous Waste or Hazardous Materials shall include, but shall not
be limited to, substances defined as "hazardous substances" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sec. 9601 et. seq.; or Colo. Rev. Stat. Sec. 25-16-101 et seq. or
25-15-101 et seq.; the Hazardous Materials Transportation Act of 1975, 49 U.S.C.
Sec. 1801 et seq.; and the Resource Conservation and Recovery Act of 1976, 42,
U.S.C. Sec. 6901 et seq. or any amendments or supplements thereto. The leased
Premises shall not be used for the storing or disposal of waste or for storing
or disposal of hazardous substances during the term of the lease except in
conformance with all applicable laws and regulations concerning the use, storage
and transportation of hazardous materials.
Tenant shall comply with all applicable environmental laws, rules and
regulations concerning the Tenant's business. Tenant shall provide to Landlord
copies of all reports required by environmental agencies within (15) fifteen
days of filing.
Tenant hereby agrees to indemnify Landlord and hold Landlord harmless
from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind and all
costs and expenses incurred in connection therewith (including but not limited
to attorneys' fees and expenses), arising directly or indirectly, in whole or in
part, out of the presence on or under the leased Premises, of any Hazardous
Materials (as defined herein) or any releases or discharges of any Hazardous
Materials by Tenant or any employees, agents, contractors or subcontractors of
Tenant or other persons occupying or present on the leased Premises, in
connection with the handling, treatment, removal, storage, decontamination,
cleanup, transport or disposal of any Hazardous Materials at any time located or
present on, under or about the leases Premises. The foregoing indemnity shall
further apply to any residual contamination on or under the leased Premises or
affecting any natural resources and to any contamination of any of the leased
Premises and/or natural resources arising in connection with the generation,
use, handling, storage, transport or disposal of any such Hazardous Materials
and irrespective of whether any of such activities were or will be undertaken in
accordance with
12
<PAGE> 13
applicable laws, regulations, codes and ordinances. All obligations of Tenant
hereunder shall survive and continue after the expiration of this lease or its
earlier termination for any reason.
For purposes of this Agreement, the terms "disposal," "release,"
"threatened release," "hazardous substances," and "hazardous wastes" shall mean
and include any hazardous, toxic or dangerous waste, substance or material or
any disposal, discharge, release or threatened release or any defined as such in
any federal, state or local statute, law, ordinance, code, rule, regulations,
order or decree regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material as now or at any time hereafter in effect.
Broker assumes no liability regarding any damages to property, default
of lease or hazardous substances or materials used or released on property by
Tenant.
23. MISCELLANEOUS PROVISIONS.
The paragraph captions contained in this lease agreement are for
convenience only and shall not in any way limit or be deemed to construe or
interpret the terms or provisions hereof.
Time is of the essence of this lease agreement and of all provisions
herein.
This lease agreement shall be construed and enforced in accordance with
the laws of the State of Colorado.
If any provisions of this lease agreement shall be declared invalid or
unenforceable, the remainder of the lease agreement shall continue in full force
and effect.
This lease agreement contains the entire agreement between the parties,
and any executory agreement hereafter made shall be ineffective to change,
modify, or discharge it in whole or in part, unless such executor agreement is
in writing and signed by the party against whom the enforcement of the change,
modification or discharge is sought.
24. NOTICES.
Any notice from one party to another, required by the terms of this
lease agreement, may be delivered in person to such party (delivery to one of
two or more persons named as a party shall be effective notice to all), or shall
be delivered by registered or certified mail, postage prepaid, and shall be
deemed given one day after the date mailed, addressed to the respective parties
as follows:
LANDLORD: EDWIN KANEMOTO, DALE KANEMOTO, KAREN K. WOOD
dba BOSTON PARTNERSHIP
203 South Main Street
Longmont, Colorado 80501
13
<PAGE> 14
TENANT: SWEETWATER, INC.
1140 Boston Avenue, Unit A
Longmont, Colorado 80501
25. INTEGRATION AND AMENDMENT.
The parties agree that this writing represents the entire agreement
between them and that there are no oral or collateral agreements or
understandings of any kind or character except those contained herein. Neither
this agreement nor any term or provision hereof may be changed, waived,
discharged or terminated orally, or in any manner other than by instrument in
writing signed by the parties or their duly authorized agent. In the event that
any provision of this lease shall be affected by such holding, and all of the
remaining provisions of this lease shall continue in full force and effect
pursuant to the terms hereof.
26. OTHER PROVISIONS.
A. THE PRUDENTIAL LTM, REALTORS is not responsible for this lease form,
its contents, its additions, or any deletions. THE PRUDENTIAL LTM, REALTORS
recommends that this Lease Agreement only be used after consulting with
competent legal counsel and tax advisor.
B. Tenant may cancel lease with 90 days prior written notification
during the 45 day period between the dates of June 1, 1998 to July 15, 1998.
Tenant shall reimburse Landlord's unamortized expenses including, but not
limited to, real estate leasing commission.
C. The property is presently under lease until September 30, 1997.
Present Tenant will make every effort to vacate the property between September
1, 1997 and September 15, 1997. The office portion will be the last to be
vacated. 1140 Boston Avenue, Unit B, consisting of approximately 3,000 square
feet, will be the first space vacated. This will be made available to
SweetWater, Inc. Rent for period prior to October 1, 1997 will be $4.00 per
square foot NNN under the same term as the lease agreement.
D. This lease is subject to SweetWater, Inc. Board of Director approval
prior to July 25, 1997. If Landlord is not notified in writing prior to this
date, this condition shall be deemed waived and the lease agreement shall be in
full force and effect.
E. Edwin Kanemoto is a licensed Real Estate Broker in the State of
Colorado and an owner of the property.
F. Rental rate shall increase 3% on each anniversary date of the
original lease term.
G. Landlord will allow Tenant to construct a small wet lab area of
approximately 800 square feet, increase electrical power to property and to
install pneumatic air lines at Tenant's
14
<PAGE> 15
cost. Landlord must approve location and design of Tenant improvements, approval
shall not be unreasonably withheld.
H. Tenant shall have first right of lease refusal on any adjacent space
that becomes available during the term of this lease under the same lease terms.
Said first right shall be for 24 hours after written notification.
27. BINDING EFFECT.
This agreement shall bind and extend to the heirs, representatives,
successors, and assigns of the parties hereto, if executed in duplicate by each
party on or before __________________, 19__.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement on
the date set forth opposite their respective signatures.
LANDLORD TENANT
/s/Edwin S. Kanemoto SWEETWATER, INC.
- --------------------
Edwin S. Kanemoto
/s/ Dale Kanemoto By: /s/ Eric M. Reynolds
- ----------------- --------------------
Dale Kanemoto President
/s/ Karen K. Wood By: /s/ Patrick E. Thomas
- ----------------- ---------------------
Karen K. Wood Secretary
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
Subscribed and sworn to before me this 4th day of August, 1997 by Edwin
S. Kanemoto, Dale Kanemoto and Karen K. Wood, as Landlord.
My commission expires: 9-7-97
/s/ Barbara A. Leger
--------------------
Notary Public
Address: 203 S. Main
Longmont, CO 80501
15
<PAGE> 16
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
Subscribed and sworn to before me this 1st day of August, 1997 by Eric
Reynolds and Patrick E. Thomas, as Tenant.
My commission expires: April 25, 1999
/s/ Sally D. Davis
------------------
Notary Public
Address: 2505 Trade Centre Ave. #D
Longmont, CO 80503
16
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